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 Form 10-K, including our consolidated financial statements and related notes set forth in Part II, 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

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forward-looking statements. See Forward-Looking Statements preceding Part I, Item 1A, Risk Factors of this Form 10-K.

Overview

The Company is a biotechnology company focused on the clinical development and potential commercialization of its product candidate, leronlimab (PRO 140), which is being studied for the treatment of HIV infection, NASH, oncology and other immunologicalindications. Our current business strategy is to seek the removal of the partial and full clinical holds recently imposed by the US FDA in March 2022, evaluate feasibility and timelines for the resubmission of our BLA for leronlimab as a combination therapy for highly treatment-experienced HIV patients, and to seek to further develop leronlimab for other HIV-related indications. We also seek to advance our clinical development of leronlimab for various forms of cancer, including metastatic triple negative breast cancer (“mTNBC”) and other solid tumors, as well as to continue to evaluate NAFLD and NASH, and concurrently to explore other potential immunologic indications for leronlimab.

As further discussed in Part II, Item 8, Note 2, Summary of Significant Accounting Policies - Inventories, Note 3, Inventories, net, and Note 10, Commitments and Contingencies, the Company capitalized procured or produced pre-launch inventories in preparation for product launches. The Company considers anticipated future sales, shelf-lives, and expected approval date 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 may 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. In determining whether pre-approval inventory remains salable, the Company considers a number of factors, including potential delays in obtaining regulatory approval, the introduction of competing products that may negatively impact the demand for our product, the likelihood that physicians would be willing to prescribe leronlimab to their patients, and whether the target patient population would be willing to try leronlimab as a new therapy.

Fiscal 2022 Overview

Fiscal 2022 was a transitional year for the Company which included:

● Completion of COVID-19 Long-Haulers, NASH, and oncology studies;

● Resubmission of two of the three sections of the HIV BLA;

● Acceptance of five articles into various scientific journals;

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Clinical and corporate development highlights are provided below.

HIV BLA and Clinical Developments

The remaining BLA section to be completed and submitted remains in progress as of the date of this report. The Company is in a dispute with its former contract research organization (“CRO”); the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA, which the CRO had been withholding, thereby preventing the Company from completing necessary clinical data submissions to the FDA. The order granted the Company access to the data and the right to perform an audit of the CRO’s services. In March 2022, the FDA notified the Company that it had placed a partial clinical hold on the Company’s HIV program; the Company was not enrolling any new patients in the trials placed on hold. The partial clinical hold on the HIV program impacted patients currently enrolled in HIV extension trials. The affected patients have been transitioned to other available therapeutics. No clinical studies can be initiated or resumed until the partial clinical hold is resolved, which may affect our ability to resubmit the BLA. The Company’s efforts are focused on activities that will allow us to resolve the partial clinical hold and resume the BLA resubmission process. The Company will update the status of its anticipated resubmission of the clinical section of the BLA once it determines a date for resubmission.

Earlier in fiscal 2022, the Company completed the following:

NASH Clinical Developments

There is currently no approved drug for NASH, and liver disease is one of the leading causes of non-AIDS-related death in HIV patients. The Company is identifying the next steps in clinical development and is exploring potential business opportunities to continue the investigation of leronlimab in the NASH indication and HIV patients with NASH. In October 2019, the FDA granted clearance to CytoDyn to proceed with a Phase 2 study to test whether leronlimab may control the effects of liver fibrosis associated with NASH. This trial was converted to an exploratory trial with an open label 350mg arm. The first patient was enrolled in December 2020. Leronlimab 700mg did not reduce mean change in PDFF and cT1 from baseline to week 14 versus placebo and did not meet its primary or secondary endpoints. Leronlimab 350mg significantly reduced mean change in PDFF and cT1 from baseline to week 14 versus placebo. Despite increased fibro-inflammation, in patients with moderate and severe cT1 values at baseline, leronlimab 350mg showed significantly reduced cT1 from baseline to week 14 versus placebo.

Cancer Clinical Developments

During 2021, the Company reported results from mTNBC patients who had failed at least two lines of previous therapy in the Compassionate Use program, our Phase 1b/2 clinical trial, and our Basket trial. The data were insufficient to support resubmission of a Breakthrough Therapy designation request without additional data. The Company is identifying the next steps in clinical development and potential business opportunities to continue the development of this indication, including potentially facilitating research in leronlimab’s role in oncology at various academic institutions.

Earlier in fiscal 2022, the Company completed the following:

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COVID-19 Clinical Developments

In March 2022, the FDA notified the Company it had placed a full clinical hold on the Company’s COVID-19 program. The Company was not conducting any COVID-19 trials in the United States at the time the hold was placed, and elected to voluntarily withdraw the respective IND. The Company will need to resolve the clinical hold and submit another IND before initiating any future COVID-19 trials in the United States. Further, the Company had elected to pause its Brazil COVID-19 trials pending results from its previously scheduled data safety monitoring board (“DSMB”) meeting in early April 2022. In April 2022, the DSMB for the Brazilian COVID-19 clinical trials met and recommended that the Brazilian COVID-19 trials, previously paused by the Company, may continue based on the review of the interim patient safety data from the clinical trials. The Company is in the process of considering strategic alternatives prior to commencing the enrollment of new patients in the Brazilian trials.

Earlier in the year, the Company completed the following:

Corporate Developments

In January 2022, the Board of Directors terminated the employment of Nader Z. Pourhassan, Ph.D. as President and CEO of the Company; he is also no longer a member of the Board of Directors. A committee of three Board members was appointed to initiate the search for a new CEO culminating in the appointment of Cyrus Arman, Ph.D., MBA as President effective July 9, 2022. Antonio Migliarese, the Company’s Chief Financial Officer, was appointed interim President and served in that role until July 9, 2022.

During February 2022, the Board of Directors approved the continued appointments to the Scientific Advisory Board (“SAB”) of Dr. Hope Rugo (oncology), Dr. Mazen Noureddin (hepatology), Dr. Jonah Sacha (HIV), Dr. Norman Gaylis (rheumatology), and Dr. Eric Mininberg (oncology), as well as new SAB members Dr. Otto Yang (infectious diseases/immunology), Dr. Kabir Mody (oncology), Dr. Paul Edison (neuroscience/neuroinflammation), and Dr. Gero Hutter (hematology, oncology and transfusion medicine).

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In March 2022, the Board of Directors appointed Karen J. Brunke, Ph.D. as a director of the Company. Dr. Brunke has over 30 years of scientific, operational, clinical, senior executive, and corporate development experience with large and small biotechnology companies.

Results of operations for the fiscal years ended May 31, 2022, 2021 and 2020

Fluctuations in Operating Results

The Company’s operating results may fluctuate significantly depending on the outcomes of clinical trials, patient enrollment and/or completion rates in clinical trials, entering into new clinical trial protocols, and their related effect on research and development expenses, regulatory and compliance activities, activities related to preparation and resubmission of the HIV BLA, general and administrative expenses, professional fees, and legal proceedings and the related outcomes. As a predominantly non-revenue generating company, we require a significant amount of additional capital to continue to operate; therefore, we regularly conduct offerings to raise capital, which can create various forms of non-cash interest expense or expense related to amortization of issuance costs. Additionally, we periodically negotiate settlement of debt payment obligations in exchange for equity securities of the Company, and enter into private warrant exchanges which may create a non-cash charge upon extinguishment of debt and/or inducement expense. Our ability to continue to fund operations will depend on our ability to raise additional capital. Refer to Part 1, Item 1A, Risk Factors of this Form 10-K, Liquidity and Capital Resources, and Going Concern sections below.

