Filed pursuant to Rule 424(b)(3)
 Registration No. 333-272815
PROSPECTUS SUPPLEMENT NO. 1
(to Prospectus dated October 11, 2023)
[MISSING IMAGE: lg_cytodyn-4c.jpg]
Up to 205,652,848 Shares of Common Stock
This prospectus supplement updates, amends and supplements the prospectus dated October 11, 2023, relating to our Registration Statement on Form S-1 (Registration No. 333-272815) (as supplemented or amended from time to time, the “Prospectus”). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.
This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on October 23, 2023 (the “2024 First Quarter 10-Q”), which is set forth below.
This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference. The Prospectus, together with this prospectus supplement, relates to the resale of up to 74,903,789 shares of our common stock, par value $0.001 per share (the “common stock”), and 130,749,059 shares of our common stock underlying certain warrants (collectively, the “Shares”), by the selling stockholders identified in the Prospectus under “Selling Stockholders”.
Our common stock is quoted on the OTCQB of OTC Markets Group, Inc. under the symbol “CYDY.” On October 20, 2023, the closing price of our common stock was $0.16 per share.
Investing in our securities involves risk. You should carefully consider the risks that we have described under the section captioned “Risk Factors” in the Prospectus on page 8 and in Part II, Item 1A of the 2024 First Quarter 10-Q before buying our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is October 23, 2023.

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q


QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1933

For the transition period from                  to                 

Commission File Number: 000-49908


CYTODYN INC.

(Exact name of registrant as specified in its charter)


Delaware

83-1887078

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer or

Identification No.)

 

 

1111 Main Street, Suite 660

Vancouver, Washington

98660

(Address of principal executive offices)

(Zip Code)

(360) 980-8524

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class 

    

Trading
Symbol(s)

    

Name of Each Exchange
on Which Registered

None

None

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

 

 

 

 

Non-accelerated Filer

Smaller Reporting Company

 

 

 

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

On September 30, 2023, there were 931,151,762 shares outstanding of the registrant’s $0.001 par value common stock.


Table of Contents

TABLE OF CONTENTS

PAGE

PART I Financial Information

3

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

30

ITEM 4. CONTROLS AND PROCEDURES

30

PART II Other Information

31

ITEM 1. LEGAL PROCEEDINGS

31

ITEM 1A. RISK FACTORS

31

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

31

ITEM 6. EXHIBITS

33

2


Table of Contents

PART I. Financial Information

Item 1. Consolidated Financial Statements

CytoDyn Inc.

Consolidated Balance Sheets

(Unaudited, in thousands, except par value)

August 31, 2023

    

May 31, 2023

Assets

 

Current assets:

 

 

  

Cash

$

2,034

$

2,541

Restricted cash

 

6,538

 

6,507

Prepaid expenses

 

2,858

 

1,167

Prepaid service fees

 

538

 

590

Total current assets

 

11,968

 

10,805

Other non-current assets

 

443

 

487

Total assets

$

12,411

$

11,292

Liabilities and Stockholders’ Deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

62,773

$

62,725

Accrued liabilities and compensation

 

8,777

 

6,669

Accrued interest on convertible notes

 

11,772

 

10,598

Accrued dividends on convertible preferred stock

 

5,681

 

5,308

Convertible notes payable, net

 

33,100

 

34,417

Derivative liability - equity instruments

4,375

79

Private placement of shares and warrants

 

2,575

 

Total current liabilities

 

129,053

 

119,796

Notes payable, net

714

Operating leases

 

247

 

283

Total liabilities

 

129,300

 

120,793

Commitments and Contingencies (Note 8)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

Preferred stock, $0.001 par value; 5,000 shares authorized:

 

  

 

  

Series B convertible preferred stock, $0.001 par value; 400 authorized; 19 issued and outstanding at August 31, 2023 and May 31, 2023

 

 

Series C convertible preferred stock, $0.001 par value; 8 authorized; 6 issued and outstanding at August 31, 2023 and May 31, 2023

 

 

Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at August 31, 2023 and May 31, 2023

 

 

Common stock, $0.001 par value; 1,350,000 shares authorized; 931,400 and 919,053 issued, and 930,957 and 918,610 outstanding at August 31, 2023 and May 31, 2023, respectively

 

931

 

919

Treasury stock, $0.001 par value; 443 shares at August 31, 2023 and May 31, 2023

Additional paid-in capital

 

735,441

 

731,270

Accumulated deficit

 

(853,261)

 

(841,690)

Total stockholders’ deficit

 

(116,889)

 

(109,501)

Total liabilities and stockholders' deficit

$

12,411

$

11,292

See accompanying notes to consolidated financial statements.

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Table of Contents

CytoDyn Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

Three months ended August 31,

    

2023

    

2022

Operating expenses:

 

  

 

  

General and administrative

$

2,688

$

6,333

Research and development

 

1,914

 

576

Amortization and depreciation

 

10

 

99

Inventory charge

2,704

Total operating expenses

 

4,612

 

9,712

Operating loss

 

(4,612)

 

(9,712)

Interest and other expenses:

Interest on convertible notes

 

(1,197)

 

(1,146)

Amortization of discount on convertible notes

(400)

(576)

Amortization of debt issuance costs

 

(366)

 

(16)

Loss on induced conversion

 

(2,004)

Finance charges

 

(912)

 

(940)

Loss on note extinguishment

 

(2,084)

 

Gain (loss) on derivatives

4

(8,601)

Total interest and other expenses

 

(6,959)

 

(11,279)

Loss before income taxes

 

(11,571)

 

(20,991)

Income tax benefit

 

 

Net loss

$

(11,571)

$

(20,991)

Basic and diluted:

Weighted average common shares outstanding

923,587

787,856

Loss per share

$

(0.01)

$

(0.03)

See accompanying notes to consolidated financial statements.

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Table of Contents

CytoDyn Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

(Unaudited, in thousands)

Preferred stock

Common stock

Treasury stock

    

Additional

    

Accumulated

    

Total stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

paid-in capital

deficit

deficit

Balance at May 31, 2023

34

$

919,053

$

919

443

$

$

731,270

$

(841,690)

$

(109,501)

Issuance of stock for convertible note repayment

8,661

8

 

1,492

 

 

1,500

Loss on induced conversion

 

2,004

 

 

2,004

Warrants issued in note offering

 

170

 

 

170

Stock issued for compensation

686

1

 

154

 

 

155

Warrant exercises

3,000

3

 

297

 

 

300

Dividends accrued on Series C and D convertible preferred stock

 

(373)

 

 

(373)

Reclassification of warrants from liability to equity classified

79

79

Stock-based compensation

 

348

 

 

348

Net loss

 

 

(11,571)

 

(11,571)

Balance at August 31, 2023

34

$

931,400

$

931

443

$

$

735,441

$

(853,261)

$

(116,889)

Preferred stock

Common stock

Treasury stock

    

Additional

    

Accumulated

    

Total stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

paid-in capital 

deficit

deficit

Balance at May 31, 2022 

35

$

720,028

$

720

443

$

$

671,013

$

(766,131)

$

(94,398)

Stock issued for compensation

879

1

 

344

 

 

345

Stock issued for private offerings

85,378

85

 

17,459

 

 

17,544

Issuance costs related to stock issued for private offerings

 

(6,289)

 

 

(6,289)

Conversion of Series C convertible preferred stock to common stock

(1)

1,136

1

 

(1)

 

 

Warrant exercises

657

1

 

263

 

 

264

Deemed dividend paid in common stock due to down round provision, recorded in additional paid-in capital

4,620

5

 

(5)

 

 

Accrued preferred stock dividends

 

(384)

 

 

(384)

Reclassification of warrants from liability to equity classified

8,601

8,601

Stock-based compensation

 

996

 

 

996

Reclassification of prior period preferred stock dividends

(4,265)

4,265

Net loss

 

 

(20,991)

 

(20,991)

Balance at August 31, 2022

34

$

812,698

$

813

443

$

$

687,732

$

(782,857)

$

(94,312)

See accompanying notes to consolidated financial statements.

