Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other
sections of this Annual Report, including our consolidated financial statements and related notes set forth in Item 8. This discussion and analysis contains 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.
Business Highlights
During the past
fiscal year ending May 31, 2020, we commenced several initiatives to advance our lead product candidate, leronlimab. The following is a brief summary of key accomplishments during the most recent fiscal year:
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• Initiated a Phase 2 trial for colon cancer; and
Results of Operations
Clinical Trials Update
Phase 2b
Extension Study for HIV, as Monotherapy
Currently, there are four patients in this ongoing extension study and each has surpassed six
years of suppressed viral load with leronlimab0 as a single agent therapy. This extension study will be discontinued upon any FDA approval of leronlimab.
Phase 2b/3 Pivotal Trial for HIV, as Combination Therapy
This trial was successfully completed and is the basis for our current BLA, for which the remaining two sections were submitted to the FDA in
April and May of 2020. The completion of the filing is subject to the Company providing additional information requested by the FDA. This trial for leronlimab as a combination therapy to existing HAART drug regimens for highly treatment experienced
HIV patients achieved its primary endpoint with a p-value of 0.0032. Nearly all patients who have completed this trial have transitioned to a FDA-cleared
rollover study, as requested by the treating physicians to enable the patients to have continued access to leronlimab.
Rollover Study for HIV as
Combination Therapy
This study is designed for patients who successfully completed the pivotal Phase 2b/3 Combination Therapy trial
and for whom the treating physicians request a continuation of leronlimab therapy in order to maintain suppressed viral load. This extension study will be discontinued upon any FDA approval of leronlimab.
Phase 2b/3 Investigative Trial for HIV, as Long-term Monotherapy
Enrollment for this trial is now closed after reaching 500 patients. This trial assesses the subcutaneous use of leronlimab as a long-acting
single-agent maintenance therapy for 48 weeks in patients with suppressed viral load with CCR5-tropic HIV-1 infection. The primary endpoint is the proportion of participants with a suppressed viral load to
those who experienced virologic failure. The secondary endpoint is the length of time to virologic failure. We completed the evaluation two higher-dose arms, one with 525 mg dose (a 50% increase from the original dosage of 350 mg), as well as a 700
mg dose. We recently reported that interim data suggested that both the 525 mg and the 700 mg dosages are achieving a responder rate of approximately 90% after the initial 10 weeks. This trial has also been used to provide safety data for the BLA
filing for leronlimab as a combination therapy. In view of the high responder rate at the increased dosage levels, coupled with the newly developed CCR5 occupancy test, we filed a pivotal trial protocol with the FDA for leronlimab as a monotherapy.
Upon finalization with the FDA of the pivotal trial protocol for monotherapy, the Phase2b/3 investigative trial will likely be discontinued. In the interim, several patients are continuing in an extension study who have requested continued access to
leronlimab.
Cancer and Immunological Applications for Leronlimab
We are continuing to explore opportunities for clinical applications for leronlimab involving the CCR5 receptor, other than HIV-related treatments, such as inflammatory conditions, autoimmune diseases and cancer.
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The target of leronlimab is the immunologic receptor CCR5. We believe that the CCR5 receptor
is more than the door for HIV to enter T-cells: it is also a crucial component in inflammatory responses. This could open the potential for multiple pipeline opportunities for leronlimab.
The CCR5 receptor is a protein located on the surface of white blood cells that serves as a receptor for chemical attractants called
chemokines. Chemokines are the key orchestrators of leukocyte trafficking by attracting immune cells to the sites of inflammation. At the site of an inflammatory reaction, chemokines are released. These chemokines are specific for CCR5 and cause the
migration of T-cells to these sites promoting further inflammation. The mechanism of action of PRO 140 has the potential to block the movement of T-cells to inflammatory
sites, which could be instrumental in diminishing or eliminating inflammatory responses. Some disease processes that could benefit from CCR5 blockade include transplantation rejection, autoimmunity and chronic inflammation such as rheumatoid
arthritis and psoriasis.
Due to leronlimab’s MOA, we believe leronlimab may have significant advantages in terms of reduced side
effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation of T-cells. We have reported encouraging human safety data for our clinical trials
with leronlimab in HIV-infected patients.
We have initiated our first clinical trial with
leronlimab in an immunological indication – a Phase 2 clinical trial with leronlimab for GvHD in reduced intensity conditioning (“RIC”) patients with acute myeloid leukemia (“AML”) or myelodysplastic syndrome
(“MDS”) who are undergoing bone marrow stem cell transplantation. GvHD represents an unmet medical need, with patients who contract GvHD during stem cell transplant having a significantly decreased
1-year survival rate with relapsed GvHD as the leading cause of death. Our pre-clinical study in GvHD has been published in the peer-reviewed journal Biology of Blood
and Marrow Transplantation. The FDA has granted orphan drug designation to leronlimab for the prevention of acute GvHD.
GvHD is a
risk when patients receive bone marrow stem cells donated from another person. GvHD is a serious complication that limits the use of Bone Marrow Stem Cell (“BMSC”) transplantation in patients with blood cancers. GvHD occurs when the
donor’s immune cells attack the patient’s normal tissues (skin, liver, gut). GvHD can be acute or chronic. Its severity depends on the differences in tissue type between patient and donor. Acute GvHD can occur soon after the transplanted
cells begin to appear in the recipient and can range from mild to severe and can be life-threatening.
The CCR5 receptor, the target for
leronlimab, appears to be an important mediator of GvHD, especially in the organ damage that is the usual cause of death. We believe that the CCR5 receptor on engrafted cells is critical for the development of acute GvHD and by blocking this
receptor from recognizing certain immune signaling molecules could be a viable approach to mitigating acute GvHD. The potential of leronlimab to prevent this life-threatening condition could help extend the use of BMSC transplantation to effectively
treat more patients.
COVID-19
Phase 2 Trial to Evaluate the Efficacy and Safety of Leronlimab for Mild to Moderate Coronavirus Disease 2019 (COVID-19).
