---

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# UNITED
STATES SECURITIES ANDEXCHANGE COMMISSIONWashington, D.C. 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 March 31, 2003                 
|           |                                                                                                                                                       
|           | or                                                                                                                                                    
|           |                                                                                                                                                       
|[   ]      | 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
0-31499

EDEN Bioscience Corporation

(Exact name of
registrant as specified in its charter)


|                                                                          |  |                                             
|------------------------------------------------------------------------- |  | --------------------------------------------
|Washington
(State or other jurisdiction of
incorporation or organization) |  | 91-1649604
(IRS Employer Identification No.)

3830 Monte Villa Parkway, Suite 100
Bothell, Washington 98021-6942
(Address of principal executive offices, including zip code)

(425) 806-7300
(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 past 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 [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes [   ]   No [X]

State the number of shares outstanding of each of the registrants classes of
common equity, as of the latest practicable date:

|                                     |  |                                         
|------------------------------------ |  | ----------------------------------------
|Class
Common Stock, $.0025 Par Value |  | Outstanding as of May 1, 2003
24,344,622

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TABLE OF CONTENTS




|                                      |                                                                                               |                                                                                        |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION       
|                                      | Item 1. Unaudited Financial Statements                                                       
|                                      |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                                 
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                       
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                       
|                                      |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS                        
|                                      | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
|                                      |                                                                                               | Factors That May Affect Our Business, Future Operating
Results and Financial Condition
|                                      | Item 3. Quantitative and Qualitative Disclosures About Market
Risk                           
|                                      | Item 4. Controls and Procedures                                                              
|PART II.  OTHER INFORMATION          
|                                      | Item 2. Changes in Securities and Use of Proceeds                                            
|                                      | Item 6. Exhibits                                                                             
|SIGNATURES                           
|CHIEF EXECUTIVE OFFICER CERTIFICATION
|CHIEF FINANCIAL OFFICER CERTIFICATION
|EXHIBIT 99.1                         
|EXHIBIT 99.2                         

---

# EDEN Bioscience
Corporation

# Index to Form 10-Q

|               |  |                                                                                                    |    |  |    |  |      |  | 
|-------------- |  | -------------------------------------------------------------------------------------------------- | -- |  | -- |  | ---- |  | 
|               |  |                                                                                                    |    |  |    |  | Page
|               |  |                                                                                                    |    |  |    |  |     
|Part
I.        |  | Financial Information                                                                              |    |  |    | 
|Item 1.        |  | Unaudited Financial Statements                                                                     |    |  | 2  | 
|               |  | Condensed
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                   |    |  | 2  | 
|               |  | Condensed
Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and
2002 |    |  | 3  | 
|               |  | Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 |    |  | 4  | 
|               |  | Notes to Unaudited Condensed Consolidated Financial
Statements                                     |    |  | 5  | 
|Item 2.        |  | Management's
Discussion and Analysis of Financial Condition and Results of Operations              |    |  | 10 | 
|               |  | Factors That May
Affect Our Business, Future Operating Results and Financial Condition             |    |  | 14 | 
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market
Risk                                         |    |  | 22 | 
|Item 4.        |  | Controls and Procedures                                                                            |    |  | 22 | 
|Part II.       |  | Other Information                                                                                  |    |  |    | 
|Item 2.        |  | Changes in Securities and Use of Proceeds                                                          |    |  | 22 | 
|Item 6.        |  | Exhibits                                                                                           |    |  | 23 | 
|Signatures     |  |                                                                                                    | 23 | 
|Certifications |  |                                                                                                    | 24 | 

-1-

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##### Table of Contents

# PART I 
FINANCIAL INFORMATION

# Item 1. Financial Statements

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# CONDENSED CONSOLIDATED
BALANCE SHEETS

# (Unaudited)

ASSETS

|                                                                         | March 31,2003 |  | December 31,2002 |            
|------------------------------------------------------------------------ | ------------- |  | ---------------- | -----------
|                                                                         |               |  |                  |            
|Current assets:                                                          |               |  |                  |            
|Cash and cash equivalents                                                |               |  | $                | 26,088,535 
|Accounts receivable                                                      |               |  |                  | 645,381    
|Inventory                                                                |               |  |                  | 2,191,862  
|Other current assets                                                     |               |  |                  | 930,373    
|                                                                         |               |  |                  |            
|Total current assets                                                     |               |  |                  | 29,856,151 
|Property and equipment, net                                              |               |  |                  | 17,915,103 
|Other assets                                                             |               |  |                  | 1,638,908  
|                                                                         |               |  |                  |            
|Total assets                                                             |               |  | $                | 49,410,162 
|                                                                         |               |  |                  |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                     |               | 
|Current liabilities:                                                     |               |  |                  |            
|Accounts payable                                                         |               |  | $                | 241,469    
|Accrued liabilities                                                      |               |  |                  | 1,916,263  
|Current portion of accrued loss on facility sublease                     |               |  |                  | 349,588    
|Current portion of capital lease obligations                             |               |  |                  | 60,569     
|                                                                         |               |  |                  |            
|Total current liabilities                                                |               |  |                  | 2,567,889  
|Accrued loss on facility sublease, net of current portion                |               |  |                  | 2,516,380  
|Capital lease obligations, net of current portion                        |               |  |                  | 23,522     
|Other long-term liabilities                                              |               |  |                  | 582,020    
|                                                                         |               |  |                  |            
|Total liabilities                                                        |               |  |                  | 5,689,811  
|                                                                         |               |  |                  |            
|Commitments and contingencies                                            |               |  |                  |            
|Shareholders' equity:                                                    |               | 
|Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares |               |  |                  |            
|issued and outstanding at March 31, 2003 and December 31, 2002           |               |  |                  | --         
|Common stock, $.0025 par value, 100,000,000 shares authorized; issued    |               | 
|and outstanding shares - 24,329,995 shares at March 31, 2003;            |               | 
|24,307,495 shares at December 31, 2002                                   |               |  |                  | 60,825     
|Additional paid-in capital                                               |               |  |                  | 132,489,350
|Cumulative translation adjustment                                        |               |  |                  | (86,974    
|Accumulated deficit                                                      |               |  |                  | (88,742,850
|                                                                         |               |  |                  |            
|Total shareholders' equity                                               |               |  |                  | 43,720,351 
|                                                                         |               |  |                  |            
|Total liabilities and shareholders' equity                               |               |  | $                | 49,410,162 
|                                                                         |               |  |                  |            

The accompanying notes are an integral part of these statements.

-2-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

# (Unaudited)

|                                                                       | Three Months Ended March 31, | 
|---------------------------------------------------------------------- | ---------------------------- | 
|
|Product sales, net of sales allowances                                 |                              | 
|Operating expenses:                                                    |                              | 
|Cost of goods sold                                                     |                              | 
|Research and development                                               |                              | 
|Selling, general and administrative                                    |                              | 
|                                                                       |                              | 
|Total operating expenses                                               |                              | 
|                                                                       |                              | 
|                                                                       |                              | 
|Loss from operations                                                   |                              | 
|                                                                       |                              | 
|Other income (expense):                                                |                              | 
|Interest income                                                        |                              | 
|Interest expense                                                       |                              | 
|                                                                       |                              | 
|Total other income                                                     |                              | 
|                                                                       |                              | 
|Loss before income taxes and cumulative effect of                      |                              | 
|adoption of SFAS No. 143                                               |                              | 
|Provision for income taxes                                             |                              | 
|                                                                       |                              | 
|Loss before cumulative effect of adoption of SFAS No. 143              |                              | 
|Cumulative effect of adoption of SFAS No.143                           |                              | 
|                                                                       |                              | 
|Net loss                                                               |                              | 
|                                                                       |                              | 
|Basic and diluted net loss per share:                                  |                              | 
|Loss before cumulative effect of adoption of SFAS No. 143              |                              | 
|Cumulative effect of adoption of SFAS No. 143                          |                              | 
|                                                                       |                              | 
|Net loss                                                               |                              | 
|                                                                       |                              | 
|Weighted average shares outstanding used to compute net loss per share |                              | 
|                                                                       |                              | 
|Pro forma amounts assuming retroactive application of SFAS No. 143:    |                              | 
|Net loss                                                               |                              | 
|Basic and diluted net loss per share                                   |                              | 

The accompanying notes are an integral part of these statements.

