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


                                    FORM 10-Q

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

                  For the Quarterly Period Ended March 31, 2001

                                       OR

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

                         Commission File Number 0-26483

                                  VaxGen, Inc.
             (Exact name of Registrant as Specified in its Charter)

                                    Delaware
         (State or other jurisdiction of incorporation or organization)

                                   94-3236309
                     (I.R.S. Employer Identification Number)

                          1000 Marina Blvd., Suite 200
                           Brisbane, California 94005
            (Address of Principal Administrative Offices) (Zip Code)

                                 (650) 624-1000
               (Registrants Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the 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 [X] No [ ]

The issuer has one class of common stock with 14,077,224  shares  outstanding as
of April 30, 2001.

<PAGE>

                                  VaxGen, Inc.

                                    Form 10-Q

                      For the Quarter Ended March 31, 2001

                                Table of Contents


Part I.     Financial Information                                           Page

Item 1.     Financial Statements:
             Condensed Balance Sheets.......................................  1
             Condensed Statements of Operations.............................  2
             Condensed Statements of Cash Flows.............................  3
             Notes to Condensed Financial Statements........................  4

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations:
             Overview.......................................................  6
             Results of Operations..........................................  8
             Liquidity and Capital Resources................................  9

Item 3.     Quantitative and Qualitative Disclosure about Market Risk....... 11

Part II.    Other Information

Item 2.     Changes in Securities and Use of Proceeds....................... 12
Item 6.     Exhibits and Reports on Form 8-K................................ 13
            Signature....................................................... 14

<PAGE>

                         PART I - FINANCIAL INFORMATION


                                  VaxGen, Inc.
                        (A Development Stage Enterprise)

                                 BALANCE SHEETS
                                   (Unaudited)

Item 1. Financial Statements

<TABLE>
<CAPTION>
                                                                         March 31,           December 31,
                                                                           2001                  2000
                                                                     --------------        --------------
<S>                                                                  <C>                   <C>
                                     ASSETS

Current assets:
Cash and cash equivalents                                            $    1,562,000        $    5,426,000
Investment securities                                                    40,460,000            43,098,000
Interest receivable                                                         559,000               733,000
Prepaid expenses and other current assets                                 4,056,000             4,114,000
                                                                     --------------        --------------
Total current assets                                                     46,637,000            53,371,000

Property and equipment, net                                               3,045,000             3,202,000
Other assets                                                                274,000               224,000
                                                                     --------------        --------------
Total assets                                                         $   49,956,000        $   56,797,000
                                                                     ==============        ==============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Payable to Genentech                                                 $      682,000        $    2,071,000
Accounts payable                                                            321,000               315,000
Accrued liabilities                                                       2,661,000             2,941,000
Current portion of long-term obligations                                     31,000                31,000
                                                                     --------------        --------------
Total current liabilities                                                 3,695,000             5,358,000

Long-term obligations                                                       359,000               367,000

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value, 20,000,000 shares
  authorized; none issued or outstanding                                         --                    --
Common stock, $0.01 par value, 20,000,000 shares
  authorized; 14,071,566 and 14,045,656 shares issued
  and outstanding at March 31, 2001 and
  December 31, 2000, respectively                                           140,000               140,000
Additional paid-in capital                                              121,942,000           121,717,000
Deferred stock compensation                                              (1,471,000)           (1,667,000)
Accumulated other comprehensive income -
  unrealized gain on investment securities                                  694,000               354,000
Deficit accumulated during the development stage                        (75,403,000)          (69,472,000)
                                                                     --------------        --------------
Total stockholders' equity                                               45,902,000            51,072,000

                                                                     --------------        --------------
Total liabilities and stockholders' equity                           $   49,956,000        $   56,797,000
                                                                     ==============        ==============
</TABLE>

            See accompanying notes to condensed financial statements.


