##### 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 June 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
 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 June 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
    
    
    11Critical Accounting Policies and Estimates
    
    
    12Results of Operations
    
    
    12Financial Condition, Liquidity and Capital Resources
    
    
    14Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4 Controls and Procedures
    
    
    16Part II Other InformationItem 1 Legal Proceedings
    
    
    17Item 1A Risk Factors
    
    
    17Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3 Defaults Upon Senior Securities
    
    
    21Item 4 Submission of Matters to a Vote of Security Holders
    
    
    21Item 5 Other Information
    
    
    21Item 6 Exhibits
    
    
    21Signatures
    
    
    22Exhibit 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)
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,387
    
    
    $
    34,618Investment securities
    
    
    4,176
    
    
    
    3,922Prepaid expenses and other current assets
    
    
    599
    
    
    
    792Assets held for sale
    
    
    591
    
    
    
    783Total current assets
    
    
    36,753
    
    
    
    40,115Restricted cash
    
    
    1,400
    
    
    
    1,556Other assets
    
    
    396
    
    
    
    426Total assets
    
    $
    38,549
    
    
    $
    42,097LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    237
    
    
    $
    75Accrued and other current liabilities
    
    
    582
    
    
    
    706Total current liabilities
    
    
    819
    
    
    
    781Deferred rent and other liabilities
    
    
    4,917
    
    
    
    5,097Total liabilities
    
    
    5,736
    
    
    
    5,878Contingencies (Note 11)Stockholders equity:Common stock
    
    
    331
    
    
    
    331Additional paid-in capital
    
    
    302,977
    
    
    
    302,856Accumulated deficit
    
    
    (270,495
    )
    
    
    (267,241
    )Accumulated other comprehensive income
    
    
    
    
    
    
    273Total stockholders equity
    
    
    32,813
    
    
    
    36,219Total liabilities and stockholders equity
    
    $
    38,549
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    15
    
    
    $
    
    
    
    $
    293Operating expenses:Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,387General and administrative
    
    
    1,392
    
    
    
    3,545
    
    
    
    3,619
    
    
    
    8,945Restructuring
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    985Impairment of assets held for sale
    
    
    159
    
    
    
    8,498
    
    
    
    159
    
    
    
    8,498Total operating expenses
    
    
    1,551
    
    
    
    13,028
    
    
    
    3,778
    
    
    
    19,815Loss from operations
    
    
    (1,551
    )
    
    
    (13,013
    )
    
    
    (3,778
    )
    
    
    (19,522
    )Other income (expense)Interest expense
    
    
    (10
    )
    
    
    (601
    )
    
    
    (21
    )
    
    
    (1,369
    )Interest income
    
    
    59
    
    
    
    534
    
    
    
    163
    
    
    
    1,249Realized gain on sale of available for sale
investments
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    Valuation adjustments
    
    
    
    
    
    
    656
    
    
    
    
    
    
    
    (955
    )Gain on convertible debt redemption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    713Gain on sale of Anthrax Program
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Other
    
    
    (6
    )
    
    
    
    
    
    
    25
    
    
    
    (11
    )Total other income, net
    
    
    43
    
    
    
    2,589
    
    
    
    524
    
    
    
    1,627Net loss
    
    $
    (1,508
    )
    
    $
    (10,424
    )
    
    $
    (3,254
    )
    
    $
    (17,895
    )Basic and diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.31
    )
    
    $
    (0.10
    )
    
    $
    (0.54
    )Weighted average shares used in computing
basic and diluted net loss per share
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
   4




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VaxGen, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)  (in thousands)
 Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,254
    )
    
    $
    (17,895
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    
    
    
    
    587Impairment of assets held for sale
    
    
    159
    
    
    
    8,498Valuation adjustments
    
    
    
    
    
    
    955Stock-based compensation
    
    
    121
    
    
    
    1,122Amortization of premiums and discounts on investment securities
    
    
    
    
    
    
    (161
    )Gain on sale of Celltrion common stock
    
    
    (357
    )
    
    
    Gain on convertible debt repurchase
    
    
    
