U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

(Mark one)

{x}   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

                  For the quarterly period ended June 30, 2005
                  --------------------------------------------

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

               For the transition period from ________________ to

                      -------------------------------------
                        Commission file number 333-102629
                      -------------------------------------

                           Dyadic International, Inc.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified 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, Florida 33477
        -----------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (561) 743-8333
                                 --------------
                           (Issuer's telephone number)

 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 { }

As of August 12, 2005, there were 22,551,405 shares of registrant's common stock
outstanding, par value $.001 (including 300,300 shares held in escrow).

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



                                       1
<PAGE>

                                TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION                                            Page

Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheet - June 30, 2005............   3

           Condensed Consolidated Statements of Operations - Three-months
           and six-months ended June 30, 2005 and 2004.....................   4

           Condensed Consolidated Statements of Cash Flows - Six-months
           ended June 30, 2005 and 2004....................................   5

           Notes to Condensed Consolidated Financial Statements............   6

Item 2.    Management's Discussion and Analysis or Plan of Operation.......  16

Item 3.    Controls and Procedures.........................................  28

PART II.   OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.....  28

Item 4.    Submission of Matters to a Vote of Security Holders.............  29

Item 6.    Exhibits........................................................  30

Signatures.................................................................  30


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)

                           Dyadic International, Inc.
                      Condensed Consolidated Balance Sheet
                                  June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
Assets
Current assets:
<S>                                                                                 <C>
     Cash and cash equivalents                                                      $ 14,446,299
     Accounts receivable, net of allowance for uncollectible accounts of $555,115      2,805,754
     Inventory                                                                         6,491,516
     Prepaid expenses and other current assets                                           757,206
                                                                                    ------------
Total current assets                                                                  24,500,775
                                                                                    ------------

Fixed assets, net                                                                      1,619,066
Intangible assets, net                                                                   174,239
Goodwill                                                                                 467,821
Other assets                                                                             180,081
                                                                                    ------------
Total assets                                                                        $ 26,941,982
                                                                                    ============

Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                                               $  1,766,313
     Accrued expenses                                                                  1,288,999
     Accrued interest payable to stockholders                                             64,667
     Current portion of notes payable to stockholders                                    171,986
     Income taxes payable                                                                 42,025
                                                                                    ------------
Total current liabilities                                                              3,333,990
                                                                                    ------------

Long-term liabilities:
     Notes payable to stockholders, net of current portion                             3,446,109
     Other liabilities                                                                    34,455
     Minority interest                                                                   109,737
                                                                                    ------------
Total long-term liabilities                                                            3,590,301
                                                                                    ------------
Total liabilities                                                                      6,924,291
                                                                                    ------------

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 - 22,251,105             22,251
     Additional paid-in capital                                                       49,351,594
     Notes receivable from exercise of stock options                                    (462,500)
     Accumulated deficit                                                             (28,893,654)
                                                                                    ------------
Total stockholders' equity                                                            20,017,691
                                                                                    ------------
Total liabilities and stockholders' equity                                          $ 26,941,982
                                                                                    ============
</TABLE>

See accompanying notes.


                                       3
<PAGE>

                           Dyadic International, Inc.
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                Three Months Ended              Six Months Ended
                                                     June 30,                        June 30,
                                               2005            2004            2005            2004
                                           ------------------------------------------------------------
<S>                                        <C>             <C>             <C>             <C>
Net sales                                  $  3,988,077    $  4,441,416    $  7,722,437    $  8,431,290
Cost of goods sold                            3,210,890       3,368,619       6,195,648       6,322,156
                                           ------------------------------------------------------------
Gross profit                                    777,187       1,072,797       1,526,789       2,109,134
                                           ------------------------------------------------------------

Expenses:
     Research and development                   972,821         857,355       2,691,218       1,707,740
     Selling, general and administrative      2,035,232       1,077,066       3,903,592       2,053,394
                                           ------------------------------------------------------------
Total expenses                                3,008,053       1,934,421       6,594,810       3,761,134
                                           ------------------------------------------------------------

Loss from operations                         (2,230,866)       (861,624)     (5,068,021)     (1,652,000)
                                           ------------------------------------------------------------

Other income (expense):
     Interest expense                          (176,360)       (121,921)       (349,761)       (223,674)
     Investment income, net                      94,516             401          23,258           1,736
     Minority interest                           (3,147)        (26,233)        (10,571)        (46,475)
     Foreign currency exchange gains
       (losses), net                             38,503         (79,541)         36,481        (134,261)
     Other (expense) income, net                    711           9,004          (4,016)         10,513
                                           ------------------------------------------------------------
Total other expense                             (45,777)       (218,290)       (304,609)       (392,161)
                                           ------------------------------------------------------------

Loss before income taxes                     (2,276,643)     (1,079,914)     (5,372,630)     (2,044,161)
Provision for income taxes                       15,571          30,702          27,878          56,958
                                           ------------------------------------------------------------
Net loss                                   $ (2,292,214)   $ (1,110,616)   $ (5,400,508)   $ (2,101,119)
                                           ============================================================

Net (loss) income applicable to holders
    of common stock                        $ (2,292,214)   $  9,575,079    $ (5,400,508)   $  8,376,183
                                           ============================================================

Net (loss) income per common share:
          Basic                            $      (0.10)   $       0.77    $      (0.25)   $       0.67
                                           ============================================================
          Diluted                          $      (0.10)   $      (0.07)   $      (0.25)   $      (0.14)
                                           ============================================================
Weighted average common shares used
    in calculating net (loss) income per
    share:
          Basic                              22,060,371      12,460,806      21,997,824      12,460,806
                                           ============================================================
          Diluted                            22,060,371      14,893,072      21,997,824      15,231,396
                                           ============================================================
</TABLE>


See accompanying notes.


                                       4
<PAGE>

                           Dyadic International, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                Six-Months Ended June 30,
                                                                                  2005            2004
                                                                              ----------------------------
Operating activities
<S>                                                                           <C>             <C>
Net loss                                                                      $ (5,400,508)   $ (2,101,119)
                                                                              ----------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization of fixed assets                                 245,152         251,589
     Amortization of intangible and other assets                                    45,066          45,066
     Amortization of costs related to modification of notes payable to
         stockholder                                                               185,569              --
     Minority interest                                                              10,571          46,475
     Provision for doubtful accounts                                                93,632          11,000
     Loss on disposal of fixed assets                                                2,448              --
     Stock issued for consulting services                                           49,761              --
     Compensation expense on non-employee stock options                             20,821         110,548
     Changes in operating assets and liabilities:
         Accounts receivable                                                       178,696        (148,162)
         Inventory                                                                 150,517      (1,674,201)
         Prepaid expenses and other current assets                                  85,683        (367,718)
         Other assets                                                               (3,463)        (32,180)
         Accounts payable                                                       (1,192,908)      1,562,584
         Accrued expenses                                                         (144,894)         (3,520)
         Accrued interest payable to stockholders                                  (43,037)        175,507
         Deferred revenue                                                          (75,000)        (45,756)
         Income taxes payable                                                       29,216          54,392
         Other liabilities                                                          (1,358)             --
                                                                              ----------------------------
Total adjustments                                                                 (363,528)        (14,376)
                                                                              ----------------------------
Net cash used in operating activities                                           (5,764,036)     (2,115,495)
                                                                              ----------------------------
Investing activities
Purchases of property and equipment                                               (202,551)        (46,004)
                                                                              ----------------------------
Net cash used in investing activities                                             (202,551)        (46,004)
                                                                              ----------------------------
Financing activities
Repayment of other notes payable                                                        --          (4,514)
Repayment of notes payable to stockholders                                              --         (99,541)
Payment for issuance costs related to private offering                             (97,764)       (122,992)
Proceeds from sale of common stock                                                      --       3,317,000
Payment for redemption of Redeemable Series A convertible preferred stock               --      (1,500,000)
                                                                              ----------------------------
Net cash (used in) provided by financing activities                                (97,764)      1,589,953
                                                                              ----------------------------
Net decrease in cash and cash equivalents                                       (6,064,351)       (571,546)
Cash and cash equivalents at beginning of period                                20,510,650       1,649,562
                                                                              ----------------------------
Cash and cash equivalents at end of period                                    $ 14,446,299    $  1,078,016
                                                                              ============================
Noncash investing and financing activities:
Fair value of common stock issued for land purchase                           $    861,861    $         --
                                                                              ============================
</TABLE>


See accompanying notes.


