U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission File Number 000-49908
CYTODYN, INC.
(Exact name of registrant as specified in its charter)
Colorado 75-3056237
(State or other jurisdiction of (I.R.S. Employer or
incorporation or organization) Identification No.)
1511 Third Street Santa Fe, NM 87505
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 505-988-5520
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] No
Indicate by checkmark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). [ ] Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Act). [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. $ 3,686,926
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 12, 2010 the
registrant had 18,950,796 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
--------------------------------------------------------------------------------
CYTODYN, INC
FORM 10-K FOR THE YEAR ENDED MAY 31, 2008
TABLE OF CONTENTS
PART I
Item 1. Business......................................................... 2
Item 2. Properties....................................................... 13
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities.............. 13
Item 6. Selected Financial Data.......................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 16
Item 8. Financial Statements and Supplementary Data...................... 23
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure........................................... 47
Item 9A. Controls and Procedures.......................................... 47
Item 9B. Other Information................................................ 48
PART III
Item 10. Directors, Executive Officers and Corporate Governance........... 48
Item 11. Executive Compensation........................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management
And Related Stockholder Matters................................ 53
Item 13. Certain Relationships and Related Transactions and
Director Independence.......................................... 53
Item 14. Principal Accounting Fees and Services........................... 55
Item 15. Exhibits, Financial Statement Schedules.......................... 56
1
Item 1. Business
The Company
CytoDyn, Inc. is a Colorado corporation, with its principal business office at
1511 Third Street, Santa Fe, New Mexico, 87505; telephone: (505) 988-5520,
facsimile: (800) 417-7252, and website address: www.cytodyn.com. Originally
incorporated as Rexray Corporation on May 2, 2002, the Company was renamed
CytoDyn, Inc. when Rexray acquired, in October 2003, all of the intellectual
property of CytoDyn of New Mexico, Inc. in exchange for 5,362,640 shares of no
par value common stock. We discovered and are developing a class of therapeutic
monoclonal antibodies to address significant unmet medical needs in the area of
HIV/AIDS.
In October 2003 we entered into an Acquisition Agreement with CytoDyn of New
Mexico, Inc., pursuant to which we effected a one for two reverse split of our
common stock, and amended our articles of incorporation to change our name from
Rexray Corporation to CytoDyn, Inc. The acquisition was accounted for as a
reverse merger and recapitalization of the Company. Pursuant to the acquisition
agreement, we were assigned the patent license agreement dated July 1, 1994
between CytoDyn of New Mexico and Allen D. Allen covering three United States
patents along with foreign counterpart patents which describe a method for
treating HIV disease with the use of monoclonal antibodies. We also acquired the
trademarks, CytoDyn and Cytolin, and a related trademark symbol. The license
acquired gives us the worldwide, exclusive right to develop, market and sell the
HIV therapies from the patents, technology and know-how invented by Mr. Allen.
The term of the license agreement is for the life of the patents of which the
first will expire in 2013. The term of the license agreement is for the life of
the patents. The original expiration dates on the issued patents are 2013 to
2016. There is an automatic extension of the expiration date on U.S. patents
equal to the number of years the drug under the patent is being studied in
clinical trials. Typically this provides another four to five years on the
earliest claims. CytoDyn's counsel expects its patents to be extended until 2017
to 2020 depending upon the original date of the issued patents. As consideration
for the intellectual property and trademarks we paid CytoDyn of New Mexico
$10,000 in cash and issued 5,362,640 post-split shares of common stock to
CytoDyn of New Mexico.
CytoDyn, Inc. is a traditional biotechnology company (concept company) that
develops pharmaceutical products to be marketed by one or more pharmaceutical
marketing companies. Typically, the biotechnology company does not realize
income from the sale of product sold directly by the biotechnology company.
Rather, the biotechnology company develops a pharmaceutical product using funds
provided by investors until the development of the product has progressed to the
point where the biotechnology company can enter into a strategic alliance with a
pharmaceutical marketing company. While there is no guarantee as to if or when
CytoDyn will enter into such a strategic alliance, or what its terms might be,
the pharmaceutical marketing company typically acquires a significant stake in
the biotechnology company, thereafter providing the funds for completion of drug
development, obtaining a right of first-refusal to market the drug if approved,
along with an option to buy out the biotechnology company in stages, the last
stage usually being after the drug has been marketed for a number of years. A
maximum Return on Investment for those investing in the biotechnology company is
usually achieved when the strategic alliance is in place or has been for a
number of years, and before the product actually enters the marketplace.
2
Subsidiaries
Advanced Genetic Technologies, Inc.
On January 30, 2007, the Company acquired the exclusive right to develop an
improved version of Cytolin(R) using two antibodies invented at Harvard
University Medical School's CBR Institute for Biomedical Research pursuant to an
acquisition agreement.
The Company issued 100,000 preferred shares of unregistered stock to Utek Corp
in exchange for 1,000 shares or 100% of Advanced Genetic Technologies, Inc.
common stock. On July 2009, the preferred shares were converted into 2,356,000
common shares of the Company's stock.
Advanced Influenza Technologies, Inc. ("AITI") was incorporated under the laws
of Florida on June 9, 2006. This subsidiary was abandoned as the Company
terminated the license agreement acquired by AITI for a DNA plasmid vaccine from
the University of Massachusetts.
Business
Treatment for HIV/AIDS Cytolin(R)
CytoDyn, Inc. discovered and is developing a class of therapeutic monoclonal
antibodies to address significant unmet medical needs in the areas of HIV &
AIDS. Cytolin(R) treats HIV/AIDS by preventing killer T cells from destroying
the CD4 T cells in humans infected with HIV which results in an impaired immune
system and the illness known as Acquired Immune Deficiency Syndrome or AIDS.
3
How it Was Discovered
Just over a decade ago, three scientists who were working independently of each
other discovered why HIV does not cause disease in the other mammals it can
infect. There are, of course, other viruses that are similar to HIV and that can
cause AIDS-like diseases in animals, such as simian immunodeficiency virus (SIV)
and feline immunodeficiency virus (FIV). However, the human immunodeficiency
virus (HIV) only causes disease in humans and not in the other mammals it can
infect, such as chimpanzees. In discovering why this is the case, researchers
also demonstrated why humans infected with HIV lose all of their CD4 T cells
even though only a minority of those cells become infected with HIV. This was
demonstrated by Joyce Zarling[1] at the Yerkes Primate Research Center, Leonard
Adelman[2] at the University of Southern California, and Allen D. Allen[3-4]
then at Olive View-UCLA Medical Center. The seminal paper, published in the
Journal of Immunology in 1990, was by Zarling. She and her colleagues conducted
a cross-species study. It proved to a scientific certainty that the reason only
humans develop AIDS in response to HIV infection is that only humans respond to
the infection with a proliferation of cytotoxic T lymphocytes (CTL) that
indiscriminately kill human CD4 T cells, including healthy, uninfected CD4 T
cells.
The question that Zarling and Adelman did not answer is why this should be the
case. In terms of understanding the mechanisms involved in HIV disease, one
should ask what particular mechanism the anti-self, anti-CD4 CTL use to
indiscriminately destroy human CD4 T cells. Because of the huge volume of
HIV-literature that was focused on many diverse issues, the key was to know
where to look. As a consequence, Allen was able to ascertain the cytotoxic
mechanism because he had a model to start with.
Hepatitis, when associated with hepatitis B and C virus, has been known for
years to be a disease that is triggered by an infection and that results in the
destruction of the liver by CTL.[5-6] The destruction of the liver occurs
because its surface becomes coated with intercellular adhesion molecules (ICAM).
The co-receptor to ICAM is LFA-1. What makes a CD8 T cell a cytotoxic cell
rather than a suppressor cell is the overproduction of LFA-1.[7] When the CTL
circulate through the liver, the LFA-1 binds to the ICAM killing the hepatocytes
or liver cells. Interferon-alpha is the gold standard for treating serum
hepatitis because it down regulates the ICAM molecules on the liver so that the
CTL do not harm that organ.[8] Not surprisingly, then, Bofill, et al[9] have
shown that increased numbers of CTL predict the decline of CD4 T cells in HIV
patients. By knowing the mechanism of action, Allen[10] was able to identify a
class of monoclonal antibodies that could prevent the indiscriminate destruction
of CD4 T cells by CTL. Cytolin(R) is one such antibody and is our lead product.
Why Cytolin(R) is a Unique Treatment for Early HIV Infection
During the past decade, significant improvements in the antiviral "cocktails"
used to treat HIV/AIDS have transformed this once fatal disease into a chronic,
manageable condition. These drugs are the ingredients of Highly Active
Antiretroviral Therapy (HAART), which has saved countless lives and is well
tolerated by most patients, although all drugs have side effects.
4
The current standard of treatment recommends withholding antiviral drugs until
the disease has progressed to the point where the drugs are required to maintain
a patient's health, typically a period of about five years from initial
infection. A chief reason for withholding treatment during the early years of
HIV infection is that antiviral drugs attack the virus directly. As a result,
natural selection promotes the evolution of HIV into species that are resistant
to those drugs. If antiviral drugs were prescribed too early, then the virus
might become resistant to those drugs, rendering them ineffective, by the time
they were necessary to maintain a patient's health.
Cytolin(R) is a monoclonal antibody administered by intravenous infusion and
might expand the standard of treatment. In preliminary clinical trials, and in
compassionate use involving hundreds of patients treated for about two years,
Cytolin(R) produced encouraging results in delaying or reversing disease
progression while acquiring a good safety record.
Significantly, Cytolin(R) is not an antiviral drug although it has a
significant, albeit indirect, antiviral effect (log reduction in viral burden).
A first-in-class drug, Cytolin(R) is designed to prevent the wholesale
destruction of helpful CD4 T cells by a person's own killer T cells. The killer
T cells are made by the human body in response to HIV infection as part of the
natural defense against the virus. As first shown by Zarling, et al in 1990
(Journal of Immunology, vol. 144, page 2992), the ability of these killer T
cells to indiscriminately destroy CD4 T cells is a trait unique to humans,
explaining why HIV infection does not cause disease in the other species the
virus can infect. It has been known since the beginning of the AIDS pandemic
that a wholesale loss of CD4 T cells is the reason why individuals infected with
HIV become susceptible to the opportunistic infections and cancers that
characterize AIDS. Up until the 1990s when three independent studies identified
the killer T cells as the cause of the problem, the reason for the wholesale
loss of CD4 cells remained a mystery because the virus infects relatively few
CD4 T cells.
The fact that Cytolin(R) has no direct effect on the life-cycle of the virus
precludes the emergence of Cytolin(R)-resistant virus due to the long-term use
of Cytolin(R). This is in contrast to the antiviral drugs whose use promotes the
evolution of drug-resistant virus. Consequently, a potential indication for
Cytolin(R) would be to administer it early in the infection in order to delay
the natural progression of the disease and, therefore, the time when antiviral
drugs become necessary. If so, healthcare providers could treat individuals
infected with HIV more quickly, rather than spending years just watching and
waiting.
Monoclonal Antibodies
Genetically engineered monoclonal antibodies are man-made antibodies that target
specific antigens on a cell or compound. Advances in antibody production
technologies, such as high productivity cell culture has enabled manufacturers
to produce antibody products more cost-effectively. Many monoclonal antibodies
have been approved for marketing as therapeutics by the FDA, and a large number
of monoclonal antibodies are currently under investigation in clinical trials.
