Bio-Technology Awareness

^{NEW Agraquest did NOT report David’s workplace injury/illness that rendered the left half of his face and teeth to become numb, severe infection with bloody pus draining from his nose leading to the emergency sinus surgery being scheduled 7 days later per:}

• Insurance Code Section 11760], Labor Code 5401 Reg 101119;  "Claim Form provided to employee within one day of knowledge of injury"

• Labor Code 3602;  "Liability exists for any injury sustained   by an employee “arising out of and in the course of employment”

• Labor Code 4600;  "Medical Treatment;  employee is entitled to treatment that is “reasonably required to cure or relieve from the effects of the injury”

• Labor Code 4650;  "Injury Causes Temporary Disability-Payment to Begin"

• California Code of Regulations: Title 8 Section 342;  "Immediate reporting of any serious injury, illness, or death of an employee at the workplace"

Agraquest further violated Federal and California state laws regarding MANDATORY pesticide incident (adverse effects to human or environment) exposure reporting laws per:

•California Department of Pesticide Regulations

•Division 6. Pesticides and Pest Control Operations; Chapter 2. Pesticides; Subchapter 1. Pesticide Registration; Article 6. Adverse Effects Disclosure

•Chapter IX; REGULATORY ACTIONS AFTER THE PRODUCT IS REGISTERED; 

•B. RENEWAL OF PRODUCT REGISTRATION

•F. ADVERSE EFFECTS DISCLOSURE

•G. REEVALUATIONS

•H. RISK ASSESSMENTS

Federal Fungicide and Rodenticide Act (FIFRA),

•7 U.S.C. §136 et seq. (1996); Summary of the Federal Insecticide, Fungicide, and Rodenticide Act

On April 3, 1998 there was the "1998 PESTICIDE REGISTRATION NOTICE 98-3; NOTICE TO MANUFACTURERS, FORMULATORS, PRODUCERS, DISTRIBUTORS AND REGISTRANTS OF PESTICIDE PRODUCTS", which in part says:

•"which requires pesticide registrants to report  information concerning unreasonable adverse effects of their products to EPA (62 FR 49370).  The purpose of the rule is to clarify what information to submit, how and when to submit it, as well as which failures to report information, or delays in reporting, will be regarded by EPA as  violations of FIFRA section 6(a)(2), actionable under FIFRA sections 12(a)(2)(B)(ii) and  12(a)(2)(N)."

•III. AGGREGATE REPORTING  The regulations establish different requirements for reporting timeframes and for content  of incident reports depending on the defined severity categories (see Section VIII.  Exposure  Types and Severity Categories).

(For more information AND the Security and Exchange Commission filing by Agraquest listing "RISKS" that will indeed shed light on why Agraquest did not want David's injury and illness reported and KNOWN please see "Read More".)

•VI. CAUSATION AND DELAYED EFFECTS  One of the key differences between the regulations and earlier guidance (the 1979  Enforcement Policy) concerns the issue of causation.  In the past, an incident was reportable if  the registrant inferred that a link existed between the effect and exposure or if similar incidents  occurred three or more times.  Under the new regulations, neither an inference nor a pattern  needs to be established before reporting an incident.  If basic information is available -- an  effect, an exposure, the identity of the pesticide, location where the incident occurred and a  person to contact -- the incident is reportable.

•VII. EXPERT OPINION INFORMATION  Conclusions or opinions of experts must be submitted under FIFRA 6(a)(2) if the  registrant possesses the information and either 1) the information is otherwise reportable under  one of the substantive provisions of the rule; or 2) the registrant knows, or should reasonably  know, that the information, alone or in conjunction with other information, might raise concerns  about the continued registration of a pesticide or about the appropriate terms and conditions of  registration of a pesticide.  As a general matter, the Agency frequently relies on the "weight of  evidence" in making pesticide regulatory decisions, and it considers expert opinion that tends to confirm or validate otherwise reportable information.  In this context, expert opinions can play  an important role in Agency decision-making.

