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<SEC-DOCUMENT>0001144204-05-014454.txt : 20050509
<SEC-HEADER>0001144204-05-014454.hdr.sgml : 20050509
<ACCEPTANCE-DATETIME>20050509160854
ACCESSION NUMBER:		0001144204-05-014454
CONFORMED SUBMISSION TYPE:	424B3
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20050509
DATE AS OF CHANGE:		20050509

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DYADIC INTERNATIONAL INC
		CENTRAL INDEX KEY:			0001213809
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731]
		IRS NUMBER:				450486747
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		424B3
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-121738
		FILM NUMBER:		05811871

	BUSINESS ADDRESS:	
		STREET 1:		140 INTRACOASTAL POINTE DRIVE
		STREET 2:		SUITE 404
		CITY:			JUPITER
		STATE:			FL
		ZIP:			33477
		BUSINESS PHONE:		561-743-8333

	MAIL ADDRESS:	
		STREET 1:		140 INTRACOASTAL POINTE DRIVE
		STREET 2:		SUITE 404
		CITY:			JUPITER
		STATE:			FL
		ZIP:			33477

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CCP WORLDWIDE INC
		DATE OF NAME CHANGE:	20030110
</SEC-HEADER>
<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>v017746_424b3.txt
<TEXT>

SECOND PROSPECTUS SUPPLEMENT                    Filed Pursuant to Rule 424(b)(3)
(to Prospectus dated January 28, 2005)          Registration No. 333-121738

                                  [DYADIC LOGO]

                           DYADIC INTERNATIONAL, INC.

                                28,369,878 SHARES
                                  COMMON STOCK

                          -----------------------------

      This second prospectus supplement supplements and amends the prospectus,
dated January 28, 2005, and the prospectus supplement, dated March 1, 2005,
relating to 28,369,878 shares of the common stock, par value $0.001 per share,
of Dyadic International, Inc., that may be offered and sold from time to time by
certain of our stockholders. Unless the context otherwise requires, "Dyadic,"
the "Company," "we," "our," "us" and similar expressions refers to Dyadic
International, Inc. and its subsidiaries, but not to the selling stockholders.
"Selling stockholders" refers to the stockholders identified under the caption
"Selling Stockholders," contained in the prospectus dated January 28, 2005. This
second prospectus supplement contains references to documents available on the
Company's website. Information contained on our website should not be considered
part of the prospectus as supplemented and amended.

      Our common stock is traded in the over-the-counter, or OTC, market and
quoted through the OTC Bulletin Board under the symbol "DYAD.OB." On May 3,
2005, the closing price for our common stock on the OTC Bulletin Board was
$2.65.

      We will receive none of the proceeds from the sale of the shares by the
selling stockholders, except upon the exercise of certain warrants, options and
convertible notes currently outstanding. We will bear all expenses of
registration incurred in connection with this offering, but all selling and
other expenses incurred by the selling stockholders will be borne by the selling
stockholders.

      The prospectus, together with the prospectus supplement and this second
prospectus supplement, constitutes the prospectus required to be delivered by
Section 5(b) of the Securities Act of 1933 with respect to offers and sales of
the shares of common stock. All references in the prospectus to "this
prospectus" are hereby amended to read "this prospectus (as supplemented and
amended)."

      YOU SHOULD READ THE PROSPECTUS, THE PROSPECTUS SUPPLEMENT AND THIS SECOND
PROSPECTUS SUPPLEMENT CAREFULLY BEFORE YOU INVEST, INCLUDING THE RISK FACTORS
WHICH BEGIN ON PAGE 5 OF THE PROSPECTUS.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

                          -----------------------------

          The date of this Second Prospectus Supplement is May 4, 2005

<PAGE>

      THE PROSPECTUS IS HEREBY SUPPLEMENTED TO ADD THE FOLLOWING SECTION TITLED
"RECENT DEVELOPMENTS." THE INFORMATION SET FORTH BELOW IS NOT INTENDED TO
REPLACE OR SUPERSEDE THE INFORMATION CONTAINED IN THE PROSPECTUS, AS
SUPPLEMENTED, EXCEPT WHERE THE INFORMATION BELOW IS INCONSISTENT WITH THE
INFORMATION IN THE PROSPECTUS OR WHERE THE CONTEXT OTHERWISE REQUIRES.

RECENT DEVELOPMENTS

      ON APRIL 15, 2005, THE COMPANY FILED ITS ANNUAL REPORT ON FORM 10-KSB FOR
THE FISCAL YEAR DECEMBER 31, 2004 (THE "REPORT") WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE REPORT IS AVAILABLE ON THE INTERNET AT
HTTP://EDGAR.SEC.GOV. SET FORTH BELOW IS CERTAIN INFORMATION DERIVED FROM THE
REPORT. THE REPORT IS NOT INCORPORATED INTO THIS PROSPECTUS SUPPLEMENT.

DESCRIPTION OF BUSINESS

THE COMPANY

General

      We are a biotechnology company engaged in the development, manufacture and
sale of enzymes, other proteins, peptides and other bio-molecules derived from
genes, and the collaborative licensing of our enabling proprietary technologies.
We use our proprietary technologies to develop and manufacture biological
products, and intend to collaboratively license them for research, development
and manufacturing of biological products, for two categories of applications:

      o     enzymes and other biological products for a variety of industrial
            and commercial applications, which we refer to as our Enzyme
            Business; and

      o     human therapeutic proteins for use by pharmaceutical and
            biotechnology companies in pre-clinical and clinical drug
            development applications and commercialization following drug
            approval, which we refer to as our BioSciences Business.

      We have developed and use a number of proprietary fungal strains to
produce enzymes and other biomaterials, but the one on which we have principally
focused is a patented system for protein production, or protein expression,
which we call the C1 Expression System. This System is based on our patented
Chrysosporium lucknowense fungus, known as C1, as its host production organism.
A host production organism is an organism which has been genetically altered to
express genes to produce targeted protein products. We discovered the C1
microorganism in the mid-1990's and initially developed it, without the
application of molecular biology, to produce neutral cellulases for our textile
manufacturing customers. By 1998, we began to apply molecular genetics and other
proprietary biotechnology tools to C1 to create a technology, which we refer to
as the C1 Host Technology. The C1 Host Technology, once fully developed, is
expected to be capable of performing:

      o     two screening functions for:

            o     the discovery of genes and the proteins they express; and

            o     the identification of improved protein variants resulting from
                  modifications to their genes; and

      o     three expression functions for:

            o     the expression of proteins in commercial volumes for
                  industrial enzyme applications;

            o     the expression of human therapeutic proteins in small volumes
                  for pre-clinical and clinical testing for drug development
                  applications; and

            o     the expression of human therapeutic proteins for drugs in
                  commercial volumes.

We have been, over the last several years, principally focused on the expression
capabilities of the C1 Host Technology. These efforts culminated in our first
commercially successful application - our C1 Expression System.


                                       2
<PAGE>

      Using the C1 Expression System, as well as other biological systems, our
Enzyme Business develops and produces commercial quantities of enzymes for sale
to textile, pulp and paper, animal feed, chemical, agricultural, and other
industries. These industries, in turn, use our products to enhance their own
products or to improve production efficiency. In 2003, we began to use our C1
Expression System and other proprietary technologies to complete the development
and market roll-out of several new and higher profit margin industrial and
agricultural enzyme products, including for example: LTC CONC, MPE, NCE 2X,
Fibrezyme LBL, Fibrezyme LDI, Fibrezyme LBR, and Xylanase 2XP CONC which have
largely been responsible for our growth in revenues between 2001 and 2004. We
currently sell more than 45 liquid and dry enzyme products to more than 150
industrial customers in 50 countries.

      We believe, however, even larger market opportunities exist for our C1
Expression System. For example, we believe our C1 Expression System can be
successfully harnessed to help solve the protein expression problem confronting
the global drug industry - the difficulty, despite enormous historic investment,
of cost-effectively and expeditiously harnessing existing genomic knowledge to
develop new specialized biological products, or therapeutic proteins. For the
past five years, we have been developing our C1 Expression System to serve the
drug industry in the discovery, development and production of human therapeutic
proteins, with our primary focus on enabling pharmaceutical and biotechnology
companies to not only successfully carry on the development of drugs from their
gene discoveries, but also to manufacture those drugs at economically viable
costs. Still in the development stage, we refer to these activities as our
BioSciences Business. These activities have thus far generated nominal revenues
of only $150,000 in 2003 and generated no revenues in 2004.

      We have also been developing the screening potential of our C1 Host
Technology for gene discovery and the identification of protein variants
resulting from modifications to their genes, which we refer to as our C1
Screening System. These efforts have included our purchase of state-of-the-art
robotics equipment and a collaborative partnership with a Netherlands-based
scientific organization, TNO Quality of Life (f/k/a TNO Nutrition and Food
Research Institute), and the establishment of a wholly-owned subsidiary, Dyadic
Nederland BV, to develop a fully-automated high throughput screening system, or
HTS System. We believe that if our BioSciences Business' application of our C1
Expression System and our C1 Screening System can each be perfected, we will be
able to offer a potentially unique end-to-end solution for drug companies: a
single host production organism usable throughout the discovery, pre-clinical
and clinical testing and commercial production phases of drug development that
would greatly increase drug development efficiency, economy and speed to market.
By the same reasoning, we believe that the C1 Host Technology is expected to
benefit the development of industrial or specialty enzyme products by allowing
discovery, improvement, development and large-scale manufacturing in a single
host organism, which should result in shorter inception to commercialization
time and greater probability of success.

      Currently, we own three issued U.S. patents and 57 U.S. and International
filed and pending patent applications which we believe provide broad protection
for our C1 Expression System, our underlying C1 Host Technology, our C1
Screening System and their products and commercial applications.

History of Dyadic

      The Company's operating subsidiary, Dyadic International (USA), Inc.
("Dyadic-Florida"), was founded by Chief Executive Officer, Mark A. Emalfarb, in
1979, and was throughout the 1980's a leading supplier of both domestic pumice
stones and pumice stones imported from overseas for use in the stone washing of
denim garments. In the 1990's, we evolved from serving only the denim industry
to the development and manufacture of specialty enzymes and chemicals and, by
1995, were generating revenues of approximately $8,500,000 and annual profits of
approximately $1,300,000. In the mid-1990's, we discovered the C1 microorganism
in connection with our efforts to develop improved industrial enzymes. By 1998,
we began investing significant financial resources in the application of
molecular genetic technology to the development of the C1 Host Technology.

      In the first half of 2001, we raised capital of approximately $13,635,000,
prior to expenses of approximately $200,000, largely to fund the development of
our C1 Screening System. At that time, we thought we were within one year of
being able to find collaboration partners to help us complete its development,
though we continued to develop our C1 Expression System. However, between 2001
and 2003, even as our Enzyme Business began to grow rapidly, we experienced a
major shift in market demand for our C1 Screening System. First, we found that
large pharmaceutical companies, frustrated by lack of success with some of their
investments in unproven screening technologies like our C1 Screening System,


                                       3
<PAGE>

began requiring unprecedented levels of accumulated scientific data as a
pre-condition to partnering with us. Second, we found that the interest of these
large pharmaceutical companies had moved away from gene discovery and screening
applications, to an interest in the expression of therapeutic proteins for
pre-clinical testing, clinical trials and drug commercialization.

      We adjusted our strategy accordingly, and between May 2003 and March 2004,
we began to focus principally on our C1 Expression System, even as we continued
to develop our C1 Screening System and related HTS hardware and assemble more
scientific data to support our claims regarding that System's potential. During
this interval of time, we also continued to grow our Enzyme Business, as we used
our C1 Expression System and other proprietary technologies to successfully
develop several industrial enzymes, while continuing to seek equity financing.

      Between April and July 31, 2004, we raised common equity capital of
approximately $4,735,000, prior to expenses of approximately $118,000, through a
private placement. Between October 1 and November 4, 2004, we raised additional
common equity capital of approximately $25,400,000, prior to estimated expenses
of approximately $2.7 million, in a private placement we conducted companion to
the merger of our wholly owned subsidiary into Dyadic-Florida, in which its
shareholders received shares of our stock representing a majority of our
outstanding shares.

      We derive almost all of our revenues from the conduct of our Enzyme
Business, and have thus far generated only nominal revenues from our conduct of
our BioSciences Business. We have incurred losses every year since we began
developing our C1 Host Technology, in 1999. Those losses resulted primarily from
expenses associated with research and development activities and general and
administrative expenses. To become profitable, we must continue to grow our
Enzyme Business, and generate income from the conduct of our BioSciences
Business, either directly or through potential future license agreements and
collaborative partnerships with drug companies.

Our Future

      Despite our Enzyme Business' history of revenue generation and growth, the
combination of its reliance upon the expansion of the capabilities of our C1
Expression System and the early-stage, developmental nature of our BioSciences
Business require that we be characterized as an early-stage company. Our conduct
of the BioSciences Business is subject to the risks customarily attending the
operations of any early-stage company, including the development of new
technologies and products, the assembly and development of production and R&D
capabilities, the construction of channels of distribution and the management of
rapid growth. We expect to continue to spend significant amounts to fund R&D and
enhance our core technologies. As a result, we expect to have significant future
capital requirements and continue to incur losses as we develop the C1
Expression System, complete development of the C1 Screening System, and build
other required infrastructure to exploit our C1 Host Technology, our C1
Expression System and our C1 Screening System. Our BioSciences Business has not
achieved, and may never achieve, profitability. There can be no assurance that
our efforts with regard to these objectives will be successful.

      As noted above, between October 1, 2004 and November 4, 2004, we raised
additional common equity capital of approximately $25,400,000 prior to expenses
of approximately $2.7 million, in a private placement. We believe that we have
sufficient equity capital to fund our operations and meet our obligations
through the end of 2006. If we are unable to fund these requirements, our
business could be seriously harmed.

OUR MARKETS

Enzymes

      Industrial manufacturers and the agricultural and food sectors have long
used biological products, such as proteins, enzymes, peptides and other
bio-molecules, to enhance the functionality or durability of their products and
to improve production yields and efficiency. As examples:


                                       4
<PAGE>

      o     the textile industry uses enzymes to soften and fade denim, as well
            as to prevent pilling and improve smoothness, softness and color
            brightness of cotton and other cellulosic fabrics;

      o     pulp and paper manufacturers use specialty enzymes as substitutes
            for harsh chemicals and other additives in bleaching and de-inking
            to improve whiteness, brightness and fiber strength, to increase
            production rates and to decrease wastewater treatment burdens;

      o     agricultural companies use biological products to increase and
            enhance crop traits and yields and to encourage disease resistance;

      o     animal feed producers use biological products to improve the
            nutritional value of animal feeds and to improve production
            efficiency; and

      o     other industries, including starch processing, cosmetics,
            detergents, flavorings and bio-fuels, also use enzyme products for a
            wide variety of applications.

It is our understanding that the current potential market for biological
products in the industrial, chemical and agricultural sectors exceeds $100
billion. We are also aware of estimates of the size of the industrial enzyme
market of between $2.0 and $3.6 billion.

BioSciences

      Pharmaceutical companies have also taken note of the emerging importance
of cost-effective, enabling production of therapeutic proteins in the drug R&D
process. Drug development is an expensive, time-consuming and risky process.
Burrill & Co. and the Pharmaceutical Research and Manufacturing Association
estimate that biopharmaceutical companies spent approximately $49.3 billion on
R&D in 2004. Of the potentially hundreds of thousands of compounds screened in a
drug discovery program, less than one in 1,000 will become new drug candidates
and only about 20% of these will complete human clinical trials and receive
regulatory approval. Only about 30% of drugs that are commercialized ever
recover their development costs. Pharmaceutical and biotechnology companies have
realized that to stay competitive and meet their goals for growth, they will
have to increase significantly the number of new drugs introduced each year and
employ new, sophisticated biotechnologies to increase the probability of success
in R&D. Because government agencies rigidly define and highly regulate the
pre-clinical and clinical trial phases of the development of new drugs, drug
companies can impose little control over the costs of these phases. As a result,
drug companies are increasing their focus on the drug discovery stage to enhance
productivity and reduce costs.

      The biopharmaceuticals market has progressed significantly since 1982 when
the first biopharmaceutical product, recombinant human insulin, was launched.
Now, over 120 biopharmaceuticals are marketed around the world, including nine
"blockbuster" drugs, such as EPO and Factor VIII. From information published by
pharmaceutical market consulting firms such as IMS Health, Inc., Dyadic
understands the total market for such drugs to be currently valued at
approximately $41 billion or nearly 10% of the world pharmaceuticals market, and
it has been growing at an annual growth rate of 21% over the past five years.
With over one-third of all pipeline products in active development being
biopharmaceuticals, the biopharmaceutical segment could continue to outperform
the total pharmaceutical market and reach $100 billion in annual sales by the
end of the decade. We believe that this growth is fueled by many factors,
including the following:

      o     Most biological processes in the human body are carried out by
            proteins. Therefore, a significant amount of current R&D activity is
            focused on finding therapeutic proteins which could be cures for
            various human diseases. This has resulted in approximately 500
            therapeutic proteins, or biopharmaceuticals, currently under active
            development.

      o     With the complete sequence of the human genome now available, many
            new human genes have been identified, and based on this knowledge
            companies are finding new promising drug targets.


                                       5
<PAGE>

      o     Due to the shorter path to drug development for biopharmaceuticals
            as compared to small molecules, pharmaceutical companies are now
            more focused on biopharmaceuticals than before.

      o     With many large biopharmaceutical proteins and the manufacturing
            processes for producing them losing patent protection, drug
            companies are developing modified versions of these molecules using
            alternative, more efficient production hosts.

      It is our understanding that roughly one-third of the nearly 500
therapeutic proteins under active development could be targets for expression in
a suitable host production organism. We also believe that number is likely to
increase significantly as new biopharmaceuticals are added to the pipeline of
drug companies every year. However, while many potential products are being
developed, it is not clear how they will be produced, often due to the drug
companies' inability to find a suitable host to recombinantly produce the target
protein for animal and human testing and/or commercial launch at a viable cost.
We believe that many pharmaceutical research programs at these companies have
been put on hold or canceled due to these problems.

      To solve this dilemma, a number of existing biotechnology companies have
developed expertise in the discovery, optimization and/or expression of novel
genes, proteins, enzymes and other biologically active molecules. Nevertheless,
such companies have experienced extraordinary difficulties in producing
sufficient quantities of proteins from genes for use in laboratory and clinical
testing and, subsequently, in commercializing drug product leads through low
cost, high volume production. Thus, despite the extraordinary investment in
genomic research over the past decade and the attendant increased number of
available therapeutic protein targets, the pharmaceutical industry has not yet
experienced a commensurate improvement in the speed of drug discovery and
development, nor any significant decrease in its cost, due in significant part
to the inability of current protein production methods to create sufficient
quantities of biological products on demand.

Alternative Technologies

      Proteins are made by "translating" or "expressing" genes. Genes are the
basic units of heredity and are found in DNA, a fundamental molecule found in
the cells of all living organisms. DNA consists of a code of instructions by
which each gene encodes a specific protein. These proteins are the functional
molecules that control the processes of living cells. The tremendously large
number of different proteins and protein combinations accounts for the
extraordinary biodiversity of living things in the world. Some of these proteins
have properties or characteristics which offer great functional and commercial
utility. For example, one class of protein - enzymes - can be used to catalyze
reactions that are difficult to perform using traditional chemistry and/or
employ much milder and less energy-intense conditions. Enzymes can be used in
various industrial processes to replace harsh chemicals and save energy, in
foods and feeds to improve their nutritional quality, and to generate fuels from
renewable resources. Other types of proteins can be used as therapeutic drugs to
improve the health of patients afflicted with debilitating conditions, such as,
for example, insulin for diabetics. It is this diversity of properties that
cause proteins, enzymes and other biomaterials to have such great potential to
impact our lives.

      Traditional methods of discovering proteins do not utilize a DNA-based
approach, but are accomplished by screening biological extracts or culturing
microorganisms for the activity of interest. Once a biological activity of
interest is identified, purification is performed and the relevant protein is
isolated. This process is followed by the difficult and time-consuming task of
determining the biochemical properties of the molecule, which requires producing
sufficient quantities of the molecule by generating and purifying a sample in
the laboratory. Because relatively few proteins have been successfully produced
in the laboratory, only a small fraction of the billions of different proteins
and their corresponding genes have been classified, or characterized. Among the
reasons for this modest number of characterized proteins are the generally small
quantities produced in native organisms and tissues, the difficulty of isolating
and purifying these small quantities, and the difficulty in obtaining organisms
that produce large amounts of proteins of interest. In consequence, the universe
of potentially useful biomaterials derived from the world's biodiversity remains
largely untapped.

      Despite the tremendous utility of proteins, there are limitations on their
use. Proteins generally are functional only under specific conditions of
temperature, pH, and salinity. Outside of those conditions, the proteins may not
be functional or stable. In order to overcome these limitations, proteins are
often sought from organisms that live in extreme environments - high
temperature, acid or alkaline, and high salt environments, for example.


                                       6
<PAGE>

Another way to obtain proteins with improved properties outside their normal
operating conditions is to introduce variations in the laboratory. The genetic
sequence corresponding to the protein can be studied and genetic variation may
be introduced in an attempt to modify its functional properties through a
process known as molecular evolution. The generation of improved variants has,
to date, remained inefficient and laborious. Once genetic variants are created,
the improved molecules must be selected from large numbers of variants to find
those with the desired properties. This selection process requires the ability
to quickly screen large numbers of genes to distinguish the improved versions.

      Through the application of recombinant DNA molecular methodology,
scientists can now insert genes from one organism into another and direct the
production of a desired bio-molecule encoded by the gene. Once a desired gene is
found and optimized, commercial production requires the insertion of the gene
into a production system, or host production organism that has been adapted to
express the gene and produce proteins from that gene. However, genes encoding
unique bio-molecules may not be able to be expressed and commercially produced
in traditional systems.

      At an enormous cost, drug companies have attempted to use a number of
different protein discovery and expression systems to assist with drug
discovery, each of which, we believe, suffers from significant limitations.