    
    
    
    (713
    )Loss on sale of assets held for sale
    
    
    16
    
    
    
    Non-cash interest expense
    
    
    
    
    
    
    381Non-cash interest income
    
    
    
    
    
    
    (187
    )Raven merger costs previously capitalized
    
    
    
    
    
    
    1,932Changes in operating assets and liabilitiesReceivables
    
    
    
    
    
    
    (33
    )Prepaid expenses and other current assets
    
    
    193
    
    
    
    200Accounts payable
    
    
    162
    
    
    
    (1,975
    )Accrued and other current liabilities
    
    
    (124
    )
    
    
    (1,141
    )Other
    
    
    (150
    )
    
    
    762Net cash used in operating activities
    
    
    (3,234
    )
    
    
    (7,668
    )Cash flows from investing activities:Proceeds from sale of assets held for sale
    
    
    17
    
    
    
    351Proceeds from sale and maturity of investment securities
    
    
    6,450
    
    
    
    18,242Purchase of investment securities
    
    
    (6,977
    )
    
    
    (15,942
    )Proceeds from sale of Celltrion common stock
    
    
    357
    
    
    
    Loan to Raven biotechnologies, inc.
    
    
    
    
    
    
    (4,668
    )Change in restricted cash
    
    
    156
    
    
    
    Net cash provided by (used in) investing activities
    
    
    3
    
    
    
    (2,017
    )Cash flows from financing activities:Repurchase of senior subordinated convertible notes
    
    
    
    
    
    
    (750
    )Net cash used in financing activities
    
    
    
    
    
    
    (750
    )Net decrease in cash and cash equivalents
    
    
    (3,231
    )
    
    
    (10,435
    )Cash and cash equivalents, beginning of period
    
    
    34,618
    
    
    
    64,726Cash and cash equivalents, end of period
    
    $
    31,387
    
    
    $
    54,291
   5




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##### Table of Contents



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
 Subsequent Events,
  6




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Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly Recognition and Presentation of Other-Than-Temporary Impairments Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments,
 TM
 3. Net Loss per Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (1,508
    )
    
    $
    (10,424
    )
    
    $
    (3,254
    )
    
    $
    (17,895
    )Basic and diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.31
    )
    
    $
    (0.10
    )
    
    $
    (0.54
    )Weighted average shares used in computing
basic and diluted net loss per share
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
    
    
    
    33,107
  7




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Options to purchase common stock
    
    
    1,774
    
    
    
    5,336
    
    
    
    1,774
    
    
    
    5,336Warrants to purchase common stock
    
    
    2,098
    
    
    
    2,317
    
    
    
    2,098
    
    
    
    2,317Convertible senior subordinated notes
    
    
    
    
    
    
    2,033
    
    
    
    
    
    
    
    2,033Total
    
    
    3,872
    
    
    
    9,686
    
    
    
    3,872
    
    
    
    9,686
 4. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (1,508
    )
    
    $
    (10,424
    )
    
    $
    (3,254
    )
    
    $
    (17,895
    )Change in unrealized gains on investment securities
    
    
    
    
    
    
    (12
    )
    
    
    (273
    )
    
    
    (8
    )Comprehensive loss
    
    $
    (1,508
    )
    
    $
    (10,436
    )
    
    $
    (3,527
    )
    
    $
    (17,903
    )
 5. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair MarketJune 30, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCertificates of deposit
    
    $
    4,176
    
    
    $
    
    
    
    $
    
    
    
    $
    4,176December 31, 2008Certificates of deposit
    
    $
    3,649
    
    
    $
    
    
    
    $
    
    
    
    $
    3,649Common shares
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    273$
    3,649
    
    
    $
    273
    
    
    $
    
    
    
    $
    3,922
  6. Assets Held For Sale
     8




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Fair Value Measurements UsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantSix Months
    
    
    Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalEnded
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsDescription
    
    June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Assets held for sales
    
    $
    591
    
    
    $
    
    
    
    $
    
    
    