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Table of Contents

CytoDyn Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Three months ended August 31,

    

2023

    

2022

Cash flows from operating activities:

 

  

 

Net loss

$

(11,571)

$

(20,991)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Amortization and depreciation

 

10

 

99

Amortization of debt issuance costs

 

366

 

16

Amortization of discount on convertible notes

 

400

 

576

(Gain) loss on derivatives

(4)

8,601

Loss on induced conversion

2,004

Loss on note extinguishment

 

2,084

 

Inventory charge

2,704

Stock-based compensation

 

503

 

1,341

Changes in operating assets and liabilities:

 

 

  

(Increase) decrease in prepaid expenses and other assets

(1,605)

(1,601)

(Decrease) increase in accounts payable and accrued expenses

 

3,318

 

(1,819)

Net cash used in operating activities

 

(4,495)

 

(11,074)

Cash flows from investing activities:

 

  

 

  

Net cash used in investing activities

 

 

Cash flows from financing activities:

 

  

 

  

Proceeds from sale of common stock and warrants, net of issuance costs

 

2,575

 

11,255

Proceeds from warrant exercises

 

300

 

264

Proceeds from convertible note and warrant issuances, net of issuance costs

1,144

Net cash provided by financing activities

 

4,019

 

11,519

Net change in cash and restricted cash

 

(476)

 

445

Cash and restricted cash at beginning of period

 

9,048

 

4,231

Cash and restricted cash at end of period

$

8,572

$

4,676

Cash and restricted cash consisted of the following:

Cash

$

2,034

$

4,676

Restricted cash

6,538

Total cash and restricted cash

$

8,572

$

4,676

Supplemental disclosure:

Cash paid for interest

$

24

$

Non-cash investing and financing transactions:

 

  

 

  

Derivative liability associated with warrants

$

83

$

8,601

Issuance of common stock for principal of convertible notes

$

1,500

$

Accrued dividends on Series C and D convertible preferred stock

$

373

$

384

Warrants issued to placement agent

$

413

$

4,491

Deemed dividend on common stock issued due to down round provision, recorded in additional paid-in capital

$

$

4,154

Note conversion to common stock and warrants

$

2,295

$

See accompanying notes to consolidated financial statements.

6


Table of Contents

CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AUGUST 31, 2023

(Unaudited)

Note 1. Organization

CytoDyn Inc. (together with its wholly owned subsidiaries, the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002, under the name RexRay Corporation and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a clinical-stage biotechnology company focused on the clinical development of innovative treatments for multiple therapeutic indications based on its product candidate, leronlimab, a novel humanized monoclonal antibody targeting the C-C chemokine receptor type 5 (“CCR5”).

The Company has been investigating leronlimab as a viral entry inhibitor for treatment of human immunodeficiency virus (“HIV”), believed to competitively bind to the N-terminus and second extracellular loop of the CCR5 receptor. For immunology, the CCR5 receptor is believed to be implicated in immune-mediated illnesses such as Metabolic dysfunction-associated steatohepatitis (“MASH”), replacement for the term nonalcoholic steatohepatitis. Leronlimab is being studied in MASH, MASH-HIV, solid tumors in oncology, and other HIV indications where CCR5 is believed to play an integral role.

Note 2. Summary of Significant Accounting Policies

Basis of presentation

The unaudited interim consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiary, CytoDyn Operations Inc. All intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) have been omitted in accordance with the rules and regulations of the SEC. The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (the “2023 Form 10-K”). The results of operations for the periods presented are not necessarily indicative of results to be expected for the entire fiscal year or for any other future annual or interim period.

Reclassifications

Certain prior year and prior quarter amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation. Such reclassifications did not have a material effect on the Company’s previously reported financial position, results of operations, stockholders’ deficit, or net cash provided by operating activities.

Going concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of approximately $11.6 million for the three months ended August 31, 2023, and has an accumulated deficit of approximately $853.3 million as of August 31, 2023. These factors, among several others, including the various legal matters discussed in Note 8, Commitments and Contingencies – Legal Proceedings, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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Table of Contents

The Company’s continuance as a going concern is dependent upon its ability to obtain additional operating capital, complete the development of its product candidate, leronlimab, obtain approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve revenues and attain profitability. The Company plans to continue to engage in research and development activities related to leronlimab for multiple indications and expects to incur significant research and development expenses in the future, primarily related to its regulatory compliance, including seeking the lifting of the U.S Food and Drug Administration’s (the “FDA”) clinical hold with regard to the Company’s HIV program, performing additional clinical trials in various indications, and seeking regulatory approval for its product candidate for commercialization. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs primarily from the sale of equity and debt securities, combined with additional funding from other sources. However, there can be no assurance that the Company will be successful in these endeavors.

Use of estimates

The preparation of the consolidated financial statements in accordance with accounting principles GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are assessed each period and updated to reflect current information, such as the status of our analysis of the results of our clinical trials and/or discussions with the FDA which could have an impact on the Company’s significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Significant estimates include, but are not limited to, those relating to capitalization of pre-launch inventories, charges for excess and obsolete inventories, research and development expenses, commitments and contingencies, stock-based compensation, and the assumptions used to value warrants and warrant modifications. Actual results could differ from these estimates.

Restricted cash

As of August 31, 2023, the Company had recorded approximately $6.5 million of restricted cash. The restricted cash is related to cash held as collateral in connection with a surety bond that was posted as required in the Amarex litigation and will remain as restricted cash until the litigation is resolved.

Recent Accounting Pronouncements

In July 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-03“Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”). This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Bulletin ("SAB") number 120. ASU 2023-03 does not provide any new guidance and is immediately effective. ASU 2023-03 did not have a material impact on the consolidated financial statements.

Note 3. Accounts Payable and Accrued Liabilities and Compensation

As of August 31, 2023 and May 31, 2023, the accounts payable balance was approximately $62.8 million and $62.7 million, respectively, with two vendors accounting for 72% and 72% of the total balance of accounts payable at the respective dates.

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Table of Contents

The components of accrued liabilities and compensation are as follows (in thousands):

August 31, 2023

May 31, 2023

Compensation and related expense

$

349

$

335

Legal fees and settlement

239

168

Clinical expense

1,084

187

Accrued inventory charges and expenses

 

5,866

 

4,978

License fees

1,096

862

Lease payable

140

139

Other liabilities

3

Total accrued liabilities

$

8,777

$

6,669

Note 4. Convertible Instruments and Accrued Interest

Convertible preferred stock

The following table presents the number of potentially issuable shares of common stock should shares of preferred stock and amounts of undeclared and accrued preferred dividends be converted to common stock.

August 31, 2023

May 31, 2023

(in thousands except conversion rate)

    

Series B

    

Series C

    

Series D

    

Series B

    

Series C

    

Series D

Shares of preferred stock outstanding

19

6

9

19

6

9

Common stock conversion rate

10:1

2,000:1

1,250:1

10:1

2,000:1

1,250:1

Total shares of common stock if converted

190

12,670

10,565

190

12,670

10,565

Undeclared dividends

$

16

$

-

$

-

$

15

$

-

$

-

Accrued dividends

$

-

$

2,660

$

3,021

$

-

$

2,500

$

2,808

Total shares of common stock if dividends converted

32

5,320

6,042

30

5,000

5,616

Under the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), dividends on its outstanding shares of Series B Convertible Preferred Stock (the “Series B preferred stock”) may be paid in cash or shares of the Company’s common stock at the option of the Company. Dividends on outstanding shares of Series C Convertible Preferred Stock (the “Series C preferred stock”) and Series D Convertible Preferred Stock (the “Series D preferred stock”) are payable in cash or shares of common stock at the election of the holder. The preferred stockholders have the right to dividends only when and if declared by the Company’s Board of Directors. Under Section 170 of the Delaware General Corporation Law, the Company is permitted to pay dividends only out of capital surplus or, if none, out of net profits for the fiscal year in which the dividend is declared or net profits from the preceding fiscal year.

