---

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UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C.
20549

________________

Form 10-K/A

Amendment No. 2

|x  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934    
|-- | ----------------------------------------------------------------------------------------------
|   |                                                                                               
|   | For
      the fiscal year ended December 31,
      2006                                       
|Or
|  
|o  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                               
|   | For
      the transition period from
      to                                                 

Commission File Number
0-28272________________

Avigen, Inc.(Exact name of registrant as specified in its
charter)

Delaware
    
    13-3647113(State or
      other jurisdiction of
    
    (I.R.S.
      Employerincorporation or organization)
    
    Identification No.)


1301 Harbor Bay ParkwayAlameda,
California 94502(Address of principal
executive offices, including zip code)

(510) 748-7150(Registrants telephone number, including area
code)________________

Securities Registered Pursuant to
Section 12(b) of the Act:

Title of
      Each ClassCommon Stock, $0.001 par value
    Name of Each Exchange on Which
      RegisteredThe Nasdaq Stock Market,
Inc.




Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes o No x

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 o

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filero | Accelerated filerx | Non-accelerated filero
|------------------------ | ------------------ | ----------------------



---

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

The
aggregate market value of the Common Stock held by non-affiliates of the
registrant as of June 30, 2006, was approximately $128,700,000 based upon the
closing sale price of the registrants Common Stock as reported on the NASDAQ
National Market on such date. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates
of the registrant. Shares held by all other stockholders have not been excluded,
as no other stockholder holds a percentage of the registrants outstanding
Common Stock that the registrant believes is necessary to exercise control over
the registrant, nor has any other stockholder otherwise exhibited any ability to
exercise control over the registrant.

The number of outstanding shares of
the registrants Common Stock as of March 1, 2007, was 25,116,131 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of
the registrants definitive Proxy Statement for the 2007 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of
this Form 10-K.

---

---

---

AVIGEN, INC.

ANNUAL REPORT ON FORM 10-K/AFOR THE FISCAL YEAR ENDED DECEMBER 31,
2006

Explanatory Note to Amendment No. 2
to Annual Report on Form 10-K/A

This
Amendment No. 2 to Annual Report on Form 10-K/A is being filed to amend Item 8
of the Annual Report on Form 10-K of Avigen, Inc. for the fiscal year ended
December 31, 2006, filed with the Securities and Exchange Commission on March
16, 2007 (the Form 10-K). Item 8 of the Form 10-K is amended to revise the
report of Ernst & Young LLP, which revised report includes the statement
that the report also covers the period from inception (October 22, 1992) through
December 31, 2005. No other changes have been made to Item 8 of the Form
10-K.

PART II

Item 8.Financial Statements and Supplementary
Data

INDEX TO FINANCIAL
STATEMENTS

The
following financial statements are filed as part of this Report on Form 10-K.
Condensed supplementary data for each of the quarters in the years ended
December 31, 2006 and 2005 are set forth under Note 16 of our financial
statements.

|                                                              |  | Page
|------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting
      Firm |  | 3   
|Balance Sheets                                                |  | 5   
|Statements of Operations                                      |  | 6   
|Statements of Stockholders Equity                            |  | 7   
|Statements of Cash Flows                                      |  | 13  
|Notes to Financial Statements                                 |  | 15  

2

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REPORT OF ODENBERG, ULLAKKO,
MURANISHI & CO. LLP,INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
of Avigen, Inc.

We have
audited the accompanying balance sheet of Avigen, Inc. (a development stage
company) as of December 31, 2006, and the related statements of operations,
stockholders equity and cash flows for the year then ended and for the period
from inception (October 22, 1992) through December 31, 2006. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The cumulative statements of operations, stockholders' equity and
cash flows for the period from inception (October 22, 1992) through December 31,
2005 were audited by other auditors. Our report, insofar as it relates to the
amounts included for the period from October 22, 1992 to December 31, 2005, is
based solely on the report of the other auditors.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our
opinion, based on our audit and the report of other auditors, the financial
statements referred to above present fairly, in all material respects, the
financial position of Avigen, Inc. (a development stage company) at December 31,
2006, and the results of its operations and its cash flows for the year then
ended and for the period from inception (October 22, 1992) through December 31,
2006, in conformity with U.S. generally accepted accounting principles.

As
discussed in Note 1 to the financial statements, on January 1, 2006, Avigen
adopted the provisions of Statement of Financial Accounting Standards No. 123
(revised), Share-Based Payment.

We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Avigen, Inc.s internal
control over financial reporting as of December 31, 2006, based on criteria
established inInternal Control  Integrated
Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
14, 2007 expressed an unqualified opinion thereon.

|                                | /s/ ODENBERG,
      ULLAKKO, MURANISHI & CO. LLP
|------------------------------- | ------------------------------------------------
|                               
|San Francisco,
      California |                                                 
|March 14,
      2007            |                                                 

3

---

REPORT OF ERNST & YOUNG
LLP,INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
of Avigen, Inc.

We have
audited the accompanying balance sheet of Avigen, Inc. (a development stage
company) as of December 31, 2005, and the related statements of operations,
stockholders equity and cash flows for each of the two years in the period
ended December 31, 2005. We also audited the statements of operations,
stockholders equity and cash flows for the period from inception (October 22,
1992) through December 31, 2005. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Avigen, Inc. at December 31, 2005
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2005, and for the period from inception
(October 22, 1992) through December 31, 2005, in conformity with U.S. generally
accepted accounting principles.

|                            | /s/ ERNST &
      YOUNG LLP
|--------------------------- | ---------------------------
|                           
|Palo Alto,
      California |                            
|March 14,
      2006        |                            

4

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AVIGEN, INC.(a development stage
company)

BALANCE SHEETS(in thousands, except share and per share
information)

|                                                                                      | December31,
|------------------------------------------------------------------------------------- | -----------
|                                                                                      | 2006       
|ASSETS                                                                               
|Current Assets:                                                                       |            
|Cash and cash
      equivalents                                                       | $          
|Available-for-sale securities                                                         |            
|Restricted investments 
      current                                                |            
|Accrued interest                                                                      |            
|Prepaid expenses and other
      current assets                                       |            
|Total current
      assets                                                            |            
|Restricted investments                                                                |            
|Property and equipment, net                                                           |            
|Deposits and other assets                                                             |            
|Total
      assets                                                                    | $          
|                                                                                     
|LIABILITIES AND STOCKHOLDERS
      EQUITY                                           
|Current Liabilities:                                                                  |            
|Accounts payable and other
      accrued liabilities                                  | $          
|Accrued compensation and related
      expenses                                       |            
|Loan payable 
      current                                                          |            
|Total current
      liabilities                                                       |            
|Long-term loan
      payable                                                          |            
|Deferred rent and other liabilities                                                   |            
|Total liabilities                                                                     |            
|Commitments and contingencies                                                         |            
|Stockholders equity:                                                                 |            
|Preferred Stock, $0.001 par
      value, 5,000,000 shares authorized, none issued and |            
|outstanding in 2006 and 2005                                                          |            
|Common Stock, $0.001 par
      value, 50,000,000 shares authorized, 25,116,131 and    |            
|20,907,273 shares issued and outstanding at December 31, 2006 and
      2005,         |            
|respectively                                                                          |            
|Additional paid-in
      capital                                                      |            
|Accumulated other
      comprehensive loss                                            |            
|Deficit accumulated during
      development stage                                    |            
|Total stockholders equity                                                            |            
|Total liabilities and stockholders
      equity                                      | $          

See accompanying
notes.

5

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF
OPERATIONS(in thousands, except for
share and per share information)

|                                                    |                         |            |         |  |      |            |                   |  |   |            |   |  | Period from     
|--------------------------------------------------- | ----------------------- | ---------- | ------- |  | ---- | ---------- | ----------------- |  | - | ---------- | - |  | ----------------
|                                                    |                         |            |         |  |      |            |                   |  |   |            |   |  | October 22, 1992
|                                                    |                         |            |         |  |      |            |                   |  |   |            |   |  | (inception)     
|                                                    | Year Ended December 31, |            | through
|                                                    | 2006                    |            | 2005    |  | 2004 |            | December 31, 2006
|Revenue                                             | $                       | 103        |         |  | $    | 12,026     |                   |  | $ | 2,195      |   |  | $               
|Operating expenses:                                 |                         |            |         |  |      |            |                   |  |   |            |   |  |                 
|Research and
      development                      |                         | 15,219     |         |  |      | 13,775     |                   |  |   | 19,344     |   |  |                 
|General and administrative                          |                         | 8,860      |         |  |      | 8,264      |                   |  |   | 8,367      |   |  |                 
|Impairment loss related
      to                    |                         |            |         |  |      |            |                   |  |   |            |   |  |                 
|long-lived assets                                   |                         | 450        |         |  |      | 6,130      |                   |  |   |           |   |  |                 
|In-license fees                                     |                         | 3,000      |         |  |      |           |                   |  |   |           |   |  |                 
|Total operating
      expenses                      |                         | 27,529     |         |  |      | 28,169     |                   |  |   | 27,711     |   |  |                 
|Loss from operations                                |                         | (27,426    | )       |  |      | (16,143    | )                 |  |   | (25,516    | ) |  |                 
|Interest expense                                    |                         | (467       | )       |  |      | (323       | )                 |  |   | (209       | ) |  |                 
|Interest income                                     |                         | 3,002      |         |  |      | 1,682      |                   |  |   | 1,905      |   |  |                 
|Sublease income                                     |                         | 565        |         |  |      | 67         |                   |  |   |           |   |  |                 
|Other income (expense), net                         |                         | 70         |         |  |      | 21         |                   |  |   | (103       | ) |  |                 
|Net loss                                            | $                       | (24,256    | )       |  | $    | (14,696    | )                 |  | $ | (23,923    | ) |  | $               
|Basic and diluted net loss per                      |                         |            |         |  |      |            |                   |  |   |            |   |  |                 
|common share                                        | $                       | (1.03      | )       |  | $    | (0.71      | )                 |  | $ | (1.17      | ) |  |                 
|Shares used in basic and diluted net loss
      per |                         |            |         |  |      |            |                   |  |   |            |   |  |                 
|common share
      calculation                      |                         | 23,509,378 |         |  |      | 20,624,229 |                   |  |   | 20,362,155 |   |  |                 

See accompanying
notes.

6

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF STOCKHOLDERS
EQUITY

Period from October 22, 1992
(inception) through December 31, 2006(in thousands, except for share
information)

|                                           |                       |  |                    |   |              |  |            |  |               |   |             |  | Class B       |  |                   |   |       |  |             |       |             |  | Deficit |   |  |  |  
|------------------------------------------ | --------------------- |  | ------------------ | - | ------------ |  | ---------- |  | ------------- | - | ----------- |  | ------------- |  | ----------------- | - | ----- |  | ----------- | ----- | ----------- |  | ------- | - |  |  | -
|                                           |                       |  |                    |   |              |  |            |  |               |   |             |  | Convertible   |  |                   |   |       |  | Accumulated |       | Accumulated |  |         |   | 
|                                           | Preferred
      Stock |  | Common
      Stock |   | Common Stock |  | Additional |  | Other         |   | During the  |  | Total        
|                                           |                       |  |                    |   |              |  | Paid-in    |  | Comprehensive |   | Development |  | Stockholders
|                                           | Shares                |  | Amount             |   | Shares       |  | Amount     |  | Shares        |   | Amount      |  | Capital       |  | Gain
      (Loss) |   | Stage |  | Equity     
|                                          
|Balance at October 22, 1992                |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|(inception)                                |                      |  | $                  |  |              |  |           |  | $             |  |             |  |              |  | $                 |  |       |  | $           |      |             |  | $       |  |  |  | $
|Issuance of
      common stock at $.004    |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|per share in November and                  |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|December 1992                              |                      |  |                    |  |              |  | 896,062    |  |               | 1 |             |  |              |  |                   |  |       |  |             | 4     |             |  |         |  |  |  |  
|Issuance of
      common stock at $.554    |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|per share from January to June             |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1993 for services rendered                 |                      |  |                    |  |              |  | 20,316     |  |               |  |             |  |              |  |                   |  |       |  |             | 11    |             |  |         |  |  |  |  
|Issuance of
      common stock at          |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|$.004 to $.222 per share from              |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|November 1992 to March 1993                |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|for cash                                   |                      |  |                    |  |              |  | 1,003,406  |  |               | 1 |             |  |              |  |                   |  |       |  |             | 54    |             |  |         |  |  |  |  
|Issuance of
      Class B common stock     |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $.004 per share in December             |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1992 for cash                              |                      |  |                    |  |              |  |           |  |               |  |             |  | 90,293        |  |                   |  |       |  |             | 1     |             |  |         |  |  |  |  
|Issuance of
      Series A preferred stock |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $4.43 per share from March              |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|to June 1993 for cash (net of              |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|issuance costs of $410,900)                | 678,865               |  |                    | 1 |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 2,595 |             |  |         |  |  |  |  
|Issuance of
      Series A preferred stock |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $3.85 per share in March                |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1993 for cancellation of note              |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|payable and accrued interest               | 68,991                |  |                    |  |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 266   |             |  |         |  |  |  |  
|Issuance of
      common stock at $.004    |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|per share in November 1993                 |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|pursuant to antidilution rights            |                      |  |                    |  |              |  | 22,869     |  |               |  |             |  |              |  |                   |  |       |  |             | 1     |             |  |         |  |  |  |  
|Issuance of
      Series A preferred stock |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $4.43 per share from July               |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|to November 1993 for cash                  |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|and receivable (net of issuance            |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|costs of $187,205)                         | 418,284               |  |                    |  |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 1,665 |             |  |         |  |  |  |  
|Issuance of
      Series B preferred stock |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $5.54 per share in March                |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1994 for cash (net of issuance             |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|costs of $34,968)                          | 128,031               |  |                    |  |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 674   |             |  |         |  |  |  |  
|Issuance of
      Series C preferred stock |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|at $4.87 per share from July               |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1994 to June 1995 for cash and             |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|receivables (net of issuance               |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|costs of $259,620)                         | 739,655               |  |                    | 1 |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 3,344 |             |  |         |  |  |  |  
|Issuance of
      Series C preferred       |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|stock at $4.87 per share in June           |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1995 for cancellation of notes             |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|payable                                    | 35,500                |  |                    |  |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             | 173   |             |  |         |  |  |  |  
|Net loss and
      comprehensive loss      |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|from inception to June 30,                 |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|1995                                       |                      |  |                    |  |              |  |           |  |               |  |             |  |              |  |                   |  |       |  |             |      |             |  |         |  |  |  |  
|Balance at June 30, 1995 (carried          |                       |  |                    |   |              |  |            |  |               |   |             |  |               |  |                   |   |       |  |             |       |             |  |         |   |  |  |  
|forward)                                   | 2,069,326             |  | $                  | 2 |              |  | 1,942,653  |  | $             | 2 |             |  | 90,293        |  | $                 |  |       |  | $           | 8,788 |             |  | $       |  |  |  | $