                                       5
<PAGE>

                           Dyadic International, Inc.
              Notes to Condensed Consolidated Financial Statements
                                  June 30, 2005
                                   (Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim information and with the United States Securities and
Exchange Commission's (the "SEC") instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments of
a normal and recurring nature considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
June 30, 2005 may not necessarily be indicative of the results that may be
expected for the year ending December 31, 2005.

For further information, refer to Dyadic International, Inc.'s (the "Company")
consolidated financial statements and footnotes thereto included in the Annual
Report on Form 10-KSB for the year ended December 31, 2004, as filed with the
SEC.

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.

Concurrently, the officers and directors of the Florida corporation formerly
known as Dyadic International, Inc. became the officers and directors of the
merged and reorganized entity. A total of 12,580,895 shares of common stock were
exchanged in the Merger, on a one-for-one basis, including the 300,300 shares
placed in escrow related to a research and development agreement. 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.

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 condensed consolidated financial statements.
Additionally, the accompanying condensed 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.

Immediately prior to the Merger, CCP Worldwide, Inc. disposed of its only
operating subsidiary as part of a Split-off Agreement among 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 following the Merger of Dyadic International, Inc., formerly CCP
Worldwide, Inc., are the operations of the Company.


                                       6
<PAGE>

Historical Results of Operations

      The Company has incurred losses from operations during the last several
years, which have resulted in an accumulated deficit of approximately $28.9
million as of June 30, 2005. 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 2005. The Company believes that there will be
sufficient capital to fund its operations and meet its obligations through year
end 2006. The Company anticipates that the rate at which it has used cash to
fund its operations in the first two quarters of 2005 will likely decrease in
the near term, through the combination of the following factors which it expects
to occur: an increase in the net sales to other industrial enzyme industries,
such as pulp and paper and animal feed, which are expected to be at a higher
gross margin than sales to the textiles market, the decrease in our ongoing
costs of being a public company, the flexibility of research and development
spending through the use of outsourced facilities and personnel, the reduction
of the existing levels of inventory, as well as possible licensing or selling of
certain technologies or other arrangements. The Company has established a number
of flexible partnerships in the areas of manufacturing and research and
development, enabling us to adjust spending in those areas as necessary, to
achieve the objectives of our business plan, and manage both our resources and
cash utilization rate. There can be no assurance, however, that the Company will
achieve decreased cash outflows as a result of these factors, or achieve them in
the timeframe outlined. It is possible that the Company will seek additional
financing within this timeframe. 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. Additional
funds may be raised through public or private financings, collaborative
relationships, licensing or selling of certain technologies or other
arrangements. Additional funding, if sought, may not be available on terms
favorable to the Company. Further, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Failure to raise capital when needed may harm our
business and operating results.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement
No. 154, Accounting Changes and Error Corrections-a replacement of APB Opinion
No. 20 and FASB Statement No. 3 (SFAS 154). This Statement replaces APB Opinion
No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. Earlier
application is permitted for accounting changes and corrections of errors made
occurring in fiscal years beginning after June 1, 2005. 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.

In December 2004, the FASB issued Statement of Financial Accounting Standards
(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 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.


                                       7
<PAGE>

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.

Use of Estimates

The preparation of condensed consolidated 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 condensed consolidated financial statements. Actual results could differ
from those estimates.

Net (Loss) Income Per Share

Basic net (loss) income per share has been computed using the weighted-average
number of shares of common stock outstanding during the period. In arriving at
net (loss) income 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.

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

<TABLE>
<CAPTION>
                                                 Three-Months Ended June 30,      Six-Months Ended June 30,
                                                ------------------------------------------------------------
                                                    2005            2004            2005            2004
                                                ------------------------------------------------------------
<S>                                             <C>             <C>             <C>             <C>
Net loss                                        $ (2,292,214)   $ (1,110,616)   $ (5,400,508)   $ (2,101,119)
Less: Accrued dividends on preferred stock                --        (151,777)             --        (350,684)
      Accretion of preferred stock issuance
       costs                                              --          (7,167)             --         (16,653)
Plus: Excess of preferred carrying value
       over redemption cost                               --      10,844,639              --      10,844,639
                                                ------------------------------------------------------------
Net (loss) income applicable to holders of
 common stock for basic calculation             $ (2,292,214)      9,575,079    $ (5,400,508)      8,376,183
                                                ============                    ============
Plus: Accrued dividends on preferred stock                --         151,777              --         350,684
      Accretion of preferred stock issuance
       costs                                              --           7,167              --          16,653
      Interest payable on subordinated notes
       Payable                                            --          21,176              --          26,192
Less: Excess of preferred carrying value over
       redemption cost                                    --     (10,844,639)             --     (10,844,639)
                                                ------------------------------------------------------------
Net loss applicable to holders of common
 stock for diluted calculation                  $ (2,292,214)   $ (1,089,440)   $ (5,400,508)   $ (2,074,927)
                                                ============================================================
Weighted average common shares used in
 computing net (loss) income per common
 share:
 Basic                                            22,060,371      12,460,806      21,997,824      12,460,806
                                                ============                    ============
Plus: Shares obtainable upon conversion of
       preferred stock                                             2,092,694                       2,426,312
      Shares obtainable upon conversion of
       convertible notes                                             339,572                         344,278
                                                                ------------                    ------------
 Diluted                                          22,060,371      14,893,072      21,997,824      15,231,396
                                                ============================================================

Net (loss) income per common share:
 Basic                                          $      (0.10)   $       0.77    $      (0.25)   $       0.67
                                                ============================================================
 Diluted                                        $      (0.10)   $      (0.07)   $      (0.25)   $      (0.14)
                                                ============================================================
</TABLE>


                                       8
<PAGE>

The following 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>
                                                        Three-Months and Six-Months Ended
                                                                    June 30,
                                                          ---------------------------
                                                              2005           2004
                                                          ---------------------------
<S>                                                       <C>              <C>
Instruments to purchase common stock:
  Stock options outstanding pursuant to the 2001 Equity
  Compensation Plan                                          1,398,839        478,500
  Other stock options                                           65,000         65,000
  Warrants outstanding                                       6,952,776      1,500,000
Common stock issuable pursuant to conversion features:
  Subordinated convertible notes payable                       473,835             --
                                                          ---------------------------
Total shares of common stock considered anti-dilutive        8,890,450      2,043,500
                                                          ===========================
</TABLE>

A total of 300,300 contingently issuable shares under an agreement to conduct
research and development activities on behalf of the Company are also excluded.
As of June 30, 2005, such shares of common stock are unearned, nonvested,
restricted shares that will be considered outstanding once earned under the
agreement.

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 average cost 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.

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. 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.

