##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-26483
 VaxGen, Inc.
  Delaware
    
    94-3236309(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)379 Oyster Point Boulevard, Suite 10South San Francisco, California
    
    94080(Address of Principal Executive Offices)
    
    (Zip Code)
 (650) 624-1000
  þ o
  o o
 Rule 12b-2
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
  o þ




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##### 



VaxGen, Inc.
 Form 10-Q
 For the Quarter Ended September 30, 2009
 Table of Contents
 PagePart I Financial InformationItem 1 Financial Statements (unaudited):Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of OperationsOverview
    
    
    12Critical Accounting Policies and Estimates
    
    
    13Results of Operations
    
    
    13Financial Condition, Liquidity and Capital Resources
    
    
    16Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4T Controls and Procedures
    
    
    18Part II Other InformationItem 1 Legal Proceedings
    
    
    19Item 1A Risk Factors
    
    
    19Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3 Defaults Upon Senior Securities
    
    
    23Item 4 Submission of Matters to a Vote of Security Holders
    
    
    23Item 5 Other Information
    
    
    23Item 6 Exhibits
    
    
    24Signatures
    
    
    24Exhibit 31.1Exhibit 32.1
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 VaxGen, Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited)
 (in thousands)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,133
    
    
    $
    34,618Investment securities
    
    
    4,877
    
    
    
    3,922Prepaid expenses and other current assets
    
    
    622
    
    
    
    792Assets held for sale
    
    
    441
    
    
    
    783Total current assets
    
    
    35,073
    
    
    
    40,115Restricted cash
    
    
    1,400
    
    
    
    1,556Other assets
    
    
    381
    
    
    
    426Total assets
    
    $
    36,854
    
    
    $
    42,097LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    35
    
    
    $
    75Accrued and other current liabilities
    
    
    1,024
    
    
    
    706Total current liabilities
    
    
    1,059
    
    
    
    781Deferred rent and other liabilities
    
    
    4,827
    
    
    
    5,097Total liabilities
    
    
    5,886
    
    
    
    5,878Contingencies (Note 11)Stockholders equity:Common stock
    
    
    331
    
    
    
    331Additional paid-in capital
    
    
    303,035
    
    
    
    302,856Accumulated deficit
    
    
    (272,395
    )
    
    
    (267,241
    )Accumulated other comprehensive income (loss)
    
    
    (3
    )
    
    
    273Total stockholders equity
    
    
    30,968
    
    
    
    36,219Total liabilities and stockholders equity
    
    $
    36,854
    
    
    $
    42,097
   3




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##### Table of Contents



VaxGen, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)
(in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    293Operating expenses:Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,387General and administrative
    
    
    1,865
    
    
    
    1,947
    
    
    
    5,484
    
    
    
    10,892Restructuring
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    1,313Impairment of assets held for sale
    
    
    72
    
    
    
    
    
    
    
    231
    
    
    
    8,498Total operating expenses
    
    
    1,937
    
    
    
    2,275
    
    
    
    5,715
    
    
    
    22,090Loss from operations
    
    
    (1,937
    )
    
    
    (2,275
    )
    
    
    (5,715
    )
    
    
    (21,797
    )Other income (expense)Interest expense
    
    
    (11
    )
    
    
    (202
    )
    
    
    (31
    )
    
    
    (1,571
    )Interest income
    
    
    43
    
    
    
    334
    
    
    
    206
    
    
    
    1,582Realized gain on sale of available for sale
investments
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    Valuation adjustments
    
    
    
    
    
    
    3,567
    
    
    
    
    
    
    
    2,612Gain on convertible debt redemption
    
    
    
    
    
    
    3,078
    
    
    
    
    
    
    
    3,791Gain on sale of Anthrax Program
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    3,000Other
    
    
    4
    
    
    
    14
    
    
    
    29
    
    
    
    4Total other income, net
    
    
    36
    
    
    
    7,791
    
    
    
    561
    
    
    
    9,418Net income (loss)
    
    $
    (1,901
    )
    
    $
    5,516
    
    
    $
    (5,154
    )
    
    $
    (12,379
    )Net income (loss) per share:Basic
    
    $
    (0.06
    )
    
