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<SEC-DOCUMENT>0001144204-05-011737.txt : 20050415
<SEC-HEADER>0001144204-05-011737.hdr.sgml : 20050415
<ACCEPTANCE-DATETIME>20050415155600
ACCESSION NUMBER:		0001144204-05-011737
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050415
DATE AS OF CHANGE:		20050415

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:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	333-102629
		FILM NUMBER:		05753784

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

	MAIL ADDRESS:	
		STREET 1:		140 INTERNATIONAL 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>10KSB
<SEQUENCE>1
<FILENAME>v016233_10ksb.txt
<TEXT>

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                   FORM 10-KSB

(Mark one)
|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

                   For the fiscal year ended December 31, 2004
                   -------------------------------------------

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 (No Fee Required)

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

                        Commission file number 333-102629

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

                           Dyadic International, Inc.
          -------------------------------------------------------------
                 (Name of small business issuer in its charter)

              Delaware                                 45-0486747
              --------                                 ----------
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
    incorporation or organization)

    140 Intracoastal Pointe Drive, Suite 404
              Jupiter, FL 33477                     (561) 743-8333
              -----------------                     --------------
       (Address of principal executive            (Telephone Number)
        offices including Zip Code)

       Securities registered under Section 12(b) of the Exchange Act: None

       Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No | |

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

State issuer's revenues for its most recent fiscal year: $16,740,847

The aggregate market value of the registrant's common stock held by
non-affiliates other than officers, directors and persons known to the
Registrant to be the beneficial owner (as that term is defined under the rules
of the Securities and Exchange Commission) of more than five percent of the
Common Stock based on the closing price on the Over-the-Counter Bulletin Board
as of April 8, 2005 ($2.85), was approximately $33,807,000.

As of April 8, 2005, there were 22,241,105 shares of registrant's common stock
outstanding, par value $.001 (including 300,300 shares held in escrow).

The information called for by Part III, Items 9, 10, 11, 12 and 14 is
incorporated by reference to the definitive Proxy Statement for the 2005 Annual
Meeting of Stockholders of the Company to be filed with the Securities and
Exchange Commission within 120 days of December 31, 2004.

Transitional Small Business Disclosure Format (Check One): Yes ___; No X


                                       1
<PAGE>

                                TABLE OF CONTENTS
PART I

ITEM 1.    DESCRIPTION OF BUSINESS..........................................   3
             Forward Looking Statements
             The Company
             Our Markets
             Dyadic's Products and Services
             Dyadic's Strategy
             Research and Development
             Manufacturing and Production
             Sales and Marketing
             Employees
             Competition
             Intellectual Property
             Governmental Regulation
             Risk Factors that May Affect Future Results

ITEM 2.      DESCRIPTION OF PROPERTY........................................  35

ITEM 3.      LEGAL PROCEEDINGS..............................................  36

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............  36

PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......  36

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS......................................  37

             General
             Results of Operations
             Liquidity and Capital Resources
             Off Balance Sheet Arrangements
             Critical Accounting Policies and Estimates

ITEM 7.      FINANCIAL STATEMENTS...........................................  47

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURES...........................  47

ITEM 8A.     CONTROLS AND PROCEDURES........................................  47

ITEM 8B.     OTHER INFORMATION..............................................  47

PART III

ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..............  48

ITEM 10.     EXECUTIVE COMPENSATION.........................................  48

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT.................................................  48

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................  48

ITEM 13.     EXHIBITS.......................................................  48

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................  48


                                       2
<PAGE>

                                     PART I

      The term "the Company", "Dyadic", "we", "us" or "our" refers to Dyadic
International, Inc., unless the context otherwise implies.

      We obtained statistical data, market data and certain other industry data
and forecasts used throughout this Annual Report on 10-KSB from market research,
publicly available information and industry publications. Industry publications
generally state that they obtain their information from sources that they
believe to be reliable, but they do not guarantee the accuracy and completeness
of the information. Similarly, while we believe that the statistical data,
industry data and forecasts and market research are reliable, we have not
independently verified the data, and we do not make any representation as to the
accuracy of the information. We have not sought the consent of the sources to
refer to their reports in this Annual Report.

ITEM 1. DESCRIPTION OF BUSINESS

Forward Looking Statements

This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve substantial risks and
uncertainties. Forward-looking statements can be identified by the fact that
they do not relate strictly to historical or current facts. They use words such
as "may," "will," "expect," "intend," "anticipate," "believe," "estimate,"
"continue," "project," "plan," "shall," "should," and other similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, making projections of our future results of operations
or our financial condition or state other "forward-looking" information.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause the actual results, performance or achievements of our Company to
be materially different from those that may be expressed or implied by such
statements. The factors listed in the section entitled "Risk Factors that May
Affect Future Results", as well as any other cautionary language in this report,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we described in our
forward-looking statements. All forward-looking statements attributable to us
are expressly qualified in their entirety by these and other factors. Except as
required by law or regulation, we do not undertake any obligation to publicly
update forward-looking statements to reflect events or circumstances after the
date on which the statement is made or to reflect the occurrence of
unanticipated events.

      You can learn more about the Company by visiting our website at
www.Dyadic-Group.com. Information on the website is neither incorporated into,
nor a part of this report. We encourage you to read this and other reports filed
by the Company with the Securities and Exchange Commission. Dyadic will provide
you with a copy of any or all of these reports (except exhibits) at no charge.
You may read and copy any reports, statements or other information that we file
at the SEC's public reference facilities at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information
regarding the public reference facilities. The SEC maintains a web site,
http://www.sec.gov., that contains reports, proxy statements and information
statements and other information regarding registrants that file electronically
with the SEC, including Dyadic. The Company's SEC filings are also available to
the public from commercial document retrieval services.

The Company

Merger

      The Company was organized under the name CCP Worldwide, Inc., as a
Delaware corporation on September 23, 2002. On October 29, 2004, we completed
the merger of our newly created and wholly owned subsidiary, CCP Acquisition
Corp., a Florida corporation, with and into a Florida corporation formerly known
as Dyadic International, Inc., which was the surviving corporation of the Merger
and became our wholly owned subsidiary. Following the Merger, our new subsidiary
changed its name to Dyadic International (USA), Inc. ("Dyadic-Florida") from
Dyadic International, Inc., and the Company's name was changed to Dyadic
International, Inc. from CCP Worldwide, Inc.

      In connection with the Merger: we disposed of our then sole operating
subsidiary, Custom Craft Packaging, Inc., which is engaged in the packaging
business, in a sale of all of the shares of that subsidiary to its founder; all
of the then officers and directors of the Company resigned from their positions
and were replaced with Dyadic-Florida's officers and directors; and
Dyadic-Florida became our sole operating subsidiary. For accounting purposes,
the Merger was accounted for in a manner identical to a reverse acquisition of
the Company by Dyadic-Florida, except that no goodwill or other intangible
assets have been recorded. Accordingly, Dyadic-Florida was deemed to be the
accounting acquirer of the Company because the former stockholders of
Dyadic-Florida became the owners of a majority of the Company's issued and
outstanding shares of common stock after the Merger, inclusive of shares of
common stock issued in the initial closing of the private placement of the
Company's securities on the same date as the Merger. For reporting purposes, the
transaction is equivalent to the issuance of stock by Dyadic-Florida for the net
monetary assets of the Company, which after the transactions effected on October
29, 2004 were nil, accompanied by a recapitalization.

                                       3
<PAGE>

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.

      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.

                                       4
<PAGE>

      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,
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.

                                       5
<PAGE>

      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. See "Liquidity and Capital
Resources" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of our expected cash resources to fund
our operations through the end of 2006. 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:

      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.

                                       6
<PAGE>

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 1 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.

      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.

                                       7
<PAGE>

      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. 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.

                                       8
<PAGE>

            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.

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.

                                       9
<PAGE>

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

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".

      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 Q2, 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.

                                       10
<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
or 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 (i) our previous lack of adequate resources to match the level of
investment in this market being made by our competitors, and (ii) 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 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 we perceive to 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.

                                       11
<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 (i) improvement in the fibre properties (e.g. increased
strength, higher brightness, better drainability), (ii) energy savings (e.g.
steam and electricity), (iii) lower chemical consumption (e.g. bleaching
chemicals), (iv) and 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

      Dyadic provides 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.;

      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.

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,

                                       12
<PAGE>

      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;

      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.

                                       13
<PAGE>

      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.


      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 (i) our previous lack of adequate resources to match the level of
investment in this market being made by our competitors, and (ii) 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 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 we perceive to offer
the Company greater opportunity.

      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 (largest market) 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.

                                       14
<PAGE>

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.

      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.

                                       15
<PAGE>

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.


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.

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<PAGE>

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.

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.

                                       17
<PAGE>

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
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.

                                       18
<PAGE>

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
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.

                                       19
<PAGE>

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.

      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 that May Affect Future Results

      You should carefully consider the following material risks, together with
the other matters described in this Annual Report on Form 10-KSB or incorporated
herein by reference in evaluating our business and prospects. If any of the
following risks actually occur, our business, results of operations and
financial condition could be harmed. In such circumstances, the trading price of
our common stock could decline, and in some cases, such declines could be
significant. The risks described below are not the only ones we face. 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. Certain statements contained in
this Annual Report on Form 10-KSB (including certain of the following risk
factors) constitute forward-looking statements. Please refer to the section
entitled "Forward Looking Statements" appearing on page 3 of this Annual Report
on Form 10-KSB for important limitations on these forward-looking statements.

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.

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:

                                       22
<PAGE>

      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:

      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.

                                       23
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      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.

      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.

                                       24
<PAGE>

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.

      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.

                                       25
<PAGE>

      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.

      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 - which could help to mitigate our risk that there were 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 there from, 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
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.

                                       26
<PAGE>

      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.

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.

                                       27
<PAGE>

      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 earning per share. We may not be able to raise additional
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.

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<PAGE>

      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
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.

                                       29
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      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
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.

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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.

      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. See Note 2 of
Notes to Consolidated Financial Statements included elsewhere in this Form
10-KSB. 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.

                                       31
<PAGE>

      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,
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. See Note 3
of Notes to Consolidated Financial Statements included elsewhere in this Annual
Report.

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 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;

      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;

                                       32
<PAGE>

      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 April 29, 2005 and the remainder of the
restricted shares will be released from the lock-up agreements after October 29,
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;

      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;

                                       33
<PAGE>

      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;

      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.

                                       34
<PAGE>

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 $3.3 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
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.

ITEM 2. DESCRIPTION OF PROPERTY.

      The Company's corporate headquarters are located at 140 Intracoastal
Pointe Drive, Suite 404, Jupiter, Florida, in approximately 5,700 square feet of
space occupied under a lease with a monthly rental rate of $8,000 that expires
on December 31, 2005.

                                       35
<PAGE>

      On July 31, 2004, Dyadic-Florida entered into a contract with a land
developer under which Dyadic-Florida agreed to purchase an undeveloped 1.13 acre
parcel of land with a purchase price of $1.0 million by issuing $1.0 million in
shares of Dyadic-Florida common stock, representing 300,300 shares valued at
$3.33 per share. Incident to the consummation of the merger, the Company assumed
Dyadic-Florida's obligations to issue shares of our common stock to the
developer in the place of shares of Dyadic-Florida common stock. The parcel,
which is in a master planned community known as "Abacoa" located in Jupiter,
Florida, is viewed as a desirable location for the eventual construction of a
40,000 square foot facility to serve as both the Company's headquarters and as a
R&D facility, for a number of reasons, including its proximity to the temporary
research facility of The Scripps Research Institute, its good highway access and
other factors. Closing of the sale is subject to a number of contingencies,
including required third party and governmental consents, and is expected to
occur on or before May 31, 2005. Dyadic-Florida has inspection rights which
entitle it to terminate the purchase contract in its absolute discretion. The
contract obligates Dyadic-Florida to commence development of the site within two
years following the closing date, and entitles the developer to repurchase the
site from Dyadic-Florida if Dyadic-Florida has not done so. In that event, the
repurchase price will be the greater of $1.0 million or the then fair market
value of the shares acquired by the developer, except that to the extent the
shares are worth less than $1.0 million, the balance must be paid in cash by the
developer. During this two year period, Dyadic-Florida is prohibited from
re-transferring the site to any other person other than in connection with our
sale or a sale of Dyadic-Florida, or other than to an affiliate or, with the
approval of a majority of our independent directors, to Mr. Emalfarb, the
Francisco Trust or an affiliate of either.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

                                     PART II

ITEM 5. 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 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.

      Prior to the merger the capital stock of Dyadic-Florida was not registered
under the Securities Act of 1933.

      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.

Dividend Policy

      While there are no restrictions on the payment of dividends, Dyadic has
not declared or paid any cash or other dividend on shares of Dyadic common stock
in the last two fiscal years, and we presently have no intention of paying any
cash dividend in the foreseeable future. The Company's current policy is to
retain earnings, if any, to finance the expansion of it business. The future
payment of dividends will depend on the results of operations, financial
condition, capital expenditure plans and other factors that we deem relevant and
will be at the sole discretion of the Board of Directors.

                                       36
<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 be    Weighted-average exercise
                                      issued upon exercise         price of outstanding          Number of securities
                                    of outstanding options        options, warrants and         remaining available for
      Plan Category                    warrants and rights                rights                    future issuance
      -------------               --------------------------    -------------------------       -----------------------
<S>                                        <C>                            <C>                       <C>
Equity compensation plans                  750,000                        $4.08                     4,383,823 (2)
approved by security 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.

Transactions and Sales of Unregistered Securities

      The information required by this Item has been previously disclosed.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

Merger

      The Company was organized, under the name CCP Worldwide, Inc., as a
Delaware corporation on September 23, 2002. On October 29, 2004, we completed
the merger of our newly created and wholly owned subsidiary, CCP Acquisition
Corp., a Florida corporation, with and into a Florida corporation formerly known
as Dyadic International, Inc., which was the surviving corporation of the merger
and became our wholly owned subsidiary. We refer to this transaction as the
Merger. Following the Merger, our new subsidiary changed its name to Dyadic
International (USA), Inc. ("Dyadic-Florida") from Dyadic International, Inc.,
and the Company's name was changed to Dyadic International, Inc. from CCP
Worldwide, Inc.

      All references to "Dyadic," "we," "us," "our," or the "Company" mean
Dyadic-Florida prior to the Merger, and Dyadic, as successor to the business of
Dyadic-Florida, after giving effect to the Merger.

      In connection with the Merger, Dyadic disposed of its packaging business
in a sale of all of the shares of the Dyadic subsidiary engaged in those
operations to its founder, all of the officers and directors of Dyadic resigned
from their positions and were replaced with Dyadic-Florida's officers and
directors, and Dyadic succeeded to the business of Dyadic-Florida. For
accounting purposes, the Merger was accounted for in a manner identical to a
reverse acquisition of the Company by Dyadic-Florida, except that no goodwill or
other intangible assets have been recorded. Accordingly, Dyadic-Florida was
deemed to be the accounting acquirer of the Company because the former
stockholders of Dyadic-Florida owned a majority of the issued and outstanding
shares of common stock of the Company after the Merger, including those shares
issued in the initial closing of the private placement that occurred on that
date. For reporting purposes, the transaction is equivalent to the issuance of
stock by Dyadic-Florida for the net monetary assets of the Company, which after
the transactions effected on October 29, 2004 were nil, accompanied by a
recapitalization. Therefore, all financial information included in this 10-KSB
for periods prior to the Merger is that of Dyadic-Florida as if Dyadic-Florida
had been the reporting entity.

                                       37
<PAGE>

The Business

      We are a biotechnology company engaged in the development, manufacture and
sale of proteins, enzymes, peptides and other bio-molecules, and the
collaborative licensing of our proprietary technologies.

      We have developed a C1 Host Technology for both the production, or
expression, of proteins and the discovery and screening of genes and gene
variants. We have developed the technology to the point that we are now
successfully using the C1 Expression System derived from the C1 Host Technology,
among other technologies, to produce and sell enzymes to the agricultural,
industrial, chemical and other industries. We refer to this market as the Enzyme
Business market. With the C1 Expression System, our Enzyme Business has been
able to develop new, and substantially higher profit-margined products and we
believe our increased penetration of these markets will be greatly assisted by
both the C1 Expression System and the C1 Host Technology.

      Additionally, the C1 Host Technology and the C1 Expression System have
also enabled us to begin to focus on the production of therapeutic protein drugs
for humans. Our goal for this market, which we refer to as the BioSciences
Business market, is to become the leading provider of expression solutions to
pharmaceutical companies and biotechnology companies. Initially, we are
concentrating on completing development of our C1 Expression System to express
pre-clinical and clinical quantities of proteins for drug testing, and
eventually, for commercial-scale production of therapeutic proteins and other
bio-molecules. We are also working to develop our C1 Screening System for the
discovery of genes and the performance of gene modification for improvement of
properties of the expressed proteins, which, when completed, would enable us to
combine the C1 Expression System and the C1 Screening System to offer an
integrated screening and expression system to the drug development industry.

      To date we have derived almost 100% of our revenues from sales to the
Enzyme Business market. In 2003, our BioSciences Business generated revenues of
only $150,000. We do not anticipate material revenues from the operation of our
BioSciences Business sooner than 2006. Revenues from our BioSciences Business
are uncertain because, among other things, our ability to secure collaboration
agreements with drug development companies will depend upon our ability to
perfect either the C1 Expression System or the C1 Screening System to address
the needs of that industry.

Enzyme Business Focus

      In 2004 and 2003, the textiles industry comprised 80% and 84% of our
Enzyme Business net sales, respectively. 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 (i) our previous lack of
adequate resources to match the level of investment in this market being made by
our competitors, and (ii) our application of a greater portion of our efforts on
higher margin and larger market opportunities, such as the pulp & paper and
animal feed markets. To what degree our revenues from the textiles market will
continue to decline in the future will depend not only that market's dynamics,
but also on the extent of pricing pressure created by our competitors in that
market, our success in developing and marketing 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 the development of
new products as well as opportunities to reduce the production cost of these
products. We intend to exercise discipline over the application of our resources
to the textiles market relative to other markets we perceive to offer the
Company greater opportunity.

      One market in which we believe we have begun to enjoy some success in
executing our strategy to expand our sales of higher profit margin products has
been in the pulp and paper industry. We increased our pulp and paper sales by
96% over 2003, which represents an increase from 3% to 6% of our Enzyme Business
net sales. Our expectations for 2005 and beyond are optimistic for this market.
We have hired several new employees to assist us in expanding our share of this
market, including a Vice President -Pulp and Paper division. We have worked with
several existing customers who have allowed us to generate product trial data
for our use in selling to other global companies Bleach -boosting, Bio-refining
and De-inking products. We find that today the sales cycle for capturing a new
customer trial is a long one (often 6 months to 1 year), but have nonetheless
been able to commence mill trials with several key potential customers over the
past six months.

      The Animal Feed market has represented approximately 6% of our Enzymes
Business net sales in 2004 and 2003. With our successful equity capital-raising
activities in 2004, we now have the resources necessary to fund the registration
of our existing products and new products under development for these operations
in the European Union (the largest market), and expect material growth in this
geographical market and elsewhere over the next two to three years. We also
expect to be able to focus additional product development and sales efforts in
other markets, such as starch and brewery markets, as a consequence of
recruitment of additional personnel charged with direct responsibility for
overseeing the registration of our products and greater focused attention on
these market opportunities.

                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                   Enzyme Business
                                                   ---------------

                                       2004                                2003
          Industry                 (in thousands)      % of Sales     (in thousands)     % of Sales
          --------                 --------------      ----------     --------------     ----------
      <S>                             <C>               <C>              <C>              <C>
      Textile                         $ 13,320                80%        $ 13,906               84%
      Animal Feed                        1,017                 6%           1,012                6%
      Pulp & Paper                       1,069                 6%             545                3%
      Others (5 industries)              1,335                 8%           1,167                7%
                                      --------          --------         --------         --------
      Total Enzyme Business           $ 16,741               100%        $ 16,630              100%
                                      ========                           ========
</TABLE>

BioSciences Business Focus

      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.

Future Expectations

      With the significant increase in our capital funding, we recently
initiated a genomic sequencing project with Agencourt Bioscience to sequence our
C1 host organism. Presently, we anticipate that this C1 sequencing project will
be completed ahead of schedule, in the second quarter of 2005. With the
completion of this project, we expect to be able to identify a large variety of
novel commercially useful genes that were previously unavailable to us, which
should greatly assist our ability to accelerate our product development efforts
and further improve the efficiencies of our C1 Host Technology for making
proteins and enzymes for diverse markets, including pharmaceuticals, textiles,
pulp and paper, animal feed, and food.

      Based on the foregoing and other R&D initiatives we expect to continue in
2005, we expect to incur significant costs funding our R&D initiatives,
including costs related to enhancements to our core technologies. As a result,
we expect to continue to incur losses as we further develop our 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. See "Liquidity and Capital Resources" below
for a discussion of our expected cash resources to fund our operations for the
next 24 months. There can be no assurance that our efforts with regard to these
objectives will be successful.

