Flexible Solutions International (FSI) S-4Registration of securities issued in business combination transactions

As filed with the United States Securities and Exchange Commission on July 25, 2022.

Registration No: 333-                     

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

6001 54 Ave.

Taber, Alberta, Canada

T1G 1X4

(403) 223-2995

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Daniel B. O’Brien

6001 54 Ave.

Taber, Alberta, Canada

T1G 1X4

(403) 223-2995

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective and all other conditions to the transactions contemplated by the Merger Agreement described in the included proxy statement/prospectus have been satisfied or waived.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14-1(d) (Cross-Border Third-Party Tender Offer) ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary proxy statement/prospectus is not complete and may be changed. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This preliminary prospectus statement/prospectus is not an offer to sell these securities and does not constitute the solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY—SUBJECT TO COMPLETION, DATED JULY 25, 2022

PROXY STATEMENT/PROSPECTUS
DATED                , 2022

Flexible Solutions International INC.

6001 54 Ave.

Taber, Alberta, Canada

T1G 1X4

To the Shareholders of Flexible Solutions International Inc.:

You are cordially invited to attend the special meeting of shareholders (“Special Meeting”) of Flexible Solutions International Inc. (“we,” “us,” “our,” “FSI” or the “Company”) to be held virtually on                , 2022 at                 Pacific Time at                .

On April 17, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization, which was subsequently amended on July 24, 2022 (as amended, the “Merger Agreement”) with Lygos, Inc., a Delaware corporation (“Lygos”), FSI Merger Sub I, Inc., a Delaware corporation (“Merger Sub I”), and FSI Merger Sub II, Inc., a Delaware corporation (“Merger Sub II”). Pursuant to the Merger Agreement, (a) Merger Sub I will merge with and into Lygos, Merger Sub I will cease to exist, and Lygos will become a direct, wholly owned subsidiary of FSI (the “First Merger”), and (b) thereafter as part of the same overall transaction, Lygos will merge with and into Merger Sub II, Lygos will cease to exist, and Merger Sub II will survive as a direct, wholly owned subsidiary of FSI (the “Second Merger” and, collectively or in seriatim with the First Merger, as appropriate, the “Merger”). Capitalized terms not otherwise defined herein have the definition given to them in the Merger Agreement (as amended).

As described in this proxy statement/prospectus, the Company’s shareholders are being asked to consider and vote upon, among other things, the approval of the issuance of common shares of FSI (the “FSI Common Shares”) pursuant to the Merger Agreement and the other proposals set forth herein.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each other outstanding share of Lygos capital stock, other than any shares of Lygos capital stock held as treasury stock prior to the Effective Time, which stock will be canceled and retired without payment of any consideration, will be converted solely into the right to receive a portion of the Merger Shares (as defined below). This portion will be determined in accordance with the Lygos Certificate of Incorporation as applicable to a change of control of Lygos and outstanding Lygos simple agreements for future equity (“SAFEs”). “Merger Shares” means newly issued FSI Common Shares in an aggregate amount equal to (x) the total number of FSI Common Shares and the preferred shares of FSI (together, the “FSI Capital Shares”) on a fully diluted basis outstanding as of the end of the last trading day of FSI Common Shares on the NYSE American before the Effective Time multiplied by (y) two.

Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each Lygos option that is outstanding and unexercised immediately prior to the Effective Time (whether vested or unvested) will automatically be assumed by FSI and converted into an option to acquire a number of FSI Common Shares at an adjusted exercise price per share (each such resulting option, a “Rollover Option”). The number of FSI Common Shares subject to each Rollover Option will be determined by multiplying the number of shares of Lygos common stock subject to each Lygos option by an exchange ratio equal to the exchange ratio determining the fraction of a Merger Share issuable in the Merger per share of Lygos common stock. The resulting number will be rounded down to the nearest whole number of FSI Common Shares.

Prior to the Effective Time, unless otherwise determined by Lygos in its sole discretion, Lygos will use commercially reasonable efforts to enter into an agreement (“SAFE Conversion Agreement”) with each person (“SAFE Party”) that has entered into a SAFE. Such an agreement will provide that each SAFE will be terminated, effective as of immediately prior to the Effective Time. Each SAFE Party would receive the number of shares of Lygos common stock set forth and agreed to by the SAFE Party in the applicable SAFE Conversion Agreement.

The maximum number of FSI Common Shares issuable in the Merger will not exceed the total number of FSI Capital Shares on a fully diluted basis outstanding as of the end of the last trading day of the FSI Common Shares on the NYSE American before the Effective Time multiplied by two.

Immediately following the Effective Time, the former stockholders of Lygos are expected to own approximately 66.7% of the outstanding shares of the Company.

The Merger Agreement also requires the Company to adopt a 2022 Equity Incentive Plan (the “Equity Incentive Plan”) in the form attached hereto as Annex B to this proxy statement/ prospectus.

The Merger will have no effect on the FSI Common Shares that are issued and outstanding immediately prior to the Effective Time, which will continue to remain outstanding.

In connection with the Merger:

The Company and Lygos cannot complete the Merger unless the Company’s shareholders approve the Share Issuance Proposal (as defined below) and certain of the other proposals contained herein. The Company is sending you this proxy statement/prospectus to ask you to vote in favor of the Share Issuance Proposal and the other matters described in this proxy statement/prospectus.

At the Special Meeting, the Company’s shareholders will be asked to consider and vote upon:

Each of these Proposals is more fully described in this proxy statement/prospectus, which each shareholder is encouraged to carefully read.

Pursuant to the FSI Support Agreements, the officers and directors collectively holding approximately 37% of the outstanding shares of FSI have agreed to vote their common shares in favor of the Share Issuance Proposal and the other proposals to come before the meeting.

