Michael Faby - Vice President, Finance Mark Emalfarb - Chairman, President and Chief Executive Officer Danai Brooks - Executive Vice President and Chief Operating Officer Tom Dubinski - Chief Financial Officer.

Richard Deutsch - Ladenburg Thalmann.

Good afternoon, ladies and gentlemen and thank you for holding. Welcome to Dyadic International Third Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. My name is Anne and I will be your conference coordinator today. As a reminder, please note today’s call is being recorded.

At this time, I would like to introduce your host for today’s call, Michael Faby, Dyadics Vice President of Finance..

Thank you, Anne. Good afternoon and thank you for joining today’s conference call to discuss Dyadic’s financial and operating results for the third quarter of 2014, which we have reported in a press release issued earlier this afternoon.

The press release and Dyadic’s quarterly financial statements have been posted to both the Dyadic and OTC Markets websites. I am joined today by Dyadic’s Chairman, President and Chief Executive Officer, Mark Emalfarb; our Executive Vice President and Chief Operating Officer, Danai Brooks; Tom Dubinski, our Chief Financial Officer.

On today’s call, Mark and Danai will cover operating highlights, business development and corporate strategy, and Tom will review our financial results in more detail. We will 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.

Before we begin, we would like to remind you that certain statements made in this conference call maybe forward-looking statements, which involve risks and uncertainties that could cause Dyadic’s financial results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Dyadic expressly disclaims any intent or obligation to update any forward-looking statements except as required by law. I will now turn the call over to our Chairman, President and CEO, Mark Emalfarb..

Thank you, Mike. And I want to thank all of you for joining us on today’s call. Over the past three months, we have continued to make progress in a variety of fronts. In our ongoing BASF research project, we have received our first milestone payment.

We also received a $500,000 milestone payment from Abengoa and look forward to receiving future royalty payments as they begin to produce cellulosic ethanol at their 25 million gallon Hugoton, Kansas plant.

Earlier today in our Q3 press release, we also announced as a subsequent event, that we have extended our funded research project with Sanofi Pasteur to develop a vaccine using Dyadic’s proprietary C1 expression system. Our business performance continues to improve, particularly with margin improvements in our industrial enzyme business.

From a scientific perspective, since expanding our Dutch research center, we were seeing accelerated advancements and achievements into continuing development of our C1 expression system. A few weeks ago, Abengoa Bioenergy had its grand opening at their 25 million gallon cellulosic ethanol plant in Hugoton, Kansas.

We would like to congratulate Abengoa on that opening of their plant and the success that Abengoa has had with that.

Also, we would like to congratulate them on the commercial success they have had with Dyadic C1 enzyme technology, not just for the commercialization of their end-to-end technology from biomass to cellulosic sugars which can be used to not only produce cellulosic ethanol, but also these cellulosic sugars are expected to be used to produce a growing number of bio-based products.

Abengoa has reportedly produced these C1 enzymes in 500,000 liter fermenters, the largest in the industry. As part of the grand opening of the facility, Abengoa’s CEO made the following statements about their C1 enzyme technology.

The proprietary enzymatic hydrolysis technology utilized commercially at Hugoton is also a focal point in Abengoa’s efforts to diversify the range of raw material feedstocks, from which biofuels and bio-products can be produced.

For example, for more than a year, the company has been operating a demonstration-scale facility that is capitalizing on the same technology in enzyme cocktail used at Hugoton to extract cellulosic sugars from municipal solid waste thrash, thereby allowing expansion of the renewable fuels industry from rural to urban areas.

We are having continued success with the ongoing funded BASF research project at Dyadic Netherlands and we expect to enter an expanded phase of that project later this year or early next year. The communication and collaboration between the Dyadic and BASF scientific teams is strong and the scientific results to-date continued to be very exciting.

Additionally, in our own internal research projects we continue to reach higher yields of enzymes in both our high cellulose and white low cellulose C1 strength, which we expect to translate into high yields and low cost manufacturing processes for ourselves, our licensees and collaborators.

We are seeing promising preliminary results from some of our internal C1 research and enzyme product development efforts. If these efforts and results continue to prove out in industry application trials, we would expect to launch one and more of these products as soon as 2017.

