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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 March 31, 2008
 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)349 Oyster Point BoulevardSouth San Francisco, California
    
    94080(Address of Principal Executive Offices)
    
    (Zip Code)
 (650) 624-1000
 þ o
 
 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 March 31, 2008
 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 Operations
    
    
    13Overview
    
    
    13Critical Accounting Policies and Estimates
    
    
    15Results of Operations
    
    
    16Financial Condition, Liquidity and Capital Resources
    
    
    18Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4T Controls and Procedures
    
    
    21Part II Other InformationItem 1 Legal Proceedings
    
    
    22Item 1A Risk Factors
    
    
    22Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3 Defaults Upon Senior Securities
    
    
    27Item 4 Submission of Matters to a Vote of Security Holders
    
    
    27Item 5 Other Information
    
    
    28Item 6 Exhibits
    
    
    28Signatures
    
    
    30Exhibit 10.103Exhibit 31.1Exhibit 32.1
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 VaxGen, Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in thousands)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,690
    
    
    $
    64,726Investment securities
    
    
    14,394
    
    
    
    6,889Accounts receivable
    
    
    218
    
    
    
    199Prepaid expenses and other current assets
    
    
    608
    
    
    
    1,167Assets held for sale
    
    
    10,250
    
    
    
    Total current assets
    
    
    73,160
    
    
    
    72,981Property and equipment
    
    
    107
    
    
    
    10,806Restricted cash
    
    
    1,560
    
    
    
    1,556Other assets
    
    
    6,632
    
    
    
    4,622Total assets
    
    $
    81,459
    
    
    $
    89,965LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    120
    
    
    $
    2,151Accrued and other current liabilities
    
    
    2,382
    
    
    
    2,326Derivative liability
    
    
    5,111
    
    
    
    3,500Total current liabilities
    
    
    7,613
    
    
    
    7,977Convertible senior subordinated notes
    
    
    29,304
    
    
    
    30,679Deferred rent and other liabilities
    
    
    4,800
    
    
    
    4,270Total liabilities
    
    
    41,717
    
    
    
    42,926Contingencies (Note 12)Stockholders equity:Common stock
    
    
    331
    
    
    
    331Additional paid-in capital
    
    
    301,548
    
    
    
    301,378Accumulated deficit
    
    
    (262,149
    )
    
    
    (254,678
    )Accumulated other comprehensive income
    
    
    12
    
    
    
    8Total stockholders equity
    
    
    39,742
    
    
    
    47,039Total liabilities and stockholders equity
    
    $
    81,459
    
    
    $
    89,965
   3




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VaxGen, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in thousands, except per share data)
 Three Months EndedMarch 31,2008
    
    
    2007Revenues
    
    $
    278
    
    
    $
    4,184Operating expenses:Research and development
    
    
    1,387
    
    
    
    7,088General and administrative
    
    
    5,400
    
    
    
    6,578Restructuring
    
    
    
    
    
    
    3,717Total operating expenses
    
    
    6,787
    
    
    
    17,383Loss from operations
    
    
    (6,509
    )
    
    
    (13,199
    )Other income (expense)Interest expense
    
    
    (767
    )
    
    
    (611
    )Interest income
    
    
    714
    
    
    
    1,239Valuation adjustments
    
    
    (1,611
    )
    
    
    2,832Gain on convertible debt redemption
    
    
    713
    
    
    
    Other
    
    
    (11
    )
    
    
    Total other income (expense), net
    
    
    (962
    )
    
    
    3,460Net loss
    
    $
    (7,471
    )
    
    $
    (9,739
    )Basic and diluted net loss per share
    
    $
    (0.23
    )
    
    $
    (0.29
    )Weighted average shares used in computing
basic and diluted net loss per share
    
    
    33,107
    
    
    
    33,107
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VaxGen, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in thousands)
 Three Months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (7,471
    )
    
    $
    (9,739
    )Adjustments to reconcile net loss to net cash used in operating activities:Valuation adjustments
    
    
    1,611
    
    
    
    (2,832
    )Depreciation and amortization
    
    
    537
    
    
    
    1,562Stock-based compensation
    
    
    170
    
    
    
    1,165Amortization of premiums and discounts on investment securities
    
    
    (93
    )
    