The Company is providing the accompanying proxy statement/prospectus and accompanying proxy card to our shareholders in connection with the solicitation of proxies to be voted at the Special Meeting (including following any adjournments or postponements of the Special Meeting). Information about the Special Meeting, the Merger and other related business to be considered by the Company’s shareholders at the Special Meeting is included in this proxy statement/prospectus. Whether or not you plan to attend the Special Meeting, we urge all Company shareholders to read this proxy statement/prospectus, including the Annexes and the accompanying financial statements of the Company and Lygos, carefully and in their entirety. In particular, we urge you to carefully read the section entitled “Risk Factors” of this proxy statement/prospectus.

After careful consideration, our board of directors have approved the Share Issuance Proposal and recommends that the Company’s shareholders vote “FOR” the Share Issuance Proposal and “FOR” each of the Change of Control Proposal, the Equity Incentive Plan Proposal, the Director Election Proposal, the Bylaws Proposal, the Say on Pay Proposal, the Say on Golden Parachute Proposal, and the Adjournment Proposal and “FOR” the one year alternative with respect to the Say on Frequency Proposal.

Approval of each of the Proposals requires the affirmative vote of a majority of the votes properly cast at the Special Meeting.

Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by following the instructions in this proxy statement/prospectus to make sure that your shares are represented at the Special Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the Special Meeting. Even if you have voted by proxy, you may change your vote by submitting a new proxy or by attending the Special Meeting.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the proposals presented at the Special Meeting. If you are a shareholder of record and you attend the Special Meeting and wish to vote at the Special Meeting, you may revoke your proxy and vote at the Special Meeting.

On behalf of our board of directors, I would like to thank you for your support of the Company and look forward to a successful completion of the Merger.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated                 , 2022 and is first being mailed to shareholders on or about                 , 2022.

FLEXIBLE SOLUTIONS INTERNATIONAL INC.

6001 54 Ave.

Taber, AB
Canada T1G 1X4

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD , 2022

Notice is hereby given that a special meeting of the shareholders (“Special Meeting”) of Flexible Solutions International Inc. (“FSI” or the “Company”) will be held virtually at               , Pacific time, on               , 2022, at                        for the following purposes:

Each of these Proposals is more fully described in this proxy statement/prospectus, which each shareholder is encouraged to carefully read.

           ,2022 is the record date for the determination of shareholders entitled to notice of and to vote at such meeting. FSI shareholders are entitled to one vote for each share of FSI held. As of            ,2022 there were            FSI common shares outstanding.

The accompanying proxy is solicited by the Company’s directors for voting at the Special Meeting and at any and all adjournments of such meeting. If the proxy is executed and returned, it will be voted at the meeting in accordance with any instructions, and if no specification is made, the proxy will be voted “FOR” each of the Share Issuance Proposal, the Change of Control Proposal, the Equity Incentive Plan Proposal, the Director Election Proposal, the Bylaws Proposal, the Say on Pay Proposal, the Say on Golden Parachute Proposal, and the Adjournment Proposal and “FOR” the one year alternative with respect to the Say on Frequency Proposal. Shareholders who execute proxies may revoke them at any time before they are voted, either by writing to the Company at the address shown above, or at the time of the meeting. Additionally, any later dated proxy will revoke a previous proxy from the same shareholder.

There is one class of capital stock outstanding. A quorum of FSI shareholders is necessary to hold a valid meeting. Holders of 33⅓% of the Company’s outstanding shares, present in person or represented by proxy, constitute a quorum. Abstentions will count as present for the purposes of establishing a quorum.

Approval of each of the Proposals requires the affirmative vote (in person or by proxy) of a majority of the votes properly cast at the Special Meeting.

The Company’s board of directors recommends that the Company’s shareholders vote “FOR” each of the Share Issuance Proposal, the Change of Control Proposal, the Equity Incentive Plan Proposal, the Director Election Proposal, the Bylaws Proposal, the Say on Pay Proposal, the Say on Golden Parachute Proposal, and the Adjournment Proposal and “FOR” the one year alternative with respect to the Say on Frequency Proposal.

Common shares of the Company represented by properly executed proxies that reflect abstentions will be counted as present for purposes of determining the presence of a quorum at the Special Meeting. “Broker non-votes” represent shares held by brokerage firms in “street-name” with respect to which the broker has not received instructions from the customer or otherwise does not have discretionary voting authority. Abstentions and broker non-votes will not be counted as having voted against the Proposals.

Pursuant to those certain support agreements entered into in favor of Lygos by the officers and directors of FSI holding approximately 37% of the outstanding shares of FSI, the officers and directors of FSI have agreed to vote their common shares in favor of the Share Issuance Proposal and the other proposals to come before the meeting.

The Company is providing the accompanying proxy statement/prospectus and accompanying proxy card to FSI shareholders in connection with the solicitation of proxies to be voted at the Special Meeting (including following any adjournments or postponements of the Special Meeting). Information about the Special Meeting, the Merger and other related business to be considered by the Company’s shareholders at the Special Meeting is included in this proxy statement/prospectus. Whether or not you plan to attend the Special Meeting, we urge all Company shareholders to read this proxy statement/prospectus, including the Annexes and the accompanying financial statements of the Company and Lygos, carefully and in their entirety. In particular, we urge you to carefully read the section entitled “Risk Factors” of this proxy statement/prospectus.

After careful consideration, the Company’s board of directors have approved the Share Issuance Proposal and recommends that the Company’s shareholders vote “FOR” the Share Issuance Proposal and “FOR” each of the Change of Control Proposal, the Equity Incentive Plan Proposal, the Director Election Proposal, the Bylaws Proposal, the Say on Pay Proposal, the Say on Golden Parachute Proposal, and the Adjournment Proposal and “FOR” the one year alternative with respect to the Say on Frequency Proposal.

PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ATTACHED PROXY

CARD, AND SIGN, DATE AND RETURN THE PROXY CARD.

TO SAVE THE COST OF FURTHER SOLICITATION,

PLEASE VOTE PROMPTLY

TABLE OF CONTENTS

ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) by Flexible Solutions International Inc. (“we,” “us,” “our,” “FSI” or the “Company”), constitutes a prospectus of the Company under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the Company’s common shares (“FSI Common Shares”) to be issued to the stockholders of Lygos, Inc., a Delaware corporation (“Lygos”), under that certain Agreement and Plan of Merger and Reorganization, dated April 17, 2022, among FSI, Lygos, Inc., a Delaware corporation (“Lygos”), FSI Merger Sub I, Inc., a Delaware corporation, and FSI Merger Sub II, Inc., a Delaware corporation (as amended, the “Merger Agreement”). This document also constitutes a proxy statement of the Company under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).

You should rely only on the information contained into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus.

Information contained in this proxy statement/prospectus regarding the Company has been provided by the Company and information contained in this proxy statement/prospectus regarding Lygos has been provided by Lygos.

This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

QUESTIONS AND ANSWERS ABOUT THE MERGER

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including with respect to the anticipated timing, completion and effects of the Merger. These statements are based on the current expectations and beliefs of management of the Company and Lygos, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements include statements about future financial and operating results of the post-combination company; benefits of the Merger; statements of the plans, strategies and objectives of management for future operations of the post-combination company; statements regarding future economic conditions or performance; and other statements regarding the Merger. Forward-looking statements may contain words such as “will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “pursue,” “should,” “target” or similar expressions, and include the assumptions that underlie such statements. These statements include, but are not limited to the following:

Any forward-looking statements made in this proxy statement/prospectus are qualified in their entirety by the forward-looking statements contained or referred to in this section, and there is no assurance that the actual results or developments anticipated by either the Company or Lygos will be realized. All subsequent written and oral forward-looking statements concerning the Company, Lygos, the combined company, the transactions contemplated by the Merger Agreement or other matters attributable to the Company or Lygos or any person acting on their behalf are expressly qualified in their entirety by the forward-looking statements above. Except to the extent required by applicable law, the Company and Lygos are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.

RISK FACTORS

In addition to the other information contained in (or incorporated by reference into) this proxy statement/prospectus, including the matters addressed under the heading “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this proxy statement/prospectus. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may have a material adverse effect on the combined company’s business, reputation, revenue, financial condition, results of operations and future prospects, in which event the market price of the combined company’s common shares could decline, and you could lose part or all of your investment. In addition, you should read and consider the risks in FSI’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, and other documents FSI has filed with the SEC because these risks may also affect the combined company.

Risks Related to FSI

We have in the past incurred operating losses and may not sustain profitability in the future.

We have in the past experienced operating losses and negative cash flow from operations. If our revenues decline, our results of operations and liquidity may be materially and adversely affected. If we experience slower than anticipated revenue growth or if our operating expenses exceed our expectations, we may not be profitable. We may not remain profitable in future periods.

Fluctuations in our operating results may cause our stock price to decline.

Given the nature of the markets in which we operate, we cannot reliably predict future revenues and profitability. Changes in competitive, market and economic conditions may cause us to adjust our operations. A high proportion of our costs are fixed, due in part to our sales, research and development and manufacturing costs. Thus, small declines in revenue could disproportionately affect our operating results. Factors that may affect our operating results and the market price of our common shares include:

Our operations are subject to seasonal fluctuation.

Our TPA business is the least seasonal, however there is a small increase in the spring related to inventory building for the crop season in the United States and a small slowdown in December as oilfield customers run down stock in advance of year end, but otherwise, there is little seasonal variation. We believe we are able to adequately respond to these seasonal fluctuations by reducing or increasing production as needed. The foregoing is equally true of our nitrogen conservation products. The use of our swimming pool products increases in summer months in most markets and results in our sales from January to June being greater than in July through December. Markets for our WATERSAVR® product are also seasonal, depending on the wet versus dry seasons in particular countries. We attempt to sell into a variety of countries with different seasons on both sides of the equator in order to minimize seasonality.

Interruptions in our ability to purchase raw materials and components may adversely affect our profitability.

We purchase certain raw materials and components from third parties pursuant to purchase orders placed from time to time. Because we do not have guaranteed long-term supply arrangements with our suppliers, any material interruption in our ability to purchase necessary raw materials or components could have a material adverse effect on our business, financial condition and results of operations.

Our WATERSAVR® product has not proven to be a revenue producing product and we may never recoup the cost associated with its development.

The marketing efforts of our WATERSAVR® product may result in continued losses. We introduced our WATERSAVR® product in June 2002 and, to date, we have delivered quantities for testing by potential customers, but only a few customers have ordered the product for commercial use. This product can achieve success only if it is ordered in substantial quantities by commercial customers who have determined that the water saving benefits of the product exceed the costs of purchase and deployment of the product. We can offer no assurance that we will receive sufficient orders of this product to achieve profits or cover the expenses incurred to manufacture and market this product. We have received National Sanitation Foundation approval for the use WATERSAVR® in drinking water in the United States. Nevertheless, we may require county or state approval on a case-by-case basis. We expect to spend $50,000 on the marketing and production of our WATERSAVR® product in fiscal 2021.

If we do not introduce new products in a timely manner, our products could become obsolete and our operating results would suffer.

Without the timely introduction of new products and enhancements, our products could become obsolete over time, in which case our revenue and operating results would suffer. The success of our new product offerings will depend upon several factors, including our ability to:

In developing any new product, we may be required to make a substantial investment before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenues.

