<PAGE>   1
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                          UNITED STATES SECURITIES AND
                               EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             -----------------------

                                    FORM 10-Q

    (Mark One)

        [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                        OR

        [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                FOR THE TRANSITION PERIOD FROM ________ TO ________

                         COMMISSION FILE NUMBER 0-31499

                           EDEN BIOSCIENCE CORPORATION
             (Exact name of registrant as specified in its charter)

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

                         11816 NORTH CREEK PARKWAY NORTH
                         BOTHELL, WASHINGTON 98011-8205
          (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 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days.

Yes   [X]      No   [ ]

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 AUGUST 1, 2001
     Common Stock, $.0025 Par Value                     23,977,347

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<PAGE>   2
                           EDEN BIOSCIENCE CORPORATION

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>      <C>                                                                                                   <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements..................................................................................  2

         Condensed Balance Sheets as of December 31, 2000 and June 30, 2001....................................  2

         Condensed Statements of Operations for the Three Months and Six Months Ended June 30, 2000
          and 2001.............................................................................................  3

         Condensed Statements of Cash Flows for the Six Months Ended June 30, 2000 and 2001....................  4

         Notes to Unaudited Condensed Financial Statements.....................................................  5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations ................  7

         Factors That May Affect Our Business, Future Operating Results and Financial Condition................ 10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk............................................ 19

PART II. OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds............................................................. 19

Item 4.  Submission of Matters to a Vote of Security Holders................................................... 19

Item 6.  Exhibits and Reports on Form 8-K...................................................................... 20

SIGNATURES .................................................................................................... 20
</TABLE>


                                     - 1 -
<PAGE>   3

                        PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

                          EDEN BIOSCIENCE CORPORATION

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          December 31,        June 30,
                                                              2000              2001
                                                          -------------     -------------
                                                                              (Unaudited)
<S>                                                       <C>               <C>
                                        ASSETS

Current assets:
   Cash and cash equivalents                              $  86,556,865     $  63,428,310
   Accounts receivable                                          595,470         1,778,721
   Inventory                                                  1,321,241         2,539,655
   Other current assets                                         236,458           681,486
                                                          -------------     -------------
    Total current assets                                     88,710,034        68,428,172
Property and equipment, net                                   9,479,872        19,460,846
Other assets                                                    310,715         1,754,402
                                                          -------------     -------------
    Total assets                                          $  98,500,621     $  89,643,420
                                                          =============     =============

                         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                       $   1,415,730     $   2,275,109
   Accrued expenses                                           3,238,398         3,500,561
   Current portion of capital lease obligations                 275,316           262,505
                                                          -------------     -------------
    Total current liabilities                                 4,929,444         6,038,175
Capital lease obligations, net of current portion               330,394           221,597
Other long-term liabilities                                          --           204,228
                                                          -------------     -------------
    Total liabilities                                         5,259,838         6,464,000
                                                          -------------     -------------
Commitments and contingencies

Shareholders' equity:
   Convertible preferred stock, $.01 par value,
    10,000,000 shares authorized; no shares designated
    at December 31, 2000 and June 30, 2001                           --                --
   Common stock, $.0025 par value, 100,000,000 shares
    authorized; issued and outstanding shares -
    23,894,680 at December 31, 2000; 23,977,347 at
    June 30, 2001                                                59,737            59,943
   Additional paid-in capital                               131,844,183       132,131,819
   Deferred stock option compensation expense                   (28,625)          (19,385)
   Cumulative translation adjustment                                 --           (18,149)
   Accumulated deficit                                      (38,634,512)      (48,974,808)
                                                          -------------     -------------
    Total shareholders' equity                               93,240,783        83,179,420
                                                          -------------     -------------
    Total liabilities and shareholders' equity            $  98,500,621     $  89,643,420
                                                          =============     =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                     - 2 -
<PAGE>   4
                           EDEN BIOSCIENCE CORPORATION