    
    (284
    )Gain on convertible debt repurchase
    
    
    (713
    )
    
    
    Non-cash interest expense
    
    
    211
    
    
    
    178Changes in operating assets and liabilitiesReceivables
    
    
    (19
    )
    
    
    (3,114
    )Prepaid expenses and other current assets
    
    
    471
    
    
    
    483Accounts payable
    
    
    (2,031
    )
    
    
    (1,826
    )Accrued and other current liabilities
    
    
    56
    
    
    
    2,124Other
    
    
    2,417
    
    
    
    322Net cash used in operating activities
    
    
    (4,854
    )
    
    
    (11,961
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (19
    )Fees from sale of investment in affiliate
    
    
    
    
    
    
    (2,441
    )Proceeds from sale and maturity of investment securities
    
    
    6,895
    
    
    
    22,852Purchase of investment securities
    
    
    (14,303
    )
    
    
    (13,211
    )Loan to Raven biotechnologies, inc.
    
    
    (4,020
    )
    
    
    Other
    
    
    (4
    )
    
    
    (19
    )Net cash (used in) provided by investing activities
    
    
    (11,432
    )
    
    
    7,162Cash flows from financing activities:Redemption of senior subordinated convertible notes
    
    
    (750
    )
    
    
    Net cash used in financing activities
    
    
    (750
    )
    
    
    Net decrease in cash and cash equivalents
    
    
    (17,036
    )
    
    
    (4,799
    )Cash and cash equivalents, beginning of period
    
    
    64,726
    
    
    
    73,075Cash and cash equivalents, end of period
    
    $
    47,690
    
    
    $
    68,276
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VaxGen, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 1. Organization
 Nature of Business Activities
         Delisting from the Nasdaq National Market
   6




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Basis of Presentation
    2. Summary of Significant Accounting Policies
  Additional Significant Accounting Policy
 Accounting for the Impairment or Disposal of Long-Lived Assets
 a)
    
    Management commits to a plan to sell the asset;b)
    
    The asset is available for immediate sale in its present condition;c)
    
    An active marketing plan to sell the asset has been initiated at a reasonable price;d)
    
    The sale of the asset is probable within one year; and,e)
    
    It is unlikely that significant changes to the plan to sell the asset will be made.
  7




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Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements
 3. Net Loss per Share
 Share Based Payments
 
 Three Months EndedMarch 31,2008
    
    
    2007Net loss
    
    $
    (7,471
    )
    
    $
    (9,739
    )Basic and diluted net loss per share
    
    $
    (0.23
    )
    
    $
    (0.29
    )Weighted average shares used in computing
basic and diluted net loss per share
    
    
    33,107
    
    
    
    33,107
  Three Months EndedMarch 31,2008
    
    
    2007Options to purchase common stock
    
    
    5,347
    
    
    
    5,668Warrants to purchase common stock
    
    
    2,317
    
    
    
    2,359Convertible senior subordinated notes
    
    
    2,033
    
    
    
    2,134Total
    
    
    9,697
    
    
    
    10,161
  8




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4. Comprehensive Loss
  Three Months EndedMarch 31,2008
    
    
    2007Net loss
    
    $
    (7,471
    )
    
    $
    (9,739
    )Change in unrealized gains on investment securities
    
    
    4
    
    
    
    1Comprehensive loss
    
    $
    (7,467
    )
    
    $
    (9,738
    )
 5. Assets Held For Sale
   March 31,2008Equipment, furniture and fixtures
    
    $
    3,713Leasehold improvements
    
    
    6,537Total assets held for sale
    
    $
    10,250
 6. Other Assets
    7. Accrued and Other Current Liabilities
  March 31,
    
    
    December 31,2008
    
    
    2007Employee benefits and severance
    
    $
    892
    
    
    $
    1,398Income Taxes
    
    
    
    
    
    
    60Interest on convertible notes
    
    
    
    
    
    
    433Cash overdraft
    
    
    1,041
    
    
    
    Other
    
    
    449
    
    
    
    435Total accrued and other current liabilities
    
    $
    2,382
    
    
    $
    2,326
  9




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8. Restructuring
 Accounting for Costs Associated with Exit or Disposal Activities
  Consolidationof ExcessWorkforce
    