-3-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

# (Unaudited)

|                                                                        | Three Months Ended March 31, | 
|----------------------------------------------------------------------- | ---------------------------- | 
|
|Cash flows from operating activities:                                   |                              | 
|Net loss                                                                |                              | 
|Adjustments to reconcile net loss to cash used in operating activities: |                              | 
|Depreciation and amortization                                           |                              | 
|Accretion expense                                                       |                              | 
|Deferred rent payable                                                   |                              | 
|Cumulative effect of adoption of SFAS No. 143                           |                              | 
|Changes in assets and liabilities:                                      |                              | 
|Accounts receivable                                                     |                              | 
|Inventory                                                               |                              | 
|Other assets                                                            |                              | 
|Accounts payable                                                        |                              | 
|Accrued liabilities                                                     |                              | 
|Accrued loss on facility sublease                                       |                              | 
|Other long-term liabilities                                             |                              | 
|                                                                        |                              | 
|Net cash used in operating activities                                   |                              | 
|                                                                        |                              | 
|Cash flows from investing activities:                                   |                              | 
|Purchases of property and equipment                                     |                              | 
|Proceeds from disposal of equipment                                     |                              | 
|                                                                        |                              | 
|Net cash provided by (used in) investing activities                     |                              | 
|                                                                        |                              | 
|Cash flows from financing activities:                                   |                              | 
|Reduction in capital lease obligations                                  |                              | 
|Proceeds from issuance of common stock                                  |                              | 
|                                                                        |                              | 
|Net cash used in financing activities                                   |                              | 
|                                                                        |                              | 
|Effect of foreign currency exchange rates on cash and cash equivalents  |                              | 
|                                                                        |                              | 
|Net decrease in cash and cash equivalents                               |                              | 
|Cash and cash equivalents at beginning of period                        |                              | 
|                                                                        |                              | 
|Cash and cash equivalents at end of period                              |                              | 
|                                                                        |                              | 
|Supplemental disclosures:                                               |                              | 
|Cash paid for interest                                                  |                              | 

The accompanying notes are an integral part of these statements.

-4-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization
and Summary of Significant Accounting Policies

Organization
and Business

EDEN
Bioscience Corporation (the Company) was incorporated in the State of
Washington on July 18, 1994. The Company is a plant technology company focused on
developing, manufacturing and marketing innovative, natural protein-based products for
agriculture and began sales of its initial product, Messenger®, in August
2000.

Basis of
Presentation

The
accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information
and pursuant to the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for
complete financial statements. The balance sheet at December 31, 2002 has been derived
from the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles for
complete financial statements. These financial statements and notes should be read in
conjunction with the financial statements and notes for the year ended December 31, 2002
included in the Companys Annual Report on Form 10-K, which was filed with the
Securities and Exchange Commission on March 27, 2003.

In
the opinion of management, the unaudited condensed consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments, necessary to
state fairly the financial information set forth therein. Results of operations for the
three months ended March 31, 2003 are not necessarily indicative of the results expected
for the full fiscal year or for any future period.

Estimates Used
in Financial Statement Preparation

The
preparation of financial statements in conformity with generally accepted accounting
principles in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Examples include depreciable lives of
property and equipment; expense accruals; and provisions for sales allowances, warranty
claims, inventory valuation, asset impairments, bad debts and asset retirement
obligations. Such estimates and assumptions are based on historical experience, where
applicable, and other assumptions. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the consolidated financial statements in the
period they are determined to be necessary. Actual results could differ from these
estimates.

Property and
Equipment

Equipment
and leasehold improvements are stated at historical cost. Improvements and replacements
are capitalized. Maintenance and repairs are expensed when incurred. The provision for
depreciation and amortization is determined using straight-line, units-of-production and
accelerated methods, which allocate costs over their estimated useful lives of two to 20
years. Equipment leased under capital leases is depreciated over the shorter of its
estimated useful life or lease term, which ranges between three to five years. Leasehold
improvements are depreciated over the shorter of their estimated useful lives or lease
term, which range between two to ten years.

On
January 1, 2003, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations, which
provides the accounting requirements for retirement obligations associated with tangible
long-lived assets. This statement requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is incurred.

Revenue

The
Company recognizes revenue from product sales, net of sales allowances, when product is
shipped to its distributors and all significant obligations of the Company have been
satisfied, unless acceptance provisions or other contingencies exist. If acceptance
provisions or contingencies exist, revenue is deferred and recognized later if such
provisions or contingencies are satisfied. Distributors do not have price protection or
product-return rights. Accounts receivable are presented net of sales allowances. The
Company provides an allowance for warranty claims based on

-5-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

historical experience and
reasonable expectations. Shipping and handling costs related to product sales are paid by
the Company and are included in cost of goods sold.

Sales
allowances represent allowances granted to independent distributors for sales and
marketing support, product warehousing and delivery and information exchange and are
estimated based on the terms of the distribution agreements currently in place. Sales
allowances are accrued when the related product sales revenue is recognized and are paid
in accordance with the terms of the then-current distributor program agreement.
Distributor program agreements expire annually, generally on December 31. Prior to 2003,
sales allowances were paid when the distributors sold the product and reported the sales
data to the Company, generally on a quarterly basis. The Company expects that sales
allowances related to 2003 sales will be paid in early 2004, upon submission by
distributors of annual sales data. Gross product sales and sales allowances are as
follows:

|                                                               | Three Months Ended March 31, | 
|-------------------------------------------------------------- | ---------------------------- | 
|
|Gross product sales                                            |                              | 
|Sales allowances                                               |                              | 
|Elimination of previously recorded sales allowance liabilities |                              | 
|                                                               |                              | 
|Product sales, net of sales allowances                         |                              | 
|                                                               |                              | 

Net
product sales for the three months ended March 31, 2003 includes the elimination of
$126,301 of sales allowance liabilities recognized in prior quarters that will not be paid
because of changes in distributor programs implemented in 2003 and actual amounts earned
by distributors being less than amounts previously estimated.

Recent
Accounting Pronouncements

SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities
(effective January 1, 2003), replaces Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).
SFAS No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that an entitys
commitment to an exit plan, by itself, does not create a present obligation that meets the
definition of a liability. SFAS No. 146 also establishes that fair value is the objective
for initial measurement of the liability. The adoption of SFAS No. 146 is not expected to
have a material impact on the Companys consolidated results of operations, financial
position or cash flows.

Net Loss Per
Share

Basic
net loss per share is calculated as the net loss divided by the weighted average number of
common shares outstanding during the period. Diluted net loss per share is calculated as
the net loss divided by the sum of the weighted average number of common shares
outstanding during the period plus the additional common shares that would have been
issued had all dilutive warrants and options been exercised, less shares that would be
repurchased with the proceeds from such exercises (treasury stock method). The effect of
including outstanding options and warrants is antidilutive for all periods presented.
Therefore, options and warrants have been excluded from the calculation of diluted net
loss per share and consist of the following:

|                                  | As of March 31, | 
|--------------------------------- | --------------- | 
|
|Options to purchase common stock  |                 | 
|Warrants to purchase common stock |                 | 

Comprehensive
Loss

The
following table summarizes the Companys comprehensive loss for the three months
ended March 31, 2003 and 2002:

|                                  | Three Months Ended March 31, | 
|--------------------------------- | ---------------------------- | 
|
|Net loss                          |                              | 
|Cumulative translation adjustment |                              | 
|                                  |                              | 
|Total comprehensive loss          |                              | 
|                                  |                              | 

-6-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock
Compensation

The
Company has elected to apply the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, the Company accounts for
stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The following table illustrates the effect
on net income and earnings per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation.

|                                                        | Three Months Ended March 31, | 
|------------------------------------------------------- | ---------------------------- | 
|
|Net loss, as reported                                   |                              | 
|Add: Amortization of stock option compensation expense  |                              | 
|Deduct: Total stock-based employee compensation expense |                              | 
|under fair value based method                           |                              | 
|                                                        |                              | 
|Pro forma net loss                                      |                              | 
|                                                        |                              | 
|Loss per share:                                         |                              | 
|Basic and diluted - as reported                         |                              | 
|                                                        |                              | 
|Basic and diluted - pro forma                           |                              | 
|                                                        |                              | 

Reclassifications

Certain
reclassifications have been made in prior years financial statements to conform to
classifications used in the current year.

2. Inventory

Inventory,
at average cost, consists of the following:

|                |  |  |   |          
|--------------- |  |  | - | ---------
|
|                |  |  |   |          
|Raw materials   |  |  | $ | 862,440  
|Work in process |  |  |   | 273,104  
|Finished goods  |  |  |   | 1,056,318
|                |  |  |   |          
|Total inventory |  |  | $ | 2,191,862
|                |  |  |   |          

3. Property and
Equipment

Property
and equipment, at cost, consist of the following:

|                               |  |  |   |           
|------------------------------ |  |  | - | ----------
|
|                               |  |  |   |           
|Equipment                      |  |  | $ | 12,775,138
|Equipment under capital leases |  |  |   | 330,406   
|Leasehold improvements         |  |  |   | 11,643,629
|                               |  |  |   |           
|                               |  |  |   | 24,749,173
|Less accumulated depreciation  |  |  |   | (6,834,070
|                               |  |  |   |           
|Net property and equipment     |  |  | $ | 17,915,103
|                               |  |  |   |           

The
Company recorded depreciation of $595,362 and $777,027 for the three months ended March
31, 2003 and 2002, respectively.