On the biopharmaceutical front, we are happy to confirm that the funded project with Sanofi Pasteur has been extended into 2015 and the kickoff meeting began at the end of last month. The extension highlights the commitment of all parties involved to continue the ongoing project to try and develop a vaccine using the C1 expression system.

For new business development, we continue to be in active dialog with both large and small potential commercial parties worldwide for potential licensing, partnerships, co-development projects and joint ventures, business development activities occurring in many different end-markets, including our core cellulosic biofuels, animal nutrition and biopharmaceutical areas.

We have also increased our activities in pursuing opportunities in starch processing, including first generation and second generation biofuels, biogas and solid waste processing. Additionally, since the hiring of Dr. Tchelet in the role of Vice President of Business Development, we have increased our activity in the biopharmaceutical space.

Due to the efforts of Dr. Tchelet, Danai and other colleagues, we are learning more about the technical and business challenges that we may confront in further developing C1 into a robust platform for the development and manufacturing of biopharmaceuticals.

Additionally, we are developing new relationships with potential partners in this space and we are exploring the best way to accelerate our growth in this market. Of particular interest, due to in part the renewed interest in combating infectious disease such as Ebola.

We have reached out to and have initiated preliminary discussions with a certain party to explore using C1 to potentially express promising genes. We have also along with a consortium of other companies and scientific institutes jointly applied for and submitted a proposal on a European funding application related to vaccine production.

To further our progress towards becoming a fully SEC reporting company on a major exchange, we filed a second amendment to our Form-10 with the SEC last month. We completed our responses to the SEC’s comment letter.

However, we believe that we would not have been in the best interest of shareholders to become a fully reporting SEC company without receiving the SEC’s response to our second amendment.

As we disclosed on October 10, after a careful consideration, we voluntarily will do our filing as we would have otherwise become effective prior to have any opportunity to complete the process with the SEC examiner.

We currently intend to re-file our Form-10 early in 2005 – 2015 sorry with either our September 30, 2014 financials or our year end 2014 audit financials. However, the specific timing of this re-filing has not yet been definitively determined.

With regards to mediation against our former legal counsel a court order remediation occurred earlier this week. The discussion held remediation, are confidential and we are not allowed to disclose any information related to this matter. At this time we anticipate that the trial will be scheduled in Q2 or more likely Q3 of 2015.

Finally, as reported in our press release of October 30, we have successfully extended all of our convertible subordinated notes to January 1, 2016. We believe that this was a necessary and important step in not only ensuring our financial flexibility but also providing the company with a lower total cost of financing than new financing.

We are aggressively working on our growth plan across all lines of our business to improve top and bottom line results. I will now turn it over to Danai Brooks, our Chief Operating Officer to discuss operations and business development..

Thank you, Mark. And I will focus today on new business opportunities, our technology advances, new product development and the performance of our industrial enzyme business. On new business development opportunities, we continue to focus on opportunities in both our existing markets and new emerging markets.

Over the past several months in addition to ongoing efforts in the U.S. and Europe Dyadic senior milligram has travelled to China, Japan, Brazil and Thailand to pursue very tangible new opportunities. With newly hired expertise in the fields of biofuels and biopharmaceuticals we have been able to expand our footprint in both sectors.

To further Mark’s comments on biopharmaceuticals, we are working to develop our C1 expression system into a platform to produce vaccines, antibodies and other therapeutic proteins.

With heightened global concern over potential epidemic outbreaks of infectious disease there is a critical need for the capability to develop and produce vaccines and other biologic drugs quickly in very large scale.

Since C1 has the potential to generate new cell lines more rapidly and has an 18-year track record of industrial scale production and up to 500,000 liter fermenters, it has the potential to surpass existing drug production systems used to manufacture biologics in terms of scale, productivity, efficiency and improved response time.

One step in this process of developing C1 in this rural platform to produce vaccines and other therapeutic proteins at global scale is our funded work with Sanofi Pasteur.

We are also talking to other parties to try and accelerate the development of C1 platform to fight epidemic outbreaks such Ebola and other infectious diseases both through commercial and government funded programs. Currently we have 16 projects running at our lab in the Netherlands, 10 of which were begun in the past year.