    
    Facilities andReduction
    
    
    Other
    
    
    TotalRestructuring CostsCosts incurred
    
    $
    4,368
    
    
    $
    1,006
    
    
    $
    5,374Amounts paid
    
    
    (4,068
    )
    
    
    (1,006
    )
    
    
    (5,074
    )Balance accrued as of December 31, 2007
    
    
    300
    
    
    
    
    
    
    
    300Amounts paid
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Balance accrued as of March 31, 2008
    
    $
    159
    
    
    $
    
    
    
    $
    159
 9. Income Taxes
  Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
     10




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10. Stock-Based Compensation
  Three Months EndedMarch 31,2008
    
    
    2007Research and development
    
    $
    42
    
    
    $
    548General and administrative
    
    
    128
    
    
    
    617$
    170
    
    
    $
    1,165
 11. Celltrion
   12. Contingencies
  13. Fair Value Measurements
 Fair Value
Measurement The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB
Statement No. 115
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2 Inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical
or similar assets and liabilities in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data.
    
    Level 3  Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. This includes
certain pricing models, discounted cash flow methodologies and similar techniques that
use significant unobservable inputs.
  11




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Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Cash equivalents:Money market funds
    
    $
    25,948
    
    
    $
    
    
    
    $
    
    
    
    $
    25,948Commercial paper
    
    
    
    
    
    
    15,164
    
    
    
    
    
    
    
    15,164Corporate debt securities
    
    
    
    
    
    
    6,578
    
    
    
    
    
    
    
    6,578Investment securities:Commercial paper
    
    
    
    
    
    
    12,298
    
    
    
    
    
    
    
    12,298U.S. government agency
obligations
    
    
    
    
    
    
    2,096
    
    
    
    
    
    
    
    2,096Restricted cash:Money market funds
    
    
    1,560
    
    
    
    
    
    
    
    
    
    
    
    1,560Total Financial Assets
    
    $
    27,508
    
    
    $
    36,136
    
    
    $
    
    
    
    $
    63,644Liabilities:Derivative liability
    
    $
    
    
    
    $
    
    
    
    $
    5,111
    
    
    $
    5,111
   DerivativeLiabilityBalance as of January 1, 2008
    
    $
    3,500Valuation
adjustment included in net loss
    
    
    1,611Balance as of March 31, 2008
    
    $
    5,111
  12




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14. Subsequent Events
 Bridge Loan to Raven
  Restructuring
  Sale of Anthrax Vaccine Program
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Special Note Regarding Forward - Looking Statements
   
 OVERVIEW
     13




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Consolidationof ExcessWorkforce
    
    
    Facilities andReduction
    
    
    Other
    
    
    TotalRestructuring CostsCosts incurred
    
    $
    4,368
    
    
    $
    1,006
    
    
    $
    5,374Amounts paid
    
    
    (4,068
    )
    
    
    (1,006
    )
    
    
    (5,074
    )Balance accrued as of December 31, 2007
    
    
    300
    
    
    
    
    
    
    
    300Amounts paid
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Balance accrued as of March 31, 2008
    
    $
    159
    
    
    $
    
    
    
    $
    159
    14




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Celltrion
  
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Assets Held for Sale
 Accounting for the Impairment or Disposal of Long-Lived Assets
 a)
    
    Management commits to a plan to sell the asset;b)
    
    The asset is available for immediate sale in its present condition;c)
    
    An active marketing plan to sell the asset has been initiated at a reasonable price;d)
    
    The sale of the asset is probable within one year; and,e)
    
    It is unlikely that significant changes to the plan to sell the asset will be made.
 
  Adoption of SFAS 157
 Fair Value
Measurement The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement
No. 115
  15




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
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical
or similar assets and liabilities in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data.
    
    Level 3  Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. This includes
certain pricing models, discounted cash flow methodologies and similar techniques that
use significant unobservable inputs.
      