                                       39
<PAGE>

Results of Operations - Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003

         The following table sets forth (amounts in thousands) the Company's
operating information for the years ended December 31, 2004 and 2003:

                                                  (in thousands)
                                                                 Increase
                                            2004        2003    (Decrease)
                                            ----        ----    ----------
Net sales                                $ 16,741    $ 16,780    $    (39)
Cost of goods sold                         12,833      12,597         236
                                         --------    --------    --------
Gross profit                                3,908       4,183        (275)
                                         --------    --------    --------
Operating expenses:
  Research and development                  3,621       3,571          50
  Sales and marketing                       1,857       1,749         108
  General and administrative                3,757       2,308       1,499
                                         --------    --------    --------
                                            9,235       7,628       1,607

Loss from operations                       (5,327)     (3,445)     (1,882)
                                         --------    --------    --------

Other income (expense):
  Interest expense                           (598)     (3,498)      2,900
  Interest income                              69          13          56
  Minority interest                           (17)        (14)         (3)
  Foreign currency exchange loss, net        (214)       (236)         22
  Other, net                                   17          10           7
                                         --------    --------    --------
Total other income (expense)                 (743)     (3,725)      2,982
                                         --------    --------    --------
Loss before income taxes                   (6,070)     (7,170)        954
Provision for income taxes                    (10)        (93)        (83)
                                         --------    --------    --------
Net loss                                   (6,080)   $ (7,263)      1,037
                                         ========    ========    ========

Net Sales

      For the year ended December 31, 2004, we generated net sales of
approximately $16,741,000 as compared to net sales of approximately $16,780,000
for the year ended December 31, 2003, a decrease of $39,000. In 2004, the
BioSciences Business generated no revenues, as compared to $150,000 for 2003.
Revenues from the Enzyme Business therefore increased by approximately $111,000.
We did not enjoy a meaningful year-over-year increase in sales as we have for
the preceding three years principally because of our lack of resources in 2004
with which to fund (a) required increases in working capital (inventory and
receivables), (b) a required expansion of sales and marketing personnel and
related market penetration activities and (c) required levels of new product
introductions. In addition, our 4th quarter was very negatively impacted by two
developments: first, one of our very significant customers experienced the loss
of one of its key customers in that quarter; and second, China's imminent
ascension to the World Trade Organization (January 2005) negatively impacted its
textiles manufacturing sector in that quarter by causing that sector to defer
sales into 2005 in anticipation of the removal of applicable quota systems
scheduled to occur at that time.

      As previously stated, the textiles market, which is characterized by low
profit margins and intense competition, accounts for a majority of our current
Enzyme Business net sales (80% of our revenues in 2004 and 84% of our revenues
in 2003). Nonetheless, it should be noted that we have experienced a gradual
decline in our share of the textiles market, which we primarily attribute to (i)
our previous lack of adequate resources to match the level of investment in this
market being made by our competitors, and (ii) our application of a greater
portion of our efforts on higher margin and larger market opportunities, such as
pulp & paper and animal feed markets. To what degree our revenues from the
textiles market will continue to decline in the future will depend not only that
market's dynamics, but also on the extent of pricing pressure created by our
competitors in that market, our success 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 the
development of new products, as well as opportunities to reduce the production
cost of these products. We intend to exercise discipline over the application of
resources to the textile market relative to other markets we perceive to offer
the Company greater opportunity.

Cost of Goods Sold

      For the year ended December 31, 2004, cost of goods sold was approximately
$12,833,000 as compared to approximately $12,597,000 for the year ended December
31, 2003, representing an increase of approximately $236,000. This 2% increase
in cost of goods sold was primarily the result of an increase in the inventory
reserve of approximately $247,000. The effect of changes in foreign currency
rates and the resultant effect on the cost of inventory and certain contract
manufacturing costs denominated in Euros can and may significantly impact the
ultimate cost incurred by the Company in the future.

                                       40
<PAGE>

Gross Profit

      For the year ended December 31, 2004, gross profit was approximately
$3,908,000, or 23.3% of net sales, as compared to approximately $4,183,000, or
24.9% of net sales, for the year ended December 31, 2003, representing a
decrease of approximately $275,000. The 6.4% decrease in gross profit and gross
profit percentage is primarily due to an increase in the inventory reserve. It
is the Company's goal to develop products, or sell existing products, for
markets in which gross profit percentages can be improved. We believe we are
making significant progress in our efforts to create a line of higher
profit-margined products by developing better products using our technologies,
by lowering our production costs, and by applying existing products to new
markets. Nonetheless, there can be no assurance that our efforts will
successfully lead to improved gross profit percentages in the future.

Expenses

      Research and Development

      For the year ended December 31, 2004, research and development expenses,
or R&D, were approximately $3,621,000, or 21.6% of net sales, as compared to
approximately $3,571,000, or 21.3% of net sales for the year ended December 31,
2003, representing an increase of approximately $50,000. Our desired level of
R&D activity was constrained in 2004 by our lack of adequate capital resources.
With our success in raising additional capital, we expect to substantially
increase our R&D spending in 2005, both on the further development of our core
technologies, and on new product and technology development, in order to
generate broader sets of product lines for a larger number of diverse industries
and markets. We anticipate these R&D efforts will ultimately increase our
revenues and profit margins and create additional business opportunities for us.
Nonetheless, there can be no assurance that our R&D efforts will be successful
in achieving these objectives.

      Sales and Marketing

      For the year ended December 31, 2004, sales and marketing expenses were
approximately $1,857,000, or 11.1% of net sales, compared to approximately
$1,749,000, or 10.4% of net sales for the year ended December 31, 2003,
representing an increase of approximately $108,000. This 6.2% increase, was due
principally to the addition of one regional sales person.

      General and Administrative

      For the year ended December 31, 2004, general and administrative expenses
were approximately $3,757,000, or 22.4% of net sales, compared to approximately
$2,308,000, or 13.8% of net sales for the year ended December 31, 2003,
representing an increase of approximately $1,449,000. This increase is
attributable to several factors, including an increase in the allowance for
doubtful accounts of our Asian subsidiary of approximately $327,000, an increase
in salaries and wages of approximately $400,000 due to accruals for bonuses and
vacation as well as salary increases, an increase in stock compensation expense
of approximately $260,000 related to stock options issued to consultants and an
increase in professional fees of approximately $665,000 related to accounting,
legal and other service related expenses, to assist the Company in its
transition to a public company status.

Other Income (Expense)

      Interest Expense

      For the year ended December 31, 2004, interest expense was approximately
$598,000 as compared to approximately $3,498,000 for the year ended December 31,
2003, representing a decrease of approximately $2,900,000. This decrease was due
primarily to the amortization of debt issuance costs of $3,195,000 related to
the issuance of warrants in connection with a $3,000,000 Bridge Loan made in May
2003. Excluding this transaction, interest expense increased approximately
$295,000, which relates to the amortization of beneficial conversion features
($155,000) as described below, and increased interest expense related to the
Mark A. Emalfarb Trust revolving note, which had a higher principal balance
throughout 2004 as compared to 2003.

      In connection with the Merger and a series of related transactions more
fully discussed in Note 1 to the Company's consolidated financial statements,
the Bridge Loan maturity date and the Bridge Loan warrants were modified in
November 2004 and, as a result, we will recognize an additional $350,000 in
interest expense through the new maturity date, January 1, 2007. Also in
November 2004, a $1,225,000 note payable to the Mark A. Emalfarb Trust was
cancelled in exchange for the purchase of 367,868. Investment Units, as
discussed more fully in Note 1 to the consolidated financial statements, and the
conversion prices on the convertible notes due to the Emalfarb Trust and the
Francisco Trust were modified to fix the conversion price at $3.33 per share,
which resulted in a beneficial conversion feature of $554,000 to be amortized
through the maturity date of January 1, 2007.

                                       41
<PAGE>

      Interest Income

      For the year ended December 31, 2004, interest income was approximately
$69,000 as compared to approximately $13,000 for the year ended December 31,
2003, representing an increase of approximately $56,000. Interest income
increased beginning in the fourth quarter of 2004 due to the net proceeds from
the private placement offering completed in early November 2004, which were
placed in short-term investments. At December 31, 2004, all remaining proceeds
were invested in money market funds.

      Minority Interest/Share of Income of Unconsolidated Affiliate

      Minority interest of approximately $17,000 for the year ended December 31,
2004 as compared to approximately $14,000 for the year ended December 31, 2003
primarily reflects the fact that our Asian subsidiary generated higher net
income in 2004 than it did in 2003 due to an increase in its net sales of
approximately 24%.

      Foreign Currency Exchange Losses, Net

      For the year ended December 31, 2004, the Company incurred net foreign
currency exchange losses of approximately $214,000 as compared to approximately
$236,000 for the year ended December 31, 2003, representing a decrease of
approximately $22,000. This decrease in foreign currency exchange losses is
primarily due to the decline in the value of the United States dollar as
compared to the Euro between periods. A large portion of our business is
transacted with foreign customers and vendors in foreign currency denominations.
Accordingly, fluctuations in foreign currency exchange rates, primarily relating
to the Euro, can greatly impact the amount of foreign currency losses (or gains)
we recognize in future periods relating to these transactions.

Provision for Income Taxes

      We have no provision for U.S. income taxes as we have incurred operating
losses in all periods presented. For the year ended December 31, 2004, we had a
foreign income tax provision of approximately $10,000 compared to approximately
$93,000 for the year ended December 31, 2003. Our Asian subsidiary operates in
Hong Kong. We also have operations in Poland and The Netherlands. Our Asian
subsidiary and, to a lesser extent, our Polish subsidiary generate profits that
are taxable in their local jurisdictions. The decrease from 2003 to 2004
resulted primarily from net operating loss carry forwards utilized by our Asian
subsidiary during 2004 that lowered its effective tax rate.

Net Loss

      For the year ended December 31, 2004, the Company's net loss was
approximately $6,080,000, compared to a net loss of approximately $7,263,000 for
the year ended December 31, 2003. This decrease in net loss was due primarily to
the 2003 interest expense charge on the issuance of the Bridge Loan warrants of
$3,195,000, as well as an increase in general and administrative expenses, as
discussed above. We believe that we will continue to incur net losses in the
near term future primarily because of our planned levels of research and
development, expansion of our marketing, sales and technical staff, and
additional general and administrative expenditures that will be necessary to
accommodate the expected growth in the Enzyme and BioSciences Businesses.

Liquidity and Capital Resources

Capital Raising Activities

      Since inception, the Company has financed operations primarily with
proceeds from the sales of the products from its Enzyme Business, external
borrowings, borrowings from its stockholders and sales of preferred and common
equity securities. In May 2003, the Company received a $3,000,000 loan from a
syndicate of its stockholders, including its controlling stockholder, Mark
Emalfarb. In the first half of 2004, we raised approximately $4,740,000 in
private offerings of our equity securities, of which $1,500,000 was used to
redeem all outstanding shares of our Series A preferred stock, and we also paid
for $1,000,000 of R&D services to be performed by one of our long-standing R&D
vendors in shares of our common stock (to be released from escrow when earned)
and an additional $250,000 in cash.

                                       42
<PAGE>

      In November 2004, in accordance with Subscription Agreements and a Private
Offering Memorandum (the October Offering) dated October 2004, the Company sold
7,629,204 Investment Units, realizing gross proceeds of approximately
$25,405,000. An Investment Unit consists of one share of the Company's common
stock and one five-year callable warrant to purchase one share of the Company's
common stock at $5.50 per share for every two Investment Units purchased.
Accordingly, 3,814,602 warrants to purchase the Company's common stock were
issued to participants in the October Offering. Concurrently, the Company issued
711,050 warrants to purchase the Company's common stock at $5.50 per share to
participants in the Offering completed in July 2004 (see Note 8), as well as
247,730 warrants to purchase the Company's common stock at $5.50 per share and
495,460 warrants to purchase the Company's common stock at $3.33 per share, both
to placement agents in the October Offering.

      The Company has incurred approximately $2,728,000 of costs through
December 31, 2004 related to the October Offering and Merger, including the
subsequent registration of the Company's shares issued in the Merger and the
October Offering. These costs are included as a reduction of additional paid-in
capital in the accompanying consolidated changes of stockholders equity for the
year ended December 31, 2004.

      Ancillary to the Merger and October Offering, in November 2004, an
additional 367,868 Investment Units were sold to Mark A. Emalfarb through the
Mark A. Emalfarb Trust in exchange for the cancellation of the Company's note
payable to the Mark A. Emalfarb Trust (see Note 6 to our consolidated financial
statements) with a balance of $1,225,000.

      Incident to the Company's completion of the Merger and the equity issuance
transactions described above, a warrant to purchase 1.5 million shares of the
Company's common stock issued in connection with the May 2003 $3.0 million
revolving note payable to the Mark A. Emalfarb Trust (see Note 6 to our
consolidated financial statements) was modified to reduce the exercise price
from $4.50 to $3.33 per share. Additionally, the maturity date of this Bridge
Loan was extended to January 1, 2007. As a result, approximately $350,000,
representing the incremental fair value of the modified warrant as compared to
the fair value of the original warrant immediately before the modification
(determined using the Black-Scholes option pricing model, using the following
assumptions: risk-free interest rate of 3.91%, dividend yield of 0%, expected
volatility of 50% and an expected remaining life of 8.6 years, the remaining
term of the warrant) will be amortized to interest expense through the new
maturity date. The estimated fair value of the original warrant had been fully
amortized to interest expense during the year ended December 31, 2003.

      As another incident to the Company's completion of the Merger and the
equity transactions described above, the conversion prices with respect to the
October 29, 2004 principal and accrued interest balances on the Emalfarb Trust
Note and the Francisco Trust Note (see Note 6 to our consolidated financial
statements) were fixed at $3.33 per share, and the due dates were extended to
January 1, 2007. As a result of the modification of the conversion price, a
beneficial conversion feature totaling approximately $554,000 will be amortized
to interest expense through the new maturity date.

Cash Flow

      From Operating Activities

      As reflected in our consolidated financial statements, we have incurred
losses from operations during each of the last two years, resulting in net cash
used in operating activities of approximately $5,917,000 and $4,002,000 in 2004
and 2003, respectively. The increase in net cash used in operating activities
was primarily due to the increase in net loss in 2004 and the increase in cash
expenditures for inventory of $1.3 million over the comparable 2003 period.

      From Investing Activities

      For the year ended December 31, 2004, our net cash used in investing
activities was approximately $101,000 as compared to approximately $133,000 for
the year ended December 31, 2003. This decline was due primarily to a payment
made in 2003 to acquire additional voting interest in our then unconsolidated
Asian subsidiary. Cash constraints during 2003 and part of 2004 did not allow
for significant investments in fixed assets in those years. There are no
immediate plans for large increases in capital expenditures; however, management
is continually assessing such requirements concurrent with our growth.

      From Financing Activities

      For the year ended December 31, 2004, our net cash provided by financing
activities was approximately $24,879,000 as compared to approximately $2,746,000
for the year ended December 31, 2003. This change is primarily due to cash
received from two private placements in 2004 resulting in net proceeds of
approximately $27,400,000, which was offset by payments on notes payable of
approximately $903,000 and a $1,500,000 payment for the redemption of Redeemable
Series A convertible preferred stock

                                       43
<PAGE>

      Changes in Cash Positions

      We experienced net increases in cash and cash equivalents of approximately
$18,861,000 in 2004 as compared to a decrease of $1,403,000 in 2003 due to our
capital raising activities.

Financial Condition and Liquidity at December 31, 2004

      Our 2003 and 2004 net losses, when combined with losses incurred through
December 31, 2002, resulted in an accumulated deficit of approximately
$23,493,000. As of December 31, 2004, stockholders' equity was approximately
$24,469,000, an increase of approximately $34,196,000 over December 31, 2003.
The improvement is due to the equity capital we raised in July 2004 and November
2004 and the redemption of our Series A convertible preferred stock at a
substantial discount from its carrying value.

      As of December 31, 2004, we had a total of approximately $20,511,000 in
cash and cash equivalents. Our outstanding indebtedness was approximately
$3,433,000 as of December 31, 2004, and consisted of notes payable to certain
stockholders and the Bridge Loan. We are committed to make annual minimum
payments under our operating leases aggregating approximately $297,000 for 2005,
approximately $84,000 for 2006, approximately $43,000 in 2007, approximately
$39,000 in 2008, and approximately $219,000 thereafter. We also are committed to
make annual minimum payments under our Polish contract manufacturing agreement
of approximately $377,000 for 2005 and $841,000 thereafter through 2008. We have
also entered into various agreements with independent third parties to conduct
R&D activities on our behalf. One such agreement, entered into in July 2004, has
committed a third party to provide research and development assistance valued at
approximately $1.25 million. The consideration includes $250,000 in cash, which
was paid upon signing the agreement, and 300,300 shares of our common stock, to
be released from escrow as the shares are earned. The agreement is with one of
our long-standing third party R&D vendors.

      We have employment agreements with several officers and key employees of
the Company. The following table shows the title, annual compensation and
expiration date of each agreement. The agreements state that the employee is
entitled to earn a bonus annually based upon the results of operations of the
Company, its Subsidiaries and their Affiliates and the personal performance of
the Executive in accordance with the terms of a bonus plan which shall be
adopted and maintained in effect by the Compensation Committee for that calendar
year. (See Notes 11 and 14 to our consolidated financial statements.)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
                                                                                     Annual        Initial term
    Name                                Title                                     Compensation      expiration
    ----                                -----                                     ------------      ----------
<S>                             <C>                                               <C>                  <C>
Mark A. Emalfarb                Chief Executive Officer                           $  300,000         April 2006

Wayne Moor                      Chief Financial Officer                              225,000         December 2007

Kent Sproat                     Executive Vice President, Enzyme Business            190,000         December 2007

Ratnesh (Ray) Chandra           Senior Vice President, Marketing-Biotechnology       170,250         December 2007
                                Systems

Richard Burlingame, Ph.D.       Executive Director, Research & Development           148,500         December 2007

Alexander (Sasha) Bondar        Vice President, Strategy & Corporate                 143,000         December 2007
                                Development

Daniel Michalopoulos            Vice President, Pulp & Paper                         140,000         December 2007
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Funding of Future Operations

      We believe that our operating losses will continue in 2005. In addition,
our future capital requirements will be substantial. We believe that if we meet
our business plan, we will have sufficient capital to fund our operations and
meet our obligations through year end 2006. However, it is possible that we will
seek additional financing within this timeframe. We may raise additional funds
through public or private financings, collaborative relationships or other
arrangements. Additional funding, if sought, may not be available on terms
favorable to us. Further, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Our failure to raise capital when needed may harm our business and
operating results.

Off-Balance Sheet Arrangements

      We do not have any off-balance sheet arrangements.

                                       44
<PAGE>

Critical Accounting Policies and Estimates

      The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates. We base our
estimates on current information, historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from the estimates used by us under different
assumptions or conditions. We believe the following concentrations and critical
accounting policies relate to our more significant judgments and estimates used
in the preparation of our consolidated financial statements:

Foreign Operations

      We have significant operations and revenues generated in foreign
countries. Revenues derived from foreign customers accounted for approximately
86% and 87% of our total revenues in 2004 and 2003, respectively. Our Asian
subsidiary is located in Hong Kong, and we have two other subsidiaries, one
located in Poland and one located in The Netherlands. Estimates relating to our
inventory valuation, receivable allowances, possible impairments to goodwill
(which relates to our Asian subsidiary), and long-lived assets could be
significantly impacted by international events.

Stock-Based Compensation

      We have issued warrants and options to non-employees for services and in
connection with obtaining debt in the past several years. We have recognized
significant expense relating to the issuance of these equity instruments,
including $3,195,000 relating to a warrant issued in connection with debt and
classified as interest expense in 2003. In 2004, approximately $897,000 was
recorded related to the modification of warrants issued in connection with debt,
which is being amortized through the debt maturity date of January 1, 2007. Of
this amount, approximately $155,000 was recognized as interest expense in the
accompanying consolidated statement of operations for the year ended December
31, 2004. Amortization of stock compensation expense of approximately $318,000
was also recognized in 2004 related to stock options issued to consultants, the
original cost of which is being amortized over the respective service periods.

      We estimated the fair value of those securities using the Black-Scholes
option-pricing model, and expensed the estimated fair value over the service
period or through the debt maturity date. The Black-Scholes model uses critical
assumptions that significantly affect the estimated fair value of those awards,
such as an estimated volatility factor of our common stock, the estimated lives
of the awards (which is equal to the maximum contractual term for awards to
non-employees) and presumed discount rates. Additionally, as further discussed
below, we are required to recognize compensation expense on options issued to
employees beginning in 2006, and we expect that we will use similar estimation
methods. Changes in the volatility of our common stock and other estimation
factors used in the Black-Scholes model can significantly impact the estimated
value and resultant compensation cost on similar equity instruments issued in
the future.

Long-Lived Assets

      We review our long-lived assets, including fixed assets that are held and
used for our operations, for impairments whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable, as required by Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). If
such an event or change in circumstances is present, we will estimate the
undiscounted future cash flows, less the future outflows necessary to obtain
these inflows, expected to result from the use of the asset and its eventual
disposition. If the sum of the undiscounted future cash flows is less than the
carrying amount of the related assets, we will recognize an impairment loss to
the extent the carrying value exceeds the fair value. Our judgments related to
the expected useful lives of long-lived assets and our ability to realize
undiscounted cash flows in excess of the carrying amounts of the assets are
affected by factors such as the ongoing maintenance and improvements of the
assets, changes in domestic and foreign economic conditions and changes in
operating performance. While we have not to date been required to recognize an
impairment on long-lived assets, as we make future assessments of the ongoing
expected cash flows and carrying amounts of our long-lived assets, these factors
could cause us to realize material impairment charges.

Evaluation of Potential Goodwill Impairment

      In accordance with SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142), we were required to perform an annual impairment review of the
goodwill which is associated with our Asian subsidiary, as of January 1, 2004
and 2005. This test involved the use of estimates to determine the estimated
fair value of our Asian subsidiary and the comparison of that estimated fair
value to the carrying value of the reporting unit. There are significant
assumptions used in this impairment test, such as estimated cash flows, discount
rates of return and terminal values. Several factors can change these
assumptions, such as economic conditions or instability in foreign governments,
among other things. Our estimates of the fair value indicated that it exceeded
the carrying value of the reporting unit. Accordingly, no goodwill impairment
charge was recorded. If the estimate of the fair value of the reporting unit is
less than the carrying value at any future measurement dates, we may be required
to record a goodwill impairment charge.