Year-over-year our R&D revenue was up 60% through the end of Q3. Over the past 15 months we have increased the number of scientists in the lab by over 80%, but with cost controls and increased R&D revenue Dyadic’s run rate net R&D spend has actually decreased slightly when compared to the pre-expansion run rate.

We are currently in the application process for four new subsidized projects in the European Union in the areas of biofuels, bio-based chemicals and biopharmaceuticals. We are also in the late stage in discussions with a number of commercial parties for new and expanded C1 product development projects for 2015.

The majority of the increased investment in R&D at Dyadic has been through accelerated improvements of C1 expression system and for new product development. The quality and productivity of our C1 platform has never been better and we continue to solve technical hurdles that challenge the entire industry.

We are now developing 6 new products for potential use in biofuels, pharmaceuticals, animal feed, starch processing, baking and brewing. Commercialization of one or more of these products is expected to begin no earlier than 2017, although we may see licensing and/or additional R&D revenue from such projects before then.

Our CMAX product that is being developed for the cellulosic biofuel and bio-based chemical space is class leading in terms of performance with certain biomass feedstock and production conditions. We continue to achieve greater productivity and estimate that CMAX may now be produced at a 40% lower cost than we could a year ago.

In addition to positive results with BASF and others that were mentioned earlier, we have received particularly promising results from two of our subsidized EU baking projects, HealthBread and Bakenzyme.

Products being developed in both of these projects have shown tangibly positive results and we expect to move one or both of these projects from research to commercialization.

We believe these two projects along with a few others will serve as templates to demonstrate the benefits of taking subsidized EU programs and translating them into commercial success. For the industrial enzyme business, we have achieved record margins and gross profit.

Gross margins for the business have grown 74% year-over-year when compared to the same nine-month period in 2013. Efforts have paid off in streamlining our production processes, better utilization of fermentation capacity and favorable products mix and pricing.

While year-to-date growth in the enzyme business has been modest, we believe that we are now selling better product mix to a stronger customer base. We believe that it can accelerate product revenue growth of our existing products by adding new customers as well as applying these products to new applications and processes.

We anticipate seeing accelerated product sales growth in 2015, particularly in the areas of animal feed, starch processing, biogas and first and second generation biofuels.

Many of the new sales opportunities we are addressing and seeing evolve in both our enzyme business and our licensing business can be attributed to the global leadership team that has been strengthened over the past 18 months. Now, let me turn the call over to Tom Dubinski, our Chief Financial Officer to discuss the financial results..

Thank you, Danai. Before reviewing the third quarter financial results, I would like to take a moment to remind you to please visit our website or the OTC Markets website to review our press release and the financial statements.

Total revenue for the quarter was up $400,000 or 9.4% primarily reflecting favorable licensing revenue of $700,000 broken down between $0.5 million from Abengoa and $200,000 from BASF, and R&D revenue of $200,000.

Partially offsetting this favorability was lower product-related revenue of $0.5 million, which primarily reflects comparison with the third quarter of 2013 that included a significant sales rebound in our animal feed and brewing business due to the impact of the Asian bird flu and product shortage concerns.

Total revenue for the nine-month period was down $3.2 million or 24.5% primarily due to licensing revenue of $700,000 in 2014 and the $0.5 million BASF licensing payment received in 2013 for the same period. The BASF licensing revenue in 2013 was totaled $6 million. The remaining $1 million payment was received in Q4 of 2013.

Excluding licensing revenue, product-related and R&D revenue are favorable $1.1 million or 13.8% reflecting growth in our animal feed, brewing, starch and alcohol businesses in R&D project activities.

Gross profit for the quarter increased $900,000 or 130.6% due to 100% margin licensing revenue of $700,000 and continued improvement in manufacturing efficiencies, primarily higher fermentation and recovery yields of $100,000 and R&D project revenue growth of $100,000.

As Danai pointed out, our product-related revenues have improved to 30% versus 8.8% in Q3 of 2013.