Other companies have monoclonal antibodies in clinical research to treat
HIV/AIDS however their approach is completely different than ours. Our
monoclonal antibody treats HIV disease by preventing killer T cells from
destroying the CD4 T cells in humans infected with HIV. It is the wholesale loss
of CD4 T cells in humans infected with HIV that results in a suppression of the
immune system, leading to the illness known as Acquired Immune Deficiency
Syndrome or AIDS.
5
Cytolin(R) Research Experience
Our President and CEO, Allen D. Allen, has been researching treatments for HIV
and AIDS since 1987. He received three U.S. patents and additional foreign
counterpart patents, now licensed to us, covering the use of these antibodies
for treating patients with HIV. Our leading drug candidate, Cytolin(R), is based
on a monoclonal antibody that protects CD4 cells from CD8 cells, thus preventing
the weakening of the immune system.
In 1993, a small group of scientists and doctors treated six HIV-infected
patients with Cytolin(R). Blood and skin tests of these patients demonstrated
that the antibody was producing improvements in the immune function of each
patient. In 1995, subacute and acute toxicology studies found Cytolin(R) safe to
administer to humans.
A relatively small number of physicians in the United States administered
Cytolin(R) to their HIV-infected patients over two years. As results from this
initial use became available, other physicians obtained and administered
Cytolin(R) to their patients as well. Four of the doctors using Cytolin(R)
allowed CytoDyn's predecessor to send in an independent Institutional Review
Board to inspect the medical records of 188 patients treated with Cytolin(R)
once or twice a month over 18 months. Data were recorded and summarized and
formed part of the material presented to the FDA as an early indication of the
safety and potential efficacy of Cytolin(R).
In 1996, the FDA approved a drug master file, designated BB-DMF#6836, for the
manufacture of Cytolin(R) at Vista Biologicals Corporation. CytoDyn of New
Mexico and Vista Biologicals Corporation worked cooperatively to develop the
drug master file. In accordance with the practice of the FDA, the drug master
file was issued to and became the property of the entity with the capacity to
manufacture the drug, in this case Vista Biologicals Corporation. By contract
with Vista Biologicals Corporation, CytoDyn of New Mexico had the exclusive
right to reference the drug master file, that is, to authorize Vista Biologicals
Corporation to manufacture Cytolin(R) in accordance with the terms of the drug
master file.
In 1996, the FDA also designated our investigational new drug application for
Cytolin(R) as BB-IND #6845, and subsequently approved a clinical trial.
In 2002, Symbion Research International, a contract research organization,
completed a Phase I a/b clinical trial of Cytolin(R). The trial was sponsored by
Amerimmune, Inc., the previous licensee of CytoDyn of New Mexico but Symbion was
never paid for its work. As a result, its work product became Symbion's. We
entered into a buy-sell agreement with Symbion to purchase the Phase Ia study
data in 2004. The Phase Ia study, conducted in 13 subjects suffering from
HIV/AIDS, found Cytolin(R) to be safe and well tolerated. The initial safety
study affirmed the safety and tolerability of the drug in these dose groups, as
6
well as preliminary efficacy in lowering the concentration of HIV by up to one
log (measurement of efficacy) and increasing T-cell counts in the study's
patient population with no severe adverse events reported. Some of the data were
presented as an abstract and poster session, entitled "Phase I Study of
Anti-LFA-1 Monoclonal Antibody (Cytolin(R) in Adults with HIV Infection" at the
9th Conference on Retroviruses and Opportunistic Infections held in Seattle,
Washington on February 24-28 2002 as well as the 16th International AIDS
Conference held August 2006 in Toronto, Canada.
The Company went through a period of years where legal issues delayed the
progress of this treatment. Also, at the time Cytolin(R) was discovered, the
medical community was just beginning to develop antivirals as the protocol for
treating HIV patients. Cytolin(R) is an immune based therapy that does not
directly attack the virus and thus is not an antiviral. Cytolin(R) is part of a
class of drugs called monoclonal antibodies or "targeted therapies". These
targeted therapies did not exist when the Company was first formed. Today there
are many that treat other serious diseases such as Cancer and Autoimmune
diseases. Our Company's approach to HIV disease was unique but not off base. No
other company is or has developed a targeted therapy that works like Cytolin(R)
for HIV disease.
Current Clinical Trials
CytoDyn has agreed to provide a research grant and GMP product to Massachusetts
General Hospital for the purpose of conducting an ex-vivo study of Cytolin(R).
The study will enroll 10 adults with early HIV infection and 10 healthy
controls, each of whom will be required to participate for six months. This
study is intended as a prelude to an in-vivo study and will take advantage of
the facilities available at Massachusetts General Hospital to confirm, and
perhaps sharpen, the role of killer T cells in causing the wholesale loss of CD4
T cells, as well as the mechanisms of action responsible for the clinical
benefits observed in patients treated with Cytolin(R), including the roles
played by various cytokines and cluster determinants (the "CD" used to
categorize lymphocytes, such as "CD4 T cells").
The Principal Investigator is Eric S. Rosenberg, MD, an Associate Professor of
Medicine in the Infectious Diseases Division of Massachusetts General Hospital
and a prominent researcher specializing in HIV/AIDS. More than the Principal
Investigator, Dr. Rosenberg designed the protocol for the study after an
extensive review of the relevant literature and human experience related to
Cytolin(R).
7
Risks of Academic Research
Massachusetts General Hospital is a nonprofit, tax-exempt facility with the
mission of improving the public health by engaging in research for the purpose
of discovering and making available to the public new and improved medical
treatments and information. As a consequence, Massachusetts General Hospital
does not conduct studies unless its researchers are free to publish the study
results as, how, and when they see fit, provided only that the trade secrets of
CytoDyn may not be disclosed.
When researchers have such unrestricted freedom to publish, it can pose a risk
to the company developing a drug. This is because the outcome of clinical
research is uncertain and the results may differ significantly from the
expectations of the company and the researchers. However, CytoDyn's management
believes this risk is minimal inasmuch as Cytolin(R) has already been used to
treat hundreds of patients over extended periods of time. Consequently, the
study is unlikely to produce unexpected or surprising results that would call
the safety and efficacy of Cytolin(R) into question. Nonetheless, the study may
fail to meet its objectives for any number of reasons. These include but are not
limited to the failure of in-vivo events to manifest in vitro, enrollment of
patients whose HIV infection is still too early, and the failure of a sufficient
number of human subjects to complete the study.
The Company's Approach to New Drug Development is Combining Elements From The
Public and Private Sectors
New Drug Development in The Public Sector
The federal government obtains tax dollars from individuals and corporations and
redistributes those dollars to public teaching hospitals for the purpose of
funding basic medical research. Faculty members at most public teaching
hospitals are expected to publish original research papers in the peer-review
journals. Since these published papers constitute a contribution to medical
knowledge, this knowledge provides society with an intangible benefit in return
for the tax dollars expended. A significant portion of the basic science that
underlies Cytolin(R), i.e., the "prior art," was funded by the National
Institute of Allergies and Infectious Diseases.
New Drug Development in The Private Sector
Individual and institutional investors voluntarily place their money at risk to
provide operating capital for use by the drug companies. These companies conduct
their own clinical trials. The new drugs that were successful generated such
large earnings that the drug companies have historically offered investors a
substantial return on investment.
The Company's Model of New Drug Development
The study CytoDyn is funding at Massachusetts General Hospital is
science-intensive, and is intended as a prelude to a follow-on clinical trial at
the same Institution. Over and above conducting the study, Massachusetts General
Hospital, not CytoDyn, designed the study and serves as its sponsor, all as part
8
of its mission of "improving the public health by engaging in research for the
purpose of discovering and making available to the public new and improved
medical drugs and information," to quote the recitals of the agreement between
Massachusetts General Hospital and CytoDyn, Inc.
In other words, CytoDyn is funding research of a type that is usually funded by
the government, except that the funds represent money voluntarily placed at risk
by investors rather than tax dollars. In particular, while CytoDyn will retain
its intellectual property rights and will have access to the study data, it will
not own the data, which will be owned by Massachusetts General Hospital. The
research provides Massachusetts General Hospital the opportunity to pursue its
mission of conducting basic and potentially seminal research using funds from a
non-governmental source that belongs to a deep-pocket segment of the economy and
is generally more flexible than the government. The advantage for the Company is
in avoiding the high costs arising from the FDA's regulation of clinical trials,
especially when the trials are sponsored by a drug company. The Company will
also benefit from a prestigious teaching hospital confirming the Company's
research.
The FDA licenses medicinal products for sale in interstate commerce under a
particular label only if they receive data supporting that label and only if
some company asks them to do so. CytoDyn may or may not be the company that
requests a license to market Cytolin(R) under a label. Under our current
thinking we hope to enter into a strategic alliance after the next two studies
under which a larger pharmaceutical marketing company will seek a license from
the FDA to market Cytolin(R) and under a license from us to use our intellectual
property in that manner. However there is no guarantee that we will wind up
pursuing this strategy.
Timing and anticipated completion dates for research and development.
---------------------------------------------------------------------
We estimate that the initial clinical trial to be conducted by Massachusetts
General Hospital will take one year to complete. The study enrollment began
January 13, 2010. We cannot estimate when enrollment will be completed.
Subsequently, CytoDyn, Inc. may fund a follow-up clinical trial at Massachusetts
General Hospital using venture capital or, at that time, may enter into a
strategic alliance for completion of research and the subsequent marketing of
Cytolin(R) if approved. In the former case, CytoDyn, Inc. will need to provide a
new batch of humanized product, which we estimate will cost on the order of
another half million dollars. We cannot estimate what the hospital's research
grant will be until the hospital has provided those estimates.
9
Traditional Clinical Trials Process
Phase I
Phase I includes the initial introduction of an investigational new drug or
biologic into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in a small number of healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the investigational product in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence on
effectiveness. During Phase I, sufficient information about the investigational
product's pharmacokinetics and pharmacological effects are obtained to permit
the design of well-controlled, scientifically valid, Phase II studies.
Phase II
Phase II includes the early controlled clinical studies conducted to obtain some
preliminary data on the effectiveness of the drug for a particular indication or
indications in patients with the disease or condition. This phase of testing
also helps determine the common short-term side effects and risks associated
with the drug. Phase II studies are typically well-controlled, closely
monitored, and conducted in a relatively small number of patients, usually
involving several hundred people. In some cases, depending upon the need for a
new drug, it may be licensed for sale in interstate commerce after a "pivotal"
Phase II trial.
Phase III
Phase III studies are expanded controlled clinical studies. They are performed
after preliminary evidence suggesting effectiveness of the drug has been
obtained in Phase II, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit/risk relationship of the drug. Phase III studies also provide an
adequate basis for extrapolating the results to the general population and
transmitting that information in the physician labeling. Phase III studies
usually include several hundred to several thousand people.
CytoDyn may enter into a strategic alliance with a pharmaceutical marketing
company after completion of the current clinical trial or after completion of
the second clinical trial. There is no guarantee that a strategic alliance would
be achieved after either of those trials.
