SecProbe.io

CORRESP
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filename1.htm

June 23, 2005

Ms. Jill S.
Davis
Branch Chief
United States Security and Exchange Commission
Division of
Corporate Finance
Mail Stop 04-05
Washington, D.C. 20549-0405

RE:

 Eden
Bioscience Corporation

Form 10-K for Fiscal Year Ended December 31, 2004,  Filed March
25, 2005

Form 10-Q for Fiscal Quarter Ended March 31, 2005,  Filed May 11, 2005

File
No. 0-31499

Dear Ms. Davis:

This letter
sets forth the responses of Eden Bioscience  Corporation (the “Company”) to the
comments of the  Securities and Exchange Commission (“Commission”) staff
relating to the filings referenced above contained in your  letter dated June 10, 2005
(the “Comment Letter”). The  Company’s responses are set forth below and
are numbered to  correspond to the numbers of the Comment Letter.

Form 10-K for
the Fiscal Year Ended December 31, 2004

Financial
Statements, page 40

Inventory, page
45

1.

 We
note, on page 12 of your filing, your disclosure  indicating that in January 2004 you
began  exchanging, at no cost to distributors, existing  Messenger inventory for
Messenger STS inventory.  Additionally you indicate on page 23 that you  conducted “limited” tests
on inventory, held by  your distributors, for quality deficiencies due to  aging
deterioration. As a result, you replaced  10,000 ounces held by distributors in 2003.
This  appears to imply that you have an obligation to  guarantee your product beyond
delivery to  distributors. Please address the following:

     a.

      Expand
your note disclosures and MD&A  to clarify your obligation to monitor  and replace
product and your intent to  replace inventory that fails to meet  quality standards.
Specifically  identify when your obligation ends to  monitor the quality of or to replace
your product.

Ms. Jill S.
Davis
United States Securities and Exchange Commission
Division of Corporation Finance

June 23, 2005

     Company response:

We do not have any obligation to monitor, replace or guarantee our products beyond
delivery to distributors. The exchange of Messenger for Messenger STS was unrelated to
any product quality or age deterioration problems. The exchange was solely related to
the market introduction of an improved formulation. The Messenger exchanged by the
distributors was simply reprocessed with STS, an inexpensive ingredient, and either
used in the product exchange or sold. As part of testing Messenger in our inventory, we
were able to identify approximately 10,000 ounces of Messenger owned by distributors
that may not have continued to meet our quality standards and we voluntarily replaced
that product in 2003. This is the only product replacement of this nature in our
history. Further, because of the continued positive testing results on our inventory,
we significantly reduced all retesting activities in 2004. We do not intend to replace
any other product currently owned by distributors. Therefore, we do not believe
additional disclosure is needed.

     b.

      Clarify
for us whether the 470,000  ounces you provided to distributors,  at no cost, as
disclosed on page 47,  is related to the exchange of  Messenger inventories held by
distributors for Messenger STS  inventory.

     Company response:

The 470,000 ounces delivered to distributors at no cost was to reduce the average cost
of their existing inventories of Messenger. It was not related to the exchange of
Messenger inventories held by distributors for Messenger STS inventory. Based on the
consensus reached in EITF 01-9, costs associated with such incentives are recognized as
costs of sales in the later of the period in which (a) the associated revenue is
recognized or (b) the sales incentive is offered to the customer.

     c.

      Quantify
the sales previously  recognized related to inventories  exchanged.

     Company response:

The Company estimates that Messenger voluntarily exchanged by distributors was sold to
the distributors in 2001, 2002 or 2003. We did not and do not have the ability to
specifically track Messenger exchanged by distributors to specific sales invoices
because we did not require, and the distributors did not provide that information.
Further, we do not have enough other information from distributors to determine
specifically which Messenger purchases were exchanged.

2

Ms. Jill S.
Davis
United States Securities and Exchange Commission
Division of Corporation Finance

June 23, 2005

     Based on
the information we have, we  estimate that the amount of previously  recognized sales
related to the 324,000  ounces of Messenger inventory exchanged is  approximately $1.1
million.

2.

 Given
the activities relating to the replacement,  return and testing of product held by
distributors it appears you have significant  obligations with respect to inventory you
have  recorded as sold. Please explain why it is  appropriate to recognize revenue given
these  arrangements. Pleases provide us with the terms  of your distributor agreements
and explain to us  why the timing of your revenue recognition is  appropriate.

