Dyadic International Inc (DYAI) 2012 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, and thank you for holding. Welcome to Dyadic's second-quarter 2012 results conference call. At this time, all participants are in a listen-only mode. My name is Brian, and I will be your conference coordinator today. As a reminder, please note that this call is being recorded. At this time, I would like him to introduce your host for today's call, Adam Morgan, Dyadic's Vice President General Counsel & Business Development.

Good afternoon, and thank you for joining today's conference call to discuss Dyadic's 2012 second-quarter and first-half financial and operating results, which were issued in a press release earlier today. If you have not had a chance to review the press release and our financial statements, they are available on the Dyadic and OTC Markets websites. I am joined today by Dyadic's Chairman, President and CEO, Mark Emalfarb; and Michael Faby, our Vice President and Chief Financial Officer.

On today's call, Mark will review recent developments as well as the highlights of the second quarter and first half of 2012. Mike will then continue with a more detailed review of Dyadic's financial results for those periods. We will then give you an opportunity to ask questions. Each caller will be allowed one question and one follow-up question in order to provide all callers an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. Mark will then provide his closing comments.

Before we begin, we would like to remind you that certain statements made in this conference call may be forward-looking statements which involve risks and uncertainties that may 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 Dyadic's Chairman, President and CEO, Mark Emalfarb.

Thank you, Adam, and I want to thank all of you for joining us on today's call. Dyadic's financial results for the second quarter and the first half of 2012 were very strong. Dyadic was profitable for both periods, which was largely due to the $5.5 million license fee we recognized in April from the expansion of Abengoa Bioenergy's rights under their non-exclusive license agreement with Dyadic. However, the positive results were not just limited to our licensing activities.

Our industrial enzyme business and our research and development activities in the Netherlands also posted solid gains for both the second quarter and the first half of the year. These increases, combined with reduction in our total expenses, contributed to the overall positive second-quarter and first-half results.

Before I further discuss the activities and events which impacted our financial results, I wanted to briefly comment on the ethanol industry as a whole, which is an important area of potential growth for both our enzymes and our technologies. Typically, when the price of oil reaches record levels or when there have been incidents of large oil spills, increased attention is focused on alternative forms of fuel, such as ethanol and butanol, which are renewable and more environmentally friendly than petroleum.

Currently, it's not just the price of oil that is bringing increased attention to biofuels, but also the unfortunate drought conditions affecting the Midwestern United States, which are decreasing corn yields and increasing the price of corn-based products. As many of you know, the first generation of ethanol in the US is derived mainly from corn. The United States has adopted renewable fuel standards which require that nearly 10% of the nation's gas supply come from corn-based ethanol.

In the future, the standards also require a certain percentage of ethanol come from non-food sources including a variety of agricultural feedstocks which, by using cellulose enzymes such as Dyadic's AlternaFuel CMAX3, can be converted into sugars, which are then fermented into cellulosic ethanol and butanol.

These renewable fuel standards, which essentially set a government mandated floor for the industry, are one of, if not the single most important factor that has contributed to the ongoing investment by major energy, agricultural and chemical companies in the development and commercialization of first- and second-generation biofuels.

The debate of food versus fuel over whether we should divert corn from our food supply to produce first-generation ethanol has been further heightened by the Midwest drought conditions, which threaten the supply and price of corn that could lead to increased food prices. However, the food versus fuel debate does not exist with regard to second-generation biofuels such as cellulosic ethanol and butanol, which are made from the byproducts of food production, not the food itself.

Whereas first-generation biofuels use corn as a primary feedstock, second-generation biofuels use corn cobs, corn stover, and other non-food forms of biomass and agricultural waste streams. While we believe corn-based ethanol has played an important role in easing our transition into the use of biofuel and will remain vital to our economic and security interest, the longer-term solution for our energy independence and domestic economic growth lies in second-generation ethanol from non-food sources.

Current drought conditions and debates surrounding corn further highlighted the critical need for continued public and private support for the optimization of technologies such as Dyadic's C1 platform technology that will speed up the commercialization of second-generation biofuels from non-food sources. Enzymes such as the ones that Dyadic and its partners Abengoa Bioenergy and Codexis are developing and continuing to improve play a critical role in the production of second-generation biofuels so we can reduce our dependence on foreign oil as well as reduce our dependence on food supply for our fuel supply.

One of the companies closest to commercializing cellulosic ethanol is Dyadic's non-exclusive licensee, Abengoa Bioenergy. Abengoa's first commercial cellulosic ethanol plant is currently under construction in Hugoton, Kansas, and scheduled for completion by the end of 2013.

The start of operations at this facility and its anticipated use of Dyadic's C1 technology to produce cellulosic ethanol and other related biofuels and bio-based chemicals, Dyadic will be eligible to receive a facilities-fee milestone payment as well as royalty payments starting in 2014 and possibly as early as the end of 2013. The same will be true for additional facilities that Abengoa may build globally, which use the C1 technology licensed from Dyadic.

