UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




---

FORM 10-K



---



| |  |                                                       
| |  | ------------------------------------------------------
| |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
	THE

SECURITIES EXCHANGE ACT OF 1934.


For the fiscal year ended December 31, 2000.



| |  |                                                           
| |  | ----------------------------------------------------------
| |  | 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 0-31275

LARGE SCALE BIOLOGY CORPORATION

(Exact name of registrant as specified in its
charter)


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

3333 Vaca Valley Parkway, Suite 1000, Vacaville, CA
95688

(Address of principal executive offices and
zip code)


(707) 446-5501

(Registrants telephone number, including
area code)


Securities registered pursuant to Section 12(b) of the
Act: None

Securities registered pursuant to Section 12(g) of the
Act:

Common Stock, $0.001 par Value


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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of common stock held
by non-affiliates of the Registrant was $89.5 million as of
March 23, 2001.

The number of shares outstanding of
Registrants common stock as of March 23, 2001:

|                              |  |                             
|----------------------------- |  | ----------------------------
|Class                         |  | Number of Shares Outstanding
|                              |  |                             
|Common Stock $0.001 par value |  | 24,525,740                  

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive
proxy statement, which is expected to be filed not later than
120 days after the Registrants fiscal year ended
December 31, 2000, to be delivered in connection with the
Registrants Annual Meeting of Stockholders, are
incorporated by reference into Part III of this
Form 10-K.









---






PART I




Item 1. Business

Overview

Large Scale Biology Corporation is using its proteomics and
functional genomics technologies to develop products which we
believe will allow diseases to be rapidly and correctly
diagnosed, and treated with safe and effective personalized
therapies which can be efficiently delivered. We are focused on
proteins, the fundamental nanomachines of biology
that carry out the myriad functions necessary to keep us alive,
and when made incorrectly or in the wrong amounts can lead to
disease. All biological processes, including diseases and
responses to therapeutics, involve changes in proteins.

Our technologies are in three major areas:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | Proteomics the study of proteins in living
        organisms;                                                 
|
| |  | Functional genomics the study of how, when,
        where and which proteins are made in living organisms; and
|
| |  | Biomanufacturing the production of proteins.                                                                  

We believe that we can apply our technologies to enable the
transformation of information on proteins and gene function into
product opportunities, such as drugs, drug targets,
therapeutics, diagnostics, the evaluation of drug effectiveness
and toxicity and the production of therapeutic proteins.

From our inception in 1987 until February 1999, our main focus
was the development of our GENEWARE technology, described below.
In February 1999, we acquired our proteomics subsidiary and
since the acquisition, we use our proteomics and functional
genomics technologies to develop products that are proteins or
that impact proteins.

Developments in the Year 2000

In fiscal year 2000 we accomplished the following:



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Initial public offering In the third quarter
        of 2000, we raised approximately $89 million from the
        initial public offering and sale of our common stock, or IPO.                                                                                                 
|
| |  | Phase I clinical trial commenced In November
        2000, we began a Phase I clinical trial of our
        GENEWARE-produced vaccines for the treatment of
        non-Hodgkins lymphoma.                                                                                      
|
| |  | First version of the HUMAN PROTEIN INDEX, or HPI,
        completed In December 2000, we completed the
        first version of the HPI representing all the major tissues of
        the body.                                                                                  
|
| |  | Intellectual Property Patents were issued in
        each of the key components of our technologies, and we filed
        patent claims covering over 150 unique genes that confer
        important agricultural traits derived from our functional
        genomics technology.

Scientific Background

All living things are made up of one or more cells. Although
scientists still have much to learn about how cells actually
function, we do know that all cells have several basic
components. Inside each plant and animal cell is a nucleus,
which contains deoxyribonucleic acid, or DNA, that makes up the
genetic code. Genes are composed of DNA, and when a gene is
turned on, or expressed, the genetic code is copied and
converted into a cell component called messenger ribonucleic
acid, or mRNA. This messenger carries the genetic code to a
specific part of the cell, which is outside the nucleus and is
where proteins are made. Beyond carrying the genetic code for a
protein, mRNA is not thought to be functional.

The proteins that are produced from the genetic code are the
essential components of cells. Changes either in protein
structure, quantity and location occur in all diseases,
including those that are due to genetic defects. Therefore, we
believe that proteomics will become crucial in discovering and
developing drugs that treat disease, and in predicting,
diagnosing and monitoring diseases. Proteins can also serve as
therapeutics themselves; a well-known example is insulin.

1



---



We believe that biotechnology is moving from the era of gene
discovery into an era focused on identifying the functions of
the proteins that genes produce. Determining function involves
the discovery of the role or relationship that a gene or a
protein has with a particular biological process and the
consequences of modulating its activity. Gene function cannot
necessarily be inferred from its DNA sequence or mRNA levels, or
reliably derived from comparison to other genes of known
function. Discovering gene functions requires the integration of
gene sequence and protein function. We believe our key
technologies, ProGEx and GENEWARE, address these needs. In
addition, we believe that our biomanufacturing technology will
enable us to produce commercially valuable proteins rapidly and
cost effectively.

Our Proteomics Technology

ProGEx is our automated, high-throughput system that shows the
protein composition, or proteome, of cells and tissues. This
automated system requires minimal human attention during
operation. High throughput means many units may be processed on
a routine basis. Protein composition is a listing of the
specific proteins present in tissues and cells, and their
amounts. We use our ProGEx system to rapidly identify and
quantify proteins found in normal human tissues and cells and
the changes in proteins that are caused by diseases or by the
use of particular drugs. We believe that proteomics will become
very important in discovering and developing therapeutics, and
in predicting, diagnosing and monitoring diseases. We believe
that our ProGEx system provides information that is currently
unavailable using genomics technologies alone and that this
information is more practical than that which can be obtained
with many alternative approaches to studying proteins that exist
today.

We are using our ProGEx system to develop products which include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Human Protein Index, or HPI, database  our database
	of the detailed protein composition of all normal human tissues
	and cells;                                                                                                                                                                                                                                                                        
|
| |  | Molecular Anatomy and Pathology, or MAP, database 
	our database that describes the changes in protein composition
	associated with disease;                                                                                                                                                                                                                                                            
|
| |  | Molecular Effects of Drugs, or MED, database  our
	database that describes changes in protein composition
	associated with the administration of therapeutics and other
	treatments;                                                                                                                                                                                                                    
|
| |  | Marker Proteins  proteins that are significantly
	correlated with a specific disease or the use of a therapeutic,
	or that can be used as drug targets, therapeutics or diagnostics;                                                                                                                                                                                                                    
|
| |  | Protein Chips  protein chips used as commercial
	research products to identify specific proteins for drug
	development, diagnose disease and determine the effect of drugs.
	A discrete device or platform in which a series of
	analytical tests for proteins are performed simultaneously on a
	single sample utilizing an array of protein specific antibodies
	is referred to as a protein chip.

Our ProGEx system is based on the integration of a series of
methods that begins with our proprietary sample preparation and
separation process that is followed by the use of our
two-dimensional gels, mass spectrometry and sophisticated
software for storing and analyzing biological data. ProGEx gels
separate the proteins in complex mixtures, such as those
obtained from cell or tissue samples. This is achieved using a
two-step protein separation technique. Proteins are separated
first along one dimension according to their composition and
then along a second dimension according to their size. This
results in a rectangular map on which individual proteins appear
as small spots. The size of each spot in a ProGEx gel indicates
the relative amount of a particular protein present in the
sample.

We then use mass spectometry to identify the proteins separated
by our ProGEx gels. Mass spectrometry is a physical measurement
technique that measures the masses or molecular sizes of
proteins and fragments of proteins. We use our proprietary,
high-throughput, robotic system to selectively remove protein
spots from ProGEx gels and to fragment the proteins. The mass of
each protein fragment is measured by mass spectrometry. This
data can then be used to identify the protein. We also use mass
spectrometry to characterize unknown proteins.

Our ProGEx system generates large amounts of data that must be
effectively organized into databases to allow for its efficient
use. Bioinformatics is the use of computer software to store and
analyze biological data. Our proprietary KEPLER bioinformatics
software allows us to analyze and integrate this data into our

2



---





In February 2001, to expand our proteomics capacity, we
completed a state-of-the-art facility in Germantown, Maryland.
We believe this new 53,000 sq. ft. facility is the worlds
most automated center dedicated to quantitative proteomics. We
believe that our new facility will enable us to correlate our
high-throughput proteomics capabilities with our proprietary
gene function discovery and protein manufacturing technologies.
We believe that this linkage will relate the function of genes
to normal and diseased cells and tissues and will accelerate the
identification of drug targets and proteins that can be used as
drugs.

We believe the automated nature of our ProGEx system removes the
variability inherent in more traditional, manually operated
proteomics systems. This allows us to achieve highly
reproducible results which are crucial when comparing data over
time from the numerous types of drug treatments and diseased
tissues in our databases. The high degree of resolution we
obtain using our ProGEx system enables us to separate individual
proteins out of complex mixtures, which is critical for the
efficient identification of marker proteins that may be useful
as drug targets or diagnostics. Traditional methods are
generally incapable of separating and identifying the low
abundance proteins that we are able to detect and characterize
with our ProGEx system.

Our Functional Genomics Technology

Our GENEWARE technology is a modified viral vector system used
to insert genes rapidly and temporarily into host organisms for
gene discovery, gene function analysis and protein production.
Our GENEWARE viral vectors carry a gene sequence of interest
into a cell of a host organism. The gene sequence is converted
into mRNA inside the nucleus of the cell. The mRNA then moves
outside the nucleus to the cytoplasm where it is translated into
protein. Our GENEWARE technology does not use the traditional
methods of inserting a gene into the genome of the host
organism. To discover gene function, we insert a gene into the
GENEWARE vector that is then inoculated onto a plant causing
changes that we analyze. Our GENEWARE technology allows us to
turn on or turn off protein production from unknown gene
sequences, thereby enabling us to determine the function and
potential commercial use of those genes and proteins.

Current applications of our GENEWARE technology are to:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Identify gene sequences;                                                           
|
| |  | Determine gene functions; and                                                      
|
| |  | Manufacture therapeutic proteins, vaccines and other
	commercially useful proteins.

Biomanufacturing

Our GENEWARE technology also allows us to manufacture
therapeutic proteins, peptides and other molecules in plants. We
believe that our GENEWARE technology offers significant time and
cost advantages over traditional genetic engineering systems
because it does not require alteration of the genome of the host
organism. We have a manufacturing facility in Owensboro,
Kentucky for the custom production of protein products using
GENEWARE technology, and we are in the process of obtaining FDA
approval for pharmaceutical grade production.

Since 1991, we have conducted USDA-approved field trials to
demonstrate that our GENEWARE technology is environmentally
safe. We believe that our GENEWARE technology is environmentally
safe because the viral vector and the genes we insert cannot be
incorporated into the plant genome and, thus, cannot be
transmitted to the next generation of the plant in the seed or
pollen. Our GENEWARE viruses eventually lose the foreign gene
that has been inserted and the virus then reverts to a weakened
version of the naturally occurring virus.

3



---



Strategy

Our principal objective is to commercialize products and
technologies in the field of human healthcare as we establish a
leadership position in proteomics, functional genomics and
biomanufacturing. We plan to meet this objective principally
through multiple commercial collaborations with pharmaceutical,
biotechnology, chemical and other life science companies in the
fields of proteomics and functional genomics.

The key elements of our strategy include the following:

Become the definitive source of information about human
proteins.We are developing our HPI database, and we
completed the first version of the HPI in December 2000. It
includes information about approximately 115,000 proteins that
represent all of the major tissues of the human body. Based on
results of protein characterization obtained in our
high-throughput mass spectrometry facility, we estimate that the
HPI currently covers the protein products of 18,000 human genes.
Recent estimates of the total number of genes present in a human
range between 28,000 and 120,000. The rapid progress made in
sequencing the entire human genome has created additional
opportunities for us to integrate our proprietary protein
information with information on the function of human genes. We
intend to derive revenues from multiple sources using our HPI
database. We plan to offer value-added information to
collaborators, based on the depth of information and relational
capabilities of our databases. We also intend to use our
databases in our internal research and development projects to
identify new drug targets; that is, proteins that can be used as
drugs and diagnostics. The HPI will be used in identifying
proteins for the purposes of developing therapeutics and protein
chips for research, drug development and diagnosis of disease.

Identify potential drug targets, therapeutic proteins and
diagnostics.We are integrating our proprietary proteomic
and genomic technologies to identify potential drug targets and
proteins that can be used as therapeutics and diagnostics. We
have expanded the utility of our GENEWARE technology for use in
human and animal systems from its initial use to discover and
determine the function of plant genes. We intend to
commercialize these applications with collaborators as well as
apply them to our internal research and development projects.

Become the leading provider of protein information for
protein chips and other diagnostic tools.With our ProGEx
technology we can identify proteins, known as markers, that
correlate with diseases or the effects of drugs. Our short-term
strategy is to license these marker proteins individually to
collaborators interested in using them as drug targets or as
diagnostic tools. Our intermediate-term strategy is to provide
protein information for protein chips. We believe that protein
chips and other diagnostics will enable health care
professionals and others to measure critical health and
drug-related conditions quickly and affordably for research and
diagnosis of disease. We have established a collaboration with
Biosite Diagnostics Incorporated, or Biosite, to develop
antibodies from our protein markers that can be used in protein
chips and other diagnostic tools.

Clinically test our first therapeutic product.We are
conducting a clinical trial to ascertain the safety of our
patient-specific vaccines for the treatment of
non-Hodgkins lymphoma produced using our GENEWARE system.
The Phase I clinical trial to determine safety of the
vaccine began in November 2000 and is being conducted at
Stanford University Hospital. We intend to establish a
collaboration for the further development and commercialization
of this vaccine once effectiveness is established in later
clinical trials.

Commercialize our protein production technology.Our
biomanufacturing technology is based on our GENEWARE technology.
It allows us to rapidly and efficiently produce proteins in
plants that can be used as drugs, vaccines and diagnostics. We
intend to manufacture our own proteins, and we will also seek to
manufacture proteins for our customers. Part of the value of
proteins discovered using our proteomics technology will be
obtained by manufacturing these proteins ourselves for the
treatment of diseases. We have successfully produced a number of
our own candidate therapeutic proteins, including our
patient-specific vaccines for the treatment for
non-Hodgkins lymphoma and an enzyme known as
alpha-galactosidase, which may be a treatment for Fabrys
disease.

4



---



Commercial Opportunities

ProGEx applications

Identification of disease-specific marker proteins for use as
drug targets and diagnostics.We use our ProGEx system to
obtain information about proteins from thousands of cell and
tissue samples in a matter of weeks. This process takes
significantly longer using traditional methods. With our ProGEx
system we can produce pictures of the proteomes from normal and
diseased cell and tissue samples that we can compare to identify
marker proteins associated with disease. These marker proteins
are potential drug targets or diagnostics. This is a critical
step in the drug discovery and development process and is a
difficult and labor-intensive task to perform using traditional
methods. We also are correlating our proteomic information with
genomic information on gene function to identify drug targets
and therapeutic proteins. We expect to derive value from marker
proteins by licensing them as potential drug targets, content
for protein chips or as diagnostic tools to numerous
collaborators, as well as developing protein therapeutics
ourselves.

Monitoring and predicting specific drug effects.We use
our ProGEx system to obtain a picture of the proteome from a
patient, laboratory animal, cell or tissue sample before and
after treatment with a specific drug to identify the effects of
that drug on the proteome. The binding of a specific drug to its
protein target typically affects the abundance or properties of
numerous proteins in a cell or tissue sample. These changes in
protein levels and properties generally correlate with the
therapeutic action and toxic side effects, if any, of the
specific drug. We believe that understanding these changes will
allow us to predict the therapeutic and toxic effects of
specific drug candidates. We intend to form collaborations with
pharmaceutical and biotechnology companies to use our technology
to monitor and predict the effects of drug candidates in
development.

Expansion of our proteomics databases.We are using our
ProGEx system to expand our HPI, MAP and MED databases. In order
to mine the extensive information in the databases, which
consists of millions of protein measurements, we have developed
a unique proteomic database architecture and advanced
bioinformatics software tools, which allow us to correlate
information from all three of our databases. We intend to derive
revenue by using the databases to identify novel drug targets,
therapeutic proteins and diagnostic marker proteins for use by
us and our collaborators.

GENEWARE applications

We use our GENEWARE technology to discover the function of genes
and to produce proteins. We have built a database of information
about gene function, initially in plants, and are applying this
technology to other organisms. Some of the commercial
applications of our GENEWARE technology include:

Identifying the function of human genes.We use our
GENEWARE technology to deliver target genes into human and other
mammalian cell cultures. We examine the specific structural
biochemical and physiological effects of expressing or
inactivating genes in mammalian cells. We intend to integrate
our genomic information on gene function with our proteomic
databases by correlating the function of genes with proteomic
information from normal and diseased cells and tissues to
identify drug targets and therapeutic proteins.

Identifying the function of plant genes.We use our
GENEWARE technology for the rapid, simultaneous screening of
entire plant genomes of major commercial crops in significantly
less time than can be done using traditional technologies. We
are able to routinely screen 400 unique genes per day and
identify their functions in plants based on focused,
high-throughput robotic tests. We are currently commercializing
this capability in collaboration with The Dow Chemical Company
and Dow AgroSciences, LLC, or collectively, Dow, and expect to
form other collaborations in agriculture, industrial chemistry,
forestry and horticulture.

Producing proteins on a large scale. We have developed
technology for the large-scale recovery and purification of
protein products produced in plants. We use our GENEWARE
technology to insert a gene into a plant so that the plant
produces the protein of interest. We harvest the plants and put
them through a series of industrial processes to rapidly
separate and purify the protein product. We have successfully
produced and purified a number of potential protein therapeutic
products including patient-specific vaccines against
non-Hodgkins lymphoma, currently in a Phase I
clinical trial, and alpha-galactosidase, which may be a
treatment for Fabrys disease.

5



---



Collaborations

We structure our current collaborations in a variety of ways. We
obtain immediate funding in the form of ongoing committed
research and development payments and, in some cases, technology
access fees, from our collaborators. We also seek to share in
the long-term value of the products that we assist our
collaborators in developing through the retention of certain
product rights and from royalty fees from the sale of products
developed using our technologies. Other collaborations take the
form of alliances to jointly commercialize product applications
evolved from combining specific technologies of each company. We
generated $23.3 million in revenues in 2000 from these
arrangements.

Several large pharmaceutical companies including Glaxo Wellcome
PLC, Procter & Gamble Co. and Novartis AG have
collaborated with us on specific proteomics projects in
pharmaceutical research and development. Biotechnology
companies, such as Genentech, Inc., have also conducted research
with us. We also have had research programs with numerous
government agencies. We currently have approximately nine
ongoing research and technology development programs, no one of
which, other than the Dow collaboration described below, is
believed to be material to our business.