We are dependent upon certain customers.

Among our current customers, we have identified three that are sizable enough that the loss of any one would be significant. Any loss of one or more of these customers could result in a substantial reduction in our revenues.

Economic, political and other risks associated with international sales and operations could adversely affect our sales.

Revenues from shipments made outside of the United States accounted for approximately 20% of our revenues in the year ended December 31, 2021, 32% in the year ended December 31, 2020 and 45% in the year ended December 31, 2019. Since we sell our products worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenues from international operations will continue to represent a sizable portion of our total revenue. Accordingly, our future results could be harmed by a variety of factors, including:

We are subject to credit risk and may be subject to substantial write-offs if one or more of our significant customers default on their payment obligations to us.

We currently allow our major customers between 30 and 90 days to pay for each sale. This practice, while customary, presents an accounts receivable write-off risk if one or more of our significant customers defaulted on their payment obligations to us. Any such write-off, if substantial, would have a material adverse effect on our business and results of operations.

Our products can be hazardous if not handled, stored and used properly; litigation related to the handling, storage and safety of our products would have a material adverse effect on our business and results of operations.

Some of our products are flammable and must be stored properly to avoid fire risk. Additionally, some of our products may cause irritation to a person’s eyes if they are exposed to the concentrated product. Although we label our products to warn of such risks, our sales could be reduced if our products were considered dangerous to use or if they are implicated in causing personal injury or property damage. We are not currently aware of any circumstances in which our products have caused harm or property damage to consumers. Nevertheless, litigation regarding the handling, storage and safety of our products would have a material adverse effect on our business and results of operations.

Our failure to comply with environmental regulations may create significant environmental liabilities and force us to modify our manufacturing processes.

We are subject to various federal, state and local environmental laws, ordinances and regulations relating to the use, storage, handling and disposal of chemicals. Under such laws, we may become liable for the costs of removal or remediation of these substances that have been used by our consumers or in our operations. Such laws may impose liability without regard to whether we knew of, or caused, the release of such substances. Any failure by us to comply with present or future regulations could subject us to substantial fines, suspension of production, alteration of manufacturing processes or cessation of operations, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our failure to protect our intellectual property could impair our competitive position.

While we own certain patents and trademarks, some aspects of our business cannot be protected by patents or trademarks. Accordingly, in these areas there are few legal barriers that prevent potential competitors from copying certain of our products, processes and technologies or from otherwise entering into operations in direct competition with us. In particular, we have been informed that our former exclusive agent for the sale of our products in North America is now competing with us in the swimming pool and personal spa markets. As a former distributor, they were given access to many of our sales, marketing and manufacturing techniques.

Our products may infringe on the intellectual property rights of others, and resulting claims against us could be costly and prevent us from making or selling certain products.

Third parties may seek to claim that our products and operations infringe on their patents or other intellectual property rights. We may incur significant expense in any legal proceedings to protect our proprietary rights or to defend infringement claims by third parties. In addition, claims of third parties against us could result in awards of substantial damages or court orders that could effectively prevent us from making, using or selling our products in the United States or internationally.

A product liability claim for damages could materially and adversely affect our financial condition and results of operations.

Our business exposes us to potential product liability risks. There are many factors beyond our control that could lead to liability claims, including the failure of our products to work properly and the chance that consumers will use our products incorrectly or for purposes for which they were not intended. There can be no assurance that the amount of product liability insurance that we carry will be sufficient to protect us from product liability claims. A product liability claim in excess of the amount of insurance we carry could have a material adverse effect on our business, financial condition and results of operations.

Our ongoing success is dependent upon the continued availability of certain key employees.

Our business would be adversely affected if the services of Daniel B. O’Brien ceased to be available to us since we currently do not have any other employee with an equivalent level of expertise in and knowledge of our industry. If Mr. O’Brien no longer served as an officer, we would have to recruit one or more new executives, with no real assurance that we would be able to engage a replacement executive with the required skills on satisfactory terms. The market for skilled employees is highly competitive, especially for employees in the fields in which we operate. While our compensation programs are intended to attract and retain qualified employees, there can be no assurance that we will be able to retain the services of all our key employees or a sufficient number to execute our plans, nor can there be any assurances that we will be able to continue to attract new employees as required.

Risks Related to Lygos

Material Weaknesses in Internal Control over Financial Reporting

Our management identified material weaknesses in internal control over financial reporting relating to our (a) lack of effectively designed controls, including process and design gaps, (b) lack of evidence to support operating effectiveness of certain key controls, (c) deficiencies in the operation of key controls, (d) user access and change management deficiencies related to ERP environment, and (e) identification of financial statement adjustments by the auditor. Due to deficiencies in the design and implementation of business process controls and information technology general controls relating to all relevant accounts and cycles, material weaknesses exist.

We have a history of operating losses and we do not expect to be profitable for the foreseeable future.

We have incurred significant operating losses since our inception. Our operating losses reflect the substantial investments made to develop our platform and our products. In addition, we expect our losses to continue for the foreseeable future as we continue to develop new products through investments in our platform and product pipeline and toward the timely commercialization of new products and improved versions of existing products. We also expect that our operating expenses will increase as a result of becoming a public company and will continue to increase as we grow our business. As we ramp up the sale of new products, we expect to initially experience negative product gross margins. The investment required for scale-up manufacturing is a costly undertaking, and if we are unsuccessful in demonstrating manufacturing at large scale, our business could be negatively impacted. We expect our cost of product revenue to increase over time in absolute dollars and our gross margins will vary based on the volume and mix of products sold. We expect the timing for achieving positive gross margins for any product will depend on the pace at which we achieve commercial scale for that product. We may not achieve the product gross margins that we anticipate. If our revenue and gross profit does not increase sufficiently to keep pace with our investments and expenses, our net losses may not decline, and we may not attain profitability in the future. Further, our limited operating history makes it difficult to effectively plan for and model future growth, revenue and operating expenses. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control, including the impact of market acceptance of our products, product and platform development, our ability to develop and commercialize new products in a timely manner, our ability to scale our manufacturing capacity and our market penetration and margins. We may never be able to generate sufficient revenue to achieve or sustain profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common shares.