Pro forma information regarding net loss and net 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:


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                    Three-Months Ended June 30,      Six-Months Ended June 30,
                                                   ------------------------------------------------------------
                                                       2005            2004            2005            2004
                                                   ------------------------------------------------------------
<S>                                                <C>             <C>             <C>             <C>
Net (loss) income applicable to
  holders of common stock, as
  reported for basic calculation                   $ (2,292,214)   $  9,575,079    $ (5,400,508)   $  8,376,183

Add: Stock-based employee
  compensation cost (intrinsic value
  method)                                                    --              --              --              --

Deduct: Fair value method stock
  option expense                                        (21,656)        (31,327)        (95,646)        (65,197)
                                                   ------------------------------------------------------------
Pro forma net (loss) income
  applicable to holders of common
  stock, basic calculation                         $ (2,313,870)   $  9,543,752    $ (5,496,154)   $  8,310,986
                                                   ============================================================

Net loss applicable to holders of
  common stock, as reported for
  diluted calculation                              $ (2,292,214)   $ (1,089,440)   $ (5,400,508)   $ (2,074,927)
Add: Stock-based employee
  compensation cost (intrinsic value
  method)                                                                    --                              --
Deduct: Fair value method stock
  option expense                                                        (31,327)                        (65,197)
                                                                   ------------                    ------------
Pro forma net loss applicable
   to holders of common stock,
   diluted calculation                             $ (2,292,214)   $ (1,120,767)   $ (5,400,508)   $ (2,140,124)
                                                   ============================================================

Net (loss) income per common share, as reported:

  Basic                                            $      (0.10)   $       0.77    $      (0.25)   $       0.67
                                                   ============================================================
  Diluted                                          $      (0.10)   $      (0.07)   $      (0.25)   $      (0.14)
                                                   ============================================================

Pro forma net loss per common share:
  Basic                                            $      (0.11)   $       0.77    $      (0.25)   $       0.67
                                                   ============================================================
  Diluted                                          $      (0.11)   $      (0.08)   $      (0.25)   $      (0.14)
                                                   ============================================================
</TABLE>

Revenue Recognition

The Company recognizes revenue 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.


                                       10
<PAGE>

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.

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 period-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
period-end exchange rates. Net translation adjustments and realized exchange
gains and losses are included as a component of foreign currency exchange gains
(losses), net, in the accompanying condensed consolidated statements of
operations.

2.  Long-Term Liabilities

Long-term liabilities consist of the following at June 30, 2005:

      Notes payable to stockholders:

      Loan payable with a rate of 8% as of June 30, 2005 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
        2007 and conversion price of $3.33. Accrued interest of
        $239,941 included in principal balance. Net of
        unamortized beneficial conversion feature of $172,908.       $ 2,252,033

      Subordinated convertible note payable to Mark A. Emalfarb
        Trust (Emalfarb Trust Note) with a rate of 6%, secured by
        all assets of the Company, in the original principal
        amount of $750,766, dated May 2001, principal and accrued
        interest due January 1, 2007, or earlier upon a Qualified
        Public Offering, a Liquidation Event, a repurchase by
        payor or the conversion of all Series A Preferred Stock
        into Common Stock. Conversion price of $3.33. Accrued
        interest of $86,058 included in principal balance. Net of
        unamortized beneficial conversion feature of $203,526.           633,298

      Subordinated convertible note payable to Francisco Trust
        u/a/d February 28, 1996 (the Francisco Trust) (Francisco
        Trust Note) with a rate of 6%, secured by all assets of
        the Company, in the original principal amount of
        $664,839, dated May 2001, principal and accrued interest
        due January 1, 2007, or earlier upon a Qualified Public
        Offering, a Liquidation Event, a repurchase by payor or
        the conversion of all Series A Preferred Stock into
        Common Stock. Conversion price of $3.33. Accrued interest
        of $76,209 included in principal balance. Net of
        unamortized beneficial conversion feature of $180,270.           560,778
                                                                    ------------
                                                                    $  3,446,109
                                                                    ============

      Subordinated notes payable to the minority stockholders of
        a subsidiary, interest at a weighted average rate of 6.0%
        as of June 30, 2005, no fixed repayment terms, classified
        as current.                                                 $   171,986
                                                                    ============

On May 29, 2003, the Company obtained a $3.0 million revolving note from a group
of stockholders, including the Chief Executive Officer, who contributed
$2,185,000, and a group of other Dyadic-Florida stockholders who contributed
$815,000, 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. Approximately $903,000 of the proceeds from the October 2004
Offering were used to pay off the $815,000 of principal and approximately
$88,000 of accrued interest for the portion of the bridge loan contributed by
the group of other Dyadic-Florida stockholders. The loan is collateralized by a
security interest in all of the Company's assets.


                                       11
<PAGE>

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). 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. 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, will be amortized to interest expense through the new maturity
date. The remaining unamortized portion of $172,908 is reflected as a reduction
of notes payable to stockholders in the accompanying condensed consolidated
balance sheet as of June 30, 2005. Approximately $29,000 and $58,000 was
amortized to interest expense during the three-month and six-month periods ended
June 30, 2005, respectively. Interest expense on the Bridge Loan excluding the
amortization of the beneficial conversion feature, was approximately $48,000 and
$60,000 for the three-month periods ended June 30, 2005 and 2004, respectively,
and approximately $96,000 and $119,000 for the six-month periods ended June 30,
2005 and 2004, respectively.

In connection with the Merger, 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 will be
amortized to interest expense through the new maturity date. The remaining
unamortized portion of $383,796 is reflected as a reduction of notes payable to
stockholders in the accompanying condensed consolidated balance sheet as of June
30, 2005. Approximately $64,000 and $128,000 was amortized to interest expense
during the three-month and six-month periods ended June 30, 2005.

Interest expense on the subordinated convertible notes payable was approximately
$24,000 and $21,000 for the three-month periods ended June 30, 2005 and 2004,
respectively and approximately $47,000 and $26,000 for the six-month periods
ended June 30, 2005 and 2004, respectively. 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 the wife and children of Mark A. Emalfarb, respectively.

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 $2,600 and $2,600
for the three-month periods ended June 30, 2005 and 2004, respectively, and
$5,100 and $5,400 for the six-month periods ended June 30, 2005 and 2004,
respectively. Accrued interest of $64,667 is included in accrued interest
payable to stockholders as of June 30, 2005.

3. Stockholders' Equity

In February 2005, the Company signed an agreement with an investor relations
consulting firm for a one year term. In addition to monthly cash compensation
and expense reimbursement, the Company issued 10,000 shares of common stock as
compensation for services to be rendered, which were valued at $39,000 based on
the fair market value of the Company's common stock on the date of grant. An
additional 10,000 shares of common stock were issued on May 25, 2005 in
accordance with the agreement. The stock was valued at $27,500 based on the fair
market value of the Company's common stock on the date of grant. The common
stock has not been registered under the Securities Act and may not be offered or
sold absent registration under the Securities Act or an applicable exemption
from such registration requirements. The stock certificate evidencing such
securities bears a restricted legend.

The agreement may be terminated on August 25, 2005 or with five days prior
notice for cause. Unless the agreement is terminated, the Company will issue an
additional 10,000 shares of common stock on that date. The $39,000 was amortized
over a three-month period and is included in selling, general and administrative
expenses for the six-month period ended June 30, 2005. The $27,500 of
compensation cost is being amortized to expense over a three-month period
beginning on May 25, 2005. Deferred compensation expense of approximately
$17,000 is included in prepaid expenses and other current assets in the
accompanying condensed consolidated financial statements as of June 30, 2005.


                                       12
<PAGE>

In May 2005, the Company issued 300,300 shares of common stock pursuant to a
real estate purchase contract with F&C Holdings, LLC (Holdings) dated July 31,
2004 (the Commercial Land Purchase And Sale Agreement), in exchange for an
undeveloped 1.13 acre parcel of land (the Site). The Company recorded the land
at $861,861, based on the fair market value of the Company's common stock on the
date of closing. The Company formed Dyadic Real Estate Holdings, Inc., a Florida
corporation and wholly owned subsidiary in May 2005, to which it has assigned
the Commercial Land Purchase and Sale Agreement and the Site.