This is a two-arm, randomized,
double blind, placebo controlled multicenter study to evaluate the safety and efficacy of leronlimab in patients with mild-to-moderate symptoms of respiratory illness
caused by coronavirus 2019 infection was completed in July 2020. Patients were randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo were administered via subcutaneous injection. The study has three phases:
Screening Period, Treatment Period and Follow-Up Period. A total of 75 subjects were randomized 2:1 (active drug to placebo) in this study. The primary outcome measures are clinical improvement as assessed by
change in total symptom score (for fever, myalgia, dyspnea and cough). Secondary outcome measures include: (1) time to clinical resolution, (2) change from baseline in National Early Warning Score 2 (NEWS2), (3) change from baseline in
pulse oxygen saturation, (4) change from baseline in the patient’s health status on a 7-category ordinal scale, (5) incidence of hospitalization, (6) duration (days) of hospitalization,
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(7) incidence of mechanical ventilation supply, (8) duration (days) of mechanical ventilation supply, (9) incidence of oxygen use, (10) duration (days) of oxygen use,
(11) mortality rate, (12) time to return to normal activity. Enrollment was completed in July 2020 and the Company has recently reported positive safety results. The topline report from the trial, including efficacy and complete safety
data, is expected to be submitted to the FDA in August 2020.
Phase 3 Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients
With Severe or Critical Coronavirus Disease 2019 (COVID-19).
This
is a two-arm, randomized, double blind, placebo controlled, adaptive design multicenter study to evaluate the safety and efficacy of leronlimab in patients with severe or critical symptoms of respiratory
illness caused by coronavirus 2019 infection. Patients will be randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo will be administered via subcutaneous injection. The study will have three phases:
Screening Period, Treatment Period, and Follow-Up Period. The primary outcome measured in this study is: all-cause mortality at Day 28. Secondary outcomes measured are: (1) all-cause mortality at Day 14, (2) change in clinical status of subject at Day 14, (3) change in clinical status of subject at Day 28, and (4) change from baseline in Sequential Organ Failure
Assessment (SOFA) score at Day 14. Recently, the Data Safety Monitoring Committee for the ongoing Phase 3 trial completed its first safety review of patients with severe and critical COVID-19 and reported it
saw no cause to modify the study. The DSMC reviewed compiled safety data from 149 of the 169 patients enrolled in the Phase 3 trial. The DSMC did not raise any concerns regarding safety and recommended that the trial continue. As such, the Company
will conduct a full interim analysis once 195 patients are enrolled, as provided in the trial’s protocol.
Phase 2 Trial for Graft-versus-Host
Disease
This Phase 2 multi-center 100-day study with 60 patients is designed to evaluate the
feasibility of the use of leronlimab as an add-on therapy to standard GvHD prophylaxis treatment for prevention of acute GvHD in adult patients with AML or MDS undergoing allogeneic hematopoietic stem cell
transplantation (“HST”). Enrollment of the first patient was announced in May of 2017. On October 5, 2017, we announced that the FDA had granted orphan drug designation to leronlimab (PRO 140) for the prevention of GvHD. In March
2018, we announced that the Independent Data Monitoring Committee (“IDMC”) for leronlimab (PRO 140) Phase 2 trial in GvHD had completed a planned interim analysis of trial data on the first 10 patients enrolled. Following this review of
data from the first 10 patients in the Phase 2 trial, we filed amendments to the protocol with the FDA. The amendments included switching the pretreatment conditioning regimen from aggressive myeloablative (“MA”) conditioning to a reduced
intensity conditioning (“RIC”), and switching from a blinded one-for-one randomized placebo-controlled design to an open-label design under which all enrollees
receive leronlimab. The amendments also provide for a 100% increase in the dose of leronlimab, to 700 mg, to more closely mimic pre-clinical dosing. The next review of data by the IDMC will occur following
enrollment of 10 patients under the amended protocol after each patient has been dosed for 30 days. Due to the necessary prioritization of limited capital, enrollment under the amended protocol has been temporarily delayed.
Phase 1b/2 Trial for Triple-Negative Breast Cancer
This trial is to evaluate the feasibility of leronlimab combined with carboplatin in patients with CCR5+ metastatic triple negative breast
cancer. The Phase 1b portion is a dose escalation phase with three dose levels (cohorts) of leronlimab in combination with a fixed dose of carboplatin. The Phase 2 portion is a single arm study with 30 patients to test the hypothesis that the
combination of carboplatin intravenously and maximum tolerated dose of leronlimab subcutaneously will increase progression free survival. In May 2019, the FDA granted leronlimab Fast Track designation for use in combination with carboplatin. The
change in circulating tumor cells (“CTCs”) number will be evaluated every 21 days during treatment and will be used as an initial prognostic marker for efficacy. The first patient was treated in September 2019.
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Compassionate Use Study of Leronlimab in Breast Cancer
This is a single arm, compassionate use study with 30 patients for leronlimab (PRO 140) combined with a treatment of physician’s
choice (TPC) in patients with CCR5+ mTNBC. Leronlimab (PRO 140) will be administered subcutaneously as weekly dose of 350 mg until disease progression or intolerable toxicity. Treatment of Physician’s Choice (TPC) is defined as one of the
following single-agent chemotherapy drugs administrated according to local practice: eribulin, gemcitabine, capecitabine, paclitaxel, nab-paclitaxel, vinorelbine, ixabepilone, or carboplatin. In this
study, patients will be evaluated for tumor response approximately every 3 months or according to institution’s standard practice by CT, PET/CT or MRI with contrast (per treating investigator’s discretion) using the same method as at
baseline.
Basket Trial for 22 Solid Tumor Cancers
This is a Phase 2 study to test the safety and efficacy of leronlimab on 22 different solid tumor cancers, including brain-glioblastoma,
melanoma, lung, breast, ovarian, pancreas, bladder, throat, stomach, colon, testicular, uterine, among other indications. The first patient was treated in April 2020.
Licensing Opportunities
We continue to evaluate strategic licensing opportunities and conduct exploratory discussions with third parties with respect to our assets,
including pre-clinical and clinical findings for leronlimab for a wide array of clinical indications. As recently completed license agreements demonstrate, such agreements are country or region specific and
are limited to a specific clinical indication for leronlimab.
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Results of operations for the years ended May 31, 2020, 2019 and 2018, are as
follows:
For the years ended May 31, 2020, May 31, 2019 and 2018, we had no activities that produced revenues from
operations. The following schedule sets forth the percentage of total expenses as a percent of net loss for the years ended May 31, 2020, 2019 and 2018.