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

Cost of goods sold 53 — — 53 100 — —

Gross margin 213 — — 213 100 — —

Operating expenses:

Interest and other expense:

Change in fair value of derivative liabilities — — (9,542) — — 9,542 (100)

Income tax benefit — — — — — — —

Basic and diluted:

(1)See Note 2, Revision of Financial Statements, and Note 14, Restatement.

Product revenue, Cost of goods sold (“COGS”) and Gross margin

We recognized revenue of approximately $266.4 thousand and cost of goods sold of approximately $52.8 thousand in the fiscal year ended May 31, 2022; none in fiscal year 2021. Revenue was related to the fulfillment of orders under a Compassionate Special Permit (“CSP”) in the Philippines for the treatment of COVID-19 patients. Sales were made under the April 2021 exclusive supply and distribution agreement granting Chiral the right to distribute and sell up to 200,000 vials of leronlimab through April 15, 2022. At the time of the sales, FDA approval had not yet been received for

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leronlimab and the product sold was previously expensed as research and development expense due to its being manufactured prior to the commencement of the manufacturing of commercial grade pre-launch inventories. Therefore, COGS consists only of the costs of packaging and shipping of the vials, including related customs and duties. For additional information about revenue recognition and our inventories policies, refer to Note 2, Summary of Significant Accounting Policies,Revenue Recognition and Inventories to the consolidated financial statements of this Form 10-K.

There were no revenues or cost of goods sold recognized in the fiscal years ended May 31, 2021 and 2020.

General and administrative expenses

General and administrative expenses consisted of the following:

G&A expenses totaled approximately $44.3 million and $34.3 million during the fiscal years ended May 31, 2022 and 2021, respectively, representing an increase of approximately $10.0 million, or 29% over the previous fiscal year. The increase in G&A expenses over the 2021 fiscal year was primarily due to legal and consulting fees and increased insurance premiums, offset by decreases in salaries, benefits, and stock-based compensation. The increase in legal fees was related to the proxy contest and related lawsuits, SEC and DOJ investigations, the Pestell employment dispute, and the Amarex dispute.

G&A expenses totaled approximately $34.3 million and $20.0 million during the fiscal years ended May 31, 2021 and 2020 respectively, representing an increase of approximately $14.3 million, or 72% over the preceding fiscal year. 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 higher professional services fees.

Research and development expenses

R&D expenses consisted of the following:

R&D expenses totaled approximately $27.0 million during the fiscal year ended May 31, 2022, a decrease of approximately $26.4 million, or 49%, compared to the preceding fiscal year. The decrease year over year was primarily due to lower clinical trial expenses resulting from clinical trials predominantly being administered and completed in prior year related to US COVID-19, oncology, and NASH, the pausing of the Brazilian COVID-19 trials, and the closing of HIV extension studies due to clinical holds placed on the Company by the FDA. The future trend of R&D expenses is dependent on the timing of BLA resubmission and the FDA approval, if any, the timing of FDA clearance from clinical hold, if any, of our pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the future clinical development of oncology and NASH indications, the outcome of pre-clinical studies for several other cancer indications, and potential outcomes of the Brazilian COVID-19 trials. Additionally, the Company concluded the majority of its CMC activities related to the HIV BLA during fiscal 2021, thus resulting in a significant expense decrease in fiscal 2022 as compared to the preceding year.

R&D expenses totaled approximately $53.4 million during the fiscal year ended May 31, 2021, an increase of approximately $0.8 million, or 1%, over the fiscal year ended May 31, 2020. The 2021 increase over 2020 was primarily

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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 clinical trials related to COVID-19, oncology and immunology indications.

Amortization and depreciation expenses and Intangible asset impairment charge

Amortization and depreciation expense totaled approximately $0.8 million for the fiscal year ended May 31, 2022, a decrease of approximately $1.0 million, or 57% from the preceding year. The decrease was attributable to the intangible write-off of a proprietary algorithm intangible asset during the fiscal year ended May 31, 2021 and the ProstaGene noncompete intangible asset becoming fully amortized as of November 30, 2021, resulting in decreased amortization expense of intangibles.

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.

For the fiscal years ended May 31, 2022 and 2020, the Company recorded no intangible asset impairment charges. The charge recorded in fiscal year 2021 was attributable to the impairment of the net carrying value of the proprietary algorithm the Company acquired in connection with the acquisition of the assets of ProstaGene, LLC in November 2018, and which was recorded as intangible asset in the Company’s consolidated balance sheets.

Inventory write-off

During the fourth fiscal quarter of 2022, the Company concluded that certain inventories no longer qualify for capitalization as pre-launch inventories due to expiration of shelf-life prior to expected commercial sales and the ability to obtain additional commercial product stability data until after shelf-life expiration. This is due to delays experienced from the originally anticipated BLA approval date from the FDA. Although these inventories are no longer being capitalized as pre-launch inventories for GAAP accounting purposes, the inventories written-off for accounting purposes continue to be physically maintained, can be used for clinical trials, and can be commercially sold if the shelf-lives can be extended as a result of the performance of on-going continued stability testing of drug product. In the event the shelf-lives of these written-off inventories are extended, and the inventories are sold commercially, the Company will not recognize any costs of goods sold on the previously expensed inventories. The Company also concluded that due to delays of future production certain raw materials would expire prior to production and as such no longer qualify for capitalization. Specifically, the Company evaluated its raw materials against the anticipated production date and determined that while the next production date is indeterminable as of May 31, 2022, specialized raw materials have remaining shelf-life ranging from 2023 to 2026. Therefore, a reserve of $10.2 million for the entire remaining value of specialized and other raw materials was recorded as of May 31, 2022. The Company also concluded that approximately $29.1 million, comprised of five batches of drug product, out of total of nine manufactured, is likely to expire prior to the anticipated date the product may be approved for commercialization. Additionally, the Company anticipates that approximately $34.2 million of the drug product comprising of the remaining four manufactured batches, with shelf-lives lasting into 2026, may expire prior to receiving approval for commercialization. The Company wrote-off the entire remaining balance of the drug product, in the amount of $63.3 million, as of May 31, 2022.

The Company recorded an inventory write-off based on its expected expiration dates of $5.0 million in fiscal 2021. Refer to Part II, Item 8, Note 3, Inventories, net in this Form 10-K for additional information.

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Interest and other expense

Interest and other expenses consisted of the following:

(in thousands) (Restated) (1) (Revised) (1)

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

Interest and other expense totaled approximately $65.4 million for the fiscal year ended May 31, 2022, a decrease of approximately $6.5 million, or 9%, from the preceding year. For the fiscal year ended May 31, 2022, we recognized non-cash losses on the induced conversion of convertible notes with common stock of approximately $37.4 million, a decrease of approximately $1.8 million, or 4%, from the preceding fiscal 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. Inducement interest expense related to warrant inducements for the fiscal year ended May 31, 2022, totaled $6.7 million, a decrease of approximately $7.2 million, or 52%, from fiscal year ended May 31, 2021. During fiscal year ended May 31, 2021, the Company entered into fewer warrant inducement transactions as compared to the preceding year, resulting in a decreased inducement expense. During fiscal year 2022, the Company issued a total of 10.2 million shares of common stock, including additional shares as an inducement for warrant holders to exercise warrants; by comparison the Company issued a total of 36.2 million shares in connection with private warrant exchanges in the fiscal year ended May 31, 2021.

