RISK FACTORS


DEPENDENCE ON CERTAIN CUSTOMERS

         The Company's revenues are highly dependent on expenditures by the
poultry producing industry. The Company's operations could be materially and
adversely affected by a general economic decline in this industry. The Company
has in the past derived, and may in the future derive, a significant portion of
its revenues from a relatively limited number of customers. In 1996, two
customers (Tyson Foods, Inc. and Perdue Farms, Inc.) accounted for approximately
33% and 11%, respectively, of the Company's consolidated revenues. The Company
also has experienced such concentration in the current year and is likely to do
so in future years. The loss of any such customer could materially adversely
affect the Company's revenues.

POSSIBLE NEED FOR ADDITIONAL FINANCING

         From its inception in May 1985 through December 31, 1996, Embrex had
cumulative operating losses (accumulated deficit) of $40.7 million. Until the
first quarter of 1996, Embrex had incurred operating losses since its inception.
Although the Company has been profitable in 1996, there can be no assurance that
Embrex will continue to operate profitably.

         The ability of Embrex to attain revenues sufficient to meet its cash
requirements for operations is dependent upon continued market acceptance of the
INOVOJECT(R) system on lease terms acceptable to Embrex and on the successful
development and commercialization of additional products. The extent of the
Company's future revenues, if any, derived from INOVOJECT(R) fees is subject to
many variables such as whether additional agreements for INOVOJECT(R) systems
are reached, the timing of any agreements, whether existing or new installation
schedules are met, and the extent to which customers use the INOVOJECT(R)
system.

         Until the Company realizes revenues sufficient to satisfy its cash
requirements, it will depend on its current cash and short-term investment
balances and on access to external financing to meet its equipment, working
capital and operating requirements. Although the Company anticipates that its
existing funds, as well as revenues from operations and existing equipment
financing lines, will be sufficient to sustain its existing operations for the
foreseeable future, there are no assurances that such funds will be sufficient.
If additional funds become necessary to sustain existing operations, the Company
will be required to seek additional financing, and there can be no assurance
that such financing will be obtainable or that, if available, such financing
will be on terms favorable or acceptable to the Company. The Company may need
additional financing in order to sustain its anticipated growth, in the event it
does not generate revenues sufficient to satisfy its cash requirements for
future growth. Obtaining additional financing for such purposes may be difficult
or impossible, or financing may only be available on terms unfavorable or
unacceptable to the Company.

EFFECT OF ECONOMIC FACTORS ON REVENUES

         The Company's revenues may be impacted by economic factors that are
beyond the Company's control, such as fluctuations in the price of poultry feed
and export demand for U.S. poultry products. A principal component of the
Company's revenues is fees charged to customers for the number of eggs injected
with the INOVOJECT(R) system. Rising poultry feed prices increase the production
costs of commercial poultry producers and may cause them to reduce production
which, in turn, could adversely impact the Company's revenues. Reduced demand
for U.S. poultry products in markets outside the United States also could impact
the Company's revenues adversely.

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NO ASSURANCE OF MARKET ACCEPTANCE OR DEVELOPMENT OF NEW PRODUCTS

         Embrex's principal existing product, the INOVOJECT(R) system, has only
been in full commercial use since 1993. The market acceptance of new
technologies, including those of the Company, is subject to a number of factors,
including the ability of the technology to meet the potential customers' needs
more effectively than competitive products or technologies and any concerns
which may be associated with the use of new technology, such as reliability and
maintenance.

         In addition to the presently marketed INOVOJECT(R) system, Embrex, both
itself and together with collaborators, is developing vaccines for control of
viral and parasitic diseases and products for health and performance
modification which are in various stages of development. These products are
subject to the risks inherent in the development of products based on innovative
technologies and are subject to various regulatory approval requirements.

         Embrex has developed and commercialized a new technology using its
proprietary viral neutralizing factor ("VNF") which permits a single dose
immunization of an egg embryo for the life of the bird. The Company markets a
vaccine known as BURSAPLEX(TM) (formerly known as BDA-Blen) which uses Embrex's
VNF. The vaccine has been approved by the United States Department of
Agriculture ("USDA") for in ovo and post-hatch use. However, BURSAPLEX(TM) has
not yet been accepted in the market and there is no assurance that the product
will be successfully marketed even if it is shown to be effective.

         The development and commercialization of additional new products will
require substantial testing and development and regulatory approval.