Percentage of Total Net Loss
Years Ended May 31,
Operating expenses:
Other income (expense):
Loss on extinguishment of convertible notes — — (1,519,603 ) (0.03 ) — —
Interest expense:
Interest related to derivative liability — — — — — —
Inducement interest related to warrant extension — — — — (826,252 ) (0.02 )
Inducement interest related to convertible notes — — — — (2,352,045 ) (0.05 )
Basic and diluted loss per share $ (0.30 ) $ (0.21 ) $ (0.29 )
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Results of operations for the years ended May 31, 2020 and 2019
For the years ended May 31, 2020 and 2019, we had a net loss of approximately $124.4 million and $56.2 million, respectively.
The increase in net loss of approximately $68.2 million for fiscal 2020 over 2019 was primarily attributable to increased R&D expenses of approximately $10.1 million, an increase in G&A expenses of approximately $7.9 million,
a non-cash legal settlement charge of $22.5 million an increase in interest expense of approximately $14.9 million, and an increase of approximately $11.2 million in the change in fair value of derivative liability. The loss per share
for the fiscal year ended May 31, 2020 was $(0.30) compared to $(0.21) for the prior fiscal year.
Total operating expenses for the
years ended May 31, 2020 and 2019 were approximately as follows:
General and administrative:
For the fiscal year ended May 31, 2020 and May 31, 2019, operating expenses totaled approximately
$74.6 million and $55.9 million, respectively, consisting primarily of research and development (“R&D”) expenses of $52.6 million, general and administrative expenses of approximately $20.0 million and amortization
and depreciation of approximately $2.0 million. The increase in operating expenses over the comparable 2019 period was attributable to an increase in R&D expenses of approximately $10.1 million owing to higher clinical trial and scale-up manufacturing related expenses and to an increase in general and administrative expenses of approximately $7.9 million, or 64.8% over the prior fiscal year.
General and administrative expenses, totaled approximately $20.0 million and $12.1 million, respectively, for fiscal 2020 and 2019.
General and administrative expenses were comprised of salaries and benefits, non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in general and
administrative expenses of approximately $7.9 million, or 64.8%, for the fiscal year ended May 31, 2020 over the comparable 2019 period was primarily due to increased non-cash stock-based
compensation, employee compensation and related expenses, along with higher professional services fees.
We record research and
development expenses where directly identifiable, which approximated the following for the years ended May 31, 2020 and 2019:
Research and development:
R&D expenses totaled approximately $52.6 million for the fiscal year ended May 31, 2020 and
increased approximately $10.1 million, or 23.9%, over the same 2019 period. This increase was attributable to higher clinical trial expenses associated with the Phase 2b/3 investigative monotherapy trial and various oncology
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studies, offset in part by lower expenses for the completed Phase 3 combination therapy trial. Higher CMC-related expenses in connection with the
preparation of the Company’s BLA filing also contributed to the increase in R&D expenses over the prior fiscal year. The future trend of R&D expenses will be dependent on the timing of resubmission of and FDA approval of our BLA filing,
the timing of FDA clearance of our pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the clinical progression of the triple-negative breast cancer and GvHD trials, along with the outcome of the
pre-clinical studies for several cancer indications. R&D expenses will also increase due to CMC scale-up manufacturing related activities in preparation for approval
and commercialization of leronlimab.
Amortization and depreciation expense of approximately $2.0 million rose by approximately
$0.8 million due in part to the increased amortization attributable to recording a full year of amortization expense related to the intangible assets acquired in the November 2018 transaction with ProstaGene LLC.
For the fiscal year ended May 31, 2020, the Company recognized non-cash charges from the increase
in the fair value of derivative liabilities of approximately $9.5 million, as compared to a non-cash benefit of approximately $1.7 million in the comparable 2019 period. Certain warrants and two
convertible note instruments that each contain a contingent cash settlement provision giving rise to a derivative liability were issued in September 2016, June 2018 and January 2019, respectively. For each reporting period, the Company determines
the fair value of the derivative liabilities and records a corresponding non-cash benefit or non-cash charge, as a consequence of a decrease or increase, respectively,
in the calculated derivative liabilities.
Legal settlement expense (non-cash) for the fiscal year ended May 31, 2020 of
$22.5 million related to the issuance of shares of common stock as a settlement for a claim filed by the note holder of the January 2019 Note alleging that the note holder was owed additional shares upon conversion of the note. The
$22.5 million increase over the 2019 fiscal year was attributable to no legal settlement expense in the prior year.
Interest expense
for the fiscal year ended May 31, 2020 of approximately $18.2 million increased approximately $14.9 million from the 2019 fiscal year due primarily to an increase in interest accrued on convertible notes payable of approximately
$6.4 million, inducement interest expense related to warrant exercises and debt extensions of $7.7 million, and vendor finance charges of $0.9 million.
The future trends of all expenses will be driven, in large part, by the future outcomes of clinical trials and the corresponding effect on
research and development expenses, as well as general and administrative expenses, in addition to the manufacturing of new commercial leronlimab upon any FDA approval. We require a significant amount of additional capital, and our ability to
continue to fund operations will continue to depend on our ability to raise such capital. See in particular, “Liquidity and Capital Resources” below and Item 1A “Risk Factors” above.
Results of operations for the years ended May 31, 2019 and 2018
For the years ended May 31, 2019 and 2018, the Company had a net loss of approximately $56.2 million and $50.1 million,
respectively. The increase in net loss of approximately $6.1 million for fiscal 2019 over 2018 was primarily attributable to increased R&D expenses of approximately $4.3 million and an increase in G&A expenses of approximately
$4.8 million, offset by a decreased interest expense of $2.6 million. The loss per share for the fiscal year ended May 31, 2019 was $(0.21) compared to $(0.29) for the prior fiscal year.