We have a limited operating history, which may make it difficult to evaluate the prospects for our future viability and predict our future performance.

Our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early stages of operations. We have not yet achieved market acceptance for our products, generated revenue from product sales, produced our products at scale, scaled our manufacturing capabilities to meet potential demand at a reasonable cost, established a sales model or conducted sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability are highly uncertain and may not be as accurate as they could be if we had a longer operating history or a history of successfully developing, commercializing and generating revenue from products for a mass market.

In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. We will eventually need to transition from a company with a focus on investing R&D and deriving revenue from government sponsored research to a company capable of developing and commercializing its own products, and we may not be successful in such a transition. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in emerging and rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, and our business, financial condition and results of operations could be adversely affected.

We may be required to buy back a significant portion of the outstanding convertible promissory note, which could deplete our cash balances or require us to raise additional capital.

Under the terms of a note purchase agreement, we issued a convertible promissory note in a principal amount of $160,000,000 bearing an annual interest of 5.5%. The conversion price of the Note will equal the public trading price of the FSI Common Shares on the 12-month anniversary of the Note less a 12.5% discount per share, but will be no less than $250,000,000 divided by the number of outstanding shares of common stock as of such date and no greater than $350,000,000 divided by the number of outstanding shares of common stock as of such date (the “Conversion Price”).

Following the conversion of the Note, the number of shares (the “Conversion Shares”) received by the holder of the Note (the “Noteholder”) may be limited by the noteholder such that the Conversion Shares do not exceed 9.99% of the total number of issued and outstanding shares at such time. The foregoing limitation may be effected by (i) at our option, either (A) a repurchase any shares that would exceed such 9.99% threshold (the “Excess Shares”) at the Conversion Price or (B) subject to applicable law, a redemption of any portion of the principal amount plus accrued interest of the Note that would have converted into Excess Shares, or (ii) subject to applicable law and rules and regulations of the SEC (or other similar body), our reasonable efforts to enable the holder of the note to sell any Excess Shares in a public or private transaction.

The Note is subject to customary events of default. Upon the occurrence of an event of default under the Note, or upon a default under any other indebtedness, the outstanding principal amount plus accrued and unpaid interest shall be immediately due and payable at the option of the Noteholder. If we are forced to repay or redeem the Note or repurchase Excess Shares, our cash balances could be adversely affected and we may be required to seek alternative sources of capital.

The COVID-19 pandemic has had, and is expected to continue to have, an impact on our business, results of operations and financial condition.

The full impact of the continuing COVID-19 pandemic and related public health measures on our business will depend largely on future developments, including the duration and severity of the pandemic, which remains highly uncertain. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 caused by a novel strain of coronavirus as a pandemic, which continues to spread throughout the United States and around the world. Since then, extraordinary actions have been taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 throughout the world. These actions include travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. We have continued to operate within the rules applicable to our business; however, a continuing implementation of these governmental mandates could further impact our ability to operate effectively and conduct ongoing R&D or other activities.

Governmental mandates related to COVID-19, other infectious diseases or public health crises have impacted, and we expect them to continue to impact, our personnel and personnel at third-party manufacturing facilities in the United States and other countries. The pandemic has caused substantial disruption in global supply chains. We have experienced shortages in some of our key supplies, including materials required in our labs. Difficulties and delays we may experience in the future may prevent us from meeting our operating and financial goals, both in general and within our targeted timelines, and may cause our revenues and operating results to fluctuate from period to period.

The COVID-19 pandemic has also had an adverse effect on our ability to attract, recruit, interview and hire at the pace we would typically expect to support our rapidly expanding operations. To the extent that any governmental authority imposes additional regulatory requirements or changes existing laws, regulations and policies that apply to our business and operations, such as additional workplace safety measures, our product development plans may be delayed, and we may incur further costs in bringing our business and operations into compliance with changing or new laws, regulations and policies.

Further, the effect of the COVID-19 pandemic and mitigation efforts on our customers’ and on consumer demand for their products could materially and adversely affect us, particularly to the extent our customers experience declines in demand for their goods that contain our products.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to sudden change. We are following, and plan to continue to follow, recommendations from federal, state and local governments regarding workplace policies, practices and procedures. We are continuing to monitor the potential impact of the pandemic, including on global supply chains for some of our laboratory materials and manufacturing capacity, but we cannot be certain what the overall impact will be on our business, financial condition, results of operations and prospects on a go-forward basis.

We may not be successful in our efforts to use our platform to build a pipeline of products.

A key element of our strategy is to use our experienced management, engineering and scientific teams to build a pipeline of products through our platform and develop those pipeline products into commercially viable products faster and cheaper than traditional materials. Although our R&D efforts to date have resulted in potential pipeline products, we may not be able to continue to identify and develop additional pipeline products through the use of our platform.

Even if we are successful in continuing to build our product pipeline through the use of our platform, not all potential pipeline products we identify will be suitable for development and use in commercial products. Identifying and developing commercially viable pipeline products may require us to make continued advancements in our platform to lower costs, reduce development time or otherwise more quickly identify pipeline products. If we are unable to use our platform to successfully identify and develop pipeline products, our business, results of operations and financial condition may be adversely and materially affected.