7

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)

Period from October 22, 1992
(inception) through December 31, 2006(in thousands, except for share
information)

|                                        |                       |   |                    |    |             |  |            |   |        |   |            |  |         | Class B     |                   |  |       |   |        |             |         |             |               | Deficit |             |   |               | 
|--------------------------------------- | --------------------- | - | ------------------ | -- | ----------- |  | ---------- | - | ------ | - | ---------- |  | ------- | ----------- | ----------------- |  | ----- | - | ------ | ----------- | ------- | ----------- | ------------- | ------- | ----------- | - | ------------- | 
|                                        |                       |   |                    |    |             |  |            |   |        |   |            |  |         | Convertible |                   |  |       |   |        | Accumulated |         | Accumulated |               |         |             |  
|                                        | Preferred
      Stock |   | Common
      Stock |    | CommonStock |  | Additional |   | Other  |   | During the |  | Total  
|                                        |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             | Paid-in |             | Comprehensive |         | Development |   | Stockholders
|                                        | Shares                |   | Amount             |    | Shares      |  | Amount     |   | Shares |   | Amount     |  | Capital |             | Gain
      (Loss) |  | Stage |   | Equity
|Balance at June 30, 1995 (brought       |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|forward)                                | 2,069,326             |   | $                  | 2  |             |  | 1,942,653  |   |        | $ | 2          |  |         | 90,293      |                   |  | $     |  |        |             | $       | 8,788       |               |         | $           |  |               | 
|Issuance of Series C preferred stock    |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|at $4.87 per share in July 1995         |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|for cash (net of issuance costs         |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|of $26,000)                             | 41,042                |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 174         |               |         |             |  |               | 
|Issuance of Series D
      preferred    |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|stock at $7.09 per share from           |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|October 1995 to February 1996           |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|for cash (net of issuance costs         |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|of $25,279)                             | 205,351               |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 1,430       |               |         |             |  |               | 
|Issuance of Series D preferred stock    |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|at $7.09 per share in March             |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|1996 in settlement of accounts          |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|payable                                 | 22,574                |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 160         |               |         |             |  |               | 
|Issuance of common stock
      at       |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|$.004 per share in March 1996           |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|pursuant to antidilution rights         |                      |   |                    |   |             |  | 17,630     |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 1           |               |         |             |  |               | 
|Issuance of stock options in            |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|February 1996 in settlement of          |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|certain accrued liabilities             |                      |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 137         |               |         |             |  |               | 
|Conversion of Class B
      common      |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|stock to common stock                   |                      |   |                    |   |             |  | 231,304    |   |        |   | 1          |  |         | (90,293     | )                 |  |       |  |        |             |         | (1          | )             |         |             |  |               | 
|Issuance of warrants to purchase        |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|common stock in connection              |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|with 1996 bridge financing in           |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|March 1996                              |                      |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 300         |               |         |             |  |               | 
|Conversion of preferred stock
      to  |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|common stock in May 1996                | (2,338,293            | ) |                    | (2 | )           |  | 2,355,753  |   |        |   | 2          |  |         |            |                   |  |       |  |        |             |         | (1          | )             |         |             |  |               | 
|Issuance of common stock at $8.00       |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|per share in connection with            |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|the May 1996 initial public             |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|offering (net of issuance costs         |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|of $798,414 and underwriting            |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|discount of $1,500,000)                 |                      |   |                    |   |             |  | 2,500,000  |   |        |   | 2          |  |         |            |                   |  |       |  |        |             |         | 17,699      |               |         |             |  |               | 
|Proceeds from exercise of
      options |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|at $0.44 per share in                   |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|June 1996                               |                      |   |                    |   |             |  | 6,178      |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 3           |               |         |             |  |               | 
|Repurchase of common stock              |                      |   |                    |   |             |  | (18,325    | ) |        |   |           |  |         |            |                   |  |       |  |        |             |         | (1          | )             |         |             |  |               | 
|Deferred compensation                   |                      |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | 164         |               |         |             |  |               | 
|Amortization of deferred                |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|compensation                            |                      |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         | (128        | )             |         |             |  |               | 
|Net loss and comprehensive
      loss   |                      |   |                    |   |             |  |           |   |        |   |           |  |         |            |                   |  |       |  |        |             |         |            |               |         |             |  |               | 
|Balance at June 30, 1996 (carried       |                       |   |                    |    |             |  |            |   |        |   |            |  |         |             |                   |  |       |   |        |             |         |             |               |         |             |   |               | 
|forward)                                |                      |   | $                  |   |             |  | 7,035,193  |   |        | $ | 7          |  |         |            |                   |  | $     |  |        |             | $       | 28,725      |               |         | $           |  |               | 

8

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)

Period from October 22, 1992
(inception) through December 31, 2006(in thousands, except for share
information)

|                                        |                |  |                    |   |              |  |            |  |        |    |            |  | Class B     |  |                   |   |       |             |         |             |               | Deficit |             |  |               |  
|--------------------------------------- | -------------- |  | ------------------ | - | ------------ |  | ---------- |  | ------ | -- | ---------- |  | ----------- |  | ----------------- | - | ----- | ----------- | ------- | ----------- | ------------- | ------- | ----------- |  | ------------- | -
|                                        |                |  |                    |   |              |  |            |  |        |    |            |  | Convertible |  |                   |   |       | Accumulated |         | Accumulated |               |         |             | 
|                                        | PreferredStock |  | Common
      Stock |   | Common Stock |  | Additional |  | Other  |    | During the |  | Total      
|                                        |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             | Paid-in |             | Comprehensive |         | Development |  | Stockholders
|                                        | Shares         |  | Amount             |   | Shares       |  | Amount     |  | Shares |    | Amount     |  | Capital     |  | Gain
      (Loss) |   | Stage |             | Equity 
|Balance at June 30, 1996 (brought       |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|forward)                                |               |  | $                  |  |              |  | 7,035,193  |  | $      | 7  |            |  |            |  | $                 |  |       |             | $       | 28,725      |               | $       |            |  |               | $
|Issuance of common stock at $8.00       |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|per share in July 1996 in               |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|connection with the exercise of         |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|underwriters over-allotment            |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|option (net of underwriting             |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|discount of $150,000)                   |               |  |                    |  |              |  | 250,000    |  |        |   |            |  |            |  |                   |  |       |             |         | 1,850       |               |         |            |  |               |  
|Proceeds from exercise
      of options |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|at $0.44 to $0.71 per share             |               |  |                    |  |              |  | 3,387      |  |        |   |            |  |            |  |                   |  |       |             |         | 1           |               |         |            |  |               |  
|Amortization of deferred                |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|compensation                            |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         | 41          |               |         |            |  |               |  
|Net loss and
      comprehensive loss   |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         |            |               |         |            |  |               |  
|Balance at June 30, 1997                |               |  |                    |  |              |  | 7,288,580  |  |        | 7  |            |  |            |  |                   |  |       |             |         | 30,617      |               |         |            |  |               |  
|Proceeds from exercise
      of options |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|at $0.44 to $0.71 per share             |               |  |                    |  |              |  | 17,278     |  |        |   |            |  |            |  |                   |  |       |             |         | 10          |               |         |            |  |               |  
|Amortization of deferred                |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|compensation                            |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         | 41          |               |         |            |  |               |  
|Compensation expense
      related to   |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|options granted for services            |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         | 68          |               |         |            |  |               |  
|Net loss and comprehensive loss         |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         |            |               |         |            |  |               |  
|Balance at June 30, 1998                |               |  |                    |  |              |  | 7,305,858  |  |        | 7  |            |  |            |  |                   |  |       |             |         | 30,736      |               |         |            |  |               |  
|Proceeds from exercise
      of options |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|at $0.44 to $4.31 per share             |               |  |                    |  |              |  | 181,045    |  |        |   |            |  |            |  |                   |  |       |             |         | 222         |               |         |            |  |               |  
|Amortization of
      deferred          |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|compensation                            |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         | 41          |               |         |            |  |               |  
|Issuance of common stock
      at $2.25 |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|- $2.94 per share and warrants          |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|in August to September 1998             |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|in connection with a Private            |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|Placement (net of issuance              |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|cost of $233,584)                       |               |  |                    |  |              |  | 1,306,505  |  |        | 1  |            |  |            |  |                   |  |       |             |         | 2,734       |               |         |            |  |               |  
|Issuance of common stock
      at       |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|$3.81 - $4.88 per share and             |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|warrants in December 1998               |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|in connection with a Private            |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|Placement (net of issuance              |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|cost of $438,183)                       |               |  |                    |  |              |  | 1,367,280  |  |        | 2  |            |  |            |  |                   |  |       |             |         | 5,195       |               |         |            |  |               |  
|Issuance of common stock
      at $5.50 |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|- $6.00 per share and warrants          |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|in February to April 1999               |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|in connection with a Private            |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|Placement (net of issuance              |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|cost of $1,033,225)                     |               |  |                    |  |              |  | 2,198,210  |  |        | 2  |            |  |            |  |                   |  |       |             |         | 12,154      |               |         |            |  |               |  
|Net loss and
      comprehensive loss   |               |  |                    |  |              |  |           |  |        |   |            |  |            |  |                   |  |       |             |         |            |               |         |            |  |               |  
|Balance at June 30, 1999 (carried       |                |  |                    |   |              |  |            |  |        |    |            |  |             |  |                   |   |       |             |         |             |               |         |             |  |               |  
|forward)                                |               |  | $                  |  |              |  | 12,358,898 |  | $      | 12 |            |  |            |  | $                 |  |       |             | $       | 51,082      |               | $       |            |  |               | $

9

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)