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. 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.

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. It is not the Company's intention to use its
own funds to develop this property, therefore the Company is considering such
options as a joint venture or other arrangement to accomplish the development of
the Site. There can be no assurance, however, that any joint venture or other
arrangements will occur within the prescribed timeframe.

If after two years from the closing, Dyadic has not commenced development of the
Site, then Holdings shall, in exchange for a 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.

4. Commitments and Contingencies

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.

5. 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.


                                       13
<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
basis of presentation and summary of significant accounting policies. The
Company accounts for intersegment sales (which are eliminated in consolidation)
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>
                                                      Three-Months Ended June 30, 2005
                                ----------------------------------------------------------------------------
                                    U.S.           Asian        Netherlands
                                 Operating       Operating       Operating
                                  Segment         Segment         Segment       Eliminations       Totals
                                ----------------------------------------------------------------------------
Net Sales:
<S>                             <C>             <C>             <C>             <C>             <C>
  External customers            $  2,513,500    $  1,474,577    $         --    $         --    $  3,988,077
  Intersegment                       252,911              --              --        (252,911)             --
                                ----------------------------------------------------------------------------
Total net sales                    2,766,411       1,474,577              --        (252,911)      3,988,077

(Loss) income from operations     (1,978,184)         54,440        (300,164)         (6,958)     (2,230,866)
Investment income, net               105,052             157              --         (10,693)         94,516
Interest expense (a)                (129,424)        (16,199)        (41,430)         10,693        (176,360)
Depreciation and amortization         19,611          11,556          93,031              --         124,198
Capital expenditures                 977,748          36,290          15,919              --       1,029,957
Total assets at June 30, 2005     26,677,015       2,082,183         225,493      (2,042,709)     26,941,982

<CAPTION>
                                                      Three-Months Ended June 30, 2004
                                ----------------------------------------------------------------------------
                                    U.S.           Asian        Netherlands
                                 Operating       Operating       Operating
                                  Segment         Segment         Segment       Eliminations       Totals
                                ----------------------------------------------------------------------------
Net Sales:
<S>                             <C>             <C>             <C>             <C>             <C>
  External customers            $  2,779,664    $  1,661,752    $         --    $         --    $  4,441,416
  Intersegment                       356,700              --              --        (356,700)             --
                                ----------------------------------------------------------------------------
Total net sales                    3,136,364       1,661,752              --        (356,700)      4,441,416

(Loss) income from operations       (824,181)        193,757        (205,395)        (25,805)       (861,624)
Investment income, net                11,172              59              13         (10,843)            401
Interest expense (a)                 (84,165)        (16,475)        (32,124)         10,843        (121,921)
Depreciation and amortization         20,261          12,357          93,031              --         125,649
Capital expenditures                   1,114           8,675              --              --           9,789
Total assets at June 30, 2004     12,121,996       2,305,337         579,717      (1,269,560)     13,737,490
</TABLE>


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                      Six-Months Ended June 30, 2005
                                ----------------------------------------------------------------------------
                                    U.S.           Asian        Netherlands
                                 Operating       Operating       Operating
                                  Segment         Segment         Segment       Eliminations       Totals
                                ----------------------------------------------------------------------------
Net Sales:
<S>                             <C>             <C>             <C>             <C>             <C>
  External customers            $  4,904,043    $  2,818,394    $         --    $         --    $  7,722,437
  Intersegment                       386,531              --              --        (386,531)             --
                                ----------------------------------------------------------------------------
Total net sales                    5,290,574       2,818,394              --        (386,531)      7,722,437

(Loss) income from operations     (4,694,841)        124,816        (524,530)         26,534      (5,068,021)
Investment income, net                44,230             288               8         (21,268)         23,258
Interest expense (a)                (262,078)        (30,093)        (78,858)         21,268        (349,761)
Depreciation and amortization         38,540          20,551         186,061              --         245,152
Capital expenditures               1,002,274          46,219          15,919              --       1,064,412
Total assets at June 30, 2005     26,677,015       2,082,183         225,493      (2,042,709)     26,941,982

<CAPTION>
                                                      Six-Months Ended June 30, 2004
                                ----------------------------------------------------------------------------
                                    U.S.           Asian        Netherlands
                                 Operating       Operating       Operating
                                  Segment         Segment         Segment       Eliminations       Totals
                                ----------------------------------------------------------------------------
Net Sales:
<S>                             <C>             <C>             <C>             <C>             <C>
  External customers            $  5,407,871    $  3,023,419    $         --    $         --    $  8,431,290
  Intersegment                       441,705              --              --        (441,705)             --
                                ----------------------------------------------------------------------------
Total net sales                    5,849,576       3,023,419              --        (441,705)      8,431,290

(Loss) income from operations     (1,585,395)        354,625        (411,383)         (9,847)     (1,652,000)
Investment income, net                24,195              72              20         (22,551)          1,736
Interest expense (a)                (150,877)        (32,347)        (63,001)         22,551        (223,674)
Depreciation and amortization         40,523          25,005         186,061              --         251,589
Capital expenditures                  14,880          31,124              --              --          46,004
Total assets at June 30, 2004     12,121,996       2,305,337         579,717      (1,269,560)     13,737,490
</TABLE>

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


                                       15
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operation

      The following should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2004.

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

      This Quarterly Report on Form 10-QSB 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. Important factors that could cause the actual results, performance
or achievement of the Company to differ materially from the Company's
expectations include (i) assumptions or cautionary factors discussed in
connection with a particular forward-looking statement or elsewhere in this Form
10-QSB, or (ii) cautionary factors set forth in other Company's filings from
time to time with the Securities and Exchange Commission, including our Annual
Report on Form 10-KSB for the year ended December 31, 2004, including the
section titled "Description of Business - Risk Factors That May Affect Future
Results." All forward-looking statements attributable to the Company 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.

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:


                                       16
<PAGE>

      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. 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 will exist for our
C1 Expression System when the technology is fully developed. 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. Within therapeutic
proteins, the production of antibodies is an area of special focus for us in
view of the large number of antibodies in pharmaceutical companies' R&D
pipelines for which a reliable and cost-effective production host is required.

      Although this reprogramming of the C1 host is targeted at improving the
production of biopharmaceuticals from human genes - which remains the focus of
our commercialization strategy for the C1 Expression System - one side benefit
of this core technology development program will be to further improve the
capabilities of this unique fungus to make even larger quantities of proteins
associated with genes from diverse living organisms, such as fungi other than
C1, yeast, bacteria, algae and plants. This will help us generate revenues in
the shorter term by cost-effective production of proteins and enzymes of
commercial interest to potential business partners in sectors such as energy,
agriculture, and food and feed. We continue to mine the C1 genome and have
identified a number of enzymes that have the potential to become new products
for several industries, such as pulp and paper and food and feed.

      Still in the development stage, we refer to these activities as our
BioSciences Business. These activities have generated $75,000 in revenue through
June 30, 2005 and no revenue in 2004.


                                       17
<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, eight issued International
patents and 49 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.


                                       18
<PAGE>

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

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

      We derive almost all of our revenues from the conduct of our Enzyme
Business, and have thus far generated only nominal revenues from our conduct of
our BioSciences Business. Since we began developing the C1 Host Technology in
1998, we have incurred net losses of approximately $28,894,000 through June 30,
2005. 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 (see Sales & Marketing
Strategy below), and generate income from the conduct of our BioSciences
Business, either directly or through potential future license agreements and
collaborative partnerships with drug companies.