-7-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Accrued
Liabilities

Accrued
liabilities consist of the following:

|                                              | March 31,2003 |  | December 31,2002 |          
|--------------------------------------------- | ------------- |  | ---------------- | ---------
|                                              |               |  |                  |          
|Compensation and benefits                     |               |  | $                | 616,394  
|Research and development field trial expenses |               |  |                  | 376,957  
|Facility costs                                |               |  |                  | 248,360  
|Warranty                                      |               |  |                  | 221,628  
|Sales allowances and marketing expenses       |               |  |                  | 128,194  
|Patent costs                                  |               |  |                  | 122,476  
|Deferred revenue                              |               |  |                  | 15,827   
|Other                                         |               |  |                  | 186,427  
|                                              |               |  |                  |          
|Total accrued liabilities                     |               |  | $                | 1,916,263
|                                              |               |  |                  |          

5. Warranty
Liability

The
Company records, at the time revenues are recognized, a liability for warranty claims
based on a percentage of sales. The warranty accrual percentage, which has ranged between
one and five percent, is reviewed periodically and adjusted as necessary, based on actual
experience and future estimations.

The
following table summarizes changes to the Companys warranty liability during the
quarter ended March 31, 2003:

|                               | 
|------------------------------ | 
|Balance at December 31, 2002   | 
|Payments and other settlements | 
|Accruals                       | 
|                               | 
|Balance at March 31, 2003      | 
|                               | 

6. Stock Options
and Warrants

The
following table summarizes stock option activity since December 31, 2002:

|                             | Number ofOptions | 
|---------------------------- | ---------------- | 
|                             |                  | 
|Balance at December 31, 2002 |                  | 
|Options granted              |                  | 
|Options cancelled            |                  | 
|Options exercised            |                  | 
|                             |                  | 
|Balance at March 31, 2003    |                  | 
|                             |                  | 

On
June 17, 2002, the Company offered to exchange certain outstanding options to purchase
shares of its common stock granted to its then-current U.S. employees and officers (other
than its Chief Financial Officer and then-Interim President) for new options to be granted
under the 2000 Stock Incentive Plan on a date that was at least six months and one day
after the date on which the Company cancelled the tendered options. The offer was made
pursuant to a tender offer that expired on July 17, 2002. Employees who participated in
the offer were required to tender all stock options granted to them in October and
November 2001, other than any options that may have been granted during that period
expressly in connection with a promotion, with an exercise price of $7.00 per share for
cancellation without replacement. On July 17, 2002, options to purchase 788,900 shares of
the Companys common stock (representing approximately 56% of the shares subject to
options eligible for participation in the offer) were tendered for cancellation, of which
options to purchase 584,200 shares were tendered for exchange and options to purchase
204,700 shares were tendered for cancellation without replacement. On January 21, 2003,
the Company granted new options to purchase 558,700 shares of its common stock. Each new
option has an exercise price of $1.64 per share (the fair market value of the
Companys common stock on the date of grant) and vests over four years at a rate of
25% on each anniversary of the vesting start date of the tendered option that it replaced.

-8-

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##### Table of Contents

# EDEN BIOSCIENCE
CORPORATION AND SUBSIDIARIES

# NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As
of March 31, 2003, the Company had warrants outstanding to purchase 232,217 shares of its
common stock. No warrants to purchase shares of the Companys common stock were
issued during the three-month period ended March 31, 2003.

7. Major Customers

Net
product sales revenue resulted from sales to 11 distributors for the three months ended
March 31, 2003 and sales to seven distributors for the three months ended March 31, 2002.
Net product sales to the following distributors accounted for more than ten percent of net
revenues for the periods indicated:

|                             | Three Months Ended March 31, | 
|---------------------------- | ---------------------------- | 
|
|Independent Ag Professionals |                              | 
|United Agri Products         |                              | 
|Fruit Growers Supply Company |                              | 
|Ag Rx, Inc.                  |                              | 
|Western Farm Service, Inc.   |                              | 
|Montgomery Farmers Co-op     |                              | 

8. Restructuring
Charges and Other Costs

In
the quarters ended June 30 and December 31, 2002, the Company recorded aggregate
restructuring costs of $534,769 for severance and other costs associated with workforce
reductions that occurred during those periods. No such restructuring costs were recorded
during the quarters ended March 31, 2003 and 2002. Although the Companys
restructuring plans were executed by the end of 2002, payment of certain restructuring
liabilities will continue through the second quarter of 2003. Payments totaling $39,757
were made during the quarter ended March 31, 2003, leaving a balance of $16,777 as of
that date.

9. Asset
Retirement Obligation

As
of January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset
Retirement Obligations, by recording an asset and liability in the amount of
$129,093 related to asset retirement obligations the Company has at the expiration or
earlier termination of its manufacturing facility lease. The lease expires on December 31,
2006, at which time the Company may extend the lease for three additional years. The
Company has not restricted any assets for purposes of settling this asset retirement
obligation. As of January 1, 2003, the Company also recorded a $63,508 charge for the
cumulative effect of adopting SFAS No. 143, which consists of cumulative accretion of
$34,821 and depreciation of $28,687 related to periods prior to January 1, 2003. Following
is a reconciliation of the beginning and ending aggregate carrying value of the asset
retirement obligation liability:

|                                                            | 
|----------------------------------------------------------- | 
|Initial measurement of obligation                           | 
|Accretion for periods prior to January 1, 2003              | 
|Accretion expense for the three months ended March 31, 2003 | 
|                                                            | 
|Balance at March 31, 2003                                   | 
|                                                            | 

Pro
forma net losses for the years ended December 31, 2002 and 2001, assuming retroactive
application of SFAS No. 143, would be as follows:

|                                                                     | Year Ended December 31, | 
|-------------------------------------------------------------------- | ----------------------- | 
|
|Net loss, as reported                                                |                         | 
|Accretion and depreciation expense                                   |                         | 
|                                                                     |                         | 
|Pro forma net loss, assuming retroactive application of SFAS No. 143 |                         | 
|                                                                     |                         | 

The
pro forma balance of the asset retirement obligation liability, assuming that SFAS No. 143
had been adopted prior to the quarter ended March 31, 2002 (the earliest period
presented), would be $163,913 at December 31, 2002, $149,873 at March 31, 2002 and
$145,465 at December 31, 2001.

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Item 2.
 Management's Discussion and Analysis of Financial Condition and Results of Operations

This
discussion and analysis should be read in conjunction with our unaudited condensed
consolidated financial statements and accompanying notes thereto included in this report
and with our 2002 audited financial statements and notes thereto included in our Annual
Report on Form 10-K, which was filed with the Securities and Exchange Commission on March
27, 2003.

This
Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and intentions.
We use words such as anticipate, believe, expect,
future and intend, the negative of these terms and similar
expressions to identify forward-looking statements. However, these words are not the
exclusive means of identifying such statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances are
forward-looking statements. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the factors
described below and under the caption Factors That May Affect Our Business, Future
Operating Results and Financial Condition set forth at the end of this Item 2. You
should not place undue reliance on these forward-looking statements, which apply only as
of the date of this report. The cautionary statements made in this report apply to all
forward-looking statements wherever they appear in this report. We undertake no obligation
to publicly release any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Overview

We
are a plant technology company focused on developing, manufacturing and marketing
innovative natural protein-based products for agriculture. We have a fundamentally new,
patented and proprietary technology that we believe enhances plant health and improves
crop production and plant protection. We believe our technology and our initial product,
Messenger, provide growers with valuable benefits by increasing crop yields, quality and
shelf-life and improving the plants ability to withstand diseases and other
environmental stresses.

We
have incurred significant operating losses since inception. We incurred net losses of
$23.5 million in 2002 and $23.7 million in 2001. As of March 31, 2003, we had an
accumulated deficit of $88.7 million. We incurred net losses of $2.9 million and $5.5
million for the quarters ended March 31, 2003 and 2002, respectively. Total operating
expenses were $3.8 million for the three months ended March 31, 2003, a decrease of $2.5
million from $6.3 million in the quarter ended March 31, 2002. We expect to incur
additional net losses as we proceed with the commercialization of Messenger and the
development of new products and technologies.

Results of
Operations

Three Months Ended March 31, 2003 and 2002

Revenues

We
generated our first product sales revenue in August 2000. Product sales revenue to date
has resulted from sales of Messenger, our only product, primarily to distributors in the
United States. Revenues from product sales are recognized when (a) the product is
delivered to independent distributors, (b) we have satisfied all of our significant
obligations and (c) any acceptance provisions or other contingencies have been satisfied.
We do not offer price protection or product return rights. Product sales revenue is
reported net of applicable sales allowances, as follows:

|                                                               | Three Months Ended March 31, | 
|-------------------------------------------------------------- | ---------------------------- | 
|
|Gross product sales                                            |                              | 
|Sales allowances                                               |                              | 
|Elimination of previously recorded sales allowance liabilities |                              | 
|                                                               |                              | 
|Product sales, net of sales allowances                         |                              | 
|                                                               |                              | 

Gross
product sales revenue for the first quarter of 2003 was $762,000, an increase of $36,000
(5%) from $726,000 in the comparable quarter of 2002. Sales in the first three months of
2003 were made primarily to 11 distributors, three of which accounted for an aggregate of
47% of net product sales revenue. Sales in the first quarter of 2002 were made to seven
distributors, four of which accounted for an aggregate of 75% of net product sales
revenue. Sales in the quarters ended March 31, 2003 and 2002 continued to be negatively
impacted by high levels of inventory held by distributors, the continuing challenges of
commercializing a fundamentally new technology and

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product and the lagging U.S. economy.
We expect these conditions to continue at least for the remainder of this year, which we
expect will adversely impact sales of Messenger and our commercialization efforts.

