##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(MARK ONE)

|    |  |                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001.

|      |  |                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________.

Commission File Number 000-31275

LARGE SCALE BIOLOGY CORPORATION
(Exact name of registrant as specified in its charter)

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 77-0154648                             
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
Incorporation or organization) |  | (I.R.S. employer identification number)

3333 Vaca Valley Parkway, Suite 1000, Vacaville, CA 95688
(Address of principal executive offices and zip code)

(707) 446-5501
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The number of shares outstanding of registrants common stock, as of July
31, 2001:

|                              |  |                             
|----------------------------- |  | ----------------------------
|CLASS                         |  | NUMBER OF
SHARES OUTSTANDING
|                              |  |                             
|Common Stock $0.001 par value |  | 24,581,989                  





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TABLE OF CONTENTS



|                                                                                              |                                                                                                                       |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                                                               
|Item 1. Financial Statements                                                                 
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000                          
|                                                                                              | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 (Unaudited)
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (Unaudited)          
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                                 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II  OTHER INFORMATION                                                                  
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     



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##### Table of Contents



LARGE SCALE BIOLOGY
CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS

|                               |  |                                                                                                                       |  |      |    | 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                               |  |                                                                                                                       |  | Page
|PART I  FINANCIAL INFORMATION
|                              
|                              
|                              
|                              
|Item 1.                        |  | Financial Statements                                                                                                 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000                           |  |      | 1  | 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001 and
2000 (Unaudited) |  |      | 2  | 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000
(Unaudited)           |  |      | 3  | 
|                              
|                              
|                              
|                              
|                               |  | Notes to Condensed Consolidated Financial Statements                                                                  |  |      | 4  | 
|                              
|                              
|                              
|                              
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                 |  |      | 6  | 
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION   
|                              
|                              
|                              
|                              
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                             |  |      | 17 | 
|                              
|                              
|                              
|                              
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                   |  |      | 18 | 
|                              
|                              
|                              
|                              
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                      |  |      | 18 | 





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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1.Financial Statements




LARGE SCALE BIOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                     |                                           |                                                                          |                            |            |               |            |                   |            |             |            | 
|------------------------------------ | ----------------------------------------- | ------------------------------------------------------------------------ | -------------------------- | ---------- | ------------- | ---------- | ----------------- | ---------- | ----------- | ---------- | 
|                                     |                                           |                                                                          |                            |            | June 30, 2001 |            | December 31, 2000
|                                     |                                           |                                                                          |                            |            |               |            |                  
|                                     |                                           |                                                                          |                            |            | (Unaudited)   |            |                   |            |            
|ASSETS                               |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                 |                                                                          | $                          | 37,165,000 |               |            | $                 | 40,030,000 |            
|                                    
|                                    
|                                    
|                                    
|                                     | Marketable securities                     |                                                                          |                            | 29,436,000 |               |            |                   | 44,971,000 |            
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets |                                                                          |                            | 3,185,000  |               |            |                   | 1,923,000  |            
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           |                                                                          | Total current assets       |            |               | 69,786,000 |                   |            |             | 86,924,000 | 
|                                    
|                                    
|                                    
|                                    
|Property, plant, and equipment, net  |                                           |                                                                          | 17,672,000                 |            |               |            | 13,270,000        |           
|                                    
|                                    
|                                    
|                                    
|Intangible assets, net               |                                           |                                                                          | 4,574,000                  |            |               |            | 5,015,000         |           
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                           |                                                                          | 1,106,000                  |            |               |            | 1,734,000         |           
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           | $                                                                        | 93,138,000                 |            |               | $          | 106,943,000       |           
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                          |                                                                          | $                          | 2,326,000  |               |            | $                 | 4,534,000  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                          |                                                                          |                            | 1,587,000  |               |            |                   | 803,000    |            
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt         |                                                                          |                            | 884,000    |               |            |                   | 2,048,000  |            
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue and customer advances    |                                                                          |                            | 2,412,000  |               |            |                   | 8,686,000  |            
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           |                                                                          | Total current liabilities  |            |               | 7,209,000  |                   |            |             | 16,071,000 | 
|                                    
|                                    
|                                    
|                                    
|Long-term debt                       |                                           |                                                                          | 333,000                    |            |               |            | 423,000           |           
|                                    
|                                    
|                                    
|                                    
|Long-term deferred revenue           |                                           |                                                                          | 390,000                    |            |               |            | 657,000           |           
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           |                                                                          | Total liabilities          |            |               | 7,932,000  |                   |            |             | 17,151,000 | 
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|Stockholders equity:                |                                           |                                                                          |                            |            |               |            |                   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, issued and outstanding:     |                                                                          |                            |            |               |            |                   |            |            
|                                    
|                                    
|                                    
|                                    
|                                     |                                           | June 30, 2001  24,536,116 shares; December 31,
2000  24,446,325 shares |                            |            | 190,465,000   |            |                   |            | 190,097,000 |           
|                                    
|                                    
|                                    
|                                    
|                                     |                                           | Stockholders notes receivable                                           |                            |            | (52,000       | )          |                   |            | (65,000     | )         
|                                    
|                                    
|                                    
|                                    
|                                     |                                           | Deferred compensation                                                    |                            |            | (3,906,000    | )          |                   |            | (5,208,000  | )         
|                                    
|                                    
|                                    
|                                    
|                                     |                                           | Accumulated deficit                                                      |                            |            | (101,301,000  | )          |                   |            | (95,032,000 | )         
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           |                                                                          | Total stockholders equity |            |               | 85,206,000 |                   |            |             | 89,792,000 | 
|                                     |                                           |                                                                          |                            |            |               |            |                   |           
|                                     |                                           | $                                                                        | 93,138,000                 |            |               | $          | 106,943,000       |           
|                                     |                                           |                                                                          |                            |            |               |            |                   |            |            

See accompanying notes to condensed consolidated financial statements.

1



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##### Table of Contents






LARGE SCALE BIOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |           |            | 
|------------------------------------------------------- | -------------------------------------------------- | ------------------------ | ---------- | --------------------------- | ---------- | ------------------------- | ---------- | --------- | --------- | ---- | ---------- | ---------- | ---------- | - | ---------- | --------- | ---------- | 
|                                                        |                                                    |                          |            | Three months ended June 30, |            | Six months ended June 30,
|                                                        |                                                    |                          |            |                             |            |                          
|                                                        |                                                    |                          |            | 2001                        |            | 2000                      |            | 2001      |           | 2000
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |     
|Revenues                                                |                                                    | $                        | 5,943,000  |                             |            | $                         | 5,604,000  |           |           | $    | 11,924,000 |            |            | $ | 11,234,000 |          
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|                                                       
|                                                       
|                                                       
|                                                       
|Costs and expenses:                                     |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Development agreements                             |                          |            | 1,100,000                   |            |                           |            | 1,821,000 |           |      |            | 2,535,000  |            |   |            | 3,844,000 |           
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Research and development                           |                          |            | 5,774,000                   |            |                           |            | 4,112,000 |           |      |            | 10,582,000 |            |   |            | 7,735,000 |           
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | General, administrative and marketing              |                          |            | 3,482,000                   |            |                           |            | 1,584,000 |           |      |            | 6,485,000  |            |   |            | 3,197,000 |           
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Amortization of goodwill and purchased intangibles |                          |            | 325,000                     |            |                           |            | 325,000   |           |      |            | 650,000    |            |   |            | 547,000   |           
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|                                                        |                                                    | Total costs and expenses |            |                             | 10,681,000 |                           |            |           | 7,842,000 |      |            |            | 20,252,000 |   |            |           | 15,323,000 | 
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|Loss from operations                                    |                                                    |                          | (4,738,000 | )                           |            |                           | (2,238,000 | )         |           |      | (8,328,000 | )          |            |   | (4,089,000 | )        
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|Other income (expense):                                 |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest income                                    |                          |            | 888,000                     |            |                           |            | 143,000   |           |      |            | 2,133,000  |            |   |            | 344,000   |           
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest expense                                   |                          |            | (27,000                     | )          |                           |            | (92,000   | )         |      |            | (74,000    | )          |   |            | (185,000  | )         
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Change in fair value of warrant                    |                          |            |                            |            |                           |            | 312,000   |           |      |            |           |            |   |            | 554,000   |           
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|                                                        |                                                    | Total other income       |            |                             | 861,000    |                           |            |           | 363,000   |      |            |            | 2,059,000  |   |            |           | 713,000    | 
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|Net loss                                                |                                                    | $                        | (3,877,000 | )                           |            | $                         | (1,875,000 | )         |           | $    | (6,269,000 | )          |            | $ | (3,376,000 | )        
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|Net loss per share  basic and diluted                  |                                                    | $                        | (0.16      | )                           |            | $                         | (0.20      | )         |           | $    | (0.26      | )          |            | $ | (0.36      | )        
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          
|Weighted average shares outstanding  basic and diluted |                                                    |                          | 24,536,043 |                             |            |                           | 9,417,038  |           |           |      | 24,518,394 |            |            |   | 9,375,282  |          
|                                                        |                                                    |                          |            |                             |            |                           |            |           |           |      |            |            |            |   |            |          

See accompanying notes to condensed consolidated financial statements.