During the second quarter, Dyadic and Abengoa amended their non-exclusive license agreement to provide Abengoa with additional worldwide rights to use Dyadic's C1 technology in return for a license fee of $5.5 million and other considerations. In addition to providing Dyadic with this license fee, the significance of this expansion is that it will allow Abengoa to use Dyadic's C1 technology at Abengoa's facilities around the world and to produce and sell C1-derived enzymes to third parties for first-generation as well as second-generation biorefined processes to produce fuel, chemicals and/or power.

I would like to clarify that Dyadic's license agreement with Abengoa, as well as other license agreements, are all non-exclusive with respect to C1 technology, which gives Dyadic continued freedom to enter into similar relationships in the same field with other parties. It is also important to keep in proper perspective that any upfront or milestone payment made to Dyadic under these non-exclusive license agreements represent only a portion of total expected financial benefits of these transactions, which generally include royalty payments based on commercialization of C1-derived products.

Our other non-exclusive licensee Codexis is also focused on using Dyadic's C1 technology to produce enzymes that can help convert biomass into fermentable sugars. It has been reported that over the past 3.5 years, Codexis and its exclusive biofuels partner Shell have spent nearly $150 million or more on research and development and have employed 100 or more scientists to develop CodeXyme, Codexis's cellulosic biofuel enzyme product line, which is based on the C1 technology it licensed from Dyadic.

Codexis has recently experienced some changes in its executive, leadership which includes the hiring of John Nichols as the new President and CEO in June. Codexis also recently reported that it expects Shell soon to reduce and eliminate funding of further research with Codexis and potentially grant Codexis certain rights and licenses in the biofuels field to develop and sell cellulosic enzymes to third parties on a worldwide basis except in Brazil.

In Brazil, Codexis has reported they are currently in discussion with Raizen, a joint venture between Shell and Cosan regarding a potential co-development and commercialization of Codexis's cellulosic enzymes for future second-generation ethanol facilities in that country. If Codexis finalizes the agreement with Shell as they anticipate, Codexis has announced it plans to target the rest of the world's second-generation biofuel producers with its second-generation biofuel producers with its cost-effective cellulosic enzyme technology.

We are looking forward to working with John and his team to help make their transition from the research and development phase to the commercialization phase a successful one. Dyadic believes that if Codexis obtains these rights from Shell, it may also create additional opportunities for Codexis and Dyadic to expand their current relationship. Dyadic anticipates receiving more information on Codexis's progress with Shell during the third quarter, at which time we will be in a better position to determine the future impact and potential benefits to Dyadic, if any.

Regardless of the outcome of the negotiations between Codexis and Shell, the main point continues to be that Dyadic and its licensees, Abengoa and Codexis, have made tremendous strides over the last several years, enhancing Dyadic's C1 technology to produce higher-quality and lower-cost enzymes at commercial scales for the conversion of many types of feedstock into fermentable sugars for the production of biofuels, bio-based chemicals and other bio-based products.

In doing so, Dyadic strongly believes that its C1 technology is one of the very few commercially scalable technologies with the vast capability and potential of achieving these goals.

The capability of Dyadic's C1 technology to enable the production of cellulosic biofuels and bio-based chemicals from a wide range of renewable non-food feedstocks under broad operating conditions were recently demonstrated at our research and development facility in the Netherlands, which conducted head-to-head tests of Dyadic's AlternaFuel CMAX3 against other leading biofuel enzymes. A slide showing this data is available on the biofuels page of the Dyadic website.

Using equal amounts of enzyme protein at the pH level 5, typically used with yeast ethanol fermentation, AlternaFuel CMAX3 achieves substantially the same sacrification, or sugar conversion, productivity as the other leading enzyme. At pH levels of six and above, which are used for some bio-based chemicals and bio-gas manufacturing processes, AlternaFuel CMAX3 exceeded the sacrification yield of the other leading enzyme.

These results validate the C1 technology and vast potential as one of the most robust and versatile technologies that continues to be leveraged to create additional product research and licensing revenue. Additionally, these results have stimulated renewed interest from leading oil and gas, energy and agricultural companies, which has accelerated our ongoing discussions with some potential collaborators.

We've already provided some of these companies with samples of AlternaFuels CMAX3 for their future testing and evaluation and will continue to sample others in the days and weeks to come. Dyadic's on-site business model allows interested companies to not only purchase these enzymes, but also to license the C1 technology so that they can more cost-effectively produce and enhance the C1 enzymes at their own facilities and customize those enzymes to their chosen feedstock.

Now I would like to talk about our industrial enzyme business. I am pleased to report the sales of our industrial enzyme business increased 19% for the second quarter of 2012 and increased 7% for the first half of 2012 compared to the same periods a year ago. We are certainly starting to gain some traction with our enzyme business by growing sales with current as well as new customers.

A substantial portion of our enzyme business continues to be in the field of animal health and nutrition, which is one of the fastest-growing segments in the industrial enzyme industry as a whole. Going forward, we believe some of the main applications for Dyadic's industrial enzymes and technologies will continue to be animal health and nutrition; human food, which includes growing and baking; and biofuels.