     Company response:

Attached as Exhibit A is the form of our 2004 distributor agreement. The distributor
agreement explicitly provides that distributors do not have price protection, inventory
protection, or product return rights. These terms are common to all of our agreements
with distributors.

     We
do
not have significant obligations with  respect to inventory we have recorded as sold.
The Company has no obligations and the  distributors have no right to exchange Messenger
for Messenger STS or return any products that  have been recognized as revenue. This is
underscored by the significant amount of  Messenger inventory that has remained in the
distribution channel and the fact that that  product has not been returned. Further, the
Company does not offer any inventory or price  protection.

     The
Company
recognizes sales in the quarter  products are delivered when all of the SAB 104  revenue
recognition criteria have been met:

Persuasive evidence of an
arrangement existed -  distributor agreements, purchase orders  and price lists were in
place;

Product was delivered and
distributors had no right  of return, no inventory protection and  no price protection.
Our decision to  replace old inventory that may have  failed to meet quality standards
and to  ship free product to reduce our  distributors average cost were made  voluntarily
by our management in an  effort to increase market acceptance of  our products;

The Company’s price to the
distributor was fixed  and determinable based upon the  distribution agreements and price
lists;  and

Collectibility was reasonably
assured; the  distributors the Company was selling to  were large well established
companies.

There were no significant
obligations to be  performed by the Company and there were  no significant contingencies
that needed  to be resolved.

     If
any
of our sales do not meet all of the  revenue recognition criteria, revenue is deferred
until the criteria are met.

3

Ms. Jill S.
Davis
United States Securities and Exchange Commission
Division of Corporation Finance

June 23, 2005

     The
Company
determined, after it received  registration of Messenger STS from the U.S.  Environmental
Protection Agency (“EPA”), that the  best method of introduction was to offer
distributors a one-time opportunity to  voluntarily exchange their Messenger inventory
for  Messenger STS. The exchange of Messenger for  Messenger STS was unrelated to any
product  quality or age deterioration problems. The  exchange was solely related to the
market  introduction of an improved formulation. Most but  not all distributors exchanged
their Messenger  inventory for Messenger STS. The Company had no  obligation to offer and
distributors had no right  to require us to exchange or replace any products  owned by
distributors.

3.

 We
have noted that your inventory quantity balance  significantly exceeds your annual sales
and  consists of approximately 2.9 million ounces of  Messenger and Messenger STS. We
note from your  disclosures on page 23 indicating that the  shelf  life of your product,
according to laboratory  studies, is stable for two years, although you also  indicate
that recent retesting indicates a four  year life related to 2000 Messenger inventory.
Please submit your analysis demonstrating how you  have concluded that the value of your
inventory is  not impaired above that of your current reserve.  Include in your analysis
the balance of your  Messenger and Messenger STS inventories, in ounces  and dollars, as
of December 31, for all periods  presented. Additionally, demonstrate how all of  your
inventory is a current asset since it appears  you may be unable to sell your inventory
within a  12 month period.

     Company response:

In the laboratory study referred to above, Messenger passed a two year stability test.
Messenger manufactured over four years ago continues to meet the Company’s quality
standards. Based on the positive results of testing Messenger over the last four years,
the Company believes harpin-based products packaged in high-barrier foil packages that
eliminate exposure to the outside environment, such as moisture and sun light, will be
stable for many years and may remain stable until opened. While product stability is a
risk, use of high-barrier foil packages has significantly reduced the risk of product
degradation. Since all of our bulk and packaged products are stored in high-barrier
foil packages, the Company believes that a reserve is not necessary and that all
inventory will be sold well in advance of any product deterioration.

     Below
is
a table showing the balance of Messenger  and Messenger STS inventories, in ounces and
dollars, as of December 31, 2004 and 2003.

