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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. See “Forward-Looking Statements” preceding Part I and Item 1A. Risk Factors in Part I of this Form 10-K.

Overview of Our Business

The Company is a late-stage biotechnology company focused on the clinical development and potential commercialization of leronlimab (PRO 140), a CCR5 antagonist to treat HIV infection, as well as multiple other potential therapeutic indications. Our current business strategy is to resubmit our Biologics License Application (“BLA”) for leronlimab as a combination therapy for highly treatment experienced HIV patients as soon as possible, as well as to seek approval for other HIV-related indications, to seek approval for leronlimab as a potential therapeutic benefit for COVID-19 patients with mild-to-moderate, severe-to-critical, and long-haulers indications in the U.S. and Brazil, to advance our clinical trials with leronlimab for various forms of cancer, and to concurrently explore other cancer and immunologic indications for leronlimab.

The target of leronlimab is the immunologic receptor CCR5. 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 leronlimab 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 mechanism of action (“MOA”), we believe leronlimab may have significant advantages in reducing side effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation of T-cells.

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We continue to evaluate strategic licensing opportunities and supply and distribution partnerships, as well as conducting exploratory discussions with third parties with respect to other potential strategies to monetize our assets. As recently completed license and supply and distribution agreements demonstrate, such agreements are country or region specific and generally are limited to a specific clinical indication for leronlimab.

Business Highlights in Fiscal 2021

During the fiscal year ended May 31, 2021, 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:

For additional information regarding our business, our clinical trials and our progress toward the resubmission of our BLA, see Item 1. Business in this Form 10-K. We will require a significant amount of additional capital to complete the resubmission of our BLA to the FDA, as well as completing or advancing additional clinical trials in the COVID-19, oncology and immunology spaces. See “Liquidity and Capital Resources” below.

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Results of operations for the fiscal years ended May 31, 2021, 2020 and 2019

For the fiscal years ended May 31, 2021, 2020 and 2019, we had no activities that produced revenues from operations. The following schedule sets forth the results of operations for the fiscal years ended May 31, 2021, 2020 and 2019 (in thousands except per share amounts):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest expense: ​ ​ ​ ​ ​

Income tax benefit ​ — — ​ 2,827 — — ​ (2,827) ​ (100) ​

​

Net loss

Net loss incurred during the fiscal years ended May 31, 2021 and 2020 was approximately $154.7 million and $124.4 million, respectively. The increase in net loss of approximately $30.3 million, or 24%, was primarily attributable to increased general and administrative (“G&A”) expenses, an intangible asset impairment charge, increased research and development (“R&D”) expenses, and increased loss from extinguishment of convertible notes, partially offset by decreased change in fair value of derivative liabilities and decreased legal settlement charges.

Loss per share

Net loss per share for the fiscal year ended May 31, 2021 was $0.27 compared to the net loss per share of $0.30 in the prior fiscal year. The decrease in loss per share of $0.03, or 9%, compared to the prior year was due to the significant increase in the number of weighted average common shares outstanding over the comparable period in 2020, partially offset by the increase in net loss. The increase in common stock was due to common stock issuances associated with the exercise of warrants and stock options, negotiated exchange settlements of certain convertible note obligations with common stock, and a private placement of equity.

Operating expenses

Operating expenses totaled approximately $104.6 million and $74.6 million during the fiscal years ended May 31, 2021 and May 31, 2020, respectively. The increase in operating expenses of approximately $29.9 million, or 40%, over the prior fiscal year was primarily attributable to an increased G&A expenses, increased R&D expenses, and an intangible asset impairment charge.

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General and administrative expenses

General and administrative expenses for the fiscal years ended May 31, 2021, 2020 and 2019 consisted of the following (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

General and administrative: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

G&A expenses totaled approximately $34.3 million and $20.0 million during the fiscal years ended May 31, 2021 and May 31, 2020 respectively, representing an increase of approximately $14.3 million, or 72% over the previous fiscal year. G&A expenses consisted of salaries and benefits, non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in G&A expenses over the 2020 fiscal year was primarily due to employee compensation and related expenses, increased non-cash stock-based compensation, and along with higher professional services fees.

Research and development expenses

R&D expenses were recorded where directly identifiable, consisting of the following during the fiscal years ended May 31, 2021, 2020, and 2019 (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Research and development: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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R&D expenses totaled approximately $58.4 million during the fiscal year ended May 31, 2021, an increase of approximately $5.8 million, or 11%, over the fiscal year ended May 31, 2020. R&D expenses consisted of clinical trials, non-clinical, Chemistry, Manufacturing and Controls (“CMC”), and license and patent fees. The 2021 increase over 2020 was primarily attributable to higher clinical trial expenses, partially offset by decreases in non-clinical and CMC expenses. The increase in clinical trial costs were attributable to COVID-19 clinical trial costs and clinical trial costs related to oncology and immunology indications. The future trend of R&D expenses will be dependent on the timing of resubmission of and FDA approval, if any, of our BLA, the timing of FDA clearance, if any, of our pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the clinical progression of our COVID-19, metastatic triple-negative breast cancer and NASH trials, and the outcome of pre-clinical studies for several other cancer indications.

Amortization and depreciation expenses

Amortization and depreciation expense totaled approximately $1.8 million for the fiscal year ended May 31, 2021, a decrease of approximately $0.2 million, or 12% from the prior year. The decrease was attributable to the intangible write-off of a proprietary algorithm intangible asset, resulting in decreased amortization of intangibles.

Intangible asset impairment

For the fiscal year ended May 31, 2021, the Company recorded an intangible asset impairment charge of approximately $10.0 million, which represents an increase of 100% over the same period in 2020. This charge was

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attributable to the full impairment of the net carrying value of the proprietary algorithm intangible asset the Company acquired in connection with the acquisition of the assets of ProstaGene, LLC in November 2018.

Other income

For the fiscal year ended May 31, 2021, other income decreased approximately $0.5 million, or 100%, compared to the prior year. Other income for the fiscal year ended May 31, 2020, of $0.5 million resulted from the execution of an agreement in which the Company granted an exclusive royalty-bearing license to a third-party to commercialize, use, and sell leronlimab for HIV in the U.S. upon BLA approval.

Change in fair value of derivative liabilities

For the fiscal year ended May 31, 2021, we did not realize a change in fair value of derivative liabilities as compared to the prior year change of approximately $9.5 million, as the originating instruments were all exercised and settled during the 2020 fiscal year. The originating underlying instruments were certain warrants that originated in September 2016 and two convertible note instruments originated in June 2018 and January 2019 containing contingent cash settlement provisions, which gave rise to a derivative liability. For each reporting period, the Company determined the fair value of the derivative liability and recorded a corresponding non-cash benefit or non-cash charge, due to a decrease or increase, respectively, in the calculated derivative liability.

Loss on extinguishment of convertible notes

For the fiscal year ended May 31, 2021, we recognized non-cash losses on the extinguishment of convertible notes of approximately $19.9 million. We did not recognize any losses on the extinguishment of debt during the prior year. The losses resulted from separately and independently negotiated exchange agreements to satisfy certain note payment obligations in which certain debt was agreed to be settled in exchange for shares issued at a price less than the closing price for the effective date of the respective transactions. The original underlying convertible notes were entered into on March 31, 2020, July 29, 2020, and November 10, 2020.

Legal settlements

Legal settlements for the fiscal year ended May 31, 2021 of $10.6 million were related to cash damages awarded to plaintiffs in legal proceedings against the Company. Legal settlements (non-cash) for the fiscal year ended May 31, 2020 of $22.5 million were related to the issuance of shares of common stock in settlement of a claim filed by the holder of the January 2019 Note alleging that the note holder was owed additional shares upon conversion of the note.

Interest expense

Interest expense totaled approximately $19.6 million for the fiscal year ended May 31, 2021, an increase of approximately $1.3 million, or 7%, from the fiscal year ended May 31, 2020. This increase was due primarily to increased amortization of discount on convertible notes resulting from increased repayment of our convertible notes payable, increase in inducement interest expense offset by decrease in interest on convertible notes payable.

The future trends of all expenses will be driven, in large part, by future outcomes of current and new clinical trials and the corresponding effect on research and development expenses, timing of the anticipated BLA approval, as well as G&A expenses and outcomes of any current or future legal proceedings, in addition to the manufacturing of new commercial leronlimab upon any regulatory approval, and other (income) expense, including interest expense, related to debt and equity transactions. 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.

Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020, filed on August 14, 2020, for additional information comparing our results of operations for the fiscal years ended May 31, 2020 and May 31, 2019.

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Fluctuations in Operating Results

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 protocols. As a non-revenue generating company, we are regularly conducting offerings to raise capital, which can create various forms of non-cash interest expense or amortization of issuance costs. Further, we regularly negotiate the settlement of debt payment obligations in exchange for equity securities of the Company, which can create a non-cash loss or gain on extinguishment of debt. In addition, in prior years a portion of the aforementioned derivative liabilities is tied to certain securities that included a contingent cash settlement provision, which can vary substantially from year to year, thereby creating a non-cash charge or benefit.

