Dyadic International Inc (DYAI) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for holding. Welcome to Dyadic's year-end 2011 financial results conference call. At this time, all participants are in a listen-only mode. My name is Doris and I will be your conference coordinator for today. As a reminder please note this call is being recorded. At this time, I would like to introduce your host for today's call, Adam Morgan, Dyadic's Vice President General Counsel and Business Development.

Thank you, Doris. Good afternoon and thank you for joining today's conference call during which we will be discussing Dyadic's financial and operating results for the year ended 2011 which were reported earlier this afternoon in a press release. The press release and financial statements are available on the Dyadic and OTC market websites. I am joined today by Dyadic's Chairman, President, and CEO, Mark Emalfarb, and Michael Faby, who was recently promoted to Chief Financial Officer.

The agenda for today's call is as follows. Mark will first address the Company's cash and working capital positions to be followed by a review of the highlights of the 2011 fiscal year and updates on Dyadic's overall business. Mike will then review Dyadic's financial results for the year ended 2011 in more detail. We will then open up the call to your questions. Each caller will be limited to one question and one follow-up question in order to provide all callers with an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken.

Before we begin we would like to remind you certain statements made in this conference call may be forward-looking statements which involve risks and uncertainties that could cause Dyadic's actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Except as required by law, Dyadic expressly disclaims any intent or obligation to update any forward-looking statements. I will now turn the call over to our Chairman, President, and CEO, Mark Emalfarb.

Thanks, Adam. Good afternoon and thank you for joining us on today's call. Dyadic achieved good results across its entire business in 2011. Our total revenue grew by 21% as compared to the prior year. We entered into significant agreements with a leading pharmaceutical company and a major animal nutrition company and we launched two new products. In order to continue implementing our strategic plan and taking advantage of the vast opportunities of Dyadic's technologies, we must insure that Dyadic has sufficient capital to operate its business. So before I review Dyadic's achievements in 2011, I would like to address the status of Dyadic's cash and working capital.

At the end of 2011, Dyadic had approximately $3.7 million in cash and cash equivalents as compared to $4.5 million at the end of the prior year. Generally we expect our cash burn to be lower this year, which Mike Faby will discuss in more detail later in the call. I would like to now address the issue of our $8.4 million in debt, all of which is due on January 1, 2013. We are currently working on transactions which, if consummated, would help bolster our cash position to a level that would allow us to repay some or all of our debt when it becomes due. It should also be noted we have had discussions with some of our creditors about extending the maturity of the debt by at least one year. Based on these initial conversations, we are confident that if requested by Dyadic, the holders of most and possibly all of this debt will agree to rollover their loans by extending the terms of their promissory notes for at least one year until January 1, 2014. As always we are very mindful of avoiding the dilution of our stockholders and will therefore be reluctant to raise additional capital unless absolutely necessary. We anticipate providing additional information and updates on the status of these matters as we deem appropriate.

Now let me get back to reviewing the highlights of 2011 and some recent business updates. In 2011, Dyadic entered into two significant transactions with leading companies in the biopharmaceutical and animal nutrition markets which are Dyadic's first major transactions in each of these fields. Earlier this year, Dyadic also announced its first transaction to use its C1 technology to produce enzymes for the production of certain foods. All in all, Dyadic's deal scorecard now shows a total of five significant agreements with world-class partners in a growing number of industries.

Two licensees in biofuels and biochemicals with Codexis and Abengoa Bioenergy, one in biopharmaceuticals with Sanofi Pasteur, another in animal nutrition, and most recent one announced last month in food enzymes. These five transactions along with years of research and development by Dyadic and its partners, as well as the commercialization of our own enzyme products, provides a concrete evidence of the viability of Dyadic's C1 technology for multiple applications. We believe that these transactions are just the beginning of what we expect will be multiple long-term relationships across a growing number of industries and will build a solid foundation of revenue, profitability, and growth by stacking the various milestones, payments, and royalty streams generated by these and future transactions.

In the biopharmaceutical area, just about a year ago we entered into a research collaboration with Sanofi Pasteur, a leading pharmaceutical company and the largest vaccine company in the world. Also as party to this transaction was EnGen Bio, an early stage biopharmaceutical company that secured a deal with Sanofi and is currently overseeing the research being conducted at Dyadic's research and development facility in the Netherlands. Sanofi's funded research is evaluating whether Dyadic's C1 technology can produce certain vaccines more efficiently than current expression systems which perform as well or better than their current vaccines. Sanofi has been sufficiently encouraged by the progress of the research to date that it recently extended its commitment for another six to 12 months.

