<PAGE>

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

                                   FORM 10-K
        ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                            ------------------------
(MARK ONE)
     [ ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                                       OR

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

       FOR THE TRANSITION PERIOD FROM JULY 1, 2001 TO DECEMBER 31, 2001.

                         COMMISSION FILE NUMBER 0-28272

                                  AVIGEN, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<S>                                                 <C>
                     DELAWARE                                           13-3647113
         (STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)
</Table>

                            1301 HARBOR BAY PARKWAY
                           ALAMEDA, CALIFORNIA 94502
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                                 (510) 748-7150
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<Table>
<S>                                                 <C>
                TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------------------------------- ---------------------------------------------------
                       NONE
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $.001 PAR VALUE
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 of 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 [ ]

     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 amendments to
this Form 10-K.  [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 8, 2002, was approximately $158,990,000 based upon
the closing sale price of the registrant's Common Stock as reported on the
Nasdaq National Market System on such date*. The number of outstanding shares of
the Registrant's Common Stock as of March 8, 2002 was 20,068,139.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of the following documents are incorporated by reference into Part
III of this Form 10-K Report: The definitive Proxy Statement for the
Registrant's Annual Meeting of Stockholders scheduled to be held on May 20,
2002.
---------------
* Excludes approximately 4,009,000 shares of common stock held by Directors,
  Officers and holders of 5% or more of the registrant's outstanding Common
  Stock at March 8, 2002. Exclusion of shares held by any person should not be
  construed to indicate that such person possesses the power, direct or
  indirect, to direct or cause the direction of the management or policies of
  the registrant, or that such person is controlled by or under common control
  with the registrant.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                         TRANSITION REPORT ON FORM 10-K

               FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 2001

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   26
Item 3.   Legal Proceedings...........................................   26
Item 4.   Submission of Matters to a Vote of Security Holders.........   27

                                  PART II
Item 5.   Market for Registrant's Common Stock and Related Stockholder   28
          Matters.....................................................
Item 6.   Selected Financial Data.....................................   29
Item 7.   Management's Discussion and Analysis of Financial Condition    30
          and Results of Operations...................................
Item 7A.  Quantitative and Qualitative Disclosures About Market          34
          Risk........................................................
Item 8.   Financial Statements and Supplementary Data.................   35
Item 9.   Changes in and Disagreements with Accountants on Accounting    35
          and Financial Disclosure....................................

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........   35
Item 11.  Executive Compensation......................................   35
Item 12.  Security Ownership of Certain Beneficial Owners and            35
          Management..................................................
Item 13.  Certain Relationships and Related Transactions..............   35

                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form   35
          8-K.........................................................
</Table>

Coagulin-B(TM) is a trademark of Avigen, Inc.

                                        i
<PAGE>

                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     This Transition Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to:

     - the progress of our product development programs, including
       Coagulin-B(TM) ;

     - developments with respect to clinical development of drug candidates,
       clinical trials and the regulatory approval process;

     - our expectations as to the various products that we are developing;

     - our estimates regarding our capital requirements and our needs for
       additional financing; and

     - developments relating to our selection and licensing of targets.

     In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "could," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "projects," "predicts," "potential" and similar
expressions which imply that the statements relate to future events or
expectations. These statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these forward-
looking statements. We discuss many of these risks in greater detail under the
heading "Risk Factors," in Item 1 below. Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this Form 10-K.

     You should read this Form 10-K and the documents that we incorporate by
reference completely and with the understanding that our actual future results
may be materially different from what we expect. We may not update these
forward-looking statements, even though our situation may change in the future.
We qualify all of our forward-looking statements by these cautionary statements.

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

     Avigen is focused on the development of gene therapy products for the
treatment of disease. We have developed a proprietary technology based on
adeno-associated virus vectors, known as "AAV vectors". This technology is
designed to deliver DNA into cells of patients in order to produce therapeutic
results as an alternative to existing pharmaceutical and surgical treatments.
Traditional medicine primarily focuses on treating the symptoms of disease. We
believe that our gene-based products, by targeting the root cause of the disease
at the fundamental cellular level, hold great promise for treating a wide
variety of diseases and conditions that are not adequately addressed by current
medical science. We believe our AAV vectors can be used to deliver genes that
promote therapeutic responses in patients suffering from many types of
illnesses, including genetic diseases such as hemophilia and certain metabolic
diseases, and many non-genetic diseases such as Parkinson's disease, congestive
heart failure, anemia and cancer.

GENE THERAPY AND GENE DELIVERY

     Living organisms consist of cells that contain thousands of different
proteins essential for cell structure, growth, and function. Proteins are made
of building blocks called amino acids. Together amino acids define the structure
and function of proteins. The specific order of amino acids in the protein is
determined by genetic instructions encoded by DNA. DNA is a commonly used
acronym for the chemical that codes for the order

                                        1
<PAGE>

and length of amino acid chains and contains all the information necessary to
control a cell's biological processes.

     DNA is organized into segments called genes. Each gene contains the
information required to produce a specific protein. Each human cell contains
thousands of genes. Gene expression is the process by which genes use DNA as a
blueprint to produce proteins. In genetic diseases, one or more genes can be
defective, resulting in the complete lack of or insufficient levels of
production of a necessary protein in the cell. Improper expression can also
alter a cell's normal function and can frequently lead to disease.

     Gene therapy typically uses genes to regulate cellular function or to
correct cellular dysfunction through the introduction of therapeutic genes into
cells to restore missing gene functions, correct aberrant gene functions, or
augment normal gene activity. In some of these cases, the therapeutic gene will
simply act to replace a missing protein or to augment the level of expression of
a protein that is otherwise inadequate to prevent disease.

     There are several different ways of delivering genes to cells. Each of the
methods of delivery uses carriers, called "vectors," to transport the genes into
cells. These carriers can be either man-made components or modified viruses. The
use of viruses takes advantage of their natural ability to introduce DNA into
cells. Gene therapy takes advantage of this property by replacing viral DNA with
a specific gene. Once the gene is in the cell, it acts as a blueprint directing
the cell to produce the therapeutic protein.

     There are four major approaches to gene delivery currently under
investigation in human clinical trials:

     - Retroviral vectors. These were the first vectors used in human gene
       therapy trials. Retroviral vectors are considered to be well understood
       and are quite efficient at getting genes into cells. However, they have
       only been proven to work effectively in actively growing cells, which
       typically requires that the cells be removed from the patient, grown
       outside the body, exposed to the retroviral vector and later re-
       implanted back into the patient. This process limits the commercial
       viability of these vectors as a generalized approach to gene therapy.

     - Adenoviral vectors. These vectors do not require that the cells be
       removed from the patient's body in order for the gene transfer process to
       take place. However, adenovirus can cause disease in humans, creating
       safety concerns about the use of adenovirus vectors. Also, although gene
       transfer using adenovirus can be efficient, common immune responses
       typically limit the duration of the production of the protein.

     - Non-viral vectors. These vectors consist of either DNA or DNA mixed with
       other chemical compounds. These vectors are much less efficient than
       viral vectors at getting DNA into cells and are generally not capable of
       producing large amounts of the intended protein expression for extended
       periods of time.

     - Adeno-associated virus vectors. AAV is a common human virus present in
       over 80% of the human population and has not been associated with a human
       disease or illness of any kind. We believe that AAV is emerging as a
       superior gene delivery approach, as it offers effective gene delivery
       characteristics, has a superior safety profile, and enables in vivo
       administration which has been shown to produce long-term gene expression.

AVIGEN'S AAV VECTOR TECHNOLOGY

     All of our products in development are based on our proprietary AAV
vector-based gene delivery technology. This technology is designed to take
advantage of the natural efficiency with which viruses deliver genes to cells,
without the safety concerns that arise from disease-related viruses. AAV vectors
have many advantages over other types of gene therapy vector systems. However,
methods of producing large amounts of high quality, contaminant-free AAV vectors
have been very challenging to overcome, which we believe may have deterred
others from pursuing this technology. Avigen has dedicated significant resources
to advancing its production methods, and has developed effective and scalable
techniques that meet these quantity and quality objectives. For example,
production of AAV vectors normally requires the use of a potentially

                                        2
<PAGE>

threatening helper virus, usually adenovirus, that could contaminate the final
product. We have developed a proprietary method that does not require a helper
virus, but rather selective reproductive genes, which we believe results in a
safer product. We have also developed advanced cell culture and vector
purification processes that utilize similar technologies as those employed by
biotechnology leaders to commercialize therapeutic recombinant proteins. We
believe these processes will support highly scalable levels of production of our
AAV vectors. Our success in resolving many production limitations sets us apart
from others, and we believe will enable us to manufacture commercial quantities
of our AAV vectors, as well as amounts needed to support our further research
efforts to identify additional potential disease targets that might benefit from
the advantages of our AAV vector system.

  Favorable Characteristics of Avigen's AAV Vector Technology

     We believe our AAV vector gene therapy approach offers novel treatment
alternatives for diseases that are currently poorly addressed. We believe our
AAV vector gene therapy technology includes favorable characteristics such as:

     - Safety. Our AAV vectors are based on a virus that has never been
       associated with a human disease of any kind and avoids the risk of
       contamination from other viral particles through our proprietary
       manufacturing process.

     - Efficient delivery of genes to cells which result in high levels of gene
       expression. AAV by its nature is very efficient at getting into cells.
       Consequently, our AAV vectors have been shown to be very effective at
       delivering genes to cells. Once in the cell, genes delivered by AAV
       vectors in animal models have been shown to produce large amounts of
       protein on a continuous basis, often for years from a single
       administration.

     - Effective delivery to a wide range of types of cell targets. Research has
       shown that AAV can be used to transfer genes to a wide variety of cell
       types, including dividing cells, such as liver, skin and cancer cells,
       and non-dividing cells, such as those found in skeletal muscle tissue,
       certain organs like the heart, and the central nervous system and brain.
       This versatility could allow us to target a broad range of treatments
       targeted at a wide variety of cell types.

     - AAV vectors can deliver many different genes. Many genes fit into AAV
       vectors without modification of the basic vector structure, and have been
       successfully delivered to cells in vivo. Consequently, AAV vectors have
       the potential to treat many different diseases with a common technology
       platform.

     - Stability. AAV appears to be stable under a wide range of conditions. We
       currently take extra precautions to store and ship all manufactured
       products in a frozen state; however, we believe that due to their proven
       stability under other conditions, our AAV vectors may be able to be
       handled with minimal refrigeration like many traditional pharmaceutical
       products, thereby lending themselves to fairly standard shipping and
       storing procedures.

RESEARCH AND DEVELOPMENT PROGRAMS

     We are currently involved in a number of early research and product
development programs that we feel can benefit from our experience with AAV and
our advances in high quality, scalable production methods. All of our current
projects reflect some combination of characteristics that we feel comprise a
desirable profile for gene therapy research and development programs, including:

     - involvement of a well understood gene function;

     - requirement to produce long-term expression of a therapeutic protein;

     - replacement of existing recombinant protein treatments that currently
       provide a partial correction of a disease; and

     - demonstration of clear clinical benefits and measurable end points.

                                        3
<PAGE>

     We characterize our programs in one of three stages. Research programs are
typically in an early stage of laboratory exploration, potentially involving
small animal models, attempting to identify a reliable AAV-based approach for
treating a disease or condition. We characterize our product development
programs in two stages: the first is as preclinical, which involves safety and
efficacy studies in large animal models which are designed to provide data that
would support the progression into human studies; and the second is human
clinical trials, which typically include multiple phases designed to evaluate
safety first, referred to as "Phase I", followed by phases for evaluations of
therapeutic responsiveness.

PRODUCT DEVELOPMENT PROGRAMS

     Our current product development programs, which have progressed beyond
early research stages, include:

           AAV VECTOR-BASED GENE THERAPY PRODUCT DEVELOPMENT PROGRAMS

<Table>
<Caption>
   PROGRAM            DISEASE          PROTEIN/ENZYME     TARGET CELL     STATUS
   -------            -------          --------------     -----------     ------
<S>             <C>                  <C>                  <C>           <C>
Blood Disease   Hemophilia B         Factor IX            Liver/Muscle  Phase I

Blood Disease   Hemophilia A         Factor VIII          Liver         Preclinical

Neural Disease  Parkinson's Disease  Aromatic amino acid  Brain         Preclinical
                                     decarboxylase
</Table>

  Hemophilia B

     Our most developed product candidate is Coagulin-B(TM) for the treatment of
hemophilia B. Hemophilia B is a blood clotting disorder characterized by the
reduction or absence of a protein called factor IX, and primarily affects males.
Due to the lack of sustained levels of factor IX protein, patients with
hemophilia B can experience frequent internal bleeding during the course of
normal daily activities. Currently, patients with a severe form of the disease
inject themselves with factor IX protein several times a week to stop these
bleeding episodes. These factor IX protein injections provide temporary relief,
but the protein breaks down after a few days and the bleeding recurs. Since the
bleeding typically takes place in the joints and soft tissue, these patients
also frequently suffer crippling bone and joint problems. A small percentage of
patients can also suffer permanent disability or even die from bleeding into the
central nervous system.

     Hemophilia B affects approximately one in every 30,000 males, afflicting an
estimated 10,000 - 15,000 individuals in developed countries worldwide, with an
estimated 40%-50% of those affected having a severe form of the disease. The
cost of currently available protein factor IX can exceed $100,000 per year per
patient. Because this protein therapy cannot prevent bone and joint damage, each
patient may also require an additional $100,000 - $150,000 in other medical
treatment costs annually. We believe the current market for providing
recombinant protein factor IX to patients with the severe form of the disease
exceeds $200 million per year, and that the aggregate cost of treating
hemophilia B patients with replacement protein factor IX and other collateral
disease treatments exceeds $450 million per year worldwide.

     Extensive experience with factor IX over the last 25 years has established
that factor IX protein levels equivalent to only 1% of the normal level found in
humans can often reduce the frequency of spontaneous bleeding episodes
experienced by patients with a severe form of the disease. Furthermore, factor
IX protein levels equivalent to 3% to 5% of the normal level found in humans can
often significantly reduce the patient's reliance on replacement injections of
factor IX protein and greatly improve the patient's condition. To maintain
either of these levels using conventional injections of replacement factor IX
protein is costly and impractical. Avigen's approach is designed to continuously
deliver therapeutic levels of factor IX protein into the blood of treated
patients, in order to improve the patient's quality of life. We believe
Coagulin-B has the potential to substantially reduce the need for daily or
weekly injections of factor IX protein and meet this objective.

                                        4
<PAGE>

     Preclinical Studies

     Prior to 1999, in our initial preclinical studies to evaluate gene
delivery, we treated dogs suffering from hemophilia B with a single
administration into muscle of our AAV vector containing the gene for factor IX.
These early studies demonstrated that our AAV vector could produce sustained
levels of factor IX protein in the dogs for over three years with a
corresponding improvement in blood clotting. In the dogs receiving the greatest
quantities of our AAV vector, factor IX protein levels were above 1% of the
normal level, a level that is known to be beneficial to humans.

     Additional preclinical studies were also designed to evaluate gene delivery
into the liver, the normal site of clotting factor production. In these studies
we have treated several species of animals to assess the safety and efficacy of
a single administration of an AAV vector containing the gene for factor IX to
the liver. Safety studies were conducted in rats and normal dogs, and efficacy
studies were carried out in rats, mice and hemophilia B dogs. All of these
studies showed that liver delivery of AAV vector is safe at doses significantly
higher than planned for clinical studies in humans, and that the levels of
factor IX protein expression that can be achieved by this vector and route of
administration are significantly higher than could be achieved by the
intramuscular route. For example, the efficacy studies demonstrated that when
delivered to the liver, the AAV vector produced sustained levels of factor IX
protein expression in three hemophilia B dogs for over one year, and that the
levels of expression ranged between 5% and 14% of normal levels.

     Data from these studies provided strong support for the feasibility of
using the same approaches to treat human hemophilia patients and formed the
basis for our investigational new drug, or "IND," applications, the first of
which was submitted to the U.S. Food and Drug Administration, or FDA, in early
1999 and the second of which was submitted to the FDA in early 2001.

     Clinical Trials

     In June 1999, we began treating human subjects with a version for
administration to muscle tissue of our product candidate, Coagulin-B, in a Phase
I clinical trial with dose escalations. The design and goal of this initial
trial was primarily to address the safety of the product in humans. A total of
eight patients in three different dosage groups received a single treatment of
Coagulin-B injected into their muscle tissue. Data from all patients showed the
vector to be safe and well tolerated with no serious adverse events noted.
Although the study was designed primarily to evaluate the safety of the product
in humans, the data collected also showed that all patients experienced a
successful delivery of the factor IX gene into the targeted cells and
demonstrated measurable levels of protein expression. There was a diverse range
of factor IX protein levels in this small trial population, with two of the
patients continuing to exhibit a significant reduction in factor IX usage for
more than two years. In light of the success of the safety measurements of our
muscle study in humans, and the stronger efficacy results observed in a
preclinical study that treated a small group of dogs with a liver construct of
an AAV vector containing the gene for factor IX, we submitted a second IND and
second clinical trial protocol using the liver as the target for gene delivery
in June 2001.

     This second phase I clinical trial with dose escalations is designed to
test the safety of treating patients with a single administration of a version
of Coagulin-B modified for liver tissue via infusion into the hepatic (liver)
artery. The liver is the normal site of clotting factor production. This trial
is also designed to treat patients representing three escalating dosage groups.
In August 2001, the first patient in this second phase I clinical trial was
treated and reported no immediate adverse reactions. The trial was temporarily
suspended when tests using sensitive assays identified trace amounts of DNA from
the gene therapy in the patient's seminal fluid. Existing FDA protocols for gene
therapy clinical trials required a temporary suspension from treating additional
patients until subsequent tests could confirm that the trace amounts of DNA had
cleared the patient's body. In October 2001, we announced that the trial was on
clinical hold until such additional test results could be established.

     In December 2001, our representatives met with representatives of the FDA
and the National Institutes of Health's Recombinant DNA Advisory Committee (RAC)
to discuss in an open scientific forum issues surrounding the potential impact
of gene therapy on germ-line transmission, and how best to gather additional
vital clinical data. At the meeting we reported that subsequent testing on this
first patient had confirmed that
                                        5
<PAGE>

the trace amounts of DNA had cleared the patient's body and that the patient
remained in good health with no reportable side effects from the therapy. These
discussions resulted in plans for us to initiate new research studies to provide
additional data that may be used to answer future questions about these issues,
but did not place additional limitations on the clinical trial protocol. In
December 2001, we announced that we had received notice from the FDA giving us
clearance to continue human clinical testing of our Coagulin-B product.

     In February 2002, we announced that we had treated a second patient in the
liver delivery clinical trial, and that upon confirming the necessary safety
data from this subject, we plan to begin increasing the dosage levels for
subsequent patients. We remain confident that the risk of germ-line transmission
is low and are continuing to perform additional studies to gather more data so
that we might better be able to respond to questions that may arise from future
test results.

     All progress and results reported in this document or otherwise regarding
our Coagulin-B clinical trials prior to the conclusion of those trials are
preliminary and should not be considered a guarantee that subsequent patients in
these or other studies will demonstrate the same results or that these treated
patients will continue to exhibit beneficial results over a longer period of
time.

  Hemophilia A

     We are also developing a second hemophilia product, Coagulin-A, for the
treatment of hemophilia A. Like hemophilia B, hemophilia A is a genetic disorder
that almost exclusively affects males and is characterized by a protein
deficiency in the blood, causing patients to have a reduced ability to form
blood clots. Instead of lacking the protein factor IX, patients with hemophilia
A lack the protein factor VIII.

     Hemophilia A affects approximately one in every 10,000 males, afflicting an
estimated 40,000 - 50,000 individuals in developed countries worldwide. The cost
of currently available replacement protein factor VIII can exceed $100,000 per
year per patient. Because protein therapy has not proven effective at preventing
bone and joint damage that is common among hemophilia patients, each patient may
require $100,000 - $150,000 in additional medical treatment costs annually. We
believe the current worldwide market value for providing protein factor VIII to
patients with hemophilia A exceeds $2 billion per year, and that the aggregate
cost of treating hemophilia A patients with replacement protein factor VIII and
other collateral disease treatments is over $3 billion per year.

     Preclinical Studies

     The factor VIII gene is much larger than the factor IX gene, and therefore
poses an additional challenge for using AAV vectors as a delivery mechanism.
However, in our preclinical studies, which have investigated two different
approaches for delivering this larger gene to the liver, we have been successful
in delivering the factor VIII gene into animals, including with a single-vector
construct. Similar to the progression in the hemophilia B program, we migrated
our preclinical research studies from small animal models into larger animal
models and began working with dogs in the second-half of 2001. These studies are
still in progress.

     Assuming these studies produce favorable results, we believe that the data
from these studies will support the feasibility of using AAV vectors containing
the factor VIII gene to treat human subjects.

  Parkinson's Disease

     Parkinson's disease is a neurological disorder that affects an estimated
1.5 million people in the United States and Europe. This disease is commonly
characterized by an increase in spontaneous movements, gait difficulty, postural
instability, rigidity and tremor. Parkinson's disease is a complex illness, one
theory of which suggests that its symptoms result from a decrease in the levels
of dopamine, a chemical which is essential to the transmission of nerve
impulses, in certain parts of the brain. These nerve impulses are critical to
movement and motor control. Research suggests that dopamine levels decline
because there is a slow degeneration or loss of the small population of nerve
cells in the brain that produce it; however, the underlying cause of this nerve
cell degeneration is not known.

                                        6
<PAGE>

     Dopamine cannot be administered directly, as it cannot pass from the
bloodstream into the cells in the brain. Currently, the primary treatment for
Parkinson's disease is a replacement strategy in which a dopamine precursor
known as L-dopa, which can be converted into dopamine once inside the brain, is
given orally to the patient. Unfortunately, while this approach can help relieve
symptoms for up to several years, it eventually tends to become ineffective and
can result in serious side effects as the dosage levels are increased. We
believe that the current amount spent on drugs to treat Parkinson's disease
worldwide is approximately $1 billion per year.