Liquidity and Capital Resources

As of May 31, 2021, we had a total of approximately $33.9 million in cash and approximately $152.5 million in short-term liabilities consisting primarily of approximately $62.7 million representing the current portion of long-term convertible notes payable and approximately $85.0 million in accounts payable and accrued liabilities and compensation. We will continue to incur operating losses and the Company will require a significant amount of additional capital in the future in anticipation of a fully commercialized leronlimab product. 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.

We cannot be certain, however, that future funding will be available to us when needed on terms that are acceptable to us, or at all. We sell securities and incur debt when the terms of such agreements are deemed favorable to both parties under then current circumstances and as necessary to fund our current and projected cash needs. In addition, as of May 31, 2021 we had approximately 40.9 million authorized shares of common stock available for future issuance in addition to those already issued or reserved for issuance.

Cash

The Company’s cash position of approximately $33.9 million at May 31, 2021 increased approximately $19.6 million compared to the balance of approximately $14.3 million at May 31, 2020. During the fiscal year ended May 31, 2021, we provided funds for our operations by obtaining a total of approximately $139.3 million of net cash proceeds primarily through convertible debt issuances, private warrant exchange transactions, warrant and stock option exercises, and a private equity offering.

Inventories

Inventories as of May 31, 2021 and May 31, 2020 are presented below (in thousands):

​ ​ ​ ​ ​ ​ ​

Work-in-progress ​ 65,394 ​ —

​

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The Company’s pre-launch inventories position of approximately $93.5 million at May 31, 2021 increased approximately $74.3 million as compared to a balance of approximately $19.1 million at May 31, 2020 as the Company increased inventory in preparation for commercialization. This inventory increase is related to raw materials purchased for commercial production and work-in-progress inventory related to the substantially completed commercial production of pre-launch inventories of leronlimab, in anticipation of regulatory approval of the product as a combination therapy for HIV patients by the FDA in the United States. During the quarter ended February 28, 2021, the Company was notified by a third-party contract manufacturing partner that due to an operational error committed by the contract manufacturer, one of the batches of a multiple-batch manufacturing campaign failed to meet quality standards, and thus would not be saleable upon regulatory approval. In accordance with the agreement, the contract manufacturer assumed liability for the failure, all costs to manufacture the batch, and committed to remanufacture the batch at a future date. As a result, the Company reduced work-in-progress inventory and the related amounts due to the contract manufacturer by $6.1 million. No other inventory was affected by this manufacturing issue, and all other inventory has successfully passed quality standards. As of May 31, 2021, the raw materials balance was $28.1 million and the total work-in-progress was $65.4 million. Work-in-progress consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials. Bulk drug substance and drug product comprised approximately $35.8 million and $29.6 million, respectively, of work-in-progress inventory. See “Capital Requirements—Contract Manufacturing” below for a further discussion of commitments with third-party contract manufacturing partners. See also “Critical Accounting Policies and Estimates” below.

Cash Flows

For the year ended May 31, 2021, the net change in cash was an increase of approximately $19.7 million, which was attributable to increased net cash provided by financing activities of approximately $57.7 million, offset in part by increased net cash used in operating activities of approximately $48.8 million, and increased cash used in investing activities of approximately $0.1 million.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net cash (used in) provided by: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net cash used in investing activities ​ $ (122) ​ $ (41) ​ $ (45) ​ $ (81) ​ $ 4

Cash used in operating activities

Net cash used in operating activities totaled approximately $117.6 million during the fiscal year ended May 31, 2021, which reflects an increase of approximately $48.8 million over the approximately $68.8 million in fiscal 2020. The increase in net cash used in operating activities was due to increased pre-launch inventories, and net loss, offset in part by the intangible asset impairment charge, increased accounts payables and accrued liabilities, and increased non-cash loss on extinguishment of debt, when compared to the changes in the prior year.

Cash used in investing activities

Net cash used in investing activities was approximately $0.1 million during the fiscal year ended May 31, 2021, which reflects an insignificant increase over a year ago attributable to the purchase of office equipment and furniture.

Cash provided by financing activities

Net cash provided by financing activities totaled approximately $137.3 million during the fiscal year ended May 31, 2021 representing an approximate $57.7 million increase in net cash provided by financing activities when compared to the previous fiscal year. The increase in net cash provided from financing activities was primarily attributable to an increase in proceeds from convertible debt issuances and an increase in proceeds from private warrant

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exchange transactions, offset by a decrease in ordinary warrant and stock option exercise proceeds, and the absence of proceeds from the sale of preferred stock, when compared to the same period in the prior year.

Convertible debt

The following schedule sets forth the outstanding balance of convertible notes as of May 31, 2021 and May 31, 2020. A detailed discussion of our various convertible debt arrangements is included in Note 5 to the Consolidated Financial Statements included in Item 8 of this Form 10-K (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Outstanding balance May 31, 2020 $ 15,467 ​ $ - ​ $ - ​ $ - ​ $ -

Cash repayments ​ (950) ​ ​ - ​ ​ - ​ ​ - ​ ​ -

Conversions ​ (9,538) ​ ​ - ​ ​ - ​ ​ - ​ ​ -

Debt extinguishment loss ​ 4,169 ​ ​ 9,300 ​ ​ 6,427 ​ ​ - ​ ​ -

​

April 23, 2021 Note

On April 23, 2021, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0 million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of $10.00 per share, and matures in April 2023. After six months past the issuance date, the noteholder can request monthly redemptions of up to $7.0 million. The outstanding balance of the April 23, 2021 Note, including accrued interest, was approximately $25.5 million as of May 31, 2021.

April 2, 2021 Note

On April 2, 2021, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0 million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of $10.00 per share, and matures in April 2023. The April 2, 2021 Note requires monthly debt reduction payments of $7.5 million for the six months beginning in May 2021 which can also be satisfied by payments on the November 2020, and/or April 23, 2021 Note. After six months past the issuance date, the noteholder can request monthly redemptions of up to $3.5 million. The outstanding balance of the April 23, 2021 Note, including accrued interest, was approximately $25.7 million as of May 31, 2021.

November 2020 Note

During November 2020, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0 million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrues interest daily at a rate of 10% per annum, contains a stated conversion price of $10.00 per share, and matures in November 2022. The November 2020 Note requires monthly debt reduction payments of $7.5 million for the six months beginning in November 2020 which can also be satisfied by payments on the July 2020 Note and/or March 2020 Note, both of which have been paid in full, as discussed below. After six months past the issuance date, the noteholder can request monthly redemptions of up to $3.5 million. The outstanding balance of the November 2020 Note, including accrued interest, was approximately $13.6 million as of May 31, 2021.

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July 2020 Note

During July 2020, we issued a convertible note with a principal amount of $28.5 million resulting in net cash proceeds of $25.0 million, after $3.4 million of debt discount and $0.1 million of offering costs. The note accrued interest daily at a rate of 10% per annum, contains a stated conversion price of $10.00 per share and matures in July 2022. Beginning six months after the issuance date, the noteholder could request monthly redemptions up to $3.5 million. During the quarter ended May 31, 2021, this note was fully retired as a result of the noteholder exercising the monthly redemption provision and the Company satisfying the monthly Debt Reduction Amount required under the November 2020 Note by making payments on the July 2020 Note. There was no balance outstanding under this note as of May 31, 2021.

March 2020 Note

During the quarter ended November 30, 2020, this note was fully retired as a result of the noteholder exercising the monthly redemption provision and the Company satisfying the monthly Debt Reduction Amount required under the November 2020 Note by making payments on the March 2020 Note. There was no balance outstanding under this note as of May 31, 2021.

Common stock

We have 800.0 million authorized shares of common stock. As of May 31, 2021, we had approximately 625.7 million shares of common stock outstanding, approximately 42.9 million shares of common stock issuable upon the exercise of warrants, approximately 33.0 million shares of common stock issuable upon conversion of convertible preferred stock and undeclared dividends, approximately 24.1 million shares of common stock issuable upon the exercise of outstanding stock options or the vesting of outstanding restricted stock, approximately 15.3 million shares of common stock reserved for future issuance under our equity compensation plans, and approximately 18.0 million shares of common stock reserved and issuable upon conversion of outstanding convertible notes. As a result, as of May 31, 2021, we had approximately 40.9 million authorized shares of common stock available for issuance.

Commitments and Contingencies

Contract Manufacturing with Samsung Biologics Co., Ltd (“Samsung”)

In April 2019, the Company entered into an agreement with Samsung, pursuant to which Samsung will perform technology transfer, process validation, manufacturing and supply services for the commercial supply of leronlimab effective through calendar year 2027. In 2020, the Company entered into an additional agreement, pursuant to which Samsung will perform technology transfer, process validation, vial filling and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab. Samsung is obligated to procure necessary raw materials for the Company and manufacture a specified minimum number of batches, and the Company is required to provide a rolling three-year forecast of future estimated manufacturing requirements to Samsung that are binding. The future commitments pursuant to these agreements are estimated as follows (in thousands):

​ ​ ​ ​

Fiscal Year ​ Amount

Management maintains relationships with two contract manufacturers that it believes best serve our strategic objectives for the anticipated resubmission of our 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.