Foreign
sales to customers in Europe and Central America totaled $20,000 in the three months ended
March 31, 2003, or 2% of net product sales revenue for the quarter. No foreign
sales were recorded in the three months ended March 31, 2002. We do not expect foreign
sales to be significant in 2003.

Based
on information received from distributors, we estimate that inventory held by distributors
at March 31, 2003 is high, at approximately 685,000 ounces. We do not expect distributors
that hold significant inventories of Messenger to place additional orders for Messenger
until their current inventories are reduced and, therefore, we expect sales to
distributors in the second quarter of this year to be minor. One of our primary objectives
in 2003 is to continue working with distributors to significantly reduce their inventories
of Messenger.

In
February 2003, we negotiated with one of our distributors a compromise settlement whereby
we paid $250,000 to settle unpaid accrued sales allowances and an uncollected account
receivable. As part of the settlement agreement and mutual release, we accepted
approximately 232,000 ounces of Messenger from that distributor. As a result of this
settlement, the estimated amount of Messenger in distributors inventories was
reduced by approximately 232,000 ounces from the December 31, 2002 estimate. We do not
anticipate entering into any additional such agreements.

Due
to the growing seasons of our targeted crops, we expect grower usage of Messenger to be
highly seasonal. Based on the recommended application timing in our targeted crops and
information received from our distributors, we expect the second quarter of each year to
be the most significant period of use. Our product sales to distributors are also expected
to be seasonal. However, actual timing of orders received from distributors will depend on
many factors, including the amount of Messenger in distributors inventories.

Sales Allowances

Sales
allowances represent allowances granted to independent distributors for sales and
marketing support, product warehousing and delivery and information exchange and are
estimated based on the terms of the distribution agreements. Sales allowances are accrued
when the related product sales revenue is recognized and are paid in accordance with the
terms of the then-current distributor program agreement. Distributor program agreements
expire annually, generally on December 31. Prior to 2003, sales allowances were paid when
the distributors sold the product and reported the sales data to the Company, generally on
a quarterly basis. Previously accrued sales allowances totaling approximately $546,000
related to Messenger inventory held by distributors at December 31, 2002 were paid in the
first quarter of 2003. We expect that sales allowances related to 2003 sales will be paid
in early 2004, upon submission by distributors of annual sales data.

Beginning
in 2003, we made several changes to our distributor program. We reduced both the cost of
Messenger to our distributors and the sales allowance they will receive, thereby lowering
the necessary working capital investment by distributors who maintain inventories of
Messenger. As a result of these changes, sales allowances related to gross sales during
the quarter ended March 31, 2003 totaled $41,000 (5% of gross product sales), compared to
$171,000 (24% of gross product sales) in the comparable quarter of 2002. We expect 2003
sales allowances to average approximately 5% of gross product sales. Also, estimated sales
allowance liabilities recognized in prior quarters totaling $126,000 will not be paid
because of changes in distributor programs implemented in 2003 and actual amounts earned
by distributors being less than amounts previously estimated.

Cost of Goods Sold

Cost
of goods sold consists primarily of the cost of Messenger sold to distributors, idle
capacity charges and the cost of Messenger used for promotional purposes. Cost of goods
sold was $578,000 in the first quarter of 2003, compared to $692,000 in the first quarter
of 2002. This reduction resulted primarily from a reduction in Messenger used for
promotional purposes, which was $141,000 (98%) less in the first quarter of 2003 than in
the same period in 2002. We expect to continue incurring idle capacity charges in the
future and intend to continue taking steps to minimize such costs.

Research and Development Expenses

Research
and development expenses consist primarily of personnel, field trial, laboratory,
regulatory, patent and facility expenses. Research and development expenses decreased $1.4
million (48%) from $2.9 million in the first

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quarter of 2002 to $1.5 million in the same
quarter of this year. This decrease was primarily due to lower spending on personnel
costs, field trials, facility costs (including depreciation) and travel. Compared to the
fourth quarter of 2002, company-wide research and development costs in the first quarter
of 2003 were lower by 29%.

Selling, General and Administrative Expenses

Selling,
general and administrative expenses consist of payroll and related expenses for sales and
marketing, executive and administrative personnel; advertising, marketing and professional
fees; and other corporate expenses. Selling, general and administrative expenses decreased
$1.0 million (37%) from $2.7 million in the first quarter of 2002 to $1.7 million in the
same quarter of 2003. The majority of this decrease occurred in the United States and
resulted primarily from reductions in advertising and marketing, travel and personnel
costs. Compared to the fourth quarter of 2002, company-wide selling, general and
administrative costs in the first quarter of this year were lower by 17%.

In
April 2003, we subleased approximately 7,300 square feet of additional office space in our
headquarters in Bothell, Washington. Due to declines in the real estate market, the rent
we will receive is less than the rent we will pay on the subleased space. As a result, we
recorded a $235,000 loss on the sublease in April 2003.

Interest Income

Interest
income consists of earnings on our cash and cash equivalents. Interest income decreased
$129,000 (58%) from $223,000 in the first quarter of 2002 to $94,000 in the same quarter
of this year. This decrease was due primarily to significantly lower average cash balances
available for investment in the current year and interest rate reductions that occurred in
the past year.

Interest Expense

Interest
expense consists of interest we pay on capital leases used to finance certain equipment
purchases. Interest expense decreased $9,000 (69%) from $13,000 in the first quarter of
2002 to $4,000 in the same quarter of this year. This decrease was due to reduced leasing
activity and lower average principal balances as we pay down our existing capital lease
obligations.

Income Taxes

We
have generated a net loss from operations in each period since we began doing business. As
of December 31, 2002, we had accumulated approximately $76.7 million of net operating loss
carryforwards for federal income tax purposes. These carryforwards expire between 2009 and
2022. Our foreign tax net operating loss carryforwards totaled $6.7 million at December
31, 2002 and expire in 2006 and 2007. The annual use of these net operating loss
carryforwards may be limited in the event of a cumulative change in ownership of more than
50%.

Liquidity and
Capital Resources

At
March 31, 2003, our cash and cash equivalents totaled $26.1 million, a decrease of $4.6
million from the balance at December 31, 2002. Prior to October 2000, we financed our
operations primarily through the private sale of our equity securities, resulting in net
proceeds of approximately $36.5 million through September 30, 2000. In October 2000, we
received approximately $91.5 million in net proceeds from the initial public offering of
6,670,000 shares of our common stock. To a lesser extent, we have financed our equipment
purchases through lease financings.

Net
cash used in operations decreased $2.0 million (30%) from $6.6 million in the first three
months of 2002 to $4.6 million in the same period of 2003. Net cash used in operations in
the first three months of 2003 resulted primarily from a net loss of $2.3 million, after
adding back depreciation expense of $595,000, payment of accrued sales allowances and
field trials totaling $1.2 million and fluctuations in various asset and liability
balances totaling $1.1 million. We expect that net cash used in operations will continue
to be significant.

Net
cash used in investing activities decreased $79,000 (100%) in the first three months of
2003 compared to the same period in 2002, due primarily to proceeds from the disposal of
equipment. Net cash used in financing activities decreased $49,000 (73%) from $67,000 in
the first three months of 2002 to $18,000 in the same period of 2003. The primary use of
funds in 2003 was to pay down principal on our outstanding capital leases, offset by
proceeds of $23,000 from the exercise of options to purchase shares of our common stock.

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We
conduct our operations in three primary functional currencies: the U.S. dollar, the
European Union euro and the Mexican peso. Historically, neither fluctuations in foreign
exchange rates nor changes in foreign economic conditions have had a significant impact on
our financial condition or results of operations. We currently do not hedge our foreign
currency exposures and are therefore subject to the risk of exchange rate fluctuations. We
may invoice our international customers in U.S. dollars, euros and Mexican pesos, as the
case may be. We are exposed to foreign exchange rate fluctuations as the financial results
of foreign subsidiaries are translated into U.S. dollars in consolidation. Foreign
exchange rate fluctuations did not have a material impact on our financial results in the
three-month periods ended March 31, 2003 or 2002.

The
following are our contractual obligations as of March 31, 2003:

|                                              | Payments Due by Period | 
|--------------------------------------------- | ---------------------- | 
|
|
|
|                                              |                        | 
|Capital lease obligations, including interest |                        | 
|Operating leases                              |                        | 
|                                              |                        | 
|Total contractual cash obligations            |                        | 
|                                              |                        | 

Our operating
expenditures have been significant since inception. We currently anticipate that our
operating expenses will significantly exceed net product sales and that net losses and
working capital requirements will consume a material amount of our cash resources. If net
product sales do not significantly increase in the near term, we will have to reduce our
operating expenses. Our future capital requirements will depend on the success of our
operations. We believe that the balance of our cash and cash equivalents at March 31, 2003
will be sufficient to meet our anticipated cash needs for net losses, working capital and
capital expenditures for at least the next 15 months.