2



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LARGE SCALE BIOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |      |            |            |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ----------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- | -
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             | Six months ended June 30
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                         
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             | 2001                     |            | 2000
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|Cash flows from operating activities:            |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                
|                                                
|                                                
|                                                
|Net loss                                         |                                                                                   | $                                                                | (6,269,000                                          | )                                     |             | $                        | (3,376,000 | )   
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash flows used in operating activities: |                                                                  |                                                     |                                       |             |                          |            |      |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Depreciation of property, plant and equipment                    |                                                     |                                       | 1,894,000   |                          |            |      | 1,650,000  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Amortization of intangible assets                                |                                                     |                                       | 759,000     |                          |            |      | 701,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Accrued interest and amortized discount on marketable securities |                                                     |                                       | 551,000     |                          |            |      | 105,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Issuance of common stock for services                            |                                                     |                                       | 5,000       |                          |            |      |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Stock compensation expense                                       |                                                     |                                       | 1,302,000   |                          |            |      | 1,323,000  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Change in fair value of warrant                                  |                                                     |                                       |            |                          |            |      | (554,000   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Changes in assets and liabilities:                               |                                                     |                                       |             |                          |            |      |            |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                                  | Prepaid expenses and other current assets           |                                       |             | (1,262,000               | )          |      |            | (1,488,000 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                                  | Other assets                                        |                                       |             | 284,000                  |            |      |            |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                                  | Accounts payable                                    |                                       |             | 521,000                  |            |      |            | 360,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                                  | Accrued expenses                                    |                                       |             | 1,043,000                |            |      |            | 619,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                                  | Deferred revenue and customer advances              |                                       |             | (6,541,000               | )          |      |            | (5,414,000 | )         
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                 |                                                                                   |                                                                  |                                                     | Net cash used in operating activities |             |                          | (7,713,000 | )    |            |            | (6,074,000 | )
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|Cash flows from investing activities:            |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Purchase of marketable securities                                |                                                     |                                       | (35,221,000 | )                        |            |      | (4,034,000 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Proceeds from matured marketable securities                      |                                                     |                                       | 50,205,000  |                          |            |      | 11,053,000 |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Capital expenditures                                             |                                                     |                                       | (9,025,000  | )                        |            |      | (1,615,000 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Increase in intangible assets                                    |                                                     |                                       | (318,000    | )                        |            |      | (285,000   | )         
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                 |                                                                                   |                                                                  | Net cash provided by investing activities           |                                       |             | 5,641,000                |            |      |            | 5,119,000  |           
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|Cash flows from financing activities:            |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Proceeds from issuance of common stock                           |                                                     |                                       | 104,000     |                          |            |      | 350,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Proceeds from issuance of long-term debt                         |                                                     |                                       |            |                          |            |      | 720,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Proceeds from stock note payments                                |                                                     |                                       | 13,000      |                          |            |      | 8,000      |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Change in restricted cash                                        |                                                     |                                       | 344,000     |                          |            |      | 247,000    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Principal payments on long-term debt                             |                                                     |                                       | (1,254,000  | )                        |            |      | (1,046,000 | )         
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|                                                 |                                                                                   |                                                                  | Net cash provided by (used in) financing activities |                                       |             | (793,000                 | )          |      |            | 279,000    |           
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|Net decrease in cash and cash equivalents        |                                                                                   |                                                                  | (2,865,000                                          | )                                     |             |                          | (676,000   | )   
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                  | 40,030,000                                          |                                       |             |                          | 6,975,000  |     
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                | 37,165,000                                          |                                       |             | $                        | 6,299,000  |     
|                                                 |                                                                                   |                                                                  |                                                     |                                       |             |                          |            |     

See accompanying notes to condensed consolidated financial statements.

3



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##### Table of Contents






LARGE SCALE BIOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The Company and Summary of Significant Accounting Policies

Large Scale Biology Corporation and its subsidiaries (collectively
the Company) applies its proprietary proteomics and functional genomics
technologies to develop products and establish commercial collaborations
with pharmaceutical, biotechnology, agricultural, chemical and other life science
companies. The Company maintains its headquarters and a research facility
in Vacaville, California, a processing facility in Owensboro, Kentucky and
an additional research facility in Germantown, Maryland.

The Company was founded in 1987 to develop the GENEWARE® system, a
viral-based gene expression technology in plants that enables the
discovery, development and production of new biopharmaceuticals and
gene-based agricultural products. The Companys proprietary systems are
supported by patents, patent applications and exclusive technology
licenses.

The Company acquired 92.5% of Large Scale Proteomics Corporation
(Proteomics) in February 1999 and the remaining 7.5% in March 2000.
Proteomics automated, high-throughput ProGEX system provides a snapshot
of the protein composition, or proteome, of cells and tissues, and is
being used to rapidly identify changes in proteins that are associated
with important biological conditions such as diseases or with a
therapeutic or toxic effect of a drug.

In August 2000, the Company sold shares of common stock in its
initial public offering.

Basis of Presentation The accompanying unaudited Condensed
Consolidated Financial Statements have been prepared by the Company in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Companys management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation have been
included. The interim financial information is not necessarily an
indication of the results that may be expected for the entire year.

The unaudited Condensed Consolidated Financial Statements include the
accounts of Large Scale Biology Corporation and its subsidiaries. All
intercompany balances and transactions have been eliminated. The interim
financial information should be read in conjunction with the Audited
Consolidated Financial Statements and Notes thereto for the year ended
December 31, 2000, included in the Companys annual report on Form 10-K
which was filed with the Securities and Exchange Commission on April 2,
2001.

Use of Estimates The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported revenue and expenses during the period. Actual
results could differ from those estimates.

Revenue Recognition Revenues are derived from development
agreements consisting of research funding, technology access fees,
milestone payments and government grants. Research funding revenue is
recognized as services are performed and expenses are incurred. The
Companys development agreements generally provide for continued access by
its partners to technologies developed under such agreements over the life
of the development agreement. As a result, technology access fees and
milestone payments received are deferred because their receipt does not
represent the culmination of the earnings process. Revenue from technology
access fees is recognized on a straight-line basis over the life of the
development agreement. Revenue related to milestone payments is recognized
on a straight-line basis from the date of completion of the specified
milestone over the remaining life of the development agreement. The life
of a collaborative agreement is based on the terms of the agreement and
does not include renewal periods, unless renewal is assured. Grant revenue
is recognized as expenses are incurred and billed, except that revenue
received for equipment purchases is deferred and recognized as revenue
over the life of the related equipment.

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Net Loss Per Share Basic net loss per share is computed by dividing
the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average
number of common shares and any dilutive potential common shares that were
outstanding during the period. The weighted average numbers of shares for
potentially dilutive securities are 423,311 and 12,795,312 for the three
months ended June 30, 2001 and 2000, respectively, and 826,882 and
12,802,531 for the six months ended June 30, 2001 and 2000, respectively,
and are composed of incremental common shares issuable upon the exercise
of stock options and warrants, and, during 2000, common shares issuable on
conversion of convertible preferred stock. These shares were excluded from
diluted loss per share because of their anti-dilutive effect. Therefore,
diluted net loss per share is the same as basic net loss per share.