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                          Three Months Ended June 30,        Six Months Ended June 30,
                                         ------------     ------------     ------------     ------------
                                             2000             2001             2000             2001
                                         ------------     ------------     ------------     ------------
<S>                                      <C>              <C>              <C>              <C>
Revenues:
  Product sales                          $         --     $    875,486     $         --     $  4,716,438
  Sales allowances                                 --         (300,032)              --       (1,659,561)
                                         ------------     ------------     ------------     ------------
    Net revenues                                   --          575,454               --        3,056,877
                                         ------------     ------------     ------------     ------------
Operating expenses:
  Cost of goods sold                               --        2,202,462               --        3,177,065
  Research and development                  2,852,738        3,439,446        5,116,156        5,684,173
  Selling, general and administrative         994,243        3,586,436        1,910,928        6,459,213
                                         ------------     ------------     ------------     ------------
    Total operating expenses                3,846,981        9,228,344        7,027,084       15,320,451
                                         ------------     ------------     ------------     ------------
Loss from operations                       (3,846,981)      (8,652,890)      (7,027,084)     (12,263,574)
                                         ------------     ------------     ------------     ------------
Other income (expense):
  Interest income                             117,989          805,525          278,450        1,970,663
  Interest expense                            (35,093)         (22,410)         (73,575)         (47,385)
                                         ------------     ------------     ------------     ------------
       Total other income (expense)            82,896          783,115          204,875        1,923,278
                                         ------------     ------------     ------------     ------------
Net loss                                 $ (3,764,085)    $ (7,869,775)    $ (6,822,209)    $(10,340,296)
                                         ============     ============     ============     ============
Historical basic and diluted net
  loss per share                         $      (1.31)    $      (0.33)    $      (2.38)    $      (0.43)
                                         ============     ============     ============     ============
Historical weighted average
  shares outstanding used to
  compute net loss per share                2,862,661       23,953,703        2,862,661       23,931,113
                                         ============     ============     ============     ============
Pro forma basic and diluted net
  loss per share                         $      (0.23)                     $      (0.41)
                                         ============                      ============
Weighted average shares
  outstanding used to compute
  pro forma net loss per share             16,656,765                        16,656,765
                                         ============                      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                     - 3 -
<PAGE>   5
                            EDEN BIOSCIENCE CORPORATION

                        CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Six Months Ended June 30,
                                                            -----------------------------
                                                                2000             2001
                                                            ------------     ------------
<S>                                                         <C>              <C>
Cash flows from operating activities:
  Net loss                                                  $ (6,822,209)    $(10,333,984)
  Adjustments to reconcile net loss
  to cash used in operating activities:
   Depreciation and amortization                                 395,197          528,032
   Amortization of stock option compensation expense              46,434            9,240
   Interest income on subscriptions receivable                    (2,050)              --
   Loss (gain) on disposition of fixed assets                      2,852             (765)
   Increase in deferred rent payable                                  --          171,728
  Changes in assets and liabilities:
   Accounts receivable                                                --       (1,183,134)
   Inventory                                                          --       (1,218,414)
   Other assets                                                 (771,658)      (1,890,422)
   Accounts payable                                             (156,334)         862,203
   Accrued expenses                                            1,156,370       (1,303,673)
   Other liabilities                                                  --           32,500
                                                            ------------     ------------
     Net cash used in operating activities                    (6,151,398)     (14,326,689)
                                                            ------------     ------------
Cash flows used in investing activities:
  Purchases of property and equipment                         (1,447,365)      (8,944,113)
  Proceeds from disposal of equipment                                 --            2,733
                                                            ------------     ------------
     Net cash used in investing activities                    (1,447,365)      (8,941,380)
                                                            ------------     ------------
Cash flows from financing activities:
  Proceeds from capital equipment leases                              --           19,418
  Payments on capital equipment leases                          (169,343)        (141,026)
  Offering costs                                                 (14,657)              --
  Proceeds from issuance of stock                                     --          209,858
  Proceeds from exercise of stock options                        399,200           40,965
  Proceeds from exercise of common stock warrants                885,662           37,019
                                                            ------------     ------------
     Net cash provided by (used in) financing activities       1,100,862          166,234
                                                            ------------     ------------
Effect of foreign currency exchange rates on cash
  and cash equivalents                                                --          (26,720)
                                                            ------------     ------------
Net decrease in cash and cash equivalents                     (6,497,901)     (23,128,555)
Cash and cash equivalents at beginning of period              13,107,250       86,556,865
                                                            ------------     ------------
Cash and cash equivalents at end of period                  $  6,609,349     $ 63,428,310
                                                            ============     ============
Supplemental disclosures:
  Cash paid for interest                                    $     73,575     $     47,385
  Accrued expenses for construction in process                        --        1,565,767
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                     - 4 -
<PAGE>   6
                           EDEN BIOSCIENCE CORPORATION

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
        (INFORMATION AS OF AND FOR THE THREE MONTHS AND SIX MONTHS ENDED
                      JUNE 30, 2000 AND 2001 IS UNAUDITED)

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

         EDEN Bioscience Corporation ("EDEN(R)" or the "Company") was
incorporated in the State of Washington on July 18, 1994. EDEN is a plant
technology company focused on developing, manufacturing and marketing innovative
natural products for agriculture. Prior to August 2000, the Company was a
development stage company. In August 2000, the Company began sales of its
initial product, Messenger(R).

BASIS OF PRESENTATION

         The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements and notes should be read in
conjunction with the financial statements and notes for the year ended December
31, 2000 included in the Company's Annual Report on Form 10-K, which was filed
with the Securities and Exchange Commission on March 29, 2001.

         In the opinion of management, the unaudited condensed 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, 2001 are not necessarily indicative of the results expected for the full
fiscal year or for any future period.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT

         Equipment and leasehold improvements are stated at historical cost.
Improvements and replacements are capitalized. Maintenance and repairs are
expensed when incurred. The provision for depreciation and amortization is
determined using straight-line and accelerated methods, which allocate costs
over estimated useful lives of two to 20 years. On January 1, 2001, the Company
adopted the units-of-production method of depreciation for manufacturing
equipment placed into service after that date. Equipment leased under capital
leases is depreciated over the shorter of the equipment's estimated useful life
or lease term, which ranges between three and five years.

