Company's Debacle Is Lesson for Executives

A business in tatters

Emalfarb calls the investigation and report a "witch-hunt and vendetta." He has finger-pointing of his own to do, alleging the Moscowitz report is replete with errors, ignored evidence and focused only on him rather than other Dyadic employees and the outside professionals.

Emalfarb, who still technically held a board seat, sued. A Delaware court ordered a shareholder meeting for June 2008. Emalfarb and large shareholders who supported him held 52% of Dyadic stock, and by 1 p.m. on the day of the meeting, Emalfarb was back in his old office. Moor and other executives had already resigned.

A year earlier, when Emalfarb had taken that Saturday phone call on his condo-shopping trip, Dyadic had $27 million in the bank, stock trading above $5, a prime parcel next to Scripps for a new headquarters and a biotech incubator, a $10-million investment in Dyadic stock by Spain’s Abengoa Bioenergy New Technologies to fund research in ratcheting up the fungus’ productivity and lots of interest from others.

When Emalfarb returned, Dyadic was in tatters. He and the company both were tainted. Dyadic had abandoned the troublesome China operation, but relationships and potential deals in the biosciences had fallen apart. With big legal bills — $3.6 million alone to Bilzin Sumberg — the company had burned through

$24 million. Employment was down from 125 to 31. That prime parcel near Scripps’ site had been sold to raise cash. Dyadic had sufficient money to stay open for only another couple of months. An investor class-action suit was pending. The company had no accounting firm, and financial reports hadn’t been filed with the SEC since the 2006 fiscal year-end.

Under Emalfarb, Dyadic settled with the SEC and Abengoa, which had sued. Emalfarb brought in $10 million — winning Dyadic some operating room — from Codexis, a Redwood City, Calif., company that licensed the company’s fungus for making biofuels and other uses.

And Dyadic sued the law firms, lawyers and accounting firms he blames: Ernst & Young in the United States and in Hong Kong, Greenberg Traurig and Schwimmer, the Moscowitz firm and Bilzin Sumberg. He says the company overpaid for underperformance and that the lawyers "saw $27 million in the bank and they went to grab it." The suit alleges that Dyadic "was led to the brink of ruin by the very professionals it relied upon to protect it."

"The toll this has taken on my family, my business and myself is almost indescribable," Emalfarb says.

Spokesmen for Bilzin Sumberg and Ernst & Young declined comment. Efforts to obtain comment from the Moscowitz firm weren’t successful. Gerald Richman, a West Palm Beach attorney representing Greenberg Traurig and Schwimmer, says the suit seeks to make the law firm responsible for accounting duties and liable for tactical legal advice that isn’t actionable under the law. "The law firm did exactly what it was supposed to have done," he says.

Warner, in hindsight, wonders how the affair would have played out had the principals met face to face rather than by cell phone and taken time to reflect and research before speaking and deciding. He says the board never met in person throughout the debacle, instead doing everything by conference call.

Warner also points out that all the fuss was over a subsidiary that was, at best, breaking even. Puridet was in any case far removed from the company’s potential, he says. "You’ve heard the expression the tail wagging the dog? This is a flea on the tail wagging the dog. It meant nothing to the company, and yet it almost brought the company down."

Emalfarb, meanwhile, is back in his accustomed role of visionary, describing a world shifting from reliance on petroleum to reliance on fermentable sugars — with Dyadic in a pivotal role. He talks grandly of the capabilities of his company’s fungus and of consumers one day seeing "Dyadic Inside" on everything from bread to medications and fuel. "This is real. It’s going to happen," he says. "It’s a matter of when."