Competition
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. CytoDyn will compete with other
more established biotechnology companies with greater financial resources.
Our potential competitors include entities that develop and produce therapeutic
agents for treatment of human and animal disease. These include numerous public
and private academic and research organizations and pharmaceutical and
biotechnology companies pursuing production of, among other things, biologics
10
from cell cultures, genetically engineered drugs and natural and chemically
synthesized drugs. Almost all of these potential competitors have substantially
greater capital resources, research and development capabilities, manufacturing
and marketing resources and experience than CytoDyn. Our competitors may succeed
in developing potential drugs or processes that are more effective or less
costly than any that may be developed by CytoDyn, or that gain regulatory
approval prior to our potential drugs. Worldwide, there are many antiviral drugs
for treating HIV and AIDS. In seeking to manufacture, distribute and market the
various potential drugs we intend to develop, we face competition from
established pharmaceutical companies. All of our potential competitors in this
field have considerably greater financial and personnel resources than we
possess. CytoDyn also expects that the number of its competitors and potential
competitors will increase as more potential drugs receive commercial marketing
approvals from the FDA or analogous foreign regulatory agencies. Any of these
competitors may be more successful than CytoDyn in manufacturing, marketing and
distributing its potential drugs.
Manufacturing and Source for Raw Materials
In May 2008, we negotiated with a contract manufacturer Vista Biologicals
Corporation to manufacture GMP product for the next clinical trial of Cytolin(R)
at a cost of $600,000, all of which was paid by September 2008. The initial
clinical trial to be conducted by Massachusetts General Hospital will cost the
Company approximately $363,000 of which $172,000 was paid by December 2009. The
product has been tested by WUXI for use in human subjects. The product's
expected expiration date is two years from the date WUXI completed its product
testing which is July 2011. Subsequent manufacturing may or may not be done by
CytoDyn depending on whether the Company enters into a strategic alliance with a
pharmaceutical marketing company before or after the second clinical trial
anticipated to be conducted by Dr. Rosenberg. The product may or may not be
humanized. Raw materials and manufacturing will be provided by a CMO (Contract
Manufacturing Organization) if manufactured by CytoDyn.
Patents and Trademarks
We have a License Agreement with Allen D. Allen, our President and CEO that
gives us the exclusive right to develop, market and profit from his technology
worldwide. This includes issued U.S. patents 5,424,066; 5,651,970 and 6,534,057,
foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian and Canadian patents have been obtained as
well. The original expiration dates of the U.S. patents are 2013 to 2016. There
is an automatic extension of the expiration date on U.S. patents equal to the
number of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. We estimate the costs
associated with these issued patents to be approximately $100,000 per year. We
may file additional patents during the current fiscal year if our research and
development efforts warrant them, but we do not have any such potential patents
identified at this time.
CytoDyn(R) and Cytolin(R) are our registered trademarks. Our service trademark
mark symbol is:
[GRAPHIC OMITTED]
11
Government Regulation
Our research and development activities and the manufacture and marketing of our
products are subject to rigorous regulations relating to product safety and
efficacy by numerous governmental authorities in the United States and other
countries. The Federal Food, Drug and Cosmetic Act and other federal and state
statutes and regulations govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising
and promotion of our products in the U.S. The lengthy process of seeking drug
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Failure to comply
with applicable regulations can result in refusal by the FDA to approve product
license applications. The FDA also has the authority to revoke previously
granted product approvals.
We are subject to various laws and regulations relating to safe working
conditions, clinical, laboratory and manufacturing practices, the experimental
use of animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with our research. The extent of government regulation applying to
our business that might result from any legislative or administrative action
cannot be accurately predicted.
Research and Development Costs
Company sponsored research and development expenses were $164,147 and $424,739
in 2008 and 2007, respectively. We expect that research and development expenses
will continue to increase as we seek to expand development of our current and
future product pipeline.
Employees
We have three full time employees, one part time employee and several
consultants engaged in management and product development. CytoDyn is severely
understaffed and will expand its employee force if we complete further
financings estimated to be $5 million to $15 million. There can be no assurance
we will be able to locate or secure suitable employees upon acceptable terms in
the future.
Item 1A. Risk Factors
This item is not required for smaller reporting companies
12
Item 2. Properties
Our principal offices are located at 1511 Third Street, Santa Fe, New Mexico
87505. We have leased approximately 1,200 square feet of office space for two
years beginning September 1, 2008 until August 31, 2010 at $1,750 per month.
Item 3. Legal Proceedings
Maya LLC v. CytoDyn, et al Superior Court of Los Angeles Glendale Case #EC041590
--------------------------------------------------------------------------------
CytoDyn, Inc. and Allen D. Allen v. Amerimmune, Inc. and Amerimmune
-------------------------------------------------------------------
Pharmaceuticals, Inc. v. Biovest International, Inc., Commonwealth of
---------------------------------------------------------------------
Massachusetts, Superior Court, Worcester County, Civil Action No. 05-0452-C.
----------------------------------------------------------------------------
The Company and some of its officers and directors have entered into a
Settlement Agreement with the all parties involved in the above legal matters
including CytoDyn, Inc., Allen D. Allen, Corinne Allen, Maya LLC, AIDS Research
LLC and Rex Lewis. All of the cases have been settled pursuant to this
agreement. The liability incurred by the Company was a payment to Maya LLC of
$50,000 paid on January 14, 2009 and an additional $25,000 was paid by January
14, 2010. We have dismissed all claims to the 1995 FDA drug application and the
original cell bank as defined in the agreement and Rex Lewis and his parties
agree to dismiss all claims against the Company, any of its predecessors and any
of its officers and directors. Related to the above settlement the Company
accrued $75,000 as of May 31, 2008. The property rights given in exchange for
the dismissed claims are not part of the Company's current product research and
development plan.
Item 4. Submission of Matters to a Vote of Security Holders
None for Fiscal Year Ended May 31, 2008.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Trading Information
CytoDyn, Inc. trades on the Pink Sheets under the ticker symbol CYDY. As of the
date of this filing we had approximately 204 holders of our common stock, plus
what is held in street name which we cannot determine as of the date of this
filing.
13
Dividends.
----------
Holders of our common stock are entitled to receive dividends as may be declared
from time to time by our Board of Directors. We have not paid any cash dividends
on our common stock and do not anticipate paying any in the foreseeable future.
Management's current policy is to retain earnings, if any, for use in CytoDyn's
operations and for expansion of the business.
The table below provides the high and low sales prices of our common stock for
the periods indicated, as reported by the Pink Sheets quotations system:
Price Range of Outstanding Common Stock
---------------------------------------------------------------------
Year Ended May 31, 2008
---------------------------------------------------------------------
High Low
--------------------------------------------------- -------- --------
First Quarter Ended August 31, 2007 .80 .55
--------------------------------------------------- -------- --------
Second Quarter Ended November 30, 2007 .65 .11
--------------------------------------------------- -------- --------
Third Quarter Ended February 28, 2008 .35 .11
--------------------------------------------------- -------- --------
Fourth Quarter Ended May 31, 2008 .96 .13
---------------------------------------------------------------------
---------------------------------------------------------------------
Year Ended May 31, 2007
---------------------------------------------------------------------
High Low
--------------------------------------------------- -------- --------
First Quarter Ended August 31, 2006 2.78 1.75
--------------------------------------------------- -------- --------
Second Quarter Ended November 30, 2006 1.65 .80
--------------------------------------------------- -------- --------
Third Quarter Ended February 28, 2007 1.00 .51
--------------------------------------------------- -------- --------
Fourth Quarter Ended May 31, 2007 .85 .51
---------------------------------------------------------------------
Securities Authorized for Issuance under Equity Compensation Plans.
14
Equity Compensation Plan Information
The following table sets forth information regarding outstanding options and
rights and shares reserved for future issuance under our existing equity
compensation plans as of May 31, 2008:
(a) (b) (c)
Number of securities Weighted-Average Number of securities
to be issued future exercise remaining available for
upon exercise of price of outstanding issuance under equity
outstanding options, options, warrants, compensation plans
Plan category warrants and rights and rights (excluding securities)
------------------- -------------------- -------------------- -----------------------
Equity compensation
plans approved by
security holders 1,951,122 653,878
Equity compensation
plans not approved
by security
holders(1) 1,276,100
Total(2)
3,227,222 $ 1.30 653,878
___________
(1) In May 2004 Mr. Wellington Ewen, the Company's previous Chief Financial
Officer was granted 150,000 options as his only compensation for being our
Chief Financial Officer. The options vested 50,000 as of May 2005 with
exercise price of $.50 per share, 50,000 as of May 2006 with an exercise
price of $1.00 per share and 50,000 May 2007 with exercise price of $1.50
per share. To date no options have been exercised. 426,000 warrants were
issued to a prior financial representative. 94,500 have been exercised
331,500 remain unexercised. The exercise price is $.30 per share and the
warrants expire in 2011. 469,600 warrants were issued to certain friends
and family as part of an incentive to participate in our bridge loan
financing. The warrants exercise price are $2.50 and they expire in 2011.
To date none have been exercised. In October 2007 the Company granted 9,000
warrants to the Gould Educational Fund, the exercise price is $.30 per
share they expire in 2011. From April 2008 until May 31, 2008 the Company
issued 321,000 in warrants to investors purchasing common shares in the
Company's Private Placement to raise $2,000,000. The exercise price is
$1.00 per warrant and the warrants expire in 2013.
(2) As of May 31, 2008 we had: 12,546,407 shares of common stock issued and
outstanding; 653,878 shares currently reserved and available for future
option grants.
Recent Sales of Unregistered Securities
In April 2008 our Board of Directors approved a Private Placement Memorandum to
sell up to 6 million shares of common stock, no par value, through a Placement
Agent, a company offering. This offering was only available to accredited
investors as defined under the 1933 Securities Act ("The Act"). The offering
commenced on or about April 4, 2008 and ended June 2009. The Company sold
3,876,509 restricted common shares and 1,938,254 warrants. These securities were
sold pursuant to an exemption from registration under Regulation D under "The
Act" and will not be registered with the Securities and Exchange Commission.
The Company used the proceeds to manufacture our primary product Cytolin(R) for
use in clinical trials. The remaining amount of the proceeds will be used for
Company operating expenses, patent fees and legal fees.
15
Item 6. Selected Financial Data
This item is not required for Smaller Reporting Companies
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE
OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH
STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT
LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN,
POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET
PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE
FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY
STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere herein. This discussion and analysis contains
forward-looking statements including information about possible or assumed
results of our financial conditions, operations, plans, objectives and
performance that involve risk, uncertainties and assumptions. The actual results
may differ materially from those anticipated in such forward-looking statements.
The words expect, anticipate, estimate or similar expressions are also used to
indicate forward-looking statements.
Background of our Company
CytoDyn, Inc. discovered and is developing a class of therapeutic monoclonal
antibodies to address significant unmet medical needs in the area of HIV/AIDS.
CytoDyn, Inc. has sponsored a research grant to Massachusetts General Hospital
in Boston, Massachusetts, to design and sponsor clinical trials in addition to
conducting those trials on our lead product Cytolin(R), an immune therapy
intended to treat early HIV infection. Although CytoDyn, Inc. will retain all of
its intellectual property rights and will have access to the study data, the
data will be owned by Massachusetts General Hospital (MGH). A chief benefit for
CytoDyn, Inc. is that the Company will not have to deal directly with the FDA.