REVENUE RECOGNITION

         The Company recognizes revenue from product sales, net of sales
allowances, when the products are shipped and all significant obligations of the
Company have been satisfied. Product sales revenue in the six months ended June
30, 2001 resulted from sales to six distributors, one of which accounted for


                                     - 5 -
<PAGE>   7
                           EDEN BIOSCIENCE CORPORATION

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
        (INFORMATION AS OF AND FOR THE THREE MONTHS AND SIX MONTHS ENDED
                      JUNE 30, 2000 AND 2001 IS UNAUDITED)

$3.4 million (72%) of product sales revenue and $1.48 million (83%) of accounts
receivable at June 30, 2001. Sales to another distributor accounted for $603,000
(13%) of product sales revenue for the six months ended June 30, 2001 and
$292,000 (16%) of accounts receivable at June 30, 2001.

NET LOSS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                             As of June 30,
                                                         ----------------------
                                                            2000         2001
                                                         ---------    ---------
<S>                                                      <C>          <C>
Options to purchase common stock ......................  2,468,000    2,649,537
Warrants to purchase common stock .....................    334,056      290,805
</TABLE>

         Pro forma basic and diluted net loss per share is calculated assuming
the conversion of all convertible preferred stock at the beginning of the
periods presented. The actual conversion of the preferred stock occurred on
September 26, 2000, the effective date of the registration statement filed in
connection with the company's initial public offering.

2. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                           December 31,       June 30,
                                                               2000             2001
                                                           ------------     ------------
<S>                                                        <C>              <C>
Equipment .............................................    $  4,246,033     $ 10,228,921
Equipment under capital leases ........................       1,174,262        1,137,501
Leasehold improvements ................................       1,291,927        4,740,149
Construction in progress ..............................       5,246,799        6,687,101
                                                           ------------     ------------
                                                             11,959,021       22,793,672
Less accumulated depreciation and amortization ........      (2,479,149)      (3,332,826)
                                                           ------------     ------------
   Net property and equipment .........................    $  9,479,872     $ 19,460,846
                                                           ============     ============
</TABLE>

3. ACCRUED EXPENSES

         Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                            December 31,       June 30,
                                                                2000             2001
                                                            ------------      ----------
<S>                                                         <C>               <C>
Compensation and benefits .............................      $1,542,700       $1,730,374
Field trial expenses ..................................         550,013          578,841
Sales and marketing expense ...........................         415,267          144,766
Other .................................................         730,418        1,046,580
                                                             ----------       ----------
   Total accrued expenses .............................      $3,238,398       $3,500,561
                                                             ==========       ==========
</TABLE>


                                     - 6 -
<PAGE>   8
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 financial statements and accompanying notes included in this
document and the 2000 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 29, 2001.

         The following discussion of our financial condition and results of
operations 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" 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 Form 10-Q. The cautionary statements
made in this document should be read as being applicable to all related
forward-looking statements wherever they appear in this document.

OVERVIEW

         We are a plant technology company focused on developing, manufacturing,
and marketing innovative natural products for agriculture. We have a
fundamentally new, patented and proprietary technology that we believe will
significantly improve plant protection and crop production worldwide. We believe
our technology and initial product offer innovative solutions versus traditional
plant protection and crop enhancement alternatives and, importantly, avoid the
substantial and growing public resistance to chemical pesticides and gene-based
biotechnology. Commercial sales of Messenger, our initial product, began in
August 2000.

         We have incurred significant operating losses since inception. As of
June 30, 2001, we had an accumulated deficit of $49.0 million. We incurred a net
loss of $7.9 million for the quarter ended June 30, 2001, an increase of
$4.1 million (108%) from $3.8 million in the comparable quarter of 2000. The net
loss for the six months ended June 30, 2001 was $10.3 million, or $3.5 million
(51%) more than the $6.8 million loss for the six months ended June 30, 2000. We
expect to incur additional losses as we expand and enhance our research and
development activities and sales and marketing capabilities in the United States
and in foreign countries.

RESULTS OF OPERATIONS

Three Months and Six Months Ended June 30, 2000 and 2001

Revenues

         We generated our first revenue from product sales in August 2000, when
we began selling our first commercial product, Messenger. Product sales revenue
in the three months and six months ended June 30, 2001 totaled $875,000 and
$4.7 million, respectively. No product sales revenue was recorded in the first
six months of 2000. Sales in the first six months of 2001 were made to six
distributors, of which two accounted for more than 10% of revenue during that
period. Sales to United Agri Products, a subsidiary of ConAgra Foods, Inc.,
accounted for $3.4 million (72%) of product sales revenue for the six months
ended June 30, 2001 and $1.48 million (83%) of accounts receivable at June 30,
2001. Sales to Western Farm Service accounted for $603,000 (13%) of product
sales revenue for the six months ended June 30, 2001 and $292,000 (16%) of
accounts receivable at June 30, 2001. We believe sales for the first


                                     - 7 -
<PAGE>   9
six months of 2001 were significantly lower than our expectations due primarily
to the severity of the growers' economic conditions in our initially targeted
markets, principally cotton and citrus.

