Dyadic International Reports Third Quarter 2013 Financial Results

JUPITER, Fla., Nov. 14, 2013 /PRNewswire/ -- Dyadic International, Inc. (OTC Pink: DYAI) ("Dyadic" or "the Company"), a global leader in the commercial application of biotechnology for the discovery, development and production of enzymes and other proteins, today announced financial results for the quarter and nine months ended September 30, 2013.

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Dyadic's President and Chief Executive Officer, Mark Emalfarb, stated, "Our third quarter revenue performance reflects growing demand for our proprietary enzymes, especially due to our success in the animal feed market.  We added new sales channels into the food market that we anticipate will enable us to improve margins and accelerate sales growth in the coming quarters.  Our marketing and new product development activities have never been higher.  We continue to broaden and deepen our relationships with several of our strategic partners, have initiated two new product development programs, and are preparing to launch new C1-based products for the pulp & paper and textile markets in the first half of 2014."

Operating Highlights

During the quarter, C1 licensees made significant progress.  Some developments include:

• BASF.  Dyadic achieved the technical milestones defined in the research and licensing agreement, specifically relating to the technology transfer.  The completion of this milestone entitles Dyadic to the final milestone payment of $1,000,000, which will be recognized in the fourth quarter.  
• Abengoa.  Based on publicly available information, Dyadic expects Abengoa to begin production at its Hugoton, Kansas cellulosic ethanol plant in the first or second quarter of 2014, with volume production occurring by mid-2014.  Dyadic expects to receive royalty payments in conjunction with the operation of this facility in 2014.
• Sanofi.  Dyadic scientists have successfully purified and delivered a target protein to Sanofi, and we are now finalizing the purification process for the second.  The Company believes that Sanofi has, or will soon begin the pre-clinical testing phase using the delivered protein.

In support of its new product development initiative announced in the second quarter, Dyadic is expanding its Netherlands research facility by 40%.  The expansion should be complete by the end of the fourth quarter.  To offset the additional cost, Dyadic is closing its Greensboro, NC laboratory and relocating the capabilities.  In addition, Dyadic took cost reduction actions in IT and with certain external service providers during the quarter.  The full financial impact of these cost reductions will be seen during fiscal year 2014. 

During the quarter, Dyadic received the approval of its thirteenth patent issued in the U.S. and 54^th patent worldwide.  The patent is related to methods of developing and producing a variety of fungal enzymes.  The patent addresses methods to use novel enzymes in a variety of processes, including washing of clothing, detergent processes, bio-refining, de-inking and bio-bleaching of paper and pulp, and treatment of waste streams.

Financial Results for the Quarter Ended September 30, 2013 vs. September 30, 2012

Total revenue for the third quarter increased to $3.5 million compared to $2.5 million for the third quarter last year.  The increase in total revenue as compared to the same period last year was driven by a 55% increase in product related revenue, which was offset by a $211,000 decrease in research and development revenue.

Net product-related revenue for the third quarter increased to $3.2 million compared to $2.1 million for the third quarter last year.  The increase was attributable to newly added sales channels into the food market and continued growth in the recovering poultry market with our key animal feed customers.

There was no license fee revenue recognized in the third quarter.  The remaining $1.0 million upfront fee for the technology license that was signed with BASF on May 6, 2013 was due upon completion of the technology transfer.  The transfer was completed on October 11, 2013 and the remaining revenue will be recognized in the fourth quarter.  The payment was received on November 5, 2013.

Research and development revenue for the third quarter decreased 50% to $216,000 compared to $427,000 for the third quarter of 2012.  This decrease was due to the delay in the start of certain external research and development projects and the reallocation of research and development resources from externally funded projects to new product development initiatives.  Dyadic is now generating additional research and development revenue from the ongoing research funded by BASF.

Gross profit for the third quarter increased 14% to $691,000 compared to $614,000 for the third quarter last year.  The increase was due primarily to increased product related revenue and the associated margins.  Gross margins as a percent of sales were negatively impacted by changes to the product mix and the decreased research and development revenue, which generally have higher margins. 

Operating expenses for the third quarter increased 44% to $2.0 million compared to $1.4 million for the same period last year.  The increase was due primarily to increased costs associated with litigation against the Company's former outside legal counsel of approximately $514,000.  The increased litigation costs were anticipated and are expected to continue into 2014.

On October 22, 2013, the arbitration proceedings brought by Mr. Emalfarb against the Company were dismissed. In consideration for the dismissal, the Company agreed to reimburse Mr. Emalfarb approximately $313,000 for past expenses incurred.  Such amount is included in other expense in the condensed consolidated statements of operations for the quarter and as a component of accrued expenses in the condensed consolidated balance sheet as of September 30, 2013.  In addition to this reimbursement, Mr. Emalfarb will be entitled to receive a percentage of the net proceeds, if any, received by the Company related to the professional liability lawsuit against the Company's former outside legal counsel.

On August 8, 2012, the Company received $525,000 in settlement of certain of its claims against two defendants in the Company's professional liability lawsuit against its former outside legal counsel which is included in other income for the three month period ended September 30, 2012.

Net loss for the third quarter was $1.7 million, or ($0.05) per basic and diluted share, compared to a net loss of $392,000, or ($0.01) per basic and diluted share for the third quarter last year.