During the year, we also recorded $2.4 million of estimated finance charges related to open amounts due to Samsung. Additionally, we recorded approximately $6.6 million of non-cash finance charges related to 15 million warrants issued under a surety bond backstop agreement as a finance charge in the accompanying consolidated statement of operations. Refer to Note 7, Equity Awards, and Note 10, Commitments and Contingencies - Commitments with Samsung BioLogics Co., Ltd. (“Samsung”), respectively, of this Form 10-K for additional information. There were no comparable expenses in the preceding fiscal year. We also recorded $3.9 million of legal settlement charges related to settlement of a dispute with a placement agent and settlement of the Pestell employment dispute. Refer to Part II, Item 8, Note 10, Commitments and Contingencies for additional information.

Interest and other expense totaled approximately $71.9 million for the fiscal year ended May 31, 2021, an increase of approximately $6.6 million, or 10%, from fiscal year ended May 31, 2020. The increase mainly relates to an increase in loss on the induced conversion of convertible notes, offset by decreases in change in fair value of derivative liabilities, legal settlement expense, and inducement interest. 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, 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.

Legal settlements for the fiscal year ended May 31, 2021, of $10.6 million related to cash damages awarded to plaintiffs in legal proceedings against the Company. Legal settlements (non-cash) for the fiscal year ended May 31,

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2020, of $22.5 million 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.

Inducement interest expense related to warrant inducements for the fiscal year ended May 31, 2021, totaled $13.9 million, a decrease of approximately $9.5 million, or 41%, from fiscal year ended May 31, 2020. During fiscal year ended May 31, 2021, the Company entered into fewer warrant inducement transactions as compared to the preceding year, resulting in decreased inducement expense. During fiscal year 2021, the Company issued a total of approximately 35.8 million shares of common stock, and approximately 0.4 million additional shares as an inducement for warrant holders to exercise warrants, for a total of approximately 36.2 million shares related to warrant inducements. In fiscal year 2020, the Company issued a total of 65.9 million shares in connection with private warrant exchanges. During fiscal year 2022, the Company identified an error in how non-cash inducement interest expense was calculated in previous reporting periods dating back to fiscal year 2018, resulting in a revision of previously reported inducement interest expense amounts. Refer to Part II, Item 8, Note 2, Summary of Significant Accounting Policies - Revision of Financial Statements of this Form 10-K for the discussion.

During the preparation and audit of the annual financial statements as of and for the fiscal year ended May 31, 2022, the Company concluded that a material error was identified in how the Company was accounting for common stock issued to settle certain convertible note obligations dating back to fiscal year 2021. The Company had been accounting for these transactions in accordance with debt extinguishment accounting. However, although the contractual terms did not explicitly describe the transactions as induced conversions, the transactions should be accounted for as induced conversions rather than extinguishments of debt and are therefore subject to induced conversion accounting. The error resulted in an understatement of the previously reported non-cash loss on induced conversions and additional paid-in capital. The errors had no impact on operating loss, cash, net cash used in or provided by operating, financing, and investing activities, assets, liabilities, commitments and contingencies, total stockholders’ (deficit) equity, number of shares issued and outstanding, basic and diluted weighted average common shares outstanding, and number of shares available for future issuance for any of the affected periods. Refer to Part II, Item 8, Note 14, Restatement for additional information. For the fiscal year ended May 31, 2021, we recognized non-cash losses on the induced conversion of convertible notes of approximately $39.1 million. We did not recognize any non-cash losses on induced conversion of convertible notes in fiscal year ended May 31, 2020. 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.

Liquidity and Capital Resources

As of May 31, 2022, we had a total of approximately $4.2 million in cash and approximately $123.2 million in short-term liabilities consisting primarily of approximately $42.2 million representing the current portion and accrued interest of convertible notes payable and approximately $76.8 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 as we continue to seek approval to commercialize leronlimab. Despite the Company’s negative working capital position, vendor relations remain accommodative and we do not currently anticipate significant 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.

Cash

The Company’s cash position of approximately $4.2 million at May 31, 2022 decreased by approximately $29.7 million compared to the balance of approximately $33.9 million at May 31, 2021. During the fiscal year ended May 31, 2022, we funded our operations by obtaining a total of approximately $48.0 million of net cash proceeds primarily funded through the sales of common stock and warrants.

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Summary of cash flows and changes between the periods presented is as follows:

Net cash (used in) provided by:

Net cash used in investing activities $ — $ (122) $ (41) $ 122 $ (81)

Cash used in operating activities decreased by approximately $39.9 million during the fiscal year ended May 31, 2022 primarily due to changes in our net loss, working capital fluctuations and changes in our non-cash expenses, all of which are highly variable. 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 year 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 induced conversion of debt, when compared to the changes in the prior year.

Cash used in investing activities did not change significantly between the fiscal years.

Cash provided by financing activities decreased by approximately $89.3 million which was primarily attributable to decreased funding in fiscal 2022 through convertible debt and decreased proceeds from warrant exercises, offset by proceeds from the sale of common stock and warrants during the fiscal year 2022. 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 warrant inducement transactions.

Pre-launch inventories

Convertible debt

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 required monthly debt reduction payments of $7.5 million for the six

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months beginning in May 2021, which could also be satisfied by payments on other notes held by the noteholder or its affiliates. Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to $3.5 million. As of May 31, 2022, the outstanding balance of the April 2, 2021 Note, including accrued interest, was $11.9 million.

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. Beginning six months after the issuance date, the noteholder may request monthly redemptions of up to $7.0 million. As of May 31, 2022, the outstanding balance of the April 23, 2021 Note, including accrued interest, was $30.3 million.

Refer to Part II, Item 8, Note 6, Convertible Instruments and Accrued Interest of this Form 10-K for additional information.

Common stock

We have 1,000.0 million authorized shares of common stock. The table below summarizes intended uses of common stock.

(in millions) As of

Warrants exercise 88.2

Convertible preferred stock and undeclared dividends conversion 32.5

Outstanding stock options exercise or vesting of outstanding RSUs 17.8

Reserved and issuable upon conversion of outstanding convertible notes 12.0

Total shares reserved for future uses 215.0

Common stock outstanding 719.6

As a result, as of May 31, 2022, we had approximately 65.4 million unreserved authorized shares of common stock available for issuance. Our ability to continue to fund our operations depends on our ability to raise capital. The funding necessary for our operations may not be available on acceptable terms, or at all. If we deplete our cash reserves, we may have to discontinue our operations and liquidate our assets, in extreme cases, we could be forced to file for bankruptcy protection, discontinue operations or liquidate assets.

Off-Balance Sheet Arrangements

As of May 31, 2022, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our current or future financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

Refer to Note 6, Convertible Instruments and Accrued Interest, and Note 10, Commitments and Contingencies included in Part II, Item 8 of this Form 10-K.