                                       45
<PAGE>

Income Taxes

      We have recorded deferred tax assets relating to net operating loss carry
forwards for United States federal and state tax purposes, inventories,
depreciation and amortization, and accounts receivable allowance, among other
items. We record a valuation allowance equal to 100% of the carrying value of
our net deferred tax assets to reduce our deferred tax assets to the amount that
is more likely than not to be realized. While we have considered future taxable
income and ongoing tax planning strategies in assessing the need for the
valuation allowance, in the event we were to determine that we would be able to
realize our deferred tax assets in the future in excess of their net recorded
amounts, a resulting reduction of the valuation allowance would increase our
income in the period such determination was made. As of December 31, 2004, we
had approximately $7,435,392 in gross deferred tax assets, which were fully
offset by a valuation allowance.

      We have net operating loss carryforwards of approximately $17.1 million
for United States federal and state income tax purposes that expire between 2019
and 2023. The amounts of and benefits from net operating losses carried forward
may be impaired or limited in certain circumstances. Events which may cause
limitations in the amount of net operating losses that we may utilize in any one
year include, but are not limited to, a cumulative ownership change of more than
50% over a three-year period.

Allowance for Doubtful Accounts

      We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. Our
accounting for doubtful accounts contains uncertainty because management must
use judgment to assess the collectibility of these accounts. When preparing
these estimates, management considers a number of factors, including the aging
of a customer's account, past transactions with customers, creditworthiness of
specific customers, historical trends and other information. We review our
accounts receivable reserve policy periodically, based on current risks, trends
and changes in industry conditions. The allowance for doubtful accounts was
approximately $456,000 at December 31, 2004. Although we believe this allowance
is sufficient, if the financial condition of our customers were to unexpectedly
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required that could materially impact our
consolidated financial statements. Concentrations of credit risk can impact this
risk considerably. While there were no customers that accounted for greater than
10% of net sales in 2004, in 2003 there were two customers that individually
accounted for 18% and 14% (for a total of 32%) of the Company's net sales, or
approximately $2,979,000 and $2,338,000, respectively. There were six customers
in 2004 whose trade receivable balances equaled or exceeded 5% of total
receivables, representing an aggregate of approximately 50%, of total accounts
receivable. The loss of business from one or a combination of the Company's
significant customers could adversely affect its operations. Additionally, as
noted above, we have significant sales to customers outside the U.S.

Inventory Valuation

      Inventory, representing approximately 20% of our consolidated assets at
December 31, 2004, primarily consists of finished goods including industrial
enzymes used in the industrial, chemical and agricultural markets and is stated
at the lower of cost or market using the first-in, first-out method. Finished
goods include raw materials and manufacturing costs, substantially all of which
are incurred pursuant to agreements with independent manufacturers. As part of
the valuation process, excess, slow-moving and damaged inventories are reduced
to their estimated net realizable value. Our accounting for excess, slow-moving
and damaged inventory contains uncertainty because management must use judgment
to estimate when the inventory will be sold and the quantities and prices at
which the inventory will be sold in the normal course of business. We review our
inventory reserve policy periodically, based on current risks, trends and
changes in industry conditions. We also maintain a provision for estimated
inventory shrinkage and conduct periodic physical inventories to calculate
actual shrinkage and inventory on hand. When preparing these estimates,
management considers historical results, inventory levels and current operating
trends. We have established valuation reserves associated with excess,
slow-moving and damaged inventory and estimated shrinkage reserves of
approximately $322,000 at December 31, 2004. These estimates can be affected by
a number of factors, including general economic conditions and other factors
affecting demand for our inventory. In the event our estimates differ from
actual results, the allowance for excess, slow-moving and damaged inventories
may be adjusted and could materially impact our consolidated financial
statements.

                                       46
<PAGE>

Revenue Recognition

      Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the provisions issued in SAB No. 104, Revenue
Recognition in Financial Statements. Revenue from product sales to customers,
distributors and resellers is recorded when products that do not require further
services or installation by the Company are shipped, when there are no
uncertainties surrounding customer acceptance and for which collectibility is
reasonably assured. The Company provides for sales returns based on a historical
analysis of returns. The estimate is updated for current return activity and the
provision is adjusted accordingly. Should actual returns exceed management's
estimates, the provision may require further adjustment and accordingly, net
sales may decrease.

ITEM 7. FINANCIAL STATEMENTS

The audited consolidated financial statements and related footnotes of Dyadic
International, Inc. can be found beginning with the Index to Consolidated
Financial Statements following Part III of this Annual Report on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

      (a)   Evaluation of disclosure controls and procedures. In accordance with
            Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange
            Act"), within 90 days prior to the filing date of the annual report
            on Form 10-KSB, an evaluation was carried out under the supervision
            and with the participation of the Company's management, including
            the Company's Chief Executive Officer and Chief Financial Officer,
            on the effectiveness of the design and operation of the Company's
            disclosure controls and procedures (as defined in Rules 13a-15(e)
            and 15d-15(e) under the Exchange Act). Based upon their evaluation
            of these disclosure controls and procedures, the Chief Executive
            Officer and the Chief Financial Officer concluded that the
            disclosure controls and procedures were effective as of the date of
            such evaluation to ensure that material information relating to the
            Company, including its consolidated subsidiary, was made known to
            them by others within those entities, particularly during the period
            in which this Annual Report on Form 10-KSB was prepared.

      (b)   Changes in Internal Controls. 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. See Note 2 of Notes to Consolidated
            Financial Statements included elsewhere in this Form 10-KSB. 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.
            Except as noted above, there have not been any changes in the
            Company's internal controls over financial reporting (as defined in
            Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended
            December 31, 2004 that have materially affected, or are reasonably
            likely to materially affect, the Company's internal control over
            financial reporting .

ITEM 8B. OTHER INFORMATION.

None.

                                       47
<PAGE>

                                    PART III

The information called for by Part III, Items 9, 10, 11, 12 and 14 is
incorporated herein by reference to our definitive Proxy Statement for our
Annual Meeting of Stockholders of the Company to be filed with the Securities
and Exchange Commission within 120 days of December 31, 2004.

ITEM 13. EXHIBITS

A)    Index to Exhibits

Exhibits    Description of Documents
- --------    ------------------------

2.1         Agreement of Merger and Plan of Reorganization dated as of September
            28, 2004 by and among Dyadic International (USA), Inc. (f/k/a Dyadic
            International, Inc.), Dyadic International, Inc. (f/k/a CCP
            Worldwide, Inc.) and CCP Acquisition Corp. (1)

2.2         Split-Off Agreement dated September 28, 2004, by and among Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), Dyadic
            International, Inc. (f/k/a CCP Worldwide, Inc.) and Custom Craft
            Packaging, Inc. (2)

3.1         Amended and Restated Certificate of Incorporation of Dyadic
            International, Inc. dated November 1, 2004 (2)

3.2         Amended and Restated Bylaws of Dyadic International, Inc. dated
            November 1, 2004 (2)

4.1         Form of Common Stock Certificate (2)

4.2         Form of $5.50 Common Stock Purchase Warrant (2)

4.3         Form of $3.33 Common Stock Purchase Warrants issued to Placement
            Agents (2)

4.4         Form of Bridge Loan Warrants (2)

4.5         Form of Stock Option representing aggregate right to purchase 65,000
            shares of Common Stock (2)

10.1        Cooperation and License Agreement dated August 12, 2003 between
            Dyadic International (USA), Inc. (f/k/a Dyadic International, Inc.)
            and TNO Nutrition and Food Research Institute (2)

10.2        Development Agreement dated July 30, 2004 between Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.) and
            Bio-Technical Resources Division of Arkion Life Sciences LLC (2)

10.3        Commercial Land Purchase and Sale Agreement dated July 31, 2004
            between Dyadic International (USA), Inc. (f/k/a Dyadic
            International, Inc.) and F&C Holdings, LLC (2)

10.4        Investors' Rights Agreement dated March 24, 2004 among the Mark A.
            Emalfarb Trust, the Francisco Trust, Dyadic International (USA),
            Inc. (f/k/a Dyadic International, Inc.) and other shareholders, as
            amended and assumed by Registrant (2)

10.5        Employment Agreement dated April 1, 2001 between Mark A. Emalfarb
            and Dyadic International (USA), Inc. (f/k/a Dyadic International,
            Inc.), as assumed by Registrant (2)

10.6.1      Employment Agreement dated March 30, 2005 between Ratnesh (Ray)
            Chandra and Dyadic International, Inc. (4)

10.6.2      Employment Agreement dated January 31, 2005 between Wayne Moor and
            Dyadic International, Inc. (6)

                                       48
<PAGE>

Exhibits    Description of Documents
- --------    ------------------------

10.6.3      Employment Agreement dated March 30, 2005 between Alexander (Sasha)
            Bondar and Dyadic International, Inc. (4)

10.6.4      Employment Agreement dated March 30, 2005 between Kent Sproat and
            Dyadic International, Inc. (4)

10.7.1      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated May 21, 2001 between Mark Emalfarb and Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            assumed by Registrant (2)

10.7.2      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated May 21, 2001 between Ray Chandra and Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            assumed by Registrant (2)

10.7.3      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated May 21, 2001 between Kent Sproat and Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            assumed by Registrant (2)

10.7.4      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated September 4, 2001 between Richard Burlingame, Ph.D.
            and Dyadic International (USA), Inc. (f/k/a Dyadic International,
            Inc.), as assumed by Registrant (2)

10.7.5      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated March 27, 2003 between Thomas Bailey and Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            assumed by Registrant (2)

10.7.6      Confidential Information, Inventions Assignment and Non-Compete
            Agreement dated May 21, 2001 between Alexander (Sasha) Bondar and
            Dyadic International (USA), Inc. (f/k/a Dyadic International, Inc.),
            as assumed by Registrant (2)

10.8.1      Indemnification Agreement dated August 19, 2001 between Mark A.
            Emalfarb and Dyadic International (USA), Inc. (f/k/a Dyadic
            International, Inc.), as assumed by Registrant (2)

10.8.2      Indemnification Agreement dated August 19, 2001 between Stephen J.
            Warner and Dyadic International (USA), Inc. (f/k/a Dyadic
            International, Inc.), as assumed by Registrant (2)

10.8.3      Indemnification Agreement dated January 11, 2005 between Dyadic
            International, Inc. and Richard Berman (3)

10.8.4      Indemnification Agreement dated March 29, 2005 between Dyadic
            International, Inc. and Robert Shapiro (4)

10.9        Dyadic International, Inc. 2001 Equity Compensation Plan, as amended
            and assumed by Registrant (2)

10.9.1      Standard form of Director Stock Option Grant Agreement under Dyadic
            International, Inc. 2001 Equity Compensation Plan (3)

10.9.2      Second Amendment to Dyadic International, Inc. 2001 Equity
            Compensation Plan dated as of January 12, 2005 (3)

10.9.3      Form Employee Option Agreement under the Dyadic International, Inc.
            2001 Equity Compensation Plan, as amended (4)

10.10       Subordinated Promissory Note dated May 30, 2001 made by Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            amended, payable to the order of the Mark A. Emalfarb Trust in the
            original principal amount of $750,766, as assumed by Registrant (2)

                                       49
<PAGE>

Exhibits    Description of Documents
- --------    ------------------------

10.11       Subordinated Promissory Note dated May 30, 2001 made by Dyadic
            International (USA), Inc. (f/k/a Dyadic International, Inc.), as
            amended, payable to the order of the Francisco Trust in the original
            principal amount of $664,838, as assumed by Registrant (2)

10.12       Revolving Note dated May 29, 2003 made by Dyadic International
            (USA), Inc. (f/k/a Dyadic International, Inc.), as amended, payable
            to the order of the Mark A. Emalfarb Trust in the original principal
            amount of $3,000,000, as assumed by Registrant (2)

10.13       Security Agreement dated May 29, 2003, between the Mark A. Emalfarb
            Trust and Dyadic International (USA), Inc. (f/k/a Dyadic
            International, Inc.), as amended (2)

10.14       Inducement and Amending Agreement dated August 19, 2004 among the
            Mark A. Emalfarb Trust, the Francisco Trust and Dyadic International
            (USA), Inc. (f/k/a Dyadic International, Inc.) (2)

10.15       Contract Manufacturing Agreement dated October 27, 1999 between
            Polfa Tarchomin, SA and Dyadic International (USA), Inc. (f/k/a
            Dyadic International, Inc.), as amended by Amendments dated May 8,
            2000 and February 10, 2004 and letters dated February 11, 2004 (2)

10.16       Indemnification and Escrow Agreement dated September 28, 2004 among
            Vitel Ventures, Mark Tompkins, Registrant and Dyadic International
            (USA), Inc. (f/k/a Dyadic International, Inc.) (2)

10.17       Form of Subscription Agreement from investors in private placement
            offering completed in early November 2004 (2)

10.18       Agreement dated October 21, 1998 among Geneva Investment Holdings
            Limited, a wholly owned subsidiary of Dyadic International (USA),
            Inc. (f/k/a Dyadic International, Inc.), Robert B. Smeaton and
            Raymond Chih Chung Kwong, as amended by Agreements dated January 17,
            2000 and July 8, 2002 (2)

10.19       Lock-Up Agreements from each of the Mark A. Emalfarb Trust and Mark
            A. Emalfarb; the Francisco Trust; Mark Tompkins and IVC Group;
            Ratnesh Chandra; Richard Burlingame; Rufus Gardner; Kent Sproat;
            Thomas Bailey; and Alexander Bondar (2)

10.20       Indemnification Agreement dated as of September 28, 2004 among
            Dyadic International (USA), Inc. (f/k/a Dyadic International, Inc.),
            Dyadic International, Inc. (f/k/a CCP Worldwide, Inc.), Tom Shute,
            Roy Provencher and David R. Allison (5)

10.21       Dyadic International, Inc. Statement of Director Compensation Policy
            (3)

14.1        Code of Ethics (7)

21.1        Subsidiaries of the Registrant (2)

23          Consent of Independent Registered Public Accounting Firm (7)

31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (7)

31.2        Certification of Chief Financial Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (7)

                                       50
<PAGE>

Exhibits    Description of Documents
- --------    ------------------------

32.1        Certification of Chief Executive Officer required by 18 U.S.C.
            Section 1350 (as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002) (7)

32.2        Certification of Chief Financial Officer required by 18 U.S.C.
            Section 1350 (as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002) (7)

      (1)   Incorporated by reference from the Company's Form 8-K, filed
            September 30, 2004 with the Securities and Exchange Commission.

      (2)   Incorporated by reference from the Company's Form 8-K, filed
            November 4, 2004, as amended with the Securities and Exchange
            Commission.

      (3)   Incorporated by reference from the Company's Form 8-K, filed January
            14, 2005 with the Securities and Exchange Commission.

      (4)   Incorporated by reference from the Company's Form 8-K, filed April
            1, 2005 with the Securities and Exchange Commission.

      (5)   Incorporated by reference from the Company's Form 10-QSB Quarterly
            Report for the nine months ended September 30, 2004.

      (6)   Incorporated by reference from the Company's Form 8-K, filed
            February 1, 2005 with the Securities and Exchange Commission.

      (7)   Filed herewith.

                                       51
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   Dyadic International, Inc.
                                                 (Registrant)


Date: April 15, 2005               By:  /s/ Mark A. Emalfarb
                                        -----------------------
                                        Mark A. Emalfarb
                                        Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.

Date: April 15, 2005


By:    /s/ Mark A. Emalfarb
       Mark A. Emalfarb
       Principal Executive Officer, Chairman of the Board of Directors
       and President

By:    /s/ Wayne Moor
       Wayne Moor
       Principal Financial and Accounting Officer

By:    /s/ Stephen J. Warner
       Stephen J. Warner
       Director

By:    /s/ Richard Berman
       Richard Berman
       Director

By:    /s/ Robert Shapiro
       Robert Shapiro
       Director


                                       52

<PAGE>

                           Dyadic International, Inc.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm
   on Financial Statements.................................................. F-1

Consolidated Financial Statements:

      Consolidated Balance Sheet - December 31, 2004........................ F-2

      Consolidated Statements of Operations -
         Years ended December 31, 2004 and 2003............................. F-3

      Consolidated Statements of Changes in
         Stockholders' Equity (Deficit) - Years ended
         December 31, 2004 and 2003......................................... F-4

      Consolidated Statements of Cash Flows -
         Years ended December 31, 2004 and 2003............................. F-5

      Notes to Consolidated Financial Statements............................ F-6


<PAGE>

 Report of Independent Registered Public Accounting Firm on Financial Statements


Board of Directors and Stockholders
Dyadic International, Inc.

      We have audited the accompanying consolidated balance sheet of Dyadic
International, Inc. (the Company) as of December 31, 2004, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years ended December 31, 2004 and 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. We were not engaged to perform an audit of
the Company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dyadic
International, Inc. at December 31, 2004, and the consolidated results of its
operations and its cash flows for the years ended December 31, 2004 and 2003, in
conformity with accounting principles generally accepted in the United States.

Certified Public Accountants
West Palm Beach, Florida
April 14, 2005


                                      F-1
<PAGE>

                           Dyadic International, Inc.

                           Consolidated Balance Sheet

                                December 31, 2004
<TABLE>
<CAPTION>
<S>                                                                                 <C>
Assets
Current assets:
     Cash and cash equivalents                                                      $ 20,510,650
     Accounts receivable, net of allowance for uncollectible accounts of $455,764      3,078,082
     Inventory                                                                         6,642,033
     Prepaid expenses and other current assets                                           826,149
                                                                                    ------------
Total current assets                                                                  31,056,914

Fixed assets, net                                                                        801,767
Intangible assets, net                                                                   200,303
Goodwill                                                                                 467,821
Other assets                                                                             195,621
                                                                                    ------------
Total assets                                                                        $ 32,722,426
                                                                                    ============

Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                                               $  2,958,734
     Accrued expenses                                                                  1,531,656
     Accrued interest payable to stockholders                                            107,705
     Current portion of notes payable to stockholders                                    171,985
     Deferred revenue                                                                     75,000
     Income taxes payable                                                                 12,809
                                                                                    ------------
Total current liabilities                                                              4,857,889
                                                                                    ------------

Long-term liabilities:
     Notes payable to stockholders, including accrued interest, net
       of current portion                                                              3,260,541
     Other liabilities                                                                    35,813
     Minority interest                                                                    99,167
                                                                                    ------------
Total long-term liabilities                                                            3,395,521
                                                                                    ------------
Total liabilities                                                                      8,253,410
                                                                                    ------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.0001 par value:
         Authorized shares - 5,000,000; none issued and outstanding                           --
     Common stock, $.001 par value,
         Authorized shares - 100,000,000; issued and outstanding - 21,930,805             21,931
     Additional paid-in capital                                                       48,402,732
     Notes receivable from exercise of stock options                                    (462,500)
     Accumulated deficit                                                             (23,493,147)
                                                                                    ------------
Total stockholders' equity                                                            24,469,016
                                                                                    ------------
Total liabilities and stockholders' equity                                          $ 32,722,426
                                                                                    ============
</TABLE>

See accompanying notes.


                                      F-2
<PAGE>

                           Dyadic International, Inc.

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                Year Ended December 31
                                                                2004           2003
                                                            ------------    ------------
<S>                                                         <C>             <C>
Net sales                                                   $ 16,740,847    $ 16,780,147

Cost of goods sold                                            12,832,890      12,596,925
                                                            ------------    ------------
Gross profit                                                   3,907,957       4,183,222
                                                            ------------    ------------

Expenses:
     Research and development                                  3,621,451       3,571,242
     Sales and marketing                                       1,856,710       1,749,023
     General and administrative                                3,756,965       2,307,540
                                                            ------------    ------------
Total expenses                                                 9,235,126       7,627,805
                                                            ------------    ------------

Loss from operations                                          (5,327,169)     (3,444,583)
                                                            ------------    ------------

Other income (expense):
        Interest expense, including amortization of debt
          issuance costs on warrant of $3,195,000 for the
          year ended December 31, 2003                          (597,906)     (3,498,367)
        Interest income                                           69,011          12,593
        Minority interest                                        (16,987)        (14,297)
        Foreign currency exchange losses, net                   (213,471)       (236,200)
        Other, net                                                16,654          10,576
                                                            ------------    ------------
Total other income (expense)                                    (742,699)     (3,725,695)
                                                            ------------    ------------

Loss before income taxes                                      (6,069,869)     (7,170,278)


Provision for income taxes                                         9,714          92,944
                                                            ------------    ------------
Net loss                                                    $ (6,079,582)   $ (7,263,222)
                                                            ============    ============

Net income (loss) applicable to holders of common stock     $  4,397,720    $ (8,101,207)

Net income (loss) per common share:
          Basic                                             $       0.31    $      (0.65)
                                                            ============    ============
          Diluted                                           $      (0.37)   $      (0.65)
                                                            ============    ============
Weighted average shares and equivalent shares used in
      calculating net income (loss) per share:
          Basic                                               14,387,533      12,460,806
                                                            ============    ============
          Diluted                                             16,324,085      12,460,806
                                                            ============    ============
</TABLE>

See accompanying notes.