We established a three-year collaboration with Dow in September
1998 for its exclusive use of our GENEWARE technology for
functional genomics in selected agricultural and industrial
chemical categories. We and Dow have identified commercially
significant genes for specific agricultural and industrial uses
that may be marketed by Dow and its affiliates. We retain the
right to use any of the identified genes resulting from this
collaboration for uses in other categories not allocated to Dow.
During this collaboration, we have developed our plant gene
discovery-and-function process utilizing our proprietary
technologies. In this collaboration we are entitled to receive
research and development funding, milestone payments upon
completion of milestones, annual technology access fees and
royalties if and when Dow and its affiliates commercialize
products from the collaboration. During the term of the
agreement, Dow has the first opportunity to negotiate for
worldwide rights to develop, manufacture, use or sell specified
products, inventions and technologies outside the pharmaceutical
field. Revenues recognized pursuant to this collaboration were
$20 million in 2000. Dow can terminate this collaboration
at any time on 90 days notice. This collaboration continues
through August 2001. We are in discussions with Dow to exploit
the technology developed under the research collaboration in one
or more areas of commercial interest. We also intend to market
access to our functional genomics technology for agricultural
and industrial chemical purposes to other parties.

In January 2001, we began a collaboration with Biosite to
develop content for a protein chip. Under the agreement, we will
provide to Biosite protein markers of diagnostic interest, and
Biosite will use those protein markers to produce antibodies. We
will own the antibodies and intend to use them to develop
protein chips to be marketed either jointly with Biosite,
independently or in conjunction with third parties.

In February 2001, we formed a collaborative alliance with
ProdiGene, Inc. to jointly market to third parties our combined
capabilities to manufacture therapeutic antibodies made in
transgenic plants. We believe that the alliance will
commercially link our bioprocessing capabilities with
ProdiGenes transgenic plant protein production technology.
We have commenced joint marketing efforts to third party
pharmaceutical and biotechnology companies.

Intellectual Property

We continually seek patent protection for our plant and animal
viral systems for gene expression, proteomic, genomic and
biomanufacturing technologies. As of March 23, 2001 we had
24 issued and 86 pending U.S. patents. Our issued U.S.
patents expire between 2006 and 2018. Foreign patents
corresponding to many of the U.S. patents and patent
applications have been filed and/or issued in one or more other
countries, resulting in a total of 15 issued and 86 pending
foreign patents as of March 23, 2001. We believe that these
issued patents in various technological areas are valuable to
our business. In the proteomics field we have 10 issued
U.S. patents with durations ranging from 2006 to 2017. In the
GENEWARE field, we have 12 issued U.S. patents and
15 foreign country patents with durations ranging from 2011
to 2016. In the biomanufacturing field, we have 2 issued
U.S. patents with durations through 2018.

These patents give us the right to exclude others from
practicing or selling products, technologies or services covered
by the methods claimed, and from making, using or selling the
equipment which are the subject of the claims of these patents.

6



---



A registered trademark gives the owner the right to exclude
others from using identical or confusingly similar marks within
the same channels of commerce. We own the following registered
trademarks in the United States and in many other countries:

|                                                                         |  |                                     
|------------------------------------------------------------------------ |  | ------------------------------------
|BIOSOURCE®
	BIOSOURCE GENETICS®
	BIOSOURCE TECHNOLOGIES®
	EXPRESSVECTOR® |  | GENEWARE®
	ISO-DALT®
	KEPLER®
	PCOS®

We own rights to the following marks in the United States and in
many other countries:

|                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CYBERNOMICSHUMAN PROTEIN INDEXTMKEPLERTMWAVECLUSTERTMPATHWAY PROSPECTORTMCYBERCHIPTMPHARMACEUTICAL PROTEOMICS TMPROGEXTMLARGE SCALE PROTEOMICSTMMEDTMMAPTMLSBCTMHPI-HUMAN PROTEIN INDEXTMHPITMLSBTMHEMOXYNTM |  | EMT EXPRESSION MODIFIED TECHNOLOGYEMO EXPRESSION MODIFIED ORGANISMMED-MOLECULAR EFFECTS OF DRUGSLARGE SCALE BIOLOGYBIOSOURCE ANTIGENICSBIOSOURCE PROTEOMICSBIOSOURCE GENOMICSGENEWARECHRONOVAXNATURALINONCOCIDINBIOSOURCEPRO-OCULINMAP- MOLECULAR ANATOMY AND PATHOLOGY LARGE SCALE BIOLOGY CORPORATIONGROWING THE FUTURE OF HEALTHCARE

We also rely upon copyright protection, trade secrets,
continuing technological innovation and licensing from others to
protect our intellectual property. Our success will depend, in
part, on our ability to obtain patent protection for our
products and processes, to preserve our copyrights and trade
secrets, to operate without infringing the proprietary rights of
third parties and to acquire licenses, if needed, to support or
enhance our intellectual property portfolio.

Dow, through its wholly owned subsidiary, Mycogen Corporation,
owns or controls patent rights in the field of viral vectors
covering the infection of plants and the expression of foreign
genes in plants. Dow has informed us that it believes some of
our plant viral activities may fall within the scope of its
patents. We have informed Dow that we believe none of Dows
patent rights cover our plant viral activities. We believe our
business relations with Dow remain positive.

Employees

As of February 28, 2001, we had 144 full-time employees, of
which 106 comprise the research staff and are engaged in
research, development and scale-up activities. The remainder
work in general and administrative areas. Thirty-six employees
hold Ph.D. degrees. We consider relations with our employees to
be good, and none of the employees is covered by a collective
bargaining agreement.

Competition

The genomics and proteomics businesses are intensely
competitive. Extensive research efforts characterize the
genomics and proteomics industries, resulting in rapid
technological progress. Many universities, public agencies and
established pharmaceutical, biotechnology, chemical and other
life sciences companies with substantially greater resources are
developing and using technologies and are actively engaging in
the development of products similar to or competitive with our
products and technologies. In addition, other companies are
engaged in development programs directed to the production of
therapeutic proteins or peptides in plants.

The markets for protein development and production, including
human vaccines like the ones we are developing, also are highly
competitive. Competitors with substantially greater resources
are actively developing products similar to or competitive with
our products. Several pharmaceutical, biotechnology, chemical
and other life sciences companies engage in research and
development in the use of novel gene expression systems to
produce therapeutic proteins. Other companies are developing and
marketing therapeutics for non-Hodgkins lymphoma and
Fabrys disease.

7



---



In the field of functional genomics, we face competition from
many biotechnology companies. In the field of proteomics, we
face competition from a small number of companies using similar
methods to investigate protein expression. The maturation of the
genomics industry, associated with the completion of the human
genome sequence, have caused successful genomics companies with
greater resources than ours to look to proteomics as an
opportunity for continued growth.

We and others compete in the emerging fields of functional
genomics and proteomics on the basis of technological
innovations that offer time and cost advantages for the
accomplishment of specific tasks, many of which were not
previously practical. We believe our proprietary ProGEx system
and GENEWARE technology, and our significant patent portfolio,
will allow us to compete effectively in these fields. However,
we expect new developments to continue and discoveries by others
may render our potential products and technologies
non-competitive.

Research and Development

Our internally funded research and development expenses totaled
$16.4, $9.5 and $7.0 million in 2000, 1999 and 1998,
respectively. Our customer-sponsored research and development
expenditures totaled $8.1, $7.4 and $2.6 million in 2000,
1999 and 1998, respectively.

Item 2. Properties

Our principal research and development facilities and corporate
headquarters are located in Vacaville, California. With a recent
lease addition, we occupy a facility of approximately 45,000
square feet that includes administrative offices, a genetic
engineering laboratory, a plant discovery and function
laboratory and a bioinformatics software laboratory. In
addition, we have a bioprocessing laboratory at this same
facility that is physically designed for conversion to current
good manufacturing practices and good laboratory practices
operating standards and provides us with the capability to
conduct research, process development and scale-up from bench
through pilot scale within the same facility. Pilot scale is a
stage before full-scale production during which smaller amounts
are made to demonstrate that production methods work. We also
own a facility of approximately 22,000 square feet in Owensboro,
Kentucky for pilot and large scale extraction and downstream
bioprocessing of protein products produced in plants. Our
Proteomics subsidiary has recently moved from Rockville,
Maryland into a leased laboratory and office facility in
Germantown, Maryland of approximately 53,000 square feet. We
incurred rental expenses for our Vacaville facility of $494,000
in 2000, $531,000 in 1999 and $476,000 in 1998 and for our
Rockville facility of $196,000 in 2000 and $128,000 in 1999. We
expect rental expenses for Vacaville and Germantown will be
approximately $900,000 and $716,000, respectively, in 2001.

Item 3. Legal Proceedings

We are not party to any material legal proceedings.

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

No matters were submitted to a vote of our security holders
through solicitation of proxies or otherwise, during the last
quarter of the year ended December 31, 2000.

8



---



PART II

Item 5. Market for Registrants Common
Equity and Related Stockholder Matters

Our common stock is traded on The Nasdaq National Market under
the symbol LSBC. Public trading of the common stock
commenced on August 10, 2000. Prior to that, there was no
public market for the common stock. The following table sets
forth the high and low bid price per share of the common stock
as reported on the Nasdaq National Market, during each quarter
the stock has been publicly traded.

|                              |                                      |      |   |       |  |  |   |       | 
|----------------------------- | ------------------------------------ | ---- | - | ----- |  |  | - | ----- | 
|                              |                                      | High |   | Low  
|                              |                                      |      |   |      
|Year Ended December 31, 2000: |                                      |      |   |       |  |  |   |      
|                             
|                             
|                             
|                             
|                              | Third Quarter (from August 10, 2000) |      | $ | 32.94 |  |  | $ | 18.75 | 
|                             
|                             
|                             
|                             
|                              | Fourth Quarter                       |      | $ | 32.88 |  |  | $ | 5.25  | 

As of March 23, 2001, the closing price per share of our
common stock as reported by The Nasdaq National Market was
$5.88. We believe that there are approximately 5,000 holders of
record of our common stock, based upon data provided by our
transfer agent through the end of February 2001.

We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any earnings, if any, for
use in our business and do not anticipate paying any cash
dividends in the foreseeable future.

During the year ended December 31, 2000, we granted options
to purchase 346,200 shares of our common stock to directors,
officers, employees and consultants under our 2000 Stock
Incentive Plan. During the year ended December 31, 2000,
option holders exercised options for 954,226 shares of our
common stock of which 653,004 were not registered under the
Securities Act of 1933, as amended.

The issuance and sale of the above unregistered securities were
deemed to be exempt from registration under the Securities Act
in reliance upon Rule 701 thereunder, pursuant to
compensatory benefit plans and contracts related to compensation.

Our Registration Statement on Form S-1, as amended (SEC
File No. 333-34198) for our IPO became effective on
August 9, 2000, covering an aggregate of 5,750,000 shares
of our common stock, including the underwriters
over-allotment option. The managing underwriters were
J.P. Morgan & Co. Incorporated, Chase H&Q and
William Blair & Company, LLC. On August 15, 2000, we
closed on the sale of 5,000,000 shares of our common stock at a
price of $17.00 per share, resulting in gross proceeds of
$85.0 million. After deducting $5.9 million in
underwriting discounts and $2.2 million of other related
expenses, the net proceeds to us were $76.9 million. On
September 8, 2000, we sold an additional 750,000 shares of
our common stock at a price of $17.00 per share pursuant to the
exercise by the underwriters of their over-allotment option,
resulting in gross proceeds of $12.8 million. After
deducting $0.9 million of underwriters discounts, our net
proceeds from the exercise of the over-allotment were
$11.9 million. In total, gross proceeds from the IPO were
$97.8 million and expenses were $9.0 million,
resulting in total net proceeds of $88.8 million.

We have invested the proceeds from our IPO in temporary
investments in money market funds, commercial paper and
short-term bonds. We have not segregated those proceeds from
other funds. The estimated use of proceeds for working capital
set forth below includes operating expenses for research and
development and for general and administrative activities.
Provided below is a reasonable estimate of the amount of our net
offering proceeds used in each of the following categories,
through December 31, 2000:

|                                                     |  |   |            | 
|---------------------------------------------------- |  | - | ---------- | 
|                                                    
|                                                    
|                                                    
|                                                    
|Construction of plant, building and facilities       |  | $ | 514,000    | 
|                                                    
|                                                    
|                                                    
|                                                    
|Purchase and installation of machinery and equipment |  |   | 2,260,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Purchases of real estate                             |  |   | 0          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Acquisition of other businesses                      |  |   | 0          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Repayment of indebtedness                            |  |   | 1,503,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Capitalized patent costs                             |  |   | 541,000    | 
|                                                    
|                                                    
|                                                    
|                                                    
|Working capital                                      |  |   | 1,469,000  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Temporary investments                                |  |   | 82,469,000 | 

9



---



There are no other purposes for which at least the lesser of
five percent (5%) of our total offering proceeds or $100,000 has
been used. Moreover, none of the net offering proceeds were paid
directly or indirectly to directors, officers, or their
associates, persons owning 10 percent (10%) or more of any
class of our equity securities, or our affiliates. The
application of the proceeds set forth above does not represent a
material change from the anticipated use of proceeds described
in the prospectus contained in our Registration Statement.

10



---



Item 6. Selected Financial Data

You should read the following selected financial data in
conjunction with Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the historical consolidated financial
statements and the accompanying notes included in this Report.
We derived the consolidated statement of operations data for the
years ended December 31, 2000, 1999 and 1998 and the
consolidated balance sheet data as of December 31, 2000 and
1999 from our audited consolidated financial statements included
elsewhere in this Report. We derived the statements of
operations data for the years ended December 31, 1997 and
1996 and the balance sheet data as of December 31, 1998,
1997 and 1996 from our audited consolidated financial statements
not included in this Report.

|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |       |        | 
|------------------------------------------------------- | -------------------------------------------------- | --------------------------------------------- | ---------- | ------ | ------ | ---- | --------- | ------ | ------ | ---- | --------- | ----- | ------ | - | --------- | ----- | ------ | - | --------- | ----- | ------ | 
|                                                        |                                                    |                                              
|                                                        |                                                    | Year ended December 31,                      
|                                                        |                                                    |                                              
|                                                        |                                                    | 2000                                          |            | 1999   |        | 1998 |           | 1997   |        | 1996
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |     
|                                                        |                                                    |                                              
|                                                        |                                                    | In thousands, except share and per share data
|                                                       
|                                                       
|                                                       
|                                                       
|Consolidated Statement of Operations Data               |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|                                                       
|                                                       
|                                                       
|                                                       
|Revenues                                                |                                                    | $                                             | 23,291     |        |        | $    | 16,090    |        |        | $    | 3,394     |       |        | $ | 2,108     |       |        | $ | 797       |      
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Costs and expenses:                                     |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Development agreements                             |                                               |            | 8,115  |        |      |           | 7,439  |        |      |           | 2,565 |        |   |           | 1,735 |        |   |           | 300   |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Research and development                           |                                               |            | 16,373 |        |      |           | 9,491  |        |      |           | 6,973 |        |   |           | 5,872 |        |   |           | 8,395 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | General, administrative and marketing              |                                               |            | 8,119  |        |      |           | 7,977  |        |      |           | 3,492 |        |   |           | 3,363 |        |   |           | 2,217 |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Purchased in-process research and development      |                                               |            |       |        |      |           | 21,362 |        |      |           |      |        |   |           |      |        |   |           |      |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Stock compensation bonus                           |                                               |            | 7,268  |        |      |           |       |        |      |           |      |        |   |           |      |        |   |           |      |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Amortization of goodwill and purchased intangibles |                                               |            | 1,197  |        |      |           | 623    |        |      |           |      |        |   |           |      |        |   |           |      |       
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|                                                        |                                                    | Total costs and expenses                      |            |        | 41,072 |      |           |        | 46,892 |      |           |       | 13,030 |   |           |       | 10,970 |   |           |       | 10,912 | 
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Gain on litigation settlements                          |                                                    |                                               |           |        |        |      | 1,300     |        |        |      | 1,890     |       |        |   | 2,000     |       |        |   |          |      
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Loss from operations                                    |                                                    |                                               | (17,781    | )      |        |      | (29,502   | )      |        |      | (7,746    | )     |        |   | (6,862    | )     |        |   | (10,115   | )    
|                                                       
|                                                       
|                                                       
|                                                       
|Total other income (expenses)                           |                                                    |                                               | 1,481      |        |        |      | (5,203    | )      |        |      | (1,009    | )     |        |   | 293       |       |        |   | 879       |      
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Loss before provision for income taxes                  |                                                    |                                               | (16,300    | )      |        |      | (34,705   | )      |        |      | (8,755    | )     |        |   | (6,569    | )     |        |   | (9,236    | )    
|                                                       
|                                                       
|                                                       
|                                                       
|Provision for income taxes                              |                                                    |                                               |           |        |        |      | 190       |        |        |      |          |       |        |   |          |       |        |   |          |      
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Net Loss                                                |                                                    | $                                             | (16,300    | )      |        | $    | (34,895   | )      |        | $    | (8,755    | )     |        | $ | (6,569    | )     |        | $ | (9,236    | )    
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Net loss per share  basic and diluted                  |                                                    | $                                             | (1.07      | )      |        | $    | (3.76     | )      |        | $    | (0.93     | )     |        | $ | (0.70     | )     |        | $ | (1.01     | )    
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      
|Weighted average shares outstanding  basic and diluted |                                                    |                                               | 15,251,575 |        |        |      | 9,275,228 |        |        |      | 9,366,774 |       |        |   | 9,332,235 |       |        |   | 9,180,432 |      
|                                                        |                                                    |                                               |            |        |        |      |           |        |        |      |           |       |        |   |           |       |        |   |           |      

|                                     |  |              |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                     |  |             
|                                     |  | December 31,
|                                     |  |             
|                                     |  | 2000         |         | 1999 |  | 1998 |         | 1997 |  | 1996
|                                     |  |              |         |      |  |      |         |      |  |     
|                                     |  |             
|                                     |  | In thousands
|                                    
|                                    
|                                    
|                                    
|Consolidated Balance Sheet Data      |  |              |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |  | $            | 40,030  |      |  | $    | 6,975   |      |  | $    | 3,484   |   |  | $ | 2,708   |   |  | $ | 4,237   |  
|                                    
|                                    
|                                    
|                                    
|Marketable securities                |  |              | 44,971  |      |  |      | 7,124   |      |  |      | 4,086   |   |  |   |        |   |  |   | 5,261   |  
|                                    
|                                    
|                                    
|                                    
|Working capital (deficit)            |  |              | 70,853  |      |  |      | (1,514  | )    |  |      | 2,514   |   |  |   | 1,385   |   |  |   | 10,039  |  
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |              | 106,943 |      |  |      | 31,762  |      |  |      | 17,590  |   |  |   | 8,388   |   |  |   | 14,238  |  
|                                    
|                                    
|                                    
|                                    
|Long-term debt and warrant liability |  |              | 423     |      |  |      | 13,837  |      |  |      | 4,061   |   |  |   | 205     |   |  |   |        |  
|                                    
|                                    
|                                    
|                                    
|Convertible preferred stock          |  |              |        |      |  |      | 40,497  |      |  |      | 15,848  |   |  |   | 8,894   |   |  |   | 8,531   |  
|                                    
|                                    
|                                    
|                                    
|Accumulated deficit                  |  |              | (95,032 | )    |  |      | (78,732 | )    |  |      | (43,837 | ) |  |   | (35,082 | ) |  |   | (28,513 | )
|                                    
|                                    
|                                    
|                                    
|Total shareholders equity (deficit) |  |              | 89,792  |      |  |      | (6,703  | )    |  |      | 2,927   |   |  |   | 6,261   |   |  |   | 12,167  |  

11



---



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

You should read the following discussion and analysis by our
management of our financial condition and results of operations
in conjunction with our audited consolidated financial
statements and the accompanying notes. This Managements
Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this report contain
forward-looking statements that involve risks and uncertainties,
such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are
not limited to the factors discussed under the heading
Factors That May Affect Our Business below.