Research and Development - C1 Host Technology

      During the first half of 2005, our efforts have focused on developing
improved hosts for the production of a wider variety of proteins from diverse
sources. For example, using gene knock-out technology, several genes thought to
limit expression of foreign proteins in C1 have been eliminated. Through the
removal of unwanted or interfering genes, our gene knock-out technology has
shown some promise of producing human proteins at higher yields. Although the
initial results are not at the levels we ultimately desire, the results of
expression experiments in the improved strains suggest higher stability of the
expressed human proteins. The effect of these knock-outs on C1's expression of
foreign proteins currently is being tested. We believe that using knock-out
technology will make our C1 expression system more robust and versatile, thus
allowing us to produce a more diverse set of proteins for use in multiple
industries.

      In May 2005, we achieved the early completion of a high quality sequence
of the 38,000,000 bases in the C1 genome by Agencourt Bioscience Corporation.
The C1 sequence will aid in the development of our current business based on the
ability of the C1 organism to produce large volumes of low cost industrial
enzymes for industrial, textile, pulp and paper, feed and food, and agricultural
applications and to expand the commercial capabilities of this technology. We
expect to further extend its market reach to develop new and better therapeutic
proteins more affordably. Completion of the C1 genome sequencing will permit us
to mine it to identify novel and improved protein products for a broad spectrum
of industries, including energy, feed and food, pulp and paper, and
pharmaceuticals. In addition, this sequence information is expected to enable us
and our collaborators to expand the variety of proteins and enzymes that can be
brought to market. As an example, we expect to provide unique enzymes to
companies in these industries to alleviate production process bottlenecks and
high manufacturing costs they often face, as well as to enable manufacturing of
many products in their R&D pipelines for which no suitable production processes
have heretofore been found. It is expected that this genome sequence information
will also allow Dyadic to improve the C1 Expression System by (i) readily
identifying and isolating genes that interfere with high-level expression of
proteins and knocking them out using the technology described above and (ii)
allowing the identification and improvement of genes and proteins that have a
positive impact on gene expression.

      While the sequence has already proved useful by allowing Dyadic to search
for genes within the raw sequence data, we anticipate additional value when the
genome is fully annotated. Annotation will result in gene mining, curation,
search, and viewing tools to allow the extraction of useful information from the
C1 genome sequence. This annotated searchable genomic sequence will serve as a
blueprint for the C1 host strain and will facilitate further development of C1
based technology as a platform for discovery and production of a variety of
proteins, including high-value therapeutics.

Sales & Marketing Strategy - Enzymes

      One of our top priorities for 2005 is to sharply expand the introduction
of our new pulp and paper enzyme products to that industry. While we believe
these products offer an exceptional value proposition for this industry, we made
a strategic decision to approach the penetration of this market with an acute
sensitivity to the fact that our target customer decision-makers are responsible
for physical plants costing, in many instances, several hundred million dollars
or more, and are accustomed to dealing with highly technical sales teams with
strong support competencies, following long-term trials of new products.
Accordingly, we set about to recruit and assemble a team of seasoned sales and
marketing executives and technical salesmen with relevant industry experience in
promoting and maintaining sales relationships involving substantial on-going
sales and technical servicing. Thus far in 2005, we have successfully recruited
a Vice President of Sales & Marketing - Enzymes, a Vice President - Pulp &
Paper, and 5 technical sales representatives whom we believe fit this
description. During the second half of 2005 and into 2006 we intend to expand
our pulp and paper sales and marketing infrastructure, as we work to capture
both an increasing number of new customer trials and convert existing and new
customer trials into significant and sustained levels of pulp and paper product
sales. We continue to estimate the addressable market for our existing enzyme
products in the pulp and paper industry and potential enzyme products for the
pulp and paper industry currently in our research and development pipeline to be
in excess of $1.0 billion.

      We have also begun to focus efforts in other industries, such as animal
feed, either on our own, or possibly in a collaborative effort with a third
party. Although we anticipate increased revenues in industrial enzyme industries
other than textiles, we have not generated sufficient sales activity on which to
base projections about the sales levels for the rest of 2005 and beyond.


                                       19
<PAGE>

Results of Operations for the Three-Months Ended June 30, 2005 Compared to the
Three-Months Ended June 30, 2004

The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's condensed consolidated statements of
operations in comparing the three-months ended June 30, 2005 to the three-months
ended June 30, 2004 (in thousands):

                                        --------------------------------------
                                              Three-Months Ended June 30,
                                        --------------------------------------
                                                                     Increase
                (In thousands)             2005           2004      (Decrease)
                                        --------------------------------------

Net sales                               $    3,988    $    4,441    $     (453)
Cost of goods sold                           3,211         3,369          (158)
                                        --------------------------------------
Gross profit                                   777         1,072          (295)
                                        --------------------------------------


Operating expenses:
  Research and development                     973           857           116
  Selling, general and administrative        2,035         1,077           958
                                        --------------------------------------
                                             3,008         1,934         1,074

Loss from operations                        (2,231)         (862)       (1,369)
                                        --------------------------------------

Other income (expense):
  Interest expense                            (176)         (122)          (54)
  Investment income, net                        95            --            95
  Minority interest                             (3)          (26)           23
  Foreign currency exchange gain
    (loss), net                                 39           (79)          118
  Other income, net                             --             9            (9)
                                        --------------------------------------
Total other expense                            (45)         (218)          173
                                        --------------------------------------

Loss before income taxes                    (2,276)       (1,080)       (1,196)
Provision for income taxes                     (16)          (31)           15
                                        --------------------------------------
Net loss                                $   (2,292)   $   (1,111)   $   (1,181)
                                        ======================================

Net Sales

      For the three-months ended June 30, 2005, we generated net sales of
approximately $3,988,000, compared to net sales of approximately $4,441,000 for
the comparable period ended June 30, 2004, a decrease of approximately $453,000.
This decline in revenues reflects both the continued margin pressure in the
textile industry and aggressive pricing by competitors which has created a
strong downward pressure on pricing as well as the continued, although
decreasing concentration of the Company's sales to the textiles market (69% and
82% for the three-month periods ended June 30, 2005 and 2004, respectively).
Revenues also continue to be adversely affected by the negative residual effects
on the Company's competitive position in its markets resulting primarily from
the Company's inability, between 2003 and most of 2004, to fund working capital,
staffing expansion, product registrations and product development needs, when
the Company chose to instead expend its very limited resources on extending its
C1 Host Technology platform. The Company is endeavoring to transition its
revenue base from the lower margin textile enzymes to higher margin areas such
as enzymes for the pulp and paper and animal feed industries, and has begun to
achieve slight growth in these other enzyme industries, increasing net sales in
these industries by 46% over sales for the three-months ended June 30, 2004 (or
29% of net sales versus 19%).


                                       20
<PAGE>

      To what degree our revenues from the textiles market will continue to
decline in the future will depend not only on that market's dynamics, but also
on the extent to which pricing pressure created by our competitors continues, on
our success in developing new products and our ability to lower our production
costs. We believe our revenues will resume growth when new products being
developed from our C1 Host Technology and other technologies for new markets
(e.g. pulp & paper and animal feed) begin to achieve penetration and other new
products are introduced both to existing and other new markets. We have made and
continue to make substantial investments both in personnel and other initiatives
since November 2004 to expand our sales, marketing and product development
efforts. However, we intend to exercise discipline over the application of
resources to the textiles market (which is characterized by low profit margins
and intense competition) relative to other higher profit and larger market
opportunities we identify, the initial effects of which are beginning to be seen
in the second quarter of 2005. Nonetheless, the markets for a number of our new
products are generally characterized by longer sales cycles for reasons relating
to various factors, such as required governmental registration processes (e.g.
animal feed enzymes in Europe) and required product trials at customers'
facilities of multi-month durations or longer (e.g. pulp & paper), and we can,
therefore, offer no guidance as to when, or if, these new products will
penetrate those markets.

