---

UNITED
  STATES SECURITIES AND 
  EXCHANGE COMMISSION Washington, D.C. 20549

---

FORM 10-Q

|(Mark
      One)
|----------------
|þ               
|                
|or              
|                
|o               

Commission
File Number 0-31499

Eden
  Bioscience Corporation(Exact name of registrant as specified in its charter)

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

3830
  Monte Villa Parkway, Suite 100 
  Bothell, Washington 98021-7266
  (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.
Yesþ  No o

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

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

|Class                          |  | Outstanding as of July 22, 2005
|------------------------------ |  | -------------------------------
|Common Stock, $.0025 Par Value |  | 24,395,870                     

---

---



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 June 30, 2005 and                          |   
|               | December
      31, 2004                                                                      |    | 2    | 
|               |                                                                                              |   
|               | Condensed Consolidated Statements of Operations for
the Three Months and                     |   
|               | Six Months Ended June 30, 2005 and 2004                                                      |    | 3    | 
|               |                                                                                              |   
|               | Condensed
      Consolidated Statements of Cash Flows for the Six Months                     |   
|               | Ended June 30, 2005 and 2004                                                                 |    | 4    | 
|               |                                                                                              |    |      | 
|               | Notes
      to Unaudited Condensed Consolidated Financial Statements                         |    | 5    | 
|               |                                                                                              |    |      | 
|Item
      2.  | Managements
      Discussion and Analysis of Financial Condition and Results of Operations  |    | 9    | 
|               |                                                                                              |    |      | 
|               | Factors
      That May Affect Our Business, Future Operating Results and Financial Condition |    | 15   | 
|               |                                                                                              |    |      | 
|Item
      3.  | Quantitative
      and Qualitative Disclosures About Market Risk                             |    | 23   | 
|               |                                                                                              |    |      | 
|Item
      4.  | Controls
      and Procedures                                                                |    | 23   | 
|               |                                                                                              |   
|Part
      II. | Other
      Information                                                                      |   
|               |                                                                                              |    |      | 
|Item
      2.  | Changes in Securities and Use of Proceeds                                                    |    | 23   | 
|               |                                                                                              |    |      | 
|Item 4.        | Submission of Matters to a Vote of Security Holders                                          |    | 24   | 
|               |                                                                                              |    |      | 
|Item
      6.  | Exhibits                                                                                     |    | 24   | 
|               |                                                                                              |    |     
|Signatures     |                                                                                              | 25 |     

-1-

---



Table
  of Contents

|               |                                                                                                                                               
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|Part
      I.  | Financial
      Information                                                                                                                   
|               |                                                                                                                                               
|Item 1.        | Unaudited
      Financial Statements                                                                                                          
|               |                                                                                                                                               
|               | Condensed
      Consolidated Balance Sheets as of June 30, 2005 and                                                                           
|               | December
      31, 2004                                                                                                                       
|               |                                                                                                                                               
|               | Condensed Consolidated Statements of Operations for
the Three Months and                                                                      
|               | Six Months Ended June 30, 2005 and 2004                                                                                                       
|               |                                                                                                                                               
|               | Condensed
      Consolidated Statements of Cash Flows for the Six Months                                                                      
|               | Ended June 30, 2005 and 2004                                                                                                                  
|               |                                                                                                                                               
|               | 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 4.        | Submission of Matters to a Vote of Security Holders                                                                                           
|               |                                                                                                                                               
|Item 6.        | Exhibits                                                                                                                                      
|              
|Signatures    
|              
|10.1           | Exclusive
License Agreement, dated May 1, 1995, between Cornell Research Foundation , Inc.  and the
Registrant, as amended as of June 2, 2000.
|31.1           | Rule
      13a-14(a) Certification (Chief Executive Officer).                                                                                 
|31.2           | Rule
      13a-14(a) Certification (Chief Financial Officer).                                                                                 
|32.1           | Section
      1350 Certification (Chief Executive Officer).                                                                                   
|32.2           | Section
      1350 Certification (Chief Financial Officer).                                                                                   



---



PART
  I  FINANCIAL INFORMATION

Item 1.
Unaudited Financial Statements

EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)

|                                                                         |  |  | June 30,
2005 |              | December 31,
2004 |  
|------------------------------------------------------------------------ |  |  | ------------- | ------------ | ----------------- | -
|                                                                         |  |  |               |              |                   |  
|Current assets:                                                          |  |  |               |              |                   |  
|Cash and cash equivalents                                                |  |  | $             | 9,276,094    |                   | $
|Accounts receivable, net of sales allowances                             |  |  |               | 561,835      |                   |  
|Inventory                                                                |  |  |               | 3,919,826    |                   |  
|Prepaid expenses and other current assets                                |  |  |               | 407,081      |                   |  
|                                                                         |  |  |               |              |                   |  
|Total current assets                                                     |  |  |               | 14,164,836   |                   |  
|Property and equipment, net                                              |  |  |               | 12,267,847   |                   |  
|Other assets                                                             |  |  |               | 1,555,501    |                   |  
|                                                                         |  |  |               |              |                   |  
|Total assets                                                             |  |  | $             | 27,988,184   |                   | $
|                                                                         |  |  |               |              |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                     |  | 
|Current liabilities:                                                     |  | 
|Accounts payable                                                         |  |  | $             | 274,787      |                   | $
|Accrued liabilities                                                      |  |  |               | 1,047,659    |                   |  
|Current portion of accrued loss on facility subleases                    |  |  |               | 492,919      |                   |  
|Current portion of capital lease obligations                             |  |  |               | 3,785        |                   |  
|                                                                         |  |  |               |              |                   |  
|Total current liabilities                                                |  |  |               | 1,819,150    |                   |  
|Accrued loss on facility subleases, net of current portion               |  |  |               | 1,800,336    |                   |  
|Capital lease obligations, net of current portion                        |  |  |               | --           |                   |  
|Other long-term liabilities                                              |  |  |               | 810,884      |                   |  
|                                                                         |  |  |               |              |                   |  
|Total liabilities                                                        |  |  |               | 4,430,370    |                   |  
|                                                                         |  |  |               |              |                   |  
|                                                                         |  | 
|Commitments and contingencies                                            |  | 
|                                                                         |  | 
|Shareholders equity:                                                    |  | 
|Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares |  |  |               |              |                   |  
|issued and outstanding at June 30, 2005 and December 31, 2004            |  |  |               | --           |                   |  
|Common stock, $.0025 par value, 100,000,000 shares authorized;           |  | 
|24,395,870 issued and outstanding shares at June 30, 2005 and            |  | 
|24,381,870 at December 31, 2004                                          |  |  |               | 60,990       |                   |  
|Additional paid-in capital                                               |  |  |               | 132,541,547  |                   |  
|Accumulated other comprehensive loss                                     |  |  |               | (16,348      | )                 |  
|Accumulated deficit                                                      |  |  |               | (109,028,375 | )                 |  
|                                                                         |  |  |               |              |                   |  
|Total shareholders equity                                               |  |  |               | 23,557,814   |                   |  
|                                                                         |  |  |               |              |                   |  
|Total liabilities and shareholders equity                               |  |  | $             | 27,988,184   |                   | $
|                                                                         |  |  |               |              |                   |  

The
accompanying notes are an integral part of these statements.