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Total operating expenses for the years ended May 31, 2019 and 2018 were approximately
as follows:
General and administrative:
For the fiscal year ended May 31, 2019 and May 31, 2018, operating expenses totaled approximately
$55.9 million and $45.9 million, respectively, consisting primarily of R&D expenses of $42.5 million, general and administrative expenses of approximately $12.1 million and amortization and depreciation of approximately
$1.2 million. The increase in operating expenses over the comparable 2018 period was attributable to an increase in R&D expenses of approximately $4.3 million owing to higher clinical trial and manufacturing related expenses and to an
increase in general and administrative expenses of approximately $4.8 million, or 65.1% over the prior fiscal year.
General and
administrative expenses, totaled approximately $12.1 million and $7.3 million, respectively, for fiscal 2019 and 2018. General and administrative expenses were comprised of salaries and benefits,
non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in general and administrative expenses of approximately $4.8 million, or 65.1%, for the
fiscal year ended May 31, 2019 over the comparable 2018 period was primarily due to increased non-cash stock-based compensation, employee compensation and related expenses, along with higher professional
services fees.
We record research and development expenses where directly identifiable, which approximated the following for the years
ended May 31, 2019 and 2018:
Research and development:
R&D expenses totaled approximately $42.5 million for the fiscal year ended May 31, 2019 and
increased approximately $4.3 million, or 11.2%, over the same 2018 period. This increase was attributable to higher clinical trial expenses associated with the Phase 2b/3 investigative monotherapy trial and various oncology studies, offset in
part by lower expenses for the completed Phase 3 combination therapy trial. Higher CMC-related expenses in connection with the preparation of our BLA filing also contributed to the increase in R&D expenses
over the prior fiscal year.
Amortization and depreciation expense of approximately $1.2 million rose by approximately
$0.9 million due in part to the increased amortization attributable to the intangible assets acquired in the November 2018 transaction with ProstaGene LLC.
For the fiscal year ended May 31, 2019, the Company recognized an unrealized non-cash benefit
from the decrease in derivative liability of approximately $1.7 million, as compared to a similar non-cash benefit in the
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comparable 2018 period. The total net change in derivative liability is attributable to three underlying financial instruments: (i) certain warrants that contain a contingent cash settlement
provision, which originated in September 2016, accounted for approximately $0.9 million, (ii) a certain long-term convertible note payable, originating in June 2018, which was subsequently amended to provide for variable rate redemptions
by the holder and (iii) a certain long-term convertible note payable, which originated in January 2019. The combined change in derivative liability ascribed to the two long-term convertible notes contributed approximately $0.8 million to
the unrealized non-cash benefit for the fiscal year ended May 31, 2019. For each reporting period, the Company determines the fair value of the derivative liabilities and records a corresponding non-cash benefit or non-cash charge, as a consequence of a decrease or increase, respectively, in the calculated derivative liabilities.
Interest expense for the fiscal year ended May 31, 2019 of approximately $3.3 million decreased approximately $2.6 million from
the 2018 fiscal year due primarily to lower non-cash inducement interest on a private warrant tender offer that was completed in May 2019, and no comparable inducement interest expense related to warrant
extensions and convertible notes, which were in incurred in the 2018 fiscal year, offset by an increase in interest accrued on convertible notes payable of approximately $0.7 million.
Fluctuations in Quarterly Operating Results
The Company has historically experienced significant fluctuations in our quarterly operating results and such fluctuations are expected to
continue in the future. The Company’s operating results may fluctuate due to a number of factors, such as the timing of product manufacturing activities, patient enrollment or completion rates in various trials, coupled with potential
amendments to clinical trial protocol. As a non-revenue generating company, we are regularly conducting offerings to raise capital, which can create various forms of amortization of issuance costs or non-cash interest expense. In addition, a portion of the aforementioned derivative liabilities is tied to certain securities which include a contingent cash settlement provision, which can vary substantially from
quarter to quarter, thereby creating a non-cash charge or benefit.
Liquidity and Capital Resources
The Company’s cash position of approximately $14.3 million at May 31, 2020 increased approximately $10.8 million as
compared to a balance of approximately $3.5 million at May 31, 2019. The increase was attributable to net cash provided by financing activities of approximately $79.7 million exceeding net cash used in operating activities of
approximately $68.8 million by approximately $10.9 million. Despite the Company’s negative working capital position, vendor relations remain accommodative and we do not currently anticipate delays in our business initiatives schedule
due to liquidity constraints.
Cash Flows
Net cash used in operating activities totaled approximately $68.8 million during the fiscal year ended May 31, 2020, which reflects
an increase of approximately $18.3 million of net cash used in operating activities over the approximate $50.5 million in fiscal 2019. The increase in net cash used in operating activities was due to an increase in net loss of
approximately $68.2 million, attributable to an increase in non-cash legal settlement expense of $22.5 million, an increase in interest related expenses of approximately $13.8 million, an increase in losses from change in fair value
of derivative liabilities of approximately $11.2 million, an increase in stock-based compensation of approximately $3.2 million, an increase in deferred tax benefit of approximately $2.8 million, and a net change in the components of
net working capital of approximately $2.8 million.
The Company made nominal investments in equipment and website development costs
totaling approximately $61,000 during the fiscal year ended May 31, 2020.
Net cash provided by financing activities of approximately
$79.7 million for the year ended May 31, 2020 increased approximately $27.0 million over $52.7 million of net cash provided by financing activities during
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fiscal year ended May 31, 2019. The increase in net cash provided from financing activities was primarily attributable to an increase in proceeds from warrant exercises of approximately
$38.4 million, an increase of approximately $10.3 million in proceeds from the sale of preferred stock and increase of approximately $5.6 million in proceeds from stock option exercises, coupled with a decrease to proceeds received
from the sale of common stock and warrants of $25.6 million during the 2020 fiscal year.
Capital Requirements
The Company has not generated revenue to date, and does not expect to generate product revenue until after it receives approval from the FDA
for its BLA for leronlimab as a combination therapy with HAART for highly treatment experienced HIV patients. The Company expects it will continue to incur operating losses as expenses continue to increase as we proceed with completion of our BLA,
prepare for commercialization of leronlimab and continue our clinical trial programs. The future trends of all expenses will be driven, in large part, by the timing of the anticipated approval of the Company’s BLA, the magnitude of our
commercialization readiness, future clinical trial strategy and timing of the commencement of our future revenue stream. The Company will require a significant amount of additional capital in the future in anticipation of a fully commercialized
leronlimab product.