GOVERNMENT REGULATION AND NEED FOR REGULATORY APPROVAL

         Although the use of the INOVOJECT(R) system is not subject to
regulatory approval in the U.S., the research and development activities of
Embrex as well as the investigation, manufacture and sale of poultry health and
performance enhancement products are subject to regulation either by the USDA or
the United States Food and Drug Administration ("FDA") and state and foreign
agencies. Foreign agencies may also require approval of the INOVOJECT(R) system.
The process of obtaining governmental approval is costly and at the USDA
generally takes from one to three years and at the FDA five or more years. There
can be no assurance that any future product that Embrex may develop will be
approved by the USDA, the FDA or any other regulatory agency. Delays in
obtaining regulatory approval may adversely affect the marketing of any products
developed by Embrex and the ability of Embrex to receive product revenues and
royalties. There can be no assurance that regulatory approvals for Embrex's
future products will be obtained without lengthy delays, if at all.

         Moreover, Embrex is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous substances used in conjunction with Embrex's research work. In
addition, Embrex cannot predict the extent of governmental regulations which
might have an adverse effect on the production and marketing of Embrex's
products.

         Embrex has entered into and intends to continue to enter into licensing
or joint development agreements pursuant to which costs associated with the
regulatory approval process for some products are and will be borne by the
licensees or joint developers. To the extent that Embrex is unable to generate
sufficient funds from operations or enter into licensing or joint development
agreements to develop products, it may not have the financial resources to
complete the regulatory approval process with respect to all or any of the
products currently under development. Products developed by Embrex may not be
marketed commercially in any jurisdiction in which required approvals have not
been obtained.

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PATENTS AND PROPRIETARY RIGHTS

         Certain of Embrex's products and certain of the processes by which
Embrex is able to produce its products are proprietary. Embrex has ownership
rights to some of the technologies employed in these processes, and some are
owned by others and exclusively licensed to Embrex. Embrex believes that patent
protection of materials or processes it develops and any products that may
result from Embrex's and licensors' research and development efforts are
important to the possible commercialization of Embrex's products. The patent
position of companies such as Embrex generally is highly uncertain and involves
complex legal and factual questions. To date no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents. Accordingly,
there can be no assurance that patent applications relating to Embrex's products
or technology will result in patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology.
Moreover, some patent licenses held by Embrex may be terminated upon the
occurrence of certain events or become non-exclusive after a specified period.
In addition, companies that obtain patents claiming products or processes that
are necessary for or useful to the development of Embrex's products could bring
legal actions against Embrex claiming infringement. Embrex is currently not the
subject of any patent infringement claim. There can be no assurance that Embrex
will have the financial resources necessary to enforce any patent rights it may
hold. Also, Embrex may be required to obtain licenses from others to develop,
manufacture or market its products. There can be no assurance that Embrex will
be able to obtain such licenses on commercially reasonable terms or that the
patents underlying the licenses will be valid and enforceable.

         Embrex also relies upon unpatented, proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or properly gain access to
Embrex's proprietary technology, or disclose such technology, or that Embrex can
meaningfully protect its rights in such unpatented proprietary technology.

         Embrex attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees and certain other persons who have
access to its proprietary materials or processes or who have licensing or
research arrangements with Embrex. Despite these protections, no assurance can
be given that others will not independently develop or obtain access to such
materials or processes or that Embrex's competitive position will not be
adversely affected thereby.

         In September 1996, Embrex filed an action for patent infringement and
breach of contract against Service Engineering Corp. and a related party. The
infringement action relates to a patent exclusively licensed to Embrex for the
in ovo injection of vaccines into an avian embryo; the breach of contract action
is based on a previous infringement action by Embrex against these parties which
was settled. The defendants have filed counterclaims against Embrex seeking
invalidity of the patent and alleging, among other things, that Embrex violated
federal law by misrepresenting the defendants' commercial activities and sought
to maintain prices for in ovo vaccinations at an artificially high level. The
outcome of this litigation is uncertain and there is no assurance that Embrex
will prevail on the merits or successfully defend the validity of its patent.

         In November 1996, Embrex filed an action for patent infringement
against IGI, Inc. and the same related party, relating to the same patent. The
defendants have asserted various affirmative defenses and denied the substantive
allegations in Embrex's complaint. The outcome of this litigation is uncertain
and there is no assurance that Embrex will prevail on the merits or successfully
defend the validity of its patent.

DEPENDENCE ON KEY PERSONNEL

         Embrex's ability to develop marketable products and maintain a
competitive research and technological position will depend on its ability to
continue to attract and retain experienced and highly educated scientific and
management personnel and advisors. Competition for qualified employees among
biotechnology companies is 

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intense and the loss of key scientific or management personnel would adversely 
affect Embrex. Embrex has obtained insurance in the amount of $1,000,000 on the 
life of Randall L. Marcuson, its President and Chief Executive Officer, of 
which Embrex is the sole beneficiary. There can be no assurance that Embrex 
will be able to continue to attract and retain qualified staff.