            Bacterial Expression Systems: Bacterial expression systems cannot
      express many of the native genes from eukaryotic sources, which consist of
      larger cells from higher order organisms that encompass linear DNA strands
      associated with proteins to form true chromosomes, primarily due to their
      inability to appropriately process introns, the portions of genetic
      sequences not involved in coding for protein. In addition, bacteria are
      unable to perform glycosylation - the process of attaching sugar molecules
      in the correct arrangement as required to translate many eukaryotic genes
      into functional, active proteins.

            Yeast Expression Systems: Yeast systems are not able to express many
      native eukaryotic genes as effectively as filamentous fungal systems due
      to hyperglycosylation and ineffective intron processing.

            Filamentous Fungal Expression Systems: Most fungi have the
      capability of expressing and secreting higher levels of protein per unit
      volume in fermentors than either bacteria or yeast, but yields are still
      low without significant development work on the host. In addition, these
      systems also have glycosylation issues similar to those in yeast, and
      their high viscosity makes commercial scale-up difficult. Moreover, most
      fungi are cultivated at acidic conditions, which can lead to instability
      of some human proteins, as these conditions are not the normal
      physiological conditions under which those proteins are stable. The
      biological properties of commercial fungal expression systems also
      typically result in dense mats of fibers and highly viscous cultures that
      are difficult to work with, especially in the small volumes required for
      high throughput screening. In industrial fermentations, the agitation
      necessary to adequately mix and aerate viscous cultures introduces large
      shear forces to the fermentation broth, making the production of
      shear-sensitive proteins difficult or impossible.

            Transgenic Plants and Animal Systems: Transgenic plants and animals
      have long development time lines. While scale up is relatively easily
      achieved by raising larger herds or planting more acreage, the ability to
      produce product on demand is limited, especially in plants. Also,
      containment is an issue, especially for pharmaceuticals where there are
      strict regulations regarding consistency and efficacy.

            Insect Cell Systems: Insect cell systems have many of the advantages
      of mammalian cells - for example, the ability to glycosylate proteins in a
      similar fashion. However, insect cell cultures are more difficult to scale
      up and do not produce the high protein yields that fungal cultures do.
      Also, permanent cell lines are difficult to maintain.

      Due to the shortcomings of these current technologies, drug companies have
been plagued by substantial capital spending requirements due to the expensive
nature of the fixed assets required to manufacture biological products,
including very expensive fermentation and purification equipment, shortfalls in
manufacturing capacity, high cost and low yield production, significant labor
intensive and costly research, and significant delays in bringing drugs to
market.


                                       7
<PAGE>

Dyadic's Solution

      We have developed a protein expression system - our C1 Expression System -
which we are now successfully using in our Enzyme Business. However, we believe
our C1 Expression System, in combination with our successful development of the
C1 Screening System, will eventually permit drug companies to fill major gaps in
the drug development process by having both an available gene discovery library
and a single suitable host production organism usable throughout the discovery,
pre-clinical and clinical testing and commercial production phases of drug
development. By the same reasoning the C1 Host Technology is expected to benefit
the development of industrial or specialty enzyme products by allowing
discovery, improvement, development and large-scale manufacturing in a single
host organism, resulting in shorter inception to commercialization time and
greater probability of success.

      Our patent protected C1 Expression System is based on Chrysosporium
lucknowense, or C1, a fungal host production organism with superior genetic and
fermentation characteristics that we discovered, developed and patented for use
in manufacturing of cellulase enzymes for applications in the textile industry.
We first encountered C1 during the course of a program to develop a cellulase
enzyme for textile manufacturing applications. Out of that program, we developed
C1 strains and processes which resulted in a several hundred fold increase in
protein production, compared to those originally obtained with the culture
isolated from nature. The characteristics of the C1 organism, which we believe
to be unique, and the competitive need for a proprietary fungal expression
system motivated us to apply molecular genetic technology to the further
development of C1. The morphology of the C1 culture, which we believe to be
unique, allows the use of culture conditions that are not normally attainable
with fungi and which lead to increased protein yields and more protein-friendly
production processes. This ability to grow under non-acidic and low viscosity in
culture conditions allows the production of acid-sensitive and shear-sensitive
human proteins that may otherwise be unstable under typical fungal fermentation
conditions.

      We believe that our C1 Expression System is particularly advantageous in
the rapid development of new biological products from genes and in the
commercial-scale production of various biological products at economically
viable costs, using a single host organism. As the following table indicates, we
believe our C1 Expression System overcomes many of the limitations of existing
commercial expression methods by offering significant advantages in expressing
certain classes of proteins.

                   CAPABILITIES OF CURRENT EXPRESSION SYSTEMS

<TABLE>
<CAPTION>
                        Mammalian        Bacterial             Yeast           Insect
                          Cells           Systems              Cell             Cell           Other Fungi          C1
                        ---------        ---------             -----           ------          -----------          --
<S>                    <C>              <C>                  <C>              <C>             <C>                  <C>
Intron Processing          Yes              None              Limited            Yes                Yes             Yes

Expression of
Eukaryotic                 Yes          Very Limited          Limited            Yes                Yes             Yes
Proteins

Compatibility with          No              Yes               Limited             No                 No             Yes
HTS

Glycosylation              Yes              None         Hyperglycosylation      Yes         Hyperglycosylation     TBD*

Output
Optimizable              Limited            Yes                 Yes               No                Yes             Yes
for Large-Scale
Manufacturing
</TABLE>

* To be determined. The analysis of selected proteins produced by C1 shows that
in those proteins, the glycan (carbohydrate) structures contain fewer sugars
than do glycans typically obtained in filamentous fungi and yeast. Filamentous
fungi and yeast typically produce glycans containing seven or more mannoses, a
specific type of sugar. The production of glycans with large numbers of mannoses
is termed "hyperglycosylation".


                                       8
<PAGE>

      We believe that our C1 Expression System offers many differentiating
advantages over commonly used protein expression systems, including:

      o     Use with Eukaryotic Genes; Flexibility: The C1 Expression System is
            the product of the C1 Host Technology out of which we believe we
            will also be able to develop the C1 Screening System. We believe the
            C1 Host Technology can spawn the C1 Screening System to discover
            proteins, enzymes and bio-molecules of commercial interest rapidly
            from eukaryotic sources, which some scientists estimate constitute
            up to 90% of the entire gene pool in nature, and with genes
            originating from prokaryotic sources. We believe that the use of a
            single host production organism usable throughout the discovery,
            pre-clinical and clinical testing and commercial production phases
            of drug development would greatly increase efficiency, economy and
            speed to market.

      o     Greater and Faster Expression: Our C1 Expression System has the
            ability to express higher levels of total protein in a shorter
            amount of time than other eukaryotic host organisms commonly used
            for pharmaceutical protein production. The reduction in the number
            of fermentation days generally results in lower production and
            capital costs associated with the production of protein products.

      o     Favorable Fermentation Characteristics: Our C1 Expression System
            operates under favorable fermentation conditions, including low
            viscosity and wider operating temperature and pH ranges, allowing
            optimal culturing under human physiological conditions, i.e. 37
            degrees Celsius and neutral pH. Also, because the high levels of
            agitation that are necessary to provide oxygen to fungal and other
            microorganisms during high viscosity fermentations may destroy
            shear-sensitive proteins, the ability of the C1 Expression System to
            produce proteins under lower viscosity conditions will increase the
            probability of successfully producing various shear-sensitive human
            therapeutic proteins.

      o     Acidity: The protein products of many genes, especially those of
            pharmaceutical interest, may be sensitive to being cultured under
            acidic conditions. Therefore, the ability of our C1 Expression
            System to produce acid-sensitive proteins under human physiological
            conditions will provide a greater likelihood of commercializing
            those proteins.

      o     Favorable Glycosylation: Our C1 Expression System appears to have
            favorable glycosylation biochemistry compared to other fungi or
            yeast. The latter organisms tend to hyperglycosylate, generating
            proteins with 7-11 or more mannosyl residues in their glycan
            structures. However, no such hyperglycosylation has been observed in
            our C1 Expression System, suggesting that C1-produced proteins are
            more amenable to in vivo and in vitro approaches to glycan
            remodeling than those from other expression hosts.

DYADIC'S PRODUCTS AND SERVICES

Enzyme Business

      Our Enzyme Business addresses major needs in diverse industrial enzyme
markets, including textiles, animal feed, pulp and paper, starch, food, beverage
and brewing and other markets. Though we have experienced growth in our sales to
the textiles market, we recognized the mature market dynamics in that segment
and have chosen to diversify our revenue base by focusing on other industries.

      With the improvement in our financial position, we recently embarked upon
the C1 genome sequencing project with Agencourt Bioscience. We anticipate that
the C1 sequencing project will be completed ahead of schedule, in the second
quarter of 2005. We expect to be able to identify a large variety of novel
commercially useful genes that were previously unavailable to us. Having access
to these genes is expected to help us accelerate our product development efforts
and improve the efficiencies of our C1 Host Technology for making enzymes for
diverse markets, including textiles, pulp and paper, animal feed, and food.


                                       9
<PAGE>

Textiles Industry

      Historically, we have had a significant market position developing,
manufacturing and marketing cellulase enzymes for a variety of textile
production and fabric finishing applications, including softening, fading and
treating of denim garments. We offer a wide range of cellulase enzyme products
for applications such as:

      o     denim finishing where cellulases are used to soften and fade the
            denim fabric, including Rocksoft ACE series and numerous other
            Rocksoft series; and

      o     biofinishing of cotton and cellulosics using BioACE series, which is
            a biofinishing process to prevent pilling and improve smoothness,
            softness and color brightness, and biopolishing.

      An example of a cellulosic fabric is Tencel (TM), a new high performance
cellulosic fiber made by Acordis. Its inherent strength, handle properties,
tendency to fibrillate, as well as its environmentally positive manufacturing
processes, makes Tencel (TM) more desirable than other regenerated cellulosics.
Our BioACE series, an acid cellulase derived from Trichoderma longibrachiatum,
offers a cellulase that has been approved and recommended by Acordis for the
treatment of 100% Tencel (TM) and its blends. Our textile enzymes are formulated
in various forms, including granular, liquid, and powder.

      We continue to seek improvements in the economics and performance of our
cellulases. Our ongoing research projects for the over-expression of a number of
advanced enzymes for the textile industry includes cellulase endoglucanases,
currently in pre-commercial stages which provide denim finishing with a soft
feel and stonewashed appearance or depilling at lower cost or more favorable
processing conditions.

      In 2003, using our C1 Expression System, we launched two new products,
created by isolating genes and reintroducing them into our C1 host organism, to
increase the productivity of the enzymes: the resulting superior product
performance has both improved our profit margins and increased our revenues. One
of our products, NCE2X, replaced one of our standard neutral cellulase products
by offering a better and cleaner look on denim. The second product, MPE and MPL
(powder and liquid forms from the same fermentation), which was launched in the
fourth quarter of 2003, is being well received by the market, and is expected to
make a positive contribution to our revenues in calendar year 2005 and beyond.

      The textiles market, which is characterized by low profit margins and
intense competition, accounts for a majority of our current net sales. We have
experienced a gradual decline in our share of that market, which we primarily
attribute to our previous lack of adequate resources to match the level of
investment in this market being made by our competitors, and our application of
a greater portion of our efforts on higher margin and larger market
opportunities such as pulp & paper and animal feed. To what degree our revenues
from this market will continue to decline in the future will depend not only on
that market's dynamics, but also on the extent of pricing pressure created by
our competitors, how successful we are in developing new products, and our
ability to lower our production costs. In this connection, we are exploring
several product leads for improving the performance of existing products and
developing new products as well as working to reduce the production costs of
these products. We intend to exercise discipline over the application of
resources to the textile market relative to other markets that we perceive will
offer the Company greater opportunity.

Pulp and Paper Industry

      Enzymes offer significant processing and environmental benefits for the
pulp and paper industry. We serve this market by developing, producing and
selling enzymes for bleach boosting, de-inking and bio-refining processes which
provide significant increases in process efficiency and improvements in the
quality of pulp or paper products, including increased strength, brightness and
whiteness. In addition, our products reduce the environmental impact of the
paper manufacturing processes by reducing the use of harsh chemicals and the
volume of solid waste in the discharged waste water. We estimate that
approximately one-quarter of the $8.0 billion pulp and paper chemicals market,
including bleach boosting, de-inking and bio-refining, is available to be
penetrated by our enzyme products.


                                       10
<PAGE>

      Dyadic offers three commercial products, FibreZyme LBL for bleach
boosting, FibreZyme LDI for de-inking and FibreZyme LBR for bio-refining.
Currently, these products are being tested by prospective customers in mill
trials in various geographical areas and on varying mill furnishes. Initial data
from these mill trials have thus far supported our expectations for the improved
effectiveness of the enzymes. Some of the benefits of our enzymes are being seen
in plant trials with new customers and in the continuing operations of existing
customers such as:

      o     improvement in the fiber properties, including, for example,
            increased strength, higher brightness and better drainability;

      o     energy savings, including, for example, steam and electricity,

      o     lower chemical consumption, including, for example, bleaching
            chemicals; and

      o     lower waste water treatment demand.

      We also expect to develop other enzyme products for optimization of these
process improvements and to address additional pulp and paper processing
problems.

Animal Feed Industry

      We provide specialty enzymes for customers who process grains such as
barley, wheat and rye to produce animal feed and other related products. Many
feed ingredients currently used are not efficiently digested by poultry or
livestock. However, by adding enzymes to feed, the digestibility can be
improved. Our feed enzymes are used as additives that allow feed producers to
supplement lower cost raw materials and also to improve the efficiency of
existing formulations. The main benefits of supplementing feed with enzymes, as
revealed by feed trials carried out to date, are faster growth of the animal,
better feed utilization, or feed conversion ratio, more uniform production,
better health status and reduced environmental waste.

      Presently, we make and sell two animal feed enzyme products offered in
different activity levels and formats: our Beta Glucanase BP CONC, a
beta-glucanase, is used in conjunction with barley-based diets, and our Xylanase
2XP CONC, a xylanase, is used in conjunction with wheat based diets.
Registration of these products in various countries is on going and is expected
to help increase the distribution of our products.

      Additionally, we intend to develop other animal feed enzymes for specific
diets in which highly effective enzymes are not commercially available today:

      o     Enzymes to improve corn/soybean meal diets that are commonly used
            for poultry and swine in the U.S.; and

      o     Phytase, an animal feed enzyme additive that is designed to increase
            the absorption of organic phosphorous, lowering the environmental
            impact of fecal matter, and to increase the digestibility of
            carbohydrates as well as the promotion of weight gain in livestock.

Food Industry

      We are presently marketing products to significant markets in the food
industry. We produce and sell the product CeluStar XL to the wheat starch
processing plants in Europe for the production of high fructose syrups and other
starch based products. This product has a competitive advantage over other
enzymes through its ability to drop viscosity during the first stages of the
starch production process. We produce and sell GlucoStar 400L and ViscoStar 150L
to the brewing and alcohol production market in Europe. We produce and sell
BrewZyme Series and FoodCel Series products to the brewing and fruit juice
production markets in Europe, North and South America and Asia. China has become
a large and rapidly growing market for brewing enzymes as the disposable income
of its population increases. Through one of our subsidiaries, two regional
distributors and one national distributor, we expect to significantly increase
our rate of penetration of this market.


                                       11
<PAGE>

BioSciences Business

      We expect our BioSciences Business to generate revenue by using our C1
Expression System to enable its business partners to successfully make
sufficient quantities of promising therapeutic proteins for preclinical and
clinical testing, thereby improving prospects for a drug candidate's advancement
from discovery through development, accelerating development time and reducing
R&D costs. Relationships with business partners will vary, ranging from pure
contract research, to collaborations, to strategic business partnerships such as
joint ventures and product co-development and co-marketing on a project by
project basis.

      When we license our technology to our customers, we anticipate that the
revenues to be derived from projects will be comprised of:

      o     licensing fees earned for deploying the C1 Expression System, or
            Technology Access Fees,

      o     research reimbursement fees for the performance of project research,
            or Research Fees,

      o     payments based on Dyadic's and/or the customer's successful
            achievement of Dyadic's research or customer's drug development
            milestones with the biological product, starting with the successful
            initial expression of target proteins with customer's genes, all the
            way to approval of the protein drug candidate by regulatory
            authorities, or Milestone Achievement Success Fees, and

      o     royalties on those biological products that have been successfully
            enabled by our proprietary technologies.

      In addition, although the mix of Technology Access Fees, Research Fees,
Milestone Achievement Success Fees and royalties will vary from project to
project, depending on whether the customer is a biotechnology company, which
involves lower Technology Access Fees and Milestone Achievement Success Fees and
higher royalties, or a pharmaceutical company, which provides the opposite types
of fees and payments, we contemplate that in some cases our customer may take an
equity interest in us, or that we may take a joint venture interest in the
biological product.

      Initially, our BioSciences Business will be focused on the C1 Expression
System's performance of its role as an enabling technology for drug companies.
Specifically, each project will involve a protein already characterized by the
customer, or, in other words, one that has been discovered and is believed by
the customer to have high commercial potential. The customer will deliver to us
the gene encoding this protein. Using our C1 Expression System, we will attempt
to express, or in other words produce, laboratory-testing quantities of the
protein for the customer.

      We also have several other technologies under development, including our
C1 Screening System, which will incorporate a high throughput screening, or HTS
technology for discovery of new genes and/or screening for improved variants of
previously or newly discovered genes. Should these technologies be successfully
developed, they may serve as additional revenue streams for the BioSciences
Business.

DYADIC'S STRATEGY

      We are pursuing a four-part business strategy to commercialize our C1 Host
Technology, which includes the C1 Expression System and C1 Host Technology, our
C1 Screening System as well as the products developed using that Technology,
which may be generally summarized as follows:

      o     Grow our market share and penetration for existing and new enzyme
            products, with an emphasis on increased sales of higher margin
            products;

      o     Leverage our C1 Expression System for commercial and industrial
            applications by developing new products for various industrial and
            commercial markets and by securing collaborator-funded R&D from
            third parties, and enabling us to earn milestone and royalty
            payments on target products expressed using the C1 Expression
            System;


                                       12
<PAGE>

      o     Build and grow our BioSciences Business by serving as a
            collaboration partner and service provider to large pharmaceutical
            companies for promising therapeutic proteins; and

      o     Exploit the power and versatility of our C1 Host Technology as well
            as our manufacturing capabilities, by forming strategic
            partnerships, such as joint ventures and product co-development and
            co-marketing ventures with leading companies in various industries
            and various parts of the world. In addition, we also hope to
            eventually spin-off new businesses emanating from the application of
            our C1 Host Technology, when we believe more value can be created
            for our stockholders by doing so rather than keeping them within our
            Company.

Enzyme Business Strategy

      Our C1 Expression System already is functional for the production of many
enzymes and proteins for the industrial markets. We have already developed and
manufactured a number of enzymes in large quantities using our C1 Expression
System in 150,000 liter fermentors and sold those products commercially
worldwide. Additionally, there are several enzymes in our R&D pipeline emanating
from the C1 organism and the C1 Expression System. We expect to commercialize an
even wider variety of new enzymes and proteins for the industrial markets with
better functional properties and improved cost performance through our efforts,
alone, and in collaboration with leading companies in industry sectors, such as
pulp and paper, agricultural products for animals and humans, chemicals,
textiles, and personal care products.

      Using our C1 Host Technology and capitalizing on our strong position in
the textile market, our goal for our Enzyme Business is to become a top-tier
provider of enzymes to broader markets, including pulp and paper, animal feed,
starch, food and other markets. To accomplish this goal, we intend to:

      o     Diversify sales away from the commoditized textile market to other
            less competitive, fast-growing markets;

      o     Register existing products in large new markets for sales to
            identified customers;

      o     Discover and develop new enzyme products for new applications in
            existing and new markets;

      o     Obtain the DNA sequence of the C1 genome. This resource is expected
            to facilitate the identification of many product leads from C1 genes
            and provide better understanding of the biochemistry and physiology
            of C1, enabling us to develop strategies to improve carbon flow
            toward proteins and other bio-molecules of interest and to
            rationally construct better host strains for both our C1 Expression
            System and our C1 Screening System;

      o     Continue to expand and utilize the low-cost production capacity of
            our contract manufacturer;

      o     Establish additional manufacturing capacity;

      o     Leverage investment in R&D to continue to improve yields and to
            drive revenue and profits though the launch of innovative products;

      o     Add sales and technical staff to support significant marketing
            initiative into new industrial markets;

      o     Add corporate infrastructure and staff to support projected revenue
            growth; and

      o     Partner with leading companies to develop and manufacture enzymes
            and other bio-products under an appropriate business arrangement,
            such as joint venture, co-development and co-marketing of products.


                                       13
<PAGE>

      In 2004, the Company focused its efforts on the pulp and paper industry.
Our expectations for 2005 and beyond are optimistic for this market. We have
hired several new employees to assist us in our efforts, including a Vice
President -Pulp and Paper division. We have worked with existing customers who
have allowed us to generate data to approach other global companies to promote
our products for bleach boosting, bio-refining and de-inking. The sales cycle is
long, but we have in several cases been able to enter mill trial stages within
six months to a year with several key potential customers.

      We now have the money to register our existing animal feed products and
new products under development for this industry, and anticipate growth in this
market through sales in the European Union and elsewhere over the next two to
three years. We also expect to be able to focus some additional efforts in other
markets such as starch and brewery now that we have hired additional people for
registration of products and concentration of these market opportunities.

BioSciences Business Strategy

      While we believe that our C1 Expression System has created great
opportunity for our Enzyme Business, we believe a much greater opportunity
exists to develop our C1 Expression System for the production of higher value
proteins, such as human therapeutic proteins. We have been developing and
refining our molecular tools to deal with the more complex issues involved in
the production of those proteins, such as glycosylation, protein degradation and
high purity level requirement, which are critical for human therapeutic protein
production. Once fully developed, we believe our C1 Host Technology can
integrate our C1 Expression System with our C1 Screening System now also under
development, to create a fully-integrated discovery and expression system that
will help companies in diverse industries - including pharmaceuticals - to
discover, develop and bring to market new and improved protein and enzyme
products from a wider range of DNA sources and with better properties than has
been possible with other systems. Since the same cell line, C1, will enable all
R&D steps involved in bringing a DNA product to market, we believe that the
probability of success will be higher and the R&D cycle time will be shorter.