-2-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

|                                         |  |  | Three Months Ended June 30, |            | Six Months Ended June 30, |  
|---------------------------------------- |  |  | --------------------------- | ---------- | ------------------------- | -
|                                         |  |  |                             |            |                           |  
|                                         |  |  | 2005                        |            | 2004                      |  
|                                         |  |  |                             |            |                           |  
|Product sales, net of sales allowances   |  |  | $                           | 1,677,463  |                           | $
|Operating expenses:                      |  | 
|Cost of goods sold                       |  |  |                             | 646,042    |                           |  
|Research and development                 |  |  |                             | 979,531    |                           |  
|Selling, general and administrative      |  |  |                             | 1,514,786  |                           |  
|                                         |  |  |                             |            |                           |  
|Total operating expenses                 |  |  |                             | 3,140,359  |                           |  
|                                         |  |  |                             |            |                           |  
|Loss from operations                     |  |  |                             | (1,462,896 | )                         |  
|                                         |  |  |                             |            |                           |  
|Other income (expense):                  |  | 
|Interest income                          |  |  |                             | 71,421     |                           |  
|Interest expense                         |  |  |                             | (185       | )                         |  
|                                         |  |  |                             |            |                           |  
|Total other income                       |  |  |                             | 71,236     |                           |  
|                                         |  |  |                             |            |                           |  
|Loss before income taxes                 |  |  |                             | (1,391,660 | )                         |  
|Income taxes                             |  |  |                             | --         |                           |  
|                                         |  |  |                             |            |                           |  
|Net loss                                 |  |  | $                           | (1,391,660 | )                         | $
|                                         |  |  |                             |            |                           |  
|Basic and diluted net loss per share     |  |  | $                           | (0 06)     |                           | $
|                                         |  |  |                             |            |                           |  
|Weighted average shares outstanding used |  | 
|to compute net loss per share            |  |  |                             | 24,391,255 |                           |  
|                                         |  |  |                             |            |                           |  

The
accompanying notes are an integral part of these statements.

-3-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

|                                                                         |  |  | Six Months Ended June 30, |           
|------------------------------------------------------------------------ |  |  | ------------------------- | ----------
|                                                                         |  |  |                           |           
|                                                                         |  |  | 2005                      |           
|                                                                         |  |  |                           |           
|Cash flows from operating activities:                                    |  |  |                           |           
|Net loss                                                                 |  |  | $                         | (3,078,488
|Adjustments to reconcile net loss to cash used in operating activities:  |  | 
|Depreciation and amortization                                            |  |  |                           | 1,185,629 
|Accretion expense                                                        |  |  |                           | 13,672    
|Deferred rent payable                                                    |  |  |                           | 25,278    
|(Gain) loss on disposal of fixed assets                                  |  |  |                           | (21,725   
|Changes in assets and liabilities:                                       |  | 
|Accounts receivable                                                      |  |  |                           | (522,617  
|Inventory                                                                |  |  |                           | (3,321    
|Prepaid expenses and other assets                                        |  |  |                           | 97,452    
|Accounts payable                                                         |  |  |                           | 84,194    
|Accrued liabilities                                                      |  |  |                           | (144,007  
|Accrued loss on facility subleases                                       |  |  |                           | (252,106  
|                                                                         |  |  |                           |           
|Net cash used in operating activities                                    |  |  |                           | (2,616,039
|                                                                         |  |  |                           |           
|Cash flows from investing activities:                                    |  | 
|Proceeds from disposal of fixed assets                                   |  |  |                           | 57,803    
|                                                                         |  |  |                           |           
|Net cash provided by investing activities                                |  |  |                           | 57,803    
|                                                                         |  |  |                           |           
|Cash flows from financing activities:                                    |  | 
|Reduction in capital lease obligations                                   |  |  |                           | (8,548    
|Proceeds from issuance of common stock                                   |  |  |                           | 5,600     
|                                                                         |  |  |                           |           
|Net cash used in financing activities                                    |  |  |                           | (2,948    
|                                                                         |  |  |                           |           
|Effect of foreign currency exchange rates on cash and cash equivalents . |  |  |                           | (23,107   
|                                                                         |  |  |                           |           
|Net decrease in cash and cash equivalents                                |  |  |                           | (2,584,291
|Cash and cash equivalents at beginning of period                         |  |  |                           | 11,860,385
|                                                                         |  |  |                           |           
|Cash and cash equivalents at end of period                               |  |  | $                         | 9,276,094 
|                                                                         |  |  |                           |           
|Supplemental disclosures:                                                |  | 
|Cash paid for interest                                                   |  |  | $                         | 466       

The
accompanying notes are an integral part of these statements.

-4-

---



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 (Eden Bioscience or the  Company) was incorporated in
the State of Washington on  July 18, 1994. Eden Bioscience is a plant health
technology  company focused on developing, manufacturing and marketing  innovative
natural-based protein products for agriculture.

The Company is
subject to a number of risks including,  among others:  dependence on a limited number of
products  and the development and commercialization of those products,  which may not be
successful; the need to develop adequate  sales and marketing capabilities to
commercialize the  Companys products; reliance on independent distributors and
retailers to sell the Companys products; competition from  other companies with
greater financial, technical and  marketing resources; and other risks associated with
commercializing a new technology.

Basis of
Presentation

The
accompanying unaudited condensed consolidated  financial statements have been prepared in
accordance with  U.S. 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 notes required by U.S. generally accepted  accounting
principles for complete financial statements. The  balance sheet at December 31, 2004 has
been derived from the  audited financial statements at that date but does not  include
all of the information and notes required by U.S.  generally accepted accounting
principles for complete  financial statements. These financial statements and notes
should be read in conjunction with the financial statements  and notes as of and for the
year ended December 31, 2004  included in the Companys Annual Report on Form 10-K,
which  was filed with the Securities and Exchange Commission on  March 25, 2005.

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
and six months  ended June 30, 2005 are not necessarily indicative of the  results
expected for the full fiscal year or for any future  period.

Liquidity

The Companys
operating expenditures have been  significant since its inception. The Company currently
anticipates that its operating expenses will significantly  exceed net product sales and
that net losses and working  capital requirements will consume a material amount of its
cash resources. If net product sales do not significantly  increase in the near term, the
Company will have to further  reduce its operating expenses. The Companys future
capital  requirements will depend on the success of its operations.  Management of the
Company believes that the balance of its  cash and cash equivalents at June 30, 2005 will
be  sufficient to meet its anticipated cash needs for net  losses, working capital and
capital expenditures for more  than the next 12 months, although there can be no
assurance  in that regard. After the next 12 months, if net product  sales do not
significantly increase, the Company will have  to further reduce operating expenses or
secure additional  financing. The Company may be unable to obtain adequate or  favorable
financing at that time or at all and may cease  operations. The sale of additional equity
securities could  result in dilution to the Companys shareholders.

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; provisions for sales  allowances, warranty
claims and inventory valuation; cash  flow projections used in evaluating whether asset
impairment  loss is recorded; losses on facility subleases and bad  debts. Such estimates
and assumptions are based on  historical experience, where applicable, managements
plans  and other assumptions. Estimates and assumptions are  reviewed periodically and
the effects of revisions are  reflected in the consolidated financial statements
prospectively when they are determined to be necessary.  Actual results could differ from
these estimates.

-5-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts
Receivable

Accounts
receivable balances are reported net of  customer-specific related sales allowances of
$529,000 at  June 30, 2005 and $11,000 at December 31, 2004. In  determining the adequacy
of the allowance for doubtful  accounts, the Company considers a number of factors,
including the aging of the accounts receivable portfolio,  customer payment trends, the
financial condition of its  customers, historical bad debts and current economic trends.
Based upon an analysis of outstanding net accounts  receivable, no allowance for doubtful
accounts was recorded  at June 30, 2005 or December 31, 2004.

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 is five years.  Leasehold improvements are
amortized over the shorter of  their estimated useful lives or lease term, which range
between two to ten years.