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Commitments with Contract Research Organization (“CRO”)

The Company has 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 has prepaid certain execution fees for direct services costs. In connection with our clinical trials, the Company has entered into separate project work orders for each trial with our CRO. In the event that the Company terminates any trial, certain financial penalties may be incurred which would become payable to the CRO. Based on the form of termination of any one trial, the financial penalties may range up to approximately $2.0 million. In the remote circumstance that all clinical trials are terminated, the collective financial penalties may range from a low of approximately $2.1 million to a high of approximately $3.3 million.

Operating Leases

We lease our principal office location in Vancouver, Washington and a office location in Fort Lauderdale, Florida. Under the terms of each lease, the Vancouver and Fort Lauderdale leases expire April 30, 2026 and March 31, 2022, respectively. The Fort Lauderdale office is currently being sublet to a tenant. Consistent with the guidance in ASC 842, we have recorded these leases in our consolidated balance sheet as operating leases. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of the Vancouver lease was reasonably probable. The leases of both our Vancouver and Fort Lauderdale offices do not include any restrictions or covenants requiring special treatment under ASC 842. During the fiscal years ended May 31, 2021 and 2020, we recognized $0.3 million and $0.2 million of operating lease costs.

The following table summarizes the presentation of the operating leases in our consolidated balance sheet at May 31, 2021 and 2020 (in thousands):

​ ​ ​ ​ ​ ​ ​

​ ​ May 31,

Assets ​ ​ ​ ​ ​ ​

Right of use asset ​ $ 712 ​ $ 176

Liabilities ​ ​ ​ ​ ​ ​

Current operating lease liability ​ $ 175 ​ $ 115

Non-current operating lease liability ​ 552 ​ 63

Total operating lease liability ​ $ 727 ​ $ 178

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The minimum (base rental) lease payments reconciled to the carrying value of the operating lease liabilities as of May 31, 2021 are expected to be as follows (in thousands):

​ ​ ​ ​

Fiscal Year ​ Amount

Total operating lease payments ​ ​ 965

Less imputed interest ​ ​ (238)

Present value of operating lease liabilities ​ $ 727

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Legal Proceedings

The Company is a party to various legal proceedings. As of the year ended May 31, 2021, we were not party to any material pending legal proceedings, except those described in Note 10 to the Consolidated Financial Statements included in Item 8. of this Form 10-K. The Company recognizes accruals for such proceedings to the extent a loss is determined to be both probable and reasonably estimable. The best estimate of a loss within a possible range is accrued; however, if

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no estimate in the range is more probable than another, then the minimum amount in the range is accrued. If it is determined that a material loss is not probable but reasonably possible and the loss or range of loss can be estimated, the possible loss is disclosed. It is not possible to determine the outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by the Company, as the outcomes of legal proceedings are inherently uncertain, and the outcomes could differ significantly from recognized accruals. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, or if an accrual had not been made, could be material to the Company’s consolidated financial statements. As of May 31, 2021 the Company recorded legal accruals of approximately $10.6 million related to the outcomes of the matters described in Note 10. “Legal Proceedings”. The Company did not record any material accruals as of May 31, 2020. See Note 10 to the Consolidated Financial Statements for further discussion of legal proceedings.

Distribution

In December 2019, the Company entered into a supply agreement with Vyera Pharmaceuticals, LLC (“Vyera”) for the sale of leronlimab for HIV in the United States in conjunction with a commercialization and license agreement entered into with Vyera. See ”Licensing” below for further discussion of the agreement. On July 2, 2020, the Company entered into an exclusive distribution and supply agreement with American Regent Inc. with respect to the distribution of leronlimab for the treatment of COVID-19 in the United States. The parties mutually agreed to terminate the agreement effective June 9, 2021. On April 6, 2021, the Company entered into an exclusive supply and distribution agreement with Biomm S.A., a Brazilian pharmaceutical company, granting the exclusive right to distribute and sell leronlimab in Brazil upon Brazilian regulatory approval. On April 15, 2021, the Company entered into an exclusive supply and distribution agreement with Chiral Pharma Corporation, a Philippine pharmaceutical company, granting the exclusive right to distribute and sell up to 200,000 vials of leronlimab during the 12 months ending April 15, 2022, to treat critically ill COVID-19 patients in the Philippines under Compassionate Special Permit (“CSP”) or Emergency Use Authorization (“EUA”) from the Food and Drug Administration of the Philippines. On May 11, 2021, the Company entered into an exclusive supply and distribution agreement with Macleods Pharmaceuticals Ltd., an Indian pharmaceutical company, granting the exclusive right to distribute and sell up to 200,000 vials of leronlimab in calendar year 2021 in India to treat COVID-19 patients under a CSP or EUA from the India Central Drugs Standard Control Organization.

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 (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. As discussed elsewhere in this Form 10-K, the Company received a Refusal to File letter from the FDA in July 2020 with respect to its BLA as a combination therapy with HAART for highly treatment experienced HIV patients. In response to this letter, the Company commenced the resubmission of its BLA in July 2021 and is expected to be completed in October 2021. As such, until the BLA is accepted by the FDA, it is management’s conclusion that the probability of achieving the subsequent future clinical development and regulatory milestones is not reasonably determinable, such that the future milestone payments payable to Progenics and its sub-licensors have been deemed contingent consideration and, therefore, not currently accruable.

In December 2019, the Company entered into a Commercialization and License Agreement and a Supply Agreement with Vyera Pharmaceuticals, LLC (the “License Agreement”). 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

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subject to the conditions set forth therein, Vyera will incur 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 for uses inside the territory outside of the field. In consideration of the license and other rights granted by the Company, Vyera 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 leronlimab for certain subsequent indications in the field. Whether a particular subsequent indication qualifies for an additional milestone payment will be determined in good faith by the parties. In addition, during the Royalty Term, as defined in the License Agreement, but, in any event, a period of not less than 10 years following the first commercial sale under the License Agreement, 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.

Regulatory Matters

In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment experienced HIV patients. The FDA informed the Company its BLA did not contain certain information needed to complete a substantive review and therefore, the FDA would not file the BLA. In particular, the FDA informed the Company that the receptor occupancy analysis performed by its third-party laboratory was not properly performed, and would be required to be resubmitted, and the Company would need to correct certain administrative submission deficiencies. The FDA’s request does not require any additional clinical trials to be conducted. Subsequent to the Refusal to File letter, the Company received further clarification on the BLA’s deficiencies. The Company has engaged a leading global healthcare diagnostic company, along with an expanded team of subject matter expert consultants, to conduct the receptor occupancy analysis necessary in order to resubmit the BLA. The Company began to resubmit the BLA in July 2021 and is expected to be completed in October 2021.

Going Concern

As reported in the accompanying financial statements, during the fiscal years ended May 31, 2021, May 31, 2020 and May 31, 2019, the Company incurred net losses of approximately $154.7 million, $124.4 million and $56.2 million, respectively. The Company has no activities that produced revenue in the periods presented and has sustained operating losses since inception.

We currently require and will continue to require a significant amount of additional capital to fund operations and pay our accounts payables, and our ability to continue as a going concern is dependent on our ability to raise such additional capital, commercialize our 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 and 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, the Company could be forced to file for bankruptcy protection, discontinue operations or liquidate 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 and non-traditional financing sources. As of the date of this filing, the Company has approximately 35.0 million shares of common stock authorized and available for issuance under its certificate of incorporation, as amended.

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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 funds through the issuance of additional preferred stock, convertible debt securities or other debt financing the related transaction documents could contain covenants restricting its operations. On November 10, 2020, April 2, 2021, and April 23, 2021, the Company entered into long-term convertible notes that are secured by all of our assets, except for our intellectual property, and also include certain restrictive provisions, including limitations on incurring additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms 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. See Part I, Item 1A. Risk Factors above for additional information.

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, 2021, these factors, among several others, may 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 assets and 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, to continue its research into multiple indications for and development of its product candidate, to obtain FDA approval of its product candidate for use in treating one or more indications, to outsource manufacturing of its product, and ultimately to attain profitability. We intend to seek additional funding through equity or debt offerings, licensing agreements, supply and distribution agreements, and strategic alliances to implement our business plan. There are no assurances, however, that we will be successful in these endeavors.

Off-Balance Sheet Arrangements

We do 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 Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and expense and related disclosures. On an ongoing basis, management bases and evaluates estimates on historical experience and on various other market specific and other relevant assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from those estimates.

We believe the following critical policies reflect the more significant judgments and estimates used in preparation of the Consolidated Financial Statements.