Contract Manufacturing
During the fourth quarter of fiscal 2019, the Company entered into a Master Services Agreement and Product Specific Agreement (collectively,
the “Samsung Agreement”) with Samsung BioLogics Co., Ltd. (“Samsung”), pursuant to which Samsung will perform technology transfer, process validation, manufacturing and supply services for the commercial supply of leronlimab.
During fiscal year 2020, the Company delivered to Samsung purchase orders totaling $28 million related to the manufacture of leronlimab and payments totaling $14 million with additional payments scheduled to be made throughout calendar
2020.
Under the Samsung Agreement, a purchase order is binding and the Company is obligated to pay the full amount of the purchase order.
Under the terms of the Samsung Agreement, the Company is obligated to make specified minimum purchases of leronlimab from Samsung pursuant to forecasted requirements, which the Company is required to provide to Samsung. The first forecast schedules
11 manufacturing batches all beginning in the first quarter of fiscal year 2021, setting forth the total quantity of commercial grade leronlimab that the Company expects to require in the following years. The Company estimates that initial ramp-up costs to manufacture commercial grade leronlimab at scale could total approximately $116 million, with approximately $69 million payable over the course of calendar 2020, of which $30 million
has been paid as of the date of this filing, and approximately $23 million payable during calendar 2021, and approximately $24 million payable in January of 2022. Thereafter, the Company will pay Samsung per 15,000L batch according to the
pricing terms specified in the Samsung Agreement.
The Samsung Agreement has an initial term ending in December 2027 and will be
automatically extended for additional two-year periods unless either party gives notice of termination at least six months prior to the then-current term. Either party may terminate the Samsung Agreement in
the event of the other party’s insolvency or uncured material breach, and the Company may terminate the agreement in the event of a voluntary or involuntary complete market withdrawal of leronlimab from commercial markets, with one and half
year’s prior notice. Neither party may assign the agreement without the consent of the other, except in the event of a sale of all or substantially all of the assets of a party to which the agreement relates.
On May 22, 2020, the Company entered into a Drug Product Manufacturing Services Agreement with Samsung (the “Samsung Vial Filling
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.
Under the terms of the Samsung Vial Filling Agreement, the Company is obligated to have specified minimum quantities of vials filed with leronlimab by Samsung pursuant to forecasted requirements which the Company is required to provide to Samsung.
The Company has not provided a forecast to Samsung, however, based on set-up related costs and manufacturing commitments pursuant to the Samsung Agreement, the
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Company expects to deliver commitments of approximately $2.3 million in the form of purchase orders related to the Samsung Vial Filling Agreement through January 2021.
In addition to the Samsung Agreement, we have also previously entered into an arrangement with another third-party contract manufacturer to
provide process transfer, validation and manufacturing services for leronlimab. In the event that we terminate the agreement with this manufacturer, we may incur certain financial penalties which would become payable to the manufacturer. Conditioned
upon the timing of termination, the financial penalties may total approximately $2.1 million. These amount and timing of the financial commitments under an agreement with our secondary contract manufacturer will depend on the timing of the
anticipated approval of our BLA and the initial product demand forecast, which is critical to align the timing of capital resources in order to ensure availability of sufficient quantities of commercial product.
Management believes two contract manufacturers may best serve our strategic objectives for the anticipated BLA filing and, if approved, the
long-term commercial manufacturing capabilities for leronlimab. Management will continue to assess manufacturing capacity requirements as new market information becomes available regarding anticipated demand, subject to FDA approval.
Distribution
On July 2, 2020, the
Company entered into an exclusive Distribution and Supply Agreement (the “Distribution Agreement”) with American Regent, Inc. (“American Regent”) with respect to the distribution of the Company’s leronlimab (PRO140) drug for
the treatment of COVID-19 in the United States. Under the Distribution Agreement, the Company appointed American Regent as the sole and exclusive authorized distributor in the United States of any subcutaneous
injectable biopharmaceutical drug product labeled for treating COVID-19 that contains CytoDyn’s leronlimab as the only active pharmaceutical ingredient (the “Product”). The grant of exclusive
distribution rights to American Regent does not extend to any intravenous or infusible biopharmaceutical drug product, or any other product of CytoDyn containing leronlimab that is not labeled for treating
COVID-19. Under the Distribution Agreement, American Regent shall, at its cost, use commercially reasonable efforts to market the Product in the United States, and the Company remains responsible, at its cost,
to pursue, own and maintain the applicable regulatory approvals necessary to market and manufacture the Product. As described above, the Company is currently conducting a Phase 2b/3 clinical trial for 390 severe-to-critically ill COVID-19 patients, and a Phase 2 randomized clinical trial with 75 patients in the mild-to-moderateCOVID-19 population. If results from these trials indicate positive clinical outcomes for the COVID-19 patients to sufficiently meet the primary and secondary endpoints
for the trials, the Company expects to seek approval from the U.S. Food and Drug Administration.
Contract Research
The Company entered into project work orders for each of our clinical trials with our CRO and related laboratory vendors. Under the terms of
these agreements, the Company prepaid certain execution fees for direct services costs. In connection with its clinical trials, the Company has entered into separate project work orders for each trial with its CRO. In the event the Company
terminates any trial, it may incur certain financial penalties which would become payable to the CRO. Conditioned upon the form of termination of any one trial, the financial penalties may range up to $0.8 million. In the remote circumstance
the Company terminates all clinical trials, the collective financial penalties may range from an approximate low of $1.6 million to an approximate high of $3.6 million.
Licensing
Under the Progenics Purchase
Agreement, we are required to pay Progenics the following ongoing milestone payments and royalties: (i) $5.0 million at the time of the first U.S. new drug application approval by the FDA or other
non-U.S. approval for the sale of leronlimab (PRO 140); and (ii) royalty payments of up to five percent (5%) on net sales during the period beginning on the date of the first commercial sale of leronlimab
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(PRO 140) until the later of (a) the expiration of the last to expire patent included in the acquired assets, and (b) 10 years, in each case determined on a
country-by country basis. In addition, under a Development and License Agreement, dated April 30, 1999 (the “PDL License”), between Protein Design Labs (now AbbVie Inc.) and Progenics, which was
previously assigned to us, we are required to pay AbbVie Inc. additional milestone payments and royalties as follows: (i) $0.5 million upon filing a BLA with the FDA or non-U.S. equivalent regulatory
body; (ii) $0.5 million upon FDA approval or approval by another non-U.S. equivalent regulatory body; and (iii) royalties of up to 3.5% of net sales for the longer of 10 years and the date of
expiration of the last to expire licensed patent. Additionally, the PDL License provides for an annual maintenance fee of $150,000 until royalties paid exceed that amount.
