| EDEN BIOSCIENCE CORP Item 1A Risk Factors |
| Factors That May Affect Our Business, Future Operating Results and Financial Condition You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K The risks and uncertainties described below are not the only ones facing our company |
| If any of the following risks actually occurs, our business, financial condition or operating results could be harmed |
| 19 _________________________________________________________________ We have a history of losses since inception, we expect to continue to incur losses and we may not achieve or sustain profitability |
| We have incurred operating losses in each quarter since inception and we expect to continue to incur further operating losses for the foreseeable future |
| From our inception in July 1994 to December 31, 2005, we have accumulated a deficit of dlra116dtta8 million |
| For the years ended December 31, 2005, 2004, 2003, 2002 and 2001, we had net losses of dlra10dtta9 million, dlra8dtta9 million, dlra11dtta2 million, dlra23dtta5 million and dlra23dtta7 million, respectively |
| For example, there were no sales in the fourth quarter of 2001 and annual net sales decreased from dlra3dtta5 million in 2001 to dlra1dtta9 million in 2002, dlra1dtta8 million in 2003 and dlra1dtta0 million in 2004 |
| Our annual net sales were dlra3dtta8 million in 2005 |
| We expect our future revenues to come primarily from the sale of Messenger STS, employ, MightyPlant, ProAct™, N-Hibit™ and other products and these sales are highly uncertain |
| We expect to continue to devote substantial resources to funding sales and marketing activities in the United States and foreign countries, maintaining and operating our manufacturing facility and funding our research and development activities |
| As a result, we will need to generate significant revenues to achieve and maintain profitability |
| We may never generate profits, and if we do become profitable, we may be unable to sustain or increase profitability on a quarterly or annual basis |
| We currently anticipate that our operating expenses will significantly exceed net product sales and that net losses and working capital requirements will consume a material amount of our cash resources |
| If net product sales do not significantly increase in the near term, we will have to further reduce our operating expenses |
| We believe that the balance of our cash and cash equivalents at December 31, 2005 will be sufficient to meet our anticipated cash needs for net losses, working capital and capital expenditures for more than the next 12 months, although there can be no assurance in that regard |
| We may have to reduce or cease operations if we are unable to meet our funding requirements |
| We will require substantial additional funding to continue our sales and marketing and research and development activities in the United States and foreign countries and to maintain and operate our manufacturing facilities |
| If we are unable to generate sufficient cash flow from operations, or obtain funds through additional financing, we may have to delay, curtail or eliminate some or all of our research and development, field-testing, marketing or manufacturing programs or cease all operations |
| For example, we reduced our workforce by 34prca in May 2003 and by 23prca in May 2002, significantly curtailing certain research and development activities and our European and Mexican operations |
| Our future capital requirements will depend on the success of our operations |
| If our capital requirements vary from our current plans, we may require additional financing sooner than we anticipate |
| Financing may be unavailable to us when needed or on acceptable terms |
| Our common stock listing was transferred from The Nasdaq National Market to The Nasdaq Capital Market (formerly known as The Nasdaq SmallCap Market); we currently are not in compliance with The Nasdaq Capital Market minimum bid requirement and failure to regain and maintain compliance with this and other continued listing standards could result in delisting and adversely affect our market price and liquidity |
| Our common stock listing was transferred from The Nasdaq National Market to The Nasdaq Capital Market on October 10, 2005 |
| We elected to seek a transfer to The Nasdaq Capital Market because we had been unable to regain compliance with Nasdaq’s minimum dlra1dtta00 bid price requirement for continued listing |
| By transferring to The Nasdaq Capital Market, we have been afforded an additional 180-calendar day grace period, or until March 31, 2006, in which to satisfy Nasdaq’s dlra1dtta00 minimum bid price requirement |
| To regain compliance, the closing bid price of our common stock has to remain at dlra1dtta00 per share or more for a minimum of ten consecutive trading days |
| If we do not regain compliance with the minimum bid price rule by March 31, 2006, which as of the date of this report we have been unable to do, Nasdaq will provide us written notification that our common stock will be delisted |
| In such case, we have the right to appeal Nasdaq’s delisting determination to a Listing Qualifications Panel |
| In order to regain compliance with the minimum 20 _________________________________________________________________ bid price requirement, our Board of Directors may approve a reverse stock split of our common stock, although there can be no assurance that a reverse stock split would allow us to meet the minimum bid price requirement for the required period of time |
| Trading on The Nasdaq Capital Market may have a negative impact on the value of our common stock, because securities trading on The Nasdaq Capital Market typically are less liquid than those traded on The Nasdaq National Market |