Sales Allowances

         Sales allowances represent allowances granted to independent
distributors for sales and marketing support, product warehousing and delivery
and information exchange. Sales allowances were $300,000 (34% of product sales)
for the three months ended June 30, 2001 and $1.7 million (36% of product sales)
for the six months then ended. No such allowances were granted in the first six
months of 2000. We believe the sales allowance percentage will range between 30%
and 40% as we proceed with the commercialization of Messenger.

Cost of Goods Sold

         Cost of goods sold includes the cost of raw materials, labor and
overhead required to manufacture Messenger. Cost of goods sold was $2.2 million
for the three months ended June 30, 2001 and $3.2 million for the six months
then ended. No such costs were incurred in the first six months of 2000. During
the quarter ended June 30, 2001, we recorded a charge to costs of goods sold of
$1.4 million related to the write-down of inventory consisting primarily of bulk
Messenger product. The write-down is the result of the following general
factors. First, the demand for Messenger was significantly less than our
expectations, which we believe is primarily due to the severity of the growers'
economic conditions in our initially targeted markets. Although we scaled back
our manufacturing activities during the quarter, inventory levels still exceeded
our requirements based on our current nine-month revenue forecasts. Second, we
intend to replace our current Messenger product formula with an improved formula
that we expect will be approved by the EPA within the next nine months, at which
time we expect to begin commercial production and sales of the new formula.
Last, we eliminated bulk material that did not meet our highest standards as a
result of a change, since rectified, in the manufacturing process at our new
facility. Based on these factors, we recorded the charge in the second quarter
of 2001. Also included in second quarter cost of goods sold are costs incurred
while our manufacturing plant was not in production. We expect to continue to
incur idle capacity costs for the next several months.

Research and Development Expenses

         Research and development expenses consist primarily of personnel and
related costs, field trials and laboratory, regulatory, patents and facility and
equipment expenses. Research and development expenses were $3.4 million for the
second quarter of 2001, an increase of $587,000 (20%) from $2.8 million in the
comparable quarter of 2000. For the first six months of 2001, research and
development expenses were $5.7 million, an increase of $568,000 (11%) over
$5.1 million for the same period in 2000. This increase was primarily due to an
increase in the number of international field development personnel and
increased field trial costs incurred to pursue foreign regulatory approval. We
expect to incur additional increases in research and development expenses as we
expand our domestic and international field trial programs, pursue additional
international regulatory approvals, develop new products and enhance our
harpin-related technology platform.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses consist primarily 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 were
$3.6 million for the second quarter of 2001, an increase of $2.6 million (260%)
from $1.0 million in the comparable quarter


                                     - 8 -
<PAGE>   10
of 2000. For the first six months of 2001, selling, general and administrative
expenses were $6.5 million, an increase of $4.6 million (242%) over $1.9 million
for the same period in 2000. This increase is due primarily to costs associated
with hiring additional sales, marketing and administrative personnel and
continuance of our 2001 sales and marketing campaign to build Messenger brand
awareness and to educate growers on the benefits of using Messenger. We expect
selling, general and administrative expenses to decrease in the third and fourth
quarters of this year as the growing season ends, and to increase in 2002 as we
enter a new growing season and as we continue to hire additional personnel to
support anticipated growth and the commercialization of Messenger, enhance
information systems and expand our sales and marketing capability.

Interest Income

         Interest income consists of earnings on our cash and cash equivalents.
Interest income was $806,000 for the second quarter of 2001, an increase of
$688,000 (583%) from $118,000 in the comparable quarter of 2000. For the first
six months of 2001, interest income was $2.0 million, an increase of
$1.7 million (612%) over $278,000 for the same period in 2000. The increased
interest income resulted from the investment of net proceeds received in our
initial public offering, which closed on October 2, 2000. Interest income is
affected by interest rate movements and will decline as we use cash in
operations and purchase property and equipment.

Interest Expense

         Interest expense consists of interest we pay on capital leases used to
finance our equipment purchases. Interest expense was $22,000 for the quarter
ended June 30, 2001, a decrease of $13,000 (37%) from $35,000 in the comparable
quarter of 2000. For the six months ended June 30, 2001, interest expense was
$47,000, a decrease of $27,000 (36%) from $74,000 for the same period in 2000.
This decrease resulted from lower average principal balances as we paid down our
capital lease obligations. We expect interest expense to fluctuate as we pay off
existing capital leases and enter into new capital leases.