Overview

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

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

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

In September 1998, we entered into a three-year collaboration
and license agreement, or the Dow Agreement, with The Dow
Chemical Company and its subsidiary Dow AgroSciences LLC, or
collectively, Dow. Under the Dow Agreement, we receive funding
for sponsored genomics research, and we are entitled to
royalties if and when Dow sells products that result from this
collaboration, and technology access fees and payments when we
reach specific milestones. Revenues from the Dow Agreement
represented 86% and 88% of our revenues during 2000 and 1999,
respectively. We expect to recognize revenues of
$8.4 million in 2001 from the amortization of deferred
revenue related to the Dow Agreement. The research collaboration
under the Dow Agreement terminates on September 1, 2001. If
the research collaboration is not extended beyond
August 31, 2001 or we do not receive additional technology
access fees and milestone payments, future revenues and
operating margins could be materially lower than previously
reported.

During the third quarter of 2000, we raised net proceeds of
approximately $89 million, including the exercise of the
underwriters over-allotment option, as a result of our
initial public offering, or IPO, which was declared effective on
August 9, 2000.

As a result of our investment in our technologies, we have
incurred significant losses in each year since our inception in
1987. As of December 31, 2000, we had an accumulated
deficit of $95.0 million. We expect additional losses as we
expand our research and development efforts, make investments in
strategic collaborations and enhance our technologies.

Since our IPO, we initiated a Phase I clinical trial of the
GENEWARE produced non-Hodgkins lymphoma vaccines and
expanded internally funded research projects, including the
assembly of our first version of the Human Protein Index. In
January 2001, we announced our collaboration with Biosite to
produce antibodies for use in protein chips. The resulting
increase in expenses we believe will enhance the value of our
technologies but could delay our profitability and result in
increased annual net losses.

12



---



Results of Operations

Comparison of Years Ended December 31, 2000 and
1999

Revenues.Revenues in 2000 were $23.3 million, an
increase of $7.2 million, or 45% over 1999. Revenues
earned under the Dow Agreement were $20.0 and
$14.2 million in 2000 and 1999, respectively. This increase
in revenues is principally attributable to amortization of
deferred revenue from milestone payments received during 1999.
We had deferred revenues at December 31, 2000 of
$8.4 million relating to Dow that will be amortized through
the end of the research collaboration under the Dow Agreement on
August 31, 2001. Unless the research collaboration under
the Dow Agreement is renewed or extended, contracted research
and other milestone payments from Dow will be discontinued after
August 31, 2001 and, therefore, will be less than in 2000.
Growth in our revenues for 2001 and beyond is dependent upon our
successfully entering into new collaboration agreements in one
or more of our key technology bases.

Development agreement expenses.Development agreement
expenses relate to research activities incurred in connection
with our collaborative agreements. Development agreement
expenses for 2000 were $8.1 million, an increase of
$0.7 million, or 9% over 1999. The increase is
primarily attributable to a new research agreement started in
2000. We expect that development agreement expenses will
decrease if the Dow research collaboration is not extended, as
offset by any increase to meet commitments under any new
collaborative agreements.

Research and development expenses.Research and
development expenses for 2000 were $16.4 million, an
increase of $6.9 million, or 73% over 1999. The increase is
the result of $2.0 million of increased spending for
expanded operations and personnel at Proteomics,
$1.8 million of amortization expense related to stock
options granted in December 1999, $0.9 million of increased
salary expense for new personnel and wage rate increases at the
Vacaville and Owensboro facilities and $0.8 million of new
expenditures to third parties for non-Hodgkins lymphoma
preclinical and clinical trials. We anticipate that research and
development expenses will continue to increase significantly for
non-Hodgkins lymphoma clinical trials and for new or
expanded internally funded research projects. Under our
agreement with Biosite, we have committed to pay
$6.8 million over 14 months for program target
antibodies. Research and development expenses will increase
accordingly. In addition, if the Dow research collaboration is
not extended and we do not enter into a replacement
collaboration agreement, research resources are expected to be
utilized in internally funded projects resulting in a
significant increase in our unreimbursed research and
development expenses.

General, administrative and marketing expenses.General,
administrative and marketing expenses for 2000 were
$8.1 million, an increase of $1.6 million, or 25%
over 1999, excluding a charge of $1.5 million in 1999
related to previously capitalized patent costs. The increase is
partially attributable to $0.8 million of amortization expense
related to stock options granted in December 1999 and
$0.4 million of increased salary expense for new personnel
and wage rate increases. Additionally, we expanded our
infrastructure to meet the demands of a public company. We
anticipate that our legal and regulatory expenses related to our
patents will increase as we file, prosecute and defend new and
existing patents. We also expect general, administrative and
marketing expenses to increase as we expand our infrastructure
to accommodate our anticipated growth.

Stock compensation bonus.The stock compensation bonus of
$7.3 million for 2000 is a noncash charge incurred for
stock options that we issued to certain key officers and
employees in December 1999 which vested upon the completion of
our IPO.

Amortization of goodwill and purchased intangibles.The
amortization of goodwill and purchased intangibles of $1.2 and
$0.6 million in 2000 and 1999, respectively, relate to our
purchase of 92.5% of Proteomics in February 1999 and the
exercise of our option to purchase the remaining 7.5% in March
2000. Amortization charges for goodwill and purchased
intangibles are expected to be approximately $1.3 million
per year through 2002 and $0.2 million in 2003.

Interest income (expense).Interest income increased to
$2.6 million in 2000 from $0.5 million in 1999 due to
the investment of the proceeds from our IPO in August 2000. We
expect interest income to increase in 2001 as the proceeds from
our IPO are invested over an entire year. However, monthly
interest income is expected to decrease with the planned
expenditures for operations and facilities and with the current
trend of decreasing interest rates.

13



---



Change in fair value of warrant.The noncash charges
of $0.8 and $5.4 million in 2000 and 1999,
respectively, relate to the increase in the fair value of a
warrant we issued to Dow in connection with the Dow Agreement.
This warrant had a put option that could have
required us to repurchase common stock issued to Dow upon
exercise of the warrant. This put option expired
upon the effective date of our IPO. Consequently, the warrant
liability was reclassified to permanent equity and no subsequent
charges will be incurred.

Provision for income tax.Although we had a net loss of
$34.7 million before provision for income taxes for our
year ended December 31, 1999, we had taxable income for
federal and state income tax purposes which we offset by our use
of federal and state net operating loss carryforwards. As a
result, we incurred alternative minimum taxes of $190,000.
Taxable income in 1999 was primarily because of taxable
milestone payments under the Dow Agreement and the charge for
in-process research and development that was not deductible for
tax purposes.

Comparison of Years Ended December 31, 1999 and
1998

Revenues.Revenues in 1999 were $16.1 million, an
increase of $12.7 million, or 374%, over 1998.
Revenues earned under the Dow Agreement were $14.2 million
in 1999 and $2.9 million in 1998, which reflects a full
year of research activities in 1999 as compared to only four
months in 1998. The increase in revenues is partly due to the
inclusion of $1.8 million of revenues from the operations
of Proteomics since February 1, 1999, the effective date of
our acquisition of that subsidiary.

Development agreement expenses.Development agreement
expenses in 1999 were $7.4 million, an increase of
$4.9 million, or 190%, over 1998. Research activities under
the Dow Agreement accounted for $6.7 million of such
expenses in 1999, and $1.5 million in 1998. The increase in
development agreement expenses in 1999 attributable to the Dow
Agreement reflects the inclusion of a full year of research
activities as compared to only four months in 1998.
Additionally, the inclusion of the operations of Proteomics
since February 1, 1999 accounts for $0.7 million of
the increase. These amounts were partially offset by development
agreements that terminated during 1998.

Research and development expenses.Research and
development expenses in 1999 were $9.5 million, an increase
of $2.5 million, or 36%, over 1998. The inclusion of the
operations of Proteomics since February 1, 1999 accounts
for $1.4 million of the increase in 1999. The addition of
research personnel, increased research funding paid to third
parties and expanded research facilities in Vacaville,
California and Owensboro, Kentucky accounts for the remainder of
the increase.

General, administrative and marketing expenses.General,
administrative and marketing expenses in 1999 were
$8.0 million, an increase of $4.5 million,
or 128%, over 1998. The increase was due in part to an
increase in legal and regulatory fees of $1.2 million
related to patents and a $1.5 million charge for previously
capitalized patent costs. Additionally, the inclusion of
operations of Proteomics since February 1, 1999 accounts
for $1.6 million of the increase.

Purchased research and development expenses.Purchased
research and development expenses for 1999 were
$21.4 million, which represents a charge for in-process
research and development acquired in connection with our
acquisition of Proteomics.

Change in fair value of warrant.These noncash charges of
$5.4 and $1.2 million in 1999 and 1998, respectively,
relates to the increase in the fair value of a warrant issued in
connection with the Dow Agreement.

Liquidity and Capital Resources

The increase in our annual need for funds reflects the expanding
scope of our research and development activities. On
August 9, 2000, our IPO was declared effective, and we
subsequently received approximately $89 million of net
proceeds during 2000, including the exercise of the
underwriters over-allotment option. Prior to our IPO, we
funded our operations through payments from our collaborative
agreements of $62.2 million, the sale of $48.5 million
of our equity securities, other income of $6.8 million and
debt and warrant financing of $9.1 million.

14



---



At December 31, 2000, we had cash and cash equivalents of
$40.0 million and marketable securities of
$45.0 million. Net cash used in operating activities of
$13.0 million in 2000 was principally due to
$27.3 million paid to our suppliers and employees,
partially offset by $1.5 million of milestone payments and
$8.3 million of research funding received under the Dow
Agreement, $3.0 million from other agreements and interest
of $1.8 million from our investments. Net cash provided by
operating activities of $6.3 million for 1999 was
principally due to $16.6 million of milestone payments and
$7.8 million of research funding received under the Dow
Agreement, less $21.4 million paid to our suppliers and
employees. We entered into an agreement with Biosite in January
2001 whereby we have committed to pay $6.8 million over
14 months for program targets. Cash paid to suppliers and
employees will increase accordingly. In the future, for us to
achieve positive net cash flow from operating activities, we
believe we must enter into new collaboration agreements and
carefully manage the level of internally funded research and
development activities.

Net cash used in investing activities of $42.3 million in
2000 was principally due to $37.0 million of net investment
in marketable securities, $4.5 million for purchases of
property, plant and equipment and $0.8 million for
increases in intangible assets. Net cash used in investing
activities of $8.4 million in 1999 included
$5.1 million for purchases of property, plant and
equipment. We have committed to spend approximately
$4.0 million in 2001 for the construction of certain
facilities in Owensboro and Germantown. An additional
$2.7 million for these projects was included in
construction in process and accounts payable at
December 31, 2000 that will be paid during 2001. Our total
planned expenditures for property, plant and equipment during
2001 are approximately $15 million. We anticipate that our
capital expenditures will increase in the future to meet the
demands from new collaboration agreements and research and
development efforts. We may use a portion of our cash to acquire
or invest in complementary businesses, products or technologies,
or to obtain the right to use such complementary technologies.

Net cash provided by financing activities of $88.4 million
in 2000 was primarily the result of $90.5 million of
proceeds from our IPO and exercise of stock options, offset by
$2.2 million of net principal payments on long-term debt.
Net cash provided by financing activities of $5.6 million
in 1999 included $3.4 million of milestone payments
allocated to the warrant we issued to Dow in connection with the
Dow Agreement and net proceeds of $2.2 million from loans
related to our $5.0 million equipment financing arrangement.

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

Recently Issued Accounting Standards

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

In December 1999, the Securities and Exchange Commission, or
SEC, issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements,or SAB 101.
SAB 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements filed with the
SEC. We comply with the provisions of SAB 101.

Inflation

We believe that inflation has not had a material adverse impact
on our business or operating results during the periods
presented.

15



---



Factors That May Affect Our Business

We operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The
following discussion highlights some of these risks and others
are discussed elsewhere in this Form 10-K.

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

Risks Related To Our Business

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

We are in an early stage of development as an operating company,
and we are subject to all the risks inherent in the development
of a business enterprise, including the need for substantial
capital to support the development of our products and
technologies. We have had limited revenue from contract research
and development services and collaborations. We are still
developing our three primary database programs, HPI, MAP and
MED, that we intend to commercialize. We have marketed a limited
number of our own technologies. Though we have completed the
first version of the HPI, we have not yet operated our ProGEx
system on the large scale we believe will be necessary to
complete our HPI database and other proteomics projects. In
addition, we are still in the process of integrating our
proprietary protein databases with information on gene function.
If we are unable to manufacture and operate our ProGEx system on
a large scale or to integrate our protein databases with
information on gene function, we may not be able to achieve our
objectives in the field of proteomics.

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

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

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

16



---



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

We have had net losses in each year since our inception in 1987.
We sustained a net loss of approximately $16.3 million in
2000 and had an accumulated deficit of approximately
$95 million as of December 31, 2000. Milestone
payments from the Dow Agreement were substantially lower in 2000
than 1999. We have not yet entered into any new collaborations
that could make up for this decrease in cash flow. The research
collaboration under the Dow Agreement will terminate
September 1, 2001. We expect cash flow under the Dow
Agreement to continue to decrease in 2001. At the same time, we
expect to significantly increase amounts to fund research and
development and to enhance our core technologies. As a result,
we expect that our operating expenses will increase
significantly and we will need to generate significant
additional revenues from collaborations and the
commercialization of our products and technologies to achieve
profitability. We expect to incur substantial losses for the
foreseeable future. If we are unable to enter into new
collaborations, control our operating expenses and successfully
commercialize our products and technologies, we may never become
profitable.

We may require additional capital

In order for us to remain competitive so we can develop
profitable and cash positive operations, we must continue to
generate revenue from our products under development and our
technologies, including our ProGEx and GENEWARE systems. We
believe our cash and cash equivalents and our marketable
securities at February 28, 2001, together with revenues
from our collaborations and all other sources will be sufficient
to fund our operations at least through December 31, 2002.
However, changes in our business may occur that would consume
available capital resources significantly sooner than we expect.
If our capital resources are insufficient to meet future capital
requirements and expenses, we will have to raise additional
funds. If we raise additional funds by issuing equity
securities, our existing stockholders may be diluted. We may
raise this capital through public or private financings or
additional collaborations, strategic partnerships or licensing
arrangements. While we cannot predict our need for additional
capital in the future, the amount required may be substantial
and exceed tens of millions of dollars. If we are unable to
raise sufficient additional capital, we will have to curtail or
cease operations.

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

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

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

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

We intend to independently pursue some therapeutic product
applications into the development stage. However, we expect to
develop and commercialize most of our future products only in
collaboration with pharmaceutical, biotechnology, chemical and
other life sciences companies. Our success will depend in large

17



---





Conflicts with our collaborators could harm our business

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

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

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

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

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

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

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

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

18



---



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

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

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

Our directors, our executive officers and entities affiliated
with our directors and our executive officers beneficially own,
in the aggregate, approximately 43% of our outstanding common
stock as of February 28, 2001. These stockholders as a group
will be able to elect our directors and officers, control our
management and affairs and be able to control most matters
requiring the approval of our stockholders, including any
merger, consolidation or sale of all or substantially all of our
assets and any other significant corporate transaction. The
concentration of ownership will also prevent a change of control
of our Company at a premium price if these stockholders oppose
it.

Provisions of our charter documents and Delaware law may
inhibit a takeover, which could adversely affect our stock
price

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

Risks Related to Our Industry

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

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



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

19



---



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

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

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

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

The efforts of the Human Genome Project and private companies to
create a complete catalog of the human genome may not enable us
to fully integrate that data with our proprietary protein
databases. In addition, we obtain our data from other sources,
including our academic collaborators and our sources of cell and
tissue samples. This data could contain errors or other defects
which could corrupt our databases or increase our costs by
requiring us to use alternative methods or sources to obtain
such data. In addition, data sources may have acquired this
information in a manner that violates various applicable legal
requirements.

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

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

20



---





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

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

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

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

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

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

21



---



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

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

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

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

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

Our ability and that of our collaborators to commercialize
therapeutics and diagnostic products may depend in part on the
extent to which government health administration authorities,
private health insurers and other organizations will reimburse
us for the cost of these products. These third parties are
increasingly challenging both the need for and the price of new
medical products and services. Significant uncertainty exists as
to the reimbursement status of newly approved therapeutics and
diagnostics, and adequate third party reimbursement may not be
available for any product to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in
research and product development.

Risks Related to Our Intellectual Property

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

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

22



---



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

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

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

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

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

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

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

The technology that we use to develop our products and key
resources, and those that we incorporate in our products and
technologies, may be subject to claims by third parties,
including our collaborators, that they infringe the patents or
proprietary rights of others. We also may need to enforce our
patent rights in actions against others, which could be
expensive. The risk of this occurring will tend to increase as
the fields of proteomics, genomics and the biotechnology
industry expand, more patents are issued and other companies
attempt to discover genes and proteins and engage in other
proteomics, genomics and biotechnology-related businesses.

With respect to identifying proteins uniquely associated with
disease states or as targets for drug therapy, we are aware that
companies have published patent applications relating to nucleic
acids encoding specific

23



---





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

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



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

Item 7A. Quantitative and Qualitative Disclosure
About Market Risk

Interest rate risk

Our exposure to market rate risk for changes in interest rates
relates primarily to our investment portfolio and debt
obligations. Our exposures to interest rate and other market
risks at December 31, 2000 are described below.