Series B preferred stock provides for a liquidation preference over the common shares of $5.00 per share, plus any accrued and unpaid dividends. In the event of liquidation, holders of Series C and Series D preferred stock will be entitled to receive, on a pari passu basis, and in preference of any payment or distribution to holders of the Series B preferred stock and common stock, an amount per share equal to $1,000 per share plus any accrued and unpaid dividends.

Convertible notes and accrued interest

Key terms of the outstanding convertible notes are as follows:

August 31, 2023

    

April 2, 2021 Note

    

April 23, 2021 Note

Interest rate per annum

10

%

10

%

Conversion price per share upon five trading days' notice

$

10.00

$

10.00

Party that controls the conversion rights

Investor

Investor

Maturity date

April 5, 2025

April 23, 2025

Security interest

All Company assets excluding intellectual property

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In addition to standard anti-dilution adjustments, the conversion price of the April 2, 2021 Note and April 23, 2021 Note is subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective price per share in any new offering by the Company of equity securities that have registration rights, are registered, or become registered under the Securities Act of 1933, as amended (the “Securities Act”). The April 2, 2021 Note and April 23, 2021 Note provide for liquidated damages upon failure to deliver common stock within specified timeframes and require the Company to maintain a share reservation of 6.0 million shares of common stock for each Note.

August 31, 2023

May 31, 2023

(in thousands)

    

April 2, 2021 Note

    

April 23, 2021 Note

    

Total

    

April 2, 2021 Note

    

April 23, 2021 Note

Placement Agent Notes

Total

Convertible notes payable outstanding principal

$

4,581

$

29,369

$

33,950

$

6,081

$

29,369

$

1,000

$

36,450

Less: Unamortized debt discount and issuance costs

(137)

(713)

(850)

(211)

(822)

(286)

(1,319)

Convertible notes payable, net

4,444

28,656

33,100

5,870

28,547

714

35,131

Accrued interest on convertible notes

4,048

7,724

11,772

3,804

6,789

5

10,598

Outstanding convertible notes payable, net and accrued interest

$

8,492

$

36,380

$

44,872

$

9,674

$

35,336

$

719

$

45,729

Reconciliation of changes to the outstanding balance of convertible notes, including accrued interest, were as follows:

(in thousands)

April 2, 2021 Note

April 23, 2021 Note

Placement Agent Notes

Total

Outstanding balance at May 31, 2023

$

9,674

$

35,336

$

719

$

45,729

Consideration received

-

-

975

975

Amortization of issuance discount and costs

74

109

583

766

Interest expense

244

935

18

1,197

Fair market value of shares and warrants exchanged for repayment

(2,004)

-

(4,379)

(6,383)

Difference between market value of
common shares and reduction of principal

504

-

2,084

2,588

Outstanding balance at August 31, 2023

$

8,492

$

36,380

$

-

$

44,872

During the three months ended August 31, 2023, in satisfaction of redemptions, the Company and the April 2, 2021 Noteholder entered into three exchange agreements, pursuant to which the April 2, 2021 Note was partitioned into new notes (the “Partitioned Notes”) with an aggregate principal amount of $1.5 million, which was exchanged concurrently with the issuance of approximately 8.7 million shares of common stock. The outstanding balance of the April 2, 2021 Note was reduced by the Partitioned Notes to a principal amount of $4.6 million. The Company accounted for the Partitioned Notes and exchange settlement as an induced conversion, and, accordingly, recorded a non-cash loss on convertible debt induced conversion of $2.0 million for the three months ended August 31, 2023.

As of September 30, 2023, the holders of the April 2 and April 23 Notes waived all provisions in the notes that, based on the occurrence of various events through that date, could have triggered the imposition of a default interest rate, a downward adjustment of the conversion price, or specified other provisions relating to default, breach or imposition of a penalty. Accordingly, the Company was not in default under the notes on September 30, 2023.

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Placement Agent Notes

During the period April through June 2023, the Company entered into securities purchase agreements pursuant to which the Company issued secured promissory notes bearing interest at a rate of 6% and with an 18-month term to accredited investors through a placement agent (“Placement Agent Notes”) for a total principal amount of $2.3 million. Of these, the Company issued notes in the aggregate principal amount of $1.3 million in June 2023. The Placement Agent Notes were secured by the net cash recovery, if any, by the Company in its dispute with Amarex and provided the investors with a right to convert the unpaid principal and accrued but unpaid interest into shares of common stock upon the occurrence of an event of default. The Placement Agent Notes had maturity dates in the fiscal year ending May 31, 2025. The Company also issued warrants to purchase 1.3 million shares of common stock with a three-year term and an exercise price of $0.50 per share as part of the sale in June. The net proceeds in June 2023 from the sale of the Placement Agent Notes of $1.1 million reflect issuance costs of approximately $0.2 million. The Company also issued warrants to purchase 0.4 million shares of common stock to the placement agent with a ten-year term and an exercise price of $0.26 per share, which the Company accounted for as additional issuance costs. The Company allocated the proceeds between the liability-classified Placement Agent Notes and the equity-classified warrants based on their relative fair values.

During June 2023, an amendment was entered into with the investors of the Placement Agent Notes, which stated that the principal amount and accrued but unpaid interest on the notes would be converted into shares of common stock and warrants as of the first closing of a subsequent private placement of common stock and warrants through a placement agent. The deemed purchase price of a unit of one share plus one warrant is equal to 90% of the lower intraday volume weighted average price on the date of the first closing and last closing of the offering, while the exercise price of the warrants was set at $0.306 per share, compared to $0.50 per share in the offering.

In July 2023, the first close of the subsequent private placement of common stock and warrants through a placement agent occurred. Therefore, the Placement Agent Notes were converted to units that will match the unit pricing in the offering as described in Note 5, Equity Awards and Warrants – Private placement of common stock and warrants through placement agent. The $2.1 million difference in fair value between the shares and warrants and the note was accounted as a loss on note extinguishment. See Note 5, Equity Awards and Warrants – Liability-classified equity instruments for additional information.

Please refer to Note 6, Convertible Instruments and Accrued Interest, in the Company’s 2023 Form 10-K for additional information.

Note 5. Equity Awards and Warrants

Liability-classified equity instruments

During April and May 2023, the Company sold Placement Agent Notes through a placement agent. See Note 4, Convertible Instruments and Accrued Interest – Placement Agent Notes. The Company agreed to issue warrants to the placement agent as part of the issuance costs with an exercise price that was not determined until the final closing date. As the exercise price of the warrants was to be fixed based on the final terms of the offering, the Company accounted for the warrants as a liability classified warrant beginning on the initial closing date until the final closing date. The value of the warrants at May 31, 2023, was recorded as a derivative liability on the balance sheet, and the change in the fair value of the warrants is recorded as a gain or loss on derivatives. On June 23, 2023, the final closing of the Placement Agent Notes occurred, and the fair value of the warrants became equity classified.

On July 31, 2023, the Placement Agent Notes were converted into units that had similar terms to the units sold in the private placement of shares and warrants through a placement agent. As the unit price is not determined until the final close date of the offering, the units related to the conversion of the Placement Agent Notes are held as a liability and at fair value until the unit price is ultimately determined.

In accordance with the prescribed accounting guidance, the Company measured fair value of liability classified equity instruments using fair value hierarchy which include:

Level 1. Quoted prices in active markets for identical assets or liabilities.

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Level 2.

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.

Level 3.

Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. These Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that the Company was unable to corroborate with observable market data.