VIII. EXPOSURE TYPE AND SEVERITY CATEGORIES The 6(a)(2) regulations define the severity categories assigned to each incident.  In an  effort to provide additional guidance on the assignment of severity categories, the Agency has  expanded the definitions for humans and domestic animals.  The severity category definitions for humans were derived from standard definitions used by the American Association of Poison  Control Centers.  The examples of severity categories for domestic animals were prepared in  consultation with the National Animal Poison Control Center/American Society for Prevention  of Cruelty to Animals. The persistence of symptoms or the development of delayed symptoms should be  considered when classifying severity.  For example, human cases may report developing  common symptoms like headaches, general weakness, memory and concentration problems,  depression, irritability, muscular aches and pains, or shortness of breath.  If these symptoms last  for just a few days and are minimally troublesome (do not require treatment) then they would be  classified as minor (H-D).  However if symptoms persist for one month or longer they would be  classified as moderate (H-C).  Symptoms persisting for two or more months that significantly  alter daily activities would be classified as major (H-B). If exposure to the pesticide is reported to lead to the development of unusual sensitivity  to pesticides, other chemicals, or to odors (sometimes alleged as hypersensitivity or multiple  chemical sensitivity), efforts should be made to collect information about specific symptoms  such as headaches or shortness of breath.  If symptoms persist for two or more months, and  significantly alter daily activities then such a case would be classified as major.  If symptoms  persist for less than two months, the incident would be classified according to the appropriate  definition. H-B - Human - Major  §159.184 (5)(i)(B):   “If the person alleged or exhibited symptoms which may have been life-  threatening, or resulted in adverse reproductive effects or in residual disability.”  Residual disability is any adverse effect which lasts for months or years after the initial  poisoning and limits a major activity, e.g., require continuous  health care, time off work, or  modification of daily activities.  Examples include delayed neuropathy, renal damage requiring  dialysis, permanent change in vision, development of chronic respiratory disease such as asthma.

•X. INFORMATION  INVOLVING CHEMICALS SIMILAR TO REGISTERED  CHEMICALS  Information involving a chemical different from any contained in a registrant's registered  pesticides is nonetheless reportable by that registrant if the registrant knows or should know that  the information is relevant to the registered pesticide and is otherwise reportable under section  6(a)(2).  Examples of types of information that a registrant should know are relevant to its  registered product include, but are not limited to, a study of a chemical in the same class as the  registered pesticide where the study suggests (or the registrant knows that an expert concludes)  that it applies to all chemicals in the class; certain toxicity information relating to a chemical  which the Agency or an expert has concluded shares a common mechanism of toxicity with the  registrant's registered pesticide; etc.  In any particular case, the determining factor is likely to be  the nature of the information available to the registrant suggesting that the otherwise reportable  information is relevant to the registrant's registered product. 

XV. REPORTABLE INJURIES AND PROPERTY DAMAGE  On the other hand, if someone reports that a product has a bad odor and that the odor  made the person nauseous and gave them a headache, the incident is reportable.  The registrant  cannot be sure that the nausea and headache are not poisoning effects.

"Why" then did Agraquest conceal their sole involvement in David getting sick at the company?  The answer to this question can be found in the Securities and Exchange Filing by Agraquest that will be discussed.  

Agraquest's main product, Bacillus Subtilis QST 713 (Serenade) had first been submitted to the EPA on August 24, 1998:

•“Registration of Serenadet;/span> Bio fungicide Wettable Powder”

•Also submitted to the EPA at that time was a “petition which proposed establishing and exemption from the requirement of a tolerance for residues of the microbial pesticide, strain QST 713” [EPA C. Regulatory History] 

Further submissions to the EPA by Agraquest on QST 713 (Serenade) were:  

•April 26, 1999 Agraquest submitted to  to the EPA “Petition for Tolerance Exemption (PP 8F5032) for Bacillus subtilis strain QST 713 on all agriculture commodities from AgraQuest Inc of Davis CA.”  

•6/19/1999 Agraquest submitted to the EPA an “Application for New Active Ingredient for Bacillus subtilis strain QST 713 - for use in formulating end use products to control various fungal plant pathogens and terrestrial use by Agraquest Inc. of Davis CA”

•Agraquest was denied full registration and only given a "Conditional Time-Limited Registration" as the EPA found problems with the "batches" sent to them.  June 20, 2000 "Conditional Time-Limited" Registration for QST 713  Technical

It should be noted that David worked around this powder and was let go on 6/1/1999.

Further documented in Agraquest's Security and Exchange Filing filed on 1/11/02 under "RISK FACTORS". There can be no question as to the importance of Agraquest's, Bacillus Subtilis QST 713 (Serenade) and Agraquest's reliance on this product for their success.  Any negativity related to the Agraquest workplace environment and it's safety would have no doubt caused "red flags" within the EPA as well as the grants and funding that Agraquest was receiving.

The Agraquest Inc.  "RISK FACTORS"  can be found HERE (S-1/A · Filed On 1/11/02 · SEC File 333-66732   Accession Number 930661-2-63.  [For the purpose of viewing this information the exact wording has been copied the information below]:

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision.  If any of the following risks actually occur, our business, financial condition or results of operations could be harmed, the trading price of our common stock could decline and you may lose all or part of your investment.                       

We have a limited operating history and are subject to risks encountered by early stage companies.  