                                       1
<PAGE>

                                  VaxGen, Inc.
                        (A Development Stage Enterprise)
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                  Period from
                                                                Three Months Ended                 Inception
                                                                     March 31,                 (November 27, 1995)
                                                         ---------------------------------          through
                                                              2001                2000           March 31, 2001
                                                         -------------       -------------       -------------
<S>                                                      <C>                 <C>                 <C>
Revenue:

Contract revenue                                         $      75,000       $          --       $     350,000

Operating expenses:

Research and development:
Genentech charges                                              395,000             250,000           9,751,000
Other                                                        4,114,000           3,803,000          42,937,000
                                                         -------------       -------------       -------------
Total research and development                               4,509,000           4,053,000          52,688,000

General and administrative expenses                          2,342,000           1,593,000          31,829,000
                                                         -------------       -------------       -------------

Loss from operations                                        (6,776,000)         (5,646,000)        (84,167,000)

Other income (expense) :
Investment income, net                                         852,000           1,034,000           8,840,000
Interest expense                                                (7,000)             (4,000)            (76,000)
                                                         -------------       -------------       -------------
Total other income, net                                        845,000           1,030,000           8,764,000

                                                         -------------       -------------       -------------
Net loss                                                 $  (5,931,000)      $  (4,616,000)      $ (75,403,000)
                                                         =============       =============       =============

Basic and diluted loss per share                         $       (0.42)      $       (0.34)
                                                         =============       =============

Weighted average shares used in computing
basic and diluted loss per share                            14,061,000          13,540,000
                                                         =============       =============
</TABLE>

            See accompanying notes to condensed financial statements.


                                       2
<PAGE>

                                  VaxGen, Inc.
                        (A Development Stage Enterprise)
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                                    Period from
                                                                                      Three Months Ended             Inception
                                                                                           March 31,             (November 27, 1995)
                                                                               --------------------------------       through
                                                                                    2001              2000         March 31, 2001
                                                                               --------------    --------------    --------------
<S>                                                                            <C>               <C>               <C>
Cash flows from operating activities:

Net loss                                                                       $   (5,931,000)   $   (4,616,000)   $  (75,403,000)

Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization                                                       222,000           173,000         1,589,000
  Amortization of premiums and discounts on investment securities                     (22,000)          196,000          (541,000)
  Stock compensation expense                                                          196,000           202,000        13,486,000
  Changes in assets and liabilities:
    Interest receivable                                                               174,000           (83,000)         (559,000)
    Prepaid expenses and other current assets                                          58,000           (65,000)       (4,056,000)
    Other assets                                                                      (50,000)               --          (163,000)
    Payable to Genentech                                                           (1,389,000)         (603,000)          682,000
    Accounts payable, accrued liabilities and other long-term obligations            (274,000)         (507,000)        3,294,000
                                                                               --------------    --------------    --------------
Net cash used in operating activities                                              (7,016,000)       (5,303,000)      (61,671,000)
                                                                               --------------    --------------    --------------

Cash flows from investing activities:

Purchase of investment securities                                                  (3,021,000)       (4,566,000)     (143,468,000)
Proceeds form sale and maturities of investment securities                          6,021,000        16,055,000       104,243,000
Purchase of property and equipment                                                    (65,000)         (278,000)       (4,487,000)
Long-term lease deposits                                                                   --                --          (120,000)
                                                                               --------------    --------------    --------------
Net cash provided by (used in) investing activities                                 2,935,000        11,211,000       (43,832,000)
                                                                               --------------    --------------    --------------

Cash flows from financing activities:

Payments under capital lease obligations                                               (8,000)           (8,000)          (60,000)
Stock issued to Genentech                                                                  --                --         1,025,000
Stock issued to other founders                                                             --                --            20,000
Stock issued in private placements                                                         --                --        65,164,000
Stock issued in initial public offering                                                    --                --        46,345,000
Issuance costs of private placements                                                       --                --        (4,208,000)
Issuance costs of initial public offering                                                  --                --        (4,386,000)
Exercise of employee stock options                                                    225,000           410,000         2,165,000
Loans from Genentech                                                                       --                --         1,000,000
                                                                               --------------    --------------    --------------
Net cash provided by financing activities                                             217,000           402,000       107,065,000
                                                                               --------------    --------------    --------------

Increase (decrease) in cash and equivalents                                        (3,864,000)        6,310,000         1,562,000

Cash and cash equivalents at beginning of period                                    5,426,000        16,063,000                --
                                                                               --------------    --------------    --------------

Cash and cash equivalents at end of period                                     $    1,562,000    $   22,373,000    $    1,562,000
                                                                               ==============    ==============    ==============

Supplemental schedule of non cash investing and financing activities:

Equipment acquired through capital leases                                      $           --    $      138,000    $      138,000

Issuance of stock through conversion of Genentech note payable                 $           --    $           --    $    1,000,000
</TABLE>

            See accompanying notes to condensed financial statements.