It is difficult to predict the time and cost of development of our pipeline products, which are produced by or based on a relatively novel and complex technology and are subject to many risks, any of which could prevent or delay revenue growth and adversely impact our market acceptance, business and results of operations.

We have concentrated our R&D efforts to date on a select number of pipeline products based on technical feasibility and market opportunity. The typical development cycle of new pipeline products can be lengthy and may require new scientific discoveries or advancements and the development and engineering of complex technology, including improvements or modifications to our platform. As we ramp up the sale of new products, we expect to initially experience negative product gross margins. The investment required for scale-up manufacturing is a costly undertaking, and if we are unsuccessful in demonstrating manufacturing at large scale, our business could be negatively impacted. We expect our cost of product revenue to increase over time in absolute dollars and our gross margins will vary based on the volume and mix of products sold. We expect the timing for achieving positive gross margins for any product will depend on the pace at which we achieve commercial scale for that product, which could take one year or more from when we begin generating revenue from such product. We may not achieve the product gross margins that we anticipate.

Further, the variety of our products and different industries as well as pricing pressures and other factors, leads to challenges in scaling production across the portfolio as well as adapting our platform to solve different development problems arising in the development process. We also may depend on third parties for the supply of key inputs and various components and for manufacturing capacity, making our ability to develop new pipeline products complex and subject to risks and uncertainties regarding commercial feasibility, timing and satisfactory technical performance of pipeline products. If we experience problems or delays in developing our pipeline products, we may be subject to unanticipated costs, including the loss of customers. Additionally, even after the incurrence of significant costs to develop a product, we may not be able to solve development problems or develop a commercially viable product at all. If we do not achieve the required technical specifications or successfully manage our new product development processes, or if development work is not performed according to schedule, then our revenue growth from new pipeline products may be prevented or delayed, and our business and operating results may be harmed.

The market, including customers and potential investors, may be skeptical of the viability and benefits of our pipeline products because they are based on a relatively novel and complex technology.

The market, including customers and potential investors, may be skeptical of the viability and benefits of our pipeline products because they are based on a relatively novel and complex technology. There can be no assurance that our products will be understood, approved, or accepted by customers, regulators and potential investors or that we will be able to sell our products profitably at competitive prices and with features sufficient to establish demand. If we are unable to convince these potential customers of the utility and value of our products or the end products in which they are a component or that our products are superior to the products they currently use, we will not be successful in entering these markets and our business and results of operations will be adversely affected. If potential investors are skeptical of the success of our pipeline products, our ability to raise capital and the value of our stock may be adversely affected.

We may face challenges producing our products at commercial scale or at commercially viable cost and may not be able to commercialize our products to the extent necessary to make a profit or sustain and grow our current business.

If we cannot achieve commercially viable production economics for enough products to support our business plan, including through establishing and maintaining sufficient production scale and volume, we will be unable to achieve a sustainable products business. Our production costs depend on many factors that could have a negative effect on our ability to offer our planned products at competitive prices, including, in particular, our ability to establish and maintain sufficient production scale and volume.

We face financial risk associated with scaling up production to reduce our production costs. To reduce per-unit production costs, we must increase production to achieve economies of scale and to be able to sell our products with positive margins. However, if we do not sell production output in a timely manner or in sufficient volumes, our investment in production will lead to higher working capital costs, which harm our cash position and could generate losses. Additionally, we may incur added storage costs and we may face issues related to the decrease in quality of our stored products as well as supply chain delays and disruptions, all of which can adversely affect the value of such products. Since achieving competitive product prices generally requires increased production volumes and our manufacturing operations and cash flows from sales are in their early stages, we have had to produce and sell products at a loss in the past and may continue to do so as we build our business. If we are unable to achieve adequate revenues from a combination of product sales and other sources, we may not be able to invest in production and we may not be able to pursue our business plans.

Even if we are successful in expanding our platform, rapidly changing technology and extensive competition in our industry could make the products we are developing and producing obsolete or non-competitive unless we continue to develop and manufacture new and improved products and pursue new market opportunities.

The industries in which we operate are characterized by rapid and significant technological changes, frequent new product introductions and enhancements and evolving industry demands and standards. Our future success will depend on our ability to develop and launch new products that address the evolving needs of our customers on a timely and cost-effective basis, to continually improve the products we are developing and producing and to pursue new market opportunities that develop as a result of technological and scientific advances. Due to the significant lead time involved in launching a new product, we are required to make a number of assumptions and estimates regarding the commercial feasibility of a new product, including assumptions and estimates regarding the size of an emerging product category and demand for those products, our ability to penetrate that emerging product category, customer adoption of a downstream product, the existence or non-existence of products being simultaneously developed by competitors, potential market penetration and obsolescence. As a result, it is possible that we may introduce a new product that has been displaced by the time of launch, addresses a market that no longer exists or is smaller than previously thought, that end-consumers do not like or otherwise is not competitive at the time of launch, in each case after the incurrence of significant costs to develop such product.

There is extensive competition in the industries in which we operate, and our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological development by others may result in our technologies, as well as products developed using our technologies, becoming obsolete. Our ability to compete successfully will depend on our ability to develop proprietary technologies and products that are technologically superior to, otherwise differentiated from, and/or are less expensive than our competitors’ technologies and products. Our competitors may be able to develop competing and/or superior technologies and processes and compete more aggressively and sustain that competition over a longer period of time due to greater human and financial resources, longer operating histories, track records for product development and existing market share. If we are unable to continue to successfully develop and manufacture new and improved products and successfully commercialize our products at scale, our business and results of operations will be adversely impacted.

The success of our business relies heavily on the performance of our products and developing new products at lower costs.