Derivative Liabilities

We follow the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815 Derivatives and Hedging, ASC 480 Distinguishing Liabilities from Equity, and ASC 470 Debt. We have historically 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. To record certain conversion and the extinguishment of derivative liabilities, we have followed the general extinguishment model. As described in Notes 2 and 5, to the Consolidated Financial Statements included in Item 8 of this Form 10-K, we utilized a Binomial Lattice Model to value the conversion

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options, which utilizes assumptions that market participants would likely consider in negotiating the transfer of the conversion options, including early conversions. These assumptions used in the model are based on unobservable market inputs and are subject to variability.

Inventories

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 we have determined that 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.

We value inventory at the lower of cost or net realizable value using the average cost method. Inventories currently consist of raw materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic, leronlimab, which is in the regulatory approval process. 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 third parties knowledgeable of the range of likely commercial prices comparable to current comparable commercial product.

For inventories capitalized prior to FDA marketing approval in preparation of product launch, anticipated future sales, shelf-lives, and expected approval date are considered when evaluating realizability of pre-launch inventories. 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 stability data of all inventories. 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. Further, in addition to performing additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration. We also consider potential delays associated with regulatory approval in determining whether pre-approval inventory remains salable. See Note 4 – Inventories in the Notes to Consolidated Financial Statements in Item 8. of this Form 10-K for information regarding the remaining shelf-lives of our pre-launch inventory, by each category of inventory. Although we believe our product will receive market acceptance, the introduction of a competing product could negatively impact the demand for our product and affect the realizability of our inventories. In addition, if physicians are unwilling or unable to prescribe leronlimab to their patients, or the target patient population is reluctant to try leronlimab as a new therapy, the salability of our pre-launch inventory would be adversely affected.

Stock-based compensation

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 stock price volatility, expected term and risk-free interest rates in determining the fair value of the stock-based awards. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock-based award. The expected volatility is based on the historical volatility of the Company’s common stock at monthly intervals. The computation of the expected option term is based on the “simplified method,” as the options issued by the Company are considered “plain vanilla” options. We estimate forfeitures at the time of grant and revise, if necessary, in subsequent

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periods, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, we estimated future unvested forfeitures at 0% for all periods presented. Quarterly expense is reduced during the period when grants are forfeited, such that the full expense is recorded at the time of grant and only reduced when the grant is truly forfeited.

We periodically issue restricted common stock or restricted stock units to executives or third parties as compensation for services rendered. Such awards are valued at fair market value on the effective date of the Company’s obligation. We also issue stock options and warrants to consultants as compensation for various services from time to time. 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.

Contingent liabilities

As discussed in Notes 8 and 9 to the Consolidated Financial Statements included in Item 8. of this Form 10-K, 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, BLA approval status, and status of commercialization.

We are party to various legal proceedings as described in Note 10 to the Consolidated Financial Statements included in Item 8. of this Form 10-K. The Company recognizes accruals for such proceedings to the extent a loss is determined to be both probable and reasonably estimable. The best estimate of a loss within a possible range is accrued; however, if no estimate in the range is more probable than another, then the minimum amount in the range is accrued. If it is determined that a material loss is not probable but reasonably possible it is disclosed and if the loss or range of loss can be estimated, the possible loss is also disclosed. It is not possible to determine the ultimate outcome of these proceedings, including the defense and other litigation-related costs and expenses that may be incurred by the Company, as the outcomes of legal proceedings are inherently uncertain, and the outcomes could differ significantly from recognized accruals. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a recognized accrual, or if an accrual had not been made, could be material to the Company’s consolidated financial statements. We periodically reassess these matters when additional information becomes available and adjust our estimates and assumptions when facts and circumstances indicate the need for any changes.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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

CYTODYN INC.

CONTENTS PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ 89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ 97

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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, 2021 and 2020 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 30, 2021 expressed an unqualified opinion.

Substantial Doubt as to 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 $154,674,000 for the year ended May 31, 2021 and has an accumulated deficit of approximately $511,294,000 through May 31, 2021, 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 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. 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

I.Evaluation of the Carrying Value of Identifiable Intangible Assets

Description of Matter and Relevant Accounts and Disclosures - As explained in Note 2 to the consolidated financial statements, the Company has various intangibles which include patents, proprietary algorithms and non-compete

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agreements with the acquisition of ProstaGene, Inc. The Company evaluates on a quarterly basis whether any conditions exist, or events have occurred or are likely to occur that would impair the carrying value of the intangible assets.

Auditing the Company’s impairment assessment was challenging because the accrual involved a higher degree of management judgment with regards to the analysis of the undiscounted expected cash flows to the carrying value for the identifiable intangible assets.

How We Addressed the Matter in Our Audit - To evaluate the carrying value of identifiable intangible assets, our audit procedures included, among others:

II.Evaluation of the Capitalization and Carrying Value of Pre-Launch Inventory

Description of Matter and Relevant Accounts and Disclosures - As explained in Note 2 to the consolidated financial statements, the Company capitalizes pre-launch inventories procured or produced for product launches sufficient to support estimated initial demand. Typically, capitalization of such pre-launch inventory begins when the results of the clinical trial have reached a status sufficient for regulatory approval and the Company has determined that the capitalized costs will provide future economic benefits. Anticipated future sales, shelf lives, and expected approval dates are all factors when evaluating the realizability of capitalized inventory.

Auditing the Company’s pre-launch inventory was challenging because it involved a higher degree of management judgment to evaluate the probable future benefit to determine if the pre-launch inventory should be capitalized before regulatory approval.

How We Addressed the Matter in Our Audit - To evaluate the carrying value of pre-launch inventory our audit procedures included, among others:

• External confirmation of inventories held by others.

​ ​

/s/ Warren Averett, LLC ​

​ ​

We have served as the Company’s auditor since 2007. ​

Birmingham, Alabama ​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

​

To the Board of Directors and Stockholders

CytoDyn Inc.

​

Opinion on Internal Control over Financial Reporting

We have audited CytoDyn Inc.’s (the Company’s) internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

​

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets and the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows of the Company, and our report dated July 30, 2021, expressed an unqualified opinion.

​

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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/s/ Warren Averett, LLC

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Birmingham, Alabama

July 30, 2021

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CytoDyn Inc.

Consolidated Balance Sheets

(In thousands, except par value)

​ ​ ​ ​ ​ ​ ​

Assets ​ ​

Current assets: ​ ​

Restricted cash ​ — ​ 10

Operating leases right-of-use asset ​ 712 ​ 176

Property and equipment, net ​ 134 ​ 55

Liabilities and Stockholders’ (Deficit) Equity ​ ​

Current liabilities: ​ ​

Accrued liabilities and compensation ​ 19,073 ​ 6,879

Accrued interest on convertible notes ​ 2,007 ​ 292

Accrued dividends on convertible preferred stock ​ 2,647 ​ 981

Operating leases liabilities ​ 175 ​ 115

Convertible notes payable, net ​ 62,747 ​ 6,745

Warrant exercise proceeds held in trust ​ — ​ 10

Long-term liabilities: ​ ​

Convertible notes payable, net ​ — ​ 8,431

Operating leases liabilities ​ 552 ​ 63

Total long-term liabilities ​ 552 ​ 8,494

Commitments and Contingencies (Note 10) ​ ​

Stockholders’ (deficit) equity: ​ ​

Preferred Stock, $0.001 par value; 5,000 shares authorized ​ ​

Total stockholders’ (deficit) equity ​ (21,018) ​ (2,481)

Total liabilities and stockholders' (deficit) equity ​ $ 132,080 ​ $ 50,514

​

See accompanying notes to Consolidated Financial Statements.

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CytoDyn Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Years ended May 31,

Operating expenses: ​ ​ ​

Intangible asset impairment charge ​ ​ 10,049 ​ ​ — ​ ​ —

Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​

Other income ​ — ​ 500 ​ —

Interest income ​ 2 ​ 5 ​ 4

Change in fair value of derivative liabilities ​ — ​ (9,542) ​ 1,666

Loss on extinguishment of convertible notes ​ (19,896) ​ — ​ (1,520)

Interest expense: ​ ​ ​ ​ ​ ​

Finance charges ​ (147) ​ ​ (936) ​ ​ —

Amortization of discount on convertible notes ​ (3,591) ​ ​ (1,645) ​ ​ (1,707)

Amortization of debt issuance costs ​ (65) ​ ​ (404) ​ ​ (459)

Interest on convertible notes payable ​ (4,387) ​ ​ (7,330) ​ ​ (950)

Income tax benefit ​ — ​ ​ — ​ ​ 2,827

Basic and diluted loss per share ​ $ (0.27) ​ $ (0.30) ​ $ (0.21)

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See accompanying notes to Consolidated Financial Statements.