A significant portion of the money we've invested in research over the years have developed Dyadic's C1 platform technology and the C1 gene library to produce increasingly more productive fungal strains and novel enzymes for biofuel applications is also starting to be leveraged for use in developing new enzymes outside of biofuel.

As part of our customer development process, we continue to explore opportunities to collaborate with additional companies, distributors and formulators in a variety of industries who have greater market access, regulatory expertise and geographic presence in order to utilize our respective strengths to codevelop new products and cost-effectively expand the uses of our C1 technology in a myriad of products that can be derived therefrom.

We are also growing our internal industrial enzyme business and developing new and lower-cost proprietary enzymes. Examples of this are FibreZyme G5000, a high-performance powder enzyme product we launched in the first quarter for pulp and paper applications, as well as validating initial promising results in C1 enzyme in the fields of animal health and nutrition, baking, brewing and starch, among others.

I would now like to talk about the progress we are making in research and development. In addition to developing new and improved products for our industrial enzyme business, our research and development team in the Netherlands is also heavily focused on conducting funded research projects using Dyadic's C1 technology to develop new and improved products for third parties across multiple industries.

In the second quarter of 2012, Dyadic's research and development revenue increased 18%; was up 43% for the first half of 2012 as compared to the same periods last year. I would like to emphasize the crucial role that our research team in the Netherlands plays in the integrated business develop process. Their activities have the ability to not only drive their own revenue, but also additional revenue generating opportunities in our other business segments.

As with all of our businesses, we need to stay focused on expanding our existing customer relationships while also continuing to drive new funded research projects to replace those projects that reached their scheduled conclusion. That being said, the first phase of our research of our food licensee has been completed with positive initial results, which we anticipate will lead to the continuation of the second phase of research to further optimize results achieved in the first phase.

If the second phase is successful in reaching certain productivity targets, Dyadic will be eligible to receive a milestone payment in 2013 followed by royalties once the product undergoes registration process before being sold, which we anticipate being on the market in 2015. We also anticipate Dyadic will have the opportunity to conduct a least one and possibly several more research projects for the production of separate food enzymes for this partner.

The status of animal health and nutrition licensee with whom we entered into agreement with in 2011 also continues to proceed successfully toward commercialization with a variety of effective enzyme mixes currently being tested in animal trials. Success of this collaboration has led to preliminary discussions on further ways we can work together to develop additional products in the animal health and nutrition market.

We are also conducting initial research for another party and have ongoing discussion with multiple companies regarding research and development projects in the fast-growing area of animal nutrition. If the research for our feed and food licensees is successful and our partners commercialize their products based on Dyadic's C1 technology as anticipated, there will be an initial ramp-up period during which our partners will transition their customers from their existing products to next generation products manufactured using our C1 technology.

Once this transition is completed, we anticipate royalties will begin to be generated from both our food and animal health and nutrition licensees in 2015.

In the biopharmaceutical area, our research with Sanofi Pasteur is continuing to evaluate whether the Dyadic C1 technology can produce certain vaccines more efficiently in larger volumes and at lower cost than current [expression systems]. If the research with Sanofi is successful, we would anticipate an expanded collaboration so that Sanofi may continue using C1 for the production of other vaccines as well as potentially expanding the use of C1 for the development and production of therapeutic proteins and enzymes.

In addition, Mark Alfenito of EnGen Bio is working on securing two new smaller funded research projects with major pharmaceutical companies that would allow these parties to test the capability of our C1 technology for their other biopharmaceutical applications.

Another source of research and development revenue over the last few years has been the participation of Dyadic Netherlands in several consortia to conduct a research sponsored and funded by the European Commission. Participation in these sponsored research projects has several benefits. First, they increase the awareness of Dyadic's technologies among major corporate, academic and governmental institutions and organizations.

Secondly, they afford Dyadic the opportunity to use this technology to develop new applications and products we might normally not have the time or resources to carry out. Thirdly, this funding helps Dyadic make further improvement to modifications to the C1 technology platform in some cases helps us expand our enzyme laboratory which can be used by us and our collaborators to screen for products of commercial interest.

For example, in July, we announced the participation of Dyadic Netherlands in a bio-pneumatic project, a new multi-disciplinary research consortium has been awarded a grant from the European Committee Seventh Framework Programme, or FP7, to conduct a three-year research project that would be coordinated by Procter & Gamble Technical Centers Limited in the United Kingdom as one of the participants.

The bio-pneumatic project will use environmentally friendly technology or green chemistry to convert the renewable agricultural waste stream lignants into high-value, sustainable commercial projects such as adhesives, detergents and cosmetics. I would now like to have Adam comment on a recent development in our professional liability lawsuit against Dyadic's former outside counsel.

Thanks, Mark. As many of you know, Dyadic is currently pursuing a professional liability lawsuit against its outside legal counsel, which consists of four law firms and three individual attorneys at those firms. One of those defendants, Jenkens and Gilchrist, was a Dallas-based law firm which represented Dyadic up until August 2005. Jenkens and Gilchrist went out of business in 2007 and is continuing to wind up its business and affairs.