Investment portfolio

Our investments portfolio consists of cash, cash equivalents and
marketable securities. Cash equivalents are highly liquid
investments with maturities at the date of purchase of three
months or less and are stated at cost. We maintain cash
equivalents generally in money market accounts or with maturity
dates of less than 90 days which totaled $40.0 million
at December 31, 2000. We classify our marketable securities
as held-to-maturity and, consequently, we record them on the
consolidated balance sheet at historical cost. Marketable
securities totaled $45.0 million at December 31, 2000
and consisted of high quality commercial paper and short-term
bonds. We believe our exposure to interest rate risk is not
material for these balances.

If market interest rates were to change immediately and
uniformly by 10% from levels at December 31, 2000, the fair
value of our cash equivalents and marketable securities would
change by an insignificant amount.

We do not use derivative financial instruments in our investment
portfolio, and we place our investments with high-quality
issuers and, by policy, limit the amount of credit exposure to
any one issuer.

Debt obligations

Our debt obligations consist of notes payable maturing from 2000
to 2008. We index substantially all of our debt to the
commercial bank prime interest rate, 9.5% at December 31,
2000. If market interest rates were to change immediately and
uniformly by 10% from levels at December 31, 2000, our
interest expense would change by a similar percentage and would
not be material.

Foreign currency

We have operated primarily in the United States, and all
receivables reflect amounts payable in U.S. dollars. We have not
had any material exposure to foreign currency rate fluctuations
relating to assets or liabilities.

Item 8. Financial Statements and Supplementary
Data

The financial statements and supplementary data required by this
Item 8 are listed in Item 14 and begin at page F-1 of
this Report.

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure

Not applicable.

24



---



PART III

Item 10. Directors and Executive Officers of the
Registrant

Directors

Information with respect to directors may be found in the
section captioned Election of Directors appearing in
the definitive proxy statement to be delivered to stockholders
in connection with the 2001 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.

Executive Officers

Information with respect to executive officers may be found in
the section captioned Executive Officers appearing
in the definitive proxy statement to be delivered to
stockholders in connection with the 2001 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.

Item 11. Executive Compensation

Information with respect to executive compensation may be found
in the section captioned Executive Compensation
appearing in the definitive proxy statement to be delivered to
stockholders in connection with the 2001 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial
Owners and Management

Information with respect to security ownership of certain
beneficial owners and management may be found in the section
captioned Security Ownership of Certain Beneficial Owners
and Management appearing in the definitive proxy statement
to be delivered to stockholders in connection with the 2001
Annual Meeting of Stockholders. Such information is incorporated
herein by reference.

Item 13. Certain Relationships and Related
Transactions

Information with respect to certain relationships and related
transactions may be found in the section captioned Certain
Relationships and Related Transactions appearing in the
definitive proxy statement to be delivered to stockholders in
connection with the 2001 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.

25



---



PART IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K

(a) Index to Financial Statements

The following Financial Statements are included herein:

|                                                                                                      |  |        |     | 
|----------------------------------------------------------------------------------------------------- |  | ------ | --- | 
|                                                                                                      |  | Page  
|                                                                                                      |  | Number
|                                                                                                      |  |       
|Independent Auditors Report                                                                          |  |        | F-1 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Balance Sheets as of December 31, 2000 and 1999                                          |  |        | F-2 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Operations for the Years Ended
	December 31, 2000, 1999 and 1998           |  |        | F-3 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Stockholders Equity for the
	Years Ended December 31, 2000, 1999 and 1998 |  |        | F-4 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Cash Flows for the Years Ended
	December 31, 2000, 1999 and 1998           |  |        | F-5 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Notes to Consolidated Financial Statements                                                            |  |        | F-6 | 

(b)  Reports on Form 8-K

None.

(c)  Exhibits

Exhibit Index

|        |       |             |  |                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 2.1*  |             |  | Agreement and Plan of Reorganization, dated January 25,
	1999, by and amongst registrant, the entity formerly known as
	Biosource Technologies, Inc., Large Scale Biology Corporation,
	N. Leigh Anderson, Constance L. Seniff and
	Robert J. Walden and other Large Scale Biology shareholders.
|        | 3.1*  |             |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                              
|        | 3.2*  |             |  | Bylaws.                                                                                                                                                                                                                                                                                         
|        | 4.1*  |             |  | Form of registrants Specimen Common Stock Certificate.                                                                                                                                                                                                                                         
|        | 4.2*  |             |  | Information and Registration Rights Agreement dated
	October  11, 1990 by and among the registrant and the
	parties who are signatories thereto.                                                                                                                                                
|        | 4.3*  |             |  | Amendment to the Information and Registration Rights Agreement
	dated October 10, 1991 by and among the registrant and the
	parties who are signatories thereto.                                                                                                                                
|        | 4.4*  |             |  | Second amendment to the Information and Registration Rights
	Agreement dated October 10, 1991 by and among the
	registrant and the parties who are signatories thereto.                                                                                                                         
|        | 4.5*  |             |  | Third Amendment to the Information and Registration Rights
	Agreement dated March 20, 1998 by and among the registrant
	and the parties who are signatories thereto.                                                                                                                            
|        | 4.6*  |             |  | Fourth Amendment to the Information and Registration Rights
	Agreement dated September 1, 1998 by and among the
	registrant and the parties who are signatories thereto.                                                                                                                        
|        | 4.8*  |             |  | Warrant to purchase Series E Convertible Preferred Stock
	dated May 31, 1997, by and between the registrant and
	Bruce A. Boyd.                                                                                                                                                                 
|        | 4.9*  |             |  | Warrant to purchase Series E Convertible Preferred Stock
	dated February 21, 1997, by and between the registrant and
	Bay City Capital LLC.                                                                                                                                                     
|        | 4.10* |             |  | Warrant to purchase 1,848,091 shares of common stock dated
	September 1, 1998, by and between the registrant and The
	Dow Chemical Company.                                                                                                                                                     
|        | 4.11* |             |  | Warrant Agreement to purchase 1,848,091 shares of common stock
	dated September 1, 1998, by and between the registrant and
	The Dow Chemical Company.                                                                                                                                           

26



---



|        |        |             |  |                                                                                                                                                                   
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 4.12*  |             |  | Warrant to purchase 21,991 shares of common stock dated
	January 29, 1988, assigned by the registrant on
	January  14, 2000 to Arnold Zimmerman.                  
|        | 4.13*  |             |  | Warrant to purchase 21,991 shares of common stock dated
	January 29, 1988 assigned by the registrant on
	January 29, 2000 to Sebastian J. Trusso.                 
|        | 4.14*  |             |  | Warrant Assignment to purchase 21,991 shares of common stock
	assigned by the registrant to Arnold Zimmerman.                                                     
|        | 4.15*  |             |  | Warrant Assignment to purchase 21,991 shares of common stock
	assigned by the registrant to Sebastian J. Trusso.                                                  
|        | 10.1   |             |  | Reserved.                                                                                                                                                         
|        | 10.2* |             |  | Registrants 2000 Stock Incentive Plan.                                                                                                                           
|        | 10.3* |             |  | Registrants 2000 Employee Stock Purchase Plan.                                                                                                                   
|        | 10.4* |             |  | Form of registrants Directors and Officers
	Indemnification Agreement.                                                                                         
|        | 10.5*  |             |  | Dow Collaboration and License Agreement dated August 24,
	1998, by and among the registrant and The Dow Chemical Company
	and its subsidiary Dow AgroSciences LLC.
|        | 10.6*  |             |  | Grant from National Cancer Institute to Large Scale Biology
	dated January 5, 2000.                                                                               
|        | 10.7* |             |  | Employment agreement between the registrant and Dr. N.
	Leigh Anderson.                                                                                           
|        | 10.8* |             |  | Employment agreement between the registrant and Dr. Norman
	Anderson.                                                                                             
|        | 10.9*  |             |  | Lease Agreement dated October 15, 1987, and
	amendments 1 through 8 thereto between the registrant and
	Mission Vacaville Limited partnership.                    
|        | 10.10* |             |  | Equipment financing arrangement entered into on November 
	30, 1998 between registrant and Sierrawest Bank.                                                       
|        | 10.11  |             |  | Ninth Amendment to Lease Agreement between registrant and
	Mission Vacaville Limited partnership, dated July 31, 2000.                                            
|        | 10.12  |             |  | Tenth Amendment to Lease Agreement between registrant and
	Woodlawn Foundation (successor-in-interest to Mission Vacaville
	Limited partnership), March 1, 2001.  
|        | 10.13  |             |  | Lease Agreement dated July 26, 2000 between Large Scale
	Proteomics Corporation and Westphalia Center II Limited
	partnership.                                    
|        | 21.1   |             |  | Amended List of Large Scale Biology Corporation Subsidiaries.                                                                                                     
|        | 23.1   |             |  | Independent Auditors Consent.                                                                                                                                    




|  |                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Incorporated by reference to designated exhibits to the
	Companys Registration Statement on Form S-1 (SEC
	Registration No. 333-34198), declared effective on
	August 9, 2000.



|  |                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------
| | Management contract or compensatory plan or arrangement filed as
	exhibits pursuant to Items 14(a) and 14(c) of
	Form 10-K.

27



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: April 2, 2001

| |                                
| | -------------------------------
| | LARGE SCALE BIOLOGY CORPORATION



| |     |                    
| | --- | -------------------
| | By: | /s/ ROBERT L. ERWIN

| |                            
| | ---------------------------
| | Robert L. Erwin,           
| | Chairman of the Board      
| | and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following
persons, on behalf of the registrant and in the capacities and
on the dates indicated.

|                                              |  |                                                                                   |  |              
|--------------------------------------------- |  | --------------------------------------------------------------------------------- |  | -------------
|Name                                          |  | Title                                                                             |  | Date         
|                                              |  |                                                                                   |  |              
|/s/ ROBERT L. ERWINRobert L. Erwin            |  | Chairman of the Board and
	Chief Executive Officer
	(Principal Executive Officer) |  | April 2, 2001
|                                             
|/s/ N. LEIGH ANDERSONN. Leigh Anderson, Ph.D. |  | Chief Scientific Officer President, Proteomics Subsidiary                         |  | April 2, 2001
|                                             
|/s/ DAVID R. MCGEEDavid R. McGee, Ph.D.       |  | Chief Operating Officer,
	Senior Vice President and
	Assistant Secretary          |  | April 2, 2001
|                                             
|/s/ WILLIAM M. PFANNWilliam M. Pfann          |  | Chief Financial Officer,
	Senior Vice President, Finance                          |  | April 2, 2001
|                                             
|/s/ JOHN S. RAKITANJohn S. Rakitan            |  | General Counsel,
	Senior Vice President and Secretary                             |  | April 2, 2001
|                                             
|/s/ LAURENCE K. GRILLLaurence K. Grill, Ph.D. |  | Senior Vice President, Research                                                   |  | April 2, 2001
|                                             
|/s/ R. BARRY HOLTZR. Barry Holtz, Ph.D.       |  | Senior Vice President, Bioprocess Development                                     |  | April 2, 2001
|                                             
|/s/ GUY DELLA-CIOPPAGuy della-Cioppa Ph.D.    |  | Vice President, Genomics                                                          |  | April 2, 2001
|                                             
|/s/ MICHAEL D. CENTRONMichael D. Centron      |  | Vice President, Treasurer (Principal Accounting Officer)                          |  | April 2, 2001

28



---



|                                               |  |                                                          |  |              
|---------------------------------------------- |  | -------------------------------------------------------- |  | -------------
|Name                                           |  | Title                                                    |  | Date         
|                                               |  |                                                          |  |              
|/s/ ROBERT J. WALDENRobert J. Walden           |  | Vice President, General Manager of Proteomics Subsidiary |  | April 2, 2001
|                                              
|/s/ MARVYN CARTONMarvyn Carton                 |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ BERNARD I. GROSSERBernard I. Grosser, M.D. |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ CHARLES A. HAYESCharles A. Hayes           |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ SOL LEVINESol Levine                       |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ JOHN W. MAKIJohn W. Maki                   |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ JOHN J. OMALLEYJohn J. OMalley           |  | Director                                                 |  | April 2, 2001
|                                              
|/s/ JAMES P. TENBROEKJames P. TenBroek         |  | Director                                                 |  | April 2, 2001

29



---



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
Large Scale Biology Corporation and its subsidiaries
(collectively the Company) as of December 31,
2000 and 1999, and the related consolidated statements of
operations, stockholders equity, and cash flows for each
of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Large Scale Biology Corporation and its subsidiaries as of
December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of
America.

/s/ DELOITTE & TOUCHE LLP

Sacramento, California



F-1



---



LARGE SCALE BIOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |             |            |  
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ----------- | ----------- | ---------- | - | ---------- | ----------- | ---------- | -
|                                     |                                                                                                                                                                                         |                                     
|                                     |                                                                                                                                                                                         | December 31,                        
|                                     |                                                                                                                                                                                         |                                     
|                                     |                                                                                                                                                                                         | 2000                                 |             | 1999       
|                                     |                                                                                                                                                                                         |                                      |             |            
|Current assets:                      |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                                               |                                      | $           | 40,030,000  |            |   | $          | 6,975,000   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Marketable securities                                                                                                                                                                   |                                      |             | 44,971,000  |            |   |            | 7,124,000   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable                                                                                                                                                                     |                                      |             | 197,000     |            |   |            | 141,000     |           
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                                                                                                                                               |                                      |             | 1,726,000   |            |   |            | 976,000     |           
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | Total current assets                 |             |             | 86,924,000 |   |            |             | 15,216,000 |  
|                                    
|                                    
|                                    
|                                    
|Property, plant and equipment, net   |                                                                                                                                                                                         |                                      | 13,270,000  |             |            |   | 9,504,000  |            
|                                    
|                                    
|                                    
|                                    
|Intangible assets, net               |                                                                                                                                                                                         |                                      | 5,015,000   |             |            |   | 3,843,000  |            
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                                                         |                                      | 1,734,000   |             |            |   | 3,199,000  |            
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | $                                    | 106,943,000 |             |            | $ | 31,762,000 |            
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                                                        |                                      | $           | 4,534,000   |            |   | $          | 1,419,000   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                                                                                                                                                                        |                                      |             | 803,000     |            |   |            | 1,255,000   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                                                                       |                                      |             | 2,048,000   |            |   |            | 2,184,000   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue and customer advances                                                                                                                                                  |                                      |             | 8,686,000   |            |   |            | 11,872,000  |           
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | Total current liabilities            |             |             | 16,071,000 |   |            |             | 16,730,000 |  
|                                    
|                                    
|                                    
|                                    
|Long-term debt                       |                                                                                                                                                                                         |                                      | 423,000     |             |            |   | 2,457,000  |            
|                                    
|                                    
|                                    
|                                    
|Long-term deferred revenue           |                                                                                                                                                                                         |                                      | 657,000     |             |            |   | 7,898,000  |            
|                                    
|                                    
|                                    
|                                    
|Warrant liability                    |                                                                                                                                                                                         |                                      |            |             |            |   | 11,380,000 |            
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | Total liabilities                    |             |             | 17,151,000 |   |            |             | 38,465,000 |  
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|Commitments (Note 10)                |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                    
|                                    
|                                    
|                                    
|Stockholders equity (deficit):      |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                    
|                                    
|                                    
|                                    
|                                     | Convertible preferred stock, par value $.001 per share;
	10,000,000 shares authorized; 5,605,813 shares issued and
	outstanding in 1999; liquidation preference of $38,925,000 in
	1999 |                                      |             |            |            |   |            | 40,497,000  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $.001 per share; 60,000,000 shares
	authorized; 24,446,325 and 9,300,684 shares issued and
	outstanding in 2000 and 1999, respectively                          |                                      |             | 190,097,000 |            |   |            | 39,469,000  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Stockholders notes receivable                                                                                                                                                          |                                      |             | (65,000     | )          |   |            | (112,000    | )         
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred compensation                                                                                                                                                                   |                                      |             | (5,208,000  | )          |   |            | (7,825,000  | )         
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit                                                                                                                                                                     |                                      |             | (95,032,000 | )          |   |            | (78,732,000 | )         
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | Total stockholders equity (deficit) |             |             | 89,792,000 |   |            |             | (6,703,000 | )
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            
|                                     |                                                                                                                                                                                         | $                                    | 106,943,000 |             |            | $ | 31,762,000 |            
|                                     |                                                                                                                                                                                         |                                      |             |             |            |   |            |            

See accompanying notes to consolidated financial statements.

F-2



---



LARGE SCALE BIOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |            |            |  
|-------------------------------------------------------- | -------------------------------------------------- | ---------------------------- | ----------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | -
|                                                         |                                                    |                             
|                                                         |                                                    | Year Ended December 31,     
|                                                         |                                                    |                             
|                                                         |                                                    | 2000                         |             | 1999       |            | 1998
|                                                         |                                                    |                              |             |            |            |     
|Revenues                                                 |                                                    | $                            | 23,291,000  |            |            | $    | 16,090,000  |            |            | $ | 3,394,000  |           
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Costs and expenses:                                      |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Development agreements                             |                              |             | 8,115,000  |            |      |             | 7,439,000  |            |   |            | 2,565,000  |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Research and development                           |                              |             | 16,373,000 |            |      |             | 9,491,000  |            |   |            | 6,973,000  |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | General, administrative and marketing              |                              |             | 8,119,000  |            |      |             | 7,977,000  |            |   |            | 3,492,000  |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchased in-process research and development      |                              |             |           |            |      |             | 21,362,000 |            |   |            |           |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Stock compensation bonus                           |                              |             | 7,268,000  |            |      |             |           |            |   |            |           |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Amortization of goodwill and purchased intangibles |                              |             | 1,197,000  |            |      |             | 623,000    |            |   |            |           |           
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|                                                         |                                                    | Total costs and expenses     |             |            | 41,072,000 |      |             |            | 46,892,000 |   |            |            | 13,030,000 |  
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Gain on litigation settlements                           |                                                    |                              |            |            |            |      | 1,300,000   |            |            |   | 1,890,000  |           
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Loss from operations                                     |                                                    |                              | (17,781,000 | )          |            |      | (29,502,000 | )          |            |   | (7,746,000 | )         
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Other income (expense):                                  |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Interest income                                    |                              |             | 2,638,000  |            |      |             | 452,000    |            |   |            | 275,000    |           
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Interest expense                                   |                              |             | (346,000   | )          |      |             | (302,000   | )          |   |            | (60,000    | )         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Change in fair value of warrant                    |                              |             | (811,000   | )          |      |             | (5,353,000 | )          |   |            | (1,224,000 | )         
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|                                                         |                                                    | Total other income (expense) |             |            | 1,481,000  |      |             |            | (5,203,000 | ) |            |            | (1,009,000 | )
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Loss before provision for income taxes                   |                                                    |                              | (16,300,000 | )          |            |      | (34,705,000 | )          |            |   | (8,755,000 | )         
|                                                        
|                                                        
|                                                        
|                                                        
|Provision for income taxes                               |                                                    |                              |            |            |            |      | 190,000     |            |            |   |           |           
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Net loss                                                 |                                                    | $                            | (16,300,000 | )          |            | $    | (34,895,000 | )          |            | $ | (8,755,000 | )         
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Net loss per share  basic and diluted                   |                                                    | $                            | (1.07       | )          |            | $    | (3.76       | )          |            | $ | (0.93      | )         
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           
|Weighted average shares outstanding  basic and
	diluted |                                                    |                              | 15,251,575  |            |            |      | 9,275,228   |            |            |   | 9,366,774  |           
|                                                         |                                                    |                              |             |            |            |      |             |            |            |   |            |           

See accompanying notes to consolidated financial statements.