Legal Proceedings

The Company is a party to various legal proceedings described in Part II, Item 8, Note 10, Commitments and Contingencies - Legal Proceedings 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 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,

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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. Refer to Note 10, Commitments and Contingencies – Legal Proceedings for further discussion of legal proceedings.

Regulatory Matters

FDA Refusal to File Letter re HIV BLA Submission

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 the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company is working with consultants to cure the BLA deficiencies noted and will resubmit the BLA as soon as practical. In November 2021, the Company resubmitted the non-clinical and CMC sections of the BLA and is currently reevaluating when it expects to complete the clinical section. As of March 2022, the FDA had commenced its review of the CMC section. The Company is in dispute with its former contract research organization (“CRO”), as described in Note 10, Commitments and Contingencies – Legal Proceedings to this Form 10-K. Recently, in the context of the litigation, the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO’s services. Additionally, the FDA recently placed the HIV program on a partial clinical hold, which may affect the ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will provide an updated strategy once it completes its evaluation, the impact those results may have on the BLA and an updated strategy timeline.

FDA Warning Letter re COVID-19 Misbranding of Investigational Drug

In January 2022, the Company received a Warning Letter from the United States FDA alleging that its former CEO and President, Dr. Nader Pourhassan, had made references in a video interview to COVID-19 and leronlimab in a promotional context to the effect that leronlimab, an investigational new drug, is safe and effective for the purpose for which it is being investigated or otherwise promoted the drug. The FDA warned the Company that leronlimab has not been approved or authorized by the FDA, its safety and effectiveness has not yet been established, and that the related clinical trial data was mischaracterized in the video. The FDA further alleged the video misbrands leronlimab under section 502(f)(1) of the FD&C Act and in violation of section 301(a) of the FD&C Act, as the claims in the video make representations in a promotional context regarding the safety and efficacy of an investigational new drug that has not been approved or authorized by the FDA. The Company is working closely with the FDA to resolve this matter and take the proper corrective actions.

FDA Partial Clinical Hold re HIV and Full Clinical Hold re COVID-19 Letters

In March 2022, the United States FDA placed a partial clinical hold on the Company’s HIV program and a full clinical hold on its COVID-19 program in the United States. The Company was not enrolling any new patients in the trials placed on hold in the United States. The partial clinical hold on the HIV program impacts patients currently enrolled in extension trials. These patients have transitioned to other available therapeutics and no clinical studies can be initiated or resumed until the partial clinical hold is resolved. CytoDyn is working closely with the FDA to resolve the partial clinical hold as soon as possible. Under the full clinical hold on the COVID-19 program, no new clinical studies may be initiated until the clinical hold is resolved.

Going Concern

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. As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of $210.8 million for the year ended May 31, 2022 and has an accumulated deficit of $766.1 million as of May 31, 2022. As of May 31, 2022, these factors, among several others, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the

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recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has had limited to no activities that produced revenue in the periods presented and has operated at a loss since inception. The Company’s continuation as a going concern is dependent upon its ability to obtain a significant amount of additional operating capital, to continue to fund operations and pay its liabilities and commitments, 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. If we are not able to raise capital on a timely basis on favorable terms, if at all, we may need to significantly change or scale back operations, including our efforts to complete the resubmission of our BLA and other development and commercialization initiatives or to adequately fund legal proceedings, all of which individually or in combination could materially impede our ability to achieve profitability. The Company’s failure to raise additional capital could also affect our relationships with key vendors, including Samsung, disrupting our ability to timely execute our 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 public and private sale of equity securities as well as with proceeds from issuance of convertible notes and related party notes payable. The Company intends to finance its future operating activities and its working capital needs largely from the sale of equity and debt securities. As of the date of this filing, the Company has approximately 65.4 million shares of common stock, authorized for issuance under its certificate of incorporation, as amended, and available for future uses. The sale of equity and convertible debt securities to raise additional capital is likely to result in dilution to stockholders and those securities may have rights senior to those of common shares. If the Company raises funds through the issuance of additional preferred stock, convertible debt securities or other debt or equity financing, the related transaction documents could contain covenants restricting its operations.

In April 2021, the Company entered into long-term convertible notes that are secured by all of our assets (excluding our intellectual property), and include certain restrictive provisions, including limitations on incurring additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms. In February 2022, in exchange for warrants, the Company entered into a backstop arrangement with an accredited investor whereby the Company pledged its patents and the investor agreed to indemnify the issuer of the surety bond in the Amarex dispute with respect to the Company’s obligations under the surety bond. Future third-party funding arrangements may also require the Company to relinquish valuable rights. Additional capital, if available, may not be available on reasonable or non-dilutive terms.

Refer to Part I, Item 1A, Risk Factors of this Form 10-K for additional information.

New Accounting Pronouncements

Refer to Part II, Item 8, Note 2, Summary of Significant Accounting Policies – Recent Accounting Pronouncements of this Form 10-K for the discussion.

Critical Accounting Policies and 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.

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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. In determining whether pre-approval inventory remains salable, the Company considers a number of factors ranging from potential delays associated with regulatory approval, whether the introduction of a competing product could negatively impact the demand for our product and affect the realizability of our inventories, whether physicians would be willing to prescribe leronlimab to their patients, or if the target patient population would be willing to try leronlimab as a new therapy.

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anticipated date the product may be approved for commercialization. Additionally, the Company anticipates that approximately $34.2 million of the drug product comprising of the remaining four manufactured batches, with shelf-lives lasting into 2026, may expire prior to receiving approval for commercialization. The Company wrote off the entire remaining balance of the drug product, in the amount of $63.3 million, as of May 31, 2022. Refer to Part II, Item 8, Note 3, Inventories, net for additional information.

Stock-based compensation

We use the Black-Scholes option pricing model to estimate the fair value of equity 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 equity awards. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the equity 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 them, if necessary, in subsequent 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 forfeited.

We at times issue restricted common stock and/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. From time to time, we also issue stock options and warrants to consultants as compensation for services. Costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily measurable.

Contingent liabilities

We have significant license and contingent milestone and royalty liabilities. We 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 also party to various legal proceedings. We recognize 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. Refer to Part II, Item 8, Note 10, Commitments and Contingencies of this Form 10-K for additional information.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risks in the ordinary course of business. Our primary exposure to market risk is sensitivity to changes in interest rates. We hold our cash in interest-bearing money market accounts; due to the short-term maturities of such financial instruments, a 100 basis point change in interest rates would not have a material effect on the fair market value of our cash. As of May 31, 2022, we had $4.2 million in cash.

Common Stock Price Volatility

The Compensation Committee of the Board of Directors has historically granted stock incentive awards to management and employees in the form of stock options. Stock-based compensation expense is recognized for stock options over the requisite service period using the fair value of these grants as estimated at the awards grant date using the Black-Scholes pricing model and the market value of our publicly traded common stock on the date of grant. In

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addition to the market value of our common stock, one of the inputs into this model that significantly impacts the fair value of the options is the expected volatility of our common stock over the estimated life of the option. We estimate expected volatility by using the most recent historical experience. Since November 2019, our common stock has experienced periods of high trading volatility. Grants of stock options and warrants during 2022 continued to reflect expected volatility as part of the estimated fair value of stock options. Additionally, we negotiate the settlement of debt payment obligations in exchange for equity securities of the Company, which can create a non-cash charge upon extinguishment of debt as the price of our common stock fluctuates. If we continue to enter into these settlements, the increased levels of volatility in our common stock trading price will result in increased dilution and extinguishment gains or losses.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CYTODYN INC.