Moreover, the high costs and long delays associated with the FDA's oversight of
clinical trials may be significantly reduced in the case of clinical trials
designed and sponsored by a leading teaching hospital.
16
The FDA licenses medicinal products for sale in interstate commerce under a
particular label. Only if they receive data supporting that label and only if
some company asks them to do so. CytoDyn may or may not be the company that
requests a license to market Cytolin(R) under a label. Under our current
thinking we hope to enter into a strategic alliance after the next two studies
under which a larger pharmaceutical marketing company will seek a license from
the FDA to market Cytolin(R) and under a license from us to use our intellectual
property in that manner. However there is no guarantee that we will wind up
pursuing this strategy.
In May 2008 we negotiated with a contract manufacturer Vista Biologicals
Corporation to manufacture GMP product for the next clinical trial of Cytolin(R)
at a cost of $600,000, all of which was paid by September 2008. The initial
clinical trial to be conducted by Massachusetts General Hospital will cost the
Company approximately $363,000 of which $172,000 was paid by December 2009.
Human subjects are now being recruited for the initial study conducted by
Massachusetts General Hospital from the clinic of the Principal Investigator,
Dr. Eric Rosenberg. The study protocol calls for 10 adults with early HIV
infection and 10 healthy control subjects. According to the study protocol, it
could take up to one year to fill these 20 slots. Although the Company expects
enrollment to be completed in a shorter period of time, there can be no
guarantee that enrollment will be completed in less time than is permitted by
the study protocol.
We registered a clinical trial of Cytolin(R) with the government's website at
www.clinicaltrials.gov, ID NCT01048372. The public has online access to this
federal database, which describes the key elements of clinical trials and their
status. To peruse the continually updated public record for the study of
Cytolin(R) on the government's website, enter "HIV AND Boston AND Cytolin" as
search terms (case sensitive).
Subsequently, CytoDyn, Inc. may fund a follow-up clinical trial at Massachusetts
General Hospital using venture capital or, at that time, may enter into a
strategic alliance for completion of research and the subsequent marketing of
Cytolin(R) if approved. In the former case, CytoDyn, Inc. will need to provide a
new batch of humanized product, which we estimate will cost on the order of
another half million dollars. The Company is conducting a private placement of
preferred shares to secure the capital needed for the follow-up study. We cannot
estimate what the hospital's research grant will be at this time until the
hospital has provided those estimates.
There are many factors that can delay clinical trial benchmarks. However, the
Company hopes to receive the results and analysis of the upcoming clinical trial
during 2010.
17
=============================================================================
Benchmark Some Factors That Can Cause Delays+
=============================================================================
Manufacturing Delays
Documentation Delays
Patient Outreach IRB Delays
Delays in Regulatory Review or Approval
Force Majeure
=============================================================================
Fill and Finish Delays
Dose First Patient Slower Than Expected Patient Enrollment
Force Majeure
=============================================================================
Slower Than Expected Patient Enrollment
Lock Database - Begin Clinical Hold
Statistical Analysis Laboratory Error
Protocol Deviation
Force Majeure
=============================================================================
Additional Stratification Required
Release Final Report Computer Hardware or Software
Malfunction
Force Majeure
=============================================================================
+There are other factors, known and unknown, such as unexpected financial
hardships, that can cause delays.
Clinical Trials Process - Described below is the traditional drug development
track. Under the Company's current business plan, much of this initial work will
be sponsored and conducted by MGH, eliminating the need for CytoDyn to deal
directly with the FDA. Traditionally, the Company would enter into a strategic
alliance with a larger pharmaceutical company after development has progressed
to a certain point. While there can be no guarantee that this will occur in our
case, if it does, then our larger partner would usually be responsible for
dealing with the FDA.
Phase I
-------
Phase I includes the initial introduction of an investigational new drug or
biologic into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in a small number of healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the investigational product in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence on
effectiveness. During Phase I, sufficient information about the investigational
product's pharmacokinetics and pharmacological effects are obtained to permit
the design of well-controlled, scientifically valid, Phase II studies.
Phase II
--------
Phase II includes the early controlled clinical studies conducted to obtain some
preliminary data on the effectiveness of the drug for a particular indication or
indications in patients with the disease or condition. This phase of testing
also helps determine the common short-term side effects and risks associated
with the drug. Phase II studies are typically well-controlled, closely
monitored, and conducted in a relatively small number of patients, usually
involving several hundred people. Depending upon need, a new drug may be
licensed for interstate marketing after Phase II if it is a "pivotal" study.
18
Phase III
---------
Phase III studies are expanded controlled clinical studies. They are performed
after preliminary evidence suggesting effectiveness of the drug has been
obtained in Phase II, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit/risk relationship of the drug. Phase III studies also provide an
adequate basis for extrapolating the results to the general population and
transmitting that information in the physician labeling. Phase III studies
usually include several hundred to several thousand people.
Patents
-------
We have a License Agreement with Allen D. Allen, our President and CEO that
gives us the exclusive right to develop, market and profit from, his technology
worldwide. This includes issued U.S. patents 5,424,066; 5,651,970 and 6,534,057,
foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian and Canadian patents have been obtained as
well. The original expiration dates of the U.S. patents are 2013 to 2016. There
is an automatic extension of the expiration date on U.S. patents equal to the
number of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. We estimate the costs
associated with these issued patents to be approximately $100,000 per year. We
may file additional patents during the current fiscal year if our research and
development efforts warrant them, but we do not have any such potential patents
identified at this time.
19
Going Concern
We will require additional funding in order to continue with research and
development efforts.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company is currently in the development stage with
losses for all periods presented. As of March 12, 2010 these factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to obtain additional operating
capital, complete development of its medical treatments, obtain FDA approval,
outsource manufacturing of the treatments, and ultimately to attain
profitability. The Company intends to seek additional funding through equity
offerings or licensing agreements to fund its business plan. There is no
assurance that the Company will be successful in these endeavors.
Results of Operations
Results of operations for the year ended May 31, 2008 compared to May 31, 2007
are as follows:
For the years ended May 31, 2008 and 2007 the Company had no activities
that produced revenues from operations.
For the year ended May 31, 2008, the Company had a net loss of
approximately $(1,194,000) compared to a net loss of approximately
$(2,610,000) for the corresponding period in 2007. For the year ended May
31, 2008 and 2007, the Company incurred operating expenses consisting
primarily of stock-based compensation, legal fees, salaries, research and
development, and amortization.
The operating expenses for the years ended May 31, 2008 and 2007 are as follows:
2008 2007
-------------- --------------
Stock-based compensation $ 468,000 $ 905,000
Legal 272,000 253,000
Salaries 71,000 309,000
Research and development 164,000 425,000
Amortization 1,000 167,000
Other 103,000 406,000
-------------- --------------
Total $ 1,079,000 $ 2,465,000
============== ==============
20
Stock-based compensation decreased approximately $437,000 primarily due to a
decrease in the amortization related to prepaid stock services, as well
decreases in amortization related to common stock options and warrants. Salary
expense decreased in 2008 relative to 2007, as the Company's operations were
significantly limited during the second and third quarters of 2008 due to
limited financing during that time. The research and development expense, as
well as all other operating expenses decreased during this time due to the
limited funds available to pay these operating expenses. The decrease in
amortization is directly related to the completion and full amortization of a
research contract with a consulting firm during 2007. There was no such
amortization during 2008 related to this project.
The decrease in interest expense from 2007 to 2008 is related to decreases in
amortization of the Company's original issue discount from warrants issued with
debt. During 2006 and 2007, the Company issued more warrants with debt relative
to 2008.
Liquidity and Capital Resources
As shown in the accompanying Financial Statements, for the year ended May 31,
2008 and 2007, and since October 28, 2003 through May 31, 2008 the Company has
had net losses of approximately $(1,194,000) and $(2,610,000) and $(6,973,000),
respectively. As of May 31, 2008, the Company has not emerged from the
development stage. In view of these matters, the Company's ability to continue
as a going concern is dependent upon the Company's ability to begin operations
and to achieve a level of profitability. Since inception, the Company has
financed its activities principally from the sale of public equity securities
and proceeds from notes payable. The Company intends on financing its future
development activities and its working capital needs largely from the sale of
public equity securities with some additional funding from other traditional
financing sources.
21
As previously mentioned, since October 28, 2003, we have financed our operations
largely from the sale of common stock and proceeds from notes payable. From
October 28, 2003 through May 31, 2008 we raised cash of approximately $997,000
(net of offering costs) through private placements of common stock financings
and $1,534,000 through the issuance related party notes payable and convertible
notes. Additionally, the Company has raised approximately $612,000 from the
issuance of common stock and preferred stock in conjunction with certain
acquisitions described in Note 7 of the financial statements.
In April 2008, the Company's Board of Directors approved a Private Placement
Memorandum to sell up to 6 million shares of common stock, no par value, a
company offering. This offering was only available to accredited investors as
defined under the 1933 Securities Act ("The Act"). The offering commenced on or
about May 1, 2008 and ended June 15, 2009, the Company has sold 3,876,509
restricted common shares and 1,938,254 warrants for proceeds totaling
$1,938,254. These securities were sold pursuant to an exemption from
registration under Regulation D under The Act and will not be registered with
the Securities and Exchange Commission. The warrants have an exercise price of
$1.00 per share, immediate vesting rights, and expire in 2013 and 2014.
Since October 28, 2003 through May 31, 2008, we have incurred approximately
$951,000 of research and development costs and approximately $6,242,000 in
operating expenses. We have incurred significant net losses and negative cash
flows from operations since our inception. As of May 31, 2008, we had an
accumulated deficit of approximately $8,575,000 and a working capital deficit of
$371,000.
We anticipate that cash used in product development and operations, especially
in the marketing, production and sale of our products will increase
significantly in the future. As described above, our only material commitments
are related clinical trials of our product.
Subsequent to May 31, 2008, the Company raised $1,696,500 through a Private
Placement Offering of preferred shares. The Company amended its articles and
designated 400,000 preferred shares Series B to be sold at $5.00 share. The
preferred shares are convertible into common shares at $.50 per share or 10
shares of common for every preferred share issued.
Subsequent to May 31, 2008, the Company raised $561,500 through a Private
Placement offering to sell common shares $.50 per share.
Subsequent to May 31, 2008, the Company paid approximately $600,000 in cash for
the manufacturing of our product, Cytolin(R), to be used in human clinical
trials.
In September 2009 the Company entered into an agreement with Massachusetts
General Hospital to provide financial support for the purpose of conducting an
ex-vivo study of the Company's lead drug, Cytolin(R). This study is intended as
a prelude to an in-vivo study. Costs are estimated at approximately $363,000 of
which 50%, or $172,000, was paid to Massachusetts General Hospital by CytoDyn by
September 2009.
22
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
We believe that the following critical policies affect our more significant
judgments and estimates used in preparation of our financial statements.
We use the Black-Scholes option pricing model to estimate the fair value of
stock-based awards on the date of grant utilizing certain assumptions that
require judgments and estimates. These assumptions include estimates for
volatility, expected term, and risk-free interest rates in determining the fair
value of the stock-based awards.