| Furthermore, we will not be eligible to relist our common stock on The Nasdaq National Market unless and until our common stock maintains a minimum bid price of dlra5dtta00 per share for 90 consecutive trading days and we otherwise comply with the initial listing requirements for The Nasdaq National Market |
| If our common stock were to be delisted from The Nasdaq Capital Market, we may seek quotation on a regional stock exchange, if available |
| Such listing could reduce the market liquidity for our common stock |
| If our common stock is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board |
| As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock |
| If our common stock is delisted from The Nasdaq Capital Market, and if we fail to obtain quotation on another market or exchange, and if the trading price remains below dlra5dtta00 per share, then trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than dlra5dtta00 per share, subject to certain exceptions) |
| Many brokerage firms are reluctant to recommend low-priced stocks to their clients |
| Moreover, various regulations and policies restrict the ability of shareholders to borrow against or “margin” low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls |
| Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher |
| This factor may also limit the willingness of institutions to purchase our common stock |
| Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock |
| We currently depend on products that are based on the same new technology, and our development and commercialization of those products may not be successful |
| For the immediately foreseeable future we will be dependent on the successful development and commercialization of six products in our Harp-N-Tek product portfolio (Messenger, Messenger STS, ProAct, N-Hibit, employ and MightyPlant) which are based on the same new technology |
| We have had only limited sales of Messenger since its introduction in August 2000 and we began marketing employ in November 2003, Messenger STS in January 2004, MightyPlant in April 2004 and N-Hibit and ProAct in early 2005 |
| These six products may not be commercially successful |
| Our products may not prove effective or economically viable for all crops or markets |
| In addition, because our products have not been put to widespread commercial use over significant periods of time, no assurance can be given that adverse consequences might not result from their use, such as soil or other environmental degradation, the development of negative effects on animals or plants or reduced benefits in terms of crop yield or protection |
| Our products have not gained, and may not gain, commercial acceptance or success |
| If we are unable to successfully achieve broad market acceptance of our products, we may not be able to generate enough product revenues in the future to achieve profitability |
| A variety of factors will determine the success of our market development and commercialization efforts and the rate and extent of market acceptance of our products, including our ability to 21 _________________________________________________________________ implement and maintain an appropriate pricing policy and general economic conditions in agricultural markets, including commodity prices, climatic conditions and the extent that growers, regulatory authorities and the public accept new agricultural practices and products developed through biotechnology |
| We have experienced limited grower usage of Messenger and Messenger STS, and independent distributors hold significant inventories of Messenger STS Based on information received from distributors, we estimate that distributors sold the following amounts of Messenger and/or Messenger STS to growers: 66cmam000 ounces in 2000, 596cmam000 ounces in 2001, 684cmam000 ounces in 2002, 734cmam000 ounces in 2003, 800cmam000 ounces in 2004 and 860cmam000 in 2005 |
| We estimate that Messenger and Messenger STS inventory held by distributors at December 31, 2005 was approximately 309cmam000 ounces |
| We sent distributors approximately 470cmam000 ounces of additional Messenger STS for free in 2004 as part of an effort to lower the average cost of their year-end Messenger inventories by approximately 50prca |
| This free product significantly increased channel inventory and negatively affected our sales to distributors |
| We do not expect distributors that hold significant inventories of Messenger or Messenger STS to place additional orders for our products until their current inventories are reduced, which will adversely affect our sales and results of operations |
| Inability to develop adequate sales and marketing capabilities could prevent us from successfully commercializing our current products and other products we may develop |
| We currently have limited sales and marketing experience and capabilities |
| Our internal sales and marketing staff consist primarily of sales and marketing specialists who are trained to educate growers and independent distributors on the uses and benefits of our products |
| We will need to further develop our sales and marketing capabilities in order to enhance our commercialization efforts, which will involve substantial costs |
| These specialists require a high level of technical expertise and knowledge regarding our products’ capabilities and other plant protection and yield enhancement products and techniques |
| We cannot assure you that our specialists and other members of our sales and marketing team will successfully compete against the sales and marketing operations of our current and future competitors that may have more established relationships with distributors, retailers and growers |