      Our goal for our BioSciences Business is to become the leading provider of
expression solutions to pharmaceutical and biotechnology companies. Initially,
we will concentrate on enabling the C1 Expression System to express pre-clinical
and clinical quantities of therapeutic proteins for drug testing, and
eventually, for commercial-scale production of therapeutic proteins and other
bio-molecules. In particular, we expect that our C1 Expression System will
facilitate the production of biopharmaceuticals that might otherwise be shelved,
and will enable development of functionally improved drugs using molecular
evolution techniques in conjunction with the C1 Screening Technology we are
developing.

      We believe that increased profitability can arise from the anticipated
capabilities of the C1 Host Technology to use a single host organism for both
discovery and commercial production, which should lead to:

      o     shortened preclinical R&D timelines;

      o     the development of therapeutic protein drugs with better properties;

      o     possible enablement of shelved new drug candidates;

      o     improved prospects for an increase in probabilities for drug
            candidates advancement from discovery through development;

      o     reduced production costs; and

      o     reduced capital expenditures.


                                       14
<PAGE>

      To this end, we intend to:

      o     establish a flexible technology out-licensing program and enter into
            strategic partnerships and collaborations to facilitate adoption of
            the C1 Expression System, the C1 Screening System and the C1 Host
            Technology;

      o     continue and expand our R&D efforts both:

            o     in partnership with leading academic and technology
                  development centers to develop and improve our C1 host strain
                  and expression processes for large scale manufacturing by us
                  and by our collaboration partners, and

            o     apply the C1 Expression System for customer projects in
                  exchange for technology access fees, research fees, milestone
                  achievement success fees and royalties;

      o     obtain the DNA sequence of the C1 genome to obtain a better
            understanding of the biochemistry and physiology of C1, which we
            expect to enable us to develop strategies to improve the production
            of therapeutic proteins and develop better host strains for our C1
            Expression System;

      o     leverage expression competencies to develop capabilities to develop
            our own biopharmaceuticals in the future; and

      o     partner with pharmaceutical companies and biotechnology companies to
            develop higher yield, more efficient production methods for many
            blockbuster biopharmaceuticals for which the applicable patent
            protection is expiring.

RESEARCH AND DEVELOPMENT

      Our scientific staff has specialized knowledge in the areas of
biotechnology R&D, enzymology, quality control, textile chemistry, and pulp &
paper technology. Our laboratories are located in Jupiter, Florida; Greensboro,
North Carolina; Zeist, The Netherlands and in Southern China. Our R&D activities
include the discovery, development, improvement, and characterization of new and
existing enzyme products; and the development of our technologies in the areas
of gene expression, fungal molecular genetics, bioinformatics, and fermentation
process development for the production of proteins for a variety of industries,
including pharmaceuticals. Enzyme discovery and development utilize a number of
fungal organisms, including Trichoderma longibrachiatum for the Acid Cellulase
and Xylanase lines of products, Aspergillus niger for the Glucoamylase products,
and Chrysosporium lucknowense C1 for Cellulase and related products.

      Our C1 Host Technology also forms the basis for our C1 Screening System,
which incorporates robotic High Throughput Screening (HTS) hardware. This C1
Screening System has advantages over other screening systems in its use of the
C1 filamentous fungal host, thereby permitting the efficient expression and
screening of eukaryotic genes, and the secretion and glycosylation of their
protein products, which other screening systems developed in yeast and bacteria
are unable to efficiently perform. The most promising use of the C1 Screening
System may be in conjunction with molecular evolution technologies, which offer
a means of generating improved variants of proteins. For example, enzymes with
higher temperature optimum or stability, higher activity, altered specificity,
or altered pH optima may be obtained. In the pharmaceutical area, antibodies
with improved binding capability, or protein therapeutics with reduced
immunogenicity or improved efficacy, can be produced. In addition to its use in
conjunction with molecular evolution, we expect that our C1 Screening System
will, in the longer term, also be useful for discovery of novel activities in a
variety of eukaryotic organisms: it will screen for proteins by the expression
of libraries of expressed genes and will be especially useful for genes and
proteins that have not been previously well-characterized and for which the only
discovery tool is demonstration of the protein's function.

      Our R&D expenses for 2004 and 2003 were $3,621,451 and $3,571,242,
respectively.


                                       15
<PAGE>

RESEARCH AND DEVELOPMENT CAPABILITIES OF CONSULTING R&D VENDORS

      For over a decade, we have supplemented our internal R&D capabilities with
focused strategic industry collaborations with leading scientific organizations
such as Moscow State University, the Russian Academy of Sciences, TNO Quality of
Life and Bio-Technical Resources, as well as outsourced R&D and manufacturing
relationships via our exclusive agreements and collaborations with Polfa
Tarchomin in Europe, which provides low-cost manufacturing capacity, and FermPro
in the U.S. When combined with our internal staff of 14 scientists, we currently
have approximately 50 scientists working in laboratories across the globe on a
variety of R&D programs for us. The following is a summary description of our
main scientific collaborators:

Bio-Technical Resources, Manitowoc, Wisconsin

      Bio-Technical Resources, a division of Arkion Life Sciences LLC, or BTR,
is a contract research organization with expertise in areas of strain and
process development for fermentation of microbial products. We have worked with
BTR since 1995 on a variety of development programs for the production of
several commercial enzyme products, most notably our C1 host organism, for the
commercial scale production of neutral cellulase enzymes. BTR also has worked on
the development and commercialization of products utilizing our C1 Expression
System.

      In July 2004, Dyadic-Florida entered into a development agreement with BTR
under which Dyadic-Florida agreed to pay for 80% of $1.25 million worth of R&D
services, out of a total of $1.8 million, it was contracting to purchase over a
two year period from BTR by issuing shares of Dyadic-Florida common stock,
representing 300,300 shares valued at $3.33 per share. The Dyadic-Florida shares
were issued and held in an escrow. Incident to the consummation of the Merger,
the Company assumed Dyadic-Florida's obligations with respect to the shares of
common stock deliverable to BTR under the development agreement, and its shares
were exchanged for the Dyadic-Florida shares in escrow. The Company must
utilize, and BTR is obligated to furnish, a minimum of 1.1 full-time equivalent
BTR scientists per month. BTR's rights to the shares of common stock vest and
may be withdrawn from the escrow pro rata to the dollar value of BTR's actual
performance of R&D services, as such services are billed by BTR on a regular
monthly basis over a period expected to be approximately two years. In addition,
the development agreement provides for the imposition of cash penalties on BTR
should it fail to perform its obligations.

TNO Quality of Life, Zeist, The Netherlands

      TNO Quality of Life, or TNO, is a contract research organization sponsored
by the Dutch government and is one of the Institutes comprising the Netherlands
Organization for Applied Scientific Research. We have worked with TNO since 1998
on the development of technologies for gene expression and gene discovery. The
TNO scientists working with us are widely recognized as leaders in the area of
fungal genetics and molecular biology.

      In January 2003, Dyadic-Florida formed a wholly owned Dutch subsidiary and
entered into a cooperation and license agreement with TNO to cooperate on an
exclusive basis in the development, use and marketing of a high throughput
robotic screening system utilizing fungal organisms. Under this agreement,
Dyadic-Florida and TNO have each granted the Dutch subsidiary a worldwide
license to exploit certain patents and technologies, for which the Dutch
subsidiary will make royalty and revenue sharing payments to Dyadic-Florida and
TNO on revenue generated from the Dutch subsidiary's business operations. TNO
was also granted an option to acquire shares of Dyadic-Florida's common stock
beginning on the two-year anniversary of the formation of the Dutch subsidiary,
or earlier in certain circumstances. Incident to the consummation of the merger,
the Company assumed Dyadic-Florida's obligations to TNO in respect of this
option. The number of shares which TNO is entitled to purchase is based upon a
formula fixed by the terms of the agreement. No shares were purchasable under
this option as of December 31, 2004.

Moscow State University, Moscow, Russia

      We have had our longest research collaboration with groups at Moscow State
University led by Dr. Arkady Sinitsyn in the Division of Chemical Enzymology in
the Chemical Department. Dr. Sinitsyn is recognized as an expert in industrial
enzymology and in 1992 initiated the development of our first enzyme product, an
acid cellulase, which was commercialized in 1994. Dr. Sinitsyn's group also
isolated and initially characterized the C1 fungal strain. Dr. Sinitsyn, in
collaboration with the Russian Academy of Sciences, has been instrumental in the
discovery of new enzyme products for us and in the detailed characterization and
analysis of existing enzyme products.


                                       16
<PAGE>

MANUFACTURING

      We do not own enzyme manufacturing facilities, but instead have employed
two contract manufacturers who have produced all of our products for us. We have
been phasing-out one of those contract manufacturers, whose agreement will
terminate in December 2005 and will not be renewed. Our key contract
manufacturer is Polfa Tarchomin, SA, or Polfa, located in Warsaw, Poland, which
has been producing commercial enzymes for us continuously, and without
interruption, since 2001 under a 10-year contract, with several 10-year renewal
options exercisable in our discretion.

      The Polfa contract manufacturing agreement provides for a tolling fee
based upon the actual utilization of the fermentation time, and also requires
Dyadic-Florida to pay a fixed monthly fee to compensate Polfa for its capital
investment in the initial modernization of the plant and equipment, which ends
after seven years. Under the Polfa agreement, Polfa has committed fermentation
capacity substantially in excess of the Company's current needs, and is
obligated to make additional capacity available upon the Company's request and
Polfa's completion of necessary modernization of that requested additional
capacity in accordance with its contractual commitments to make those
expenditures. We believe that the capacity of Polfa's facility should exceed the
requirements for our current business plan, though increased fermentation
capacity utilization is dependent upon Polfa's modernizing capital improvements,
at its expense, to meet the growing process requirements for our production. We
intend to stage the capacity expansion of Polfa's facility to cover our
production requirements based on sales projections derived from our Enzyme
Business' sales plans, though utilization of this additional capacity will
ultimately depend upon product demand. Nonetheless, we are always evaluating the
alternative of having manufacturing conducted in a new facility. In 2004,
Dyadic-Florida negotiated for additional Polfa fermentation capacity which we
expect to be operational in mid 2005. Additional fermentation capacity is,
however, expected to be required to meet our requirements for later years.

      When combined with our internal staff of four manufacturing personnel, we
currently employ, or retain as independent contractors, more than 60 persons to
manufacture over 45 different liquid and dry enzyme products, including
employees of our Polish subsidiary, whose main responsibility is oversight of
Polfa's production, warehousing and shipping of our products.

SALES AND MARKETING

Enzyme Business

      Our Enzyme Business has an established customer base in more than 50
countries, including the United States. We sell our enzyme and other biomaterial
products directly, through our own sales force, and indirectly through
approximately 120 distributors, including one of our subsidiaries. We have
deployed our sales force to effectively target the main markets and customers
for our products, including locations in Europe, North America, South and
Central America, and North and South Asia. We employ distributors to sell our
textile and food and feed enzymes, and sell starch and pulp and paper enzymes
both directly and through resellers. To meet the projected revenue growth over
the next five years, we have begun to expand our manufacturing, sales and
technical service support staff to approach a larger number of customers in
existing and new markets.

      In 1998, Dyadic-Florida purchased 70% of the outstanding shares of its
existing Asian subsidiary. The Asian subsidiary serves as one of our primary
distributors to foreign textile, pulp and paper, chemical and enzyme businesses.
At the time of the original purchase, Dyadic-Florida could only vote 25% of the
outstanding shares of the Asian subsidiary. By subsequent agreements,
Dyadic-Florida increased its ownership interest in the Asian subsidiary from 70%
to 82.5% of the outstanding shares and its voting rights from 25% to 62.5% of
the outstanding shares. Under the original purchase agreement, Dyadic-Florida
has an option to purchase additional voting rights with respect to 20% of the
total outstanding shares of the Asian subsidiary, by paying $20,000 for each 1%
of such voting rights. Dyadic-Florida is obligated to purchase the entire 20%
for an aggregate price of $400,000 if the Asian subsidiary's cumulative profits
since October 19, 1998, as defined, aggregate to $900,000. As of December 31,
2004, the Asian subsidiary had approximately $529,000 of cumulative profits, as
defined. In addition to this right to acquire 82.5% voting control over the


                                       17
<PAGE>

Asian subsidiary, Dyadic-Florida also has a call option to purchase an
additional 12.5% of the Asian subsidiary's outstanding shares which is
exercisable over a 20 year term that began on October 21, 1998, but only after
Dyadic-Florida has purchased the 20% voting interest for $400,000. The exercise
price of the call option will be based on the results of operation of the Asian
subsidiary for the 12 months preceding the date of the exercise of the call
option. The call option can be exercised no later than October 2018. The Asian
subsidiary became a consolidated subsidiary of Dyadic-Florida effective July 1,
2002.

BioSciences Business

      Given the potentially significant differentiating advantages of our C1
Expression System over other expression systems, our marketing strategy is to
focus on those biopharmaceutical, agricultural and chemical companies that are
looking for alternative expression systems for the production of sufficient
quantities of proteins for animal/human or field tests or large-scale
manufacturing at an economically viable cost.

      Our BioSciences Business currently employs business development
professionals trained in marketing high-technology service offerings, such as
the BioSciences Business' expression projects, as well as licensing, joint
venturing and other forms of business collaboration. These professionals will be
responsible for the BioSciences Business market launch. In addition to
soliciting business from our headquarters and European subsidiary offices, these
business development professionals will promote the C1 Expression System's
enabling capabilities through presentations and presence at scientific and
business conferences targeted at the pharmaceutical, biotechnology, chemical,
agricultural and other industrial sectors, supplemented with the presentations
of research papers and seminars at those conferences. Further, we intend to
conduct large-scale promotional activities aimed at target industries, with an
emphasis on individual visits to target companies to expose them to the unique
capabilities of the C1 Expression System and the C1 Screening System. As the
business volume expands, we intend to expand our staff of business development
professionals for both our U.S. headquarters and our European subsidiary, Dyadic
Nederland BV in the Netherlands.

EMPLOYEES

      As of December 31, 2004, we and our consolidated subsidiaries had
approximately 90 full-time employees. None of our employees are represented by
labor unions or covered by collective bargaining agreements. We have not
experienced any work stoppages and consider our employee relations to be good.

COMPETITION

Enzyme Business

      According to Novozymes, the worldwide market for industrial enzymes is
$2.0 billion, while another of our competitors, Diversa Corporation, has sized
the combined industrial and specialty enzymes market at approximately $3.6
billion. Our Enzyme Business faces several major competitors in its industry,
both on a global and regional basis. Principal global competitors are Novozymes
(Danish: all markets), Genencor (U.S.: all markets), DSM (Dutch: food and animal
feed), AB Enzymes (British: all markets) and BASF (German: animal feed).
Together, these five companies control more than 70% of the industrial enzyme
market, with Novozymes being the largest enzyme maker having 2004 revenues
estimated at $1.0 billion, although additional competitors, such as Diversa, do,
and in the future, can be expected to, enter the market. Other smaller regional
producers, located primarily in Japan, India and China, are also participants in
this industry and, from time to time, can directly compete with us in those
regions. Each of the major competitors, particularly Novozymes, currently enjoys
competitive advantages associated with their much larger size: developed
technologies, more resources, strong distribution systems and dominant market
positions.

BioSciences Business

      There are many companies, such as DSM, Invitrogen, Genencor International,
Novozymes, Lonza Biologics, Rhein Biotech, Protein Sciences Corporation, Biolex,
Paradigm Genetics and Exelexis, with proprietary protein expression systems that
compete with our C1 Expression System. Most of them are developmental stage
companies, although DSM, Invitrogen, Genencor International, Novozymes and Lonza
Biologics are medium to large size, well-established companies with substantial


                                       18
<PAGE>

financial resources. Nonetheless, because we believe our C1 Expression System
will overcome many of the limitations of the expression systems being used by
our competitors, we believe our C1 Expression System will provide the drug
development industry with a superior, low-cost production alternative for human
therapeutic and other proteins.

      When completed, our C1 Screening System will face competition from a large
number of technologies in use and under development for the discovery of new
genes. In addition to many development stage companies, such as Direvo and
Nautilus Biotechnology, competitors of our C1 Screening System include many
well-known companies, such as Celera, Novozymes, Exelexis, Diversa, and Maxygen.
There are also many well-known companies, such as Diversa, Maxygen, Codexis, as
well as lesser-known companies such as Direvo and Nautilus Biotechnology, which
are very active in the field of directed evolution and, therefore, have an
interest in fungi-based screening systems or other eukaryotic hosts capable of
functioning in a high-throughput robotic mode with eukaryotic genes.

INTELLECTUAL PROPERTY

      We hold three issued U.S. patents and 57 U.S. and International filed and
pending patent applications which we believe provide us with broad patent
protection for the C1 Host Technology, the C1 Expression System, the C1
Screening System and their commercial products and applications.

      Over the years in which we have been in business, we have also developed
trade secrets and know-how involving our industrial enzyme products. Our
employment and other agreements with our employees contain provisions that
protect and require confidential treatment for our trade secrets and developed
inventions, for both our Enzyme and our BioSciences Business.

GOVERNMENT REGULATION

      Regulation by the governmental authorities in the United States and other
countries is a significant factor in the development, production and marketing
of our products.

Non-Drug Products

      Non-drug, biologically derived products are regulated, in the United
States, based on their application, by either the FDA, the Environmental
Protection Agency, or EPA, or, in the case of plants and animals, the United
States Department of Agriculture, or USDA. In addition to regulating drugs, the
FDA also regulates food and food additives, feed and feed additives and
generally recognized as safe, or GRAS, substances used in the processing of
food. The EPA regulates biologically derived chemicals not within the FDA's
jurisdiction. Although the food and industrial regulatory process can vary
significantly in time and expense from application to application, EPA's
timelines generally are shorter in duration than the drug regulatory process,
which ranges from six months to three years.

      The European regulatory process for these classes of biologically derived
products has undergone significant change in the recent past, as the EU attempts
to replace country-by-country regulatory procedures with a consistent EU
regulatory standard in each case. Some country-by-country regulatory oversight
remains. Other than Japan, most other regions of the world generally accept
either a United States or a European clearance together with associated data and
information for a new biologically derived product.

Human Therapeutic Products

      The FDA in the United States and similar health authorities in foreign
countries subject human therapeutic products to rigorous preclinical and
clinical testing and other approval procedures. Various federal statutes and
regulations also govern or influence the testing, manufacturing, quality
control, safety, labeling, storage, record-keeping and marketing of human
therapeutic products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations require the expenditure of substantial resources. Any failure by us
or our collaborators or licensees to obtain, or any delay in obtaining,
regulatory approval could adversely affect the marketing and revenue generating
potential of our products. We have neither applied for nor received regulatory
approval to market any human therapeutic products.


                                       19
<PAGE>

      The steps required before a pharmaceutical agent may be marketed in the
United States include:

      o     preclinical laboratory, in vivo and formulation studies;

      o     the submission to the FDA of an investigational new drug, or IND,
            application that must become effective before human clinical trials
            may commence;

      o     adequate and well controlled human clinical trials to establish
            safety and efficiency of the proposed drug in its intended
            indication;

      o     the submission of a new drug application, or NDA, to the FDA; and

      o     the FDA approval of the NDA.

      To clinically test, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug, a company must
file an IND and receive clearance from the FDA. The IND is a summary of the
preclinical studies which were carried out to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies which are being proposed. Approval of a local institutional
review board, or IRB, and informed consent of trial subjects is also required.

      Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the drug into
human subjects or patients where the product is tested for safety, dosage,
tolerance, absorption, metabolism, distribution and excretion. Phase II involves
studies in a limited patient population to:

      o     identify possible adverse effects and safety risks;

      o     determine the efficiency of the product for specific, targeted
            indications; and

      o     adequately determine dosage tolerance and optimal dosage.

      When Phase II evaluation demonstrates that the product may be effective
and has an acceptable safety profile, Phase III trials are undertaken to further
evaluate dosage and clinical efficacy and to further test for safety in an
expanded patient population at multiple clinical study sites. A pivotal Phase
III trial is an adequate and well-controlled study which provides the primary
basis for determining whether there is substantial evidence to support the
claims of effectiveness for new drugs and forms the basis for an NDA. The
regulatory authority or the sponsor may suspend clinical trials at any point in
this process if either entity concludes that clinical subjects are being exposed
to an unacceptable health risk, that the trials are not being conducted in
compliance with applicable regulatory requirements, or for other reasons.

      The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of an NDA for approval of the marketing
and commercial shipment of the product. The FDA may deny approval of an NDA if
applicable regulatory criteria are not satisfied, or may require additional
data. Even if such data is submitted, the FDA may ultimately decide that the NDA
does not satisfy its criteria for approval. Once issued, a product approval may
be withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and it has the power to prevent or
limit further marketing of a product based upon the results of these
post-marketing programs.


                                       20
<PAGE>

      Satisfaction of these FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years, and the time needed to
satisfy them may vary substantially, based upon the type, complexity and novelty
of the drug product. The effect of government regulation may be to delay or to
prevent marketing of potential products for a considerable period of time and to
impose costly procedures upon our or our partner's activities. There can be no
assurance that the FDA or any other regulatory agency will grant approval for
any products being developed by us or our partner on a timely basis, or at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse affect on our business.

      Before our or our collaboration partners' human therapeutic protein
products, if any, can be marketed outside of the United States, they are subject
to regulatory approval similar to that required in the United States, although
the requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. No action can be
taken to market any product in a country until an appropriate application has
been approved by the regulatory authorities in that country. The current
approval process varies from country to country, and the time spent in gaining
approval varies from that required for FDA approval. In certain countries, the
sales price of a product must also be approved. The pricing review period often
begins after market approval is granted. No assurance can be given that, even if
a product is approved by a regulatory authority, satisfactory prices will be
approved for our or our collaboration partners' products.