 RESULTS OF OPERATIONS
 Comparison of Fiscal Quarters Ended March 31, 2008 and 2007
 Revenues
 Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    2008/2007(in thousands)Revenues
    
    $
    278
    
    
    $
    4,184
    
    
    
    -93
    %
   16




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Research and development expenses
 Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    2008/2007(in thousands)Research and development expenses
    
    $
    1,387
    
    
    $
    7,088
    
    
    
    -80
    %
  
    
    Labor and related expenses, which decreased by $1.6 million primarily due to
decreased headcount following multiple reductions in force during 2007; and
    
    Facilities and overhead costs, which decreased by $4.1 million due to reduced
operations and consolidation of facilities.
   General and administrative expenses
 Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    2008/2007(in thousands)General and administrative expenses
    
    $
    5,400
    
    
    $
    6,578
    
    
    
    -18
    %
   
    
    Labor and benefits, which decreased by $0.7 million primarily associated with the
2007 reductions in force;
    
    Consultant and outside labor costs, which decreased by $2.9 million due to
reduced operations;
    
    The above reductions were partially offset by the costs associated with the
terminated merger with Raven of $2.3 million.
   17




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Restructuring expenses
 Three Months Ended
    
    
    PercentMarch 31,
    
    
    Change2008
    
    
    2007
    
    
    2008/2007(in thousands)Restructuring expenses
    
    $
    
    
    
    $
    3,717
    
    
    
    -100
    %
  Other income (expense)
 Three Months EndedMarch 31,2008
    
    
    2007(in thousands)Interest expense
    
    $
    (767
    )
    
    $
    (611
    )Interest income
    
    
    714
    
    
    
    1,239Valuation adjustments
    
    
    (1,611
    )
    
    
    2,832Gain on convertible debt repurchase
    
    
    713
    
    
    
    Other
    
    
    (11
    )
    
    
    Total other
income (expense), net
    
    $
    (962
    )
    
    $
    3,460
  
    
    Interest income decreased due to lower overall cash, cash
equivalent and investment balances
primarily due to our operating losses;
    
    Expenses for 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, changed primarily due to changes in the likelihood of a change in
control potentially triggering the redemption option related to the Notes; and
    
    Partially offset by a gain on the repurchase of $1.5 million principal amount of
our Notes at a purchase price of $0.8 million plus accrued interest.
  
 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 2008
    
    
    2007(in thousands)As of March 31:Cash, cash equivalents and investment securities
    
    $
    62,084
    
    
    $
    83,588Working capital
    
    
    65,547
    
    
    
    83,212Three Months ended March 31:Cash provided by (used in)Operating activities
    
    $
    (4,854
    )
    
    $
    (11,961
    )Investing activities
    
    
    (11,432
    )
    
    
    7,162Financing activities
    
    
    (750
    )
    
    
    
   18




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
    
    Depreciation expense of $0.5 million in 2008 and $1.6 million in 2007, reflecting
the $10.7 impairment of property and equipment in the fourth quarter of 2007;
    
    Stock-based compensation expense of $0.2 million in 2008 and $1.2 million in
2007;
    
    Valuation loss of $1.6 million in 2008 and valuation gain of $2.8 million in
2007, reflecting changes in the fair value of outstanding derivatives from the Notes;
and
    
    Gain on redemption of the Notes of $0.7 million in 2008.
  
    
    Receivables, which increased by $19,000 in 2008 and by $3.1 million in 2007
primarily due to reduced revenues and the timing of payments received;
    
    Accrued and other current liabilities, which increased by $56,000 in 2008 and by
$2.1 million in 2007 primarily due to the timing of payments and the reduced level of
operating activities; and
    
    Other, which increased by $2.4 million in 2008 and $0.3 million in 2007 primarily
due to $1.9 million of Raven merger costs capitalized at December 31, 2007 that were
expensed as general and administrative expense during the three months ended March 31,
2008.
    
    
    Cash and cash equivalents which decreased by $20.6 million primarily due to
operating losses;
    
    Receivables and unbilled receivables, which decreased by $10.8 million primarily
due to the end of billings to the U.S. government; and
    
    Partially offset by the classification of property and equipment of $10.3 million
as assets held for sale.
  Off-Balance Sheet Arrangements
 Regulation S-K.
  19




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Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Indebtedness
  Derivative Valuation Risk
 .
  20




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ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
  Inherent Limitations on Effectiveness of Controls.
   21




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PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We do not currently have capabilities to develop products or offer any services; the continued
survival of our business is wholly dependent on our ability to identify and successfully complete a
strategic transaction, and/or the sale of the companys 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.
    22




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If we fail to manage successfully any company or product acquisitions, joint ventures or
in-licensed product candidates, we may be limited in our ability to develop our product
candidates and to rebuild our product candidate pipeline.
   