     Our strategy for treating Parkinson's disease is to use an AAV vector to
deliver a gene into certain parts of the brain that will stimulate higher levels
of an enzyme known as aromatic amino acid decarboxylase, or AADC, which is
needed to convert L-dopa into dopamine. This approach targets only the affected
region of the brain and we believe has the potential to offer significant
advantages to patients by prolonging the effectiveness of L-dopa.

     Initial research studies on both rodent and primate model systems have been
promising and suggest that our gene therapy for Parkinson's disease may be
effective in supplementing existing therapies. We have been working closely with
an independent collaborator on these studies over the past few years, and in
June 2001 our collaborator presented data at the American Society for Gene
Therapy meeting in Seattle that demonstrated improved preliminary results in the
animals. Based on the results of these earlier studies, in October 2001 we
announced our intent to use our AAV technology and manufacturing expertise in
connection with expanded pre-clinical studies in order to assess the safety and
efficacy of this approach prior to seeking to initiate human clinical studies.

RESEARCH PROGRAMS

     We believe our technology can be used to reach a broad array of diseases
that could benefit from long-term gene expression of therapeutic proteins. To
this end, we have taken steps to promote the use of our technology within the
larger research community. We have allowed a third-party licensor to distribute
reagent kits that make it possible for researchers to make limited amounts of
AAV vectors using our proprietary technology. We have also chosen to participate
directly with selective collaborators to employ our manufacturing expertise by
supplying AAV vectors for collaborative studies. Programs in this early research
stage are commonly characterized by activities related to designing,
constructing and testing vectors in specific target cell types, sometimes in
small animal models, in order to evaluate gene expression and other effects on
disease models. Programs in this early research stage may never progress to more
advanced levels of development, and may be discontinued or suspended at any
time. For example, we have previously conducted research studies in areas
including Gaucher disease, anemia, and thallasemia. These studies advanced our
understanding of AAV and produced intellectual property that has supported
research in other areas and may support future research for these indications.
However, at this time we have chosen to focus our current attention and
resources on other projects that we feel may have greater near-term potential.

     Current examples of our active internal and collaborative research
programs, which are engaged in the exploration of promising new disease targets
that we believe have the potential to become future development programs
include:

                AAV VECTOR-BASED GENE THERAPY RESEARCH PROGRAMS

<Table>
<Caption>
      PROGRAM                DISEASE           TARGET CELL
      -------                -------           -----------
<S>                  <C>                       <C>
Heart Disease        Congestive Heart Failure     Heart
Metabolic Disorders  Phenylketonuria              Liver
</Table>

  Congestive Heart Failure

     Congestive heart failure (CHF) describes a condition in which the ability
of the heart to pump blood effectively is adversely affected. This can have a
negative impact on all major functions in a patient's body and often includes
symptoms such as shortness of breath, as blood supply to the lungs decreases,
swelling in the

                                        7
<PAGE>

lower extremities, as blood circulation is reduced, general feeling of
tiredness, as muscles throughout the body are undersupplied with blood and the
functions of vital organs deteriorate, and death.

     Almost 5 million Americans have some form of CHF today, with an estimated
500,000 new cases diagnosed each year. CHF is the leading cause of
hospitalizations for patients over 65 and the number of annual deaths linked to
heart failure is rising rapidly. It has been reported that more than $20 billion
is spent each year on CHF patients in the form of institutional care and
medications.

     Currently, there are a number of drug-based and surgical treatments that
can be effective in treating many of the symptoms of CHF, and in some cases
reducing the need for hospitalization and improving survival. However, with
survival for more than half of patients with severe CHF limited to two years,
eventually, many patients reach a state in which medical therapy is no longer
effective and heart transplantation, which is limited by the availability of
organ donors, is their only alternative.

     Researchers have shown that certain proteins in heart cells can improve the
heart's ability to pump blood. Genes that control the expression of certain of
these proteins have been identified. Based on our own past research, which
created intellectual property for methods of AAV-based gene delivery to cardiac
muscle and certain related cardiac infusion techniques, we are currently working
with external collaborators to explore ways to treat this disease by using our
AAV vectors to deliver genes to cardiac muscles to affect protein expression.

  Phenylketonuria

     Phenylketonuria (PKU) is an example of a metabolic disorder, that if left
untreated, can lead to severe mental retardation, seizures, delayed speech, and
behavior abnormalities. PKU is caused by a defect in the gene encoding
phenylalanine hydroxylase (PAH), which is responsible for the conversion of the
amino acid phenylalanine to tyrosine. Patients with PKU are unable to metabolize
phenylalanine effectively, which results in elevated levels of the amino acid in
their blood and tissues. It is estimated that approximately 1 in 10,000 infants
in the United States suffer from PKU.

     Current treatment for PKU is limited to strict metabolic control requiring
a highly specialized diet, which avoids protein-rich foods such as meat, and
which must be implemented soon after birth in order to prevent the development
of many PKU symptoms. For many patients, maintenance of this strict diet leads
to an extremely altered lifestyle and non-compliance is very common, which can
result in complications such as reduced cognitive abilities and
neuropsychological dysfunction. Using AAV vectors to deliver the gene for PAH,
we are investigating whether a patient's own cells can be corrected to produce
the normal missing protein, thus allowing the patient to metabolize
phenylalanine in their diet.

PATENTS AND INTELLECTUAL PROPERTY

     Patents and other proprietary rights are important to our business. Our
goal is to file patent applications that protect our technology, inventions and
improvements to our inventions that we consider commercially important to the
development of our business.

     We also rely on a combination of trade secrets, know-how and licensing
opportunities to develop and protect intellectual property rights pertaining to
our products and technology. As of February 2002, we owned, co-owned, or held
licenses to 25 issued U.S. patents and 34 pending U.S. patent applications, most
of which have also been filed internationally. The patents in which we own or
hold as licensees protect rights to specific vectors, methods of vector
production, methods of tissue administration, and specific disease indications
using AAV vectors. All issued patents within our current portfolio are scheduled
to expire in the U.S. between 2008 and 2019

     Examples of the intellectual property rights these patents cover, include:

     - specific AAV vectors such as those containing erythropoietin, or Epo, and
       enzymes associated with lysosomal storage diseases;

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     - methods of producing AAV that result in wild-type free vectors,
       adenovirus-free vectors, and certain large-scale manufacturing and
       purification processes;

     - methods of administering AAV vectors, including to skeletal muscle,
       cardiac muscle, and smooth muscle, as well as delivery to the
       bloodstream, including intravenous (IV) and intraarterial (IA) injection;
       and

     - the use of AAV vectors for treating certain diseases such as hemophilia
       A, hemophilia B, Parkinson's disease, cancer, anemia, and lysosomal
       storage.

     We wholly own or co-own the rights to 48 of the patents and patent
applications in our portfolio and hold licenses to 11 patents and patent
applications. With regard to shared rights to co-owned intellectual property,
although we always have the right to use the technology ourselves, we may not be
able to exclude others from using the same technology without licensing the
shared rights of the co-owner. As a result, we regularly seek to acquire
exclusive licenses to such rights from those collaborators. As of February 2002,
we did not have exclusive licenses to 7 co-owned patents and patent applications
within our portfolio, however, we have options which have not yet been exercised
to negotiate exclusive licenses for the respective collaborator's rights to each
of these pieces of co-owned intellectual property.

     When we identify technologies that have been previously patented, which we
believe are critical to the development and future commercialization of our gene
therapy products, we seek opportunities to license-in such rights under the most
favorable terms. As of February 2002, our intellectual property portfolio
included 3 exclusive licenses and 8 non-exclusive licenses to patented rights
held by research institutions and their representatives. All licenses provide
for a term that extends for the life of the underlying patent. Although specific
terms of the licenses vary, some licenses require us to exercise our best
efforts to achieve research, clinical, and commercial milestones. All licenses
require us to pay license fees and royalties based on the net sales of products
that fall within the scope of the license. Some licenses also require us to make
additional payments upon the completion of clinical and regulatory milestones,
and in some cases, to issue shares of our common stock as partial consideration
upon initiation of the license.

     Our failure to achieve any required development milestones or to negotiate
appropriate extensions of any of our license agreements or to make all required
milestone and royalty payments when due, and the subsequent decision of any such
institution to terminate such license, could have a material adverse effect on
our financial position.

     Examples of exclusive and non-exclusive licenses that we feel are important
to our future commercial interests include:

     University of Florida. In November 1992, we entered into an agreement with
the University of Florida for rights to certain patents related to AAV
transduction vectors. The license is non-exclusive for the duration of the
patent, or approximately 2009.

     The Children's Hospital of Philadelphia (CHOP). In May 1999, we entered
into an agreement with CHOP for rights to certain patents related to vectors and
methods for treating hemophilia B using recombinant AAV vectors. The license is
exclusive for the duration of the patent, or approximately 2017.

     Johns Hopkins University (JHU). In September 1999, we entered into an
agreement with JHU granting Avigen an exclusive license to JHU's rights in
co-owned patents related to administration methods using AAV vectors. The
methods covered by this license include skeletal, smooth, and cardiac muscle, as
well as delivery to the bloodstream, including IV and IA injection. This license
excludes use to such methods to treat Pompe disease and alpha-1-antitrypsin. The
license is for the duration of the underlying patents, or approximately 2016.

     BTG International. In March of 2000, we entered into an agreement with BTG
International for rights to certain patents related to the factor IX gene. The
license is non-exclusive for the duration of the last to expire patent, or
approximately 2008.

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     Lawrence Berkeley National Laboratory (LBL). In July 2001, we entered into
an agreement with LBL granting Avigen an exclusive license to LBL's rights in
co-owned patents related to the treatment of Parkinson's disease. The license is
for the duration of the last to expire patent, or approximately 2018.

     In consideration for each of the five licenses listed above, we paid an
initial license fee and are required to pay the licensor royalties based on net
sales of future products that utilize the licensed technology. In connection
with the license to BTG International, we also issued a warrant to purchase
shares of our common stock at a strike price equal to the fair market value of
our common stock on the effective date of the license agreement.

     In February 2002, we terminated a license with Research Corporation
Technologies ("RCT") that we had entered into in May 1992 that had included
rights to patents and patent applications related to cell-specific promoters in
AAV vectors. Subsequent to the termination of the license, we also filed suit
against RCT for breach of contract, which is described in Item 3 Legal
Proceedings.

     We currently investigate and use certain gene sequences or proteins encoded
by those sequences, including the factor VIII gene, and manufacturing processes
that are or may become patented by others, but which we do not currently own
patent rights. As a result, we may be required to obtain licenses to these known
gene sequences or proteins or other technology in order to continue to test, use
or market products. However, we may not be able to obtain these licenses on
terms favorable to us, if at all.

     We cannot be assured that other patents will be issued from any of the
applications by or licensed to Avigen, or that any patent will issue on
technology arising from additional research or, if patents do issue, that claims
allowed will be sufficient to protect our technology. The patent application
process takes several years and entails considerable expense. In addition, with
respect to each of our co-owned patent applications, we have executed an
exclusive license or are in discussions with the co-inventors to execute a
license or option to obtain an exclusive, worldwide, transferable,
royalty-bearing license to the technology. In the event we are unable to
negotiate exclusive rights to the co-owned technology, each co-inventor may have
rights to independently make, use, offer to sell or sell the patented
technology. Commercialization, assignment or licensing of the technology by a
co-inventor could harm our business. The failure to exclude others from using
these technologies or proposed products may harm our competitive position and
business prospects.

     The patent positions of pharmaceutical and biotechnology firms are
generally uncertain and involve complex legal and factual questions. To date,
there has emerged no consistent policy regarding the breadth of claim allowed in
biotechnology patents. Patent applications in the United States are maintained
in secrecy until a patent issues, and we cannot be certain that others have not
filed applications for technology covered by our patent applications or that we
were first to file patent applications for the technology. Competitors may have
filed applications for, or may have received, patents and may obtain additional
patents and proprietary rights relating to compounds or processes that block or
compete with our patents.

     We cannot ensure that third parties will not assert patent or other
intellectual property infringement claims against us with respect to our
products or technology or other matters. There may be third-party patents and
other intellectual property relevant to our products and technology that are not
known to us. A number of the gene sequences or proteins encoded by certain of
those sequences that we are investigating or may use in our products are or may
become patented by others. As a result, we may be required to obtain licenses to
the gene sequences or other technology in order to test, use or market products
that contain proprietary gene sequences or encode proprietary proteins. For
example, in connection with our hemophilia B program, we obtained a license to
the gene for factor IX. We cannot ensure that we will be able to obtain any
other licenses on terms favorable to us, if at all.

     Patent litigation is becoming more widespread in the biotechnology
industry. Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to us, to protect trade secrets owned by
us, or to determine the scope and validity of proprietary rights of third
parties. Although no third party has asserted that we are infringing the third
party's patent rights or other intellectual property, we cannot ensure that
litigation asserting these claims will not be initiated, that we would prevail
in any litigation, or that we would be able to obtain any necessary licenses on
reasonable terms, if at all. Any claims against us, with or

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without merit, as well as claims initiated by us against third parties, can be
time-consuming and expensive to defend or prosecute and to resolve. If our
competitors prepare and file patent applications in the United States that claim
technology also claimed by us, we may have to participate in interference
proceedings declared by the Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to us, even if the outcome is
favorable to us. In addition, to the extent outside collaborators apply
technological information developed independently by them or by others to our
product development programs or apply our technologies to other projects,
disputes may arise as to the ownership of proprietary rights to the
technologies.

     We also rely on a combination of trade secret and copyright laws, employee
and third-party nondisclosure agreements, and other protective measures to
protect intellectual property rights pertaining to our products and technology.
We cannot ensure that these agreements will provide meaningful protection of our
trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of our trade secrets, know-how
or other proprietary information. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent as do
the laws of the United States. We cannot ensure that we will be able to protect
our intellectual property successfully.

COLLABORATION AGREEMENTS

     In the normal course of operations, we may enter into collaborative
research agreements with independent researchers that could involve
reimbursements of some of our research and development expenses. In 1998, we
entered into an agreement with John Hopkins University (JHU) under which JHU
agreed to provide research funding to Avigen through a National Institutes of
Health Grant. The funded project consisted of researching Capsid-Targeted Viral
Inactivation in the treatment of HIV.

     Research and development expense for the six-months ended December 31, 2001
and 2000 were $11.5 million and $6.2 million, respectively, and in the fiscal
years ended June 30, 2001, 2000 and 1999 for Avigen-sponsored research was $17.0
million, $8.0 million and $6.5 million, respectively. Of that, $86,000, $58,000
and $185,000, respectively, were reimbursed by JHU during the fiscal years ended
June 30, 2001, 2000 and 1999, and reflected as grant and other revenues on our
statements of operations. This agreement expired in March 2001.

     No reimbursements by third parties were received for the six-months ended
December 31, 2001 and we are not currently party to any collaborative agreements
that would reimburse any future research and development expenses by a third
party.

     We may also consider entering into collaboration agreements that we feel
could enhance our potential success with regard to future commercialization of
our products. Our strategy is to retain most of the rights to the future
commercialization of our products, thereby capturing a larger portion of their
potential commercial value. However, we have taken part, and may in the future
engage, in discussions with other gene therapy or large pharmaceutical companies
concerning collaborations that may involve exchanging a portion of these rights
for financial consideration and the opportunity to partner with other leaders in
the field that we feel could help enhance our chances of success in clinical
trials or product distribution. An example of such a collaboration is our
partnership with Bayer with regard to Coagulin-B, our product for hemophilia B.

     Bayer Corporation. In November 2000, we announced a collaboration agreement
with Bayer Corporation, a worldwide health care and life sciences company and
leader in the development, manufacture, and distribution of hemophilia
treatments. Under the terms of the agreement, Bayer, in collaboration with
Avigen, will conduct the planned Phase II/III clinical trials for our
Coagulin-B(TM) gene therapy treatment for hemophilia B, and receive exclusive
worldwide marketing and distribution rights to the product. We will file for
regulatory approvals and will be the holder of regulatory licenses worldwide,
including the United States, the European Union, Canada, and Japan. We will
manufacture the product and will receive a substantial share of the gross
revenues from future Coagulin-B sales, as well as a royalty on net sales of the
product for its intellectual property. The agreement also calls for Bayer to
make milestone payments to us, pay for third-party costs of the clinical trials,
and pay our costs of manufacturing AAV vector used in the trials. Under the
terms of the deal, Bayer AG, an affiliate of Bayer Corporation, purchased shares
of our common stock for

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$15 million, or $47.82 per share, which was set at a premium to the market price
at the time the deal was announced. The sale of the common stock to Bayer AG was
completed in February 2001.

VECTOR PRODUCTION AND MANUFACTURING

     In nature, AAV virus lacks the genes needed to reproduce itself. As a
result, in order to reproduce, AAV must borrow certain genes from other viruses,
typically referred to as "helper viruses". The most common helper viruses are
adenovirus and herpes virus.

     In the laboratory, most researchers producing AAV vectors for gene therapy
use adenovirus and herpes virus in their process. While there has never been
evidence to show that AAV causes any human disease, adenovirus, herpes virus,
and other helper viruses are pathogenic and consist of toxins which do cause
disease in humans. The presence of pathogenic helper viruses in the production
process -- either alive or inactive -- can compromise the safety of AAV vectors
produced with these helper viruses.

     In order to minimize the risk of illness to the patient, the AAV vectors
produced using helper viruses must be purified to remove the pathogenic virus
and residual viral toxins. Purification is therefore a critical step in
producing safe AAV vectors, especially when performed on a large scale.

     Transfection is the controlled transfer of DNA containing genes that have
been isolated from a virus, into target production cells, which then produce new
viruses, or in our case, vectors. Scientists at Avigen have spent several years
developing a production process for making AAV vectors without helper viruses by
means of a proprietary transfection process. Our patented transfection process
does not add helper viruses at all. Instead we use only a select handful of
helper-virus genes to cause reproduction of AAV in the cells. Thus, our
production cells are never mixed with live viruses and consequently do not
produce excess unwanted viral toxins.

     Eliminating helper viruses from our process is not only critical to
increasing safety of our products, but also makes purification significantly
easier. Furthermore, we can operate our transfection process in a modular
fashion. Using standard molecular biology techniques, we can independently
introduce all the instructions necessary for producer cells to make specific AAV
vectors. As a result, we can use one standard cell line to produce every form of
AAV vector needed for our research and clinical studies. With this modular
method, we can modify the various forms of AAV vectors through simple
substitution of one of three added genetic components. In this way, we can
control the identity of the therapeutic gene, DNA control sequences for
expressing the gene, and the type of vector coat-protein genes desired.

     Modular transfection allows us to develop new vectors quickly and easily.
Our proprietary process differs from other approaches which may imbed the
instructions for producing vector in the producer cell line or by adding helper
viruses to the producer cell. It takes much longer to change the genetic makeup
of a producer cell line or a helper virus. We estimate that a typical
development program must produce and test an average of 10 different
constructions of a vector, e.g., different animal versions of the target gene,
the human version of the gene, and modifications to optimize the efficiency of
the vector in various tissues. In contrast to other production methods, our
transfection process allows us to make rapid changes to our vectors, reducing
transition between stages of development from months to days.

     The modular nature of our process also has considerable scaleability
potential. To date, all vectors produced for clinical testing were grown in
tissue-culture flasks and purified using high-speed centrifugation with cesium
chloride. High-speed centrifugation is a lab-scale process, and is inherently
not scalable. Over the last year or so we achieved significant enhancements to
our production process that we expect will allow us to increase the scale of our
production capacity to what we expect will be needed to support commercial
levels.

     Our new production process uses roller bottles to produce AAV vectors in
large quantities and we use automated robotic equipment to manipulate the roller
bottles in a clean environment to maintain the purity and consistency of the
vector product. We also began using chromatographic purification techniques to
increase the final yield and scale of our process for separating AAV from other
cellular material. Together, these enhancements are highly scalable, and easily
transferable to clinical and commercial grade manufacturing levels.
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     We have designed and constructed our manufacturing facilities to
accommodate large-scale vector production, as well as to meet the requirements
of government mandated policies for pharmaceutical manufacturing, known as
current good manufacturing practices (cGMPs). All of our facilities and long
lived assets are located in the United States. Our manufacturing facilities make
use of the automation and chromatographic processes developed during our product
development stages, and benefit from the many advantages of our proprietary
transfection process. In particular, manufacturing will benefit from the
favorable characteristics of our transfection process which isolate and
standardize many of the materials and steps during production and increase the
ease of changeover to new products.

COMPETITION

     The field of gene therapy drug development is new and rapidly evolving, and
it is expected to continue to undergo significant and rapid technological
change. We expect that we will experience intense competition both from other
companies in the gene therapy field and from companies that have other forms of
treatment for the diseases currently being targeted. We are aware of several
development-stage and established enterprises, including major pharmaceutical
and biotechnology firms, that are exploring gene-based drugs or are actively
engaged in gene delivery research and development. These include companies
making protein therapies for hemophilia, such as Aventis S.A., Bayer
Corporation, which produces factor VIII for the treatment of hemophilia A which
is outside of the scope of our collaborative agreement, Baxter Healthcare
Corporation, and Wyeth. Many of our competitors or potential competitors have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing
organizations, than we do. In addition, some of them have considerable
experience in preclinical testing, clinical trials and other regulatory approval
procedures. There are also academic institutions, governmental agencies and
other research organizations that are conducting research in areas in which we
are working. They may also market commercial products, either on their own or
through collaborative efforts.

     Companies that complete clinical trials, obtain required regulatory
approvals, and commence commercial sales of their products before their
competitors, may achieve a significant competitive advantage. We are aware that
other companies or institutions are actively engaged in gene therapy product
development programs which currently target gene therapy products that could
compete directly with our current development and research programs, including:
Cell Genesys, Inc., Collateral Therapeutics, Inc., Genstar Corporation, GenVec,
Inc., Targeted Genetics Corporation and Transkaryotic Therapies, Inc.
Furthermore, it is our understanding that certain of these competitors are
currently conducting clinical trials to treat Hemophilia A patients, including
Genstar, which is conducting a Phase I clinical trial using adenovirus, and
Transkaryotic Therapies, which is conducting a Phase I/II clinical trial using a
nonviral vector-based system, and clinical trials to treat certain forms of
heart failure, including Collateral Therapeutics and GenVec, each of which is in
a Phase II clinical trial.