In October
2004, the Company began marketing lab and  office space it currently occupies and
estimates it will  sublease substantially all of this space by the end of 2005.  Based on
the current sublease market, the Company believes  that a portion of the leasehold
improvements and certain  equipment related to the lab space will not be recovered  from
the receipt of future sublease payments. Therefore, the  estimated useful life of a
portion of leasehold improvements  and certain equipment related to this lab space has
been  reduced from January 2011, the end of the lease term, to  December 31, 2005. In the
first six months of 2005,  amortization and depreciation of $710,000 was included in
research and development expense in the condensed  consolidated statements of operations
and amortization and  depreciation of $710,000 is expected to be recorded over the
remainder of 2005.

Revenues

The Company
recognizes revenue from product sales, net  of sales allowances, when product is
delivered to its  distributors and all significant obligations of the Company  have been
satisfied, unless acceptance provisions or other  contingencies or arrangements exist,
including whether  collection is reasonably assured. If acceptance provisions  or
contingencies exist, revenue is deferred and recognized  later if such provisions or
contingencies are satisfied. As  part of the analysis of whether all significant
obligations  of the Company have been satisfied or situations where  acceptance
provisions or other contingencies or arrangements  exist, the Company considers the
following elements, among  others:  sales terms and arrangements, historical experience
and current incentive programs. Distributors do not have  price protection or
product-return rights. The Company  provides an allowance for warranty claims based on
historical experience and expectations. Shipping and  handling costs related to product
sales that are paid by the  Company are included in cost of goods sold.

In February
2004, the Company received approval to sell  Messenger in Spain. The Company initiated
marketing  activities in March 2004, but the approval was not received  in time to
pre-position product in the trade channel to meet  initial sales activity. In order to
ensure that an adequate  supply of Messenger was quickly disbursed in the new
distribution channel and to limit the amount of working  capital required by new
distributors at this early stage of  introduction, the Company granted flexible and/or
extended  payment terms to distributors in this new market. Because of  this combination
of factors, revenues from these product  deliveries are deferred and recognized when
payment is  received. The Company recognized net revenue of $238,000  from these
deliveries when payment was received in the three  months ended June 30, 2005 and $90,000
in the three months  ended June 30, 2004. The Company recognized net revenue of  $452,000
from these deliveries when payment was received in  the six months ended June 30, 2005
and $90,000 in the six  months ended June 30, 2004. Gross revenues of $187,000 and  cost
of goods sold of $59,000 were deferred at June 30, 2005  and will be recognized when
payment is received.

-6-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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  arrangements currently in place. Sales
allowances are  accrued when the related product sales are recognized and  are paid in
accordance with the terms of the then-current  distributor program arrangement.
Distributor program  arrangements expire annually, generally on December 31.

Gross
product sales and sales allowances are as follows:

|                                         |  |  | Three Months Ended June 30, |           | Six Months Ended June 30, |  
|---------------------------------------- |  |  | --------------------------- | --------- | ------------------------- | -
|                                         |  |  |                             |           |                           |  
|                                         |  |  | 2005                        |           | 2004                      |  
|                                         |  |  |                             |           |                           |  
|Gross product sales                      |  |  | $                           | 2,021,580 |                           | $
|Sales allowances                         |  |  |                             | (344,117  | )                         |  
|Elimination of previously recorded sales |  | 
|allowance liabilities                    |  |  |                             | --        |                           |  
|                                         |  |  |                             |           |                           |  
|Product sales, net of sales allowances   |  |  | $                           | 1,677,463 |                           | $
|                                         |  |  |                             |           |                           |  

Net
product sales by geographical region were:

|                                       |  |  | Three Months Ended June 30, |           | Six Months Ended June 30, |  
|-------------------------------------- |  |  | --------------------------- | --------- | ------------------------- | -
|                                       |  |  |                             |           |                           |  
|                                       |  |  | 2005                        |           | 2004                      |  
|                                       |  |  |                             |           |                           |  
|United States                          |  |  | $                           | 1,407,780 |                           | $
|Spain                                  |  |  |                             | 242,547   |                           |  
|Other regions                          |  |  |                             | 27,135    |                           |  
|                                       |  |  |                             |           |                           |  
|Product sales, net of sales allowances |  |  | $                           | 1,677,463 |                           | $
|                                       |  |  |                             |           |                           |  

Incentives

The
Company sometimes offers sales incentives, often in  the form of free product, to
distributors and other  customers. Costs associated with such incentives are  recognized
as costs of sales in the later of the period in  which (a) the associated revenue is
recognized by the  Company or (b) the sales incentive is offered to the  customer.

In
September 2003, with the cooperation of its  distributors, the Company instituted a buy
one, get one  free promotion at the grower level that ran through the end  of 2003.
Near the end of 2003, the Company announced a  reduction of approximately 50% in the
price of Messenger and  introduced Messenger STS, an improved formulation in January
2004 at this lower price point. At the same time, the  Company announced to distributors
that it planned to send  them additional products at no charge in order to reduce the
average cost of their existing inventories of Messenger. In  the first six months of
2004, the Company delivered  approximately 378,000 ounces of Messenger products at no
charge to distributors.

Stock
Compensation

The
Company has elected to apply the disclosure-only  provisions of SFAS No. 123, Accounting
for Stock-Based  Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an  Amendment of SFAS No. 123. 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 loss and loss per share as if the Company  had applied the
fair value recognition provisions of SFAS  No. 123 to stock-based compensation.

|                                      |  |  | Three Months Ended June 30, |            | Six Months Ended June 30, |  
|------------------------------------- |  |  | --------------------------- | ---------- | ------------------------- | -
|                                      |  |  |                             |            |                           |  
|                                      |  |  | 2005                        |            | 2004                      |  
|                                      |  |  |                             |            |                           |  
|Net loss, as reported                 |  |  | $                           | (1,391,660 | )                         | $
|Deduct: Total stock-based employee    |  |  |                             |            |                           |  
|compensation expense under fair value |  |  |                             |            |                           |  
|based method                          |  |  |                             | (154,433   | )                         |  
|                                      |  |  |                             |            |                           |  
|Pro forma net loss                    |  |  | $                           | (1,546,093 | )                         | $
|                                      |  |  |                             |            |                           |  
|Loss per share:                       |  | 
|Basic and diluted  as reported       |  |  | $                           | (0.06      | )                         | $
|                                      |  |  |                             |            |                           |  
|Basic and diluted  pro forma         |  |  | $                           | (0.06      | )                         | $
|                                      |  |  |                             |            |                           |  

-7-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net Loss Per
Share

Basic
net loss per share is the net loss divided by the  average number of shares outstanding
during the period.  Diluted net loss per share is the net loss divided by the  sum of the
average number of shares outstanding during the  period plus the additional 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 exercise using the 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. Shares issuable pursuant to stock options and
warrants that have not been included in the above  calculations because they are
antidilutive totaled 2,730,751  and 2,659,501 as of June 30, 2005 and 2004, respectively.

2. Stock
Options and Warrants

The
following table summarizes stock option activity  since December 31, 2004:

|                             |  |  |  | Number of
Options |  
|---------------------------- |  |  |  | ----------------- | -
|                             |  |  |  |                   |  
|Balance at December 31, 2004 |  |  |  | 2,620,578         |  
|Options granted              |  |  |  | 10,000            |  
|Options cancelled            |  |  |  | (99,827           | )
|                             |  |  |  |                   |  
|Balance at June 30, 2005     |  |  |  | 2,530,751         |  
|                             |  |  |  |                   |  

As
of June 30, 2005, the Company had warrants  outstanding to purchase 200,000 shares of its
common stock  at $15.00 per share. The warrants are currently exercisable  and expire in
August 2005. No warrants to purchase shares of  the Companys common stock were
issued during the six-month  period ended June 30, 2005.