The table below presents a reconciliation of the beginning and ending balances for liabilities measured at fair value as of May 31, 2023, and August 31, 2023:

(in thousands)

    

Derivative liability

Balance at May 31, 2023

$

79

Value upon notes converted to units in the private offering

 

4,379

Warrants classified as equity during quarter

 

(79)

Gain on derivative due to change in fair market value

 

(4)

Balance at August 31, 2023

$

4,375

The Company used a Black-Scholes valuation model to estimate the value of the liability classified warrants using assumptions presented in the table below. The Black-Scholes valuation model was used because management believes it reflects all the assumptions that market participants would likely consider in negotiating the transfer of the warrant. The Company’s derivative liability is classified within Level 3.

    

    

Placement

Note conversion

    

Placement Agent

Note conversion

Agent warrants

warrants on

warrants at

warrants at

at May 31, 2023

conversion date

equity classification

August 31, 2023

Fair value of underlying stock

$ 0.26

$ 0.21

$ 0.27

$ 0.21

Risk free rate

3.64%

4.18%

3.74%

4.23%

Expected term (in years)

10.00

5.00

10.00

5.00

Stock price volatility

97.90%

124.55%

97.45%

124.06%

Expected dividend yield

0.00%

0.00%

0.00%

0.00%

Equity Incentive Plan (“EIP”)

As of August 31, 2023, the Company had one active stock-based equity plan, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “EIP”). As of August 31, 2023 and May 31, 2023, the EIP covered a total of 56.3 million shares of common stock. The Board also made a determination to waive the “evergreen provision” that would have automatically increased the number of shares of common stock subject to the EIP by an amount equal to 1% of the total outstanding shares on June 1, 2023. The EIP provides for awards of stock options to purchase shares of common stock, restricted and unrestricted shares of common stock, restricted stock units (“RSUs”), and performance share units (“PSUs”). 

The Company recognizes the compensation cost of employee and director services received in exchange for equity awards based on the grant date estimated fair value of the awards. The Company estimates the fair value of RSUs and PSUs using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the performance conditions,

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with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions ultimately are not met.

 

Stock-based compensation for the three months ended August 31, 2023 and 2022 was $0.5 million and $1.3 million, respectively. Stock-based compensation is recorded in general and administrative costs.

Stock options

Stock option activity is presented in the table below:

Weighted 

average

Weighted

remaining

Aggregate

Number of

average

contractual

intrinsic

(in thousands, except per share data and years)

    

shares

    

exercise price

    

life in years

    

value

Options outstanding at May 31, 2023

 

19,823

$

0.99

 

7.87

$

Granted

 

500

$

0.26

 

 

Exercised

 

$

-

 

 

Forfeited, expired, and cancelled

 

(605)

$

1.39

 

 

Options outstanding at August 31, 2023

 

19,718

$

0.96

 

7.70

$

Options outstanding and exercisable at August 31, 2023

 

13,239

$

1.16

 

7.03

$

During the three months ended August 31, 2023 and 2022, stock options for approximately 0.5 million shares and 0.2 million shares, respectively, were granted. The current year options vest when performance conditions are completed. Prior year options granted vest over four years. The Company records compensation expense based on the Black-Scholes fair value per share of the awards on the grant date. The weighted average fair value per share was $0.23 and $0.47 for the three months ended August 31, 2023 and 2022, respectively.

 

RSUs and PSUs

 

The Company’s stock incentive plan provides for equity instruments, such as RSUs and PSUs, which grant the right to receive a specified number of shares over a specified period of time. RSUs and PSUs are service-based awards that vest according to the terms of the grant. PSUs have performance-based payout conditions.

 

The following table summarizes the Company’s RSU and PSU activity:

  

Number of

Weighted-average

remaining contractual

(shares in thousands)

    

RSUs and PSUs (1)

    

grant date fair value

life in years

Unvested RSUs and PSUs at May 31, 2023

 

1,293

$

0.58

0.81

RSUs and PSUs granted

 

RSUs and PSUSs forfeited

 

(1,293)

0.58

RSUs and PSUs vested

 

Unvested RSUs and PSUs at August 31, 2023

 

$

(1)

The number of PSUs disclosed in this table are at the target level of 100%.

  

Issuance of shares to consultants

In March 2022, the Board approved the issuance under the 2012 Plan of shares of common stock to consultants as payment for services provided. During the three months ended August 31, 2023 and 2022, a total of 533,124 and 324,600 shares of common stock, respectively, were issued pursuant to the respective award agreements with the consultants.

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Private placement of common stock and warrants through placement agent

In July 2023, the Company commenced a private placement of units consisting of common stock and warrants to accredited investors through a placement agent. Each unit sold included a fixed combination of one share of common stock and one warrant to purchase one share of common stock. The purchase price per unit will be equal to 90% of the lower of (i) intraday volume weighted average price (“VWAP”) of the common stock as of the first closing on July 31, 2023 and (ii) the intraday VWAP on the date of the final closing, which has not yet occurred. During July and August 2023, the Company sold a total of approximately 14.7 million units for a total of approximately $2.6 million of proceeds, net of issuance costs, based on a price of $0.20 per unit. The Company classified the securities issued in the private placement as a liability until the final close when it will be reclassified as equity. As part of the offering, the Company issued approximately 14.7 million warrants to investors, with each such warrant having a five-year term and an exercise price of $0.50 per share. The warrants were immediately exercisable. In connection with the above, the Company paid the placement agent a total cash fee of approximately $0.4 million, equal to 12% of the gross proceeds of the offering, as well as a one-time fee for expenses of $5,000, and issued to the placement agent and its designees, a total of approximately 2.2 million warrants with an exercise price of $0.20 per share and a ten-year term, representing 15% of the total number of shares of common stock sold in the offering. The Company received an additional $0.4 million of proceeds net of issuance costs in September 2023. See Note 9, Subsequent events for additional information.

Based on contractual payment terms, the private placement transactions above are considered convertible debt instruments prior to final settlement, and the issuance costs associated with such issuances are capitalized and subsequently recognized through the statement of operations as interest expense on the final closing date.

In addition, approximately $2.3 million principal and interest of the Placement Agent Notes were converted into approximately 11.5 million units with the same terms as discussed above except for a warrant exercise price of $0.306. See Note 4, Convertible Instruments and Accrued Interest – Placement Agent Notes, and Liability-classified equity instruments above for additional information.

Warrants

Warrant activity is presented in the table below:

Weighted 

average

Weighted

remaining

Aggregate

Number of

average

contractual

intrinsic

(in thousands, except for share data and years)

    

shares

    

exercise price

    

life in years

    

value

Warrants outstanding at May 31, 2023

 

259,910

$

0.37

 

4.57

$

7,276

Granted

 

3,009

$

0.44

 

 

Exercised

 

(3,000)

$

0.10

 

 

Forfeited, expired, and cancelled

 

(3,133)

$

0.75

 

 

Warrants outstanding at August 31, 2023

 

256,786

$

0.37

 

4.38

$

2,860

Warrants outstanding and exercisable at August 31, 2023

 

256,786

$

0.37

 

4.38

$

2,860

Warrant exercises

During the three months ended August 31, 2023, the Company issued approximately 3.0 million shares of common stock in connection with the exercise of an equal number of warrants. The stated exercise price was $0.10 per share, which resulted in aggregate gross proceeds of approximately $0.3 million.