On December 17, 2019, the Company entered into a Commercialization and License Agreement and a Supply Agreement with Vyera
Pharmaceuticals, LLC. Pursuant to the License Agreement, the Company granted Vyera an exclusive royalty-bearing license to commercialize pharmaceutical preparations containing leronlimab for treatment of HIV in humans in the United States.
Pursuant to the terms of the License Agreement, and subject to the conditions set forth therein, Vyera will bear the cost of, and be
responsible for, among other things, commercializing the product in the territory and will use commercially reasonable efforts to commercialize the product in the field in the territory. Under the terms of the License Agreement, CytoDyn is permitted
to license the product outside of the territory for uses in the field or outside the field or inside the territory for uses outside of the field.
In consideration of the license and other rights granted by the Company, Vyera has agreed to pay the Company, within three business days of
the effective date of the License Agreement, a $0.5 million license issue fee, with additional payments totaling up to approximately $87.0 million to be made upon the achievement of certain sales and regulatory milestones. Certain
milestones are subject to reduction if not achieved within an agreed-upon timeframe. Vyera may also pay the Company additional potential milestone payments upon the regulatory approval of the Product for certain subsequent indications in the field.
Whether a particular subsequent indication qualifies for an additional milestone payment shall be determined in good faith by the parties. In addition, during the Royalty Term (as defined below), Vyera is obligated to pay the Company a royalty equal
to 50% of Vyera’s gross profit margin from product sales (defined in the License Agreement as “Net Sales”) in the territory. The royalty is subject to reduction during the Royalty Term after patent expiry and expiry of regulatory
exclusivity. Following expiration of the Royalty Term, Vyera will continue to maintain non-exclusive rights to commercialize the Product.
The Company appointed American Regent as the sole and exclusive authorized distributor in the United States of any subcutaneous injectable
biopharmaceutical drug product labeled for treating COVID-19 that contains CytoDyn’s leronlimab (a humanized monoclonal antibody (also known as PRO 140) targeting against the CCR5 receptor) as the only
active pharmaceutical ingredient (the “Product”). The grant of exclusive distribution rights to American Regent does not extend to any intravenous or infusible biopharmaceutical drug product, or any other product of CytoDyn containing
leronlimab that is not labeled for treating COVID-19.
Under the Agreement, American Regent shall,
at its cost, use commercially reasonable efforts to market the Product in the United States, including, without limitation, directing the methods of sale and distribution, organization and management of sales and marketing and pricing in accordance
with the terms and conditions of the Agreement. American Regent shall solely set the resale prices for the Product in accordance with applicable law. Pursuant to the Agreement, the Company remains responsible, at its cost, to pursue, own and
maintain the applicable regulatory approvals necessary to market the Product in the United States, and for manufacturing the Product once regulatory approvals have been received.
The term of the Agreement extends for three years after the date of the first commercial sale of the Product, and will renew by mutual
agreement of the parties for one additional one-year term, unless American Regent notifies the Company of its intention to have the Agreement terminate at the end of the initial term at least six
(6) months prior to the end of the initial term. Either party is entitled to terminate the Agreement at any time in
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the event of material breach by the other party that remains uncured after thirty (30) calendar days following written notice thereof, and either party may terminate the Agreement
immediately, at its option, upon written notice in the event that a court of competent jurisdiction declares the other party insolvent or bankrupt, or a bankruptcy proceeding is commenced against the other party or the other party files a proposal,
assignment for the benefit of creditors, arrangement, composition or seeks similar relief under any applicable law, or the other party is in receivership. The Company is also entitled to terminate the Agreement at any time after the first Commercial
Sale upon six (6) months advance written notice to American Regent, or upon ninety (90) days written notice to American Regent following American Regent’s change of control. American Regent is entitled to terminate the Agreement upon
six (6) months advance written notice to the Company if, following due diligence and/or a quality inspection of the manufacturing facility associated with the Product, it determines that the distribution of the Product by American Regent should
not be pursued, or if there is an unresolved supply interruption as described in the Agreement. In addition, American Regent may terminate the Agreement immediately upon written notice to the Company if (a) American Regent determines there is
an unacceptable risk of using American Regent’s NDC Number on the Product labeling, (b) if the parties fail to execute a quality agreement and safety data exchange agreement within forty five (45) days of July 2, 2020, (c) if
American Regent is named in any patent or trade secret infringement matter filed by a third party (with certain exceptions) resulting from American Regent’s marketing of the Product and such matter survives a motion to dismiss or has not been
resolved within six (6) months after American Regent first receives written notice of the alleged infringement, (d) if any regulatory authority in the United States requires the cessation of sale or distribution of the Product, (e) if
the Company materially impedes American Regent’s efforts to implement a recall, market withdrawal or field correction of the Product, or (f) if there is a negative net profit from American Regent’s sales of the Product for two
(2) consecutive calendar quarters.
As of the date of this filing, the Company had filed all three portions of its BLA, however, in
July 2020, the Company received a Refusal to File letter from the FDA requesting additional information. The Company has requested a Type A meeting and plans to supply the additional information in a timely manner.
Going Concern
As reported in the
accompanying financial statements, during the year ended May 31, 2020, May 31, 2019 and May 31, 2018, the Company incurred net losses of approximately $124.4 million, $56.2 million and $50.1 million, respectively. The
Company has no activities that produced revenue in the periods presented and have sustained operating losses since inception.
The Company
currently requires and will continue to require a significant amount of additional capital to fund operations, pay its accounts payables, and its ability to continue as a going concern is dependent upon its ability to raise such additional capital,
commercialize its product and achieve profitability. If the Company is not able to raise such additional capital on a timely basis or on favorable terms, it may need to scale back operations or slow
CMC-related activities, which could materially delay commercialization initiatives, thereby deferring its ability to achieve profitability. The Company’s failure to raise additional capital could also
affect its relationships with key vendors, disrupting its ability to timely execute its business plan. In extreme cases, it could be forced to file for bankruptcy protection, discontinue its operations or liquidate its assets.