We began our operations in January 1995. Accordingly, we have a limited  operating history, and our business and prospects must be considered in light  of the risks and uncertainties to which early stage companies in the rapidly changing market for pest management products are exposed. These risks include  our inability to transition from a company with a research and development  focus to a company also capable of supporting the commercial sale of products,  including in the areas of regulatory approval and compliance, manufacturing,   sales and marketing, distribution and quality control and assurance. Our  inability to adequately address these risks could prevent us from becoming  profitable or cause us to cease our operations.

We have a history of losses since inception, we expect to continue to in cur losses and we may not achieve or maintain profitability.

We have incurred operating losses since inception, and we expect to continue to incur further operating losses for the foreseeable future. We had an accumulated deficit of $24.3 million at December 31, 2000 and $33.5 million at  September 30, 2001. We had a net loss of $9.1 million for the year ended  December 31, 2000 and $7.1 million for the nine months ended September 30,  2001. To date, our limited revenues have been derived primarily from research  grants and initial commercial sales of our first product, Serenade. We expect  our future revenues to be primarily from sales of Serenade and other natural pest management products, and those sales are highly uncertain. We expect to continue to devote substantial resources to expand our research and development activities, enhance our manufacturing facilities and expand our sales and marketing capabilities for the commercialization of Serenade and other product  candidates. As a result, we will need to generate significant revenue to achieve and maintain profitability.  We may never generate profits and, if we do become profitable, we may be unable to maintain or increase profitability on a  quarterly or annual basis.  

If Serenade is not successful, we may not be able to generate significant  product revenues. 

We introduced Serenade in Chile in October 1999 and began commercial sales in the United States in July 2000. We will be dependent on sales of Serenade  for the immediately foreseeable future. We have derived only limited revenues  from sales of Serenade to date, and we cannot assure you that Serenade will achieve broad market acceptance and generate increased sales. A number of factors will determine the commercial success of Serenade, including our  ability to overcome grower reluctance to switch to natural pest management  products, the efficacy and commercial viability of Serenade, our ability to implement and maintain an appropriate pricing policy for Serenade, the success of our commercialization and marketing strategies and the rate and extent that  regulatory authorities and the public accept new pest management products.  

Serenade may not be effective on, or economically viable for, all crops or markets that we are targeting. In addition, because Serenade has not been put  to widespread commercial use over significant periods of time, Serenade may have reduced benefits as compared to our field trial results.   

We may be unable to commercialize the product candidates we are developing,  which may adversely impact our ability to achieve or maintain profitability. 

Our future success will depend in part on our ability to commercialize the natural pest management product candidates we are developing. In addition to Serenade, we have identified 22 product candidates to date using our   proprietary technology platform, and we currently are focusing our development  and     [page 7] 

commercialization efforts on three of these product candidates. Successful  development of our product candidates will require significant additional investment, including costs associated with research and development,  completing field trials and obtaining regulatory approval. In addition, we are  subject to inherent risks associated with new products and technologies. These  risks include the possibility that any product candidate may:  

• be ineffective or less effective than anticipated;                       
  
• fail to receive necessary regulatory approvals;                          
  
• be difficult to competitively price relative to alternative pest  management solutions; 
• be harmful to consumers, growers, farm workers or the environment;       
• be difficult or impossible to manufacture on an economically viable  scale;               
  
• fail to be developed and accepted by the market prior to the successful marketing of similar products by competitors; or                      
  
• be impossible to market because it infringes on the proprietary rights  of third parties.

If our ongoing or future field trials are unsuccessful, we may be unable to obtain regulatory approval of, or commercialize, our products.

The successful completion of multiple field trials in domestic and foreign locations on many crops is critical to the success of our product development    and marketing efforts for Serenade and our other product candidates. Regulatory  approval of our products could be delayed or we may be unable to commercialize   our products if our ongoing or future field trials are unsuccessful or these field trials produce inconsistent results or unanticipated adverse side effects  on crops or non-target organisms, or if we are unable to collect reliable data.  Although we have conducted successful field trials on a broad range of crops,    we cannot be certain that additional field trials conducted on a greater number  of acres, or on crops for which we have not yet conducted field trials, will be  successful. In addition, the results of our ongoing and future field trials are  subject to a number of conditions beyond our control, including weather-related  events such as drought or floods, severe heat or frost, hail, tornadoes and hurricanes. We generally pay third parties such as growers, consultants and universities to conduct field tests on our behalf. Incompatible crop treatment   practices or misapplication of our products by these third parties could interfere with the success of our field trials. 

If we are unable to ensure production of high-quality products at acceptable  costs, our business will be harmed.  