Gross profit for the nine-month period decreased $2.9 million or 45.6% due to the reduction in the 100% margin licensing revenue of $4.3 million partially offset by improvement in manufacturing efficiencies primarily higher fermentation and recovery yields of $900,000 and R&D project revenue growth of $0.5 million.

Product related margins have improved to 30% from 17% in nine months period of 2013. Operating expenses for the quarter increased $0.5 million or 26.3% reflecting the following.

$300,000 or a 34% increase in general and administrative expenses excluding litigation due to staff additions and related costs for the hiring of the CFO and the VP of Business Development in Europe of $100,000 and SEC registration related costs of $200,000, $300,000 decrease or 60% in general and administrative litigation due to a reduction in the legal and expert work in connection with our lawsuit against former outside legal counsel.

$100,000 increase or 31% increase in sales and marketing due to the addition of a Sales Director in Europe to strengthen our sales leadership team. $200,000 or 49% increase in research and development reflecting increased investment in product development, strain development and fermentation optimization to enhance our product pipeline.

And lastly $200,000 increase in foreign exchange, currency exchange due to the U.S. dollar gains versus the euro. Operating loss – operating expenses for the nine months period increased $1.9 million or 35% reflecting the following changes.

$1.2 million or 49% increase in general and administrative expenses excluding litigation due to staff additions and related costs for the hiring of the COO, CFO and VP of Business Development in Europe of $600,000 SEC registration related costs of $300,000 and the year-over-year impact of 2013 bad debt recovery in the amount of $300,000.

General and administrative litigation costs are flat year-over-year at $1.2 million. $200,000 or 36% increase in sales and marketing due to sales, staff additions and related costs for our Sales Director in Europe and in the United States to strengthen our sales leadership team.

A $400,000 or 29% increase in research and development reflecting increased investment in our product pipeline and $100,000 increase in foreign exchange due to the dollar – U.S. dollar gains versus the euro.

Net income for the quarter was a loss of $1 million or $0.03 per basic and diluted share compared to a net loss of $1.7 million or $0.5 per basic and diluted share for the same period a year ago.

The net loss for the nine months period was $4.3 million or $0.13 per basic and diluted share compared to a net gain of $100,000 or a net zero impact per basic and diluted share for the same period a year ago.

Excluding litigation related legal fees net loss for the nine months period would have been $3.1 million or $0.09 per diluted and – basic and diluted share compared to a net gain of $1.3 million or $0.04 per basic and diluted share for the same period a year ago.

Cash, our cash position and cash flow at September 30, 2014 cash and cash equivalents were $3.4 million compared to $4.3 million as of June 30, 2014 representing a use of cash of $900,000 summarized as follows. $0.5 million used for operating activities, $200,000 used for litigation and $200,000 used for working capital needs.

As of September 30, 2014, cash and cash equivalents were $3.4 million compared to $8.9 million at December 31, 2013 representing a use of cash of $5.5 million summarized as follows. $2.2 million used for operating activities.

$1.2 million used for litigation and $2 million used for working capital primarily accounts payable reduction of $800,000 and increased inventory of $700,000. A $200,000 use of cash for capital expenditures and $1 million source of cash for repayment of stocks subscriptions.

Stockholders’ equity and accumulated deficit our history of operating losses have resulted in an accumulated deficit of approximately $82.8 million and a total negative stockholders’ equity of $900,000 as of September 30, 2014 versus a positive stockholders’ equity of $2.6 million as of December 31, 2013.

Lastly, I would like to provide an update – provide an SEC Form 10 registration update. As we discussed – as we disclosed on October 10, 2014, the company voluntarily withdrew our registration statement.

The rationale for that decision was based on careful consideration and discussion, which included SEC Council of two factors among other considerations.

Factor one, after working cooperatively and productively with the SEC examiner and filing our response to the common letter in the Form 10 amendment number 2 incorporating our responses on a timely basis, the company’s registration statement would have become effective on October 14 subjecting that company to full SEC reporting requirements immediately regardless of whether or not the company had completed the common process with the SEC examiner.

