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 November 30, 2022

☐	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 December 31, 2022, there were 832,970,710 shares outstanding of the registrant’s $0.001 par value common stock.

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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	27
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
	ITEM 4. CONTROLS AND PROCEDURES	40
PART II Other Information		42
	ITEM 1. LEGAL PROCEEDINGS	42
	ITEM 1A. RISK FACTORS	42
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43
	ITEM 6. EXHIBITS	45

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PART I. Financial Information

Item 1. Consolidated Financial Statements

CytoDyn Inc.

Consolidated Balance Sheets

(Unaudited, in thousands, except par value)


		November 30, 2022		May 31, 2022
Assets
Current assets:
Cash	$	2,403	$	4,231
Restricted cash		200		—
Prepaid expenses		2,854		5,198
Prepaid service fees		1,094		1,086
Total current assets		6,551		10,515
Inventories, net		—		17,929
Other non-current assets		523		741
Total assets	$	7,074	$	29,185
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	67,187	$	67,974
Accrued liabilities and compensation		5,722		8,995
Accrued interest on convertible notes		8,279		5,974
Accrued dividends on convertible preferred stock		4,571		3,977
Convertible notes payable, net		36,931		36,241
Total current liabilities		122,690		123,161
Operating leases		353		422
Total liabilities		123,043		123,583
Commitments and Contingencies (Note 9)
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 November 30, 2022 and May 31, 2022, respectively		—		—
Series C convertible preferred stock, $0.001 par value; 8 authorized; 6 and 7 issued and outstanding at November 30, 2022 and May 31, 2022, respectively		—		—
Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at November 30, 2022 and May 31, 2022, respectively		—		—
Common stock, $0.001 par value; 1,350,000 shares authorized; 825,279 and 720,028 issued, and 824,836 and 719,585 outstanding at November 30, 2022 and May 31, 2022, respectively		825		720
Treasury stock, $0.001 par value; 443 at November 30, 2022 and May 31, 2022		—		—
Additional paid-in capital		692,558		671,013
Accumulated deficit		(809,352)		(766,131)
Total stockholders’ deficit		(115,969)		(94,398)
Total liabilities and stockholders' deficit	$	7,074	$	29,185

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)


	Three months ended November 30,				Six months ended November 30,
	2022		2021		2022		2021
				(Restated) ⁽¹⁾				(Restated) ⁽¹⁾
Revenue	$	—	$	225	$	—	$	266
Cost of goods sold		—		52		—		53
Gross profit		—		173		—		213
Operating expenses:
General and administrative		5,043		16,203		11,376		23,820
Research and development		137		7,447		713		19,467
Amortization and depreciation		54		252		153		528
Inventory charge		17,929		1,593		20,633		3,357
Total operating expenses		23,163		25,495		32,875		47,172
Operating loss		(23,163)		(25,322)		(32,875)		(46,959)
Interest and other expenses:
Interest on convertible notes		(1,159)		(1,426)		(2,305)		(3,112)
Amortization of discount on convertible notes		(580)		(793)		(1,156)		(1,745)
Amortization of debt issuance costs		(18)		(23)		(34)		(51)
Loss on induced conversion		(638)		(6,785)		(638)		(25,315)
Finance charges		(937)		(1,024)		(1,877)		(1,059)
Inducement interest expense		—		(4,704)		—		(5,232)
Legal settlement		—		—		—		(1,941)
Loss on derivatives		—		—		(8,601)		—
Total interest and other expenses		(3,332)		(14,755)		(14,611)		(38,455)
Loss before income taxes		(26,495)		(40,077)		(47,486)		(85,414)
Income tax benefit		—		—		—		—
Net loss	$	(26,495)	$	(40,077)	$	(47,486)	$	(85,414)
Basic and diluted:
Weighted average common shares outstanding		813,373		662,600	$	800,545		647,517
Loss per share	$	(0.03)	$	(0.06)		(0.07)	$	(0.13)

(1) See Note 2, Summary of Significant Accounting Policies—Revision and Restatement of Financial Statements.

See accompanying notes to consolidated financial statements.