There are many of the aspects of this novel research and while we cannot give any assurances of its ultimate outcome, the results so far have been promising. While we continue to work closely with EnGen Bio to attract additional interest from other potential biopharmaceutical partners, this first collaboration with Sanofi is a great step forward to penetrating and gaining credibility in this large biopharmaceutical market. Our second major transaction of 2011 occurred in June when Dyadic entered into a non-exclusive license agreement with a leading global company in the animal nutrition's additive market. Animal feed enzymes is one of the fastest growing segments of the enzyme market and Dyadic is poised to capitalize on this area, not only through the licensing of its C1 technology but also through the continued sale of our own industrial enzymes which I'll speak about later in the call.

This animal nutrition licensee is one of the top companies in the global animal nutrition additives market and has annual revenues of over $1 billion. As we've expressed before, the funded research and development process provides potential licensees with the opportunity to become familiar with the benefits of Dyadic's C1 technology and often serves as a pathway to the creation of new licensing transactions and other revenue-generating collaborations. In this specific issue, our relationship evolved and grew from initial proof-of-concept-funded research to the current non-exclusive license agreement under which our partner continues to fund advanced research at Dyadic Netherlands. Since signing the agreement in June, our research has shown significant improvements in both enzyme performance and productivity. We anticipate that later this year or early next year, our licensee will begin the product registration process to register the new enzymes we have jointly developed using Dyadic's C1 technology. This registration process typically takes about two to three years, at which time we anticipate our licensee will begin transitioning through current customer base to the new generation of animal feed enzymes manufactured from C1.

If our licensee commercializes a C1 enzyme product as expected, then in addition to the $1 million fee which we have already collected, Dyadic will be eligible to receive an additional milestone payment and royalties based on our licensee's net sales of the C1 enzyme products which are likely to begin in 2015. However, there are also some territories with shorter product registration processes in which sales can commence earlier. In the meantime, Dyadic will continue to conduct funded research for its animal nutrition licensee into 2013 and likely beyond. The funded research conducted by Sanofi and our animal nutrition licensee in 2011 contributed substantially to Dyadic's research and development revenue being up 81% from the prior year.

This is consistent with our strategic plan to make our wholly-owned subsidiary Dyadic Netherlands a self-supporting profit center from research funded by third parties as opposed to internal funding. To be clear, our goal is not merely to make Dyadic Netherlands into a contract research organization but to use it as a lead generator for additional research and license agreements that will generate milestone payments and royalties. This research revenue also can be used to support continued improvements in the versatility and productivity of Dyadic's technologies for the large scale production of enzymes and proteins that can provide further benefit to Dyadic, its customers, licensees, and collaborators.

Another source of research and development revenue over the last year has been the participation of Dyadic Netherlands in several consortia that are conducting research sponsored and funded by the European Commission. Participation in these types of research projects provide Dyadic with further funded opportunities to develop and increase awareness of its technologies. We anticipate announcing our participation in additional European sponsored research projects in 2012, one of which we expect to announce in the coming weeks. We continue to believe that growth in Research and Development revenue is not only a strong indicator of improvements to our current business but it's also a forward indicator of future prospects as these research projects often evolve and grow to additional revenue-generating opportunities for Dyadic.

Lastly on the scientific front, Dyadic's C1 technology received valuable exposure in 2011 to the scientific community when it was featured in two prestigious scientific publications. The June 2011 issue of Industrial Biotechnology highlighted the scientific and commercial value from Dyadic's C1 technology and the October 2011 issue of Nature Biotechnology featured the sequencing of the fungal microorganism, Myceliophthora thermophila, upon which the C1 technology is based. In addition to the Sanofi and animal nutrition transactions, we are continuing to seek out similar research and licensing transactions to a variety of discussions and negotiations with companies from a broad spectrum of industries. Partnerships and collaborations allow Dyadic and its collaborators to capitalize on the value of our respective strengths more quickly than we could do on our own by marrying the capabilities of Dyadic's technologies with the global resources and expertise of our collaborators in various markets.