| Failure to recruit, train and retain important sales and marketing personnel, such as our sales and marketing specialists, or the inability of new sales and marketing personnel to effectively market and sell our current products and other products we may develop, could impair our ability to gain market acceptance of our products and cause our sales to suffer |
| We may be unable to establish or maintain successful relationships with independent distributors and retailers, which could adversely affect our sales |
| We intend to rely on independent distributors and retailers of agri-chemicals to distribute and assist with the marketing and sale of our current products and any other products we may develop |
| We have engaged several independent distributors and retailers for the distribution and sale of our products |
| Our future revenue growth will depend in large part on our success in establishing and maintaining these sales and distribution channels |
| We are continuing to develop our distribution network and we may be unable to establish or maintain these relationships in a timely or cost-effective manner |
| Moreover, we cannot assure you that the distributors and retailers on which we rely will focus adequate resources on selling these products or will be successful in selling them |
| Many of our potential distributors and retailers are in the business of distributing and sometimes manufacturing other, possibly competing, plant protection and yield enhancement products and may perceive our products as a threat to various product lines currently being manufactured or distributed by them |
| In addition, the distributors and retailers may earn higher margins by selling competing products or combinations of competing products |
| If we are unable to establish or maintain successful relationships with independent distributors and retailers, we will need to further develop our own distribution and sales and marketing capabilities, which would be expensive and time-consuming and the success of which would be uncertain |
| Five distributors accounted for an aggregate of 59prca of net product sales revenue in 2005, three distributors accounted for an aggregate of 46prca of our net sales revenue in 2004 and three distributors accounted for an 22 _________________________________________________________________ aggregate of 40prca of our net sales revenue in 2003 |
| If any distributor that purchases a significant amount of our products were to discontinue purchasing our products at any time, our sales would be adversely affected |
| In addition, the failure of any of these distributors, or of any other distributor to which we extend a significant amount of credit, to pay its account, now or in the future, may harm our operating results |
| If our ongoing or future field trials are unsuccessful, we may be unable to achieve market acceptance or obtain regulatory approval of our current products or any other products we may develop |
| The successful completion of multiple field trials in domestic and foreign locations on a wide variety of crops is critical to the success of our product development and marketing efforts |
| If our ongoing or future field trials are unsuccessful or produce inconsistent results or adverse side effects, or if we are unable to collect reliable data, regulatory approval of our current products or any other products we may develop could be delayed or withheld or we may be unable to achieve market acceptance of these products |
| 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 |
| Moreover, 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 droughts and floods, severe heat and frost, hail, tornadoes and hurricanes |
| Generally, we pay third parties, such as consultants and universities, to conduct our field trials for us |
| Incompatible crop treatment practices or misapplication of the product by third parties could interfere with the success of our field trials |
| We are largely in the development stage and are subject to the risks of a new enterprise and the commercialization of a new technology |
| We began our operations in 1994 and began the marketing and sale of our first product, Messenger, in the third quarter of 2000 |
| Our stage of development, our novel technology and the uncertain nature of the market in which we compete make it difficult to assess our prospects or predict our future operating results |
| We are subject to risks and uncertainties frequently encountered in the establishment of a new business enterprise, particularly in the rapidly changing market for plant protection and yield enhancement products |
| These risks include our inability to develop a company capable of supporting commercial activities, including manufacturing, quality control and assurance, regulatory approval and compliance, marketing, sales, distribution and customer service |
| Our inability to adequately address these risks could cause us to be unprofitable or to cease operations |
| International expansion will subject us to risks associated with international operations, which could adversely affect both our domestic and international operations |
| Our success depends in part on our ability to expand internationally as we obtain regulatory approvals to market and sell our current products, and any other products we may develop, in other countries |
| We received registration to sell Messenger in Spain in March of 2004 |
| We have been conducting field trials in several international locations and we have personnel in Europe to develop operations in that region |
| International expansion of our operations could impose substantial burdens on our resources, divert management’s attention from domestic operations or otherwise adversely affect our business |