CONTENTS PAGE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 66

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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, before the effects of the adjustments for the correction of the error described in Note 14, Restatement, the accompanying consolidated balance sheet of CytoDyn Inc. (the Company) as of May 31, 2021 and the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for the two years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, except for the error described in Note 14, Restatement, the 2021 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2021, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments of the correction of the error described in Note 14, Restatement and accordingly, we do not express an opinion or any form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Macias Gini & O’Connell LLP. (The 2021 consolidated financial statements before the effects of the adjustments discussed in Note 14, Restatement have been withdrawn and are not presented herein.)

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, Summary of Significant Accounting Policies – Going Concern to the consolidated financial statements, the Company incurred significant net losses and has an accumulated deficit 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 Public Company Accounting Oversight Board (United States) (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.

/s/ Warren Averett, LLC

We served as the Company’s auditor from 2007 through 2021.

Birmingham, Alabama

July 30, 2021, except for the effect of the revision discussed in Note 2, as to which the date is January 10, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

CytoDyn Inc.

Vancouver, Washington

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of CytoDyn Inc. (the “Company”) as of May 31, 2022, and the related statements of operations, changes in stockholders’ (deficit) equity, and cash flows for the year then ended, 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, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments described in Note 14, Restatement that were applied to restate the 2021 consolidated financial statements to correct an error. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2021 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 consolidated financial statements taken as a whole.

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, 2022, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 15, 2022 expressed an adverse 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, Summary of Significant Accounting Policies – Going Concern to the consolidated financial statements, the Company incurred a net loss of approximately $210,820,000 for the year ended May 31, 2022 and has an accumulated deficit of approximately $766,131,000 through May 31, 2022, 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.

Restatement of fiscal year 2021 Consolidated Financial Statements

As discussed in Note 14, Restatement to the consolidated financial statements, the consolidated financial statements as of December 31, 2021 and for the year then ended have been restated to correct misstatements.

Basis for Opinion

These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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 the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated 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 consolidated 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 consolidated 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.

Evaluation of the Reserve and Write-off against Pre-Launch Inventory and Determination of alternate future use for Residual Raw Materials

Critical Audit Matter Description

As explained in Note 2, Summary of Significant Accounting Policies to the consolidated financial statements, the Company has capitalized 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 pre-launch inventory. Evaluating the adequacy of the Company’s reserve against pre-launch inventory, the write-off of certain components, as well as the alternate future use of residual raw materials was challenging because it involved a higher degree of management judgment.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to address this critical audit matter included:

● External confirmation of inventories held by others.

● Performing physical inventory count observation procedures

● Evaluating the adequacy of reserves against pre-launch inventory.

● Evaluating the alternate use criteria for residual raw materials.

Identification, bifurcation and evaluation of derivatives in hybrid equity linked instrument and induced conversion of debt

Critical Audit Matter Description

As described in Note 6, Convertible Instruments and Accrued Interest to the consolidated financial statements, the Company entered into security purchase agreements pursuant to which the Company issued secured convertible promissory notes with two-year terms. In addition, as described in Note 7, Equity Awards to the consolidated financial statements, the Company entered into several transactions that included the issuance of equity and warrants. We identified the accounting for these financing transactions, including the evaluation for potential embedded derivatives, classification of the warrants, as well as the subsequent accounting and extinguishment/induced of these equity linked instruments, as a critical audit matter. The application of the accounting guidance applicable to these transactions, including the evaluation for potential embedded derivatives, and the classification of the related warrants is complex, and therefore, applying such guidance to the contract terms is complex and requires significant judgment. Auditing these elements involved especially complex auditor judgment due to the nature of the terms of the financings and warrants, their extinguishment/induced accounting, and the significant effort required to address these matters, including the extent of specialized skills and knowledge needed.

How the Critical Audit Matter was Addressed in the Audit

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Our audit procedures related to address this critical audit matter included:

/s/ Macias Gini & O’Connell LLP

We have served as the Company's auditor since 2022.

San Jose, California

August 15, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

CytoDyn Inc.

Vancouver, Washington

Opinion on Internal Control over Financial Reporting

We have audited CytoDyn Inc.’s (the “Company”) internal control over financial reporting as of May 31, 2022, based on criteria established in Internal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of May 31, 2022, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of May 31, 2022, the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated August 15, 2022 expressed an unqualified opinion thereon.

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 Item 9A. Controls and Procedures. 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting 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.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Material weaknesses regarding management’s failure to design and maintain controls over the following have been identified and described in management’s assessment:

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These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal year 2022 consolidated financial statements, and this report does not affect our report dated August 15, 2022 on those consolidated financial statements.

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 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 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 financial statements.

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.

/s/ Macias Gini & O’Connell LLP

San Jose, California

August 15, 2022

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CytoDyn Inc.

Consolidated Balance Sheets

(In thousands, except par value)

May 31,

(Restated) (1)

Assets

Current assets:

Operating leases right-of-use asset 536 712

Property and equipment, net 73 134

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

Accrued liabilities and compensation 8,861 19,073

Accrued interest on convertible notes 5,974 2,007

Accrued dividends on convertible preferred stock 3,977 2,647

Commitments and Contingencies (Note 10)

Stockholders’ (deficit) equity:

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

Total liabilities and stockholders' equity $ 29,185 $ 132,080

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

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,

(Restated) (1) (Revised) (1)

Revenue $ 266 $ — $ —

Cost of goods sold 53 — —

Gross margin 213 — —

Operating expenses:

Intangible asset impairment charge — 10,049 —

Inventory write-off 73,490 5,027 —

Interest and other expense:

Interest on convertible notes (5,417) (4,387) (7,330)

Amortization of debt issuance costs (87) (65) (404)

Loss on induced conversion (37,381) (39,131) —

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

Income tax benefit — — —

Basic and diluted:

Loss per share $ (0.31) $ (0.30) $ (0.33)

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Stockholders’ (Deficit) Equity

(In thousands)

(Revised) (1) (Revised) (1) (Revised) (1)

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

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

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Stockholders’ (Deficit) Equity

(In thousands)

Stock-based compensation — — — — — — 9,601 — 9,601

Stock option exercises — — 510 1 — — 389 — 390

Warrant exercises — — 1,642 2 — — 1,034 — 1,036

Stock-based compensation — — — — — — 5,571 — 5,571

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Cash Flows

(In thousands)

Years ended May 31,

(Restated) (1) (Revised) (1)

Cash flows from operating activities:

Amortization of debt issuance costs 87 65 404

Amortization of discount on convertible notes 2,958 3,591 1,645

Finance charges related to surety bond backstop agreement 6,585 — —

Loss on induced conversion 37,381 39,131 —

Change in fair value of derivative liabilities — — 9,542

Inventory write-offs 73,490 5,027 —

Intangible asset impairment charge — 10,049 —

Changes in operating assets and liabilities:

Decrease in miscellaneous receivables — — 91

(Increase) decrease in prepaid expenses (4,125) 1,228 (1,577)

Cash flows from investing activities:

Furniture and equipment purchases — (122) (41)

Net cash used in investing activities — (122) (41)

Cash flows from financing activities:

Proceeds from warrant transactions 5,390 17,060 —

Proceeds from sale of preferred stock, net of offering costs — — 13,409

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

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

Proceeds from stock option exercises 390 1,839 5,602

Proceeds from convertible notes payable, net — 100,000 15,000

Payment of conversion offering costs — — (2,303)

Dividend declared and paid on Series B Preferred Stock — (243) —

Cash and restricted cash, beginning of period 33,943 14,292 3,467

Cash and restricted cash, end of period $ 4,231 $ 33,943 $ 14,292

Cash and restricted cash consisted of the following:

Restricted cash — — 10

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

See accompanying notes to consolidated financial statements.