Period from October 22, 1992
(inception) through December 31, 2006(in thousands, except for share
information)

|                                         |                 |  |                    |   |                    |  |            |  |        |    |            |  | Class B     |  |             |   |       |  |             |         |               |  | Deficit     |       |               |  |  
|---------------------------------------- | --------------- |  | ------------------ | - | ------------------ |  | ---------- |  | ------ | -- | ---------- |  | ----------- |  | ----------- | - | ----- |  | ----------- | ------- | ------------- |  | ----------- | ----- | ------------- |  | -
|                                         |                 |  |                    |   |                    |  |            |  |        |    |            |  | Convertible |  |             |   |       |  | Accumulated |         | Accumulated   |  |             |       |              
|                                         | Preferred Stock |  | Common
      Stock |   | Common
      Stock |  | Additional |  | Other  |    | During the |  | Total      
|                                         |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  | Paid-in     |         | Comprehensive |  | Development |       | Stockholders
|                                         | Shares          |  | Amount             |   | Shares             |  | Amount     |  | Shares |    | Amount     |  | Capital     |  | Gain (Loss) |   | Stage |  | Equity     
|Balance at June 30, 1999 (brought        |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|forward)                                 |                |  | $                  |  |                    |  | 12,358,898 |  | $      | 12 |            |  |            |  | $           |  |       |  | $           | 51,082  |               |  | $           |      |               |  | $
|Proceeds from exercise of options        |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|at $0.44 to $15.50                       |                |  |                    |  |                    |  | 440,259    |  |        | 1  |            |  |            |  |             |  |       |  |             | 1,533   |               |  |             |      |               |  |  
|Proceeds from exercise
      of warrants |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|at $2.81 to $31.95                       |                |  |                    |  |                    |  | 1,017,215  |  |        | 1  |            |  |            |  |             |  |       |  |             | 8,427   |               |  |             |      |               |  |  
|Amortization of deferred                 |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|compensation                             |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             | 5       |               |  |             |      |               |  |  
|Compensation expense
      related to    |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|options granted for services             |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             | 89      |               |  |             |      |               |  |  
|Warrants granted for patent              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|licenses                                 |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             | 3,182   |               |  |             |      |               |  |  
|Warrants granted for
      building      |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|lease                                    |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             | 1,738   |               |  |             |      |               |  |  
|Issuance of common stock at              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|$16.19 to $25.56 per share               |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|and warrants in October and              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|November 1999 in connection              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|with a Private Placement                 |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|(net of issuance cost of                 |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|$2,804,255)                              |                |  |                    |  |                    |  | 2,033,895  |  |        | 2  |            |  |            |  |             |  |       |  |             | 37,220  |               |  |             |      |               |  |  
|Issuance of common stock
      at $26    |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|per share in April and May               |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|2000 in connection with                  |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|a Public Offering (net of                |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|issuance cost of $2,288,966)             |                |  |                    |  |                    |  | 1,150,000  |  |        | 1  |            |  |            |  |             |  |       |  |             | 27,610  |               |  |             |      |               |  |  
|Comprehensive loss:                      |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|Net loss                                 |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             |        |               |  |             |      |               |  |  
|Net unrealized loss on                   |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|available-for-sale securities            |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             |        |               |  |             | (80   | )             |  |  
|Comprehensive
      loss                 |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|Balance at June 30, 2000                 |                |  | $                  |  |                    |  | 17,000,267 |  | $      | 17 |            |  |            |  | $           |  |       |  | $           | 130,886 |               |  | $           | (80   | )             |  | $
|Proceeds from exercise
      of options  |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|at $0.44 to $34.00 per share             |                |  |                    |  |                    |  | 165,700    |  |        |   |            |  |            |  |             |  |       |  |             | 869     |               |  |             |      |               |  |  
|Proceeds from exercise of warrants       |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|at $2.18 to $23.43                       |                |  |                    |  |                    |  | 174,255    |  |        | 1  |            |  |            |  |             |  |       |  |             | 771     |               |  |             |      |               |  |  
|Compensation expense
      related to    |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|options granted for services             |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             | 336     |               |  |             |      |               |  |  
|Issuance of common stock at              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|$37.50 to $45.06 per share               |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|in November 2000 Public                  |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|Offering (net of issuance cost           |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|of $4,622,188)                           |                |  |                    |  |                    |  | 2,291,239  |  |        | 2  |            |  |            |  |             |  |       |  |             | 86,084  |               |  |             |      |               |  |  
|Issuance of common
      stock           |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|at $47.82 per share in                   |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|February 2001 pursuant to a              |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|collaboration agreement                  |                |  |                    |  |                    |  | 313,636    |  |        |   |            |  |            |  |             |  |       |  |             | 15,000  |               |  |             |      |               |  |  
|Comprehensive loss:                      |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|Net loss                                 |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             |        |               |  |             |      |               |  |  
|Net unrealized gain on                   |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|available-for-sale securities            |                |  |                    |  |                    |  |           |  |        |   |            |  |            |  |             |  |       |  |             |        |               |  |             | 1,120 |               |  |  
|Comprehensive
      loss                 |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|Balance at June 30, 2001 (carried        |                 |  |                    |   |                    |  |            |  |        |    |            |  |             |  |             |   |       |  |             |         |               |  |             |       |               |  |  
|forward)                                 |                |  |                    |  |                    |  | 19,945,097 |  |        | 20 |            |  |            |  |             |  |       |  |             | 233,946 |               |  |             | 1,040 |               |  |  

10

---

AVIGEN, INC.(a development stage
company)

STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)

Period from October 22, 1992
(inception) through December 31, 2006(in thousands, except for share
information)

|                                      |                 |  |        |              |        |  |              |  |            |    |        |  | Class B     |  |             |   |       |             |         |             |               | Deficit |             |   |               |  
|------------------------------------- | --------------- |  | ------ | ------------ | ------ |  | ------------ |  | ---------- | -- | ------ |  | ----------- |  | ----------- | - | ----- | ----------- | ------- | ----------- | ------------- | ------- | ----------- | - | ------------- | -
|                                      |                 |  |        |              |        |  |              |  |            |    |        |  | Convertible |  |             |   |       | Accumulated |         | Accumulated |               |         |             |  
|                                      | Preferred Stock |  |        | Common Stock |        |  | Common Stock |  | Additional |    | Other  |  | During the  |  | Total      
|                                      |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             | Paid-in |             | Comprehensive |         | Development |   | Stockholders
|                                      | Shares          |  | Amount |              | Shares |  | Amount       |  | Shares     |    | Amount |  | Capital     |  | Gain (Loss) |   | Stage |             | Equity 
|Balance at June 30, 2001 (brought     |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|forward)                              |                |  |        |             |        |  | 19,945,097   |  |            | 20 |        |  |            |  |             |  |       |             |         | 233,946     |               |         | 1,040       |   |               |  
|Proceeds from exercise of options     |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|at $2.13 to $6.75 per share           |                |  |        |             |        |  | 11,282       |  |            |   |        |  |            |  |             |  |       |             |         | 60          |               |         |            |   |               |  
|Proceeds from exercise of warrants    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|$7.50 per share                       |                |  |        |             |        |  | 9,955        |  |            |   |        |  |            |  |             |  |       |             |         | 75          |               |         |            |   |               |  
|Compensation expense related to       |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|options granted for services          |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         | 179         |               |         |            |   |               |  
|Comprehensive loss:                   |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Net loss                              |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         |            |               |         |            |   |               |  
|Net unrealized gain on                |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|available-for-sale securities         |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         |            |               |         | 1,173       |   |               |  
|Comprehensive loss                    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Balance at December 31, 2001          |                |  |        |             |        |  | 19,966,334   |  |            | 20 |        |  |            |  |             |  |       |             |         | 234,260     |               |         | 2,213       |   |               |  
|Proceeds from exercise of options     |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|at $1.875 to $8.525 per share         |                 |  |        |              |        |  | 34,627       |  |            |   |        |  |             |  |             |   |       |             |         | 113         |               |         |            |   |               |  
|Proceeds from exercise of warrants    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|at $7.50 per share                    |                |  |        |             |        |  | 99,585       |  |            |   |        |  |            |  |             |  |       |             |         | 747         |               |         |            |   |               |  
|Compensation expense related to       |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|options granted for services          |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         | 217         |               |         |            |   |               |  
|Comprehensive loss:                   |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Net loss                              |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         |            |               |         |            |   |               |  
|Net unrealized loss on                |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|available-for-sale securities         |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         |            |               |         | (631        | ) |               |  
|Comprehensive loss                    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Balance at December 31, 2002          |                |  |        | $           |        |  | 20,100,546   |  | $          | 20 |        |  |            |  | $           |  |       |             | $       | 235,337     |               | $       | 1,582       |   |               | $
|Proceeds from exercise of options     |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|at $2.12 to $6.50 per share           |                |  |        |             |        |  | 63,746       |  |            |   |        |  |            |  |             |  |       |             |         | 242         |               |         |            |   |               |  
|Proceeds from exercise of warrants    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|at $2.47 to $6.09 per share           |                |  |        |             |        |  | 112,102      |  |            |   |        |  |            |  |             |  |       |             |         | 476         |               |         |            |   |               |  
|Compensation expense related to       |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|options granted for services          |                 |  |        |              |        |  |             |  |            |   |        |  |             |  |             |   |       |             |         | 65          |               |         |            |   |               |  
|Comprehensive loss:                   |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Net loss                              |                |  |        |             |        |  |             |  |            |   |        |  |            |  |             |  |       |             |         |            |               |         |            |   |               |  
|Net unrealized loss on                |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|available-for-sale securities         |                |  |        |             |        |  |             |  |            |   |        |  |             |  |             |   |       |             |         |            |               |         | (1,180      | ) |               |  
|Comprehensive loss                    |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|Balance at December 31, 2003 (carried |                 |  |        |              |        |  |              |  |            |    |        |  |             |  |             |   |       |             |         |             |               |         |             |   |               |  
|forward)                              |                |  |        |             |        |  | 20,276,394   |  |            | 20 |        |  |            |  |             |  |       |             |         | 236,120     |               |         | 402         |   |               |  

11

---

AVIGEN, INC. (a development stage
company)

STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)

Period from October 22, 1992
(inception) through December 31, 2006 (in thousands, except for share
information)

|                                      |                       |  |              |  |              |  |            |  | Class B     |  |            |  |               |  |                   | Deficit |               |                  |       
|------------------------------------- | --------------------- |  | ------------ |  | ------------ |  | ---------- |  | ----------- |  | ---------- |  | ------------- |  | ----------------- | ------- | ------------- | ---------------- | ------
|                                      |                       |  |              |  |              |  |            |  | Convertible |  |            |  | Accumulated   |  | Accumulated       |         |               |                 
|                                      | Preferred
      Stock |  | Common Stock |  | Common Stock |  | Additional |  | Other       |  | During the |  | Total        
|                                      |                       |  |              |  |              |  |            |  |             |  | Paid-in    |  | Comprehensive |  | Development       |         | Stockholders
|                                      | Shares                |  | Amount       |  | Shares       |  | Amount     |  | Shares      |  | Amount     |  | Capital       |  | Gain
      (Loss) |         | Stage         |                  | Equity
|Balance at December 31, 2003 (brought |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|forward)                              |                      |  |             |  | 20,276,394   |  | 20         |  |            |  |           |  | 236,120       |  | 402               |         |               | (132,656         | )     
|Proceeds from exercise of options     |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|at $0.443 to $6.313 per
      share   |                      |  |             |  | 86,856       |  |           |  |            |  |           |  | 403           |  |                  |         |               |                 |       
|Proceeds from exercise of warrants    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|at $6.05 per
      share              |                      |  |             |  | 18,000       |  |           |  |            |  |           |  | 109           |  |                  |         |               |                 |       
|Compensation expense related to       |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|options granted for
      services    |                      |  |             |  |             |  |           |  |            |  |           |  | 230           |  |                  |         |               |                 |       
|Warrants granted for                  |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|patent
      licenses                 |                      |  |             |  |             |  |           |  |            |  |           |  | 97            |  |                  |         |               |                 |       
|Comprehensive loss:                   |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Net loss                              |                      |  |             |  |             |  |           |  |            |  |           |  |              |  |                  |         |               | (23,923          | )     
|Net unrealized loss on                |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|available-for-sale                    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|securities                            |                      |  |             |  |             |  |           |  |            |  |           |  |              |  | (927              | )       |               |                 |       
|Comprehensive loss                    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Balance at
      December 31, 2004    |                       |  |              |  | 20,381,250   |  | 20         |  |            |  |           |  | 236,959       |  | (525              | )       |               | (156,579         | )     
|Proceeds from exercise of options     |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|at $0.487 to
      $3.53 per share    |                      |  |             |  | 526,023      |  | 1          |  |            |  |           |  | 286           |  |                  |         |               |                 |       
|Compensation expense related to       |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|options granted for
      services    |                      |  |             |  |             |  |           |  |            |  |           |  | 13            |  |                  |         |               |                 |       
|Comprehensive loss:                   |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Net loss                              |                      |  |             |  |             |  |           |  |            |  |           |  |              |  |                  |         |               | (14,696          | )     
|Net unrealized
      loss on          |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|available-for-sale securities         |                      |  |             |  |             |  |           |  |            |  |           |  |              |  | (15               | )       |               |                 |       
|Comprehensive loss                    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Balance at December 31, 2005          |                      |  |             |  | 20,907,273   |  | 21         |  |            |  |           |  | 237,258       |  | (540              | )       |               | (171,275         | )     
|Proceeds from exercise of options     |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|at $2.00 to $5.93 per
      share     |                      |  |             |  | 269,098      |  |           |  |            |  |           |  | 1,012         |  |                  |         |               |                 |       
|Issuance of common stock at           |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|$5.37 per share
      in May 2006     |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|in connection
      with a Private    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Placement (net
      of issuance cost |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|of
      $1,802,149)                  |                      |  |             |  | 3,939,760    |  | 4          |  |            |  |           |  | 19,530        |  |                  |         |               |                 |       
|Stock-based compensation              |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|expense                               |                       |  |              |  |             |  |           |  |            |  |           |  | 1,381         |  |                  |         |               |                 |       
|Compensation expense related to       |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|options granted
      for services    |                      |  |             |  |             |  |           |  |            |  |           |  | 114           |  |                  |         |               |                 |       
|Comprehensive loss:                   |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Net loss                              |                       |  |              |  |             |  |           |  |            |  |           |  |              |  |                  |         |               | (24,256          | )     
|Net unrealized gain on                |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|available-for-sale securities         |                      |  |             |  |             |  |           |  |            |  |           |  |              |  | 408               |         |               |                 |       
|Comprehensive loss                    |                       |  |              |  |              |  |            |  |             |  |            |  |               |  |                   |         |               |                  |       
|Balance at
      December 31, 2006    |                      |  | $           |  | 25,116,131   |  | $25        |  |            |  | $         |  | $ 259,115     |  | $ (132            | )       |               | $
      (195,531 | )     

See accompanying
notes.