In
the future, we may require additional funds to support our working capital requirements or
for other purposes and may seek to raise such additional funds through public or private
equity financing or through other sources, such as credit facilities. We may be unable to
obtain adequate or favorable financing at that time or at all. The sale of additional
equity securities could result in dilution to our shareholders.

Critical
Accounting Policies, Estimates and Judgments

Our
critical accounting policies are more fully described in Note 1 to our consolidated
financial statements included in our most recent Annual Report on Form 10-K, which was
filed with the Securities and Exchange Commission on March 27, 2003. Certain of our
accounting policies require the application of significant judgment by management in
selecting the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. These judgments
are based on historical experience, terms of existing contracts, commonly accepted
industry practices, information provided by our customers and other assumptions that we
believe are reasonable under the circumstances. Our estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated financial
statements in the period they are determined to be necessary. Actual results may differ
from these estimates under different assumptions or conditions. Our critical accounting
policies and estimates include:

Revenue Recognition

We
sell our product to independent, third-party distributors. Our contracts with those
distributors provide no price protection or product-return rights. We recognize revenue
from product sales, net of sales allowances, when product is received by our distributors
and all of our significant obligations have been satisfied, unless acceptance provisions
or other contingencies exist. If acceptance provisions or contingencies exist, revenue is
recognized after such provisions or contingencies have been satisfied.

Sales
allowances represent allowances granted to independent distributors for sales and
marketing support, product warehousing and delivery and information exchange and are based
on the terms of the distribution agreements. Sales allowances are accrued when the related
product sales revenue is recognized and are paid in accordance with the terms of the
then-current distributor program agreement. Distributor program agreements expire
annually, generally on December 31. Prior to 2003, sales allowances were paid when the
distributors sold the product and reported the sales data to us, generally on a quarterly
basis. Sales allowances related to 2003 sales will be paid in early 2004, upon submission
by distributors of annual sales data.

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We
also record, at the time revenue is recognized, an allowance for warranty claims based on
a percentage of sales. The warranty accrual percentage, which has ranged between one and
five percent, is reviewed periodically and adjusted as necessary, based on our experience
and future estimations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts
receivable balances are reported net of related sales allowances. In determining the
adequacy of the allowance for doubtful accounts, we consider a number of factors,
including the aging of the accounts receivable portfolio, customer payment trends, the
financial condition of our customers, historical bad debts and current economic trends.
Based upon our analysis of outstanding net accounts receivable at March 31, 2003, no
allowance for doubtful accounts was recorded.

Inventory

Our
inventory is valued at the lower of cost or market on an average cost basis. We regularly
review inventory balances to determine whether a write-down is necessary. We consider
various factors in making this determination, including recent sales history and predicted
trends, industry market conditions, general economic conditions, the age of our inventory
and recent quality control data. We recorded inventory cost reductions and write-offs
totaling approximately $10,000 in the quarter ended March 31, 2003.

Valuation of Property and Equipment

We
periodically review the carrying values of our property and equipment to determine whether
such assets have been impaired. An impairment loss must be recorded pursuant to Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, when the undiscounted net cash flows to
be realized from the use of such assets are less than their carrying value. The
determination of undiscounted net cash flows requires us to make many estimates,
projections and assumptions, including the lives of the assets, future sales and expense
levels, additional capital investments or expenditures necessary to maintain the assets,
industry market trends and general and industry economic conditions. During 2002, we wrote
off $1.0 million of leasehold improvements and equipment directly related to
approximately 34,300 square feet of laboratory and office space subleased to another
company. Based upon our analysis of net cash flows to be realized from our investments in
property and equipment at March 31, 2003, no additional impairment loss was recorded.
Changes in the factors listed above or other factors could result in significantly
different cash flow estimates and an impairment charge.

Loss on Facility Sublease

In
December 2002, we entered into an agreement to sublease to another company 34,302 square
feet of laboratory and office space. In determining the loss on this facility sublease, we
considered a number of factors, including the financial condition of the subtenant, the
subtenants investment in improvements and security deposit. Based on our analysis,
we estimate that all rents will be collected and that the subtenant will exercise the
three-year extension option. Changes in the factors above or other factors could result in
a significant increase in the loss.

Recent Accounting
Pronouncements

SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities
(effective January 1, 2003), replaces Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).
SFAS No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and states that a companys
commitment to an exit plan, by itself, does not create a present obligation that meets the
definition of a liability. SFAS No. 146 also establishes that fair value is the objective
for initial measurement of the liability. The adoption of SFAS No. 146 is not expected to
have a material impact on our consolidated results of operations, financial position or
cash flows.

Factors That May
Affect Our Business, Future Operating Results and Financial Condition

You
should carefully consider the risks described below, together with all of the other
information included in this Quarterly Report on Form 10-Q. The risks and uncertainties
described below are not the only ones facing our company. If any of the following risks
actually occurs, our business, financial condition or operating results could be harmed.

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We currently
depend on a single product and our development and commercialization of that product may
not be successful.

For
the immediately foreseeable future we will be dependent on the successful development and
commercialization of one product, Messenger, which is based on a new technology. While
Messenger has been subject to numerous field tests on a wide variety of crops with
favorable results, we have had only limited sales of Messenger since its introduction in
August 2000, and Messenger could prove to be commercially unsuccessful. Messenger may
not prove effective or economically viable for all crops or markets. In addition, because
Messenger has not been put to widespread commercial use over significant periods of time,
no assurance can be given that adverse consequences might not result from the use of
Messenger, such as soil or other environmental degradation, the development of negative
effects on animals or plants or reduced benefits in terms of crop yield or protection.

The
markets for Messenger and other harpin-based products we may develop are unproven.
Messenger has not gained, and may not gain, commercial acceptance or success. If we are
unable to successfully achieve broad market acceptance of Messenger, we may not be able to
generate enough product revenues in the future to achieve profitability. A variety of
factors will determine the success of our market development and commercialization efforts
and the rate and extent of market acceptance of Messenger, including our ability to
implement and maintain an appropriate pricing policy for Messenger, general economic
conditions in agricultural markets, including commodity prices, climatic conditions and
the extent that growers, regulatory authorities and the public accept new agricultural
practices and products developed through biotechnology.

We have
experienced limited grower usage of Messenger, and independent distributors hold
significant inventories of Messenger.

Based
on information received from distributors, we estimate that distributors sold 66,000
ounces of Messenger in 2000, 596,000 ounces in 2001, 684,000 ounces in 2002 and 158,000
ounces during the first three months of 2003. We estimate that inventory held by
distributors is high, at approximately 685,000 ounces at March 31, 2003. We do not expect
distributors that hold significant inventories of Messenger to place additional orders for
Messenger until their current inventories are reduced, which will adversely affect our
sales and results of operations.

Inability to
develop adequate sales and marketing capabilities could prevent us from successfully
commercializing Messenger and other products we may develop.

We
currently have limited sales and marketing experience and capabilities. Our internal sales
and marketing staff consist primarily of sales and marketing specialists who are trained
to educate growers and independent distributors on the uses and benefits of Messenger. We
will need to further develop our sales and marketing capabilities in order to enhance our
commercialization efforts, which will involve substantial costs. These specialists require
a high level of technical expertise and knowledge regarding Messengers capabilities
and other plant protection and yield enhancement products and techniques. We cannot assure
you that our specialists and other members of our sales and marketing team will
successfully compete against the sales and marketing operations of our current and future
competitors that may have more established relationships with distributors, retailers and
growers. Failure to recruit, train and retain important sales and marketing personnel,
such as our sales and marketing specialists, or the inability of new sales and marketing
personnel to effectively market and sell Messenger and other products we may develop,
could impair our ability to gain market acceptance of our products and cause our sales to
suffer.

We have a
history of losses since inception, we expect to continue to incur losses and we may not
achieve or sustain profitability.

We
have incurred operating losses in each quarter since inception and we expect to continue
to incur further operating losses for the foreseeable future. From our inception in July
1994 to March 31, 2003, we have accumulated a deficit of $88.7 million. For the years
ended December 31, 2002, 2001 and 2000, we had net losses of $23.5 million, $23.7 million
and $15.7 million, respectively. For the three months ended March 31, 2003 we had a net
loss of $2.9 million. To date, our revenues have been limited. We expect our future
revenues to come primarily from the sale of Messenger, and these sales are highly
uncertain. For example, there were no sales of Messenger in the fourth quarter of 2001,
annual net sales decreased from $3.5 million in 2001 to $1.9 million in 2002 and we expect
sales in the second quarter of 2003 to be minor.

We
expect to continue to devote substantial resources to funding sales and marketing
activities in the United States and foreign countries, maintaining and operating our
manufacturing facility and to funding our research and

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development activities. As a
result, we will need to generate significant revenues to achieve and maintain
profitability. We may never generate profits, and if we do become profitable, we may be
unable to sustain or increase profitability on a quarterly or annual basis.

If
net product sales do not significantly increase in the near term, we will have to reduce
our operating expenses. Our future capital requirements will depend on the success of our
operations. We believe that the balance of our cash and cash equivalents at March 31, 2003
will be sufficient to meet our anticipated cash needs for net losses, working capital and
capital expenditures for at least the next 15 months.