F-3



---



LARGE SCALE BIOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                            |                                                                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|--------------------------- | ------------------------------------------------------------------------- | ---------------- | --------- | ---------- | - | ----------- | ---------- | --------- | - | - | ---------- | ----------- | - | - | ----------- | ---------- | -
|                            |                                                                           |                  |           |           
|                            |                                                                           | Number of Shares |           | Amount    
|                            |                                                                           |                  |           |           
|                            |                                                                           | Convertible      |           |            |   | Convertible |            |          
|                            |                                                                           | Preferred        |           | Common     |   | Preferred   |            | Common   
|                            |                                                                           | Stock            |           | Stock      |   | Stock       |            | Stock    
|                            |                                                                           |                  |           |            |   |             |            |          
|Balances, December 31, 1997 |                                                                           |                  | 2,320,751 |            |   |             | 9,439,329  |           |   | $ | 8,894,000  |             |   | $ | 32,459,000  |           
|                           
|                           
|                           
|                           
|                            | Issuance of Series F convertible preferred stock                          |                  |           | 1,000,000  |   |             |            |           |   |   |            | 6,961,000   |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Common stock cancelled                                                    |                  |           |            |   |             |            | (405,000  | ) |   |            |             |   |   |             | (1,890,000 | )
|                           
|                           
|                           
|                           
|                            | Conversion of Series C convertible preferred stock into
	common stock     |                  |           | (945       | ) |             |            | 1,500     |   |   |            | (7,000      | ) |   |             | 7,000      |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for services                                     |                  |           |            |   |             |            | 15,530    |   |   |            |             |   |   |             | 81,000     |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |                  |           |            |   |             |            | 153,891   |   |   |            |             |   |   |             | 167,000    |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |                  |           |            |   |             |            | 22,050    |   |   |            |             |   |   |             | 22,000     |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options for services                             |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 97,000     |  
|                           
|                           
|                           
|                           
|                            | Accretion of options to consultants                                       |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 23,000     |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                            |                                                                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |           
|Balances, December 31, 1998 |                                                                           |                  | 3,319,806 |            |   |             | 9,227,300  |           |   |   | 15,848,000 |             |   |   | 30,966,000  |           
|                           
|                           
|                           
|                           
|                            | Issuance of Series G convertible preferred stock                          |                  |           | 2,287,634  |   |             |            |           |   |   |            | 24,660,000  |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options in connection with business
	combination |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 394,000    |  
|                           
|                           
|                           
|                           
|                            | Conversion of Series C convertible preferred stock into
	common stock     |                  |           | (1,627     | ) |             |            | 2,583     |   |   |            | (11,000     | ) |   |             | 11,000     |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for services                                     |                  |           |            |   |             |            | 4,723     |   |   |            |             |   |   |             | 31,000     |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |                  |           |            |   |             |            | 28,578    |   |   |            |             |   |   |             | 49,000     |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |                  |           |            |   |             |            | 37,500    |   |   |            |             |   |   |             | 82,000     |  
|                           
|                           
|                           
|                           
|                            | Payment on notes receivable                                               |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Deferred stock compensation                                               |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 7,809,000  |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options for services                             |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 37,000     |  
|                           
|                           
|                           
|                           
|                            | Accretion of options to consultants                                       |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 90,000     |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                            |                                                                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |           
|Balances, December 31, 1999 |                                                                           |                  | 5,605,813 |            |   |             | 9,300,684  |           |   |   | 40,497,000 |             |   |   | 39,469,000  |           
|                           
|                           
|                           
|                           
|                            | Issuance of common stock                                                  |                  |           |            |   |             |            | 5,750,000 |   |   |            |             |   |   |             | 88,756,000 |  
|                           
|                           
|                           
|                           
|                            | Conversion of convertible preferred stock into common stock               |                  |           | (5,605,813 | ) |             |            | 8,441,415 |   |   |            | (40,497,000 | ) |   |             | 40,497,000 |  
|                           
|                           
|                           
|                           
|                            | Reclassification of warrant liability to equity                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 12,191,000 |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |                  |           |            |   |             |            | 952,726   |   |   |            |             |   |   |             | 1,786,000  |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |                  |           |            |   |             |            | 1,500     |   |   |            |             |   |   |             | 10,000     |  
|                           
|                           
|                           
|                           
|                            | Payment on notes receivable                                               |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Stock compensation bonus                                                  |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 7,268,000  |  
|                           
|                           
|                           
|                           
|                            | Charge for common stock options for non-employee services                 |                  |           |            |   |             |            |           |   |   |            |             |   |   |             | 120,000    |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |            |  
|                            |                                                                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |           
|Balance, December 31, 2000  |                                                                           |                  |          |            |   |             | 24,446,325 |           |   | $ |           |             |   | $ | 190,097,000 |           
|                            |                                                                           |                  |           |            |   |             |            |           |   |   |            |             |   |   |             |           

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                            |                                                                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            |             |  
|--------------------------- | ------------------------------------------------------------------------- | ------------- | -------- | ------------ | - | ----------- | ---------- | ------------- | - | - | ----------- | ----------- | - | - | ---------- | ----------- | -
|                            |                                                                           |              
|                            |                                                                           | Amount       
|                            |                                                                           |              
|                            |                                                                           | Stockholders |          |              |   | Total      
|                            |                                                                           | Notes         |          | Deferred     |   | Accumulated |            | Stockholders
|                            |                                                                           | Receivable    |          | Compensation |   | Deficit     |            | Equity       
|                            |                                                                           |               |          |              |   |             |            |              
|Balances, December 31, 1997 |                                                                           | $             | (10,000  | )            |   | $           |           |               |   | $ | (35,082,000 | )           |   | $ | 6,261,000  |            
|                           
|                           
|                           
|                           
|                            | Issuance of Series F convertible preferred stock                          |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 6,961,000   |  
|                           
|                           
|                           
|                           
|                            | Common stock cancelled                                                    |               |          |              |   |             |            |               |   |   |             |             |   |   |            | (1,890,000  | )
|                           
|                           
|                           
|                           
|                            | Conversion of Series C convertible preferred stock into
	common stock     |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for services                                     |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 81,000      |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 167,000     |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |               |          | (22,000      | ) |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options for services                             |               |          |              |   |             |            | (97,000       | ) |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Accretion of options to consultants                                       |               |          |              |   |             |            | (23,000       | ) |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |               |          |              |   |             |            | 102,000       |   |   |             |             |   |   |            | 102,000     |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |               |          |              |   |             |            |               |   |   |             | (8,755,000  | ) |   |            | (8,755,000  | )
|                            |                                                                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            
|Balances, December 31, 1998 |                                                                           |               | (32,000  | )            |   |             | (18,000    | )             |   |   | (43,837,000 | )           |   |   | 2,927,000  |            
|                           
|                           
|                           
|                           
|                            | Issuance of Series G convertible preferred stock                          |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 24,660,000  |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options in connection with business
	combination |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 394,000     |  
|                           
|                           
|                           
|                           
|                            | Conversion of Series C convertible preferred stock into
	common stock     |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for services                                     |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 31,000      |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 49,000      |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |               |          | (82,000      | ) |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Payment on notes receivable                                               |               |          | 2,000        |   |             |            |               |   |   |             |             |   |   |            | 2,000       |  
|                           
|                           
|                           
|                           
|                            | Deferred stock compensation                                               |               |          |              |   |             |            | (7,809,000    | ) |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock options for services                             |               |          |              |   |             |            | (37,000       | ) |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Accretion of options to consultants                                       |               |          |              |   |             |            | (90,000       | ) |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |               |          |              |   |             |            | 129,000       |   |   |             |             |   |   |            | 129,000     |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |               |          |              |   |             |            |               |   |   |             | (34,895,000 | ) |   |            | (34,895,000 | )
|                            |                                                                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            
|Balances, December 31, 1999 |                                                                           |               | (112,000 | )            |   |             | (7,825,000 | )             |   |   | (78,732,000 | )           |   |   | (6,703,000 | )          
|                           
|                           
|                           
|                           
|                            | Issuance of common stock                                                  |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 88,756,000  |  
|                           
|                           
|                           
|                           
|                            | Conversion of convertible preferred stock into common stock               |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Reclassification of warrant liability to equity                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 12,191,000  |  
|                           
|                           
|                           
|                           
|                            | Exercise of stock options                                                 |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 1,786,000   |  
|                           
|                           
|                           
|                           
|                            | Issuance of common stock for notes receivable                             |               |          | (10,000      | ) |             |            |               |   |   |             |             |   |   |            |            |  
|                           
|                           
|                           
|                           
|                            | Payment on notes receivable                                               |               |          | 57,000       |   |             |            |               |   |   |             |             |   |   |            | 57,000      |  
|                           
|                           
|                           
|                           
|                            | Stock compensation bonus                                                  |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 7,268,000   |  
|                           
|                           
|                           
|                           
|                            | Charge for common stock options for non-employee services                 |               |          |              |   |             |            |               |   |   |             |             |   |   |            | 120,000     |  
|                           
|                           
|                           
|                           
|                            | Amortization of deferred compensation                                     |               |          |              |   |             |            | 2,617,000     |   |   |             |             |   |   |            | 2,617,000   |  
|                           
|                           
|                           
|                           
|                            | Net loss                                                                  |               |          |              |   |             |            |               |   |   |             | (16,300,000 | ) |   |            | (16,300,000 | )
|                            |                                                                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            
|Balance, December 31, 2000  |                                                                           | $             | (65,000  | )            |   | $           | (5,208,000 | )             |   | $ | (95,032,000 | )           |   | $ | 89,792,000 |            
|                            |                                                                           |               |          |              |   |             |            |               |   |   |             |             |   |   |            |            

See accompanying notes to consolidated financial statements.

F-4



---



LARGE SCALE BIOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |             |           |            |  
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ----------- | ----------- | ----------- | ----------- | ----------- | --------- | ---------- | ---------- | ----------- | --------- | ---------- | -
|                                                                                   |                                                                  |                                          
|                                                                                   |                                                                  | Year Ended December 31,                  
|                                                                                   |                                                                  |                                          
|                                                                                   |                                                                  | 2000                                      |                                                     | 1999        |             | 1998       
|                                                                                   |                                                                  |                                           |                                                     |             |             |            
|Cash flows from operating activities:                                              |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash received from customers                                     |                                           | $                                                   | 12,818,000  |             |             | $           | 26,264,000  |           |            | $          | 11,949,000  |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash received from litigation settlements                        |                                           |                                                     |            |             |             |             | 1,300,000   |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash paid to suppliers and employees                             |                                           |                                                     | (27,274,000 | )           |             |             | (21,401,000 | )         |            |            | (11,564,000 | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Interest received                                                |                                           |                                                     | 1,813,000   |             |             |             | 400,000     |           |            |            | 216,000     |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Interest paid                                                    |                                           |                                                     | (354,000    | )           |             |             | (265,000    | )         |            |            | (54,000     | )        
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                   |                                                                  |                                           | Net cash provided by (used in) operating activities |             |             | (12,997,000 | )           |             |           | 6,298,000  |            |             |           | 547,000    |  
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Cash flows from investing activities:                                              |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Purchase of marketable securities                                |                                           |                                                     | (48,149,000 | )           |             |             | (7,019,000  | )         |            |            | (4,027,000  | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from matured marketable securities                      |                                           |                                                     | 11,102,000  |             |             |             | 4,027,000   |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Capital expenditures                                             |                                           |                                                     | (4,489,000  | )           |             |             | (5,061,000  | )         |            |            | (3,811,000  | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net cash acquired in business combination                        |                                           |                                                     |            |             |             |             | 21,000      |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Capitalized acquisition costs                                    |                                           |                                                     |            |             |             |             | (53,000     | )         |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Increase in intangible assets                                    |                                           |                                                     | (753,000    | )           |             |             | (361,000    | )         |            |            | (765,000    | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from employee loan payments                             |                                           |                                                     | 27,000      |             |             |             |            |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Exercise of call option                                          |                                           |                                                     | (74,000     | )           |             |             |            |           |            |            |            |          
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                   |                                                                  |                                           | Net cash used in investing activities               |             |             | (42,336,000 | )           |             |           | (8,446,000 | )          |             |           | (8,603,000 | )
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Cash flows from financing activities:                                              |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from issuance of common stock                           |                                           |                                                     | 90,542,000  |             |             |             | 49,000      |           |            |            | 167,000     |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from issuance of convertible preferred stock            |                                           |                                                     |            |             |             |             |            |           |            |            | 6,961,000   |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from issuance of common stock warrant                   |                                           |                                                     |            |             |             |             | 3,411,000   |           |            |            | 1,392,000   |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from issuance of long-term debt                         |                                           |                                                     | 744,000     |             |             |             | 3,687,000   |           |            |            | 1,834,000   |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Proceeds from stock note payments                                |                                           |                                                     | 57,000      |             |             |             |            |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Change in restricted cash                                        |                                           |                                                     | (41,000     | )           |             |             | (391,000    | )         |            |            | (839,000    | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Principal payments on long-term debt                             |                                           |                                                     | (2,914,000  | )           |             |             | (1,117,000  | )         |            |            | (683,000    | )        
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                   |                                                                  |                                           | Net cash provided by financing activities           |             |             | 88,388,000  |             |             |           | 5,639,000  |            |             |           | 8,832,000  |  
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Net increase in cash and cash equivalents                                          |                                                                  |                                           | 33,055,000                                          |             |             |             | 3,491,000   |             |           |            | 776,000    |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cash and cash equivalents at beginning of year                                     |                                                                  |                                           | 6,975,000                                           |             |             |             | 3,484,000   |             |           |            | 2,708,000  |            
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Cash and cash equivalents at end of year                                           |                                                                  | $                                         | 40,030,000                                          |             |             | $           | 6,975,000   |             |           | $          | 3,484,000  |            
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Reconciliation of net loss to net cash provided by (used in)
	operating activities |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net loss                                                                           |                                                                  | $                                         | (16,300,000                                         | )           |             | $           | (34,895,000 | )           |           | $          | (8,755,000 | )          
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                   | Depreciation of property, plant and equipment                    |                                           |                                                     | 3,452,000   |             |             |             | 2,204,000   |           |            |            | 686,000     |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Amortization of intangible assets                                |                                           |                                                     | 1,410,000   |             |             |             | 1,065,000   |           |            |            | 161,000     |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Charge-off of capitalized patent costs                           |                                           |                                                     | 32,000      |             |             |             | 1,517,000   |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Non-cash gain on litigation settlements                          |                                           |                                                     |            |             |             |             |            |           |            |            | (1,890,000  | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Accrued interest and amortized discount on marketable securities |                                           |                                                     | (800,000    | )           |             |             | (45,000     | )         |            |            | (59,000     | )        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Issuance of common stock for services                            |                                           |                                                     |            |             |             |             | 31,000      |           |            |            | 81,000      |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Purchased research and development                               |                                           |                                                     |            |             |             |             | 21,362,000  |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Stock compensation expense                                       |                                           |                                                     | 2,737,000   |             |             |             | 129,000     |           |            |            | 102,000     |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Stock compensation bonus                                         |                                           |                                                     | 7,268,000   |             |             |             |            |           |            |            |            |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Change in fair value of warrants                                 |                                           |                                                     | 811,000     |             |             |             | 5,353,000   |           |            |            | 1,224,000   |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Changes in assets and liabilities:                               |                                           |                                                     |             |             |             |             |             |           |            |            |             |          
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Accounts receivable                       |                                                     |             | (56,000     | )           |             |             | 54,000    |            |            |             | 31,000    |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Prepaid expenses and other current assets |                                                     |             | (777,000    | )           |             |             | (357,000  | )          |            |             | (194,000  | )         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Other assets                              |                                                     |             | (281,000    | )           |             |             | 100,000   |            |            |             | 33,000    |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Accounts payable                          |                                                     |             | 386,000     |             |             |             | 528,000   |            |            |             | 317,000   |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Accrued expenses                          |                                                     |             | (452,000    | )           |             |             | (554,000  | )          |            |             | 276,000   |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   |                                                                  | Deferred revenue and customer advances    |                                                     |             | (10,427,000 | )           |             |             | 9,806,000 |            |            |             | 8,534,000 |           
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|                                                                                   |                                                                  |                                           | Total adjustments                                   |             |             | 3,303,000   |             |             |           | 41,193,000 |            |             |           | 9,302,000  |  
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            
|Net cash provided by (used in) operating activities                                |                                                                  | $                                         | (12,997,000                                         | )           |             | $           | 6,298,000   |             |           | $          | 547,000    |            
|                                                                                   |                                                                  |                                           |                                                     |             |             |             |             |             |           |            |            |            

See accompanying notes to consolidated financial statements.

F-5



---



LARGE SCALE BIOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Summary of Significant
Accounting Policies

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

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

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

On August 9, 2000, the initial public offering
(IPO) of the Companys common stock was
declared effective by the Securities and Exchange Commission
(see Note 3).

Reincorporation and Stock Conversion  On
August 8, 2000, the Company reincorporated from a
California corporation to a Delaware corporation. In connection
with the reincorporation, each share of the Companys
common stock was converted into 1.5 shares of common stock of
the Delaware corporation. The conversion rate of the
Companys convertible preferred stock into common also
reflects the 1.5 to 1 exchange rate (see Note 3). All share
and per share amounts in the accompanying consolidated financial
statements have been restated to give effect to the stock
conversion.

Basis of Consolidation  The accompanying
Consolidated Financial Statements include the accounts of Large
Scale Biology Corporation, its subsidiary, Proteomics, since
February 1999 and all other subsidiaries. The Company owned
92.5% of Proteomics from February 1999 until the remainder was
acquired in March 2000. All intercompany balances and
transactions have been eliminated. The financial statements for
1998 exclude the accounts of Proteomics.

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

Cash and Cash Equivalents  The Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Marketable Securities  Marketable securities
at December 31, 2000 and 1999 consist of commercial paper
maturing within one year and are classified as held-to-maturity.
The amortized cost of marketable securities at December 31,
2000 and 1999 approximates fair value. There were no significant
holding gains or losses for any of the periods shown.