     In order to compete successfully, we must develop proprietary positions in
patented products for therapeutic markets that have not been satisfactorily
addressed by conventional research strategies and, in the process, expand our
expertise in our AAV vector gene therapy products. Our products, even if
successfully tested and developed, may not be adopted by physicians over other
products and may not offer economically feasible alternatives to other
therapies.

GOVERNMENT REGULATION

     The production and marketing of our proposed products are subject to
regulation for safety, efficacy, and quality by numerous governmental
authorities in the United States and other countries. In the United States,
pharmaceutical products are subject to rigorous regulation by the FDA under the
Federal Food, Drug, and Cosmetic Act. Biological products, in addition to being
subject to certain provisions of this act, are also regulated under the Public
Health Service Act. These laws and the regulations promulgated thereunder
govern, among other things, testing, manufacturing, safety, efficacy, labeling,
storage, record keeping, advertising and promotional practices, and import and
export of drugs and biological products. In general, the Center for Biologics
Evaluation and Research holds primary responsibility for the regulation of
biological products and has handled the IND applications of most gene therapy
products to date. At the present time, we
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believe that our products will be regulated as biologics by the FDA and
comparable foreign regulatory bodies. Gene therapy is, however, a relatively new
technology and has not been extensively tested in humans. The regulatory
requirements governing gene therapy products are uncertain and are subject to
change. No gene therapy products have been approved to date in the United States
or any foreign country.

     Under the National Institutes of Health ("NIH") guidelines for research
involving recombinant DNA molecules, clinical protocols involving human gene
transfer conducted at institutions receiving NIH funds cannot be initiated
without simultaneous submission of information describing the proposed clinical
protocol to both the NIH and the FDA. However, the FDA is the regulatory body
with statutory authority over gene therapy products. Submission to the FDA will
be in the form of an IND application or IND amendment, while submission to the
NIH shall be for scientific and ethical review purposes and determination
regarding the necessity of full review by the Recombinant DNA Advisory
Committee, or "RAC," of the NIH. Full RAC review of an individual human gene
transfer protocol can be initiated by the NIH director or recommended to the NIH
director by three or more RAC members or other federal agencies. An individual
human gene transfer protocol that is recommended for full RAC review should
represent novel characteristics deserving of public discussion. Prior to
submission of a human gene transfer experiment to NIH, the principal
investigator must obtain Institutional Biosafety Committee approval from each
institution that will handle recombinant DNA material that is to be administered
to human subjects and institutional review board, or "IRB," approval from each
institution in which human subjects will undergo gene transfer. The review
process conducted by the NIH and the FDA can be unpredictable and may result in
considerable time and expense to us.

     The steps required before a new drug, including a biological product, may
be marketed in the United States generally include:

     - preclinical laboratory tests and preclinical animal studies;

     - the submission to the FDA of an IND application for human clinical
       testing, which must become effective before human clinical trials
       commence;

     - adequate and well-controlled human clinical trials to establish the
       safety and efficacy of the product;

     - the submission to the FDA of a Biologics License Application, or "BLA,"
       for a biological product;

     - successful inspection of manufacturing facilities by the FDA as part of
       the "BLA" approval process; and

     - FDA approval of the BLA prior to any commercial sale or shipment of the
       biological product.

     Domestic drug and biological manufacturing establishments are subject to
inspections at any time by the FDA and must comply with good manufacturing
practices regulations enforced by the FDA, even at the clinical testing phase,
through its facilities inspection program. Manufacturers of biological products
also must comply with FDA general biological product standards. Since our
manufacturing facilities are located in California, we are also required to
maintain a drug manufacturing license from the State of California for any of
our products administered to humans, including products used in clinical trials.

     Preclinical studies include laboratory evaluation of the product, as well
as animal studies to assess the potential safety and, if possible, efficacy of
the product. Preclinical safety studies must be conducted by laboratories that
comply with FDA regulations regarding good laboratory practices. The results of
the preclinical tests, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND, which must become effective
before human clinical trials may be commenced. The IND will become automatically
effective 30 days after its receipt by the FDA unless the FDA indicates prior to
the end of the 30-day period that it does not wish the trials to proceed as
outlined in the IND. In this case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an IND will result in FDA authorization to commence clinical
trials.

     Clinical trials must be conducted in accordance with the FDA's good
clinical practice guidelines and must be approved by the IRB at each respective
institution participating in the clinical study. The IRB will

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consider, among other things, safety, and ethical issues, proper informed
consent of the human subjects, possible issues relating to health care costs and
potential liability of the institution. The IRB may require changes in a
protocol, and we cannot assure you that the IRB will permit any given study to
be initiated or completed.

     Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. Phase I typically involves the initial introduction of the
drug into patients primarily to determine the drug's safety, metabolism,
pharmacokinetics and pharmacological actions in humans, and the side effects
associated with increasing doses. Phase II typically involves studies in a
limited patient population:

     - to further identify possible adverse effects and safety risks;

     - to determine the efficacy of the drug for specific diseases; and

     - to determine dosage tolerance and optimal dosage.

     If the drug appears to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to evaluate
efficacy and safety within an expanded patient population typically at
geographically dispersed clinical study sites. We cannot assure you that Phase
I, Phase II, or Phase III testing will be completed successfully within any
specific time period, if at all, with respect to any of our products subject to
this testing. Furthermore, the FDA may suspend clinical trials at any time on
various grounds, including a finding that patients are being exposed to an
unacceptable health risk. The FDA also views gene therapy as a relatively new
technology, with no experience as to long-term safety. As a result, the FDA is
requiring long-term monitoring of all patients that participate in each phase of
clinical trials. FDA regulations also subject sponsors of clinical
investigations to numerous regulatory requirements related to, among other
things, selection of qualified investigators, proper monitoring of
investigations, record keeping and record retention and notice to investigators
and the FDA of any death or serious unexpected adverse reaction. In addition,
the FDA may require post marketing clinical studies, sometimes referred to as
Phase IV clinical trials, which will require extensive patient monitoring and
record keeping and may result in restricted marketing of the product for an
extended period of time.

     The results of the pharmaceutical development, preclinical studies, and
clinical trials are submitted to the FDA in the form of a BLA for approval of
the manufacture, marketing, sale, and commercial shipment and distribution of
the biological product. The testing and approval process is likely to require
substantial time and effort, and we cannot assure you that any approval will be
granted on a timely basis, if at all. The FDA may deny a BLA if applicable
regulatory criteria are not satisfied, require additional testing or
information, or require post marketing testing and surveillance to monitor the
safety or efficacy of a product. Moreover, if regulatory approval of a
biological product is granted, this approval may entail limitations on the
indicated uses for which it may be marketed. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. Among the conditions for BLA
approval is the requirement that the prospective manufacturer's quality control
and manufacturing procedures conform to good manufacturing practices, which must
be followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, financial resources,
and effort in the area of production and quality control.

     For clinical investigation and marketing outside the United States, we are
also subject to foreign regulatory requirements governing clinical trials and
marketing approval for pharmaceutical products. In Europe, for instance, the
approval process for the commencement of clinical trials varies from country to
country, and Canada has its own set of requirements as well. The foreign
regulatory approval process includes all of the risks associated with FDA
approval set forth above.

     In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, and other federal, state and local regulations. Our research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials, and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of these

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materials comply with the standards prescribed by state and federal regulations,
we could be held liable for any damages that result from accidental
contamination or injury and this liability could exceed our resources.

ORPHAN DRUG STATUS

     In accordance with the Orphan Drug Act, the FDA may grant Orphan Drug
status to certain drugs intended to treat a "rare disease or condition" defined
as a disease or condition which affects fewer than 200,000 people in the United
States, or which affects more than 200,000 people for which the cost of
developing and marketing the drug will not be recovered from sales of the drug
in the United States. An approved Orphan Drug may provide certain benefits
including exclusive marketing rights in the United States to the first drug
approved for the disease for seven years following marketing approval and
federal income tax credits for certain clinical trial expenses.

     In July 2001, we announced that we were notified by the FDA that
Coagulin-B, our AAV vector product for treating hemophilia B, whether delivered
via intramuscular injection or intravenously to the liver, qualified for orphan
drug designation. We also believe that some of our other potential products may
qualify for Orphan Drug status as well, but we cannot assure you that these
products will receive FDA approval or that Coagulin-B or our other potential
products will receive any benefit under the Orphan Drug Act. In addition, there
is no assurance that potential benefits provided by the Orphan Drug Act will not
be significantly limited by future amendment by the United States Congress
and/or reinterpretation by the FDA.

PRODUCT LIABILITY INSURANCE

     The manufacture and sale of medical products entail significant risk of
product liability claims. We have established product liability insurance prior
to beginning our clinical trials; however there can be no assurance that this
coverage will be adequate to protect us from any liabilities we might incur in
connection with the testing of our products in clinical trials or future sale of
our products upon commercialization. In addition, we may require increased
product liability coverage as additional products are used in clinical trials
and commercialized. This insurance is expensive and in the future may not be
available on acceptable terms, if at all. A successful product liability claim
or series of claims brought against us in excess of our insurance coverage could
have a material adverse effect on our business and results of operations.

EMPLOYEES

     As of February 28, 2002, Avigen had 143 full-time employees, 30 of whom
have Ph.D. or M.D. degrees. Of this amount, approximately 119 employees are
involved in our research and development activities, including manufacturing,
quality assurance and quality control, regulatory affairs and clinical affairs,
and 24 employees are involved in general administration, finance, legal, and
business development activities. We also rely on a number of temporary staff
positions and third-party consultants. None of our employees are represented by
a collective bargaining agreement nor have we ever experienced a work stoppage.
We believe that our relationship with our employees is good.

SCIENTIFIC ADVISORY BOARD

     We have established a Scientific Advisory Board, consisting of experts in
the field of medicine, genetics and molecular biology, which reviews and
evaluates our research programs and advises us with respect to technical matters
in fields in which we are involved. The members of the Scientific Advisory Board
are prominent scholars in their field and, as a result, may serve as consultants
to a wide variety of companies. Our Scientific Advisory Board consists of the
following individuals:

     Alan McClelland, Ph.D. (Chairman), is Vice President, Research and
Development, of Avigen. Dr. McClelland previously held senior level research
positions at Novartis and Bayer. He holds a Ph.D. in biochemistry from the
University of London and received postdoctoral training at Yale University.

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     Jef D. Boeke, Ph.D., D.Sc., is Professor of Molecular Biology & Genetics
and Professor of Oncology at The Johns Hopkins University School of Medicine.
Dr. Boeke studies the mechanism of insertion of mobile elements into DNA. He has
authored more than 150 publications.

     Katherine A. High, M.D., is the William H. Bennett Associate Professor of
Pediatrics at the University of Pennsylvania in Philadelphia and the Director of
Research of the Hematology Division at The Children's Hospital of Philadelphia.
Dr. High is an expert in both basic and clinical aspects of blood coagulation
and is a well-recognized authority on gene transfer for bleeding disorders. She
is an officer of the American Society of Gene Therapy and on the editorial board
of Molecular Therapy, the journal of ASGT.

     Mark A. Israel, M.D., is Professor of Pediatrics and Genetics at Dartmouth
Medical School. He is Director of the Norris Cotton Cancer Center of
Dartmouth-Hitchcock Medical Center. Dr. Israel's research has focused on the
molecular and cellular biology of tumors of the nervous system. He has authored
more than 200 publications.

     Yuichi Iwaki, M.D., Ph.D., serves as a director of Avigen, and is a
Professor of the Departments of Urology and Pathology at the University of
Southern California. He is currently Director of the Transplantation Immunology
and the Immunogenetic Laboratory. Dr. Iwaki also holds visiting professorships
at Nihon University School of Medicine in Japan, at the University of Pittsburgh
School of Medicine, and at the University of California, Irvine.

     Y.W. Kan, M.D., D.Sc., is the Louis K. Diamond Professor of Hematology at
the University of California at San Francisco. He also is an Investigator of the
Howard Hughes Medical Institute. Dr. Kan was the 1991 recipient of the Albert
Lasker Clinical Medical Research Award and is noted as a leader in the fields of
sickle cell anemia and thalassemia.

     Dr. Randal J. Kaufman, Ph.D., is a Professor of Biological Chemistry and
Investigator of the Howard Hughes Medical Institute at the University of
Michigan Medical School. Dr. Kaufman and scientists at Genetics Institute were
the first to isolate the factor VIII gene and develop recombinant factor VIII
for the treatment of hemophilia A. Dr. Kaufman is an expert on the molecular
biology of factor VIII and the treatment of Hemophilia A. A major part of his
present research is aimed at elucidating fundamental mechanisms that regulate
protein folding and cellular responses to unfolded protein within the secretory
pathway. He has authored over 200 publications.

     Mark Kay, M.D., Ph.D., is the Director of the Program in Human Gene
Therapy, and Professor in the Department of Pediatrics and Genetics at Stanford
University School of Medicine. Dr. Kay is one of the founders of the American
Society of Gene Therapy. Dr. Kay received the E. Mead Johnson Award for Research
in Pediatrics in 2000 and was elected to the American Society for Clinical
Investigation in 1997. He is respected worldwide for his work in gene therapy
for hemophilia. He is also an Associate Editor of Human Gene Therapyand is a
member of the editorial boards of Gene Therapy and Molecular Therapy.

     Haig H. Kazazian, Jr., M.D., is the Seymour Gray Professor and Chairman in
the Department of Genetics at the University of Pennsylvania School of Medicine.
He is the immediate past president of the American Board of Medical Genetics and
a member of the Institute of Medicine. Dr. Kazazian is best known for his
research which was instrumental to the molecular characterization of
beta-thalassemia. He also was first to discover active "jumping genes" in human
beings and has elucidated a number of mechanisms by which these mobile elements
have a major impact on the evolution of our genome. In addition, Dr. Kazazian's
lab has characterized the molecular defects in hemophilia A and developed a
small animal model of the disease.

     Keiya Ozawa, M.D., Ph.D., is a professor and chairman of the Department of
Hematology, Division of Cell Transplantation and Transfusion, and Division of
Genetic Therapeutics, Center for Molecular Medicine, at Jichi Medical School in
Japan, where he has established research and preclinical programs in gene
therapy. Dr. Ozawa is regarded as one of the leading authorities on gene therapy
in Japan and is responsible for drafting the Japanese government's gene therapy
guidelines. He has authored more than 200 publications regarding hematology,
virology and gene therapy.

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     Jeffrey M. Rosen, Ph.D., is the C.C. Bell Professor of Molecular and
Cellular Biology at Baylor College of Medicine. Dr. Rosen is an internationally
recognized expert in the field of gene expression. His research focuses
primarily on the mechanisms by which hormones and growth factors regulate gene
expression and development in the mammary gland and how these mechanisms have
been altered in breast cancer. Dr. Rosen has served on the editorial boards of
the Journal of Biological Chemistry, Molecular and Cellular Endocrinology, and
Executive Editor of NucleicAcids Research and he is currently an Associate
Editor of Molecular Endocrinology. He is the recipient of the Endocrine Society
Edwin B. Astwood Lecture Award.

     David W. Russell, M.D., Ph.D., is an Associate Professor in the Department
of Medicine at the University of Washington in Seattle. He is an expert on the
development of viral vectors for gene therapy, especially on the transduction
mechanisms of AAV vectors. Dr. Russell's research interests focus on stem cells
and the manipulation of mammalian chromosomes.

                                  RISK FACTORS

     This section briefly discusses certain risks that should be considered by
stockholders and prospective investors in Avigen. Many of these risks are
discussed in other contexts in other sections of this report.

WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND WE MAY NEVER ACHIEVE
PROFITABILITY

     Since our inception in 1992, we have not been profitable, and we cannot be
certain that we will ever achieve or sustain profitability. To date, we have
been engaged in research and development activities and have not generated any
revenues from product sales. As of December 31, 2001, we had an accumulated
deficit of $79.1 million. The process of developing our products will require
significant additional research and development, preclinical testing and
clinical trials, as well as regulatory approval. We expect these activities,
together with our general and administrative expenses, to result in operating
losses for the foreseeable future. Our ability to achieve profitability will
depend, in part, on our ability to successfully complete development of our
proposed products, obtain required regulatory approvals and manufacture and
market our products directly or through business partners.

OUR CLINICAL TRIALS FOR COAGULIN-B FOR THE TREATMENT OF HEMOPHILIA B ARE
CONDUCTED WITH A SMALL NUMBER OF PATIENTS OVER A SHORT PERIOD OF TIME, AND THE
RESULTS REPORTED MAY NOT BE INDICATIVE OF FUTURE RESULTS IN A LARGER NUMBER OF
PATIENTS OR HAVE LASTING EFFECTS

     Our current Coagulin-B clinical trial studies are based upon the
evaluations of very small groups of patients and any reported progress or
results may not be indicative of subsequent progress or results achieved from
larger populations, which could be less favorable. Also, since our Coagulin-B
clinical trial studies to date are still in very early stages, we do not yet
know if any favorable results achieved will have a lasting effect. If a larger
population of patients does not experience positive results, or any favorable
results do not demonstrate a lasting effect, this product candidate may not
receive approval from the FDA for further studies or commercialization. In
addition, any report of clinical trial results that are below the expectations
of financial analysts or investors would most likely cause our stock price to
drop dramatically.

THE SUCCESS OF OUR TECHNOLOGY IN ANIMAL MODELS DOES NOT GUARANTEE THAT THE SAME
RESULTS WILL BE REPLICATED IN HUMANS

     Even though our product candidates have shown successful results in mouse
and dog models, animals are different than humans and results in animal models
may not be replicated in our clinical trials with humans. For example, while the
results of our gene therapy treatment for hemophilia B were favorable in both
dogs and mice, the measured levels of factor IX gene expression for comparable
dosage sizes relative to body mass were different between the two animals.
Consequently, you should not rely on the results in any of our animal models as
being predictive of the results that we will see in our clinical trials with
humans.

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BECAUSE OUR PRODUCT CANDIDATES ARE IN AN EARLY STATE OF DEVELOPMENT, THERE IS A
HIGH RISK THAT THEY MAY NEVER BE COMMERCIALIZED

     We do not have any product candidates that have received regulatory
approval for commercial sale, and we face the risk that none of our product
candidates will ever receive regulatory approval. All of our product candidates
are in early stages of development. We have only one product candidate,
Coagulin-B for the treatment of hemophilia B, in clinical trials, and this
product candidate is only in phase I of the clinical trial process. We are not
aware of any other gene therapy products of other companies that have received
regulatory approval for commercial sale, and do not expect any of our
prospective products, including Coagulin-B for the treatment of hemophilia B, to
be commercially available for at least several years. As results of future
stages of clinical trials become available and are evaluated, we may decide at
any time to discontinue any further development of one or more of our potential
products.

TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS AND TECHNOLOGIES LESS
ATTRACTIVE OR OBSOLETE

     Gene therapy is new and rapidly evolving and is expected to continue to
undergo significant and rapid technological change. Rapid technological
development could result in our actual and proposed technologies, products or
processes becoming less attractive or obsolete.

ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY IMPACT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF OUR POTENTIAL PRODUCTS

     The commercial success of our potential products will depend in part on
public acceptance of the use of gene therapy for the prevention or treatment of
human diseases. Public attitudes may be influenced by claims that gene therapy
is unsafe, and consequently our products may not gain the acceptance of the
public or the medical community. Negative public reaction to gene therapy in
general could result in greater government regulation and stricter labeling
requirements of gene therapy products, including any of our products, and could
cause a decrease in the demand for any products we may develop.

     Deaths and other potential adverse events in the field of gene therapy, as
well as any potential adverse events from other types of drug development
clinical trials, that may occur in the future could result in greater
governmental regulation of our potential products and potential regulatory
delays relating to the testing or approval of our potential products.

TESTING OF OUR POTENTIAL PRODUCTS RELIES HEAVILY ON THE VOLUNTARY PARTICIPATION
OF PATIENTS IN OUR CLINICAL TRIALS, WHICH IS NOT WITHIN OUR CONTROL, AND COULD
SUBSTANTIALLY DELAY OR PREVENT US FROM COMPLETING DEVELOPMENT OF SUCH PRODUCTS

     The developmental progress of our potential products is dependent upon
collection of sufficient amounts of data from human clinical trials to
demonstrate safe and effective results. This data can only be collected by
testing our development products on patients in these trials. We have in the
past experienced difficulties in enrolling patients in our clinical trials, and
may in the future experience similar difficulties. Any delay or failure to
recruit sufficient numbers of patients to satisfy the level of data required to
be collected under our clinical trial protocols could prevent us from developing
any products we may target.

OUR POTENTIAL PRODUCTS MUST UNDERGO RIGOROUS CLINICAL TESTING AND REGULATORY
APPROVALS, WHICH COULD SUBSTANTIALLY DELAY OR PREVENT US FROM MARKETING ANY
PRODUCTS

     The clinical trial progress is complex, uncertain and expensive. Positive
results from preclinical studies and early clinical trials do not ensure
positive results in clinical trials designed to permit application for
regulatory approval. Prior to marketing in the United States, any product
developed by us must undergo rigorous preclinical testing and clinical trials as
well as an extensive regulatory approval process implemented by the FDA. The FDA
approval process is typically lengthy and expensive, and approval is never
certain. Because of the risks and uncertainties in biopharmaceutical
development, our gene therapy products could take a significantly longer time to
gain regulatory approval than we expect or may never gain FDA approval. If we do
not receive these necessary approvals from the FDA, we will not be able to
generate substantial
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revenues and will not become profitable. We may encounter significant delays or
excessive costs in our efforts to secure regulatory approvals. Factors that
raise uncertainty in obtaining these regulatory approvals include:

     - gene therapy is a new, largely unproven, and rapidly evolving technology;

     - to date, there has been only limited research and development in gene
       therapy using AAV vectors, which we believe will cause clinical trials to
       proceed more slowly than clinical trials involving traditional drugs;

     - FDA approval, which may be withheld, is required to begin clinical trials
       of our potential products;

     - we must demonstrate through clinical trials that the proposed product is
       safe and effective for its intended use;

     - we are not aware of any gene therapy products that have obtained
       marketing approval from the FDA;

     - whether or not our product candidates cause patients to develop
       antibodies to these potential products or the proteins produced by these
       potential products;

     - the regulatory requirements governing gene therapy products are uncertain
       and are subject to change;

     - none of our proposed products have yet been involved in tests designed to
       measure their effectiveness in humans; and

     - data obtained from preclinical and clinical activities are susceptible to
       varying interpretations which could delay, limit or prevent regulatory
       approvals.