12

---

AVIGEN, INC. (a development stage
company)

STATEMENTS OF CASH FLOWS (in
thousands)

|                                                          |                              |          |              |  |      |         |      |  |   |         |   |  | Period from
|--------------------------------------------------------- | ---------------------------- | -------- | ------------ |  | ---- | ------- | ---- |  | - | ------- | - |  | -----------
|                                                          |                              |          |              |  |      |         |      |  |   |         |   |  | October 22,
|                                                          |                              |          |              |  |      |         |      |  |   |         |   |  | 1992       
|                                                          |                              |          |              |  |      |         |      |  |   |         |   |  | (inception)
|                                                          |                              |          |              |  |      |         |      |  |   |         |   |  | through    
|                                                          | Year Ended
      December31, |          | December 31,
|                                                          | 2006                         |          | 2005         |  | 2004 |         | 2006
|Operating Activities                                      |                              |          |              |  |      |         |      |  |   |         |   |  |            
|Net loss                                                  | $                            | (24,256  | )            |  | $    | (14,696 | )    |  | $ | (23,923 | ) |  | $          
|Adjustments to reconcile net loss to net cash             |                              |          |              |  |      |         |      |  |   |         |   |  |            
|used in operating activities:                             |                              |          |              |  |      |         |      |  |   |         |   |  |            
|Depreciation and amortization                             |                              | 1,273    |              |  |      | 2,549   |      |  |   | 3,610   |   |  |            
|Gain on disposal of property and
      equipment          |                              | (18      | )            |  |      | (65     | )    |  |   |        |   |  |            
|Impairment loss related to long-lived assets              |                              | 450      |              |  |      | 6,130   |      |  |   |        |   |  |            
|Amortization of deferred compensation                     |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Non-cash rent expense for warrants issued in              |                              |          |              |  |      |         |      |  |   |         |   |  |            
|connection with the extension
      of the building       |                              |          |              |  |      |         |      |  |   |         |   |  |            
|lease                                                     |                              | 217      |              |  |      | 217     |      |  |   | 217     |   |  |            
|Amortization of deferred rent and other
      liabilities |                              | (162     | )            |  |      | 3       |      |  |   | 97      |   |  |            
|Non-cash compensation expense for common
      stock,     |                              |          |              |  |      |         |      |  |   |         |   |  |            
|warrants, and stock options
      issued to employees     |                              |          |              |  |      |         |      |  |   |         |   |  |            
|and consultants for
      services                        |                              | 1,495    |              |  |      | 13      |      |  |   | 230     |   |  |            
|Warrants issued for patent license                        |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Changes in
      operating assets and liabilities:        |                              |          |              |  |      |         |      |  |   |         |   |  |            
|Accrued interest                                          |                              | (182     | )            |  |      | 238     |      |  |   | 66      |   |  |            
|Prepaid expenses and other current assets                 |                              | 292      |              |  |      | (294    | )    |  |   | 1       |   |  |            
|Deposits and other assets                                 |                              | 79       |              |  |      | (316    | )    |  |   |        |   |  |            
|Accounts payable, other accrued liabilities
      and     |                              |          |              |  |      |         |      |  |   |         |   |  |            
|accrued compensation and
      related expenses           |                              | 452      |              |  |      | 167     |      |  |   | 49      |   |  |            
|Deferred revenue                                          |                              |         |              |  |      |        |      |  |   | (2,125  | ) |  |            
|Net cash used in
      operating activities               |                              | (20,360  | )            |  |      | (6,054  | )    |  |   | (21,778 | ) |  |            
|                                                         
|Investing Activities                                      |                              |          |              |  |      |         |      |  |   |         |   |  |            
|Purchases of
      property and equipment                 |                              | (176     | )            |  |      | (277    | )    |  |   | (467    | ) |  |            
|Proceeds from disposal of property and equipment          |                              | 142      |              |  |      | 231     |      |  |   |        |   |  |            
|Decrease
      (increase) in restricted investments       |                              |         |              |  |      | 1,500   |      |  |   |        |   |  |            
|Purchases of available-for-sale securities                |                              | (109,261 | )            |  |      | (66,475 | )    |  |   | (79,670 | ) |  |            
|Maturities of
      available-for-sale securities         |                              | 99,594   |              |  |      | 79,082  |      |  |   | 102,236 |   |  |            
|Net cash provided by (used in) investing activities       |                              | (9,701   | )            |  |      | 14,061  |      |  |   | 22,099  |   |  |            
|Financing
      Activities                                |                              |          |              |  |      |         |      |  |   |         |   |  |            
|Proceeds from long-term obligations                       |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Repayment of
      long-term obligations                  |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Proceeds from bridge financing                            |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Repayment of
      bridge financing                       |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Payments on capital lease obligations                     |                              |         |              |  |      |        |      |  |   |        |   |  |            
|Proceeds from
      sale-leaseback of equipment           |                              |         |              |  |      |        |      |  |   |        |   |  |            

13

---

AVIGEN, INC. (a development stage
company)

STATEMENTS OF CASH FLOWS (Continued)
(in thousands)

|                                                               |                              |        |              |  |      |        |      |   |       |  | Period from
|-------------------------------------------------------------- | ---------------------------- | ------ | ------------ |  | ---- | ------ | ---- | - | ----- |  | -----------
|                                                               |                              |        |              |  |      |        |      |   |       |  | October 22,
|                                                               |                              |        |              |  |      |        |      |   |       |  | 1992       
|                                                               |                              |        |              |  |      |        |      |   |       |  | (inception)
|                                                               |                              |        |              |  |      |        |      |   |       |  | through    
|                                                               | Year Ended
      December31, |        | December 31,
|                                                               | 2006                         |        | 2005         |  | 2004 |        | 2006
|Proceeds from issuance of preferred stock, net of              |                              |        |              |  |      |        |      |   |       |  |            
|issuance costs                                                 |                              |       |              |  |      |       |      |   |      |  |            
|Proceeds from
      warrants and options exercised             |                              | 1,012  |              |  |      | 286    |      |   | 512   |  |            
|Proceeds from issuance of common stock, net of                 |                              |        |              |  |      |        |      |   |       |  |            
|issuance costs and repurchases                                 |                              | 19,354 |              |  |      |       |      |   |      |  |            
|Net cash
      provided by financing activities                |                              | 20,366 |              |  |      | 286    |      |   | 512   |  |            
|Net (decrease) increase in cash and cash equivalents           |                              | (9,695 | )            |  |      | 8,293  |      |   | 833   |  |            
|Cash and cash
      equivalents, beginning of period           |                              | 11,510 |              |  |      | 3,217  |      |   | 2,384 |  |            
|Cash and cash equivalents, end of period                       | $                            | 1,815  |              |  | $    | 11,510 |      | $ | 3,217 |  | $          
|                                                              
|                                                              
|Supplemental disclosure                                        |                              |        |              |  |      |        |      |   |       |  |            
|Issuance of
      warrants in connection with the extension of |                              |        |              |  |      |        |      |   |       |  |            
|the building lease                                             | $                            |       |              |  | $    |       |      | $ |      |  | $          
|Issuance of preferred stock for cancellation of accounts       |                              |        |              |  |      |        |      |   |       |  |            
|payable, notes payable and accrued
      interest              |                              |       |              |  |      |       |      |   |      |  |            
|Issuance of
      stock options for repayment of certain       |                              |        |              |  |      |        |      |   |       |  |            
|accrued liabilities                                            |                              |       |              |  |      |       |      |   |      |  |            
|Issuance of warrants in connection with bridge                 |                              |        |              |  |      |        |      |   |       |  |            
|financing                                                      |                              |       |              |  |      |       |      |   |      |  |            
|Deferred
      compensation related to stock option grants     |                              |       |              |  |      |       |      |   |      |  |            
|Purchase of property and equipment under capital lease         |                              |        |              |  |      |        |      |   |       |  |            
|financing                                                      |                              |       |              |  |      |       |      |   |      |  |            
|Cash paid for
      interest                                   | $                            | 467    |              |  | $    | 323    |      | $ | 209   |  | $          

See accompanying
notes.

14

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL
STATEMENTS

1. Summary of Significant Accounting
Policies

Description of Business
and Basis of Presentation

Avigen,
Inc. was incorporated on October 22, 1992 in Delaware and is focused on
developing and commercializing small molecule therapeutics and biologics to
treat serious neurological and neuromuscular disorders. Our current product
candidates primarily address neuromuscular spasm and spasticity and neuropathic
pain. Since our inception, our activities have consisted principally of
acquiring product rights, raising capital, establishing facilities and
performing research and development. Accordingly, we are considered to be in the
development stage. We operate in a single segment.

At
December 31, 2006, we had an accumulated deficit of $195.5 million and expect to
continue to incur substantial losses over the next several years while we
continue in this development stage. Our operations are subject to certain risks
and uncertainties frequently encountered by companies in the early stages of
operations, particularly in the evolving market for small biotech and specialty
pharmaceuticals companies. Such risks and uncertainties include, but are not
limited to, timing and uncertainty of achieving milestones in clinical trials
and in obtaining approvals by the FDA and regulatory agencies in other
countries. Our ability to generate revenues in the future will depend
substantially the timing and success of reaching development milestones and in
obtaining regulatory approvals and market acceptance of our products, assuming
the FDA approves our new drug applications. We plan to meet our future capital
requirements primarily through issuances of equity securities, payments under
collaborative agreements with third parties, government grants, and license
fees. We intend to seek additional funding through public or private equity or
debt financing, when market conditions allow. There can be no assurance that we
will be able to enter into financing arrangements on acceptable terms in the
future, if at all.

Use of
Estimates

The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires our management to make judgments, assumptions and
estimates that affect the amounts reported in our financial statements and the
accompanying notes. Actual results could differ materially from those
estimates.

Cash and Cash
Equivalents

We
consider all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. These amounts are recorded at cost, which
approximates fair market value.

Available- for-Sale
Securities

We invest
our excess cash balances in marketable securities, primarily corporate debt
securities, federal agency obligations, asset-backed securities, U.S.
treasuries, and municipal bonds, with the primary investment objectives of
preservation of principal, a high degree of liquidity, and maximum total return.
All marketable securities are held in our name under the custodianship of Wells
Capital Management. We have classified all our investments in marketable
securities as available-for-sale. Available-for-sale securities are reported at
market value and unrealized holding gains and losses, net of the related tax
effect, if any, are excluded from earnings and are reported in other
comprehensive income and as a separate component of stockholders equity until
realized. A decline in the market value of a security below its cost that is
deemed to be other than temporary is charged to earnings, and would result in
the establishment of a new cost basis for the security.

Our
available-for-sale securities consist principally of obligations with a minimum
short-term rating of A1/ P1 and a minimum long-term rating of A- and with
effective maturities of less than three years. The cost of securities sold is
based on the specific identification method. Interest on securities classified
as available for sale is included in interest income.

15

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Fair value of financial
instruments

The fair
value of our cash equivalents and available-for-sale securities is based on
quoted market prices. The fair value of our loans payable is based on current
interest rates available to us for debt instruments with similar terms, degrees
of risk, and remaining maturities. The carrying amount of our cash equivalents,
available-for-sale securities and loan payable are considered to be
representative of their respective fair value at December 31, 2006 and
2005.

Restricted
Investments

In June
2000, we initially entered into a financing arrangement to support construction
related activities. Under this arrangement, we have pledged $10.0 million of our
portfolio of available-for-sale securities to secure this long-term
obligation.

In May
2003, we secured two letters of credit to serve as security deposits in
connection with a building lease that became effective July 1, 2003. This
building lease was executed in February 2000 and replaced our previous building
lease and sublease on the same premises that expired June 30, 2003 under the
original terms of the agreements. Under the terms of these letters of credit, we
have pledged $428,000 of our portfolio of available-for-sale securities to
secure these letters of credit.

At
December 31, 2006, $8.0 million and $2.4 million were classified as restricted
investments in current and non-current assets, respectively. At December 31,
2005, $10.4 million was classified as non-current restricted investments. The
total of our current and non-current restricted investments at the end of each
period represents the combined aggregate portion of our portfolio of
available-for-sale securities that were pledged in connection with certain
liabilities at the end of each period. The change in classification of $8.0
million of long term restricted investments to current assets at December 31,
2006 results from the classification of the related loan payable, which is due
in June 2007, as a current liability.

Concentration of Credit
Risk

Cash,
cash equivalents, available-for-sale securities and restricted investments
consist of financial instruments that potentially subject us to concentrations
of credit risk to the extent of the value of the assets recorded on the balance
sheet. We believe that we have established guidelines for investment of our
excess cash that maintain safety and liquidity through our policies on
diversification among asset classes and issuers, as well as across investment
maturities.

Impairment of
Long-Lived Assets

All
long-lived assets are reviewed for potential impairment whenever events or
changes in business circumstances indicate that the carrying value of an asset
may not be fully recoverable under Statement of Financial Account Standards No.
144 Accounting for Impairment or Disposal of
Long-Lived Assets. Impairment is determined
by comparing future projected undiscounted cash flows to be generated by the
asset to its carrying value. If impairment is identified, a loss would be
recognized and reflected in net loss to the extent that the carrying amount of
the asset exceeds its estimated fair value determined by discounted cash flow
analyses or comparable fair valued or similar assets.