Concentrations of Credit Risk  Revenues from
one customer represented 86%, 88% and 84% of total revenues
during 2000, 1999, and 1998, respectively. The Companys
financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents,
marketable securities and accounts receivable. Cash equivalents
and marketable securities consist of high quality credit
instruments and management regularly monitors their composition
and maturities. Substantially all of the Companys accounts
receivable are derived from revenue earned from customers
located within the United States. Management monitors the amount
of credit exposure related to accounts receivable on an ongoing
basis and, generally, requires no collateral from its customers.
The Company maintains allowances for estimated probable losses.

F-6



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following is a summary of the Companys allowance for
accounts receivable:

|                             |  |              |           |           |  |            |   |               |  |   |           |  |  |   |           | 
|---------------------------- |  | ------------ | --------- | --------- |  | ---------- | - | ------------- |  | - | --------- |  |  | - | --------- | 
|                             |  | Balance at   |           |           |  |            |   |              
|                             |  | Beginning of |           |           |  |            |   | Balance at   
|                             |  | Period       |           | Additions |  | Deductions |   | End of Period
|                             |  |              |           |           |  |            |   |              
|Year Ended December 31, 1998 |  | $            | 1,200,000 |           |  |            |  |               |  |   |          |  |  | $ | 1,200,000 | 
|                            
|                            
|                            
|                            
|Year Ended December 31, 1999 |  | $            | 1,200,000 |           |  |            |  |               |  | $ | 1,200,000 |  |  |   |          | 
|                            
|                            
|                            
|                            
|Year Ended December 31, 2000 |  |              |          |           |  |            |  |               |  |   |          |  |  |   |          | 

Property, Plant and Equipment  Property, plant
and equipment are stated at cost. Depreciation of machinery and
equipment and leasehold improvements is computed using the
straight-line method over the estimated useful lives of the
assets, which range from 3 to 10 years, or the lease term,
whichever is shorter. Building depreciation is computed using
the straight-line method over the estimated useful life of
30 years.

Software  Certain costs incurred in the
development of internal-use software are capitalized. Costs
related to the development of software in connection with the
Companys development agreements are treated as development
agreement expense and are expensed over the life of the
agreement. Costs related to software used for internal research
and development activities are expensed as incurred.

Intangible Assets  The Companys policies
with respect to intangible assets are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Patents  The legal costs of filing patent
	applications are capitalized if they relate to commercially
	viable technologies. Commercially viable technologies are those
	technologies where the Company has demonstrated its ability to
	generate income from operations and positive cash flows. Legal
	costs associated with patents not yet proven to be commercially
	viable are expensed. Once patents are issued, those costs are
	amortized over the shorter of the statutory or estimated
	economic life, which generally ranges from 5 to 17 years.
|
| |  | Purchased Technology  The Company pays license
	fees to individuals under licensing agreements. These agreements
	provide the Company with exclusive licenses or rights to the
	specified technologies. These costs have been capitalized and
	are being amortized over 5  years.                                                                                                                                                                                                                                                                           
|
| |  | Core Technology and Assembled Work Force  Core
	technology and assembled work force represents intangible assets
	related to the Companys acquisition of Proteomics (see
	Note 2). The core technology and assembled workforce are
	being amortized over 4 and 5 years, respectively.                                                                                                                                                                                                                                                                      
|
| |  | Goodwill  Goodwill represents the excess of
	the fair value of the consideration given over the estimated
	fair value of the assets and liability received when the Company
	acquired the remaining 7.5% interest of Proteomics (see
	Note 2). The Company is amortizing the goodwill over three
	years.                                                                                                                                                                                                                                                    

Long-Lived Assets  The Company evaluates its
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
or intangibles may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. The legal
settlement received in 1999 (see Note 4) resulted in
certain patents and the underlying technology having limited
known future cash flows. Consequently, intangible assets
totaling $1,517,000 were charged to general and administrative
expense during 1999.

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

F-7



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


renewal is assured. Grant revenue is recognized as expenses are
incurred and billed, except that revenue received for equipment
purchases is deferred and recognized as revenue over the life of
the related equipment.

Comprehensive Income  There were no items of
other comprehensive income (loss) and therefore comprehensive
loss was the same as net loss for all periods presented.

Research and Development  Research and
development costs that are related to customer funded
development agreements are expensed as incurred and recorded as
cost of development agreements. Research and development costs
not related to customer funded development agreements are
expensed as incurred and reported as research and development
expense.

Stock-Based Compensation  The Company accounts
for stock-based awards to employees using the intrinsic value
method of accounting. As such, compensation is recorded on the
date of issuance or grant as the excess of the current estimated
fair value of the underlying stock over the purchase or exercise
price. Any deferred compensation is amortized over the
respective vesting periods of the equity instruments, if any.
Pro forma information required by Statement of Financial
Accounting Standards No. 123 (SFAS
No. 123), Accounting for Stock-Based
Compensation,is included in Note 11. As required
by SFAS No. 123, transactions with non-employees, in which
goods or services are the consideration received for the
issuance of equity instruments, are accounted for under the fair
value basis in accordance with SFAS No. 123.

Income Taxes  The Company accounts for income
taxes under the asset and liability approach where deferred
income tax assets and liabilities reflect the future tax
consequences, based on enacted tax laws, of the temporary
differences between financial and tax reporting at the balance
sheet date.

Segment Reporting  The Company has determined
that it operates in one reportable segment.

Fair value of Financial Instruments  The
carrying amount of cash and cash equivalents, marketable
securities, accounts receivable and accounts payable approximate
fair value because of the short-term nature of these
instruments. The fair value of debt instruments is based upon
current interest rates for debt instruments with comparable
maturities and characteristics and approximates the carrying
amount.

Net Loss Per Share  Basic net loss per share
is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the
net loss for the period by the weighted average number of common
shares and any dilutive effect of potential common shares
outstanding during the period. The weighted average number of
shares for potentially dilutive securities are 7,909,347,
12,552,806 and 5,734,811 in 2000, 1999, and 1998, respectively,
and are composed of incremental common shares issuable upon the
exercise of stock options and warrants, and common shares
issuable on conversion of convertible preferred stock. These
shares were excluded from diluted loss per share because of
their anti-dilutive effect.

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

In December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements(SAB 101). SAB 101 provides guidance
on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. The Company complies
with the provisions of SAB 101.

Reclassifications  Certain 1998 and 1999
amounts have been reclassified in order to conform to the 2000
presentation.

F-8



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2. Acquisition of Large Scale Proteomics

During February 1999, Large Scale Biology Corporation acquired
approximately 92.5% of the outstanding common stock of
Proteomics in exchange for 2,287,634 shares of the
Companys Series G convertible preferred stock and
options to purchase 60,562 shares of the Companys common
stock. The Series G convertible preferred stock was
subsequently converted into 3,431,448 shares of common stock.
This acquisition was accounted for by the purchase method of
accounting. The purchase price of $25,100,000 for this business
combination was based on the estimated fair value of the net
tangible and intangible assets received. The operating results
of Proteomics are included in the consolidated statement of
operations of the Company as of February 1, 1999. As part
of the acquisition, the Company acquired the option to purchase
the remaining 7.5% of common stock of Proteomics (see
Note 7). In March 2000, the Company exercised its option
and acquired the remaining 7.5% of the outstanding common stock
of Proteomics for $74,000.

The significant intangible assets acquired included in-process
research and development of $21,362,000, core technology of
$2,497,000 and the option to purchase the remaining 7.5% of
Proteomics valued at $1,787,000. As a result of the acquisition
of the remaining 7.5% of Proteomics, the Company recorded
goodwill of $1,861,000 equal to the carrying value of the option
and cash paid. The Company is amortizing the goodwill over three
years.

Purchased in-process research and development expense represents
the value of purchased research and development projects that
had not reached technological feasibility at the date of
acquisition. These projects relate to the development of
proteomics and virus technologies. Proteomics technology can
only be used for the large-scale, quantitative analysis and
identification of proteins from biological samples. There is no
other known use of this technology for performing analysis on
other components of samples of biological origin (i.e. DNA,
carbohydrates, lipids, etc.). Similarly, the virus technology is
expected to only be capable of separating virus size
particles  a size thought to be unique to viruses. No
alternative future uses or markets were identified for these
projects because of their unique qualities.

The purchased research and development was valued by an
independent appraiser using the risk-adjusted cash flow
approach, which includes an analysis of the projected future
cash flows that were expected to result from the progress made
on each of the in-process projects prior to the date of
acquisition and the risks associated with achieving such cash
flows. The value allocated to purchased in-process research and
development was expensed at the date of acquisition. Projects
that had already been commercialized at the date of the
valuation were valued and recorded as core technology.

Future cash flows for in-process research and development were
estimated by first forecasting, on a project-by-project basis,
total revenues expected to result from sales of each in-process
project. Revenues were not anticipated from the in-process
research and development projects until approximately one year
into the forecast. Appropriate operating expenses, cash flow
adjustments and contributory asset returns were deducted from
projected future revenues, and adjustments were made to remove
the value contributed by core technology. No anticipated expense
reductions due to synergies between Large Scale Proteomics and
Large Scale Biology Corporation were assumed. The analysis
resulted in a forecast of net returns on each in-process
project. These net returns were then discounted to a present
value at discount rates that incorporate the project specific
risks associated with each purchased in-process research and
development project. The project specific risk factors
considered included the complexity of the development effort,
the likelihood of achieving technological feasibility and the
likelihood of market acceptance. The applied discount rate of
50% was believed to adequately account for the additional risks
associated with the in-process technologies over other
technologies existing at the acquisition date.

The forward-looking data employed in the analysis of in-process
research and development were based upon managements
estimate of future performance of its business. Management
believes the assumptions used were reasonable. However, the
assumptions we used may be incomplete or inaccurate, and
unanticipated events and circumstances may occur, which could
cause a material adverse effect on our financial condition and
results of operations.

F-9



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


A brief description of purchased in-process research and
development projects is set forth below, including the status of
products within each project at the acquisition date:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Proteomics  The proteomics technology applies
	sample preparation and fractionation high throughput, high
	resolution two-dimensional gels, mass spectrometry, databases
	and bioinformatics software to the discovery and development of
	drugs, diagnostics and agricultural chemicals. The proteomics
	technology was completed during the three months ended
	March 31, 2000.                                                                                         
|
| |  | Virus  The virus detection technology allows
	for the rapid discovery of new, yet difficult to propagate
	viruses, addressing a wide range of suspected viral diseases.
	Virus detection technology is expected to be completed in 2003.
	The Company estimates that after December 31, 2000 it will
	need to spend approximately $10.0  million related to
	personnel and system prototype development in order to complete
	development of the virus technology by 2003.

The following unaudited pro forma information gives effect to
the acquisition of 100% of Proteomics as if the acquisition had
occurred on January 1, 1999.

|                                       |  |                         |             |      |  |   |             |  
|-------------------------------------- |  | ----------------------- | ----------- | ---- |  | - | ----------- | -
|                                       |  |                        
|                                       |  | Year Ended December 31,
|                                       |  |                        
|                                       |  | 2000                    |             | 1999
|                                       |  |                         |             |     
|Revenues                               |  | $                       | 23,291,000  |      |  | $ | 17,441,000  |  
|                                      
|                                      
|                                      
|                                      
|Net loss                               |  | $                       | (16,403,000 | )    |  | $ | (35,493,000 | )
|                                      
|                                      
|                                      
|                                      
|Net loss per share  basic and diluted |  | $                       | (1.08       | )    |  | $ | (3.83       | )

These unaudited pro forma results have been prepared by the
management of the Company for comparative purposes only. They do
not purport to be indicative of the results of operations that
actually would have resulted had the combination occurred on the
date indicated and may not be indicative of future results of
operations.

3. Initial Public Offering and Conversion of
Preferred Stock

During the quarter ended September 30, 2000, the Company
completed an initial public offering of 5,750,000 shares of its
common stock (including exercise of the underwriters
overallotment option) at a price of $17.00 per share. The
Company received net proceeds of $88,756,000 as a result of the
offering.

Upon the effectiveness of the Companys initial public
offering, all 5,605,813 outstanding shares of the Companys
convertible preferred stock with a stated value of $40,497,000
were automatically converted into 8,441,415 shares of the
Companys common stock as follows:

|         |  |             |           |            |  |  |           | 
|-------- |  | ----------- | --------- | ---------- |  |  | --------- | 
|         |  | Convertible |           | Common    
|         |  | Preferred   |           | Shares    
|         |  | Shares      |           | Conversion
|         |  |             |           |           
|Series A |  |             | 666,667   |            |  |  | 999,997   | 
|        
|        
|        
|        
|Series B |  |             | 878,003   |            |  |  | 1,316,993 | 
|        
|        
|        
|        
|Series C |  |             | 338,336   |            |  |  | 537,432   | 
|        
|        
|        
|        
|Series D |  |             | 435,173   |            |  |  | 655,550   | 
|        
|        
|        
|        
|Series F |  |             | 1,000,000 |            |  |  | 1,499,995 | 
|        
|        
|        
|        
|Series G |  |             | 2,287,634 |            |  |  | 3,431,448 | 
|         |  |             |           |            |  |  |           | 
|         |  |             | 5,605,813 |            |  |  | 8,441,415 | 
|         |  |             |           |            |  |  |           | 

4. Litigation Settlements

The Company reached a settlement with Advanced Polymer Systems,
Inc. (APS) related to a License and Supply Agreement
between APS and the Company that expired on December 31,
1998. Under the settlement agreement, the Company received
$1,300,000 during 1999.

F-10



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In July 1998, the Company received 405,000 shares of its common
stock from a stockholder as settlement of a legal dispute. The
Company recorded a $1,890,000 gain on litigation settlement
based on the estimated fair value of the shares at the date of
the settlement. The Company subsequently cancelled all 405,000
shares.

5. Property, Plant and Equipment

|                         |  |              |            |      |  |   |            |  
|------------------------ |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                         |  |             
|                         |  | December 31,
|                         |  |             
|                         |  | 2000         |            | 1999
|                         |  |              |            |     
|Machinery and equipment  |  | $            | 14,186,000 |      |  | $ | 11,340,000 |  
|                        
|                        
|                        
|                        
|Leasehold improvements   |  |              | 1,580,000  |      |  |   | 1,437,000  |  
|                        
|                        
|                        
|                        
|Building                 |  |              | 2,355,000  |      |  |   | 1,485,000  |  
|                        
|                        
|                        
|                        
|Construction in progress |  |              | 3,308,000  |      |  |   | 120,000    |  
|                        
|                        
|                        
|                        
|Land                     |  |              | 373,000    |      |  |   | 373,000    |  
|                         |  |              |            |      |  |   |            |  
|                         |  |              | 21,802,000 |      |  |   | 14,755,000 |  
|                        
|                        
|                        
|                        
|Accumulated depreciation |  |              | (8,532,000 | )    |  |   | (5,251,000 | )
|                         |  |              |            |      |  |   |            |  
|                         |  | $            | 13,270,000 |      |  | $ | 9,504,000  |  
|                         |  |              |            |      |  |   |            |  

6. Intangible Assets

|                                        |  |              |            |      |  |   |           |  
|--------------------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                                        |  |             
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2000         |            | 1999
|                                        |  |              |            |     
|Patents                                 |  | $            | 1,744,000  |      |  | $ | 1,023,000 |  
|                                       
|                                       
|                                       
|                                       
|Purchased technology                    |  |              | 900,000    |      |  |   | 900,000   |  
|                                       
|                                       
|                                       
|                                       
|Core technology and assembled workforce |  |              | 2,774,000  |      |  |   | 2,774,000 |  
|                                       
|                                       
|                                       
|                                       
|Goodwill                                |  |              | 1,861,000  |      |  |   |          |  
|                                        |  |              |            |      |  |   |           |  
|                                        |  |              | 7,279,000  |      |  |   | 4,697,000 |  
|                                       
|                                       
|                                       
|                                       
|Accumulated amortization                |  |              | (2,264,000 | )    |  |   | (854,000  | )
|                                        |  |              |            |      |  |   |           |  
|                                        |  | $            | 5,015,000  |      |  | $ | 3,843,000 |  
|                                        |  |              |            |      |  |   |           |  

Capitalized patent costs at December 31, 2000 include
$322,000 that relates to issued or allowed patents for which
amortization has begun. The remaining amounts relate to pending
patents, amortization of which will begin when the patents are
issued or allowed.

7. Other Assets

|                                        |  |              |           |      |  |   |           | 
|--------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                        |  |             
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2000         |           | 1999
|                                        |  |              |           |     
|Restricted cash                         |  | $            | 1,371,000 |      |  | $ | 1,330,000 | 
|                                       
|                                       
|                                       
|                                       
|Deposits and long-term prepaid expenses |  |              | 363,000   |      |  |   | 82,000    | 
|                                       
|                                       
|                                       
|                                       
|Call option                             |  |              |          |      |  |   | 1,787,000 | 
|                                        |  |              |           |      |  |   |           | 
|                                        |  | $            | 1,734,000 |      |  | $ | 3,199,000 | 
|                                        |  |              |           |      |  |   |           | 

Restricted cash consists of certificates of deposit, which are
being held as security for notes payable (see Note 8) and
facility leases. The call option represents the fair value of an
option to acquire the 7.5% minority interest shares of
Proteomics for $74,000 that was exercised in March 2000 (see
Note 2). The Company obtained the call option as part of the
acquisition of Proteomics. The fair value of the call option was
calculated using the Black-Scholes option-pricing model with the
following assumptions: volatility of 60%; risk-free interest
rate of 5.1%; expected life of 2.9 years; and no expected
dividend yield.