3. Inventory

Inventory,
at average cost, consists of the following:

|                                            |  |  | June 30,
2005 |           | December 31,
2004 |  
|------------------------------------------- |  |  | ------------- | --------- | ----------------- | -
|                                            |  |  |               |           |                   |  
|Raw materials                               |  |  | $             | 551,162   |                   | $
|Work in process and bulk manufactured goods |  |  |               | 2,054,274 |                   |  
|Finished goods                              |  |  |               | 1,314,390 |                   |  
|                                            |  |  |               |           |                   |  
|Total inventory                             |  |  | $             | 3,919,826 |                   | $
|                                            |  |  |               |           |                   |  

4. Property
and Equipment

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

|                                               |  |  | June 30,
2005 |             | December 31, 
2004 |  
|---------------------------------------------- |  |  | ------------- | ----------- | ------------------ | -
|                                               |  |  |               |             |                    |  
|Equipment                                      |  |  | $             | 12,382,019  |                    | $
|Equipment under capital leases                 |  |  |               | 37,889      |                    |  
|Leasehold improvements                         |  |  |               | 10,798,876  |                    |  
|                                               |  |  |               |             |                    |  
|Total property and equipment                   |  |  |               | 23,218,784  |                    |  
|Less accumulated depreciation and amortization |  |  |               | (10,950,937 | )                  |  
|                                               |  |  |               |             |                    |  
|Net property and equipment                     |  |  | $             | 12,267,847  |                    | $
|                                               |  |  |               |             |                    |  

The
Company recorded depreciation and amortization of  $799,812 and $516,319 for the three
months ended June 30,  2005 and 2004, respectively, and $1,583,648 and $1,045,137  for
the six months ended June 30, 2005 and 2004,  respectively.

-8-

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Accrued
Liabilities

Accrued
liabilities consist of the following:

|                                              |  |  | June 30, 
2005 |           | December 31, 
2004 |  
|--------------------------------------------- |  |  | -------------- | --------- | ------------------ | -
|                                              |  |  |                |           |                    |  
|Compensation and benefits                     |  |  | $              | 319,685   |                    | $
|Research and development field trial expenses |  |  |                | 231,207   |                    |  
|Facility costs                                |  |  |                | 190,566   |                    |  
|Promotions                                    |  |  |                | 25,047    |                    |  
|Sales Allowances                              |  |  |                | 81,486    |                    |  
|Warranty                                      |  |  |                | 75,000    |                    |  
|Other                                         |  |  |                | 124,668   |                    |  
|                                              |  |  |                |           |                    |  
|Total accrued liabilities                     |  |  | $              | 1,047,659 |                    | $
|                                              |  |  |                |           |                    |  

6. Warranty
Liability

The
Company provides a limited warranty to customers  that at the time of the first sale of
its products they  conform to the chemical description on the label and under  normal
conditions are reasonably fit for the purposes  referred to in the directions for use,
subject to certain  inherent risks. The warranty accrual percentage, which has  ranged
between zero and five percent, and warranty liability  are reviewed periodically and
adjusted as necessary, based  on historical experience, the results of product quality
testing and future expectations. There were no changes to  the Companys warranty
liability during the six months ended  June 30, 2005.

7. Major
Customers

Net
product sales to the following distributors  accounted for more than ten percent of net
revenues for the  periods indicated:

|           |  |  | Three Months Ended June 30, |         | Six Months Ended June 30, |  
|---------- |  |  | --------------------------- | ------- | ------------------------- | -
|           |  |  |                             |         |                           |  
|           |  |  | 2005                        |         | 2004                      |  
|           |  |  |                             |         |                           |  
|Customer A |  |  | $                           | 233,000 |                           | $
|Customer B |  |  |                             | 253,000 |                           |  
|Customer C |  |  |                             | --      |                           |  
|Customer D |  |  |                             | **      |                           |  
|Customer E |  |  |                             | **      |                           |  
|Customer F |  |  |                             | --      |                           |  

**
Less than ten percent.

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 2004 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 25, 2005.

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.

-9-

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Overview

We
are a plant health technology company that markets a  line of products based on Eden
Biosciences proprietary  harpin protein technology and manufacturing processes.
These products are marketed under the umbrella brand of  Harp-N-TekTM and are used in
agricultural and horticultural  production as well as the Home & Garden market. We
believe  that Harp-N-Tek products enhance plant health and improve  overall plant
production and output quality. Harpins are  naturally occurring proteins produced by
disease-causing  bacteria that attack plants.  Harpin proteins are not a part  of the
destructive disease complex but instead serve the  beneficial purpose of alerting plants
to the fact that they  are under attack.  They activate signaling receptors present  in
most plants designed to specifically detect the presence  of harpin proteins.  This
warning signal is transmitted  throughout the plant and turns on the plants
intrinsic  ability to protect itself by deploying both growth and  defense responses.
Eden Biosciences Harp-N-Tek products  provide these harmless yet potent
signal-inducing harpin  proteins and protein extracts, which trigger beneficial
responses designed to protect plants, to help plants grow  through stress, to improve
plants uptake of nutrients, and  to enhance the overall level of plant health.

We
have incurred significant operating losses since  inception. At June 30, 2005, we had an
accumulated deficit  of $109.0 million. We incurred net losses of $3.1 million  and $4.3
million for the six months ended June 30, 2005 and  2004, respectively, and annual losses
of $8.9 million in  2004, $11.2 million in 2003 and $23.5 million in 2002. We  expect to
incur significant additional net losses as we  proceed with the commercialization of our
current products  and the development of new products and technologies.

Results of
Operations

Three Months
and Six Months Ended June 30, 2005 and 2004

Revenues

We
generated our first product sales revenue in August  2000. Product sales revenue to date
has resulted primarily  from sales of Messenger, our initial product, and Messenger  STS,
an improved formulation of Messenger introduced in  January 2004, as well as N-Hibit,
ProAct, MightyPlant and  other related products (hereafter referred to
collectively  as Harp-N-Tek products) primarily to distributors in the
United States and Spain. 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 or arrangements
have been satisfied, including  whether collection is reasonably assured. As part of the
analysis of whether all of our significant obligations have  been satisfied or situations
where acceptance provisions or  other contingencies or arrangements exist, we consider
the  following elements, among others:  sales terms and  arrangements, historical
experience and current incentive  programs. Our distributor arrangements provide no price
protection or product-return rights. Product sales revenue  is reported net of applicable
sales allowances, as follows:

|                                         |  |  | Three Months Ended June 30, |           | Six Months Ended June 30, |  
|---------------------------------------- |  |  | --------------------------- | --------- | ------------------------- | -
|                                         |  |  |                             |           |                           |  
|                                         |  |  | 2005                        |           | 2004                      |  
|                                         |  |  |                             |           |                           |  
|Gross product sales                      |  |  | $                           | 2,021,580 |                           | $
|Sales allowances                         |  |  |                             | (344,117  | )                         |  
|Elimination of previously recorded sales |  | 
|allowance liabilities                    |  |  |                             | --        |                           |  
|                                         |  |  |                             |           |                           |  
|Product sales, net of sales allowances   |  |  | $                           | 1,677,463 |                           | $
|                                         |  |  |                             |           |                           |  

Gross
product sales revenue for the second quarter of  2005 was $2,022,000, an increase of
$1,674,000 (481%) from  $348,000 in the same quarter of 2004. Gross product sales for
the first six months of 2005 totaled $3,387,000, an increase  of $2,907,000 (605%) from
$480,000 for the same period of  2004. The increase is a result of sales of Messenger in
foreign markets, sales growth in the home and garden market  and sales of our new
Harp-N-Tek products  N-Hibit, ProAct  and MightyPlant. Sales of new products
produced over 50% of  total revenue in the six months ended June 30, 2005. Sales  in the
quarter and six months ended June 30, 2004 were  negatively impacted by high levels of
inventory in the  channel and free product provided under the price reduction  program.
Sales in the first six months of 2005 were made  primarily to 37 distributors, two of
which accounted for an  aggregate of 27% of net product sales revenue. Sales in the
first six months of 2004 were made primarily to 34  distributors, four of which accounted
for an aggregate of  47% of net product sales revenue. Based on our experience and
seasonality, we expect sales in the second half of 2005 to  be significantly lower than
in the first half of 2005.