| Furthermore, international operations are subject to several inherent risks, such as different regulatory requirements and reduced protection of intellectual property rights, which could adversely affect our ability to compete in international markets and could have a negative effect on our operating results |
| The high level of competition in our market may result in price reductions, reduced margins or the inability of our products to achieve market acceptance |
| The market for plant protection and yield enhancement products is intensely competitive, rapidly changing and undergoing consolidation |
| We may be unable to compete successfully against our current or future competitors, which may result in price reductions, reduced margins or the inability to achieve market acceptance of our current products or any other products we may develop |
| For example, from September to 23 _________________________________________________________________ December 2003 we offered growers a “buy one, get one free” promotion and in January 2004 we introduced Messenger STS at a price that is approximately 50prca of the 2003 price of Messenger |
| Many companies are engaged in developing plant protection and yield enhancement products |
| Our competitors include major international agri-chemical companies, specialized biotechnology companies and research and academic institutions |
| Many of these organizations have significantly more capital, research and development, regulatory, manufacturing, distribution, sales, marketing, human and other resources than we do |
| As a result, they may be able to devote greater resources to the development, manufacture, promotion or sale of their products, receive greater resources and support from independent distributors, initiate or withstand substantial price competition or take advantage of acquisition or other opportunities more readily |
| Furthermore, these large agri-chemical companies have a more diversified product offering than we do, which may give them an advantage in meeting customer needs by enabling them to offer integrated solutions to plant protection and yield enhancement |
| Age and actual storage conditions of our products may cause them to degrade, which could adversely affect market acceptance of our products or our results of operations |
| Our products are currently being stored in large quantities under various conditions by us and by distributors |
| Most of this material was manufactured in 2002, 2004 and 2005 |
| The results of re-testing of Messenger manufactured in 2000 indicate that it is still stable with similar biological activity and performance as of the original manufacture date |
| No assurance can be given, however, that actual storage conditions will not cause our products’ quality to degrade over a shorter time period |
| The inventory of Messenger STS held by us and by distributors is aging and may not meet our quality standards, which could adversely affect market acceptance of our products and our results of operations |
| Our inventory at December 31, 2005 includes approximately 2dtta1 million ounces of Messenger STS that was manufactured in 2002 and 2004 |
| In addition, we estimate that distributors own approximately 239cmam000 ounces of Messenger and Messenger STS that was manufactured between 2002 and 2004 |
| We conducted limited re-testing of Messenger samples produced in 2000 and 2001 |
| In 2003, we voluntarily recalled and replaced approximately 10cmam000 ounces of Messenger owned by distributors that our limited re-testing indicated had degraded below our quality control standards |
| Although results of our limited re-testing in 2004 indicated that almost all of inventory manufactured in 2001 and 2002 continues to meet our quality standards, no assurance can be given that this material will continue to meet our quality standards, nor can we predict if or when this material might fail to meet our quality standards |
| If re-testing indicates that additional material has degraded below our quality standards, we may have to record additional inventory write-downs and, although we are not required to, may choose to replace any such product owned by distributors or growers, which could adversely affect the market acceptance of our products or our results of operations |
| Inability to obtain regulatory approvals, or to comply with ongoing and changing regulatory requirements, could delay or prevent sales of our current products or any other products we may develop |
| The field testing, manufacture, sale and use of plant health products, including Messenger, Messenger STS, ProAct, N-Hibit, employ, MightyPlant and other products we may develop, are extensively regulated by the EPA and/or state, local and foreign governmental authorities |
| These regulations substantially increase the cost and time associated with bringing our current products and any other products we may develop to market |
| If we do not continue to receive the necessary governmental approvals to test, manufacture and market these products, or if the regulatory authorities revoke our approvals or grant them subject to restrictions on their use, we may be unable to sell these products and our business may fail |
| We are required to obtain regulatory approval from certain state and foreign regulatory authorities before we market our products in those jurisdictions |
| Some of these jurisdictions may apply different criteria than the EPA in connection with their approval processes |
| Although we are authorized to sell Messenger STS in 24 _________________________________________________________________ 49 states for use on virtually all crops for crop production and disease management, and to sell Messenger STS in California for use on strawberries, citrus, grapes and fruiting vegetables, such as tomatoes and peppers, for disease management, we have not received approval of Messenger, Messenger STS or N-Hibit for use on other crops in California |
