SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 6, 2004
VAXGEN, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 0-26483 94-3236309
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of organization) incorporation or
Identification Number)
1000 MARINA BLVD., SUITE 200 BRISBANE, CALIFORNIA 94005
(Address of Principal Administrative Offices)
Registrants Telephone Number, Including Area Code: (650) 624-1000
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Item 4. Changes in Registrant's Certifying Accountant.
The Audit Committee of the Board of Directors ("the Audit Committee") of
VaxGen, Inc., a Delaware corporation (the "Company"), regularly reviews the
performance of and its relationship with the independent auditors of the
Company. As part of that review process, the Audit Committee considered KPMG LLP
("KPMG") and two other independent accounting firms to serve as the Company's
independent auditors in 2004. At the conclusion of that process, the Audit
Committee dismissed KPMG as its independent auditors effective as of April 6,
2004 and approved the selection of PricewaterhouseCoopers LLP ("PWC") as the
Company's independent auditors for the year ending December 31, 2004.
In connection with audits of the two fiscal years ended December 31, 2003,
and the subsequent interim period through April 5, 2004, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which, if not
resolved to their satisfaction, would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
The audit report of KPMG on the financial statements of the Company as of
and for the years ended December 31, 2002 and 2001, dated February 7, 2003,
included in the Form 10-K filed with the SEC on March 31, 2003, did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope, or accounting principles, except as follows:
KPMG's report on the financial statements of the Company as of and for the
years ended December 31, 2002 and 2001, contained a separate paragraph stating
that "the Company has suffered recurring losses from operations and has a net
capital deficiency, which raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty."
The audit report of KPMG on the consolidated financial statements of the
Company as of and for the years ended December 31, 2003 and 2002 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope, or accounting principles.
In connection with the completion of its audit of, and the issuance of an
unqualified report on, the Company's consolidated financial statements for the
fiscal years ended December 31, 2003 and 2002, KPMG identified deficiencies that
existed in the design or operation of the Company's internal controls that it
considered to be material weaknesses in the effectiveness of the Company's
internal controls pursuant to standards established by the American Institute of
Certified Public Accountants. A "material weakness" is a reportable condition in
which the design or operation of one or more of the specific internal control
components does not reduce to a relatively low level the risk that errors or
fraud in amounts that would be material in relation to the consolidated
financial statements being audited may occur and not be detected within a timely
period by employees in the normal course of performing their assigned functions.
KPMG advised the Audit Committee of the Company's Board of Directors of the
following material weaknesses:
o Inappropriate revenue recognition for government contracts;
o Account reconciliations not performed on a timely basis or at
all;
o Inadequate segregation of duties;
o Insufficient controls over recording of journal entries; and
o Lack of adequate depth of accounting knowledge.
KPMG discussed the areas of weakness described above with the Audit
Committee. The Audit Committee is taking an active role in responding to the
deficiencies identified by KPMG, including overseeing management's
implementation of the remedial measures described below with the goal of
identifying and rectifying past accounting errors and preventing the
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situations that resulted in the need to restate prior period financial
statements from recurring. To this end, the management of the Company is working
with the Audit Committee to identify and implement corrective actions where
required to improve the effectiveness of the Company's internal controls,
including the enhancement of systems and procedures. The Company has implemented
the following measures:
o Hired an interim Chief Financial Officer, effective March
2004;
o Hired key additional accounting staff; including two
individuals hired in November 2003 and two individuals in
March 2004;
o Initiated a comprehensive review of financial controls and
procedures to address the issues identified by KPMG and to
bring the Company into compliance with the requirements of the
Sarbanes-Oxley Act with respect to internal controls and
procedures; and
o Engaged the services of an independent internal controls
consultant to document, test and develop current and expanded
internal controls and procedures.
Management and the Audit Committee believe that the measures noted above
will address the conditions identified by KPMG as material weaknesses. The
Company and the Audit Committee plan to continue to monitor the effectiveness of
The Company's internal controls and procedures on an ongoing basis and will take
further action, as appropriate.
The Company has not consulted with PWC during the fiscal years ended
December 31, 2003 and 2002, or during the subsequent interim period from January
1, 2004 through and including April 6, 2004, on either the application of
accounting principles to a specific transaction, either completed or proposed,
the type of audit opinion that might be rendered on the Company's consolidated
financial statements, or any of the reportable conditions described above.
The Company has provided a copy of the foregoing disclosure to KPMG and
has requested KPMG to furnish a letter addressed to the Securities and Exchange
Commission stating whether KPMG agrees with the statements made above by the
Company. A copy of the letter from KPMG dated April 6, 2004 is filed as Exhibit
16.1 to this report and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired. Not applicable.
(b) Pro forma financial information. Not applicable.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
16.1 Letter, dated as of April 6, 2004, from KPMG LLP, the
Registrant's former accountants, to the Securities and
Exchange Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VaxGen, Inc.
(Registrant)
Dated: April 9, 2004
By: /s/ Lance K. Gordon
-----------------------------
Lance K. Gordon
President and Chief Executive Officer
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