                                      F-3
<PAGE>

                           Dyadic International, Inc.
      Consolidated Statements of Changes in Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                                                     Note Receivable
                                                   Common Stock                       From Exercise                      Total
                                                                         Additional      Of Stock     Accumulated    Stockholders'
                                                Shares       Amount   Paid-in Capital    Options        Deficit     Equity (Deficit)
                                              --------------------------------------------------------------------------------------
<S>                                           <C>         <C>           <C>            <C>            <C>            <C>
Balance at December 31, 2002                  12,460,806  $     12,461  $  4,306,861   $   (350,000)  $ (8,845,021)  $ (4,875,699)
  Dividends accrued on preferred stock                --            --            --             --       (800,000)      (800,000)
  Accretion of preferred stock issuance
    costs                                             --            --            --             --        (37,985)       (37,985)
  Amortization of deferred compensation
    on nonemployee stock options                      --            --        55,348             --             --         55,348
  Amortization of debt issuance costs
    on warrant                                        --            --     3,195,000             --             --      3,195,000
  Payment of exercise price of employee
    stock options to principal
    stockholder                                       --            --            --        100,000       (100,000)            --
  Net loss - restated - see Note 2                    --            --            --             --     (7,263,222)    (7,263,222)
                                              --------------------------------------------------------------------------------------
Balance at December 31, 2003                  12,460,806        12,461     7,557,209       (250,000)   (17,046,228)    (9,726,558)
  Dividends accrued on preferred stock                --            --            --             --       (350,684)      (350,684)
  Accretion of preferred stock issuance
    costs                                             --            --            --             --        (16,653)       (16,653)
  Amortization of deferred compensation
    on nonemployee stock options                      --            --       318,485             --             --        318,485
  Issuance of common stock and warrants
    in a private placement, net of
    expenses of $118,260                       1,422,099         1,422     4,615,908             --             --      4,617,330
  Issuance of common stock and warrants
    in a private placement, net of
     expenses of $2,727,513                    7,629,204         7,629    22,670,107             --             --     22,677,736
  Excess carrying value of Series A
    Preferred Stock over cash redemption
    amount                                            --            --    10,844,639             --             --     10,844,639
  Issuance of common stock for employee
    bonuses                                       18,624            19        61,999             --             --         62,018
  Issuance of common stock to investment
    bankers                                       32,204            32           (32)            --             --             --
  Issuance of common stock from note
    conversion                                   367,868           368     1,224,632             --             --      1,225,000
  Additional borrowing costs incurred from
    Bridge Loan warrant modification                  --            --       342,898             --             --        342,898
  Beneficial conversion feature from
    modification of convertible debt                  --            --       554,387             --             --        554,387
  Exercise of employee stock options
    granted by principal Stockholder                  --            --       212,500       (212,500)            --             --
  Net loss                                            --            --            --             --     (6,079,582)    (6,079,582)
                                              --------------------------------------------------------------------------------------
Balance at December 31, 2004                  21,930,805  $     21,931  $ 48,402,732   $   (462,500)  $(23,493,147)  $ 24,469,016
                                              ======================================================================================
</TABLE>

See accompanying notes.


                                      F-4
<PAGE>

                           Dyadic International, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31
                                                                                            2004            2003
                                                                                        ------------    ------------
<S>                                                                                     <C>             <C>
Operating activities
Net loss                                                                                $ (6,079,582)   $ (7,263,222)
Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization of fixed assets                                        496,556         493,264
        Amortization of intangible and other assets                                           90,132          90,132
        Amortization of costs related to modification of notes payable to stockholder        155,013              --
        Amortization of debt issuance costs on warrant                                            --       3,195,000
        Minority interest                                                                     16,987          14,297
        Provision for doubtful accounts                                                      433,431         184,809
        Compensation expense on non-employee stock options                                   318,485          55,348
        Changes in operating assets and liabilities:
               Accounts receivable                                                           176,853        (726,849)
               Inventory                                                                  (2,090,823)       (856,492)
               Prepaid expenses and other current assets                                    (545,036)         31,511
               Other assets                                                                   27,481         (85,359)
               Accounts payable                                                              471,172         611,113
               Accrued expenses                                                              487,476         204,062
               Accrued interest payable shareholder                                           56,148          56,148
               Deferred revenue                                                               29,244          45,756
               Income taxes payable                                                            3,763           4,300
               Other liabilities                                                              35,813              --
                                                                                        ------------    ------------
Total adjustments                                                                            162,695       3,260,892
                                                                                        ------------    ------------
Net cash used in operating activities                                                     (5,916,889)     (4,002,330)
                                                                                        ------------    ------------
Investing activities
Cash paid to acquire additional voting interest in unconsolidated affiliate                       --         (30,000)
Purchases of property and equipment                                                         (101,379)       (102,957)
                                                                                        ------------    ------------
Net cash used in investing activities                                                       (101,379)       (132,957)
                                                                                        ------------    ------------
Financing activities
Proceeds from sale of common stock, net of issuance costs                                 27,392,830              --
Proceeds from (repayment of) notes payable to stockholders                                  (103,625)      3,000,000
Repayment of note payable to bank                                                                 --        (245,222)
Repayment of other notes payable                                                            (909,849)         (9,029)
Payment for redemption of Redeemable Series A convertible preferred stock                 (1,500,000)             --
                                                                                        ------------    ------------
Net cash provided by financing activities                                                 24,879,356       2,745,749
                                                                                        ------------    ------------
Net increase (decrease) in cash and cash equivalents                                      18,861,088      (1,402,810)
Cash and cash equivalents at beginning of period                                           1,649,562       3,052,372
                                                                                        ------------    ------------
Cash and cash equivalents at end of period                                              $ 20,510,650    $  1,649,562
                                                                                        ============    ============
Supplemental cash flow information:
Cash paid for interest                                                                  $    293,353    $    115,292
                                                                                        ============    ============
Cash paid for income taxes                                                              $     59,919    $    158,255
                                                                                        ============    ============
Noncash investing and financing activities:
Fair value of beneficial conversion feature                                             $    554,387              --
                                                                                        ============    ============
Fair value of warrant modification related to bridge loan                               $    342,898
                                                                                        ============    ============
Fair value of warrant issued for offering costs                                         $         --    $  3,195,000
                                                                                        ============    ============
Common stock issued for offering costs                                                  $    107,239    $         --
                                                                                        ============    ============
</TABLE>

See accompanying notes


                                      F-5
<PAGE>

                           Dyadic International, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2004

1. Organization and Operations

General

Dyadic International, Inc. (the Company or Dyadic), based in Jupiter, Florida,
with operations in the United States of America, Hong Kong, Poland and The
Netherlands, is a developer and distributor of specialty enzymes and related
products for sale to the textile, food and feed, starch, pulp and paper and
other industries. The Company is focused on functional proteomics through the
discovery, development and manufacturing of novel products, including enzymes
and proteins, derived from the genes of complex living organisms (including
humans) found in the earth's biodiversity. Using its proprietary platform
technologies for gene discovery and gene expression, Dyadic is developing
additional biological products (e.g., proteins, enzymes, polypeptides and small
molecules) for use by itself and for applications in large segments of the
agricultural, industrial, chemical and pharmaceutical industries.

The Company expects to incur losses over the next several years as it continues
to develop its technologies and establish the commercial laboratories and other
required infrastructure to exploit these technologies. However, there can be no
assurance that the Company's efforts with regard to these matters will be
successful.

Organizational History

The Boards of Directors of three companies under common control agreed to merge
in a transaction that became effective on May 31, 1999, and at that time, the
surviving corporation changed its name to Dyadic International, Inc. The merger
was accounted for at historical cost in a manner similar to a
pooling-of-interest business combination as each entity was under common control
at the time of the merger.

In April 2001, the Company formed Dyadic International Sp. z o.o., a Polish
corporation, for the purpose of managing and coordinating the Company's contract
manufacturing of industrial enzymes in Poland, and to assist in the marketing
and distribution of those products.

In January 2003, the Company formed Dyadic Nederland B.V. (BV), a Dutch
corporation, and entered into a Cooperation and License Agreement with an
unrelated third party to cooperate on an exclusive basis in the development, use
and marketing of High Throughput Screening Systems utilizing fungal organisms.

Merger, Private Placement of Common Stock and Other Related Transactions

In October and November 2004, the Company entered into and executed several
contemporaneous and related transactions (collectively, the Transactions) as
described below.

Merger

Effective October 29, 2004, the Company entered into an Agreement of Merger and
Plan of Reorganization (the Merger) with CCP Worldwide, Inc., a public reporting
company, and its wholly-owned subsidiary, CCP Acquisition Corp. As a result of
the Merger, CCP Acquisition Corp. was merged with and into the Company, with the
Company being the surviving corporation. The Company changed its name to Dyadic
International (USA) ("Dyadic-Florida"), Inc. In turn, CCP Worldwide, Inc.
changed its name to Dyadic International, Inc., and stockholders of the Company
received, in exchange for Company shares, shares of CCP Worldwide, Inc. on a
one-for-one basis.

Concurrently, the Company's officers and directors became the officers and
directors of the merged, reorganized entity. A total of 12,580,895 shares of
common stock were exchanged in the Merger, including the 300,300 shares placed
in escrow in accordance with the Development Agreement discussed in Note 11. The
Company's pre Merger obligations to contingently issue common shares in
accordance with a real estate acquisition agreement, employee stock options,
nonemployee stock options and warrants and convertible debt instruments were
also assumed.


                                      F-6
<PAGE>

The Company has recorded the Merger as the issuance of stock for the net
monetary assets of CCP Worldwide, Inc. (which were nil), accompanied by a
recapitalization. This accounting is identical to that resulting from a reverse
acquisition, except that no goodwill or other intangible assets were recorded. A
total of 1,653,138 shares of common stock, representing the aggregate number of
shares held by stockholders of CCP Worldwide, Inc. immediately prior to the
Merger, have been retroactively reflected as outstanding for all periods
presented in the accompanying consolidated financial statements. Additionally,
the accompanying consolidated financial statements retroactively reflect the
authorized capital stock of CCP Worldwide, Inc. and the resultant change from no
par to $0.001 par value on the Company's common stock.

As part of the Transactions, and immediately prior to the Merger, CCP Worldwide,
Inc. disposed of its only operating subsidiary as part of a Split-off Agreement
between CCP Worldwide, Inc., its wholly owned subsidiary, the Company and a
former member of the board of directors of CCP Worldwide, Inc.

As a result of the Merger and the Split-off Agreement, the only business
operations of the newly formed Dyadic International, Inc., formerly CCP
Worldwide, Inc., are the operations of the Company.

Private Placement

In November 2004, in accordance with Subscription Agreements and a Private
Offering Memorandum (the October Offering) dated October 2004, the Company sold
7,629,204 Investment Units, realizing gross proceeds of approximately
$25,405,000. An Investment Unit consists of one share of the Company's common
stock and one five-year callable warrant to purchase one share of the Company's
common stock at $5.50 per share for every two Investment Units purchased.
Accordingly, 3,814,602 warrants to purchase the Company's common stock were
issued to participants in the October Offering. Concurrently, the Company issued
711,050 warrants to purchase the Company's common stock at $5.50 per share to
participants in the Offering completed in July 2004 (see Note 8), as well as
247,730 warrants to purchase the Company's common stock at $5.50 per share and
495,460 warrants to purchase the Company's common stock at $3.33 per share, both
to placement agents in the October Offering.

The Company has incurred approximately $2,728,000 of costs related to the
October Offering and the Merger, including the subsequent registration of the
Company's shares issued in the Merger and the October Offering. These costs are
included as a reduction of additional paid-in capital as of December 31, 2004.

Other Transactions

      Cancellation of Indebtedness

Ancillary to the Merger and October Offering, in November 2004, an additional
367,868 Investment Units were sold to Mark A. Emalfarb through the Mark A.
Emalfarb Trust in exchange for the cancellation of the Company's note payable to
the Mark A. Emalfarb Trust (see Note 6) with a principal balance of $1,225,000.

      Modification of Bridge Loan Warrant

As part of the Transactions, the warrant to purchase 1.5 million shares of the
Company's common stock issued in connection with the May 2003 $3.0 million
revolving note payable to the Mark A. Emalfarb Trust (see Note 6) was modified
to reduce the exercise price from $4.50 to $3.33 per share. Additionally, the
bridge loan maturity date was extended to January 1, 2007. As a result,
approximately $343,000, representing the incremental fair value of the modified
warrant as compared to the fair value of the original warrant immediately before
the modification (determined using the Black-Scholes option pricing model, using
the following assumptions: risk-free interest rate of 3.91%, dividend yield of
0%, expected volatility of 50% and an expected remaining life of 8.6 years, the
remaining term of the warrant) will be amortized to interest expense through the
new maturity date. The estimated fair value of the original warrant had been
fully amortized to interest expense during the year ended December 31, 2003.

      Modification of Convertible Notes

Also as part of the Transactions, the conversion prices with respect to the
October 29, 2004 principal and accrued interest balances on the Emalfarb Trust
Note and the Francisco Trust Note (see Note 6) were fixed at $3.33 per share,
and the due dates were extended to January 1, 2007. As a result of the
modification of the conversion price, a beneficial conversion feature totaling
approximately $554,000 was recorded in October 2004 and is reflected as a
reduction of notes payable to stockholders in the accompanying consolidated
balance sheet for the year ended December 31, 2004. It will be amortized to
interest expense through the new maturity date.


                                      F-7
<PAGE>

      Increase in Shares Reserved for Equity Plan

In September 2004, by written consent, the Company's Board of Directors and
stockholders approved an increase in the authorized number of shares of common
stock under the Equity Plan (see Note 10) from 1,302,989 to 5,152,447.

Historical Results of Operations

The Company has incurred losses from operations during each of the last two
years, which, when combined with losses incurred through December 31, 2002, have
resulted in an accumulated deficit of approximately $23.5 million.

The Company has attributed these operating results, among other things, to
negative trends in the textile enzymes sector, utilization of funds for
acquiring and developing assets, including but not limited to intellectual
property and proprietary technology, expansion of its operations, establishment
of new affiliates, and increased research and development spending. In order to
advance its science and to develop new products, the Company has continued to
incur discretionary research and development expenditures in 2004. The Company
has historically funded losses from operations with proceeds from external
borrowings, borrowings from its stockholders, and sales of preferred and common
equity securities.

As more fully described in Note 11, independent foreign and domestic
manufacturers conduct contract production of certain products for the Company.
The foreign manufacturer must obtain funding to expand its production capacity,
and the domestic manufacturer has informed the Company that it will not renew
its contract, which is in effect until December 2005.

During the year ended December 31, 2003, the Company received a $3.0 million
bridge loan from a group of shareholders, including the Chief Executive Officer,
who contributed $2,185,000, and a group of other Dyadic-Florida shareholders who
contributed $815,000. In 2004, the Company raised approximately $30.1 million of
gross proceeds in two private offerings of its equity securities ($1.5 million
of which was used to redeem all outstanding shares of Series A Preferred stock
and approximately $903,000 of which was used to pay off the principal and
accrued interest of the bridge loan contributed by the group of other
Dyadic-Florida shareholders).

The Company believes that it will raise sufficient capital as needed, to
continue to fund its operations and satisfy its obligations through year end
2006. The sources of this capital are expected to include proceeds from
additional borrowings and sales of preferred and common equity securities.

2. Summary of Significant Accounting Policies

Restatement

The Company has restated the accompanying consolidated financial statements as
of and for the year ended December 31, 2003, to correct an error in the
recording of certain revenue and expenditure transactions denominated in foreign
currencies. This error also resulted in the incorrect costing of the Company's
inventory as of December 31, 2003. The Company corrected this error in order to
properly value inventory as of December 31, 2003, and to properly record certain
revenue and expenditure transactions denominated in foreign currencies based on
the published exchange rates on the effective date of the respective
transactions.

The impact of these corrections on certain financial statement captions as of
and for the year ended December 31, 2003 follows:

                                                                Increase
                                                               (Decrease)
                                                                ---------
      Consolidated Statement of Operations Data:
         Net sales                                              $ 183,745
         Cost of goods sold                                       242,448
                                                                ---------
         Gross profit                                             (58,703)
         Expenses
           Research and development                               131,394
         Other income (expense)
           Interest expense                                         3,692
           Foreign currency exchange losses, net                 (320,100)
                                                                ---------
         Net loss                                               $(126,311)
                                                                =========
         Net loss per common share, basic and diluted           $   (0.01)
                                                                =========


                                      F-8
<PAGE>

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. As described in
Note 7, Dyadic has an 82.5% ownership interest in the outstanding shares of an
affiliate that, until June 30, 2002, was accounted for under the equity method
because the Company's ownership interest did not constitute a majority of the
outstanding voting shares of the affiliate. In July 2002, the Company acquired
additional voting rights such that, as of that date, it also owned a majority of
the outstanding voting shares of the affiliate. Therefore, the investment in the
affiliate was accounted for under the equity method through June 30, 2002, and
as a consolidated subsidiary (with an allocation to minority interest) after
that date.

Cash and Cash Equivalents

The Company considers as cash equivalents all interest-bearing deposits or
investments with original maturities of three months or less.

The Company has cash equivalents of approximately $20,511,000, of which
approximately $19,935,000 is in money market funds as of December 31, 2004,
bearing interest at 1.77% per annum.

Accounts Receivable

Accounts receivable are recorded at fair value on the date revenue is
recognized. The Company provides allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to repay their obligation.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to repay, additional allowances may
be required. The Company provides for potential uncollectible accounts
receivable based on specific customer identification and historical collection
experience adjusted for existing market conditions. If market conditions
decline, actual collection experience may not meet expectations and may result
in decreased cash flows and increased bad debt expense.

The policy for determining past due status is based on the contractual payment
terms of each customer, which are generally net 30, 60 or 90 days. Once
collection efforts by the Company and its collection agency are exhausted, the
determination for charging off uncollectible receivables is made.

Inventory

Inventory primarily consists of finished goods including industrial enzymes used
in the industrial, chemical and agricultural markets and is stated at the lower
of cost or market using the first in, first out (FIFO) method. Finished goods
include raw materials and manufacturing costs, substantially all of which are
incurred pursuant to agreements with independent manufacturers. Provisions have
been made to reduce excess or obsolete inventory to net realizable value.

      At December 31, 2004, inventories consisted of the following:

            Finished goods                                $6,203,668
            Raw materials                                    438,365
                                                          ----------
                                                          $6,642,033
                                                          ==========

Fixed Assets

Fixed assets are recorded at cost and depreciated and amortized using the
straight-line method over their estimated useful lives, which range from five to
ten years. Leasehold improvements are amortized over the lesser of their useful
lives or the lease terms. Upon sale or retirement, the cost and related
accumulated depreciation and amortization are eliminated from their respective
accounts, and the resulting gain or loss is included in results of operations.
Repairs and maintenance charges, which do not increase the useful lives of the
assets, are charged to operations as incurred.


                                      F-9
<PAGE>

Intangible Assets

Intangible assets include patent and technology acquisition costs which are
being amortized using the straight-line method over the twelve-year terms of the
patents. No additional costs related to the patents and technology were incurred
and capitalized in 2004 or 2003. The original value of intangible assets of
$541,358 is presented net of accumulated amortization of $341,055 as of December
31, 2004, and amortization expense was $52,128 for each of the years ended
December 31, 2004 and 2003. Amortization expense will be approximately the same
as in 2004 and 2003 for each of the next 3 years, and will be approximately
$44,000 in 2008, when these intangible assets will become fully amortized.

Goodwill

To apply the provisions of Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets (SFAS 142), the Company is
required to identify its reporting units. Based on an analysis of economic
characteristics and how the Company operates its business, the Company has
designated its geographic locations as its reporting units: the United States
(which includes the Company's subsidiary in Poland), The Netherlands and Hong
Kong. All goodwill is associated with the Asian reporting unit. In accordance
with the provisions of SFAS 142, the Company was required to perform an
impairment review of goodwill as of January 1, 2004 and 2005. This test involved
the use of estimates to determine the fair value of the Company's Asian
reporting unit and the comparison of fair value to the carrying value of the
reporting unit. The impairment review as of January 1, 2004 and 2005 was
completed and resulted in no goodwill impairment charge.

Long-Lived Assets

In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement superseded SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of (SFAS 121), and establishes a single accounting model, based on
the framework established in SFAS 121, for long-lived assets to be disposed of
by sale.

The Company reviews its long-lived assets, including fixed assets that are held
and used in its operations, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable, as required by SFAS 144. If such an event or change in
circumstances is present, the Company will estimate the undiscounted future cash
flows, less the future outflows necessary to obtain those inflows, expected to
result from the use of the asset and its eventual disposition. If the sum of the
undiscounted future cash flows is less than the carrying amount of the related
assets, the Company will recognize an impairment loss to the extent the carrying
value exceeds the fair value. The Company records impairment losses resulting
from abandonment in loss from operations. Assets to be disposed of are
reclassified as assets held for sale at the lower of their carrying amount or
fair value less costs to sell. Write-downs to fair value less costs to sell are
reported above the loss from operations line as other expense.

The Company does not believe that the there were any events or changes in
circumstances that indicate that the carrying amounts of its long-lived assets
may not be recoverable as of December 31, 2004.

Advertising Costs

Advertising costs are expensed as incurred. During the years ended December 31,
2004 and 2003, advertising costs incurred by the Company totaled approximately
$11,000 and $22,000, respectively, and are included in sales and marketing
expenses in the accompanying consolidated statements of operations.

Research and Development

Research and development costs related to both present and future products are
charged to operations when incurred. Revenue received for research and
development is recognized as the Company meets its obligations under the related
agreement. The Company recognized $150,000 in research and development revenue
for the year ended December 31, 2003, which is included in net sales in the
accompanying consolidated statement of operations. No research and development
revenue was recognized during the year ended December 31, 2004.


                                      F-10
<PAGE>

Income Taxes

The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. A deferred tax valuation allowance is
established if, in management's opinion, it is more likely than not that all or
a portion of the Company's deferred tax assets will not be realized.