Another defendant in this lawsuit, Robert Schwimmer, was one of the attorneys at Jenkens and Gilchrist who brought Dyadic's business with him when he left Jenkens and Gilchrist in August 2005 to work for the Greenberg Traurig law firm. Last week, Dyadic received a payment of $525,000 as part of an agreement to settle the portion of our professional liability lawsuit against Jenkens and Gilchrist, which also includes its former attorney Mr. Schwimmer, but only for the time Mr. Schwimmer served at as an attorney at Jenkens and Gilchrist, and not for any other time period.

Mr. Schwimmer, therefore, continues to remain a defendant in Dyadic's professional liability lawsuit for the period of time he served as an attorney at Greenberg Traurig, along with the three remaining law firms and two other individual attorney defendants. This settlement with Jenkens and Gilchrist and Mr. Schwimmer for the time period I just indicated represents a limited aspect of the overall case and is neither indicative of the amount nor the potential for future settlements with the remaining defendants.

Dyadic is continuing to vigorously pursue this lawsuit against the remaining defendants in the most cost-efficient way possible, which includes, for example, the hiring of our litigation counsel on a contingency basis. I will now turn the call back to Mark for some additional comments.

As you heard, we expect 2012 will continue to be a very good year for Dyadic, not just in the strength of its expanded license with Abengoa, but also due to gains enzyme sales and in funded research projects. Based on these factors, we believe Dyadic will be profitable for the full year. Our goal now is to build upon these results to strive for more consistent revenue growth from all segments of the business. I will now turn the call over to our Chief Financial Officer Michael Faby to take you through the details of our 2012 second-quarter and first-half financial results.

Good afternoon, everybody. Before reviewing the 2012 second-quarter financial results, I would like to refer you again to the press release and our financial statements, which were posted earlier on the Dyadic and OTC Markets websites. For Dyadic's second quarter ended June 30, 2012, total revenue more than doubled to $7.8 million as compared to $3 million for the same period a year ago.

Total revenue for the first half of 2012 also increased to $10.4 million as compared to $5.3 million in the first half of last year. The increases in total revenue for both the three and six month periods ended June 30, 2012 are attributable to revenue increases in all of Dyadic's business segments, but especially the license fee revenue.

License fee revenue for the three and six months ended June 30, 2012 increased to $5.5 million compared to $1 million from the same period last year. The increases in license fee revenue for the three and six month periods ended June 30, 2012 compared to the same periods ended June 30, 2011 were due to the $5.5 million license fee recognized in the second quarter from Abengoa Bioenergy for the expansion of its rights under the non-exclusive license agreement it has with Dyadic.

In addition to increases in license fee revenue, Dyadic also reported increases in its other business segments. Net product-related revenue for the second quarter ended June 30, 2012, which consists of sales of Dyadic's industrial enzymes, increased 19% to $2 million compared to $1.6 million for the second quarter ended June 30, 2011. For the six months ended June 30, 2012, net product-related revenue increased 7% to $3.7 million from $3.5 million for the same period a year ago.

Our third business segment, research and development revenue, increased 18% for the second quarter ended June 30, 2012 to $381,000 compared to $323,000 for the second quarter ended June 30, 2011. Research and development revenue for the six months ended June 30,2012 did even better, increasing 43% to $1.2 million compared to $814,000 for the six months ended June 30, 2011. This is the fourth consecutive quarter of increases in research and development revenue.

Gross profit for the second quarter ended June 30, 2012 increased to $6 million, which was more than four times higher than the $1.3 million of gross profit for the second quarter ended June 30, 2011. For the six months ended June 30, 2012, gross profit more than tripled to $6.7 million compared to $2.1 million for same period a year ago.

Total expenses for the second quarter ended June 30, 2012 decreased 8% to $1.8 million compared to $1.9 million for the same period last year. For the six months ended June 30, 2012, total expenses decreased 23% to $3.1 million compared to $4.1 million for the same period a year ago. The decreases in total expenses were due to a reduction in litigation-related costs from the same period a year ago, and Dyadic's continued focus on improving cost controls and operational efficiencies.

Interest expense for the second quarter and six months ended June 30, 2012 increased 53% to $174,000 and $348,000 respectively compared to the same periods last year. These increases were due to interest paid on an additional $3 million of convertible debt raised in the second half of 2011.

Consistent with the projections provided during our last conference call, Dyadic was profitable for both the second and first half of 2012. As Mark indicated earlier, we have every reason to believe that Dyadic will be profitable for the 2012 fiscal year.

Net income for the second quarter ended June 30, 2012 was $4 million or $0.13 per basic and $0.12 per diluted share, compared to a net loss of $736,000 or $0.02 per basic and diluted share for the second quarter ended June 30, 2011. Net income for the six months ended June 30, 2012 is $3.2 million or $0.10 per basic and $0.09 per diluted share compared to a net loss of $2.2 million or $0.07 per basic and diluted share for the six months ended June 30, 2011.

At June 30, 2012, cash and cash equivalents were $2.3 million compared to $3.7 million at December 31, 2011, and working capital was $10.5 million. The license fee of $5.5 million from Abengoa that was discussed earlier is payable in three installments over the next 12 months. The first installment of $2 million is due in October 2012, the second installment of $1.5 million is due in January 2013, and the last installment of $2.5 million is due in July 2013.