In the biofuels and biochemical area, our C1 fungus is programmed to produce enzymes that will convert a variety of plant material that are biomass into cellulosic sugars, or as we call them green sugars, as a replacement for petroleum-based products in the manufacturing the fuels, chemicals, plastics and polymers. Our R&D in this area should not only be measured by our own successful internal R&D efforts to make better enzymes at lower costs but also by the progress of our current non-exclusive licensees, Codexis and Abengoa Bioenergy. For this reason, we strongly encourage all investors in Dyadic to visit the Abengoa and Codexis websites to learn more about these two great companies and the significant strides that each Company has made over the past several years using our C1 technology toward their commercialization of biofuel and biochemical products which we anticipate will ultimately lead to increased revenue for Dyadic.

I would like to note that in October 2011, Abengoa reported it began construction of its first commercial-scale plant in Hugoton, Kansas for the production of biofuels from biomass, with financial support from the United States Department of Agriculture and the United States Department of Energy. This plant is scheduled to be completed at the end of 2013, at which time Dyadic will be eligible to receive a milestone payment and royalties from the production of C1-derived products if Abengoa utilizes the C1 technology as we anticipate they will. Abengoa has also recently announced its intention to build another similar plant upon the completion of the Hugoton plant.

Prior to commencing construction, Abengoa also announced in 2011 that it successfully achieved commercial scale-up of its cellulose enzyme using the C1 technology at the Antibioticos manufacturing facility in Spain. This is not the first time the cellulase enzymes derived from Dyadic's C1 technology have been produced to commercial scale. In fact, Dyadic has been routinely producing cellulase enzymes from C1 on different continents since 1996. Commercial production from 25,000 liters to 150,000 liters has also been previously achieved in manufacturing facilities in the US, Poland, Mexico, and Canada.

One of the risks of investing in emerging biotech companies is that scientific achievements made in the lab, or even at bio scale can often be difficult to replicate on a large commercial scale. Dyadic's C1 technology has repeatedly overcome this risk which is a crucial point that I can't emphasize enough. It bears repeating that Dyadic's C1 technology is a robust, programmable, and commercially scalable technology which virtually assures our research and licensing partners that the enzymes and proteins they develop and produce in the lab or small scale can seamlessly be transitioned to commercial scale production.

Our other non-exclusive licensee in the area of biofuels and biochemicals is California-based Codexis. In 2011, Codexis also completed its first commercial manufacturing scale-up of its proprietary cellulase enzyme called CodeXyme which using Dyadic's C1 technology and they achieved two key technical milestones with its exclusive biofuels partner, Shell. Codexis also entered into a collaboration with global technology and engineering firm, Chemtex, a subsidiary of [the] Italy M&G group, to develop and produce second generation sustainable alcohols, derived from cellulosic or non-food biomass for use in the household products market which will also likely involve the use of Dyadic's C1 technology. It is important to note since we entered our license agreement with Codexis in late 2008, they've created a CodeXyme line of cellulase enzymes which is a result of Codexis employing over 100 scientists to conduct research and development to further improve the efficiency, robustness, and productivity of the C1 technology while also lowering enzyme costs.

Despite recent changes in their executive leadership, we are confident that Codexis continues to maintain some of the smartest, most capable personnel in the industry and will continue to be the leader in the development of highly productive and efficient enzymes for the production of cellulosic sugars for use in manufacturing biofuels, biochemicals, and a variety of other bioproducts. The progress that both Abengoa and Codexis have achieved over the past two years is one of the strongest validations of the C1 technology and our licensing business model. As Abengoa and Codexis continue to progress in the development of their enzymatic technologies, Dyadic will continue to provide cooperation and assistance which may include funded research and possibly an expansion of the rights of one or both of these licensees to make even broader potential use of the C1 technology which we anticipate would lead to additional revenue for Dyadic.

A broader view of the biofuels industry in 2011 provides further confirmation through a variety of announced transactions that the on-site manufacturing model provides greater long term benefits than purchasing enzyme from a third party. We have seen this repeatedly as leading companies around the world have committed to building second generation commercial ethanol plants. These companies often begin by purchasing enzyme from third parties to demonstrate initial feasibility but ultimately appear to be making a transition to the on-site model where they can customize, improve and control the technology, while also significantly reducing operational costs. In order to adopt this model, cleaning companies need to acquire, license, or otherwise collaborate with a partner that has an enzyme technology that is capable of producing sufficient amounts of cellulosic sugars at commercial scale to the biomass or feedstock of choice.