     Failure to comply with applicable FDA or other regulatory requirements may
result in criminal prosecution, civil penalties and other actions that would
seriously impair our ability to conduct our business. Even if regulatory
approval is granted for a product, this approval will be limited to those
disease states and conditions for which the product is useful, as demonstrated
through clinical trials.

AAV TECHNOLOGY IS STILL NEW AND DEVELOPING RAPIDLY; VERY LITTLE CLINICAL DATA
RESULTS EXIST AND NEW INFORMATION MAY ARISE WHICH MAY CAUSE US DELAYS IN
DESIGNING OUR PROTOCOLS, SUBMITTING APPLICATIONS THAT SATISFY ALL NECESSARY
REGULATORY REVIEW REQUIREMENTS, AND ULTIMATELY COMPLETING THE CLINICAL TRIALS OF
OUR PRODUCTS

     Clinical trials are governed by regulations enforced by the FDA. Our
technology is fairly new, and we have limited historical data from preclinical
studies or clinical trials that are often necessary to satisfy the FDA's
regulatory review process. In addition, as new information about the technology
becomes available, it may change perceptions of previously accepted data, which
could require additional periods of time to review and interpret these data.
Consequently, we may encounter deficiencies in the design or application stages
while developing our clinical trial studies, or in the subsequent implementation
stages of such studies, which could cause us or the FDA to delay, suspend or
terminate our trials at any time. Potential problems we may encounter in the
implementation stages of our studies include the chance that we may not be able
to conduct clinical trials at preferred sites, obtain sufficient test subjects
or begin or successfully complete clinical trials in a timely fashion, if at
all. Furthermore, the FDA may suspend clinical trials at any time if it believes
the subjects participating in trials are being exposed to unacceptable health
risks or if it finds deficiencies in the clinical trial process or conduct of
the investigation.

WE MAY NOT BE SUCCESSFUL IN OBTAINING REQUIRED FOREIGN REGULATORY APPROVALS,
WHICH WOULD PREVENT US FROM MARKETING OUR PRODUCTS INTERNATIONALLY

     We cannot be certain that we will obtain any regulatory approvals in other
countries. In order to market our products outside of the United States, we also
must comply with numerous and varying foreign regulatory requirements
implemented by foreign regulatory authorities. The approval procedure varies
among countries and can involve additional testing. The time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process includes all of the risks associated with obtaining
FDA approval set forth above, and approval by the FDA does not ensure approval
by the health authorities of any other country.
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WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR POTENTIAL PRODUCTS, WHICH RAISES
UNCERTAINTY ABOUT OUR ABILITY TO MANUFACTURE OUR POTENTIAL PRODUCTS
COST-EFFECTIVELY

     Even if we are able to develop our potential products and obtain necessary
regulatory approvals, we have limited experience in manufacturing any of our
proposed products on a commercial basis. If we are unable to manufacture our
products in a cost-effective manner, we are not likely to become profitable. We
have not yet received a license from the FDA for our manufacturing facilities,
and cannot apply for one until we submit our product for commercial approval.
Even if we do receive a manufacturing license, we may fail to maintain adequate
compliance with the FDA's regulations concerning current good manufacturing
practices, in which case the license, and our authorization to manufacture
product, would be revoked. Although we may be able find third-party
manufacturers with greater experience and the proper licensing requirements from
the FDA, we may not be able to negotiate favorable terms regarding costs or a
long-term commitment to manufacture our products.

WE MAY LOSE ACCESS TO CRITICAL MATERIALS FROM SINGLE SOURCE SUPPLIERS, WHICH IS
NOT WITHIN OUR CONTROL AND COULD DELAY US FROM MANUFACTURING VECTOR NEEDED TO
SUPPORT OUR CLINICAL TRIALS OR FUTURE COMMERCIALIZATION

     We obtain materials used in the manufacture of our clinical vector products
from a number of suppliers, some of whom are our sole qualified source of these
materials. We qualify the suppliers of our critical materials according to GMP
regulations. If we were to lose access to critical materials from any of our
sole source suppliers, we would be required to obtain a new source of the
materials. It could take us several months to qualify new suppliers before we
could use their materials in the manufacture of our clinical vector products.

WE HAVE NO EXPERIENCE IN MARKETING OR SELLING OUR POTENTIAL PRODUCTS, WHICH
RAISES UNCERTAINTY ABOUT OUR ABILITY TO COMMERCIALIZE OUR POTENTIAL PRODUCTS
COST-EFFECTIVELY

     Even if we are able to develop our potential products and obtain necessary
regulatory approvals, we have no experience in marketing or selling any of our
proposed products. We do not anticipate establishing our own sales and marketing
capabilities for any of our potential products in the foreseeable future. We
have entered into an agreement with Bayer Corporation, a worldwide health care
and life sciences company and a leader in the development, manufacture, and
distribution of hemophilia treatments, which grants Bayer Corporation exclusive
worldwide marketing and distribution rights for Coagulin-B. If Bayer Corporation
does not perform under this agreement, then we would need to market this product
ourselves, and we may not be able to establish adequate marketing capabilities
for this product. Similarly, we may not be able to develop adequate marketing
capabilities for our other potential products either on our own or through other
third parties.

WE MAY BE REQUIRED TO OBTAIN RIGHTS TO PROPRIETARY GENES AND OTHER TECHNOLOGIES
TO FURTHER DEVELOP OUR BUSINESS, WHICH MAY NOT BE AVAILABLE OR MAY BE COSTLY

     We currently investigate and use certain gene sequences or proteins encoded
by those sequences, including the factor VIII gene, and manufacturing processes
that are or may become patented by others. As a result, we may be required to
obtain licenses to these gene sequences or proteins or other technology in order
to test, use or market products. We may not be able to obtain these licenses on
terms favorable to us. In connection with our efforts to obtain rights to these
gene sequences or proteins or other technology, we may find it necessary to
convey rights to our technology to others. Some of our gene therapy products may
require the use of multiple proprietary technologies. Consequently, we may be
required to make cumulative royalty payments to several third parties. These
cumulative royalties could become commercially prohibitive. We may not be able
to successfully negotiate these royalty adjustments.

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IF WE DO NOT ACHIEVE CERTAIN MILESTONES, WE MAY NOT BE ABLE TO RETAIN CERTAIN
LICENSES TO OUR INTELLECTUAL PROPERTY

     We have entered into license agreements with third parties for technologies
related to our gene therapy product development programs. Some of these license
agreements provide for the achievement of development milestones. If we fail to
achieve these milestones or to obtain extensions, the licensor may terminate
these license agreements with relatively short notice to us. Termination of any
of our license agreements could harm our business.

IF WE ARE UNSUCCESSFUL IN OUR LITIGATION CONCERNING THE TERMINATED RCT LICENSE,
WE MAY NOT BE ABLE TO RETAIN RIGHTS TO CERTAIN FORMULATION TECHNOLOGIES, WHICH
MAY PREVENT OR DELAY US FROM COMMERCIALIZING OUR COAGULIN-B PRODUCT

     We have sued Research Corporation Technology (RCT) of Tucson, Arizona, for
breach of contract in connection with a license agreement we entered into in May
1992 for rights to a patent application related to a cell-specific promotor in
AAV vectors. Two patents have since issued: USP No. 5,252,479 and No. 6,261,834.
We are seeking financial damages and a determination by the court that RCT's
actions have rendered the patents' claims unenforceable. If our claims of breach
of contract against RCT are unsuccessful, and the court does not determine that
RCT's actions have rendered its patents' claims unenforceable, we may be forced
to develop alternative technologies to replace the functions of technologies
covered by the RCT patents. Any requirements to modify the formulation of our
Coagulin-B product from what is being tested in clinical trials could cause
substantial delays in our current and future clinical trials, which would delay
our ability to market our Coagulin-B product. In addition, if we are unable to
develop alternative technologies to replace the functions of the technologies
covered by the RCT patents, we may be forced to seek a new license from RCT to
market our Coagulin-B product, which we may not be able to do, or may only be
able to do on unfavorable terms.

WE EXPECT THAT WE WILL FACE INTENSE COMPETITION, WHICH MAY LIMIT OUR ABILITY TO
BECOME PROFITABLE

     Our competitors may develop more effective or more affordable products, or
commercialize products earlier than we do, which would limit the prices that we
could charge for the products that we are able to market, and prevent us from
becoming profitable. We expect increased competition from fully integrated
pharmaceutical companies and more established biotechnology companies. Most of
these companies have significantly greater financial resources and expertise
than we do in the following:

     - research and development;

     - preclinical studies and clinical trials;

     - obtaining regulatory approvals;

     - manufacturing; and

     - marketing and distribution.

     Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. Academic institutions, government agencies and other public and
private research organizations also conduct research, seek patent protection and
establish collaborative arrangements for product development and marketing. In
addition, these companies and institutions compete with us in recruiting and
retaining highly qualified scientific and management personnel.

     We are aware that other companies are conducting preclinical studies and
clinical trials for viral and non-viral gene therapy products that could compete
directly with products we are developing. See "Item 1. Business  -- Competition"
for a more detailed discussion of the competition we face.

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OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY PROTECT OUR PATENTS AND
PROPRIETARY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO

     Our success will depend to a significant degree on our ability to obtain
patents and licenses to patent rights, preserve trade secrets, and to operate
without infringing on the proprietary rights of others. If we are not successful
in these endeavors, our business will be substantially impaired.

     To date, we have filed a number of patent applications in the United States
relating to technologies we have developed or co-developed. In addition, we have
acquired exclusive and non-exclusive licenses to certain issued patents and
pending patent applications. We cannot be assured that patents will issue from
these applications or that any patent will issue on technology arising from
additional research or, if patents do issue, that claims allowed will be
sufficient to protect our technologies.

     The patent application process takes several years and entails considerable
expense. The failure to obtain patent protection on the technologies underlying
our proposed products may have a material adverse effect on our competitive
position and business prospects. Important legal issues remain to be resolved as
to the scope of patent protection for biotechnology products, and we expect that
administrative proceedings, litigation or both may be necessary to determine the
validity and scope of our and others' biotechnology patents. These proceedings
or litigation may require a significant commitment of our resources in the
future. If patents can be obtained, we cannot assure you that any of these
patents will provide us with any competitive advantage. For example, others may
independently develop similar technologies or duplicate any technology developed
by us, and patents may be invalidated in litigation. In addition, several of our
patents and patent applications are co-owned with co-inventors or institutions.
Under the terms of the agreements with the co-inventors, we have obtained or
have an option to obtain an exclusive, worldwide, transferable, royalty-bearing
license for the technology. To date, we have negotiated exclusive licenses for
many of our co-invented technologies. If we cannot negotiate exclusive rights to
other co-owned technology, each co-inventor may have rights to independently
make, use, offer to sell or sell the patented technology. Commercialization,
assignment or licensing of the technology by a co-inventor could harm our
business.

     We also rely on a combination of trade secret and copyright laws, employee
and third-party nondisclosure agreements and other protective measures to
protect intellectual property rights pertaining to our products and
technologies. We cannot be certain that these measures will provide meaningful
protection of our trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or disclosure of our trade
secrets, know-how or other proprietary information. In addition, the laws of
certain foreign countries do not protect our intellectual property rights to the
same extent as do the laws of the United States. We cannot assure you that we
will be able to protect our intellectual property successfully.

OTHER PERSONS MAY ASSERT RIGHTS TO OUR PROPRIETARY TECHNOLOGY, WHICH COULD BE
COSTLY TO CONTEST OR SETTLE

     Third parties may assert patent or other intellectual property infringement
claims against us with respect to our products or technology or other matters.
Any claims against us, with or without merit, as well as claims initiated by us
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. There may be third-party patents and other
intellectual property relevant to our products and technology which are not
known to us. We have not been accused of infringing any third party's patent
rights or other intellectual property, but we cannot assure you that litigation
asserting claims will not be initiated, that we would prevail in any litigation,
or that we would be able to obtain any necessary licenses on reasonable terms,
if at all. If our competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we may have to participate in
interference proceedings declared by the Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to us,
even if the outcome is favorable to us. In addition, to the extent outside
collaborators apply technological information developed independently by them or
by others to our product development programs or apply our technologies to other
projects, disputes may arise as to the ownership of proprietary rights to these
technologies.

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IF OUR PRODUCTS ARE NOT ACCEPTED BY PHYSICIANS AND INSURERS, WE WILL NOT BE
SUCCESSFUL

     Our success is dependent on acceptance of our gene therapy products. We
cannot assure you that our products will achieve significant market acceptance
among patients, physicians or third-party payors, even if we obtain necessary
regulatory and reimbursement approvals. Failure to achieve significant market
acceptance will harm our business. We believe that recommendations by physicians
and health care payors will be essential for market acceptance of our gene
therapy products. In the past, there has been concern regarding the potential
safety and efficacy of gene therapy products derived from pathogenic viruses
such as retroviruses and adenoviruses. While our proposed gene therapy products
are derived from AAV, which is a non-pathogenic virus, we cannot be certain that
physicians and health care payors will conclude that the technology is safe.

EVEN IF WE BRING OUR PRODUCTS TO MARKET, WE MAY BE UNABLE TO EFFECTIVELY PRICE
OUR PRODUCTS OR OBTAIN ADEQUATE REIMBURSEMENT FOR SALES OF OUR PRODUCTS, WHICH
WOULD PREVENT OUR PRODUCTS FROM BECOMING PROFITABLE

     If we succeed in bringing our proposed products to the market, we cannot
assure you that these products will be considered cost-effective and that
reimbursement to the consumer will be available or will be sufficient to allow
us to sell our products on a competitive basis. In both the United States and
elsewhere, sales of medical products and treatments are dependent, in part, on
the availability of reimbursement to the consumer from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. Our business
and financial condition is affected by the efforts of government and third-party
payors to contain or reduce the cost of health care through various means. In
the United States, there have been and will continue to be a number of federal
and state proposals to implement government controls on pricing. In addition,
the emphasis on managed care in the United States has increased and will
continue to increase the pressure on the pricing of pharmaceutical products. We
cannot predict whether any legislative or regulatory proposals will be adopted
or the effect these proposals or managed care efforts may have on our business.

WE MAY BE UNABLE TO ATTRACT AND RETAIN THE QUALIFIED EMPLOYEES WE NEED TO BE
SUCCESSFUL

     We are highly dependent on members of our senior management, as well as
members of our staff that lead or play critical roles in our research and
development efforts. The loss of any of these persons, or our inability to
recruit additional personnel necessary to our business, could substantially
impair our research and development efforts and impede our ability to develop
and commercialize any of our products. Recruiting and retaining qualified
technical and managerial personnel will also be critical to our success. Our
business is located in the San Francisco Bay Area in California, where demand
for personnel with these skills is extremely high and is likely to remain high.
As a result, competition for and retention of personnel, particularly for
employees with technical expertise, is intense and the turnover rate for these
people can be high. In addition, we rely on consultants and advisors to assist
us in formulating our research and development strategy. A majority of our
scientific advisors are engaged by us on a consulting basis and are employed on
a full-time basis by employers other than us and some have consulting or other
advisory arrangements with other entities that may conflict or compete with
their obligations to us.

WE MUST SECURE ADDITIONAL FINANCING, OTHERWISE WE WILL NOT BE ABLE TO DEVELOP
OUR PRODUCTS

     We will require substantial additional funding to complete the research and
development activities currently contemplated and to commercialize our products.
If we do not obtain these funds, we will not be able to develop our products. We
anticipate that our existing capital resources as of December 31, 2001, will be
adequate to fund our needs for at least the next three years. Our future capital
requirements will depend on many factors, including:

     - continued scientific progress in research and development programs;

     - the scope and results of preclinical studies and clinical trials;

                                        24
<PAGE>

     - the time and costs involved in obtaining regulatory approvals;

     - the costs involved in filing, prosecuting and enforcing patent claims;

     - competing technological developments;

     - the cost of manufacturing scale-up;

     - the cost of commercialization activities; and

     - other factors which may not be within our control.

     We intend to seek additional funding through public or private equity or
debt financing, when market conditions allow. If we raise additional funds by
issuing equity securities, there will be further dilution to existing
stockholders. However, we cannot assure you that we will be able to enter into
financing arrangements on acceptable terms, if at all. Without additional
funding, we may be required to delay, reduce the scope of or eliminate one or
more of our research or development programs.

WE FACE THE RISK OF LIABILITY CLAIMS WHICH MAY EXCEED THE SCOPE OR AMOUNT OF OUR
INSURANCE COVERAGE

     The manufacture and sale of medical products entail significant risk of
liability claims. We currently carry liability insurance; however, we cannot
assure you that this coverage will remain in place or that this coverage will be
adequate to protect us from all liabilities which we might incur in connection
with the use of our products in clinical trials or the future use or sale of our
products upon commercialization. In addition, we may require increased liability
coverage as additional products are used in clinical trials and commercialized.
This insurance is expensive and may not be available on acceptable terms in the
future, if at all. A successful liability claim or series of claims brought
against us in excess of our insurance coverage could harm our business. We must
indemnify certain of our licensors against any liability claims brought against
them arising out of products developed by us under these licenses.

OUR USE OF HAZARDOUS MATERIALS EXPOSES US TO THE RISK OF MATERIAL ENVIRONMENTAL
LIABILITIES, AND WE MAY INCUR SUBSTANTIAL ADDITIONAL COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS IN CONNECTION WITH THE OPERATION OF OUR RESEARCH AND
MANUFACTURING FACILITIES

     Because we use radioactive materials and other hazardous substances in our
research and development and manufacturing operations, we are potentially
subject to material liabilities related to personal injuries or property damages
that may be caused by the spread of radioactive contamination or by other
hazardous substance releases or exposures at, or from, our facilities.
Decontamination costs associated with radioactivity releases, other clean-up
costs, and related damages or liabilities could be significant and could harm
our business.

     We are required to comply with increasingly stringent laws and regulations
governing environmental protection and workplace safety, including requirements
governing the handling, storage and disposal of radioactive and other hazardous
substances and wastes, and laboratory operating and safety procedures. These
laws and regulations can impose substantial fines and criminal sanctions for
violations. Maintaining in compliance with these laws and regulations with
regard to the operation of our own commercial manufacturing facility could
require substantial additional capital. These costs could decrease our ability
to conduct manufacturing operations in a cost-effective manner.

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND DELAWARE LAW MAY
NEGATIVELY AFFECT THE ABILITY OF A POTENTIAL BUYER TO PURCHASE SOME OR ALL OF
OUR STOCK AT AN OTHERWISE ADVANTAGEOUS PRICE, WHICH MAY LIMIT THE PRICE
INVESTORS ARE WILLING TO PAY FOR OUR COMMON STOCK

     Certain provisions of our charter and Delaware law may negatively affect
the ability of a potential buyer to attempt a takeover of Avigen, which may have
a negative effect on the price investors are willing to pay for our common
stock. For example, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, and privileges of those shares without any further vote or action
by the stockholders. This would enable the Board of Directors to establish a
shareholder
                                        25
<PAGE>

rights plan, commonly referred to as a "poison pill," which would have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of Avigen. In addition, our board of directors is
divided into three classes, and each year on a rotating basis the directors of
one class are elected for a three-year term. This provision could have the
effect of making it less likely that a third party would attempt to obtain
control of Avigen. Furthermore, certain other provisions of our restated
certificate of incorporation may have the effect of delaying or preventing
changes in control or management, which could adversely affect the market price
of our common stock. In addition, we are subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law.

OUR STOCK PRICE IS VOLATILE, AND AS A RESULT INVESTING IN OUR COMMON STOCK IS
VERY RISKY

     We believe that various factors may cause the market price of our common
stock to continue to fluctuate, perhaps substantially, including announcements
of:

     - technological innovations or regulatory approvals;

     - results of clinical trials;

     - new products by us or our competitors;

     - developments or disputes concerning patents or proprietary rights;

     - our failing to achieve certain developmental milestones;

     - public concern as to the safety of gene therapy, recombinant biotech or
       traditional pharmaceutical products;

     - health care or reimbursement policy changes by governments or insurance
       companies;

     - developments in relationships with corporate partners; or

     - a change in financial estimates or securities analysts' recommendations.

     In addition, in recent years the stock market in general, and the shares of
biotechnology and health care companies in particular, have experienced extreme
price fluctuations. These broad market and industry fluctuations may cause the
market price of our common stock to decline dramatically.

ITEM 2. PROPERTIES

     We lease approximately 90,500 square feet and sublease approximately 22,000
square feet in two adjacent buildings, for a total of 112,500 square feet of
manufacturing, research laboratory and office space in an established commercial
neighborhood in Alameda, California. One lease and the sublease account for
approximately 45,000 square feet, and expire in May 2003; however, we have an
extension for the combined space that runs for an additional five years and
expires in 2008. Also, in December 2000, we entered into an additional 10-year
lease for 67,500 square feet in a second building adjacent to the original
facility. The lease of this second building will expire in November 2010. We
believe that these facilities will be adequate to meet our property needs for at
least the next two years.

ITEM 3. LEGAL PROCEEDINGS

     As of February 28, 2002, we were involved in one legal proceeding. On
February 21, 2002, we filed a complaint in the United States District Court for
the Northern District of California alleging that Research Corporation
Technologies, ("RCT"), engaged in a breach of contract and breach of the implied
covenant of good faith and fair dealing as a result of RCT's failure to disclose
material information to the Patent and Trademark Office in connection with the
prosecution of U.S. Patent Application No. 07/789,917 and U.S. Patent
Application No. 07/982,193 which issued as U.S. Patent No. 6,261,834 on July 17,
2001. In May 1992, we entered into a license agreement with RCT for rights to
patent applications relating to a cell-specific promoter in AAV vectors. The
license was exclusive and worldwide. In consideration for the license, we paid
an initial license fee and issued 247,949 shares of our common stock. We believe
that RCT's actions have

                                        26
<PAGE>

made the patents and patent applications covered by the license agreement
unenforceable, and in so doing have destroyed the value of the exclusive patent
license. We are seeking financial damages and a determination by the court that
RCT's actions have rendered the patents' claims unenforceable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The Annual Meeting of Stockholders of Avigen, Inc. was held on November 16,
2001.