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed using the weighted-average
number of shares of common stock outstanding during the period. In arriving at
net income (loss) applicable to common stockholders, accrued preferred stock
dividends and accretion of preferred stock issuance costs are deducted for each
period presented in which such cumulative preferred stock was outstanding. For
the year ended December 31, 2004, the excess of the Series A Preferred carrying
value at the time of redemption, over the $1,500,000 cash paid for redemption is
added to net loss in computing net income applicable to holders of common stock,
in accordance with the Emerging Issues Task Force (EITF) Topic D-42: The Effect
on the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock. For the year ended December 31, 2004, the Company
has used the if-converted method to calculate the dilutive effect of common
stock issuable pursuant to conversion features for purposes of diluted income
per share.

The following table reflects the calculation of basic and diluted net income
(loss) per share for the periods presented:

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31
                                                                                      ----------------------------

                                                                                          2004            2003
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
      Net loss                                                                        $ (6,079,582)  $ (7,263,222)
      Plus:  Excess carrying value of Series A Preferred stock over cash
                  redemption                                                            10,844,639              --
      Less: Accrued dividends on preferred stock                                          (350,684)       (800,000)
            Accretion of preferred stock issuance costs                                    (16,653)        (37,985)
                                                                                      ------------    ------------
      Net income (loss) applicable to holders of common stock for basic
                  calculation                                                            4,397,720    $ (8,101,207)
                                                                                                      ============
      Plus:  Accrued dividends on preferred stock                                          350,684
             Accretion of issuance costs                                                    16,653
             Interest on subordinated convertible notes payable                             15,822
      Less: Excess carrying value of Series A Preferred over cash redemption
                  amount                                                               (10,844,639)
                                                                                      ------------
      Net loss applicable to holders of common stock for diluted calculation          $ (6,063,760)  $ (8,101,207)
                                                                                      ============    ============

      Weighted average common shares used in computing net income (loss) per share:
           Basic                                                                        14,387,533      12,460,806
                                                                                                      ============
           Plus: Common shares obtainable upon conversion of Series A
                       Preferred                                                         1,611,637
                 Common shares obtainable upon conversion of subordinated
                       convertible notes payable                                           324,915
                                                                                      ------------
           Diluted                                                                      16,324,085      12,460,806
                                                                                      ============    ============

      Net income (loss) per common share:
           Basic                                                                      $       0.31    $      (0.65)
                                                                                      ============    ============
           Diluted                                                                    $      (0.37)   $      (0.65)
                                                                                      ============    ============
</TABLE>


                                      F-11
<PAGE>

The following potentially dilutive securities were not included in the
calculation of diluted net loss per share as they were anti-dilutive for the
respective periods presented:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31
                                                                              ----------------------
                                                                                 2004         2003
                                                                              ---------    ---------
<S>                                                                           <C>          <C>
      Instruments to purchase common stock:
        Stock options outstanding pursuant to the Equity Plan (see Note 10)     750,000      415,000
        Other stock options                                                      65,000       65,000
        Warrants outstanding (see Note 9)                                     6,952,776    1,500,000
      Common stock issuable pursuant to conversion features:
        Redeemable Series A convertible preferred stock                              --    2,682,000
        Subordinated convertible notes payable                                       --      338,457
                                                                              ---------    ---------
      Total shares of common stock considered anti-dilutive                   7,767,776    5,000,457
                                                                              =========    =========
</TABLE>

A total of 300,300 contingently issuable shares under an agreement to conduct
research and development activities on behalf of the Company pursuant to the
arrangement discussed in Note 11, are also excluded. Such shares of common stock
are unearned, nonvested, restricted shares that will be considered outstanding
once earned under the agreement. Additionally, the 300,300 shares of common
stock potentially issuable under the real estate purchase contract, also
discussed in Note 11, are not included in the above amounts as they are not
issuable until the purchase contract is closed.

Revenue Recognition

The Company recognizes revenues in accordance with Staff Accounting Bulletin
(SAB) No 104, Revenue Recognition in Financial Statements (SAB 104). SAB 104
sets forth four basic criteria that must be met before SEC registrants can
recognize revenue. These criteria are: persuasive evidence of an arrangement
must exist; delivery had to have taken place or services have had to been
rendered; the seller's price to the buyer should be fixed or determinable; and
collectibility of the receivable should be reasonably assured. Sales not meeting
any of the aforementioned criteria are deferred. Sales are comprised of gross
revenues less provisions for expected customer returns, if any. Reserves for
estimated returns and inventory credits are established by the Company, if
necessary, concurrently with the recognition of revenue. The amounts of reserves
are established based upon consideration of a variety of factors, including
estimates based on historical returns.

Amounts billed to customers in sales transactions related to shipping and
handling, represent revenues earned for the goods provided and are included in
net sales. Costs of shipping and handling are included in cost of products sold.

Foreign Currency Translation

The financial statements of the Company's foreign subsidiaries have been
translated into United States dollars in accordance with SFAS No. 52, Foreign
Currency Translation. Assets and liabilities of the Company's foreign
subsidiaries are translated at year-end exchange rates, and revenues and
expenses are translated at average rates prevailing during the period. Certain
accounts receivable from customers are collected and certain accounts payable to
vendors are payable in foreign currencies. These amounts are adjusted to reflect
year-end exchange rates. Net translation adjustments and realized exchange gains
and losses are included as a component of foreign currency exchange losses, net,
in the accompanying consolidated statements of operations.

Stock Option Plans

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation (FIN 44), including related amendments and
interpretations, and provides pro forma disclosures of the compensation expense
determined under the fair value provisions of SFAS 123. The Company does not
record compensation expense using the fair value provisions, because the
alternative fair value accounting provided for under SFAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, since the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Stock options and warrants issued to consultants and other non-employees as
compensation for services provided to the Company are accounted for based on the
fair value of the services provided or the estimated fair market value of the
option or warrant, whichever is more reliably measurable in accordance with SFAS
123 and EITF 96-18, Accounting for Equity Investments That are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling Goods or Services,
including related amendments and interpretations. The related expense is
recognized over the period the services are provided.


                                      F-12
<PAGE>

Pro forma information regarding net income (loss) and income (loss) per common
share as if the Company had accounted for its employee stock options under the
fair value method of SFAS 123 is presented below. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to expense over
the options' vesting period. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                                                       Year Ended December 31
                                                                                                   -------------------------------
                                                                                                        2004             2003
                                                                                                   --------------   --------------
<S>                                                                                                <C>              <C>
      Net income (loss) applicable to holders of common stock, as reported for basic calculation   $    4,397,720   $   (8,101,207)
      Add: Stock-based employee compensation cost (intrinsic value method)                                     --               --
      Deduct: Fair value method stock option expense                                                     (143,886)        (133,450)
                                                                                                   --------------   --------------
      Pro forma net income (loss) applicable to holders of common stock,
              basic calculation                                                                    $    4,253,834   $   (8,234,657)
                                                                                                   ==============   ==============


      Net loss applicable to holders of common stock, as reported for diluted calculation          $   (6,063,760)
      Add: Stock-based employee compensation cost (intrinsic value method)                                     --
      Deduct: Fair value method stock option expense                                                     (143,886)
                                                                                                   --------------   --------------
      Pro forma net loss applicable to holders of common stock,
              diluted calculation                                                                  $   (6,207,646)  $   (8,234,567)
                                                                                                   ==============   ==============

      Net income (loss) per common share, as reported:
        Basic                                                                                      $         0.31   $        (0.65)
                                                                                                   ==============   ==============
        Diluted                                                                                    $        (0.37)  $        (0.65)
                                                                                                   ==============   ==============

      Pro forma net loss per common share:
        Basic                                                                                      $         0.30   $        (0.66)
                                                                                                   ==============   ==============
        Diluted                                                                                    $        (0.38)  $        (0.66)
                                                                                                   ==============   ==============

      Weighted average fair value per option granted during the period(1)                          $         1.57   $         1.47
      Assumptions:
           Average risk free interest rate                                                                   3.36%            4.23%
           Average volatility factor                                                                          .50              .50
           Expected dividend yield                                                                              0%               0%
           Expected life (in years)                                                                          5.00             5.00
</TABLE>

(1)   A Black-Scholes option-pricing model was used to develop the fair values
      of the options granted.

Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk include cash and cash equivalents and accounts receivable (see Note
3). The Company invests its excess cash in money market funds. The money market
funds represent an interest in low risk U.S. Government obligations. The
Company's investments are not insured or guaranteed by the U.S. Government, the
Federal Deposit Insurance Corporation or any other government agency.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.


                                      F-13
<PAGE>

Reporting Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances, except for
those resulting from investments by owners and distributions to owners. The
presentation of comprehensive loss required by SFAS No. 130, Reporting
Comprehensive Income, is not required in the accompanying consolidated financial
statements as the Company has no material components of accumulated other
comprehensive loss.

Fair Value of Financial Instruments

The Company uses various methods and assumptions to estimate the fair value of
each class of financial instrument. Due to their short-term nature and
measurement, the carrying value of cash and cash equivalents, accounts
receivable, accounts payable and notes payable approximate fair value. The
Company's other financial instruments are not significant.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R), which replaces SFAS 123 and supersedes APB 25. SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values, beginning with the first interim or annual period after June 15, 2005.
Small business filers will be required to adopt the provisions of SFAS 123R in
the first interim or annual reporting period beginning after December 15, 2005.
The Company will adopt SFAS 123R effective January 1, 2006. The grant-date fair
value of employee share options and similar instruments will be estimated using
an option-pricing model adjusted for any unique characteristics of a particular
instrument. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the original award
immediately before the modification. Two transition alternatives will be allowed
for the public entities: the modified-prospective-transition method or the
modified-retrospective transition method. The Company has not yet determined the
method of adoption nor the effect of adopting SFAS 123R.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs: an Amendment to
ARB No. 43. This statement clarifies the types of costs that should be expensed
rather than capitalized as inventory. This statement also clarifies the
circumstances under which fixed overhead costs, such as abnormal amounts of idle
facility expense, freight, handling costs and wasted material, associated with
operating facilities involved in inventory processing should be expensed or
capitalized. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005. Consequently, the Company will adopt the standard
in 2006. The Company does not anticipate that the adoption of the new standard
will have an effect on the Company's financial position or the results of its
operations.


                                      F-14
<PAGE>

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51 (FIN 46), which
addresses consolidation of variable interest entities. FIN 46 expands the
criteria for consideration in determining whether a variable interest entity
should be consolidated by a business entity, and requires existing
unconsolidated variable interest entities (which include, but are not limited
to, Special Purpose Entities, or SPEs) to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among parties
involved. This interpretation applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. Originally, FIN 46 applied to
the first interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. However, in December 2003, the FASB issued FASB Staff
Position No. FIN 46-e, Effective Date of FASB Interpretation No. 46,
Consolidation of Variable Interest Held by a Public Entity (FSP 46-e) that
delayed the implementation date for the Company to the first interim or annual
period ending after December 15, 2004. The Company does not anticipate that the
adoption of the new interpretation will have any effect on the Company's
financial position or the results of its operations.

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 addresses
certain aspects of the accounting by a company for arrangements under which it
will perform multiple revenue-generating activities. In applying EITF 00-21,
generally, separate contracts with the same customer that are entered into at or
near the same time are presumed to have been negotiated as a package and should,
therefore, be evaluated as a single contractual arrangement. It also addresses
how contract consideration should be measured and allocated to the separate
deliverables in the arrangement. This pronouncement is applicable to revenue
arrangements entered into beginning in 2004. The adoption of the new
pronouncement did not have an effect on the Company's financial position or the
results of its operations.

3. Concentrations

The Company's credit risks consist primarily of uncollateralized accounts
receivable from customers in the textile and other industries. The Company
performs periodic credit evaluations of its customers' financial condition and
provides allowances for doubtful accounts as required.

In 2004, there were no customers that accounted for greater than 10% of net
sales, while in 2003 there were two customers that individually accounted for
18% and 14% (for a total of 32%) of the Company's net sales, or approximately
$2,979,000 and $2,338,000, respectively. There were six customers in 2004 whose
trade receivable balances equaled or exceeded 5% of total receivables,
representing approximately 12%, 11%, 9%, 7%, 7% and 5%, respectively, of total
accounts receivable. The loss of business from one or a combination of the
Company's significant customers could adversely affect its operations.

The Company conducts operations in Hong Kong, Poland and The Netherlands through
its foreign subsidiaries. The net assets (liabilities) of the Asian, Polish and
Netherlands subsidiaries as of December 31, 2004 totaled approximately $567,000,
$(7,600) and $(2,062,000), respectively.

The Company generates a large portion of its revenues from customers that are
located outside the United States. Revenues from external customers attributed
to foreign countries, defined as the location of the corporate office of those
customers, totaled $14,475,823 and $14,603,451 for the years ended December 31,
2004 and 2003, respectively.

4. Fixed Assets

At December 31, 2004, fixed assets consisted of the following:

      Lab and manufacturing equipment                         $ 1,603,416
      Furniture and fixtures                                      338,448
      Leasehold improvements                                      143,074
      Vehicles                                                    124,274
                                                              -----------
                                                                2,209,212
      Less accumulated depreciation and amortization           (1,407,445)
                                                              -----------
                                                              $   801,767
                                                              ===========

Depreciation and amortization expense of fixed assets for the years ended
December 31, 2004 and 2003 is approximately $497,000 and $493,000, respectively,
of which approximately $56,000 and $50,000 is included in cost of goods sold and
approximately $441,000 and $444,000 is included in selling and administrative
costs, respectively, in the accompanying consolidated statements of operations.

5. Accrued Expenses

At December 31, 2004, accrued expenses consisted of the following:

      Accrued wages and benefits                                $  403,408
      Accrued expenses relating to vendors and others              504,148
      Research and development                                     470,194
      Accrued taxes payable                                         80,971
      Commissions payable                                           72,935
                                                                ----------
                                                                $1,531,656
                                                                ==========

Accrued research and development consists of costs related to agreements to
conduct research and development activities on behalf of the Company and the
Company's Cooperation and License Agreement, as discussed in Note 11.


                                      F-15
<PAGE>

6.  Long-Term Liabilities

Long-term liabilities consist of the following at December 31, 2004:

      Notes payable to stockholders, including accrued interest:

            Loan payable with a rate of 8% as of December 31, 2004
      to Mark A. Emalfarb Trust (Bridge Loan), secured by all assets
      of the Company, in the original principal amount of
      $3,000,000, principal and accrued interest due January 2005.
      Maturity date extended to January 1, 2007, conversion
      price fixed at $3.33. Net of beneficial conversion
      feature of $230,554.                                            $2,194,397

            Subordinated convertible note payable to Mark A.
      Emalfarb Trust (Emalfarb Trust Note), secured by all assets of
      the Company, in the original principal amount of $750,766,
      dated May 2001, interest at the Applicable Federal Funds Rate,
      adjusted each January 1, principal and accrued interest due
      March 2011, or earlier upon a Qualified Public Offering,
      Liquidation Event, repurchase by payor or Conversion of all
      Series A Preferred Stock into Common Stock. Maturity date
      modified to January 1, 2005 and interest rate adjusted to 6%
      in connection with the 2004 private offering (see Note 8).
      Maturity date extended to January 1, 2007 and conversion price
      fixed at $3.33 in connection with the transactions described
      in Note 1. Net of beneficial conversion feature of $271,368.       565,456

            Subordinated convertible note payable to Francisco Trust
      u/a/d February 28, 1996 (the Francisco Trust) (Francisco Trust
      Note), secured by all assets of the Company, in the original
      principal amount of $664,839, dated May 2001, interest at the
      Applicable Federal Funds Rate, adjusted each January 1,
      principal and accrued interest due March 2011, or earlier upon
      a Qualified Public Offering, Liquidation Event, repurchase by
      payor or Conversion of all Series A Preferred Stock into
      Common Stock. Maturity date modified to January 1, 2005 and
      interest rate adjusted to 6% in connection with the 2004
      private offering (see Note 8). Maturity date extended to
      January 1, 2007 and conversion price fixed at $3.33 in
      connection with the transactions described in Note 1. Net of
      beneficial conversion feature of $240,360.                         500,688
                                                                     -----------
                                                                     $ 3,260,541
                                                                     ===========

            Subordinated notes payable to the minority stockholders
      of a subsidiary, interest at a weighted average rate of 6.0%
      as of December 31, 2004, no fixed repayment terms, classified
      as current. At December 31, 2004, reduced by pay down of
      $103,625 of principal.                                         $   171,985
                                                                     ===========

On May 29, 2003, the Company obtained a $3.0 million revolving note from the
Mark A. Emalfarb Trust, bearing interest at 8% per annum, with all unpaid
principal and interest originally due on January 2, 2004, and extended to
January 1, 2005 on February 13, 2004. The loan is collateralized by a security
interest in all of the Company's assets. The Mark A. Emalfarb Trust was also
granted a warrant to purchase up to 1.5 million shares of the Company's common
stock at the lesser of $4.50 per share or the Series A Preferred conversion
price, expiring ten years from the date of grant (the Bridge Loan Warrant). The
Company recorded the fair value of the Bridge Loan Warrant in 2003 as a cost of
issuing the revolving note, and amortized this fair value, which totaled
$3,195,000, to interest expense in 2003. The fair value of the warrant was
determined using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 3.33%, dividend yield of 0%, expected
volatility of 50% and an expected life of 10 years (the maximum contractual
term).

In November 2004, the exercise price of the Bridge Loan Warrant was reduced to
$3.33 and the maturity date was extended to January 1, 2007 in connection with
the Merger (see Note 1). As a result, approximately $343,000, representing the
incremental fair value of the modified warrant as compared to the fair value of
the original warrant immediately before the modification (determined using the
Black-Scholes option pricing model, using the following assumptions: risk-free
interest rate of 3.91%, dividend yield of 0%, expected volatility of 50% and an
expected remaining life of 8.6 years, the remaining term of the warrant) will be
amortized to interest expense through the new maturity date. Accrued interest of
approximately $240,000 is included in the principal balance of the note in
connection with the Transactions described in Note 1. Accrued interest payable
as of December 31, 2004 was approximately $32,000.

The $1,225,000 note payable to the Mark A. Emalfarb Trust with an original
principal of $2,000,000, a rate of 9%, a maturity date extended to January 2005,
and which was secured by all assets of the Company, was cancelled in November
2004 through the sale of Investment Units in the October 2004 Offering (see Note
1). Interest expense on this note payable totaled approximately $92,000 and
$110,000 for the years ended December 31, 2004 and 2003, respectively.


                                      F-16
<PAGE>

In connection with the Merger (see Note 1), the conversion prices of the
subordinated convertible notes payable to the Mark A. Emalfarb Trust and the
Francisco Trust were fixed at $3.33 and the maturity dates were extended to
January 1, 2007. As a result of the modification of the conversion price, a
beneficial conversion feature totaling approximately $554,000 was recorded in
October 2004 and the remaining unamortized portion of $511,728 is reflected as a
reduction of notes payable to stockholders in the accompanying consolidated
balance sheet for the year ended December 31, 2004. It will be amortized to
interest expense through the new maturity date.

Interest expense on the subordinated convertible notes payable was approximately
$71,000 and $18,000 for the years ended December 31, 2004 and 2003,
respectively. Accrued interest on the subordinated convertible notes payable
totaled approximately $16,000 as of December 31, 2004. Approximately $162,000 of
accrued interest is included in the principal balances of the notes related to
the Transacations in Note 1. The notes payable and accrued interest due on the
subordinated convertible notes payable are convertible in whole or part into
shares of the Company's common stock at any time, at a conversion price equal to
fair market value of the Company's common stock.

Mark A. Emalfarb Trust and Francisco Trust are major stockholders of the Company
and are trusts benefiting the Company's President and Chief Executive Officer,
and his wife and children.

The subordinated notes payable to the minority stockholders of a subsidiary are
collateralized by the subsidiary's accounts receivable and inventories. Interest
expense on these subordinated notes payable was approximately $10,600 and
$11,400 for the years ended December 31, 2004 and 2003, respectively, and
accrued interest of approximately $60,000 is included in accrued interest
payable to stockholders as of December 31, 2004.

7. Investment in Affiliate

In October 1998, the Company entered into an agreement (the Agreement) with a
foreign textile, chemical and enzyme business to form a venture. The Company
purchased, directly from two investors (the Sellers), who at that time owned a
95% interest, 70% of the outstanding shares in the affiliate for $536,882, which
included transaction costs. As described below, the Company could only vote 25%
of the outstanding shares of the affiliate. The amount by which the Company's
original investment exceeded its proportionate share of the affiliate's net
assets was initially being amortized over a twenty-four-year period using the
straight-line method.

On January 18, 2000, the Company obtained an additional 12.5% of the outstanding
shares of the affiliate, thereby increasing its then existing voting rights from
25% to 37.5%, and its ownership interest from 70% to 82.5%. These shares were
obtained by the Company from one of the Sellers for nominal consideration in
connection with the termination of a service agreement between the affiliate and
one of the Sellers. In July 2002, the Company and the Sellers entered into an
agreement that resulted in the Company increasing its voting rights from 37.5%
to 62.5%. The additional voting rights were obtained from one of the Sellers for
consideration of $100,000, with $20,000 paid upon execution of the agreement,
and the remainder payable in equal installments of $10,000 through March 2003.
The amount was paid in its entirety during 2003. The investment in the affiliate
was accounted for under the equity method through June 30, 2002, and as a
consolidated subsidiary (with an allocation to minority interest) after that
date.

The Company can only vote 62.5% of the total outstanding shares of the affiliate
until it pays for additional voting rights. The Company has an option to
purchase the additional voting rights on the remaining 20% of the total
outstanding shares of the affiliate for a total of $400,000. This option can be
exercised in $20,000 increments for each 1% of the additional voting rights.
This option must be exercised once the affiliate reaches $900,000 in cumulative
profit, as defined. Through December 31, 2004, the cumulative profit was
approximately $567,000, and accordingly, the cumulative profit target has not
yet been attained.