2. Dow Agreement and Related Warrant

The Company entered into a Collaboration and License Agreement (the
Dow Agreement) with The Dow Chemical Company and its subsidiary Dow
AgroSciences LLC (collectively Dow) in September 1998. The Dow Agreement
provides funding for sponsored genomics research, technology access fees,
royalties upon product sales and payments when certain milestones are
achieved. The Company is entitled to all funding received regardless of
the results of the research. Accordingly, no obligation to repay or
repurchase technology has been recorded. Revenues from Dow represented 89%
and 83% of total revenues during the three months ended June 30, 2001 and
2000, respectively, and 88% and 86% of total revenue during the six months
ended June 30, 2001 and 2000, respectively. The research collaboration
under the Dow Agreement terminates on August 31, 2001. During 1998, the
Company received cash of $10,000,000 from Dow in exchange for access to
the Companys technologies and a warrant granted to Dow to purchase
1,848,091 shares of the Companys common stock subject to certain vesting
provisions. The Company allocated $1,392,000 of the fee to the warrant and
$8,608,000 to deferred revenue based on the estimated fair market value of
the warrant. In addition, the Company is entitled to receive payments for
meeting certain milestones under the Dow Agreement. The access fees are
amortized to revenue over the three-year term of the research
collaboration under the Dow Agreement, and milestone payments are
amortized over the remaining term of the research collaboration under the
Dow Agreement from the date the milestone is achieved.

3. Stockholder Rights Plan

In April 2001, the Company adopted a stockholder rights plan. Under
the plan, rights were distributed as a dividend at a rate of one right for
each share of common stock held by stockholders of record as of the close
of business on May 4, 2001, and subject to specified exceptions and
limitations set forth in the rights plan, for any share of common stock
that becomes outstanding thereafter. The rights plan was not adopted in
response to any specific attempt to acquire the Company or its common
stock. The rights will expire on April 27, 2011.

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis by our
management of our financial condition and results of operations in
conjunction with our unaudited condensed consolidated financial statements
and the accompanying notes included elsewhere in this report and the 2000
audited consolidated financial statements and the accompanying notes
included in our annual report on Form 10-K filed with the Securities and
Exchange Commission on April 2, 2001. This Managements Discussion and
Analysis of Financial Condition and Results of Operations and other parts
of this report contain forward-looking statements that involve risks and
uncertainties, including statements regarding managements expectations
concerning future revenues and expense levels, capital expenditures and
interest income, and other expectations regarding future operating
results. Our actual results could differ materially from those discussed
in the forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to the factors discussed
under the heading Factors That May Affect Our Business below.

Overview

Large Scale Biology uses its proprietary proteomics and functional
genomics technologies to develop products and establish commercial
collaborations with pharmaceutical, biotechnology, agricultural, chemical
and other life sciences companies, to enable the transformation of
proteomic and genomic information into multiple product opportunities,
such as drug targets, therapeutics and diagnostics for drug effectiveness
and toxicity.

Before February 1999, we were primarily engaged in the development
and commercialization of genomics technologies. In February 1999, we
acquired 92.5% of the outstanding common stock of Large Scale Proteomics
Corporation, or Proteomics, a company primarily engaged in the development
of proteomics technologies. In March 2000, we acquired the remaining 7.5%
of Proteomics common stock. We used the purchase method of accounting to
record this acquisition.

Substantially all of our revenues relate to our collaborative
agreements and are derived from technology access fees, ongoing research
funding and milestone payments for achievement of specific results. We
record technology access fees and milestone payments as deferred revenue
and amortize these payments on a straight-line basis over the remaining
life of the related collaborative agreement. The life of a collaborative
agreement is based on the terms of the agreement. We recognize research
funding as services are performed.

In September 1998, we entered into a three-year collaboration and
license agreement, or the Dow Agreement, with The Dow Chemical Company and
its subsidiary Dow AgroSciences LLC, or collectively, Dow. Under the Dow
Agreement, we receive funding for sponsored genomics research, and we are
entitled to royalties if and when Dow sells products that result from this
collaboration, and technology access fees and payments when we reach
specific milestones. Revenues from the Dow Agreement represented 89% and
83% of our revenues during the three months ended June 30, 2001 and 2000,
respectively, and 88% and 86% of our revenues during the six months ended
June 30, 2001 and 2000, respectively.

On August 31, 2001, our research collaboration with Dow will
conclude. Consequently, we do not expect to recognize any revenues
relating to Dow milestones after August 2001. We are eligible to receive
royalty payments from Dow in the future under the Dow Agreement, but we do
not expect to receive, and cannot estimate the amount of, such payments
for the foreseeable future. We expect to reallocate research resources
used for the Dow Agreement to internally funded projects; therefore we
will not realize a decrease in our research and development expenses from
the expiration of the Dow research collaboration. At the conclusion of
this collaboration, Dows rights to the use of our proprietary GENEWARE®
technology in agricultural applications become non-exclusive.
Consequently, we are free to pursue business arrangements in this field on
an unrestricted basis. Until we enter
into new collaboration agreements, future revenues and operating margins
will be significantly lower than those we have reported for prior periods.

As a result of our investment in our technologies, we have incurred
significant losses in each year since our inception in 1987. As of June
30, 2001, we had an accumulated deficit of $101.3 million. We expect
additional losses as we expand our research and development efforts, make
investments in strategic collaborations and enhance our technologies.

In January 2001, we entered into a collaboration with Biosite
Diagnostics Incorporated, or Biosite, to create protein biochips. We
plan to initially focus our biochip project on cardiovascular diseases and liver toxicology. We

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are currently undertaking a Phase I clinical trial of the GENEWARE
produced non-Hodgkins lymphoma vaccines and expanding our Human Protein
IndexTM (HPITM), a compilation of quantitative data on proteins found in all
major tissues of the human body. During the second quarter of 2001, we
announced an exclusive licensing and option agreement with Plant
Bioscience Ltd. for certain viral-derived gene silencing and
overexpression technologies that we expect will enhance our
high-throughput, functional plant genomics capabilities. We believe the
resulting increase in expenses from these and other projects will enhance
the value of our technologies and our revenue opportunities, but will delay our profitability and result
in increased net losses.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2001 and 2000

Revenues.Revenues for the three months ended June 30, 2001 were $5.9
million, an increase of $0.3 million, or 6%, over the three months ended
June 30, 2000. Revenues for the six months ended June 30, 2001 were $11.9
million, an increase of $0.7 million, or 6%, over the six months ended
June 30, 2000. For the three and six months, revenues earned under the Dow
Agreement were $5.3 and $10.5 million during 2001 and $4.7 and $9.6
million during 2000, respectively. Increases in revenues of $1.5 million
for the three months and $2.5 million for the six months from the
amortization of milestone payments was offset by decreases in revenues of
$0.9 million for the three months and $1.6 million for the six months from
Dow research and development. The research collaboration under the Dow
Agreement terminates on August 31, 2001. Therefore, we expect revenues
from the Dow Agreement in 2001 to be less than in 2000. As of June 30,
2001, we had deferred revenues of $2.1 million relating to Dow that we
plan to amortize through August 31, 2001. We believe revenues for the
remainder of 2001 and beyond will decrease significantly until we enter
into new collaboration agreements that generate substantial revenues.

Development agreement expenses.Development agreement expenses for
the three and six months ended June 30, 2001 were $1.1 and $2.5 million, a
decrease of $0.7 and $1.3 million, or 40% and 34%, respectively, from the
corresponding 2000 periods. These decreases are attributable to a reduced
level of research activity under the Dow Agreement. Research activities
under the Dow Agreement accounted for $0.8 million for the three months
and $2.0 million for the six months of our development agreement expenses
during 2001, and $1.5 million for the three months and $3.2 million for the
six months during 2000. We expect that development agreement expenses will
continue to decrease after August 31, 2001 until we establish new
collaborations.

Research and development
expenses. Research and development expenses
for the three and six months ended June 30, 2001 were $5.8 and $10.6
million, an increase of $1.7 and $2.8 million, or 40% and 37%,
respectively, over the corresponding 2000 periods. For the three and six
months, respectively, these increases are primarily the result of $0.7 and
$1.5 million used for expanded operations and new personnel at Proteomics,
$0.4 and $0.7 million for new personnel and wage rate increases at our
Vacaville and Owensboro facilities, and $0.4 and $0.5 million related to
our protein biochip project.