We may have to
reduce operations if we are unable to meet our funding requirements.

We
will require substantial additional funding to continue our sales and marketing and
research and development activities in the United States and foreign countries and to
maintain and operate our manufacturing facilities. If we are unable to generate sufficient
cash flow from operations, or obtain funds through additional financing, we may have to
delay, curtail or eliminate some or all of our research and development, field-testing,
marketing or manufacturing programs. For example, we reduced our workforce by 23% in May
2002, significantly curtailing our European operations. Our future capital requirements
will depend on the success of our operations.

If
our capital requirements vary from our current plans, we may require additional financing
sooner than we anticipate. Financing may be unavailable to us when needed or on acceptable
terms.

If our ongoing
or future field trials are unsuccessful, we may be unable to achieve market acceptance or
obtain regulatory approval of our current product or any other products we may develop.

The
successful completion of multiple field trials in domestic and foreign locations on a wide
variety of crops is critical to the success of our product development and marketing
efforts. If our ongoing or future field trials are unsuccessful or produce inconsistent
results or adverse side effects, or if we are unable to collect reliable data, regulatory
approval of our current product or any other products we may develop could be delayed or
withheld or we may be unable to achieve market acceptance of these products. Although we
have conducted successful field trials on a broad range of crops, we cannot be certain
that additional field trials conducted on a greater number of acres, or on crops for which
we have not yet conducted field trials, will be successful. Moreover, the results of our
ongoing and future field trials are subject to a number of conditions beyond our control,
including weather-related events such as droughts and floods, severe heat and frost, hail,
tornadoes and hurricanes. Generally, we pay third parties, such as growers, consultants
and universities, to conduct our field trials for us. Incompatible crop treatment
practices or misapplication of the product by third parties could interfere with the
success of our field trials.

We are at an
early stage of development and are subject to the risks of a new enterprise and
the commercialization of a new technology.

We
began our operations in 1994 and began the marketing and sale of our first product,
Messenger, in the third quarter of 2000. Our early stage of development, the newness of
our technology and the uncertain nature of the market in which we compete make it
difficult to assess our prospects or predict our future operating results. We are subject
to risks and uncertainties frequently encountered in the establishment of a new business
enterprise, particularly in the rapidly changing market for plant protection and yield
enhancement products. These risks include our inability to transition from a company with
a research focus to a company capable of supporting commercial activities, including
manufacturing, quality control and assurance, regulatory approval and compliance,
marketing, sales, distribution and customer service. Our inability to adequately address
these risks could cause us to be unprofitable or to cease operations.

Actual storage
conditions of Messenger may cause it to degrade more rapidly than we anticipate, which
could adversely affect market acceptance of Messenger or our results of operations.

Messenger
is currently being stored in large quantities under various conditions by us and by
distributors. This material was manufactured in 2000, 2001 and 2002. We have conducted
laboratory studies that indicate Messenger is stable for at least two years under our
recommended storage conditions. No assurance can be given, however, that actual storage
conditions will not cause Messengers quality to degrade over a shorter time period.

Due
to the age of Messenger inventory, we have begun limited re-testing of Messenger samples
produced in 2000 and 2001. Results of limited re-testing of 2000 and 2001 production
indicates that a portion of this material may have degraded below our quality control
standards and we have recorded inventory cost reductions and write-

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offs totaling $193,000
in 2002. If our re-testing program indicates that additional material has degraded below
our quality control standards, we may have to record additional inventory write-downs and
may replace any such product held by distributors or growers, which could adversely impact
the market acceptance of Messenger or our results of operations.

We may be
unable to establish or maintain successful relationships with independent distributors
and retailers, which could adversely affect our sales.

We
intend to rely on independent distributors and retailers of agri-chemicals to distribute
and assist with the marketing and sale of Messenger and any other products we may develop.
We have engaged several independent distributors and retailers for the distribution and
sale of Messenger. Our future revenue growth will depend in large part on our success in
establishing and maintaining these sales and distribution channels. We are in the early
stages of developing our distribution network and we may be unable to establish or
maintain these relationships in a timely or cost-effective manner. Moreover, we cannot
assure you that the distributors and retailers on which we rely will focus adequate
resources on selling these products or will be successful in selling them. Many of our
potential distributors and retailers are in the business of distributing and sometimes
manufacturing other, possibly competing, plant protection and yield enhancement products
and may perceive Messenger as a threat to various product lines currently being
manufactured or distributed by them. In addition, the distributors may earn higher margins
by selling competing products or combinations of competing products. If we are unable to
establish or maintain successful relationships with independent distributors and
retailers, we will need to further develop our own distribution and sales and marketing
capabilities, which would be expensive and time-consuming and the success of which would
be uncertain.

Three
distributors accounted for an aggregate of 47% of our net revenue in the three months
ended March 31, 2003. Independent Ag Professionals accounted for $150,000 (18%), United
Agri Products accounted for $147,000 (17%) and Fruit Grower Supply accounted for $98,000
(12%) of net sales revenue for the three months ended March 31, 2003. Two of our
distributors accounted for an aggregate of 21% of our net sales revenue in all of 2002.
Helena Chemical Company accounted for $214,000 (11%) of our net sales revenue and AG Rx,
Inc., accounted for $193,000 (10%) of our net sales revenue. If either of these
distributors, or any other distributor which purchases a significant amount of our
products, were to discontinue purchasing Messenger at any time, our sales would be
adversely affected. In addition, the failure of any of these distributors, or of any other
distributor to which we extend a significant amount of credit, to pay its account, now or
in the future, may harm our operating results.

Inability to
obtain regulatory approvals, or to comply with ongoing and changing regulatory
requirements, could delay or prevent sales of Messenger or any other products we may
develop.

The
field testing, manufacture, sale and use of plant protection and yield enhancement
products, including Messenger and any other products we may develop, are extensively
regulated by the EPA and state, local and foreign governmental authorities. These
regulations substantially increase the cost and time associated with bringing Messenger
and any other products we may develop to market. If we do not receive the necessary
governmental approvals to test, manufacture and market these products, or if the
regulatory authorities revoke our approvals or grant them subject to restrictions on their
use, we may be unable to sell these products and our business may fail.

We
are also required to obtain regulatory approval from certain state and foreign regulatory
authorities before we market Messenger in those jurisdictions. Some of these jurisdictions
may apply different criteria than the EPA in connection with their approval processes.
Although we are authorized to sell Messenger in 48 states on virtually all crops for crop
production and disease management, and in California on citrus and tomato for yield
enhancement and on strawberries, grapes and fruiting vegetables, such as tomatoes and
peppers, for disease management, we have not received approval for Messenger in Colorado
or for use on other crops in California. We have also received authorization to sell
Messenger or are exempt from formal authorization requirements in at least 26 foreign
countries, including China, Germany, Mexico and six Central American countries. Our
registration in China is temporary and limited to the sale of Messenger for use on
tomatoes, peppers, tobacco and rapeseed.

If
we significantly modify Messengers design as a result of our ongoing research and
development projects, additional EPA and other regulatory approvals may be required.
Moreover, we cannot assure you that we will be able to obtain approval for marketing
additional harpin-based products or product extensions that we may develop. For example,
while the EPA has in place a registration procedure for products such as Messenger that is
streamlined in comparison to the registration procedure for chemical pesticides, there can
be no assurance that all of our products or product extensions will be eligible for the
streamlined procedure or that the EPA will not impose additional

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requirements that could
make the procedure more time-consuming and costly for any future products we may develop.

Even
if we obtain all necessary regulatory approvals to market and sell Messenger and any other
products we may develop, Messenger and these other products will be subject to continuing
review and extensive regulatory requirements. The EPA, as well as state and foreign
governmental authorities, could withdraw a previously approved product from the market
upon discovery of new information, including an inability to comply with regulatory
requirements, the occurrence of unanticipated problems with the product or for other
reasons. In addition, federal, state and foreign regulations relating to crop production
and protection products developed through biotechnology are subject to public concerns and
political circumstances and, as a result, regulations have changed and may change
substantially in the future. These changes may result in limitations on the manufacturing,
marketing or use of Messenger or any other products we may develop and commercialize.

Inability to
satisfy the conditions of our California registration for strawberries, citrus and tomato
could limit or prevent sales of Messenger in that state.

Our
registration to sell Messenger in California for use on strawberries for disease
management is conditioned on the requirement that we submit data from several additional
studies within various required timeframes ending on March 31, 2003. We have
submitted additional data and are currently awaiting a response. Our California
registration for use on citrus and tomato for yield enhancement, granted in March 2003, is
conditioned on the requirement that we submit data from several additional studies within
various required timeframes ending on December 31, 2005. There are no conditions on our
registration to sell Messenger in California for use on fruiting vegetables and grapes for
disease management. As required by the California registration for use on strawberries, we
submitted the results of six additional strawberry field trials in December 2001, other
information in March 2002 and the results of another six strawberry field trials in July
2002. We expect to submit additional information to the California Department of Pesticide
Regulation (the CDPR) at various times in 2003, in accordance with the
conditions of our strawberry registration and ongoing discussions with the CDPR. We expect
to submit the results of additional citrus and tomato field trials at various required
timeframes, through 2005, in accordance with our registration. If we are unable to conduct
the studies required by the CDPR in a timely manner, or if the results of the studies are
unacceptable to the CDPR, they may not allow the continued use of Messenger in California
on strawberries, citrus or tomatoes or they may impose limitations on this use of
Messenger, which could have a negative impact on our sales. Because EPA and state
approvals are required for commercial sales of Messenger, the loss of any of these
approvals for any reason would prevent further sales of Messenger in the affected state or
nationwide.