In combining our current cash position with the $5.5 million in license fee payments from Abengoa as well as the $525,000 settlement payment, we have received in our professional liability lawsuit mentioned earlier by Adam, Dyadic expects to have more than sufficient cash to operate its business for the foreseeable future.

During the second quarter of 2012, Dyadic extend the maturity date of all of its $8.4 million of outstanding debt to January 1, 2014. Please recognize that $7 million of the $8.4 million in outstanding debt is convertible into Dyadic's common stock. $4 million of the debt convertible at $1.82, and $3 million is convertible at $1.28. If Dyadic's stock price exceeds those conversion prices, the likelihood that debt holders will convert their debt into stock will certainly increase. At this point, I would like to turn the call back to our operator to take your questions.

(Operator Instructions)

Barry Kitt, Pinnacle Fund.

Good quarter, thanks very much. Mark, first for you, in your opinion, and I will underline opinion, you talked about the legal settlement you just got. Would you expect the legal opportunity, not certainty, but opportunity, to be in the tens or hundreds of millions of dollars?

The complaint that we filed is for $500 million in damages. If you want to ask my opinion, there is no guarantee we will get any money from the lawsuit, and so we will pursue it as I indicated, and we feel the damages are real. And what we did recently with Jenkens and Gilchrist, which is out of business, is not indicative of having any settlements in the future, and if we do have settlements, it's not indicative of the amount that would be necessary to settle.

Having been a shareholder back before Mark left and being a shareholder now as well, I know the damages are real because we see it everyday in my equity and my sheets. Mark, you and your team have done a great job since you came back to the Company. I know you have been focused on positioning the company for an exciting future, but the problem is the time has come to uplift either to the NASDAQ or NYSE annex.

Trading in the pink sheets restricts the number of investors who know that Dyadic even exists and the number brokers who can solicit an order and therefore the stock price doesn't even come close to reflecting the core value of the company, whether it's the legal side or the operating side or what have you. Sitting here where it is, is certainly not helping anybody including yourself. I would hope you would consider uplifting very soon.

We are considering all options including uplifting, and that is something we certainly look at on a continual basis and are evaluating it as we speak.

Okay. Well, evaluate quickly, please. Thank you very much.

Luke Smith, Chapin Davis.

I had a question about -- to clarify the Codexis situation, they currently do not have a license to sell to the other oil companies' biofuels area, is that correct?

Are you talking about from Shell?

Away from Shell. If they indeed get freed up from their restriction from Shell.

The Codexis license agreement provides for an exclusive biofuels partner for Codexis, and that exclusive biofuels partner is Shell, so you are correct. With respect to biofuels, their use of C1 technology is limited to Shell and affiliates of Shell.

So my question is. They would need to expand their license with Dyadic if they are successful in getting away from that exclusivity? Is that correct?

I think as we pointed out, we certainly look for expanded opportunities and look for how we can both benefit Codexis and Dyadic. If they get that freedom from Shell, we are happy to sit down to work with John and his team and figure out a way forward.

Okay. That was my question. Thanks.

Fritz von Carp, Sage Asset Management.

I just wanted to go back to that same Shell and Codexis situation. Can you just give us some more -- I'm not sure exactly sure I understand how what that implies and what that means for their biofuel program going forward. I understand that is their company and not your company, but can you talk about how that might impact Dyadic in the future?

First of all, I would suggest you go to their filing of 8-K and 10-K's and read the license agreement itself and draw your own conclusions from that. To us, we believe Codexis getting freedom from Shell will be a positive effect for both Codexis and Dyadic. We think that a substantial portion of research that they needed to do is done. We think that going forward, there will be opportunities for them to work together with us to try to expand the opportunities for both companies so we can all profit.

In a lot of ways, we are very gracious and appreciative of Shell providing that funding up to this date, and we think the freedom Codexis has now, if they get the freedom they are anticipating getting, to go after 90% of the world they couldn't go after before, if things work out the way we all hope, it will be great for everybody.

Okay. Thank you.

(Operator Instructions)

Richard Deutsch, Ladenburg Thalmann.

Congratulations on such a good quarter and turning the company's finances to the positive side. On your animal food and human food projects, are your enzymes considered GMO or non-GMO by the regulators?

In the animal feed area, depending on the actual enzymes that end up in it, they could be considered GMO or non-GMO or self cloned GMO. It's not clear yet what the final product is going to contain. But it's likely it will be a GMO.

Okay. Alright. What about the human food deal?

The human food is highly likely will be a GMO.

Okay. All right. Regarding the enormous scope that your production system engenders, you are basically not restricted to a particular product. It is a system to produce almost an unlimited number of proteins and enzymes for different industries. So I'm trying to parse out what is the most exciting -- animal feed, human food, biofuels?