F-11



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


8. Long-term debt

|                                                                                                                                                                                                                                                                                                                                                                   |                               |              |            |         |  |   |            |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | ------------ | ---------- | ------- |  | - | ---------- | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                   |                               |             
|                                                                                                                                                                                                                                                                                                                                                                   |                               | December 31,
|                                                                                                                                                                                                                                                                                                                                                                   |                               |             
|                                                                                                                                                                                                                                                                                                                                                                   |                               | 2000         |            | 1999   
|                                                                                                                                                                                                                                                                                                                                                                   |                               |              |            |        
|$5,000,000 equipment financing arrangement entered into on
	November 30, 1998 which bears interest at the commercial
	bank prime interest rate (9.50% at December 31, 2000)
	payable in monthly installments through October 2001 and is
	secured by the financed equipment and a certificate of deposit
	(see Note 7) equal to 30% of the outstanding loan amount |                               | $            | 1,994,000  |         |  | $ | 4,086,000  |          
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|$500,000 note payable which bears interest at 5% and is payable
	through August 2008 in monthly installments of $5,000. The note
	is secured by the Owensboro processing facility and certain
	equipment                                                                                                                                                           |                               |              | 405,000    |         |  |   | 447,000    |          
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|$100,000 note payable which bears interest at the commercial
	bank prime interest rate less 4% with a minimum rate of 4% (4.5%
	at December 31, 2000) and is payable through September 2007
	in monthly installments of $1,000. The promissory note is
	secured by an irrevocable letter of credit                                                                 |                               |              | 72,000     |         |  |   | 81,000     |          
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|Other                                                                                                                                                                                                                                                                                                                                                              |                               |              |           |         |  |   | 27,000     |          
|                                                                                                                                                                                                                                                                                                                                                                   |                               |              |            |         |  |   |            |          
|Total notes payable                                                                                                                                                                                                                                                                                                                                                |                               |              | 2,471,000  |         |  |   | 4,641,000  |          
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                  
|Less current portion                                                                                                                                                                                                                                                                                                                                               |                               |              | (2,048,000 | )       |  |   | (2,184,000 | )        
|                                                                                                                                                                                                                                                                                                                                                                   |                               |              |            |         |  |   |            |          
|                                                                                                                                                                                                                                                                                                                                                                   | Total long-term notes payable |              | $          | 423,000 |  |   | $          | 2,457,000 | 
|                                                                                                                                                                                                                                                                                                                                                                   |                               |              |            |         |  |   |            |          

Future principal payments under long-term debt are:

|                         |  |   |           | 
|------------------------ |  | - | --------- | 
|                        
|                        
|                        
|                        
|2001                     |  | $ | 2,048,000 | 
|                        
|                        
|                        
|                        
|2002                     |  |   | 56,000    | 
|                        
|                        
|                        
|                        
|2003                     |  |   | 60,000    | 
|                        
|                        
|                        
|                        
|2004                     |  |   | 63,000    | 
|                        
|                        
|                        
|                        
|2005                     |  |   | 65,000    | 
|                        
|                        
|                        
|                        
|Thereafter               |  |   | 179,000   | 
|                         |  |   |           | 
|Total principle payments |  | $ | 2,471,000 | 
|                         |  |   |           | 

9. Dow Contract

The Company entered into a Collaboration and License Agreement
(the Agreement) with The Dow Chemical Company and
its subsidiary Dow AgroSciences LLC (collectively
Dow) on September 1, 1998. The Agreement
provides funding for sponsored genomics research, technology
access fees, royalties upon product sales and payments when
certain milestones are achieved. The Company is entitled to all
funding received regardless of the results of the research.
Accordingly, no obligation to repay or repurchase technology has
been recorded. Revenues from Dow represented 86%, 88% and 84% of
total revenues for 2000, 1999 and 1998, respectively. The
contract is for three years and is renewable annually if
mutually agreed to by Dow and the Company.

Technology Access Fees

During 1998, the Company received cash of $10,000,000 in
exchange for access to the Companys technologies and a
warrant granted to Dow (the Dow Warrant) to purchase
1,848,091 shares of the Companys common stock subject
to certain vesting provisions (see Note 11). Using the
Black-Scholes option-pricing model, the Company determined that
the fair value of the warrant was $1,392,000 on the issuance
date and such amount was recorded as warrant liability. The
technology access fee of $8,608,000 was recorded as deferred
revenue and is being recognized on a straight-line basis over
the original three-year term of the agreement, during which the
Company will be performing research and development activities
under the Agreement. Amortized technology access fee revenue of
$2,868,000, $2,868,000 and $956,000 was

F-12



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


recognized during 2000, 1999 and 1998, respectively. Related
deferred revenue was $1,916,000 and $4,784,000 at
December 31, 2000 and 1999, respectively. The Company
expects to recognize amortized technology access revenue of
$1,916,000 during 2001.

Milestone Payments

The Company received $20,000,000 during 1999 for meeting certain
milestones specified in the Agreement. These amounts, less the
fair value of Dow Warrant shares vesting during 1999 (see
Note 11), were recorded as deferred revenue. The deferred
revenue is being recognized on a straight-line basis from the
date of completion of the specified milestone over the remaining
life of the development agreement, during which the Company will
be performing research and development activities under the
Agreement. Using the Black-Scholes option-pricing model, the
Company determined that the fair value of the warrant vesting in
connection with the milestone payments in 1999 was $3,411,000
and such amount was recorded as warrant liability. The Company
received $1,500,000 in 2000 for meeting an additional milestone.
Amortized milestone payment revenue of $8,768,000 and $2,802,000
was recognized in 2000 and 1999, respectively. Deferred revenue
related to milestone payments was $6,519,000 and $13,787,000 at
December 31, 2000 and 1999, respectively. The Company may
be eligible for additional payments of up to $6,500,000 through
August 31, 2001 if certain milestones are met.

Research Funding

Revenue related to research performed under the Agreement was
$8,332,000, $8,563,000 and $1,896,000 in 2000, 1999 and 1998,
respectively.

10. Commitments

The Company entered into an agreement with another company on
January 18, 2001 whereby the Company has committed to pay
$6,760,000 over 14 months for program targets. In addition,
the Company may be required to pay certain amounts upon
achievement of milestones.

The Company leases facilities under operating leases and
incurred facility rental expenses of $690,000, $659,000 and
$476,000 during 2000, 1999 and 1998, respectively. Additionally,
the Company has entered into research sponsorship agreements
with major universities, government institutions and other
companies. These agreements provide for research funding by the
Company for specific projects of interest to the Company.
Expenses under these and other agreements with various
consultants totaled $4,701,000, $4,127,000 and $3,145,000 during
2000, 1999 and 1998, respectively.

Future non-cancelable minimum payments under operating leases
and research and consulting agreements are:

|           |  |           |            |            |  |   |           | 
|---------- |  | --------- | ---------- | ---------- |  | - | --------- | 
|           |  |           |            | Research  
|           |  |           |            | and       
|           |  | Operating |            | Consulting
|           |  | Leases    |            | Agreements
|           |  |           |            |           
|2001       |  | $         | 1,577,000  |            |  | $ | 1,741,000 | 
|          
|          
|          
|          
|2002       |  |           | 1,594,000  |            |  |   |          | 
|          
|          
|          
|          
|2003       |  |           | 1,563,000  |            |  |   |          | 
|          
|          
|          
|          
|2004       |  |           | 786,000    |            |  |   |          | 
|          
|          
|          
|          
|2005       |  |           | 806,000    |            |  |   |          | 
|          
|          
|          
|          
|Thereafter |  |           | 4,408,000  |            |  |   |          | 
|           |  |           |            |            |  |   |           | 
|           |  | $         | 10,734,000 |            |  | $ | 1,741,000 | 
|           |  |           |            |            |  |   |           | 

In addition to the future non-cancelable minimum payments
disclosed above, certain of the research and consulting
agreements contain provisions for additional aggregate payments
of $2,076,000 if the agreements are not cancelled.

F-13



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company has also entered into license agreements with major
universities that provide for royalties based on product sales
and minimum annual royalty amounts. These arrangements remain in
effect until there are no longer any related unexpired patents
or upon termination by the Company. Each arrangement is
cancelable by the Company, generally upon ninety days notice,
without significant liability to the Company. Royalty payments
were $147,000, $207,000 and $78,000 during 2000, 1999 and 1998,
respectively. The Companys non-cancelable obligation
related to royalty agreements at December 31, 2000 was
$28,000.

As of December 31, 2000, the Company has committed to spend
$4,033,000 in 2001, principally for the construction of certain
facilities at its Owensboro processing facility and Germantown
Proteomics facility.

11. Stockholders Equity

Common stock

In July 1998, the Company cancelled 405,000 shares of its
common stock, which were received as settlement of a lawsuit
(see Note 4).

Warrants

The Company has reserved 1,848,091 shares of common stock
for issuance upon the exercise of a warrant granted on
September 1, 1998 to Dow in conjunction with the Agreement.
The warrant is currently exercisable at $10.14 a share. Portions
of the technology access fee received during 1998 and the
milestone payments received during 1999 were attributed to the
warrant based on its fair value. Because Dow held a put option
for any shares obtained upon exercise of the warrant, the
Company could have been obligated to repurchase the related
common stock at its fair market value under certain conditions.
The warrant was revalued at its fair value on August 9,
2000, and December 31, 1999 and 1998, resulting in the
recognition of an expense of $811,000, $5,353,000 and $1,224,000
for 2000, 1999 and 1998, respectively. The warrant was reported
as a liability because of this put feature. Upon the
Companys initial public offering, the put feature expired
and the warrant liability was reclassified to permanent equity.
The following assumptions were used at August 9, 2000, and
December 31, 1999 and 1998 to determine the fair value of
the warrant: expected volatility of 60%; risk-free interest
rates from 4.6% to 6.4%; expected life of 3.1 years during
2000, 3.7 years during 1999, and 4.7 years and
0.2 years during 1998; no expected dividend yield.

The Company granted warrants to purchase 146,875 shares of
Series E convertible preferred stock during 1997. A warrant
to purchase 46,875 shares of Series E convertible
preferred stock was granted to an employee. This warrant is
exercisable at $12.62 per share, expires on May 20,
2001 and is fully exercisable into 70,312 shares of common
stock. A warrant to purchase 100,000 shares of
Series E convertible preferred stock was granted to a
marketing consultant. This warrant is exercisable at
$4.00 per share, expires on February 20, 2002 and is
fully exercisable into 150,000 shares of common stock.

The Company has also reserved 43,983 shares of common stock
for issuance upon the exercise of a warrant granted during 1988.
This warrant is currently exercisable to purchase common stock
at $1.59 per share, and expires on August 9, 2005.

Stock Plans

The Company has adopted the Employee Stock Purchase Plan that
authorized the purchase of up to 350,000 shares of common
stock by employees through payroll deductions. No shares were
issued under this plan at December 31, 2000.

The Company has adopted the 2000 Stock Incentive Plan (the
Plan) that incorporated the 1988, 1990, 1992 and
1999 Stock Plans. Under the terms of the Plan, the
Companys employees, officers, directors and consultants
may be granted options to purchase, or be allowed to immediately
purchase, shares of the Companys common stock. The term of
options and the exercise price are determined by the Board of
Directors. Stock options granted under the Plan are exercisable
over a ten-year period from the grant date and have a vesting
period ranging from immediate vesting to four years. Options
granted under the Plan may be

F-14



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


either incentive stock options or nonqualified stock options.
Incentive stock options may be granted only to Company employees
(including officers and directors who are also employees).
Nonqualified stock options may be granted to Company employees,
directors and consultants. Incentive and nonqualified stock
options granted under the Plan may be granted at exercise prices
no less than 100% and 85%, respectively, of the estimated fair
value of the Companys common stock on the date of grant.
However, an option granted to a 10% shareholder under the Plan
shall be granted at an exercise price not less than 110% of the
estimated fair value of the Companys common stock on the
date of the grant.

The Company has authorized 7,943,780 shares of common stock
for issuance under the Plan. There were 4,111,509 shares of
common stock available for grant at December 31, 2000. The
Plan includes a net exercise provision whereby shares of the
Companys stock which have been owned for more than one
year can be exchanged at fair market value to pay for the
exercise of stock options. Employees and consultants exchanged
19,779, 7,593 and 4,613 shares of common stock to exercise
options under the net exercise provision during 2000, 1999 and
1998, respectively.

Outstanding options are summarized as follows:

|                               |                   |           |           |           |   |   |      |       | 
|------------------------------ | ----------------- | --------- | --------- | --------- | - | - | ---- | ----- | 
|                               |                   |           |           | Weighted 
|                               |                   |           |           | Average  
|                               |                   | Number of |           | Exercise 
|                               |                   | Options   |           | Price    
|                               |                   |           |           |          
|Outstanding, December 31, 1997 |                   |           | 2,165,400 |           |   | $ | 2.90 |      
|                              
|                              
|                              
|                              
|                               | Granted           |           |           | 196,500   |   |   |      | 4.89  | 
|                              
|                              
|                              
|                              
|                               | Exercised         |           |           | (180,554  | ) |   |      | 1.21  | 
|                              
|                              
|                              
|                              
|                               | Forfeited         |           |           | (22,500   | ) |   |      | 8.41  | 
|                               |                   |           |           |           |   |   |      |      
|Outstanding, December 31, 1998 |                   |           | 2,158,846 |           |   |   | 3.17 |      
|                              
|                              
|                              
|                              
|                               | Granted           |           |           | 2,378,062 |   |   |      | 6.95  | 
|                              
|                              
|                              
|                              
|                               | Exercised         |           |           | (73,671   | ) |   |      | 2.47  | 
|                              
|                              
|                              
|                              
|                               | Forfeited         |           |           | (217,930  | ) |   |      | 2.22  | 
|                               |                   |           |           |           |   |   |      |      
|Outstanding, December 31, 1999 |                   |           | 4,245,307 |           |   |   | 5.35 |      
|                              
|                              
|                              
|                              
|                               | Granted           |           |           | 346,200   |   |   |      | 22.79 | 
|                              
|                              
|                              
|                              
|                               | Exercised         |           |           | (974,005  | ) |   |      | 2.33  | 
|                              
|                              
|                              
|                              
|                               | Forfeited         |           |           | (106,221  | ) |   |      | 6.49  | 
|                               |                   |           |           |           |   |   |      |      
|Outstanding, December 31, 2000 |                   |           | 3,511,281 |           |   | $ | 7.87 |      
|                               |                   |           |           |           |   |   |      |      
|Exercisable options:           |                   |           |           |           |   |   |      |      
|                              
|                              
|                              
|                              
|                               | December 31, 1998 |           |           | 1,877,916 |   |   | $    | 2.82  | 
|                              
|                              
|                              
|                              
|                               | December 31, 1999 |           |           | 1,742,717 |   |   | $    | 3.06  | 
|                              
|                              
|                              
|                              
|                               | December 31, 2000 |           |           | 2,163,118 |   |   | $    | 6.14  | 

The number of options outstanding at December 31, 2000
includes 346,486 options to consultants. The
weighted-average fair value of options granted was $18.58 in
2000, $7.13 in 1999 and $1.70 in 1998.

F-15



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table summarizes information about stock options
outstanding and exercisable under the Plans at December 31,
2000:

|                |  |                     |           |                     |  |           |     |           |  |           |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ------------------- |  | --------- | --- | --------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |           |                    
|                |  | Outstanding Options |           | Exercisable Options
|                |  |                     |           |                    
|                |  |                     |           | Weighted-           |  |           |     |          
|                |  |                     |           | Average             |  | Weighted- |     |           |  | Weighted-
|                |  |                     |           | Remaining           |  | Average   |     |           |  | Average  
|Range of        |  | Number of           |           | Contractual         |  | Exercise  |     | Number of |  | Exercise 
|Exercise Prices |  | Options             |           | Life                |  | Price     |     | Options   |  | Price    
|                |  |                     |           |                     |  |           |     |           |  |          
|$ 0.27 to  4.67 |  |                     | 769,559   |                     |  |           | 4.0 |           |  | $         | 3.11  |  |  |  | 708,538   |  |  | $ | 3.05  | 
|$ 6.67 to  8.41 |  |                     | 2,395,522 |                     |  |           | 8.7 |           |  | $         | 7.24  |  |  |  | 1,436,397 |  |  | $ | 7.43  | 
|$14.31 to 19.19 |  |                     | 128,000   |                     |  |           | 9.8 |           |  | $         | 18.89 |  |  |  |          |  |  |   |      | 
|$22.50 to 28.12 |  |                     | 218,200   |                     |  |           | 9.6 |           |  | $         | 25.08 |  |  |  | 18,183    |  |  | $ | 25.08 | 
|                |  |                     |           |                     |  |           |     |           |  |           |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 3,511,281 |                     |  |           | 7.8 |           |  | $         | 7.87  |  |  |  | 2,163,118 |  |  | $ | 6.14  | 
|                |  |                     |           |                     |  |           |     |           |  |           |       |  |  |  |           |  |  |   |       | 

The fair value of each option granted to employees was estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions during
2000: expected volatility of 100%; risk-free interest rate of
5.9 %; initial expected life of six years; and no expected
dividend yield. For options granted to employees during 1999 and
1998 the minimum value method was used with the following
weighted-average assumptions: risk-free interest rates of 6.5%
and 5.6%, respectively; expected life of six years; and no
expected dividend yield.

Pro Forma Net Loss

If compensation cost for the Companys stock-based
compensation plans and the warrant granted to an employee had
been determined based on the fair value at the grant dates
consistent with a method prescribed by SFAS No. 123, the
Companys net loss and loss per share would have been
increased to the pro forma amounts indicated below:

|                       |              |                         |   |             |       |      |   |             |       |   |   |            |       |  
|---------------------- | ------------ | ----------------------- | - | ----------- | ----- | ---- | - | ----------- | ----- | - | - | ---------- | ----- | -
|                       |              |                        
|                       |              | Year Ended December 31,
|                       |              |                        
|                       |              | 2000                    |   | 1999        |       | 1998
|                       |              |                         |   |             |       |     
|Net Loss:              |              |                         |   |             |       |      |   |             |       |   |   |           
|                      
|                      
|                      
|                      
|                       | As reported  |                         | $ | (16,300,000 | )     |      | $ | (34,895,000 | )     |   | $ | (8,755,000 | )    
|                      
|                      
|                      
|                      
|                       | Pro forma    |                         | $ | (17,867,000 | )     |      | $ | (35,371,000 | )     |   | $ | (8,970,000 | )    
|                      
|                      
|                      
|                      
|Loss per common share: |              |                         |   |             |       |      |   |             |       |   |   |           
|                      
|                      
|                      
|                      
|                       | As reported: |                         |   |             |       |      |   |             |       |   |   |            |      
|                      
|                      
|                      
|                      
|                       |              | Basic and diluted       |   | $           | (1.07 | )    |   | $           | (3.76 | ) |   | $          | (0.93 | )
|                      
|                      
|                      
|                      
|                       | Pro forma:   |                         |   |             |       |      |   |             |       |   |   |            |      
|                      
|                      
|                      
|                      
|                       |              | Basic and diluted       |   | $           | (1.17 | )    |   | $           | (3.81 | ) |   | $          | (0.96 | )

Stock Compensation

On December 31, 1999, the Company issued options to
employees, officers and directors to purchase 1,545,000 shares
of the Companys common stock. These options are
exercisable at between $6.67 and $7.50 per share, have a 10-year
life and vest in quarterly installments over 3 years.
Deferred compensation in the amount of $7,809,000 was recorded
as the difference between the exercise price and the estimated
fair value of the common stock as of December 31, 1999. The
deferred compensation is being amortized over the 3-year vesting
period.

The Company issued options to consultants to purchase 39,000,
7,500 and 24,000 shares of the Companys common stock
in 2000, 1999 and 1998, respectively. The exercise prices per
share for options granted were $14.31 and $22.50 in 2000, $6.67
in 1999 and $4.67 in 1998. The options have a 10 year life
and vest over periods ranging from one to three years. The
issuance and subsequent revaluation of these options resulted in
the Company recording deferred compensation of $0, $127,000 and
$120,000 during 2000, 1999 and 1998, respectively. The fair
value of each option granted was estimated on the date of grant
and each

F-16



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


option was revalued periodically until it was vested using the
Black-Scholes option-pricing model with the following
weighted-average assumptions during 2000, 1999 and 1998:
expected volatility of 60%; risk-free interest rate of 5.4%,
6.1% and 5.1%, respectively; initial expected life of ten years;
and no expected dividend yield.