| In January 2006, ProAct was approved for use in Germany as a plant strengthener |
| We have also received authorization to sell Messenger, or are exempt from formal authorization requirements, in at least 26 foreign countries, including Spain, Germany, Greece, Turkey, Mexico, China and six Central American countries |
| Our registration in China is temporary and limited to the sale of Messenger for use on tomatoes, peppers, tobacco, and rapeseed |
| Our registration in Spain was limited to the sale of Messenger for use on tomatoes, peppers, cucumbers, melons, strawberries, lettuce, citrus and olives and was extended to all crops in early 2006 |
| The EPA has approved the use of Messenger STS and we are currently in the process of obtaining foreign registrations for this product, but there can be no assurance that such registrations will be obtained on acceptable terms |
| Neither employ nor MightyPlant are pesticides and they are not regulated by the EPA However, several states and foreign governments regulate both products |
| Many states regulate employ as a plant amendment or soil conditioner and some of these states and foreign regulatory authorities require the submission and review of performance data and other information prior to granting their approval |
| We are authorized to sell employ in 33 states and no foreign countries |
| MightyPlant is classified by most states as a fertilizer and we are authorized to sell MightyPlant in 47 states and no foreign countries |
| However, there can be no assurance that we will obtain approval to sell employ or MightyPlant in other states or foreign countries |
| If we significantly modify our current products’ designs as a result of our ongoing research and development projects, additional EPA and other regulatory approvals may be required |
| Moreover, we cannot assure you that we will be able to obtain approval for marketing additional harpin-based products or product extensions that we may develop |
| For example, while the EPA has in place a registration procedure for products such as Messenger that is streamlined in comparison to the registration procedure for chemical pesticides, there can be no assurance that all of our products or product extensions will be eligible for the streamlined procedure or that the EPA will not impose additional requirements that could make the procedure more time-consuming and costly for any future products we may develop |
| Even if we obtain all necessary regulatory approvals to market and sell our current products and any other products we may develop, these products will be subject to continuing review and extensive regulatory requirements |
| The EPA, as well as state and foreign governmental authorities, could withdraw a previously approved product from the market upon discovery of new information, including an inability to comply with regulatory requirements or the occurrence of unanticipated problems with the product, or for other reasons |
| In addition, federal, state and foreign regulations relating to crop production and protection products developed through biotechnology are subject to public concerns and political circumstances and, as a result, regulations have changed and may change substantially in the future |
| These changes may result in limitations on the manufacturing, marketing or use of our current products or any other products we may develop and commercialize |
| Our product development efforts, which are based on an innovative technology that is commercially unproven, may not be successful |
| Our harpin and harpin-related technology is new and commercially unproven |
| It may take years and significant capital investment to develop viable enhancements of our current products or any new products we may develop based on our harpin and harpin-related technology |
| Risks inherent in the development of products based on innovative technologies include the possibility that: • new products or product enhancements will be uneconomical to market or will be difficult to produce on a large scale; • proprietary rights of third parties will prevent us from marketing products; and • third parties will market superior or equivalent products or will market their products first |
| Our operating results for a particular quarter or year are likely to fluctuate, which could result in uncertainty surrounding our level of sales and losses or earnings and possibly result in a decrease in our stock price |
| For example, there were no sales of Messenger in the fourth quarter of 2001 and annual net product sales decreased 70prca from 2001 to 2004 |
| Numerous other factors will contribute to the unpredictability of our operating results |
| In particular, our sales are expected to be highly seasonal |
| Sales of plant protection and yield enhancement products depend on planting and growing seasons, climatic conditions and economic and other variables, which we expect to result in substantial fluctuations in our quarterly sales and earnings |
| For example, weather-related events such as droughts and floods, severe heat and frost, hail, tornadoes and hurricanes could decrease demand for our products and any future products we may develop, and have an adverse impact on our operating results from quarter to quarter |
| In addition, most of our expenses, such as employee compensation and lease payments for facilities, are relatively fixed |
| Our expense levels are based, in part, on our expectations regarding future sales |
| As a result, any shortfall in sales relative to our expectations could cause significant changes in our operating results from quarter to quarter |