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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, 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)		—		—
Dividends accrued on Series C and D convertible preferred stock	—		—	—		—	—		—		(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)
Issuance of stock for convertible note repayment	—		—	1,822		2	—		—		498		—		500
Loss on induced conversion	—		—	—		—	—		—		638		—		638
Stock issued for compensation	—		—	765		—	—		—		310		—		310
Exercise of warrants, net of offering costs	—		—	9,652		10	—		—		2,123		—		2,133
Make-whole shares related to private warrant exchange	—		—	23		—	—		—		—		—		—
Dividend paid in common stock upon conversion of Series C convertible preferred stock ($0.50 per share)	—		—	319		—	—		—		159		—		159
Dividends accrued on Series C and D convertible preferred stock	—		—	—		—	—		—		(369)		—		(369)
Stock-based compensation	—		—	—		—	—		—		1,467		—		1,467
Net loss	—		—	—		—	—		—		—		(26,495)		(26,495)
Balance at November 30, 2022	34	$	—	825,279	$	825	443	$	—	$	692,558	$	(809,352)	$	(115,969)

See accompanying notes to consolidated financial statements.

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	Preferred stock			Common stock			Treasury stock			Additional		Accumulated		Total stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		paid-in capital		deficit		deficit
										(Restated) ⁽¹⁾		(Restated) ⁽¹⁾		(Restated) ⁽¹⁾
Balance at May 31, 2021	96	$	—	626,123	$	626	443	$	—	$	532,031	$	(553,675)	$	(21,018)
Issuance of stock for convertible note repayment	—		—	11,816		12	—		—		13,832		—		13,844
Loss on induced conversion	—		—	—		—	—		—		18,530		—		18,530
Issuance of legal settlement warrants	—		—	—		—	—		—		1,744		—		1,744
Stock option exercises	—		—	300		—	—		—		189		—		189
Stock issued for compensation and tendered for income tax	—		—	1,014		1	—		—		(1)		—		—
Stock issued for private offerings	—		—	2,872		3	—		—		2,869		—		2,872
Private warrant exchanges	—		—	1,327		1	—		—		774		—		775
Warrant exercises	—		—	668		1	—		—		502		—		503
Inducement interest expense related to private warrant exchanges	—		—	—		—	—		—		528		—		528
Accrued preferred stock dividends	—		—	—		—	—		—		—		(420)		(420)
Stock-based compensation	—		—	—		—	—		—		2,597		—		2,597
Net loss	—		—	—		—	—		—		—		(45,337)		(45,337)
Balance at August 31, 2021	96		—	644,120		644	443		—		573,595		(599,432)		(25,193)
Issuance of stock for convertible note repayment	—		—	8,162		8	—		—		8,193		—		8,201
Loss on induced conversion	—		—	—		—	—		—		6,785		—		6,785
Stock option exercises	—		—	210		—	—		—		200		—		200
Stock issued for private offerings	—		—	25,178		25	—		—		27,282		—		27,307
Conversion of Series B preferred stock to common stock	(60)		—	600		1	—		—		—		—		1
Private warrant exchanges	—		—	6,593		7	—		—		4,608		—		4,615
Offering costs related to stock issuance	—		—	—		—	—		—		(1,418)		—		(1,418)
Warrant exercises	—		—	963		1	—		—		532		—		533
Inducement interest expense related to private warrant exchanges	—		—	—		—	—		—		4,704		—		4,704
Preferred stock dividends accrued and paid in common stock	—		—	35		—	—		—		17		(431)		(414)
Stock-based compensation	—		—	—		—	—		—		2,060		—		2,060
Net loss	—		—	—		—	—		—		—		(40,077)		(40,077)
Balance at November 30, 2021	36	$	—	685,861	$	686	443	$	—	$	626,558	$	(639,940)	$	(12,696)

(1) See Note 2, Summary of Significant Accounting Policies—Revision and Restatement of Financial Statements.