We issue common stock to consultants for various services. Costs for these
transactions are measured at the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more readily
measurable. This determination requires judgment in terms of the consideration
being measured.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable for smaller reporting companies
Item 8. Financial Statements and Supplementary Data
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 24
CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2008 AND MAY 31, 2007 25
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED
MAY 31, 2008 AND 2007, AND FOR THE PERIOD FROM
OCTOBER 28, 2003 TO MAY 31, 2008 26
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR
THE PERIOD FROM OCTOBER 28, 2003 TO MAY 31, 2008 27 - 28
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
MAY 31, 2008 AND 2007 AND FOR THE PERIOD FROM
OCTOBER 28, 2003 TO MAY 31, 2008 29 - 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31 - 46
23
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CytoDyn, Inc. (A Development Stage Company)
Santa Fe, New Mexico
We have audited the accompanying consolidated balance sheet of CytoDyn, Inc. (a
development stage company) as of May 31, 2008 and 2007 and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years then ended and the period from October 28,2003 through
May 31, 2008. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Company
is not required at this time, to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CytoDyn, Inc. as of
May 31, 2008 and 2007 and the results of its operations and its cash flows for
the years then ended and the period from October 28, 2003 through May 31, 2008
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company incurred a net loss of $1,193,684
for the year ended May 31, 2008 and has an accumulated deficit of $6,972,825 for
the period October 28, 2003 through May 31, 2008, respectively. As of May 31,
2008, the Company had $371,157 of negative working capital and $85,435 of cash
with which to satisfy any future cash requirements, which raises a substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to this matter are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Pender Newkirk & Company LLP
--------------------------------
Pender Newkirk & Company LLP
Certified Public Accountants
Tampa, Florida
March 12, 2010
24
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
May 31,
--------------------------
2008 2007
----------- -----------
Assets
Current assets:
Cash $ 85,435 $ 16,604
Prepaid insurance 43,978 43,254
Prepaid license fees 7,500 50,000
----------- -----------
Total current assets 136,913 109,858
Furniture and equipment, net 1,422 2,611
Intangible assets, net 647 1,294
Other assets 37,240 495
----------- -----------
$ 176,222 $ 114,258
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 388,459 $ 239,572
Accrued liabilities 25,274 193,600
Short-term portion of legal accrual 50,000 --
Accrued interest payable 44,337 10,216
Short-term portion of notes payable -- 125,000
----------- -----------
Total current liabilities 508,070 568,388
----------- -----------
Other liabilities:
Accrued salaries - related party 229,500 --
Notes payable 145,000 --
Convertible notes payable, net 20,927 14,385
Indebtedness to related parties 572,840 455,701
Legal accrual 25,000 150,000
----------- -----------
Total liabilities 1,501,337 1,188,474
----------- -----------
Shareholders' deficit:
Preferred stock; no par value;
5,000,000 shares authorized;
100,000 shares issued and outstanding 167,500 167,500
Common stock; no par value;
25,000,000 shares authorized;
12,546,407 and 11,297,264 shares
issued and outstanding
at May 31, 2008 and 2007, respectively 4,468,865 4,172,865
Stock for services -- (106,521)
Additional paid-in capital 2,613,257 2,072,993
Accumulated deficit on unrelated
dormant operations (1,601,912) (1,601,912)
Deficit accumulated during development stage (6,972,825) (5,779,141)
----------- -----------
Total shareholders' deficit (1,325,115) (1,074,216)
----------- -----------
$ 176,222 $ 114,258
=========== ===========
See accompanying notes to consolidated financial statements.
25
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
October 28,
Year Ended May 31, 2003
---------------------------- through
2008 2007 May 31, 2008
------------ ------------ ------------
Operating expenses:
General and administrative $ 790,871 $ 1,619,462 $ 4,525,549
Amortization / depreciation 1,836 168,184 173,996
Research and development 164,147 424,739 951,228
Legal fees 271,894 252,745 591,389
Commitments and contingencies (150,000) -- --
------------ ------------ ------------
Total operating expenses 1,078,748 2,465,130 6,242,162
------------ ------------ ------------
Operating loss (1,078,748) (2,465,130) (6,242,162)
Interest income -- 949 1,627
Interest expense:
Interest on convertible debt (78,905) (145,889) (696,259)
Interest on notes payable (36,031) -- (36,031)
------------ ------------ ------------
Loss before income taxes (1,193,684) (2,610,070) (6,972,825)
Income tax provision -- -- --
------------ ------------ ------------
Net loss $ (1,193,684) $ (2,610,070) $ (6,972,825)
============ ============ ============
Basic and diluted loss per share $ (0.10) $ (0.24) $ (0.74)
============ ============ ============
Basic and diluted weighted average
common shares outstanding 11,391,844 10,997,063 9,391,643
============ ============ ============
See accompanying notes to consolidated financial statements.
26
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through May 31, 2008
Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
----------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at October 28,
2003, following
recapitalization -- $ -- 6,252,640 $1,425,334 $ -- $ 23,502 $(1,594,042) $ -- $ (145,206)
February through
April 2004, sale of
common stock less
offering costs of
$54,000 ($.30/share) -- -- 1,800,000 486,000 -- -- -- -- 486,000
February 2004, shares
issued to former
officer as payment
for working capital
advance ($.30/share) -- -- 16,667 5,000 -- -- -- -- 5,000
Net loss at year ended
May 31, 2004 -- -- -- -- -- -- (7,870) (338,044) (345,914)
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31, 2004 -- -- 8,069,307 1,916,334 -- 23,502 (1,601,912) (338,044) (120)
July 2004, capital
contribution by
an officer -- -- -- -- -- 512 -- -- 512
November 2004, common
stock warrants granted -- -- -- -- -- 11,928 -- -- 11,928
February 2005, capital
contribution by
an officer -- -- -- -- -- 5,000 -- -- 5,000
Net loss at year ended
May 31, 2005 -- -- -- -- -- -- -- (777,083) (777,083)
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31, 2005 -- -- 8,069,307 1,916,334 -- 40,942 (1,601,912) (1,115,127) (759,763)
June through July 2005,
sale of common stock
less offering costs of
$27,867 ($.75/share) -- -- 289,890 189,550 -- -- -- -- 189,550
August 2005, common shares
issued to extinguish
promissory notes payable
and related interest
($.75/share) -- -- 160,110 120,082 -- -- -- -- 120,082
May 2006, common shares
issued to extinguish
convertible debt -- -- 350,000 437,500 -- -- -- -- 437,500
November 2005, 94,500
warrants exercised
($.30/share) -- -- 94,500 28,350 -- -- -- -- 28,350
January through April
2006, common shares
issued for
prepaid services -- -- 183,857 370,750 (370,750) -- -- -- --
Amortization of prepaid
stock services -- -- -- -- 103,690 -- -- -- 103,690
January through June
2006, warrants issued
with convertible debt -- -- -- -- -- 274,950 -- -- 274,950
January through May 2006,
beneficial conversion
feature of convertible
debt -- -- -- -- -- 234,550 -- -- 234,550
March through May 2006,
stock options granted
to consultants -- -- -- -- -- 687,726 -- -- 687,726
See accompanying notes to consolidated financial statements.
27
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through May 31, 2008
Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
----------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
March 2006, stock
options issued to
extinguish debt -- -- -- -- -- 86,341 -- -- 86,341
Net loss at year ended
May 31, 2006 -- -- -- -- -- -- -- (2,053,944) (2,053,944)
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31, 2006 -- -- 9,147,664 3,062,566 (267,060) 1,324,509 (1,601,912) (3,169,071) (650,968)
Common stock issued
to extinguish
convertible debt -- -- 119,600 149,500 -- -- -- -- 149,500
Convertible debt stock
issued for
AITI acquisition -- -- 2,000,000 934,399 -- -- -- -- 934,399
Amortization of
prepaid stock services -- -- -- -- 267,060 -- -- -- 267,060
Common stock payable for
prepaid services -- -- -- -- (106,521) 120,000 -- -- 13,479
Stock-based compensation -- -- -- -- -- 535,984 -- -- 535,984
Warrants issued with
convertible debt -- -- -- -- -- 92,500 -- -- 92,500
Common stock issued for
services -- -- 30,000 26,400 -- -- -- -- 26,400
Preferred shares
issued AGTI 100,000 167,500 -- -- -- -- -- -- 167,500
Net loss, May 31, 2007 -- -- -- -- -- -- -- (2,610,070) (2,610,070)
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31, 2007 100,000 167,500 11,297,264 4,172,865 (106,521) 2,072,993 (1,601,912) (5,779,141) (1,074,216)
Amortization of prepaid
stock for services -- -- -- -- 106,521 -- -- -- 106,521
Stock based compensation -- -- -- -- -- 461,602 -- -- 461,602
Common stock issued to
extinguish convertible
debt -- -- 750,000 75,000 -- -- -- -- 75,000
Rescission of common
stock issued for services -- -- (142,857) (100,000) -- -- -- -- (100,000)
Original issue discount
convertible debt with
warrants -- -- -- -- -- 3,662 -- -- 3,662
Original issue discount
convertible debt with
beneficial conversion
feature -- -- -- -- -- 75,000 -- -- 75,000
Stock issued for cash
($.50/share) -- -- 642,000 321,000 -- -- -- -- 321,000
Net loss -- -- -- -- -- -- -- (1,193,684) (1,193,684)
------- -------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31, 2008 100,000 $167,500 12,546,407 $4,468,865 $ -- $2,613,257 $(1,601,912) $(6,972,825) $(1,325,115)
======= ======== ========== ========== ========= ========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
28
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
October 28,
Year Ended May 31, 2003
-------------------------- through
2008 2007 May 31, 2008
----------- ----------- ------------
Cash flows from operating activities
Net loss $(1,193,684) $(2,610,070) $(6,972,825)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization / depreciation 1,836 168,184 173,996
Amortization of original issue discount 76,204 140,020 677,588
Reversal of contingent liability (150,000) -- --
Purchased in process research and
development -- 274,399 274,399
Stock-based compensation 468,123 905,264 2,115,676
Changes in current assets and liabilities:
Accrued legal settlement 75,000 -- 75,000
Decrease in prepaid expenses 41,776 30,022 35,697
Increase in other assets (36,745) -- (37,240)
Increase in accounts payable, accrued
interest and accrued liabilities 244,182 157,091 650,394
----------- ----------- -----------
Net cash used in operating activities (473,308) (935,090) (3,007,315)
----------- ----------- -----------
Cash flows from investing activities:
Furniture and equipment purchases -- (3,326) (10,764)
----------- ----------- -----------
Cash flows from financing activities:
Capital contributions by president -- -- 5,512
Proceeds from notes payable to related parties 154,800 -- 702,649
Payments on notes payable to related parties (37,661) -- (75,985)
Proceeds from notes payable issued to individuals 20,000 125,000 145,000
Proceeds from convertible notes payable 84,000 92,500 686,000
Proceeds from the sale of common stock 321,000 -- 1,078,417
Payments for offering costs -- -- (81,867)
Proceeds from issuance of stock for AITI acquisition -- 512,200 512,200
Proceeds from issuance of stock for AGTI acquisition -- 100,000 100,000
Proceeds from exercise of warrants -- -- 28,350
----------- ----------- -----------
Net cash provided by financing activities 542,139 829,700 3,100,276
----------- ----------- -----------
Net change in cash 68,831 (108,716) 82,197
Cash, beginning of period 16,604 125,320 3,238
----------- ----------- -----------
Cash, end of period $ 85,435 $ 16,604 $ 85,435
=========== =========== ===========
See accompanying notes to consolidated financial statements
29
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
October 28,
Year Ended May 31, 2003
-------------------------- through
2008 2007 May 31, 2008
----------- ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ -- $ -- $ --
=========== =========== ===========
Interest $ 1,910 $ -- $ 3,036
=========== =========== ===========
Non-cash investing and financing transactions:
Net assets acquired in exchange for common stock
in CytoDyn/Rexray business combination $ -- $ -- $ 7,542
=========== =========== ===========
Common stock issued to former officer to repay
working capital advance $ -- $ -- $ 5,000
=========== =========== ===========
Common stock issued for convertible debt $ 75,000 $ 149,500 $ 662,000
=========== =========== ===========
Common stock issued for debt $ -- $ -- $ 120,082
=========== =========== ===========
Options to purchase common stock issued for debt $ -- $ 62,341 $ 62,341
=========== =========== ===========
Original issue discount and intrinsic value of
beneficial conversion feature related to debt
issued with warrants $ 78,662 $ 92,500 $ 680,662
=========== =========== ===========
On July 18, 2006 the Company issued 2,000,000 shares of unregistered
restricted common stock for 1,000 shares of AITI common stock. The
acquisition was accounted for as an asset purchase (See Note 7). The Company
acquired a prepaid sponsored research project for $162,800, a license
agreement for $150,000, and acquired $109,399 in expenses associated with the
license agreement and cash of $512,200. The license agreement and associated
expenses have been recorded as in process research and development expenses
on the accompanying consolidated financial statements.