      There is no assurance that the FDA will successfully review our or our
collaboration partners' INDs or NDAs when filed, or that foreign regulatory
authorities will approve any similar applications that we submit to them.
Further, the FDA and foreign authorities may at any time take legal or
regulatory action against a product or us if it concludes that a product has not
complied with applicable laws and regulations or that earlier evaluations of a
product's safety or effectiveness may not have been adequate or appropriate.
Such action may include, but is not limited to, restrictions on manufacture and
shipment of products, seizure of products, injunctions and civil and criminal
penalties. The FDA's policies may change and additional government regulations
may be promulgated which could prevent or delay regulatory approval of our or
our collaboration partners' potential products. Moreover, increased attention to
the containment of health care costs in the United States and in foreign markets
could result in new government regulations which could have a material adverse
effect on our business or our joint ventures or its customers. We cannot predict
the likelihood of adverse governmental regulation which might arise from future
legislative or administrative action, either in the United States or abroad.

RISK FACTORS

      An investment in our common stock involves a high degree of risk. You
should carefully consider the following material risks, together with the other
information contained in the prospectus, as supplemented, before you decide to
buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition would likely suffer. In
these circumstances, the market price of our common stock could decline, and you
may lose all or part of your investment. Additional risks and uncertainties,
including those that are not yet identified or that we currently believe are
immaterial, may also adversely affect our business, financial condition or
results of operations.

Risks General to Our Businesses

WE SHOULD BE VIEWED AS AN EARLY-STAGE COMPANY.

      Despite our Enzyme Business's history of revenue generation and growth,
the combination of its reliance upon the expansion of the capabilities of our C1
Expression System and the early-stage, developmental nature of our BioSciences
Business require that we be characterized as an early-stage company. Our conduct
of the BioSciences Business is subject to the risks customarily attending the
operations of any early-stage company, including the development of new
technologies and products, the assembly and development of production and R&D
capabilities, the construction of channels of distribution and the management of
rapid growth, as discussed in the following Risk Factors.


                                       21
<PAGE>

WE HAVE A HISTORY OF NET LOSSES, AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

      While we have, prior to the commencement of our investment in the
development of the C1 Host Technology and related C1 Expression System and C1
Screening System, had profitable years, nonetheless, since we began developing
the C1 Host Technology in 1998, we have incurred net losses of approximately
$23,493,000 through December 31, 2004. Because we intend to accelerate our R&D
activities and expand both our sales and marketing and technical support staffs,
we expect to have increased levels of net losses and negative cash flow. Whether
we achieve profitability, and the size of our net losses prior to that time,
will depend, in large part, on the rate of growth, if any, of our Enzyme
Business, whether our BioSciences Business is able to generate contract revenues
or other revenues and on the level of our expenses. To date, we have derived
almost 100% of our revenues from the operations of our Enzyme Business. We do
not anticipate material revenues from the operation of the BioSciences Business
sooner than 2006. Our Enzyme Business may not be able to penetrate new markets
or enjoy the improved profit margins it anticipates, which could materially
adversely impact that Business's growth potential and profitability. Revenues
from our BioSciences Business are uncertain because our ability to secure future
collaboration agreements will depend upon the ability of the BioSciences
Business to perfect our C1 Host Technology to address the needs of the
pharmaceutical and biotech industries. We expect to spend significant amounts to
fund R&D and enhance our core technologies. As a result, we expect that our
operating expenses will increase significantly in the near term and,
consequently, that we will need to generate significant additional revenues to
achieve profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis.

WE COULD FAIL TO MANAGE OUR GROWTH, WHICH WOULD IMPAIR OUR BUSINESS.

      Our business plan contemplates that we will grow at a rapid rate, both in
terms of revenues and personnel. It is difficult to manage this rapid growth,
and our future success depends on our ability to efficiently and effectively
implement:

      o     research and product development programs which overcome scientific
            challenges and develop new products and processes;

      o     sales, marketing, technical service and customer support programs;

      o     expansion of our manufacturing operations to appropriate capacity
            levels consistent with our projected and actual rates of growth;

      o     operational and financial control systems;

      o     recruiting and training programs; and

      o     currency risk management strategies.

Our ability to offer products and services successfully and to implement our
business plan in a rapidly evolving global market requires effective planning,
reporting and management processes. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and procedures
and to expand and train our workforce worldwide. We also need to continue to
manufacture our products efficiently and to control or adjust the expenses
related to R&D, marketing, sales and general and administrative activities in
response to changes in revenues. If we are not successful in efficiently
manufacturing our products or managing such expenses, there could be an adverse
impact on our earnings and the continued viability of our business.


                                       22
<PAGE>

Risks Specific to Our Enzyme Business

OUR MARKET SHARE GROWTH DEPENDS ON COSTLY NEW PRODUCT INTRODUCTIONS AND MARKET
ACCEPTANCE.

      The future success of our Enzyme Business will depend greatly on our
ability to continuously and timely develop and introduce new products that
address evolving market requirements and are attractive to customers. We are
relying on our C1 Expression System and our other proprietary technologies to
expand our Enzyme Business product line and improve our gross margins on those
products. If we fail to introduce new and innovative products, we could fail to
obtain an adequate return on our R&D investments and could lose market share to
our competitors, which might be difficult or impossible to regain. Any
inability, for technological or other reasons, to develop successfully and
introduce new products could reduce our growth rate or otherwise damage our
business.

      Further, in the past we have experienced, and we are likely in the future
to experience, delays in the development and introduction of products. We may
not be able to keep pace with the rapid rate of change in our markets or to
develop new products or processes that will meet the requirements of the
marketplace or achieve market acceptance. Some of the factors affecting market
acceptance of our products include:

      o     availability, quality, performance and price as compared to
            competitive products;

      o     the functionality of new and existing products;

      o     the timing of introduction of our products as compared to
            competitive products;

      o     scientists' and customers' opinions of our products' utility and our
            ability to incorporate their feedback into our future products; and

      o     citation of the products in published research.

The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could seriously harm
our business, financial condition and results of operations.

OUR DEPENDENCE ON CONTRACT MANUFACTURERS COULD HARM OUR BUSINESS.

      Our Enzyme Business currently relies on contract manufacturers for all of
its manufacturing. If we require additional manufacturing capacity and are
unable to obtain it in sufficient quantity, we may not be able to increase our
sales, or may be required to make very substantial capital investments to build
that capacity.

      Our manufacturing capabilities, and any current or future arrangements
with third parties for these activities, may not be adequate for the successful
commercialization of our industrial enzyme products. In the operation of the
Enzyme Business, all of our industrial enzymes have over the past decade, and
are expected over the foreseeable future to be, produced at the manufacturing
facilities of contract manufacturers. As a result, we are dependent upon the
performance and plant capacity of third-party manufacturers. We currently use
two contract manufacturers, though our agreement with one of those contract
manufacturers expires in December 2005 and will not be renewed. Our Enzyme
Business, therefore, faces risks of difficulties with, and interruptions in,
performance by these third parties of their manufacturing responsibilities, the
occurrence of which could adversely impact the launch and/or sales of our
products in the future. For example, our principal contract manufacturer, Polfa
Tarchomin, S.A., which has been producing a number of our products since 2001
without interruption, has agreed to fund the modernization and expansion of its
manufacturing facilities for our benefit. Though we have, in the past, received
assurances from this contract manufacturer that it will have available to it the
required funding to accomplish this modernization and expansion, if that funding
were to be unavailable, and we presently have concerns on this issue, or if that
contract manufacturer is otherwise unable to construct the needed modernization
and expansion of production capacity, as it is contractually obligated to, our
ability to meet our production requirements and growth plans would likely be
very negatively affected. We could be forced to:


                                       23
<PAGE>

      o     furnish or secure for that contract manufacturer the capital
            necessary to enable it to expand production capacity to meet our
            future production needs;

      o     find manufacturing capacity from another contract manufacturer,
            which might be at higher cost to us; or

      o     build our own manufacturing facilities, necessitating significant
            capital expenditures not currently included in our capital spending
            plans.

      With the imminent termination in December 2005 of our contract
manufacturing agreement with our second, and only other, contract manufacturer,
all of our production requirements will more than likely be satisfied by the
single manufacturing facility operated by our Polish contract manufacturer,
leaving us even more vulnerable to a failure of performance by it. In addition,
presently certain of our products can only be produced by the contract
manufacturer whose contract will terminate in December 2005. While we expect
those products to be in production by the Polish contract manufacturer prior to
December 2005, our ability to meet our production requirements and growth plans
for those products could be negatively affected if Polish governmental
authorities were to delay the approval of certain manufacturing processes for
genetically engineered microorganisms, or GMOs, that we intend to transfer to
the Polish contract manufacturer, or if the Polish contract manufacturer is
unable to master production of these additional products.

REGULATIONS MAY LIMIT OR IMPAIR OUR ABILITY TO SELL GENETICALLY ENGINEERED
PRODUCTS IN THE FUTURE.

      Our Enzyme Business develops enzyme products using both non-genetically
engineered micro-organisms and GMOs. The production and marketing of products
derived from GMOs are subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future regulations or
legislation may not allow us to produce and market our products derived from
GMOs in a timely manner or under technically or commercially feasible
conditions. In addition, regulatory action or private litigation could result in
expenses, delays or other impediments to our product development programs or the
commercialization of resulting products.

      The U.S. Food and Drug Administration, or FDA, currently applies the same
regulatory standards to products made through genetic engineering as those
applied to products developed through traditional methodologies. However,
genetically engineered products will be subject to premarket review if these
products raise safety questions or are deemed to be food additives. Our products
may be subject to lengthy FDA reviews and unfavorable FDA determinations if they
raise questions, are deemed to be food additives, or if the FDA changes its
policy. The European Union, or the EU, has similar regulations regarding the
development, production and marketing of products from GMOs. In many cases the
regulations are more restrictive than present U.S. regulations. In particular,
the EU requires efficacy testing as well as toxicological testing of all enzyme
products, including products from non-GMO microorganisms, sold into the animal
feed market. The regulatory agencies administering these and future regulations
may not allow us to produce and market some products in a timely manner or under
technically or commercially feasible conditions.

ALTERNATIVE TECHNOLOGIES MAY DIMINISH THE NEED FOR PRODUCING SOME ENZYMES THE
WAY WE DO.

      Many of our enzyme products are produced in fermenters. Some of the
product segments we hope to serve may not find it efficient to use the fermenter
processes we employ. For example, bio-ethanol and other bio-fuels production
represents a considerable market opportunity for enzymes. However, research
being conducted within the auspices of major seed producers, U.S. federal
government and corn growers association may supplant the need for enzymes
produced in fermenters, which is the enzyme production process we currently use.

Risks Specific to Our BioSciences Business

WE MAY FAIL TO COMMERCIALIZE OUR C1 EXPRESSION SYSTEM FOR THE EXPRESSION OF
THERAPEUTIC PROTEINS.

      Although our Enzyme Business has developed and sold industrial enzyme
products and has used our C1 Expression System to develop such products, our
BioSciences Business has not yet completed commercialization of our C1
Expression System for the expression of therapeutic proteins. If our BioSciences
Business fails to do this, we may be forced to terminate the BioSciences
Business's operations and liquidate it.


                                       24
<PAGE>

      Our BioSciences Business must be evaluated as having the same risks as
those inherent in early-stage biotechnology companies because the application of
our C1 Expression System to the expression of pre-clinical and clinical
quantities of therapeutic proteins is still in development. We may not be able
to successfully harness the C1 Expression System to achieve those objectives.
Further, we may not be able to expand the capabilities of the C1 Expression
System to produce commercial volumes of therapeutic proteins at reasonable
costs. Also, even if the BioSciences Business is able to achieve either of those
accomplishments, we may not be able to successfully develop the C1 Screening
System to serve the functions of gene discovery or the development of new and/or
improved protein drugs. Successful development of the C1 Host Technology for
these purposes will require significant development and investment, including
testing, to prove its efficacy and cost-effectiveness. To date, drug companies
have developed and commercialized only a small number of gene-based products in
comparison to the total number of drug molecules available in the marketplace.
In this connection, we are heavily dependent upon our use of third-party
research organizations to assist us in the development of the C1 Host
Technology. In general, our experience has been that each step in the process
has taken longer and cost more to accomplish then we had originally projected,
and we anticipate that this is likely to remain the case with respect to our
BioSciences Business' continuing development efforts.

COMMERCIALIZATION OF OUR C1 EXPRESSION SYSTEM FOR THERAPEUTIC PROTEINS DEPENDS
ON COLLABORATIONS.

      Commercialization of our C1 Expression System by our BioSciences Business
depends on collaborations with other companies. If we are not able to find
collaborators in the future, the BioSciences Business may not be able to develop
the C1 Expression System or therapeutic protein products. Further, our business
model relies on a revenue stream derived from collaboration projects to be
conducted with our customers to express laboratory-testing quantities of
therapeutic proteins. A large portion of the anticipated financial reward
depends on those therapeutic proteins progressing through drug development and
into commercially successful drugs. Apart from risks relating to whether our
BioSciences Business can capture such customers, or capture them on satisfactory
terms, we will have no control over post-collaboration project drug development
and commercialization. Further, conflicts could arise between us and our
customers or among them and third parties that could discourage or impede the
activities of our BioSciences Business.

      Since we do not currently possess the financial resources necessary to
develop and commercialize potential drug products that may result from our C1
Expression System, or the resources to complete any approval processes which may
be required for these products, we must enter into collaborative arrangements to
develop and commercialize drug products. It is expected that these arrangements
will be for fixed terms and will expire after a fixed period of time. If they
are not renewed or if we do not enter into new collaborative agreements, our
revenues will be reduced and our products may not be commercialized.

WE HAVE LIMITED OR NO CONTROL OVER THE RESOURCES THAT ANY COLLABORATOR MAY
DEVOTE TO OUR PRODUCTS.

      We have limited or no control over the resources that any collaborator may
devote to our products. Any of our future collaborators may not perform their
obligations as expected. These collaborators may breach or terminate their
agreement with us or otherwise fail to conduct their collaborative activities
successfully and in a timely manner. Further, our collaborators may elect not to
develop products arising out of our collaborative arrangements or devote
sufficient resources to the development, manufacture, market or sale of these
products. If any of these events occur, we may not be able to develop our
technologies or commercialize our products.

      Potential therapeutic products developed by us or with our customers or
collaborators are subject to a lengthy and uncertain regulatory process. If
these therapeutic protein products are not approved, we or our customers or
collaborators will not be able to commercialize them, and we may not receive the
milestone and royalty payments which are based upon the successful advancement
of these products through the drug development and approval process.


                                       25
<PAGE>

      The FDA must approve any therapeutic product before it can be marketed in
the United States. Before our collaborators can file a new drug application or
biologic license application with the FDA, the product candidate must undergo
extensive testing, including animal and human clinical trials, which can take
many years and require substantial expenditures. Data obtained from such testing
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. In addition, changes in regulatory policy for product
approval during the period of product development and regulatory agency review
of each submitted new application or product license application may cause
delays or rejections.

      Because these products involve the application of new technologies and may
be based upon new therapeutic approaches, they may be subject to substantial
review by government regulatory authorities and, government regulatory
authorities may grant regulatory approvals more slowly for these products than
for products using more conventional technologies. While we anticipate that most
of our collaborators will have experience submitting an application to the FDA
or any other regulatory authority, we have no such experience, and neither we
nor any collaborator has yet submitted an application with the FDA or any other
regulatory authority for any product candidate generated through the use of our
C1 Expression System, nor has the FDA nor any other regulatory authority
approved any therapeutic product candidate developed using our C1 Expression
System for commercialization in the United States or elsewhere. Our
collaborators may not be able to conduct clinical testing or obtain the
necessary approvals from the FDA or other regulatory authorities for our
products. The regulatory agencies of foreign governments must also approve our
therapeutic products before the products can be sold in those other countries.

      Even after investing significant time and expenditures, our collaborators
may not obtain regulatory approval for their products. Even if they receive
regulatory approval, this approval may entail limitations on the indicated uses
for which we can market a product. Further, once regulatory approval is
obtained, a marketed product and its manufacturer are subject to continual
review, and discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the product, manufacturer and
manufacturing facility, including withdrawal of the product from the market. In
certain countries, regulatory agencies also set or approve prices.

HEALTH CARE REFORM MAY LIMIT OUR PROFITABILITY OR THAT OF OUR CUSTOMERS.

      Our C1 Host Technology is being developed to assist our customers or
collaborators in the development of future therapeutic products, including
pharmaceutical products. The ability of our collaborators to commercialize
pharmaceutical products developed with our C1 Host Technology may depend in part
on the extent to which reimbursement for the cost of those products will be
available from government health administration authorities, private health
insurers and other organizations. Third-party payers are increasingly
challenging prices of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and there can be no assurance that adequate third party coverage will be
available for any product to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in research and product
development.

ADVERSE EVENTS IN THE FIELD OF THERAPEUTIC PRODUCTS MAY ADVERSELY AFFECT US OR
OUR COLLABORATORS.

      Currently, we are not engaged in developing therapeutic products for our
own account, but instead intend to collaborate with drug companies to express
therapeutic products requested by them for the ultimate purpose of their
development, testing and introduction as new drugs. We may, however, engage in
these activities in the future for our own account. If we or our collaborators
develop therapeutic products, these products may encounter substantial delays in
development and approval due to the government regulation and approval process.
Adverse events reported in gene therapy clinical trials may lead to more
government scrutiny of proposed clinical trials of therapeutic products,
stricter labeling requirements for these products and delays in the approval of
other types of products for commercial sale.

      Our C1 Expression System has been tested for use in pulp and paper
production, which requires FDA approval as generally regarded as safe, or GRAS,
and has generated promising safety and toxicity data for one enzyme. A risk
nonetheless exists that the C1 Expression System will produce therapeutic
products and enzymes that have safety and toxicity issues associated with them.


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      We recently initiated a genomic sequencing project to sequence the genome
of our C1 host organism, which we currently expect to be completed in the second
quarter of 2005. Our knowledge of the complete genome sequence of our C1 host
organism could help to mitigate our risk that there are unexpected safety and
toxicity issues associated with our C1 Expression System and facilitate our
ability to find and express new genes of bio-therapeutic and other commercial
value. However, there can be no assurance that the C1 genome sequencing project
will be fully or adequately completed, and until it is successfully completed,
we are at a distinct competitive disadvantage to some of our competitors, whose
host organisms have been more thoroughly researched and whose genomes have been
sequenced.

Risks Applicable to Our Enzyme Business and Our BioSciences Business

REDUCTIONS IN R&D BUDGETS MAY AFFECT THE SALES OF BOTH OF OUR BUSINESSES.

      Our customers include researchers at customers of our Enzyme Business and
potential drug company customers of our BioSciences Business. Fluctuations in
the R&D budgets of these researchers and their organizations could have a
significant effect on the demand for our products. Research and development
budgets fluctuate due to changes in available resources, mergers of drug
companies, spending priorities and institutional budgetary policies. Our
Businesses could be seriously damaged by any significant decrease in life
sciences R&D expenditures by these existing and potential customers, academic
institutions, government laboratories or private foundations.

CONFLICTS WITH OUR COLLABORATORS COULD HARM OUR BUSINESS.

      An important part of our strategy involves conducting proprietary research
programs. We may pursue opportunities in fields that could conflict with those
of our collaborators. Moreover, disagreements with our collaborators could
develop over rights to our intellectual property. Any conflict with our
collaborators could reduce our ability to obtain future collaboration agreements
and negatively impact our relationship with existing collaborators, which could
reduce our revenues.

      Certain of our collaborators could also become competitors in the future.
Our collaborators could develop competing products, preclude us from entering
into collaborations with their competitors, fail to obtain timely regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of products. Any
of these developments could harm our product development efforts.

      We will either commercialize products resulting from our proprietary
programs directly or through licensing to other companies. We have limited
experience in manufacturing and marketing products for the pharmaceutical and
biotechnology industries. In order for us to commercialize these products
directly, we would need to develop, or obtain through outsourcing arrangements,
the capability to market and sell these products. We do not have these
capabilities, and we may not be able to develop or otherwise obtain the
requisite marketing and sales capabilities. If we are unable to successfully
commercialize products resulting from our proprietary research efforts, we will
continue to incur losses.

PUBLIC VIEWS ON ETHICAL AND SOCIAL ISSUES MAY LIMIT USE OF OUR TECHNOLOGIES AND
REDUCE OUR REVENUES.

      Our success will depend in part upon our ability to develop products
discovered through our C1 Host Technology. Governmental authorities could, for
social or other purposes, limit the use of genetic processes or prohibit the
practice of our C1 Host Technology. Ethical and other concerns about our C1 Host
Technology, particularly the use of genes from nature for commercial purposes,
and products resulting from our technology could adversely affect their market
acceptance.

IF THE PUBLIC DOES NOT ACCEPT GENETICALLY ENGINEERED PRODUCTS, OUR PRODUCT
DEMAND COULD DECLINE.

      The commercial success of our potential products will depend in part on
public acceptance of the use of genetically engineered products including drugs,
plants and plant products. Claims that genetically engineered products are
unsafe for consumption or pose a danger to the environment may influence public
attitudes. Our genetically engineered products may not gain public acceptance in
the various industrial, pharmaceutical or biotechnology industries. Negative


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<PAGE>

public reaction to genetically modified organisms and products could result in
greater government regulation of genetic research and resultant products,
including stricter labeling laws or regulations, and could cause a decrease in
the demand for our products.

      The subject of genetically modified organisms has received negative
publicity in Europe and other countries, which has aroused public debate. The
adverse publicity in Europe could lead to greater regulation and trade
restrictions on imports of genetically altered products. If similar adverse
public reaction occurs in the United States, genetic research and resultant
products could be subject to greater domestic regulation and a decrease in the
demand for our products could result.

OUR SCIENTIFIC COLLABORATIONS MAY CHANGE, WHICH COULD LIMIT OUR ACCESS TO THEIR
EXPERTISE.

      We rely upon the services of a number of research organizations,
scientific advisors and collaborators at academic and other institutions. These
scientists are not our employees and may have other commitments that would limit
their availability to us. Although our scientific advisors generally agree not
to perform services on competing technologies, if a conflict of interest between
their services for us and their services for another entity were to occur, we
might lose their services. Although our scientific advisors and collaborators
sign agreements not to disclose our confidential information, it is possible
that certain of our valuable proprietary knowledge may become publicly known
through them.