Since inception, the Company has financed its activities principally from the sale of public and private equity securities and proceeds from
convertible notes payable 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, combined with additional potential funding
from other traditional financing sources. As of the date of this filing, the Company has approximately 105 million shares of common stock authorized and available for issuance under our certificate of incorporation, as amended, and
approximately $135 million available for future registered offerings of securities under our universal shelf registration statement on Form S-3, which was declared effective on March 7, 2018 and
expires March 7, 2021 (assuming the full exercise of outstanding warrants, at the currently applicable exercise prices, that were previously issued in registered transactions thereunder).
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The sale of equity and convertible debt securities to raise additional capital may result in
dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these activities or
other debt could contain covenants that would restrict its operations. On March 31, 2020 and July 29, 2020, the Company entered into long-term convertible notes, which are secured by all of our assets, except for our intellectual property,
and also include certain restrictive provisions, such as a limitation on additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms and conditions. Any
other third-party funding arrangements could require the Company to relinquish valuable rights. The Company expects to require additional capital beyond currently anticipated needs. Additional capital, if available, may not be available on
reasonable or non-dilutive terms. Please refer to the matters discussed under the heading “Risk Factors” above.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The Company has incurred losses for all periods presented and has a substantial accumulated deficit. As of May 31, 2020, these factors, among several others, could raise
substantial doubt about our ability to continue as a going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain a
significant amount of additional operating capital, complete development of its product candidate, obtain FDA approval, outsource manufacturing of its product, and ultimately to attain profitability. The Company intends to seek additional funding
through equity or debt offerings, licensing agreements or strategic alliances to implement our business plan. There are no assurances, however, that it will be successful in these endeavors.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
We believe that the following critical policies affect our more
significant judgments and estimates used in preparation of our consolidated financial statements.
We follow the provisions of FASB ASC 815-Derivatives and Hedging (“ASC 815”), FASB ASC 480-Distinguishing liabilities from equity (“ASC 480”), ASC 470-
Debt and debt with conversion and other options (“ASC 470”). We have issued instruments that meet the criteria of derivative liabilities. Derivative financial instruments consist of financial instruments that contain a notional amount and
one or more underlying variable (e.g., contingent cash settlement provision), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. We have
induced conversion of certain instruments with bifurcated conversion options. We have followed the general extinguishment model to record certain conversion and the extinguishment of derivative liabilities. We utilized a Binomial Lattice Model to
value the conversion options, which utilizes assumptions that market participants would likely consider in negotiating the transfer of the convertible options, including early conversions. The assumptions in the model are subject to estimates and
judgement.
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We value inventory at the lower of cost or net realizable value using the average cost
method. Inventories currently consist solely of specialized raw materials to be used for commercial production of the Company’s biologic, leronlimab, which is awaiting regulatory approval. Inventory purchased in preparation for product launches
is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory, in light of 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 has become obsolete, or has a cost in excess of its expected net realizable value, and inventory quantities in excess of expected requirements. In assessing the lower of cost or
net realizable value to pre-launch inventory, the Company relies on independent analysis provided by a third-party knowledgeable of the range of likely commercial prices comparable to current comparable
commercial product.
We capitalize inventories procured or produced in preparation for product launches sufficient to support estimated
initial market demand. 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 we have determined it is probable that these capitalized costs will provide some 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 the compilation of
the regulatory application. We closely monitor the status of the product within the regulatory review and approval process, including all relevant communication with regulatory authorities. If we are 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, the related inventory may no longer qualify for
capitalization.
For inventories we capitalize in preparation of product launch anticipated future sales, shelf lives, and expected
approval date are taken into account when evaluating realizability. The shelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize pre-launch
inventory, the Company considers the product stability data of all of the pre-approval inventory procured or produced to date to determine whether it has an adequate shelf life.
We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant utilizing certain
assumptions that require judgments and estimates. These assumptions include estimates for volatility, expected term and risk-free interest rates in determining the fair value of the stock-based awards.
We periodically issue stock options and warrants to consultants for various services. Costs for these transactions are measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more readily measurable. This determination requires judgment in terms of the consideration being measured.
We have historically issued convertible promissory notes with detachable warrants to purchase common stock. The conversion options are fixed,
but may be beneficial to the note holders at the respective commitment dates. The valuation of the beneficial conversion feature of the notes and of the warrants gives rise to the recognition of a debt discount, which requires the use of certain
assumptions inherent in the Black-Scholes option pricing model, including various judgments and estimates.
As discussed in Notes 8 and 9
to the consolidated financial statements, we have significant license and contingent milestone and royalty liabilities. We must estimate the likelihood of paying these contingent liabilities periodically based on the progress of our clinical trials.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
As a smaller reporting company we are not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data.
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CYTODYN INC.
CONTENTS PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 84
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CytoDyn Inc.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated balance sheets of CytoDyn Inc. (the Company) as of May 31, 2020 and 2019 and the related
consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended May 31, 2020, and the related notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
years in the three-year period ended May 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
The
Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company incurred a net loss of approximately $124,403,000 for the year ended May 31, 2020 and has an accumulated deficit of approximately $354,711,000
through May 31, 2020, which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Warren Averett, LLC
We have served as the Company’s auditor since 2007.
Birmingham, Alabama
August 14, 2020
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CytoDyn Inc.