And, the redactions that you have to make because of your confidentiality arrangements and the long-term nature of these developmental projects makes it difficult for me to tell people the progression that we should look for in terms of the company's success. Can you just speak to the next 12 months and speak to what you think is the most likely areas that we will see the first significant financial rewards? Can you pick something out you feel most confident in? Not the biggest, but the most secure of coming in house?

First of all, I would highlight that the forefront our revenues of 6/30/2012 are already greater than they were on 12/31 for the whole year 2011. So I just want to make that point. Because this team is doing a great job of executing on what we are attempting to do with the resources we have and the technology platform you have highlighted that is capable of basically taking genes and turning them into proteins and enzymes for a slew of opportunities across a myriad of industries.

Obviously, first and foremost, can we pull some more license revenues in? Like the $5.5 million expansion from the Abengoa Bioenergy agreement, and of course if we can, hopefully those will be large license fees. Can we pull in some research and development-funded projects? Again those are more revenues that lead not only to initial profits under funded research but future products that could drive even higher royalties and milestones down the road.

We have our own enzyme business, and our animal feed business in the enzyme business is growing very well. We see tremendous growth starting either late this year - it's already started, but starting late this year and into next year, we are working with the major animal companies that are existing licensees or existing customers that have got registration, it's finally done in Europe and other places so their sales are picking up, and where the benefits are obviously those efforts on their behalf because they are buying more and more of our product as we are able to enter more and more markets with those registrations in place.

We've got numerous other parties talking to us about research and development new animal feed enzymes for them. The existing animal feed licensee that we have is talking about a new project already to expand into a whole new area. So the animal feed business I would say is certainly a shining star at the moment. Our own enzyme business sales are shining there as well as the licensing and research going on in that area.

Biofuels, the focus on food versus fuel is now bringing the attention of the need to get to cellulosic sugars quicker. We are one of the few people in the world that have the technology to get us across the goal line, and we've got already three shots on goal. We have our own with CMAX3 and future generations of products we are developing, we have Abengoa working on their own product coming out to commercialization in maybe as early as the end of 2013 where we will have a facility fee and start getting royalties.

We've got Codexis getting free of Shell so they will be able to go after 90% of the market that they couldn't go after before if things work out the way we both would like. So I don't know if I've answered, but quite frankly, all of the areas we are working on have a good bit of traction. The food company we are doing well in the project, which we mentioned, and they're already talking to us about another project one or two may be beyond that.

So I don't know what else we can do, but we only have so many researchers and they are busy right now. So we are looking for more people to tell us what their needs are so we can help meet those needs to create more products and new industry and new exciting things outside of those industries in different fields, but I'm not free to talk about that can get monumentally profitable down the road.

I like that word monumental very much. Thank you very much.

Luis Garcia.

Good afternoon, gentlemen. A quick, couple quick questions. The C1 platform, can that be used in the dairy industry as far as for milk, yogurt and cheeses and things like that?

Yes it can.

So that's unlimited, I take it. And one more thing, as far as getting moved on the exchanges as far as creating (inaudible), is it costly to do that? For the company?

Do you mean for us to uplift?

Yes.

There is a cost associated with that in the infrastructure, the people, the time, the energy, the professional fees. In the last few years, we have had to refocus on rebuilding the company and putting it back on its financial foothold. From the devastation we faced early on when I got back, so now we're in a position where we are starting to get our finances in shape, starting to get the infrastructure back in place, we've got five or six different licensees, we've got our own enzyme business starting to grow.

We're now starting to feel more comfortable about being able to meet the expectations of not only the financial expectations, but investor expectations of what you want to see because you are quarter to quarter guys and our revenues fluctuate based on license fees and different things that come and go. Until some of these royalties start flowing and coming in, we don't have a consistent revenue base that grows and grows and grows every year, so it's sporadic. We want to make sure we can meet the needs of what everybody wants without putting to much strain on us that gets in the way of us building a business.

It might actually hurt us if things don't go well, I understand. Thank you very much.

Robert Hoffman, Princeton Opportunity Partners.

A quick question on share count if you can help me. You have 31,648,120 shares at June 30. Can you give me the fully diluted, so if the convertible was fully exercised, and how many options would be outstanding? I'm trying to get a fully diluted share count.

You are right about the outstanding shares. With the option and warrants as well as the shares underlying the convertible debt, it's approximately 41,700,000 shares, but I can get you a more exact number off line once I double-check it.

So basically another 10 million shares between the convert and options?

And warrants. Correct.

And warrants. Okay. But obviously the converts would not be -- no cash would come in if they were to convert, but it would wipe out the debt side, but warrants, what's the warrants price?

We would actually receive some cash on convertibility of the option.

The warrants, the ones that are left are at $0.15, and I think yes. We would receive cash for the warrants and options obviously for the converts we would reduce the debt.

Got it. Okay. Thank you.

Richard Deutsch, Ladenburg Thalmann.

Just two follow-up questions, one a quickie, on the $525,000 on the legal settlement, is that net of the payments you have to make to your attorneys that are working on a contingency?

We get all that money.

Okay. And it comes in this quarter?

We got it already.

Okay great. And the second is, on the scope of what could be, Mark was talking about monumental opportunities. Where do you see if things worked out well, I mean really well, the biggest profit potential for the company? What industry or customer group or what products do you see as what could be the holy grail for us?