Under our agreement with Biosite, we
have committed to pay $6.8 million for the production of antibodies
during 2001 and 2002, and we also plan to devote
significant internal resources necessary to perform our obligations under
this agreement. We expect that research and development expenses will
increase accordingly. We anticipate that research and development expenses
will increase significantly for non-Hodgkins lymphoma clinical trials and
for new or expanded internally funded research projects. Until we enter
into new collaboration agreements, we anticipate that research resources
used for the Dow Agreement will be reassigned to internally funded
projects such as our protein biochip project. We expect that such a
reallocation of resources together with anticipated additions to our
scientific staff to support growth opportunities will continue the trend
of increased unreimbursed research and development expenses.

General, administrative and
marketing expenses. General,
administrative and marketing expenses for the three and six months ended
June 30, 2001 were $3.5 and $6.5 million, an increase of $1.9 and $3.3
million, or 120% and 103%, respectively, over the corresponding 2000
periods. For the three and six months, respectively, these increases are
primarily the result of $0.6 and $1.1 million of salaries for new business
development, finance and legal personnel and wage rate increases in
Vacaville, $0.4 and $0.9 million of increased costs associated with our
operating as a public company and $0.4 and $0.8 million of increased
spending for expanded operations and new administrative personnel at
Proteomics. We expect general, administrative and marketing expenses to
continue to increase during the remainder of 2001 and to be significantly
higher for each quarter of 2001 as compared to the corresponding quarter
of 2000.

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Amortization of goodwill and purchased intangibles.The amortization
of goodwill and purchased intangibles of $0.3 million for each of the
three months ended June 30, 2001 and 2000 and $0.7 and $0.5 million for
the six months ended June 30, 2001 and 2000, respectively, relate to our purchase of 92.5% of
Proteomics in February 1999 and the exercise of our option to purchase the
remaining 7.5% in March 2000. We expect amortization charges for goodwill
and purchased intangibles to be approximately $0.3 million per quarter
through 2001.

Interest income (expense).Interest income increased to $0.9 and $2.1
million for the three and six months ended June 30, 2001, from $0.1 and
$0.3 million for the corresponding 2000 periods, respectively, due to the
investment of the proceeds from our initial public offering of common
stock, or IPO, in the third quarter of 2000. Although we expect interest
income in 2001 to be more than interest income in 2000 as the proceeds
from our IPO are invested over an entire year, quarterly interest income
during 2001 is expected to decrease with the planned expenditures for
operations and facilities and with the current trend of decreasing
interest rates.

Change in fair
value of warrant.The noncash gain of $0.3 and $0.6
million for the three and six months ended June 30, 2000, respectively,
relates to the decrease in the fair value of a warrant we issued to Dow in
connection with the Dow Agreement. This warrant had a put option that
could have required us to repurchase common stock issued to Dow upon
exercise of the warrant. This put option expired upon the effective date
of our IPO. Consequently, the warrant liability was reclassified to
permanent equity and no subsequent gains or charges will be incurred.

Liquidity and Capital Resources

From our inception through June 30, 2001, we funded our operations
primarily through payments from our collaborative agreements, private
sales of our equity securities, debt and warrant financing and our IPO.

At June 30, 2001, we had cash and cash equivalents of $37.2 million
and marketable securities of $29.4 million. Net cash used in operating
activities of $7.7 million in the six months ended June 30, 2001 was
principally due to $14.0 million paid to our suppliers and employees,
partially offset by $2.6 million of research funding received under the
Dow Agreement, $1.0 million from other agreements and interest from our
investments of $2.6 million. We entered into an agreement with Biosite in
January 2001 whereby we expect to pay $6.8 million during 2001 and 2002
for special materials in connection with our protein biochip project.
We therefore expect expenses to increase as a result of
these commitments. In the future, for us to achieve positive net cash flow
from operating activities, we believe we must enter into new collaboration
agreements and carefully manage the level of internally funded research
and development activities.

Net cash provided by investing activities of $5.6 million in the six
months ended June 30, 2001 was principally due to
$15.0 million of net
proceeds from the purchase and sale of marketable securities, partially offset by $9.0
million for purchases of property, plant and equipment and $0.3 million
for increases in intangible assets. Our total planned expenditures for
property, plant and equipment during 2001 are approximately $14.0 million.
We anticipate that our capital expenditures will increase in the future to
meet the demands from any new collaboration agreements and research and
development efforts. We expect to continue to use a portion of our cash to
acquire or invest in complementary businesses, products or technologies,
or to obtain the right to use such complementary technologies.

Net cash used in financing activities of $0.8 million in the six
months ended June 30, 2001 was primarily the result of $0.9 million of net
principal payments on long-term debt, partially offset by $0.1 million
received from the exercise of stock options.

In the future, our liquidity and capital resources will depend upon,
among other things, the level of our research and development activities,
clinical, regulatory and marketing expenses and funding from collaborations. We believe that our cash and cash equivalents and our
marketable securities, together with revenues from our collaborations and
other sources will be adequate to fund our anticipated cash and working
capital requirements at least through December 31, 2002. During or after
this period, if our capital resources are insufficient to meet our future
capital requirements and expenses, we may need to sell additional equity
or debt securities or obtain additional credit arrangements. Additional
financing may not be available on terms acceptable to us or at all. The
sale of additional equity or convertible debt securities may result in
dilution to our stockholders.

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Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standard No. 141, or SFAS No.
141, Business Combinations and Statement of Financial Accounting Standard
No. 142, or SFAS No. 142, Goodwill and Other Intangible Assets.SFAS No.
141 addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination and SFAS No.
142 addresses the initial recognition and measurement of intangibles
assets acquired outside of a business combination whether acquired
individually or with a group of other assets. SFAS No. 142 also addresses
the recognition and measurement of goodwill and other intangibles assets
subsequent to their acquisition. SFAS No. 141 is applicable to business
combinations beginning July 1, 2001. We are required to adopt SFAS No. 142
on January 1, 2002. We expect that the adoption of these statements will
not have a material effect on our financial position, results of
operations and cash flows.

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, or SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities and was effective for us beginning
January 1, 2001. This statement requires balance sheet recognition of
derivatives as assets or liabilities measured at fair value. Accounting
for gains and losses resulting from changes in the values of derivatives
is dependent on the use of the derivative and whether it qualifies for
hedge accounting. The adoption of SFAS No. 133 did not have a material
impact on our financial statements.

Factors That May Affect Our Business

We operate in a rapidly changing environment that involves a number
of risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere in this
Report.

This Report on Form 10-Q contains forward-looking statements within
the meaning of the federal securities laws, which involve risks and
uncertainties. These forward-looking statements are not historical facts
but rather are based on current expectations, estimates and projections
about our business and industry, beliefs and assumptions. We use words
such as anticipates, expects, intends, plans, believes, seeks,
estimates and variations of these words and similar expressions to
identify forward-looking statements. These statements are not guarantees
of future performance and are subject to risks, uncertainties and other
factors, some of which are beyond our control, are difficult to predict
and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and
uncertainties include those described below and elsewhere in this Report.
You should not place undue reliance on these forward-looking statements,
which reflect our managements view only as of the date of this Report.
Except as required by law, we undertake no obligation to update any
forward-looking statement, whether as a result of new information, future
events or otherwise.

Risks Related To Our Business

We have a history of losses and cannot predict when we will become
profitable, if at all

We have had net losses in each year since our inception in 1987. We
sustained a net loss of $6.3 million in the six months ended
June 30, 2001 and had an accumulated deficit of $101.3
million as of June 30, 2001. We have not yet entered into any new
collaborations that could make up for the decrease in cash flow from the
Dow Agreement. The research collaboration under the Dow Agreement will
terminate August 31, 2001. We expect cash flow under the Dow Agreement to
end on August 31, 2001. Currently, we continue to expect to significantly increase
amounts to fund research and development and to enhance our core
technologies. As a result, we expect that our operating expenses will
increase significantly and we will need to generate significant additional
revenues from collaborations and the commercialization of our products and
technologies to achieve profitability. We expect to incur substantial
losses for the foreseeable future. If we are unable to enter into new
collaborations, control our operating expenses and successfully
commercialize our products and technologies, we may never become
profitable.