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Note 6. Loss per Common Share

Basic loss per share is computed by dividing the net loss adjusted for preferred stock dividends by the weighted average number of common shares outstanding during the period. Diluted loss per share includes the weighted average common shares outstanding and potentially dilutive common stock equivalents. Because of the net losses for all periods presented, the basic and diluted weighted average shares outstanding are the same since including the additional shares would have an anti-dilutive effect on loss per share. The reconciliation of the numerators and denominators of the basic and diluted net loss per share computations are as follows:

Three months ended August 31,

(in thousands, except per share amounts)

2023

    

2022

Net loss

$

(11,571)

$

(20,991)

Less: Deemed dividends

(4,154)

Less: Accrued preferred stock dividends

(373)

(385)

Net loss applicable to common stockholders

$

(11,944)

$

(25,530)

Basic and diluted:

Weighted average common shares outstanding

923,587

787,856

Loss per share

$

(0.01)

$

(0.03)

The table below shows the approximate number of shares of common stock issuable upon the exercise, vesting, or conversion of outstanding options, warrants, unvested RSUs and PSUs, convertible notes, and convertible preferred stock (including undeclared dividends) that were not included in the computation of basic and diluted weighted average number of shares of common stock outstanding for the periods presented:

Three months ended August 31,

(in thousands)

2023

    

2022

Stock options, warrants, and unvested restricted stock units

276,503

193,609

Convertible notes

12,000

12,000

Convertible preferred stock

34,818

32,170

Reserved for issuance of common stock through a placement agent

14,663

Reserved for issuance of common stock related to note conversion

11,474

Note 7. Income Taxes

The Company calculates its quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to its year-to-date income, except for discrete items. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. The Company’s net tax expense for the three months ended August 31, 2023 and 2022 was zero. The Company does not consider it more likely than not that the benefits from the net deferred tax assets will be realized; therefore, the Company maintains a full valuation allowance as of August 31, 2023 and May 31, 2023, thus creating a difference between the effective tax rate of 0% and the statutory rate of 21%.

Note 8. Commitments and Contingencies

Commitments with Samsung BioLogics Co., Ltd. (“Samsung”)

In April 2019, the Company entered into an agreement with Samsung, pursuant to which Samsung will perform technology transfer, process validation, manufacturing, pre-approval inspection, and supply services for the commercial supply of leronlimab bulk drug substance effective through calendar year 2027. In 2020, the Company entered into an additional agreement, pursuant to which Samsung will perform technology transfer, process validation, vial filling, and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab drug product. Samsung is obligated to procure necessary raw materials for the Company and manufacture a specified minimum number of batches,

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and the Company is required to provide a rolling three-year forecast of future estimated manufacturing requirements to Samsung that are binding.

On January 6, 2022, Samsung provided written notice to the Company alleging that the Company had materially breached the parties’ Master Services and Project Specific Agreements for failure to pay $13.5 million due on December 31, 2021. An additional $22.8 million became due under the agreements on January 31, 2022. Under the agreements, Samsung may be entitled to terminate its services if the parties cannot agree on the past-due balance. Management continues to be in ongoing discussions with Samsung regarding potential approaches to resolve these issues, including proposals by both parties of a revised schedule of payments over an extended period, proposals by the Company of satisfaction of a portion of the Company’s payment obligations in equity securities, through future financing, and/or potential licensing opportunities of the Company, proposals to postpone the manufacturing of unfulfilled commitments until a future regulatory approval, and proposals offsetting the unfulfilled commitments with other future potential R&D drug development needs related to the longer-acting therapeutic the Company is currently studying. Samsung paused manufacturing for all unfulfilled commitments not needed by the Company starting in January 2022. Accordingly, the Company has not recorded any accruals associated with the unfulfilled commitments as of August 31, 2023. In the event negotiations are unsuccessful, the Company may have to accrue a liability related to the unfulfilled commitments. As of August 31, 2023, the Company had past due balances of approximately $33.3 million due to Samsung, which were included in accounts payable. As of August 31, 2023, the future commitments pursuant to these agreements were estimated as follows (in thousands):

Fiscal Year

    

Amount

2024 (9 months remaining)

$

156,388

2025

76,400

2026 and thereafter

Total

$

232,788

Operating lease commitments

We lease our principal office location in Vancouver, Washington (the “Vancouver Lease”). The Vancouver Lease expires on April 30, 2026. Consistent with the guidance in ASC 842, Leases, we have recorded this lease in our consolidated balance sheet as an operating lease. For the purpose of determining the right of use asset and associated lease liability, we determined that the renewal of the Vancouver lease was not reasonably probable. The lease does not include any restrictions or covenants requiring special treatment under ASC 842, Leases. Operating lease costs for the three months ended August 31, 2023 and 2022 were $42.6 thousand and $46.0 thousand, respectively. Operating lease right-of-use assets are included in other non-current assets and the current portion of operating lease liabilities are included in accrued liabilities and compensation on the consolidated balance sheets. The long-term operating lease liabilities are presented separately as operating lease on the consolidated balance sheets. The following table summarizes the operating lease balances.

(in thousands)

August 31, 2023

May 31, 2023

Assets

Right-of-use asset

$

366

$

400

Liabilities

Current operating lease liability

$

140

$

139

Non-current operating lease liability

 

247

 

283

Total operating lease liability

$

387

$

422

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The minimum (base rental) lease payments are expected to be as follows as of August 31, 2023 (in thousands):

Fiscal Year

Amount

2024 (9 months remaining)

$

137

2025

185

2026

169

Thereafter

Total operating lease payments

491

Less: imputed interest

(104)

Present value of operating lease liabilities

$

387

Supplemental information related to operating leases was as follows:

August 31, 2023

Weighted average remaining lease term

2.6

years

Weighted average discount rate

10.0

%

Distribution and licensing commitments

Refer to Note 10, Commitments and Contingencies, in the 2023 Form 10-K for additional information.

Legal proceedings

As of August 31, 2023, the Company did not record any accruals related to the outcomes of the legal matters described below. It may not be possible to determine the outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by the Company, as the outcomes of legal proceedings are inherently uncertain. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, if any, could be material to the Company’s consolidated financial statements.

Securities Class Action Lawsuits

On March 17, 2021, a stockholder filed a putative class-action lawsuit (the “March 17, 2021 lawsuit”) in the U.S. District Court for the Western District of Washington against the Company and certain former officers. The complaint generally alleges the defendants made false and misleading statements regarding the viability of leronlimab as a potential treatment for COVID-19. On April 9, 2021, a second stockholder filed a similar putative class action lawsuit in the same court, which the plaintiff voluntarily dismissed without prejudice on July 23, 2021. On August 9, 2021, the court appointed lead plaintiffs for the March 17, 2021 lawsuit. On December 21, 2021, lead plaintiffs filed an amended complaint, which is brought on behalf of an alleged class of those who purchased the Company’s common stock between March 27, 2020 and May 17, 2021. The amended complaint generally alleges that the defendants violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making purportedly false or misleading statements concerning, among other things, the safety and efficacy of leronlimab as a potential treatment for COVID-19, the Company’s CD10 and CD12 clinical trials, and its HIV Biologic License Application (“BLA”). The amended complaint also alleges that the individual defendants violated Section 20A of the Exchange Act by selling shares of the Company’s common stock purportedly while in possession of material nonpublic information. The amended complaint seeks, among other relief, a ruling that the case may proceed as a class action and unspecified damages and attorneys’ fees and costs. On February 25, 2022, the defendants filed a motion to dismiss the amended complaint. On June 24, 2022, lead plaintiffs filed a second amended complaint. The second amended complaint is brought on behalf of an alleged class of those who purchased the Company’s common stock between March 27, 2020 and March 30, 2022, makes similar allegations, names the same defendants, and asserts the same claims as the prior complaint, adds a claim for alleged violation of Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder, and seeks the same relief as the prior complaint. All defendants have filed motions to dismiss the second amended complaint in whole or in part. The Company and the individual defendants deny all allegations of wrongdoing in the complaint and intend to vigorously defend the matter. Since this case is in an early stage where the number of plaintiffs is not known, and the claims do not specify an amount of damages, the Company is unable to

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predict the ultimate outcome of the lawsuit and cannot reasonably estimate the potential loss or range of loss the Company may incur.