To be successful, we will need to manufacture our products in large quantities at acceptable costs while also maintaining high product quality. We ferment all Serenade at our manufacturing facility in Tlaxcala, Mexico, and we currently rely on third-party contract manufacturers to spray dry, a process through which water is removed to produce a powder substance, and package Serenade. We expect our Tlaxcala, Mexico manufacturing facility to be fully operational, including spray drying and packaging capabilities, in 2002. We may encounter difficulties in commercially producing our products, including problems involving:                    

• production yields;                                                       
  
• .quality control and assurance;                                           
  
• shortage of qualified personnel;                                         
  
• compliance with federal, state, local and foreign regulations;           
  
•  production costs;                                                        
  
•  process controls; and                                                    
  
• down-time related to plant maintenance and expansion.                    
  

Even if we are successful in enhancing our manufacturing capabilities and processes, we cannot assure you that we will do so in time to meet our product  commercialization schedule or satisfy the requirements of our distributors or customers.    [page 9] 

Our inability to develop adequate sales and marketing capabilities could  prevent us from successfully commercializing Serenade and other products we are developing.                                                                     

We currently have limited sales and marketing experience and capabilities. We will incur substantial costs to further develop our sales and marketing capabilities to successfully commercialize Serenade and other products we are  developing. Our internal sales and marketing staff consists primarily of sales  and marketing specialists and field development specialists who are trained to educate growers and independent distributors on the uses and benefits of  Serenade. These specialists require a high level of technical expertise and knowledge regarding Serenade's capabilities and other pest management products  and techniques. Our specialists and other members of our sales and marketing team may not successfully compete against the sales and marketing teams of our  current and future competitors, many of which may have more established  relationships with distributors and growers and significantly greater financial resources. Our inability to recruit, train and retain sales and marketing personnel or their inability to effectively market and sell Serenade and other  products we are developing could impair our ability to gain market acceptance  of our products and cause our sales to suffer. 

We may be unable to maintain and further establish successful relationships  with third-party distributors, which could adversely affect our sales.  

We rely, and will increasingly rely, on third-party distributors of agrichemicals in the United States and foreign markets to distribute and assist us with the marketing and sale of Serenade and other products we are developing. We have signed several agreements, some of which are non-exclusive, with third parties to distribute Serenade and are currently engaged in  discussions with several other third-party distributors. These agreements are  terminable by either party upon minimal notice, typically 30 days, and do not require the distributors to purchase any of our products. Our future revenue  growth will depend in large part on our success in establishing and maintaining these sales and distribution channels. If we are unable to maintain or further establish successful relationships with third-party distributors, we will need to further develop our internal sales and distribution capabilities, which would be expensive and time-consuming and the success of which would be uncertain.  

If the distributors with which we partner do not focus adequate resources on   selling our products or are unsuccessful in selling them, sales of our products would decline.  

Many of our current and potential distributors sell and, in some cases, manufacture other, possibly competing, pest management products, including  natural pest management products. As a result, these distributors may perceive  Serenade and other products we may develop as a threat to product lines currently being distributed or manufactured by them. In addition, these distributors may earn higher margins by selling competing products or combinations of competing products. If the distributors with which we partner  do not focus adequate resources on selling our products or are unsuccessful in  selling them, sales of our products would decline. 

If we are unable to identify new product candidates through our proprietary  technology platform, we may not achieve or maintain profitability.  

Our future success will depend in part on our ability to utilize our proprietary screening process to identify and commercialize additional  microorganisms and natural product compounds that may be considered product      candidates. To date, we have identified 23 natural pest management product  candidates. We have licensed access to our microorganism database to other companies to develop natural pest management products or natural products for    applications beyond pest management. If we are unable to identify additional  microorganisms, natural product compounds or product candidates, we may be unable to develop new products or generate revenues through strategic  collaborations or licensing agreements.  

Conflicts with our strategic collaborators could jeopardize the outcome of our strategic collaborations, which would limit our revenue from those  collaborations.

 We have entered into strategic collaborations to identify, develop and commercialize products. We intend to conduct proprietary research programs in specific agricultural and other product areas that are not covered by  [ page 10]

our collaboration agreements. However, our pursuit of opportunities in these markets could result in conflicts with our collaborators, and disagreements with our collaborators could develop over rights to our intellectual property.   Any conflicts with our collaborators could lead to the termination of the  relevant strategic collaboration agreement, delay collaborative activities, reduce our ability to renew agreements or enter into future strategic collaborations or result in litigation or arbitration and would negatively impact our relationships with existing collaborators. 