Dyadic's C1 technology has clearly demonstrated it is one of the few commercially scalable technologies with these capabilities. As a race toward commercialization toward second generation ethanol reaches a climax in 2014, on a number of commercial plants including Abengoa's Hugoton plant will be completed, we expect further partnership opportunities to materialize. In addition to the growth from our research and licensing efforts, we have also begun to take advantage of our technology improvements to help launch new products and position our industrial enzyme business for growth.

Although top line product revenue in 2011 was consistent with the prior year, we made solid improvements to our gross margins by reducing our cost and focusing our efforts on high-value markets such as animal feed, food, pulp and paper, and brewing. At the same time, we completed our transition from the low-value commoditized sector of the textile market and eliminated our outdated inventory. In 2011, we launched two new products, FiberZyme G200, a liquid high-performance enzyme for pulp and paper applications and AlternaFuel CMAX an enzyme for biofuel applications which has also been effective in other applications, as well.

I would like to refer you to the enzyme section of our website at www.Dyadic.com to learn more about these and other Dyadic industrial enzyme product which is we sell in over 35 countries worldwide. FibreZyme G200 is produced using a variant of Dyadic's C1 technology which Dyadic refers to as the white strain. The white strain was developed through sustained research efforts at Dyadic Netherlands. The white strain produces commercial quantities of enzymes with significantly less background proteins, thereby reducing potentially undesirable side activities. These changes allow for more efficient and economical industrial scale production of highly targeted enzymes and proteins at greater purity levels.

Two weeks ago we followed up the launch of FiberZyme G200 with the launch of a next generation product called FiberZyme G5000. As part of our customer development process we are continuing to explore opportunities to collaborate with companies in a variety of industries who have better market access, regulatory expertise in geographic presence so we can utilize our respective strengths to co-develop new products for our mutual advantage. We are also growing our industrial enzyme business by working with additional distributors and formulators who can cost effectively expand the global reach of our products where enzyme demand is growing and we have limited market presence. Lastly, we are supporting internal R&D aimed at exploiting our continued technology developments to create a pipeline of additional products to accelerate the growth of our industrial enzyme business and that of our collaborators. I'll now turn the call over to our Chief Financial Officer, Michael Faby, to take you through the details of our financial results of the 2011 fiscal year.

Thank you, Mark and good afternoon, everybody. Before reviewing the 2011 year-end financial results, I would like to again refer you to our 2011 year-end press release and audited financial statements which are posted on the Dyadic and OTC market website. Overall, for the year ended December 31, 2011, total revenue was up from 2010 largely because of the up-front fee we received from an animal nutrition licensee mentioned earlier by Mark as well as a significant jump in research and development revenue.

Total revenue for the year ended December 31, 2011 increased 21% to $10.2 million as compared to $8.4 million for the prior year. Net product related revenue for the year ended 2011 remained in line with 2010 at approximately $7.4 million. License fee revenue for the year ended December 31, 2011 increased to $1 million as compared to $37,000 for the prior year as a result of the up-front fee paid to Dyadic by the licensee. Research and Development revenue increased 81% to $1.8 million for the year ended December 31, 2011 as compared to $1 million for the same period in the prior year. For the year ended December 31, 2011, gross profits increased 86% over the prior year in absolute dollar terms.

The increase in General and Administrative costs for the year ended December 31, 2011 was due largely to increases in legal and personnel costs including stock-based compensation. Sales and marketing and research and development costs for 2011 remained relatively consistent with the prior year. Net loss for the year ended December 31, 2011 was $4.7 million or $0.15 per basic and fully diluted share as compared to a net loss of $5.5 million or $0.18 per fully diluted share for fiscal 2010. Please note that excluding stock based compensation and non-recurring arbitration costs, the Company's loss from operations for the year ended December 31, 2011 would have been $1.6 million or $0.05 per basic and fully diluted share as compared to a net loss of $3.8 million or $0.12 per basic and fully diluted share for 2010 using the same assumptions.