-10-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net
product sales revenue from sales to foreign  customers totaled $270,000 and $90,000 in
the three months  ended June 30, 2005 and 2004, respectively, and $534,000 and
$90,000 in the six months ended June 30, 2005 and 2004,  respectively. These sales were
made primarily to  distributors in Europe. In February 2004, we received  approval to
sell Messenger in Spain. We initiated marketing  activities in March 2004, but the
approval was not received  in time to meet initial sales activity. In order to ensure
that an adequate supply of Messenger was quickly disbursed  in the new distribution
channel and to limit the amount of  working capital required by our new distributors at
this  early stage of introduction, we granted flexible and/or  extended payment terms to
distributors in this new market.  Because of this combination of factors, revenues from
these  product deliveries were deferred and will be recognized when  payment is received.
We recognized net revenue of $238,000  from these deliveries when payment was received in
the three  months ended June 30, 2005 and $90,000 in the three months  ended June 30,
2004. We recognized net revenue of $453,000  from these deliveries when payment was
received in the six  months ended June 30, 2005 and $90,000 in the six months  ended June
30, 2004. Gross revenues of $187,000 and cost of  goods sold of $59,000 were deferred at
June 30, 2005 and  will be recognized when payment is received.

Net
sales of Messenger to consumers in the home and  garden market in the United States
totaled $152,000 and  $71,000 in the three months ended June 30, 2005 and 2004,
respectively, and $335,000 and $153,000 in the six months  ended June 30, 2005 and 2004,
respectively. Based on our  experience and seasonality, we expect first half sales of
our home and garden products to represent the substantial  portion of full year 2005
sales.

In
December 2003, we announced a reduction of  approximately 50% in the price of Messenger
and determined  that Messenger STS would sell for approximately the same  price as
Messenger. We also announced to distributors that  we planned to send them additional
ounces of Messenger STS  at no charge in order to reduce the average cost of their
existing inventories of Messenger. In the first half of  2004, we delivered approximately
378,000 ounces of free  Messenger STS. In the last half of 2004, we delivered
approximately 92,000 ounces of free Messenger STS. This free  product substantially
increased channel inventory and  negatively affected our Messenger STS sales to
distributors.  We do not expect distributors that hold significant  inventories of
Messenger STS to place additional orders  until their current inventories are reduced.

Due
to the growing seasons of our targeted crops and our  current portfolio of Harp-N-Tek
products, we expect grower  usage of Harp-N-Tek products 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 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 Harp-N-Tek products 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.

Sales
allowances during the three months ended June 30,  2005 totaled $344,000 (17% of gross
product sales) compared  to $58,000 (17% of gross product sales) in the comparable
period of 2004. Sales allowances for the six months ended  June 30, 2005 and 2004 include
the reduction by $91,000 and  $95,000, respectively, of sales allowance liabilities
recognized in prior quarters that will not be paid because  actual amounts earned by
distributors were less than amounts  previously estimated. Excluding these sales
allowance  reductions, sales allowances during the six months ended  June 30, 2005
totaled $646,000 (19% of gross product sales)  compared to $72,000 (15% of gross product
sales) in the  comparable period of 2004. We expect 2005 sales allowances  to average
approximately 15-20% of total gross product sales  based on current product specific
distributor programs.

Cost of Goods
Sold

Cost
of goods sold consists primarily of the cost of  products sold to distributors, idle
capacity charges and the  cost of products used for promotional purposes. Cost of  goods
sold was $646,000 in the second quarter of 2005,  compared to $493,000 in the second
quarter of 2004. Cost of  goods sold for the first six months of 2005 and 2004 was  $1.2
million. An increase in cost of products sold related

-11-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to higher sales
volumes in 2005 was offset by a reduction in  idle capacity charges resulting from
additional  manufacturing activities in 2005 and the write-off in 2004  of Messenger
labels that were not used due to the  introduction of Messenger STS. We completed our
current  manufacturing operations in the second quarter of this year  and we expect idle
capacity charges to increase in the  second half of 2005.

Research and
Development Expenses

Research
and development expenses consist primarily of  personnel, field trial, laboratory,
regulatory, patent and  facility expenses. Research and development expenses  increased
$259,000 (36%) from $721,000 in the second quarter  of 2004 to $980,000 in the same
quarter of this year. For  the first six months of 2005, research and development costs
were $1.9 million, an increase of $509,000 (36%) from $1.4  million in the same period
last year. The increases were  primarily due to an increase in depreciation and
amortization expense that resulted from reducing the  estimated useful life of leasehold
improvements and certain  equipment at our research facility. We are pursuing  additional
tenants to sublease lab and office space at our  research and administrative building and
we expect to  complete this by December 2005. We have also been engaged in  discussions
with our landlord regarding the possible  termination of this lease.  The landlord has no
obligation  to terminate the lease prior to the end of its term and  there can be no
assurance that we will be able to negotiate  a termination of the lease on acceptable
terms or at all.  If we do terminate the lease, we expect that we would be  required to
make a significant cash payment to the landlord  in connection with the termination.  In
addition, we expect  that we would incur a significant impairment loss on  leasehold
improvements and equipment at the facility and  other significant losses in the quarter
in which the  termination is effective, which would have a material  adverse impact on
our results of operations in that quarter.

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  increased $397,000 (36%) from $1,118,000 in the second  quarter of 2004 to
$1,515,000 in the same quarter of 2005.  For the first six months of 2005, selling,
general and  administrative costs were $2,969,000, an increase of  $574,000 (24%) from
$2,395,000 in the same period last year.  These increases resulted primarily from
additional spending  on advertising and marketing costs for the home and garden  market
and for the introduction of our new products.

Interest Income

Interest
income consists of earnings on our cash and  cash equivalents. Interest income increased
$41,000 from  $99,000 in the first half of 2004 to $140,000 in the same  period of this
year. The change was due to higher interest  rates in 2005 offset by significantly lower
average cash  balances available for investment in the six months ended  June 30, 2005
compared to the same period in 2004.

Income Taxes

We
have generated a net loss from operations for each  period since we began doing business.
As of December 31,  2004, we had accumulated approximately $101.5 million of net
operating loss carryforwards for federal income tax  purposes, which expire between 2009
and 2024, and  approximately $9.1 million in foreign tax net operating loss
carryforwards, which expire between 2006 and 2009. We have  provided a valuation
allowance against our net deferred tax  assets because of the significant uncertainty
surrounding  our ability to realize them. 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

Our
operating expenditures have been significant since  our 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 further 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 June 30, 2005 will be sufficient to  meet our anticipated cash needs
for net losses, working  capital and capital expenditures for more than the next 12
months, although there can be no assurance in that regard.  After the next 12 months, if
net product sales do not  significantly increase, we will have to further reduce
operating expenses or secure additional financing. We may be  unable to obtain adequate
or favorable financing at that  time or at all and may be required to cease operations. In

-12-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

this regard, in
April 2005, we received a delisting warning  letter from the Nasdaq Stock Market
notifying us that the  closing price per share for our common stock was below the  $1.00
minimum bid price for 30 consecutive trading days and  that, as a result, we no longer
meet Nasdaq's continued  listing criteria. Nasdaq provided us with 180 calendar days,  or
until October 3, 2005, to regain compliance.  To regain  compliance with the minimum bid
price requirement, the  closing bid price of our common stock must remain above  $1.00
for a minimum of ten consecutive trading days.  If we  do not regain compliance by
October 3, 2005, which, as of  the date of this report, we have been unable to do, and
are  not eligible to transfer our common stock to The Nasdaq  SmallCap Market and qualify
for an additional 180-day  compliance period, our common stock will be delisted from  The
Nasdaq National Market.  Nasdaq delisting could make it  more difficult for us to raise
capital. The sale of  additional equity securities could result in dilution to our
shareholders.