    
    exposure to unknown liabilities of acquired companies;
    
    higher than anticipated acquisition costs and expenses;
    
    the difficulty and expense of integrating operations and personnel of acquired companies;
    
    disruption of our ongoing business;
    
    diversion of managements time and attention; and
    
    possible dilution to stockholders.
  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. *
   23




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If we fail to meet our obligations under the 5 1/2% Convertible Senior Subordinated Notes due 2010,
or Notes, our payment obligations may be accelerated.
  
    
    require semi-annual payment of interest in cash at a rate of 5 1/2%;
 
    
    convert, at the option of the holder, into shares of our common stock at an
initial conversion price of approximately $14.76 per share, subject to adjustment;
 
    
    will be provisionally redeemable at our option in cash upon the occurrence of
certain circumstances, including among others, that the closing price of VaxGen common
stock exceeds $22.14 per share, subject to adjustment, for at least 20 trading days
within a period of 30 consecutive trading days;
 
    
    if a change in control, as defined in the indenture, occurs on or prior to the
stated maturity of the Notes, the holders of the Notes may require us to repurchase the
Notes and pay a make-whole premium to the holders of the Notes. If the holders request
such a repurchase, we or the successor entity may choose to pay in cash, common stock or
a combination of cash and common stock; and
 
    
    constitute senior subordinated obligations.
  Our indebtedness could adversely affect our financial health, limit our cash flow available to
invest in the ongoing requirements of our business and adversely affect the price of our common
stock.
  
    
    making it more difficult for us to satisfy our financial and payment obligations,
or to refinance maturing indebtedness;
 
    
    making us more vulnerable to a downturn in the economy or our business;
 
    
    limiting our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions and other general corporate purposes;
 
    
    requiring application of a significant portion of our cash flow from operations
to the payment of debt service costs, which would reduce the funds available to us for
our operations;
 
    
    limiting our flexibility in planning for, or reacting to, changes in our
industry, business and markets; and
 
    
    placing us at a competitive disadvantage to the extent we are more highly
leveraged than some of our competitors.
  We have only a limited operating history and we expect to continue to generate operating losses.
  Biopharmaceutical product development is a long, expensive and uncertain process and the approval
requirements for many products, including vaccines used to fight bioterrorism, are still evolving.
If we are unable to successfully develop and test product candidates in accordance with such
requirements, our business will suffer.
   24




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##### Table of Contents



Our future product development efforts may not yield marketable products due to results of studies
or trials, failure to achieve regulatory approvals or market acceptance, proprietary rights of
others or manufacturing issues.
  
    
    the lack of adequate quality or sufficient prevention benefit, or unacceptable safety
during preclinical studies or clinical trials;
 
    
    their failure to receive necessary regulatory approvals;
 
    
    the existence of proprietary rights of third parties; or
 
    
    the inability to develop manufacturing methods that are efficient, cost-effective and
capable of meeting stringent regulatory standards.
 We may fail to protect our intellectual property or may infringe on the intellectual property
rights of others, either of which could harm our business.
    
    
    others will not independently develop similar or alternative technologies or duplicate
any of our technologies;
 
    
    we or any of our current or future licensors will adequately protect trade secrets; or
 
    
    we will develop additional proprietary technologies that are patentable; or the patents
of others will not have a material adverse effect on our business.
   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.
   25




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##### Table of Contents



We may become subject to product liability claims, which could result in damages that exceed our
insurance coverage.
  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 cannot assure you 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.
   26




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##### Table of Contents




    
    timing and consistency of filing financial statements;
 
    
    announcements or speculation about any strategic transactions we may enter into;
 
    
    failure to win future government contracts and government activities relating to prior
contracts;
 
    
    adverse results or delays in clinical trials;
 
    
    delays in our product development efforts;
 
    
    real or perceived safety issues with any of our product candidates;
 
    
    failure to obtain or maintain required regulatory approvals;
 
    
    changes in financial estimates by securities analysts and our failure to meet or exceed
such estimates;
 
    
    rumors about our business prospects, product development efforts or the progress,
timing and completion of our clinical trials;
 
    
    new products or services offered by us or our competitors or announcements relating to
product developments by our competitors;
 
    
    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; 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 VaxGen.
  
