1049210--3/16/2007--DIVERSA

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Risks Applicable to Our Business Generally We should be viewed as an early stage company. We have a history of net losses, we expect to continue to incur net losses, and we may not achieve or maintain profitability. We may not be able to continue as a going concern or fund our existing capital needs whether or not we complete our pending merger transaction with Celunol. We expect to require additional capital to fund our operations, especially in relation to our implementation of our vertical integration strategy within biofuels, and we may need to enter into financing arrangements with unfavorable terms or which could adversely affect the ownership interest and rights of our common stockholders as compared to our other stockholders. If such financing is not available, we may need to cease operations. If we engage in any acquisitions, we will incur a variety of costs and may potentially face numerous other risks that could adversely affect our business operations. If we are unable to continue to collect genetic material from diverse natural environments, our research and development efforts and our product and process development programs could be harmed. Ethical, legal, and social concerns about genetically engineered products and processes could limit or prevent the use of our products, processes, and technologies and limit our revenue. Stringent laws and required government approvals may be time consuming and costly, and could delay our introduction of products. Many competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense. Our ability to compete may decline if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights due to becoming involved in expensive lawsuits or administrative proceedings. We may encounter difficulties managing our growth, which could adversely affect our results of operations. Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. If we lose our key personnel or are unable to attract and retain qualified personnel as necessary, it could delay our product development programs and harm our research and development efforts. We may be sued for product liability. 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 and could adversely affect our business and results of operations. Risks Specific to Our Vertically Integrated Biofuels Business We may not be successful in the development of individual steps in, or an integrated process for, the production of ethanol from cellulosic biomass at commercial scale in a timely or economic manner or at all. We may not be able to implement our planned expansion strategy to build, own and operate commercial-scale cellulosic ethanol facilities, including as a result of our failure to successfully manage our growth, which would prevent us from achieving our goals. We will rely heavily on future strategic partners. We may not be able to develop manufacturing capacity sufficient to meet demand in an economical manner or at all. The feedstocks, raw materials and energy necessary to produce ethanol may be unavailable or may increase in price, adversely affecting our sales and profitability. The high concentration of our efforts towards developing processes for the production of cellulosic ethanol could increase our losses, especially if demand for ethanol declines. The market price of ethanol is volatile and subject to significant fluctuations, which may cause our profitability from the production of cellulosic ethanol to fluctuate significantly. If ethanol demand does not increase, or if ethanol demand stays the same or decreases, there may be excess capacity in our industry which would likely cause a decline in ethanol prices, adversely impacting our results of operations, cash flows and financial condition. The United States ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in such legislation or regulation could materially adversely affect our results of operations and financial condition. Certain countries can export ethanol to the United States duty-free, which may undermine the ethanol production industry in the United States. Risks Specific to Our Specialty Enzymes Business We are dependent on our collaborative partners, and our failure to successfully manage our existing and future collaboration relationships could prevent us from developing and commercializing many of our specialty enzyme products and achieving or sustaining profitability. We may not be able to realize any future benefits from the products and programs that we discontinued and/or de-emphasized in connection with the strategic reorganization that we announced in January 2006. We do not own equipment with the capacity to manufacture products on a commercial scale. If we are unable to access the capacity to manufacture products in sufficient quantity, we may not be able to commercialize our products or generate significant sales. We have only limited experience in independently developing, manufacturing, marketing, selling, and distributing commercial specialty enzyme products. Risks Related to Owning Our Common Stock We are subject to anti-takeover provisions in our certificate of incorporation, bylaws, and Delaware law and have adopted a shareholder rights plan that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders. We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses. Our stock price has been and may continue to be particularly volatile. Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our stock price. Future sales of our stock by large stockholders could cause the price of our stock to decline. Risks Related to Our Merger with Celunol Corp. Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the proposed transaction. If the conditions to the Merger are not met, the Merger will not occur. The combined company s stock price is expected to be volatile, and the market price of its common stock may drop following the merger. The combined company may be unable to integrate its operations successfully and realize all of the anticipated benefits of the merger. The combined company may continue to incur losses for the foreseeable future, and might never achieve profitability. If the combined company loses key personnel or is unable to attract and retain additional personnel, the combined company may be unable to pursue collaborations or develop its own products.

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1049210--3/16/2007--DIVERSA_CORP