(b) - (e) The matters voted upon at the meeting and the voting of stockholders
with respect thereto are as follows:

     1. Dr. John Monahan was elected as Class III director of Avigen to hold
office until the 2004 Annual Meeting of Stockholders and until his successor is
elected and has qualified, or until such directors' earlier death, resignation
or removal. The voting results, with approximately 68.2% of the shares voting,
was as follows:

<Table>
<S>                                                        <C>
For......................................................  13,144,880
Withhold.................................................     472,428
Abstain..................................................         -0-
Broker nonvotes..........................................         -0-
</Table>

Class I directors, Zola Horovitz, Ph.D. and Yuichi Iwaki, M.D., Ph.D., will each
continue to serve on the Board of Directors until the 2002 Annual Meeting of
Stockholders and until his successor is elected and has qualified, or until his
earlier death, resignation or removal. Class II directors, Philip Whitcome,
Ph.D. and John K.A. Prendergast, Ph.D., will each continue to serve on the Board
of Directors until the 2003 Annual Meeting of Stockholders and until his
successor is elected and has qualified, or until his earlier death, resignation
or removal.

     2. The amendment to Avigen's 1996 Non-Employee Directors' Stock Option Plan
to increase the number of shares of common stock subject to automatic annual
grants from 7,500 shares to 10,000 shares was approved. The voting results were
as follows:

<Table>
<S>                                                        <C>
For......................................................  12,290,232
Against..................................................   1,318,567
Abstain..................................................       8,509
Broker nonvotes..........................................         -0-
</Table>

     3. The selection of Ernst & Young LLP as our Auditors for its transition
period ended December 31, 2001 was ratified. The voting results were as follows:

<Table>
<S>                                                        <C>
For......................................................  13,609,804
Against..................................................       4,995
Abstain..................................................       2,509
Broker nonvotes..........................................         -0-
</Table>

                                        27
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Shares of Avigen's common stock commenced trading on the Nasdaq National
Market on May 22, 1996, under the symbol "AVGN". As of March 8, 2002, there were
approximately 188 holders of record of our common stock.

     We have never paid cash dividends and do not anticipate paying cash
dividends in the foreseeable future.

     The following table sets forth, for fiscal periods indicated, the range of
high and low sale prices available for the fiscal years 2000 and 2001, and the
transition period ended December 31, 2001.

<Table>
<Caption>
                        FISCAL 2000                            HIGH     LOW
                        -----------                           ------   ------
<S>                                                           <C>      <C>
Quarter End 9/30/99.........................................  $13.25   $ 5.63
Quarter End 12/31/99........................................  $37.00   $12.25
Quarter End 3/31/00.........................................  $89.00   $28.00
Quarter End 6/30/00.........................................  $46.75   $25.00
</Table>

<Table>
<Caption>
                        FISCAL 2001                            HIGH     LOW
                        -----------                           ------   ------
<S>                                                           <C>      <C>
Quarter End 9/30/00.........................................  $47.88   $29.63
Quarter End 12/31/00........................................  $49.75   $19.75
Quarter End 3/31/01.........................................  $21.50   $ 9.75
Quarter End 6/30/01.........................................  $22.50   $ 9.81
</Table>

<Table>
<Caption>
         TRANSITION PERIOD ENDED DECEMBER 31, 2001             HIGH     LOW
         -----------------------------------------            ------   -----
<S>                                                           <C>      <C>
Quarter End 9/30/01.........................................  $20.13   $9.10
Quarter End 12/31/01........................................  $14.88   $8.90
</Table>

                                        28
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<Table>
<Caption>
                             SIX MONTHS ENDED                                                        OCTOBER 22, 1992
                               DECEMBER 31,                 FISCAL YEARS ENDED JUNE 30,                (INCEPTION)
                            ------------------   -------------------------------------------------   TO DECEMBER 31,
                              2001      2000       2001       2000      1999      1998      1997           2001
                            --------   -------   --------   --------   -------   -------   -------   ----------------
                                     (UNAUDITED)
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                         <C>        <C>       <C>        <C>        <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS
  DATA:
Grant and other revenue...  $      8   $    30   $    116   $     58   $   185   $   -0-   $    98       $    730
Expenses:
  Research and
    development...........    11,465     6,173     17,041      7,953     6,490     6,235     4,033         61,547
  General and
    administrative........     3,957     3,159      6,761      4,516     3,445     2,990     2,352         28,278
  In-license fees.........       -0-       -0-        -0-      5,034       -0-       -0-       -0-          5,034
                            --------   -------   --------   --------   -------   -------   -------       --------
                              15,422     9,332     23,802     17,503     9,935     9,225     6,385         94,859
                            --------   -------   --------   --------   -------   -------   -------       --------
Loss from operations......   (15,414)   (9,302)   (23,686)   (17,445)   (9,750)   (9,225)   (6,287)       (94,129)
Interest income, net......     4,112     2,822      7,727      2,419       148       365       710         14,911
Other income, net.........       (17)       (4)       (55)       (13)       (9)      (17)       (1)            75
                            --------   -------   --------   --------   -------   -------   -------       --------
Net loss..................  $(11,319)  $(6,484)  $(16,014)  $(15,039)  $(9,611)  $(8,877)  $(5,578)      $(79,143)
                            --------   -------   --------   --------   -------   -------   -------       --------
Net loss per share........  $  (0.57)  $ (0.37)  $  (0.85)  $  (1.03)  $ (0.99)  $ (1.22)  $ (0.77)
                            ========   =======   ========   ========   =======   =======   =======
</Table>

<Table>
<Caption>
                                                                                 JUNE 30,
                                            DECEMBER 31,   ----------------------------------------------------
                                                2001         2001       2000       1999       1998       1997
                                            ------------   --------   --------   --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                         <C>            <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and available for
  sale securities.........................    $148,254     $157,737   $ 77,953   $ 14,881   $  4,477   $ 13,039
Working capital...........................     147,486      158,341     76,732     13,471      4,635     11,936
Total assets..............................     168,409      174,946     85,287     16,183      5,997     14,760
Long-term obligations.....................       8,558        5,391      4,113        265      1,052      1,316
Deficit accumulated during development
  stage...................................     (79,143)     (67,823)   (51,810)   (36,771)   (27,160)   (18,283)
Stockholders' equity......................     157,350      167,182     79,013     14,323      3,583     12,341
</Table>

                                        29
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. Avigen's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause or
contribute to such a differences include, but are not limited to, those
discussed herein and in "Risk Factors" in Item 1.

OVERVIEW

     Since our inception, we have devoted substantially all of our resources to
research and development activities. We are a development stage company and have
not received any revenue from the sale of products, and we do not anticipate
generating revenue from the sale of products in the foreseeable future. We
expect our source of revenue, if any, for the next several years to consist of
government grants and payments under collaborative arrangements. We have
incurred losses since our inception and expect to incur substantial losses over
the next several years due to ongoing and planned research and development
efforts, including preclinical studies and clinical trials. There can be no
assurance that we will successfully develop, commercialize, manufacture or
market our products or ever achieve or sustain product revenues for
profitability. At December 31, 2001 we had an accumulated deficit of $79.1
million.

     In August 2001, we changed our fiscal year end from June 30 to December 31,
beginning with the six months ended December 31, 2001.

CRITICAL ACCOUNTING POLICIES

     The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
We consider certain accounting policies that involve complex judgments and
uncertainties to be critical policies.

VALUATION OF INVESTMENTS IN FINANCIAL INSTRUMENTS

     Our investment portfolio does not include equity securities or derivative
financial instruments that could subject us to material market risk, however, we
do invest in corporate obligations that are subject to credit risk. Despite the
conservative nature of our investment policy, certain investments could be
subject to write-down for impairment whenever events or changes in circumstances
indicate that the carrying amount of these investments may not be fully
recoverable. Our management reviews the securities within our portfolio for
other than temporary declines in value with our investment advisor, at a
minimum, on a semi-annual basis.

VALUATION ALLOWANCE FOR NET DEFERRED TAX ASSETS

     To date we have incurred significant tax losses that have resulted in
deferred tax assets. Due to our history of losses and the uncertainty of
generating taxable profits in the future, management has determined that a
valuation allowance should be provided against the full amount of the net
deferred tax assets. If the uncertainty regarding our ability to generate
taxable income in the future changes, a reduction in the level of the valuation
allowance may be required.

IMPAIRMENT OF PROPERTY AND EQUIPMENT

     We have invested, and plan to continue to invest, significant amounts on
construction for improvements to our manufacturing facilities in order to comply
with requirements of government mandated manufacturing rules for pharmaceutical
production. These assets could be subject to write-down for impairment in the
event that our facilities are deemed to fail to comply with these government
mandated policies and procedures, which could have a material effect on our
balance sheet and our results of operations.

                                        30
<PAGE>

RESULTS OF OPERATIONS

  Six months ended December 31, 2001 (transition period) and December 31, 2000,
  and fiscal years ended June 30, 2001, 2000, and 1999.

REVENUE

     Since our inception, our revenue has consisted primarily of grant revenue.
Total revenue for the six-months ended December 2001 and 2000 was $8,000 and
$30,000, respectively, and represented other revenue. Total revenue for the
years ended June 30, 2001, 2000, and 1999 was $116,000, $58,000 and $185,000,
respectively, and included mostly grant revenue. All grant revenue for these
years consisted of reimbursements under a grant from the National Institutes of
Health, which expired on March 31, 2001.

EXPENSES

  Research and development expenses

     Our research and development expenses totaled $11.5 million for the six
months ended December 31, 2001 and $6.2 million for the six months ended
December 31, 2000. The increase was primarily because our staff levels dedicated
to research and development activities at December 31, 2001 were 50% greater
than at December 31, 2000, and the amount of square footage of our premises
under lease doubled between December 31, 2000 and December 31, 2001. In
addition, we experienced corresponding increases in materials usage and other
operating activities.

     Our research and development expenses totaled $17.0 million for the year
ended June 30, 2001, an increase from $8.0 million for the year ended June 30,
2000, and $6.5 million for the year ended June 30, 1999. These increases
reflected similar growth in personnel, premises, and operating activities as the
comparable six-month periods described above. Also significant to the rise in
research and development expenses in fiscal 2000 versus fiscal 1999 was an
increase of over $650,000 for research fees paid to third-party collaborators in
connection with our first clinical trial and other preclinical studies that
occurred during the period. We expect research and development spending to
continue to increase over the next several years as we continue to expand our
research, product development and clinical trial efforts.

     Our research and development expenses can be divided into two primary
functions, representing costs to support research and preclinical development
and costs to support clinical development for human clinical trials. Research
and preclinical development costs include activities associated with general
research and exploration, animal studies, production of vector for use by
external collaborators in general research and exploration, and development of
processes to translate research achievements into commercial scale capabilities.
Clinical development costs include activities associated with maintaining
regulated and controlled processes, manufacturing vector for use in human
clinical trials, and supporting patient accrual and patient administration
within clinical trials. We estimate that the split in costs associated with
these two functions approximate the following (in thousands):

<Table>
<Caption>
                                SIX MONTHS ENDED   FISCAL YEAR ENDED   FISCAL YEAR ENDED   FISCAL YEAR ENDED
                                  DECEMBER 31,         JUNE 30,            JUNE 30,            JUNE 30,
                                      2001               2001                2000                1999
                                ----------------   -----------------   -----------------   -----------------
<S>                             <C>                <C>                 <C>                 <C>
Research and preclinical
  development.................      $ 6,024             $10,010             $6,112              $5,517
Clinical development..........        5,441               7,031              1,841                 974
                                    -------             -------             ------              ------
Total research and development
  expenses....................      $11,465             $17,041             $7,953              $6,490
                                    =======             =======             ======              ======
</Table>

     Because a significant percentage of our research and development resources
are dedicated to activities that focus on fundamental AAV vector characteristics
and production and administration techniques, which are considered platform
technologies that may be used in many different product applications, the
majority of our costs are not directly attributed to individual projects.
Decisions regarding our project management and resource allocation are primarily
based on interpretations of scientific data, rather than cost allocations. Our
estimates of costs between research and preclinical development and clinical
development are primarily based

                                        31
<PAGE>

on staffing roles within our research and development departments. As such,
costs allocated to specific projects may not necessarily reflect the actual
costs of those efforts, and therefore, we do not generally evaluate actual costs
incurred information on a project-by-project basis. In addition, we are unable
to estimate the future costs to completion for any specific projects.

     The annualized increase in our total research and development expenses for
the six months ended December 2001 versus the fiscal year ended June 30, 2001
reflects balanced growth in both our research and preclinical development and
clinical development activities. Between June 30, 2001 and June 30, 2000, the
increase in total research and development expenses was most significantly
impacted by the expansion of our clinical development activities, reflecting the
increased demand for clinical-grade vector production as our Coagulin-B trials
progressed, and to the growth in our research staff to diversify our projects
and enhance our production techniques. The increase in total costs between June
30, 2000 and June 30, 1999 reflects the more modest growth associated with the
very early stages of our first clinical trial.

  General and administrative expenses

     General and administrative expenses totaled $4.0 million for the six months
ended December 31, 2001 and $3.2 million for the six months ended December 31,
2000. Increases in costs between the comparable six-month periods primarily
include higher personnel costs, legal fees associated with intellectual property
activities, and other corporate expenses such as insurances and taxes. General
and administrative expenses totaled $6.8 million for the year ended June 30,
2001, up from $4.5 million for the year ended June 30, 2000, and $3.4 million
for the year ended June 30, 1999. These increases between the comparable fiscal
years also primarily reflect higher personnel costs, higher legal costs
associated with intellectual property activities, and increases in other
corporate expenses such as insurances and taxes. In general, we expect general
and administrative expenses to continue to increase as the level of our
operating activities increase, but should continue to decrease as a percentage
of total expenses as we place more emphasis on the growth of our research and
development efforts.

  In-license fees

     In the year ended June 30, 2000, we incurred in-license fees of $5.0
million in connection with new agreements to in-license certain patents that we
use in our research and development efforts. The full-year expense included cash
payments to licensors of approximately $1.8 million and a non-cash charge for
warrants issued to a licensor that were valued at approximately $3.2 million.
These expenses are primarily initiation fees, and are not predictive of initial
in-license fees to be incurred in future periods. No such in-license fees were
incurred in either the six-months ended December 31, 2001 or the comparable
period in 2000.

INTEREST INCOME

     Interest income for the six months ended December 31, 2001 was $4.3 million
compared to the comparable prior year period of $2.9 million. The rise in
interest income between the two periods was directly related to increases in our
balances of interest-earning cash and investments in available for sale
securities in connection with equity transactions between November 2000 and
December 31, 2001. These equity transactions raised approximately $108 million
during the fourteen months ended December 31, 2001, and included sales of stock
pursuant to a public offering in November 2000 and a collaborative agreement
with Bayer Corporation in February 2001, and as a result of on-going exercises
of previously issued warrants and options. Interest income for the year ended
June 30, 2001 was $7.9 million, up from $2.5 million for the year ended June 30,
2000 and $326,000 in fiscal 1999. The rise in interest income between the
comparable 2001 and 2000 fiscal years reflected the same increase in our cash
and investments balances mentioned above. The rise in interest income between
fiscal 2000 and fiscal 1999 also reflected the increase of approximately $75
million in our cash and investments balances that resulted from sales of stock
pursuant to a private placement of common stock and warrants that was completed
in November 1999, a public offering completed in April and May of 2000, and
on-going exercises of previously issued warrants and options.

                                        32
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Cash expenditures have significantly exceeded revenue since our inception.
Our operations have principally been funded through public offerings and private
placements of equity securities. Since our initial public offering in May 1996,
we have completed private placements of our common stock and warrants to
purchase our common stock, raising net proceeds of approximately $57.6 million,
and two public offerings raising net proceeds of approximately $113.7 million.
In addition, we completed a sale of common stock to Bayer Corporation pursuant
to a collaborative agreement that raised net proceeds of $15.0 million. Also,
during the period since May 1996, as a result of exercises of warrants and
options to purchase our common stock, we raised an additional $12.0 million. The
timing and size of the exercise of these warrants and options are determined by
the decisions of the respective warrant and option holders, and are not
controlled by us. Therefore, funds raised from exercises of stock options and
warrants in past periods should not be considered an indication of additional
funds to be raised in the future periods. In addition, we have attempted to
contain costs and reduce cash flow requirements by renting scientific equipment
and facilities, contracting with other parties to conduct research and
development and using consultants, where appropriate. We expect to incur
additional future expenses, resulting in significant losses, as we continue to
expand our research and development activities and undertake additional
preclinical studies and clinical trials of our gene therapy product candidates.
We also expect to incur substantial expenses relating to the filing,
prosecution, maintenance, defense and enforcement of patent and other
intellectual property claims.

     At December 31, 2001, we had cash, cash equivalents, available for sale
securities, and restricted investments, including accrued interest, of
approximately $150 million, compared to $160 million at June 30, 2001, and $79
million at June 30, 2000. Total capital resources declined between June 2001 and
December 2001, primarily owing to the funding of operations. Total cash
resources rose between June 2000 and June 2001 as a result of the previously
mentioned sale of stock to Bayer AG in February 2001, and as a result of the
November 2000 public offering of our common stock.

     The following are contractual commitments at December 31, 2001 associated
with debt obligations, lease obligations, and contractual commitments to fund
third-party research and complete construction in progress (in thousands):

<Table>
<Caption>
                                                              PAYMENTS DUE BY PERIOD
                                              -------------------------------------------------------
                                                         LESS THAN                             AFTER
           CONTRACTUAL COMMITMENT              TOTAL      1 YEAR      2-3 YEARS   4-5 YEARS   5 YEARS
           ----------------------             -------   -----------   ---------   ---------   -------
<S>                                           <C>       <C>           <C>         <C>         <C>
Revolving line of credit....................  $ 8,000     $   --       $ 8,000     $   --     $   --
Operating leases............................   19,988      2,096         4,846      5,240      7,806
Research funding for third-parties..........    1,757      1,567           190         --         --
Construction in progress funding............    3,541      3,541                       --         --
                                              -------     ------       -------     ------     ------
Total Contractual Commitments...............  $33,286     $7,204       $13,036     $5,240     $7,806
                                              =======     ======       =======     ======     ======
</Table>

     Our current office and facility includes approximately 112,500 square feet
of space. Of this, approximately 45,000 square feet of space is leased through
May 2008 and approximately 67,500 square feet of space is leased through
November 2010. Payments scheduled under these lease commitments are included in
the table above under operating leases.

     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. Payments scheduled under these
contracts are included in the table above under research funding for
third-parties.

     For the six months ended December 31, 2001, net cash used in operating
activities was $8.3 million compared to $7.4 million for the comparable period
in 2000. Excluding interest income earned on our cash, cash equivalents, and
available for sale securities in each of these periods, cash used to cover
operating expenses rose to $12.6 million for the six months ended December 31,
2001, up from $10.2 million for the same period in 2000, primarily due to the
growth in staff, premises under lease, and expansion of other operating
activities. For the year ended June 30, 2001, net cash used in operating
activities was $15.2 million,

                                        33
<PAGE>

an increase over the same amounts for the years ended June 30, 2000 and 1999 of
$11.7 million and $9.1 million, respectively. Excluding interest income earned
on our cash, cash equivalents, and available for sale securities in each of
these three years, cash used to cover operating expenses rose to $23.1 million
for the year ended June 30, 2001, up from $14.2 million and $9.4 million, for
the years ended June 30, 2000 and 1999, respectively.

     In November 2000, we refinanced a $10 million revolving line of credit that
had been put in place with Wells Fargo Bank in June 2000 to provide financial
support for construction related activities. Under the terms of the agreement,
the line of credit will expire on June 1, 2003, and bears interest at a floating
rate based on the London Inter-Bank Offered Rate, which is reset in three-month
increments after the date of each drawdown, until such expiration. Also under
the terms of the agreement, we pledged a portion of our portfolio of available
for sale securities to secure this long-term obligation. The amount of pledged
securities is equal to the amount of utilized borrowing capacity on the line of
credit and is identified as restricted investments on our balance sheets. At
December 31, 2001, we had borrowed $8 million from the line of credit and had
reserved the remaining $2 million in borrowing capacity to secure a letter of
credit in connection with the property lease entered into in November 2000. As a
result, we have no more borrowing capacity under this facility at December 31,
2001.

     We believe we will continue to require substantial additional funding in
order to complete the research and development activities currently contemplated
and to commercialize our proposed products. We anticipate that our capital
resources at December 31, 2001 will be adequate to fund our needs through at
least the next three years. However, this forward-looking statement is based
upon our current plans and assumptions, which may change. Our future operating
and capital requirements will depend on many factors, including:

     - continued scientific progress in research and development programs;

     - the scope and results of preclinical studies and clinical trials;

     - the time and costs involved in obtaining regulatory approvals.

     - the costs involved in filing, prosecuting and enforcing patents claims
       and other intellectual property rights;

     - competing technological developments;

     - the cost of manufacturing scale-up;

     - the costs of commercialization activities; and

     - other factors which may not be within our control.

We intend to continue to seek additional funding through public or private
equity or debt financing, when market conditions allow. If we raise additional
funds by issuing equity securities, there may be further dilution to existing
stockholders. We cannot assure our investors that we will be able to enter into
such financing arrangements on acceptable terms or at all. Without additional
funding, we may be required to delay, reduce the scope of, or eliminate one or
more of our research or development programs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not hold derivative financial investments, derivative commodity
investments or other financial investments or engage in foreign currency hedging
or other transactions that exposes us to material market risk. We have also
evaluated the risk associated with our Wells Capital Management investments in
securities and owing to the short-term nature of our available for sale
securities portfolio, have deemed this risk immaterial.