    $
    0.17
    
    
    $
    (0.16
    )
    
    $
    (0.37
    )Diluted
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.16
    )
    
    $
    (0.37
    )Shares used in computing net income (loss) per share:Basic
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107Diluted
    
    
    33,107
    
    
    
    33,831
    
    
    
    33,107
    
    
    
    33,107
   4




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VaxGen, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
 (in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (5,154
    )
    
    $
    (12,379
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    
    
    
    
    587Impairment of assets held for sale
    
    
    231
    
    
    
    8,498Valuation adjustments
    
    
    
    
    
    
    (2,612
    )Stock-based compensation
    
    
    179
    
    
    
    1,413Amortization of premiums and discounts on investment securities
    
    
    
    
    
    
    (170
    )Gain on sale of Celltrion common stock
    
    
    (357
    )
    
    
    Gain on convertible debt repurchase
    
    
    
    
    
    
    (3,791
    )Loss on sale of assets held for sale
    
    
    16
    
    
    
    Non-cash interest expense
    
    
    
    
    
    
    427Raven merger costs previously capitalized
    
    
    
    
    
    
    1,932Changes in operating assets and liabilitiesReceivables
    
    
    
    
    
    
    199Prepaid expenses and other current assets
    
    
    242
    
    
    
    442Accounts payable
    
    
    (40
    )
    
    
    (2,055
    )Accrued and other current liabilities
    
    
    318
    
    
    
    (1,769
    )Other
    
    
    (225
    )
    
    
    533Net cash used in operating activities
    
    
    (4,790
    )
    
    
    (8,745
    )Cash flows from investing activities:Proceeds from sale of assets held for sale
    
    
    23
    
    
    
    590Proceeds from sale and maturity of investment securities
    
    
    9,486
    
    
    
    22,989Purchase of investment securities
    
    
    (10,717
    )
    
    
    (17,942
    )Proceeds from sale of Celltrion common stock
    
    
    357
    
    
    
    Loan to Raven biotechnologies, inc.
    
    
    
    
    
    
    (4,668
    )Repayment of loan by Raven biotechnologies, inc.
    
    
    
    
    
    
    6,000Change in restricted cash
    
    
    156
    
    
    
    (6
    )Net cash provided by (used in) investing activities
    
    
    (695
    )
    
    
    6,963Cash flows from financing activities:Repurchase of senior subordinated convertible notes
    
    
    
    
    
    
    (18,790
    )Net cash used in financing activities
    
    
    
    
    
    
    (18,790
    )Net decrease in cash and cash equivalents
    
    
    (5,485
    )
    
    
    (20,572
    )Cash and cash equivalents, beginning of period
    
    
    34,618
    
    
    
    64,726Cash and cash equivalents, end of period
    
    $
    29,133
    
    
    $
    44,154
   5




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VaxGen, Inc.
 
 Notes to Condensed Consolidated Financial Statements  (Unaudited)
 1. Organization
 Nature of Business Activities
   Basis of Presentation
     2. Summary of Significant Accounting Policies
  Recent Accounting Pronouncements
 Adopted
 The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles Generally Accepted Accounting
Principles
  6




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Issued but not yet adopted
 Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task
Force.
 Fair Value Measurements and Disclosures.
 ,
  3. Net Income (Loss) per Share
   7




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss) attributable to common
stockholders
    
    $
    (1,901
    )
    
    $
    5,516
    
    
    $
    (5,154
    )
    
    $
    (12,379
    )Effect of Dilutive Securities:Interest expense on convertible debt
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    Gain on convertible debt repurchase
    
    
    
    
    
    
    (3,078
    )
    
    
    
    
    
    
    Valuation adjustments
    
    
    
    
    
    
    (3,567
    )
    
    
    
    
    
    
    Net loss attributable to common stockholders and
assumed conversion
    
    $
    (1,901
    )
    
    $
    (942
    )
    
    $
    (5,154
    )
    
    $
    (12,379
    )Denominator:Weighted-average common shares outstanding -
basic
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107Dilutive effect of assumed conversion of convertible
debt
    
    
    
    
    
    
    724
    
    
    
    
    
    
    