2021 Shareholder Derivative Lawsuits

On June 4, 2021, a stockholder filed a purported derivative lawsuit against certain of the Company’s former officers and directors, and the Company as a nominal defendant, in the U.S. District Court for the Western District of Washington. Two additional shareholder derivative lawsuits were filed against the same defendants in the same court on June 25, 2021 and August 18, 2021, respectively. The court has consolidated these three lawsuits for all purposes (“Consolidated Derivative Suit”). On January 20, 2022, the plaintiffs filed a consolidated complaint. The consolidated complaint generally alleges that the director defendants breached their fiduciary duties by allowing the Company to make false and misleading statements regarding, among other things, the safety and efficacy of leronlimab as a potential treatment for COVID-19, the Company’s CD10 and CD12 clinical trials and its HIV BLA, and by failing to maintain an adequate system of oversight and controls. The consolidated complaint also asserts claims against one or more individual defendants for waste of corporate assets, unjust enrichment, contribution for alleged violations of the federal securities laws, and for breach of fiduciary duty arising from alleged insider trading. The consolidated complaint seeks declaratory and equitable relief, an unspecified amount of damages, and attorneys’ fees and costs. The Company and the individual defendants deny all allegations of wrongdoing in the complaints and intend to vigorously defend the litigation. In light of the fact that the Consolidated Derivative Suit is in an early stage and the claims do not specify an amount of damages, the Company cannot predict the ultimate outcome of the Consolidated Derivative Suit and cannot reasonably estimate the potential loss or range of loss the Company may incur.

Securities and Exchange Commission and Department of Justice Investigations

The Company has received subpoenas from the United States Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) requesting documents and information concerning, among other matters, leronlimab, the Company’s public statements regarding the use of leronlimab as a potential treatment for COVID-19, HIV, and triple-negative breast cancer, related communications with the FDA, investors, and others, litigation involving former employees, the Company’s retention of investor relations consultants, and trading in the Company’s securities. Certain former Company executives and directors have received subpoenas concerning similar issues and have been interviewed by the DOJ and SEC, including the Company’s former CEO, Nader Z. Pourhassan.

On January 24, 2022, Mr. Pourhassan was terminated and removed from the Board of Directors and has had no role at the Company since. On December 20, 2022, the DOJ announced the unsealing of a criminal indictment charging both Mr. Pourhassan, and Kazem Kazempour, CEO of Amarex, a subsidiary of NSF International, Inc., and which had formerly served as the Company’s contract research organization (“CRO”). Mr. Pourhassan was charged with one count of conspiracy, four counts of securities fraud, three counts of wire fraud, and three counts of insider trading. Mr. Kazempour was charged with one count of conspiracy, three counts of securities fraud, two counts of wire fraud, and one count of making a false statement. That same day, the SEC announced charges against both Mr. Pourhassan and Mr. Kazempour for alleged violations of federal securities laws.

The Company is committed to cooperating fully with the DOJ and SEC investigations, which are ongoing, and which the Company’s counsel frequently engages with them on. Further, the Company has made voluminous productions of information and made witnesses available for voluntary interviews. The Company will continue to comply with the requests of the SEC and DOJ. The Company cannot predict the ultimate outcome of the DOJ and SEC investigations or the case against Mr. Pourhassan, nor can it predict whether any other governmental authorities will initiate separate investigations or litigation. The investigations and any related legal and administrative proceedings could include a wide variety of outcomes, including the institution of administrative, civil injunctive, or criminal proceedings involving the Company and/or former executives and/or former directors in addition to Mr. Pourhassan, the imposition of fines and other penalties, remedies and/or sanctions, modifications to business practices and compliance programs, and/or referral to other governmental agencies for other appropriate actions. It is not possible to accurately predict at this time when matters relating to the investigations will be completed, the final outcome of the investigations, what additional actions, if any, may be taken by the DOJ or SEC or by other governmental agencies, or the effect that such actions may have on our business, prospects, operating results, and financial condition, which could be material.

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The DOJ and SEC investigations, including any matters identified in the investigations and indictments, could also result in (1) third-party claims against the Company, which may include the assertion of claims for monetary damages, including but not limited to interest, fees, and expenses, (2) damage to the Company's business or reputation, (3) loss of, or adverse effect on, cash flow, assets, results of operations, business, prospects, profits, or business value, including the possibility of certain of the Company's existing contracts being cancelled, (4) adverse consequences on the Company's ability to obtain or continue financing for current or future projects, and/or (5) claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders, or constituents of the Company or its subsidiaries, any of which could have a material adverse effect on the Company's business, prospects, operating results, and financial condition. Further, to the extent that these investigations and any resulting third-party claims yield adverse results over time, such results could jeopardize the Company's operations, exhaust its cash reserves, and could cause stockholders to lose their entire investment.

Amarex Dispute

On October 4, 2021, the Company filed a complaint for declaratory and injunctive relief and a motion for a preliminary injunction against NSF International, Inc. and its subsidiary Amarex, the Company’s former CRO. Over the past eight years, Amarex provided clinical trial management services to the Company and managed numerous clinical studies of the Company’s drug product candidate, leronlimab. On December 16, 2021, the U.S. District Court for the District of Maryland issued a preliminary injunction requiring Amarex to provide the Company with access to all of its materials in the possession of Amarex. The court also granted CytoDyn the right to conduct an audit of Amarex’s work for CytoDyn. That case has been administratively closed. The Company simultaneously filed a demand for arbitration with the American Arbitration Association. In response, Amarex filed a counterclaim alleging that CytoDyn has failed to pay certain invoices due under the contract between the parties.

On July 10, 2023, the Company filed a Statement of Particulars and requested a final hearing date be set in the proceeding against Amarex. The Statement of Particulars alleges that Amarex failed to perform services to an acceptable professional standard and failed to perform certain services required by the parties’ agreements. Further, the Statement of Particulars alleges that Amarex billed the Company for services it did not perform. The Company contends that, due to Amarex’s failures, it has suffered avoidable delays in obtaining regulatory approval of leronlimab and has paid for services not performed, among other damages. As the formal arbitration process is still at an early stage, the Company cannot predict the ultimate outcome of the lawsuit and cannot reasonably estimate the potential loss or range of loss that the Company may incur.

Following a formal scheduling request by the Company, the final arbitration hearing was recently ordered to commence on August 19, 2024, and the parties are now in the discovery phase of the litigation.

Note 9. Subsequent Events

Private placement of common stock and warrants through placement agent

During September 2023, approximately 2.5 million additional units were sold in the private placement conducted by the Company through a placement agent, for gross proceeds of approximately $0.5 million and net proceeds of approximately $0.4 million based on a price of $0.20 per unit. Each unit comprised a fixed combination of one share of common stock and one warrant to purchase one share of common stock. The purchase price per unit will be equal to 90% of the lower of (i) the VWAP of the common stock as of the first closing on July 31, 2023, and (ii) the intraday VWAP on the date of the final closing which has not yet occurred. The warrants issued to investors in the private placement, which covered a total of approximately 2.5 million shares, have a five-year term and an exercise price of $0.50 per share, and are immediately exercisable. Refer to Note 5, Equity Awards and Warrants – Private Placement of Common Stock and Warrants through Placement Agent for additional information.

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Induced note conversions

During October 2023, in satisfaction of redemptions, the Company and the April 2, 2021 Noteholder entered into an exchange agreement, pursuant to which a portion of the April 2, 2021 Note was partitioned into a new note with an aggregate principal amount of $0.5 million, which were exchanged concurrently with the issuance of approximately 3.5 million shares of common stock.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain information included in this quarterly report on Form 10-Q contains, or incorporates by reference, forward-looking statements within the meaning of Section 21E of the Exchange Act. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as “believes,” “hopes,” “intends,” “estimates,” “expects,” “projects,” “plans,” “anticipates” and variations thereof, or the use of future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking.