Our future profitability will depend on our ability to successfully execute and maintain a sustainable business model and generate continuous streams of revenue through the sale of our products across multiple industries. Our current business model is premised on innovating and producing new products rapidly and at lower costs than traditional methods and achieving results that may only be obtained through leveraging biology. However, if we are unable to successfully deliver new products at lower costs, our business and results of operations will be adversely affected.

The manufacture of our products is complex and we may be unable to secure necessary talent to establish and scale our manufacturing to the extent necessary to make a profit or sustain and grow our current business.

The manufacture of our products is complex and to commercialize our products requires significant expertise in a variety of specialties and capital investment, including the development of advanced manufacturing techniques and process controls. We are targeting market opportunities in a wide variety of industries. Given the wide range of products we are developing and the even greater range of products we expect to develop in the future, we may need to identify and recruit additional internal talent to develop products and coordinate manufacturing techniques and process controls required for the variety of pipeline products in the various industries we are targeting. We may also require multiple facilities and partners in order to commercialize various products and to meet the volumes we need to satisfy our anticipated commercial needs. If we are unable to successfully establish adequate manufacturing capacity for all of our products and pipeline products, we may not have the capacity required to meet our commercial needs.

Unfavorable global economic or political conditions could adversely affect our business, financial condition, or results of operations.

Our business is susceptible to general conditions in the global economy and in the global financial markets. The global macroeconomic environment could be negatively affected by, among other things, instability in global economic markets, increased U.S. trade tariffs and trade disputes with other countries, inflation, instability in the global credit markets, supply chain weaknesses, the Ukraine War and other political tensions, and foreign governmental debt concerns. A global financial crisis or a global or regional political disruption, such as the Ukraine War, could cause extreme volatility in the capital and credit markets. A severe or prolonged economic downturn, including a recession or depression resulting from the current COVID-19 pandemic, inflation and other cost increases, including as a result of any tariffs or trade disputes, or political disruption could result in a variety of risks to our business, including weakened demand for our products and our ability to raise additional capital, when needed, on acceptable terms, or at all. A weak or declining economy, inflation and other cost increases, or political disruption could also strain our manufacturers or suppliers, possibly resulting in supply disruption or increased materials costs, or cause our future customers to delay making decisions to invest in our products or solutions or delaying payments for our potential products. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects, and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

We are engaged in certain research activities involving controlled substances, the making, use, sale, importation, exportation, and distribution of which may be subject to significant regulation by the U.S. Drug Enforcement Administration and other regulatory agencies.

We are engaged in certain research activities, some of which may be regulated as controlled substances in the United States. Controlled substances are subject to state, federal, and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation, and distribution. Among other things, controlled substances are regulated under the federal Controlled Substances Act of 1970 (“CSA”) and implementing regulations of the U.S. Drug Enforcement Administration (“DEA”). The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may generally not be marketed or sold in the United States. Schedule I substances are subject to the most stringent controls and Schedule V the least controls of the five schedules, based on their relative risk of abuse.

Regulations associated with controlled substances govern manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas, recordkeeping, reporting, handling, shipment and disposal. These regulations include required security measures, such as background checks on employees and physical control of inventory and increase the personnel needs and the expense associated with development and commercialization of products or product candidates including controlled substances. Regulators conduct periodic inspections of entities involved in handling, manufacturing, or otherwise distributing controlled substances, and have broad enforcement authorities. If we are found to be non-compliant with applicable controlled substance registrations and related requirements, we may need to modify its business activities and/or stop handling or producing the products regulated as controlled substances, and could be subject to enforcement action, significant fines or penalties, and/or adverse publicity, among other consequences.

Various states also independently regulate controlled substances. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule substances, as well. The failure to comply with applicable regulatory requirements could lead to enforcement actions and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

Our use of contract manufacturers exposes us to risks relating to costs, supply and delivery, and logistics, and loss or termination of contract manufacturing relationships could harm our ability to meet our production goals.

We commercially produce, process and manufacture our products through the use of contract manufacturers, and we anticipate that we will continue to use contract manufacturers for the foreseeable future. Establishing and operating contract manufacturing facilities requires us to make significant capital expenditures, which reduces our cash and places such capital at risk. Also, contract manufacturing agreements may contain terms that commit us to pay for capital expenditures and other costs and amounts incurred or expected to be earned by the plant operators and owners, which can result in contractual liability and losses for us even if we terminate a particular contract manufacturing arrangement or decide to reduce or stop production under such an arrangement. Further, we cannot be sure that contract manufacturers will be available when we need their services, that they will be willing to dedicate a portion of their capacity to our projects, or that we will be able to reach acceptable price, delivery and other terms with them for the provision of their production services.

The locations of contract manufacturers can pose additional cost and logistics challenges. If production capacity is available at a plant that is remote from usable chemical finishing or distribution facilities, or from customers, we will be required to incur additional expenses in shipping products to other locations. Such costs could include shipping costs, compliance with export and import controls, tariffs and additional taxes, among others.

Moreover, we rely on contract manufacturers to produce and/or provide downstream processing of our products, and we anticipate that we will continue to use contract manufacturers for the foreseeable future. If we are unable to secure the services of contract manufacturers when and as needed, we may lose customer opportunities and the growth of our business may be impaired. If we shift priorities and adjust anticipated production levels (or cease production altogether) at contract manufacturing facilities, such adjustments or cessations could also result in disputes or otherwise harm our business relationships with contract manufacturers. In addition, reliance on external sources for our other target molecules could create a risk for us if a single source or a limited number of sources of manufacturing runs into operational issues, creating risk of loss of sales and profitability. Reducing or stopping production at one facility while increasing or starting up production at another facility generally results in significant losses of production efficiency, which can persist for significant periods of time. Also, in order for production to commence under our contract manufacturing arrangements, we generally must provide equipment for such operations, and we cannot be assured that such equipment can be ordered or installed on a timely basis, at acceptable costs, or at all.