Income Taxes

         We have realized a net loss from operations in each period since we
began doing business. As of December 31, 2000, we had accumulated approximately
$36.0 million of net operating loss carryforwards for federal income tax
purposes. These carryforwards expire between 2009 and 2015. 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

         Since our inception, we have financed our operations primarily through
the sale of equity securities. Prior to October 2000, the majority of our
capital was raised through private sales of our preferred stock, which resulted
in net proceeds of approximately $36.5 million. In October 2000, we received
$91.5 million of net proceeds from the initial public offering of 6.67 million
shares of our common stock. To a lesser extent, we have financed our equipment
purchases through lease financings. As of June 30, 2001, we had cash and cash
equivalents of $63.4 million.

         Net cash used in operations for the six months ended June 30, 2001 was
$14.3 million, an increase of $8.1 million (131%) from $6.2 million in the
comparable period of 2000. These operating cash outflows resulted primarily from
losses from operations and an increase in working capital and other assets.


                                     - 9 -
<PAGE>   11
         Investing activities for the six months ended June 30, 2001 used cash
of $8.9 million, an increase of $7.5 million (536%) over $1.4 million in the
comparable period of 2000. This increase is due primarily to property and
equipment purchased and leasehold improvements made in connection with a major
expansion of our manufacturing facilities, which was substantially completed
during the first quarter of this year, and our research and development and
administration facility, which is expected to be completed in the third quarter
of this year. Capital expenditures for the remainder of this year are expected
to total $5 million to $6 million.

         Financing activities for the six months ended June 30, 2001 provided
cash of $166,000, a decrease of $934,000 (85%) from the $1.1 million provided in
the comparable period of 2000. This decrease resulted primarily from a reduction
of approximately $1.0 million in proceeds from the exercise of common stock
options and warrants and the issuance of common stock. As of June 30, 2001, our
future minimum payments under capital lease obligations totaled $571,000 and are
payable over the next five years.

         We expect to increase our operating expenditures as we expand our sales
and marketing capabilities and research and development activities. In addition,
we expect to make capital expenditures during the remainder of this year of up
to approximately $6 million, primarily to complete construction of our new
research and development and administration facility. These operating and
capital expenditures will use a material amount of our cash resources. We
believe that our existing cash and cash equivalents of $63.4 million at June 30,
2001 will be sufficient to meet our anticipated cash needs for operating
activities, working capital and capital expenditures for at least the next 12
months. Our future capital requirements will depend on the success of our
operations.

         In the future, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financings or from other sources. We may
be unable to obtain adequate or favorable financing at that time.

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 ARE AT AN EARLY STAGE OF DEVELOPMENT AND ARE SUBJECT TO THE RISKS OF A NEW
ENTERPRISE AND THE COMMERCIALIZATION OF A NEW TECHNOLOGY.

         We began our operations in 1994 and have recently initiated marketing
activities designed to promote the distribution and sale of our first product,
Messenger, in the United States. We have not proven our ability to commercialize
any products. Our early stage of development, the newness of our technology and
the uncertain nature of the market in which we compete make it difficult to
assess our prospects or predict our future operating results. We are subject to
risks and uncertainties frequently encountered in the establishment of a new
business enterprise, particularly in the rapidly changing market for plant
protection and yield enhancement products. These risks include our inability to
transition from a company with a research focus to a company capable of
supporting commercial activities, including manufacturing, regulatory approval
and compliance, marketing, sales, distribution and quality control and
assurance. Our inability to adequately address these risks could cause us to be
unprofitable or to cease operations.


                                     - 10 -
<PAGE>   12
WE CURRENTLY DEPEND ON A SINGLE PRODUCT AND OUR DEVELOPMENT AND
COMMERCIALIZATION OF THAT PRODUCT MAY NOT BE SUCCESSFUL.

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

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

OUR PRODUCT DEVELOPMENT EFFORTS, WHICH ARE BASED ON AN INNOVATIVE TECHNOLOGY
THAT IS COMMERCIALLY UNPROVEN, MAY NOT BE SUCCESSFUL.

        Our harpin and harpin-related technology is new, in an early stage of
development and commercially unproven. It may take years and significant capital
investment to develop viable enhancements of Messenger or new products 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 difficult to produce on a
         large scale or will be uneconomical to market;

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

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

INABILITY TO PRODUCE A HIGH QUALITY PRODUCT AS WE INCREASE OUR MANUFACTURING
CAPACITY COULD IMPAIR OUR BUSINESS.

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

         We intend to continue to make changes to our manufacturing processes
and facilities in order to improve the efficiency and quality of our
manufacturing activities. We cannot guarantee that we will be successful in this
regard, and specifically that the changes we make will improve our manufacturing
activities. We may encounter difficulties in the production of our current or
future products, including


                                     - 11 -
<PAGE>   13
problems involving manufacturing yields, quality control and assurance,
shortages of qualified personnel and compliance with regulatory requirements.
Even if we are successful in developing our manufacturing capability and
processes, we do not know whether we will satisfy the requirements of our
distributors or customers.