The Company recognized $2,737,000, $129,000 and $102,000 of
stock compensation expense in 2000, 1999 and 1998, respectively.

In December 1999, certain officers and key employees were
granted options to purchase 765,000 shares of the
Companys common stock at $7.50 per share that became
exercisable upon the closing of the Companys initial
public offering. As a result, noncash compensation expense of
$7,268,000 was recognized during 2000 based on the difference
between the exercise price of those options and the value at the
date of the IPO.

The Company issued 4,723 shares of common stock valued at
$31,000 during 1999 and 15,530 shares of common stock
valued at $81,000 during 1998 to SRI International in exchange
for research and development services.

Stockholders Notes Receivable

The Companys Board of Directors has approved loans up to a
maximum of $650,000 for salaried employees who are not officers
to exercise options to purchase shares of the Companys
common stock. Employees borrowed $10,000 to purchase 1,500
shares of common stock in 2000, $82,000 to purchase
37,500 shares of common stock in 1999 and $22,000 to
purchase 22,050 shares of common stock in 1998. These full
recourse notes have been recorded as a reduction of
stockholders equity.

12. Employee Benefit Plan

The Company sponsors a 401(k) defined contribution retirement
plan covering all employees who meet minimum eligibility
requirements. During 2000, 1999 and 1998, the Company made
discretionary matching contributions equal to 50% of the amount
each employee elected to contribute up to a maximum Company
match of 3% of an employees compensation. The
Companys contributions under this plan amounted to
$243,000, $155,000 and $92,000 for 2000, 1999 and 1998,
respectively.

13. Income Taxes

The Companys income tax provision of $190,000 in 1999
consists of current federal alternative minimum income taxes.

The provision for income taxes differs from the amount computed
by applying the statutory federal income tax rate as follows:

|                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|---------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                               |  |                        
|                                               |  | Year Ended December 31,
|                                               |  |                        
|                                               |  | 2000                    |       | 1999 |  | 1998
|                                               |  |                         |       |      |  |     
|Federal income tax benefit at statutory rate   |  |                         | (35.0 | )%   |  |      | (35.0 | )% |  |  | (35.0 | )%
|                                              
|                                              
|                                              
|                                              
|Purchased research and development             |  |                         |      |      |  |      | 24.2  |    |  |  |      |   
|                                              
|                                              
|                                              
|                                              
|Research and development credits               |  |                         | (4.6  | )    |  |      | (1.9  | )  |  |  | (4.0  | ) 
|                                              
|                                              
|                                              
|                                              
|Change in valuation allowance for income taxes |  |                         | 39.0  |      |  |      | 12.4  |    |  |  | 39.9  |   
|                                              
|                                              
|                                              
|                                              
|Other                                          |  |                         | 0.6   |      |  |      | 1.0   |    |  |  | (0.9  | ) 
|                                               |  |                         |       |      |  |      |       |    |  |  |       |   
|                                               |  |                         | 0.0   | %    |  |      | 0.7   | %  |  |  | 0.0   | % 
|                                               |  |                         |       |      |  |      |       |    |  |  |       |   

F-17



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The significant components of net deferred tax assets are:

|                                                              |                                  |                           |             |            |            |   |             |            |            | 
|------------------------------------------------------------- | -------------------------------- | ------------------------- | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | 
|                                                              |                                  |                          
|                                                              |                                  | December 31,             
|                                                              |                                  |                          
|                                                              |                                  | 2000                      |             | 1999      
|                                                              |                                  |                           |             |           
|Deferred tax assets:                                          |                                  |                           |             |            |            |   |             |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Deferred revenue                 |                           | $           | 3,885,000  |            |   | $           | 7,661,000  |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Net operating loss carryforwards |                           |             | 19,766,000 |            |   |             | 12,072,000 |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Tax credit carryforwards         |                           |             | 6,212,000  |            |   |             | 4,555,000  |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Capitalized project costs        |                           |             | 1,220,000  |            |   |             | 1,235,000  |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Deferred compensation            |                           |             | 3,529,000  |            |   |             | 106,000    |           
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Other                            |                           |             | 626,000    |            |   |             | 129,000    |           
|                                                              |                                  |                           |             |            |            |   |             |           
|                                                              |                                  | Total deferred tax assets |             |            | 35,238,000 |   |             |            | 25,758,000 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Deferred tax liabilities  amortization of intangible
	assets |                                  |                           | (1,485,000  | )          |            |   | (1,470,000  | )         
|                                                             
|                                                             
|                                                             
|                                                             
|Valuation allowance                                           |                                  |                           | (33,753,000 | )          |            |   | (24,288,000 | )         
|                                                              |                                  |                           |             |            |            |   |             |           
|Net deferred income tax asset                                 |                                  | $                         |            |            |            | $ |            |           
|                                                              |                                  |                           |             |            |            |   |             |           

At December 31, 2000, the Company has net operating loss
carryforwards available to reduce future taxable income of
approximately $52,925,000 for federal income tax reporting
purposes expiring from 2009 through 2020, and $10,295,000 for
state income tax reporting purposes expiring in 2005. The
difference between the federal and state net operating loss
carryforwards is attributed to the California limitation of loss
carryforwards to 50% of net operating losses and the
capitalization of certain research costs for state income tax
purposes. Additionally, at December 31, 2000, the Company
has research and development credit carryforwards and
alternative minimum tax carryforwards of approximately
$3,537,000 available to reduce future federal income taxes
expiring from 2003 through 2015 and $2,676,000 available to
reduce future state income taxes with no date of expiration. The
Company has fully reserved all net deferred tax assets,
primarily consisting of net operating loss and tax credit
carryforwards, as management does not believe that their future
realization is more likely than not.

The extent to which the loss carryforwards can be used to offset
future taxable income may become limited if changes in the
Companys stock ownership exceed certain defined limits.

14. Supplemental Cash Flow Disclosures

Included in construction in process and accounts payable at
December 31, 2000 is accrued expenditures of $2,729,000 for
leasehold improvements at the Maryland Proteomics facility.

During 2000, $12,191,000 of warrant liability was reclassified
to permanent equity upon the expiration of a put option
effective at the date of the Companys initial public
offering (see Note 11).

During 1999, the Company issued 2,287,634 shares of
Series G convertible preferred stock in exchange for 92.5%
of the outstanding common stock of Proteomics (see Note 2).
Net cash acquired in connection with the Proteomics acquisition
is as follows:

|                                                 |  |   |             |  
|------------------------------------------------ |  | - | ----------- | -
|                                                
|                                                
|                                                
|                                                
|Issuance of Series G convertible preferred stock |  | $ | 24,660,000  |  
|                                                
|                                                
|                                                
|                                                
|Issuance of stock options                        |  |   | 394,000     |  
|                                                
|                                                
|                                                
|                                                
|Fees and expenses                                |  |   | 53,000      |  
|                                                
|                                                
|                                                
|                                                
|Less fair value of non-cash net assets acquired  |  |   | (25,086,000 | )
|                                                 |  |   |             |  
|Net cash acquired                                |  | $ | 21,000      |  
|                                                 |  |   |             |  

With its acquisition of the remaining 7.5% of the common stock
of Proteomics in March 2000, the Company recorded goodwill of
$1,861,000 (see Note 6), equal to the carrying value of the
put option of $1,787,000 (see Note 7) and cash paid of
$74,000.

F-18



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


During 2000, 1999 and 1998 the Company issued 1,500, 37,500 and
22,050 shares of its common stock in exchange for $10,000,
$82,000, and $22,000 in notes receivable, respectively.

The Company recorded deferred compensation of $0 in 2000,
$7,936,000 in 1999 and $120,000 in 1998 related to the issuance
of options to purchase common stock. In addition, the Company
recorded non-cash compensation expense of $7,268,000 in 2000
relating to options granted to certain officers and key
employees that became exercisable upon the closing of the
Companys initial public offering.

The Company recorded a $1,890,000 non-cash gain on a litigation
settlement in 1998 (see Note 4).

15. Related Party Transactions

Two of the Companys directors are managing directors of
Technology Directors, Inc. In 1998, the Company entered into a
consulting and business development arrangement with Technology
Directors, Inc. to provide management advisory services to the
Company. In addition to compensation for these management
advisory services, Technology Directors, Inc. received a fee in
connection with amounts received under the Agreement with Dow.
Expenses related to this consulting arrangement totaled $99,000,
$644,000 and $302,000 during 2000, 1999 and 1998, respectively,
and were included in general, administrative and marketing
expenses.

Pursuant to an employment agreement with an employee and founder
of Proteomics, the Company is obligated to pay the employee
$20,833 per month over two years for a five-year non-compete
agreement. In addition, the Company entered into a license and
consulting agreement with the employee covering certain biochip
technology developed by him. This agreement provides for a
$4,000 per month consulting fee over two years and license fees
of $6,667 per month over five years. The license is a worldwide,
exclusive non-royalty bearing license to the biochip technology.
Expenses related to these arrangements totaled $228,000 and
$190,000 during 2000 and 1999, respectively. Amounts owed under
these arrangements at December 31, 2000 were $295,000 and
were included in accrued expenses.

In March 1997, the Company entered into a research and
development program with Wesley Jessen Corporation for
development of new anti-infective products for certain
ophthalmic applications. Three of the Companys directors
were directors of Wesley Jessen Corporation. In connection with
this program, the Company received payments of $125,000 in 1998.

In 1999, the Company entered into a license agreement with Icon
Genetics, AG, and the International Institute of Cell Biology,
National Academy of Sciences of Ukraine. The Companys
Chief Executive Officer and Chairman of the Board serves as
Chairman of the Supervisory Board of Icon Genetics. Another of
the Companys directors is a member of the Supervisory
Board and a principal shareholder of Icon Genetics AG. The
license provides the Company an exclusive, worldwide, fully
paid-up license to specified technology for a license fee
payable in eight quarterly installments of $37,500. An
additional $200,000 was paid upon achievement of specified
milestones. A research services agreement was entered into
during 2000 that provided for payments of $200,000 to Icon
Genetics, AG. The Company was also granted a worldwide,
non-exclusive license to technology, subject to a 2% royalty on
the sale of products developed with such technology. Under these
agreements, the Company paid $450,000 and $213,000 in 2000 and
1999, respectively, to Icon Genetics and the International
Institute of Cell Biology.

F-19



---



LARGE SCALE BIOLOGY CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


16. Quarterly Results of Operations (Unaudited)

The following interim financial information presents the 2000
and 1999 results of operations on a quarterly basis:

|                                       |  |               |            |              |  |         |             |          |  |   |            |   |  |   |             |  
|-------------------------------------- |  | ------------- | ---------- | ------------ |  | ------- | ----------- | -------- |  | - | ---------- | - |  | - | ----------- | -
|                                       |  |              
|                                       |  | Quarter Ended
|                                       |  |              
|                                       |  | December 31   |            | September 30 |  | June 30 |             | March 31
|                                       |  |               |            |              |  |         |             |         
|2000                                   |  |               |            |              |  |         |             |          |  |   |            |   |  |   |             |  
|                                      
|                                      
|                                      
|                                      
|Revenues                               |  | $             | 5,719,000  |              |  | $       | 6,338,000   |          |  | $ | 5,604,000  |   |  | $ | 5,630,000   |  
|                                      
|                                      
|                                      
|                                      
|Loss from operations                   |  |               | (3,728,000 | )            |  |         | (9,964,000  | )        |  |   | (2,238,000 | ) |  |   | (1,851,000  | )
|                                      
|                                      
|                                      
|                                      
|Net Loss                               |  |               | (2,261,000 | )            |  |         | (10,663,000 | )        |  |   | (1,875,000 | ) |  |   | (1,501,000  | )
|                                      
|                                      
|                                      
|                                      
|Net loss per share  basic and diluted |  |               | (0.09      | )            |  |         | (0.60       | )        |  |   | (0.20      | ) |  |   | (0.16       | )
|                                      
|                                      
|                                      
|                                      
|                                      
|1999                                   |  |               |            |              |  |         |             |          |  |   |            |   |  |   |             |  
|                                      
|                                      
|                                      
|                                      
|Revenues                               |  | $             | 5,867,000  |              |  | $       | 4,093,000   |          |  | $ | 3,489,000  |   |  | $ | 2,641,000   |  
|                                      
|                                      
|                                      
|                                      
|Loss from operations                   |  |               | (1,217,000 | )            |  |         | (2,442,000  | )        |  |   | (1,163,000 | ) |  |   | (24,680,000 | )
|                                      
|                                      
|                                      
|                                      
|Net Loss                               |  |               | (6,454,000 | )            |  |         | (2,641,000  | )        |  |   | (1,162,000 | ) |  |   | (24,638,000 | )
|                                      
|                                      
|                                      
|                                      
|Net loss per share  basic and diluted |  |               | (0.69      | )            |  |         | (0.28       | )        |  |   | (0.13      | ) |  |   | (2.66       | )

F-20



---



EXHIBIT INDEX

|        |        |             |  |                                                                                                                                                                                                                                                                                                 
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 2.1*   |             |  | Agreement and Plan of Reorganization, dated January 25,
	1999, by and amongst registrant, the entity formerly known as
	Biosource Technologies, Inc., Large Scale Biology Corporation,
	N. Leigh Anderson, Constance L. Seniff and
	Robert J. Walden and other Large Scale Biology shareholders.
|        | 3.1*   |             |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                              
|        | 3.2*   |             |  | Bylaws.                                                                                                                                                                                                                                                                                         
|        | 4.1*   |             |  | Form of registrants Specimen Common Stock Certificate.                                                                                                                                                                                                                                         
|        | 4.2*   |             |  | Information and Registration Rights Agreement dated
	October  11, 1990 by and among the registrant and the
	parties who are signatories thereto.                                                                                                                                                
|        | 4.3*   |             |  | Amendment to the Information and Registration Rights Agreement
	dated October 10, 1991 by and among the registrant and the
	parties who are signatories thereto.                                                                                                                                
|        | 4.4*   |             |  | Second amendment to the Information and Registration Rights
	Agreement dated October 10, 1991 by and among the
	registrant and the parties who are signatories thereto.                                                                                                                         
|        | 4.5*   |             |  | Third Amendment to the Information and Registration Rights
	Agreement dated March 20, 1998 by and among the registrant
	and the parties who are signatories thereto.                                                                                                                            
|        | 4.6*   |             |  | Fourth Amendment to the Information and Registration Rights
	Agreement dated September 1, 1998 by and among the
	registrant and the parties who are signatories thereto.                                                                                                                        
|        | 4.8*   |             |  | Warrant to purchase Series E Convertible Preferred Stock
	dated May 31, 1997, by and between the registrant and
	Bruce A. Boyd.                                                                                                                                                                 
|        | 4.9*   |             |  | Warrant to purchase Series E Convertible Preferred Stock
	dated February 21, 1997, by and between the registrant and
	Bay City Capital LLC.                                                                                                                                                     
|        | 4.10*  |             |  | Warrant to purchase 1,848,091 shares of common stock dated
	September 1, 1998, by and between the registrant and The
	Dow Chemical Company.                                                                                                                                                     
|        | 4.11*  |             |  | Warrant Agreement to purchase 1,848,091 shares of common stock
	dated September 1, 1998, by and between the registrant and
	The Dow Chemical Company.                                                                                                                                           
|        | 4.12*  |             |  | Warrant to purchase 21,991 shares of common stock dated
	January 29, 1988, assigned by the registrant on
	January  14, 2000 to Arnold Zimmerman.                                                                                                                                                
|        | 4.13*  |             |  | Warrant to purchase 21,991 shares of common stock dated
	January 29, 1988 assigned by the registrant on
	January 29, 2000 to Sebastian J. Trusso.                                                                                                                                               
|        | 4.14*  |             |  | Warrant Assignment to purchase 21,991 shares of common stock
	assigned by the registrant to Arnold Zimmerman.                                                                                                                                                                                   
|        | 4.15*  |             |  | Warrant Assignment to purchase 21,991 shares of common stock
	assigned by the registrant to Sebastian J. Trusso.                                                                                                                                                                                
|        | 10.1   |             |  | Reserved.                                                                                                                                                                                                                                                                                       
|        | 10.2* |             |  | Registrants 2000 Stock Incentive Plan.                                                                                                                                                                                                                                                         
|        | 10.3* |             |  | Registrants 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                 
|        | 10.4* |             |  | Form of registrants Directors and Officers
	Indemnification Agreement.                                                                                                                                                                                                                       
|        | 10.5*  |             |  | Dow Collaboration and License Agreement dated August 24,
	1998, by and among the registrant and The Dow Chemical Company
	and its subsidiary Dow AgroSciences LLC.                                                                                                                              
|        | 10.6*  |             |  | Grant from National Cancer Institute to Large Scale Biology
	dated January 5, 2000.                                                                                                                                                                                                             
|        | 10.7* |             |  | Employment agreement between the registrant and Dr. N.
	Leigh Anderson.                                                                                                                                                                                                                         
|        | 10.8* |             |  | Employment agreement between the registrant and Dr. Norman
	Anderson.                                                                                                                                                                                                                           
|        | 10.9*  |             |  | Lease Agreement dated October 15, 1987, and
	amendments 1 through 8 thereto between the registrant and
	Mission Vacaville Limited partnership.                                                                                                                                                  
|        | 10.10* |             |  | Equipment financing arrangement entered into on November 
	30, 1998 between registrant and Sierrawest Bank.                                                                                                                                                                                     



---



|        |       |             |  |                                                                                                                                                                 
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.11 |             |  | Ninth Amendment to Lease Agreement between registrant and
	Mission Vacaville Limited partnership, dated July 31, 2000.                                          
|        | 10.12 |             |  | Tenth Amendment to Lease Agreement between registrant and
	Woodlawn Foundation (successor-in-interest to Mission Vacaville
	Limited partnership), March 1, 2001.
|        | 10.13 |             |  | Lease Agreement dated July 26, 2000 between Large Scale
	Proteomics Corporation and Westphalia Center II Limited
	partnership.                                  
|        | 21.1  |             |  | Amended List of Large Scale Biology Corporation Subsidiaries.                                                                                                   
|        | 23.1  |             |  | Independent Auditors Consent.                                                                                                                                  




|  |                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Incorporated by reference to designated exhibits to the
	Companys Registration Statement on Form S-1 (SEC
	Registration No. 333-34198), declared effective on
	August 9, 2000.



|  |                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------
| | Management contract or compensatory plan or arrangement filed as
	exhibits pursuant to Items 14(a) and 14(c) of
	Form 10-K.