Each of the Sellers has agreed not to sell or otherwise transfer ownership in
their remaining shares of the affiliate for a period of 20 years after the
effective date of October 1998 without prior written consent of the Company. For
a period of 20 years after the effective date of October 1998, the Company has a
call option over any shares (presently 12.5% of the total outstanding shares) of
the affiliate owned by the Sellers, exercisable after the above described
$400,000 of remaining consideration has been paid, but not earlier than two
years after the effective date of October 1998, to purchase any shares of the
affiliate owned by the Sellers. The exercise price is based on the results of
operations of the affiliate for the 12 months preceding the exercise date.

Through December 31, 2004, neither the Company nor the Sellers have exercised
any of the above described options.


                                      F-17
<PAGE>

8. Stockholders' Equity (Deficit)

Description

In December 2000, the Company amended its Articles of Incorporation to authorize
the issuance of 150,000,000 shares of capital stock, consisting of 100,000,000
shares of no par value common stock and 50,000,000 shares of no par value
preferred stock, and effected a recapitalization in the form of a 4,697.0408 for
one split of all then outstanding shares of common stock.

In March 2004, the Company amended its Articles of Incorporation to designate a
total of 3,111,110 shares of the Company's Preferred Stock as Series A Preferred
Stock and 2,222,222 shares of the Company's Preferred Stock as Series B
Preferred Stock.

As a result of the Merger effective October 29, 2004 (see Note 1), the Company
received, in exchange for Company shares, shares of CCP Worldwide, Inc. on a
one-for-one basis. A total of 12,580,895 shares of common stock were exchanged
in the Merger, including the 300,300 shares placed in escrow in accordance with
the Development Agreement discussed in Note 11. A total of 1,653,138 shares of
common stock, representing the aggregate number of shares held by stockholders
of CCP Worldwide, Inc. immediately prior to the Merger, have been retroactively
reflected as outstanding for all periods presented in the accompanying
consolidated financial statements. Additionally, the accompanying consolidated
financial statements retroactively reflect the authorized capital stock of CCP
Worldwide, Inc. (100,000,000 shares of common stock and 5,000,000 shares of
preferred stock) and the resultant change from no par to $0.001 par value on the
Company's common stock and to $.0001 on the Company's preferred stock.

Issuances of Common Stock

In July 2004, the Company completed a private offering (pursuant to a Term Sheet
dated April 1, 2004) of its common and preferred equity securities, and raised
gross proceeds of $4.7 million. The equity securities were offered as an
Investment Unit, with each unit consisting of two shares of common stock and one
share of Series B Preferred Stock, at a price of $10 per unit. The Company used
$1.5 million of the proceeds from this offering to redeem all outstanding shares
of Series A Preferred (see Note 9). Holders of the Series B Preferred Stock are
entitled to receive noncumulative dividends at the rate of 8% per annum when and
as declared by the Company's Board of Directors, have certain preferences in
liquidation, and have voting rights identical to those of the holders of the
Company's common stock. All of the outstanding shares of Series B Preferred
Stock automatically converted into an equal number of shares of common stock
upon closing of the private offering. After giving effect to the automatic
conversion of the Series B Preferred Stock, a total of 1,422,099 shares of
common stock were issued in connection with the offering. As the Company
completed an additional private offering of its common shares pursuant to the
Confidential Offering Memorandum described below, the Company granted the
purchasers of these Investment Units warrants to acquire a total of 711,050
shares of the Company's common stock at $5.50 per share.

In July 2004, the Company issued 18,624 shares of its common stock to certain
employees for payment of a portion of accrued bonuses in the amount of $62,018.

On June 15, 2004, the Company entered into an Engagement Agreement with two
investment bankers to furnish corporate finance and investment banking services
to the Company, including, but not limited to assisting the Company in preparing
and distributing a Confidential Offering Memorandum, identifying suitable
potential investors and identifying and evaluating potential candidates for a
business combination transaction. The initial term of the Engagement Agreement
ended on November 5, 2004. For the completion of a transaction, as defined, the
investment bankers received a cash payment of $37,500, reimbursement of
out-of-pocket expenses, a cash fee of $1,649,884, 32,204 shares of the Company's
common stock valued at $53,620 as well as 247,730 warrants to purchase the
Company's common stock at $5.50 per share and 495,460 warrants to purchase the
Company's common stock at $3.33 per share.

On June 23, 2004, the Company executed a Term Sheet with another investment
banker pursuant to which this investment banker would assist in connection with
the structuring and concurrent consummation of a reverse triangular merger
between the Company and a public company, and a private placement of the
securities (common stock and warrants) of the merged entity (see Note 1).

In November 2004, in accordance with Subscription Agreements and a Private
Offering Memorandum (the October Offering) dated October 2004, the Company sold
7,629,204 Investment Units, realizing gross proceeds of approximately
$25,405,000. An Investment Unit consists of one share of the Company's common
stock and one five-year callable warrant to purchase one share of the Company's
common stock at $5.50 per share for every two Investment Units purchased.
Accordingly, 3,814,602 warrants to purchase the Company's common stock were
issued to participants in the October Offering.


                                      F-18
<PAGE>

Ancillary to the Merger and October Offering, in November 2004, an additional
367,868 Investment Units (including 183,934 common stock warrants) were sold to
Mark A. Emalfarb through the Mark A. Emalfarb Trust in exchange for the
cancellation of the Company's note payable to the Mark A. Emalfarb Trust (see
Note 6) with a balance of $1,225,000.

Warrants

At December 31, 2004 and 2003, 6,952,776 and 1,500,000 shares of common stock,
respectively, have been reserved for issuance under outstanding warrants. All of
the warrants are fully vested and have expiration dates ranging from October 29,
2009 to May 29, 2013. Information concerning the Company's warrant activity is
as follows:

<TABLE>
<CAPTION>
                                                      2004                   2003
                                              ---------------------   ---------------------
                                                          Weighted                Weighted
                                                           Average                Average
                                                          Exercise                Exercise
                                              ---------------------   ---------------------
                                              Warrants      Price     Warrants     Price
                                              ---------------------   ---------------------
<S>                                           <C>         <C>         <C>         <C>
      Outstanding, at the beginning of year   1,500,000   $    3.33          --   $      --

              Granted                         5,452,776        5.30   1,500,000        3.33
                                              ---------   ---------   ---------   ---------
      Outstanding, at the end of year         6,952,776   $    4.88   1,500,000   $    3.33
                                              =========   =========   =========   =========
</TABLE>

All warrants granted in 2004 were in conjunction with the private offerings,
except for 183,934 warrants related to the cancellation of indebtedness of the
note payable to the Mark A. Emalfarb Trust, all of which is described above
under "Issuances of Common Stock."

9. Redeemable Series A Convertible Preferred Stock

On May 25, 2001, pursuant to a Convertible Preferred Stock Purchase Agreement,
the Company sold 2,222,222 shares of newly authorized and designated Redeemable
Series A Convertible Preferred Stock (the Series A Preferred) to several
unrelated investors for approximately $10,000,000. Holders of these shares
maintained certain preferences in liquidation and had voting and other rights
with respect to the composition of the Company's Board of Directors. An
additional 888,888 shares of Series A Preferred were reserved for issuance as
dividends.

In addition, holders of Series A Preferred were entitled to receive annual
dividends at the rate of $0.36 per share (8%). No dividends are to be paid until
the earlier of (i) two years, (ii) a Liquidation Event, as defined, (iii) the
consummation of an underwritten Public Offering, as defined, (iv) the conversion
into common stock of all of the Series A Preferred of the holder or (v) the date
on which the preferred shares are acquired by the Company. Upon the consummation
of a Qualified Public Offering, as defined, if prior to any of the events in
items (i) through (v), all dividends accrued will be extinguished. Dividends on
the Series A Preferred may be paid in cash or with Series A Preferred shares, at
the Company's option. In addition, upon the consummation of a Qualified Public
Offering, Series A Preferred shares will automatically convert into common stock
on a one-for-one basis, subject to adjustment as defined in the Convertible
Preferred Stock Purchase Agreement. In certain circumstance, holders also have
the option to require the Company to redeem for cash any outstanding shares of
Series A Preferred beginning in May 2006.

Issuance costs were being accreted up to the Series A Preferred liquidation
value, which is equal to the Original Purchase Price plus all accrued and unpaid
dividends, and were being charged to accumulated deficit over a 60-month period.
At the end of the 60-month period, if the Company had not completed a Qualified
Public Offering or merger, as defined, then each holder of Series A Preferred
could exercise a Put Option, requiring the Company to purchase all Series A
Preferred shares outstanding.

On October 24, 2003, the Company and the holders of the Series A Preferred
entered into a Conditional Consent and Waiver to Placement of Securities of
Dyadic International, Inc. (the Consent and Waiver) to induce the Company to
continue its efforts to conclude a private placement which raises at least $2.0
million for the Company, and to induce prospective investors in the Company to
engage in negotiations with the Company pertaining to a private placement. The
Consent and Waiver was subject to certain conditions which included the receipt
by the Company of proceeds from the sale of Series B Preferred of at least $2.0
million under terms substantially similar to the holders of Series B preferred
as the rights, privileges and preferences of the holders of Series A Preferred.
The Consent and Waiver would have resulted in acceptance by Series A investors
of common stock for dividends accrued to date; termination of the continuing
accrual of dividends; subordination of Series A Preferred Stock to Series B
Preferred Stock (and any accrued but unpaid Series B Preferred Stock dividends)
in the event of a liquidation, dissolution or winding up of the Company;
elimination of one of two seats on the Company's Board of Directors; and a
one-time wavier of anti-dilution rights by Series A Preferred investors.


                                      F-19
<PAGE>

In February 2004, the holders of the Series A Preferred offered to sell at least
80% of the outstanding shares of Series A Preferred to the Company, and in March
2004, the Company and the holders of the Series A Preferred entered into a
Redemption Agreement that resulted in the Company redeeming all of the
outstanding shares of Series A Preferred, including accrued and unpaid dividends
thereon, for a cash payment of $1.5 million in June 2004.

Changes in the Series A Preferred for the years ended December 31, 2004 and 2003
are as follows:

<TABLE>
<CAPTION>
                                              Series A Preferred Stock, No Par Value
                                              --------------------------------------
                                                Number of shares         $ Amount
                                              --------------------------------------
<S>                                                 <C>                 <C>
      Balance at December 31, 2002                   2,222,222         $ 11,139,317
        Accretion of issuance costs                         --               37,985
        Dividends                                           --              800,000
                                              --------------------------------------
      Balance at December 31, 2003                   2,222,222           11,977,302
        Accretion of issuance costs                         --               16,653
        Accrued dividends                                   --              350,684
        Redemption - June 2004:
          Reversal of unaccreted issuance costs             --               75,039
          Reversal of accumulated dividends                 --           (2,419,678)
          Share redemption                          (2,222,222)         (10,000,000)
                                              --------------------------------------
      Balance at December 31, 2004                          --         $         --
                                              =====================================
</TABLE>

10. Stock Options

Effective May 2001, the Company adopted the Dyadic International, Inc. 2001
Equity Compensation Plan (the Equity Plan) under which 1,302,989 shares of
common stock were reserved for issuance. In September 2004, by written consent,
the Company's Board of Directors and stockholders approved an increase in the
authorized number of shares of common stock under the Equity Plan from 1,302,989
to 5,152,447 (see Note 1). All employees, as well as members of the Company's
Board of Directors and Key Advisors, as defined, are eligible to participate in
the Equity Plan. Under the Equity Plan, the Company may issue incentive stock
options and nonqualified stock options to purchase shares of common stock, or
the Company may issue shares of common stock. Such shares, if issued, may be
subject to restrictions, as disclosed in the Equity Plan. In addition to stock
options and stock grants, the Equity Plan allows for the issuance of Performance
Units to an employee or Key Advisor. Each Performance Unit represents the right
to receive an amount, in cash or in the Company's common stock, as determined by
a committee of the Company's Board of Directors (the Committee), based on the
value of the Performance Unit, if established performance goals are met.

In January 2005, a second amendment to the Equity Plan was approved removing the
grant limitation of 100,000 options, shares or Performance Units issued per
individual per calendar year or Performance Period, respectively, as defined.
The Committee determines the term and exercisability of options; however, the
term is not to exceed 10 years. A summary of activity relating to grants under
the Equity Plan, grants by the Francisco Trust of 75,000 options, and grants of
65,000 options to nonemployees prior to the Equity Plan's adoption follows:


                                      F-20
<PAGE>

<TABLE>
<CAPTION>
                                                                       2004                     2003
                                                            ------------------------   ------------------------
                                                                          Weighted                   Weighted
                                                                           Average                    Average
                                                                           Exercise                   Exercise
                                                             Options        Price      Options         Price
                                                            ------------------------   ------------------------
<S>                                                          <C>                          <C>
      Outstanding, beginning of year                           550,000    $     4.27      366,000    $     4.14
           Granted                                             341,500          3.58      219,500          4.50
           Exercised                                           (75,000)         2.83           --            --
           Forfeited                                            (1,500)         4.50      (35,500)         4.50
                                                            ------------------------   ------------------------
      Outstanding, end of year                                 815,000          4.12      550,000    $     4.27
                                                            ==========                 ==========
      Exercisable, end of year                                 494,050    $     4.30      373,500    $     4.17
                                                            ==========                 ==========
      Options available for future grant, end of year (1)    4,383,823                    892,989
                                                            ==========                 ==========
</TABLE>

      (1)   Available options reduced by 18,624 shares of common stock issued to
            employees in 2004 in lieu of cash bonus.

Summarized information with respect to options outstanding at December 31, 2004
is as follows:
<TABLE>
<CAPTION>

                                 Options Outstanding                   Options Exercisable
                    ------------------------------------------     ----------------------------
                                     Remaining
                                     Average        Weighted                        Weighted
      Exercise         Number      Contractual      Average         Number          Average
        Price       Outstanding  Life (In Years) Exercise Price   Exercisable    Exercise Price
      -----------------------------------------------------------------------------------------
<S>                     <C>              <C>            <C>           <C>               <C>
      $     3.33        271,500          4.57      $     3.33          84,050      $     3.33
            4.50        518,500          2.53            4.50         403,750            4.50
            4.66         25,000          4.29            4.66           6,250            4.66
      -----------------------------------------------------------------------------------------
      Totals            815,000          3.26      $     4.12         494,050      $     4.30
      =========================================================================================
</TABLE>

During 2001, concurrent with the issuance of preferred stock (see Note 9),
options granted to employees prior to the Equity Plan's adoption were cancelled
and replaced by options to purchase shares of the Company's common stock from
the Francisco Trust (see Note 6). Authoritative accounting literature requires
that such options be treated as though they were options granted by the Company.

Accordingly, such options are reflected in the above tables and concurrent with
the cancellation and reissuance of such options by the Francisco Trust, a new
measurement date has been established in which to compute compensation expense
relating only to those options replaced, measured as the difference between the
fair market value of the options granted by the Francisco Trust and the exercise
price of those options. A summary of such transactions follows:

            o     Under a 1996 employment agreement with an officer of the
                  Company, 200,000 options to purchase shares of the Company's
                  Common Stock were granted. In May 2001, such options were
                  cancelled and replaced by options granted by the Francisco
                  Trust at the same exercise price, but below the then current
                  fair market value. The options were fully vested and the
                  transaction resulted in $320,000 of compensation expense,
                  which was included in the December 31, 2001 consolidated
                  statement of operations. In December 2002, the officer
                  exercised this stock option and paid the exercise price of
                  $400,000 to the Francisco Trust in the form of a $50,000 cash
                  payment and a $350,000 non-recourse note, bearing interest at
                  6% per annum, calculated and payable on December 31 of each
                  year, principal of $100,000 payable before December 31, 2003,
                  and principal of $250,000 payable before December 31, 2004,
                  pre-payable as to all or any portion of the balance at any
                  time prior to the due date. The issuance of the note extended
                  the original option term. During the year ended December 31,
                  2003, the $100,000 scheduled principal payment, including
                  accrued interest, was made. The principal balance is secured
                  only by the shares of common stock sold to the officer, and
                  accrued interest is secured by all the officer's personal
                  assets. The remeasurement of compensation cost at the time of
                  the exercise of this stock option resulted in no additional
                  compensation expense.


                                      F-21
<PAGE>

            o     In November 2004, the agreement was amended to extend the due
                  date of the $250,000 principal payment to June 30, 2005 and to
                  require all unpaid accrued interest to be paid in full at that
                  time. A payment of $40,000 was made to the Francisco Trust,
                  per the terms of the amendment; $15,000 for payment of accrued
                  interest through December 31, 2004 and $25,000 in
                  consideration for the amendment. During 1999, the Company
                  granted a stock option to an employee providing the employee
                  with an option to purchase 50,000 shares of the Company's
                  common stock, with exercise prices between $2.00 and $3.00 per
                  share, dependent upon whether certain production levels were
                  attained. Options to purchase this stock were to vest on the
                  later of December 31, 2002, or on the date that a production
                  goal was met. This option must be exercised within one year
                  from the latter of this vesting date or the date the Company
                  completes an underwritten pubic offering. Excess, if any, of
                  fair market value over the exercise price on the vesting date
                  would be recorded as compensation expense. In May 2001, these
                  stock options were cancelled and replaced by stock options
                  granted by the Francisco Trust. The options granted in 2001
                  carried the same provisions as the options granted in 1999. In
                  2001, the Company determined that the conditions required for
                  use of a $2.00 per share exercise price were met, and the
                  Company recognized $80,000 of compensation expense at that
                  time. On November 3, 2004, the option to purchase shares from
                  the Francisco Trust was exercised in its entirety by executing
                  and delivering to the Francisco Trust an exercise agreement
                  under which the exercise price, together with interest at a
                  rate of 2.37% per annum, is to be paid on the first to occur
                  of October 31, 2005 or 60 days following the date of
                  termination of employment with the Company.

            o     In May 2000, the Company entered into a two-year employment
                  agreement with its Senior Vice President, Marketing -
                  Biotechnology Systems, granting options to purchase 25,000
                  shares of the Company's common stock for 110% of the initial
                  public offering price in the event of an initial public
                  offering. In May 2001, these stock options were cancelled and
                  replaced by stock options granted by the Francisco Trust at a
                  fixed exercise price of $4.50 per share, which was not below
                  the estimated fair market value of the options on the date of
                  grant. Accordingly, no compensation expense has been recorded
                  relating to this grant. On November 3, 2004, the option to
                  purchase shares from the Francisco Trust was exercised in its
                  entirety by executing and delivering to the Francisco Trust an
                  exercise agreement under which the exercise price, together
                  with interest at a rate of 2.37% per annum, is to be paid on
                  the first to occur of October 31, 2005 or 60 days following
                  the date of termination of employment with the Company. On
                  November 3, 2004, the option to purchase shares from the
                  Francisco Trust was exercised in its entirety by executing and
                  delivering to the Francisco Trust an exercise agreement under
                  which the exercise price, together with interest at a rate of
                  2.37% per annum, is to be paid on the first to occur of
                  October 31, 2005 or 60 days following the date of termination
                  of employment with the Company.

In 2004 and 2003, the Company issued options to other nonemployee consultants
and advisors for services. In accordance with SFAS No. 123, such options are
recorded at fair value, using the Black-Scholes option pricing model with the
following assumptions: risk free interest rate of 3.33% in 2003, and 3.15 to
3.82 % in 2004, dividend yield of 0%, expected volatility of 50% and an expected
life of five years (the maximum contractual term). Compensation cost related to
these options is reflected in the accompanying consolidated financial statements
as follows:

                                                   Year Ended December 31,
                                                  ------------------------
                                                    2004            2003
                                                  --------        --------
      Research and development                    $ 33,834        $ 30,691
      General and administrative                   284,651          24,657
                                                  --------        --------
                                                  $318,485        $ 55,348
                                                  ========        ========

11. Commitments and Contingencies

Employment Agreement

In 2001, the Company entered into an employment agreement with Mark A. Emalfarb,
the Company's President and Chief Executive Officer. The agreement commenced on
April 1, 2001, and terminated on March 30, 2004, but renewed for an additional
two years because neither party gave written notice 60 days prior to March 30,
2003. The agreement provides for an annual base salary of $300,000 and the
payment of an annual bonus (based on goals and objectives to be agreed upon by
the Board and Mr. Emalfarb) for each fiscal year or portion of a fiscal year,
including but not limited to research and other business milestones, sales,
profitability or cash flow goals. The Company agrees to cause the Committee to
grant Mr. Emalfarb options to the same extent as the Committee grants to other
senior executives of the Company and on the same terms and conditions.

The agreement also provides for the participation in all benefit plans,
practices, policies and programs provided by the Company such as (including,
without limitation, reimbursement of business related expenses, vacation,
medical, prescription, dental, disability, retirement, salary continuance,
employee life insurance, group life insurance, and accidental death and travel
accident insurance plans and programs) generally available to other senior
executives of the Company, and for other employee benefits.

If, during the employment period, the Company terminates Mr. Emalfarb's
employment, other than for cause or disability or by reason of Mr. Emalfarb's
death or by reason of the failure of the Company to renew the employment
agreement, or if Mr. Emalfarb terminates employment for good reason, the Company
shall provide Mr. Emalfarb with annual base salary and all benefits received by
Mr. Emalfarb as of the date of termination for a period of one year from the
date of termination.