Financial Results for the Nine Months Ended September 30, 2013 vs. September 30, 2012

Total revenue for the nine months increased $134,000 to $13.0 million compared to $12.9 million for the same period last year.  The increase was due to a 22% rise in product-related revenue, which was offset by an aggregate decrease of $1.2 million in license fee revenue and research and development revenue for the nine months. 

Net product related revenue for the nine months increased to $7.1 million from $5.8 million for the same period a year ago.  The year-to-date growth of $1.3 million was due primarily to increased sales to existing customers as well as new customers in food and animal feed.

License fee revenue for the nine months decreased to $5.0 million compared to $5.5 million for the same period last year. No license fees were recognized in Q3 of either 2012 or 2013, however the Company will recognize the remaining $1.0 million access fee from BASF in the fourth quarter of 2013.

Research and development revenue for the nine months decreased 41% to $941,000 compared to $1.6 million for 2012.  The decrease was due to the delay in the start of certain external research and development projects and the reallocation of research and development resources from externally funded projects to new product development initiatives, which are internally funded, and to accelerate the continued enhancements and improvements to our C1 Platform Technology. 

Gross profit for the nine months decreased to $6.4 million compared to $7.4 million for the same period a year ago.  The decrease came primarily from the lower license fee revenue and decreased research and development revenue and their related margins previously mentioned. The remaining $1.0 million in revenue from the BASF license agreement will be recognized in the fourth quarter of 2013.

Total operating expenses for the nine months increased 20% to $5.4 million compared to $4.5 million for the same period a year ago.  The increase was due primarily to increased costs associated with litigation against the Company's former outside legal counsel of approximately $1.2 million, which was partially offset by the recovery of a doubtful account of $300,000 that was previously reserved as of December 31, 2012.  The increased litigation costs were anticipated and are expected to decrease upon completion of expert witness preparation.  The professional liability lawsuit is expected to continue into 2014.

During the third quarter of 2013, the Company recognized a loss of $313,000 on settlement of litigation, which is described above. During the third quarter of 2012, the Company received $525,000 in settlement of claims against certain former outside legal counsel. 

Net income for the nine months was $121,000, or $0.00 per basic and diluted share, compared to a net income of $2.8 million, or $0.09 per basic and $0.08 per diluted share, for the same period a year ago.

Financial Position and Cash Flow Analysis

At September 30, 2013, cash and cash equivalents were $8.5 million compared to $4.0 million at December 31, 2012.  During the nine months ended September 30, 2013, the Company generated approximately $4.5 million in cash and cash equivalents.  The Company used $496,000 for the same period in 2012.

In July 2013, the Company received the final installment of $2.5 million due under the Abengoa license agreement announced in April 2012.  On November 5, 2013, the Company received $842,000 for partial payment of the remaining upfront fee due under the BASF license agreement.  The payment was due upon completion of the transfer of certain technology to BASF.  In addition to the $842,000 the Company expects to receive approximately $950,000 in cash in the fourth quarter from taxes being withheld by the German government relating to the BASF agreement.

Total Convertible Subordinated Debt ("Debt") as of September 30, 2013 was $6.8 million.  In January 2013, the Debt decreased by $182,000 from $7.0 million as of December 31, 2012, due to the conversion of Debt to common stock.  On October 1, 2013, the Company extended the maturity dates of all of its outstanding debt to January 1, 2015.  The Company has a right to prepay $6.8 million of the debt any time after March 31, 2014, without penalty, with 30 days written notice.  The remaining $1.4 million Note Payable to Stockholder is non-convertible, and is not subject to the prepayment provision.

Capital expenditures for the nine months ended September 30, 2013 were approximately $148,000 and cash generated from the exercise of warrants and stock options was $218,000 for the same period.

2013 Full-year Outlook

As a result of the BASF license transaction, the expected continued growth in product related revenues and other strategic partnerships, Dyadic expects 2013 total revenues to increase versus 2012.  Because of the increased non-recurring litigation costs, the Company may break even or generate a small loss for the year.  Net of non-recurring litigation costs, the Company expects to be profitable for 2013.

The financial information contained in this press release should be read in conjunction with the financial statements and related footnotes which have been posted on the OTC market website at http://www.otcmarkets.com/stock/DYAI/filings and on Dyadic's website at http://dyadic.com/investorinfo/financials/.

Conference Call

A conference call to discuss third quarter 2013 results is scheduled for 5:00 p.m. Eastern Time on Thursday, November 14, 2013.  The conference call may be accessed by dialing +1 (888) 713-3595 (from the United States or Canada) or +1 (913) 905-3226 (from other countries) five to ten minutes prior to start time and providing the confirmation code 9272553.  A replay of the conference call will also be available on the Dyadic website shortly after the live event.

About Dyadic

Dyadic International, Inc. is a global biotechnology company that uses its patented and proprietary technologies to conduct research, development and commercial activities for the discovery, development, manufacture and sale of enzymes and other proteins for the bioenergy, bio-based chemicals, biopharmaceutical and industrial enzyme industries.

Dyadic trades on the OTC Pink tier of the OTC market. Investors can find real-time quotes, market information and financial reports for Dyadic on the OTC market website (www.otcmarkets.com/stock/DYAI/quote).

Cautionary Statement for Forward-Looking Statements

Certain statements contained in this press release are forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause Dyadic's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Except as required by law, Dyadic expressly disclaims any intent or obligation to update any forward-looking statements.

SOURCE Dyadic International, Inc.

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