On January 30, 2007, the Company issued 100,000 preferred shares of
unregistered stock for 1,000 shares of AGTI common stock. The Company
acquired a prepaid license fee for seven years for $52,500 and $15,000 in
expense associated with the license agreement.
On July 16, 2007, the Company cancelled the issuance of 142,857 shares of
restricted common stock previously issued to a consultation firm. In
conjunction with the cancellation, the Company reduced stock compensation
expense and common stock by $100,000, which was the value of the shares on
the date of cancellation.
See accompanying notes to consolidated financial statements.
30
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Organization
CytoDyn, Inc. (the "Company") was incorporated under the laws of Colorado on May
2, 2002 under the name Rexray Corporation ("Rexray"). In October 2003 we entered
into an Acquisition Agreement with CytoDyn of New Mexico, Inc., pursuant to
which we effected a one for two reverse split of our common stock, and amended
our articles of incorporation to change our name from Rexray Corporation to
CytoDyn, Inc. The acquisition was a accounted for as a reverse merger and
recapitalization of the Company. Pursuant to the acquisition agreement, we were
assigned the patent license agreement dated July 1, 1994 between CytoDyn of New
Mexico and Allen D. Allen covering three United States patents along with
foreign counterpart patents which describe a method for treating HIV disease
with the use of monoclonal antibodies. We also acquired the trademarks, CytoDyn
and Cytolin, and a related trademark symbol. The license acquired gives us the
worldwide, exclusive right to develop, market and sell the HIV therapies from
the patents, technology and know-how invented by Mr. Allen. The term of the
license agreement is for the life of the patents. The original expiration dates
on the issued patents are 2013 to 2016. There is an automatic extension of the
expiration date on U.S. patents equal to the number of years the drug under the
patent is being studied in clinical trials. Typically this provides another four
to five years on the earliest claims. CytoDyn's counsel expects its patents to
be extended until 2017 to 2020 depending upon the original date of the issued
patents. As consideration for the intellectual property and trademarks we paid
CytoDyn of New Mexico $10,000 in cash and issued 5,362,640 post-split shares of
common stock to CytoDyn of New Mexico.
The Company entered the development stage effective October 28, 2003 upon the
reverse merger and recapitalization of the Company and follows Statements of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises" (SFAS No. 7).
Advanced Influenza Technologies, Inc. ("AITI") was incorporated under the laws
of Florida on June 9, 2006.
Advanced Genetic Technologies, Inc. ("AGTI") was incorporated under the laws of
Florida on December 18, 2006.
CytoDyn, Inc. discovered and is developing a class of therapeutic monoclonal
antibodies to address significant unmet medical needs in the areas of HIV and
AIDS.
2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financials statements include the accounts of CytoDyn, Inc. and
its wholly owned subsidiaries; AITI and AIGI. All intercompany transactions and
balances are eliminated in consolidation.
Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company is currently in the development
stage with losses for all periods presented. As of March 12, 2010 these factors,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
31
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 medical
treatment, obtain FDA approval, outsource manufacturing of the treatment, and
ultimately to attain profitability. The Company intends to seek additional
funding through equity offerings to fund its business plan. There is no
assurance that the Company will be successful in these endeavors.
Use of Estimates
The preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when acquired to be cash equivalents. The
Company had no cash equivalents as of May 31, 2008 or May 31, 2007. The Company
maintains its cash in bank deposit accounts, which at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
generally three to seven years. Maintenance and repairs are charged to expense
as incurred and major improvements or betterments are capitalized. Gains or
losses on sales or retirements are included in the consolidated statements of
operations in the year of disposition.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets under U.S. GAAP,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted future
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. If such assets are impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying value or fair value, less costs to sell. There were no impairment
charges for years ended May 31, 2008 and 2007, and for the period October 28,
2003 to May 31, 2008.
Research and Development
Research and development costs are expensed as incurred.
32
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Expense
Advertising expenses are expensed as incurred. There were no advertising
expenses for any periods presented.
Financial Instruments
At May 31, 2008 and May 31, 2007, the carrying value of the Company's financial
instruments approximate fair value due to the short-term maturity of the
instruments. The Company's notes payable have market rates of interest, and
accordingly, the carrying values of the notes approximates the fair value. The
Company's related party notes have no stated interest rates. The inputted market
rates of interest on these notes result in carrying value that approximates fair
value.
Stock-Based Compensation
U.S. GAAP requires companies to measure the cost of employee services received
in exchange for the award of equity instruments based on the fair value of the
award at the date of grant. The expense is to be recognized over the period
during which an employee is required to provide services in exchange for the
award (requisite service period). U.S. GAAP provides for two transition methods.
The "modified prospective" method requires that share-based compensation expense
be recorded for any employee options granted after the adoption date and for the
unvested portion of any employee options outstanding as of the adoption date.
The "modified retrospective" method requires that, beginning upon adoption, all
prior periods presented be restated to reflect the impact of share-based
compensation expense consistent with the pro forma disclosures previously
required under U.S. GAAP. The Company adopted the modified prospective method,
and as a result, was not required to restate its financial results for prior
periods. Prior to June 1, 2006, the Company recognized compensation expense to
the extent of employee or director services rendered based on the intrinsic
value of stock options granted under the plan.
The Company accounts for common stock options, and common stock warrants granted
based on the fair market value of the instrument using the Black-Scholes option
pricing model utilizing certain weighted average assumptions such as expected
stock price volatility, term of the options and warrants, risk-free interest
rates, and expected dividend yield at the grant date. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the
expected term of the stock options. The expected volatility is based on the
historical volatility of the Company's common stock at consistent intervals. The
Company has not paid any dividends on its common stock since its inception and
does not anticipate paying dividends on its common stock in the foreseeable
future. The computation of the expected option term is based on the "simplified
method" as the Company's stock options are "plain vanilla" options and the
Company has a limited history of exercise data. For common stock options and
warrants with graded vesting, the Company recognizes the related compensation
costs associated with these options and warrants on a straight-line basis over
the requisite service period.
33
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. GAAP requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates. Based on limited historical experience of forfeitures, the Company
estimated future unvested option forfeitures at 0% as of May 31, 2008 and May
31, 2007.
Stock for Services
The Company issues common stock and common stock options to consultants for
various services. Costs for these transactions are measured at the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The value of the common stock is measured
at the earlier of (i) the date at which a firm commitment for performance by the
counterparty to earn the equity instruments is reached or (i) the date at which
the counterparty's performance is complete.
(Loss) Per Common Share
Basic (loss) per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. Diluted (loss)
per share is computed by dividing net (loss) by the weighted average common
shares and potentially dilutive common share equivalents. The effects of
potential common stock equivalents are not included in computations when their
effect is anti-dilutive. Because of the net losses for all periods presented,
the basic and diluted weighted average shares outstanding are the same since
including the additional shares would have an anti-dilutive effect on the loss
per share calculation. Common stock option and warrants to purchase 3,227,222,
2,047,222 and 3,227,222 shares of common stock were not included in the
computation of diluted weighted average common shares outstanding for the
periods ended May 31, 2008, 2007, and for the period October 28, 2003 to May 31,
2008 respectively, as inclusion would be anti-dilutive for these periods.
Additionally, in July 2009, 100,000 shares of convertible preferred stock
converted into 2,356,142 shares of common stock (see Notes 7 and 13).
Income Taxes
Deferred taxes are provided on the asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Future tax benefits for net operating loss carryforwards are recognized to the
extent that realization of these benefits is considered more likely than not.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Reclassification
Certain prior period amounts have been reclassified to comply with current
period presentation.
Subsequent Events
The Company has evaluated events and transactions for potential recognition or
disclosure in the financial statements through the date on which the financial
statements were issued on March 12, 2010 (see Note 13).
34
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 - Stock Options and Warrants
The Company has one stock-based equity plan at May 31, 2008. The 2005 Stock
Incentive Plan as amended (the "Plan") was authorized to issue options and
warrants to purchase up to 2,800,000 shares of the Company's common stock. As of
May 31, 2008 the Company had 653,878 shares available for future stock option
grants under the plan.
The estimated fair value of options and warrants is determined using the
Black-Scholes option valuation model with the following weighted-average
assumptions for the periods ended May 31, 2008 and 2007:
2008 2007
---------- -----------
Risk free rate 3.0% 4.56 - 5.2%
Dividend yield - -
Volatility 70.0% 153 - 161%
Expected term 5.5 years 5.0 years
Net cash proceeds from the exercise of stock options and warrants were $0 for
the years ended May 31, 2008 and May 31, 2007, respectively and approximately
$28,000 for the period October 28, 2003 to May 31, 2008. Compensation expense
related to stock options and warrants was approximately $462,000, $536,000 and
$1,784,000 and for the years ended May 31, 2008 and 2007 and for the period
October 28, 2003 through May 31, 2008, respectively. During 2008, the Company
granted 859,000 options to employees and directors, which were valued and
recorded as compensation expense. Additionally, the Company granted 321,000 of
warrants in conjunction with the issuance of common stock (see note 12). The
grant date fair value of options vested during the years ended May 31, 2008 and
2007 was approximately $432,000 and $638,000, respectively. The weighed average
grant date fair value of options and warrants granted during the years ended May
31, 2008 and 2007 was $.42 and $1.21 respectively. As of May 31, 2008, there was
approximately $602,000 of unrecognized compensation costs related to share-based
payments for unvested options, which is expected to be recognized over a
weighted average period of 1.85 years.