TERRORISTS COULD DAMAGE OUR FACILITIES, INTERFERE WITH OUR R&D ACTIVITIES AND
CAUSE ECOLOGICAL HARM.

      Activists and terrorists have shown a willingness to injure people and
damage physical facilities, equipment and biological materials to publicize or
further their ideological causes. Biotechnology companies could be a specific
target of certain groups. Our operations and research activities could be
adversely impacted depending upon the nature and extent of such acts. Such
damage could include disability or death of our personnel, damage to physical
facilities that we contract with to perform R&D activities or to manufacture our
products, destruction of animals and biological materials, disruption of our
communications and data management software used for R&D or destruction of R&D
records. Any such damage could delay our R&D projects or the manufacture of our
products and decrease our ability to conduct future R&D and to develop future
products. Damage caused by activist or terrorist incidents could also cause the
release of hazardous materials, including chemicals and biological materials,
which could create liabilities for us or damage our reputation in the community.
Clean up of any such releases could also be time consuming and costly. Any
significant interruptions in our ability to conduct our business operations or
R&D activities could reduce our revenue and increase our expenses.

WE COULD SUFFER CLAIMS FROM OUR USE OF HAZARDOUS, RADIOACTIVE OR BIOLOGICAL
MATERIALS.

      Our R&D processes involve the controlled use of hazardous materials,
including chemicals, radioactive and biological materials. Our operations also
produce hazardous waste products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from these materials.
Federal, state and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these materials. We could be subject to
criminal liability or claims for damages in the event of an improper or
unauthorized release of, or exposure of individuals to, hazardous materials. In
addition, claimants may sue us for injury or contamination that results from our
use or the use by third parties of these materials, and our liability may exceed
our total assets. Compliance with these laws and regulations may be expensive,
and current or future laws and regulations may impair our research, development,
or production efforts, or otherwise be time-consuming and costly. We believe
that our current operations comply in all material respects with applicable laws
and regulations.

      In addition, our collaborators may work with these types of hazardous
materials in connection with our collaborations. To our knowledge, the work is
performed in accordance with these laws and regulations. In the event of a
lawsuit or investigation, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these hazardous materials.
Further, under certain circumstances, we may agree to indemnify our
collaborators against damages and other liabilities arising out of development
activities or products produced in connection with these collaborations.


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<PAGE>

Other Business Risks That We Face

WE MUST CONTINUALLY OFFER NEW PRODUCTS AND TECHNOLOGIES.

      The industrial enzymes and biotechnology industries are characterized by
rapid technological change, and the area of gene research is a rapidly evolving
field. Our future success will depend on our ability to maintain a competitive
position with respect to technological advances. Rapid technological development
by others may result in our products and technologies becoming obsolete.

      Any products that we develop through our C1 Host Technology will compete
in highly competitive markets. Many of the organizations competing with us in
the markets for such products have greater capital resources, R&D and marketing
staffs and facilities and capabilities, and greater experience in obtaining
regulatory approvals, manufacturing products and marketing. Accordingly, our
competitors may be able to develop technologies and products more easily which
would render our technologies and products and those of our collaborators
obsolete and noncompetitive. If a competitor develops superior technology or
cost-effective alternatives to our products or processes, our business,
operating results and financial condition could be seriously harmed. In
addition, demand for our products may weaken due to reduction in R&D budgets or
loss of distributors, any of which might have an adverse effect on our financial
condition.

      The markets for our Enzyme Business's products are, in many cases, very
competitive and price sensitive. Our Enzyme Business currently competes with
five much larger competitors, each with dominant market positions in segments in
which we compete and who, as a group, hold approximately 70% market share in the
present industrial enzymes marketplace. Each of these competitors has
substantially greater financial, operational, sales and marketing resources than
we do and very significant experience in R&D. Further, these competitors may
possess other complementary technologies, such as proprietary directed molecular
evolution technology, which may be more effective at implementing their
technologies to develop commercial products than our complementary technologies
implement our C1 Host Technology. Also, some of these competitors have entered
into collaborations with leading companies within our Enzyme Business's target
markets to produce enzymes for commercial purposes.

      Well-known, and better financed, biotechnology companies offer competing
technologies for the same products and services as our BioSciences Business
plans to offer using our C1 Host Technology. Customers may prefer existing
competing technologies over our C1 Host Technology. Our BioSciences Business
also faces, and will continue to face, intense competition from organizations
such as large biotechnology companies, as well as academic and research
institutions and government agencies that are pursuing competing technologies to
enable production of therapeutic and other proteins and bio-molecules of
commercial interest at economically viable costs. These organizations may
develop technologies that are superior alternatives to our C1 Host Technology.
We anticipate that our BioSciences Business will face increased competition as
new companies enter our markets and as development of biological products
evolves.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE.

      Our future capital requirements will be substantial, particularly if we
require significant additional capital to develop manufacturing capacity for our
Enzyme Business, completion of the development of our C1 Expression System for
our BioSciences Business takes longer or requires greater resources than we had
expected, we continue to develop the C1 Expression System to expand its
production capabilities to manufacture commercial volumes of therapeutic
proteins, we continue to develop a C1 Screening System, or our BioSciences
Business develops a number of therapeutic products. Our need for additional
capital will depend on many factors, including the financial success of our
Enzyme Business, whether our Polish contract manufacturer modernizes and expands
its manufacturing facility as it is required to by its contract with us, whether
we are successful in obtaining payments from BioSciences Business customers
under collaborative agreements, the progress and scope of our collaborative and
independent R&D projects performed by our customers and collaboration partners,
the effect of any acquisitions of other businesses that we may make in the
future, and the filing, prosecution and enforcement of patent claims.

      If our capital resources are insufficient to meet future capital
requirements, we will have to raise additional funds to continue the development
of our technologies and complete the commercialization of products, if any,
resulting from our technologies. If future raises of funds do occur, they may
cause dilution of our earnings per share. We may not be able to raise additional


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<PAGE>

funds on terms that are acceptable to us or on any terms whatsoever, or we may
be unable to raise sufficient additional capital. If we fail to raise sufficient
funds, and our Enzyme Business is unable to generate sufficient levels of
profitability, we will have to curtail or cease, or dispose of, one or more of
our operations.

WE WILL NEED TO EXPAND OUR EXISTING MARKETING AND SALES RESOURCES.

      While we have recently expanded our marketing and sales functions, our
Enzyme Business will need to continue to expand them to achieve our contemplated
annual rates of growth and for our BioSciences Business to successfully market
the C1 Expression System and our contemplated C1 Screening System. Currently, we
rely primarily on our direct sales force for the United States market and
contract with professional sales agents and distributors for the international
market, including two controlled foreign subsidiaries. Direct salespeople are
our employees and are paid a salary plus commissions on sales they make within
their assigned territories. Contracted sales agents are paid a base rate of
compensation plus commissions on sales they make within their assigned
territories. Distributors purchase products from us and then resell our products
and services to third parties. Our officers and employees develop and implement
our marketing strategy, although we do periodically engage non-employee
consultants, acting as independent contractors, to assist us in these efforts.

      Market forces, such as increasing competition, increasing cost pressures
on our customers and general economic conditions, may require us to devote more
resources to our sales and marketing efforts than we currently contemplate, such
as changing the composition of our sales and marketing staff and changing our
marketing methods. These changes may result in additional expenses. In addition,
we will incur additional salary expenses because we intend to increase our
direct sales force. We also may hire direct sales representatives to replace
independent sales representatives or distributors that we use. Similarly, if we
increase our reliance on marketing consultants to assist us, we will incur
greater costs. If we decide to increase our advertising, we will also incur
higher sales and marketing costs. Our incurrence of increased costs will make it
more difficult for us to operate profitably, and we may not have sufficient
funds to support all of these costs.

      If we expand our sales force and increase our marketing activities, we can
offer no assurances that those efforts will result in more sales or higher
revenue. Also, the increased costs we incur by expanding our sales and marketing
resources may not result in greater sales or in higher revenue. Further, even if
we increase our spending on sales and marketing, we may not be able to maintain
our current level of sales and revenue.

LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS.

      We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives. In addition, recruiting and retaining qualified
scientific personnel to perform future R&D work will be critical to our success.
We do not currently have sufficient executive management personnel to fully
execute our business plan. Although we believe we will be successful in
attracting and retaining qualified management and scientific personnel,
competition for experienced scientists from numerous companies and academic and
other research institutions may limit our ability to do so on acceptable terms.
Failure to attract and retain scientific personnel would prevent us from
pursuing collaborations or developing our products or core technologies.

      Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire these services or to develop this
expertise could impair the growth, if any, of our business.

      We have already begun to increase and upgrade our accounting staff with
the hiring of our Chief Financial Officer, Wayne Moor, and our Director of
Financial Reporting, Lisa De La Pointe. We are planning to further increase and
upgrade our accounting staff. The inability to add these staff members could
impair our financial reporting activities and the functioning of our internal
controls over financial reporting. In that event, our business could be impaired
due to errors in accounting or reports and possible resulting restatements of
previously published financial statements In addition, our directors and senior
officers are likely to require that we maintain directors and officers insurance
at levels comparable to those of similar sized public companies. We have


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<PAGE>

purchased such directors' and officers' liability insurance. Our efforts to
recruit additional directors could be impeded if the amount of insurance
coverage is viewed to be insufficient. Further, if we are unable to provide
adequate compensation or are unable to maintain sufficient directors and
officers insurance coverage, we may not be able to attract or retain key
personnel.

      Personnel changes may disrupt our operations. Hiring and training new
personnel will entail costs and may divert our resources and attention from
revenue-generating efforts. From time to time, we also engage consultants to
assist us in our business and operations. These consultants serve as independent
contractors, and we, therefore, do not have as much control over their
activities as we do over the activities of our employees. Our consultants may be
affiliated with or employed by other parties, and some may have consulting or
other advisory arrangements with other entities that may conflict or compete
with their obligations to us. Inventions or processes discovered by these
persons will not necessarily become our property.

INABILITY TO PROTECT OUR TECHNOLOGIES COULD HARM OUR ABILITY TO COMPETE.

      Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our other intellectual property for our
technologies and products in the United States and other countries. If we do not
adequately protect our intellectual property, competitors may be able to
practice our technologies and erode our competitive advantage. The laws of some
foreign countries do not protect proprietary rights to the same extent as the
laws of the United States, and many companies have encountered significant
problems in protecting their proprietary rights in these foreign countries.
These problems can be caused by, for example, a lack of rules and methods for
defending intellectual property rights.

      We hold three issued U.S. patents, including claims that cover the C1
Expression System and various other aspects of the C1 Host Technology, and three
international patent applications which expand that coverage and include the C1
Screening System. We also have 57 pending patent applications which we expect,
if issued, will also cover various aspects of the C1 Host Technology in addition
to the C1 Expression System. The patent positions of biotechnology companies,
including our patent position, are generally uncertain and involve complex legal
and factual questions. We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We intend to apply for patents covering both our
technologies and products as we deem appropriate. However, existing and future
patent applications may be challenged and may not result in issued patents. Our
existing patents and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patented technologies. In addition, others may
challenge or invalidate our patents, or our patents may fail to provide us with
any competitive advantages.

      We rely upon trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information. These measures may not provide adequate protection for our trade
secrets or other proprietary information. We seek to protect our proprietary
information by entering into confidentiality agreements with employees,
collaborators and consultants. Nevertheless, employees, collaborators or
consultants may still disclose our proprietary information, and we may not be
able to meaningfully protect our trade secrets. In addition, others may
independently develop substantially equivalent proprietary information or
techniques or otherwise gain access to our trade secrets.

INTELLECTUAL PROPERTY LITIGATION COULD HARM OUR BUSINESS.

      Our commercial success depends in part on neither infringing patents and
proprietary rights of third parties, nor breaching any licenses that we have
entered into with regard to our technologies and products. Others have filed,
and in the future are likely to file, patent applications covering genes or gene
fragments that we may wish to utilize with our C1 Host Technology, our C1
Expression System, our C1 Screening System or products or systems that are
similar to products developed with the use of our C1 Host Technology. If these
patent applications result in issued patents and we wish to use the claimed
technology, we would need to obtain a license from the third party.

      Third parties may assert that we are employing their proprietary
technology without authorization. In addition, third parties may obtain patents
in the future and claim that use of our technologies infringes these patents. We


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<PAGE>

could incur substantial costs and diversion of management and technical
personnel in defending ourselves against any of these claims or enforcing our
patents or other intellectual property rights against others. Furthermore,
parties making claims against us may be able to obtain injunctive or other
equitable relief which could effectively block our ability to further develop,
commercialize and sell products, and could result in the award of substantial
damages against us. If a claim of infringement against us is successful, we may
be required to pay damages and obtain one or more licenses from third parties.
We may not be able to obtain these licenses at a reasonable cost, if at all. In
that event, we could encounter delays in product commercialization while we
attempt to develop alternative methods or products. Defense of any lawsuit or
failure to obtain any of these licenses could prevent us from commercializing
available products.

      Further, the taxonomic classification of our C1 host organism was
determined using classical morphological methods. More modern taxonomic
classification methods have indicated that our C1 host organism will be
reclassified as a different genus and species. Some of the possible species that
the C1 host could be reclassified as could be the subject of patent rights owned
by others. We believe, based on our evaluation of the relevant field of science
and our discussions with our consulting professionals, that any such patent
rights would be invalid, and were litigation over the issue to ensue, we believe
we should prevail. If we did not prevail, to settle any such litigation or
pre-litigation claims, we could be required to enter into a cross-licensing
arrangement, pay royalties or be forced to stop commercialization of some of our
activities.

      We do not fully monitor the public disclosures of other companies
operating in our industry regarding their technological development efforts. If
we did evaluate the public disclosures of these companies in connection with
their technological development efforts and determined that they violated our
intellectual property or other rights, we would anticipate taking appropriate
action, which could include litigation. However, any action we take could result
in substantial costs and diversion of management and technical personnel.
Furthermore, the outcome of any action we take to protect our rights may not be
resolved in our favor or may not be resolved for a lengthy period of time.

WE MAY BE SUED FOR PRODUCT LIABILITY.

      We may be held liable if any product we develop, or any product which is
made with the use or incorporation of, any of our technologies, causes injury or
is found otherwise unsuitable during product testing, manufacturing, marketing
or sale. These risks are inherent in the development of chemical, agricultural
and pharmaceutical products. While we maintain product liability insurance, it
may not fully cover our potential liabilities. Inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of products developed by us or our collaborators. If we are
sued for any injury caused by our products, our liability could exceed our total
assets.

INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS.

      International revenues accounted for approximately 87% and 86% of our net
sales in 2003 and 2004, respectively. Our key international markets are the
European Union, Hong Kong, the Peoples Republic of China and India. Our
international sales are made through international distributors and their wholly
owned subsidiaries, including our Asian subsidiary, and direct to end-user
plants with payments to us, in many cases, denominated in currencies other than
U.S. dollars. In the conduct of our business, in a number of instances, we are
required to pay our obligations in currencies other than U.S. dollars.
Accordingly, we are exposed to changes in currency exchange rates with respect
to our international sales and payment obligations. We experienced currency
losses in 2003 and 2004 in the amounts of $236,200 and $213,471, respectively.

      Fluctuations in currency exchange rates have in the past and may in the
future negatively affect our ability to price competitively against products
denominated in local currencies. Also, changes in foreign currency exchange rate
may have an adverse effect on our financial position and results of operations
as expressed in U.S. dollars. Our management monitors foreign currency exposures
and may, in the ordinary course of business, enter into foreign currency forward
contracts or options contracts related to specific foreign currency transactions
or anticipated cash flows. We do not hedge, and have no current plans to hedge
in the future, the translation of financial statements of consolidated
subsidiaries whose local books and records are maintained in foreign currency.


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      The imposition of duties or other trade barriers, trade embargoes, acts of
terrorism, wars and other events outside our control may adversely affect
international commerce and impinge on our ability to manufacture, transport or
sell our products in international markets.

BUSINESS INTERRUPTIONS COULD KEEP US FROM DEVELOPING OUR PRODUCTS AND INCREASING
OUR REVENUES.

      Natural or man-made disasters, such as fires, earthquakes, hurricanes,
power losses, telecommunications failures, terrorist attacks, military
operations and other events beyond our control may interrupt our operations. We
do not have a detailed disaster recovery plan. In addition, we may not carry
sufficient business interruption insurance to compensate us for losses that may
occur and any losses or damages we incur could have a material adverse effect on
our cash flows and success as an overall business.

THERE MAY BE MATERIAL WEAKNESSES OR SIGNIFICANT DEFICIENCIES THAT WE HAVE NOT
YET IDENTIFIED.

      During the course of its review of our financial statements for the nine
months ended September 30, 2004, but subsequent to the completion of the audit
of, and the issuance of an unqualified report on our financial statements for
the year ended December 31, 2003, Ernst & Young LLP, our independent registered
public accounting firm, reported to our board of directors and management that
it had identified a significant deficiency it considered to be a material
weakness in our internal controls over financial reporting under standards
established by the Public Company Accounting Oversight Board, which became
applicable to us on October 29, 2004 when the Merger with CCP Worldwide, Inc.
was completed. As a consequence, our consolidated financial statements as of and
for the year ended December 31, 2003, which had not previously been filed with
the Securities and Exchange Commission, have been restated. The reported
material weakness related to the recording of foreign currency denominated
revenue, inventory purchasing and research and development expenditure
transactions during 2003 and through September 30, 2004. In the fourth quarter
of 2004 and the first quarter of 2005, our management and our Board of Directors
took the following steps to remediate this material weakness: trained the
appropriate accounting employees on foreign currency denomination in accordance
with GAAP, improved controls with respect to the recording of foreign currency
transactions, and hired a Chief Financial Officer and Director of Financial
Reporting to deal with accounting issues and to prepare the Company's financial
statements.

      The process of designing and implementing effective internal controls and
procedures is a continuous effort that requires us to anticipate and react to
changes in our business and the economic and regulatory environments and to
expend significant resources to maintain a system of internal controls that is
adequate to satisfy our reporting obligations as a public company. The
effectiveness of the steps that we take to improve the reliability of our
financial statements will be subject to continued management review supported by
confirmation and testing as well as board and audit committee oversight. We
cannot assure you that we will not in the future identify material weaknesses or
significant deficiencies in our internal control over financial reporting under
standards established by the Public Company Accounting Oversight Board that we
have not discovered to date. In general, reportable conditions are significant
deficiencies in our internal controls that could adversely affect our ability to
record, process, summarize and report financial data consistent with the
assertions of management in the financial statements. A material weakness is a
reportable condition in which our internal controls do not reduce to a low level
the risk that undetected misstatements caused by error or fraud may occur in
amounts that are material to our audited consolidated financial statements. If
any such significant deficiency or material weakness were to exist, we may not
be able to prevent or detect a material misstatement of our annual or interim
consolidated financial statements. We are taking steps to strengthen control
processes in order to identify and rectify past accounting errors and to prevent
the situations that resulted in the need to restate prior period financial
statements from recurring.

      Beginning with the year ending December 31, 2006, pursuant to Section 404
of the Sarbanes-Oxley Act, our management will be required to deliver a report
that assesses the effectiveness of our internal control over financial
reporting, and we will be required to deliver an attestation report of our
independent registered public accounting firm on our management's assessment of
and operating effectiveness of internal controls. Before then, we must complete
documentation of our internal control system and financial processes,
information systems, assessment of their design, remediation of control
deficiencies identified in these efforts and management testing of the design
and operation of internal controls. An inability to complete and document this
assessment could result in a scope limitation qualification or a scope
limitation disclaimer by our independent registered public accounting firm on
their attestation of our internal controls. In addition, if a material weakness
were identified with respect to our internal control over financial reporting,


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we would not be able to conclude that our internal controls over financial
reporting were effective, which could result in the inability of our independent
registered public accounting firm to deliver an unqualified report, or any
report, on our internal controls. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of our stock.

WE ARE DEPENDENT ON SEVERAL KEY CUSTOMERS.

      Although there were no customers that accounted for more than 10% of the
Company's net sales in 2004, sales to certain customers accounted for 10% or
more of the Company's net sales for the year ended December 31, 2003.

Risks Related to Our Common Stock

CURRENTLY OUR COMMON STOCK IS NOT LISTED ON A NATIONAL SECURITIES EXCHANGE OR ON
NASDAQ, WHICH ADVERSELY AFFECTS ITS LIQUIDITY.

      Bid and ask prices for our common stock are quoted on the Over-the-Counter
Bulletin Board under the symbol "DYAD.OB." Not having our common stock listed on
a national securities exchange or on the NASDAQ National Market or the NASDAQ
Small Cap Market likely reduces the liquidity of our shares. Although we have
begun the process of becoming listed on the American Stock Exchange, there is no
assurance as to when or if that listing will occur. We believe that having our
common stock listed on the American Stock Exchange will result in lower price
volatility and more efficient execution of buy and sell orders than what we have
experienced on the Over-the-Counter Bulletin Board. Prior to the consummation of
the Merger, we had no reported trading volume in our common stock. Since then,
we have had sporadic reported trading in our shares. As a result of this lack of
trading activity, the quoted price for our common stock on the Over-the-Counter
Bulletin Board is not necessarily a reliable indicator of its fair market value.
Further, if we cease to be quoted, holders would find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, our
common stock, and the market value of our common stock would likely decline.

SECURITIES OF BIOTECHNOLOGY COMPANIES ARE OFTEN VOLATILE.