We have limited or no control over the resources that our collaborators may choose to devote to our joint efforts. Our collaborators may breach or  terminate their agreements with us or fail to perform their obligations under  these agreements. Further, our collaborators may elect not to develop products   arising out of our strategic collaborations or may fail to devote sufficient resources to develop, manufacture, market or sell these products. Some of our collaborators could also become our competitors in the future. If our collaborators develop competing products, preclude us from entering into         collaborations with their competitors, fail to obtain necessary regulatory  approvals, prematurely terminate their agreements with us or fail to devote sufficient resources to the development and commercialization of our products,   our joint product development efforts could be delayed and may fail to lead to   commercialized products. 

We are subject to risks associated with international expansion, which could  harm both our domestic and international operations. 

Our business strategy includes international expansion as we obtain regulatory approvals to market and sell our products in foreign countries, which we believe will allow us to enhance our revenue growth and worldwide market presence. We have conducted field trials in 17 countries and own a manufacturing facility in Tlaxcala, Mexico. International expansion of our  operations could impose substantial burdens on our resources, divert  management's attention from domestic operations or otherwise harm our business.  Furthermore, international operations are subject to risks, including:      

• .different regulatory requirements;                                        
  
• inadequate protection of intellectual property;                           
  
• difficulties and costs associated with complying with a wide variety of complex foreign laws and treaties;       
• legal uncertainties regarding, and timing delays associated with,  tariffs, export licenses and other trade barriers;                      
• increased difficulty in collecting delinquent or unpaid accounts receivable; 
• .adverse tax consequences; and                                             
  
• .currency fluctuations. 

 Any of these or other factors could adversely affect our ability to compete in international markets and our operating results.   

We depend heavily on the principal members of our management and scientific personnel, the loss of whom could impair our ability to maintain and expand our business.

We depend heavily on the principal members of our management and scientific personnel, particularly Dr. Pamela G. Marrone, our President and Chief Executive Officer, the loss of whose services might significantly delay or prevent the achievement of our scientific or business objectives. Our ability  to attract and retain qualified scientific personnel is critical to our success. Competition among biotechnology and biopesticide companies for qualified employees is intense, and we may not be able to attract and retain these individuals on acceptable terms or at all, and our inability to do so may  significantly harm our business.  [page 11]

We have relationships with scientific collaborators at academic and other  institutions, some of whom conduct research at our request or assist us in formulating our research and development strategy. These scientific  collaborators are not our employees and may have commitments to, or consulting   or advisory contracts with, other entities, including competitors, which may limit their availability or loyalty to us. We have limited control over the activities of these scientific collaborators and generally expect these individuals to devote only limited amounts of time to our activities. The inability or unwillingness of any of these persons to devote sufficient time and resources to our scientific programs could harm the development of our   business.  

If we are unable to manage our anticipated growth effectively and efficiently,  our business could be harmed.   

As we add manufacturing, marketing, sales, field development and other personnel, both domestically and internationally, and expand our research and  development capabilities and enhance our manufacturing facilities, our  operating expenses and capital requirements will increase. Our ability to  manage our growth effectively and efficiently requires us to continue to  forecast accurately our sales, manufacturing capacity and human resources and  to continue to expend funds to improve our operational, financial and management controls, reporting systems and procedures. In addition, we must  effectively expand, train and manage our employee base. If we are unable to  manage our anticipated growth effectively and efficiently, our business could  be harmed.  

Changes in technology could render our products unmarketable or obsolete. We are engaged in an industry characterized by extensive research and  development efforts and rapid technological change. Our competitors, many of  which have substantially greater technological and financial resources than we do, may develop pest management technologies and products that are more effective than ours or that render our technologies and products unmarketable  or obsolete. To be successful, we will need to continually enhance our products and to design, develop and market new products that keep pace with  technological and industry developments.   

If we are unable to effectively promote the AgraQuest and Serenade brands, we may not be able to attract customers or compete effectively against alternative pest management solutions. 

We believe that establishing and maintaining the AgraQuest and, initially,  the Serenade brands are critical to our success.

The importance of brand recognition will increase in part due to the increasing number of companies offering technologies similar to, and products that compete with, ours. We intend to increase our marketing and branding expenditures in an effort to promote awareness of our brands. If our brand building strategy is  unsuccessful, these expenses may never be recovered, we may be unable to increase our future revenues and our business could be materially harmed.   

We use hazardous materials in our business. Any claims relating to improper  handling, storage or disposal of these materials could be time consuming and  costly to resolve.    