                                       3
<PAGE>


                                  VaxGen, Inc.
                        (A Development Stage Enterprise)

                     Notes to Condensed Financial Statements
                                 March 31, 2001
                                   (Unaudited)


1.   Basis of Presentation

The unaudited  condensed  financial  statements of VaxGen,  Inc. (the "Company")
included  herein have been  prepared  by the  Company  pursuant to the rules and
regulations of the Securities and Exchange  Commission.  Certain  information or
footnote  disclosure  normally  included  in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the management
of the  Company,  the  accompanying  unaudited  condensed  financial  statements
contain  all  adjustments,  consisting  only of  normal  recurring  adjustments,
necessary to present fairly the financial information included herein. While the
Company  believes that the  disclosures are adequate to make the information not
misleading,  it is suggested that these financial  statements  should be read in
conjunction with the Company's  audited  financial  statements  contained in its
Annual Report on Form 10-K for the year ended December 31, 2000.

2.   Non-Cash Compensation

On April 1, 1999, the  shareholders  of the Company  approved an increase in the
number of shares  reserved for grant under the Company's  1996 Stock Option Plan
to 1,750,000  shares.  This  represents the  measurement  date for stock options
granted to employees  earlier in 1999 and in 1998, which were granted subject to
stockholder  approval of the plan amendment.  As a result,  the Company recorded
deferred  compensation in the amount of $3,223,000,  representing  the excess of
fair market value of the common shares on April 1, 1999,  $13.00 per share, over
the exercise price of the options on the date stockholder approval was obtained.
The Company has recorded  charges to non-cash  compensation  expense of $162,000
for the portion of the vesting  period  lapsed for the three  months ended March
31, 2001.  The balance of deferred  compensation  is being  amortized to expense
over the remaining vesting period of the options.


                                       4
<PAGE>

                                  VaxGen, Inc.
                        (A Development Stage Enterprise)



3.   Loss per Share

Excluded from the  computation  of basic and diluted loss per share,  were stock
options and warrants  outstanding  for the purchase of 2,234,000  and  1,817,000
shares of common  stock as of March 31, 2001 and March 31,  2000,  respectively,
because the representative share increments would be antidilutive.

4.   New Accounting Pronouncements

In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities".  SFAS  133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including derivative  instruments  embedded in other contracts,  and for hedging
activities.  SFAS 133,  as  amended  by SFAS 138,  is  effective  for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS 133
on  January  1,  2001,  did not  have  any  impact  on the  Company's  financial
statements.


                                       5
<PAGE>

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

This  discussion and analysis  should be read in conjunction  with our condensed
financial  statements  and related  notes  thereto  appearing  in Item 1 of this
report.   In  addition  to   historical   information,   this  report   contains
"forward-looking  statements" that are within the safe harbor  provisions of the
Private  Securities  Litigation  Reform  Act of 1995,  and that are  subject  to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from  those  projected.  The words  "believe",  "expect",  "intend",
"anticipate",  and  similar  expressions  are used to  identify  forward-looking
statements,  but  their  absence  does  not  mean  that  such  statement  is not
forward-looking. Factors that might cause such a difference include, but are not
limited  to,  uncertainties  related to the  progress,  costs and results of the
Company's Phase III clinical trials, the progress of other internal research and
development  projects,  the  establishment  of collaborative  arrangements  with
governmental agencies,  the availability of manufacturing  capacity, the receipt
of research grants and the timing of certain expenses.  Reference should be made
to VaxGen's  Annual  Report on Form 10-K for the year ended  December  31, 2000,
filed  with  the  Securities  and  Exchange  Commission,  for  a  more  detailed
description of such factors discussed in the "Factors  Affecting Future Results"
and "Business" sections.  These risk factors,  among others, could cause results
to differ  materially from those presently  anticipated by the Company.  Readers
are cautioned not to place undue reliance on these  forward-looking  statements,
which  speak  only as of the date of this  report.  The  Company  undertakes  no
obligation   to  publicly   release  the  results  of  any  revisions  to  these
forward-looking  statements that may be made to reflect events or  circumstances
after the date of this  report  or to  reflect  the  occurrence  of  anticipated
events.

Overview

In November 1995,  VaxGen was formed to continue  development of AIDSVAX(R).  At
that time, Genentech, Inc. ("Genentech") licensed to us the technology necessary
for completing  development  and  commercialization  of  AIDSVAX(R).  Currently,
Genentech owns approximately 11% of VaxGen common stock.

