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As explained in the report sent out three months ago, we have begun to make commitments to growth, and to the self-funding of projects for the first time. Additionally, Additionally, although we have not yet begun specific experiments in the field of recombinant DNA, we have begun to build our team and to undertake expendi- tures necessary to "get ready". As you have no doubt read, there is much dis= cussion in the press, and in governmental circles, regarding the guidelines (or groundrules) under which this work may go on, and we are watching, and partici- pating in these deliberations. The manner in which we proceed will depend on the outcome of these discussions. We enclose a recent article by Professor Stanley Cohen, of Stanford, a pioneer and our leading consultant imthis area. You may also.wish to watch the NOVA TV production, "The Gene Engineers," on Pub- lic Television, on March 16, and agaimin some cities on March 20 and March 21, for further insight into this remarkable field. The net result of these commitments, not to be offset for some time yet by direct revenue, is a continuation of the loss and negative cash flow situation exhibited in the last set of financials sent to you. Unaudited financial results through February 28, 1977, show that for the eight month period since the beginning of the current fiscal year we show a net loss of $300,391, and a negative cash flow of $367,747. This trend will not continue beyond the end of the current fiscal year. our financial condition continues strong. The unaudited February 28 balance sheet is enclosed. We have been very encouraged by the behavior of our "bugs" in client tanks during the past several months, and hope to be able to report, within the year, that these scientific results have begun to be translated into earnings streams of from five to fifteemor more years' duratiom. The negotiations with new potential clients in and beyond the pharmaceutical industry continue. We expect to announce actual signings of agreements in subsequent reports. Our search for new funds, referred to in our previous letter, also continues, with some promising leads. The enclosed'article appeared in Bcrsiness Week recently. ~Cetus Corporation, 600 Bancroft Way, Berkeley, California 94710 Phone: (415) 549-3300 ~A C C Q N N

+ . ! Letter to the Shareholders March 11, 1977 Page 2 Once again, we appreciate your interest and support. and have helped us to reach'this point. Thank you. .- Sincerel ,,. CETUS'CP.6ORATIQN Ronald'E. Cape, Ph.D. President .~, REC/lmb Enclosures (3) .. ... F' :.Ir.~c,,.. . '. } , . ._ .,... i -i „ r -5 . Yfr 1j' 1^;ttJ f I .~:i+,.. °.~,..~. _ . .. .. .. 415 . .._ ,-. _ -. . .. . .. ..... . ~ . ~~t~ ~ ~ . . .' i _. :ff • . ` SFa .J . ~ i\ ... . . ~ ;Ty.. eW ,' o .iii'.~: ... ..~.~. . . .. R _ ... .. , These give us confidence a. v © . .x .,. . ... . . ...~.~. E J . ._ . .. . ' ~ ~ ~ ... ~' ~ .k ~llt-~,~l~l i~~.l. -._... '< . ~ a © x Q \ .y y