Our research and development activities involve the controlled use of   hazardous materials and disposal of biological and other hazardous waste. Some  of these materials may be novel, including bacteria with novel properties and  bacteria that produce biologically active compounds. We are subject to federal, state, local and foreign laws and regulations governing the use, manufacture,   storage, handling and disposal of these materials and waste products. We cannot eliminate the risk of accidental contamination or discharge and any resulting  injury from these materials. In the event of an accident, we could be held  liable for damages or penalized with fines, and this liability could exceed our cash resources. In addition, given the hazardous nature of the materials used   in the manufacturing process of our business, we may be held strictly liable  for damages caused by these materials. We may have to incur significant costs   to comply with future environmental laws and regulations. New governmental   regulations may have an adverse effect on the research, development, production and marketing of our products. We may be required to incur significant costs to comply with current or future laws or regulations.    [page 12] 

Our strategic collaborators may use hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure  to, or release of, hazardous materials used by these parties. Further, we currently are required to indemnify our collaborators under some circumstances  against damages and other liabilities, including those that arise out of our  development activities or products produced in connection with these collaborations,  a breach of any representation or warranty made by us or the conduct of our business.  

We may need to raise additional capital that may not be available to us when  needed or on acceptable terms, which could harm our business. 

Our future capital requirements will depend on the success of our operations. We may require substantial additional funding to continue our research and development activities, enhance our manufacturing capabilities and  commercialize our products. We may seek additional funds from public and         private stock offerings, strategic collaborations and licenses, borrowings under lines of credit or other sources. Additional capital may not be available  on terms acceptable to us, or at all. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include          restrictive covenants. If we cannot raise more capital when needed, we may have  to reduce our capital expenditures, scale back our development of new products   and research and development activities, reduce our workforce or license to      others products that we otherwise would seek to commercialize ourselves. Our cash used in operations has exceeded cash generated from operations in each period since our inception. We used cash for operating activities of  approximately $10.2 million in 2000 and $5.6 million in the nine months ended    September 30, 2001. 

If we are unable to successfully integrate acquisitions, our revenue growth and future profitability may be negatively impacted. 

As part of our business strategy and growth plan, we may acquire businesses, technologies or products that we believe strategically complement our business.  The process of integrating an acquired business, technology or product may       result in unforeseen operating difficulties and expenditures and may absorb  significant management attention and capital that would otherwise be available   for ongoing development of our business. In addition, we may not be able to maintain the levels of operating efficiency that any company we may acquire      achieved or might have achieved separately. As a result of difficulties associated with combining operations, we may not be able to achieve cost savings and other benefits that we might expect to achieve with these  acquisitions. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent   liabilities with restrictive covenants or adversely affect our operating  results and financial condition.  

If a natural disaster strikes our facilities, our business may suffer.  

Our microorganism database and natural product compound library are critical to the success of our business. If these assets are damaged or destroyed by any  event or series of events, such as a fire, contamination or other casualty, our  business, financial condition and results of operations may be materially adversely affected.  

Our Davis, California facility is located near a known earthquake fault and our manufacturing facility in Tlaxcala, Mexico is located near a volcano. The    impact of a major earthquake, volcanic eruption or other natural disaster on     our facilities, infrastructure and overall operations is difficult to predict,   and any natural disaster could seriously disrupt our operations. The insurance   we maintain may not be adequate to cover losses resulting from natural disasters or other business interruptions.   

Power outages in California may adversely affect our Davis, California  facilities.  

Our headquarters and research and development facilities are located in  Davis, California. California has recently suffered energy shortages that have  increased our expenses, and, if continued, could substantially [page 13]

disrupt our operations. In the event of an acute power shortage, that is, when   power reserves for the State of California fall below 1.5%, California has on    some occasions implemented, and may in the future continue to implement, rolling blackouts throughout the state. Blackouts could intermittently and temporarily affect our ability to continue operations at our facilities.    Furthermore, the deregulation of the energy industry instituted in 1996 by the   California government and shortages in wholesale electricity supplies have  caused power prices to increase. If wholesale prices continue to increase, our   operating expenses will likely increase, which will have a negative effect on our operating results.  

Our inability to comply with regulations applicable to our facilities and  procedures could delay, limit or prevent our research and development or  manufacturing activities.

Our research and development and manufacturing facilities and procedures are subject to ongoing review and periodic inspection. We must dedicate funds, time  and effort in the areas of production, safety and quality control and assurance  to ensure compliance with the regulations applicable to these facilities and procedures. If the EPA or another regulatory body determines that we are not in  compliance with these regulations, regulatory approval of our products could be  delayed or we may be required to limit or cease our research and development or  manufacturing activities or pay a monetary fine. If we are required to limit or  cease our research and development activities, our ability to develop new  products would be impaired. If we are required to limit or cease our manufacturing activities, our ability to produce Serenade and other products in  commercial quantities would be impaired or prohibited, which would harm our business.                                                                        

The high level of competition in our markets may result in pricing pressures, reduced margins or the inability of our products to achieve market acceptance.  