Since our formation,  we have focused on developing and testing  AIDSVAX(R).  We
have developed  formulations  of AIDSVAX(R),  which focus on the predominant HIV
subtype in North America,  Europe, the Caribbean,  and Australia (subtype B) and
the predominant HIV subtype in Southeast Asia and East Asia (subtype E). We have
commenced two Phase III clinical trials, one in North America and Europe and one
in  Thailand to  determine  the  efficacy of  AIDSVAX(R).  In October  1999,  we
completed  the  enrollment  of  over  5,400  trial   volunteers  for  the  North
American/European  Phase III  clinical  trial,  which is being  conducted  in 61
clinical  centers.  In August 2000,  we completed  the  enrollment of over 2,500
volunteers for the Thai Phase III clinical trial, which is being conducted in 17
clinical centers in Bangkok.


                                       6
<PAGE>

To date, we have  generated  $350,000 in revenue,  primarily from a preparedness
grant  from  the  National   Institutes  of  Health  ("NIH")  for  research  and
development  of HIV  vaccines.  We  anticipate  only modest  revenues from other
governmental agencies or other grants or from collaborations with other entities
over the next three to four years.  We have incurred losses since inception as a
result of research and  development and general and  administrative  expenses in
support of our  operations.  As of March 31, 2001, we had a deficit  accumulated
during the development stage of $75,403,000. We anticipate incurring substantial
losses  over at least the next three to four years as we complete  our  clinical
trials, apply for regulatory  approvals,  continue development of our technology
and expand our operations.

For  the  North  American/European  clinical  trial,  we  will  have  our  first
opportunity  in  November  2001 to find out how well  AIDSVAX(R)  works.  If the
results  of the  interim  analysis  demonstrate  30%  or  greater  efficacy,  at
statistical  significance,  we believe that the Data and Safety Monitoring Board
will  recommend  that we terminate the trial.  In order to achieve this level of
statistical significance,  the vaccine must have an actual efficacy rate of well
over 50%. We would then begin the process of applying for  regulatory  approval.
If the results of the interim  analysis  are  inconclusive,  we will proceed for
another  12 months to the  scheduled  endpoint  of the trial at the end of 2002.
During this time, we will gather additional  statistical power that will improve
our ability to determine the vaccine's  effectiveness.  An interim  analysis for
the Thai clinical  trial is  anticipated to take place during the fourth quarter
of 2002.


                                       7
<PAGE>

Results of Operations

Three months  ended March 31, 2001  compared to the three months ended March 31,
2000

Contract Revenue

Contract revenue  increased to $75,000 for the three months ended March 31, 2001
from $0 for the three months ended March 31, 2000. Contract revenue consisted of
funds received as reimbursements  under an NIH grant.  Research contract revenue
earned in one period is not indicative of research contract revenue to be earned
in future periods.

Research and Development Expenses

Research and  development  expenses  increased 11% from $4,053,000 for the three
months ended March 31, 2000 to  $4,509,000  for the three months ended March 31,
2001.  The  increase  is  related to  expenses  related  to the  on-going  North
American/European  and Thai clinical trials along with development of additional
AIDSVAX(R)   vaccines  (See  further   discussion  in  "Liquidity   and  Capital
Resources").  These expenses included costs for additional  personnel along with
maintaining our research laboratory facility.

General and Administrative Expenses

General and administrative  expenses increased 47% from $1,593,000 for the three
months ended March 31, 2000 to  $2,342,000  for the three months ended March 31,
2001.  The increase was due primarily to additional  personnel  hired to support
our growing  infrastructure along with an increase in legal fees, which included
fees related to a successful patent defense last year.

Other Income, Net

Other income, net, consisting  primarily of investment income,  decreased by 18%
from  $1,030,000  for the three  months ended March 31, 2000 to $845,000 for the
three  months  ended March 31,  2001.  This was  primarily  attributed  to lower
average balances of cash, cash equivalents and investment securities.


                                       8
<PAGE>

Liquidity and Capital Resources

Cash, cash  equivalents and investment  securities were $42,022,000 at March 31,
2001. We have financed our operations since inception through private placements
of common stock,  our initial public  offering  ("IPO") and capital  provided by
Genentech. Genentech last funded VaxGen in 1997 and has no obligation to provide
future funding to the Company.

We completed our IPO in July 1999, in which we issued and sold 3,565,000  shares
of common stock for aggregate  proceeds to us in the amount of  $46,400,000.  Of
the aggregate proceeds received in the IPO, approximately $4,400,000 was used to
pay  costs  and  expenses  related  to the IPO,  resulting  in net  proceeds  of
approximately $42,000,000. In early 1999, we received net proceeds of $5,273,000
from private placement financing  activities,  all of which were completed prior
to the IPO.