The high level
of competition in our market may result in price reductions, reduced margins or the
inability of our products to achieve market acceptance.

The
market for plant protection and yield enhancement products is intensely competitive,
rapidly changing and undergoing consolidation. We may be unable to compete successfully
against our current or future competitors, which may result in price reductions, reduced
margins or the inability to achieve market acceptance of Messenger or any other products
we may develop.

Many
companies are engaged in developing plant protection and yield enhancement products. Our
competitors include major international agri-chemical companies, specialized biotechnology
companies and research and academic institutions. Many of these organizations have
significantly more capital, research and development, regulatory, manufacturing,
distribution, sales, marketing, human and other resources than we do. As a result, they
may be able to devote greater resources to the development, manufacture, promotion or sale
of their products, receive greater resources and support from independent distributors,
initiate or withstand substantial price competition or take advantage of acquisition or
other opportunities more readily. Furthermore, these large agri-chemical companies have a
more diversified product offering than we do, which may give them an advantage in meeting
customer needs by enabling them to offer integrated solutions to plant protection and
yield enhancement.

Our operating
results are likely to fluctuate, resulting in an unpredictable level of sales and
earnings and possibly in a decrease in our stock price.

Our
operating results for a particular quarter or year are likely to fluctuate, which could
result in uncertainty surrounding our level of sales and earnings and possibly result in a
decrease in our stock price. For example, there were no sales of Messenger in the fourth
quarter of 2001. Numerous other factors will contribute to the unpredictability of our
operating results. In particular, our sales are expected to be highly seasonal. Sales of
plant

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protection and yield enhancement products depend on planting and growing seasons,
climatic conditions, economic and other variables, which we expect to result in
substantial fluctuations in our quarterly sales and earnings. For example, weather-related
events such as droughts and floods, severe heat and frost, hail, tornadoes and hurricanes
could decrease demand for our product and any future products we may develop, and have an
adverse impact on our operating results from quarter to quarter. In addition, most of our
expenses, such as employee compensation and lease payments for facilities and equipment,
are relatively fixed. Our expense levels are based, in part, on our expectations regarding
future sales. As a result, any shortfall in sales relative to our expectations could cause
significant changes in our operating results from quarter to quarter. Other factors may
also contribute to the unpredictability of our operating results, including the amount of
Messenger carried in inventory by independent distributors and retailers, the size and
timing of significant customer transactions, the delay or deferral of customer use of our
product and the fiscal or quarterly budget cycles of our customers. For example, customers
may purchase large quantities of our product in a particular quarter to store and use over
long periods of time, or time their purchases to coincide with the availability of
capital, either of which may cause significant fluctuations in our operating results for a
particular quarter or year.

International
expansion will subject us to risks associated with international operations, which could
adversely affect both our domestic and international operations.

Our
success depends in part on our ability to expand internationally as we obtain regulatory
approvals to market and sell Messenger and any other products we may develop in other
countries. We have been conducting field trials in several international locations, and we
have personnel in Europe and Mexico to develop operations in those regions. International
expansion of our operations could impose substantial burdens on our resources, divert
managements attention from domestic operations or otherwise adversely affect our
business. Furthermore, international operations are subject to several inherent risks,
especially different regulatory requirements and reduced protection of intellectual
property rights, that could adversely affect our ability to compete in international
markets and could have a negative effect on our operating results.

Inability to
protect our patents and proprietary rights in the United States and foreign countries
could limit our ability to compete effectively since our competitors may take advantage
of our patents or proprietary rights.

Our
success depends on our ability to obtain and maintain patent and other proprietary-right
protection for our technology and products in the United States and other countries. If we
are unable to obtain or maintain these protections, we may not be able to prevent third
parties from using our proprietary rights. We also rely on trade secrets, proprietary
know-how and continuing technological innovation to remain competitive. We have taken
measures to protect our trade secrets and know-how, including the use of confidentiality
agreements with our employees, consultants and advisors. It is possible that these
agreements may be breached and that any remedies for breach will not make us whole. We
generally control and limit access to, and the distribution of, our product documentation
and other proprietary information. Despite our efforts to protect these proprietary
rights, unauthorized parties may copy aspects of our products or obtain and use
information that we regard as proprietary. We also cannot guarantee that other parties
will not independently develop our know-how or otherwise obtain access to our technology.

The
laws of some foreign countries do not protect proprietary rights to the same extent as the
laws of the United States, and many companies have encountered significant problems and
incurred significant costs in protecting their proprietary rights in these foreign
countries.

Patent
law is still evolving with respect to the scope and enforceability of claims in the fields
in which we operate. We are like many biotechnology companies in that our patent
protection is highly uncertain and involves complex legal and technical questions for
which legal principles are not firmly established. Our patents and those patents for which
we have license rights may be challenged, narrowed, invalidated or circumvented. In
addition, our issued patents may not contain claims sufficiently broad to protect us
against third parties with similar technologies or products, or provide us with any
competitive advantage. We are not certain that our pending patent applications will be
issued. Moreover, our competitors could challenge or circumvent our patents or pending
patent applications.

The
U.S. Patent and Trademark Office and the courts have not established a consistent policy
regarding the breadth of claims allowed in biotechnology patents. The allowance of broader
claims may increase the incidence and cost of patent interference proceedings and the risk
of infringement litigation. On the other hand, the allowance of narrower claims may limit
the value of our proprietary rights.

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Other companies
may claim that we infringe their intellectual property or proprietary rights, which could
cause us to incur significant expenses or be prevented from selling Messenger or any other
products we may develop.

Our
success depends on our ability to operate without infringing the patents and proprietary
rights of third parties. Product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications pending, many
of which are confidential when filed, with regard to similar technologies. Future patents
issued to third parties may contain claims that conflict with our patents. Although we
believe that Messenger does not infringe the proprietary rights of any third parties,
third parties could assert infringement claims against us in the future. Any litigation or
interference proceedings, regardless of their merit or outcome, would probably be costly
and require significant time and attention of our key management and technical personnel.
Litigation or interference proceedings could also force us to:


 stop or delay selling, manufacturing or using products that incorporate the challenged
intellectual property;


 pay damages; or


 enter into licensing or royalty agreements that may be unavailable on acceptable terms.

If we do not
adequately distinguish Messenger from genetically modified plants and products, public
concerns over those products could negatively impact market acceptance of Messenger.

Claims
that the output of genetically modified plants is unsafe for consumption or that these
plants pose a danger to the environment have led to public concerns and negative attitudes
about genetically modified crops, particularly in Europe. We intend to distinguish
Messenger and other topically applied harpin technologies from genetically modified plants
and products. Messenger is topically applied and does not modify the plants DNA. If
the public or our customers perceive Messenger as a product that genetically modifies
plants, market acceptance and registration of Messenger could be delayed, impaired or
limited in countries with strong political resistance to genetically modified plants.

We may be
exposed to product liability claims, which could adversely affect our operations.

We
may be held liable or incur costs to settle product liability claims if Messenger or any
products we may develop, or any products that use or incorporate any of our technologies,
cause injury or are found unsuitable during product testing, manufacturing, marketing,
sale or use. These risks exist even with respect to any products that have received, or
may in the future receive, regulatory approval, registration or clearance for commercial
use. We cannot guarantee that we will be able to avoid product liability exposure.

We
currently maintain product liability insurance at levels we believe are sufficient and
consistent with industry standards for companies at our stage of development. We cannot
guarantee that our product liability insurance is adequate, and, at any time, it is
possible that such insurance coverage may not be available on commercially reasonable
terms or at all. A product liability claim could result in liability to us greater than
our assets and insurance coverage. Moreover, even if we have adequate insurance coverage,
product liability claims or recalls could result in negative publicity or force us to
devote significant time and attention to matters other than those that arise in the normal
course of business.

Rapid changes
in technology could render our current product or any other products we may develop
unmarketable or obsolete.

We
are engaged in an industry characterized by extensive research efforts and rapid
technological development. Our competitors, many of which have substantially greater
technological and financial resources than we do, may develop plant protection and yield
enhancement technologies and products that are more effective than ours or that render our
technology and products obsolete or uncompetitive. To be successful, we will need to
continually enhance Messenger and any other products we may develop and to design, develop
and market new products that keep pace with new technological and industry developments.

Our product
development efforts, which are based on an innovative technology that is commercially
unproven, may not be successful.