At
June 30, 2005, our cash and cash equivalents totaled  $9.3 million, a decrease of $2.6
million from the balance of  $11.9 million at December 31, 2004. 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 $1.5 million (37%)  from $4.1 million in the first six
months of 2004 to $2.6  million in the same period of 2005. Net cash used in  operations
in the first six months of 2005 resulted  primarily from a net loss of $3.1 million,
which includes  depreciation and amortization expense of $1.2 million, and  fluctuations
in various asset and liability balances  totaling $740,000. We expect that net cash used
in  operations will continue to be significant.

We
conduct our operations in two primary functional  currencies:  the U.S. dollar and the
euro. 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 and euros, 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 statements  in the six months ended June
30, 2005 or 2004.

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 25, 2005. 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 in which 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 the majority of our products to independent,  third-party distributors. Our
arrangements with those  distributors provide no price protection or product-return
rights. We recognize revenue from product sales, net of  sales allowances, when product
is delivered to our  distributors and all of our significant obligations have  been
satisfied, unless acceptance provisions or other  contingencies or arrangements exist,
including whether  collection is reasonably assured. If acceptance provisions  or
contingencies exist, revenue is recognized after such  provisions or contingencies have
been satisfied. As part of  the analysis of whether all of our significant obligations
have been satisfied or situations where acceptance  provisions or other contingencies or
arrangements exist, we  consider the following elements, among others:  sales terms  and
arrangements, including customer payment terms,  historical experience and current
incentive programs.

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 or  other arrangements. Sales
allowances are estimated and  accrued when the related product sales are recognized or
when services are provided and are paid in accordance with  the terms of the then-current
distributor program agreements  or other arrangements.

-13-

---



EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We
also record, at the time revenue is recognized, a  liability for warranty claims based on
a percentage of  sales. The warranty accrual percentage, which has ranged  between zero
and five percent, and warranty liability are  reviewed periodically and adjusted as
necessary, based on  historical experience, the results of product quality  testing and
future expectations. Changes in our estimate of  the warranty liability are recorded in
cost of goods sold.

Accounts
Receivable and Allowance for Doubtful Accounts

Accounts
receivable balances are reported net of  customer-specific related sales allowances. In
determining  the adequacy of the allowance for doubtful accounts, we  consider a number
of factors, including the age of  outstanding invoices, 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 June 30, 2005, no
allowance for  doubtful accounts was recorded. Changes in the factors above  or other
factors could result in a significant charge.

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.  Changes in the factors above or other
factors could result  in significant additional inventory cost reductions and  write-offs.

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
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 expected 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. Our property and equipment consists  primarily of assets used to
manufacture and sell our  products and assets at our corporate headquarters and  research
facility. For the purpose of assessing asset  impairment, we have grouped all of these
assets together in  one asset group because our corporate headquarters and  research
facility support our manufacturing and sales  activities and do not have a separate
identifiable cash flow.

In
October 2004, the Company began marketing lab and  office space it currently occupies and
estimates it will  sublease substantially all of this space by the end of 2005.  Based on
the current sublease market, the Company believes  that a portion of the leasehold
improvements and certain  equipment related to the lab space will not be recovered  from
the receipt of future sublease payments. Therefore, the  estimated useful life of a
portion of leasehold improvements  and certain equipment related to this lab space has
been  reduced from January 2011, the end of the lease term, to  December 31, 2005. In the
first half of 2005, amortization  and depreciation of $710,000 was included in research
and  development expense in the condensed consolidated statements  of operations and
amortization and depreciation of $710,000  is expected to be recorded over the remainder
of 2005.

Based
upon our most recently completed analysis of net  cash flows expected to be realized from
our remaining  investments in property and equipment, no additional  impairment loss was
recorded. The critical estimates in the  analysis are our ability to significantly
increase sales  over the next five years while controlling operating  expenses at about
current levels over the next four years.  If net product sales do not significantly
increase in the  near term or if expenses significantly increase over the  current level,
a significant impairment loss may need to be  recorded.

Another
critical assumption is that we will continue our  current facility leases.  In this
regard, we have been  engaged in discussions with our landlord regarding the  possible
termination of our lease for 63,200 square feet of  research and office space that runs
through January 2011.  This is the same lease that we have been seeking to sublease
since October 2004 and approximately 34,300 square feet is  currently subleased to
another company.  The landlord has no  obligation to terminate the lease prior to the end
of its

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

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term and there
can be no assurance that we will be able to  negotiate a termination of the lease on
acceptable terms or  at all.  If we do terminate the lease, we expect that we  would be
required to make a significant cash payment to the  landlord in connection with the
termination.  In addition,  we expect that we would incur a significant impairment loss
on leasehold improvements and equipment at the facility and  other significant losses in
the quarter in which the  termination is effective, which would have a material  adverse
impact on our results of operations in that quarter.

Loss on
Facility Subleases

As
of June 30, 2005, we subleased approximately 34,300  square feet of laboratory and office
space to other  companies. One subtenant vacated approximately 7,300 square  feet of
office space in October 2004. As a result, the  Company recorded an additional loss of
$202,000 in 2004. In  determining the loss on these facility subleases, we  considered a
number of factors, including the financial  condition of the subtenants, subtenants investments
in  improvements, amounts of security deposits, estimated time  needed to sublease space
and estimated rents to be  collected. Based on our analysis, we estimate that rents  will
be collected and that one subtenant will exercise a  three-year extension option. Changes
in the factors above or  other factors could result in a significant increase in the
loss.

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.

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 June 30, 2005, we have accumulated  a deficit of $109.0 million. For the six
months ended June  30, 2005, we incurred a net loss of $3.1 million. For the  years ended
December 31, 2004, 2003, 2002, 2001 and 2000, we  had net losses of $8.9 million, $11.2
million,  $23.5 million, $23.7 million and $15.7 million, respectively.  To date,
our revenues have been limited. For example, there  were no sales in the fourth quarter
of 2001 and annual net  sales decreased from $3.5 million in 2001 to $1.9 million in
2002, $1.8 million in 2003 and $1 million in 2004. We expect  our future revenues to come
primarily from the sale of  Messenger STS, employ, MightyPlant, ProAct, N-Hibit and
other products and these sales are highly uncertain.

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 funding our research and  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.

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  further reduce our operating expenses. We believe that the
balance of our cash and cash equivalents at June 30, 2005  will be sufficient to meet our
anticipated cash needs for  net losses, working capital and capital expenditures for
more than the next 12 months, although there can be no  assurance in that regard.

We may have to
reduce or cease 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 or cease all operations.  For
example, we reduced our workforce by 34% in May 2003 and  by 23% in May 2002,
significantly curtailing certain  research and development activities and our European
and  Mexican 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.

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

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UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of the date
of this report, we do not meet the $1.00 minimum bid requirement for continued listing
on The Nasdaq National Market and, as a result, our common stock may be delisted from
The Nasdaq National Market, which could further depress our stock price and make it more
difficult for us to raise capital.