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, 2001, we have accumulated a
deficit of approximately $49.0 million. For the six-months ended June 30, 2001,
we had a net loss of $10.3 million and for the years ended December 31, 2000 and
1999, we had net losses of $15.7 million and $9.4 million, respectively. To
date, our revenues have been limited. We expect our future revenues to come
primarily from the sale of Messenger and other products, and these sales are
highly uncertain. We expect to continue to devote substantial resources to
expand our research and development activities, maintain and operate our
manufacturing facility and expand our sales and marketing activities for the
commercialization of Messenger worldwide. As a result, we will need to generate
significant revenues to achieve and maintain profitability. We may never
generate profits, and if we do become profitable, we may be unable to sustain or
increase profitability on a quarterly or annual basis.

IF OUR ONGOING OR FUTURE FIELD TRIALS ARE UNSUCCESSFUL, WE MAY BE UNABLE TO
ACHIEVE MARKET ACCEPTANCE OR OBTAIN REGULATORY APPROVAL OF OUR PRODUCTS.

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

RAPID CHANGES IN TECHNOLOGY COULD RENDER OUR PRODUCTS 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
products and to design, develop and market new products that keep pace with new
technological and industry developments.

INABILITY TO DEVELOP ADEQUATE SALES AND MARKETING CAPABILITIES COULD PREVENT US
FROM SUCCESSFULLY COMMERCIALIZING MESSENGER AND OTHER PRODUCTS WE MAY DEVELOP.

         We currently have limited sales and marketing experience and
capabilities. Our internal sales and marketing staff consists primarily of sales
and marketing specialists and field development specialists who are trained to
educate growers and independent distributors on the uses and benefits of
Messenger.


                                     - 12 -
<PAGE>   14
We will need to further develop our sales, marketing and field development
capabilities in order to enhance our commercialization efforts, which will
involve substantial costs. These specialists require a high level of technical
expertise and knowledge regarding Messenger's capabilities and other plant
protection and yield enhancement products and techniques. We cannot assure you
that our specialists and other members of our sales and marketing team will
successfully compete against the sales and marketing operations of our current
and future competitors that may have more established relationships with
distributors and growers. Failure to recruit, train and retain important sales
and marketing personnel, such as our sales and marketing specialists and field
development specialists, or the inability of new sales and marketing personnel
to effectively market and sell Messenger and other products we may develop,
could impair our ability to gain market acceptance of our products and cause our
sales to suffer.

WE MAY BE UNABLE TO ESTABLISH AND MAINTAIN SUCCESSFUL RELATIONSHIPS WITH
INDEPENDENT DISTRIBUTORS, WHICH COULD ADVERSELY AFFECT OUR SALES.

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

         Two of our distributors accounted for an aggregate of approximately 85%
of our product sales for the six months ended June 30, 2001 and 99% of our
accounts receivable balance as of June 30, 2001. One distributor, United Agri
Products, a subsidiary of ConAgra Foods, Inc., accounted for approximately 72%
of our product sales revenue and 83% of our accounts receivable balance, and
Western Farm Service Company accounted for approximately 13% of our product
sales revenue and 16% of our accounts receivable balance as of June 30, 2001. We
anticipate that we will continue to extend credit to these distributors. If
either of these distributors, or any other distributor which 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
either of these distributors, or of any other distributor to which we extend a
significant amount of credit, to pay its account, now or in the future, may harm
our operating results.

INABILITY TO OBTAIN REGULATORY APPROVALS, OR TO COMPLY WITH ONGOING AND CHANGING
REGULATORY REQUIREMENTS, COULD DELAY OR PREVENT SALES OF MESSENGER AND OTHER
POTENTIAL PRODUCTS.

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


                                     - 13 -
<PAGE>   15
         In April 2000, we received conditional approval from the EPA to market
and sell our first product, Messenger, in the United States. We are required,
however, to obtain regulatory approval from certain state and foreign regulatory
authorities before we market Messenger in those jurisdictions. Although we are
authorized to sell Messenger in 48 states on virtually all crops and in
California on strawberry, we have not yet received approval for Messenger in
Colorado or for use on other crops in California. We have also received
authorization to sell Messenger in Ecuador, though we have not yet obtained
authorization to sell Messenger in any other foreign countries. Certain of these
jurisdictions may apply different criteria than the EPA in connection with their
approval processes.

         If we make significant enhancements in Messenger's design as a result
of our ongoing research and development projects, additional EPA 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 additional requirements will not be added by the
EPA that could make the procedure more time-consuming and costly for our future
products.

         Even after we obtain all necessary regulatory approvals to market and
sell Messenger and other products we may develop, Messenger and other such
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 receipt of
newly discovered information, including an inability to comply with regulatory
requirements, the occurrence of unanticipated problems with the product or other
reasons. In addition, federal, state and foreign regulations relating to crop
protection products developed through biotechnology are subject to public
concerns and political circumstances, and, as a result, regulations have changed
and may change substantially in the future. These changes may result in
limitations on the manufacturing, marketing or use of Messenger or other
products that we may develop and commercialize.