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CytoDyn Inc.

Consolidated Statements of Cash Flows

(In thousands)

Years ended May 31,

(Restated) (1) (Revised) (1)

Supplemental disclosure:

Cash paid for interest $ 63 $ 147 $ 243

Non-cash investing and financing transactions:

Cashless exercise of warrants $ 1 $ 11 $ —

(1) See Note 2, Revision of Financial Statements, and Note 14, Restatement.

See accompanying notes to consolidated financial statements.

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CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF MAY 31, 2022

Note 1. Organization

CytoDyn Inc. (together with its wholly owned subsidiaries, the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002 under the name RexRay Corporation and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a clinical-stage biotechnology company focused on the clinical development of innovative treatments for multiple therapeutic indications based on its product candidate, leronlimab (also referred to as “PRO 140” throughout this Form 10-K), a novel humanized monoclonal antibody targeting the CCR5 receptor. The Company is studying leronlimab in human immunodeficiency virus (“HIV”), non-alcoholic steatohepatitis (“NASH”), oncology, and other immunological applications such as coronavirus disease (“COVID-19”).

Leronlimab is being investigated as a viral entry inhibitor for HIV, believed to competitively bind to the N-terminus and second extracellular loop of the CCR5 receptor. For immunology, the CCR5 receptor is believed to be implicated in immune-mediated illnesses such as NASH. Leronlimab is being studied in HIV, NASH, oncology, and other therapeutic indications such as COVID-19 where CCR5 is believed to play an integral role.

The Company has pursued the regulatory approval of leronlimab in hopes that commercial sales will be obtained based on positive data from its Phase 2b/3 clinical trial for leronlimab as a combination therapy with highly active antiretroviral therapy (“HAART”) for highly treatment-experienced HIV patients, as well as information gathered from meetings with the U.S. Food and Drug Administration (“FDA”) related to its Biologic License Application (“BLA”) for this indication. 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 that the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by the FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company, with assistance of consultants, is in the process of curing the BLA deficiencies noted. In November 2021, the Company resubmitted the non-clinical and chemistry, manufacturing, and controls (“CMC”) sections of the BLA. As of March 2022, the FDA had commenced its review of the CMC section.

As described in Note 10, Commitments and Contingencies - Legal Proceedings, the Company is in dispute with its former contract research organization (“CRO”). In the context of the litigation, the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO’s services.

Additionally, in March of 2022, the FDA placed the HIV program on a partial clinical hold, which may affect our ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will update the feasibility and status of its anticipated resubmission of the clinical section of the BLA once it completes its evaluation.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiaries, CytoDyn Operations Inc. and Advanced Genetic Technologies, Inc. (“AGTI”); AGTI is a dormant entity. All intercompany transactions and balances are eliminated in consolidation.

Reclassifications

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

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Revision of Financial Statements

During the preparation of the quarterly financial statements as of and for the period ended November 30, 2021, the Company identified an error in how non-cash inducement interest expense was calculated in previous reporting periods dating back to fiscal year 2018. The original inducement expense model was designed to calculate non-cash inducement interest expense specific to inducements that modified the warrant term (e.g., extension of the term or modification of exercise price) without settling the instrument. However, starting in fiscal year 2018, inducements were primarily structured to result in a settlement of the warrant, not merely a modification of a warrant that would remain outstanding for some period. The error was identified when the model started to calculate a gain on substantially all inducements, which was inconsistent with the economics of the arrangements. The error resulted in an understatement of non-cash inducement interest expense and additional paid-in capital.

The Company assessed the materiality of the misstatement in accordance with Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that the misstatement was not material to the Company’s consolidated financial statements for the prior periods and, accordingly, that amendments of previously filed reports were not required. However, the Company determined that the impact of the corrections would be too significant to record in the quarter ended November 30, 2021. As such, the revisions for the correction are reflected in the accompanying balance sheet, the statements of operations, changes in stockholders’ (deficit), and statement of cash flows. The errors had no impact on operating loss, cash, net cash used in or provided by operating, financing, and investing activities, assets, liabilities, commitments and contingencies, total stockholders’ (deficit) equity, number of shares issued and outstanding, basic and diluted weighted average common shares outstanding, and number of shares available for future issuance for any period presented.

The following tables present a summary of the impact of corrections by financial statement line item for the fiscal years presented:

As of and For the Year Ended May 31, 2020

(in thousands, except per share amount) Previously Reported Adjustments Revised

Basic and diluted loss per share $ (0.30) $ (0.03) $ (0.33)

As of and For the Year Ended May 31, 2021

Basic and diluted loss per share $ (0.27) $ — $ (0.27)

(1) Previously Reported accumulated deficit includes adjustments of $15,533, $4,532, and $525 for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.

(2) Also refer to Note 14, Restatement for additional information in regards to restated amounts presented in the fiscal year ended May 31, 2021, and quarterly information within the fiscal year May 31, 2022.

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Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and satisfaction of liabilities in the ordinary 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 $210.8 million, $176.5 million, and $139.9 million for the years ended May 31, 2022, 2021, and 2020, respectively, and has an accumulated deficit of $766.1 million as of May 31, 2022. 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 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 regulatory compliance and approval, and 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 equity and debt securities, combined with additional funding from other traditional sources. However, there can be no assurance that the Company will be successful in these endeavors.

Use of Estimates

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are assessed and updated each period to reflect current information, such as the status of our analysis of the clinical trial results and discussions with the FDA which could have an impact on the Company’s significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Significant estimates include, but are not limited, to those relating to capitalization of pre-launch inventories including reserves and write-offs for excess and obsolete inventories, stock-based compensation, commitments and contingencies, assumptions used to value warrants including warrant modifications and inducements, and research and development expenses. 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 cash balances. Balances in excess of federally insured limits were approximately $4.0 million and $33.7 million at May 31, 2022 and May 2021, respectively.

The Company records cash received from fundraising activities before the closing of the transaction as restricted cash in its consolidated balance sheets.

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; none for the years ended May 31, 2022 and 2020. Refer to Note 4, Intangible Assets, net, for additional information.

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Inventories

Previously Expensed Inventories

The Company recorded revenue related to sales of vials for emergency purposes only, solely to treat critically ill COVID-19 patients in the Philippines under a Compassionate Special Permit. Cost of goods sold was minimal because the vials sold were expensed in prior periods as research and development expense because they were manufactured prior to the Company’s capitalization of pre-launch inventories as described below. All capitalized inventory amounts represent pre-launch inventories and do not include any inventories previously expensed as research and development expense.