Our
common stock is currently listed on The Nasdaq  National Market. To maintain this
listing, we must satisfy  ongoing listing requirements, including consistently
maintaining a minimum bid price for our common stock of  $1.00 per share or more. In
April 2005, we received a  delisting warning letter from the Nasdaq Stock Market
notifying us that the closing price per share for our common  stock was below the $1.00
minimum bid price for 30  consecutive trading days and that, as a result, we no longer
meet Nasdaq's continued listing criteria. Nasdaq provided us  with 180 calendar days, or
until October 3, 2005, to regain  compliance. To regain compliance with the minimum bid
price  requirement, the closing bid price of our common stock must  remain above $1.00
for a minimum of ten consecutive trading  days. If we do not regain compliance by October
3, 2005,  which, as of the date of this report, we have been unable to  do, and are not
eligible to transfer our common stock to The  Nasdaq SmallCap Market and qualify for an
additional 180-day  compliance period, our common stock will be delisted from  The Nasdaq
National Market. Nasdaq also notes in the  delisting warning letter that the 180-day
period relates  exclusively to the bid price deficiency and that we may be  delisted
during the 180-day period for failure to maintain  compliance during this period with any
other listing  requirements. If we were to lose our Nasdaq National Market  status, we
would likely seek listing of our common stock in  the over-the-counter market, which is
viewed by many  investors as a less liquid marketplace. Among other things,  our common
stock may then constitute penny stock, which  would place increased
regulatory burden upon brokers, making  them less likely to make a market in our stock.
Loss of our  Nasdaq National Market status could also make it more  difficult for us to
raise capital or complete acquisitions  and would also complicate compliance with state
blue sky laws.

We currently
depend on products that are based on the same new technology, and our development and
commercialization of those products may not be successful.

For
the immediately foreseeable future we will be  dependent on the successful development
and  commercialization of six products in our Harp-N-Tek product  portfolio (Messenger,
Messenger STS, ProAct, N-Hibit, employ  and MightyPlant) which are based on the same new
technology.  We have had only limited sales of Messenger since its  introduction in August 2000
and we began marketing employ in  November 2003, Messenger STS in January 2004,
MightyPlant in  April 2004 and N-Hibit and ProAct in early 2005. These six  products may
not be commercially successful. Our products  may not prove effective or economically
viable for all crops  or markets. In addition, because our products have not been  put to
widespread commercial use over significant periods of  time, no assurance can be given
that adverse consequences  might not result from their use, 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 our products and other harpin-based  products we may develop are unproven.
Our products have not  gained, and may not gain, commercial acceptance or success.  If we
are unable to successfully achieve broad market  acceptance of our products, 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 our  products,
including our ability to implement and maintain an  appropriate pricing policy and
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 Messenger STS, and independent
distributors hold significant inventories of Messenger STS.

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,  734,000
ounces in 2003 and 800,000 ounces in 2004. During  the first six months of 2005, we
estimate that distributors  sold 574,000 ounces to growers, compared to 517,000 ounces
in the same period of 2004. We estimate that Messenger and  Messenger STS inventory held
by distributors at June 30,  2005 was approximately 289,000 ounces. We sent distributors
approximately 470,000 ounces of additional Messenger STS for  free in 2004 as part of an
effort to lower the average cost  of their year-end Messenger inventories by
approximately  50%. This free product significantly increased channel  inventory and
negatively affected our sales to distributors.  We do not expect distributors that hold
significant  inventories of Messenger or Messenger STS to place  additional orders for
our products until their current  inventories are reduced, which will adversely affect
our  sales and results of operations.

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Inability to
develop adequate sales and marketing capabilities could prevent us from successfully
commercializing our current products 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 our
products. 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 our
products 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 our
current products and other  products we may develop, could impair our ability to gain
market acceptance of our products and cause our sales to  suffer.

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 our current products and any other  products
we may develop. We have engaged several independent  distributors and retailers for the
distribution and sale of  our products. Our future revenue growth will depend in large
part on our success in establishing and maintaining these  sales and distribution
channels. We are continuing to  develop 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 our products as a threat to various product
lines currently being manufactured or distributed by them.  In addition, the distributors
and retailer 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.

Two
distributors accounted for an aggregate of 27% of  net product sales revenue in first six
months of 2005 and  four different distributors accounted for an aggregate of  58% of our
net sales revenue in the same period of 2004. If  any distributor that purchases a
significant amount of our  products were to discontinue purchasing our products 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.

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

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We are largely
in the development stage 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 stage of development, our novel  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  develop 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.

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 our current products, and any other products we may
develop, in other countries. We recently began selling our  products in Spain. We have
been conducting field trials in  several international locations and we have personnel in
Europe to develop operations in that region. 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, such as different
regulatory  requirements and reduced protection of intellectual property  rights, which
could adversely affect our ability to compete  in international markets and could have a
negative effect on  our operating results.

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 our current  products or any
other products we may develop. For example,  from September to December 2003 we offered
growers a buy  one, get one free promotion and in January 2004 we  introduced
Messenger STS at a price that is approximately  50% of the 2003 price of Messenger.

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.

Age and actual
storage conditions of our products may cause them to degrade, which could adversely
affect market acceptance of our products or our results of operations.

Our
products are currently being stored in large  quantities under various conditions by us
and by  distributors. Most of this material was manufactured in  2000, 2001, 2002 and
2004. We have conducted two year  long-term stability studies that indicate Messenger is
stable for at least two years under our recommended storage  conditions. Further, the
results of recently completed  re-testing of Messenger manufactured in 2000 indicate that
it is still stable with similar biological activity and  performance as of the original
manufacture date. No  assurance can be given, however, that actual storage  conditions
will not cause our products quality to degrade  over a shorter time period.

The inventory
of Messenger held by us and by distributors is aging and may not meet our quality
standards, which could adversely affect market acceptance of our products and our
results of operations.

Our
inventory at June 30, 2005 includes approximately  2.9 million ounces of Messenger and
Messenger STS that was  manufactured in 2000, 2001, 2002 and 2004. In addition, we
estimate that distributors own approximately 289,000 ounces  of Messenger and Messenger
STS that was manufactured between  2000 and 2004. Due to the age of this inventory, we
conducted limited re-testing of Messenger samples produced  in 2000 and 2001. In 2003, we
voluntarily recalled and  replaced approximately 10,000 ounces of Messenger owned by
distributors that our limited re-testing indicated had  degraded below our quality
control standards.

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Although
results of our limited re-testing indicate that  a portion of inventory manufactured in
2000, 2001 and 2002  continues to meet our quality standards, no assurance can be  given
that this material will continue to meet our quality  standards, nor can we predict if or
when this material might  fail to meet our quality standards. If our limited  re-testing
program indicates that additional material has  degraded below our quality standards, we
may have to record  additional inventory write-downs and may choose to replace  any such
product owned by distributors or growers, which  could adversely affect the market
acceptance of our products  or our results of operations.