We may need to raise additional capital in the future to fund our operations, which we may not be able to obtain on favorable terms, or at all, and which, if obtained, may cause dilution to shareholders or cause us to further limit our operations.

Until such time as we can generate significant revenue from product sales or other customer arrangements to fund operations, we may require additional capital to fund our operations, which may include seeking capital from the issuance of additional equity, debt financings or other capital-raising transactions. There can be no assurance that such additional funding will be available on terms attractive to us, or at all. Our ability to obtain additional funding will depend on variety of factors many of which are unpredictable and beyond our control, including general conditions in the global economy and in the global financial markets, which may be impacted by interruptions, delays and/or cost increases resulting from the ongoing COVID-19 pandemic, political instability or geopolitical tensions, such as the Ukraine War, economic weakness, inflationary pressures or other factors. If the equity and credit markets deteriorate, including as a result of economic weakness, a resurgence of COVID-19, political unrest or war, including the Ukraine War, or any other reason, it may make any necessary equity or debt financing more difficult to obtain in a timely manner and on favorable terms, if at all, and if obtained, it may be more costly or more dilutive.

The various ways we could raise additional capital carry potential risks. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited and could have a material adverse effect on our business, results of operations, prospects and financial condition. Our existing and potential customers, partners and vendors may also consider our credit profile when considering whether to contract with us or negotiating contract terms, and if they develop a negative perception of our short or long-term financial prospects, decide not to do business with us or change the terms on which they do business with us, it could have a further adverse effect on our business, prospects, results of operations and financial condition.

We use biological and hazardous materials that require considerable expertise and expense for handling, storage and disposal and may result in claims against us.

We work with chemical and biological materials that could be hazardous to human health and safety or the environment. Our operations also produce hazardous and nonhazardous chemical and biological waste products, and we largely contract with third parties for the disposal of these products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental laws and regulations may restrict our operations. If we do not comply with applicable regulations, we may be subject to fines and penalties.

In addition, we cannot eliminate the risk of accidental injury or contamination from these materials or wastes, which could cause an interruption of our commercialization efforts, R&D programs and business operations, as well as environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations, as well as potential reputational damage.

We must continue to secure and maintain sufficient and stable supplies of disposable laboratory equipment, raw materials and synthetic biology materials and services.

The COVID-19 pandemic has caused substantial disruption in global supply chains. As a result, we have experienced shortages in some of our key supplies, including materials required in our labs and may continue to do so in the future as a result of the pandemic, or otherwise. We may also experience price increases due to unexpected material shortages, services disruptions and other unanticipated events, which may adversely affect our supply of disposable laboratory equipment, raw materials and synthetic biology materials and services. We typically do not enter into long-term agreements with our suppliers but secure our materials and services on a purchase order basis. Our suppliers may reduce or cease their supply of materials or services to us at any time in the future. If the supply of materials or services is interrupted, our production processes may be delayed.

A deterioration of our relationship with any of our suppliers, or problems experienced by these suppliers, could lead to shortages in our production capacity for the development of some or all of our products. Therefore, we may not be able to cost-effectively develop new products or fulfil the demand of existing customers or supply new customers. In addition, as we grow, our existing suppliers may not be able to meet our increasing demand, and we may need to find additional suppliers. In some cases, we are purchasing the consumables, materials or services where the use, for our purposes, is not a commodity and obtaining such materials and services requires lead time. We may not be able to secure suppliers who provide materials at, or services to, the specification, quantity and quality levels that we require (or at all) or be able to negotiate acceptable fees and terms of services with any such suppliers. Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness and service, financial stability, security and labor and other ethical practices. Even if we are able to expand existing sources, we may encounter delays in product development, production and added costs as a result of the time it takes to train new suppliers in our methods, products and quality control standards. If any of the above events occur, our operations and results of operations may be adversely affected.

We cannot assure you that any instability or other issues relating to the manufacture of any of our products or pipeline products will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. For example, the COVID-19 pandemic has caused substantial disruption in global supply chains.

In the event of significant price increases by suppliers, we may have to pass the increased costs to our customers. However, we may not be able to raise the prices of our products sufficiently to cover increased costs resulting from increases in the cost of our materials and services, overcome the interruption of a sufficient supply of materials or services for our pipeline products or products, or adequately reduce supplier costs to increase profitability. As a result, materials and services costs, including any price increase for our materials and services may negatively impact our business, financial condition and results of operations.

We depend on a limited number of suppliers for critical components of development and manufacturing of our pipeline products. The loss of any one or more of these suppliers or their failure to supply us with the necessary components on a timely basis, could cause delays in our production capacity and adversely affect our business.

We depend on a number of suppliers for critical components, including laboratory consumables, for the development and manufacturing of our pipeline products. We do not currently have the infrastructure or capability internally to manufacture these components. While we work with a variety of domestic and international suppliers, our suppliers may not be obligated to supply product or our arrangements may be terminated with relative short notice periods. Our supply of these components could be limited, interrupted, or of unsatisfactory quality or cease to be available at acceptable prices. Additionally, we do not have any control over the process or timing of the acquisition or manufacture of materials by our manufacturers and cannot ensure that they will deliver to us the components we order on time, or at all.

In addition, some disposable laboratory equipment, synthetic biology materials and other supplies and materials that we purchase are purchased from single-source or preferred suppliers. Our dependence on these single-source and preferred suppliers exposes us to certain risks, including the following:

Changes in U.S. and foreign tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.