Property and
Equipment

Property
and equipment are stated at cost, less accumulated depreciation. Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the respective assets, or in the case of leasehold improvements,
over the lesser of the estimated useful lives or the remaining lease terms. The
estimated useful lives of our property and equipment range from three to seven
years.

16

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Expenses
for repairs and maintenance are charged to operations as incurred. Upon
retirement, disposition, or sale, the cost of the property and equipment
disposed of and the related accumulated depreciation are deducted from the
accounts, and any resulting gain or loss is credited or charged to
operations.

Asset Retirement
Obligation

We
account for obligations associated with the retirement costs of long-lived
assets in accordance with Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement
Obligations, as interpreted by FASB
Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations.
FAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. Our asset retirement obligation is
associated with a commitment to remove or otherwise alter certain leasehold
improvements at the termination of our building lease that expires in May 2008,
based on the sole discretion of our landlord, and is subject to a conditional
future event that is not within our control. This obligation existed in prior
years, but was not considered material to the fair presentation of our financial
statements and was not recognized. Considerable management judgment is required
in estimating these obligations. Important assumptions include estimates of
retirement costs, the timing of the future retirement activities, and the
likelihood of retirement provisions being enforced. Changes in these assumptions
based on future information could result in adjustments to estimated
liabilities.

As of
December 31, 2006, as a result of a change in estimate, we remeasured the
estimated fair value of our asset retirement obligation and recorded a
non-current liability for $450,000. The recognition of this liability would have
resulted in an adjustment to the carrying value of the underlying long-lived
assets. However, in June 2005, these leasehold improvements were determined to
be impaired and written-off with a charge to our net loss (see Note 4). Since
there is no carrying value of the underlying assets at December 31, 2006, the
recognition of our asset retirement obligation resulted in an additional charge
during the period to impairment loss related to long-lived assets. Upon
settlement of the obligation, any difference between the cost to retire the
asset and the liability recorded will be recognized as an increase or decrease
to operating expenses in our statement of operations in year of
settlement.

Revenue
Recognition

We
recognize revenue when the four basic criteria for revenue recognition as
described in SEC Staff Accounting Bulletin No. 104, Revenue Recognition, are
met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred
or services have been rendered; (3) the fee is fixed or determinable; and (4)
collectibility is reasonably assured.

Revenues from the License or
Assignment of Intellectual Property Rights

We
recognize non-refundable license or assignment fees, including development
milestone payments associated with license or assignment agreements, for which
we have no further significant performance obligations and no continuing
involvement requirements related to product development, on the earlier of the
dates on when the payments are received or when collection is assured. In 2005,
we received a $12.0 million payment under the terms of the Genzyme agreement
(see Note 8) that we recognized as revenue, since we concluded that as of
December 31, 2005, we did not have any significant future performance
obligations under the agreement.

Revenues from Collaborative Research
and Development Agreements

We
recognize revenue associated with up-front license, technology access and
research and development funding payments under collaborative agreements ratably
over the relevant periods specified in the agreements, generally the development
phase. This development phase can be defined as a specified period of time,
however, in certain cases, the collaborative agreement specifies a development
phase that culminates with milestone objectives but does not have a fixed date
and requires us to estimate the time period over which to recognize

17

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

this revenue. Our estimated time
periods are based on managements estimate of the time required to achieve a
particular development milestone considering the projected level of effort and
current stage of development. If our estimate of the development-phase time
period changes, the amount of revenue we recognize related to up-front payments
for a given period will accelerate or decrease accordingly.

Royalty Revenues

We record
royalty revenue from license agreements as earned in accordance with the
contract terms when third-party results can be reliably determined and
collectibility is reasonably assured.

Grant Revenues

We record
grant revenue in the period in which the revenue is earned as defined by the
grant agreement. Since our inception, we have recognized approximately $794,000
of grant revenue, which includes amounts earned from reimbursements under
government grants, of which all have come from the National Institutes of
Health.

Deferred
Rent

We record
our obligations under facility operating lease agreements as rent expense. We
recognize rent expense on a straight-line basis over the term of the operating
lease. The difference in actual amounts paid and amounts recorded as rent
expense during the fiscal year has been recorded as deferred rent. Amounts
classified as deferred rent totaled $967,000 and $1.1 million at December 31,
2006 and 2005, respectively.

Comprehensive
Loss

Components of other comprehensive loss, including unrealized gains and
losses on available-for-sale investments, were included as part of total
comprehensive loss. For all periods presented, we have disclosed comprehensive
loss in the statement of stockholders equity.

Research and
Development Expenses

Research
and development expenses consist of expenses incurred in performing research and
development activities including related salaries and benefits, facilities and
other overhead costs, clinical trial and related drug product costs, contract
services and other outside service expenses. Research and development expenses
are charged to operating expense in the period incurred and consist of costs
incurred for our independent, as well as our collaborative, research and
development activities.

Pursuant
to managements assessment of the services that have been performed on clinical
trials and other contracts, we recognize expenses as the services are provided.
Several of our contracts extend across multiple reporting periods. Management
assessments include, but are not limited to, an evaluation by the project
manager of the work that has been completed during the period, measurement of
progress prepared internally, estimates of incurred costs by the third-party
service providers, and managements judgment. The determination of the
percentage of work completed that determines the amount of research and
development expense that should be recognized in a given period requires
significant judgment, and could have a material impact on our balance sheet and
results of operations. These estimated expenses may or may not match the actual
fees billed by the service providers as determined by actual work completed. We
monitor service provider activities to the extent possible; however, if we
underestimated activity levels associated with various studies at a given point
in time, we could record significant research and development expenses in future
reporting periods.

18

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Income
Taxes

Income
taxes are accounted for in accordance with FAS 109,Accounting for IncomeTaxes, which
requires the use of the liability method. Under this method, deferred tax assets
and liabilities are determined based upon the differences between the financial
reporting and the tax bases of assets and liabilities and are measured using
enacted tax rules and laws that are anticipated to be in effect when the
differences are expected to reverse. To date, we have no history of earnings.
Therefore, our net deferred tax assets are reduced by a valuation allowance to
the extent that realization of the related deferred tax asset is not assured. We
have recorded a valuation allowance for the full amount of our calculated
deferred tax asset as of December 31, 2006 and 2005.

Basic and Diluted Net
Loss Per Common Share

Basic net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. The computation of basic
net loss per share for all periods presented is derived from the information on
the face of the statement of operations, and there are no reconciling items in
either the numerator or denominator.

Diluted
net loss per common share is computed as though all potential common shares that
are dilutive were outstanding during the year, using the treasury stock method
for the purposes of calculating the weighted-average number of dilutive common
shares outstanding during the period. Potential dilutive common shares consist
of shares issueable upon exercise of stock options and warrants. Securities that
potentially could have diluted basic earnings per common share, but were
excluded from the diluted net loss per common share computation because their
inclusion would have been anti-dilutive, were as follows:

YearEnded December 31,2006
    
    2005
    
    2004Potential dilutive stock options
      outstanding
    
    287,853
    
    273,667
    
    530,731Outstanding securities excluded from the potential
      dilutivecommon shares calculation
      (1)
    
    2,611,068
    
    3,756,850
    
    3,970,588


|(1) |  | For purposes of computing the
      potential dilutive common shares, we have excluded outstanding stock
      options and warrants to purchase common stock whose exercise prices exceed
      the average of the closing sale prices of our common stock as reported on
      the NASDAQ National Market for the period.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock-Based
Compensation

We
adopted the provisions of FASB Statement No. 123(R), (FAS 123(R)),
Share-Based Payment, effective January 1, 2006, using the modified prospective
transition method, and thereby recognize the compensation cost associated with
all share-based awards to employees in the financial statements based on their
grant-date fair value. Share-based compensation expense is recognized over the
period during which the employee is required to perform service in exchange for
the award, which generally represents the scheduled vesting period. We have no
awards with market or performance conditions. Under the modified prospective
transition method, compensation expense has been recognized in our financial
statements beginning January 1, 2006 with no restatement of prior periods. As
such, compensation expense is recognized for awards that are granted, modified,
or cancelled on or after January 1, 2006 as well as for the portion of awards
previously granted that had not vested as of January 1, 2006. Compensation
expense for these previously granted awards is being recognized over the
remaining service period using the compensation cost calculated based on the
same estimate of grant-date fair value previously reported for pro forma
disclosure purposes under FAS 123.

19

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Until we
adopted FAS 123 (R) on January 1, 2006, we accounted for stock options granted
to our employees and directors in accordance with APB Opinion No. 25, (APB 25),
Accounting for Stock Issued to Employees and related interpretations. Under
APB 25, when the exercise price of our employee stock options was equal to or
greater than the market price of the underlying stock on the date of grant, no
compensation expense was recognized.

Our
adoption of FAS 123(R) using the modified prospective transition method requires
us to determine the amount of eligible windfall tax benefits (the pool of
windfall tax benefits) that are available on the adoption date to offset future
shortfalls. We have elected to calculate the historical pool of windfall tax
benefits (i.e., the amount that would have accumulated as of the adoption date
of FAS 123(R)) using the short-cut method, as provided in FASB Staff Position
No. FAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards which includes simplified methods to establish the
beginning balance of the pool of windfall tax benefits related to the tax
effects of employee share-based compensation, and to determine the subsequent
impact on the pool of windfall tax benefits and consolidated statements of cash
flows of the tax effects of employee share-based compensation awards that are
outstanding upon adoption of SFAS 123(R). We also have elected to follow the
tax law ordering approach to determine when the historic tax benefits are
realized (tax benefits realized based on provisions in the tax law that identify
the sequence in which stock option deductions are utilized for tax purposes).
Subsequent to the adoption of FAS 123R, we will continue to track the balance of
the pool of windfall tax benefits based on windfalls or shortfalls incurred
after the adoption date.

The
following table illustrates the effect on our net loss and loss per common share
if we had applied the fair value recognition provisions to share-based employee
compensation in 2005 and 2004 (in thousands, except for per share
data):

|                                                                             | Year Ended
      December31,
|---------------------------------------------------------------------------- | ----------------------------
|                                                                             | 2005                        
|Net loss - as reported                                                       | $                           
|Add: Stock-based employee compensation included in reported net
      loss   |                             
|Less: Total stock-based employee compensation expense
      determined under |                             
|the fair-value-based method
      for all awards                             |                             
|Net loss  pro forma                                                         | $                           
|Net loss per common share basic and diluted  as
      reported              | $                           
|Net loss per common share basic and diluted - pro
      forma                | $                           

For
equity awards to non-employees, including lenders, lessors, and consultants, we
also apply the Black-Scholes method to determine the fair value of such
investments in accordance with FAS 123(R) and Emerging Issues Task Force Issue
No. 96-18,Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods, or Services.The options and
warrants granted to non-employees are re-measured as they vest and the resulting
value is recognized as an expense against our net loss over the period during
which the services are received or the term of the related financing.

Reclassifications

We have
reclassified certain prior year amounts to conform to our current years
presentation of sublease income and other income (expense), net reported in our
statements of operations. The reclassifications had no impact on our financial
condition, results of operations, or the net cash flow from operating activities
reported on our statement of cash flows.

20

---

AVIGEN, INC. (a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

New Accounting
Pronouncements

In July
2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109, or FIN 48, which requires
a company to recognize in its financial statements the impact of a tax position
if that position is more likely than not of being sustained on examination by
tax authorities based upon its technical merits. The provisions of FIN 48 are
effective as of the beginning of the 2007 fiscal year, with the cumulative
effect, if any, of the change in accounting principle recorded as an adjustment
to opening retained earnings. We are currently evaluating the impact of adopting
FIN 48, but believe that it will not have a material impact on our financial
statements.

In
September 2006, the FASB issued FAS 157, Fair
Value Measurements. FAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP) and expands disclosures about fair value
measurements. FAS 157 is effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. We are currently evaluating
the effect, if any, that the adoption of FAS 157 will have on our financial
position and results of operations.

In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 provides interpretive
guidance on how the effects of prior-year uncorrected misstatements should be
considered when quantifying misstatements in the current year financial
statements. SAB 108 requires companies to quantify misstatements using both an
income statement (rollover) and balance sheet (iron curtain) approach and
evaluate whether either approach results in a misstatement that, when all
relevant quantitative and qualitative factors are considered, is material. If
prior year errors that had been previously considered immaterial now are
considered material based on either approach, no restatement is required so long
as management properly applied its previous approach and all relevant facts and
circumstances were considered. If prior years are not restated, the cumulative
effect adjustment is recorded in opening accumulated earnings as of the
beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years
ending on or after November 15, 2006. The adoption of SAB 108 did not have a
material effect on our financial condition or results of operations.

In
February 2007, the FASB issued FAS 159, The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
amendment of FAS 115. FAS 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. This statement provides companies the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is effective as of the beginning of an entitys first
fiscal year that begins after November 15, 2007. Management is currently
evaluating the impact of adopting this Statement.