Consolidated Balance Sheets
Assets
Current assets:
Miscellaneous receivables — 90,824
Operating lease right-of-use assets 175,743 —
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accrued dividends on convertible preferred stock 981,438 37,351
Convertible notes payable, net — 3,586,035
Current portion of operating leases payable 114,790 —
Current portion of long-term convertible notes payable 6,744,444 4,200,000
Long-term liabilities:
Operating lease liability 63,391 —
Commitments and Contingencies (Note 10)
Stockholders’ (Deficit) equity
Preferred Stock, $0.001 par value; 5,000,000 shares authorized
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Operations
Operating expenses:
Other income (expense):
Loss on extinguishment of convertible note — (1,519,603 ) —
Interest expense:
Basic and diluted loss per share $ (0.30 ) $ (0.21 ) $ (0.29 )
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
Preferred Stock Common Stock Treasury Stock
Shares Amount Shares Amount Shares Amount
Stock-based compensation — — — — — —
Stock issued for board compensation — — — — — —
Offering costs related to private equity offering — — — — — —
Offering costs related to registered direct offering — — — — — —
Legal fees in connection with equity offerings — — — — — —
Offering costs related to warrant tender offer — — — — — —
Debt discount related to convertible notes payable — — — — — —
Interest expense related to warrant extension — — — — — —
Interest expense related to warrant tender offer — — — — — —
Interest expense related to conversion of notes payable — — — — — —
Net (loss) for the year ended May 31, 2018
Issuance of stock payment shares — — 8,342,000 8,342 — —
Issuance of stock for note payable redemption — — 3,756,406 3,757 — —
Offering costs related to registered direct offering — — — — — —
Offering costs related to private equity offering — — — — — —
Offering costs related to debt offering — — — — — —
Debt discount and issuance costs related to offering — — — — — —
Offering costs related to private warrant exchange — — — — — —
Inducement interest expense on private warrant exchange — — — — — —
Proceeds from Series C Convertible Preferred offering 3,246 3 — — — —
Dividends on Series C Convertible Preferred shares — — — — — —
Legal fees in connection with equity offerings — — — — — —
Stock-based compensation — — — — — —
Net (loss) for the year ended May 31, 2019
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
Preferred Stock Common Stock Treasury Stock
Shares Amount Shares Amount Shares Amount
Note conversion and extension fees — — 8,232,006 8,232 — —
Proceeds from registered direct offering — — 38,856,094 38,857 — —
Offering costs related to registered direct offering — — — — — —
Relative fair market value associated with warrants exercised — — — — — —
Proceeds from public warrant tender offers — — 45,375,923 45,376 — —
Offering costs related to public warrant tender offers — — — — — —
Inducement interest expense—tender offers and debt conversions — — — — — —
Offering costs related to private warrant exchange — — — — — —
Inducement interest expense—private warrant exchange — — — — — —
Proceeds from Series C Preferred offering 4,957 5 — — — —
Offering costs related to Series C Preferred offering — — — — — —
Exercise of option to repurchase common stock — — — — — —
Dividends on Series C Preferred shares — — — — — —
Proceeds from Series D Preferred offering 8,452 8 — — — —
Offering costs related to Series D Preferred offering — — — — — —
Dividends on Series D Preferred shares — — — — — —
Legal fees in connection with equity offerings — — — — — —
Stock-based compensation — — — — — —
Legal settlement — — — — — —
Net Loss for May 31, 2020 — — — — — —
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
AdditionalPaid-InCapital AccumulatedDeficit Total
Stock issued for bonuses and tendered for income tax 104,394 — 104,546
Offering costs related to private equity offering (1,717,597 ) — (1,717,597 )
Offering costs related to registered direct offering (857,149 ) — (857,149 )
Legal fees in connection with equity offerings (533,436 ) — (533,436 )
Offering costs related to warrant tender offer (85,381 ) — (85,381 )
Debt discount related to convertible notes payable 1,645,011 — 1,645,011
Interest expense related to warrant extension 826,252 — 826,252
Interest expense related to warrant tender offer 393,685 — 393,685
Interest expense related to conversion of notes payable 2,352,045 — 2,352,045
Issuance of stock payment shares (8,342 ) — —
Offering costs related to registered direct offering (1,129,516 ) — (1,129,516 )
Offering costs related to private equity offering (2,697,149 ) — (2,697,149 )
Debt discount and issuance costs related to offering 3,059,159 — 3,059,159
Offering costs related to private warrant exchange (266,986 ) — (266,986 )
Inducement interest expense on private warrant exchange 195,927 — 195,927
Proceeds from Series C Convertible Preferred offering 3,083,697 — 3,083,700
Dividends on Series C Convertible Preferred shares — (37,351 ) (37,351 )
Legal fees in connection with equity offerings (242,771 ) — (242,771 )
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
AdditionalPaid-In Capital AccumulatedDeficit Total
Offering costs related to registered direct offering (377,859 ) — (377,859 )
Offering costs related to private warrant exchange (197,253 ) — (197,253 )
Inducement interest expense—private warrant exchange 5,191,338 — 5,191,338
Offering costs related to Series C Preferred offering (432,368 ) — (432,368 )
Exercise of option to repurchase common stock (8,342 ) — (8,342 )
Dividends on Series C Preferred shares — (671,971 ) (671,971 )
Offering costs related to Series D Preferred offering (4,645 ) — (4,645 )
Dividends on Series D Preferred shares — (272,115 ) (272,115 )
Legal fees in connection with equity offerings (15,877 ) — (15,877 )
Stock issued for services (2,620 ) — —
Stock issued for bonuses and tendered for income tax 154,299 — 154,552
See accompanying notes to consolidated financial statements.
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CytoDyn Inc.
Consolidated Statements of Cash Flows
Year Ended
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used by operating activities:
Interest expense associated with warrant extension — — 826,252
Interest expense associated with warrant tender offer — — 393,685
Interest expense associated with conversion of notes — — 2,352,045
Loss on extinguishment of convertible note — 1,519,603 —
Deferred income tax benefit — (2,826,919 ) —
Changes in current assets and liabilities:
(Increase) in inventories (19,146,678 ) — —
Decrease in miscellaneous receivables 90,824 (90,824 ) —
Cash flows from investing activities:
Furniture and equipment purchases (41,095 ) (25,731 ) —
Net cash used in investing activities (41,095 ) (45,284 ) —
Cash flows from financing activities:
Proceeds from stock option excercises 5,602,541 — —
Principal paid on maturity of short-term convertible notes (460,000 ) — —
Convertible note redemptions paid in cash (1,725,000 ) — —
Exercise of option to repurchase shares held in escrow (8,342 ) — —
Payment of debt issuance costs — (583,200 ) —
Repayment of principal and interest on convertible note — — (259,157 )
See accompanying notes to consolidated financial statements.