Our forward-looking statements are not guarantees of performance, and actual results could vary materially from those contained in or expressed by such statements. In evaluating all such statements, we urge you to specifically consider various risks identified in this quarterly report, and those set forth in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (the “2023 Form 10-K”), any of which could cause actual results to differ materially from those indicated by our forward-looking statements. Our forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic, scientific, and competitive data and information about current business plans. Forward-looking statements include, among others, statements about leronlimab, its ability to have positive health outcomes, the Company’s ability to resolve the clinical hold imposed by the FDA and information regarding future operations, future capital expenditures, and future net cash flows. You should not place undue reliance on our forward-looking statements, which are subject to risks and uncertainties relating to, among other things: the regulatory determinations of leronlimab’s safety and effectiveness by the FDA and various drug regulatory agencies in other countries; the Company’s ability to raise additional capital to fund its operations; the Company’s ability to meet its debt and other payment obligations; the Company’s ability to enter into or maintain partnership or licensing arrangements with third-parties; the Company’s ability to recruit and retain key employees; the timely and sufficient development, through internal resources or third-party consultants, of analyses of the data generated from the Company’s clinical trials required by the FDA or other regulatory agencies in connection with the Company’s regulatory submissions or applications for approval of the Company’s drug product; the Company’s ability to achieve approval of a marketable product; the design, implementation and conduct of clinical trials; the results of any such clinical trials, including the possibility of unfavorable clinical trial results; the market for, and marketability of, any product that is approved; the existence or development of vaccines, drugs, or other treatments that are viewed by medical professionals or patients as superior to the Company’s products; regulatory initiatives, compliance with governmental regulations and the regulatory approval process; legal proceedings, investigations or inquiries affecting the Company or its products; general economic and business conditions; changes in foreign, political, and social conditions; stockholder actions or proposals with regard to the Company, its management, or its Board of Directors; and various other matters, many of which are beyond the Company’s control. Should one or more of these risks or uncertainties develop, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated, or otherwise indicated by our forward-looking statements. Except as required by law, we do not undertake any responsibility to update these forward-looking statements to take into account events or circumstances that occur after the date of this quarterly report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events that may cause actual results to differ from those expressed or implied by these forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 2023 Form 10-K, and the other sections of this Form 10-Q, including our consolidated financial statements and related notes set forth in Part I, Item 1. This discussion and analysis contain forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.

Overview

The Company is a clinical stage biotechnology company focused on the clinical development and potential commercialization of its product candidate, leronlimab, which is being studied for MASH, MASH-HIV, solid tumors in oncology, and other HIV indications. Our current business strategy is to seek the removal of the partial clinical hold imposed by the FDA in March 2022. In October 2022, the Company voluntarily withdrew its BLA submission for leronlimab as a combination therapy for highly treatment experienced HIV patients, due to management’s conclusion

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that a significant risk existed that the BLA would not receive FDA approval due to the inadequate process and performance around the monitoring and oversight of the clinical data from its clinical trials by its former CRO.

The Company’s strategy and efforts are currently primarily directed toward obtaining the removal of the partial clinical hold on its HIV program, preparation for and development of a Phase 2b/3 MASH clinical trial protocol, research and development of longer-acting molecules including for the treatment and/or prevention of HIV, maintenance and testing of clinical drug product, and resolving legal and regulatory matters. These initiatives are discussed in more detail below.

First Quarter Overview

Partial clinical hold on HIV program

In March 2022, the FDA notified the Company that it had placed a partial clinical hold on the Company’s HIV program; the Company was not enrolling any new patients in the trials placed on hold. The partial clinical hold on the HIV program impacted patients enrolled in HIV extension trials, who were transitioned to other available therapeutics. No new clinical studies can be initiated or resumed for the HIV indication until the partial clinical hold is resolved. Recent efforts by the Company have been focused on activities that will allow us to resolve this partial clinical hold. During the third quarter ended February 28, 2023, the Company submitted the documents requested by the FDA in its March 2022 clinical hold letter. Subsequently, the FDA responded through written communication to the Company, requesting additional information and clarification regarding our benefit-risk assessment for the HIV population, which had previously been submitted, and made a supplemental request that the Company submit a general investigational plan under the HIV program IND. In March 2023, the Company responded to and submitted to the FDA the additional information and clarifications requested for the items previously requested. The FDA then responded with further written communication requesting information relating to the benefit-risk assessment, as well as requesting the submission of a new protocol for the HIV indication. At the end of March 2023, the Company and the FDA held an informal meeting in which the FDA clarified certain questions with respect to the clinical hold submission and further information requests made by the FDA. The Company is finalizing its supplemental submission to address items discussed with the FDA during the informal meeting.

MASH clinical developments

The Company continues to develop a clinical trial protocol for a future MASH clinical trial in addition to identifying next steps in exploring potential business opportunities to continue the investigation of leronlimab in MASH.

Pre-clinical development of a long-acting CCR5 antagonist

In March 2023, as part of its conveyed long-term development and value creation initiatives, the Company made efforts to pursue the continued development of a longer-acting agent. In furtherance of this initiative, the Company entered into a joint development agreement with a third-party company to develop one or more longer-acting molecules. In addition to potentially leading to a modified therapeutic that will have greater acceptance by patients, the services provided by the third party may yield extended intellectual property protection, thereby increasing the value of the Company’s patent portfolio.

Cancer clinical developments

The Company continues to identify the next steps in clinical development and is exploring potential business opportunities to continue the investigation of leronlimab for solid tumors in oncology based on data generated to date by the Company.

Corporate developments

On October 6, 2023, the Audit Committee engaged BF Borgers CPA PC and appointed the firm as the Company’s independent registered public accounting firm for the Company’s fiscal year ending May 31, 2024.

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At the Company’s annual meeting scheduled for November 9, 2023, our stockholders will be asked to vote on an amendment to the Company’s Certificate of Incorporation to provide for an increase in the total number of shares of common stock authorized for issuance from 1,350,000,000 shares to 1,750,000,000 shares. As of September 30, 2023, the Company had only approximately 21.8 million authorized but unissued shares of common stock available for issuance in future financing transactions, including 20.0 million shares that the Board of Directors temporarily released from reservation under the Company’s 2012 equity incentive plan.

Results of Operations

Fluctuations in operating results

The Company’s operating results may fluctuate significantly depending on the outcomes, number and timing of pre-clinical and clinical studies, patient enrollment and/or completion rates in the studies, and their related effect on research and development expenses, regulatory and compliance activities, activities related to seeking removal of the partial clinical hold and FDA approval of our drug product, general and administrative expenses, professional fees, and legal and regulatory proceedings and related consequences. We require a significant amount of capital to continue to operate; therefore, we regularly conduct financing offerings to raise capital, which may result in various forms of non-cash interest expense or other expenses. Additionally, we periodically seek to negotiate settlement of debt payment obligations in exchange for equity securities of the Company and enter into warrant exchanges or modifications that may result in non-cash charges. Our ability to continue to fund operations will depend on our ability to raise additional funds. See the Liquidity and Capital Resources, and Going Concern sections included in this quarterly report and Item 1A. Risk Factors in our 2023 Form 10-K.

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The results of operations were as follows for the periods presented:

Three months ended August 31,

Change

(in thousands, except for per share data)

    

2023

    

2022

    

$

    

%

    

Operating expenses:

General and administrative

$

2,688

 

$

6,333

$

(3,645)

(58)

%

Research and development

 

1,914

 

 

576

 

1,338

232

Amortization and depreciation

 

10

 

 

99

 

(89)

(90)

Inventory charge

2,704

(2,704)

(100)

Total operating expenses

 

4,612

 

 

9,712

 

(5,100)

(53)

Operating loss

 

(4,612)

 

 

(9,712)

 

5,100

53

Interest and other expenses:

Interest on convertible notes

 

(1,197)

(1,146)

(51)

(4)

Amortization of discount on convertible notes

 

(400)

 

 

(576)

 

176

31

Amortization of debt issuance costs

(366)

(16)

(350)

(2,188)

Loss on induced conversion

(2,004)

(2,004)

(100)

Finance charges

 

(912)

 

 

(940)

 

28

3

Loss on note extinguishment

 

(2,084)

 

 

 

(2,084)

(100)

Gain (loss) on derivatives

4

(8,601)

8,605

100

Total interest and other expenses

 

(6,959)

 

 

(11,279)

 

4,320

38

Loss before income taxes

 

(11,571)

 

 

(20,991)

 