    Weighted-average common shares outstanding -
diluted
    
    
    33,107
    
    
    
    33,831
    
    
    
    33,107
    
    
    
    33,107Basic net income (loss) per share
    
    $
    (0.06
    )
    
    $
    0.17
    
    
    $
    (0.16
    )
    
    $
    (0.37
    )Diluted net loss per share
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.16
    )
    
    $
    (0.37
    )
  September 30,2009
    
    
    2008Options to purchase common stock
    
    
    1,802
    
    
    
    5,324Warrants to purchase common stock
    
    
    2,098
    
    
    
    2,317Convertible senior subordinated notes
    
    
    
    
    
    
    542Total
    
    
    3,900
    
    
    
    8,183
 4. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (1,901
    )
    
    $
    5,516
    
    
    $
    (5,154
    )
    
    $
    (12,379
    )Change in unrealized
gains/losses on investment
securities
    
    
    (3
    )
    
    
    236
    
    
    
    (276
    )
    
    
    228Comprehensive income (loss)
    
    $
    (1,904
    )
    
    $
    5,752
    
    
    $
    (5,430
    )
    
    $
    (12,151
    )
  8




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5. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2009Certificates of deposit
    
    $
    4,880
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    4,877December 31, 2008Certificates of deposit
    
    $
    3,649
    
    
    $
    
    
    
    $
    
    
    
    $
    3,649Common shares
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    273$
    3,649
    
    
    $
    273
    
    
    $
    
    
    
    $
    3,922
  6. Assets Held For Sale
     Fair Value Measurements UsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantNine Months
    
    
    Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalEnded
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsDescription
    
    September 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Assets held for sale
    
    $
    441
    
    
    $
    
    
    
    $
    
    
    
    $
    441
    
    
    $
    (231
    )
   9




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##### Table of Contents



7. Accrued and Other Current Liabilities
  September 30,
    
    
    December 31,2009
    
    
    2008Employee benefits
    
    $
    75
    
    
    $
    154Legal and professional fees
    
    
    543
    
    
    
    167Deferred rent
    
    
    397
    
    
    
    318Other
    
    
    9
    
    
    
    67Total accrued and other current liabilities
    
    $
    1,024
    
    
    $
    706
 8. Income Taxes
     9. Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    42General and administrative
    
    
    58
    
    
    
    291
    
    
    
    179
    
    
    
    1,371$
    58
    
    
    $
    291
    
    
    $
    179
    
    
    $
    1,413
 10. Celltrion
  11. Contingencies
 Contingencies
   10




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12. Fair Value Measurements
 Fair Value Measurements and Disclosures
 
    
    Level 1 Inputs are quoted prices in active markets for
identical assets or liabilities.
    
    Level 2 Inputs are quoted prices for similar assets or
liabilities in an active market, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted prices that are
observable and market-corroborated inputs which are derived principally from or
corroborated by observable market data.
    
    Level 3 Inputs are derived from valuation techniques in
which one or more significant inputs or value drivers are unobservable.
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Cash equivalents:Money market funds
    
    $
    600
    
    
    $
    
    
    
    $
    
    
    
    $
    600Certificates of deposit
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    250Investment securities:Certificates of deposit
    
    
    
    
    
    
    4,877
    
    
    
    
    
    
    
    4,877Total Financial Assets
    
    $
    600
    
    
    $
    5,127
    
    
    $
    
    
    
    $
    5,727
 13. Subsequent Events
      11




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Special Note Regarding Forward - Looking Statements
   
 OVERVIEW
   Recent Developments
   12




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 RESULTS OF OPERATIONS
 Comparison of Fiscal Quarters and Nine Months Ended September 30, 2009 and 2008
 Revenues
 Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Revenues
    
    $
    
    
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    293
    
    
    
    -100
    %
   Research and development expenses
 Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Research and development expenses
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    1,387
    
    
    
    -100
    %
  General and administrative expenses
 Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)General and administrative expenses
    
    $
    1,865
    
    
    $
    1,947
    
    
    
    -4
    %
    
    $
    5,484
    
    
    $
    10,892
    
    
    