The markets for pest management products are intensely competitive, rapidly changing and undergoing consolidation. We may be unable to compete successfully against our current and future competitors, which may result in price  reductions, reduced margins and the inability to achieve market acceptance for our products.

Many entities are engaged in developing pest management products. Our competitors include major international agrichemical companies, specialized biotechnology companies and research and academic institutions. Many of these    organizations have significantly more capital, research and development,  regulatory, manufacturing, marketing, human and other resources than we do. As   a result, they may be able to devote greater resources to manufacture, promote   or sell their products, receive greater resources and support from independent   distributors, initiate or withstand substantial price competition or more readily take advantage of acquisition or other opportunities. Further, many of   the large agrichemical companies have a more diversified product offering than   we do, which may give these companies an advantage in meeting customer needs by  enabling them to offer integrated pest management solutions.   

Our inability to protect our patents and proprietary rights in the United  States and foreign countries could limit our ability to compete effectively  because third parties may take advantage of our research and development efforts.  

Our success depends in part on our ability to obtain and maintain patent and other proprietary right protection for our technologies and products in the United States and other countries. We have not yet been issued patents for all   of our initial product candidates. If we are unable to obtain or maintain these  protections, we may not be able to prevent third parties from using our proprietary rights. We also rely on trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We have taken measures to protect our trade secrets and know-how, including the use of confidentiality agreements with our employees, consultants and advisors. It is   possible that these agreements may be breached and that any remedies for a breach will not make us whole. We generally control and limit access to, and the distribution of, our product documentation and other proprietary information. Despite our efforts to protect these proprietary rights, our trade  secret-protected know-how could fall into the public domain, unauthorized parties may copy aspects of  [page 14]

our products and obtain and use information that we regard as proprietary. Other parties may also independently develop our know-how or otherwise obtain access to our technologies.  

The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and we may encounter significant  problems and costs in protecting our proprietary rights in these foreign countries.  

Patent law is still evolving relative to the scope and enforceability of   claims in the fields in which we operate. We are like most biotechnology companies in that our patent protection is highly uncertain and involves complex legal and technical questions for which legal principles are not yet     firmly established. Our patents and those patents for which we have license rights may be challenged, narrowed, invalidated or circumvented. In addition, our issued patents may not contain claims sufficiently broad to protect us  against third parties with similar technologies or products or provide us with   any competitive advantage. Our pending patent applications may not issue.   Moreover, our competitors could challenge or circumvent our patents or pending patent applications.   

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in biotechnology  patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our  proprietary rights.  

Other companies may claim that we infringe their intellectual property or proprietary rights, which could cause us to incur significant expenses or  prevent us from selling our products.  

Our success depends in part on our ability to operate without infringing the patents and proprietary rights of third parties. Product development is  inherently uncertain in a rapidly evolving technological environment such as ours in which there may be numerous patent applications pending, many of which   are confidential when filed, with regard to similar technologies. Patents  issued to third parties may contain claims that conflict with our patents and    that compete with our products and technologies, and third parties could assert  infringement claims against us. Any litigation or interference proceedings, regardless of their outcome, may be costly and may require significant time and  attention of our management and technical personnel. Litigation or interference  proceedings could also force us to:

• stop or delay using our proprietary technologies; 
  
• stop or delay selling, manufacturing or using products that incorporate the challenged intellectual property;   
  
• pay damages; or                                                          
  
• enter into licensing or royalty agreements that may be unavailable on  acceptable terms.  

We may be exposed to product liability claims, which could harm our business. 

We may be held liable for, or incur costs to settle liability claims, brought by growers to recover the cost of crops lost due to the failure of our   products to protect the crops as intended or for damages to their crops caused   by our products. We may also be held liable, or incur costs to settle, liability claims for any product we develop, or any product that uses or incorporates any of our technologies or products. These risks exist even with respect to products that have received, or may in the future receive,  regulatory approval, registration or clearance for commercial use.  

Our product liability insurance may not be adequate and, at any time, insurance coverage may not be available on commercially reasonable terms or at   all. A product liability claim could result in liability to us greater than our  assets or insurance coverage. Even if we have adequate insurance coverage,       product liability claims or recalls could result in negative publicity or force  us to devote significant time, attention and financial resources to those matters.  [page 15] 

You will suffer immediate and substantial dilution.  

We expect the initial public offering price of our common stock to be substantially higher than the net tangible book value per share of our  outstanding common stock, resulting in immediate and substantial dilution. The pro forma as adjusted net tangible book value of a share of our common stock purchased at an assumed initial public offering price of $12.00 (the midpoint    of the expected price range) will be only $3.80. Additional dilution may be incurred if stock options or warrants, whether currently outstanding or  subsequently granted, are exercised. 