At December 31, 2011, unrestricted cash and cash equivalents totaled $3.7 million as compared to $4.5 million at the end of 2010. This decrease is due largely to the net loss for the period and arbitration costs which were partially offset by the October 2011 private debt placement. At December 31, 2011, total debt was $8.4 million as compared to $5.4 million at December 31, 2010. This increase was due to Dyadic's private placement in October 2011 of $3 million of convertible subordinated debt. Finally, we are providing no specific guidance on this conference call with regard to future financial results; however, if we conclude one or more of the transactions which Mark alluded to earlier, we may achieve profitability in 2012. At this point, I'd like to turn the call back to our operator to take your questions.

Thank you, Mr. Faby.

(Operator Instructions)

George [Pribyl], Private Investor.

Congratulations, Mark. It sounds like the rate of progress and the number of areas you've made substantial progress just keeps on getting better. My question is related to a press release that came out on March 8 by another company down in Florida called CoolPlanet Biofuels and they have a product, not a product but a plant, a variation on the miscanthus as feedstock for a biobased gasoline production. It's called Repreve Renewables Freedom Giant Miscanthus, and they're talking about 3,000 to 4,000-gallons of gasoline per acre ultimately if this is done on a commercial scale and they are planting it down here in South Florida. Well, my question is have we had any discussions, is there a possible application to further enhance or accelerate the yield from that particular species or do you have any commentary on that?

Yes, I don't know much about Cool Biotech or CoolPlanet or whatever the name of it is. I've been focusing my attention more on the large oil ag and chem companies that are much closer to commercialization than a start up. But any plant material can be converted into sugar, to enzymes so if they are going to grow miscanthus and they can grow a lot of it per acre, we'll be happy to try to convert it into fuel and chemicals and plastics and polymers but we have limited time, limited resources and that's not one even though I've heard the name that's come up on my radar screen and to my level of attention yet.

It only grabbed me because that sounded like a huge yield per acre potentially. So anyway, thank you.

Okay. Thank you.

Walter Schenker, MAZ Partners.

Hi guys. Actually it's a clarification and a question. The clarification was the transactions Mark referred to, that you referred to, would be additional licensing transactions?

What we referred to as transactions that would be additional licensing transactions, it could be expansion of licensees or a variety of other things but yes, it's non-dilutive transactions.

Okay, as opposed to any other financing you may do, which is not tied into that specific statement?

Right.

Okay, the question is can you just update us on, and realizing these things are somewhat fluid, on your expectation as to timing and expense now that we've completed the arbitration but continue to have the possible litigation with the attorneys from the prior time of troubles, whatever you want to call it. Can you just give us some sense as to what we should expect from the timing standpoint and what type of expense we might have this year in pursuing that?

I'll let Adam deal with it, how's that?

As far as the timing with the balance of the lawsuit against our former outside counsel, a trial date has not been set and we don't expect there will be a trial date set until at least 2013. Expenses on that issue, as you could see from the financials, we had considerable costs for experts in our arbitration against our former auditors last year and we're not expecting that those expert costs will be repeated in 2012. Any experts we may need for the litigation will probably be engaged later on in the process, probably not in 2012, probably not until 2013 if at all. And also with regard to the arbitration, I should mention that the panel in providing its final award indicated that each party would bear its own costs and fees, meaning that Dyadic will not be responsible for any of the attorneys fees or costs of its former auditors. So going forward, Dyadic has no further obligation in that arbitration.

Okay, and now for, in my wording of summary, the litigation should not be terribly significant, at least as currently perceived in this year's results.

I agree with you, especially in light of the fact that our attorneys are on contingency basis going forward and again, we are not anticipating hiring any experts until we get closer to trial which won't be at least until 2013.

Okay, thank you.

And one other point is that obviously, we want to allow for the opportunity for potential settlements as we go towards trial which is another reason why we're going to delay the engagement of any experts just to make sure that certain defendants we haven't already settled with, if that's a possibility.

Okay, good luck on that.

Okay, thank you.

(Operator Instructions)

Richard Deutsch, Ladenburg Thalmann.