    -50
    %
    13




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##### Table of Contents




    
    Labor and benefits, which decreased by $2.1 million primarily associated with the
2008 reductions in force;
    
    Consultant and outside labor costs, which decreased by $2.6 million in 2009,
following the termination of the proposed merger with Raven biotechnologies, inc., or
Raven, pursuant to which we incurred $2.3 million in consultant and outside labor costs
during the first nine months of 2008 partially offset by $0.6 million of consultant and
outside labor costs incurred during the first nine months of 2009 resulting from the
proposed merger with OXiGENE; and
    
    Facilities costs, which decreased by $1.1 million due to the cessation of
operations during the first nine months of 2008.
 Restructuring expenses
 Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Restructuring expenses
    
    $
    
    
    
    $
    328
    
    
    
    -100
    %
    
    $
    
    
    
    $
    1,313
    
    
    
    -100
    %
  Impairment of assets held for sale
 Three Months Ended
    
    
    Percent
    
    
    Nine Months Ended
    
    
    PercentSeptember 30,
    
    
    Change
    
    
    September 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Impairment of assets held for sale
    
    $
    72
    
    
    $
    
    
    
    
    0
    %
    
    $
    231
    
    
    $
    8,498
    
    
    
    -97
    %
    14




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##### Table of Contents



Other income (expense)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Interest expense
    
    $
    (11
    )
    
    $
    (202
    )
    
    $
    (31
    )
    
    $
    (1,571
    )Interest income
    
    
    43
    
    
    
    334
    
    
    
    206
    
    
    
    1,582Realized gain on sale of available for sale investments
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    Valuation adjustments
    
    
    
    
    
    
    3,567
    
    
    
    
    
    
    
    2,612Gain on convertible debt repurchase
    
    
    
    
    
    
    3,078
    
    
    
    
    
    
    
    3,791Gain on sale of Anthrax Program
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    3,000Other
    
    
    4
    
    
    
    14
    
    
    
    29
    
    
    
    4Total other income (expense), net
    
    $
    36
    
    
    $
    7,791
    
    
    $
    561
    
    
    $
    9,418
  
    
    Gain on the sale of our Anthrax Program of $1.0 million in the third quarter of
2008;
    
    Valuation gain of $3.6 million in 2008 reflects the decrease in the fair value on
mark-to-market adjustments related to the valuation of our outstanding derivatives on
our 5 1/2% Convertible Senior Subordinated Notes, due April 1, 2010, or Notes, due to
the repurchase of $22 million principal amount of the Notes;
    
    Decreased interest income due to lower interest rates and lower overall cash,
cash equivalents and investment balances primarily due to our repurchase of Convertible
Notes during 2008; and
    
    A partial offset of decrease in interest expense in 2009, following the
repurchase of our Convertible Notes, during 2008.
  
    
    Gain on the sale of our Anthrax Program of $3.0 million in the first nine months
of 2008;
    
    Gain of $3.8 million on the repurchase of $23.5 million principal amount of our
Notes at a discount;
    
    Valuation gain of $2.6 million in 2008 reflects the decrease in the fair value on
mark-to-market adjustments related to the valuation of our outstanding derivatives on
our 5 1/2% Convertible Senior Subordinated Notes, due April 1, 2010, or Notes, due to
the repurchase of $22 million principal amount of the Notes;
    
    Decreased interest income due to lower overall cash, cash equivalents and
investment balances primarily due to our repurchase of Convertible Notes during 2008;
and
    
    A partial offset of decrease in interest expense in 2009, following the
repurchase of our Convertible Notes, during 2008.
   15




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 2009
    
    
    2008(in thousands)As of September 30:Cash, cash equivalents and investment securities
    
    $
    34,010
    
    
    $
    46,394Working capital
    
    
    34,014
    
    
    
    46,709Nine Months ended September 30:Cash provided by (used in)Operating activities
    
    $
    (4,790
    )
    
    $
    (8,745
    )Investing activities
    
    
    (695
    )
    
    
    6,963Financing activities
    
    
    
    
    
    
    (18,790
    )
   
    
    Depreciation expense of zero in 2009 and $0.6 million in 2008, reflecting the
reclassification of equipment, furniture and fixtures to assets held for sale during the
first nine months of 2008;
    
    Impairment of assets held for sale of $0.2 million in 2009 and $8.5 million in
2008;
    
    Valuation gain of $2.6 million in 2008 reflecting changes in the fair value of
outstanding derivatives from the Convertible Notes;
    
    Stock based compensation expense of $0.2 million in 2009 and $1.4 million in
2008.
    