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Six months ended November 30,
	2022		2021
				(Restated) ⁽¹⁾
Cash flows from operating activities:
Net loss	$	(47,486)	$	(85,414)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		153		528
Amortization of debt issuance costs		34		51
Amortization of discount on convertible notes		1,156		1,745
Warrants issued for legal settlement		—		1,744
Loss on derivatives		8,601		—
Loss on induced conversion		638		25,315
Inducement interest expense and non-cash finance charges		—		5,232
Inventory charge		20,633		3,357
Stock-based compensation		3,118		4,657
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets		(303)		(654)
Decrease in accounts payable and accrued expenses		(2,024)		(17,193)
Net cash used in operating activities		(15,480)		(60,632)
Cash flows from investing activities:
Furniture and equipment purchases		—		(13)
Net cash used in investing activities		—		(13)
Cash flows from financing activities:
Proceeds from warrant transactions, net of offering costs		2,133		5,390
Proceeds from sale of common stock and warrants, net of issuance costs		11,255		28,761
Proceeds from warrant exercises		264		1,036
Proceeds held in trust		200		—
Proceeds from stock option exercises		—		390
Net cash provided by financing activities		13,852		35,577
Net change in cash and restricted cash		(1,628)		(25,068)
Cash beginning of period		4,231		33,943
Cash end of period	$	2,603	$	8,875
Cash and restricted cash consisted of the following:
Cash	$	2,403	$	8,875
Restricted cash		200		—
Total cash and restricted cash	$	2,603	$	8,875
Supplemental disclosure:
Cash paid for interest	$	—	$	57
Non-cash investing and financing transactions:
Derivative liability associated with warrants	$	8,601	$	—
Issuance of common stock for principal and interest of convertible notes	$	500	$	22,045
Accrued dividends on Series C and D convertible preferred stock	$	753	$	834
Dividend paid in common stock on Series B and C convertible preferred stock conversions	$	159	$	17
Deemed dividend due to equity modifications, recorded in additional paid-in capital	$	5,294	$	—

(1) See Note 2, Summary of Significant Accounting Policies—Revision and Restatement of Financial Statements.

See accompanying notes to consolidated financial statements.

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CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF NOVEMBER 30, 2022

(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 (PRO 140), a novel humanized monoclonal antibody targeting the CCR5 receptor. The Company has been engaged in studying leronlimab for use in the treatment of human immunodeficiency virus (“HIV”), non-alcoholic steatohepatitis (“NASH”), and solid tumors in oncology.

The Company has been investigating leronlimab as a viral entry inhibitor for 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 NASH. The CCR5 receptor may also be present on cells that undergo malignant transformation and may also be present in the tumor microenvironment. Leronlimab is being studied in NASH, NASH-HIV, solid tumors in oncology, and other HIV indications where CCR5 is believed to play an integral role.

The Company is pursuing the regulatory approval of leronlimab in hopes that commercial sales will be obtained for one or more indications. The Company previously submitted a Biologic License Application (“BLA”) for leronlimab as a combination therapy with highly active antiretroviral therapy (“HAART”) for highly treatment-experienced HIV patients. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission. The FDA informed the Company that the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. In November 2021, the Company resubmitted the non-clinical and chemistry, manufacturing, and controls (“CMC”) sections of the BLA.

As previously reported and as described in Note 9, Commitments and Contingencies - Legal Proceedings, the Company encountered difficulties in obtaining the clinical data from its trials in the detail and format requested by the FDA in discussions with the Company in connection with its efforts to resubmit the BLA. The Company is engaged in litigation with its former contract research organization (“CRO”), which was responsible for gathering the required data. In the context of the litigation, the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA and other clinical trials, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO’s services, which has been completed.

Additionally, in March 2022, the FDA placed the Company’s HIV trials on a partial clinical hold. In October 2022, the Company voluntarily withdrew its BLA submission after concluding that a significant risk existed that the BLA would not receive FDA approval due to the CRO's inadequate process and performance around the monitoring and oversight of the clinical data.

The Company’s efforts are currently directed toward obtaining removal of the clinical hold.

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 subsidiaries, CytoDyn Operations Inc. and Advanced Genetic Technologies, Inc. (“AGTI”); AGTI is a dormant entity. 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. The interim financial information and notes thereto should be read in

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conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2022 (the “2022 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 material effect on the Company’s previously reported financial position, results of operations, stockholders’ deficit, or net cash provided by operating activities.

During the quarter ended August 31, 2022, the Company reclassified amounts recorded as accumulated dividends for Series C and D preferred stockholders from accumulated deficit to additional paid-in capital. These reclassifications were made to reflect the proper presentation for accrued dividends when an entity has accumulated deficit.

Revision and Restatement of Financial Statements

During the preparation of the quarterly financial statements as of and for the period ended November 30, 2021, the Company identified an error in how non-cash inducement interest expense was calculated in previous reporting periods dating back to fiscal year 2018. The error resulted in an understatement of non-cash inducement interest expense and additional paid-in capital. For details, refer to Note 2, Summary of Significant Accounting Policies - Revision of Financial Statements in the 2022 Form 10-K. Also, during the preparation and audit of the annual financial statements as of and for the fiscal year ended May 31, 2022, the Company concluded that a material error was identified in how the Company was accounting for common stock issued to settle certain convertible note obligations dating back to fiscal year 2021. For details, refer to Note 14, Restatement in the 2022 Form 10-K. Neither of the errors had impact on operating loss, cash, net cash used in or provided by operating, financing, and investing activities, assets, liabilities, commitments and contingencies, total stockholders’ deficit, number of shares issued and outstanding, basic and diluted weighted average common shares outstanding, and number of shares available for future issuance for any period presented, and are reflected in the accompanying statement of operations, changes in stockholders’ deficit, and statement of cash flows.

