1036968--5/31/2007--VAXGEN

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We do not have current financial statements, and therefore you are not able to evaluate our current financial condition or operating history and results. We are not currently listed on a national exchange, including the Nasdaq National Market or Nasdaq SmallCap Market, and cannot assure you we will ever be listed. We are not compliant with Section 404 under the Sarbanes-Oxley Act of 2002. We are currently ineligible to register securities with the SEC, and we may never regain compliance. Our internal controls may be insufficient to ensure timely and reliable financial information. We will need to raise additional capital, and any inability to raise required funds could harm our business. Our operating results may be adversely impacted by recently adopted changes in accounting for stock options. If we fail to meet our obligations under the convertible notes, our payment obligations may be accelerated. Our indebtedness could adversely affect our financial health, limit our cash flow available to invest in the ongoing requirements of our business and adversely affect the price of our common stock. We may fail to meet the requirements, as stated in our contract, for acceptance of our anthrax vaccine into the SNS of the U.S. government, which could cause us to suffer losses and the contract to be terminated. The government s determination to award future contracts to us may be challenged by an interested party, such as another bidder, at the General Accounting Office or in federal court. The U.S. Congress may instigate an inquiry into the award of the SNS Contract to us which could adversely impact our business. The award of the SNS Contract does not mean there will be any future contracts awarded. If the U.S. government fails to continue funding our anthrax vaccine candidate development efforts or fails to purchase sufficient quantities of any future biodefense vaccine candidate, we may be unable to generate sufficient revenues to continue operations. We may encounter difficulties managing the change and growth of our operations, which could adversely affect our business. U.S. government agencies have special contracting requirements, which create additional risks. Our fixed price and cost plus contracts may commit us to unfavorable terms. We license our vaccine candidates from third parties. If we fail to perform our obligations under these license agreements, we could lose our ability to develop and commercialize our vaccine candidates. Our license agreement with Kaketsuken for our smallpox vaccine candidate may restrict our ability to develop and commercialize other smallpox vaccine products. Our suppliers may fail to provide, or may be delayed in providing, us with the necessary materials to produce our vaccine candidates. Our subcontractors may fail to perform, or may be delayed in performing, certain tasks related to our ability to provide our vaccine candidates to the government under our contracts. We have only a limited operating history and we expect to continue to generate losses. Vaccine development is a long, expensive and uncertain process and the approval requirements for vaccines used to fight bioterrorism are still evolving. If we are unable to successfully develop and test our vaccine candidates in accordance with these requirements, our business will suffer. Delays in successfully completing our clinical trials could jeopardize our ability to obtain regulatory approval or market our vaccine candidates on a timely basis. The independent clinical investigators that we rely upon to conduct our clinical trials may not be diligent, careful or timely, and may make mistakes in the conduct of our clinical trials. If we fail to comply with extensive regulations enforced by domestic and foreign regulatory authorities both before and after we obtain approval of our vaccine candidates, the commercialization of our product candidates could be prevented, delayed or suspended. We and our subcontractors are subject to ongoing regulatory review and periodic inspection and approval of manufacturing procedures and operations, including compliance with cGMP regulations. Our product development efforts may not yield marketable products due to results of studies or trials, failure to achieve regulatory approvals or market acceptance, proprietary rights of others or manufacturing issues. Political or social factors may delay or impair our ability to market our vaccine products. We may fail to protect our intellectual property or may infringe on the intellectual property rights of others, either of which could harm our business. Our Korean manufacturing joint venture may not be successful. We face competition from several companies with greater financial, personnel and research and development resources than ours. Natural disasters, including earthquakes, may damage our facilities. If we fail to manage successfully any company or product acquisitions, joint ventures or in-licensed product candidates, we may be limited in our ability to develop our product candidates and to continue to expand our product candidate pipeline. Our use of hazardous materials and chemicals require us to comply with regulatory requirements and exposes us to potential liabilities. We may become subject to product liability claims, which could reduce demand for our product candidates or result in damages that exceed our insurance coverage. Legislation limiting or restricting liability for medical products used to fight bioterrorism is new, and we cannot be certain that any such protections will apply to our vaccines or products. We may be subject to claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers. Failure to hire and retain key management employees could adversely affect our ability to obtain financing, develop our products, conduct clinical trials or execute our business strategy. Our stockholders could experience substantial dilution as result of the issuance of additional shares of common or preferred stock. Shares of our common stock eligible for future sale may adversely affect the market for our common stock. Our stock price is likely to be volatile. We could experience equipment, raw material, manufacturing, quality control or other production problems, especially in periods of increasing volume. Failure of any portion of our infrastructure at our California manufacturing facility could have a material adverse effect on our business. We have no history of paying dividends on our common stock. Our charter documents and Delaware law may discourage an acquisition of VaxGen. Fluctuations in foreign exchange rates may adversely affect our financial position and results of operations. On an ongoing basis, we are required to have current GAAP financial information from Celltrion and until we receive this information, we may not be able to evaluate our financial condition or operating results on a timely basis. If we fail to cause a registration statement to be declared effective in accordance with the timetable set forth in the Notes, or in accordance with agreements we have made in connection with private placements of our common stock, we will be subject to liquidated damages or liability for breach of contract.

Full 10-K form ▸

1036968--5/31/2007--VAXGEN_INC