We are at an early stage of development, and we may not be able to
successfully develop and commercialize our products and technologies

We are in an early stage of development as an operating company, and
we are subject to all the risks inherent in the development of a business
enterprise, including the need for substantial capital to support the
development of

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our products and technologies. We have had limited revenue from contract research
and development services and collaborations. We are still developing our
three primary database programs, Human Protein Index, or HPITM, Molecular
Anatomy and PathologyTM, or MAPTM, and Molecular Effects of DrugsTM, or
MEDTM, that provide an integrated platform of technologies for commercial
applications. We have marketed a limited number of our own technologies.
We have not yet operated our ProGEx system on the large scale that we believe
will be necessary to complete our HPI database and other proteomics
projects. In addition, we are still in the process of integrating our
proprietary protein databases with information on gene function. If we are
unable to manufacture and operate our ProGEx system on a large scale or to
integrate our protein databases with information on gene function, we may
not be able to achieve our objectives in the field of proteomics.

Our other anticipated products, including a novel vaccine for the
treatment of non-Hodgkins lymphoma, or NHL, most likely will require that
we enter into new collaborations before we can manufacture and market
them, and they are subject to the governmental regulatory process. Because
we are in new and developing fields, and our research focuses on new and
unproven technologies, our therapeutic vaccines, drugs and proteins that
we develop may not be effective in humans, or may not meet regulatory
requirements for safety and efficacy. In addition, even if we successfully
develop a product, there may not be a substantial commercial market for
that product.

We are in new and developing fields and there may not be a market for
our products and technologies

We focus our technologies on the new and developing fields of
proteomics and functional genomics. Our research is fundamentally unique
and we cannot assure the acceptance of its scientific merit or the
benefits of products produced by it, or that the public will react
favorably to it. Protein-based gene expression products and technologies,
including our plant-derived proteins and our ProGEx system and GENEWARE
technology, have limited commercial precedent. The usefulness of the
information and products generated by our proteomics and functional
genomics technologies is unproven, and our collaborators and potential
collaborators may determine that they are not useful or cost-effective. In
addition, we must develop these new products and technologies in time to
meet market demand, if any. If we fail to do so, it is likely that other
technologies and companies will predominate and we will not be able to
earn a sufficient return on our investment.

We may require additional capital

In order for us to remain competitive so we can develop profitable
and cash positive operations, we must generate revenue from our products
under development and our technologies, including our ProGEx and GENEWARE
systems. Changes in our business may occur that would consume available
capital resources significantly sooner than we expect. In addition, the
risks inherent in developing innovative products, such as a protein
biochip or the NHL vaccine, make it difficult to forecast with certainty
the capital required to commercialize our products. If our capital
resources are insufficient to meet future capital requirements and
expenses, we will have to raise additional funds. If we raise additional
funds by issuing equity securities, our existing stockholders may be
diluted. We may raise this capital through public or private financings or
additional collaborations, strategic partnerships or licensing
arrangements. While we cannot predict our need for additional capital in
the future, the amount required may be substantial. If we are unable to raise sufficient additional
capital, we will have to curtail or cease operations.

Alternative technologies may supersede our technologies or make them
non-competitive

Genomics, proteomics and biomanufacturing fields are intensely
competitive. They are characterized by extensive research efforts, which
result in rapid technological progress. If our competitors succeed in
developing products or technologies that are more effective than ours or
that render our products or technologies obsolete or noncompetitive, our
business will suffer. Many universities, public agencies and established
pharmaceutical, biotechnology, chemical and other life sciences companies
with substantially greater resources than we have are developing and using
technologies and are actively engaging in the development of products
similar to or competitive with our products and technologies. Like us, our
competitors are using proteomics and genomics technologies to identify
potential drug targets, therapeutic proteins and diagnostic marker
proteins. In addition, our competitors have developed databases containing
gene sequence, gene expression, genetic variation or other genomic
information and are marketing or plan to market their data to
pharmaceutical, biotechnology, chemical and other life sciences companies.
To remain competitive, we must continue to invest in new and existing
technologies, expand our databases and improve our bioinformatics
software, including proprietary software used with our ProGEx system.

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Our competitors may devise faster, more complete or more accurate
methods to obtain proteomic and functional genomic information than our
ProGEx and GENEWARE systems. There has been and continues to be
substantial academic and commercial research effort devoted to the
development of such methods. If a successful competitive method is
developed, it could undermine the commercial basis for the products and
technologies we intend to provide.

We may not be able to enter into collaborations necessary to fully
develop and commercialize our products and technologies, and we will be
dependent on our collaborators if we do

We intend to independently pursue some therapeutic product
applications into the development stage. However, we expect to develop and
commercialize most of our future products in collaboration with
pharmaceutical, biotechnology, agricultural, chemical and other life sciences companies.
Our success will depend in large part on our ability to enter into future
collaborations with other companies for the research and development,
pre-clinical and clinical testing and the regulatory approval and
commercialization of our products. Our reliance upon these companies for
these capabilities will reduce our control over such activities and could
make us dependent upon them. To date, we have entered into only a limited
number of collaborations. Generally, the scope of these collaborations has
been to demonstrate the function of plant genes and the feasibility of
using viral vectors to create proteins in plants and to identify marker
proteins for drug development and diagnostics. Our existing agreements
generally provide us with rights to participate financially in the
commercial development of products resulting from the use of our
technologies. We may be unable to obtain such rights in future
collaborations. In addition, unforeseen delays or complications could
arise and result in the breach of our contractual obligations with our
collaborators and others, or render our technologies unable to perform at
the quality and capacity levels required for success.

Conflicts with our collaborators could harm our business

Conflicts with our collaborators could have a negative impact on our
relationships with them, including on our revenues derived from these
relationships, and impair our ability to enter into future collaborations,
either of which could adversely affect our business. Our collaborators
could develop competing products, preclude us from entering into
collaborations with their competitors or terminate their agreements with
us prematurely. Moreover, disagreements could arise with our collaborators
over rights to our intellectual property, our rights to share in any of
the future revenues from products or technologies resulting from use of
our technologies, our rights to payments for achievement of milestones or
our performance of research and development activities on behalf of
collaborators, or our activities in separate fields may conflict with
other business plans of our collaborators.

For example, Dow owns or controls patent rights in the field of viral
vectors covering the infection of plants and the expression of foreign
genes in plants, and has informed us that it believes that some of our
plant viral activities may fall within the scope of its patents. If we are
unable to resolve this matter, and are found to have infringed upon Dows
rights, our product development and research activities related to plant
viruses which fall within the scope of Dows patents may be delayed or
terminated. These kinds of disagreements could result in costly and
time-consuming litigation and divert our financial and managerial
resources.

We must enter into agreements with third parties to provide sales and
marketing services, or develop these capabilities on our own, if we are to
successfully commercialize our products and technologies

We have no sales force, and we have only a limited marketing force.
Although we plan to enter into sales and marketing arrangements with third
parties, we may not be able to enter into these arrangements on favorable
terms, if at all. If we cannot enter into these arrangements, we must
develop a sales and marketing force with sufficient technical expertise to
generate demand for our products and technologies. Our inability to
develop or contract for effective sales and marketing capabilities would
significantly impair our ability to develop and commercialize our
products.

We may not be able to successfully manufacture our products in
commercial quantities or at acceptable costs

We have not yet commercially manufactured any products using our
technologies, including proteins manufactured with our GENEWARE
technology. We have only produced products on a small, test scale. The
failure of our technologies to provide safe, effective, useful or
commercially viable approaches to the discovery and development of drug
targets and proteins which can be used as therapeutics would significantly
limit our business plan and future growth.

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We may not be able to create and commercialize a combined proteomic
and genomic source of information

We may not be able to successfully combine our proprietary protein
data with genomic information. Even if we are able to integrate
information on gene function with our proteomic databases, competing
technologies may prove to be more effective or efficient, which would
limit or eliminate our revenue opportunities. If we do not successfully
create and commercialize a combined proteomic and genomic source of
information, it could reduce our revenues.

We may be unable to recruit and retain senior management and other
key scientific personnel on whom we are dependent

The loss of one or more of our senior management or other key
scientific personnel could have a material adverse effect on our business
and could inhibit our research and development and commercialization
efforts. Although we have entered into employment agreements with some of
our key personnel, these employment agreements are for a limited period of
time and most of our key personnel are not subject to employment
agreements. There is currently a shortage of skilled senior management in
the biotechnology industry, which is likely to continue and intensify. In
addition, we face competition for research scientists and technical staff
from other companies, academic institutions, government entities,
nonprofit laboratories and other organizations. Failure to recruit and
retain senior management and scientific personnel on acceptable terms
would prevent us from achieving our business objectives.