INABILITY TO SATISFY THE CONDITIONS OF OUR EPA AND CALIFORNIA REGISTRATIONS
COULD LIMIT OR PREVENT SALES OF MESSENGER.

         The EPA conditioned its approval of our Messenger registration on the
requirement that we conduct four additional studies by April 19, 2001 that are
designed to further demonstrate the safety of our product. These studies were
completed and submitted to the EPA on April 16, 2001. In addition, our
registration to sell Messenger in California, which is limited to sales for use
on strawberry for disease management, is conditioned on the requirement that we
submit data from several additional studies within various required timeframes
over the next two years. If we are unable to conduct the studies required by the
California Department of Pesticide Regulation in a timely manner, or if the
results of the studies are unacceptable to the EPA or the CDPR, as applicable,
the EPA or the CDPR may revoke its approvals or impose limitations on the use of
Messenger that could have a negative impact on our sales. Because EPA and state
approvals are required for commercial sales of Messenger, the loss of such
approvals for any reason, including our inability to satisfy the conditions of
our EPA registration, would prevent further sales of Messenger.

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


                                     - 14 -
<PAGE>   16
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 products could be delayed or withheld or we may be required to limit or
cease our research and development or manufacturing activities or pay a monetary
fine. If we were required to limit or cease our research and development
activities, our ability to develop new products would be impaired. In addition,
if we were required to limit or cease our manufacturing activities, our ability
to produce Messenger in commercial quantities would be impaired or prohibited,
which would have an adverse effect on our sales.

IF THIRD-PARTY MANUFACTURERS FAIL TO ADEQUATELY PERFORM, WE COULD BE UNABLE TO
MEET DEMAND AND OUR REVENUES COULD BE IMPAIRED.

         We currently depend on independent manufacturers to perform certain
portions of our production process. We intend to engage, and we are in
discussions with, additional third-party manufacturers to perform this process.
Any failure or delay in the ability of our current or any future manufacturers
to provide us with material they produce could adversely affect our ability to
produce Messenger in the quantities necessary to satisfy the requirements of our
distributors or customers, or could increase our costs associated with obtaining
such materials. In addition, the time and resources that our current or future
third-party manufacturers devote to our business are not within our control. We
cannot ensure that our current or future third-party manufacturers will perform
their obligations to meet our quality standards, that we will derive cost
savings or other benefits from our relationships with them or that we will be
able to maintain a satisfactory relationship with them on commercially
acceptable terms. 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.

INTERNATIONAL EXPANSION WILL SUBJECT US TO RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS, WHICH COULD ADVERSELY AFFECT BOTH OUR DOMESTIC AND OUR INTERNATIONAL
OPERATIONS.

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

INABILITY TO ADDRESS STRAIN ON OUR RESOURCES CAUSED BY GROWTH COULD RESULT IN
OUR INABILITY TO EFFECTIVELY MANAGE OUR BUSINESS.

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


                                     - 15 -
<PAGE>   17
THE HIGH LEVEL OF COMPETITION IN OUR MARKET MAY RESULT IN PRICING PRESSURES,
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 and future competitors, which
may result in price reductions, reduced margins and the inability to achieve
market acceptance of our products.

         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. Further, many of
the large agri-chemical companies have a more diversified product offering than
we do, which may give these companies an advantage in meeting customer needs by
enabling them to offer integrated solutions to plant protection and yield
enhancement.

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 RESEARCH AND DEVELOPMENT EFFORTS.

         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 a
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 and obtain and use information that we regard
as proprietary. We also cannot guarantee that other parties will not
independently develop our know-how or otherwise obtain access to our technology.

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

         Patent law is still evolving relative 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


                                     - 16 -
<PAGE>   18
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 PRODUCTS.

        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 product does not infringe the proprietary
rights of any third parties, third parties could assert infringement claims
against us in the future. Any litigation or interference proceedings, regardless
of their outcome, would probably be costly and require significant time and
attention of our key management and technical personnel. Litigation or
interference proceedings could also force us to:

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

    -    pay damages; or

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

IF WE DO NOT ADEQUATELY DISTINGUISH MESSENGER FROM GENETICALLY MODIFIED PLANTS
AND CERTAIN OTHER PRODUCTS, PUBLIC CONCERNS OVER THOSE PRODUCTS COULD NEGATIVELY
IMPACT MARKET ACCEPTANCE OF MESSENGER.

         Claims that genetically engineered products are unsafe for consumption
or pose a danger to the environment have led to public concerns and negative
public attitudes, particularly in Europe. We intend to distinguish Messenger and
harpin-related technologies from products that genetically modify plants. While
our technology does involve genetic modification in the process of manufacturing
Messenger, Messenger and harpin-related technologies are topically applied and
do not genetically modify the plant's DNA. If the public or potential customers
perceive Messenger as a genetically modified product, Messenger may not gain
market acceptance. Similarly, countries that have imposed more restrictive
regulations on genetically modified plants, including Japan and certain members
of the European Union, may perceive Messenger as a genetically modified product.
If so, regulators in those countries may impose more restrictive regulations on
Messenger, which could delay, limit or impair our ability to market and sell
Messenger in those countries.