The following table reflects the Company's sales by industry for the three-month
periods ended June 30, 2005 and 2004:

<TABLE>
<CAPTION>
                         ------------------------------------------
                                 Three-Months Ended June 30,
                         -------------------------------------------------------------------
                             2005          %       2004           %      Increase/(Decrease)
                         -------------------------------------------------------------------
<S>                      <C>              <C>   <C>              <C>         <C>
Textile*                 $2,752,000       69%   $3,644,000       82%         $ (892,000)
Animal Feed*                362,000        9%      341,000        8%             21,000
Pulp & Paper*               536,000       13%      290,000        6%            246,000
Others (5 industries)*      263,000        7%      166,000        4%             97,000

Bioscience                   75,000        2%           --        0%             75,000
                         -------------------------------------------------------------------
                         $3,988,000      100%   $4,441,000      100%         $ (453,000)
                         ===================================================================
</TABLE>
* Industrial Enzyme Industries

Cost of Goods Sold

      For the three-months ended June 30, 2005, cost of goods sold was
approximately $3,211,000, or 81% of net sales, as compared to approximately
$3,369,000, or 76% of net sales for the three-months ended June 30, 2004. The
increase in cost of goods sold as a percentage of sales is due primarily to an
increase in the inventory allowance, of approximately $340,000 or 8.5% of net
sales. Due to the decrease in textile industry net sales, the Company has
recorded a reserve for slow moving inventory items related to that industry.

      The Company transacts a significant amount of its business in foreign
currency. 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 have and may significantly impact the ultimate cost
incurred by the Company in the future.

Research and Development

      For the three-months ended June 30, 2005, research and development
expenses, or R&D, were approximately $973,000, or 24% of net sales, as compared
to approximately $857,000, or 19% of net sales for the three-months ended June
30, 2004, representing an increase of approximately $116,000. To assist in the
development of our core technologies, and on new product and technology
development, in an effort to ultimately increase revenues and profit margins and
to also create additional business opportunities, we hired a project manager,
outside contract labor and scientific consultants for an additional expense of
approximately $145,000 for both labor and research supplies during the
three-month period ended June 30, 2005.


                                       21
<PAGE>

Selling, General and Administrative Expenses

      For the three-months ended June 30, 2005, selling, general and
administrative expenses were approximately $2,035,000, or 51% of net sales,
compared to approximately $1,077,000, or 24% of net sales for the three-months
ended June 30, 2004, representing an increase of approximately $958,000. This
increase is attributable to several factors, including an increase in salaries
and wages of approximately $330,000 due to the addition of five employees in
2005 (two in the finance department, including a Chief Financial Officer, and
three in sales and marketing, including a Vice President - Pulp and Paper) and
additional contract labor. These additions are a part of the substantial
investments both in personnel and other initiatives we have made since November
2004 to expand our sales, marketing and product development efforts, as well as
to staff the Company with the personnel necessary to operate as a public
company. Professional fees of approximately $393,000 related to accounting,
legal and other service related expenses to assist the Company in its transition
to a public company and an increase of approximately $78,000 for directors and
officers insurance premiums are also factors that contributed to the increase in
selling, general and administrative expenses.

Other Income (Expense)

      Interest Expense

      For the three-months ended June 30, 2005, interest expense was
approximately $176,000 as compared to approximately $122,000 for the
three-months ended June 30, 2004, representing an increase of approximately
$54,000. This increase was due primarily to the amortization of beneficial
conversion features of approximately $92,000, as described below. Partially
offsetting this $92,000 increase is a decrease in interest expense of
approximately $27,000, which relates to a $1,225,000 note payable to the Mark A.
Emalfarb Trust that was cancelled in exchange for 367,868 Investment Units in
November 2004. The exchange was effected at a price of $3.33 per share, which
was the offering price in the Company's October Offering.

      In connection with the Merger and a series of related transactions, the
Bridge Loan maturity date and the Bridge Loan warrants were modified in November
2004 and, as a result, we will recognize approximately 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 367,868 Investment Units 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 approximately $554,000 to be amortized to
interest expense through the maturity date of January 1, 2007.

      Investment Income, Net

      For the three-months ended June 30, 2005, income from investments was
approximately $95,000. There were no investments held during the three-months
ended June 30, 2004. The net proceeds from the private placement offering
completed in early November 2004, were invested in money market funds during the
three-months ended June 30, 2005.

      Foreign Currency Exchange Gains (Losses), Net

      For the three-months ended June 30, 2005, the Company incurred net foreign
currency exchange gains of approximately $39,000 as compared to losses of
approximately $79,000 for the three-months ended June 30, 2004. The $118,000
change is the result of a shift in the proportion of sales transactions to
expenditure transactions that are denominated in a foreign currency coupled with
the timing of the settlement of the transactions. 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 gains (losses) we recognize in future periods relating to these
transactions. We do not, and have no current plans to, engage in foreign
currency exchange hedging transactions.


                                       22
<PAGE>

Results of Operations for the Six-Months Ended June 30, 2005 Compared to the
Six-Months Ended June 30, 2004

The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's condensed consolidated statements of
operations in comparing the six-months ended June 30, 2005 to the six-months
ended June 30, 2004 (in thousands):

                                        --------------------------------------
                                                  Six-Months Ended June 30,
                                        --------------------------------------
                                                                     Increase
                (In thousands)             2005          2004       (Decrease)
                                        --------------------------------------
Net sales                               $    7,722    $    8,431    $     (709)
Cost of goods sold                           6,196         6,322          (126)
                                        --------------------------------------
Gross profit                                 1,526         2,109          (583)
                                        --------------------------------------

Operating expenses:
  Research and development                   2,691         1,708           983
  Selling, general and administrative        3,903         2,053         1,850
                                        --------------------------------------
                                             6,594         3,761         2,833

Loss from operations                        (5,068)       (1,652)       (3,416)
                                        --------------------------------------

Other income (expense):
  Interest expense                            (350)         (224)         (126)
  Investment income, net                        23             2            21
  Minority interest                            (11)          (47)           36
  Foreign currency exchange gain
    (loss), net                                 37          (134)          171
  Other (expense) income, net                   (4)           11           (15)
                                        --------------------------------------
Total other expense                           (305)         (392)           87
                                        --------------------------------------

Loss before income taxes                    (5,373)       (2,044)       (3,329)
Provision for income taxes                     (28)          (57)           29
                                        --------------------------------------
Net loss                                $   (5,401)   $   (2,101)   $   (3,300)
                                        ======================================

Net Sales

      For the six-months ended June 30, 2005, we generated net sales of
approximately $7,722,000, compared to net sales of approximately $8,431,000 for
the comparable period ended June 30, 2004, a decrease of approximately $709,000.
This decline in revenues reflects both the continued margin pressure in the
textile industry and aggressive pricing by competitors which has created a
strong downward pressure on pricing as well as the continued, although
decreasing concentration of the Company's sales to the textiles market (75% and
80% for the six-month periods ended June 30, 2005 and 2004, respectively).
Revenues also continue to be adversely affected by the negative residual effects
on the Company's competitive position in its markets resulting primarily from
the Company's inability, between 2003 and most of 2004, to fund working capital,
staffing expansion, product registrations and product development needs, when
the Company chose to instead expend its very limited resources on extending its
C1 Host Technology platform. The Company is endeavoring to transition its
revenue base from the lower margin textile enzymes to higher margin areas such
as enzymes for the pulp and paper and animal feed industries, and despite a
decrease in the first quarter of 2005, the Company has begun to achieve slight
growth in other enzyme industries, increasing net sales in these industries
during the second quarter (46% increase for the three-months ended June 30, 2005
over the comparable period in 2004), for an increase in net sales of 8% in these
industries over sales for the six-months ended June 30, 2004 (or 24% of net
sales versus 20%).