     If market interest rates were to increase by 100 basis points, or 1%, from
their December 31, 2001 levels, we estimate that the fair value of our
securities portfolio would decline by approximately $1.8 million. The

                                        34
<PAGE>

modeling technique used estimates the change in fair value arising from an
immediate hypothetical shift in market rates and quantifies the ending fair
market value including principal and accrued interest.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required by this item are set forth beginning at
page F-1 of this report and are incorporated herein by reference. Condensed
supplementary data for each of the quarters in transition period ended December
31, 2001, and the fiscal years ended June 30, 2001 and 2000 are set forth under
Note 12 of the financial statements and are incorporated herein by reference.
Additional supplementary data regarding the quarterly results of operations that
would have been reported had we been previously following a December 31
year-end, are set forth under Note 13 of the financial statements and are
unaudited.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     NONE.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information with respect to Directors and Executive Officers may be found
in the sections entitled "Proposal 1 -- Election of Directors,"
"Management -- Executive Officers of the Company," and "Section 16(a) Beneficial
Ownership Reporting Compliance" appearing in the definitive Proxy Statement to
be delivered to stockholders in connection with the solicitation of proxies for
Avigen's Annual Meeting of Stockholders to be held on May 20, 2002 (the "Proxy
Statement"). Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is set forth in the Proxy Statement
under the heading "Management -- Executive Compensation," which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is set forth in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is set forth in the Proxy Statement
under the heading "Certain Relationships and Related Transactions," which
information is incorporated herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Transition Report on Form
10-K:

     (1) Financial Statements:

    Report of Ernst & Young LLP, Independent Auditors
     Balance Sheets
     Statements of Operations
     Statements of Stockholders' Equity
     Statements of Cash Flows
     Notes to Financial Statements

                                        35
<PAGE>

     (2) Financial Statements schedules have been omitted from this report
because the information is provided in the Financial Statements or is not
applicable.

     (3) Exhibits

<Table>
<Caption>
   EXHIBIT
   NUMBER                                EXHIBITS
   -------                               --------
<S>            <C>
3.1(1)         Amended and Restated Certificate of Incorporation
3.1.1(13)      Certificate of Amendment of Certificate of Incorporation
3.2 (1)        Restated Bylaws of the Registrant
4.1(1)         Specimen Common Stock Certificate
10.1(7)        Nonstatutory Stock Option Outside of Plans to Philip J.
               Whitcome.
10.2(1, 2)     1993 Stock Option Plan
10.3(2, 14)    1996 Equity Incentive Plan, as amended
10.4(1, 2)     Form of Incentive Stock Option Grant for 1996 Equity
               Incentive Plan
10.5(1, 2)     Form of Nonstatutory Stock Option Grant for 1996 Equity
               Incentive Plan
10.6(2)        1996 Non-Employee Director Stock Option Plan, as amended
10.7(2, 4)     1997 Employee Stock Purchase Plan
10.8(1, 2)     Form of Indemnification Agreement between Avigen and its
               directors and executive officers.
10.9(1)        Form of Common Stock Warrant
10.10(2, 5)    2000 Equity Incentive Plan
10.11(2, 12)   Form of Nonstatutory Stock Option Grant for 2000 Equity
               Incentive Plan
10.12(1)       Form of Series C Preferred Stock Warrant
10.13(3)       Form of Common Stock and Warrant Purchase Agreement, dated
               October 29, 1999
10.14(15)      Form of Incentive Stock Option Grant for 1993 Stock Option
               Plan
10.15(15)      Form of Nonstatutory Stock Option Grant for 1993 Stock
               Option Plan
10.27(1, 2)    Employment Agreement dated August 10, 1992, between Avigen
               and John Monahan.
10.29(2, 6)    Employment Agreement dated August 14, 1996, between Avigen
               and Thomas J. Paulson.
10.32(15)      Revolving line of credit note signed November 2, 2000 with
               Wells Fargo Bank.
10.33(15)      Letter Agreement to the revolving line of credit note signed
               November 2, 2000 with Wells Fargo Bank.
10.34(15)      Form of Common Stock Warrant Issued In August/September 1998
               Private Placement.
10.35(15)      Form of Common Stock Warrant Issues In October 1998 Private
               Placement.
10.36(2, 18)   Management Transition Plan
10.37(15)      Form of Common Stock Warrant Issued in February 1999 Private
               Placement.
10.38(4, 11)   Factor IX patent and know-how exclusive license agreement
               between The Children's Hospital of Philadelphia and Avigen,
               dated May 20, 1999.
10.39(9, 11)   License Agreement between Avigen and the University of
               Florida Research Foundation, Inc., dated November 13, 1992,
               and its First Amendment, dated March 25, 1996.
10.40(10, 11)  License Agreement, dated March 3, 2000, by and between BTG
               International Ltd., a British corporation and Avigen
10.41(10)      Property Lease Agreement between ARE-1201 Harbor Bay, LLC
               and Avigen, dated February 29, 2000
10.42(10)      Property Sublease between Lucent Technologies, Inc. and
               Avigen, dated February 1, 2000
10.43(11, 13)  Agreement between Bayer Corporation and Avigen, dated
               November 17, 2000
10.44(13)      Subscription and Registration Rights Agreement by and
               between Bayer AG and Avigen, Inc., dated November 17, 2000.
10.45(13)      Office Lease Agreement between Lincoln-RECP Empire OPCO, LLC
               and Avigen, Inc., dated November 2, 2000.
10.46(13)      First Amendment to Lease Agreement between Lincoln-RECP
               Empire OPCO, LLC and Avigen, Inc., dated December 1, 2000.
</Table>

                                        36
<PAGE>

<Table>
<Caption>
   EXHIBIT
   NUMBER                                EXHIBITS
   -------                               --------
<S>            <C>
10.47(13)      Second Amendment to Lease Agreement between Lincoln-RECP
               Empire OPCO, LLC and Avigen, Inc., dated February 12, 2001.
10.48(15)      Amendment to Agreement between Bayer Corporation and Avigen,
               dated June 30, 2001.
23.1           Consent of Ernst & Young LLP, Independent Auditors
24.1           Power of Attorney (Reference to the signature page herein)
</Table>

---------------
 (1) Filed as an exhibit to the Registrant's Registration Statement on Form -1
     (No. 333-3220) and incorporated herein by reference.

 (2) Management Contract or Compensation Plan.

 (3) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     December 31, 1999, as filed with the SEC.

 (4) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     1999, as filed with the SEC.

 (5) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-42210) filed with the SEC on July 25, 2000.

 (6) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     1997, as filed with the SEC.

 (7) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-12087) filed with the SEC on September 16, 1996.

 (8) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     September 30, 1998, as filed with the SEC.

 (9) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K/A for the year ended June
     30, 1999, as filed with the SEC.

(10) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     March 31, 2000, as filed with the SEC.

(11) Portions of this exhibit have been omitted pursuant to a grant of
     confidential treatment.

(12) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     2000, as filed with the SEC on September 27, 2000.

(13) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     December 31, 2000, as filed with the SEC.

(14) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-56274) filed with the SEC on February 27, 2001.

(15) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     2001, as filed with the SEC on September 27, 2001.

(b) Reports on Form 8-K

     On October 8, 2001, Avigen filed a report on Form 8-K reporting under Item
5 announcing that the clinical trial studying the safety of Coagulin-B(TM), its
gene therapy treatment for hemophilia B, was on clinical hold.

     On December 20, 2001, Avigen filed a report on Form 8-K reporting under
Item 5 announcing that the U.S. Food and Drug Administration had given Avigen
clearance to continue human clinical testing of Coagulin-B(TM), its gene therapy
treatment for hemophilia B.

                                        37
<PAGE>

                                   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/ JOHN MONAHAN
                                            ------------------------------------
                                                    John Monahan, Ph.D.
                                             President, Chief Executive Officer
                                                         and Director

Dated: March 22, 2002

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Monahan and Philip J. Whitcome, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                      SIGNATURE                                     TITLE                            DATE
                      ---------                                     -----                            ----
<S>                                                    <C>                              <C>
                  /s/ JOHN MONAHAN                       President, Chief Executive             March 22, 2002
-----------------------------------------------------       Officer and Director
                 John Monahan, Ph.D.                    (Principal Executive Officer)

                /s/ THOMAS J. PAULSON                      Chief Financial Officer              March 22, 2002
-----------------------------------------------------     (Principal Financial and
                  Thomas J. Paulson                          Accounting Officer)

               /s/ PHILIP J. WHITCOME                       Chairman of the Board               March 22, 2002
-----------------------------------------------------
              Philip J. Whitcome, Ph.D.

                  /s/ ZOLA HOROVITZ                               Director                      March 22, 2002
-----------------------------------------------------
                Zola Horovitz, Ph.D.

                  /s/ YUICHI IWAKI                                Director                      March 22, 2002
-----------------------------------------------------
              Yuichi Iwaki, M.D., Ph.D.

              /s/ JOHN K.A. PRENDERGAST                           Director                      March 22, 2002
-----------------------------------------------------
            John K.A. Prendergast, Ph.D.

                  /s/ DANIEL VAPNEK                               Director                      March 22, 2002
-----------------------------------------------------
                Daniel Vapnek, Ph.D.
</Table>

                                        38
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-2
Balance Sheets..............................................  F-3
Statements of Operations....................................  F-4
Statements of Stockholders' Equity..........................  F-5
Statements of Cash Flows....................................  F-9
Notes to Financial Statements...............................  F-10
</Table>

                                       F-1
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Avigen, Inc.

     We have audited the accompanying balance sheets of Avigen, Inc. (a
development stage company) as of December 31, 2001, June 30, 2001, and June 30,
2000 and the related statements of operations, stockholders' equity and cash
flows for the six months ended December 31, 2001, for each of the three years in
the period ended June 30, 2001 and for the period from inception (October 22,
1992) through December 31, 2001. 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 auditing standards generally
accepted in the 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,
2001, June 30, 2001 and June 30, 2000, and the results of its operations and its
cash flows for the six months ended December 31, 2001, each of the three years
in the period ended June 30, 2001 and for the period from inception (October 22,
1992) through December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Palo Alto, California
January 31, 2002

                                       F-2
<PAGE>

                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEETS
           (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)

                                     ASSETS

<Table>
<Caption>
                                                                                 JUNE 30,
                                                           DECEMBER 31,    --------------------
                                                               2001          2001        2000
                                                           ------------    --------    --------
<S>                                                        <C>             <C>         <C>
Current assets:
  Cash and cash equivalents..............................    $ 13,211      $  6,092    $ 13,361
  Available for sale securities..........................     125,043       144,645      60,592
  Restricted investments.................................      10,000         7,000       4,000
  Accrued interest.......................................       1,335         2,401         940
  Prepaid expenses and other current assets..............         398           576          --
                                                             --------      --------    --------
          Total current assets...........................     149,987       160,714      78,893
Property and equipment, net..............................      16,813        12,488       4,025
Deposits and other assets................................       1,609         1,744       2,369
                                                             --------      --------    --------
          Total assets...................................    $168,409      $174,946    $ 85,287
                                                             ========      ========    ========

                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and other accrued liabilities.........    $  1,643      $  1,765    $  1,656
  Accrued compensation and related expenses..............         858           608         268
  Current portion of capital lease obligations...........          --            --         237
                                                             --------      --------    --------
          Total current liabilities......................       2,501         2,373       2,161
Long-term loan payable...................................       8,000         5,000       4,000
Deferred rent............................................         558           391         113
Commitments
Stockholders' equity:
  Preferred stock, $0.001 par value, 5,000,000 shares
     authorized, none issued and outstanding, in 2001 and
     2000................................................          --            --          --
  Common stock, $0.001 par value, 50,000,000 shares
     authorized at December 31, 2001 and June 30, 2001
     and 30,000,000 shares authorized at June 30, 2000,
     19,966,334, 19,945,097 and 17,000,267 shares issued
     and outstanding at December 31, 2001, June 30, 2001
     and June 30, 2000, respectively.....................          20            20          17
  Additional paid-in capital.............................     234,260       233,946     130,886
  Accumulated other comprehensive income (loss)..........       2,213         1,040         (80)
  Deficit accumulated during the development stage.......     (79,143)      (67,824)    (51,810)
                                                             --------      --------    --------
          Total stockholders' equity.....................     157,350       167,182      79,013
                                                             --------      --------    --------
          Total liabilities and stockholders' equity.....    $168,409      $174,946    $ 85,287
                                                             ========      ========    ========
</Table>

                            See accompanying notes.

                                       F-3
<PAGE>

                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS
           (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)

<Table>
<Caption>
                                                                                                 PERIOD FROM
                                                                                                 OCTOBER 22,
                                                                                                    1992
                                 SIX MONTHS ENDED                                                (INCEPTION)
                                   DECEMBER 31,                 YEAR ENDED JUNE 30,                THROUGH
                             ------------------------   -----------------------------------     DECEMBER 31,
                                2001         2000          2001         2000        1999            2001
                             ----------   -----------   ----------   ----------   ---------   -----------------
                                          (UNAUDITED)
<S>                          <C>          <C>           <C>          <C>          <C>         <C>
Grant and other revenue....  $        8   $       30    $      116   $       58   $     185       $    730
Operating expenses:
  Research and
    development............      11,465        6,173        17,041        7,953       6,490         61,547
  General and
    administrative.........       3,957        3,159         6,761        4,516       3,445         28,278
  In-license fees..........          --           --            --        5,034          --          5,034
                             ----------   ----------    ----------   ----------   ---------       --------
                                 15,422        9,332        23,802       17,503       9,935         94,859
                             ----------   ----------    ----------   ----------   ---------       --------
Loss from operations.......     (15,414)      (9,302)      (23,686)     (17,445)     (9,750)       (94,129)
Interest expense...........        (204)         (38)         (180)        (129)       (178)        (1,643)
Interest income............       4,316        2,860         7,907        2,548         326         16,554
Other (expense) income,
  net......................         (17)          (4)          (55)         (13)         (9)            75
                             ----------   ----------    ----------   ----------   ---------       --------
Net loss...................  $  (11,319)  $   (6,484)   $  (16,014)  $  (15,039)  $  (9,611)      $(79,143)
                             ==========   ==========    ==========   ==========   =========       ========
Basic and diluted net loss
  per share................  $    (0.57)  $    (0.37)   $    (0.85)  $    (1.03)  $   (0.99)
                             ==========   ==========    ==========   ==========   =========
Shares used in basic and
  diluted net loss per
  share calculation........  19,959,941   17,745,484    18,730,437   14,557,999   9,684,329
                             ==========   ==========    ==========   ==========   =========
</Table>

                            See accompanying notes.

                                       F-4
<PAGE>

                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                       STATEMENTS OF STOCKHOLDERS' EQUITY

       PERIOD FROM OCTOBER 22, 1992 (INCEPTION) THROUGH DECEMBER 31, 2001
                  (IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<Table>
<Caption>
                                                                                     CLASS B
                                                                                   CONVERTIBLE                    ACCUMULATED
                                       PREFERRED STOCK        COMMON STOCK         COMMON STOCK     ADDITIONAL       OTHER
                                     -------------------   -------------------   ----------------    PAID-IN     COMPREHENSIVE
                                       SHARES     AMOUNT     SHARES     AMOUNT   SHARES    AMOUNT    CAPITAL      GAIN (LOSS)
                                     ----------   ------   ----------   ------   -------   ------   ----------   -------------
<S>                                  <C>          <C>      <C>          <C>      <C>       <C>      <C>          <C>
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...........   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           --

<Caption>
                                       DEFICIT
                                     ACCUMULATED
                                     DURING THE        TOTAL
                                     DEVELOPMENT   STOCKHOLDERS'
                                        STAGE         EQUITY
                                     -----------   -------------
<S>                                  <C>           <C>
Balance at October 22, 1992
  (inception)......................   $     --       $     --
  Issuance of common stock at $.004
    per share in November and
    December 1992..................         --              5
  Issuance of common stock at $.554
    per share from January to June
    1993 for services rendered.....         --             11
  Issuance of common stock at $.004
    to $.222 per share from
    November 1992 to March 1993 for
    cash...........................         --             55
  Issuance of Class B common stock
    at $.004 per share in December
    1992 for cash..................         --              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)......................         --          2,596
  Issuance of Series A preferred
    stock at $3.85 per share in
    March 1993 for cancellation of
    note payable and accrued
    interest.......................         --            266
  Issuance of common stock at $.004
    per share in November 1993
    pursuant to antidilution
    rights.........................         --              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).............         --          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).....         --            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)....         --          3,345
  Issuance of Series C preferred
    stock at $4.87 per share in
    June 1995 for cancellation of
    notes payable..................         --            173
  Net loss and comprehensive loss
    from inception to June 30,
    1995...........................     (8,608)        (8,608)
                                      --------       --------
Balance at June 30, 1995...........     (8,608)           184
Issuance of Series C preferred
  stock at $4.87 per share in July
  1995 for cash (net of issuance
  costs of $26,000)................   $     --       $    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).........................         --          1,430
Issuance of Series D preferred
  stock at $7.09 per share in March
  1996 in settlement of accounts
  payable..........................         --            160
Issuance of common stock at $.004
  per share in March 1996 pursuant
  to antidilution rights...........         --              1
</Table>

                                       F-5
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                 STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<Table>
<Caption>
                                                                                     CLASS B
                                                                                   CONVERTIBLE                    ACCUMULATED
                                       PREFERRED STOCK        COMMON STOCK         COMMON STOCK     ADDITIONAL       OTHER
                                     -------------------   -------------------   ----------------    PAID-IN     COMPREHENSIVE
                                       SHARES     AMOUNT     SHARES     AMOUNT   SHARES    AMOUNT    CAPITAL      GAIN (LOSS)
                                     ----------   ------   ----------   ------   -------   ------   ----------   -------------
<S>                                  <C>          <C>      <C>          <C>      <C>       <C>      <C>          <C>
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...........          --     --      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           --

<Caption>
                                       DEFICIT
                                     ACCUMULATED
                                     DURING THE        TOTAL
                                     DEVELOPMENT   STOCKHOLDERS'
                                        STAGE         EQUITY
                                     -----------   -------------
<S>                                  <C>           <C>
Issuance of stock options in
  February 1996 in settlement of
  certain accrued liabilities......         --            137
Conversion of Class B common stock
  to common stock..................         --             --
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.........         --             (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)..........         --         17,701
Proceeds from exercise of options
  at $0.44 per share in June
  1996.............................         --              3
Repurchase of common stock.........         --             (1)
Deferred compensation..............         --            164
Amortization of deferred
  compensation.....................         --           (128)
Net loss and comprehensive loss....     (4,097)        (4,097)
                                      --------       --------
Balance at June 30, 1996...........    (12,705)        16,027
  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)..........         --          1,850
  Proceeds from exercise of options
    at $0.44 to $0.71 per share....         --              1
  Amortization of deferred
    compensation...................         --             41
  Net loss and comprehensive
    loss...........................     (5,578)        (5,578)
                                      --------       --------
Balance at June 30, 1997...........    (18,283)        12,341
  Proceeds from exercise of options
    at $0.44 to $0.71 per share....         --             10
  Amortization of deferred
    compensation...................         --             41
  Compensation expense related to
    options granted for services...         --             68
  Net loss and comprehensive
    loss...........................     (8,877)        (8,877)
                                      --------       --------
Balance at June 30, 1998...........    (27,160)         3,583
  Proceeds from exercise of options
    at $0.44 to $4.31 per share....         --            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)...................         --          2,735
  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)......................         --          5,197
</Table>

                                       F-6
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                 STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<Table>
<Caption>
                                                                                     CLASS B
                                                                                   CONVERTIBLE                    ACCUMULATED
                                       PREFERRED STOCK        COMMON STOCK         COMMON STOCK     ADDITIONAL       OTHER
                                     -------------------   -------------------   ----------------    PAID-IN     COMPREHENSIVE
                                       SHARES     AMOUNT     SHARES     AMOUNT   SHARES    AMOUNT    CAPITAL      GAIN (LOSS)
                                     ----------   ------   ----------   ------   -------   ------   ----------   -------------
<S>                                  <C>          <C>      <C>          <C>      <C>       <C>      <C>          <C>
  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...........          --     --     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...........          --     --     19,945,097     20          --     --       233,946        1,040
  Proceeds from exercise of options
    at $2.13 to $6.75 per share....          --     --         11,282     --          --     --            60           --

<Caption>
                                       DEFICIT
                                     ACCUMULATED
                                     DURING THE        TOTAL
                                     DEVELOPMENT   STOCKHOLDERS'
                                        STAGE         EQUITY
                                     -----------   -------------
<S>                                  <C>           <C>
  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).................         --         12,156
  Net loss and comprehensive
    loss...........................     (9,611)        (9,611)
                                      --------       --------
Balance at June 30, 1999...........    (36,771)        14,323
  Proceeds from exercise of options
    at $0.44 to $15.50.............         --          1,534
  Proceeds from exercise of
    warrants at $2.81 to $31.95....         --          8,428
  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)....................         --         37,222
  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).................         --         27,611
  Comprehensive loss:
    Net loss.......................    (15,039)       (15,039)
    Net unrealized loss on
      available-for-sale
      securities...................         --            (80)
                                                     --------
  Comprehensive loss...............                   (15,119)
                                      --------       --------
Balance at June 30, 2000...........    (51,810)        79,013
  Proceeds from exercise of options
    at $0.44 to $34.00 per share...         --            869
  Proceeds from exercise of
    warrants at $2.18 to $23.43....         --            772
  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)....................         --         86,086
  Issuance of common stock at
    $47.82 per share in February
    2001 pursuant to a
    collaboration agreement........         --         15,000
  Comprehensive loss:
    Net loss.......................    (16,014)       (16,014)
    Net unrealized gain on
      available-for-sale
      securities...................         --          1,120
                                                     --------
  Comprehensive loss...............                   (14,894)
                                      --------       --------
Balance at June 30, 2001...........    (67,824)       167,182
  Proceeds from exercise of options
    at $2.13 to $6.75 per share....         --             60
</Table>