Yes, hi guys. Thanks for going into a little more detail. I very much appreciate you taking the time to shed a little light on some of these contracts. I want to focus on just one and I'll go back into the queue, and it's the Sanofi contract. Would you be able to tell us where this thing could go? Not that a scientific research project is going to be successful, but we need to know the potential and could you elucidate a little bit on the scope of what we're looking for if this is successful? I know you've mentioned it's going to be extended about another 6 to 12 months so I would assume you're expecting the research to, at least at this point, finish by the end of this year and if it is finished as successful as you think it might be, what is the possible financial outcome for Dyadic shareholders?

Okay, well first of all, the best outcome is that we have a positive outcome with one of the world's largest pharmaceutical companies. And they put their toes in the water and now there's even additional funding, so now they have their foot in the water and hopefully if we can succeed in this project it will lead to not only a payment of several million dollars to us or to EnGen Bio which would be owned by us in a great part. And so in addition to the funded research that we are already generating profits on we would be getting milestone payment and we would get a payment in terms of once they took it in-house and started running on their own and performed and succeeded, another payment and then other rights for the Sanofi to negotiate for future rights. But in addition to Sanofi, obviously there's a whole bunch of other companies out there that would then look at this with new fresh eyes and see the opportunities, and we say it could lead to huge opportunities for Dyadic down the road. But what those would be, I don't know specifically, but there are significant payments to us if we succeed in the project we're doing today. But I would expect that would be the beginning of the road, not the end.

Okay, and just to follow-up on it, it's my understanding or maybe you could correct this that they would be using your technology to produce vaccines, is that what they're actually looking to do?

This particular project is related to vaccines, yes.

And it would be related to using your system to actually produce a vaccine?

Yes. We believe that if we can actually succeed in the research that we're conducting for them in collaboration with them and EnGen Bio that they would then go ahead and run the animal trials and then obviously produce vaccines if successful and get it through the FDA in a much quicker, faster form, so we can get it to market sooner with larger volume for less cost to treat more people.

Okay, well thank you very much. It's very exciting. I'll go back into the queue.

Thanks.

Luke Smith, Chapin Davis.

Hi Mark. I had a question about the bioform space, whether there's been any other activity in that bioform space other than Sanofi or other Sanofi activity that we're working on, in conjunction with EnGen Bio.

Yes, well they're working on all kinds of things in the human pharmaceutical as well as animal vaccines and other things, so there are a whole variety of things that Mark Alfenito is working on with EnGen Bio and nothing that's disclosable at the moment. But yes, he's diligently working on all kind of other opportunities and of course Sanofi is watching the success of this project which hopefully will lead to even more.

Okay, thank you.

(Operator Instructions)

John Gibbons, Odin Partners.

A question for you. One of the halos around your reference has been Codexis. Codexis is obviously undergoing a very, very significant change in its management, forcing out the old CEO who did the deal with you and in fact they have an interim CEO and they're looking for a permanent one. How can you be so confident that the results of these changes at Codexis whose management is sort of reluctant to talk about whether Shell might increase or decrease their relationship, how can you be so confident this might not be negated for you over the next 12 or 24 months?

Well I'm confident that the people that do the job every day and the people we deal with on a day-to-day or month-to-month basis are very qualified, highly skilled and those people are still in place. And so the science continues, the technology gets better and I think that I feel for Alan, I think Alan Shaw was a nice guy. I liked Alan personally, but I can't get into their politics. But what I do know is that the people that run the business development group, the people that run the science, the research and development, and the people in the trenches are as good or better than anybody in the world at doing what they do. And so we have communications with them; we have assurances from them that things are going well; and I think we have confidence that the people they have in place can execute their plan.

So even though Peter Strumph comes from a different side of the business, you've got a good relationship with him?

Well, Peter Strumph is the interim CEO, so we were dealing with a whole slew of different people and those same people are in place. Other than the CFO and Alan Shaw the former CEO, I don't know of any significant changes over there that affect anything that they're doing on a day-to-day basis.

Seem somewhat reluctant to project what Shell's relationship would be, how much they would fund going forward, just so you would know that.

They are reluctant?

Shell's reluctant. (multiple speakers)

I can't predict what Shell will or won't do.

Nor can I. I just want to caution you it's not the same tone we had a couple years ago.

Yes, believe me, we're cautioned and we're paying attention, and we have good, very good relationships with Codexis, and we're very aware of things we can or can't share with you.

Thank you.

Richard Deutsch, Ladenburg Thalmann.