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Consolidated Statements of Stockholders’ (Deficit) Equity

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Issuance of stock payment shares — ​ — 8,342 ​ 8 — ​ — ​ (8) ​ — ​ —

Issuance costs related to debt offering — ​ — — ​ — — ​ — ​ 261 ​ — ​ 261

Proceeds from preferred stock offering 3 ​ — — ​ — — ​ — ​ 3,084 ​ — ​ 3,084

Dividends accrued on preferred stock — ​ — — ​ — — ​ — ​ — ​ (37) ​ (37)

Stock-based compensation — ​ — — ​ — — ​ — ​ 3,388 ​ — ​ 3,388

Preferred stock offerings ​ 14 ​ — ​ — ​ — ​ — ​ — ​ 13,409 ​ — ​ 13,409

Dividends accrued on preferred stock ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ (945) ​ (945)

Stock issued for services ​ — ​ — ​ 2,620 ​ 3 ​ — ​ — ​ (3) ​ — ​ —

Stock option exercises ​ — ​ — ​ 8,723 ​ 9 ​ — ​ — ​ 5,594 ​ — ​ 5,603

Stock-based compensation ​ — ​ — ​ — ​ — ​ — ​ — ​ 6,548 ​ — ​ 6,548

See accompanying notes to Consolidated Financial Statements.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Legal settlement ​ — ​ — ​ — ​ — ​ — ​ — ​ 22,500 ​ — ​ 22,500

Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 8,822 ​ ​ — ​ ​ 8,822

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See accompanying notes to Consolidated Financial Statements.

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CytoDyn Inc.

Consolidated Statements of Cash Flows

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years ended May 31,

Cash flows from operating activities: ​ ​ ​

Amortization of debt issuance costs ​ 65 ​ 404 ​ 459

Amortization of discount on convertible notes ​ 3,591 ​ 1,645 ​ 1,707

Legal settlement ​ ​ — ​ ​ 22,500 ​ ​ —

Change in fair value of derivative liabilities ​ — ​ 9,542 ​ (1,666)

Loss on extinguishment of convertible notes ​ 19,896 ​ — ​ 1,520

Intangible asset impairment charge ​ 10,049 ​ — ​ —

Deferred income tax benefit ​ ​ — ​ ​ — ​ ​ (2,827)

Changes in operating assets and liabilities: ​ ​ ​ ​

(Increase) in inventories, net ​ (74,332) ​ (19,147) ​ —

Decrease (increase) in miscellaneous receivables ​ ​ — ​ ​ 91 ​ ​ (91)

Decrease (increase) in prepaid expenses ​ ​ 1,228 ​ ​ (1,577) ​ ​ (464)

Increase in accounts payable and accrued expenses ​ 53,012 ​ 19,040 ​ 1,741

Cash flows from investing activities: ​ ​ ​

Intangibles ​ ​ — ​ ​ — ​ ​ (19)

Furniture and equipment purchases ​ (122) ​ (41) ​ (26)

Net cash used in investing activities ​ (122) ​ (41) ​ (45)

Cash flows from financing activities: ​ ​ ​

Proceeds from warrant transactions, net of offering costs ​ ​ 17,060 ​ ​ — ​ ​ —

Proceeds from sale of common stock and warrants ​ 1,000 ​ 12,666 ​ 38,269

Proceeds from warrant exercises ​ 19,428 ​ 38,422 ​ —

Payment on convertible notes ​ (950) ​ (2,185) ​ —

Exercise of option to repurchase shares held in escrow ​ — ​ (8) ​ —

Release of funds held in trust for warrant tender offer ​ (10) ​ (844) ​ 854

Proceeds from stock option exercises ​ ​ 1,839 ​ ​ 5,602 ​ ​ —

Payment of conversion offering costs ​ — ​ (2,303) ​ (4,337)

Dividend declared and paid on Series B preferred stock ​ ​ (243) ​ ​ — ​ ​ —

Cash and restricted cash, beginning of period ​ 14,292 ​ 3,467 ​ 1,231

Cash and restricted cash, end of period ​ $ 33,943 ​ $ 14,292 ​ $ 3,467

Cash and restricted cash consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​

Restricted cash ​ ​ — ​ ​ 10 ​ ​ 854

Supplemental disclosure of cash flow information: ​ ​ ​

Cash paid during the period for interest ​ $ 147 ​ $ 243 ​ $ —

Non-cash investing and financing transactions: ​ ​ ​

Accrued dividends on convertible preferred stock ​ $ 1,666 ​ $ 944 ​ $ 37

Cashless exercise of warrants ​ $ 11 ​ $ — ​ $ —

Issuance of stock for legal settlement ​ $ 4 ​ $ — ​ $ —

Derivative liability associated with warrants ​ $ — ​ $ 11,949 ​ $ —

Common stock issued for accrued bonus compensation ​ $ — ​ $ 155 ​ $ —

Common stock issued for services ​ $ — ​ $ 3 ​ $ 8

Common stock issued for acquisition of ProstaGene, LLC ​ $ — ​ $ — ​ $ 11,558

Issuance costs associated with placement agent warrants ​ $ — ​ $ — ​ $ 261

​

See accompanying notes to Consolidated Financial Statements.

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CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF MAY 31, 2021

Note 1. Organization

CytoDyn Inc. (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 late-stage biotechnology company developing innovative treatments for multiple therapeutic indications based on leronlimab, a novel humanized monoclonal antibody targeting the CCR5 receptor. Leronlimab is in a class of therapeutic monoclonal antibodies designed to address unmet medical needs for which the Company is focused on developing treatments in the areas of human immunodeficiency virus (“HIV”), cancer, immunology, and novel coronavirus disease (“COVID-19”).

Leronlimab belongs to a class of HIV therapies known as entry inhibitors which block HIV from entering and infecting specific cells. For cancer and immunology, the CCR5 receptor also appears to be implicated in human metastasis and in immune-mediated illnesses such as triple-negative breast cancer, other metastatic solid tumor cancers, and non-alcoholic steatohepatitis (“NASH”). For COVID-19 the Company believes leronlimab may be shown to provide therapeutic benefit by enhancing the immune response and also mitigating the “cytokine storm” that leads to morbidity and mortality in patients experiencing this syndrome.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary, CytoDyn Operations Inc. All intercompany transactions and balances are eliminated in consolidation.

Reclassifications

Certain prior year amounts shown in the accompanying Consolidated Financial Statements have been reclassified to conform to the current period presentation. These reclassifications did not have any effect on the Company’s financial position, results of operations, stockholders’ (deficit) equity, or net cash provided by financing activities as previously reported.

Going Concern

The consolidated accompanying 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. As shown in the accompanying Consolidated Financial Statements, the Company had losses for all periods presented. The Company incurred a net loss of $154.7 million, $124.4 million, and $56.2 million for the years ended May 31, 2021, May 31, 2020, and May 31, 2019, respectively, and has an accumulated deficit of $511.3 million as of May 31, 2021. These factors, among others, 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 continuation as a going concern is dependent upon its ability to obtain additional operating capital, complete development of its product candidate, leronlimab, obtain approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve initial revenues and attain profitability. The Company continues to engage in significant 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 clinical trials. 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 largely from the sale of

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equity and debt securities, combined with additional funding from other traditional sources. There can be no assurance, however, that the Company will be successful in these endeavors.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with 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 expenses during the reporting period. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease could have on our significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Actual results could differ from these estimates.

Cash

Cash is maintained at federally insured financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. Balances in excess of federally insured limits at May 31, 2021 and May 31, 2020 approximated $33.7 million and $14.0 million, respectively.

Identified Intangible Assets

The Company follows the provisions of ASC 350, Intangibles-Goodwill and Other, which establishes accounting standards for the impairment of long-lived assets such as intangible assets subject to amortization. The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying value, the asset is considered impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. The Company recognized an impairment charge of approximately $10.0 million for the year ended May 31, 2021, and none for the years ended May 31, 2020, and May 31, 2019. The value of the Company’s patents would be significantly impaired by any adverse developments as they relate to the clinical trials pursuant to the patents acquired as discussed in Note 8.

Research and Development

Research and development costs are expensed as incurred. Clinical trial costs incurred through third-parties are expensed as the contracted work is performed. Contingent milestone payments that are due to third parties under research and development collaboration arrangements or other contractual agreements are expensed when the milestone conditions are probable and the amount of payment is reasonably estimable. See Notes 9 and 10.

Inventories

The Company values inventory at the lower of cost or net realizable value using the average cost method. Inventories consist of raw materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic, leronlimab, which is in the regulatory approval process. The consumption of raw materials during production is 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. Inventory 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 for pre-launch inventory, the Company relies on independent analyses provided by third-parties knowledgeable of the range of likely commercial prices comparable to current comparable commercial product.

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The Company capitalizes 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 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 is 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.

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 inventory, the Company considers the product stability data of all of the pre-approval inventory procured or produced to date to determine whether there is adequate shelf life. 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. Further, in addition to performing additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, accounts receivable, right-of-use assets, accounts payable, accrued liabilities, short-term and long-term lease liabilities, and short-term and long-term debt. As of May 31, 2021, the carrying value of the Company’s cash, accounts payable, and accrued liabilities approximate their fair value due to the short-term maturity of the instruments. Short-term and long-term debt are reported at amortized cost in the Consolidated Balance Sheets which approximate fair value. The remaining financial instruments are reported in the Consolidated Balance Sheets at amounts that approximate current fair values.