SUPPORT AND MAINTENANCE REQUIREMENTS

         The Company is required to supply, support, and maintain large numbers
of INOVOJECT(R) systems at its customers' hatcheries on a timely basis at a
reasonable cost to the Company. There can be no assurance that the Company will
be able to continue to provide such services on a cost-effective basis.

TECHNOLOGY AND COMPETITION

         The areas of technology in which Embrex is involved are subject to
rapid and significant technological change. Competitors include independent
companies that specialize in biotechnology as well as major chemical and
pharmaceutical companies, universities, and public and private research
organizations, many of which are well established and have substantially greater
marketing, financial, technological and other resources than Embrex. There can
be no assurance that competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being developed
by Embrex or which would render Embrex's technology and products obsolete or
non-competitive.

DEPENDENCE ON OTHERS

         Embrex plans to continue to conduct its operations with third party
collaborators, licensors or licensees. While Embrex believes its present and
future collaborators, licensors and licensees will have an economic motivation
to succeed in performing their obligations under its agreements with them, the
amount and timing of funds and other resources to be devoted under such
agreements will be controlled by such other parties and are subject to financial
or other difficulties that may befall such other parties. Thus, no assurance can
be given that Embrex will generate any revenues from such agreements.

         Embrex does not have large scale facilities for the production of
Embrex's INOVOJECT(R) system and biological products and does not plan to
develop such facilities in the foreseeable future. Embrex therefore will rely
principally upon relationships with contract manufacturers. There can be no
assurance that manufacture and supply agreements will be maintained on terms and
at costs acceptable to Embrex.

         The Company has developed a strategic relationship with a single
contract manufacturer to fabricate its INOVOJECT(R) systems. While other machine
fabricators exist and have contracted limited numbers of INOVOJECT(R) systems, a
change in fabricators could cause a delay in manufacturing and a possible delay
in the timing of future INOVOJECT(R) installations and revenues from those
installations.

         The Company has granted Select Laboratories, Inc. ("Select"), a
wholly-owned subsidiary of Rhone Merieux SA, exclusive rights to manufacture
bursal disease vaccines containing Embrex's proprietary VNF product for Embrex
to market in North America, South America and Asia. Embrex has also granted
Cyanamid Websters, a subsidiary of American Home Products, Inc., exclusive
rights to manufacture bursal disease vaccines containing the Company's VNF
product to be marketed in Europe, the Middle East and Africa. Additionally, the
Company has two contract suppliers of its VNF product, although only one of
these suppliers was included in the USDA's approval for in ovo use of
BURSAPLEX(TM). The manufacture of the bursal disease vaccines being produced by
Select and Webster and the Company's VNF product generally must be performed in
licensed facilities and/or under approved regulatory methods. Although there are
other manufacturers who are capable of manufacturing bursal disease products and
producing products such as VNF, a change of suppliers could adversely affect the


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Company's future operating results due to the time it would take a new supplier
to obtain regulatory approval of its production process and/or manufacturing
facilities.

ISSUANCE OF PREFERRED STOCK; SHAREHOLDER RIGHTS PLAN; ANTI-TAKEOVER EFFECTS

         The Board of Directors has the authority to issue up to 15,000,000
shares of Preferred Stock, no par value per share, in one or more series and to
determine the designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof, of
the shares constituting any series of Preferred Stock, without any further vote
or action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could affect the rights of the holders of Common Stock. For example,
such issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends and in liquidation over
the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock.

         The authority of the Board of Directors to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board of Directors may
issue the Preferred Stock without shareholder approval and with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock and the Board of Directors has no present intention to issue any
Preferred Stock.

         In March 1996, Embrex adopted a shareholder rights plan which could
have the effect of discouraging a takeover of the Company. The rights plan, if
triggered, would make it more difficult to acquire the Company by, among other
things, allowing existing shareholders to acquire additional shares at a
substantial discount, thus substantially inhibiting an acquiror's ability to
obtain control of the Company.

INTERNATIONAL SALES AND MARKETING

         The company intends to continue its efforts to expand its markets
outside of North America. Sales outside of North America accounted for
approximately 10%, 6% and 2% of revenues in fiscal 1996, 1995 and 1994,
respectively. The volume and consistency of such sales is subject to economic
and political conditions in the markets in which Embrex does business, which are
beyond the Company's control. In addition, there is no assurance that
INOVOJECT(R) will be successfully marketed outside of North America since market
acceptance is often dependent on the need for drugs to be administered and on
regulatory approval of in ovo administration.



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