    $
    591
    
    
    $
    (159
    )
  7. Accrued and Other Current Liabilities
  June 30,
    
    
    December 31,2009
    
    
    2008Employee benefits
    
    $
    65
    
    
    $
    154Legal and professional fees
    
    
    79
    
    
    
    167Deferred rent
    
    
    371
    
    
    
    318Other
    
    
    67
    
    
    
    67Total accrued and other
current liabilities
    
    $
    582
    
    
    $
    706
 8. Income Taxes
  Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
  9




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##### Table of Contents



9. Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    42General and administrative
    
    
    59
    
    
    
    951
    
    
    
    121
    
    
    
    1,080$
    59
    
    
    $
    951
    
    
    $
    121
    
    
    $
    1,122
 10. Celltrion
  11. Contingencies
 Litigation
  Contingencies
  12. Fair Value Measurements
 Fair Value Measurement, or
 
    
    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.
  10




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##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Cash equivalents:Money market funds
    
    $
    89
    
    
    $
    
    
    
    $
    
    
    
    $
    89Certificates of deposit
    
    
    
    
    
    
    465
    
    
    
    
    
    
    
    465Investment securities:Certificates of deposit
    
    
    
    
    
    
    4,176
    
    
    
    
    
    
    
    4,176Total Financial Assets
    
    $
    89
    
    
    $
    4,641
    
    
    $
    
    
    
    $
    4,730
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Special Note Regarding Forward - Looking Statements
   
 OVERVIEW
   Recent
Developments
   11




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  
 RESULTS OF OPERATIONS
 Comparison of Fiscal Quarters and Six Months Ended June 30, 2009 and 2008
 Revenues
 Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)Revenues
    
    $
    
    
    
    $
    15
    
    
    
    -100
    %
    
    $
    
    
    
    $
    293
    
    
    
    -100
    %
   Research and development expenses
 Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 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
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)General and
administrative
expenses
    
    $
    1,392
    
    
    $
    3,545
    
    
    
    -61
    %
    
    $
    3,619
    
    
    $
    8,945
    
    
    
    -60
    %
    
    
    Labor and benefits, which decreased by $1.8 million primarily associated with the
2008 reductions in force;
    
    Consultant and outside labor costs, which decreased by $3.0 million in 2009,
following the termination of the proposed merger, or the Merger, with Raven
biotechnologies, inc., or Raven, pursuant to which we incurred $2.3 million in
consultant and outside labor costs during the first six months of 2008; and
 
    
    Facilities costs, which decreased by $1.0 million due to the cessation of
operations during the first six months of 2008.
  12




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Restructuring expenses
 Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Restructuring expenses
    
    $
    
    
    
    $
    985
    
    
    
    -100
    %
    
    $
    
    
    
    $
    985
    
    
    
    -100
    %
  Impairment of assets held for sale
 Three Months Ended
    
    
    Percent
    
    
    Six Months Ended
    
    
    PercentJune 30,
    
    
    Change
    
    
    June 30,
    
    
    Change2009
    
    
    2008
    
    
    2009/2008
    
    
    2009
    
    
    2008
    
    
    2009/2008(in thousands)
    
    
    
    
    
    
    (in thousands)Impairment of assets held for sale
    
    $
    159
    
    
    $
    8,498
    
    
    
    -98
    %
    
    $
    159
    
    
    $
    8,498
    
    
    
    -98
    %
   Other income (expense)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Interest expense
    
    $
    (10
    )
    
    $
    (601
    )
    
    $
    (21
    )
    
    $
    (1,369
    )Interest income
    
    
    59
    
    
    
    534
    
    
    
    163
    
    
    
    1,249Realized gain on sale of available for sale investments
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    Valuation adjustments
    
    
    
    
    
    
    656
    
    
    
    
    
    
    
    (955
    )Gain on convertible debt repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    713Gain on sale of Anthrax Program
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Other
    
    
    (6
    )
    
    
    
    
    
    
    25
    
    
    
    (11
    )Total other income (expense), net
    
    $
    43
    
    
    $
    2,589
    
    
    $
    524
    
    
    $
    1,627
  13




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##### Table of Contents




    
    Gain on the sale of our Anthrax Program of $2.0 million in the second quarter of 2008;
 
    
    A valuation gain of $0.7 million for mark-to-market adjustments following the
valuation of the derivatives on our Convertible Notes during the second quarter of 2008;
 
    
    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 5 1/2% Convertible Senior Subordinated Notes due April 2010, or
Convertible Notes, during 2008.
  