You know Rick, there's so many holy grails that obviously biofuels could be a holy grail, biopharmaceuticals could be a holy grail, the growth of our industrial enzyme business could be fairly significant and fairly meaningful. There's other industry applications we are looking at that are significant in the hundreds if not billions of dollar opportunity. Using C1 to make enzymes for those markets.

There are so many shots on goal that we have that we have to be careful we don't go after too many of those things and we hopefully can go after most of those things and share in the profits and the rewards of other people funding the research and development using our technology. And as we get healthier and we get royalties and more things coming in and revenue on a consistent basis, we may actually fund some of the research or co-develop some of those products on our own so we can get a bigger share of the market and profitability of each one of those products.

Let me just rephrase the question, you said there were some pretty exciting activity in upcoming discussions about licensing. Which arena is that you are looking at? In which industry segment, no names of companies, but which industry segment do you think the biggest licensing upfront income would come from?

The biggest upfront income would come from fuel. But we have significant industry interest and the feed and food industry from both existing customer and license relationships to expand as well as other third parties that are coming to the table and have been at the table talking about how we can help them develop the next generation of enzymes and proteins for their industries and their uses.

All right. Thanks again.

Robert Hoffman, Princeton Opportunity Partners.

Can you talk a little bit about patent protection patent life? Obviously C1 in it's original form was discovered a number of years ago, but in terms of the patent, obviously you have been improving or expanding, so just if you could chat a bit about what you see as your timeframe of protection?

We recently filed patents that extend things even longer, which is 20 years from today. Also, by the way, a lot of license agreements, if not all of them, provide for even in some cases beyond the patent life. In most cases they are almost irrelevant because you create a fungal strain and a technology platform that is great to have intellectual property, but it's a 10-year or 15-year journey to try to re-create something like that even if you could.

So we feel very confident that we have plenty of time left on the patents from a few years to 20 years depending on the patent. We have a variety of new patents that have been issued and a variety of other patents that are being examined we think will extend the life of a lot of things we are doing, and new lives.

But the bottom line here is a company like Lonza who has a Chinese [ham 3] cell line for the pharmaceutical industry. Their patents have run out years ago, but they still derive tremendous benefit because they continue to make a better, more productive whether you have a patent or not, it's a production system. It's not like you could just go out tomorrow practice, this is a living cell we had to improve and enhance and modify create the tools, not something that is readily or easily done by anyone else even if they wanted to, even if you had no patent.

When you enhance and improve, is that a patentable enhancement?

Yes. For example, we have promoters that are used to drive productivity that we patent that certainly came way after something else. We might have an improved version of that, you have different mixtures of enzymes. One of the things about this whole patent issue is C1 is its own course in its own race.

You've got other companies like Novozymes and DuPont and [PseudiChemi] and BP all using trichoderma and that's why each one of them have their own version of the fungus. But the bottom line is that fungus is still trichoderma, so some of those guys have different enzyme ratios and mixtures and they are stepping all over each other, so that's going to be in our opinion a big battleground just as that has been in the starch first generation ethanol between [Ven] Genencor and Novozymes, and we stayed clear of all that.

So we staked out our own IP, obviously we believe our IP is defendable. We don't file patents just to file them, we could filed dozens more but they are expensive to maintain and keep so the ones we file would think we can defend and we wouldn't have filed them otherwise. We think we are in very good shape and on top of the shape of the patent position. It's a monumental hurdle for somebody to take a fungus out of the ground and do what we have done. And most people would probably fail on the efforts because a lot of that serendipity and good science, and all has to work together in synergy.

So it's beyond just patent production here, it's having the right capabilities, right tools, right productivity, continued improvement in the advancement. We are very confident and comfortable that we are in good position to exploit this technology for ourselves and the people that license it for many years to come.

Great. That's what I was asking. Thanks.

Barry Zelin, Axiom Capital.

Great quarter gentlemen, very happy to see the progress you are making. Here's a question that I keep scratching my head because -- and you are the only one that can answer this, Mark. How do you get what you have into many more hands? Make this thing and drive this thing a lot faster? Your business development unit, if you have one -- I guess it's a bit of a disjointed question, but it seems to me that in order to move this along at a much faster pace, you've got to put this in front of so many different types of people and businesses, and how do you go about doing that?

We have a business development process. We meet on a weekly basis. Our team in the Netherlands pursues companies in Europe with business development opportunities, research opportunities, licensing opportunities. Our process is an integrative process, which means when our salesman goes out to sell enzymes, if the customer he is going to see needs a customized enzyme for whatever reason, he introduces them to our team in the Netherlands, and they in turn discuss with them not only conducting research but also taking a license.

So, each of the different business segments has a role in this integrated business development process. Mark and I and others here are on the phone on a daily basis going to a list of literally hundreds of companies that have shown interest or we know are in this area and may have the need for our technology.