During the fiscal year ended May 31, 2021 the Company carried derivative financial instruments at fair value as required by U.S. GAAP. Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variables (e.g., interest rate, security price, variable conversion rate or other variables), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. The Company follows the provisions of ASC 815, Derivatives and Hedging, as their instruments are recorded as a derivative liability, at fair value, and ASC 480, Distinguishing Liabilities from Equity, as it relates to warrant liability, with changes in fair value reflected in the Consolidated Statement of Operations.

The fair value hierarchy specifies three levels of inputs that may be used to measure fair value as follows:

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

The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of May 31, 2021 and May 31, 2020. As of May 31, 2020, there were no assets or liabilities measured at fair value

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using Level 3 inputs; previous outstanding derivative warrants and related convertible debt valued at fair value using level 3 inputs were converted prior to May 31, 2020 according to the terms of the agreements.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. These instruments are not quoted on an active market. During the 2020 fiscal year, the Company used a Binomial Lattice Model to estimate the value of the warrant derivative liability and a Monte Carlo Simulation to value the derivative liability of the redemption provision within a convertible promissory note. These valuation models were used because management believes they reflect all the assumptions that market participants would likely consider in negotiating the transfer of the instruments. The Company’s derivative liabilities were classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models.

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from inception to the year ended May 31, 2020 (in thousands):

​ ​ ​ ​

Investor warrants issued with registered direct equity offering $ 4,360

Placement agent warrants issued with registered direct equity offering ​ 819

Fair value adjustments ​ (3,855)

Inception date value of redemption provisions ​ 2,750

Fair value adjustments—convertible notes ​ (745)

Fair value adjustments—warrants ​ (922)

Fair value adjustments—convertible notes ​ (2,005)

Fair value adjustments—warrants ​ 11,547

Exercise of derivative warrants ​ (11,949)

​

Operating Leases

Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating leases payable and operating leases liabilities in the Consolidated Balance Sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms do not include options to extend or terminate the lease as it is not reasonably certain that it would exercise these options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

Stock-Based Compensation

U.S. GAAP requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The related expense is recognized over the period during which an employee is required to provide services in exchange for the award (requisite service period), when designated milestones have been achieved or when pre-defined performance conditions are met.

The Company accounts for stock-based awards established by the fair market value of the instrument using the Black-Scholes option pricing model utilizing certain weighted average assumptions including stock price volatility, expected term and risk-free interest rates, as of the grant date. For stock-based awards with defined vesting, the Company recognizes compensation expense over the requisite service period, when designated milestones have been achieved or when pre-defined performance conditions are met. The Company estimates forfeitures at the time of grant and revised, if

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necessary, in subsequent periods, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, the Company estimated future unvested forfeitures at 0% for all periods presented. Periodically, the Company will issue restricted common stock to executives or third parties as compensation for services rendered. Such stock awards are valued at fair market value on the effective date of the Company’s obligation.

The Company periodically issues stock options or warrants to consultants and advisors for various services. The Black-Scholes option pricing model, as described more fully above, is used to measure the fair value of the equity instruments on the date of issuance. The Company recognizes the compensation expense associated with the equity instruments over the requisite service or vesting period.

Debt

The Company has historically issued promissory notes at a discount and has incurred direct debt issuance costs. Debt discount and issuance costs are netted against the debt and amortized over the life of the convertible promissory note in accordance with ASC 470-35, Debt Subsequent Measurement.

Offering Costs

The Company periodically incurs direct incremental costs associated with the sale of equity securities as fully described in Note 12. The costs are recorded as a component of equity upon receipt of the proceeds.

Loss per Common Share

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

The table below shows the numbers of shares of common stock issuable upon the exercise, vesting, or conversion of outstanding options, warrants, unvested restricted stock including those subject to performance conditions, convertible preferred stock (including undeclared dividends), and convertible notes that were not included in the computation of basic and diluted weighted average number of shares of common stock outstanding for the years ended May 31, 2021, May 31, 2020 and May 31, 2019 (in thousands):

​

​ ​ ​ ​ ​ ​ ​

​ ​ Years ended May 31,

​

Income Taxes

Deferred taxes are provided on the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Future tax benefits for net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized.

The Company follows the provisions of ASC 740-10, Uncertainty in Income Taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits for all periods presented. The Company has not recognized interest expense or penalties from the implementation of ASC

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740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefit in interest expense and penalties in operating expenses.

In accordance with Section 15 of the Internal Revenue Code, the Company utilized a federal statutory rate of 21% for our fiscal 2021 and 2020 tax years. The net tax expense for the years ended May 31, 2021 and May 31, 2020 was zero. The Company recorded a tax benefit of $2.8 million for the year ended May 31, 2019. The Company has a full valuation allowance as of May 31, 2021 and May 31, 2020, as management does not consider it more than likely than not that the benefits from the net deferred taxes will be realized.

Recent Accounting Pronouncements

Recent accounting pronouncements, other than below, issued by the FASB (including its EITF), the AICPA and the SEC did not or are not believed by management to have a material effect on the Company’s present or future Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The objective of the standard is to improve areas of U.S. GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate consistent application. The standard is effective for the Company beginning on June 1, 2021. The Company does not expect the new standard to have a material impact on its financial condition, results of operations, cash flows, and financial statement disclosures.

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 which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully 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. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the potential impact, if any, of adoption on its Consolidated Financial Statements.

Note 3. Inventories

The Company’s pre-launch inventories consist of raw materials purchased for commercial production and work-in-progress inventory related to the substantially completed commercial production of pre-launch inventories of leronlimab to support the Company’s expected approval of the product as a combination therapy for HIV patients in the United States. Work-in-progress consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials.

Inventories as of May 31, 2021 and May 31, 2020 are presented below (in thousands):

​

​ ​ ​ ​ ​ ​ ​

Work-in-progress ​ 65,394 ​ —

​

During the quarter ended February 28, 2021, the Company was notified by a third-party contract manufacturing partner that, due to an operational error committed by the contract manufacturer, one of the batches of a multiple-batch manufacturing campaign failed to meet quality standards, and thus would not be saleable upon regulatory approval. In accordance with the agreement, the contract manufacturer assumed liability for the failure and all costs to manufacture the batch, and committed to remanufacture the batch at a future date. As a result, the Company reduced work-in-progress inventory and the related amounts due to the contract manufacturer by $6.1 million. No other inventory was affected by this failure, and all other inventory has successfully passed quality standards.

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The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from its Phase 3 clinical trial for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients, as well as information gathered from meetings with the FDA related to its Biologics License Application (“BLA”) for this indication. The Company submitted the last two portions of the BLA (clinical and manufacturing) with the FDA in April 2020 and May 2020. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submittal requesting additional information. In August and September 2020, the FDA provided written responses to the Company’s questions and met telephonically with key Company personnel and its clinical research organization concerning its BLA to expedite the resubmission of its BLA.

​

The deficiencies cited by the FDA in its July 2020 Refusal to File letter consisted of administrative deficiencies, omissions, corrections to data presentation, and related analyses and clarifications of manufacturing processes. The Company commenced its resubmission of the BLA in July 2021 and expected to be completed in October 2021.

The Company is working with new consultants to cure the BLA deficiencies and resubmit the BLA in order to allow the FDA to perform their substantive review. The Company anticipates that when the FDA completes their review, leronlimab will be approved, and we will achieve market acceptance of leronlimab as a treatment for HIV, realizing the amount of pre-launch inventory on-hand prior to shelf-life expiration. Accordingly, management believes the Company will realize future economic benefit in excess of the carrying value of its pre-launch inventory.

The expiration of remaining shelf-life of the Company’s inventories consists of the following as of May 31, 2021 (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Inventories reserved ​ ​ ​ ​ (695) ​ ​ - ​ ​ - ​ ​ (695)

​

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. Further, in addition to performing additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration; however, at May 31, 2021 and 2020 there was no drug product inventory that may be sold. If the Company determines it is not likely shelf-life will be able to be extended or the inventory cannot be sold prior to expiration, the Company will write-down the inventory to its net realizable value. For the fiscal year ended May 31, 2021 the Company recognized expense related to the write-down of obsolete inventory of $0.7 million and recognized zero expense during the years ended May 31, 2020, and May 31, 2019.

​

​

Note 4. Accounts Payable and Accrued Liabilities

As of May 31, 2021 and May 31, 2020, the accounts payable balance was approximately $65.9 million and $29.5 million, respectively. The Company had two vendors that accounted for approximately 72% and 14%, and 49% and 20%, of the total balance of accounts payable as of May 31, 2021 and May 31, 2020, respectively.