Our
harpin and harpin-related technology is new, in an early stage of development and
commercially unproven. It may take years and significant capital investment to develop
viable enhancements of Messenger or any new

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products we may develop based on our harpin
and harpin-related technology. Risks inherent in the development of products based on
innovative technologies include the possibility that:


 new products or product enhancements will be uneconomical to market or will be difficult
to produce on a large scale;


 proprietary rights of third parties will prevent us from marketing products; and


 third parties will market superior or equivalent products or will market their products
first.

Inability to
comply with regulations applicable to our facilities and procedures could delay, limit or
prevent our research and development or manufacturing activities.

Our
research and development and manufacturing facilities and procedures are subject to
continual review and periodic inspection. To comply with the regulations applicable to
these facilities and procedures, we must spend funds, time and effort in the areas of
production, safety and quality control and assurance to help ensure full technical
compliance. If the EPA or another regulator determines that we are not in compliance,
regulatory approval of Messenger or any other products we may develop could be revoked,
delayed or withheld or we may be required to limit or cease our research and development
or manufacturing activities or pay a monetary fine. If we were required to limit or cease
our research and development activities, our ability to develop new products would be
impaired. In addition, if we were required to limit or cease our manufacturing activities,
our ability to produce Messenger in commercial quantities would be impaired or prohibited,
which could have an adverse effect on our sales.

Inability to
produce a high quality product could impair our business.

To
be successful, we will have to manufacture Messenger in large quantities at acceptable
costs while also preserving high product quality. If we cannot maintain high product
quality on a large scale, we may be unable to achieve market acceptance of our product and
our sales would likely suffer. Moreover, we do not have back-up manufacturing systems and,
as a result, any failure of any component required in the manufacturing process could
delay or impair our ability to manufacture Messenger in the quantities that we may
require.

We
intend to continue to make changes to our manufacturing processes and facilities in order
to improve the efficiency and quality of our manufacturing activities. We cannot guarantee
that we will be successful in this regard or that the changes we make will improve our
manufacturing activities. We may encounter difficulties in the production of our current
product or any future products we may develop, including problems involving manufacturing
processes or yields, packaging, distribution, storage, quality control and assurance,
shortages of qualified personnel or compliance with regulatory requirements. Even if we
are successful in developing our manufacturing capability and processes, there can be no
assurance that we will satisfy the requirements of our distributors or customers.

If third-party
manufacturers fail to adequately perform, we could be unable to meet demand and our
revenues could be impaired.

When
our manufacturing plant is operating, we depend on independent manufacturers for
large-scale fermentation services and to perform certain other portions of our production
process. We intend to engage additional third-party manufacturers as necessary to perform
these processes. Any failure or delay in the ability of our current or any future
manufacturers to provide us with material they produce could adversely affect our ability
to produce Messenger in the quantities necessary to satisfy the requirements of our
distributors or customers, or could increase our costs associated with obtaining such
materials. In addition, the time and resources that our current or future third-party
manufacturers devote to our business are not within our control. We cannot ensure that our
current or future third-party manufacturers will perform their obligations to meet our
quality standards, that we will derive cost savings or other benefits from our
relationships with them or that we will be able to maintain a satisfactory relationship
with them on terms acceptable to us. Moreover, these manufacturers may support products
that compete directly or indirectly with ours, or offer similar or greater support to our
competitors. If any of these events were to occur, our business and operations could be
adversely affected.

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Inability to
address strain on our resources caused by growth could result in ineffective management
of our business.

As
we add manufacturing, marketing, sales, field development and other personnel, both
domestically and internationally, during the commercialization of Messenger, and expand
our manufacturing and research and development capabilities, we expect that our operating
expenses and capital requirements will increase. Our ability to manage growth effectively
requires us to continue to expend funds to improve our operational, financial and
management controls, reporting systems and procedures. In addition, we must effectively
expand, train and manage our employee base. We will be unable to effectively manage our
business if we are unable to timely and successfully alleviate the strain on our resources
caused by growth in our business, which could adversely affect our operating results.

Inability to
retain our key employees or other skilled managerial or technical personnel could impair
our ability to maintain or expand our business.

We
are highly dependent on the efforts and abilities of our current key managerial and
technical personnel, particularly Dr. Rhett R. Atkins, our President and Chief Executive
Officer, and Dr. Zhongmin Wei, our Chief Scientific Officer and Vice President of
Research. Our success will depend in part on retaining the services of Drs. Atkins and Wei
and our other existing key management and technical personnel and on attracting and
retaining new, highly qualified personnel.

Inability
to retain our existing key management or technical personnel or to attract additional
qualified personnel could, among other things, delay our sales, marketing and research and
development efforts. Moreover, in our field, competition for qualified management and
technical personnel is intense and many of the companies with which we compete for
experienced personnel have greater financial and other resources than we do. As a result,
we may be unable to recruit, train and retain sufficient qualified personnel.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

We
do not currently hold any derivative instruments, and we do not engage in hedging
activities. Also, we do not have any outstanding variable-rate debt and currently do not
enter into any material transactions denominated in foreign currency. Because of the
relatively short-term average maturity of our investment funds, such investments are
sensitive to interest rate movements. Therefore, our direct exposure to interest rate and
foreign exchange rate fluctuation is currently not material to our results of operations.
We believe that the market risk arising from the financial instruments we hold is not
material.

Item 4. Controls
and Procedures

Within
the 90 days prior to the date of this report, we carried out an evaluation, under the
supervision and with the participation of management, including our President and Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934). Based upon that evaluation, our President and Chief
Executive Officer and our Chief Financial Officer concluded that our disclosure controls
and procedures are effective. There have been no significant changes in our internal
controls or in other factors which could significantly affect internal controls subsequent
to the date we carried out our evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

# PART II  OTHER
INFORMATION

Item 2. Changes in
Securities and Use of Proceeds

On
September 26, 2000, the SEC declared effective our Registration Statement on Form S-1, as
amended (Registration No. 333-41028), as filed with the SEC in connection with our initial
public offering. Proceeds to EDEN, after accounting for $7.0 million in underwriting
discounts and commissions and approximately $1.6 million in other expenses of the
offering, were approximately $91.5 million.

To
date, of the net offering proceeds, we have used approximately $18.5 million to expand and
enhance our manufacturing, research and development and administration facilities, and
approximately $47.9 million for working capital and general corporate purposes. The
remaining portion of the net offering proceeds has been invested in cash

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equivalent
investments. Our use of the proceeds from the offering does not represent a material
change in the use of proceeds described in the prospectus included as part of the
Registration Statement.

Item 6. Exhibits

The
following exhibits are being filed as part of this quarterly report on Form 10-Q.

(a) Exhibits.

|        |  |                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                        
|Number  |  | Description                                                                                                            
|        |  |                                                                                                                        
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

# 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.

|                  |                                                       |                      
|----------------- | ----------------------------------------------------- | ---------------------
|                  | EDEN BIOSCIENCE CORPORATION                          
|                 
|Date: May 9, 2003 |                                                       |                      
|                 
|                  | By:                                                   | /s/   Rhett R. Atkins
|                  |                                                      
|                  | Rhett R. Atkins
President and Chief Executive Officer



| |                                                                                                                                 |                        
| | ------------------------------------------------------------------------------------------------------------------------------- | -----------------------
| | By:                                                                                                                             | /s/   Bradley S. Powell
| |                                                                                                                                
| | Bradley S. Powell
Vice President of Finance, Chief Financial
Officer and Secretary
(principal financial and accounting officer)

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# CHIEF EXECUTIVE
OFFICER CERTIFICATION

I, Rhett R. Atkins, President and
Chief Executive Officer of EDEN Bioscience Corporation, certify that:

1.    
          I have reviewed this quarterly report on Form 10-Q of EDEN Bioscience
          Corporation;

2.    
          Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;

3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;

4.    
          The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

a)    
          designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this quarterly report is being prepared;

b)    
          evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this
          quarterly report (the Evaluation Date); and

c)    
          presented in this quarterly report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of the
          Evaluation Date;

5.    
          The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):

a)    
          all significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and

b)    
          any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and

6.    
          The registrants other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.

|Date: May 9, 2003 |                                                       |                      
|----------------- | ----------------------------------------------------- | ---------------------
|                 
|                  |                                                       | /s/   Rhett R. Atkins
|                  |                                                      
|                  | Rhett R. Atkins
President and Chief Executive Officer

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# CHIEF FINANCIAL
OFFICER CERTIFICATION

I, Bradley S. Powell, Chief Financial
Officer of EDEN Bioscience Corporation, certify that:

1.    
          I have reviewed this quarterly report on Form 10-Q of EDEN Bioscience
          Corporation;

2.    
          Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;

3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;

4.    
          The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

a)    
          designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this quarterly report is being prepared;

b)    
          evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this
          quarterly report (the Evaluation Date); and

c)    
          presented in this quarterly report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of the
          Evaluation Date;

5.    
          The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):

a)    
          all significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and

b)    
          any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and

6.    
          The registrants other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.

|Date: May 9, 2003 |                                                                                    |                        
|----------------- | ---------------------------------------------------------------------------------- | -----------------------
|                 
|                  |                                                                                    | /s/   Bradley S. Powell
|                  |                                                                                   
|                  | Bradley S. Powell
Vice President of Finance, Chief Financial
Officer and Secretary

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