Capitalized Pre-launch Inventories

Pre-launch inventories comprise of raw materials required to commercially produce leronlimab and substantially completed commercially produced leronlimab in anticipation of commercial sales of the product upon potential regulatory approval as a combination therapy for HIV patients in the United States, and potential EUA for COVID-19 which required substantial commercial scale inventories to be created. The Company’s pre-launch inventories consist of (1) raw materials purchased for commercial production, (2) work-in-progress materials which consist of bulk drug substance, which is the manufactured drug stored in bulk storage, and (3) drug product, which is the manufactured drug in unlabeled vials. 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.

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

As one stage of the manufacturing process, the Company produces work-in-progress materials which consist of bulk drug substance, which is the manufactured drug stored in bulk storage. The initial shelf-life of bulk drug substance is established based on periodically performed stability studies and is set at four years from the date of manufacturing. Bulk drug substance is subject to deep freeze stability studies performed on a periodic basis in accordance with the established stability protocols. If drug substance meets suitability criteria beyond the initial shelf-life, its shelf-life is extended by another four years. Regardless of the number of stability studies performed, if drug substance continues to meet prespecified suitability parameters it may be used in manufacturing; if drug substance fails to meet suitability criteria beyond its at that time assigned shelf-life, it may no longer be used and is considered to be expired.

The Company utilizes resins, a reusable raw material, in its bulk drug manufacturing process. Shelf-life of a resin used in commercial manufacturing of biologics is determined by the number of cycles for which it has been validated to be used in a manufacturing process before it is considered unusable. Unpacked and unused resins have a manufacturer’s expiration date by which resins are expected to start being used in the manufacturing process without loss of their properties. Prior to a new manufacturing campaign, and between manufacturing campaigns, the resins are removed from storage, are treated and tested for suitability. Once resins are used in the manufacturing process, their shelf-life is

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measured by a validated predetermined number of manufacturing cycles they are usable for, conditional on appropriate storage solution under controlled environment between production campaigns, as well as by performing pre-production usability testing. Before a manufacturing campaign, each resin is tested for suitability. Regardless of the number of cycles, if a resin fails to meet prespecified suitability parameters it may not be used in manufacturing; likewise, even if the resin meets suitability criteria beyond the lifetime cycles, it may no longer be used. The cost of the resins used in a manufacturing campaign is allocated to the cost of the drug product in vials.

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

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

Revenue Recognition

The Company accounts for and recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. To date, the Company’s revenue has been generated solely through the sale of leronlimab. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

For the Company’s sole contract to date, the customer submitted purchase orders to purchase a specified quantity of leronlimab vials; therefore, the delivery of the ordered quantity per the purchase order is accounted for as one performance obligation. The Company does not offer discounts or rebates.

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The transaction price is determined based on the agreed upon rates per vial indicated in the purchase order or master supply agreement applied to the quantity of leronlimab vials that the customer requested in the purchase order. As the Company’s contract included only one performance obligation, the delivery of the product to the customer, all of the transaction price is allocated to the one performance obligation. Therefore, upon delivery of the product quantity equal to the quantity requested in the purchase order, there are deemed to be no remaining performance obligations. The Company’s shipping and handling activities are considered a fulfillment cost. The Company elected to exclude all sales and value added taxes from the measurement of the transaction price. The Company did not adjust the transaction price for financing since the time period between the transfer of goods and payment is less than one year.

The Company recognizes revenue at a point in time when control of the products is transferred to the customer. Management applies judgment in evaluating when a customer obtains control of the promised goods which is generally obtained when the product is delivered to the customer. The Company’s customer contract includes a standard assurance warranty to guarantee that its products comply with agreed specifications. The Company grants a conditional right of return of product in the customer’s inventory upon an adverse regulatory ruling. The Company continually evaluates the probability of such occurrence. If necessary, the Company will defer revenue recognized based on its estimate of the amount of products that may be subject to the right of return.

Disaggregation of Revenue – The Company’s revenues are derived solely from the sale of leronlimab vials. The Company believes the revenues are presented at the appropriate level of detail in the accompanying consolidated statement of operations.

Contract Assets and Liabilities – The Company’s performance obligations for its contract with a customer are satisfied at a point in time through the delivery of leronlimab vials to its customer. The Company did not have revenues in the fiscal year ended May 31, 2021 and had $0.3 million in revenues in the fiscal year ended May 31, 2022. The Company did not have any contract assets or liabilities as of May 31, 2021 or 2022. For all periods presented, the Company did not recognize revenues from amounts that were previously included in a contract liability balance. In addition, for all periods presented, there was no revenue recognized in a reporting period from performance obligations satisfied in previous periods.

Performance Obligations – The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s contract, each unit of product delivered to the customer represents a separate performance obligation; therefore, future deliveries of the product are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.

Research and Development

Research and development costs are expensed as incurred. Clinical trial costs incurred through third parties are expensed commensurate with the contracted work 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 Note 10, Commitments and Contingencies for additional discussion.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, accounts payable and accrued liabilities, and debt. As of May 31, 2022, the carrying value of the Company’s assets and liabilities approximate their fair value due to the short-term maturity of the instruments. Debt is 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. 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.

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The Company did not have any assets or liabilities measured at fair value using the fair value hierarchy as of May 31, 2022 and 2021.

Leases

Leases are included in operating lease right-of-use (“ROU”) assets, current portion of lease liabilities in the consolidated balance sheets. Lease ROU assets, and 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.

Stock-Based Compensation

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

The Company values its stock-based awards using the Black-Scholes option pricing model utilizing assumptions that include stock price volatility, expected term of the award, and risk-free interest rates. The Company estimates forfeitures at the time of grant and makes revisions in subsequent periods, if necessary, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, the Company estimated future unvested forfeitures at zero for all periods presented.

Debt

The Company historically issued promissory notes at a discount and incurred direct debt issuance costs. Debt discount and issuance costs are netted against the debt and amortized over the life of the 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; refer to Note 6, Convertible Instruments and Accrued Interest for additional information. The costs are recorded as a component of equity upon receipt of the proceeds.

Income Taxes

Deferred taxes are recorded using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards; 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 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 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.

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In accordance with Section 15 of the Internal Revenue Code, the Company utilized a federal statutory rate of 21% for our fiscal 2022 and 2021 tax years. The net tax expense for the years ended May 31, 2022 and 2021 was zero. As of May 31, 2022 and May 2021, the Company has a full valuation allowance 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

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 Company adopted ASU 2019-12 on June 1, 2021. The adoption did not impact the Company’s consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in this update improve consistency by amending the codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. ASU 2020-10 is effective for annual periods beginning after December 15, 2020 for public business entities. The transition method utilized for the amendments related to franchise taxes that are partially based on income were applied on a retrospective basis. All other amendments of the adoption of ASU 2019-12 are applied on a prospective basis. The adoption of this standard on June 1, 2021 did not have a material impact on the Company’s consolidated financial statements.

The Company adopted ASU 2019-12 effective the year ending May 31, 2022. The adoption of the ASU requires the Company to disclose the impact of the change on the Company’s consolidated financial statements as well as the transition method selected for each topic that will be affected. The transition method utilized for the amendments related to franchise taxes that are partially based on income will be applied on a retrospective basis. All other amendments of the adoption of ASU 2019-12 will be applied on a prospective basis. As of May 31, 2022 and 2021, the adoption of ASU 2019-12 did not have material impact on the income taxes of the Company.