                                       F-7
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                 STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<Table>
<Caption>
                                                                                     CLASS B
                                                                                   CONVERTIBLE                    ACCUMULATED
                                       PREFERRED STOCK        COMMON STOCK         COMMON STOCK     ADDITIONAL       OTHER
                                     -------------------   -------------------   ----------------    PAID-IN     COMPREHENSIVE
                                       SHARES     AMOUNT     SHARES     AMOUNT   SHARES    AMOUNT    CAPITAL      GAIN (LOSS)
                                     ----------   ------   ----------   ------   -------   ------   ----------   -------------
<S>                                  <C>          <C>      <C>          <C>      <C>       <C>      <C>          <C>
  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
                                     ==========     ==     ==========    ===     =======     ==      ========       ======

<Caption>
                                       DEFICIT
                                     ACCUMULATED
                                     DURING THE        TOTAL
                                     DEVELOPMENT   STOCKHOLDERS'
                                        STAGE         EQUITY
                                     -----------   -------------
<S>                                  <C>           <C>
  Proceeds from exercise of
    warrants $7.50 per share.......         --             75
  Compensation expense related to
    options granted for services...         --            179
  Comprehensive loss:
    Net loss.......................    (11,319)       (11,319)
    Net unrealized gain on
      available-for-sale
      securities...................         --          1,173
                                                     --------
  Comprehensive loss...............                   (10,146)
                                      --------       --------
Balance at December 31, 2001.......   $(79,143)       157,350
                                      ========       ========
</Table>

                             See accompanying notes
                                       F-8
<PAGE>

                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                                                 PERIOD FROM
                                                                                                                 OCTOBER 22,
                                                                                                                     1992
                                                        SIX MONTHS ENDED                                         (INCEPTION)
                                                          DECEMBER 31,              YEAR ENDED JUNE 30,            THROUGH
                                                     ----------------------   --------------------------------   DECEMBER 31,
                                                       2001        2000         2001        2000        1999         2001
                                                     --------   -----------   ---------   ---------   --------   ------------
                                                                (UNAUDITED)
<S>                                                  <C>        <C>           <C>         <C>         <C>        <C>
OPERATING ACTIVITIES
  Net loss.........................................  $(11,319)   $ (6,484)    $ (16,014)  $ (15,039)  $ (9,611)   $ (79,143)
Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization of fixed assets....     1,167         309         1,203         394        473        5,591
  Amortization of deferred compensation............        --          --            --           5         41          164
  Amortization of warrants issued in connection
    with the extension of the building lease.......       109         124           217          72         --          398
  Amortization of deferred rent expense............       167          --           278          --         --          445
  Common stock, warrants, and stock options issued
    for services...................................       179         209           336          89         --        1,193
  Warrants issued for patent license...............        --          --            --       3,182         --        3,182
  Changes in operating assets and liabilities:
    Accrued interest...............................     1,066      (1,104)       (1,462)       (755)        --       (1,151)
    Prepaid expenses and other current assets......       178          --          (575)         --       (185)        (582)
    Deposits and other assets......................        26          60           408        (636)        94         (343)
    Accounts payable, other accrued liabilities and
      accrued compensation and related expenses....       128        (468)          449         988         84        2,913
                                                     --------    --------     ---------   ---------   --------    ---------
Net cash used in operating activities..............    (8,299)     (7,354)      (15,160)    (11,700)    (9,104)     (67,333)
INVESTING ACTIVITIES
Purchases of property and equipment and
  construction in progress.........................    (5,492)     (4,540)       (9,666)     (3,369)      (164)     (22,107)
Purchases of available for sale securities.........   (63,817)    (67,704)     (180,757)   (150,233)   (35,263)    (468,339)
Maturities of available for sale securities........    81,592      37,051        94,825      97,497     26,524      335,511
                                                     --------    --------     ---------   ---------   --------    ---------
Net cash provided by (used in) investing
  activities.......................................    12,283     (35,193)      (95,598)    (56,105)    (8,903)    (154,935)
FINANCING ACTIVITIES
Proceeds from long-term obligations................     3,000       1,000         1,000       4,000         --       10,133
Repayment of long-term obligations.................        --          --            --          --         --       (1,710)
Proceeds from bridge financing.....................        --          --            --          --         --        1,937
Repayment of bridge financing......................        --          --            --          --         --       (2,131)
Payments on capital lease obligations..............        --        (193)         (237)       (572)      (638)      (2,154)
Proceeds from sale-leaseback of equipment..........        --          --            --          --         --        1,927
Proceeds from issuance of preferred stock, net of
  issuance costs...................................        --          --            --          --         --        9,885
Proceeds from warrants and options exercised.......       135         859         1,640       9,962        222       11,973
Proceeds from issuance of common stock, net of
  issuance costs and repurchases...................        --      86,099       101,086      64,831     20,088      205,619
                                                     --------    --------     ---------   ---------   --------    ---------
Net cash provided by financing activities..........     3,135      87,765       103,489      78,221     19,672      235,479
</Table>

<Table>
<Caption>
Net increase (decrease) in cash and cash equivalents.  $  7,119   $ 45,218   )  (7,269   $  10,416   $  1,665   $     13,211
<S>                                                    <C>        <C>        <C>         <C>         <C>        <C>
Cash and cash equivalents, beginning of period......      6,092     13,361      13,361       2,945      1,280           --
                                                       --------   --------   ---------   ---------   --------    ---------
Cash and cash equivalents, end of period............   $ 13,211   $ 58,579   $   6,092   $  13,361   $  2,945    $  13,211
                                                       ========   ========   =========   =========   ========    =========
SUPPLEMENTAL DISCLOSURE
Issuance of preferred stock for cancellation of
  accounts payable, notes payable and accrued
  interest..........................................   $     --   $     --   $      --   $      --   $     --    $     499
Issuance of stock options for repayment of certain
  accrued liabilities...............................   $     --   $     --   $      --   $      --   $     --    $     137
Issuance of warrants in connection with bridge
  financing.........................................   $     --   $     --   $      --   $      --   $     --    $     300
Issuance of warrants in connection with building
  lease.............................................   $     --   $     --   $      --   $   1,738   $     --    $   1,738
Deferred compensation related to stock option
  grants............................................   $     --   $     --   $      --   $      --   $     --    $     164
Purchase of property and equipment under capital
  lease financing...................................   $     --   $     --   $      --   $      --   $     --    $     226
Cash paid for interest..............................   $    204   $     38   $     180   $     129   $    178    $   1,150
</Table>

                            See accompanying notes.
                                       F-9
<PAGE>

                                  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. (the "Company") was incorporated on October 22, 1992 in
Delaware for the purpose of development and commercialization of gene-based
therapeutic products. The Company's activities since inception have consisted
principally of acquiring product rights, raising capital, establishing
facilities and performing research and development. Accordingly, the Company is
considered to be in the development stage. The Company operates in one industry
segment.

     The Company expects to continue to incur substantial losses over the next
several years during its development state. The Company plans to meet its
capital requirements primarily through issuances of equity securities, research
and development contract revenue, collaborative agreement revenue, and in the
longer term, revenue from product sales. The Company intends to seek additional
funding through public or private equity or debt financing, when market
conditions allow. There can be no assurance that the Company will be able to
enter into financing arrangements on acceptable terms in the future, if at all.

     In August 2001, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 2001.

  Use of Estimates

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

  Unaudited Financial Information

     The accompanying financial information for the six month period ended
December 31, 2000, and the financial information for the calendar years ended
December 31, 2001 and 2000 presented in Note 13, are unaudited, but have been
prepared on the same basis as the financial information for the six month period
ended December 31, 2001 and, in the opinion of management, includes all the
adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of this information. Operating
results for these periods are not necessarily indicative of results that may be
expected for any future periods.

  Cash, Cash Equivalents, and Available for Sale Securities

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the Company has classified its
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 other than temporary is charged to earnings, and
would result in the establishment of a new cost basis for the security. The
Company's available-for-sale securities consist principally of corporate debt
securities and federal agency obligations with a minimum short-term rating of
A1/P1 and a minimum long-term rating of A and with 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.

                                       F-10
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  Concentration of Credit Risk

     Cash, cash equivalents and available for sale securities consist of
financial instruments that potentially subject the Company to concentrations of
credit risk to the extent of the value of the assets recorded on the balance
sheet. The Company believes that it has established guidelines for investment of
its excess cash that maintain safety and liquidity through its policies on
diversification and investment maturity.

  Property and Equipment

     Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets, which range from three to seven years, using the straight-line method.

     Leasehold improvements are amortized over the remaining life of the lease
or their estimated useful lives, whichever is shorter, using the straight-line
method.

  Revenue Recognition

     Revenue consists primarily of grant revenue, which includes amounts earned
pursuant to reimbursements under government grants. To date, all reimbursements
under government grants have come from the National Institutes of Health. The
Company records revenue in the period in which the revenue is earned as defined
by the grant agreement.

  Stock-Based Compensation

     The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB 25") and related interpretations, in
accounting for its employee and director stock based compensation. The Company
issues employee stock options equal to the market price of the underlying stock
on the date of the option grant. As a result, no compensation expense is
recognized.

     For equity awards to non-employees, including lenders, lessors and
consultants, the Company applies the Black-Scholes method to determine the fair
value of such investments. The options and warrants granted to non-employees are
re-measured as they vest and the resulting value is recognized as expense over
the period of services received or the term of the related financing.

  Comprehensive Loss

     Comprehensive loss is comprised of net loss and unrealized holding gains
and losses on available-for-sale securities, in accordance with Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive loss is shown in the statement of stockholders' equity.

  Research and Development Costs

     Research and development expenses consist of costs incurred for independent
and collaborative research and development. These costs include direct costs and
research-related overhead expenses and are charged to expense as incurred.

  Income Taxes

     Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax
                                       F-11
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of enactment. To date, the Company has no history of earnings. As such,
the Company cannot anticipate taxable income as outlined in SFAS 109. Therefore,
the deferred tax asset has been fully offset by a valuation allowance.

  Basic and Diluted Net Loss Per Share

     Basic net loss per share is computed using the weighted-average number of
common shares outstanding during the year. Securities that could potentially
dilute basic earnings per share in the future, but that have been excluded from
the diluted net loss per share computation because their inclusion would have
been anti-dilutive, were as follows:

<Table>
<Caption>
                                      SIX MONTHS ENDED          YEAR ENDED JUNE 30,
                                        DECEMBER 31,     ---------------------------------
                                            2001           2001        2000        1999
                                      ----------------   ---------   ---------   ---------
<S>                                   <C>                <C>         <C>         <C>
Stock options outstanding...........     4,009,817       3,905,559   2,355,313   1,567,814
Warrants to purchase common stock...     1,423,907       1,433,862   1,613,366   2,025,369
                                         ---------       ---------   ---------   ---------
                                         5,433,724       5,339,421   3,968,679   3,593,183
                                         =========       =========   =========   =========
</Table>

  Impairment of Long-Lived Assets

     In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the Company reviews long-lived assets, including
property and equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. Under SFAS 121, an impairment loss would be recognized when
estimated un-discounted future cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount. Through
December 31, 2001, there have been no such losses.

  Reclassifications

     The Company has reclassified certain prior year amounts to conform to the
current year's presentation. The reclassifications had no impact on the
Company's financial position or results of operations.

  Recently Issued Accounting Standards

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", or "SFAS 144". SFAS 144 supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business. SFAS 144 establishes a single
accounting model for assets to be disposed of by sale whether previously held
and used or newly acquired. SFAS No. 144 retains the provision of APB No. 30 for
the presentation or discontinued operations in the income statement, but
broadens the presentation to include a component of an entity. SFAS 144 is
effective for fiscal years beginning after December 15, 2001 and the interim
periods within. The Company does not believe that the adoption of SFAS 144 will
have a material impact on its financial position of results of operations.

                                       F-12
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. AVAILABLE FOR SALE SECURITIES AND RESTRICTED INVESTMENTS

     The following is a summary of cash and available for sale securities as of
December 31, 2001 (in thousands):

<Table>
<Caption>
                                                        GROSS         GROSS
                                                      UNREALIZED    UNREALIZED      FAIR
                                            COST        GAINS         LOSSES       VALUE
                                          --------    ----------    ----------    --------
<S>                                       <C>         <C>           <C>           <C>
Cash....................................  $ 10,571      $   --         $ --       $ 10,571
Corporate debt securities...............    75,402       1,133          (39)        76,496
Federal agency obligations..............    45,732         996          (29)        46,699
Asset-backed and other securities.......    14,336         174          (22)        14,488
                                          --------      ------         ----       --------
          Total.........................  $146,041      $2,303         $(90)      $148,254
Amounts reported as Cash and cash
  equivalents...........................    13,211          --           --         13,211
                                          --------      ------         ----       --------
Available for sale securities and
  restricted investments................  $132,830      $2,303         $(90)      $135,043
                                          ========      ======         ====       ========
</Table>

     The weighted average maturity of investments held at December 31, 2001 was
450 days, with $43.7 million carrying a weighted average maturity of less than
twelve months, and $104.6 million carrying a weighted average maturity between
one and three years.

     The following is a summary of available for sale securities as of June 30,
2001 (in thousands):

<Table>
<Caption>
                                                        GROSS         GROSS
                                                      UNREALIZED    UNREALIZED      FAIR
                                            COST        GAINS         LOSSES       VALUE
                                          --------    ----------    ----------    --------
<S>                                       <C>         <C>           <C>           <C>
Cash....................................  $  2,573      $   --         $          $  2,573
Corporate debt securities...............    95,748         575          (78)        96,245
Federal agency obligations..............    50,544         470          (12)        51,002
Asset-backed and other securities.......     7,832          85           --          7,917
                                          --------      ------         ----       --------
          Total.........................  $156,697      $1,130         $(90)      $157,737
Amounts reported as Cash and cash
  equivalents...........................     6,092          --           --          6,092
                                          --------      ------         ----       --------
Available for sale securities and
  restricted investments................  $150,605      $1,130         $(90)      $151,645
                                          ========      ======         ====       ========
</Table>

     The following is a summary of available for sale securities as of June 30,
2000 (in thousands):

<Table>
<Caption>
                                                         GROSS         GROSS
                                                       UNREALIZED    UNREALIZED     FAIR
                                             COST        GAINS         LOSSES       VALUE
                                            -------    ----------    ----------    -------
<S>                                         <C>        <C>           <C>           <C>
Cash......................................  $ 1,681       $--           $ --       $ 1,681
Corporate debt securities.................   66,934        12            (93)       66,853
Federal agency obligations................    6,418         4             (1)        6,421
Asset-backed and other securities.........    3,000        --             (2)        2,998
                                            -------       ---           ----       -------
          Total...........................  $78,033       $16           $(96)      $77,953
                                            =======       ===           ====       =======
Amounts reported as Cash and cash
  equivalents.............................   13,361        --             --        13,361
                                            -------       ---           ----       -------
Available for sale securities and
  restricted investments..................  $64,672       $16           $(96)      $64,592
                                            =======       ===           ====       =======
</Table>

                                       F-13
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Net realized gains were approximately $650,000 for the six months ended
December 31, 2001 and were not material for the years ended June 30, 2001, 2000,
and 1999.

3. PROPERTY AND EQUIPMENT

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

<Table>
<Caption>
                                                                          JUNE 30,
                                                     DECEMBER 31,    ------------------
                                                         2001         2001       2000
                                                     ------------    -------    -------
<S>                                                  <C>             <C>        <C>
Leasehold improvements.............................    $ 9,428       $ 9,391    $ 1,613
Laboratory equipment...............................      5,675         4,713      1,771
Furniture and fixtures.............................      1,702         1,627        618
                                                       -------       -------    -------
                                                        16,805        15,731      4,002
Less accumulated depreciation and amortization.....     (5,056)       (3,960)    (2,934)
                                                       -------       -------    -------
                                                        11,749        11,771      1,068
Construction in progress...........................      5,063           717      2,957
                                                       -------       -------    -------
Property and equipment, net........................    $16,813       $12,488    $ 4,025
                                                       =======       =======    =======
</Table>

     As of June 30, 2001, the Company had made all payments due under prior
capital lease obligations, and no longer had any outstanding capital lease
commitments. As a result, property and equipment at December 31, 2001 and June
30, 2001 did not include any amounts subject to capital leases; however at June
30, 2000, approximately $2,209,000 was under capital lease obligations with
related accumulated amortization of $1,973,000.

     In the normal course of business, the Company enters into contracts for the
construction and improvement of its research and manufacturing facilities. While
these contracts are cancelable, the Company expects the work described in such
contracts to be completed and all amounts paid when due. At December 31, 2001,
the estimated costs to complete all construction projects in progress was $3.5
million, all of which is expected to be paid within the next twelve months.

4. LOAN PAYABLE

     The Company has a financing arrangement for construction related
activities. Under this arrangement, the Company had the right to borrow up to
$10 million through June 1, 2003. Amounts borrowed under this arrangement bear
interest at the London Inter-Bank Offered Rate plus 1.5% on the date of each
drawdown and this interest rate is subsequently reset every three months. The
weighted average interest rate for all outstanding drawdowns on this long-term
obligation was 3.5% at December 31, 2001. The Company has pledged a portion of
its portfolio of available for sale securities equal to the amount of utilized
borrowing capacity to secure this long-term obligation, and has identified these
pledged assets as restricted investments on its balance sheets. As of December
31, 2001, June 30, 2001 and June 30, 2000, the Company had drawn $8 million, $5
million, and $4 million, respectively, from the line of credit. Payments of
interest only are due monthly through June 1, 2003, at which time a balloon
payment of outstanding principal is due. In November 2000, the Company reserved
the remaining borrowing capacity from the line of credit to secure a $2 million
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, the Company no longer had
any remaining borrowing capacity under the line of credit at December 31, 2001.

                                       F-14
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. STOCKHOLDERS' EQUITY

  Common Stock

     In August and September 1998, the Company issued an aggregate of 1,306,505
shares of its 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, the Company issued warrants to purchase 261,301 shares of its
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 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 $2,969,000, net
proceeds from this transaction approximated $2,735,000.

     In December 1998, the Company issued 1,367,280 shares of 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, the Company
issued warrants to purchase 273,456 shares of its 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 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 $5,635,000, net proceeds from this transaction
approximated $5,197,000.

     In February and April 1999, the Company issued an aggregate of 2,198,210
shares of 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, the Company issued warrants to purchase 439,642 shares of its
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 $13,189,000, net
proceeds from this transaction approximated $12,156,000.

     In October and November 1999, the Company issued an aggregate of 2,033,895
shares of its 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, the Company issued warrants to purchase 406,779
shares of its 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 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 $40,028,000, net
proceeds from this transaction approximated $37,222,000.

     In March 2000, the Company issued a warrant to purchase 40,000 shares of
its common stock as partial consideration for the extension of the Company's
building lease. The fair value of this warrant at the date of issuance was
approximately $1,738,000. This fair value is being amortized over the life of
the lease extension. This warrant was issued with an exercise price equal to the
fair market value per share of the underlying stock at the time of issuance,
$56.00, and carries a five-year term.

     Also, in March 2000, the Company issued a warrant to purchase 50,000 shares
of its common stock as partial consideration for the acquisition of certain
patent licenses used in its research and development activities. The fair value
of this warrant was approximately $3,182,000 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 the underlying stock at the time of issuance,
$82.00, and carries a five-year term.

     In April and May 2000, the Company issued an aggregate of 1,150,000 shares
of its common stock at $26 per share through a public offering. After deducting
commissions and fees from the gross proceeds of $29,900,000, net proceeds from
this transaction totaled $27,611,000.

                                       F-15
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     In November 2000, the Company issued an aggregate of 2,291,239 shares of
its 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
$90,706,000, net proceeds from this transaction totaled $86,086,000.

     In February 2001, the Company 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 $15,000,000.

     At December 31, 2001, the Company had outstanding warrants to purchase
shares of common stock as follows:

<Table>
<Caption>
 NUMBER                                   EXPIRATION
OF SHARES  EXERCISE PRICE    ISSUE DATE      DATE
---------  ---------------   ----------   -----------
<S>        <C>               <C>          <C>
   13,324       $5.36           1995         2005
    4,514       $7.09           1995         2005
  101,754   $2.47 - $3.67       1998         2003
  209,903   $4.19 - $6.09       1998         2003
  583,379   $6.05 - $7.50       1999         2004
  244,932  $17.81 - $20.63      1999         2004
  157,540  $23.43 - $27.96      1999         2004
   18,561  $28.12 - $31.95      1999         2004
   40,000      $56.00           2000         2005
   50,000      $82.00           2000         2005
---------
1,423,907  $2.47 - $82.00                 2003 - 2005
=========
</Table>

  Shares Reserved for Future Issuance

     The Company has reserved shares of common stock for future issuance as
follows:

<Table>
<Caption>
                                                              DECEMBER 31,
                                                                  2001
                                                              ------------
<S>                                                           <C>
Stock options outstanding...................................   4,009,817
Stock options available for grant...........................   3,740,621
Warrants to purchase common stock...........................   1,423,907
Shares available for Employee Stock Purchase Plan...........     360,000
                                                               ---------
                                                               9,534,345
                                                               =========
</Table>

6. STOCK OPTIONS AND STOCK PURCHASE PLAN

  Employee Stock Option Plans

     Under the 1993 Stock Option Plan (the "1993 Plan"), prior to March 1996,
incentive and nonqualified stock options could be granted to key employees,
directors and consultants of the Company to purchase up to 1,500,000 shares of
common stock. Under the 1993 Plan, options could be granted at a price per share
not less than the fair market value at the date of grant. In March 1996, the
Board determined to grant no further options under the 1993 Plan and adopted the
1996 Equity Incentive Plan. At December 31, 2001, there were options to purchase
approximately 36,000 shares outstanding under the 1993 Plan, with no further
shares available for grant.

     The 1996 Equity Incentive Plan ("1996 Plan") provides for grants of
incentive and nonqualified stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees, directors

                                       F-16
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and consultants of the Company. The Plan originally authorized the grant of
options to purchase up to 600,000 shares of common stock. As a result of a
series of amendments which were approved by stockholders, as of December 31,
2001, there were 2,500,000 shares available for grant under the 1996 Plan. Under
the 1996 Plan, incentive stock options may be granted at a price per share not
less than the fair market value at the date of grant, and nonqualified stock
options may be granted at a price per share not less than 85% of the fair market
value at the date of grant. Options granted generally have a maximum term of 10
years from the grant date and become exercisable over four years. At December
31, 2001, there were options to purchase approximately 1,605,000 shares
outstanding under the 1996 Plan and approximately 314,000 shares available for
grant.