| Other factors may also contribute to the unpredictability of our operating results, including the amount of our products carried in inventory by independent distributors and retailers, the amount of free product to be given to retailers, 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 under a promotion such as “buy one, get one free” in a particular quarter to store and use over long periods of time, or time their purchases to coincide with the availability of capital, either of which may cause significant fluctuations in our operating results for a particular quarter or year |
| Inability to protect our patents and proprietary rights in the United States and foreign countries could limit our ability to compete effectively since our competitors may take advantage of our patents or proprietary rights |
| Our success depends on our ability to obtain and maintain patent and other proprietary-right protection for our technology and products in the United States and other countries |
| 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 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, unauthorized parties may copy aspects of our products or obtain and use information that we regard as proprietary |
| We also cannot guarantee that other parties will not independently develop our know-how or otherwise obtain access to our technology |
| The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems and incurred significant costs in protecting their proprietary rights in these foreign countries |
| Patent law is still evolving with respect to the scope and enforceability of claims in the fields in which we operate |
| We are like many biotechnology companies in that our patent protection is highly uncertain and involves complex legal and technical questions for which legal principles are not 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 |
| We are not certain that our pending patent applications will be issued |
| Moreover, our competitors could challenge or circumvent our patents or pending patent applications |
| The US 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 26 _________________________________________________________________ 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 be prevented from selling our current products or any other products we may develop in the future |
| Our success depends 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 in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies |
| Future patents issued to third parties may contain claims that conflict with our patents |
| Although we believe that our current products do not infringe the proprietary rights of any third parties, third parties could assert infringement claims against us in the future |
| Any litigation or interference proceedings, regardless of their merit or outcome, would probably be costly and require significant time and attention of our key management and technical personnel |
| Litigation or interference proceedings could also force us to: • 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 |
| If we do not adequately distinguish our products from genetically modified plants and products, public concerns over those products could negatively impact market acceptance of our products |
| Claims that the output of genetically modified plants is unsafe for consumption or that these plants pose a danger to the environment have led to public concerns and negative attitudes about genetically modified crops, particularly in Europe |
| Our products are topically applied and do not modify the plant’s DNA If the public or our customers perceive our products as products that genetically modify plants, market acceptance and registration of our products could be delayed, impaired or limited in countries with strong political resistance to genetically modified plants |
| We may be exposed to product liability claims, which could adversely affect our operations |
| We may be held liable or incur costs to settle product liability claims if our current products or any products we may develop, or any products that use or incorporate any of our technologies, cause injury or are found unsuitable during product testing, manufacturing, marketing, sale or use |
| These risks exist even with respect to any products that have received, or may in the future receive, regulatory approval, registration or clearance for commercial use |
| We cannot guarantee that we will be able to avoid product liability exposure |
| We currently maintain product liability insurance at levels we believe are sufficient and consistent with industry standards for companies at our stage of development |
| We cannot guarantee that our product liability insurance is adequate, and, at any time, it is possible that such 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 and insurance coverage |
| Moreover, even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity or force us to devote significant time and attention to matters other than those that arise in the normal course of business |
| Rapid changes in technology could render our current products or any other products we may develop unmarketable or obsolete |
| We are engaged in an industry characterized by extensive research efforts and rapid technological development |
| Our competitors, many of which have substantially greater technological and financial resources than we do, may develop plant protection and yield enhancement technologies and products that are more 27 _________________________________________________________________ effective than ours or that render our technology and products obsolete or uncompetitive |
| To be successful, we will need to continually enhance our current products and any other products we may develop and to design, develop and market new products that keep pace with new technological and industry developments |