    
    Gain on the sale of our Anthrax Program of $2.0 million in the first six months
of 2008;
 
    
    A gain of $0.7 million on the repurchase of $1.5 million principal amount of our
Notes at a purchase price of $0.8 million plus accrued interest;
 
    
    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 5 1/2% Convertible Senior Subordinated Notes due April 2010, or
Convertible Notes, during 2008 and a valuation expense of $1.0 million for
mark-to-market adjustments following the valuation of the derivatives on our Convertible
Notes during the first six months of 2008.
  
 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 2009
    
    
    2008(in thousands)As of June 30:Cash, cash equivalents and investment securities
    
    $
    35,563
    
    
    $
    59,033Working capital
    
    
    35,934
    
    
    
    61,786Six Months ended June 30:Cash provided by (used in)Operating activities
    
    $
    (3,234
    )
    
    $
    (7,668
    )Investing activities
    
    
    3
    
    
    
    (2,017
    )Financing activities
    
    
    
    
    
    
    (750
    )
   
    
    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 six months of 2008;
 
    
    Impairment of assets held for sale of $0.2 million in 2009 and $8.5 million in
2008;
    
    Valuation loss of $1.0 million in 2008 reflecting changes in the fair value of
outstanding derivatives from the Convertible Notes;
 
    
    Stock based compensation expense of $0.1 million in 2009 and $1.1 million in
2008.
  14




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##### Table of Contents




    
    Gain on redemption of the Convertible Notes of $0.7 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 six months ended June 30,
2008.
  
    
    Accounts payable, which increased by $0.2 million in 2009 and decreased by $2.0
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 $0.1 million in 2009 and
increased by $1.1 million in 2008 primarily due to $1.9 million of the Merger costs
capitalized at December 31, 2007 that were expensed as general and administrative
expense during the six months ended June 30, 2008.
    
    
    Cash, cash equivalents and investments decreased by $23.5 million primarily due
to our repurchase of Convertible Notes in 2008 and operating losses;
 
    
    Loan to Raven decreased by $6.0 million due to repayment;
 
    
    Assets held for sale decreased by $0.8 million primarily due to impairment
charges; and
 
    
    A partial offset by the elimination of the derivative liability of $4.5 million
resulting from the repurchase of our Convertible Notes in 2008.
  Off-Balance Sheet Arrangements
 
 Recent Accounting Pronouncements
 Subsequent Events,
  15




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##### Table of Contents



Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly Recognition and Presentation of Other-Than-Temporary Impairments Interim Disclosures about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments,
 TM
 
 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.
   16




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##### Table of Contents



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
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.
   17




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##### Table of Contents



If we fail to identify and manage successfully any company or product acquisitions, joint
ventures or in-licensed product candidates, we will be unable 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;
 
    
    possible dilution to stockholders; and
 
    
    potential competition against any products or product candidates we may
acquire rights to.
  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. *
    18




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##### Table of Contents



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.
  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.
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##### Table of Contents



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 any strategic transactions we may enter
into;
 
    
    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;
 
    
    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, including an ongoing
dispute regarding our leased premises at 349 Oyster Point Boulevard, South San
Francisco, California; and
 
    
    other events or factors, many of which are beyond our control.
   20




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##### Table of Contents



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
  
 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
    
    
    3.1
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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith3.5
    
    
    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: August 3, 2009
    By:
    /s/ James P. PanekJames P. PanekPresident
(Principal Executive,  Financial and Accounting
Officer) 
 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
    
    
    2.3
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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    Exhibit
    
    FiledNo.
    
    Exhibit
    
    Form
    
    File No.
    
    Filing Date
    
    No.
    
    Herewith3.1
    
    
    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
  23