                                      F-22
<PAGE>

Employee Benefit Plan

The Company has a 401(k) defined contribution plan in which all employees are
eligible to participate. Participants may elect to defer up to 25% of
compensation up to a maximum amount determined annually pursuant to Internal
Revenue Service regulations. The Company elected not to provide for matching
employer contributions for the years ended December 31, 2004 and 2003.

Manufacturing Agreements

The Company entered into an agreement (the Manufacturing Agreement) in October
1999, under which the Company and a foreign manufacturer have established the
terms for the foreign manufacturer to conduct contract production of certain
products for the Company. The production process is conducted by the foreign
manufacturer at its facilities. The Company provides the foreign manufacturer
with all technical and technology information, instructions and procedures
available to the Company and necessary for the production, packing and testing
of the product.

The Manufacturing Agreement requires the payment of monthly charges based on
capacity usage, ultrafiltration costs, disposal costs, raw material costs and
reimbursement of plant modification costs. In July 2001, the Company agreed to
pay a total of approximately $1.6 million in plant modification costs in monthly
installments of $26,713, plus LIBOR (3.1% at December 31, 2004), over a
seven-year period. Payments are denominated in Euros. Remaining minimum payments
under the Manufacturing Agreement, including interest at the December 31, 2004
LIBOR rate, are as follows:

     Year ending December 31,
           2005                        $   377,266
           2006                            367,159
           2007                            357,051
           2008                            116,771
                                       -----------
                                       $ 1,218,247
                                       ===========

The Manufacturing Agreement is being accounted for as a service agreement.
Accordingly, annual payments are reflected as a component of cost of goods sold
in the annual period in which each payment is due.

The Company has made a request of its product manufacturer to expand production
capacity in order to produce higher volumes of existing and new products. In
January 2004, the Company concluded an agreement with the manufacturer to
provide an additional 250 M3 (cubic meters) of fermentation capacity and
associated recovery capacity with the capital necessary for this expansion to be
provided by the manufacturer. If the manufacturer cannot obtain the funding
necessary to provide the needed capital to honor its obligation to the Company
under the Manufacturing Agreement (and the Company presently has concerns on
this issue), this will negatively affect the Company's ability to meet its
production requirements and therefore impact its financial position, results of
operations and cash flows.

The Company has entered into an agreement whereby a domestic manufacturer will
produce and store various products for the Company. The current contract is in
effect until December, 2005, and provides the Company with access to
fermentation capacities and storage facilities.

The Company has been informed that the domestic manufacturer will not renew the
contract, and the Company is presently seeking other manufacturing capacity
alternatives in addition to the request of the foreign manufacturer discussed
above. Although there are no assurances, certain products at present can be
produced only by the domestic manufacturer but the Company expects that those
products will be in production by the foreign manufacturer prior to the contract
expiration date.

Agreement to Conduct Research and Development Activities on Behalf of the
Company

The Company has entered into several agreements with independent third parties
to conduct research and development activities on behalf of the Company. Except
as described below, none of these agreements are for minimum periods in excess
of one year, and are generally cancelable by the Company with advance written
notice.


                                      F-23
<PAGE>

On July 30, 2004, the Company entered into a Development Agreement with a third
party to assist the Company in various research and development projects over
the 26-month period ending September 30, 2006. Under the Development Agreement,
the Company is required to utilize, and the third party has committed to provide
research and development assistance valued at approximately $1.25 million. The
consideration for these services will include 300,300 shares of the Company's
common stock, valued at $1.0 million, and cash, $250,000 of which was paid upon
execution of the Development Agreement. Pursuant to the Development Agreement,
the 300,300 shares of common stock were placed in escrow and will be issued to
the third party as earned during the contractual period, at which time they will
be deemed to be outstanding. The Development Agreement imposes cash penalties
upon the third party in the event of nonperformance under the Development
Agreement, beyond the forfeiture of any shares of common stock placed in escrow.
At December 31, 2004, no services were rendered under this agreement.

Cooperation and License Agreement

In January 2003, the Company formed Dyadic Nederland B.V. (BV), a Dutch
corporation, and entered into a Cooperation and License Agreement with an
unrelated third party to cooperate on an exclusive basis in the development, use
and marketing of High Throughput Robotic Screening Systems utilizing fungal
organisms. Under the Cooperation and License Agreement, the Company and the
third party have granted BV worldwide license in and to certain patents and
technologies, and BV will make royalty and revenue sharing payments to the
Company and the third party on revenue generated from the business. The third
party was also granted an option to acquire shares of the Company's common stock
beginning on the two-year anniversary of the formation of BV, or earlier in
certain circumstances. The number of shares of the Company's stock available to
the third party is equal to 15% of the sum of BV's Business Shareholder's
Equity, as defined, divided by $4.50. No shares of the Company's common stock
were available under this option as of December 31, 2004.

Litigation, Claims and Assessments

In the opinion of management, there are no known pending legal proceedings that
would have a material effect on the Company's financial position, results of
operations or cash flows.

Leases

The Company's corporate headquarters are located in Jupiter, Florida, in
approximately 5,700 square feet of space occupied under a lease with a monthly
rental rate of $8,000 that expires on December 31, 2005. The Company leases a
lab facility in Jupiter, Florida with a monthly rental rate of $1,300. The three
year lease has an annual escalation clause and expires on July 31, 2006. The
Company also leases a 3,150 square foot lab facility in Greensboro, North
Carolina, with a monthly rental rate of $1,450 which expires on December 31,
2005.

The Asian subsidiary leases its office premises and staff accommodations under
eight operating lease arrangements for terms ranging from two to ten years.

Dyadic Nederland B.V. leases office and lab space with a monthly rental rate of
approximately $4,000, which expires on December 31, 2005 and can be renewed for
one year periods through December 31, 2007.

Future minimum lease commitments due for facilities and equipment leases under
noncancellable operating leases at December 31, 2004 are as follows:

                                                    Operating Leases
                                                    -----------------
      2005                                              $297,015
      2006                                                84,485
      2007                                                43,193
      2008                                                39,116
      2009 and thereafter                                218,548
                                                        --------
      Total minimum lease payments                      $682,357
                                                        ========

Rent expense under all operating leases for the years ended December 31, 2004
and 2003 totaled approximately $252,000 and $204,000, respectively, of which
approximately $56,000 and $34,000 is included in cost of goods sold and
approximately $196,000 and $170,000 is included in general and administrative
costs, respectively, in the accompanying consolidated statements of operations.

The Company's Asian subsidiary leases a facility in Hong Kong from a minority
stockholder of the subsidiary. Rent expense under this arrangement was
approximately $23,000 for each of the years ended December 31, 2004 and 2003.


                                      F-24
<PAGE>

Protection of Proprietary Technologies

The Company's success is dependent in part on its ability to obtain patents and
maintain adequate protection of other intellectual property for the Company's
technologies and products in the United States and other countries. If the
Company does not adequately protect its intellectual property, competitors may
be able to practice its technologies and erode its 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.

The Company holds three issued United States patents, including claims that
cover the C1 Expression Technology (a host organism that performs protein
expression and related services for laboratory research, clinical trials and
commercial production) and 3 PCT Publications. The Company has 57 United States
and international patent applications filed. The patent positions of
biopharmaceutical and biotechnology companies, including the Company's patent
position are generally uncertain and involve complex legal and factual
questions. The Company will be able to protect its proprietary rights from
unauthorized use by third parties only to the extent that its proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. The Company intends to apply for patents covering
both its technologies and products as it deems appropriate. However, existing
and future patent applications may be challenged and may not result in issued
patents. The Company's existing patents and any future patents it obtains may
not be sufficiently broad to prevent others from practicing the Company's
technologies or from developing competing products. Furthermore, others may
independently develop similar or alternative technologies or design around the
Company's patented technologies. In addition, others may challenge or invalidate
the Company's patents, or its patents may fail to provide the Company with any
competitive advantages.

The Company relies upon trade secret protection for its confidential and
proprietary information. The Company has taken security measures to protect its
proprietary information. These measures may not provide adequate protection for
the Company's trade secrets or other proprietary information. The Company seeks
to protect its proprietary information by entering into confidentiality
agreements with employees, collaborators and consultants. Nevertheless,
employees, collaborators or consultants may still disclose the Company's
proprietary information, and the Company may not be able to meaningfully protect
its trade secrets. In addition, others may independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to the
Company's trade secrets.

The inability of the Company to adequately protect its proprietary technologies
could have a material adverse impact on the Company's business, operating
results and financial condition.

Litigation, Other Proceedings or Third Party Claims of Intellectual Property
Infringement

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

Third parties may assert that the Company is employing their proprietary
technology without authorization. In addition, third parties may obtain patents
in the future and claim that use of the Company's technologies infringes these
patents. The Company could incur substantial costs and diversion of management
and technical personnel in defending itself against any of these claims or
enforcing its patents or other intellectual property rights against others.
Furthermore, parties making claims against the Company may be able to obtain
injunctive or other equitable relief which could effectively block the Company's
ability to further develop, commercialize and sell products, and could result in
the award of substantial damages against the Company. If a claim of infringement
against the Company is successful, the Company may be required to pay damages
and obtain one or more licenses from third parties. The Company may not be able
to obtain these licenses at a reasonable cost, if at all. In that event, the
Company could encounter delays in product commercialization while it attempts to
develop alternative methods or products. Defense of any lawsuit or failure to
obtain any of these licenses could prevent the Company from commercializing
available products.

Further, the taxonomic classification of the Company's C host organism was
determined using classical morphological methods. More modern taxonomic
classification methods have indicated that the Company's 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. The Company believes, based on its evaluation of the relevant
field of science and discussions with our consulting professionals that any such
patent rights would be invalid, and were litigation over the issue to ensue, the
Company believes it should prevail. If the Company did not prevail, to settle
any such litigation or pre-litigation claims, the Company could be required to
enter into a cross-licensing arrangement, pay royalties or be forced to stop
commercialization of some of its activities.


                                      F-25
<PAGE>

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

Real Estate Purchase Contract

The Company entered into a real estate purchase contract with F&C Holdings, LLC
(Holdings) dated July 31, 2004 (the Commercial Land Purchase And Sale
Agreement), pursuant to which Dyadic agreed to purchase an undeveloped 1.13 acre
parcel of land (the Site) for $1.0 million by issuing $1.0 million in shares of
the Company's common stock (300,300 shares valued at $3.33 per share).

The Site, which is in a planned community known as "Abacoa" located in the Town
of Jupiter, Florida (the Town), is viewed by Dyadic as a desirable location for
the eventual construction of a 40,000 square foot commercial office biotech
research and development building. Holdings shall endeavor in good faith to
transfer from the Town's Workplace District to the Site sufficient research and
development rights so that the Company may construct a 40,000 square foot
commercial office biotech research and development building, so long as (a) the
Town allows Holdings to do so; and (b) Holdings obtains the consents of other
third party landowners in the Town Center District and Workplace District to the
extent required to amend the respective sub-district plans. The closing date
shall be within five (5) days following the Development Rights Transfer Date.

In the event Holdings is unable to transfer the development rights as described
in the Commercial Land Purchase and Sale Agreement on or before May 31, 2005
(the Development Rights Transfer Date), either party may, upon giving written
notice to the other party, terminate this entire transaction and the parties
shall have no further obligations thereunder; provided, however, if either party
fails to exercise such right of termination, the Company shall be obligated to
purchase the Site without Holdings being obligated to assign any development
rights.

Dyadic is contemplating locating its corporate offices and research and
development facilities at this site for a number of reasons, including its
proximity to the temporary research facility of The Scripps Research Institute,
its good highway access and certain other factors. Closing of the sale is
expected to occur prior to May 31, 2005

The Commercial Land Purchase and Sale Agreement obligates Dyadic to commence
development of the Site within two (2) years following the closing date. During
this two-year period, Dyadic is prohibited from re-transferring the Site to any
other person other than (i) in connection with a sale of Dyadic, (ii) to an
affiliate or (iii) with the approval of Dyadic's Board of Directors (a majority
of its independent directors), to the Francisco Trust, the Mark A. Emalfarb
Trust and/or any entity that is controlled, directly or indirectly, by Mark A.
Emalfarb and/or his family members.

If closing occurs and Dyadic has not commenced development of the Site, then
Holdings shall, in exchange for the reconveyance Deed, pay the "Reconveyance
Purchase Price" equal to the greater of the following: (i) $1.0 million or (ii)
the "Market Value" of the shares of the Company's common stock, as defined,
determined as of the date of the reconveyance notice from Holdings. The
Reconveyance Purchase Price can be paid in all cash, or return of all the shares
of the Company's common stock to the Company so long as the Market Value of the
shares of the Company's common stock is greater than or equal to $1.0 million,
or by combination of shares of the Company's common stock and cash, as
determined in the sole and absolute discretion of Holdings.

12. Segment Data Information

Operating segments are defined as components of an enterprise engaging in
business activities about which separate financial information is available that
is evaluated regularly by the chief operating decision maker or group in
deciding how to allocate resources and in assessing performance. Utilizing these
criteria, the Company has identified its reportable segments based on the
geographical markets they serve, which is consistent with how the Company
operates and reports internally.


                                      F-26
<PAGE>

The Company has three reportable segments: U.S. operations, Asian operations and
Netherlands operations. The U.S. reportable segment includes a subsidiary in
Poland that is considered auxiliary and integral to the U.S. operations. The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies. The Company accounts for
intersegment sales as if the sales were to third parties, that is, at current
market prices. The U. S. operating segment is a developer, manufacturer and
distributor of enzyme products, proteins, peptides and other bio-molecules
derived from genes, and a collaborative licensor of enabling proprietary
technology for the development and manufacturing of biological products and use
in research and development. The Asian operating segment is engaged in the
manufacturing and distribution of chemical and enzyme products to the textile
and pulp and paper industries. The Netherlands operating segment is also a
developer of enzyme products, proteins, peptides and other bio-molecules derived
from genes and to date has invested solely in research and development
activities.

The following table summarizes the Company's segment and geographical
information:

<TABLE>
<CAPTION>
                                                                   Year Ended December 31, 2004
                                         ---------------------------------------------------------------------------------
                                                U.S.           Asian       Netherlands
                                             Operating       Operating      Operating
                                              Segment         Segment         Segment         Eliminations       Totals
                                         ---------------------------------------------------------------------------------
<S>                                        <C>              <C>             <C>              <C>              <C>
Net Sales:
  External customers                       $ 10,531,556     $  6,209,291    $         --     $         --     $ 16,740,847
  Intersegment                                  790,096               --              --         (790,096)              --
                                         ---------------------------------------------------------------------------------
Total net sales                              11,321,652        6,209,291              --         (790,096)      16,740,847

(Loss) Income from operations                (4,541,743)         177,686        (933,488)         (29,624)      (5,327,169)
Interest income                                 112,892              228              63          (44,172)          69,011
Interest expense (b)                           (578,287)         (63,786)             (5)          44,172         (597,906)
Depreciation and amortization                   171,502           43,064         372,122               --          586,688
Capital expenditures                             16,750           84,629              --               --          101,379
Total assets at December 31, 2004            31,068,608        3,074,829         380,573       (1,801,584)      32,722,426
</TABLE>

<TABLE>
<CAPTION>
                                                                 Year Ended December 31, 2003
                                   ---------------------------------------------------------------------------------
                                          U.S.           Asian       Netherlands
                                       Operating       Operating      Operating
                                        Segment         Segment         Segment         Eliminations       Totals
                                   ---------------------------------------------------------------------------------
<S>                                  <C>              <C>             <C>              <C>              <C>
Net Sales:
  External customers                 $ 11,797,545     $  4,982,602    $         --     $         --     $ 16,780,147
  Intersegment                            736,409               --              --         (736,409)              --
                                   ---------------------------------------------------------------------------------
Total net sales                        12,533,954        4,982,602              --         (736,409)      16,780,147

(Loss) Income from operations          (2,810,526)         244,160        (864,062)         (14,155)      (3,444,583)
Interest income                            65,421               56              35          (52,919)          12,593
Interest expense (a) (b)               (3,387,698)         (62,224)       (101,364)          52,919       (3,498,367)
Depreciation and amortization             175,482           35,792         372,122               --          583,396
Capital expenditures                       29,729           73,228              --               --          102,957
Total assets at December 31, 2003      11,000,959        2,924,840         759,462       (2,336,708)      12,348,553
</TABLE>

(a)   U.S. operating segment includes amortization of debt issue costs on
      warrant of $3,195,000.

(b)   Interest expense relating to the purchase by the U.S. operating segment of
      manufacturing equipment is allocated to the Netherlands operating segment.


                                      F-27
<PAGE>

13. Income Taxes

No provision for United States income taxes has been recognized for the years
ended December 31, 2004 and 2003 as the Company has incurred operating losses.
The Company's operations in Poland, Hong Kong and The Netherlands are subject to
income taxes in these jurisdictions. The provisions for income taxes consist of
the following:

                                                  Year Ended December 31,
                                                   2004             2003
                                                --------------------------
      Current:

        U.S                                     $    --            $    --
        Foreign                                   9,714             92,944

      Deferred:

        U.S                                          --                 --
        Foreign                                      --                 --
                                                --------------------------
                                                $ 9,714            $92,944
                                                ==========================

The United States and foreign components of loss from continuing operations
before income taxes are as follows for the years ended December 31:

                                              2004               2003
                                          -------------------------------
      United States                       $(5,071,475)        $(6,430,527)
      Hong Kong                                99,932             212,149
      Other foreign                        (1,098,325)           (951,900)
                                          -------------------------------
                                          $(6,069,868)        $(7,170,278)
                                          ================================

The primary difference between the Company's income tax benefit computed at the
U.S. statutory rate of 34% and the effective tax rates for the years ended
December 31, 2004 and 2003 is the change in the valuation allowance in the
respective periods that results from the Company not recording a deferred income
tax benefit for its net operating losses.

The significant components of the Company's net deferred tax assets and
liabilities consisted of the following at December 31, 2004:

      Current tax assets and liabilities:
              Accrued expenses                                   $   157,257
              Inventory reserves                                     102,030
              Deferred revenue                                        28,223
              Other items, net                                        10,067
              Depreciation and amortization                              712
                                                                 -----------
                                                                     298,289

      Non-current tax assets and liabilities:
              Net operating loss and tax credit carryforwards      7,137,103
                                                                 -----------
      Total noncurrent                                             7,137,103
                                                                 -----------
      Valuation allowance                                         (7,435,392)
                                                                 -----------
      Net deferred tax assets                                    $        --
                                                                 ===========

SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a full valuation allowance of $7,435,392 against its net
deferred taxes is necessary as of December 31, 2004. The change in valuation
allowance for the years ended December 31, 2004 and 2003 is $2,562,724 and
$656,687, respectively.

At December 31, 2004, the Company had approximately $17,134,000 of U.S. net
operating loss carryforwards remaining, which will expire beginning in 2019. As
a result of certain ownership changes, the Company may be subject to an annual
limitation on the utilization of its U.S. net operating loss carryforwards
pursuant to Section 382 of the Internal Revenue Code. A study to determine the
effects of this change, if any, has not been undertaken.


                                      F-28
<PAGE>

A reconciliation of the Company's income taxes to amounts calculated at the
federal statutory rate is as follows for the years ended December 31:

                                                           2004       2003
                                                          ------     ------
      Federal statutory taxes                             (34.00)%   (34.00)%
      State income taxes, net of federal tax benefit       (3.63)     (3.63)
      Nondeductible items                                    .68      24.31
      Change in valuation allowance                        42.36      14.21
      R & D credits                                        (5.41)      (.89)
                                                          ------     ------
                                                              -- %       -- %
                                                          ======     ======

14. Subsequent Events

On January 31, 2005, the Company hired Wayne Moor as the 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 is 2 years and 11 months (ending
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 adopted and maintained by the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee") for such year. Mr. Moor was granted a stock option to purchase
277,889 shares of common stock of the Company in accordance with the Dyadic
International, Inc. 2001 Equity Compensation Plan at an exercise price of $3.68
per share. The employment agreement is terminable on account of Mr. Moor'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. If Mr.
Moor'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 monthly installments in the amount of
1/12th of his then annual base compensation for the lesser of six months or
until he has obtained other full or part-time employment as an employee or
consultant.

In February 2005, the Company signed an agreement with an investor relations
consulting firm for a one year term. For compensation of services to be
rendered, the Company issued 10,000 shares of common stock which were valued at
$39,000, in addition to monthly cash compensation and expense reimbursement. The
agreement may be terminated with five days prior notice on May 25, 2005 or
August 25, 2005. Unless the agreement is terminated, the Company will issue an
additional 10,000 shares of common stock on each of those dates.

In March 2005, the Board of Directors of the Company, elected Robert B. Shapiro
as a Class I Director. In accordance with the Company's Director Compensation
Policy, the Board granted to Mr. Shapiro stock options to purchase 30,000 shares
of common stock of the Company under the Dyadic International, Inc. 2001 Equity
Compensation Plan at an exercise price of $2.895 per share, pursuant to an
option agreement in the form of the Company's standard form director stock
option agreement.

On March 30, 2005, the Company entered into employment agreements with three of
its executive officers, and in connection therewith, promoted them to new
offices: Mr. Kent M. Sproat, formerly Vice President, Manufacturing, was
promoted to Executive Vice President, Enzyme Business; Mr. Ratnesh (Ray)
Chandra, formerly Vice President, Marketing - BioSciences, was promoted to
Senior Vice President, Marketing - Biotechnology Systems; and Mr. Alexander
(Sasha) Bondar, formerly Executive Director, Business Development, was promoted
to Vice President, Strategy & Corporate Development. Mr. Sproat was also
promoted to the office of Executive Vice President of the Company's operating
subsidiary, Dyadic International (USA), Inc., a Florida corporation
("Dyadic-Florida"). In addition, the Company entered into employment agreements
on February 28, 2005 with Daniel Michalopoulos, Vice President Pulp and Paper
Business and on March 30, 2005 with its Executive Director, Research &
Development, Richard Burlingame, Ph.D.