| 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 continual review and periodic inspection |
| To comply with the regulations applicable to these facilities and procedures, we must spend funds, time and effort in the areas of production, safety and quality control and assurance to help ensure full technical compliance |
| If the EPA or another regulator determines that we are not in compliance, regulatory approval of our current products or any other products we may develop could be revoked, delayed or withheld or we may be required to limit or cease our research and development or manufacturing activities or pay a monetary fine |
| If we were required to limit or cease our research and development activities, our ability to develop new products would be impaired |
| In addition, if we were required to limit or cease our manufacturing activities, our ability to produce our current products in commercial quantities would be impaired or prohibited, which could have an adverse effect on our sales |
| Inability to produce high quality products could impair our business |
| To be successful, we will have to manufacture our current products in large quantities at acceptable costs while also preserving high product quality |
| If we cannot maintain high product quality on a large scale, we may be unable to achieve market acceptance of our products and our sales would likely suffer |
| Moreover, we do not have back-up manufacturing systems and, as a result, the failure of any component required in the manufacturing process could delay or impair our ability to manufacture our products in the quantities that we may require |
| We intend to continue to make changes to our manufacturing processes and facilities in order to improve the efficiency and quality of our manufacturing activities |
| We cannot guarantee that we will be successful in this regard or that the changes we make will improve our manufacturing activities |
| We may encounter difficulties in the production of our current products or any future products we may develop, including problems involving manufacturing processes or yields, packaging, distribution, storage, quality control and assurance, shortages of qualified personnel or compliance with regulatory requirements |
| Even if we are successful in developing our manufacturing capability and processes, there can be no assurance that we will satisfy the requirements of our distributors or customers |
| If third-party manufacturers fail to perform adequately, we could be unable to meet demand and our revenues could be adversely affected |
| When our manufacturing plant is operating, we may depend on independent manufacturers for large-scale fermentation services and to perform certain other portions of our production process |
| We intend to engage additional third-party manufacturers as necessary to perform these processes |
| Any failure or delay in the ability of our current or any future manufacturers to provide us with material they produce could adversely affect our ability to produce our current products in the quantities necessary to satisfy the requirements of our distributors or customers, or could increase our costs associated with obtaining such materials |
| We cannot ensure that our current or future third-party manufacturers will perform their obligations to meet our quality standards, that we will derive cost savings or other benefits from our relationships with them or that we will be able to maintain a satisfactory relationship with them on terms acceptable to us |
| Moreover, these manufacturers may support products that compete directly or indirectly with ours, or offer similar or greater support to our competitors |
| If any of these events were to occur, our business and operations could be adversely affected |
| 28 _________________________________________________________________ Inability to address strain on our resources caused by growth could result in ineffective management of our business |
| If we experience growth and add manufacturing, marketing, sales, field development or other personnel, both domestically and internationally, during the commercialization of our current products, we expect that our operating expenses and capital requirements will increase |
| Our ability to manage growth effectively requires us 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 |
| We will be unable to effectively manage our business if we are unable to timely and successfully alleviate the strain on our resources caused by growth in our business, which could adversely affect our operating results |
| Inability to retain our key employees or other skilled managerial or technical personnel could impair our ability to maintain or expand our business |
| We are highly dependent on the efforts and abilities of our current key managerial and technical personnel, particularly Dr |
| Rhett R Atkins, our President and Chief Executive Officer, and Dr |
| Zhongmin Wei, our Chief Scientific Officer and Vice President of Research |
| Our success will depend in part on retaining the services of Drs |
| Atkins and Wei and our other existing key management and technical personnel and on attracting and retaining new, highly qualified personnel |
| Inability to retain our existing key management or technical personnel or to attract additional qualified personnel could, among other things, delay our sales, marketing, manufacturing and research and development efforts |
| Moreover, in our field, competition for qualified management and technical personnel is intense and many of the companies with which we compete for experienced personnel have greater financial and other resources than we do |