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 any products we 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
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


                                     - 17 -
<PAGE>   19
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 in the normal course of business.

INABILITY TO RETAIN OUR KEY EMPLOYEES AND OTHER SKILLED MANAGERIAL AND TECHNICAL
PERSONNEL COULD IMPAIR OUR ABILITY TO MAINTAIN AND EXPAND OUR BUSINESS.

         We are highly dependent on the efforts and abilities of our current key
managerial and technical personnel, particularly Jerry L. Butler, our Chief
Executive Officer and President, and Dr. Zhongmin Wei, our Vice President of
Research. Our success will depend in part on retaining the services of Mr.
Butler and Dr. 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 and technical personnel or to attract
additional qualified personnel could, among other things, delay our product
development and marketing and sales efforts. Although Mr. Butler and Dr. Wei
have signed agreements with us that limit their ability to compete directly with
us in the future, nothing prevents either of them from leaving EDEN. Moreover,
in our field, competition for qualified management and technical personnel is
intense. In addition, many of the companies with which we compete for
experienced personnel have greater financial and other resources than we do. As
a result of these factors, we may be unable to recruit, train and retain
sufficient qualified personnel.

WE MAY HAVE TO REDUCE OPERATIONS IF WE ARE UNABLE TO MEET OUR FUNDING
REQUIREMENTS.

         We will require substantial additional funding to continue our research
and development activities, maintain and operate our manufacturing facilities
and commercialize products worldwide. 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 and manufacturing programs. We believe that our
existing capital resources will be sufficient to support our operations for at
least the next year. 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 may not be available to us on acceptable terms.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE, RESULTING IN AN UNPREDICTABLE
LEVEL OF SALES AND EARNINGS AND POSSIBLY IN A DECREASE IN OUR STOCK PRICE.

         Our operating results for a particular quarter or year are likely to
fluctuate, which could result in uncertainty surrounding our level of sales and
earnings and possibly result in a decrease in our stock price. Numerous 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 are dependent on planting and growing seasons,
climatic conditions, economic and other variables, which we expect to result in
substantial fluctuations in our quarterly sales and earnings. For example,
weather-related events such as droughts and floods, severe heat and frost, hail,
tornadoes and hurricanes could decrease demand for our product and any future
products we may develop and have an adverse impact on our operating results from
quarter to quarter. In addition, most of our expenses, such as employee
compensation and lease payments for facilities and equipment, are relatively
fixed. Our expense levels are based, in part, on our expectations regarding
future sales. As a result, any shortfall in sales relative to our expectations
could cause significant changes in our operating results from quarter to
quarter. Other factors may also contribute to the unpredictability of our
operating results, including the 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 in a particular quarter to store and
use over long periods of time, or time their purchases to


                                     - 18 -
<PAGE>   20
coincide with the availability of capital, which may cause significant
fluctuations in our operating results for a particular quarter or year.

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 a
foreign currency. Therefore, our direct exposure to interest rate and foreign
exchange fluctuation is currently not material to our results of operations. We
believe that the market risk arising from holdings of our financial instruments
is not material.

                           PART II -- OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

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

     To date, of the net offering proceeds, we have used approximately
     $12.4 million to expand and enhance our manufacturing and research and
     development facilities, and approximately $16.6 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)  The 2001 annual meeting of shareholders of EDEN Bioscience Corporation was
     held on May 17, 2001.

(b)  The following directors were elected into three classes:

<TABLE>
<CAPTION>
     Class                                       Name                                  For          Withheld
     -----                                       ----                               ----------      --------
<S>                                              <C>                                <C>             <C>
     Class I Directors to serve one-             Oscar C. Sandberg                  18,377,779       183,874
     year terms expiring in 2002                 John W. Titcomb, Jr.               18,378,479       183,174

     Class II Directors to serve two-            Albert A. James                    18,434,779       126,874
     year terms expiring in 2003                 Agatha L. Maza                     18,378,179       183,474

     Class III Directors to serve three-         Jerry L. Butler                    18,090,653       471,000
     year terms expiring in 2004                 Jon E. M. Jacoby                   18,435,179       126,474
                                                 William T. Weyerhaeuser            18,434,979       126,674
</TABLE>

     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.


                                     - 19 -
<PAGE>   21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

(a)  Exhibits.

<TABLE>
<CAPTION>
      EXHIBIT
       NUMBER                                  DESCRIPTION
      -------                                  -----------
<S>              <C>
        10.15   Lease, dated May 29, 2001, between S/I North Creek I, LLC and the Registrant
        11.1    Statement re computation of per share loss.
</TABLE>

(b)  Reports on Form 8-K.

     There were no reports on Form 8-K filed during the three months ended June
     30, 2001.

                                    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: August 14, 2001

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


                                     - 20 -