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

The
field testing, manufacture, sale and use of plant  health products, including Messenger,
Messenger STS, ProAct,  N-Hibit, employ, MightyPlant and other products we may  develop,
are extensively regulated by the EPA and/or state,  local and foreign governmental
authorities. These  regulations substantially increase the cost and time  associated with
bringing our current products 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 required to obtain regulatory approval from  certain state and foreign regulatory
authorities before we  market our products 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 and Messenger STS in 48
states  for use on virtually all crops for crop production and  disease management, and
to sell Messenger and Messenger STS  in California for use on citrus for yield
enhancement and on  strawberries, citrus, grapes and fruiting vegetables, such  as
tomatoes and peppers, for disease management, we have not  received approval of
Messenger, Messenger STS or N-Hibit for  use on other crops in California. In Colorado,
Messenger is  approved for use on virtually all crops for home and garden  use. ProAct
has been approved for use in 45 states,  including Colorado, and is pending approval in
all other  states except California. We have also received  authorization to sell
Messenger, or are exempt from formal  authorization requirements, in at least 26 foreign
countries, including Spain, Germany, Mexico, China 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. Our registration  in Spain is limited to the
sale of Messenger for use on  tomatoes, peppers, cucumbers, melons, strawberries,
lettuce,  citrus and olives. The EPA has approved the use of Messenger  STS and we are
currently in the process of obtaining foreign  registrations for this product, but there
can be no  assurance that such registrations will be obtained on  acceptable terms.

Neither
employ nor MightyPlant are pesticides and they  are not regulated by the EPA. However,
several states and  foreign governments regulate both products. Many states  regulate
employ as a plant amendment or soil conditioner and  some of these states and foreign
regulatory authorities  require the submission and review of performance data and  other
information prior to granting their approval. We are  authorized to sell employ in 33
states and no foreign  countries. MightyPlant is classified by most states as a
fertilizer and we are now in the process of obtaining state  approvals for its sale. We
are authorized to sell  MightyPlant in 46 states and no foreign countries. However,
there can be no assurance that we will obtain approval to  sell employ or MightyPlant in
other states or foreign  countries.

If
we significantly modify our current products designs  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 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 our current products
and any other products  we may develop, these 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 or the occurrence of

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BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 our current
products or  any other products we may develop and commercialize.

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 and  commercially unproven. It may take years
and significant  capital investment to develop viable enhancements of our  current
products or any new 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.

Our operating
results are likely to fluctuate, resulting in an unpredictable level of sales and
earnings and 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 and  annual net product sales decreased 70% from 2001 to 2004.
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  protection
and yield enhancement products depend on planting  and growing seasons, climatic
conditions and 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 products 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 our products  carried in inventory by independent
distributors and  retailers, the amount of free product to be given to  retailers, the
size and timing of significant customer  transactions, the delay or deferral of customer
use of our  products and the fiscal or quarterly budget cycles of our  customers. For
example, customers may purchase large  quantities of our products under a promotion such
as buy  one, get one free 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.

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.

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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 our current
products or any other products we may develop in the future.

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 our current products do 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 our products from genetically modified plants and products,
public concerns over those products could negatively impact market acceptance of our
products.

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 our products and other  topically applied harpin technologies from
genetically  modified plants and products. Our products are topically  applied and do not
modify the plants DNA. If the public or  our customers perceive our products as
products that  genetically modify plants, market acceptance and  registration of our
products 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 our current
products 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.

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Rapid changes
in technology could render our current products 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 our current products and any other products we may  develop and to
design, develop and market new products that  keep pace with new technological and
industry developments.

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 our current products 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 our  current products in commercial
quantities would be impaired  or prohibited, which could have an adverse effect on our
sales.

Inability to
produce high quality products could impair our business.

To
be successful, we will have to manufacture our  current products 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
products and our  sales would likely suffer. Moreover, we do not have back-up
manufacturing systems and, as a result, the failure of any  component required in the
manufacturing process could delay  or impair our ability to manufacture our products 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 products 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 perform adequately, we could be unable to meet demand and our
revenues could be adversely affected.

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 our current products 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.

-22-

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

If
we experience growth and add manufacturing,  marketing, sales, field development or other
personnel, both  domestically and internationally, during the  commercialization of our
current products, 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,
manufacturing 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 and we do not expect  interest rate fluctuations to
significantly affect our  results of operations. 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

Under  the
supervision  and  with  the  participation  of  management,  including  our  President
and  Chief  Executive  Officer and our Chief Financial  Officer,  we have carried out  an
evaluation  of  the  effectiveness  of  our  disclosure  controls and procedures  (as
defined in Rule  13a-15(e)  under  the  Securities  Exchange  Act of  1934)  as of the
end of the  fiscal  quarter  covered  by  this  report.  Based  on  that  evaluation,
our  President  and Chief  Executive  Officer and  our Chief  Financial  Officer
concluded  that our  disclosure  controls and  procedures  are  effective as of the end
of such  quarter.  There have been no changes in our  internal  control  over financial
reporting  during the quarter  covered by this  report  that  have  materially  affected,
or  are  reasonably  likely  to  materially  affect,  our  internal  control  over
financial reporting.

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 Bioscience, 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 $18.6 million to expand
and enhance our  manufacturing, research and development and administration  facilities,
and approximately $63.6 million for working  capital and general corporate purposes. The
remaining  portion of the net offering proceeds has been invested in  cash 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.

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EDEN
BIOSCIENCE CORPORATION AND SUBSIDIARIES

NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The
2005 annual meeting of shareholders of Eden  Bioscience Corporation was held on May 17,
2005.  At the  annual meeting, our shareholders were asked to elect one  director to our
Board of Directors to serve for a term  expiring at our 2008 annual meeting of
shareholders. The  following director was elected at the annual meeting:

|                 |  |  |  | Votes For  |  |  | Votes Withheld | 
|---------------- |  |  |  | ---------- |  |  | -------------- | 
|                 |  |  |  |            |  |  |                | 
|Richard N. Pahre |  |  |  | 23,183,330 |  |  | 126,600        | 

There
were no broker nonvotes in the election of  directors since brokers who hold shares for
the accounts of  their clients have discretionary authority to vote such  shares with
respect to election of directors.

Item 6.
Exhibits

Exhibits
31.1 and 31.2 are being filed as part of this  quarterly report on Form 10-Q.  Exhibits
32.1 and 32.2 are  being furnished with this quarterly report on Form 10-Q.

|ExhibitNumber |  | Description
|------------- |  | -----------

|10.1 | * | Exclusive
License Agreement, dated May 1, 1995, between Cornell Research Foundation , Inc.  and the
Registrant, as amended as of June 2, 2000
|---- | - | ---------------------------------------------------------------------------------------------------------------------------------------------

|31.1 |  | Rule
13a-14(a) Certification (Chief Executive Officer).
|---- |  | -------------------------------------------------------

|31.2 |  | Rule
13a-14(a) Certification (Chief Financial Officer).
|---- |  | -------------------------------------------------------

|32.1 |  | Section
1350 Certification (Chief Executive Officer).
|---- |  | -----------------------------------------------------

|32.2 |  | Section
1350 Certification (Chief Financial Officer).
|---- |  | -----------------------------------------------------

|* |  | The
Exclusive License Agreement was originally filed as  Exhibit 10.1 to Eden Biosciences
Registration Statement  on Form S-1, as amended, initially filed on July 7,  2000.
Portions of the License Agreement filed with the  Form S-1 were redacted pursuant to a
confidential  treatment request granted by the SEC and effective  through July 7, 2005.
The License Agreement is being  filed in unredacted form with this Form 10-Q.  In
accordance with Rule 202 of Regulation S-T, portions of  the exhibit have been filed in
paper format pursuant to  a continuing hardship exemption.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

|      |               | EDEN
                                                              BIOSCIENCE
                                                              CORPORATION
|----- | ------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: | June 26, 2005 |                                                                                                                                                        
|      |               |                                                                                                                                                        
|      |               | By:                                                                                                                                                    
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|      |               |                                                                                                                                                        
|      |               |                                                                                                                                                        
|      |               |                                                                                                                                                        
|      |               |                                                                                                                                                        
|      |               | By:                                                                                                                                                    
|      |               |                                                                                                                                                        
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|      |               |                                                                                                                                                        

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