      The trading prices of biotechnology company stocks in general tend to
experience extreme price fluctuations. The valuations of many biotechnology
companies without consistent product revenues and earnings are extraordinarily
high based on conventional valuation standards such as price to earnings and
price to sales ratios. These trading prices and valuations may not be sustained.
Any negative change in the public's perception of the prospects of biotechnology
companies could depress our stock price regardless of our results of operations
if a trading market for our stock develops. Other broad market and industry
factors may decrease the trading price of our common stock, regardless of our
performance. Market fluctuations, as well as general political and economic
conditions such as war, recession or interest rate or currency rate
fluctuations, also may decrease the trading price of our common stock. In
addition, our stock price could be subject to wide fluctuations in response to
factors including, but not limited to, the following:

      o     announcements of new technological innovations or new products by us
            or our competitors;

      o     changes in financial estimates by securities analysts;

      o     conditions or trends in the biotechnology industry;

      o     changes in the market valuations of other biotechnology companies;

      o     developments in domestic and international governmental policy or
            regulations;

      o     announcements by us or our competitors of significant acquisitions,
            strategic partnerships, joint ventures or capital commitments;


                                       34
<PAGE>

      o     developments in patent or other proprietary rights held by us or by
            others;

      o     loss or expiration of our intellectual property rights;

      o     lawsuits initiated by or against us;

      o     period-to-period fluctuations in our operating results;

      o     future royalties from product sales, if any, by our strategic
            partners; and

      o     sales of our common stock or other securities in the open market.

In the past, stockholders have often instituted securities class action
litigation after periods of volatility in the market price of a company's
securities. If a stockholder files a securities class action suit against us, we
would incur substantial legal fees and our management's attention and resources
would be diverted from operating our business to respond to the litigation.

A SIGNIFICANT NUMBER OF OUR SHARES WILL BECOME ELIGIBLE FOR SALE IN THE NEAR
FUTURE.

      7,950,471 shares, or approximately 36% of our outstanding shares, are
subject to restrictions on transfers set forth in lock-up agreements between
their holders and us. Under these lock-up agreements, 1,180,510 shares will be
released from restriction after July 28, 2005 and the remainder of the
restricted shares will be released from the lock-up agreements after January 28,
2006. We may, with the consent of the placement agents who assisted us in the
completion of our most recent private placement of common stock, also elect to
waive the lock-up agreement restrictions as to any resale of these restricted
shares. The release of shares from lock-up agreements may have a negative impact
on our stock price if the released shares are sold by the holders. A reduced
market price for our shares could make it more difficult to raise funds through
future offerings of common stock.

WE MAY BE SUBJECT TO THE SEC'S PENNY STOCK RULES.

      Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain rules adopted by the SEC. Penny stocks generally are
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
Stock Market if current price and volume information with respect to
transactions in such securities is provided by the exchange or system. The rules
require that a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, deliver a standardized risk disclosure document
that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in connection with the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the rules generally require that prior to a transaction in
a penny stock, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the liquidity of penny stocks. If our securities
become subject to the penny stock rules, holders of our shares of common stock
may find it more difficult to sell their securities.

OUR OPERATING RESULTS AND THE MARKET PRICE OF STOCK COULD BE VOLATILE.

      Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Some of the factors which could cause our
operating results to fluctuate include:

      o     expiration of research contracts with collaborators, which may not
            be renewed or replaced;

      o     the success rate of our discovery efforts leading to milestones and
            royalties;


                                       35
<PAGE>

      o     the timing and willingness of collaborators to commercialize our
            products which would result in royalties;

      o     general and industry specific economic conditions, which may affect
            our collaborators' R&D expenditures;

      o     the adoption and acceptance of our industrial enzymes and other
            products by customers of our Enzyme Business;

      o     the adoption and acceptance of our C1 Host Technology, C1 Expression
            System and C1 Screening System by biotechnology and pharmaceutical
            companies being marketed to by our BioSciences Business;

      o     the introduction by our competitors of new industrial enzyme
            products or lower prices of existing products to our Enzyme
            Business's customers;

      o     the introduction by our competitors of new expression technologies
            competitive with our C1 Expression System; and

      o     disruption in our manufacturing capacity or our failure to bring on
            additional manufacturing capacity required to meet our projected
            growth.

      A large portion of our expenses are relatively fixed, including expenses
for facilities, equipment and personnel. Accordingly, if revenues decline or do
not grow as anticipated due to expiration of research contracts or government
research grants, failure to obtain new contracts or other factors, we may not be
able to correspondingly reduce our operating expenses. In addition, we plan to
significantly increase operating expenses in 2005. Failure to achieve
anticipated levels of revenues could, therefore, significantly harm our
operating results for a particular fiscal period.

      Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.

WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE.

      We have never paid cash dividends on our stock and do not anticipate
paying cash dividends on our stock in the foreseeable future. The payment of
dividends on our shares, if ever, will depend on our earnings, financial
condition and other business and economic factors affecting us at such time as
the board of directors may consider relevant. If we do not pay dividends, our
stock may be less valuable because a return on investment will only occur if and
to the extent that our stock price appreciates, and if the price of our stock
does not appreciate, then there will be no return on investment.

OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRERS AND DEPRESS
OUR STOCK PRICE.

      Certain provisions of our certificate of incorporation, bylaws and
Delaware law, as well as certain agreements we have with our executives, could
be used by our incumbent management to make it substantially more difficult for
a third party to acquire control of us. These provisions include the following:

      o     we may issue preferred stock with rights senior to those of our
            common stock;

      o     we have a classified Board of Directors;

      o     action by written consent by stockholders is not permitted;


                                       36
<PAGE>

      o     our Board of Directors has the exclusive right to fill vacancies and
            set the number of directors;

      o     cumulative voting by our stockholders is not allowed; and

      o     we require advance notice for nomination of directors by our
            stockholders and for stockholder proposals.

      These provisions may discourage certain types of transactions involving an
actual or potential change in control. These provisions may also limit our
stockholders' ability to approve transactions that they may deem to be in their
best interests and discourage transactions in which our stockholders might
otherwise receive a premium for their shares over the then current market price.

WE HAVE CONTROLLING STOCKHOLDERS.

      Our officers, directors and principal stockholders together control
approximately 46.7% of our outstanding common stock. Our founder and chief
executive officer, Mark Emalfarb, through a trust of which he is the trustee and
beneficiary, the Mark A. Emalfarb Trust, owns approximately 25% of our
outstanding common stock. Further, the Francisco Trust, whose beneficiaries are
the spouse and descendants of Mark Emalfarb, owns approximately 20% of our
outstanding common stock, while friends and relatives of Mr. Emalfarb, who are
not officers, directors, or principal stockholders, own approximately an
additional 5% of our outstanding common stock. As a result, these stockholders,
if they act together, will be able to exert a significant degree of influence
over our management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent
a change in control of us and might affect the market price of our shares, even
when a change may be in the best interests of all stockholders. Moreover, the
interests of this concentration of ownership may not always coincide with our
interests or the interests of other stockholders, and, accordingly, they could
cause us to enter into transactions or agreements which we would not otherwise
consider.

WE ARE INDEBTED TO OUR LARGEST STOCKHOLDERS.

      As of December 31, 2004, we owed the Mark A. Emalfarb Trust and the
Francisco Trust an aggregate indebtedness of approximately $4.0 million, under
three separate promissory notes. In connection with the transactions completed
in late October 2004, the Mark A. Emalfarb Trust cancelled $1,225,000 of the
indebtedness represented by a promissory note in exchange for the issuance of
shares of common stock and warrants, and we extended the maturity date of the
remaining indebtedness to the Mark A. Emalfarb Trust and the Francisco Trust.
All of our assets are mortgaged or pledged to secure the indebtedness owed the
Mark A. Emalfarb Trust and the Francisco Trust. If we were unable to generate
sufficient cash flow or otherwise obtain funds necessary to pay this
indebtedness when due, we would be in default, and these debt holders would have
the right to foreclose on their liens and security interests that secure the
defaulted debt. Because the Mark A. Emalfarb Trust and the Francisco Trust are
our largest stockholders and have a conflict in interest in their dealings with
us with respect to these loans, we expect that they will take into account their
investments in us and any duties that they may have to us when deciding whether
to pursue their default remedies and that they would attempt to work out an
acceptable payment arrangement for their debts. However, there is a risk that,
due to changes in circumstances or for other reasons currently unknown to us,
the Mark A. Emalfarb Trust and the Francisco Trust may elect to exercise their
default remedies rather than work out a solution that is in our best interests.
Further, not only is this indebtedness evidenced by promissory notes that are
transferable by their holders, but we could decide to refinance this
indebtedness through similar secured borrowings from banks or other commercial
lenders. Any transferee or new lender, no longer constrained by the stockholder
interests of the Mark A. Emalfarb Trust and the Francisco Trust, may not have
the same attitude about any failure on our part to meet our binding repayment
obligations as the Mark A. Emalfarb Trust and the Francisco Trust might.

WE ARE EXPOSED TO POTENTIAL RISKS RESULTING FROM NEW REQUIREMENTS THAT WE
EVALUATE DISCLOSURE CONTROLS UNDER SECTION 404 OF THE SARBANES-OXLEY ACT OF
2002.

      We are evaluating our internal controls in order to allow management to
report on, and our independent registered certified public accounting firm to
attest to, our internal controls, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. We may encounter unexpected delays in implementing
the requirements relating to internal controls; therefore, we cannot be certain


                                       37
<PAGE>

about the timing of completion of our evaluation, testing and remediation
actions or the impact that these activities will have on our operations since
there is no precedent available by which to measure the adequacy of our
compliance. We also expect to incur additional expenses and diversion of
management's time as a result of performing the system and process evaluation,
testing and remediation required in order to comply with the management
certification and independent registered certified public accounting firm
attestation requirements. If we are not able to timely comply with the
requirements set forth in Section 404, we might be subject to sanctions or
investigation by regulatory authorities. Any such action could adversely affect
our business and financial results. The requirement to comply with Section 404
of the Sarbanes-Oxley Act of 2002 will become effective for our fiscal year
ending December 31, 2006.

      In addition, in our system of internal controls, we may rely on the
internal controls of third parties. In our evaluation of our internal controls,
we will consider the implication of our reliance on the internal controls of
third parties. Until we have completed our evaluation, we are unable to
determine the extent of our reliance on those controls, the extent and nature of
the testing of those controls, and remediation actions necessary where that
reliance cannot be adequately evaluated and tested.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      As of April 8, 2005, there were 22,241,105 shares of Dyadic common stock
outstanding with approximately 203 stockholders of record. The closing bid price
quoted on the Over-the-Counter Bulletin Board for the Company's Common Stock at
April 8, 2005 was $2.85. The Company currently trades under the symbol
"DYAD.OB".

      No bid or ask information or public trades were reported with respect to
the Company's shares prior to the Merger consummated on October 29, 2004. As a
result, the range of high and low bid information for shares of the Company's
common stock for each full quarterly period within the two most recent fiscal
years is not available. The following table sets forth the high and low bids for
Dyadic common stock for the period indicated as reported by the OTC Bulletin
Board System:

QUARTER ENDED                                      2004 SALES PRICE
                                           ---------------------------------
                                              HIGH                     LOW
                                           ---------------------------------
December 31(October 29 to December 31, 2004) $7.35                   $5.95

      As of March 31, 2005, the high sales price for the first quarter of 2005
was $6.50, while the low for the quarter was $2.75. These bids represent prices
quoted by broker-dealers on the OTC Bulletin Board System. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.

      The transfer agent for the Company's common stock is Continental Stock
Transfer & Trust Company and its address is 17 Battery Place, New York, New York
10004-1123.


                                       38
<PAGE>

Equity Compensation Plan Information

      The following table provides information regarding the status of the
Company's existing equity compensation plans at December 31, 2004.

<TABLE>
<CAPTION>
                                         NUMBER OF SECURITIES TO          WEIGHTED-AVERAGE               NUMBER OF SECURITIES
             PLAN CATEGORY               BE ISSUED UPON EXERCISE          EXERCISE PRICE OF            REMAINING AVAILABLE FOR
             -------------               OF OUTSTANDING OPTIONS,         OUTSTANDING OPTIONS,               FUTURE ISSUANCE
                                           WARRANTS AND RIGHTS           WARRANTS AND RIGHTS                ---------------
                                           -------------------           -------------------
<S>                                     <C>                             <C>                           <C>
Equity compensation plans
approved by security                          750,000                        $   4.08                         4,383,823(2)
holders (1)

Equity compensation plans
not approved by security
holders                                            --                           --                                   --

Total                                         750,000                        $   4.08                         4,383,823(2)
</TABLE>

(1)   Consists of Dyadic International, Inc. 2001 Equity Compensation Plan,
      which the Company assumed in connection with the Merger consummated on
      October 29, 2004.

(2)   Excludes 18,624 shares that were awarded to Dyadic-Florida employees under
      the Dyadic International, Inc. 2001 Equity Compensation Plan in 2004.


                                       39
<PAGE>

      THE COMPANY HAS FILED A PROXY STATEMENT (THE "PROXY STATEMENT") WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS IN THE PROCESS OF DISTRIBUTING THE
PROXY STATEMENT TO ITS STOCKHOLDERS. THE PROXY STATEMENT IS AVAILABLE ON THE
INTERNET AT HTTP://EDGAR.SEC.GOV. SET FORTH BELOW IS CERTAIN INFORMATION DERIVED
FROM THE PROXY STATEMENT. THE PROXY STATEMENT IS NOT INCORPORATED INTO THIS
PROSPECTUS SUPPLEMENT.

BOARD OF DIRECTORS

      Our Board of Directors is divided into three classes as nearly equal in
number as possible. The members of each class of directors serve staggered
three-year terms. Two new directors have been elected to fill new positions on
the Board since the date of the prospectus. Currently, the Board is composed of
the following five individuals:

      Class                 Directors                    Term Expiration
      -----                 ---------                    ---------------

      Class I               Richard J. Berman            2005 Annual Meeting
      Class I               Robert B. Shapiro            2005 Annual Meeting
      Class II              Stephen J. Warner            2006 Annual Meeting
      Class II              Harry Z. Rosengart           2006 Annual Meeting
      Class III             Mark A. Emalfarb             2007 Annual Meeting

The Proxy Statement solicits proxies for, among other things, the election of
Messrs. Berman and Shapiro at the 2005 Annual Meeting of Stockholders.

Set forth below is new information concerning the business experience of the new
members of the Board and updated information in the case of prior members of the
Board.

CLASS I DIRECTORS WHOSE TERM WILL EXPIRE IN 2005

      RICHARD J. BERMAN. Mr. Berman was appointed as a director of the Company
on January 11, 2005, and acts as the Company's "Lead Director." In that
capacity, he is responsible for meeting regularly with our Chairman of the Board
and Chief Executive Officer to review monthly financials, agenda and minutes of
committee meetings and pertinent Board issues, presiding, if requested by the
Board, as chairman of any of the committees of the Board and presiding at any
meetings of the independent and nonemployee directors. He currently serves as
Chairman of National Investment Managers, Inc., a public financial services
company, and one private company, a human resources services company that
delivers its services over the internet. From 1998 to 2000, Mr. Berman served as
Chairman and CEO of Internet Commerce Corporation. Over the course of his
career, he has worked with several investment banking firms and has extensive
experience in venture capital, management and mergers and acquisitions. He has
also served as a director in the past for numerous companies. His last
investment banking firm position was with Bankers Trust Company from 1975 to
1982, where he served as Senior Vice President and head of the Merger and
Acquisition Department and Equity Investment Department. Since 1980, he has been
a private investor in real estate developments, and currently owns seven
commercial or office properties located in New York City. Currently, he is a
director of five other public companies - International Microcomputer Software,
Inc., Internet Commerce Corporation, MediaBay, Inc., NexMed, Inc. and GVI
Security Solutions Inc. He is a past director of the Stern School of Business of
New York University, from which he received B.S. and M.B.A. degrees. He also has
U.S. and foreign law degrees from Boston College and The Hague Academy of
International Law.

      ROBERT B. SHAPIRO. During the past five years, Mr. Shapiro has served as a
member of the Board of Directors of the New York Stock Exchange (on which he
still serves), Citigroup, Inc. and Rockwell International, as Chairman of
Pharmacia Corporation's Board of Directors and, prior to its merger with
Phamacia & Upjohn, as Chairman and Chief Executive Officer of Monsanto Company
(1995 through 2001). Prior to becoming the Chairman and Chief Executive Officer
of Monsanto, Mr. Shapiro served in various executive capacities with Monsanto
from 1985, and with G.D. Searle & Company, a diversified electronics company,
first as its general counsel (1972 through 1982), and then as President of its
newly formed NutraSweet Group (1982 to 1985). Mr. Shapiro is a 1959 graduate of
Harvard College and a 1962 graduate of Columbia University School of Law.


                                       40
<PAGE>

CLASS II DIRECTORS WHOSE TERM WILL EXPIRE IN 2006

      STEPHEN J. WARNER. Mr. Warner, age 65, has served as a director of the
Company since October 2004, and as a member of the Board of Directors of the
Company's wholly-owned subsidiary, Dyadic International (USA), Inc., a Florida
corporation ("Dyadic-Florida"), since August 15, 2004. Mr. Warner currently is
the managing member of Bioform LLC, a newly established Florida-based venture
capital fund. Mr. Warner also serves as chairman of Maxim TEP, Inc., a private
energy company in Houston, Texas, and is a director of UCT Coatings Inc., a
private metal finishing technology company in Stuart, Florida. Mr. Warner has
over 25 years of venture capital experience. In 1981, Mr. Warner founded Merrill
Lynch Venture Capital Inc., a wholly-owned subsidiary of Merrill Lynch & Co.
Inc. in New York and served as its President and Chief Executive Officer from
1981 to 1990. Under his leadership, Merrill Lynch Venture Capital managed over
$250 million and made over 50 venture capital investments. In 1999, Mr. Warner
co-founded, and became Chairman and CEO, of Crossbow Ventures Inc., a private
equity fund that invests in early and expansion stage technology companies
primarily located in Florida and the Southeast, with over 20 venture capital
investments in Florida. Mr. Warner earned a B.S. degree from the Massachusetts
Institute of Technology and an MBA from the Wharton School of Business,
University of Pennsylvania.

      HARRY Z. ROSENGART. Mr. Rosengart, age 55, was appointed to our Board on
April 26, 2005. During the past five years, Mr. Rosengart has served (and
currently serves) as the President and CEO of HK & Associates, an investment and
consulting firm which provides advice to small and medium-sized life sciences
companies. Mr. Rosengart is a founder of several privately held companies,
including: LigoChem, Inc., a DNA\RNA and macromolecule bioseparations company
founded in 1995, of which he is a former President and CEO and a current member
of its board of directors; SunPharm Corporation, a polyamine based anti-cancer
drug development-stage company founded in 1991, of which he is a former COO, CFO
and member of its board of directors; and Syncom Pharmaceuticals, Inc, a
contract sales force organization founded in 1991, of which he has had a variety
of interim positions and served on its board of directors. Between 1981 and
1990, Mr. Rosengart spent almost 10 years as a banker and investment banker with
the Chase Manhattan Bank, NA focused on the pharmaceutical and chemical
industries. Prior to joining Chase Manhattan Bank, Mr. Rosengart spent over 10
years with several pharmaceutical and muntinational chemical companies in
various managerial positions. Mr. Rosengart holds a B.S. in Chemical Engineering
and an MBA from Rutgers University.

CLASS III DIRECTORS WHOSE TERM WILL EXPIRE IN 2007

      MARK A. EMALFARB. Mr. Emalfarb, age 50, has served as a director of the
Company and its Chairman, President and Chief Executive Officer since October
2004 and as the President and member of the Board of Directors of Dyadic-Florida
since its inception. Since founding Dyadic-Florida in 1979, Mr. Emalfarb has
successfully led and managed the evolution of Dyadic-Florida -- from its origins
as a pioneer and leader in providing ingredients used in stone-washing of blue
jeans -- to the discovery, development, manufacturing and commercialization of
specialty enzymes used in various industrial applications and the development of
the C1 Expression System. Mr. Emalfarb is an inventor of over 25 U.S. and
foreign biotechnology patents and patent applications resulting from discoveries
related to Dyadic-Florida's proprietary C1 microorganism, and has been the
architect behind its formation of several strategic R&D, manufacturing and
marketing relationships with U.S. and international partners. Mr. Emalfarb
earned a B.A. degree from the University of Iowa.

BOARD COMMITTEES

      In January 2005, the Board established three committees: the Audit
Committee, the Nominating Committee and the Compensation Committee. These
committees were constituted to assist the Board in carrying out its duties. In
particular, these committees will work on key issues in greater detail than
would be practical at a full meeting of the Board. Each committee reviews the
results of its meetings with the full Board. Each of the committees has a
written charter which can be found on the Company's website at
www.dyadic-group.com. Currently, Messrs. Warner and Berman are the sole members
of each of the three committees. Mr. Berman, as Lead Director, serves as the
Chairman of each committee.


                                       41
<PAGE>

The Audit Committee

      The Audit Committee's functions include: reviewing with our independent
registered public accounting firm and management the Company's unaudited
quarterly financial statements, the Company's audited annual financial
statements and independent registered public accounting firm's opinion;
reviewing and maintaining direct oversight of the plan, scope and results of the
audit by the independent registered public accounting firm; reviewing and
approving all professional services performed and related fees charged by the
independent registered public accounting firm; being solely responsible for the
retention or replacement of the registered independent public accounting firm;
monitoring the adequacy of the Company's accounting and financial policies,
internal controls, disclosure controls and procedures, reporting systems and
filings with the SEC; and reviewing and updating our code of business ethics and
monitoring compliance therewith. The Audit Committee was organized in January
2005. The Board has adopted a written charter for the Audit Committee, a copy of
which is attached as Appendix A to the Proxy Statement.

      The Board of Directors has determined that the Audit Committee's current
member composition satisfies (i) the corporate governance rules of the American
Stock Exchange ("AMEX") that govern audit committee composition for small
business issuers listed on AMEX, including the requirement that all audit
committee members be able to read and understand fundamental financial
statements and be "independent directors" as that term is defined by Section 121
of the AMEX rules, and (ii) the independence standards under the SEC regulations
relating to audit committee members. The Company has applied to list its common
stock for trading with AMEX. Additionally, the SEC's rules require the Company
to disclose whether it has at least one member of the Audit Committee that meets
the SEC's definition of an "audit committee financial expert" based on past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Richard Berman and Stephen
Warner have been determined by the Board of Directors to be "audit committee
financial experts."