                                       23
<PAGE>

      To what degree our revenues from the textiles market will continue to
decline in the future will depend not only on that market's dynamics, but also
on the extent to which pricing pressure created by our competitors continues, on
our success in developing new products and our ability to lower our production
costs. We believe our revenues will resume growth when new products being
developed from our C1 Host Technology and other technologies for new markets
(e.g. pulp & paper and animal feed) begin to achieve penetration and other new
products are introduced both to existing and other new markets. We have made and
continue to make substantial investments both in personnel and other initiatives
since November 2004 to expand our sales, marketing and product development
efforts. However, we intend to exercise discipline over the application of
resources to the textiles market (which is characterized by low profit margins
and intense competition) relative to other higher profit and larger market
opportunities we identify. Nonetheless, the markets for a number of our new
products are generally characterized by longer sales cycles for reasons relating
to various factors, such as required governmental registration processes (e.g.
animal feed enzymes in Europe) and required product trials at customers'
facilities of multi-month durations or longer (e.g. pulp & paper), and we can,
therefore, offer no guidance as to when, or if, these new products will
penetrate those markets.

The following table reflects the Company's sales by industry for the six-month
periods ended June 30, 2005 and 2004:

<TABLE>
<CAPTION>
                         ------------------------------------------
                                   Six-Months Ended June 30,
                         ------------------------------------------
                            2005           %       2004           %      Increase/(Decrease)
                         -------------------------------------------------------------------
<S>                      <C>              <C>   <C>              <C>         <C>
Textile*                 $5,826,000       75%   $6,747,000       80%         $ (921,000)

Animal Feed*                550,000        7%      615,000        7%            (65,000)

Pulp & Paper*               764,000       10%      477,000        6%            287,000

Others (5 industries)*      507,000        7%      592,000        7%            (85,000)

Bioscience                   75,000        1%           --        0%             75,000
                         -------------------------------------------------------------------
                         $7,722,000      100%   $8,431,000      100%         $ (709,000)
                         ===================================================================
</TABLE>
* Industrial Enzyme Industries

Cost of Goods Sold

      For the six-months ended June 30, 2005, cost of goods sold was
approximately $6,196,000, or 80% of net sales, as compared to approximately
$6,322,000, or 75% of net sales for the six-months ended June 30, 2004. The
increase in cost of goods sold as a percentage of sales is due primarily to an
increase in the inventory allowance, of approximately $331,000 or 4.3% of net
sales. Due to the decrease in textile industry net sales, the Company has
recorded a reserve for slow moving inventory items related to that industry.

      The Company transacts a significant amount of its business in foreign
currency. 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 have and may significantly impact the ultimate cost
incurred by the Company in the future.

Research and Development

      For the six-months ended June 30, 2005, research and development expenses,
or R&D, were approximately $2,691,000, or 35% of net sales, as compared to
approximately $1,708,000, or 20% of net sales for the six-months ended June 30,
2004, representing an increase of approximately $983,000. Approximately $78,000
of this increase is due to additional patent fees related to newly granted
patents. R&D activity was constrained in 2004 by our lack of adequate capital
resources. With our success in raising additional capital in 2004, we have
substantially increased our spending for R&D projects in 2005, both on the
further development of our core technologies, and on new product and technology
development, in an effort to ultimately increase revenues and profit margins and
to also create additional business opportunities. To assist in this development,
we hired a project manager, outside contract labor and scientific consultants,
which resulted in additional expense for the 2005 period of approximately
$277,000 for labor and R&D supplies. Also, in February 2005, we initiated a
genomic sequencing project with Agencourt Bioscience to sequence our C1 host
organism. The first phase of the C1 sequencing project was completed ahead of
schedule, in the second quarter of 2005. With the completion of phase one, we
were able to identify several novel commercially useful genes and, upon
completion of the 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.


                                       24
<PAGE>

Selling, General and Administrative Expenses

      For the six-months ended June 30, 2005, selling, general and
administrative expenses were approximately $3,903,000, or 51% of net sales,
compared to approximately $2,053,000, or 24% of net sales for the six-months
ended June 30, 2004, representing an increase of approximately $1,850,000. This
increase is attributable to several factors, including an increase in salaries
and wages of approximately $581,000 due to the addition of five employees (two
in the finance department, including a Chief Financial Officer, and three in
sales and marketing, including a Vice President - Pulp and Paper) and additional
contract labor. These additions are a part of the substantial investments both
in personnel and other initiatives we have made since November 2004 to expand
our sales, marketing and product development efforts, as well as to staff the
Company with the personnel necessary to operate as a public company.
Professional fees of approximately $875,000 related to accounting, legal and
other service related expenses to assist the Company in its transition to a
public company and an increase of approximately $132,000 for directors and
officers insurance premiums are also factors that contributed to the increase in
selling, general and administrative expenses.

Other Income (Expense)

      Interest Expense

      For the six-months ended June 30, 2005, interest expense was approximately
$350,000 as compared to approximately $224,000 for the six-months ended June 30,
2004, representing an increase of approximately $126,000. This increase was due
primarily to the amortization of beneficial conversion features of approximately
$185,000, as described below. Partially offsetting this $185,000 increase is a
decrease in interest expense of approximately $55,000, which relates to a
$1,225,000 note payable to the Mark A. Emalfarb Trust that was cancelled in
exchange for 367,868 Investment Units in November 2004. The exchange was
effected at a price of $3.33 per share, which was the offering price in the
Company's October Offering.

      In connection with the Merger and a series of related transactions, the
Bridge Loan maturity date and the Bridge Loan warrants were modified in November
2004 and, as a result, we will recognize approximately 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 367,868 Investment Units 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 approximately $554,000 to be amortized to
interest expense through the maturity date of January 1, 2007.

      Investment Income, Net

      For the six-months ended June 30, 2005, income from investments was
approximately $23,000. There were no investments held during the six-months
ended June 30, 2004 and any cash on hand was invested in money market funds. The
net proceeds from the private placement offering completed in early November
2004, were invested in money market funds as of December 31, 2004. During the
three-months ended March 31, 2005, all remaining proceeds were placed in
short-term investments, which were subsequently sold, resulting in a net
investment loss of approximately $72,000, and then reinvested in money market
funds during the three-months ended June 30, 2005, resulting in net investment
income of approximately $95,000, the net effect being a $23,000 gain.

      Foreign Currency Exchange Gains (Losses), Net

      For the six-months ended June 30, 2005, the Company incurred net foreign
currency exchange gains of approximately $37,000 as compared to losses of
approximately $134,000 for the six-months ended June 30, 2004. The $171,000
change is the result of a shift in the proportion of sales transactions to
expenditure transactions that are denominated in a foreign currency coupled with
the timing of the settlement of the transactions. 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 gains (losses) we recognize in future periods relating to these
transactions. We do not, and have no current plans to, engage in foreign
currency exchange hedging transactions.


                                       25
<PAGE>

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
group of stockholders, including the Chief Executive Officer, who contributed
$2,185,000, and a group of other Dyadic-Florida stockholders who contributed
$815,000. 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 convertible preferred stock.

      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, 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.

      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 with a balance of $1,225,000. The exchange
was effected at a price of $3.33 per share, which was the offering price in the
Company's October Offering.

      Concurrent with 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 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 is being amortized to interest expense through the new maturity
date. Approximately $903,000 of the proceeds from the October Offering were used
to pay off the $815,000 of principal and approximately $88,000 of accrued
interest for the portion of the bridge loan contributed by the group of other
Dyadic-Florida shareholders.

      Also concurrent with 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 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 is being
amortized to interest expense through the new maturity date.