Our principal stockholders, executive officers and directors own a significant  percentage of our common stock, and these stockholders may take actions that  may be adverse to your interests.

Our executive officers and directors and entities affiliated with them will, in the aggregate, beneficially own approximately 36.6% of our common stock  following this offering. These stockholders, acting together, will be able to    significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of significant corporate transactions such as mergers, consolidations and sales of assets. They also  could dictate the management of our business and affairs. This concentration of  ownership could have the effect of delaying, deferring or preventing a change    in control or impeding a merger or consolidation, takeover or other business combination, which could cause the market price of our common stock to fall or   prevent you from receiving a premium in such a transaction. 

Our common stock may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.

We are an early-stage company with a limited operating history and a history of losses. As a result, the market price of our securities could be highly  volatile. This volatility may be unrelated to our operating performance. In the  past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities.    Whether or not meritorious, litigation brought against us could result in substantial costs, divert management's attention and resources and harm our  business.  

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:    

• announcements regarding product sales by us or competitors;  
  
• announcements of technological innovations or new products by us or  competitors;   
• media reports and publications about pest management products;           
  
• announcements concerning competitors or the pest management industry or  the agricultural economy in general;   
• new regulatory pronouncements and changes in regulatory guidelines;      
  
• general and industry-specific economic conditions;  and  
  
• changes in financial estimates or recommendations by securities analysts.  

Our operating results are likely to fluctuate, resulting in an unpredictable level of earnings and possibly a decrease in our stock price.  

Our sales are expected to be highly seasonal. Sales of pest management products used for crop protection are dependent on planting and growing seasons, climatic conditions and other variables, which we expect to result in   substantial fluctuations in our quarterly sales and earnings. In contrast, most  of our expenses, such as employee compensation and lease payments for facilities and equipment, are relatively fixed. Our expense levels are based in  part on our expectations regarding future product sales. As a result, any shortfall in sales relative to our expectations could cause significant changes  in our operating results from quarter to quarter,  [page 16] 

which could result in uncertainty surrounding our earnings and possibly a decrease in our stock price. Other factors may also contribute to the unpredictability of our operating results, including the size and timing of significant customer transactions, the delay or deferral of customer use of our  products and the fiscal or quarterly budget cycles of our customers. For example, customers may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to coincide with their receipt of revenues or loan proceeds, which may cause significant fluctuations in our operating results for a particular quarter or year.   

Future sales of our common stock by our stockholders could depress our stock price.

Sales of a large number of shares of our common stock, or the availability of a large number of shares for sale, could adversely affect the market price of our common stock and could impair our ability to raise funds in additional  stock offerings. Based on shares outstanding as of September 30, 2001, upon completion of this offering, we will have 12,807,165 shares of common stock  outstanding, assuming no exercise of options or warrants after September 30, 2001, and the conversion of all shares of outstanding preferred stock into  common stock. Substantially all holders of our common stock are subject to agreements with the underwriters that restrict their ability to transfer their stock for 180 days after the date of this prospectus. Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the underwriters, may in its sole discretion and at any time waive the restrictions on transfer in these agreements during this period. After these agreements expire, approximately shares will be eligible for sale in the public market assuming no exercise of stock options or warrants after September 30, 2001.    

We will have broad discretion in how we use the net proceeds from this offering.  

We intend to use the net proceeds from this offering to expand our sales and marketing capabilities and research and development activities, and to enhance   our manufacturing facilities. We intend to use the remainder of the net proceeds to repay indebtedness and for working capital and general corporate  purposes, including potential acquisitions. Our management has not designated a  specific use for a substantial portion of the net proceeds and will have broad   discretion over their use. Our management may allocate the net proceeds  differently than investors in this offering would have preferred, or we may not  maximize our return on the net proceeds.  

Our incorporation documents and Delaware law may have anti-takeover provisions  that could delay or prevent a change in control of our company, which could  negatively affect your investment. 

Our certificate of incorporation and bylaws will contain and Delaware law contains provisions that could delay or prevent a change in control of our company that stockholders may consider favorable. Some of these provisions: 

• authorize the issuance of preferred stock that can be created and issued by our board of directors without prior stockholder approval, commonly referred to as "blank check" preferred stock, with rights senior to those of our common stock;                                            
  
• provide for a classified board of directors;                             
  
• .limit the persons who can call special stockholder meetings;             
  
• provide that a supermajority vote of our stockholders is required to amend our certificate of incorporation or bylaws; and                 
  
• .  establish advance notice requirements to nominate directors for election to our board of directors or to propose matters that can be acted on by stockholders at stockholder meetings.