Concentration of ownership among our existing executive officers,
directors and principal stockholders enables them to collectively control
all significant corporate decisions

Our directors, our executive officers and entities affiliated with
our directors and our executive officers beneficially own, in the
aggregate, approximately 42% of our outstanding common stock as of June
30, 2001. These stockholders as a group will be able to elect our
directors and officers, control our management and affairs and be able to
control most matters requiring the approval of our stockholders, including
any merger, consolidation or sale of all or substantially all of our
assets and any other significant corporate transaction. The concentration
of ownership will also prevent a change of control of our Company at a
premium price if these stockholders oppose it, and may discourage third
parties from making a proposal to cause a change of control in the first
instance.

Our stockholder rights plan and provisions of our charter documents
and Delaware law may inhibit a takeover, which could adversely affect our
stock price

We recently adopted a stockholder rights plan and declared a dividend
distribution of one right for each outstanding share of common stock to
stockholders of record as of May 4, 2001. Subject to certain specified
exceptions and limitations under the rights plan, we will continue to
issue one right for each share of common stock that becomes outstanding
after May 4, 2001. Each right entitles the holder to purchase one unit
consisting of one one-hundredth of a share of our Series A Junior
Participating Preferred Stock for $45 per unit. Under certain
circumstances, if a person or group acquires 15% or more of our
outstanding shares of common stock, holders of the rights (other than the
person or group causing their exercisability) will be able to purchase, in
exchange for the $45 exercise price, shares of our common stock or of any
company into which we are merged having a value of $90. In addition, the
board of directors has the option, under certain circumstances, to
exchange each right (other than rights held by the person or group
triggering the board of directors option) for a share of
common stock for no additional consideration on the part of the holder of
the right. The rights expire on April 27, 2011. Our rights plan could make
it more difficult for a third party to acquire us (or a significant
percentage of our outstanding capital stock) by causing substantial
dilution of the stock ownership of a person or group attempting to acquire
control of us. Our rights plan may have the effect of discouraging these
attempts because a potential acquirer would have to negotiate with our
board of directors to avoid suffering dilution.

Provisions in our charter and bylaws and applicable provisions of the
Delaware General Corporation Law may also make it more difficult for a
third party to acquire control of us without the approval of our board of
directors. These provisions may make it more difficult or expensive for a
third party to acquire a majority of our common stock or delay, prevent or
deter a merger, acquisition, tender offer or proxy contest, which may
adversely affect our stock price.

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Risks Related to Our Industry

If companies in
the pharmaceutical, biotechnology, agricultural, chemical and life
sciences industries do not succeed or their demand for our products and
technologies decreases, then our revenues could be reduced

We expect to derive our revenues primarily from products and
technologies provided to the pharmaceutical, biotechnology, agricultural,
chemical and life sciences industries. Accordingly, our success will
depend directly on the success of companies in these industries and their
demand for our products and technologies. Our operating results may
fluctuate substantially due to reductions and delays in research and
development expenditures by companies in those industries, or their
unwillingness or inability to use our products and technologies. These
reductions and delays may result from factors which are not within our
control, such as:



| |  | changes in economic conditions generally;                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the extent to which companies in these industries conduct research
and development involving proteomics and functional genomics in-house
or through industry consortia;
| 
| |  | the extent to which genomic information is or is not made publicly available;                                                                                          
| 
| |  | consolidation within one or more of these industries;                                                                                                                  
| 
| |  | changes in the regulatory environment affecting these industries;                                                                                                      
| 
| |  | pricing pressures;                                                                                                                                                     
| 
| |  | market-driven pressures on companies to consolidate and reduce costs; and/or                                                                                           
| 
| |  | other factors affecting research and development spending in these industries.                                                                                         

If competitive products are better than our products, then our
business may fail

The markets for protein development and production, including human
and veterinary therapeutics and vaccines like the ones we are developing,
are highly competitive. Virtually all of the genes in the human genome
have been sequenced and have been substantially identified. We face
significant competition in our protein product development and production
efforts from entities using alternative, and in some cases higher volume
and larger scale, approaches for the same purpose. Competitors with
substantially greater resources are actively developing products similar
to or competitive with our products and potential products. Our
competitors may succeed in developing products or obtaining regulatory
approval before we do or in developing products that are more effective
than those we develop or propose to develop. A large number of
universities and other not-for-profit institutions, many of which are
funded by the U.S. and foreign governments, are also conducting research
to discover genes and their functions. Any one or more of these entities
may discover and establish a patent position in one or more of the genes
or proteins that we wish to commercialize.

In addition, several pharmaceutical, biotechnology, chemical and
other life sciences companies engage in research and development in the
use of unique gene expression systems to produce therapeutic proteins.
These competitors may develop products earlier or obtain regulatory
approvals faster than we may be able to, or develop products that are more
effective than ours. At least one of our major competitors, Oxford
Glycosciences, Plc., is located in Europe, and our ability to use our
patent rights to prevent competition in the creation and use of
proteomics-driven products and technologies is more limited outside of the
United States. New developments are expected to continue, and discoveries
by others may render our products and technologies noncompetitive, which
could lead to the failure of our business.

We may not have access to sufficiently complete, accurate or
defect-free data from outside sources, including genome sequence data
which would increase our costs and could affect our product development
efforts

The efforts of the Human Genome Project and private companies to
create a complete catalog of the human genome may not enable us to fully
integrate that data with our proprietary protein databases. In addition,
we obtain our data from other sources, including our academic
collaborators and our sources of cell and tissue samples. This

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data could
contain errors or other defects which could corrupt our databases or increase our costs
by requiring us to use alternative methods or sources to obtain such data.
In addition, these data sources may have acquired this information in a
manner that violates various applicable legal requirements.

We and our collaborators may not obtain FDA and other approvals for
our products in a timely manner, or at all

Drugs and diagnostic products are subject to an extensive and
uncertain regulatory approval process by the FDA and comparable agencies
in other countries. The regulation of new products is extensive, and the
required process of laboratory testing and human studies is lengthy,
expensive and uncertain. The burden of these regulations will fall on us
to the extent we are developing proprietary products on our own. We may
not be able to obtain the clearances and approvals necessary for the
clinical testing, field-testing, manufacturing or marketing of our
products. If the products are the result of a collaborative effort, these
burdens may fall on our collaborators or we may share these burdens with
them. We may not obtain FDA or other approvals for those products in a
timely manner, or at all. We may encounter significant delays or excessive
costs in our efforts to secure necessary approvals or licenses. Even if we
obtain FDA regulatory approvals, the FDA extensively regulates
manufacturing, labeling, marketing, promotion and advertising after
product approval. Further, once a manufacturer obtains regulatory
approval, a marketed product and its manufacturer are subject to continual
review, and discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the product, manufacturer or
manufacturing facility, including withdrawal of the product from the
market. In some countries, regulatory agencies also set
or approve the sale prices for drug products. Additionally, several of our product development areas may involve
relatively new technology that has not been the subject of extensive
product testing in humans. The regulatory requirements
governing these products and related clinical procedures remain uncertain
and the products themselves may be subject to substantial review by the
FDA and foreign governmental regulatory authorities that could prevent or
delay approval. Regulatory requirements ultimately imposed on our products
could limit our ability to test, manufacture and commercialize our
products.

If new rules issued by the USDA adversely affect us and our
collaborators ability to commercialize genetically modified products,
then our ability to sell certain products and technologies will be
severely impaired

We must comply with USDA regulations for outdoor releases of
genetically engineered organisms as well as other products designed for
use on or with agricultural products. Recently, the USDA released new
regulations that prohibit the inclusion of genetically modified
ingredients in products labeled as organic. The USDA regulations also
prohibit the use of genetically modified fibers in clothing labeled as
organic. These new regulations ultimately could make any products that may
be developed with our collaborators, including Dow, unattractive to or too
expensive for consumers, or could cause the government to prohibit their
sale or use. In addition, the USDA prohibits growing and transporting
genetically modified plants except pursuant to an exemption or under
special permits. We may use genetically modified plants as screening or
production hosts. Changes in USDA policy regarding the movement or field
release of genetically modified plant hosts could adversely affect our
business by increasing the cost of our products and technologies or
decreasing consumer demand for those products and technologies or causing
the government to prohibit their sale or use.