In December  1999, we completed a private  placement of common stock with Vulcan
Ventures, Inc., the investment organization of Paul G. Allen. The funds from the
private  placement will support our on-going  operations  along with our current
clinical  trials.  This  private  placement  has  also  enabled  us to  commence
development of a formulation of AIDSVAX(R)  which focuses on the predominant HIV
type found in Africa, China, India and South America (subtype C). Currently,  we
have developed  formulations  of AIDSVAX(R),  which focus on the predominant HIV
type in North America,  Europe,  the Caribbean and Australia (subtype B) and the
predominant HIV subtype in Southeast Asia and East Asia (subtype E). The private
placement  consisted of approximately  2,174,000  shares of common stock,  which
resulted in proceeds, net of expenses, to us of approximately $24,000,000.

Since our  inception,  investing  activities,  other than purchases and sales of
investment  securities,  have consisted  entirely of equipment  acquisitions and
leasehold  improvements.  From  inception  through  March  31,  2001,  our gross
investment in equipment and leasehold improvements was $4,487,000.  The increase
in  equipment  and  leasehold   improvements  has  been  primarily  due  to  the
development of our research and development  laboratory and the establishment of
larger office  facilities.  Net cash used in operating  activities for the three
months  ended  March 31,  2001 was  $7,016,000,  representing  expenditures  for
research and development costs and general and administrative expenses.

In October 1999, we entered into a  collaboration  with the federal  Centers for
Disease  Control  and  Prevention  ("CDC") to support  research at six of the 56
clinics in the United States  currently  conducting Phase III clinical trials of
our AIDSVAX(R) vaccine.  The CDC selected the six sites in the fourth quarter of
1999. Contractual arrangements between the CDC and the clinics were completed in
the second quarter of 2000. The  participating  sites will continue to implement
our  Phase  III  protocol,  as  well  as  conduct  epidemiological,  social  and
behavioral research,  which will be shared by the Company and the CDC. The sites
will be compensated directly by the CDC for the clinical costs, which would have
been incurred by the Company, and for conducting the additional


                                       9
<PAGE>

research.  The CDC has  agreed to  contribute  approximately  $8,000,000  to the
participating sites over a four-year period.

On March 23, 2001, we finalized the  collaborative  agreement  with the National
Institute of Allergy and  Infectious  Diseases  ("NIAID"),  an agency within the
National  Institutes of Health, to obtain and store clinical  specimens from our
North  American/European  Phase III clinical trial. The agreement  provides that
NIAID may fund approximately $3,000,000 to $4,000,000,  most of which will go to
BBI Biotech Research Laboratories,  Inc.("BBI Biotech"), a NIAID contractor, and
clinical sites  contracted by us to carry out the Phase III clinical trial.  BBI
Biotech processes and stores the samples for NIAID. The  collaboration  will run
through December 2003.

For  the  North  American/European  clinical  trial,  we  will  have  our  first
opportunity in November 2001 to find out how well AIDSVAX works.  If the results
of the interim  analysis  demonstrate  30% or greater  efficacy,  at statistical
significance,  we  believe  that the  Data and  Safety  Monitoring  Board  would
recommend  that we  terminate  the  trial.  In order to  achieve  this  level of
statistical  signifiance,  the vaccine must have an actual efficacy rate of well
over 50%. We would then begin the process of applying for  regulatory  approval.
If the results of the interim  analysis  are  inconclusive,  we will proceed for
another  12 months to the  scheduled  endpoint  of the trial at the end of 2002.
During this time, we will gather additional  statistical power that will improve
our ability to determine the vaccine's  effectiveness.  An interim  analysis for
the Thai clinical  trial is  anticipated to take place during the fourth quarter
of 2002.

We  believe  that  our  existing  cash  and  cash   equivalents  and  investment
securities,  together  with  investment  income  along  with  funds  from  other
potential  collaborative  arrangements,  will  enable us to meet our  forecasted
expenditures through the anticipated  completion of our North  American/European
Phase III clinical  trial.  However,  we may need to raise  additional  funds to
complete the Thai Phase III clinical trial and we would need to raise additional
funds to support the  necessary  manufacturing  and  development  programs if we
apply for regulatory approval of the vaccine.