21

---

AVIGEN, INC. (a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

2. Cash, Available-for-Sale
Securities and Restricted Investments

The
following is a summary of cash, restricted investments, and available-for-sale
securities as of December 31, 2006 (in thousands):

Gross
    
    GrossUnrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueCash
    
    $
    1,815
    
    $
    
    
    $
    
    
    $
    1,815Corporate debt
      securities
    
    
    28,465
    
    
    6
    
    
    (73)
    
    
    28,398Federal agency obligations
    
    
    23,438
    
    
    8
    
    
    (58)
    
    
    23,388Asset-backed and
      other securities
    
    
    16,432
    
    
    9
    
    
    (19)
    
    
    16,422Treasury obligations
    
    
    750
    
    
    
    
    
    (5)
    
    
    745Total
    
    
    70,900
    
    
    23
    
    
    (155)
    
    
    70,768Amounts reported as:Cash and cash equivalents
    
    
    1,815
    
    
    
    
    
    
    
    
    1,815Restricted
      Investments
    
    
    10,428
    
    
    
    
    
    
    
    
    10,428Available for sale
      securities
    
    
    58,657
    
    
    23
    
    
    (155)
    
    
    58,525Total
    
    $
    70,900
    
    $
    23
    
    $
    (155)
    
    $
    70,768


The
weighted average maturity of our investment portfolio at December 31, 2006 was
338 days, with $36.6 million carrying an effective maturity of less than twelve
months, and $34.2 million carrying an effective maturity between one and three
years.

The
following is a summary of cash, restricted investments, and available-for-sale
securities as of December 31, 2005 (in thousands):

Gross
    
    GrossUnrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueCash
    
    $
    11,510
    
    $
    
    
    $
    
    
    $
    11,510Corporate debt securities
    
    
    21,415
    
    
    
    
    
    (197)
    
    
    21,218Federal agency obligations
    
    
    26,013
    
    
    
    
    
    (306)
    
    
    25,707Asset-backed and other securities
    
    
    9,882
    
    
    5
    
    
    (24)
    
    
    9,863Treasury obligations
    
    
    2,108
    
    
    
    
    
    (18)
    
    
    2,090Total
    
    
    70,928
    
    
    5
    
    
    (545)
    
    
    70,388Amounts reported as:Cash and cash
      equivalents
    
    
    11,510
    
    
    
    
    
    
    
    
    11,510Restricted
      investments
    
    
    10,428
    
    
    
    
    
    
    
    
    10,428Available for sale
      securities
    
    
    48,990
    
    
    5
    
    
    (545)
    
    
    48,450Total
    
    $
    70,928
    
    $
    5
    
    $
    (545)
    
    $
    70,388


The
weighted average maturity of our investment portfolio at December 31, 2005 was
291 days, with $37.7 million carrying an effective maturity of less than twelve
months, and $32.7 million carrying an effective maturity between one and three
years.

Net
realized losses were approximately $24,000 and $32,000 for the years ended
December 31, 2006 and 2005, respectively, and net realized gain was $119,000 for
the year ended December 31, 2004.

22

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

At
December 31, 2006 and 2005, we had the following available-for-sale securities
that were in a continuous unrealized loss position but were not deemed to be
other-than-temporarily impaired (in thousands):

Less Than 12
      Months
    
    12 Months or
      GreaterGross
    
    Estimated
    
    Gross
    
    EstimatedUnrealized
    
    Fair
    
    Unrealized
    
    FairLosses
    
    Value
    
    Losses
    
    ValueDecember 31, 2006Corporate debt securities
    
    $
    (38
    )
    
    $
    9,024
    
    $
    (36
    )
    
    $
    11,925Federal agency obligations
    
    
    (42
    )
    
    
    12,097
    
    
    (15
    )
    
    
    3,782Asset-backed and other securities
    
    
    (14
    )
    
    
    7,684
    
    
    (5
    )
    
    
    2,495Treasury obligations
    
    
    (5
    )
    
    
    745
    
    
    
    
    
    
    Total
    
    $
    (99
    )
    
    $
    29,550
    
    $
    (56
    )
    
    $
    18,202


Less Than 12 Months
    
    12 Months or GreaterGross
    
    Estimated
    
    Gross
    
    EstimatedUnrealized
    
    Fair
    
    Unrealized
    
    FairLosses
    
    Value
    
    Losses
    
    ValueDecember 31, 2005Corporate debt
      securities
    
    $
    (108
    )
    
    $
    11,246
    
    $
    (88
    )
    
    $
    8,883Federal agency obligations
    
    
    (101
    )
    
    
    12,789
    
    
    (205
    )
    
    
    12,918Asset-backed and
      other securities
    
    
    (4
    )
    
    
    996
    
    
    (20
    )
    
    
    5,385Treasury obligations
    
    
    (8
    )
    
    
    1,201
    
    
    (11
    )
    
    
    889Total
    
    $
    (221
    )
    
    $
    26,232
    
    $
    (324
    )
    
    $
    28,075


The gross
unrealized losses reported above for 2006 and 2005 were caused by rises in
market interest rates during those years. No significant facts or circumstances
have occurred to indicate that these unrealized losses are related to any
deterioration in the creditworthiness of the issuers of the marketable
securities we own. Based on our review of these securities, including our
assessment of the duration and severity of the related unrealized losses, we
have not recorded any other-than-temporary impairments on these
investments.

3. Property and
Equipment

Property and equipment consist of
the following (in thousands):

December 31,2006
    
    2005Leasehold improvements
    
    $
    6,742
    
    
    $
    6,742Laboratory
      equipment
    
    
    1,168
    
    
    
    1,551Office furniture and equipment
    
    
    1,542
    
    
    
    1,7029,452
    
    
    
    9,995Less accumulated depreciation and amortization
    
    
    (6,743
    )
    
    
    (6,066
    )Property and
      equipment, net
    
    $
    2,709
    
    
    $
    3,929


Total
depreciation and amortization expense for 2006, 2005 and 2004, was $1.3 million,
$2.5 million and $3.6 million, respectively.

23

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

As of
December 31, 2006, we revised the estimated depreciable life on certain
leasehold improvements with a remaining carrying value of $1.2 million to
correspond with the remaining term on the corresponding building operating
lease, which expires in May 2008. The leasehold improvements had previously been
scheduled to be depreciated through December 2010. The change in depreciable
life was accounted for as a change in accounting estimate on a prospective basis
and did not have a material impact on depreciation expense for 2006.

4. Impairment Loss related to
Long-Lived Assets

During
2005, in connection with the preparation of our financial statements at June 30,
2005 and September 30, 2005, we evaluated the ongoing value of the leasehold
improvements and equipment associated with approximately 40,000 square feet of
manufacturing, laboratory, and office space we have under lease through May 2008
and approximately 11,000 square feet of manufacturing, laboratory, and office
space we have under lease through November 2010, respectively. We determined to
initiate these evaluations as a result of actions we had taken to discontinue
funding of our AAV-based programs in order to focus our development efforts and
financial resources on our small molecule product candidates.

Based on
these evaluations, we determined that our future operations would not require
the full capacity of these leased facilities and that long-lived assets with a
net carrying value of $6.1 million were no longer recoverable and were, in fact,
impaired. In 2005, we recorded an impairment loss related to long-lived assets
in the facility and wrote down the related carrying value of the leasehold
improvements, laboratory and office equipment and furniture to approximate their
estimated fair values.

Fair
value was based on the expected incremental sublease cash flows we estimated we
could receive in excess of our prorated existing operating lease obligations
based on current market lease rental rates at the time for similar mixed use
properties. Based on market conditions during 2005, including vacancy rates and
the expected time needed to sublease the facilities, we did not expect to
receive significant incremental rents related to the long-lived
assets.

In
December 2006, we recorded an asset retirement obligation associated with our
commitment to remove or otherwise alter certain leasehold improvements at the
termination of one of our building leases. Because the underlying assets had
been determined to be impaired in 2005, and no longer had a carrying value, the
recognition of the asset retirement obligation resulted in an additional
impairment loss related to long-lived assets in 2006 (see Note 1).

5. License Agreement  Sanochemia
Pharmazeutika AG

In
January 2006, we entered into a license agreement with SDI Diagnostics
International LTD, a division of Sanochemia Pharmazeutika AG (Sanochemia). Under
the terms of the agreement, Avigen received an exclusive license to develop and
commercialize the compound tolperisone in North America. This compound is the
active pharmaceutical ingredient in our product candidate, AV650, for the
treatment of spasticity and neuromuscular spasm. Under the terms of the
agreement, Avigen paid Sanochemia $3.0 million in initial license costs and is
required to make additional future payments upon the achievement of successful
clinical and regulatory product development milestones and following regulatory
approval to make royalty payments on sales. Avigen and Sanochemia have also
entered into a long-term supply agreement under which Sanochemia will
manufacture, and Avigen will purchase for additional cost, the AV650 product for
Avigens clinical and commercial supply. The $3.0 million initial payment was
nonrefundable, does not include any significant future performance requirements
by Sanochemia, and the licensed compound does not have an alternative future use
to Avigen beyond the AV650 product. As such, we recognized the entire initial
payment as in-license fee expense in 2006 and expect that any future payments we
make under the terms of the agreement will also be recorded as in-license fee
expense.

24

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

6. Severance Expense

In
January 2006, our Chief Financial Officer resigned from Avigen. In connection
with his resignation, Avigen agreed to pay severance benefits including base
salary for a period of one year and continued health benefits for up to twelve
months. In addition, Avigen agreed to modify outstanding stock options held by
the executive to allow for six months of additional vesting and an extended
period to exercise all vested stock options for up to two years. As a result of
this separation and the related modification of outstanding stock options held
by the executive, we recognized a severance expense of approximately $288,000
and a non-cash, share-based compensation charge of approximately $108,000 for
the period ending March 31, 2006.

7. Termination Costs Associated with
Exit Activities

In August
2005, we took steps to reduce our research and development spending attributable
to gene therapy activities. As a result, we reduced the level of our total staff
by approximately 19 positions, primarily in research and development. This
action qualified as an exit activity under FAS 146, Costs Associated with Exit
or Disposal Activities. In connection with this reduction in staff, we incurred
approximately $646,000 in severance and other termination-related benefits.
Approximately $624,000 of the costs associated with the workforce reduction are
included in research and development expenses and approximately $22,000 are
included in general and administrative expenses for year ended December 31,
2005. At December 31, 2005, approximately $25,000 was unpaid and included on our
balance sheet under accrued compensation and related expenses. These accrued
amounts primarily represent deferred severance payments and extended health care
benefits for certain impacted employees. We do not expect to incur any
additional costs associated with the workforce reduction.

8. AAV Gene Therapy Assignment
Agreement - Genzyme Corporation

In
December 2005, we entered into an agreement to assign to Genzyme Corporation
rights to most of our AAV-based intellectual property, our gene therapy clinical
trial programs for Parkinsons disease and hemophilia, and certain
clinical-grade vector materials. This assignment is subject to the potential
reversion to us of specified rights under specified conditions. Under the terms
of the agreement, we received a $12 million payment and could receive
significant additional development-based milestone and royalty payments. The $12
million payment was non-refundable as of December 31, 2005, and Avigen did not
have any significant performance obligations associated with the agreement.
Because we could receive significant future cash flows in connection with this
agreement, if Genzyme is successful in developing products using intellectual
property included in the agreement, we have not accounted for this transaction
as discontinued operations. As such, we recognized the entire payment received
as revenue in 2005 and expect that any future payments we receive under the
terms of the agreement will also be recorded as revenue. We did not receive any
payments from Genzyme for the period ended December 31, 2006.

9. Collaboration Agreement  Bayer
Corporation

In March
2003, we received a $2.5 million payment from Bayer Corporation under the terms
of a collaboration agreement for the development of an AAV-based gene therapy
product for hemophilia. This amount was recorded as deferred revenue and was
being recognized as revenue ratably at approximately $125,000 per quarter over
the estimated development period for this product, which was determined to be
five years. In May 2004, we suspended subject enrollment in the related phase I
clinical trial, which resulted in the termination of the development of the
product candidate associated with the Bayer payment. As a result, we accelerated
the recognition of the remaining $2.0 million of deferred revenue in our
statements of operations during the year ended December 31, 2004.

25

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

10. Loan Payable

In June
2000, we entered into a financing arrangement to support construction related
activities. Under this arrangement, we had the right to borrow up to $10.0
million through June 1, 2003. This revolving line of credit was amended in June
2002 to extend the expiration date to June 1, 2005, and amended again in June
2004 to extend the expiration date to June 1, 2007, or less than one year from
the date of these financial statements. Accordingly, at December 31, 2006, the
loan was classified as a current liability. Amounts borrowed under this
arrangement bear interest at the London Inter-Bank Offered Rate plus a margin
adjustment that varies between 0.50% and 0.75% on the date of each drawdown
based on the market value of our investment portfolio held with a subsidiary of
Wells Fargo. This interest rate is subsequently reset every three or six months.
The weighted average interest rate for all outstanding drawdowns on this
long-term obligation was 5.95% and 4.97% at December 31, 2006 and 2005,
respectively. We have pledged a portion of our portfolio of available-for-sale
securities equal to the amount of outstanding borrowings to secure this
obligation, and have identified these pledged assets as restricted investments
on our balance sheets. As of both December 31, 2006 and 2005, we had borrowed
$8.0 million from the line of credit. Payments of interest only are due monthly
through June 1, 2007, at which time a balloon payment of outstanding principal
is due. In November 2000, we reserved $2.0 million in borrowing capacity from
the line of credit to secure a letter of credit. The letter of credit was
established pursuant to the terms required under a ten-year property lease
entered into in November 2000, and was issued in favor of the property owner. As
a result of the cash borrowings and the establishment of the letter of credit,
we did not have any remaining borrowing capacity under the line of credit at
December 31, 2006.