Thanks for the opportunity for one more call. One of your other announcements was that you've done a deal in the human food business. You also did not take a up-front licensing fee, so can you give us just a little more background without breaking your confidentiality, first about exactly what is it that they're looking to do? Are they looking to replace an existing enzyme? Are they looking to create a brand new one? Could you just give us a little bit of flavor as to where this thing might go and also since you didn't take an up-front license, is there a milestone that might be envisioned within the next 12 months that would have encouraged you to let them in at this level?

Yes, I'm going to let Adam answer most of the questions, but there's a variety of ways for us to make money here at Dyadic, as we've talked about in the past. We can get an up-front fee, we can get milestones, we can get royalties, we can get profit-sharing, we can get cost savings because there's a slew of different things. And everybody has a different flavor of the month of what they want to do. And so my goal and Adams goal and our goal here at the Company is to create the highest long-term value for Dyadic and its shareholders. In this particular case, we felt that the company's status, its stature in the industry that it's in, its dominance in the markets that it actually is pursuing, that this was the best way for us to move forward because we believe that if we're successful in this one product there's two or three more coming down the pipe very shortly. But Adam can give you a little more details about the specifics because I don't remember all of the confidential provisions so I'll let him deal with that.

Hi, Rick. On the food enzyme company, this is a major company that is quite large. They have established products and to answer one of your questions, yes, they're trying to create a next generation, if you will, of an enzyme that they routinely use in their business and that they have a very large market for. For competitive reasons they don't want to use their name so as not to interfere with their existing relationships, but they are looking to use C1. Like many other companies, including our animal nutrition licensee, if you have an enzyme or a protein that you sell and you are using a particular system to produce that enzyme or protein, let's say for example, at 3 grams per liter and you come to Dyadic or Dyadic Netherlands and you could then use C1 technology to take the gene from those companies for those products, put it into our C1 system and create it at 10 grams per liter or 20 grams per liter, they can reduce their cost of goods and improve their margins. That is the necessity for companies to come to us and use the C1 system to create these types of products.

So with respect to the up-front, the research on a lot of these deals typically happens in two phases. First phase takes about six months where we establish that C1 can produce the enzyme or protein of choice. The second phase is typically another six months where we optimize the fungal strain that produces the enzyme. So let's say the initial phase of research may come out at 3 grams per liter, then the second phase of research is meant to optimize what was produced in the first phase so that we can ratchet that up to 15, 20 or however many grams per liter we can get. Obviously more is better.

And so what many companies want to do is instead of the up-front, they will wait till the initial phase is complete and when they get to the optimization phase, then they will pay us a milestone or they may pay us a milestone once we get to the 15 or 20 grams per liter. Everybody likes to do it a little bit differently. And so we're very confident that we'll do a great job for this new licensee and we will, if we're successful, be eligible to receive milestone payments and then we will ultimately get royalties on the net sales provided that they commercialize a product from the enzyme they produce during this research. So that's not just applicable to just the food enzyme company but it's applicable to a number of different companies who will come to us with their genes looking to produce enzymes in higher quantities.

So just to add a little color to that, you know, we could either have their genes that could express higher quantity, it could be whole new genes for a whole new product opportunity that's something they didn't do before. So by them coming to us on this project, if we're successful and we can ratchet up the productivity and reduce their cost, they are going to be more than happy to give us the next team candidate to do maybe a brand new product that they've never had a product before and there's other people we're working on taking their genes and their enzymes and mixing them with some of our genes and enzymes and coming up with 2 plus 2 equaling 12 or 24. But not every gene is going to be expressed in C1. We're not going to be successful in every project that we undertake.

It's biotech and sometimes genes are compatible with systems, sometimes they are not. But we try to pre-screen in the best way possible so that we only take the products on that seem to have a greater chance of success, but it doesn't mean we'll ultimately get to the level that these people want. But if we do, there's more revenues coming down the pike and there's obviously royalties or maybe profit-sharing or cost savings, et cetera. The beautiful thing is that all the relationships that we have with major companies, these aren't things like the CoolPlanet start ups, okay? These are guys that have been around a long time, with billion dollar companies, they mean business, they want to work with us, we are developing long-term relationships with them of trust and mutual respect and we're doing that in a way that we both win-win. And so in the end, if we can continue to do that, we'll all win.