9,420

45

Income tax benefit

Net loss

$

(11,571)

 

$

(20,991)

$

9,420

45

%

Basic and diluted:

Weighted average common shares outstanding

923,587

787,856

135,731

17

Loss per share

$

(0.01)

$

(0.03)

$

0.02

67

%

General and administrative (“G&A”) expenses

G&A expenses consisted of the following:

Three months ended August 31,

Change

(in thousands)

2023

    

2022

    

$

    

%

Salaries, benefits, and other compensation

$

642

$

1,278

$

(636)

(50)

Stock-based compensation

 

503

 

1,341

(838)

(62)

Legal fees

317

1,453

(1,136)

(78)

Directors and officers liability insurance

416

608

(192)

(32)

Other

 

810

 

1,653

(843)

(51)

Total general and administrative

$

2,688

$

6,333

$

(3,645)

(58)

The decreases in G&A expenses for the three-month period ended August 31, 2023, compared to the same period in the prior year, were primarily due to a reduction in legal fees, other, stock-based compensation, and salaries, benefits, and other compensation. The decreases in legal fees were primarily due to decreased legal fees related to the SEC and DOJ investigations, offset by a decrease in the amount of fees covered by the Company’s insurance carrier(s). The decreases in other expenses were primarily the result of a reduction in auditor and audit-related fees. The decreases in stock-based compensation and salaries, benefits, and other compensation were primarily related to headcount reductions.

Research and development (“R&D”) expenses

R&D expenses consisted of the following:

Three months ended August 31,

Change

(in thousands)

2023

    

2022(1)

    

$

    

%

Clinical

$

1,250

$

81

$

1,169

1,443

Non-clinical

 

250

 

49

201

410

CMC

 

169

 

213

(44)

(21)

License and patent fees

 

245

 

233

12

5

Total research and development

$

1,914

$

576

$

1,338

232

(1) Certain prior year amounts have been reclassified from CMC to Clinical and Non-clinical for consistency with the current quarter presentation. These reclassifications have no effect on the reported results of operations.

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The increases in R&D expenses in the three-month period ended August 31, 2023, compared to the same period in the prior year, were primarily related to related to close-out costs associated with the closing of the uncompleted Brazilian COVID-19 trials partially offset by costs related to activities focused on addressing the HIV program partial clinical hold. The increase in non-clinical expenses were primarily driven by activities related to the discovery and development of a long-acting modified therapeutic.

The future trend of our R&D expenses is dependent on the timing of FDA clearance of the clinical hold and any future clinical trials, our decision-making and timing of which indications on which to focus our future efforts toward the development and study of leronlimab, which may include pre-clinical and clinical treatments for MASH, MASH-HIV, oncology, and other HIV related indications, as well as efforts to develop a long-acting modified therapeutic, and the timing and outcomes of such efforts.

Inventory charge

The decrease in the inventory charge for the three-month period ended August 31, 2023, compared to the same period in the prior year was attributable to the full inventory write-off in the prior year due to the pre-launch inventories no longer qualifying for inventory capitalization due to the withdrawal of the BLA submission. See Note 3, Inventories, net, in the 2023 Form 10-K for additional information.

Interest and other expense

Interest and other expense consisted of the following:

Three months ended August 31,

Change

(in thousands)

2023

    

2022

    

$

    

%

Interest on convertible notes payable

$

(1,197)

$

(1,146)

$

(51)

(4)

Amortization of discount on convertible notes

 

(400)

 

(576)

176

31

Amortization of debt issuance costs

(366)

(16)

(350)

(2,188)

Loss on induced conversion

 

(2,004)

 

(2,004)

(100)

Finance charges

 

(912)

 

(940)

28

3

Loss on note extinguishment

(2,084)

(2,084)

(100)

Legal settlement

-

Gain (loss) on derivatives

4

(8,601)

8,605

100

Total interest and other expenses

$

(6,959)

$

(11,279)

$

4,320

(38)

The decreases in interest and other expenses for the three-month period ended August 31, 2023, compared to the same period in the prior year was primarily due to an increase in non-cash gain on derivatives, offset by increases in loss on note extinguishment and loss on induced conversion. The decrease in loss on derivatives is due to fewer liability-classified warrants in the current period compared to the same period in the prior year. The increase in loss on induced conversions resulted from the Company settling outstanding convertible debt with common stock during the current period. The increase in loss on note extinguishment resulted from the Company retiring outstanding convertible debt by converting the notes outstanding to common stock and warrants during the current period.

Liquidity and Capital Resources

As of August 31, 2023, we had a total of approximately $2.0 million in cash and $6.5 million in restricted cash and approximately $129.1 million in short-term liabilities. We expect to continue to incur operating losses and require a significant amount of capital in the future as we continue to develop and seek approval to commercialize leronlimab. We cannot be certain, however, that future funding will be available to us when needed on terms that are acceptable to us, or at all. We sell securities and incur debt when the terms of such arrangements are deemed acceptable to both parties under then current circumstances and as necessary to fund our current and projected cash needs. As of September 30, 2023, we had only approximately 21.8 million shares of common stock available for issuance in new financing transactions. Consequently, if the Company’s stockholders do not vote, at the Company’s annual meeting in November 2023, to approve an amendment to the Company’s Certificate of Incorporation to provide for an increase in the total number of

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shares of common stock authorized for issuance from 1,350,000,000 shares to 1,750,000,000 shares, the Company will be extremely limited in its ability to engage in equity financing activities.

Since inception, the Company has financed its activities principally from the public and private sale of equity securities as well as with proceeds from issuance of convertible notes and related party notes payable. The Company intends to finance its future operating activities and its working capital needs largely from the sale of equity and debt securities. The sale of equity and convertible debt securities to raise additional capital is likely to result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises funds through the issuance of additional preferred stock, convertible debt securities or other debt or equity financing, the related transaction documents could contain covenants restricting its operations.

During the 2021 fiscal year, the Company entered into long-term convertible notes that are secured by all of our assets (excluding our intellectual property), and include certain restrictive provisions, including limitations on incurring additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms.

Future third-party funding arrangements may also require the Company to relinquish valuable rights. Additional capital, if available, may not be available on reasonable or non-dilutive terms.

Cash

The Company’s cash and restricted cash position of approximately $2.0 million and $6.5 million, respectively, as of August 31, 2023, decreased by approximately $0.5 million and was unchanged, respectively, when compared to the balance of $2.5 million and $6.5 million, respectively, as of May 31, 2023. This decrease was primarily the result of approximately $4.5 million in cash used in our operating activities, offset by approximately $4.0 million in cash provided by financing activities during the three months ended August 31, 2023. Refer to Item 1, Note 2, Summary of Significant Accounting Policies – Going Concern, and the Going Concern discussion below for information regarding concerns about the Company’s ability to continue to fund its operations and satisfy its payment obligations and commitments. A summary of cash flows and changes between the periods presented is as follows:

Three months ended August 31,

Change

(in thousands)

2023

    

2022

    

Net cash (used in) provided by:

Net cash provided by/ used in operating activities

$

(4,495)

$

(11,074)

$

6,579

Net cash provided by/ used in investing activities

$

$

$

Net cash provided by financing activities

$

4,019

$

11,519

$

(7,500)

Cash used in operating activities

Net cash used in operating activities totaled approximately $4.5 million during the three months ended August 31, 2023, representing an improvement of approximately $6.6 million compared to the three months ended August 31, 2022. The decrease in the net amount of cash used was due primarily to a decrease in our net loss, primarily attributable to decreased G&A, and working capital fluctuations, all of which are highly variable. Refer to General and Administrative and Research and Development Expense sections for further discussion.

Cash provided by financing activities

Net cash provided by financing activities totaled approximately $4.0 million, a decrease of approximately $7.5 million compared to the three months ended August 31, 2022. The decrease in net cash provided was primarily the result of raising less funds from private placements of common stock and warrants, offset by an increase in funds from the sale of convertible notes.

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