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The components of accrued liabilities were as follows as of May 31, 2021 and 2020 (in thousands):

​

​ ​ ​ ​ ​ ​ ​

Accrued compensation and related expense ​ $ 4,005 ​ $ 1,723

Accrued legal settlement and fees ​ ​ 11,008 ​ ​ 400

Accrued other liabilities ​ 4,060 ​ 4,756

Total accrued liabilities ​ $ 19,073 ​ $ 6,879

​

Note 5. Convertible Instruments

Convertible Preferred Stock

Series D Convertible Preferred Stock

As of May 31, 2021, the Company had authorized 11,737 shares of Series D Convertible Preferred Stock, $0.001 par value per share (“Series D Preferred Stock”), of which 8,452 shares were outstanding. The Series D Certificate of Designation provides, among other things, that holders of Series D Preferred Stock shall be entitled to receive, when and as declared by the Company’s Board of Directors (the “Board”) and out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series D Preferred Stock, which is $1,000 per share (the “Series D Stated Value”). Any dividends paid by the Company will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series D Preferred Stock are cumulative, and will accrue and be compounded annually, whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Preferred Stock does not have redemption rights. Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of applicable Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share. As of May 31, 2021, and May 31, 2020, the accrued dividends were approximately $1.1 million, or approximately 2.2 million shares of common stock, and approximately $0.3 million, or approximately 0.5 million shares of common stock, respectively.

In the event of any liquidation, dissolution or winding up of the Company, the holders of Series D Preferred Stock will be entitled to receive, on a pari passu basis with the holders of the Series C Convertible Preferred Stock, $0.001 par value per share (“Series C Preferred Stock”), and in preference to any payment or distribution to any holders of the Series B Convertible Preferred Stock, $0.001 par value per share (“Series B Preferred Stock”), or common stock, an amount per share equal to the Series D Stated Value plus the amount of any accrued and unpaid dividends. If, at any time while the Series D Preferred Stock is outstanding, the Company effects any reorganization, merger or consolidation of the Company, sale of substantially all of its assets, or other specified transaction (each, as defined in the Series D Certificate of Designation, a “Fundamental Transaction”), a holder of the Series D Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series D Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series D Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of common stock determined by dividing the Series D Stated Value by the conversion price of $0.50 (subject to adjustment as set forth in the Series D Certificate of Designation). No fractional shares will be issued upon the conversion of the Series D Preferred Stock. Except as otherwise provided in the Series D Certificate of Designation or as otherwise required by law, the Series D Preferred Stock has no voting rights.

Series C Convertible Preferred Stock

As of May 31, 2021, the Company had authorized 8,203 shares of Series C Convertible Preferred Stock, $0.001 par value per share (“Series C Preferred Stock”), of which 8,203 shares were outstanding. The Series C Certificate of Designation provides, among other things, that holders of Series C Preferred Stock shall be entitled to receive, when and

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as declared by the Board and out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series C Preferred Stock, which is $1,000 per share (the “Series C Stated Value”). Any dividends paid by the Company will be paid to the holders of Series C Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series C Preferred Stock are cumulative, and will accrue and be compounded annually, whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. There are no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Preferred Stock does not have redemption rights. Dividends, if declared by the Board, are payable to holders in arrears on December 31 of each year. Subject to the provisions of applicable Delaware law, the holder may elect to be paid in cash or in restricted shares of common stock at the rate of $0.50 per share. As of May 31, 2021 and May 31, 2020, the accrued dividends were approximately $1.5 million or, approximately 3.0 million shares of common stock, and approximately $0.7 million or approximately 1.4 million shares of common stock, respectively.

In the event of any liquidation, dissolution or winding up of the Company, the holders of Series C Preferred Stock will be entitled to receive, on a pari passu basis with the holders of the Series D Preferred Stock and in preference to any payment or distribution to any holders of the Series B Preferred Stock or common stock, an amount per share equal to the Series C Stated Value plus the amount of any accrued and unpaid dividends. If, at any time while the Series C Preferred Stock is outstanding, the Company effects a reorganization, merger or consolidation of the Company, sale of substantially all of its assets, or other specified transaction (each, as defined in the Series C Certificate of Designation, a “Fundamental Transaction”), a holder of the Series C Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series C Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series C Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of common stock determined by dividing the Series C Stated Value by the conversion price of $0.50 (subject to adjustment as set forth in the Series C Certificate of Designation). No fractional shares will be issued upon the conversion of the Series C Preferred Stock. Except as otherwise provided in the Series C Certificate of Designation or as otherwise required by law, the Series C Preferred Stock has no voting rights.

Series B Convertible Preferred Stock

As of May 31, 2021, the Company had authorized 400,000 shares of Series B Preferred Stock, of which 79,000 shares remain outstanding. Each share of the Series B Preferred Stock is convertible into ten (10) shares of the Company’s common stock. Dividends are payable to the Series B Preferred stockholders when and as declared by the Board at the rate of $0.25 per share per annum. Such dividends are cumulative and accrue whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available therefor. At the option of the Company, dividends on the Series B Preferred Stock may be paid in cash or shares of the Company’s common stock, valued at $0.50 per share. The holders of the Series B Preferred Stock can only convert their shares to shares of common stock if the Company has sufficient authorized shares of common stock at the time of conversion. The Series B Preferred Stock has liquidation preferences over the common shares at $5.00 per share, plus any accrued and unpaid dividends. Except as provided by law, the Series B holders have no voting rights. On July 30, 2020, the Board declared a dividend and elected to pay such dividend in the form of cash in the aggregate amount of approximately $0.2 million to all Series B Preferred stockholders. As of May 31, 2021, and May 31, 2020, the undeclared dividends were approximately $17,800 or 35,500 shares of common stock, and approximately $0.2 million, or 0.5 million shares of common stock, respectively.

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Convertible Notes

The following schedule sets forth the outstanding balance of convertible notes as of May 31, 2021 and May 31, 2020 (in thousands).

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Outstanding balance May 31, 2020 $ 15,467 ​ $ - ​ $ - ​ $ - ​ $ -

Cash repayments ​ (950) ​ ​ - ​ ​ - ​ ​ - ​ ​ -

Conversions ​ (9,538) ​ ​ - ​ ​ - ​ ​ - ​ ​ -

Debt extinguishment loss ​ 4,169 ​ ​ 9,300 ​ ​ 6,427 ​ ​ - ​ ​ -

​

2019 Short-term Convertible Notes

During the year ended May 31, 2019, the Company issued approximately $5.5 million of nine-month unsecured Convertible Notes (the “2019 Short-term Convertible Notes”) and related warrants to investors for cash. The principal amount of the 2019 Short-term Convertible Notes, including any accrued but unpaid interest thereon, was convertible at the election of the holder at any time into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. The 2019 Short-term Convertible Notes accrued simple interest at the annual rate of 10%. Principal and accrued interest, to the extent not previously paid or converted, was due and payable on the maturity date. At the commitment dates, the Company determined that the conversion feature related to these 2019 Short-term Convertible Notes was beneficial to the investors. As a result, the Company determined the intrinsic value of the beneficial conversion feature utilizing the fair value of the underlying common stock on the commitment dates and the effective conversion price after discounting the 2019 Short-term Convertible Notes for the fair value of the related warrants. In connection with the sale of the 2019 Short-term Convertible Notes, detachable common stock warrants to purchase a total of 5.46 million common shares, with an exercise price of $0.30 per share and a five-year term, were issued to the investors. The Company determined the fair value of the warrants at issuance using the Black-Scholes option pricing model utilizing certain weighted average assumptions, such as expected stock price volatility, expected term of the warrants, risk-free interest rates, and expected dividend yield at the grant date.

​

​ ​ ​ ​ ​

Expected dividend yield ​ 0 %

Stock price volatility ​ 55.8 - 55.88 %

Expected term ​ 5 year ​

Risk-free interest rate ​ 2.48 - 2.56 %

Grant-date fair value ​ $ 0.30 - $0.38 ​

​

The fair value of the warrants, coupled with the beneficial conversion features, was recorded as a debt discount to the 2019 Short-term Convertible Notes and a corresponding increase to additional paid-in capital and will be amortized over the life of the 2019 Short-term Convertible Notes. In connection with the 2019 Short-term Convertible Notes, the placement agent earned a “tail fee” comprising warrants covering approximately 0.97 million shares of common stock and a cash fee of approximately $0.6 million. The placement agent warrants were exercisable at a price of $0.50 per share, expire five years from the date of issuance and include a cashless exercise provision. During the year ended May 31, 2019, in connection with the 2019 Short-term Convertible Notes, the Company incurred debt discount of approximately $3.1 million, related to the beneficial conversion feature and detachable warrants issued with the 2019 Short-term Convertible Notes and approximately $0.8 million in issuance costs. The debt discount and issuance costs will be amortized over the term of the 2019 Short-term Convertible Notes. Accordingly, the Company recognized

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approximately $1.7 million and $0.5 million of debt discount and issuance costs, respectively, during the year ended May 31, 2019. See Note 17.