11. Stockholders
Equity

Common
Stock

In August
and September 1998, we issued an aggregate of 1,306,505 shares of our common
stock at $2.25 to $2.94 per share to selected institutional investors. The
offering was completed through a private placement. As part of the transaction,
we issued warrants to purchase 261,301 shares of our common stock with an
exercise price of $2.18 to $3.67 per share. The exercise price was 125% of the
fair market value per share of our underlying stock on the corresponding closing
day and the warrants carry a five-year term. After deducting commissions and
fees from the gross proceeds of $3.0 million, net proceeds from this transaction
approximated $2.7 million.

In December 1998, we issued
1,367,280 shares of our common stock at $3.81 to $4.88 per share to selected
institutional investors. The offering was completed through a private placement.
As part of this transaction, we issued warrants to purchase 273,456 shares of
our common stock with an exercise price ranging from $4.76 to $6.09 per share.
The exercise price was 125% of the fair market value per share of our underlying
stock on the corresponding closing day and the warrants carry a five-year term.
After deducting commissions and fees from the gross proceeds of $5.6 million ,
net proceeds from this transaction approximated $5.2 million.

In
February and April 1999, we issued an aggregate of 2,198,210 shares of our
common stock at $5.50 to $6.00 per share to selected institutional investors.
The offering was completed through a private placement. As part of this
transaction, we issued warrants to purchase 439,642 shares of our common stock
with an exercise price of $6.87 to $7.50 per share. The exercise price was 125%
of the fair market value per share of the underlying stock on the corresponding
closing day and the warrants carry a five-year term. After deducting commissions
and fees from the gross proceeds of $13.2 million, net proceeds from this
transaction approximated $12.2 million.

In
October and November 1999, we issued an aggregate of 2,033,895 shares of our
common stock at $16.19 to $25.56 per share to selected institutional investors.
The offering was completed through a private placement. As part of this
transaction, we issued warrants to purchase 406,779 shares of our common stock
with an exercise price of $20.25 to $31.95 per share. The exercise price was
125% of the fair market value per share of our underlying stock on the
corresponding closing day and the warrants carry a five-year term. After
deducting commissions and fees from the gross proceeds of $40.0 million, net
proceeds from this transaction approximated $37.2 million.

26

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

In March
2000, we issued a warrant to purchase 40,000 shares of our common stock as
partial consideration for the extension of our building lease. The fair value of
this warrant at the date of issuance was approximately $1.7 million. This fair
value is being amortized over the life of the lease extension, or May 2008. This
warrant was issued with an exercise price equal to the fair market value per
share of our underlying stock at the time of issuance, or $56.00, and carried a
five-year term. In March 2005, this warrant expired unexercised.

Also, in
March 2000, we issued a warrant to purchase 50,000 shares of our common stock as
partial consideration for the acquisition of certain patent licenses previously
used in our gene therapy-related research and development activities. The fair
value of this warrant at the date of issuance was approximately $3.2 million and
was fully expensed in the year ended June 30, 2000. This warrant was issued with
an exercise price equal to the fair market value per share of our underlying
stock at the time of issuance, or $82.00, and carried a five-year term. In March
2005, this warrant expired unexercised.

In April
and May 2000, we issued an aggregate of 1,150,000 shares of our common stock at
$26.00 per share through a public offering. After deducting commissions and fees
from the gross proceeds of $29.9 million, net proceeds from this transaction
totaled $27.6 million.

In
November 2000, we issued an aggregate of 2,291,239 shares of our common stock
between $37.50 and $45.06 per share through a public offering. After deducting
combined commissions and fees from the gross proceeds of $90.7 million, net
proceeds from this transaction totaled $86.1 million.

In
February 2001, we issued 313,636 shares of common stock at $47.82 per share to
Bayer AG, in connection with a collaboration agreement entered into with Bayer
Corporation dated November 17, 2000. Net proceeds from this transaction totaled
$15.0 million.

In March
2004, we issued a warrant to purchase 15,000 shares of our common stock as
partial consideration for the acquisition of certain intellectual property
rights used in our research and development activities. The fair value of this
warrant was approximately $97,000 when we entered into the corresponding license
agreement in October 2003. The fair value of the warrant was fully expensed and
recorded in accounts payable and other accrued liabilities as of December 31,
2003. Upon issuance, the fair value of the warrant was reclassified to
additional paid in capital for the year ended December 31, 2004. This warrant
was issued with an exercise price equal to the fair market value per share of
our underlying stock at the time of issuance, or $6.50, and carries a ten-year
term. At December 31, 2006, this was the only issued warrant Avigen had that was
outstanding.

In May
2006, we issued an aggregate of 3,939,760 shares of our common stock at $5.37
per share to selected institutional investors. The offering was completed
through a private placement. After deducting combined commissions and fees from
the gross proceeds of $21.2 million, net proceeds from this transaction totaled
$19.4 million. The resales of these shares were registered pursuant to a
registration statement that was declared effective on June 30, 2006.

During
the period ended December 31, 2006, we received $1.0 million in cash proceeds
related to the exercise of stock options for 269,098 shares of common
stock.

27

---

AVIGEN, INC. (a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Shares Reserved for Future
Issuance

We have reserved shares of our
common stock for future issuance as follows:

December
      31,2006Stock options outstanding
    4,090,674Stock options
      available for grant
    2,856,792Warrants to purchase common stock
    15,000Shares available
      for Employee Stock Purchase Plan
    360,0007,322,466


12. Share-based
Compensation

During
2006, share-based compensation expense has been recognized for all our
share-based compensation plans as follows (in thousands, except per share
data):

YearEndedDecember 31,2006Research and development
    
    $
    (437
    )General and administrative
    
    
    (944
    )Share-based compensation
      expense before taxes
    
    
    (1,381
    )Related income tax benefits
    
    
    Share-based compensation
      expense
    
    $
    (1,381
    )Net share-based compensation expenses per basic and diluted common
      share
    
    $
    (0.06
    )


Since we
have cumulative operating losses as of December 31, 2006 for which a valuation
allowance has been established, we recorded no income tax benefits for
share-based compensation arrangements. Prior to our adoption of FAS 123(R) as of
January 1, 2006, share-based employee compensation expense was not recognized in
our statements of operations.

As of
January 1, 2006, Avigen had three share-based compensation plans available for
employee, nonemployee director, and consultant grants. The 1996 Equity Incentive
Plan (1996 Plan) and the 1996 Non-Employee Directors Stock Option Plan
(Directors Plan) were both approved by our stockholders and had a ten-year
duration which terminated on March 29, 2006. As of December 31, 2006, we had an
aggregate of 2,043,484 shares of our common stock reserved for issuance under
these plans subject to outstanding awards and there was no longer any shares
reserved under these plans for future grants. In general, the outstanding
options under these plans were granted at a price equal to the fair market value
of our stock on the date of grant with a term of 10 years. Grants under the 1996
Plan generally become exercisable on a quarterly basis over a vesting period of
either three or four years. Grants under the Directors Plan become exercisable
in three annual installments.

The third
plan was the 2000 Equity Incentive Plan (2000 Plan), which was adopted by
Avigens Board of Directors in June 2000 and amended and restated as the 2006
Incentive Stock Option Plan (2006 Plan) in February 2006. The 2006 Plan was
approved by stockholders on May 31, 2006, and currently represents the only
outstanding stock option plan with shares available for future grant. The
adoption of the 2006 Plan did not increase the number of shares available for
grant under the 2000 Plan, but enables Avigen to grant incentive stock options
to its employees, which enhance the after tax value of these options to the
recipients, use a greater array of stock awards than was previously available
under the 2000 Plan, and removed the forty percent limitation on the

28

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

number of shares that could be granted
to directors and officers under the 2000 Plan. As of December 31, 2006, we had
(1) an aggregate of 1,692,440 shares of our common stock reserved for issuance
under the 2006 Plan that are subject to options outstanding prior to May 31,
2006, and are therefore subject to the terms of the 2000 Plan; and (2) an
aggregate of 354,750 shares of our common stock reserved for issuance under the
2006 Plan subject to outstanding options granted since May 31, 2006, and are
therefore subject to the terms of the 2006 Plan, and 2,856,792 shares available
for future grants of share-based awards under the 2006 Plan.

In
general, options have been granted under these plans at a price equal to the
fair market value of our stock on the date of grant with a term of 10 years and
become exercisable on a quarterly basis over a three or four-year vesting
period.

The following table summarizes
option activity with regard to all stock options:

Outstanding OptionsWeighted- AverageNumber of
    
    Exercise Price perShares
    
    ShareOutstanding at December 31, 2003
    
    4,362,442
    
    
    $
    12.62Granted
    
    1,111,150
    
    
    
    3.92Canceled
    
    (962,008
    )
    
    
    14.63Exercised
    
    (86,856
    )
    
    
    4.63Outstanding at December 31, 2004
    
    4,424,728
    
    
    $
    10.16Granted
    
    658,366
    
    
    
    3.17Canceled
    
    (1,069,817
    )
    
    
    8.25Exercised
    
    (526,023
    )
    
    
    0.54Outstanding at December 31, 2005
    
    3,487,254
    
    
    $
    10.87Granted
    
    1,605,500
    
    
    
    5.16Canceled
    
    (732,982
    )
    
    
    9.45Exercised
    
    (269,098
    )
    
    
    3.76Outstanding at December 31, 2006
    
    4,090,674
    
    
    $
    9.36


The fair
value of our employee stock options were estimated under the Black-Scholes
option valuation model which uses the weighted average assumptions shown in the
table below. Expected volatilities are based on the historical volatility of our
common stock. The expected term of options granted is based on analyses of
historical employee termination and option exercise behavior; separate groups of
employees that have similar historical exercise behavior are considered
separately for valuation purposes. The risk-free interest rates are based on the
U.S. Treasury yield for a period consistent with the expected term of the option
in effect at the time of the grant. Share-based compensation expense recognized
during the period is based on the value of the portion of share-based payment
awards that is ultimately expected to vest during the period. The estimated
forfeiture rates are based on analyses of historical data, taking into account
patterns of involuntary termination and other factors.

29

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Year Ended December31,2006
    
    2005
    
    2004Expected volatility
    
    0.6006
    
    
    0.6670
    
    
    0.8110Risk free
      interest rate
    
    4.60
    %
    
    4.05
    %
    
    3.43
    %Expected life of options in years
    
    3.68
    
    
    4.50
    
    
    5.00Expected
      dividend yield
    
    0
    %
    
    0
    %
    
    0
    %


The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants that have no vesting restrictions and
are fully transferable. In addition, option valuation models, including
Black-Scholes, require the input of highly subjective assumptions, including the
expected stock price volatility. Because our stock options and warrants are not
traded, they have characteristics significantly different from those of traded
options and warrants, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in our opinion, the existing
option valuation models, including Black-Scholes, do not necessarily provide a
reliable single measure of the fair value of our stock options and warrants.

The
following table summarizes information with regard to total stock options
outstanding under all stock option plans at December 31, 2006:

Options
      Outstanding
    
    OptionsExercisableWeighted-
    
    Weighted-
    
    
    
    Weighted-Average
    
    Average
    
    
    
    AverageNumber
    
    Remaining
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise
      Prices
    
    Of Shares
    
    Contractual Life
    
    Price
    
    Of Shares
    
    Price$
    2.000
    
    $
    3.140
    
    431,220
    
    7.73
    
    $
    2.97
    
    200,349
    
    $
    2.953.250
    
    
    3.450
    
    448,051
    
    7.36
    
    $
    3.38
    
    243,293
    
    $
    3.373.500
    
    
    5.060
    
    404,532
    
    6.28
    
    $
    3.76
    
    284,188
    
    $
    3.705.062
    
    
    5.062
    
    722,168
    
    9.14
    
    $
    5.06
    
    173,152
    
    $
    5.065.260
    
    
    5.380
    
    443,100
    
    8.18
    
    $
    5.33
    
    109,225
    
    $
    5.375.410
    
    
    6.310
    
    413,750
    
    7.89
    
    $
    5.73
    
    134,436
    
    $
    5.956.313
    
    
    14.360
    
    327,071
    
    4.61
    
    $
    9.23
    
    320,946
    
    $
    9.2814.625
    
    
    14.625
    
    421,032
    
    3.05
    
    $
    14.63
    
    421,032
    
    $
    14.6315.438
    
    
    38.188
    
    437,250
    
    2.57
    
    $
    33.21
    
    437,250
    
    $
    33.2140.750
    
    
    47.625
    
    42,500
    
    3.51
    
    $
    43.99
    
    42,500
    
    $
    43.99$
    2.000
    
    $
    47.625
    
    4,090,674
    
    6.53
    
    $
    9.36
    
    2,366,371
    
    $
    12.79


Our
employee stock options are granted at a price equal to the fair market value of
our stock on the date of the grant. The weighted average grant-date fair value
of options granted during 2006, 2005 and 2004 was $2.48, $1.79 and $2.60,
respectively. The total intrinsic value of options exercised during 2006, 2005
and 2004 was approximately $514,000, $1.4 million and $200,000, respectively.
The total intrinsic value of options outstanding and options exercisable at
December 31, 2006 was $2.6 million and $1.4 million, respectively. The weighted
average remaining contractual life of options exercisable at December 31, 2006
was 4.8 years.