The Compensation Committee

      The Compensation Committee's functions include: reviewing and approving,
on an annual basis, the corporate goals and objectives relevant to the
compensation of the Chief Executive Officer and other senior executive officers
of the Company; evaluating their performance in light of these goals and
objectives; making recommendations with respect to and, together with the other
independent members of the Board of Directors, determining and approving the
compensation of the Chief Executive Officer of the Company based upon the
foregoing evaluation of his performance; making recommendations to the Board of
Directors with respect to the establishment or amendment of
incentive-compensation plans and equity-based plans; and determining and
approving the compensation of the other senior executive officers of the Company
based upon the recommendations of, and in consultation with, the Chief Executive
Officer. The Compensation Committee was organized in January 2005.

      The Board of Directors has determined that the Compensation Committee's
current member composition satisfies the AMEX rule that governs compensation
committee composition for companies listed on AMEX, including the requirement
that all compensation committee members be "independent directors" as that term
is defined by Section 121 of the AMEX rules.

The Nominating Committee

      The Nominating Committee's functions include: establishing criteria for
the selection of new directors to serve on the Board of Directors; identifying
individuals believed to be qualified as candidates to serve on the Board of
Directors; recommending for selection by the Board of Directors the candidates
for all directorships to be filled by the Board of Directors or by the
stockholders at an annual or special meeting; reviewing the Board of Director's
committee structure and recommending to the Board of Directors the directors to
serve on the committees of the Board; recommending members of the Board of
Directors to serve as the respective Chairs of the committees of the Board of
Directors; developing and recommending to the Board of Directors, for its
approval, an annual self-evaluation process of the Board of Directors and its


                                       42
<PAGE>

committees and, based on those results, making recommendations to the Board of
Directors regarding those Board processes; and performing any other activities
consistent with the Committee's Charter, the Company's Bylaws and governing law
as the Committee or the Board of Directors deems appropriate. The Nominating
Committee was organized in January 2005.

      The Nominating Committee does not currently have any formal minimum
qualification requirements that must be met by a nominee for a position on the
Board of Directors. In the fulfillment of their responsibilities to identify and
recommend to the Board of Directors individuals qualified to become board
members, the members of the Nominating Committee will take into account all
factors they consider appropriate, which may include experience,
accomplishments, education, understanding of the business and the industries in
which the Company operates, specific skills, general business acumen and the
highest personal and professional integrity. Generally, the members of the
Nominating Committee will first consider current Board members because they meet
the criteria listed above and possess knowledge of the Company, its history,
strengths, weaknesses, goals and objectives.

      The Nominating Committee currently has no fixed process for identifying
new nominees for election as a director, thereby retaining the flexibility to
adapt its process to the circumstances. The Nominating Committee has the
ability, if it deems it necessary or appropriate, to retain the services of an
independent search firm to identify new director candidates. The Nominating
Committee has determined that it will give consideration to any potential
candidate proposed by a member of our Board or senior management. Any
non-incumbent director so proposed will be personally interviewed by at least
one member of the Nominating Committee and the Chief Executive Officer and their
assessment of his or her qualifications will be provided to the full Nominating
Committee.

      Our policy and procedures regarding securityholder recommended candidates
for director are contained in the charter of the Nominating Committee. The
Nominating Committee may consider for inclusion in its nominations for new
directors any candidates recommended by stockholders, but must consider any
candidate for director recommended by (i) any stockholder beneficially owning
more than 5% of the Company's outstanding common stock for at least one year as
of the date the recommendation was made or (ii) a group of stockholders that
beneficially owned, in the aggregate, more than 5% of the Company's outstanding
common stock, with each of the shares used to calculate that ownership held for
at least one year as of the date the recommendation was made. The Nominating
Committee will consider the candidate based on the same criteria established for
selection of director nominees generally. The Nominating Committee reserves the
right to reject any candidate in its discretion, including, without limitation,
rejection of a candidate who has a special interest agenda other than the best
interests of the Company and its stockholders, generally.

      The Board of Directors has determined that the Nominating Committee's
current member composition satisfies the AMEX rule that governs nominating
committee composition for companies listed on AMEX, including the requirement
that all nominating committee members be "independent directors" as that term is
defined by Section 121 of the AMEX rules.

DIRECTOR INDEPENDENCE

      The Board of Directors has determined that, except for Mr. Emalfarb, each
of our directors and nominees qualifies as an independent director under the
rules of AMEX. Mr. Emalfarb is not considered independent because he holds the
office of Chairman, President and Chief Executive Officer of the Company.

DIRECTOR COMPENSATION

      In accordance with the director compensation policy, as described in the
prospectus, in January 2005, we granted to Mr. Berman an option to purchase
50,000 shares of our Common Stock and to Mr. Warner an option to purchase 30,000
shares of our Common Stock. Both options are exercisable at $5.93 per share, are
25% vested and have a four-year vesting schedule as to 75% of the options. Each
of the options expires on December 31, 2009. In March 2005, we granted to Mr.
Shapiro an option to purchase 30,000 shares of our Common Stock, which is
exercisable at $2.895 per share, is 25% vested on the date of grant, has a
four-year vesting schedule as to the 75% balance of the option and expires March
29, 2010. In April 2005, we granted to Mr. Rosengart an option to purchase
30,000 shares of our Common Stock, which is exercisable at $2.695 per share, is
25% vested on the date of grant, has a four-year vesting schedule as to the 75%
balance of the option and expires April 26, 2010.


                                       43
<PAGE>

STOCK OWNERSHIP

      The following table sets forth information regarding the number of shares
of our common stock beneficially owned on April 20, 2005, by:

      o     any person or "group," as that term is used in Section 13(d)(3) of
            the Securities Exchange Act of 1934, known to us to own beneficially
            more than five percent of the outstanding shares of our common
            stock,

      o     each of our directors and director nominees,

      o     each of our past or present executive officers named in the Summary
            Compensation Table, and

      o     all of our directors and executive officers as a group.

Except as indicated below, the persons named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to community property laws, where applicable. Unless otherwise
indicated, the address for each more than 5% stockholder is c/o Dyadic
International, Inc., 140 Intracoastal Pointe Drive, Suite 404, Jupiter, Florida
33477. Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Percentage of beneficial ownership is based on 22,241,105 shares
outstanding as of April 20, 2005.

<TABLE>
<CAPTION>
                                                                          SHARES ISSUABLE PURSUANT
                                                      NUMBER                 TO OPTIONS, WARRANTS &         PERCENTAGE
                                                     OF SHARES               CONVERTIBLE SECURITIES          OF SHARES
                                                   BENEFICIALLY                  EXERCISABLE                BENEFICIALLY
       BENEFICIAL OWNER                                OWNED                   WITHIN 60 DAYS                 OWNED(1)
       ----------------                                -----                   --------------                 --------
<S>                                                <C>                           <C>                            <C>
Mark A. Emalfarb (2)                               5,570,827                     1,527,732                      29.9%

The Francisco Trust (3)                            4,422,041                       222,537                      20.7%
   c\o Robert S. Levin, Esq.
   Levin & Ginsburg, Ltd.
   180 N. LaSalle, Suite 3200
   Chicago, Illinois 60601

Stephen Warner (4)                                   300,000                       157,500                       2.0%
   400 N. Flagler Drive, Suite 1601
   West Palm Beach, Florida 33401

Robert Shapiro                                             -                         7,500                          *

Richard Berman                                             -                        12,500                          *

Ratnesh (Ray) Chandra                                 28,716                        17,000                          *

Kent Sproat                                           53,716                        12,000                          *

Alexander (Sasha) Bondar                               3,716                        22,000                          *

All executive officers and directors
as a group (5)                                     5,956,975                     1,756,232                      32.1%

</TABLE>

- ---------------------

*     Denotes less than one percent (1.0%).

(1)   The percentages of beneficial ownership as to each person, entity or group
      assume the exercise or conversion of all options, warrants and convertible
      securities held by such person, entity or group which are exercisable or
      convertible within 60 days, but not the exercise or conversion of options,
      warrants and convertible securities held by others shown in the table.


                                       44
<PAGE>

(2)   Held of record by the Mark A. Emalfarb Trust U/A/D October 1, 1987, for
      which Mr. Emalfarb serves as sole trustee, and represents the rights to
      purchase 1,092,500 shares under Bridge Loan Warrants, and 251,298 shares
      pursuant to the terms of a convertible note originally in the principal
      amount of $750,766, but increased to $836,824 on October 29, 2004, to
      reflect accrued interest of $86,058 through that date, at $3.33 per share.
      Also includes 183,934 warrants to purchase shares at $5.50 per share
      related to the cancellation of a note payable to the Mark A. Emalfarb
      Trust through the sale of Investment Units in the October 2004 offering.

(3)   Includes the right to purchase 222,537 shares pursuant to the terms of a
      convertible note originally in the principal amount of $664,838, but
      increased to $741,047 on October 29, 2004, to reflect accrued interest of
      $76,209 through that date, at $3.33 per share. The Francisco Trust has as
      its beneficiaries the spouse and descendants of Mark A. Emalfarb, and as
      its trustee an unrelated third party, Robert S. Levin, Esq.

(4)   All securities held of record by Bioform, LLC, of which Mr. Warner is the
      managing member, except for warrants to purchase 7,500 shares at $5.93 per
      share that are held of record by Mr. Warner.

(5)   Includes beneficial ownership of all persons listed other than the
      Francisco Trust.

MANAGEMENT

      Due to changes since the date of the prospectus, the following table sets
forth our current executive officers and key employees, their ages and positions
held.

NAME                               AGE     POSITION
- ----                               ---     --------
Mark A. Emalfarb                   50      Director, Chairman, President, Chief
                                           Executive Officer, Secretary and
                                           Treasurer

Wayne Moor                         53      Chief Financial Officer and Vice
                                           President

Kent M. Sproat (1)                 58      Executive Vice President, Enzyme
                                           Business

Ratnesh (Ray) Chandra (2)          57      Senior Vice President, Marketing -
                                           Biotechnology Systems

Alexander (Sasha) Bondar (3)       33      Vice President, Strategy & Corporate
                                           Development

Daniel Michalopoulos, Ph.D. (4)    52      Vice President, Pulp & Paper

Richard Burlingame, Ph.D. (4)      52      Executive Director, Research &
                                           Development

- ------------------------------------------

(1)   Mr. Sproat served as Vice President, Manufacturing from 1997 through March
      2005.

(2)   Mr. Chandra served as Vice President, Marketing - BioSciences, from 2000
      to March 2005.

(3)   Mr. Bondar served as Executive Director, Business Development from 2003
      through March 2005.

(4)   Dr. Burlingame and Dr. Michalopoulos are key employees.

      Set forth below is new information concerning the business experience of
our new executive officers and key employees and updated information in the case
of prior executive officers and key employees. Information concerning the
business experience of Mark A. Emalfarb is set forth above under Board of
Directors.

      Wayne Moor. Mr. Moor joined the Company in January 2005. During the past
five years Mr. Moor has served as a Chief Financial Officer of several public
companies, and has over 25 years experience in real estate and hotel operations,
asset management, debt restructurings, recapitalizations and developing
strategic turnaround plans. From October 2002 through December 2004, Mr. Moor
served as the Senior Vice President, Treasurer and Chief Financial Officer of
Boca Resorts, Inc, a hospitality company. From October 2001 to October 2002, Mr.
Moor was Senior Vice President and Chief Financial Officer for ANC, the parent
company of Alamo and National rental car companies. In November 2001, following
the terrorist attacks of September 11, 2001, ANC and its U.S. operating
subsidiaries voluntarily filed petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in Wilmington, Delaware. From September 2000 to October
2001, Mr. Moor was Senior Vice President and Chief Financial Officer for Gerald
Stevens, Inc., a floral products marketer and retailer. In April 2001, Gerald
Stevens, Inc. and certain operating subsidiaries voluntarily filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in Miami, Florida.


                                       45
<PAGE>

From June 1997 to January 2000, Mr. Moor was Executive Vice President and Chief
Financial Officer for US Diagnostic, Inc., an operator of outpatient medical
diagnostic imaging and related facilities. Prior to that, Mr. Moor held the
position of Chief Financial Officer or Executive Vice President for a number of
privately and publicly held financial institutions and real estate operating
companies. He began his career in public accounting.

      Kent M. Sproat. Mr. Sproat is the Company's Executive Vice President,
Enzyme Business, responsible for all manufacturing, applications, sales, and
marketing functions of the Company's enzymes business activities, and was
formerly Vice President, Manufacturing. Mr. Sproat joined Dyadic-Florida in 1997
from Genencor International, where since 1996 he served as its Elkhart Site
Manager. From 1990 to 1996, Mr. Sproat was Vice President, Manufacturing, of
Solvay Enzymes, Inc. From 1989 to 1990, he was Director of International
Manufacturing of the Enzyme Division of Miles, Inc. Between 1981 and 1990, he
served as Plant Manager of Miles' Elkhart, Indiana and Clifton, New Jersey-based
enzyme plants. Between 1973 and 1981, Mr. Sproat was a Production Superintendent
at Miles' Citric Acid Division; Start Up Manager of Miles' citric acid facility
in Brazil; and Production Supervisor and Project Engineer. Mr. Sproat is the
recipient of a patent for his design in the purification process of amylases.
Mr. Sproat is a chemical engineer with a B.S. degree from Purdue University.

      Ratnesh (Ray) Chandra. Mr. Chandra is the Company's Senior Vice President,
Marketing - Biotechnology Systems, responsible for business development for the
Company's biosciences business activities, and was formerly Vice President,
Marketing - BioSciences. Mr. Chandra joined Dyadic-Florida from Genencor
International in 2000. He had served at Genencor as the Director, New Business
Development since 1993. From 1987 to 1993, he was with Merck & Co. holding the
positions of Director, Business/Market Intelligence and Director, Business
Systems in their Human Health Marketing Division. From 1976 to 1987, he was with
Schering-Plough Corp. in the positions of Director Economic Analysis, Manager
Capital Planning and Senior Operations Analyst. Mr. Chandra has an M.B.A. from
New York University and an M.S. in engineering from Columbia University.

      Alexander (Sasha) Bondar. Mr. Bondar is the Company's Vice President,
Strategy & Corporate Development, with primary responsibility for corporate
development, organization planning, merger & acquisition opportunities,
fund-raising activities and investor and public relations, and secondarily, when
requested, for assisting in business development for the Company's biosciences
and enzyme businesses, and was formerly Executive Director, Business
Development. Mr. Bondar joined Dyadic-Florida in May 2003 from The Aurora Funds,
a venture capital firm based in Research Triangle Park, North Carolina, where he
was focused on investing in early stage life sciences companies. Prior to that,
from 1996 to 2001, Mr. Bondar served in a variety of management roles at Incyte
Genomics, now Incyte Corporation, in Palo Alto, California, and from 1999 to
2001 as Associate Director, Corporate Business Development. From 1997 to 1999,
he served as Manager, Pharmacogenomics Business Development, and was a major
contributor to the successful launch of Incyte's pharmacogenomics program. From
1996 to 1997, he served as Technical Advisor to the intellectual property group
at Incyte, contributing to the creation of the largest portfolio of gene patents
in the world. Mr. Bondar holds a B.S. degree in Biotechnology Management from
Menlo College and an M.B.A. in Corporate Finance and Health Sector Management
from Duke University's Fuqua School of Business.

      Daniel Michalopoulos, Ph.D. Dr. Michalopoulos joined the Company in
February 2005 as its Vice President, Pulp & Paper and is focused on growing the
Company's pulp and paper effort. Prior to the Company, he served as Senior
Program Manager for Hercules' Pulp and Paper Division from 1998 to 2005 where he
managed a staff of 40 people with an annual budget of $8 million. Prior to that,
he served as Research Director at BetzDearborn Pulp and Paper Division and held
other research and management positions at Betz PaperChem. Dr. Michalopoulos
conducted his post-doctoral work at Rice University, received his Ph.D. in
Chemistry from Colorado State University and his B.S. in Chemistry from Lowell
Technological Institute.

      Richard P. Burlingame, Ph.D. Dr. Burlingame is the Company's Executive
Director, Research & Development, responsible for management of the day-to-day
research and development activities engaged in by the Company worldwide. Dr.
Burlingame joined Dyadic-Florida in October 2001 and is focused on leading the
Dyadic R&D team in its development of the C1 Expression System and C1 Host
Technology. Prior to that, Dr. Burlingame was a research manager at BioTechnical
Resources, Inc., or BTR, from 1989 to 2001, leading a number of programs in the
areas of metabolic engineering, biocatalysis, gene expression, and strain and
process development for the production of fungal enzymes. He was the primary
liaison and chief scientific officer for BTR's collaborations with Dyadic.


                                       46
<PAGE>

Between 1986 and 1989, Dr. Burlingame was a researcher at Bio-Technical
International, Inc. where he was primarily involved with generating recombinant
strains for the production of amino acids and development of genetic engineering
tools. His postdoctoral work was at the University of Wisconsin-Madison in the
area of bacteriophage genetics and molecular biology. Dr. Burlingame received
his Ph.D. degree in biochemistry from the University of Minnesota, where he
studied microbial biochemistry, physiology, and genetics and his B.S. degree,
also in biochemistry, from the University of Illinois.

      Our officers are elected annually by our Board of Directors at a meeting
held following each Annual Meeting of Stockholders, or as necessary and
convenient in order to fill vacancies or newly created offices. Each officer
serves at the discretion of our Board of Directors. Any officer elected or
appointed by our Board of Directors may be removed by our Board of Directors
whenever in its judgment our best interests will be served, but a removal is
without prejudice to the contractual rights, if any, of the person so removed.
See "Employment Agreements."

      We are not aware of any family relationship among any of our directors or
officers.

EXECUTIVE COMPENSATION AND RELATED INFORMATION

SUMMARY COMPENSATION TABLE

      The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal years ended December 31, 2004, December
31, 2003, and December 31, 2002, respectively, by our Chief Executive Officer
and each of our four other highest compensated executive officers (determined on
the basis of their salary and bonus for the fiscal year ended December 31, 2004)
whose total compensation exceeded $100,000 during 2004. The listed individuals
are referred to in this second prospectus supplement as the "Named Executive
Officers."

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                      LONG TERM
                                          ANNUAL COMPENSATION (1)                                COMPENSATION AWARDS
                                          -----------------------                                -------------------
                                                                                        RESTRICTED                SECURITIES
                                                                                          STOCK                   UNDERLYING
NAME AND POSITION                  YEAR          SALARY ($)        BONUS ($)              AWARDS                   OPTIONS
- -----------------                  ----          ----------        ---------              ------                   -------
<S>                               <C>           <C>               <C>                  <C>                       <C>
Mark A. Emalfarb(2)                2004           300,000            75,000                   --                        --
   President, Chief Executive      2003           300,000            35,970                   --                        --
   Officer and Director            2002           300,000            32,700                   --                        --


Ratnesh (Ray) Chandra (3)          2004           149,856            30,000                   --                    60,000
   Senior Vice President,          2003           144,004            23,250                3,716                    15,000
   Marketing - Biotech-            2002           140,333            13,900                   --                        --
   nology Systems


Kent M. Sproat (4)                 2004           145,206            30,000                   --                    80,000
   Executive Vice President,       2003           139,505            23,250                3,716                    10,000
   Manufacturing                   2002           131,667            12,000                   --                        --


Alexander (Sasha) Bondar (5)       2004           138,105            25,000                   --                    45,000
   Vice President, Strategy &      2003            74,157            23,250                3,716                    25,000
   Corporate Development           2002                --                --                   --                        --


Thomas Bailey (6)                  2004           126,880                --                   --                    10,000
   Vice President, Marketing       2003           115,670            25,700                4,054                    20,000
   Enzymes                         2002           106,250             6,300                   --                        --
</TABLE>


                                       47
<PAGE>

- ---------------------

(1)   Annual compensation does not include the cost to the Company of benefits
      certain executive officers receive in addition to salary and cash bonuses.
      The aggregate amounts of such personal benefits, however, did not exceed
      the lesser of either $50,000 or 10% of the total annual compensation of
      such executive officer. The bonus amount reflected for each of the Named
      Executive Officers, other than Mr. Emalfarb, for each fiscal year was
      actually paid in the succeeding fiscal year.

(2)   Bonuses listed for Mr. Emalfarb for 2002 and 2003 were accrued but not
      paid until January 2005. Mr. Emalfarb's bonus for 2004 has been accrued,
      and will be paid upon the first to occur of (i) the closing of either (x)
      the Company's next significant financing transaction or (y) a transaction
      in which the Company receives a significant influx of cash, as determined
      by the Compensation Committee in its reasonable discretion, or (ii) the
      date the percentage of the Company's outstanding shares held by the CEO
      falls below 50% of what that percentage is on the date hereof.

(3)   Mr. Chandra has received the following awards under the Dyadic
      International, Inc. 2001 Equity Compensation Plan ("Equity Compensation
      Plan"): (a) in March 2005, options to purchase 50,000 shares of common
      stock at an exercise price of $3.025 for services rendered in 2004, which
      vest at the rate of 25% per year on each anniversary of the date of grant;
      (b) in July 2004, options to purchase 10,000 shares of common stock at an
      exercise price of $3.33 for services rendered in 2003 and 2004, which are
      20% vested and vest as to the balance at the rate of 20% for each 12 month
      period of employment thereafter; (c) in July 2004, 3,716 shares of common
      stock, valued at $3.33 per share on the date of issuance, for a bonus
      accrued in 2003, which are fully vested; and (d) in July 2003, options to
      purchase 15,000 shares of common stock at an exercise price of $4.50 for
      services rendered in 2003 and 2002, which are fully vested.

(4)   Mr. Sproat has received the following awards under the Equity Compensation
      Plan: (a) in March 2005, options to purchase 70,000 shares of common stock
      at an exercise price of $3.025 for services rendered in 2004, which vest
      at the rate of 25% per year on each anniversary of the date of grant; (b)
      in July 2004, options to purchase 10,000 shares of common stock at an
      exercise price of $3.33 for services rendered in 2003 and 2004, which are
      20% vested and vest as to the balance at the rate of 20% for each 12 month
      period of employment thereafter; (c) in July 2004, 3,716 shares of common
      stock, valued at $3.33 per share on the date of issuance, for a bonus
      accrued in 2003, which are fully vested; and (d) in July 2003, options to
      purchase 10,000 shares of common stock at an exercise price of $4.50 for
      services rendered in 2003 and 2002, which are fully vested.