 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
   27




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 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 November 12,
2007, by and among VaxGen, Inc., TLW Merger Sub,
Inc., TLW, LLC, and Raven biotechnologies, inc.
    
    8-K
    
    000-26483
    
    11-13-07
    
    
    2.12.2
    
    
    Amendment No. 1 to Agreement and Plan of Merger,
dated December 20, 2007, by and among VaxGen,
Inc., TLW Merger Sub, Inc., TLW, LLC, and Raven
biotechnologies, inc.
    
    S-4
    
    333-148312
    
    12-24-07
    
    
    2.22.3
    
    
    Amendment No. 2 to Agreement and Plan of Merger,
dated February 6, 2008, by and among VaxGen, Inc.,
TLW Merger Sub, Inc., TLW, LLC, and Raven
biotechnologies, inc.
    
    S-4/A
    
    333-148312
    
    02-06-08
    
    
    2.33.1
    
    
    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
    
    
    4.1
  28




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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith10.100
    
    
    Note Repurchase Agreement, dated February 4, 2006,
by and among VaxGen, Inc., Xmark Opportunity Fund,
L.P. and Xmark Opportunity Fund, Ltd.
    
    8-K
    
    000-26483
    
    2-8-2008
    
    
    10.110.101
    
    
    Termination of Merger Agreement, Acknowledgment
and Amendment to Loan Agreement and Secured
Promissory Note, dated March 28, 2008, by and
among VaxGen, Inc. and Raven biotechnologies, inc.
    
    8-K
    
    000-26483
    
    3-28-2008
    
    
    10.110.102
    
    
    Form of Amendment to Executive Employment Agreement
    
    8-K
    
    000-26483
    
    4-1-08
    
    
    10.110.103
    
    
    Separation Agreement between VaxGen, Inc. and
Matthew J. Pfeffer, dated April 7, 2008
    
    10-Q
    
    
    
    
    
    
    
    
    
    X31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X32.1
    
    
    Section 1350 Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X
  29




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##### Table of Contents



Signatures
  VaxGen, Inc.Dated:May 14, 2008
    By:
    /s/ James P. PanekJames P. PanekChief Executive Officer
(Principal Executive Officer and PrincipalFinancial Officer)  30




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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 November 12,
2007, by and among VaxGen, Inc., TLW Merger Sub,
Inc., TLW, LLC, and Raven biotechnologies, inc.
    
    8-K
    
    000-26483
    
    11-13-07
    
    
    2.12.2
    
    
    Amendment No. 1 to Agreement and Plan of Merger,
dated December 20, 2007, by and among VaxGen,
Inc., TLW Merger Sub, Inc., TLW, LLC, and Raven
biotechnologies, inc.
    
    S-4
    
    333-148312
    
    12-24-07
    
    
    2.22.3
    
    
    Amendment No. 2 to Agreement and Plan of Merger,
dated February 6, 2008, by and among VaxGen, Inc.,
TLW Merger Sub, Inc., TLW, LLC, and Raven
biotechnologies, inc.
    
    S-4/A
    
    333-148312
    
    02-06-08
    
    
    2.33.1
    
    
    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
    
    
    4.110.100
    
    
    Note Repurchase Agreement, dated February 4, 2006,
by and among VaxGen, Inc., Xmark Opportunity Fund,
L.P. and Xmark Opportunity Fund, Ltd.
    
    8-K
    
    000-26483
    
    2-8-2008
    
    
    10.1
  31




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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith10.101
    
    
    Termination of Merger Agreement, Acknowledgment
and Amendment to Loan Agreement and Secured
Promissory Note, dated March 28, 2008, by and
among VaxGen, Inc. and Raven biotechnologies, inc.
    
    8-K
    
    000-26483
    
    3-28-2008
    
    
    10.110.102
    
    
    Form of Amendment to Executive Employment Agreement
    
    8-K
    
    000-26483
    
    4-1-08
    
    
    10.110.103
    
    
    Separation Agreement between VaxGen, Inc. and
Matthew J. Pfeffer, dated April 7, 2008
    
    10-Q
    
    
    
    
    
    
    
    
    
    X31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X32.1
    
    
    Section 1350 Certification
    
    10-Q
    
    
    
    
    
    
    
    
    
    X
  32