Beginning on September 30, 2019 and through November 14, 2019, principal and interest totaling approximately $5.9 million became due. Holders of notes totaling approximately $1.1 million in principal and accrued interest agreed to extend their notes for another three months, and holders of notes totaling approximately $4.1 million in principal and accrued interest agreed to extend their notes for another six months. One noteholder with principal and accrued interest totaling approximately $0.2 million converted to shares of common stock. During the quarter ended November 30, 2019, a total of approximately $0.7 million of principal and accrued interest was repaid in cash. In addition, detachable stock warrants to purchase a total of 4.75 million warrants with a five-year term and an exercise price of $0.30 per share were issued to investors who extended their notes. One investor received 0.2 million warrants with a five-year term and an exercise price of $0.45 per share for converting the entire principal and accrued interest on its note. In connection with the 2019 Short-term Convertible Note extensions and conversion, the Company recorded a non-cash inducement interest expense of approximately $0.3 million during the quarter ended November 30, 2019. The new principal amount of the 2019 Short-term Convertible Notes, including any accrued but unpaid interest thereon, was convertible at the election of the holders at any time into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. At the new commitment dates, the Company determined that there was a decrease in the fair value of the embedded conversion option resulting from the modification, the value of which is not required to be recognized under U.S. GAAP.

During the fiscal year ended May 31, 2020, holders of the 2019 Short-term Convertible Notes in the aggregate principal amount of $5.2 million, including accrued but unpaid interest, tendered notices of conversion at the stated conversion rate of $0.50 per share. The Company issued approximately 10.4 million shares of common stock in satisfaction of the conversion notices. Following the redemptions, the 2019 Short-term Convertible Notes have been fully satisfied and there is no outstanding balance at May 31, 2021.

Activity related to the 2019 Short-term Convertible Notes was as follows (in thousands):

​

​ ​ ​ ​ ​ ​ ​

​ Years ended May 31,

Face value of Short-term Convertible Notes ​ $ 5,460 ​ $ 5,460

Unamortized discount ​ — ​ (1,470)

Unamortized issuance costs ​ — ​ (404)

Accrued interest converted into principal ​ 154 ​ —

Note repayment ​ (460) ​ —

Note conversions into common stock ​ (5,154) ​ —

Carrying value of Short-term Convertible Notes ​ $ — ​ $ 3,586

​

The Company recognized approximately $0.4 million and $0.2 million of interest expense for the fiscal years ended May 31, 2020 and May 31, 2019, respectively.

Long-term Convertible Note - June 2018 Note

On June 26, 2018, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note (the “June 2018 Note”) with a two-year term to an institutional accredited investor in the initial principal amount of $5.7 million. The investor paid consideration of $5.0 million to the Company. The June 2018 Note accrued interest at an annual rate of 10% and was convertible into common stock, at a conversion rate of $0.55 per share. The June 2018 Note provided for conversion in whole, or in part, of the outstanding balance, into common stock at any time beginning six months following the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the June 2018 Note, and allowed for redemption, at any time beginning six months following the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $0.35 million. The securities purchase agreement required the Company to reserve shares for future conversions or redemptions by dividing the outstanding principal balance plus accrued interest by the conversion price of $0.55 per

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share times 1.5. As a result of the entry into the January 2019 Note (as defined below), the Company’s obligations under the June 2018 Note were secured by all of the assets of the Company, excluding the Company’s intellectual property.

Effective November 15, 2018, the June 2018 Note was amended to allow the investor to redeem the monthly redemption amount of $0.35 million in cash or stock, at the lesser of (i) $0.55, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The variable rate redemption provision meets the definition of a derivative instrument and subsequent to the amendment, it no longer meets the criteria to be considered indexed to the Company’s common stock. As of November 15, 2018, the redemption provision required bifurcation as a derivative liability at fair value under the guidance in ASC 815, Derivatives and Hedging.

The amendment of the June 2018 Note was also evaluated under ASC 470-50-40, Debt Modifications and Extinguishments. Based on the guidance, the instruments were determined to be substantially different, and debt extinguishment accounting was applied. The Company recorded approximately $1.5 million as an extinguishment loss, which was the difference in the net carrying value of the June 2018 Note prior to the amendment of approximately $5.4 million, and the fair value of the June 2018 Note and embedded derivatives after the amendment of approximately $6.9 million. The extinguishment loss included a write-off of unamortized debt issuance costs and the debt discount associated with the original June 2018 Note.

The Company recognized approximately $0.4 million of interest expense related to the June 2018 Note during each of the fiscal years ended May 31, 2020 and May 31, 2019. During the year ended May 31, 2019, the Company received redemption notices from the holder of the Company’s June 2018 Note, requesting an aggregate redemption of approximately $1.5 million of the outstanding balance thereof. In satisfaction of the redemption notices, the Company issued a total of approximately 3.8 million shares of common stock to the June 2018 Note holder in accordance with the terms of the June 2018 Note. During the year ended May 31, 2020, the Company received redemption notices requesting an aggregate redemption of approximately $4.5 million settling the remaining outstanding balance in full, including accrued but unpaid interest. In satisfaction of the redemption notice, the Company issued approximately 8.5 million shares of common stock and paid cash totaling approximately $0.5 million to the June 2018 Note holder in accordance with the terms of the June 2018 Note. Following the redemptions, the June 2018 Note was fully satisfied and there was no outstanding balance at May 31, 2020.

Long-term Convertible Note - January 2019 Note

On January 30, 2019, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note with a two-year term to the holder of the June 2018 Note in the initial principal amount of $5.7 million (the “January 2019 Note”). In connection with the issuance of the January 2019 Note, the Company granted a lien against all the assets of the Company, excluding the Company’s intellectual property, to secure all obligations owed to the investor by the Company (including those under both the January 2019 Note and the June 2018 Note). The investor paid consideration of $5.0 million to the Company, reflecting original issue discount of $0.6 million and issuance costs of $0.1 million. The January 2019 Note accrued interest at an annual rate of 10% and was convertible into common stock, at a conversion rate of $0.50 per share. The January 2019 Note provided for conversion in whole, or in part, of the outstanding balance, at any time beginning six months following the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the January 2019 Note. The Company analyzed the conversion option for derivative accounting treatment under ASC 815, Derivatives and Hedging, and determined that the embedded conversion option did not qualify for derivative accounting.

The January 2019 Note provided the investor with the right to redeem any portion of the January 2019 Note, at any time beginning six months following the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $0.35 million. The monthly redemption amount may be paid in cash or common stock, at the Company’s election, at the lesser of (i) $0.50, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The redemption provision met the definition of a derivative instrument and did not meet the criteria to be considered indexed to the Company’s common stock. Therefore, the redemption provision required bifurcation as a derivative liability at fair value under the guidance in ASC 815,

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Derivatives and Hedging. The securities purchase agreement required the Company to reserve 20 million shares of common stock for future conversions or redemptions.

In conjunction with the January 2019 Note, the investor received a warrant to purchase 5.0 million shares of common stock with an exercise price of $0.30 which is exercisable until the 5-year anniversary of the date of issuance. All the warrants were exercised during the fiscal year ended May 31, 2020. The warrant achieved equity classification at inception. The net proceeds of $5.0 million were allocated first to the redemption provision at its fair value, then to the warrants at their relative fair value and the beneficial conversion feature at its intrinsic value as follows (in thousands):

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​ ​ ​ ​

Fair value of redemption provision ​ $ 1,465

Relative fair value of equity classified warrants ​ 858

Beneficial conversion feature ​ 2,677

Net proceeds of January 2019 Note ​ $ 5,000

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Under the guidance of ASC 815, Derivatives and Hedging, after allocation of proceeds to the redemption provision, relative fair value of equity classified warrants and the beneficial conversion feature, there were no proceeds remaining to allocate to the convertible note payable. Therefore, principal, accrued interest, debt discount and offering costs will be recognized as interest expense, which represents the accretion of the convertible note payable and related debt discount and issuance costs. During the fiscal years ended May 31, 2020 and May 31, 2019, the Company recognized approximately $6.1 million and approximately $0.1 million, respectively, of interest expense related to the January 2019 Note. Interest expense recorded during the year ended May 31, 2020 included approximately $5.8 million representing accretion of the remaining unamortized discount on the January 2019 Note that was recognized immediately upon conversion of the debt in accordance with ASC 470-20-40-1. During the year ended May 31, 2020, the Company received a redemption notice from the holder of the January 2019 Note, requesting an aggregate redemption of approximately $6.3 million settling the remaining outstanding balance in full, including accrued interest. In satisfaction of the redemption notice, the Company issued approximately 10.8 million shares of common stock and paid cash totaling $0.85 million to the January 2019 Note holder in accordance with the terms of the January 2019 Note. Following the redemption, the January 2019 Note has been fully satisfied and there is no outstanding balance at May 31, 2020.

Activity related to the June 2018 Note and the January 2019 Note is as follows (in thousands):

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Current Non-current Total