4

Ms. Jill S.
Davis
United States Securities and Exchange Commission
Division of Corporation Finance

June 23, 2005

  December 31,

  2004

  2004

  2003

  2003

   ounces

   ounces

                        Raw materials:

                             Yeast

     $    395,321

     $    525,699

                             Packaging film, labels, boxes

       133,186

       251,346

                             Other raw materials

       50,878

       78,838

                           Total raw materials

  579,385

  855,883

                           Bulk inventory and work in progress:

                             Bulk Messenger & Messenger STS
       2,230,028

       1,468,705

       479,326

       282,122

                             Bulk N-Hibit Hopper Box
       160,318

       152,758

       --

       --

                             Bulk N-Hibit CST
       258,960

       170,396

                             Bulk ProAct
       117,213

       114,822

       85,894

       66,843

                           Total bulk inventory and work in progress

  2,766,519

  1,906,681

  565,220

  348,965

                           Finished Goods:

                             Agriculture:

                              Messenger 9 oz bags

       --

       117,711

       5,713

                              Messenger 22.5 oz bags

       --

       890,550

       699,460

                              Messenger STS 32 oz bags
       225,728

       138,833

       53,408

       28,720

                              Messenger 100/300 gram bags
       26,447

       21,154

       16,398

       9,141

                              Messenger 500 gram bags
       682,665

       612,023

       144,429

       83,419

                              Employ

       4,671

       7,652

                              25 lb Mighty Plant bags

       29,113

                           Home & garden:

                              9 gal H&G Clamshells and bags

       57,447

       19,405

                              3 gal H&G Clamshells and bags

       113,901

       --

                              H&G Mighty Plant Clamshells and bags

       21,909

       --

                              8 oz Messenger STS

       2,469

       --

                               Total finished goods
       934,840

       1,001,520

       1,222,496

       852,970

                           Total Inventory

     $  3,487,586

     $  2,057,818

     Inventory
is
composed of finished and bulk goods  held for sale in the ordinary course of business
and raw materials that will be consumed in the  production process.  Classification of
inventory as  a current asset is based on the assets being held  for sale and the Company’s
expectation that the  products would be sold in the next operating cycle.  Historically,
the Company has expected sales to be  much greater than actually achieved. Prior to the
start of 2004, the Company expected to sell a  significant amount of products and began
manufacturing Messenger and Messenger STS in  February 2004 in order to be sure that we
would not  run out of products. The Company did not meet its  revenue expectations in
2004, but the Company  believes, based on sales expectation at that time,  that all
inventories were properly classified as  current at December 31, 2003. Again, prior to
the  start of 2005, the Company expected to sell a  significant amount of products and
has been  manufacturing ProAct since January 2005. The sales  forecast prepared by our
technical sales  representatives total just over 3 million ounces  and did not include
some potential upside sales.  The Company believes, based on sales expectation at  that
time, that all inventories were properly  classified as current at December 31, 2004.

5

Ms. Jill S.
Davis
United States Securities and Exchange Commission
Division of Corporation Finance

June 23, 2005

Revenues, page
46.

4.

 We
note your revenue recognition disclosure  indicating that you recognize revenue net of
sales allowances. Such allowances include sales  and marketing support, product
warehousing and  delivery, and information exchange.  Additionally your revenue
recognition policy  indicates that distributors do not have product  return rights,
although your disclosures on  page 33 indicate that in February 2003 your  received
232,000 ounces of product back from a  distributor after your paid $250,000 to settle
unpaid accrued sales allowances and an  uncollected accounts receivable. Please tell us
the period and amount of sales recognized  associated with the 232,000 ounces which were
returned. Additionally please demonstrate how  you have determined that the sales price
is  fixed or determinable since your sales  allowances appear to be variable in nature.
In  this regard we note your adjustments to your  sales allowances on page 46.

     Company response:
Settlement with a distributor
 The Company’s customers do not have product return
rights. This is explicitly stated in the Company’s distributor agreements and price
sheets. In February 2003, the Company negotiated with one of its distributors a
compromise settlement whereby we paid $250,000 to settle unpaid accrued sales allowances
and an uncollected accounts receivable. As part of the settlement agreement and mutual
release, we accepted approximately 232,000 ounces of Messenger from the distributor.
The gross revenue related to the 232,000 ounces was $1,032,622 and the sales allowance
was $413,049 resulting in net revenue of $619,573. This revenue was recognized in March
2001.

     This
dispute
arose when the distributor refused  to fully pay for two invoices. The distributor  did
pay all prior invoices and paid  approximately one-third of these two invoices.  The
distributor had the financial ability to  pay the invoices, but unilaterally decided to
not pay the remaining amount until the related  Messenger had been sold. The Company’s
product  was not sold under these terms and the Company  never agreed to these terms. The
Company  immediately stopped all sales allowance  payments to this distributor. The
relationship  between the dist