So when we do these deals, Rick we've got a bucket of things we can choose from and we're trying to spread out the payments so that we can have payments throughout the process until we ultimately recognize revenue in the form of royalties. So in leading up to when the royalties kick in, we will get funded research and then we could get either an up-front payment or milestone payments or both, and we have the flexibility based on who we're dealing with and how far advanced we are in achieving the right result in saying, well in some cases you can pay the up-front and maybe not the milestone. Other times you won't have the up front or you will have the milestone, we can do various combinations. The constant in all of this is the research funding which also continues throughout most of this process because if you achieve initial success, inevitably, partners and we've seen it recently with Sanofi, want to expand that relationship so that they can get to the next level or improve upon the previous research.

Okay, thank you very much. I appreciate that.

Barry Zelin, Axiom Capital Management.

I have a question with regard to the debt that's coming due next year, the $8 million. And basically, I'd like to know, if you can tell me, how many entities you're dealing with that hold the debt. And I think Mark you might have put in some money as well and how much perhaps, maybe you could tell us how much of that you have so I get a better understanding of how difficult the negotiation is going to be or not.

Yes, again, there's very few people that are involved. The good news is that a lot of people wanted to give us money. The better news is that we took as little as we had to and we took it from as few of the people as we needed to. So there aren't that many people involved. I've already had discussions with the major people to make up more than 60%, 70% of it. I don't expect there should be any problems rolling over to 2014 and I've had discussions with the mass majority of it, so I think that should answer your question. And that's only if we need to. The goal here is that we're trying to not to need to. As we mentioned in this call, we're working on ways to do other license deals and collaborations or expansions of licenses that will bring in money that, as Mike pointed out we might be profitable in 2012 if one or more of these things come in so--

Well, we're all sitting here hoping that you are. I mean, patiently by the way, and I know it's not easy lifting. However, it's got to be something of a Sword of Damocles hanging over your head by virtue of the fact of the $8 million coming due but you've had greater odds you've overcome, Mark, so--

I'm not that concerned of having to pay that off okay?

Okay.

I'm hoping to pay it off with like I said transactions that occur this year and if not, I'm fairly confident that the mass majority of it will get rolled over it not all of it.

Right, so I just wanted to get a sense of what your thinking was because I know -- I thought there weren't many holders of the paper and if I was correct in my assumption, which you're saying that I am, I also thought you had some of the papers as well so I just know you did this pretty quickly the last time around so it wasn't much of a problem so I was just hoping that it wouldn't be a problem when it comes due.

I think as you said, we've overcome a lot bigger problems than this and so we're not that worried about it.

Okay. Thank you very much.

Okay.

William [Bain], Private Investor.

Hi guys. Thanks for having the call. A quick question. I wanted to know the extent to which you guys are keeping an open mind to structuring additional deals that have license fee that is back-end loaded like this most recent one, especially in the biofuels space.

We are absolutely have an open mind to do just that, so we're very flexible in terms of how we get paid, when we get paid. We just want to get paid and we want to get paid the most amount of money possible, so we balance that off. And all of the deals that we have some back end into them, okay? Every one of those deals even though we got paid money up front have back end, so it's not a new concept to us and of course that's where the money comes in. As Adam pointed out we're taking in money up front in research and development, we're taking in fees. It's $1 million we got from the animal nutrition company up front, the $10 million Codexis gave us up front, all this is to get us to the day when all these royalties start stacking up and we start building upon royalties upon royalties and spreading those out as they start coming in and they build upon themselves from all these different fields and these different opportunities. So we're very focused on the back end.

Sounds perfect. Thank you.

George Pribyl, Private Investor.

Mark, I just had a quick question for you or the accounting guy there. Any plans on the horizon here to reapply for a regular full listing on NASDAQ?

We're evaluating all our options of what's the best way to unlock the value for all of our shareholders and certainly that's one of those options that we've explored and continue to explore.

Okay, nothing currently going on though?

Again, we explore all of the options and we're currently going on and on. I can't tell you.

Okay, all right. Thanks.

I'm showing no further questions at this time. I'll turn the call back to Mr. Morgan for any closing comments.

Ladies and Gentlemen thank you for calling in and participating on today's conference call. We greatly appreciate your interest in Dyadic and look forward to sharing with you our first quarter 2012 financial results in May.

This concludes our program for today. You may all disconnect.