Cash Flow

      From Operating Activities

         Net cash used in operating activities was approximately $5,764,000 and
$2,115,000 for the six-months ended June 30, 2005 and 2004, respectively, which
was primarily due to the increase in net loss in 2005 of approximately
$3,300,000.


                                       26
<PAGE>

      From Investing Activities

      For the six-months ended June 30, 2005, net cash used in investing
activities was approximately $203,000 as compared to approximately $46,000 for
the six-months ended June 30, 2004, which relates to purchases of property and
equipment. There are no immediate plans for large increases in capital
expenditures; however, management is continually assessing such requirements
concurrent with our growth. The Company made a purchase of $861,861 of land (the
"Site"), which was obtained through the issuance of 300,300 shares of common
stock (see Notes to Condensed Consolidated Financial Statements in Item 1). It
is not the Company's intention to use its own funds to develop this property;
therefore, the Company is considering such options as a joint venture or other
arrangement to accomplish the development of the Site. There can be no
assurance, however, that any joint venture or other arrangements will occur
within the prescribed timeframe.

      From Financing Activities

      For the six-months ended June 30, 2005, our net cash used in financing
activities was approximately $98,000, for issuance costs related to the October
2004 private offering. During the six-month period ended June 30, 2004, net cash
provided by financing activities was approximately $1,590,000. This amount is
primarily due to initial cash received from a private placement in 2004
resulting in net proceeds of approximately $3,194,000 which was partially offset
by a $1,500,000 payment for the redemption of outstanding shares of our Series A
convertible preferred stock.

Financial Condition and Liquidity at June 30, 2005

      As of June 30, 2005, stockholders' equity was approximately $20,018,000,
an increase of approximately $18,064,000 over June 30, 2004. The improvement is
primarily due to the equity capital we raised in July 2004 and November 2004 of
approximately $28,470,000, which increased our common stock and additional
paid-in-capital accounts. This increase was partially offset by the net loss
incurred for the twelve month period ending on June 30, 2005 of approximately
$9,379,000.

      As of June 30, 2005, we had a total of approximately $14,446,000 in cash
and cash equivalents. Our outstanding indebtedness was approximately $3,601,000
as of June 30, 2005, 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 $163,000
for the remainder of 2005 and $659,000 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. Our Commercial Land Purchase and Sale
Agreement obligates us to commence development of the land that we acquired
within two (2) years of the closing (May 25, 2005); however, it is not the
Company's intention to use its own funds to develop this property, therefore the
Company is considering such options as a joint venture or other arrangement to
accomplish the development of the Site. We also have employment agreements with
several officers and key employees as outlined in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-KSB.


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<PAGE>

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 we will
have sufficient capital to fund our operations and meet our obligations through
year end 2006. We anticipate that the rate at which we have used cash to fund
our operations in the first two quarters of 2005 will likely decrease in the
near term, through the combination of the following factors which we expect to
occur: an increase in the net sales to other industrial enzyme industries, such
as pulp and paper and animal feed, which are expected to be at a higher gross
margin than sales to the textiles market, the decrease in our ongoing costs of
being a public company, the flexibility of research and development spending
through the use of outsourced facilities and personnel, the reduction of the
existing levels of inventory, as well as possible licensing or selling of
certain technologies or other arrangements. Dyadic has established a number of
flexible partnerships in the areas of manufacturing and research and
development, enabling us to adjust spending in those areas as necessary, to
achieve the objectives of our business plan, and manage both our resources and
cash utilization rate. There can be no assurance, however, that we will achieve
decreased cash outflows as a result of these factors, or achieve them in the
timeframe outlined. It is possible that we will seek additional financing within
this timeframe. We may raise additional funds through public or private
financings, collaborative relationships, licensing or selling of certain
technologies 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.

ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

      As required by Rule 13a-15 under the Securities Exchange Act of 1934, as
of the end of the period covered by this Quarterly Report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms.

(b) Changes in Internal Controls

      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 June 30, 2005 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.

                           PART II. OTHER INFORMATION

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      On February 25, 2005, the Company entered into an Agreement (the
"Agreement") with a third party consultant pursuant to which the Company issued
10,000 shares of Company common stock, valued at $3.90 per share, to such third
party consultant as compensation for investor relations services in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act). An additional 10,000 shares of common
stock were issued on May 26, 2005, valued at $2.75 per share per the terms of
the Agreement. The terms of the Agreement were privately negotiated between the
Company and the consultant, the consultant executed an "investment letter"
acknowledging, among other things, that it is an "accredited investor"; and the
securities described in this Item 2 have not been registered under the
Securities Act and are restricted securities thereunder; and these securities
may not be offered or sold absent registration under the Securities Act or an
applicable exemption from such registration requirements; and the stock
certificate evidencing such securities bears a restricted legend.


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<PAGE>

      On May 25, 2005, the Company issued 300,300 shares of common stock, valued
at $2.87 per share, pursuant to a real estate purchase contract (the Commercial
Land Purchase And Sale Agreement) with F&C Holdings, LLC (Holdings), dated July
31, 2004, in exchange for an undeveloped 1.13 acre parcel of land, in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act. The terms of the Agreement were privately negotiated between the Company
and Holdings, and Holdings executed an "investment letter" acknowledging, among
other things, that it is an "accredited investor"; and the securities described
in this Item 2 have not been registered under the Securities Act and are
restricted securities thereunder; and these securities may not be offered or
sold absent registration under the Securities Act or an applicable exemption
from such registration requirements; and the stock certificate evidencing such
securities bears a restricted legend. The shares issued to Holdings have been
registered under the Securities Act for resale by Holdings in the Company's
current registration statement.

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

      (a)   Our annual meeting of stockholders was held in Jupiter, Florida on
            May 24, 2005 for the purpose of voting on the proposals described
            below. Proxies for the meeting were solicited pursuant to Section
            14(a) of the Securities Exchange Act of 1934 and there was no
            solicitation in opposition to management's solicitation. At the
            meeting, 18,200,943 Common Shares (81.83% of the Common Shares
            outstanding) were voted. Stockholders voted in person or by proxy
            for the following purposes:

      (b)   Stockholders approved the election of Richard J. Berman and Robert
            B. Shapiro to serve as Class II Directors of the Company until the
            Company's 2008 annual meeting of stockholders and until their
            successors are duly elected and qualified. Stephen J. Warner and
            Harry Z. Rosengart will continue to serve as Class II Directors and
            Mark A. Emalfarb will continue to serve as a Class III Director
            until their present terms expire in 2006 and 2007, respectively, and
            until their respective successors are duly elected and qualified.

      (c)   Votes were cast for and withheld in the election of directors as
            follows:

            DIRECTOR                 FOR              WITHHELD AUTHORITY
            -------

            Richard J. Berman     18,200,343                  600
            Robert B. Shapiro     18,200,343                  600

            Stockholders also voted to approve and ratify the appointment of
            Ernst & Young LLP as the Company's independent registered public
            accounting firm for the fiscal year ending December 31, 2005.
            18,200,343 shares were voted in favor of this proposal, 600 shares
            were voted against and there were no abstentions or broker
            non-votes.

      (d)   Not applicable.


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<PAGE>

ITEM 6.    EXHIBITS

A)    Index to Exhibits

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

10.6.1      Indemnification Agreement dated April 26, 2005 between Dyadic
            International, Inc. and Harry Z. Rosengart (1)

31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (2)

31.2        Certification of Chief Financial Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002 (2)

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) (2)

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) (2)

      (1)   Incorporated by reference from the Company's Form 8-K, filed April
            28, 2005 with the Securities and Exchange Commission.

      (2)   Filed herewith.

                                     SIGNATURES

In accordance with the requirements of the Exchange Act, Dyadic International,
Inc. caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                           DYADIC INTERNATIONAL, INC.
                                           (Registrant)

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


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