The initial term of employment under all five employment agreements ends on
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, Mr. Bondar, Mr. Michalopoulos and Mr. Burlingame is $190,000, $170,250,
$143,000, $140,000 and $148,500, 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 of the
Board of Directors of the Company (the "Compensation Committee") for such year.


                                      F-29
<PAGE>

Each employment agreement is terminable on account of the executive's death or
disability, or by the Company without cause or "for Cause. If the executive'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 monthly installments in the amount of
1/12th of his then annual base compensation for a period of 6 months.

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", as defined, of either the Company or its BioSciences
Business, in the case of Mr. Chandra, and following the occurrence of a "Change
of Control" of either the Company or its Enzymes Business, in the case of Mr.
Sproat. 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 the his employment by the executive which is a "Constructive
Termination of Employment Without Cause,", as defined, within 12 months
following the occurrence of a Change of Control, he will become entitled to a
severance benefit of monthly installments in the amount of 1/12th of his then
annual base compensation for 18 months.

In connection with the Company's entry into these employment agreements, on
March 30, 2005, each of these three executives was granted a stock option to
purchase shares of common stock under the 2001 Equity Compensation Plan at an
exercise price of $3.025 per share. The options granted to Mr. Sproat, Mr.
Chandra, Mr. Bondar, Mr. Michalopoulos and Mr. Burlingame were for 70,000,
50,000, 35,000, 25,000 and 40,000, respectively.


                                      F-30
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14.1
<SEQUENCE>2
<FILENAME>v016233_ex14-1.txt
<TEXT>
                           DYADIC INTERNATIONAL, INC.
                       CODE OF BUSINESS CONDUCT AND ETHICS

Introduction

      Our  Company's  reputation  for  honesty and  integrity  is the sum of the
personal reputations of our directors,  officers and employees.  To protect this
reputation and to promote compliance with laws, rules and regulations, this Code
of Business  Conduct and Ethics has been  adopted by the Audit  Committee of our
Board of Directors.  This Code of Conduct is only one aspect of our  commitment.
You must also be familiar with and comply with all other  policies  contained in
our employee policy manual.

      This Code sets out the basic  standards of ethics and conduct to which all
of our directors,  officers and employees are held. These standards are designed
to deter  wrongdoing  and to promote  honest and ethical  conduct,  but will not
cover all  situations.  If a law conflicts  with a policy in this Code, you must
comply with the law;  however,  if a local custom or policy  conflicts with this
Code, you must comply with the Code.

      If you have any doubts  whatsoever  as to the  propriety  of a  particular
situation,  you should  submit it in writing to our  Company's  Chief  Executive
Officer,  who will review the situation and take  appropriate  action in keeping
with this Code, our other  corporate  policies and the  applicable  law. If your
concern relates to that individual,  you should submit your concern, in writing,
to the Chairman of the Audit Committee.  The name and mailing address of each of
those individuals is included at the end of this Code.

      Those who  violate the  standards  set out in this Code will be subject to
disciplinary action.

1.    Scope

      If you are a  director,  officer or  employee of the Company or any of its
subsidiaries, you are subject to this Code.

2.    Honest and Ethical Conduct

      We, as a Company, require honest and ethical conduct from everyone subject
to this Code. Each of you has a responsibility to all other directors,  officers
and employees of our Company,  and to our Company itself,  to act in good faith,
responsibly,  with due care, competence and diligence,  without  misrepresenting
material  facts or allowing your  independent  judgment to be  subordinated  and
otherwise to conduct  yourself in a manner that meets with our ethical and legal
standards.

3.    Compliance with Laws, Rules and Regulations

      You are required to comply with all applicable  governmental  laws,  rules
and regulations,  both in letter and in spirit. Although you are not expected to
know the details of all the applicable laws,  rules and  regulations,  we expect
you to seek advice from our Company's  Chief  Executive  Officer if you have any
questions about whether the requirement applies to the situation or what conduct
may be required to comply with any law, rule or regulation.

<PAGE>

4.    Conflicts of Interest

      You must handle in an ethical  manner any actual or  apparent  conflict of
interest between your personal and business relationships. Conflicts of interest
are  prohibited  as a matter of policy.  A "conflict of interest"  exists when a
person's  private  interest  interferes  in any way  with the  interests  of our
Company.  For example,  a conflict  situation arises if you take actions or have
interests  that interfere with your ability to perform your work for our Company
objectively and  effectively.  Conflicts of interest also may arise if you, or a
member of your family,  receive an improper personal benefit as a result of your
position with our Company.

      If you become  aware of any  material  transaction  or  relationship  that
reasonably could be expected to give rise to a conflict of interest,  you should
report it promptly to our Company's Chief Executive Officer.

      Conflicts of interest are prohibited as a matter of Company policy, except
under  guidelines  approved by the Board of Directors.  The following  standards
apply to certain common  situations  where  potential  conflicts of interest may
arise:

      A.    Gifts and Entertainment

      Personal  gifts and  entertainment  offered by persons doing business with
our Company may be accepted  when offered in the  ordinary and normal  course of
the business relationship.  However, the frequency and cost of any such gifts or
entertainment may not be so excessive that your ability to exercise  independent
judgment on behalf of our Company is or may appear to be compromised.

      B.    Financial Interests In Other Organizations

      The determination whether any outside investment, financial arrangement or
other  interest in another  organization  is  improper  depends on the facts and
circumstances   of  each  case.   Your  ownership  of  an  interest  in  another
organization  may be  inappropriate  if the other  organization  has a  material
business  relationship  with, or is a direct competitor of, our Company and your
financial  interest is of such a size that your ability to exercise  independent
judgment  on behalf of our  Company  is or may  appear to be  compromised.  As a
general rule, a passive  investment  would not likely be considered  improper if
it:  (1) is in  publicly  traded  shares;  (2)  represents  less  than 1% of the
outstanding equity of the organization in question; and (3) represents less than
5% of your net worth. Other interests also may not be improper, depending on the
circumstances.

                                       2
<PAGE>

      C.    Outside Business Activities

      The  determination of whether any outside position an employee may hold is
improper  will  depend  on the  facts  and  circumstances  of  each  case.  Your
involvement in trade associations,  professional  societies,  and charitable and
similar organizations will not normally be viewed as improper. However, if those
activities are likely to take substantial  time from or otherwise  conflict with
your responsibilities to our Company, you should obtain prior approval from your
supervisor.  Other  outside  associations  or  activities  in  which  you may be
involved are likely to be viewed as improper only if they would  interfere  with
your ability to devote proper time and attention to your responsibilities to our
Company or if your  involvement  is with another  Company with which our Company
does  business or competes.  For a director,  employment or  affiliation  with a
Company with which our Company does business or competes must be fully disclosed
to our  Company's  Board of  Directors  and must  satisfy  any  other  standards
established by applicable law, rule (including any rule of any applicable  stock
exchange) or regulation and any other corporate  governance  guidelines that our
Company may establish.

      D.    Indirect Violations

      You should not  indirectly,  through a spouse,  family member,  affiliate,
friend, partner, or associate,  have any interest or engage in any activity that
would  violate  this Code if you  directly  had the  interest  or engaged in the
activity. Any such relationship should be fully disclosed to our Company's Chief
Executive  Officer  (or the  Board of  Directors  if you are a  director  of our
Company),   who  will  make  a   determination   whether  the   relationship  is
inappropriate, based upon the standards set forth in this Code.

5.    Corporate Opportunities

      You are  prohibited  from taking for yourself,  personally,  opportunities
that are  discovered  through  the use of  corporate  property,  information  or
position,  unless the Board of Directors has declined to pursue the opportunity.
You may not use corporate property,  information, or position for personal gain,
or to  compete  with our  Company  directly.  You owe a duty to our  Company  to
advance its legitimate interests whenever the opportunity to do so arises.

6.    Fair Dealing

      You  should  endeavor  to  deal  fairly  with  our  Company's   suppliers,
competitors  and  employees  and with other  persons  with whom our Company does
business.  You should not take unfair advantage of anyone through  manipulation,
concealment,  abuse of  privileged  information,  misrepresentation  of material
facts, or any other unfair-dealing practice.

7.    Public Disclosures

      It is our Company's policy to provide full, fair,  accurate,  timely,  and
understandable  disclosure  in all reports and  documents  that we file with, or
submit  to, the  Securities  and  Exchange  Commission  and in all other  public
communications  made by our Company.  Moreover,  federal  securities laws impore
strict  prohibitions  and  limitations  on the company  regarding  the selective
disclosure  of  material   non-public   information   concerning   the  Company.
Accordingly,  the policies  outlined below are intended to prevent  unauthorized
disclosure of non-public information.

                                       3
<PAGE>

o     The Company's  Chief  Executive  Officer or his designee is the designated
      spokesman for the Company for the dissemination of Company  information to
      the public. No other person is authorized to disclose Company  information
      or speak on such matters with the public. The public includes,  but is not
      limited to, stockholders, analysts and members of the media. Any inquiries
      for information must be referred to the Company's Chief Executive Officer.

o     Unauthorized  disclosure of Company  information,  whether confidential or
      not, is  forbidden.  Authorization  for release must be obtained  prior to
      release from the Company's Chief Executive Officer or his designee.

o     Under no circumstances is a director,  officer or employee (other than the
      Chief Executive  Officer) to respond to rumors  regarding the Company that
      may appear on the Internet or any other medium.

8.    Confidentiality

      You should maintain the  confidentiality  of all confidential  information
entrusted  to you by our  Company  or by  persons  with  whom our  Company  does
business, except when disclosure is authorized or legally mandated. Confidential
information   means   information   maintained  by  the  Company  regarding  its
operational,  financial , legal, and administrative activities that has not been
released by the Company to the public through press releases,  annual reports or
periodic  filings  with  the  Securities  and  Exchange  Commission.  The  above
categories are very broad as to the  information  encompassed and would include,
but  not  be  limited  to,  Company  procedures,  personnel  or  customers.  The
presumption   should  thus  be  in  favor  of   particular   information   being
confidential.   Generally,  confidential  information  includes  all  non-public
information that may be of use to competitors,  or harmful to the Company or its
customers,  if  disclosed..  Your  obligation to preserve  confidential  Company
information survives your separation from the Company.

9.    Insider Trading

      If you have access to  material,  non-public  information  concerning  our
Company,  you are not  permitted  to use or share  that  information  for  stock
trading  purposes,  or for any other purpose except the conduct of our Company's
business.  All  non-public  information  about our Company  should be considered
confidential  information.  Insider  trading,  which  is the  use  of  material,
non-public  information  for personal  financial  benefit or to "tip" others who
might make an investment decision on the basis of this information,  is not only
unethical but also illegal.  The prohibition on insider trading applies not only
to our Company's  securities,  but also to securities of other  companies if you
learn of material non-public  information about these companies in the course of
your duties to the Company.  Violations  of this  prohibition  against  "insider
trading"  may  subject  you to  criminal  or civil  liability,  in  addition  to
disciplinary  action by our Company. If the Board of Directors adopts an insider
trading  policy for the Company to promote  compliance  with  insider  reporting
obligations and to enhance compliance with insider trading  prohibitions,  which
may  include,  among other  things,  certain  "black out  periods,"  you will be
required to comply with the applicable provisions of this policy.

                                       4
<PAGE>

10.   Protection and Proper Use of Company Assets

      You should protect our Company's  assets and promote their  efficient use.
Theft,   carelessness,   and  waste  have  a  direct  impact  on  our  Company's
profitability.  All  corporate  assets  should be used for  legitimate  business
purposes.  The obligation of employees to protect the Company's  assets includes
its  proprietary  information.  Proprietary  information  includes  intellectual
property such as trade secrets patents,  trademarks,  and copyrights, as well as
business,  marketing and service plans,  engineering  and  manufacturing  ideas,
designs,  databases,  records,  salary information and any unpublished financial
data and reports.  Unauthorized  use or distribution of this  information  would
violate  Company  policy.  It could also be illegal  and result in civil or even
criminal penalties.

11.   Interpretations and Waivers of the Code of Business Conduct and Ethics

      If you are  uncertain  whether a particular  activity or  relationship  is
improper under this Code or requires a waiver of this Code, you should  disclose
it to our Company's  Chief  Executive  Officer (or the Board of Directors if you
are a director),  who will make a determination  first, whether a waiver of this
Code is required and second, if required,  whether a waiver will be granted. You
may be required to agree to conditions before a waiver or a continuing waiver is
granted.  However,  any waiver of this Code for an executive officer or director
may be made  only by the  Company's  Board of  Directors  and  will be  promptly
disclosed to the extent  required by applicable law, rule (including any rule of
any applicable stock exchange) or regulation.

12.   Reporting any Illegal or Unethical Behavior

      Our Company desires to promote ethical behavior.  Employees are encouraged
to talk to supervisors,  managers or other  appropriate  personnel when in doubt
about  the best  course  of  action  in a  particular  situation.  Additionally,
employees should promptly report violations of laws, rules,  regulations or this
Code to our Company's  Chief  Executive  Officer.  Any report or allegation of a
violation of applicable laws, rules, regulations or this Code need not be signed
and may be sent anonymously.  All reports of violations of this Code,  including
reports  sent  anonymously,  will be promptly  investigated  and, if found to be
accurate,  acted upon in a timely manner. If any report of wrongdoing relates to
accounting or financial reporting matters, or relates to persons involved in the
development or  implementation of our Company's system of internal  controls,  a
copy of the  report  will be  promptly  provided  to the  chairman  of the Audit
Committee of the Board of Directors,  which may participate in the investigation
and  resolution  of the  matter.  It is the policy of our  Company  not to allow
actual or threatened retaliation, harassment or discrimination due to reports of
misconduct by others made in good faith by employees.  Employees are expected to
cooperate in internal investigations of misconduct. Please see our Whistleblower
Policy for details on reporting illegal or unethical conduct and the protections
our Company provides.

                                       5
<PAGE>

13.   Compliance Standards and Procedures

      This Code is intended as a statement of basic principles and standards and
does not include specific rules that apply to every situation. Its contents have
to be viewed within the framework of our Company's  other  policies,  practices,
instructions  and the requirements of the law. This Code is in addition to other
policies,  practices  or  instructions  of our  Company  that must be  observed.
Moreover,  the absence of a specific  corporate policy,  practice or instruction
covering a particular  situation does not relieve you of the  responsibility for
exercising the highest ethical standards applicable to the circumstances.

      In some situations, it is difficult to know right from wrong. Because this
Code does not anticipate  every  situation that will arise, it is important that
each of you approach a new question or problem in a deliberate fashion:

      (a)   Determine if you know all the facts.

      (b)   Identify exactly what it is that concerns you.

      (c)   Discuss the problem with a supervisor or, if you are a director, the
            Company's General Counsel.

      (d)   Seek help from other resources such as other management personnel.

      (e)   Seek  guidance  before  taking any action  that you  believe  may be
            unethical or dishonest.

      You will be governed by the following compliance standards:

      o     You  are  personally  responsible  for  your  own  conduct  and  for
            complying  with  all  provisions  of  this  Code  and  for  properly
            reporting known or suspected violations;

      o     If you are a supervisor,  manager, director or officer, you must use
            your best  efforts to ensure that  employees  understand  and comply
            with this Code;

      o     No one  has  the  authority  or  right  to  order,  request  or even
            influence  you to  violate  this Code or the law; a request or order
            from another person will not be an excuse for your violation of this
            Code;

      o     Any attempt by you to induce another  director,  officer or employee
            of our Company to violate this Code,  whether  successful or not, is
            itself a violation of this Code and may be a violation of law;

      o     Any  retaliation  or threat of  retaliation  against  any  director,
            officer or  employee of our  Company  for  refusing to violate  this
            Code,  or for  reporting  in good faith the  violation  or suspected
            violation  of this Code,  is itself a violation of this Code and our
            Whistleblower Policy and may be a violation of law; and

      o     Our Company expects that every reported  violation of this Code will
            be investigated.

                                       6
<PAGE>

      Violation of any of the standards  contained in this Code, or in any other
policy,  practice or  instruction  of our  Company,  can result in  disciplinary
actions,  including dismissal and civil or criminal action against the violator.
This Code  should not be  construed  as a contract  of  employment  and does not
change any person's status as an at-will employee.

      This  Code is for the  benefit  of our  Company,  and no other  person  is
entitled to enforce  this Code.  This Code does not, and should not be construed
to,  create  any  private  cause of action or remedy in any other  person  for a
violation of the Code.

      The names,  addresses,  telephone  numbers,  facsimile  numbers and e-mail
addresses of the Chief Executive Officer and the Chairman of the Audit Committee
Company are set forth below:



                 Chief Executive Officer                       Address
                 -----------------------                       -------

                     Mark A. Emalfarb                Dyadic International, Inc.
                                                   140 Intracoastal Pointe Blvd.
                                                             Suite 404
                                                        Jupiter, Florida 33477
                                                          (561)743-8333
                                                         Fax (561)743-8343
                                                     memalfarb@dyadic-group.com

             Chairman of the Audit Committee                   Address
             -------------------------------                   -------

                     Richard Berman                          Suite 2420
                                                         420 Lexington Avenue
                                                          New York, NY 10170
                                                            (212)389-7801
                                                          Fax (212) 389-7801
                                                          richard@CRYZTAL.com



                                 Adopted by Resolution of the Board of Directors
                                 January 12, 2005

                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>3
<FILENAME>ex-23.txt
<TEXT>

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-122339) pertaining to Dyadic International, Inc.'s 2001 Equity
Compensation Plan of our report dated April 14, 2005 with respect to the
consolidated financial statements of Dyadic International, Inc. included in its
Annual Report (Form 10-KSB) for the year ended December 31, 2004, filed with the
Securities and Exchange Commission.


/s/ Ernst & Young LLP
Certified Public Accountants
West Palm Beach, Florida
April 14, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>v016233_ex31-1.txt
<TEXT>

                                   Exhibit 31


                           Dyadic International, Inc.
     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


I, Mark A. Emalfarb, Chief Executive Officer, certify that:

1.    I have reviewed this annual report on Form 10-KSB of Dyadic International,
      Inc. (the "Company");

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the Company as of, and for, the periods presented in this annual report;

4.    The Company's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
      have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            Company, including its consolidated subsidiaries, is made known to
            us by others within those entities, particularly during the period
            in which this annual report is being prepared;

      b)    Evaluated the effectiveness of the Company's disclosure controls and
            procedures and presented in this annual report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this annual report based on such
            evaluation; and

      c)    Disclosed in this annual report any change in the Company's internal
            control over financial reporting that occurred during the Company's
            most recent fiscal quarter that has materially affected or is
            reasonably likely to materially affect the Company's internal
            control over financial reporting; and

5.    The Company's other certifying officer and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Company's auditors and the audit committee of Company's Board of
      Directors:

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the Company's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Company's
            internal controls over financial reporting.


Date: April 15, 2005


                                                /s/ Mark A. Emalfarb
                                                --------------------------------
                                                    Mark A. Emalfarb
                                                    Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>v016233_ex31-2.txt
<TEXT>

                                   Exhibit 31.2

                           Dyadic International, Inc.
     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Wayne Moor, Chief Financial Officer, certify that:

1.    I have reviewed this annual report on Form 10-KSB of Dyadic International,
      Inc. (the "Company");

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the Company as of, and for, the periods presented in this annual report;

4.    The Company's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
      have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            Company, including its consolidated subsidiaries, is made known to
            us by others within those entities, particularly during the period
            in which this annual report is being prepared;

      b)    Evaluated the effectiveness of the Company's disclosure controls and
            procedures and presented in this annual report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this annual report based on such
            evaluation; and

      c)    Disclosed in this annual report any change in the Company's internal
            control over financial reporting that occurred during the Company's
            most recent fiscal quarter that has materially affected or is
            reasonably likely to materially affect the Company's internal
            control over financial reporting; and

5.    The Company's other certifying officer and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the Company's auditors and the audit committee of Company's Board of
      Directors:

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the Company's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Company's
            internal controls over financial reporting.


Date: April 15, 2005


                                                /s/ Wayne Moor
                                                --------------------------------
                                                    Wayne Moor
                                                    Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>v016233_ex32-1.txt
<TEXT>

                                  Exhibit 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Mark A. Emalfarb, Chief Executive Officer of Dyadic International Inc. (the
Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, that:

            1. The Annual Report on Form 10-KSB of the Company for the year
ended December 31, 2004 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

            2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of the
Company.


      IN WITNESS WHEREOF, the undersigned has executed this certification as of
the 15th day of April 2005.


                                                /s/ Mark A. Emalfarb
                                                --------------------------------
                                                Name: Mark A. Emalfarb
                                                Title: Chief Executive Officer


This certification accompanies the Annual Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by Dyadic International, Inc. for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been
provided to Dyadic International, Inc. and will be retained by Dyadic
International, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>7
<FILENAME>v016233_ex32-2.txt
<TEXT>

                                  Exhibit 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Wayne Moor, Chief Financial Officer of Dyadic International Inc. (the
Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, that:

1.    The Annual Report on Form 10-KSB of the Company for the year ended
      December 31, 2004 (the "Report") fully complies with the requirements of
      Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.    The information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operation of the Company.

      IN WITNESS WHEREOF, the undersigned has executed this certification as of
the 15th day of April 2005.



                                                /s/ Wayne Moor
                                                --------------------------------
                                                Name: Wayne Moor
                                                Title: Chief Financial Officer

This certification accompanies the Annual Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by Dyadic International, Inc. for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been
provided to Dyadic International, Inc. and will be retained by Dyadic
International, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