Accounting Standards Not Yet Adopted

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. ASU 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 adopted ASU No. 2020-06 effective June 1, 2022 and does not believe the impact of adoption to be material, if any, to the Company’s consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 addresses the accounting for certain modifications or exchanges of freestanding equity-classified written call options (e.g., warrants). Guidance should be applied prospectively after the date of initial application. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. The ASU became effective for the Company on June 1, 2022. The Company is currently evaluating the effect of this ASU on the Company's consolidated financial statements and related disclosures.

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Note 3. Inventories, net

Inventories, net of reserves, were as follows:

As of May 31,

The Company determines whether raw materials purchased for commercial production are usable for production based on the manufacturer’s assigned expiration date. In evaluating whether raw materials included in the pre-launch inventories will be usable for production, the Company takes into the account the shelf-life of raw materials at the time they are expected to be used in manufacturing. Any raw materials past expiration date at the time of the next manufacturing run are removed from inventory. Also, as one of the stages of the manufacturing process, the Company produces work-in-progress materials which consist of bulk drug substance, which is the manufactured drug stored in bulk storage. The initial shelf-life of bulk drug substance is established based on periodically performed stability studies and is set at four years from the date of manufacturing. Bulk drug substance is subject to deep freeze stability studies performed on a periodic basis in accordance with the established stability protocols. If drug substance meets suitability criteria beyond the initial shelf-life, its shelf-life is extended by another four years. Regardless of the number of stability studies performed, if drug substance continues to meet prespecified suitability parameters it may be used in manufacturing; if drug substance fails to meet suitability criteria beyond its assigned shelf-life at that time, it may no longer be used and is considered to be expired. Further, the Company utilizes resins, a reusable raw material, in its bulk drug manufacturing process. Shelf-life of a resin used in commercial manufacturing of biologics is determined by the number of cycles for which it has been validated to be used in a manufacturing process before it is considered unusable. Unpacked and unused resins have a manufacturer’s expiration date by which resins are expected to start being used in the manufacturing process without loss of their properties. Prior to a new manufacturing campaign, and between manufacturing campaigns, the resins are removed from storage, treated and tested for suitability. Once resins are used in the manufacturing process, their shelf-life is measured by a validated predetermined number of manufacturing cycles they are usable for, conditional on appropriate storage solution under controlled environment between production campaigns, as well as by performing pre-production usability testing. Before a manufacturing campaign, each resin is tested for suitability. Regardless of the number of cycles, if a resin fails to meet prespecified suitability parameters it may not be used in manufacturing; likewise, even if the resin meets suitability criteria beyond the lifetime cycles, it may no longer be used. The cost of the resins used in a manufacturing campaign is allocated to the cost of the drug product in vials.

During the fourth fiscal quarter of 2022, the Company concluded that certain inventories no longer qualify for capitalization as pre-launch inventories due to expiration of shelf-life prior to expected commercial sales and the ability to obtain additional commercial product stability data until after shelf-life expiration. This is due to delays experienced from the originally anticipated BLA approval date from the FDA. Although these inventories are no longer being capitalized as pre-launch inventories for GAAP accounting purposes, the inventories written-off for accounting purposes continue to be physically maintained, can be used for clinical trials, and can be commercially sold if the shelf-lives can be extended as a result of the performance of on-going continued stability testing of drug product. In the event the shelf-lives of these written-off inventories are extended, and the inventories are sold commercially, the Company will not recognize any costs of goods sold on the previously expensed inventories. The Company also concluded that due to delays of future production certain raw materials would expire prior to production and as such no longer qualify for capitalization. Specifically, the Company evaluated its raw materials, which consist of specialized raw materials, resins, and other, against the anticipated production date and determined that while the next production date is indeterminable as of May 31, 2022, specialized raw materials have remaining shelf-life ranging from 2023 to 2026. Therefore, a reserve of $10.2 million for the entire remaining value of specialized and other raw materials was recorded as of May 31, 2022. The Company also concluded that approximately $29.1 million, comprised of five batches of drug product, out of total of nine manufactured, is likely to expire prior to the anticipated date the product may be approved for commercialization. Additionally, the Company anticipates that approximately $34.2 million of the drug product comprising of the remaining four manufactured batches, with shelf-lives lasting into 2026, may expire prior to receiving

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approval for commercialization. The Company wrote off the entire remaining balance of the drug product, in the amount of $63.3 million, as of May 31, 2022.

During the fourth fiscal quarter of 2022, the Company completed its validation of the resins’ properties based on the number of cycles they have been used for, and the remaining number of manufacturing cycles they may be used for; the Company did not identify any resins that failed suitability validation. As of May 31, 2022, the remaining lifetime of resins ranges between 37 and 62 cycles. The Company will continue to present its resins inventory based on the remaining shelf-lives until a new shelf-life is assigned based on the results of usability testing.

The table below summarizes inventory that had been previously capitalized and subsequently written off for accounting purposes. Work-in-progress and finished drug product inventories continue to be physically maintained, can be used for clinical trials, and can be commercially sold if the shelf-lives can be extended as a result of the performance of on-going continued stability tests.

Raw Materials Work-in-progress

Thereafter 49 or more - - - - - - -

Note 4. Intangible Assets, net

Intangible assets were as follows:

As of May 31,

ProstaGene, LLC intangible asset acquisition, net of impairment — 2,926

Website development costs 20 20

Accumulated amortization, net of impairment (3,388) (4,793)

Total intangible assets, net $ 132 $ 1,653

Amortization expense related to the intangible assets for the fiscal years ended May 31, 2022, May 31, 2021, and May 31, 2020 was approximately $0.7 million, $1.8 million and $2.0 million, respectively. The Company recorded an impairment charge of approximately $10.0 million related to the ProstaGene, LLC intangible asset acquisition during the year ended May 31, 2021; none in the fiscal years ended May 31, 2022 and 2020. The aggregate future amortization expense as of May 31, 2022 is estimated at $132.0 thousand in the fiscal year 2023; none beyond fiscal 2023.

In November 2018, the Company completed the acquisition of substantially all the assets of ProstaGene, LLC (“ProstaGene”) which included patents related to clinical research, a proprietary CCR5 algorithm technology for early cancer diagnosis, and a noncompetition agreement with ProstaGene’s founder and Chief Executive Officer, Richard G. Pestell. The Company accounted for the ProstaGene acquisition as an asset acquisition under ASC 805-10-55, Business Combinations. In March 2021, the Company concluded arbitration hearing concerning a claim by ProstaGene for approximately 3.1 million shares of common stock that the Company withheld for damages incurred by the Company in connection with the purchase of the proprietary algorithm as part of the acquisition. Based on the information revealed during the arbitration, the Company concluded that the algorithm’s value is fully impaired; the Company recorded an intangible asset impairment charge of approximately $10.0 million during the quarter ended February 28, 2021 resulting from the write-off of the allocated purchase price of $12.2 million and $2.2 million of associated accumulated

CYDY US Equity

CYDY · 10-K · period ended 2022-05-31

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CYDY US Equity☆

CYDY · 10-K · period ended 2022-05-31

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CYDY US Equity