So not everybody is ready when we are ready, and it takes time and sometimes someone says no today but they say yes two weeks from now, and so is just a continuous process as things evolve in the industry. As things evolve in these particular companies various opportunities come to life, but this -- that's why we say on every conference call we are continuously in discussions with companies, it's not just empty talk; it's true.

We are constantly talking to companies about at least getting their foot in the door starting to conduct some research, understanding what the capabilities of C1 are because we are confident once people do that and they see our capabilities in Holland, that in many if not most cases, those research projects will lead into more research projects and licensing opportunities.

Barry, success breeds success, so when you develop a product like CMAX3, which we have done with limited resources, and we are head-to-head on equal protein to the leading enzyme in the world, which put a lot more resources than we did, it speaks volumes for the technology and platform and the capability, certainly the biofuel space.

The people in the animal feed industry and food industry we are working with are seeing good results, we are moving in the right direction. It looks like we are going to commercialize down the road their products, and that's why they want to get to the next product with us, new product development new ideas. And a variety of other people coming in because they're starting to realize those things delivering on the promise.

People are then going to registration, going to the GMOs, feed registrations, all the different things that have to be done to basically give you a stamp of approval because this is a space that is very difficult to get into. The industrial biotech space you need a horse to ride. By that I mean you need a production system because you can find a gene have all the unique properties you want, but if you can't make it at the right price it's irrelevant.

So we have something we think is very useful, very valuable to a lot of people. We are not the only ones that have these things. Novozymes is very capable of doing it so is Genencor or DuPont now and a few others but there are a few people in the world that have the resources of this kind of a platform technology that we have. And these guys are multi billion-dollar companies, for the most part. Because if you look at it Genencor and Novo I think are 70% or more in the industrial enzyme business. The third largest company's like 6%. And then they drop off from there.

It's huge opportunity to grow with this platform, but until we had the platform that could produce a high levels in large-scale, it did not give us or the people we do business with a fair chance to the compete with the big boys. Now we are in the same playing field and the big boys are more flexible, more robust, more versatile.

So we can't do it on our own and that's why we have license fees. We were doing some of it on our own, and as the questions earlier, the opportunities are almost endless. It's a matter of the resources that someone has, and as I mentioned in the conference call, we are leveraging that with people that have global market reach.

We sell our enzymes for feed, for example, to distributors and a blender with other enzymes they have to make the products better and have global market reach that we might not have, they been in business longer. Some of these people have registered the product, for example in Europe, we can't sell directly to Europe as we didn't register the products because we didn't have the funds to do so at the time. So they did. So they are now growing their business and we are growing our business by the sales.

Thanks. I appreciate it.

Barry Kitt, Pinnacle Fund.

The two major horses in the race are trichoderma and C1, is that correct?

Are you talking about the biofuel race?

Yes.

And DSM has another horse, we're not quite sure what it is because they are very secretive about it, but basically those are the three horses. But the two leading ones we think are obviously trichoderma and C1, but I'm sure DSM would differ.

Okay. So if I'm correct -- there are several lawsuits going on and people think they own it and the other one doesn't more or less?

The lawsuits aren't going on yet. But there were lawsuits over the first-generation amylase enzymes between Genencor and Novo, at least two I'm aware of multi-million dollar settlements. So, since the products aren't really being sold yet, I'm sure those are in the wings. Sort of like the BP and Gevo lawsuit going on now over butanol. So until we get those commercialize and people bring it to the marketplace, they usually don't rear their heads.

Okay. So several people are using trichoderma-based enzymes or playing with them anyways and you have now shown your enzymes to be at the same level or better than trichoderma-based but with C1 you have sole ownership with no patent-stacking issues or any of that kind of stuff?

Right. We believe we have freedom to operate. It's our own patents. All biotech -- it's all lying somewhere in the back, who knows, but the reality is the difference between what we have and trichoderma is like night and day. There are four or five guys playing in that space stepping on each other's toes.

And by the way, Barry, we have three of our own trichoderma strains we produce commercial products from but we stayed away from the platform technology development because it is expensive and costly and we didn't want to be in that battle. So we took something we thought would ultimately be better and we developed it where we think in fact has more potential than trichoderma in the biofuel space, wider pH temperature operating ranges and seems to provide greater flexibility to people using it. And much greater flexibility and freedom to operate an IP.

Okay. Thank you Mark. I appreciate it.

I am showing no further questions at this time. I'd like to turn the call back to Mr. Emalfarb for any closing comments.

I want to, in general, again thank everybody for coming on the conference call. I want to reiterate that the investment hardware we developed over the last year is starting to pay off. As I mentioned earlier, our 6/30/2012 revenues are already higher than the revenues were the end of last year after 12 months. There are so many different names we talked about in the question-and-answer.

And the last thing I want to provide you with the comfort that our cash position, which includes the recently received settlement proceeds, in combination with the incoming $5.5 million license fees from Abengoa, puts us in a good position to execute on our strategic plans for 2013. I want to thank all of you for participating in today's conference call. And the confidence you have shown us. We greatly appreciate your interest in Dyadic and look forward to sharing financial results for third quarter of 2012 with you in November.

Ladies and gentlemen, this concludes the program for today. You may all now disconnect.