We will also need to raise  additional  capital if the Phase III clinical trials
are delayed or more costly than currently anticipated, or to continue operations
if the Phase III clinical trials are not successful,  or if commercialization is
delayed for any other reason. Our future capital requirements are also dependent
on several other factors, including:

     o    the progress of other internal research and development projects;

     o    the need for leasehold  improvements to facilities and the purchase of
          additional capital equipment;

     o    the   ability   to  attract   and   negotiate   business   development
          opportunities; and

     o    the timing of revenue, if any, from AIDSVAX(R).

We cannot  assure you that we will be able to raise funds when  needed,  or that
such funds will be available on  satisfactory  terms. We expect that our ability
to raise  additional  capital will be  importantly  effected by whether  AIDSVAX
achieves clinical success at either the interim or final analysis.  However,  if
clinical  success is  achieved  at either  point of  analysis,  we do not expect
difficulty in raising additional capital.


                                       10
<PAGE>

Our exposure to market rate changes is related  primarily to our debt securities
included in our investment  portfolio.  We do not have any derivative  financial
instruments.  By policy,  we invest in debt instruments of the U. S. Government,
Federal agencies and high-quality  corporate issuers, limit the amount of credit
exposure to any one issuer,  limit  duration by  restricting  the term, and hold
investments  to maturity  except under rare  circumstances.  Investments in both
fixed rate and floating  rate  interest  earning  instruments  carry a degree of
interest  rate risk.  Fixed rate  securities  may have their fair  market  value
adversely  impacted  due  to a rise  in  interest  rates,  while  floating  rate
securities  may produce less income than expected if interest rates fall. Due in
part to these factors,  our future investment income may decrease due to changes
in  interest  rates or due to losses we may suffer  when  securities  decline in
market  value.  At March 31,  2001,  we held  government  debt  instruments  and
corporate obligations in the principal amount of $39,800,000. If market interest
rates were to increase immediately and uniformly by 10% from levels at March 31,
2001, the fair value of our portfolio would decline by an immaterial amount. Our
exposure  to losses as a result of  interest  rate  changes is  managed  through
investing  primarily in  securities  that mature in a period of one year or less
and holding them until maturity.

We have  exposure  to  foreign  exchange  rate  risk  primarily  related  to our
conducting  clinical  trials in Thailand.  Thailand is currently  considered  an
emerging  economy.  A  material  increase  in the value of  Thailand's  currency
against the U.S. Dollar could cause an increase in our expenses. The majority of
our contracts  associated with conducting clinical trials in Thailand are priced
in Baht. At the time these  contracts were written,  the Thailand  exchange rate
was 37.5 Baht per one U. S.  Dollar.  As of March  31,  2001,  we have  incurred
$1,000 in foreign exchange losses.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Information  relating to quantitative  and qualitative  disclosure  about market
risk is set forth under the caption "Liquidity and Capital Resources" in Part I,
Item 2, Management's  Discussion and Analysis of Financial Condition and Results
of Operations.


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<PAGE>

                           Part II - Other Information


Item 2.   Changes in Securities and Use of Proceeds

The Company's  Registration Statement under the Securities Act of 1933 (File No.
333-78065) became effective June 29, 1999.  Offering proceeds,  net of aggregate
expenses of approximately $4,400,000, were approximately $42,000,000. All of the
expenses related to the offering were direct or indirect  payments to others and
not  payments to our  directors  or  officers  (or their  associates)  or to our
affiliates or 10%  shareholders.  As of March 31, 2001, the Company has utilized
approximately  $24,000,000  of net  proceeds of the  offering  ($23,100,000  for
working  capital and $900,000 for leasehold  improvements  and  equipment).  The
Company has  invested the  remainder  of the net  proceeds  from the offering in
short-term  investments  such as  high-quality  corporate  issues and government
obligations.


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<PAGE>

Item 6.           Exhibits and Reports on Form 8-K

     (a)  Exhibits required by Item 601 and Regulation S-K:

          10.27  Subcontract Agreement entered into between BBI Biotech Research
                 Laboratories, Inc. and VaxGen, Inc. dated as of March 23, 2001.

     (b)  Reports on Form 8-K:

          None.


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<PAGE>

                                   Signatures

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

                                           VaxGen, Inc.
                                           (Registrant)


Dated: May 2, 2001                         By: /s/ Carter A. Lee
                                               ---------------------------
                                               Carter A. Lee
                                               Senior Vice President
                                               Finance & Administration
                                               (Principal Financial Officer)


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