     In June 2000, the Board of Directors adopted the 2000 Equity Incentive Plan
("2000 Plan") which provides for grants of nonqualified stock options,
restricted stock purchase awards, and stock bonuses to employees, directors and
consultants of the Company to purchase up to 5,000,000 shares of common stock;
provided, however, that generally only up to 40% of the shares subject to grants
under the 2000 Plan may be made to directors and officers. Under the 2000 Plan,
options may be granted at a price per share not less than 85% of the fair market
value at the date of grant. Options granted generally have a maximum term of 10
years from the grant date and become exercisable over four years. At December
31, 2001, there were options to purchase approximately 1,714,000 shares
outstanding under the 2000 Plan and approximately 3,286,000 shares available for
grant.

Employee Stock Purchase Plan

     In September 1997, the Company adopted the 1997 Employee Stock Purchase
Plan ("Purchase Plan"). A total of 360,000 shares of common stock have been
reserved for issuance under the Purchase Plan. As of December 31, 2001, there
have been no employee contributions to the Purchase Plan.

  Non-employee Stock Options

     In July 1995, the Company granted a member of its Board of Directors an
option to purchase 515,248 shares of common stock at $0.49 per share,
exercisable for 10 years from the date of grant. The shares vested in equal
monthly installments over a period of three years beginning with the grant date.
At June 30, 2001, the option was fully vested; however, no part of this option
had been exercised. Such grant was made outside of any of the Company's stock
option plans.

     The 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
provides for automatic grants of options to purchase shares of common stock to
non-employee directors of the Company. The Plan originally authorized the grant
of options to purchase up to 200,000 shares of common stock. The Directors' Plan
was later amended and approved by stockholders to increase the number of shares
available for grant to 300,000. As of December 31, 2001, nonqualified options to
purchase 160,000 shares of common stock between $2.00 - $40.75 per share,
exercisable for 10 years from the date of grant, have been granted under the
Directors' Plan, of which options to purchase 140,000 shares remained
outstanding. At December 31, 2001, there were approximately 140,000 shares
available for grant under the Directors' Plan.

                                       F-17
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                          OUTSTANDING OPTIONS
                                                      ---------------------------
                                                                     WEIGHTED-
                                                                      AVERAGE
                                                      NUMBER OF    EXERCISE PRICE
                                                       SHARES        PER SHARE
                                                      ---------    --------------
<S>                                                   <C>          <C>
Outstanding at July 1, 1998.........................  1,554,413        $ 2.05
  Granted...........................................    761,751          4.87
  Canceled..........................................   (278,419)         3.32
  Exercised.........................................   (181,045)         1.22
                                                      ---------
Outstanding at June 30, 1999........................  1,856,700          3.10
  Granted...........................................    980,344         32.04
  Canceled..........................................    (42,693)         4.16
  Exercised.........................................   (439,038)         3.49
                                                      ---------
Outstanding at June 30, 2000........................  2,355,313         15.05
  Granted...........................................  1,774,076         20.27
  Canceled..........................................    (58,130)        23.54
  Exercised.........................................   (165,700)         5.25
                                                      ---------
Outstanding at June 30, 2001........................  3,905,559         17.71
  Granted...........................................    175,950         12.00
  Canceled..........................................    (60,410)        16.71
  Exercised.........................................    (11,282)         5.32
                                                      ---------
Outstanding at December 31, 2001....................  4,009,817         17.51
                                                      =========
</Table>

     The following table summarizes information with regard to total stock
options outstanding under all stock option plans at December 31, 2001:

<Table>
<Caption>
                            OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                    -----------------------------------   ---------------------
                                 WEIGHTED-
                                  AVERAGE     WEIGHTED-               WEIGHTED-
                                 REMAINING     AVERAGE                 AVERAGE
RANGE OF EXERCISE    NUMBER     CONTRACTUAL   EXERCISE     NUMBER     EXERCISE
     PRICES         OF SHARES      LIFE         PRICE     OF SHARES     PRICE
-----------------   ---------   -----------   ---------   ---------   ---------
<S>                 <C>         <C>           <C>         <C>         <C>
$ 0.44 - $  .49..     525,406      3.56        $ 0.49       525,406    $ 0.49
  0.71 -   3.63..     277,745      5.79          2.77       249,583      2.77
  4.00 -   6.00..     320,637      7.10          5.48       204,690      5.47
  6.31 -  10.10..     170,495      8.53          8.06        33,006      6.81
 10.23 -  14.12..      81,057      9.20         12.35        14,164     12.40
 14.31 -  17.50..   1,303,242      9.17         14.72       115,413     15.00
 17.60 -  20.38..      84,875      9.16         18.86        13,654     18.94
 21.41 -  28.00..      97,750      8.48         25.55        42,013     25.22
 29.00 -  29.00..     257,735      8.38         29.00        79,943     29.00
 30.14 -  38.19..     714,875      8.54         37.33       232,619     37.04
$38.88 -  56.00..     176,000      8.49         43.33        59,298     43.68
                    ---------                             ---------
                    4,009,817      7.80         17.51     1,569,789     12.13
                    =========                             =========
</Table>

     The numbers of options exercisable at June 30, 2001, 2000 and 1999 were
1,217,656, 875,787, and 998,720 respectively, with a weighted average exercise
price of $9.25, $2.31, and $1.77 respectively.

                                       F-18
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by SFAS 123. For
purposes of pro forma disclosures, the estimated fair value of employee stock
options is amortized to expense over the vesting period of the options. The
Company uses the Black-Scholes option-pricing model to calculate the fair value
of these options with the following assumptions:

<Table>
<Caption>
                                              SIX MONTHS
                                                ENDED             YEAR ENDED JUNE 30,
                                             DECEMBER 31,      --------------------------
                                                 2001           2001      2000      1999
                                           ----------------    ------    ------    ------
<S>                                        <C>                 <C>       <C>       <C>
Expected volatility......................       2.2492         2.3453    2.5884    2.9242
Risk free interest rate..................         4.50%          5.50%     6.50%     5.00%
Expected life of options in years........            5              5         5         5
Expected dividend yield..................           --             --        --        --
</Table>

     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
require the input of highly subjective assumptions including the expected stock
price volatility. The Company's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate. In
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The pro forma
net loss and pro forma basic and diluted net loss per common share using the
assumptions noted above are as follows:

<Table>
<Caption>
                                        SIX MONTHS ENDED
                                          DECEMBER 31,                  YEAR ENDED JUNE 30,
                                     -----------------------    -----------------------------------
                                       2001         2000          2001        2000         1999
                                     --------    -----------    --------    --------    -----------
                                                 (UNAUDITED)
<S>                                  <C>         <C>            <C>         <C>         <C>
Net loss -- as reported............  $(11,319)    $ (6,484)     $(16,014)   $(15,039)    $ (9,611)
Net loss -- pro forma..............   (15,360)     (10,807)      (24,479)    (17,245)     (10,374)
Net loss per share basic and
  diluted -- as reported...........     (0.57)       (0.37)        (0.85)      (1.03)       (0.99)
Net loss per share basic and
  diluted -- pro forma.............     (0.77)       (0.61)        (1.31)      (1.18)       (1.07)
</Table>

7. EMPLOYEE PROFIT SHARING/401(K) PLAN

     In January 1996, the Company adopted a Tax Deferred Savings Plan under
Section 401(k) of the Internal Revenue Code (the "Plan") for all full-time
employees. Eligible employees can contribute amounts to the Plan via payroll
withholding, subject to certain limitations. The Company's contributions to the
Plan are discretionary. Effective July 1, 2001, the Company 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. Company matching contributions for all employees for the six
months ended December 31, 2001 were approximately $65,000.

8. COLLABORATION AGREEMENT

     In November 2000, the Company entered into a collaboration agreement with
Bayer Corporation (Bayer). Under the terms of the agreement, Bayer, in
collaboration with the Company, will conduct Phase II/III clinical trials for
the Company's product, Coagulin-B(TM), and receive exclusive worldwide marketing
and distribution rights to the product. The Company will file and bear the cost
of regulatory approvals and will be the holder of regulatory licenses worldwide.
The Company will manufacture the product and will receive a

                                       F-19
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

share of the gross revenues from future Coagulin-B(TM) sales, as well as a
royalty on net sales of the product for its intellectual property. Bayer will
make milestone payments, pay for third-party costs of the clinical trials, and
reimburse costs of manufacturing AAV vector used in the clinical trials. As at
December 31, 2001 no revenue has been recognized under this agreement.

     In connection with this collaboration agreement, in February 2001, the
Company issued to Bayer AG, an affiliate of Bayer, 313,636 shares of common
stock at $47.82 per share, resulting in proceeds of $15 million.

9. RELATED PARTY TRANSACTIONS

     During the year ended June 30, 1999, the Company paid an entity managed by
a Board member $173,000 related to commissions and fund raising services
provided by the entity in relation to one of the Company's private placements.

10. COMMITMENTS

     The Company leases its laboratory, manufacturing, and office facilities
under multiple non-cancelable operating lease agreements, which expire at
various times through November 2010. Under one of these operating leases, the
Company has pledged $2 million of its available for sale securities to secure a
letter of credit required under the terms of the lease. This amount is included
in restricted investments on the balance sheet at December 31, 2001 and June 30,
2001.

     Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):

<Table>
<Caption>
                                                             OPERATING
                                                               LEASE
                                                             ---------
<S>                                                          <C>
Year ending June 30:
  2002.....................................................   $ 2,096
  2003.....................................................     2,343
  2004.....................................................     2,503
  2005.....................................................     2,586
  2006.....................................................     2,654
  Thereafter...............................................     7,806
                                                              -------
          Total non-cancelable lease payments..............   $19,988
                                                              =======
</Table>

     Rent expense for the six months ended December 31, 2001 and the years ended
June 30, 2001 and 2000 was $1,147,462, $1,923,000, and $551,000, respectively.

     The Company also enters into commitments to fund collaborative research and
clinical work performed by third parties. While these contracts are cancelable,
the Company expects 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, 2001, the estimated costs related to these commitments totaled $1.8
million, all of which is expected to be paid within the next twelve to eighteen
months.

LEGAL PROCEEDINGS

     The Company is subject to legal proceedings, claims, and litigation arising
in the ordinary course of business. While the outcome of these matters is
currently not determinable, management does not expect that the ultimate costs
to resolve these matters will have a material adverse effect on the Company's
financial position, results of operations, or cashflows.

                                       F-20
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES

     Significant components of the Company's deferred tax assets are as follows
(in thousands):

<Table>
<Caption>
                                                                 JUNE 30,
                                           DECEMBER 31,    --------------------
                                               2001          2001        2000
                                           ------------    --------    --------
<S>                                        <C>             <C>         <C>
Net operating loss carryforward..........    $ 27,500      $ 23,800    $ 16,552
Research and development credit
  carryforwards..........................       3,800         3,280       1,743
Capitalized research and development.....       3,700         2,380       1,887
Capitalized patents......................       1,700         1,780       1,947
Other....................................         400           860         691
                                             --------      --------    --------
Gross deferred tax assets................      37,100        32,100      22,820
Unrealized gain on investment............        (800)         (420)         --
Valuation allowance......................      36,300       (31,680)    (22,820)
                                             --------      --------    --------
Net deferred tax assets..................    $     --      $     --    $     --
                                             ========      ========    ========
</Table>

     Due to the Company's history of losses, a valuation allowance has been
provided against the full amount of deferred tax assets. The valuation allowance
increased by $4,620,000, $8,860,000, and $7,379,000 for the six months ended
December 31, 2001 and the years ended June 30, 2001 and 2000, respectively.

     Deferred tax assets related to carryforwards at December 31, 2001 include
approximately $1,300,000 associated with stock option activity for which any
subsequently recognized tax benefits will be credited directly to stockholders'
equity.

     At December 31, 2001, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $79,000,000 and
$14,000,000, respectively, which expire in fiscal years ended December 31, 2002
through December 31, 2021. At December 31, 2001, the Company has research and
development credit carryforwards for federal tax purposes of approximately
$2,600,000, which expire in fiscal years ended December 31, 2009 through
December 31, 2021.

     Because of the "change in ownership" provisions of the Internal Revenue
Code of 1986, utilization of the Company's tax net operating loss carryforwards
and tax credit carryforwards may be subject to an annual limitation in future
periods. As a result of the annual limitation, a portion of these carryforwards
may expire before ultimately becoming available to reduce future income tax
liabilities.

12. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<Table>
<Caption>
                                                               SIX MONTHS ENDED
                                                              DECEMBER 31, 2001
                                                              ------------------
                                                               FIRST     SECOND
                                                              QUARTER    QUARTER
                                                              -------    -------
<S>                                                           <C>        <C>
Total revenue...............................................  $    --    $     8
Net loss....................................................   (5,392)    (5,927)
Net loss per share basic and diluted........................    (0.27)     (0.30)
</Table>

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30, 2001
                                                      ----------------------------------------
                                                       FIRST     SECOND      THIRD     FOURTH
                                                      QUARTER    QUARTER    QUARTER    QUARTER
                                                      -------    -------    -------    -------
<S>                                                   <C>        <C>        <C>        <C>
Total revenue.......................................  $    30    $    --    $    --    $    86
Net loss............................................   (3,052)    (3,432)    (4,896)    (4,634)
Net loss per share basic and diluted................    (0.18)     (0.19)     (0.25)     (0.23)
</Table>

                                       F-21
<PAGE>
                                  AVIGEN, INC.
                         (A DEVELOPMENT STAGE COMPANY)

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30, 2000
                                                      ----------------------------------------
                                                       FIRST     SECOND      THIRD     FOURTH
                                                      QUARTER    QUARTER    QUARTER    QUARTER
                                                      -------    -------    -------    -------
<S>                                                   <C>        <C>        <C>        <C>
Total revenue.......................................  $    --    $    39    $    19    $    --
Net loss............................................   (2,367)    (2,482)    (7,178)    (3,012)
Net loss per share, basic and diluted...............    (0.18)     (0.18)     (0.51)     (0.20)
</Table>

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     In August 2001, the Company changed its fiscal year end from June 30 to
December 31. The following unaudited quarterly information is presented for
informational purposes only:

<Table>
<Caption>
                                             12 MONTHS ENDED DECEMBER 31, 2001
                                          ----------------------------------------    CALENDAR
                                           FIRST     SECOND      THIRD     FOURTH       YEAR
                                          QUARTER    QUARTER    QUARTER    QUARTER      2001
                                          -------    -------    -------    -------    --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Grant and other revenue.................  $    --    $    86    $    --    $     8    $     94
Operating expenses:
  Research and development..............    5,826      5,042      5,385      6,080      22,333
  General and administrative............    1,653      1,949      1,923      2,034       7,559
                                          -------    -------    -------    -------    --------
                                            7,479      6,991      7,308      8,114      29,892
                                          -------    -------    -------    -------    --------
Loss from operations....................   (7,479)    (6,905)    (7,308)    (8,106)    (29,798)
Interest expense........................      (71)       (72)       (75)      (129)       (347)
Interest income.........................    2,684      2,364      2,000      2,316       9,364
Other (expense) income, net.............      (30)       (21)        (9)        (8)        (68)
                                          -------    -------    -------    -------    --------
Net loss................................  $(4,896)   $(4,634)   $(5,392)   $(5,927)   $(20,849)
                                          =======    =======    =======    =======    ========
</Table>

<Table>
<Caption>
                                             12 MONTHS ENDED DECEMBER 31, 2000
                                          ----------------------------------------    CALENDAR
                                           FIRST     SECOND      THIRD     FOURTH       YEAR
                                          QUARTER    QUARTER    QUARTER    QUARTER      2000
                                          -------    -------    -------    -------    --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Grant and other revenue.................  $    19    $    --    $    30    $    --    $     49
Operating expenses:
  Research and development..............    1,900      2,695      2,825      3,345      10,765
  General and administrative............    1,113      1,376      1,468      1,693       5,650
  In-license fees.......................    5,034         --         --         --       5,034
                                          -------    -------    -------    -------    --------
                                            8,047      4,071      4,293      5,038      21,449
                                          -------    -------    -------    -------    --------
Loss from operations....................   (8,028)    (4,071)    (4,263)    (5,038)    (21,400)
Interest expense........................      (15)       (59)       (35)        (3)       (112)
Interest income.........................      870      1,121      1,249      1,611       4,851
Other (expense) income, net.............       (4)        (3)        (3)        (2)        (12)
                                          -------    -------    -------    -------    --------
Net loss................................  $(7,177)   $(3,012)   $(3,052)   $(3,432)   $(16,673)
                                          =======    =======    =======    =======    ========
</Table>

                                       F-22
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
  EXHIBIT
   NUMBER                               EXHIBITS
  -------                               --------
<C>           <S>
 3.1(1)       Amended and Restated Certificate of Incorporation
 3.1.1(13)    Certificate of Amendment of Certificate of Incorporation
 3.2(1)       Restated Bylaws of the Registrant
 4.1(1)       Specimen Common Stock Certificate
10.1(7)       Nonstatutory Stock Option Outside of Plans to Philip J.
              Whitcome.
10.2(1,2)     1993 Stock Option Plan
10.3(2,14)    1996 Equity Incentive Plan, as amended
10.4(1,2)     Form of Incentive Stock Option Grant for 1996 Equity
              Incentive Plan
10.5(1,2)     Form of Nonstatutory Stock Option Grant for 1996 Equity
              Incentive Plan
10.6(2)       1996 Non-Employee Director Stock Option Plan, as amended
10.7(2,4)     1997 Employee Stock Purchase Plan
10.8(1,2)     Form of Indemnification Agreement between Avigen and its
              directors and executive officers.
10.9(1)       Form of Common Stock Warrant
10.10(2,5)    2000 Equity Incentive Plan
10.11(2,12)   Form of Nonstatutory Stock Option Grant for 2000 Equity
              Incentive Plan
10.12(1)      Form of Series C Preferred Stock Warrant
10.13(3)      Form of Common Stock and Warrant Purchase Agreement, dated
              October 29, 1999
10.14(15)     Form of Incentive Stock Option Grant for 1993 Stock Option
              Plan
10.15(15)     Form of Nonstatutory Stock Option Grant for 1993 Stock
              Option Plan
10.27(1,2)    Employment Agreement dated August 10, 1992, between Avigen
              and John Monahan.
10.29(2,6)    Employment Agreement dated August 14, 1996, between Avigen
              and Thomas J. Paulson.
10.32(15)     Revolving line of credit note signed November 2, 2000 with
              Wells Fargo Bank.
10.33(15)     Letter Agreement to the revolving line of credit note signed
              November 2, 2000 with Wells Fargo Bank.
10.34(15)     Form of Common Stock Warrant Issued In August/September 1998
              Private Placement.
10.35(15)     Form of Common Stock Warrant Issues In October 1998 Private
              Placement.
10.36(2,8)    Management Transition Plan
10.37(15)     Form of Common Stock Warrant Issued in February 1999 Private
              Placement.
10.38(4,11)   Factor IX patent and know-how exclusive license agreement
              between The Children's Hospital of Philadelphia and Avigen,
              dated May 20, 1999.
10.39(9,11)   License Agreement between Avigen and the University of
              Florida Research Foundation, Inc., dated November 13, 1992,
              and its First Amendment, dated March 25, 1996.
10.40(10,11)  License Agreement, dated March 3, 2000, by and between BTG
              International Ltd., a British corporation and Avigen
10.41(10)     Property Lease Agreement between ARE-1201 Harbor Bay, LLC
              and Avigen, dated February 29, 2000
10.42(10)     Property Sublease between Lucent Technologies, Inc. and
              Avigen, dated February 1, 2000
10.43(11,13)  Agreement between Bayer Corporation and Avigen, dated
              November 17, 2000
10.44(13)     Subscription and Registration Rights Agreement by and
              between Bayer AG and Avigen, Inc., dated November 17, 2000.
10.45(13)     Office Lease Agreement between Lincoln-RECP Empire OPCO, LLC
              and Avigen, Inc., dated November 2, 2000.
10.46(13)     First Amendment to Lease Agreement between Lincoln-RECP
              Empire OPCO, LLC and Avigen, Inc., dated December 1, 2000.
10.47(13)     Second Amendment to Lease Agreement between Lincoln-RECP
              Empire OPCO, LLC and Avigen, Inc., dated February 12, 2001.
</Table>

                                       F-23
<PAGE>

<Table>
<Caption>
  EXHIBIT
   NUMBER                               EXHIBITS
  -------                               --------
<C>           <S>
10.48(15)     Amendment to Agreement between Bayer Corporation and Avigen,
              dated June 30, 2001.
23.1          Consent of Ernst & Young LLP, Independent Auditors
24.1          Power of Attorney (Reference to the signature page herein)
</Table>

---------------
 (1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
     (No. 333-3220) and incorporated herein by reference.

 (2) Management Contract or Compensation Plan.

 (3) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     December 31, 1999, as filed with the SEC.

 (4) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     1999, as filed with the SEC.

 (5) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-42210) filed with the SEC on July 25, 2000.

 (6) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     1997, as filed with the SEC.

 (7) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-12087) filed with the SEC on September 16, 1996.

 (8) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     September 30, 1998, as filed with the SEC.

 (9) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K/A for the year ended June
     30, 1999, as filed with the SEC.

(10) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     March 31, 2000, as filed with the SEC.

(11) Portions of this exhibit have been omitted pursuant to a grant of
     confidential treatment.

(12) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     2000, as filed with the SEC on September 27, 2000.

(13) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Quarterly Report on Form 10-Q for the quarter ended
     December 31, 2000, as filed with the SEC.

(14) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Registration Statement on Form S-8 (Registration No.
     333-56274) filed with the SEC on February 27, 2001.

(15) Incorporated by reference from such document filed with the SEC as an
     exhibit to Avigen's Annual Report on Form 10-K for the year ended June 30,
     2001, as filed with the SEC on September 27, 2001.

                                       F-24