Future legal and regulatory requirements may limit or discourage the
use of certain genetically engineered organisms and products, which could
reduce our revenues

The FDA currently applies the same regulatory standards to foods
developed through genetic engineering as it applies to foods developed
through traditional plant breeding. However, genetically engineered food
products will be subject to pre-market review if these products raise
safety questions or if the FDA considers these products to be food
additives. Our products and the products of our collaborators that contain
genes that we identify or determine to have a particular function may be
subject to lengthy FDA reviews and unfavorable FDA determinations if the
FDA considers them to be food additives or if the FDA changes its policy.
Also, we believe the FDAs policy is that it will not require that
genetically engineered agricultural products be labeled as such, provided
that these products are as safe and have the same nutritional
characteristics as conventionally developed products. The FDA may
reconsider or change its labeling policies, or local or state authorities
may enact labeling requirements. Any such labeling requirements could
reduce the demand for genetically engineered products. In those products
where production must be performed outdoors, the USDA prohibits
manufacturers from growing and transporting genetically engineered plants
except pursuant to an exemption or a permit under strict controls. If our
future products are not exempted or covered by permits by the USDA, it may
be impossible to sell such products.

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If there is negative public reaction to the use of genetically engineered
products and technologies, then the market for certain products and
technologies we develop will be adversely affected

Future commercial success of some of our products and of the products
of some of our collaborators, will depend in part on public acceptance of
the use of genetically engineered products including drugs, plants and
plant products. Claims that genetically engineered products are unsafe for
consumption or pose a danger to the environment may influence public
attitudes. Negative public reaction to genetically modified organisms and
products could result in greater government regulation of genetic research
and resultant products, including stricter labeling requirements, and
could cause a decrease in the demand for our products. The subject of
genetically engineered organisms has received negative publicity and
aroused public debate in a number of countries, including the United
States and the countries of the European Community. The expressed
preferences of a significant portion of consumers, particularly in Europe,
and to some extent in the United States, for non-genetically engineered
food might substantially limit the marketing of genetically engineered
food crops. Ethical and other concerns about our technologies,
particularly the use of genes for commercial purposes and the products
resulting from this use, could lead to greater regulation and trade
restrictions on imports of genetically engineered products and adversely
affect the market acceptance of our products and technologies.
Governmental authorities could, for political or other reasons, limit the
use of genetic processes or prohibit the practice of our GENEWARE
technology. Consequently, if this regulation results in non-acceptance of
food products derived from genetically engineered food crops it could
reduce or eliminate any potential financial return from the Dow Agreement
in agricultural gene discovery and function, and our ability to
successfully collaborate with additional companies in the agricultural
industry.

We may be sued for product liability and our product liability
insurance may not be adequate

The testing, marketing and sale of our and our collaborators
products will entail a risk of allegations of product liability, and third
parties may assert substantial product liability claims against us. While
we have limited product liability insurance to protect against this risk,
adequate insurance coverage may not be available at an acceptable cost, if
at all, in the future and a product liability claim or product recall
could materially and adversely affect our business. Inability to obtain
sufficient insurance coverage at an acceptable cost or otherwise to
protect against potential product liability claims could prevent or
inhibit the commercialization of the products we or our collaborators
develop. If we are sued for any injury allegedly caused by our products or
our collaborators products, our liability could exceed our total assets
and our ability to pay the liability.

If we use hazardous materials in our business in a manner that causes
injury or violates laws, we may be liable for substantial damages

Our research and development processes involve the use of hazardous
materials, including chemicals and radioactive and biological materials.
Our operations also produce hazardous waste products. The chemicals we use
include, but are not limited to, flammable solvents such as methanol and
ethanol, ethidium dye which is a commonly used fluorescent dye for
visualizing DNA, and buffer solutions used in the purification of DNA. We
also use several radioisotopes including phosphorous-32, carbon-14,
sulfur-35, phosphorous-33, iodine-125 and hydrogen-3. We cannot eliminate
the risk of accidental contamination or discharge and any resultant injury
from these materials. Federal, state and local laws and regulations govern
the use, manufacture, storage, handling and disposal of these materials.
We could be subject to civil damages and criminal penalties in the event
of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials. Further, it is possible that the materials we use
could contaminate another partys property. In addition, claimants may sue
us for injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our total
assets and our ability to pay the liability. In addition, compliance with
environmental laws and regulations is expensive, and current or future
environmental regulations may impair our research and development and
production efforts. Although we have general liability insurance, these
policies do not cover claims arising from pollution from chemical or
radioactive materials. Our collaborators are working with various types of
hazardous materials in connection with our collaborations. In the event of
a lawsuit or investigation, we could be held responsible for any injury we
or our collaborators cause to persons or property by exposure to, or
release of, any hazardous materials.

Healthcare reform and restrictions on reimbursements may limit the
financial returns from our products

Our ability and that of our collaborators to commercialize
therapeutics and diagnostic products may depend in part on the extent to
which government health administration authorities, private health
insurers and other organizations will pay the cost of these products.
These third parties are increasingly challenging both the need for and the
price of new medical products and services. Significant uncertainty exists
as to the reimbursement status of

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newly approved therapeutics and diagnostics, and adequate third party reimbursement may not be available for any
product to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in research and product development.

Risks Related to Our Intellectual Property

Patent protection in the biotechnology industry is uncertain, which
may result in a decrease in the value of our products and technologies

We are involved in overlapping and rapidly evolving areas of
biotechnology, pharmaceutical development and basic research involving
viral vectors, plant transgenics, proteomics, functional genomics and
immunotherapy. Each of these areas has been the subject of intense
research and patenting activity throughout the world by our commercial
competitors, actual and potential collaborators, academic institutions and
government researchers. We cannot determine whether or not there are
patents currently pending which, if issued, would prevent us from
practicing our core technologies, commercializing them or developing
commercially viable products based upon them.

The patent positions of biotechnology firms generally are highly
uncertain and involve complex legal and factual questions that will
determine who has the right to develop a particular product. No clear
policy has emerged regarding the breadth of claims covered in
biotechnology patents in general and those relating to gene sequences in
particular. In addition, recently there has been public debate questioning
whether genomic sequence data should be patentable. The biotechnology
patent situation outside the United States is even more uncertain and is
currently undergoing review and revision in many countries. Changes in, or
different interpretations of, patent laws in the United States and other
countries might allow others to use our discoveries or to develop and
commercialize products and technologies similar to our products and
technologies without any compensation to us. Our potential collaborators
or customers may conclude that uncertainties about patent protection
decrease the value of our databases, products and services.

Throughout the world there are numerous issued patents, as well as
published foreign patent applications which may issue as patents, many of
which relate to our current operations, our anticipated future operations
and the products we are likely to develop. The scope of these patents is a
matter of legal interpretation and is subject to uncertainty. We have not
obtained, nor do we intend to obtain, opinions from our patent counsel
that we have freedom to conduct our commercial activities free of claims
of patent infringement from third parties. For example, we are aware of
one company, Enzon, Inc., that has a broad portfolio of patents which
generically claim single chain antibodies and that, in letters mailed to
numerous companies including us, has asserted that any company using or
making such antibodies will require a patent license from them. We are
assessing these patents and have been informed that licenses are
available, but if these licenses are required, we may not be able to
obtain them on commercially reasonable terms.

Our patent applications may not result in issued patents that are
enforceable

Our disclosures in our patent applications may not be sufficient to
meet the statutory requirements for patentability in all cases. As a
result, we do not know which of our patent applications will result in
enforceable patents. Our patent applications may not issue as patents, and
any patents that are issued to us may not provide commercially meaningful
protection against competitors. Any issued patent may not provide us with
competitive advantages. Others may challenge our patents or independently
develop similar products which could result in an interference proceeding
in the U.S. Patent and Trademark Office. Others may be able to design
around our issued patents or develop products similar to our products. In
addition, others may discover uses for genes or proteins other than those
uses covered in our patents, and these other uses may be separately
patentable.

Public disclosure and patents relating to genes and gene sequences
held by others may limit our proprietary rights

The Human Genome Project and many companies and institutions have
identified genes and deposited those sequences in public databases and are
continuing to do so. These public disclosures might limit the scope of our
claims or make unpatentable subsequent patent applications on full-length
gene sequences. We are aware of issued patents and patent applications
containing subject matter such that we or our licensees or collaborators
may require a license or rights in order to research, develop or
commercialize some of our products and technologies. We may find that
licenses relating to such subject matter will not be available on
acceptable terms, or at all.