(5)   Mr. Bondar has received the following awards under the Equity Compensation
      Plan: (a) in March 2005, options to purchase 35,000 shares of common stock
      at an exercise price of $3.025 for services rendered in 2004, which vest
      at the rate of 25% per year on each anniversary of the date of grant; (b)
      in July 2004, options to purchase 10,000 shares of common stock at an
      exercise price of $3.33 for services rendered in 2003 and 2004, which are
      20% vested and vest as to the balance at the rate of 20% for each 12 month
      period of employment thereafter; (c) in July 2004, 3,716 shares of common
      stock for a bonus accrued in 2003, valued at $3.33 per share on the date
      of issuance, which are fully vested; (d) in July 2003, options to purchase
      15,000 shares of common stock at an exercise price of $4.50 for services
      rendered in 2003, which are fully vested; and (e) in July 2003, options to
      purchase 10,000 shares of common stock at an exercise price of $4.50 for
      services rendered in 2003, which vest 20% per year beginning on December
      31, 2003. Mr. Bondar's employment with the Company began in May 2003.

(6)   Mr. Bailey resigned as an employee and officer effective January 14, 2005.
      Prior to his resignation, he had received the following awards under the
      Equity Compensation Plan: (a) in July 2004, options to purchase 10,000
      shares of common stock at an exercise price of $3.33 for services rendered
      in 2003 and 2004, which are 20% vested and vest as to the balance at the
      rate of 20% for each 12 month period of employment thereafter; (b) in July
      2004, 4,054 shares of common stock, valued at $3.33 per share on the date
      of issuance for a bonus accrued in 2003, which are fully vested; and (c)
      in July 2003, options to purchase 20,000 shares of common stock at an
      exercise price of $4.50 for services rendered in 2003 and 2002, which are
      fully vested.

STOCK OPTION GRANTS

      The following table provides information related to options Dyadic-Florida
granted to the Named Executive Officers during 2004. These options were assumed
by us incident to the merger.


                                       48
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                        NUMBER OF                  PERCENT OF
                                       SECURITIES                TOTAL OPTIONS
                                       UNDERLYING                    GRANTED                   EXERCISE OR
                                        OPTIONS                   TO EMPLOYEES                 BASE PRICE               EXPIRATION
  NAME                                 GRANTED(#)                IN FISCAL YEAR                  ($/SH)                    DATE
  ----                                 ----------                --------------                  ------                    ----
<S>                                   <C>                       <C>                            <C>                      <C>
  Mark A. Emalfarb (1)                       --                        --                            --                        --
  Ratnesh (Ray) Chandra                  10,000                       2.9%                        $3.33                  07/28/09
  Kent M. Sproat                         10,000                       2.9%                         3.33                  07/28/09
  Alexander (Sasha) Bondar               10,000                       2.9%                         3.33                  07/28/09
  Thomas Bailey                          10,000                       2.9%                         3.33                  07/28/09
</TABLE>

- ------------------------------------------

(1) Excludes Bridge Loan Warrants granted to Mr. Emalfarb. See "Certain
Relationships and Related Transactions."

      The following table sets forth information concerning unexercised options
held by the Named Executive Officers as of December 31, 2004. Except for the
exercise in November 2004 by two of our executives of options granted to them in
2001 by one of our principal stockholders with respect to previously issued and
outstanding shares, no options were exercised by the Named Executive Officers
during 2004.

            AGGREGATE OPTIONS AND OPTION VALUES AT DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                          NUMBER OF SECURITIES UNDERLYING                             VALUE OF UNEXERCISED
                                              UNEXERCISED OPTIONS AT                                 IN-THE-MONEY OPTIONS AT
                                               DECEMBER 31, 2004 (#)                                DECEMBER 31, 2004 ($) (5)
                                               ---------------------                                -------------------------
NAME                                   EXERCISABLE               UNEXERCISABLE                 EXERCISABLE             UNEXERCISABLE
- ----                                   -----------               -------------                 -----------             -------------
<S>                                   <C>                       <C>                            <C>                      <C>
Mark A. Emalfarb (6)                         --                        --                            --                       --
Ratnesh (Ray) Chandra                    17,000(1)                  8,000(1)                     39,740                   26,960
Kent M. Sproat                           12,000(2)                  8,000(2)                     28,740                   26,960
Alexander (Sasha) Bondar                 22,000(3)                 13,000(3)                     50,740                   37,960
Thomas Bailey                            37,000(4)                  8,000(4)                     83,740                   26,960
</TABLE>

- ---------------------------

(1)   15,000 of the exercisable options have an exercise price of $4.50 per
      share and 2,000 have an exercise price of $3.33, and all of the
      unexercisable options have an exercise price of $3.33.

(2)   10,000 of the exercisable options have an exercise price of $4.50 per
      share and 2,000 have an exercise price of $3.33, and all of the
      unexercisable options have an exercise price of $3.33.

(3)   20,000 of the exercisable options have an exercise price of $4.50 per
      share and 2,000 have an exercise price of $3.33, and 5,000 of the
      unexercisable options have an exercise price of $4.50, and 8,000 have an
      exercise price of $3.33.

(4)   35,000 of the exercisable options have an exercise price of $4.50 per
      share and 2,000 have an exercise price of $3.33, and all of the
      unexercisable options have an exercise price of $3.33.

(5)   Based on the closing bid price for our common stock of $6.70 per share as
      of December 31, 2004.

(6)   Excludes Bridge Loan Warrants owned by Mr. Emalfarb. See "Certain
      Relationships and Related Transactions."

      Mr. Chandra was granted an option to purchase 25,000 shares of common
stock in 2001 from one of our stockholders, the Francisco Trust, for services
rendered to Dyadic-Florida in 2001 and 2000. The option was exercisable at a
price of $4.50 per share. On November 3, 2004, Mr. Chandra exercised in its
entirety this option to purchase shares from the Francisco Trust by executing
and delivering to the Francisco Trust an exercise agreement under which he
agreed to pay the entire exercise price, together with interest at a rate of
2.37% per annum, on the first to occur of October 31, 2005 or 60 days following
the date of Mr. Chandra's termination of employment with us.


                                       49
<PAGE>

      Mr. Sproat was granted an option to purchase 50,000 shares of common stock
in 2001 from one of our stockholders, the Francisco Trust, for services rendered
to Dyadic-Florida in 2001 and 2000. The option was exercisable at a price of
$2.00 per share. On November 3, 2004, Mr. Sproat exercised in its entirety this
option to purchase shares from the Francisco Trust by executing and delivering
to the Francisco Trust an exercise agreement under which he agreed to pay the
entire exercise price, together with interest at a rate of 2.37% per annum, on
the first to occur of October 31, 2005 or 60 days following the date of Mr.
Sproat's termination of employment with us.

      In connection with his employment on January 31, 2005, Mr. Moor was
granted an option to purchase 277,889 shares of common stock in accordance with
the Equity Compensation Plan at an exercise price of $3.68 per share pursuant to
the Company's then standard form employee stock option agreement. The option
becomes exercisable, conditioned upon Mr. Moor's continued service as an
employee of the Company, as to 25% of the shares on each of the next four
anniversaries of the date of the commencement of his employment, and expires on
January 31, 2010.

      In connection with his employment on February 28, 2005, Daniel
Michalopoulos, Ph.D. was granted an option to purchase 25,000 shares of common
stock in accordance with the Equity Compensation Plan at an exercise price of
$3.80 per share pursuant to the Company's then standard form employee stock
option agreement. The option becomes exercisable, conditioned upon Dr.
Michalopoulos' continued service as an employee of the Company, as to 25% of the
shares on each of the next four anniversaries of the date of the commencement of
his employment, and expires on February 28, 2010.

      In connection with the entry into their employment agreements with the
Company on March 30, 2005, Kent M. Sproat, Ratnesh (Ray) Chandra, Alexander
(Sasha) Bondar, and Richard Burlingame, Ph.D. were granted options under the
Equity Compensation Plan to purchase 70,000, 50,000, 35,000 and 40,000 shares of
common stock, respectively, at an exercise price of $3.025 per share pursuant to
the Company's then standard form employee stock option agreement. Each option
becomes exercisable, conditioned upon that executive's continued service as an
employee of the Company, as to 25% of the shares on each of the next four
anniversaries of the date of his employment agreement, and expires on March 30,
2010.

DYADIC INTERNATIONAL, INC. 2001 EQUITY COMPENSATION PLAN

      As an update to the information in the prospectus regarding the Dyadic
International, Inc. 2001 Equity Compensation Plan, as of April 20, 2005, we had
1,350,389 shares of common stock reserved for issuance for outstanding options
granted under the Equity Compensation Plan. In addition, as of April 20, 2005,
we had an additional 3,783,434 shares reserved for future options and awards
under the Equity Compensation Plan, subject to adjustment in the event of a
stock split, stock dividend, recapitalization or similar capital change.

EMPLOYMENT AGREEMENTS

      We have employment agreements with each of our Named Executive Officers.
In April 2001, Dyadic-Florida and Mark A. Emalfarb, our Chief Executive Officer
and the founder of Dyadic-Florida, entered into an Employment Agreement pursuant
to which he has been employed by Dyadic-Florida as its President and Chief
Executive Officer which we assumed incident to the consummation of the merger
with Dyadic-Florida. The initial term was for three years with automatic
two-year renewals unless either party furnishes the other a notice of
non-renewal not less than 60 days prior to the expiration of the then term.
Because no notice of termination has been furnished by either party, the current
expiration of the employment agreement is April 2006. Mr. Emalfarb's base annual
compensation was initially fixed at $300,000. He is eligible to earn a bonus
annually based upon goals and objectives mutually agreed upon by him and our
Board of Directors. Mr. Emalfarb has received no salary increases since the
employment agreement was executed. The employment agreement is terminable only
on account of Mr. Emalfarb's death or disability, by us only "for Cause," and by
Mr. Emalfarb only "for Good Reason." The phrase "for Cause" is defined to
include failure to substantially perform assigned duties for a period of 20 days
following a written demand for his substantial performance that identifies the
manner in which he has failed to substantially perform, a material breach of the
employment agreement, a material breach of his proprietary rights agreement with
us, his illegal or gross misconduct which is willful and causes damages to us,
the conviction of a felony or plea of no contest, substance abuse or violation
of our policies against racial or sexual discrimination. The phrase "for Good
Reason" is defined to mean the assignment of duties to Mr. Emalfarb inconsistent
with his position, our failure to honor our compensation commitments to Mr.


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<PAGE>

Emalfarb fixed by his employment agreement, our failure to cause Mr. Emalfarb to
be elected to our Board of Directors and our demotion of Mr. Emalfarb. If Mr.
Emalfarb's employment is terminated by us other than "for Cause" or by Mr.
Emalfarb "for Good Reason," he is entitled to receive a one year severance
benefit plus an amount equal to a portion of his annual bonus for the preceding
year, prorated for the portion of the current year worked. For its benefit,
Dyadic-Florida also maintains a term life insurance policy insuring Mr.
Emalfarb's life in the face amount of $5,000,000.

      On January 31, 2005, we hired Mr. Wayne Moor to become the Company's Chief
Financial Officer and a Vice President pursuant to the terms of an employment
agreement of that date. The initial term of Mr. Moor's employment expires
December 31, 2007, with automatic one-year renewals unless either party
furnishes the other a notice of non-renewal not less than 90 days prior to the
expiration of the then term. Mr. Moor's annual base compensation is $225,000,
and he is eligible to earn a bonus each year of up to 40% of his annual base
compensation based upon a bonus plan to be adopted and maintained by the
Compensation Committee for such year.

      On February 28, 2005, we hired Dr. Michalopoulos to become the Company's
Vice President, Pulp & Paper pursuant to the terms of an employment agreement of
that date. The initial term of Dr. Michalopoulos' employment expires December
31, 2007, with automatic one-year renewals unless either party furnishes the
other a notice of non-renewal not less than 90 days prior to the expiration of
the then term. Dr. Michalopoulos' annual base compensation is $140,000, and he
is eligible to earn a bonus each year of up to 40% of his annual base
compensation based upon a bonus plan to be adopted and maintained by the
Compensation Committee for such year.

      On March 30, 2005, we entered into employment agreements with three of our
executives, Kent M. Sproat, Ratnesh (Ray) Chandra and Alexander (Sasha) Bondar,
and a key employee, Richard Burlingame, Ph.D. In the case of Mr. Chandra, his
employment agreement replaced a previously existing employment agreement dated
May 1, 2000. The initial term of employment under all four employment agreements
expires December 31, 2007, with automatic one-year renewals unless either party
furnishes the other a notice of non-renewal not less than 90 days prior to the
expiration of the then term. The annual base compensation of Mr. Sproat, Mr.
Chandra, Dr. Burlingame and Mr. Bondar is $190,000, $170,250, $148,500 and
$143,000, respectively, and each of them is eligible to earn a bonus each year
of up to 40% of his annual base compensation based upon a bonus plan to be
adopted and maintained by the Compensation Committee for such year.

      Each of the employment agreements for the executives and key employees,
other than Mr. Emalfarb, is terminable on account of the executive's death or
disability, or by the Company without cause or "for Cause." The phrase "for
Cause" is defined to include a material breach of the employment agreement, acts
of disloyalty to the Company (including but not limited to acts of dishonesty or
diversion of corporate opportunities), the unauthorized disclosure of the
Company's confidential information, or acts determined in good faith by the
Compensation Committee to be detrimental to the Company's interests, provided
that the executive must be afforded an opportunity to have a face-to-face
meeting with the Compensation Committee before any determination is made by it
that he was guilty of "for Cause" conduct. If the executive's or key employee's
employment is terminated by the Company other than "for Cause," upon the
condition that he furnish the Company with a full general release, he is
entitled to receive a severance benefit of his then monthly base compensation
for the lesser of six months or until he has obtained other full or part-time
employment as an employee or consultant Under each employment agreement, the
Company is also obligated to indemnify the subject executive to the fullest
extent permitted by applicable law. Further, the Company agrees to advance
expenses he may spend as a result of any proceeding against him as to which he
could be indemnified.

      Mr. Sproat's and Mr. Chandra's employment agreements also include
provisions that might entitle them to extended severance benefits following the
occurrence of a "Change of Control" of the Company, in the case of Mr. Chandra,
and following the occurrence of a "Change of Control" of either the Company or
Dyadic-Florida, in the case of Mr. Sproat, as those terms are defined in their
respective agreements. Under both agreements, upon a termination of the
executive's employment by the Company or its successor-in-interest other than
"for Cause," or a termination of his employment by the executive which is a
"Constructive Termination of Employment Without Cause" within 12 months
following the occurrence of a Change of Control, he will become entitled to a
severance benefit of his then monthly base compensation for the lesser of 18
months, or until he has obtained other full or part-time employment as an


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<PAGE>

employee or consultant. The phrase "Change of Control" means: (i) a sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company; (ii) a merger or consolidation of the Company in which less than a
majority of the outstanding voting securities of the surviving corporation are
not owned by stockholders of the Company immediately prior to such merger or
consolidation; (iii) a "person" or "group" (as those terms are defined in
Section 13(d) and 14(d) of the Exchange Act of 1934, as amended) not beneficial
owners of voting securities of the Company on March 30, 2005 become the
beneficial owners, directly or indirectly, of more than 50% of the outstanding
voting securities of the Company other than as a result of the purchase of such
voting securities from the Company in a transaction or series of transactions
approved by the affirmative vote of a majority of the directors who were members
of the Board one month prior to the date of such transaction; (iv) a sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company's Enzyme Business (in the case of Mr. Sproat) or the BioSciences
Business (in the case of Mr. Chandra) in a transaction in which, following such
transaction, the transferee is not an affiliate of the Company; or (v) a
consolidation or merger of any subsidiary or affiliate of the Company that owns
substantially all of the assets used in the conduct of the Company's Enzyme
Business (in the case of Mr. Sproat) or the BioSciences Business (in the case of
Mr. Chandra) with another party, the survivor of which is not an affiliate of
the Company. The phrase "Constructive Termination of Employment Without Cause"
in both agreements is defined to mean a termination of employment at the
election of the executive made within 12 months following a Change of Control
and within 60 days following the occurrence of any of the following events: (i)
a material demotion in his office, duties or responsibilities; (ii) a reduction
in his annual base compensation or potential annual bonus; (iii) the imposition
of a requirement that he relocate his principal residence outside a 50 mile
radius of the Company's current principal place of business; or (iv) the failure
of the Company or its successor-in-interest to comply with the terms of his
employment agreement.

      Incident to the consummation of the merger with Dyadic-Florida, we assumed
the rights and obligations of Dyadic-Florida under confidential information,
inventions assignment and non-compete agreements between Dyadic-Florida and each
of Mr. Emalfarb, Mr. Chandra, Mr. Sproat, Dr. Burlingame, Mr. Bondar and another
individual who was our Vice President, Marketing-Enzymes at the date of the
merger. Under the terms of these agreements, each executive confers upon us
customary proprietary rights in respect of our confidential information and
intellectual work product contributed to by them, as well as his covenant not to
compete with our business while employed by us and for three years after the
termination of his employment. These agreements with Mr. Chandra, Mr. Sproat,
Dr. Burlingame and Mr. Bondar were superceded by their new employment
agreements, except to the extent therein expressly provided.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Our President and Chief Executive Officer, Mark A. Emalfarb, is the
trustee and beneficiary of the Mark A. Emalfarb Trust, which is our largest
stockholder. The Mark A. Emalfarb Trust and our second largest stockholder, The
Francisco Trust, whose sole beneficiaries are the spouse and descendants of Mr.
Emalfarb, have made loans to Dyadic-Florida, which we assumed in connection with
the Company's merger with Dyadic-Florida (the "Merger"). The trustee for The
Francisco Trust is not related to or affiliated with Mr. Emalfarb or the Mark A.
Emalfarb Trust. The aggregate amount of our indebtedness to the Mark A. Emalfarb
Trust and The Francisco Trust is approximately $4.0 million, as of December 31,
2004, which is owed to them pursuant to the terms of three separate debt
instruments:

      o     $836,824 pursuant to a subordinated promissory note made payable to
            the Mark A. Emalfarb Trust dated May 30, 2001, bearing interest at
            the rate of 6% per annum and originally convertible into shares of
            Dyadic common stock, which we refer to as the Emalfarb Convertible
            Note;

      o     $741,048 pursuant to a subordinated promissory note made payable to
            the Francisco Trust dated May 30, 2001, bearing interest at the rate
            of 6% per annum and originally convertible into shares, which we
            refer to as the Francisco Convertible Note; and

      o     $2,424,941 pursuant to a revolving note made payable to the Mark A.
            Emalfarb Trust dated May 29, 2003 and bearing interest at the rate
            of 8% per annum, which we refer to as the Bridge Loan Note. In
            connection with the Bridge Loan Note, warrants, which we refer to as
            the Bridge Loan Warrants, were issued to purchase 1,500,000 shares
            of Dyadic-Florida common stock for the lesser of $4.50 or the
            conversion price of the Series A convertible preferred stock of
            Dyadic-Florida then outstanding, which we refer to as the Bridge
            Loan Warrants.


                                       52
<PAGE>

      In August 2004, the Mark A. Emalfarb Trust and Dyadic-Florida entered into
an agreement to facilitate the consummation of the merger. In accordance with
this agreement, subject to consummation of the merger:

      o     The Mark A. Emalfarb Trust agreed to exchange indebtedness of
            Dyadic-Florida to the trust in the amount of $1,225,000 for 367,868
            shares of our common stock and warrants to purchase 183,934 shares
            of our common stock;

      o     Each of the Emalfarb Convertible Note, the Francisco Convertible
            Note and the Bridge Loan Note were amended to extend their due date
            from January 1, 2005 to January 1, 2007 and to permit their
            prepayment in whole or part by Dyadic-Florida without premium or
            penalty;

      o     The conversion prices under the Emalfarb Convertible Note and
            Francisco Convertible Note were amended to fix the conversion price
            at $3.33 per share in lieu of the then current fair market value of
            shares of Dyadic-Florida common stock; and

      o     The Bridge Loan Warrants were amended to fix their exercise price at
            $3.33 per share.

      The amendments to the convertible notes and the Bridge Loan Warrants
caused us to recognize for accounting purposes additional borrowing costs of
approximately $350,000, which will be amortized over the period from October 30,
2004 through January 1, 2007, and to recognize for accounting purposes a
beneficial conversion feature of $554,000 which will be amortized over the same
period. All accrued and unpaid interest due under the Emalfarb Convertible Note,
the Francisco Convertible Note and the Bridge Loan Note on the date of the
completion of the merger were added to the principal amount due under those
notes. Interest under the notes accruing after October 29, 2004, is payable on a
quarterly basis until the principal sum is paid in full.

      Mark A. Emalfarb, Stephen J. Warner, Richard J. Berman, Robert B. Shapiro,
and Harry Z. Rosengart our five board members, are each parties to
indemnification agreements pursuant to which we agreed to indemnify them against
any liability arising out of their performance of their duties to us in their
capacities as directors. The agreements with Messrs. Emalfarb and Warner were
entered into by Dyadic-Florida on August 19, 2004 and assumed by us incident to
the merger. Incident to the consummation of the merger, they were amended to
substitute applicable Delaware law for any references contained in those
agreements to Florida law. The agreements with Mr. Berman, Mr. Shapiro and Mr.
Rosengart were entered into directly with us in 2005 when they became directors.
All of these indemnification agreements indemnify our directors in addition to
the indemnification provided by our restated certificate of incorporation and
amended and restated bylaws. Among other things, these agreements indemnify our
directors for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by them in any action or proceeding, including any
action by or in the right of Dyadic arising out of such person's services to us
or to any of our subsidiaries or any other company or enterprise to which such
person provides services at our request. Further, we agree to advance expenses
they spend as a result of any proceeding against them as to which they could be
indemnified. At present, there is no pending litigation or proceeding involving
any of our directors where indemnification will be required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.


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