And two, the impact and timing of two potentially material events developing within days of the November 15 10-Q filing deadline, if the company was effective on October 14, one being the company negotiating the potential extension of it’s existing debt, convertible debt or securing new debt financing or two, the company learning of a potential definitive outcome at the litigation mediation, which was scheduled to begin on November 10.

Due to the risks associated with the factors just discussed, the company on advice of the SEC Council decided to withdraw its Form 10 registration statement with the intent of re-filing in early 2015 with either September 30 or December 31, 2014 financial statements. Now, I would like to turn the call back to our operator to take questions.

Anne?.

Thank you. (Operator Instructions) We will take our first question from Richard Deutsch from Ladenburg Thalmann..

Thank you for taking my call. You seem to have made a lot of progress in upping your biopharmaceutical targets.

Can you give us a little bit of color on what the scientific objectives are in this vaccine in biopharmaceutical research?.

Sure.

Danai, you want to start that?.

Yes. So, we can’t give specifics on the target for Sanofi, but broadly as a potential platform for C1, we think that C1 can produce in a more productive manner and modify our cell lines more quickly than existing systems, which I think is going to be very well tailored to handling large scale infectious diseases and development of vaccines.

So, the timeline is still we are in development phase. It’s going to be sometime before we bring products to market, but currently we are seeking both government and commercial partners to continue to develop the platform in addition to Sanofi..

Yes, but you still haven’t detailed for us exactly why C1 seems to be a candidate versus the existing systems?.

So, let me chime in there, Rick, to see if I can add a little color to it and give you a little better clarification. So, we think that filament is fungi, have unique attributes compared to other systems like bacteria, which does not glycosylate, so for glycoproteins obviously the filament is fungus would be better. They are more productive.

They grow in much shorter times and chose cells, for example. We can grow them at much larger scale. We can create cell lines with their production host right into the discovery. So, when we start cloning genes right off the bat, we are putting right into the production organism that we intend on using.

So, we think that we can actually accelerate the timeline of bringing the vaccine to the market, but you have been asked if not more important, if there is an outbreak, you need to be able to produce these in flexible, robust, fermentation facilities all over the world.

And as you know, C1 has been produced in Mexico and Spain and Canada and the United States and in Poland and up to 500,000 liters. So, we could produce needs to actually meet the demand if in fact as a short-term need for such a thing.

So we think that it could be a phenomenon system for the development and production of these types of diseases and vaccines.

So I hope that gives you better clarity as to why we think that C1 is if not the best and one of the best candidates, it’s moving all the molecular tools there, the scalabilities there, the low cost production there, the yields there that can be grown under a variety of different pH and temperatures and conditions.

So we just think it’s an ideal organism to move in that direction..

How long do you think it will be before we will be able to get an update on the progress?.

I don’t know, again it’s hard to say I mean we have just extended. We started last month the extension of the Sanofi project and that’s again it’s under confidentiality and restricted as to what we can say about that.

But as we need to develop and come forward and if we actually identify and put deals together with people who we are having discussions with and we will obviously try and report those on a timely manner.

I can’t give you a definitive time but this is not a short-term project in order to have vaccines and the technology that’s going to be able to do the things we just talked about. They can change the phase by the way vaccines are developed and produced is a multi-year project..

And so your deal with Sanofi restricts you from taking on other research partners?.

No it does not..

Okay..

And we are actively seeking and are in discussions with a few people on some very interesting possibilities..

Okay.

And one another quick question here, you have a license fee in the animal feed arena, we have been waiting to hear an update on when they were going to file a statement that would target their licensing in Europe, can you give us any color on whether that’s progressing or not?.

Well, obviously it’s progressing. We don’t have a public document that we are aware of that they filed at the moment, so we can’t point you to that. So if and when that comes available we will certainly bring that forth..

Alright. Thank you..

And it is just – unfortunately it’s confidential where they are at, at the moment..

Okay. Thank you very much..

Okay. Thank you..

(Operator Instructions) And I am showing no further questions at this time. And we will now turn the call back over to Mr. Emalfarb for closing comments..

I want to thank all of you for being shareholders and supporters of Dyadic and for participating in today’s conference call. We look forward to reporting our progress to you during our final year end financial statements coming up this spring and look forward to having positive and interesting results. Thank you very much..

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