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 $47.5 million for the six months ended November 30, 2022 and has an accumulated deficit of approximately $809.4 million as of November 30, 2022. These factors, among several others, including the various legal matters discussed in Note 9, 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.

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 FDA’s clinical hold with regard to the Company’s HIV program, performing additional clinical trials, 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.

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Use of Estimates

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. 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.

Pre-launch Inventories

Pre-launch inventories were comprised of raw materials required to commercially produce leronlimab and substantially completed commercially produced leronlimab in anticipation of commercial sales of the product upon potential regulatory approval as a combination therapy for HIV patients in the United States. The Company’s pre-launch inventories consisted of (1) raw materials purchased for commercial production, (2) work-in-progress materials which consisted of bulk drug substance, which was the manufactured drug stored in bulk storage, and (3) drug product, which was the manufactured drug in unlabeled vials. The consumption of raw materials during production was classified as work-in-progress until saleable. Once it is determined to be in saleable condition, following regulatory approval, inventory is classified as finished goods.

The Company capitalizes inventories procured or produced in preparation for product launches. Typically, capitalization of such inventory begins when the results of clinical trials have reached a status sufficient to support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced, and the Company has determined it is probable that these capitalized costs will provide future economic benefit in excess of capitalized costs. The material factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, and status of the Company’s regulatory applications. The Company closely monitors the status of the product within the regulatory review and approval process, including all relevant communications with regulatory authorities. If the Company becomes aware of any specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy, manufacturing, marketing or labeling, it may make a determination that the related inventory no longer qualifies for capitalization.

The Company determines whether raw materials purchased for commercial production are usable for production based on the manufacturer’s assigned expiration date. In evaluating whether raw materials included in the pre-launch inventories will be usable for production, the Company takes into account the shelf-life of raw materials at the time they are expected to be used in manufacturing. Any raw materials past expiration date at the time of the next manufacturing run are removed from inventory.

As one stage of the manufacturing process, the Company produces work-in-progress materials which consist of bulk drug substance, which is the manufactured drug stored in bulk storage. The initial shelf-life of bulk drug substance is established based on prior experience and periodically performed stability studies and is set at four years from the date of manufacturing. Bulk drug substance is subject to deep freeze storage, and stability studies are performed on a periodic basis in accordance with the established stability protocols. If drug substance meets suitability criteria beyond the initial shelf-life, its shelf-life may be extended based on prior experience and stability trend analysis, and during the extension period periodic stability testing is performed on the drug substance. Regardless of the number of stability studies performed, if drug substance continues to meet prespecified suitability parameters it may be used in manufacturing; if

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drug substance fails to meet suitability criteria beyond its assigned shelf-life at that time, it may no longer be used and is considered to be expired.

The Company utilizes resins, a reusable raw material, in its bulk drug manufacturing process. Shelf-life of a resin used in commercial manufacturing of biologics is determined by the number of cycles for which it has been validated to be used in a manufacturing process before it is considered unusable. Unpacked and unused resins have a manufacturer’s expiration date by which resins are expected to start being used in the manufacturing process without loss of their properties. Prior to a new manufacturing campaign, and between manufacturing campaigns, the resins are removed from storage, and are treated and tested for suitability. Once resins are used in the manufacturing process, their shelf-life is measured by a validated predetermined number of manufacturing cycles they are usable for, conditional on appropriate storage solution under controlled environment between production campaigns, as well as by performing pre-production usability testing. Before a manufacturing campaign, each resin is tested for suitability. Regardless of the number of cycles, if a resin fails to meet prespecified suitability parameters it may not be used in manufacturing; likewise, even if the resin meets suitability criteria beyond the lifetime cycles, it may no longer be used. The cost of the resins used in a manufacturing campaign is allocated to the cost of the drug product in vials.