    Gain on redemption of the Convertible Notes of $3.8 million in 2008;
    
    Gain on sale of Celltrion common stock of $0.4 million in 2009; and
    
    $1.9 million of Raven merger costs capitalized at December 31, 2007 that were
expensed as general and administrative expense during the nine months ended
September 30, 2008.
  
    
    Accounts payable, which decreased by $39,000 in 2009 and $2.1 million in 2008
primarily due to the timing of payments and the reduced level of operating activities;
and
    
    Accrued and other liabilities, which decreased by $0.3 million in 2009 and
increased by $1.8 million in 2008 primarily due to $1.9 million of the costs of the
proposed merger with Raven capitalized at December 31, 2007 that were expensed as
general and administrative expense during the nine months ended September 30, 2008.
    
    
    Cash, cash equivalents and investments decreased by $12.4 million primarily due
to our repurchase of Convertible Notes in 2008 and operating losses;
  16




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##### Table of Contents




    
    Assets held for sale decreased by $0.7 million primarily due to impairment
charges; and
 
    
    A partial offset by the elimination of the derivative liability of $0.9 million
resulting from the repurchase of our Convertible Notes in 2008.
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Adopted
 The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles Generally Accepted Accounting
Principles
 Issued but not yet adopted
 Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task
Force.
 Fair Value Measurements and Disclosures.
 ,
   17




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  Inherent Limitations on Effectiveness of Controls.
   18




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  Failure to complete our proposed merger with OXiGENE, Inc. could adversely affect our stock
price and our future business and operations; provisions of the merger agreement may
restrict our ability to operate our business.*
     If our proposed merger with OXiGENE is completed, the number of shares of OXiGENE common
stock that our stockholders will receive will depend on our net cash at closing and on the
occurrence of certain future contingent events.*
   19




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##### Table of Contents



The costs associated with the merger are difficult to estimate, may be higher than expected
and may harm the financial results of the combined company. *
  We do not currently have capabilities to develop products or offer any services; the
continuation of our business as a going concern is wholly dependent on our ability to
identify and successfully complete a strategic transaction, and/or sell our assets, which
we may be unable to accomplish.
   We may use some or all of our remaining resources, including available cash, while we seek
to identify a strategic transaction; we may fail to identify an appropriate transaction;
our stockholders may vote against a proposed transaction; and even if a strategic
transaction is completed, it may be unsuccessful in creating value for stockholders.
    20




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##### Table of Contents



We may need to raise additional capital to support our operations and in order to continue
as a going concern if we successfully complete a strategic transaction. *
   As a result of the reductions in our workforce that we announced throughout 2007 and 2008,
we may not be successful in retaining key employees and in attracting qualified new
employees as required in the future. If we are unable to retain our management or to
attract additional qualified personnel, our ability to rebuild our business will be
seriously jeopardized.
  We have only a limited operating history and we expect to continue to generate operating
losses.
  Natural disasters, including earthquakes, may damage our facilities.
  Our use of hazardous materials and chemicals require us to comply with regulatory
requirements and exposes us to potential liabilities.
  We may become subject to product liability claims, which could result in damages that
exceed our insurance coverage.
   21




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##### Table of Contents



We may be subject to claims that our employees or we have wrongfully used or disclosed
alleged trade secrets of their former employers.
  We are not currently listed on a national exchange and there can be no assurance we will
ever be listed.
  Our stockholders could experience substantial dilution as a result of the issuance of
additional shares of common or preferred stock.
  Shares of our common stock eligible for future sale may adversely affect the market for
our common stock.
  Our stock price is likely to be volatile. *
   
    
    timing and consistency of filing financial statements;
    
    announcements or speculation about the proposed merger with OXiGENE or any
other strategic transactions we may pursue;
    
    changes in financial estimates by securities analysts and our failure to meet
or exceed such estimates;
    