35
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents stock option and warrants activity for the
periods ended May 31, 2008 and 2007:
Weighted
Average
Weighted Remaining Aggregate
Number of Average Contractual Intrinsic
Shares Exercise Price Life Value
--------- -------------- ----------- ---------
Options and warrants
outstanding - May 31, 2007 1,532,222 1.71 6.69 1,212,260
Granted 515,000 1.25 - -
Exercised - - - -
Forfeited/expired/cancelled - - - -
--------- -------------- ----------- ---------
Options and warrants
outstanding - May 31, 2007 2,047,222 1.61 6.69 204,200
Granted 1,180,000 .77 - -
Exercised - - - -
Forfeited/expired/cancelled - - - -
--------- -------------- ----------- ---------
Options and warrants
outstanding May 31, 2008 3,227,222 1.30 6.52 143,000
========= ============== =========== =========
Exercisable - May 31, 2008 2,586,035 1.36 5.93 141,130
========= ============== =========== =========
4 - Stock issued for services
During the year ended May 31, 2006, the Company issued 142,857 restricted shares
to a public relations company in accordance with an agreement to perform
services over the following year. The Company valued the shares at the market
price of the Company's common stock on the date the agreement was executed in
the amount of $250,000. On July 16, 2007, the Company cancelled the 142,857
shares of restricted common stock for non-performance. The expense associated
with the original issuance had previously been amortized as compensation expense
over the requisite life of the agreement. In conjunction with the cancellation,
the Company reduced compensation expense by $100,000 at the date of cancellation
for non-performance under the contract, which represented the fair market value
of the common stock on the date of cancellation.
36
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended May 31, 2006, the Company issued 40,000 restricted common
shares to a consulting company in accordance with an agreement to perform
services over the following year. The Company valued the shares at the market
price of the Company's common stock on the date the agreement was executed in
the amount of $120,000. For the years ended May 31, 2008 and 2007, the Company
recognized approximately $107,000 and $7,000 of compensation expense related to
this agreement.
For the years May 31, 2008 and 2007 and for the period October 28, 2003
(inception date) through May 31, 2008, the Company recognized approximately
$6,000, $280,000, and $391,000, respectively, in compensation expense, related
to various consulting agreements.
5 - Recent Accounting Pronouncements
In June 2009, the FASB issued ASC 105 Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting
Standards Codification TM (the "Codification") has become the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles ("GAAP"). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our consolidated
financial statements will include references to the new Codification. The
Codification does not change or alter existing GAAP and, therefore, will not
have an impact on our financial position, results of operations or cash flows.
In June 2009, the FASB issued changes to the consolidation guidance applicable
to a variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends
the guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company's financial
position, results of operations or cash flows.
37
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2009, the FASB issued Financial Accounting Standards Codification No.
860 - Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The Company is
evaluating the impact the adoption of FASB ASC No. 860 will have on its
financial statements.
6 - Income Taxes
Deferred taxes are recorded for all existing temporary differences in the
Company's assets and liabilities for income tax and financial reporting
purposes. Due to the valuation allowance for deferred tax assets, as noted
below, there was no net deferred tax benefit or expense for the periods ended
May 31, 2008 and 2007, and for the period ended October 28, 2003 through May 31,
2008.
Reconciliation of the federal statutory income tax rate of 34 percent to the
effective income tax rate is as follows for all periods presented:
Income tax provision at statutory rate 34.0%
State income taxes, net 3.5
Valuation allowance (37.5)
------
0.0%
======
38
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets and liabilities are comprised of the following as of May
31, 2008 and 2007:
Deferred tax asset (liability) current:
Accrued salary $ 111,000 $ 72,000
Warrant amortization 28,000 --
Valuation allowance (139,000) (72,000)
----------- -----------
$ 0 $ 0
=========== ===========
Deferred tax asset (liability) non-current
Net operating loss $ 1,629,000 $ 1,423,000
Expense on non-qualified stock
options and OID amortization 243,000 130,000
Valuation allowance $(1,872,000) $(1,553,000)
----------- -----------
$ 0 $ 0
=========== ===========
The tax benefit for the period presented is offset by a valuation allowance
established against deferred tax assets arising from operating losses and other
temporary differences, the realization of which could not be considered more
likely than not. In future periods, tax benefits and related tax deferred assets
will be recognized when management considers realization of such amounts to be
more likely than not.
At May 31, 2007, the Company had available net operating loss carryforwards of
approximately $4,366,000, which expire beginning in 2022.
7 - Acquisitions
On July 18, 2006, CytoDyn, Inc. entered into an acquisition agreement with a
consulting company to purchase all 1,000 issued and outstanding shares of
Advanced Influenza Technologies, Inc. (AITI), a Florida Corporation, in exchange
for 2,000,000 unregistered restricted common shares of CytoDyn, Inc. stock.
The transaction was accounted for as an asset purchase and not an acquisition of
a business as AITI had no employees, operations, or customers, and was
essentially a shell corporation that was incorporated to consummate the
purchase. Pursuant to the agreement, the Company acquired $512,200 in cash and a
prepaid sponsored research project of $162,800 from the University of
Massachusetts to further the technology
39
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
associated with certain acquired licenses. The $162,800 is being amortized into
research and development expense as the services are provided. The Company
valued the assets acquired based on the consideration received rather than the
fair market value of the shares issued as the Company believes this was more
indicative of the value of the assets acquired. In addition to the cash and the
prepaid sponsored research project, the Company acquired the worldwide
nonexclusive and exclusive license agreements from the University of
Massachusetts for certain technologies. The license agreements were recorded as
research and development expense as the patent rights or license agreements are
being used in a particular research project and have no alternative future use
outside of this project. Including the license agreements, a total of $259,399
of in-process research and development was acquired related to the acquisition,
which is included as a component of research and development expense for the
period ended May 31, 2007. The license agreement granted the Company the
exclusive right to develop and commercialize the licensed products associated
with certain existing patents.
Milestone fees are payable to the University per licensed product and due within
30 days of the event of certain occurrences required.
The University would have also received 4.0% royalties on net sales of the
licensed products.
AITI agreed to fund a two-year ($325,600) unrestricted project ($162,800 per
year) under the Sponsored Research Agreement, with the primary objective during
the first year to conduct lab work to provide well documented research studies.
If after one year the desired outcome is not achieved, the agreement can be
cancelled and the second year's payment is not required. Included in the
consolidated statements of operations is $162,800 of amortization expense for
the period ended May 31, 2007 as all services related to the initial project
were completed. The Company did not make the second payment and, consequently,
as of May 31, 2008, the Company has no right to the above license agreement.
Additionally, the milestone fee payable and royalties discussed above are no
longer in force as of May 31, 2008.
On January 30, 2007, CytoDyn, Inc. entered into an acquisition agreement with a
consulting company, to acquire 100% of the outstanding stock of Advanced Genetic
Technologies, Inc. (AGTI), a Florida Corporation, in exchange for 100,000
preferred no par value stock convertible into $1,300,000 worth of common
unregistered restricted shares of CytoDyn, Inc. stock. The option to convert is
any time after twelve (12) months and before thirty six (36) months from the
date of closing of the agreement. The conversion option has a floor price of
$.30 per share, which limited the maximum number of shares that the Company may
issue upon conversion to 4,333,333 shares of common stock. There was no
derivative liability or beneficial conversion feature associated with the
conversion option at the commitment date. In July 2009, the consulting company
converted all their preferred stock into 2,356,142 shares of common stock (see
Note 13).
40
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AGTI holds the worldwide exclusive and nonexclusive license agreements from the
CBR Institute for Biomedical Research affiliated with Harvard Medical School for
certain biological materials.
The term of the licensing agreement is until the later of 20 years or the date
the last patent expires that is owned or controlled by the Licensee.
Milestone fees are payable to the University per licensed product and due within
30 days of the event of certain occurrences required.
The University shall also receive 2.0% royalties of net sales of the licensed
products up to $200 million and 3.0% royalties of net sales in excess of $200
million. In the case of a sublicense, the University would get 25% of
non-royalty sublicense income.
The transaction was accounted for as an asset purchase and not an acquisition of
a business as AGTI had no employees, operations, or customers, and was
essentially a shell corporation that was incorporated to consummate the
purchase. Pursuant to the agreement, the Company acquired $100,000 in cash and
seven years of prepaid license fees to the Center for Biological Research at
Harvard Medical School. $52,500 was recorded as prepaid license fees and $15,000
was expensed as research and development. The Company valued the assets acquired
based on the consideration received rather than the fair market value of the
shares issued as the Company believes this was more indicative of the value of
the assets acquired. In addition to the cash and the prepaid license fees, the
Company acquired the worldwide nonexclusive and exclusive license agreements
from the Center for Biological Research at Harvard Medical School for certain
biological materials. The license agreement grants the Company the exclusive
right to develop and commercialize the licensed products associated with certain
biological materials.
8 - Convertible Notes
During the year ended May 31, 2006, the Company issued convertible promissory
notes with a fixed conversion price of $1.25 and a stated interest rate of 5.0%
with 407,600 detachable warrants to purchase common stock to individuals in
exchange for proceeds totaling $509,500. The exercise price of the warrants was
$2.50 and expire in 2011. As of May 31, 2008, all notes have been converted into
common stock. The original issue discount associated with the warrants and
beneficial conversion option were recorded as a discount to the convertible
notes, and an increase to additional paid-in capital, respectively. For the
periods ended May 31, 2008, 2007, and for the period October 28, 2003 to May 31,
2008 the Company amortized $0, $48,000, and $509,500, respectively of the
discounts, which was included as a component of interest expense in the
statement of operations. The Company accelerated the above discount into
interest expense for any conversions that occurred in the respective periods
presented.
41
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended May 31, 2007, the Company issued convertible notes with a
fixed conversion price of $1.25 and a stated interest rate of 5.0% with 74,000
detachable common stock warrants to purchase common stock in exchange for
proceeds of $92,500. Principal and accrued interest are payable in any
combination of cash and common stock at the option of the Company. As of May 31,
2008, the balance in the convertible notes is $15,000. The warrants to purchase
common stock which accompanied the convertible promissory notes are exercisable
at $2.50 per share, vest immediately, and expire in 2011. Additionally, the
Company recorded an original issue discount based on the fair value of the
warrants. To recognize the original issue discount, the Company discounted the
notes and increased additional paid-in capital by $92,500. The Company did not
record the intrinsic value for conversion into the Company's common stock, as
the discount was limited to the debt proceeds of $92,500, which was fully
discounted by the fair value of the warrants. The discount was amortized over
the life of the debt. For the periods ended May 31, 2008, 2007, and for the
period October 28, 2003 to May 31, 2008 the Company amortized $616, $91,884, and
$92,500, respectively of the discounts, which was included as a component of
interest expense in the statement of operations. The Company accelerated the
above discount into interest expense for any conversions that occurred in the
respective periods presented.