The Company values its inventory at the lower of cost or net realizable value using the average cost method. Inventory is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory considering the status of the product within the regulatory approval process. The Company evaluates its inventory levels on a quarterly basis and writes down inventory that became obsolete, has a cost in excess of its expected net realizable value, or is in quantities in excess of expected requirements. In assessing the lower of cost or net realizable value for pre-launch inventory, the Company relies on independent analyses provided by third parties knowledgeable about the range of likely commercial prices comparable to current comparable commercial product. Quarterly, the Company also evaluates whether certain raw materials held in its inventory are expected to reach the end of their estimated shelf-lives based on passage of time, the number of manufacturing cycles they are used in and results of pre-production testing prior to the expected production date, or when resins used in the manufacturing process fail suitability tests. If any of such events occur, the Company may make a determination to record a charge if it is expected that such inventories will become obsolete prior to the expected production date.

Anticipated future sales, shelf lives, and expected approval date are considered when evaluating realizability of capitalized inventory. The shelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize pre-launch inventories, the Company considers the product stability data for all of the pre-approval inventory procured or produced to date to determine whether there is adequate shelf-life. When the remaining shelf-life of drug product inventory is less than 12 months, it is likely that it will not be accepted by potential customers. However, as inventories approach their shelf-life expiration, the Company may perform additional stability testing to determine if the inventory is still viable, which can result in an extension of its shelf-life and revaluation of the need for and the amount of the previously recorded reserves. Further, in addition to performing additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration. If the Company determines that it is not likely that shelf-life may be extended or the inventory cannot be sold prior to expiration, the Company may record a charge to bring inventory to its net realizable value.

In October 2022, the Company voluntarily withdrew its BLA submission after concluding that a significant risk existed that the BLA would not receive FDA approval due to the inadequate process and performance by its former CRO around the monitoring and oversight of the clinical data from its trials. Following this decision, none of the Company’s inventories now qualify for capitalization as pre-launch inventories. See Note 3, Inventories, net.

For additional information about the Company’s significant accounting policies, refer to Note 2, Summary of Significant Accounting Policies, in the 2022 Form 10-K.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully

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retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU No. 2020-06 as of June 1, 2022, using the modified retrospective method. The adoption of ASU No. 2020-06 had no impact on the Company’s balance sheets, statements of operations, cash flows or financials statement disclosures.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 addresses the accounting for certain modifications or exchanges of freestanding equity-classified written call options (e.g., warrants). Entities should treat a modification of the terms or conditions, or an exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange, as an exchange of the original instrument for a new instrument. Guidance should be applied prospectively after the date of initial application. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted.

The Company adopted the new guidance prospectively as of June 1, 2022 and used the framework to record a modification to equity classified warrants during the six months ended November 30, 2022. The modification to equity instruments, consisting of a trigger of a down round provision was recorded as a deemed dividend in accordance with this guidance, resulting in an approximate $4.2 million charge to additional paid-in capital, induced warrant exercises recorded as $2.1 million issuance cost and $0.5 million deemed dividend, and the extension of warrant expiration dates recorded as a $0.5 million deemed dividend. The deemed dividends were included in the loss per share calculation; refer to Note 7, Loss per Common Share. Refer to Note 6, Equity Awards and Warrants for further information.

Note 3. Inventories, net

Inventories were as follows (in thousands):


	November 30, 2022		May 31, 2022
Raw materials	$	—	$	16,264
Work-in-progress		—		1,665
Total inventories, net	$	—	$	17,929

The table below summarizes pre-launch inventories that had been capitalized and charged-off for GAAP accounting purposes due to no longer qualifying for inventory capitalization as pre-launch inventories due to the withdrawal of the BLA submission and estimated expiration based on remaining shelf life. Work-in-progress and finished drug product inventories continue to be physically maintained, can be used for clinical trials, and can be commercially sold upon regulatory approval if the shelf-lives can be extended as a result of the performance of on-going stability tests. Raw material continues to be maintained so that they can be used in the future if needed.


			Raw Materials								Work-in-progress
(in thousands, Expiration period ending November 30,)	Remaining shelf-life (mos)		Specialized		Resins		Other		Total Raw Materials	Bulk drug product		Finished drug product		Total inventories
2023	0 to 12	$	4,764	$	16,264	$	-	$	21,028	$	-	$	-	$	21,028
2024	13 to 24		2,511		-		1,590		4,101		1,661		29,142		34,904
2025	25 to 36		189		-		-		189		-		32,343		32,532
2026	37 to 48		2,115		-		-		2,115		-		-		2,115
Thereafter	49 or more		-		-		-		-		-		-