    rumors about our business prospects or product development efforts ;
  22




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##### Table of Contents




    
    issuances of debt or equity securities;
    
    issuances of securities or the expectation of the issuance of securities as
part of a merger or other strategic transaction;
    
    actual or expected sales by our stockholders of substantial amounts of our
common stock, including shares issued upon exercise of outstanding options and
warrants;
    
    developments in or the outcome of litigation against us; and
    
    other events or factors, many of which are beyond our control.
  We have no history of paying dividends on our common stock.
  Our charter documents and Delaware law may discourage an acquisition of us.*
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
 None.
  23




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##### Table of Contents



ITEM 6.
    
    EXHIBITS
 (a) Exhibits required by Item 601 of Regulation S-K:
  Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith2.1
    
    
    Agreement and Plan of Merger, dated October 14,
2009, by and among OXiGENE, Inc., OXiGENE Merger
Sub, Inc. and VaxGen, Inc.
    
    8-K
    
    000-26483
    
    10-15-09
    
    
    2.13.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.13.2
    
    
    Amendment to the Amended and Restated Certificate
of Incorporation.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.33.4
    
    
    Amended and Restated Bylaws, dated as of May 18,
2007.
    
    8-K
    
    000-26483
    
    05-23-07
    
    
    3.13.5
    
    
    Amendment to the Amended and Restated Certificate
of Incorporation, dated as of August 10, 2005.
    
    10-Q
    
    0-26483
    
    05-31-07
    
    
    3.44.1
    
    
    Reference is made to Exhibits 3.1, 3.2, 3.4 and 3.54.2
    
    
    Certificate of Designations, Rights and
Preferences of Series A 6% Cumulative Convertible
Preferred Stock.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.24.3
    
    
    Securities Purchase Agreement by and among
Registrant and Certain Stockholders.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    10.14.4
    
    
    Registrant Rights Agreement by and among
Registrant and Certain Stockholders.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    10.24.5
    
    
    Form of Common Stock Purchase Warrant.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    4.14.6
    
    
    Specimen Stock Certificate for Common Stock of
Registrant.
    
    S-1
    
    333-78065
    
    6-11-99
    
    
    4.131.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X32.1
    
    
    Section 1350 Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X
 
 Signatures
  VaxGen, Inc.Dated:November 3, 2009
    By:
    /s/ James P. PanekJames P. PanekPresident
(Principal Executive,  Financial and Accounting Officer)  24




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##### Table of Contents



EXHIBIT INDEX
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith2.1
    
    
    Agreement and Plan of Merger, dated October 14,
2009, by and among OXiGENE, Inc., OXiGENE Merger
Sub, Inc. and VaxGen, Inc.
    
    8-K
    
    000-26483
    
    10-15-09
    
    
    2.13.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.13.2
    
    
    Amendment to the Amended and Restated Certificate
of Incorporation.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.33.4
    
    
    Amended and Restated Bylaws, dated as of May 18,
2007.
    
    8-K
    
    000-26483
    
    05-23-07
    
    
    3.13.5
    
    
    Amendment to the Amended and Restated Certificate
of Incorporation, dated as of August 10, 2005.
    
    10-Q
    
    0-26483
    
    05-31-07
    
    
    3.44.1
    
    
    Reference is made to Exhibits 3.1, 3.2, 3.4 and 3.54.2
    
    
    Certificate of Designations, Rights and
Preferences of Series A 6% Cumulative Convertible
Preferred Stock.
    
    S-8
    
    333-84922
    
    3-26-02
    
    
    4.24.3
    
    
    Securities Purchase Agreement by and among
Registrant and Certain Stockholders.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    10.14.4
    
    
    Registrant Rights Agreement by and among
Registrant and Certain Stockholders.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    10.24.5
    
    
    Form of Common Stock Purchase Warrant.
    
    8-K
    
    000-26483
    
    5-24-01
    
    
    4.14.6
    
    
    Specimen Stock Certificate for Common Stock of
Registrant.
    
    S-1
    
    333-78065
    
    6-11-99
    
    
    4.131.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X32.1
    
    
    Section 1350 Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X
  25