As of
December 31, 2006, there was approximately $3.3 million of total unrecognized
compensation expense related to non-vested share-based compensation
arrangements, which is expected to be recognized over a weighted average period
of 2.3 years.

As of
December 31, 2006, we had 3.8 million outstanding stock options that had vested
or are expected to vest with a weighted average exercise price of $9.72, a
weighted average remaining contractual term of 6.3 years and an aggregate
intrinsic value of $2.4 million.

30

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

In
January 2006, in connection with the resignation of an executive, we modified
the expiration terms for options representing 386,475 shares of common stock to
allow for six months of additional vesting and an extended period to exercise
all vested stock options for up to two years. The maximum contractual term was
not extended for any options. At the time of this modification, we recognized a
share-based compensation charge of approximately $108,000.

In August
2005, in connection with the resignation of an executive, we modified the
expiration terms for options representing 107,500 shares of common stock, but
did not extend the maximum contractual term. At the time of this modification,
there was no intrinsic value as the exercise price for these stock options
exceeded the market price. As a result, we did not record any compensation
expense in connection with the modification. At December 31, 2005, these options
expired unexercised.

In March
2004, in connection with the resignation of an executive, we modified the
vesting and expiration terms for options representing 473,000 shares of common
stock, but did not extend the maximum contractual term. These modifications
resulted in the recognition of $220,000 in non-cash compensation expense during
2004.

Employee Stock Purchase
Plan

In
September 1997, we adopted the 1997 Employee Stock Purchase Plan (Purchase
Plan). A total of 360,000 shares of our common stock have been reserved for
issuance under the Purchase Plan. As of December 31, 2006, there have been no
employee contributions to the Purchase Plan.

13. Employee Profit Sharing/401(k)
Plan

In
January 1996, we adopted a Tax Deferred Savings Plan under Section 401(k) of the
Internal Revenue Code (the Plan) for all full-time employees. Under the Plan,
our eligible employees can contribute amounts to the Plan via payroll
withholding, subject to certain limitations. Our matching contributions to the
Plan are discretionary and can only be made in cash. Effective July 1, 2001, we
began matching 25% of an employees contributions up to $2,500 per Plan year.
These matching contributions vest ratably over a five-year period based on the
employees initial hire date. Our matching contributions for all employees for
the years ended December 31, 2006, 2005 and 2004 were approximately $51,000,
$76,000 and $100,000, respectively.

14. Commitments and
Contingencies

Leases

We lease
an aggregate of 112,000 square feet of laboratory, manufacturing, and office
facilities from two adjacent buildings in Alameda, California under two
non-cancelable operating lease agreements which expire in May 2008 and November
2010. Our lease for 45,000 square feet from one building which expires in May
2008 contains an extension option for five years under the same terms and
conditions as the original lease agreement. This lease also contains a
conditional asset retirement obligation that may require us, at our landlords
sole discretion, to remove, reconfigure or otherwise alter certain improvements
we have made to the facility. We have recorded this obligation in accordance
with FAS 143, Accounting for Asset Retirement Obligations, at its estimated
fair value in our financial statements at December 31, 2006. As security for
performance of future obligations under these leases, including the conditional
asset retirement obligation, we have pledged $2.4 million of our
available-for-sale securities to secure letters of credit that serve as
deposits. These amounts are classified as restricted investments in our balance
sheets.

As of
December 31, 2006, approximately 26,250 square feet of our aggregate facilities
is subleased to two separate corporate tenants not affiliated with Avigen. The
sublease agreements run concurrent with the respective duration of our
underlying lease term on each building.

31

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

At
December 31, 2006, our future minimum commitments under non-cancelable
facilities operating leases, net of sublease income, are a follows (in
thousands):

Minimum Lease
    
    Sublease
    
    Net LeaseCommitments
    
    Income
    
    CommitmentsYear ending December 31:2007
    
    $
    2,543
    
    $
    (574
    )
    
    $
    1,9692008
    
    
    2,007
    
    
    (392
    )
    
    
    1,6152009
    
    
    1,624
    
    
    (253
    )
    
    
    1,3712010
    
    
    1,543
    
    
    (238
    )
    
    
    1,3052011 and thereafter
    
    
    
    
    
    
    
    
    
    Total
    
    $
    7,717
    
    $
    (1,457
    )
    
    $
    6,260


Expenses and income associated with
operating leases and subleases were as follows (in millions):

Year Ended December31,2006
    
    2005
    
    2004Rent Expense
    
    $
    2.6
    
    
    $
    2.6
    
    
    $
    2.6Sublease income, net
    
    
    (0.6
    )
    
    
    (0.1
    )
    
    
    


In 2005,
we recorded an investment in deferred financing leases of approximately $220,000
and recorded unearned income of approximately $155,000. This deferred financing
lease was related to equipment sold to one of our subtenants and carries a term
equal to the related sublease agreement, or 30 months. Unearned income will be
recognized ratably over the term of the lease, or approximately $5,200 per
month.

Subleases

We have
entered into sublease agreements for portions of our leased laboratory and
office facilities. Based on the terms of the agreements, the fair value of our
remaining lease liability is less than the scheduled sublease income. As a
result, in the period ended December 31, 2005, we did not record any lease exit
costs associated with the sublease of our operating facilities located at 1201
and 1301 Harbor Bay Parkway. In connection with the sublease agreements, we
recorded initial direct costs of $114,000 in commission expenses. We amortize
initial direct costs to operating expenses on a straight-line basis over the
term of the sublease.

Other
Commitments

In the
ordinary course of business, we enter into commitments to fund collaborative
research and clinical work performed by third parties. While these contracts are
cancelable, we expect the research studies and clinical work to be completed as
defined in the terms of the agreements, and all amounts paid when due. At
December 31, 2006, the estimated costs related to these commitments totaled
approximately $3.8 million, all of which is expected to be paid within the next
twelve to twenty-four months.

As
permitted under Delaware law and in accordance with our bylaws, we indemnify our
officers and directors for certain events or occurrences while the officer or
director is or was serving at Avigens request in such capacity. The term of the
indemnification period is for the officers or directors lifetime. The maximum
amount of the potential future indemnification is unlimited. However, we have a
director or officer insurance policy that limits our exposure and may enable us
to recover a portion of any future amounts paid. We believe the fair value of
these indemnification agreements is minimal. Accordingly, we have not recorded
any liabilities for these agreements as of December 31, 2006.

32

---

AVIGEN, INC.(a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

In the
normal course of business, we provide indemnifications of varying scope under
our agreements with other companies, typically our clinical research
organizations, investigators, clinical sites, and suppliers. Pursuant to these
agreements, we generally indemnify, hold harmless, and agree to reimburse the
indemnified parties for losses suffered or incurred by the indemnified parties
in connection with use or testing of our products or product candidates or with
any U.S. patent or any copyright or other intellectual property infringement
claims by any third party with respect to our products. The term of these
indemnification agreements is generally perpetual. The potential future payments
we could be required to make under these indemnification agreements is
unlimited. Historically, costs related to these indemnification provisions have
been immaterial. We also maintain various liability insurance policies that
limit our exposure. As a result, we believe the fair value of these
indemnification agreements is minimal. Accordingly, we have not recorded any
liabilities for these agreements as of December 31, 2006.

15. Income Taxes

Significant components of our
deferred tax assets are as follows (in thousands):

December31,2006
    
    2005Net operating loss carryforwards
    $
    43,200
    
    
    $
    56,000Research and development credits
    
    3,300
    
    
    
    7,600Capitalized research and development
    
    3,000
    
    
    
    7,100Depreciation
    
    3,100
    
    
    
    3,200Capitalized patents
    
    
    
    
    
    500Other
    
    3,500
    
    
    
    3,300Gross deferred tax assets
    
    56,100
    
    
    
    77,700Valuation allowance
    
    (56,100
    )
    
    
    (77,700
    )Net deferred tax assets
    $
    
    
    
    $
    


No provision has
been made for income taxes because we have incurred losses since our
inception.Deferred income taxes reflect the net
tax effects of temporary differences between the carrying value of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.

Realization of deferred tax assets is dependent on future taxable income,
if any, the timing and the amount of which are uncertain. Accordingly, our
deferred tax assets have been fully offset by a valuation allowance. Our
valuation allowance decreased by $21.6 million for the year ended December 31,
2006 and increased by $6.8 million and $10.0 million, respectively, for the
years ended December 31, 2005 and 2004.

As of
December 31, 2006, we had federal net operating loss carryforwards of $126.6
million and federal research and development tax credit carryforwards of $0.6
million, which will expire on various dates from 2008 through 2026. We also had
state net operating loss carryforwards of $35.6 million which will expire on
various dates from 2007 through 2016 and state research tax credits of $4.2
million, which carry forward indefinitely.

Certain
tax benefits resulting from employee stock option exercises are included in the
deferred tax asset balance at December 31, 2005 as a component of our net
operating loss carryforwards. The entire balance is offset by a valuation
allowance. In accordance with FAS 123(R), we have excluded such tax benefits
from our deferred tax assets at December 31, 2006. In the future, if and when
such tax benefits are ultimately realized, the amount of excess tax benefit will
be credited to additional paid-in capital in the statement of stockholders
equity.

33

---

AVIGEN, INC. (a development stage
company)

NOTES TO FINANCIAL STATEMENTS 
(Continued)

Federal
and state laws limit the use of net operating loss and tax credit carryforwards
in certain situations where changes occur in the stock ownership of a company.
We conducted a full Internal Revenue Code (IRC) Section 382 study from our
inception and have reported our deferred tax assets related to net operating
loss and research credit carryforwards after recognizing change of control
limitations. The limitation of our federal and state carryforwards associated
with previous net operating losses and research credits and the associated
reduction in our deferred tax assets, was offset by a reduction in our valuation
allowance.

16. Condensed Quarterly Financial
Information (Unaudited)

Year Ended December
      31, 2006First
    
    Second
    
    Third
    
    Fourth(amounts in thousands
      except per share data)
    
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenue
    
    $
    103
    
    
    $
    
    
    
    $
    
    
    
    $
    Net loss
    
    
    (8,022
    )
    
    
    (4,833
    )
    
    
    (5,662
    )
    
    
    (5,739
    )Net loss per share, basic and
      diluted
    
    
    (0.38
    )
    
    
    (0.21
    )
    
    
    (0.23
    )
    
    
    (0.23
    )Year Ended December
      31, 2005First
    
    Second
    
    Third
    
    Fourth(amounts in thousands
      except per share data)
    
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenue
    
    $
    9
    
    
    $
    11
    
    
    $
    4
    
    
    
    $12,002Net loss
    
    
    (5,190
    )
    
    
    (9,848
    )
    
    
    (6,764
    )
    
    
    7,106Net loss per share, basic and
      diluted
    
    
    (0.25
    )
    
    
    (0.48
    )
    
    
    (0.32
    )
    
    
    0.34


In
December 2005, we entered into an agreement to assign to Genzyme Corporation
rights to most of our AAV-based intellectual property, our gene therapy clinical
trial programs for Parkinsons disease and hemophilia, and certain
clinical-grade vector materials, and we no longer focus on the development of
gene therapy-based therapeutics. Under the terms of the agreement, we received a
non-refundable $12 million payment. We recognized the entire payment received as
revenue in the fourth quarter of 2005. We did not receive any payments from
Genzyme for any quarters in 2006.

34

---



SIGNATURES

Pursuant
to the requirements of Section 13 of 15(d) 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.

|                              | AVIGEN, INC. |                              
|----------------------------- | ------------ | -----------------------------
|                              |             
|                              |             
|                              | By:          | /s/ ANDREWA. SAUTER          
|                              |              | Andrew A.
      Sauter       
|                              |              | Vice
      President, Finance
|Dated: October
      23, 2007 |              |                              

35

---

EXHIBIT INDEX TO AMENDMENT NO. 2 TO
ANNUAL REPORT ON FORM 10-K/A

|Exhibit Number |  | Exhibits                                                                                                                                                     
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|23.1           |  | Consent of Odenberg, Ullakko,
      Muranishi & Co. LLP, Independent Registered Public
      Accounting Firm                                                 
|23.2           |  | Consent of Ernst & Young LLP,
      Independent Registered Public Accounting Firm                                                                            
|31.1           |  | CEO Certification required by Rule
      13a-14(a) or Rule 15d-14(a)                                                                                         
|31.2           |  | CFO Certification required by Rule
      13a-14(a) or Rule 15d-14(a)                                                                                         
|32.1*          |  | Certification required by Rule
      13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
      the United States Code (18 U.S.C.
§1350)

|* | This certification accompanies
      the Amendment No. 2 to Annual Report on Form 10-K/A to which it relates,
      is not deemed filed with the Securities and Exchange Commission and is not
      to be incorporated by reference into any filing of Avigen under the
      Securities Act of 1933, as amended, or the Securities Exchange Act of
      1934, as amended (whether made before or after the date of the Form
      10-K/A), irrespective of any general incorporation language contained in
      such filing.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---