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Patent infringement or enforcement litigation or interference
proceedings could be costly and disrupt our business and may prevent us
from commercializing our products

The technology that we use to develop our products and key resources,
and those that we incorporate in our products and technologies, may be
subject to claims by third parties, including our collaborators, that they
infringe the patents or proprietary rights of others. Technologies of
our collaborators may also be subject to infringement or similar
claims which could impair our collaborative product development and
commercialization efforts. We also may need to
enforce our patent rights in actions against others, which could be
expensive. The risk of such events occurring will tend to increase as the fields
of proteomics, genomics and the biotechnology industry expand, more
patents are issued and other companies attempt to discover genes and
proteins and engage in other proteomics, genomics and
biotechnology-related businesses. With respect to identifying proteins
uniquely associated with disease states or as targets for drug therapy, we
are aware that companies have published patent applications relating to
nucleic acids encoding specific proteins. If the U.S. Patent and Trademark
Office issues patents to these companies, their patents may limit our
ability and the ability of our collaborators to practice under any patents
that may be issued to us. Also, even if the U.S. Patent and Trademark
office issues us a patent, the scope of coverage or protection afforded to
the patent may be limited.

We may not be able to protect our know-how and trade secrets

We generally control the disclosure and use of our know-how and trade
secrets using confidentiality agreements. It is possible, however, that:



| |  |  | - Some or all confidentiality agreements will not be honored;                                                                
| |  |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | - Third parties will independently develop equivalent technology;                                                            
|
| |  |  | - Disputes will arise with our consultants, collaborators or others
concerning the ownership of intellectual property; and/or
|
| |  |  | - Unauthorized disclosure of our know-how or trade secrets will
occur.                                                       




PART II  OTHER INFORMATION




Item 2.Changes in Securities and Use of Proceeds

In April 2001, the Company adopted a stockholder rights plan and
declared a dividend of one right for each outstanding share of common
stock to stockholders of record as of May 4, 2001. In addition, subject to
specified exceptions and limitations under the plan, one right shall be
issued with each share of common stock that becomes outstanding after May
4, 2001. Each right entitles the holder to purchase one unit consisting of
one one-hundredth of a share of Series A Junior Participating Preferred
Stock for $45 per unit. If a person or group acquires 15% or more of the
Companys outstanding common stock and other conditions apply, holders of
rights (except for certain excluded persons) will be able to purchase $90
worth of shares of the Companys common stock or stock of another company
with whom the Company is merged for each payment of the $45 exercise
price. These rights expire on April 27, 2011.

The effective date of our Registration Statement on Form S-1, as
amended (Registration No. 333-34198) was August 9, 2000. The estimated use
of proceeds from our IPO for working capital set forth below includes
operating expenses for research and development and for general and
administrative activities. Provided below is a reasonable estimate of the
amount of our net offering proceeds used in each of the following
categories, through June 30, 2001:

|                                                     |  |   |            | 
|---------------------------------------------------- |  | - | ---------- | 
|Construction of plant, building and facilities       |  | $ | 6,927,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Purchase and installation of machinery and equipment |  |   | 4,872,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Purchases of real estate                             |  |   |           | 
|                                                    
|                                                    
|                                                    
|                                                    
|Acquisition of other businesses                      |  |   |           | 
|                                                    
|                                                    
|                                                    
|                                                    
|Repayment of indebtedness                            |  |   | 2,757,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Capitalized patent costs                             |  |   | 859,000    | 
|                                                    
|                                                    
|                                                    
|                                                    
|Working capital                                      |  |   | 9,272,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Temporary investments                                |  |   | 64,069,000 | 

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There are no other uses of net offering proceeds over $100,000.
Moreover, none of the net offering proceeds were paid directly or
indirectly to directors, officers, or their associates, persons owning 10%
or more of any class of our equity securities, or our affiliates.




Item 4.Submission of Matters to a Vote of Security Holders

We held our 2001 Annual Meeting of Stockholders on May 18, 2001. At
the meeting, our stockholders elected to our board of directors each of
the twelve (12) nominees, and ratified the board of directors appointment
of Deloitte & Touche LLP as the Companys independent auditors for the
fiscal year ending December 31, 2001. The results of the voting on these
matters is set forth below:



| | (1) |  | Election of Directors:
| | --- |  | ----------------------

|                          |  |           |            |                |  |  |           | 
|------------------------- |  | --------- | ---------- | -------------- |  |  | --------- | 
|Director                  |  | Votes For |            | Votes Withheld
|                          |  |           |            |               
|Robert L. Erwin           |  |           | 18,385,151 |                |  |  | 1,483,122 | 
|                         
|                         
|                         
|                         
|N. Leigh Anderson, Ph.D.  |  |           | 19,739,716 |                |  |  | 128,557   | 
|                         
|                         
|                         
|                         
|Norman G. Anderson, Ph.D. |  |           | 19,716,814 |                |  |  | 151,459   | 
|                         
|                         
|                         
|                         
|Marvyn Carton             |  |           | 19,733,214 |                |  |  | 135,059   | 
|                         
|                         
|                         
|                         
|Bernard I. Grosser, M.D.  |  |           | 19,702,155 |                |  |  | 166,118   | 
|                         
|                         
|                         
|                         
|Charles A. Hayes          |  |           | 19,716,455 |                |  |  | 151,818   | 
|                         
|                         
|                         
|                         
|Sol Levine                |  |           | 19,724,614 |                |  |  | 143,659   | 
|                         
|                         
|                         
|                         
|John W. Maki              |  |           | 19,732,973 |                |  |  | 135,300   | 
|                         
|                         
|                         
|                         
|John J. OMalley          |  |           | 19,732,773 |                |  |  | 135,500   | 
|                         
|                         
|                         
|                         
|Kevin J. Ryan             |  |           | 19,733,673 |                |  |  | 134,600   | 
|                         
|                         
|                         
|                         
|James P. TenBroek         |  |           | 19,734,513 |                |  |  | 133,760   | 
|                         
|                         
|                         
|                         
|Jacobo Zaidenweber, M.D.  |  |           | 19,694,056 |                |  |  | 174,217   | 



| |     |  | There were no abstentions, votes against, or broker nonvotes with
respect to this proposal.
| | --- |  | -------------------------------------------------------------------------------------------
|
| | (2) |  | Ratification of the appointment of Deloitte & Touche LLP as our
independent auditors:      

|           |  |               |        |             |  |  |         | 
|---------- |  | ------------- | ------ | ----------- |  |  | ------- | 
|Votes For  |  | Votes Against |        | Abstentions
|           |  |               |        |            
|19,577,317 |  |               | 28,800 |             |  |  | 262,156 | 



| |  |  | There were no votes withheld, or broker nonvotes with respect to this
proposal.
| |  |  | -------------------------------------------------------------------------------




Item 6.Exhibits and Reports on Form 8-K



| | (a) |  | List of Exhibits:
| | --- |  | -----------------



| |      
| | -----
| | None.



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------

On May 4, 2001, the Company filed a Current Report on Form 8-K dated
April 27, 2001 to report under Item 5: Other Information the adoption of our
stockholder rights plan.

On June 8, 2001 the Company filed a Current Report on Form 8-K dated May
21, 2001 to report under Item 5: Other Information the adoption of a plan for
selling shares of the Companys common stock by a principal stockholder,
Technology Directors II, LLC, which plan is intended to qualify under Rule
10b5-1 under the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                       |  |     |  |                                                           
|---------------------- |  | --- |  | ----------------------------------------------------------
|                       |  |     |  | Large Scale Biology Corporation                           
|                      
|                      
|                      
|                      
|                       |  |     |  |                                                           
|                      
|                      
|                      
|                      
|                       |  |     |  |                                                           
|                      
|                      
|                      
|                      
|                       |  |     |  |                                                           
|Dated:
August 14, 2001 |  | By: |  |                                                           
|                      
|                      
|                      
|                      
|                       |  |     |  | /s/ William M. Pfann                                      
|                       |  |     |  |                                                           
|                       |  |     |  | William M. Pfann                                          
|                       |  |    
|                       |  |     |  | Senior Vice President, Finance
and Chief Financial Officer

19