During the year ended May 31, 2008, the Company issued two convertible notes
each in the amount of $37,500. As of May 31, 2008, $75,000 of the convertible
notes were converted into 750,000 shares of common stock at the fixed conversion
price of $.10 per share. The notes were due in 12 months and bear interest at
14.0%. At the commitment date, the Company recorded a beneficial conversion
feature of $75,000, which represented the intrinsic value of the conversion
option, and was limited to the proceeds received. The conversion price was fixed
at $.10. The beneficial conversion feature was recorded as a discount to the
convertible notes and an increase in additional paid in capital. For the period
May 31, 2008 the Company amortized into interest expense $75,000 of the
discount.
During the year ended May 31, 2008, the Company issued a $9,000 promissory note
with 9,000 detachable warrants to purchase common stock at an exercise price of
$.30 in exchange for proceeds totaling $9,000. The note bears interest at 14.0%.
The warrants to purchase common stock vest immediately and expire in 2011. The
Company valued the warrants utilizing the Black-Scholes option valuation model,
and the resulting fair value was recorded as a debt discount of $3,662. For the
period ended May 31, 2008, the Company recognized $589 of interest expense
related to the discount amortization.
42
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9 - Promissory Notes
During the year ended May 31, 2007, the Company issued $125,000 in unsecured
promissory notes to third parties. The principal and interest on the notes were
originally due in six months and pay interest at 14.0% per annum. During the
year ended May 31, 2008 the Company issued an additional $20,000 in promissory
notes to third parties. The notes were all due in six months and pay interest of
14.0% per annum. The parties have agreed to extend the due date in six month
increments while continuing to accrue interest. As of May 31, 2008,
approximately $44,337 of interest has been accrued. Additionally, subsequent to
May 31, 2008, the notes were amended to become convertible into common stock
(see Note 13). As a result of the extension of terms, and the conversion of some
of the promissory notes to common stock, the Company has classified all the
notes as long-term as of May 31, 2008.
10 - Commitments and Contingencies
In 2001, the Company sued its previous licensee, Amerimmune Pharmaceuticals,
Inc. ("API"), and its directors. The Company was ordered by the court to pay
$150,000 in attorney fees to the insurance company of API. and recorded a
contingent liability for the amount. Prior to issuance of the financial
statements, the Company appealed the Court's decision and, in December 2007, the
Court's decision was reversed based on the appeal. Based on these facts and
circumstances, the Company reversed the recording of the contingent liability as
of August 31, 2007.
Related to certain litigation whereby the Company was both a defendant and a
plaintiff, the Company entered into a settlement agreement in December 2008. As
part of the settlement agreement, the Company agreed to pay $50,000 in January
2009 and $25,000 on or before January 14, 2010 to the plaintiff. The Company
paid the $50,000 in January 2009. The remaining $25,000 was unsecured and
accrued interest at 10.0% per annum. The Company paid $27,500 in January 2010.
The Company accrued $75,000 related to this settlement agreement as of May 31,
2008 for the past litigation. The associated expense for the year ended May 31,
2008 is included in legal fees in the statement of operations.
11 - Related Party Transactions
As of May 31, 2008, the Company owes two officers promissory notes totaling of
$44,513. The notes are due on demand and carry no interest rate. Management
plans to repay the notes through cash payments, issuance of the Company's common
stock, or a combination thereof. The balance due of $44,513 remained unpaid at
May 31, 2008 and is included in the accompanying consolidated financial
statements as "indebtedness to related parties."
A director provided legal services to the Company over the past several years.
As of May 31, 2008, the Company owed the director $40,985 and it is included in
the accompanying consolidated financial statements as "indebtedness to related
parties" as of May 31, 2008. As of May 31, 2008, no arrangements had been made
for the Company to repay the balance of this obligation. The Company anticipates
that the director will continue to provide legal services in the future.
43
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A former director of the Company is owed $337,342 related to certain clinical
research data that was obtained by the former director and later purchased by
the Company. As of May 31, 2008, the liability has no payment terms and no
stated interest rate, and is included in the accompanying consolidated financial
statements as "indebtedness to related parties."
In May and July 2007, the Company issued $150,000 in promissory notes with a
stated interest rate of 14%, and a maturity date of six months from the issuance
date. The notes were originally issued to an unrelated third party, who
subsequently became a director of the Company during 2008. Accordingly, the
notes are classified as related party notes as of May 31, 2008, and have been
designated as long-term as the notes have been extended multiple times and have
no stated maturity date.
Patents
The Company has a License Agreement with Allen D. Allen the Company's President
and CEO that gives the exclusive right to develop market and sell his technology
worldwide. This includes issued U.S. patents 5,424,066; 5.651,970 and 6,534,057,
foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian, and Canadian patents have been obtained as
well. The term of the license agreement is for the life of the patents. The
original expiration dates on the issued patents are 2013 to 2016. There is an
automatic extension of the expiration date on U.S. patents equal to the number
of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. The Company estimates
the costs associated with these issued patents to be approximately $100,000 per
year. The Company may file additional patents during the current fiscal year if
the research and development efforts warrant them, but the Company does not have
any such potential patents identified at this time.
Included in accrued salaries related party and accrued liabilities as of May 31,
2008 and 2007, are approximately $230,000 and $193,000, respectively in accrued
salaries for two executives of the Company. Subsequent to May 31, 2008 the
executives forgave all accrued salary. Accordingly, as of May 31, 2008, the
accrued salaries are classified as a long-term liability.
12 - Equity
Related to the acquisition in January 2007 (see Note 7), the Company issued
100,000 shares of Series A Convertible preferred stock (Series A), with
5,000,000 shares authorized for issuance. The conversion price is based on the
previous ten-day average closing stock price on the day of conversion. However,
the conversion price has a fixed floor of $.30 per share, which effectively
limits the number of shares that could be converted to less than the authorized
shares. In July 2009, all 100,000 outstanding shares of preferred stock
converted into 2,356,142 shares of common stock. The Series A has no mandatory
conversion feature or voting rights. The Series A holders rank senior to the
common share holders in liquidation preference.
During 2008, the Company issued 642,000 shares of common stock at $.50 per share
and received $321,000 in cash proceeds. The common stock was issued to
third-party investors as part of a private placement. Additionally, the
investors received one warrant for each dollar of cash proceeds of common stock
invested. Accordingly, the Company issued 321,000 warrants to the investors.
44
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 - Subsequent Events
In April 2008, the Company's Board of Directors approved a Private Placement
Memorandum to sell up to 6 million shares of common stock, no par value, a
company offering. This offering was only available to accredited investors as
defined under the 1933 Securities Act ("The Act"). The offering commenced on or
about May 1, 2008 and ended June 15, 2009, the Company has sold 3,876,508
restricted common shares and 1,938,254 warrants for proceeds totaling
$1,938,254. These securities were sold pursuant to an exemption from
registration under Regulation D under The Act and will not be registered with
the Securities and Exchange Commission. The warrants have an exercise price of
$1.00 per share, immediate vesting rights, and expire in April 2013.
Subsequent to May 2008, the Company paid approximately $600,000 in cash for the
manufacturing of our product, Cytolin(R), to be used in human clinical trials.
In June 2009, the Company amended the promissory note agreements relating to
$295,000 in unsecured promissory notes ($150,000 of the notes are to a related
party). The original terms had no conversion feature, a stated interest rate of
14% per annum, and had an original maturity of six months. Related to this
amendment, the holders of the promissory notes were given the right to convert
the face amount of the notes and accrued interest into shares of common stock at
a fixed conversion price of $0.45 per share. At the commitment date, the date
the notes were amended, the Company incurred a beneficial conversion feature of
$50,000. The amendment to the unsecured promissory notes, limited the amount of
promissory notes and accrued interest that could be converted to $225,000,
effectively capping the number of common shares that could be converted to
500,000. As of the date of this filing, $146,456 of promissory notes converted
into 325,459 shares of common stock.
In September 2009, the Company entered into an agreement with Massachusetts
General Hospital to provide financial support for the purpose of conducting an
ex-vivo study of the Company's lead drug, Cytolin(R). This study is intended as
a prelude to an in-vivo study. Costs are estimated at approximately $363,000 of
which 50%, or $172,000, was paid to Massachusetts General Hospital by CytoDyn by
December 2009.
45
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2009, the Company received a request from a shareholder to convert
100,000 preferred shares into 2,356,142 restricted common shares pursuant to an
Agreement dated January 2007. The common shares were to be converted at the
average price per share over the last 10 days of trading prior to the conversion
date which calculated to $.62 per share. The Agreement contained a floor price
of $.30 per share, which effectively limited the maximum number of the common
shares issued to an amount that was less than the Company's authorized shares.
These shares have not been registered with the SEC and are subject to the
restrictions under Rule 144 of the Securities Act.
In January 2010, the Company granted 2,155,000 stock options to employees and
consultants. The options have an exercise price of $1.95 per share, expire ten
years from grant, and vest between zero and three years. The approximate fair
value of the options was $3,225,000 at the January 11, 2010 grant date. The fair
value of these options will be recognized over the three year requisite service
period.
Subsequent to May 31, 2008, the Company raised $1,696,500 through a Private
Placement Offering of preferred shares. The Company amended its articles and
designated up to 400,000 preferred shares Series B to be sold at $5.00 share.
The preferred shares are convertible into common shares at $.50 per share or 10
shares of common for every preferred share issued.
Subsequent to May 31, 2008, the Company raised $561,500 through a Private
Placement offering to sell common shares $.50 per share.
46
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A(T). Other Information
(a) Disclosure Controls and Procedures
Disclosure Controls and Procedures
----------------------------------
As of May 31, 2008, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, management has
evaluated the effectiveness of the design and operations of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were not effective as of May 31, 2008 as a
result of the material weakness in internal control over financial reporting
discussed below.
(b) Changes in Internal Control over Financial Reporting
Changes in Control Over Financial Reporting
-------------------------------------------
No change in the Company's internal control over financial reporting occurred
during the year ended May 31, 2008, that materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, our Chief Executive Officer
and Chief Financial Officer to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal control over
financial reporting includes policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the Company's transactions; (ii) provide reasonable assurance that transactions
are recorded as necessary for preparation of our financial statements and that
receipts and expenditures of the Company's assets are made in accordance with
authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of the Company's financial statements would be prevented or
detected.
47
Our management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of May 31, 2008 using the criteria set forth
in the Internal Control over Financial Reporting - Guidance for Smaller Public
Companies issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon the evaluation, our management concluded that our
internal control over financial reporting was not effective as of May 31, 2008
because of material weaknesses in our internal control over financial reporting.
A material weakness is a control deficiency that results in a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis by employees in
the normal course of their assigned functions. Our management concluded that we
have several material weaknesses in our internal control over financial
reporting because of inadequate segregation of duties over authorization, review
and recording of transactions as well as the financial reporting of such
transactions. Due to the Company's limited resources, management has not
developed as plan to mitigate the above material weaknesses. Despite the
existence of these material weaknesses, we believe the financial information
presented herein is materially correct and in accordance with the generally
accepted accounting principles.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit the Company
to provide only management's report in this annual report.
Item 9B. Other Information
Not applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Allen D. Allen 73 Chairman of the Board,
President, Chief Executive
Officer
Corinne Allen, CPA 42 Chief Financial Officer, Vice President,
Nader Pourhassan, PhD. 46 Chief Operating Officer
Ronald J. Tropp, Esq. 67 Director
Gregory Gould, CPA 43 Director
George F. Dembow 77 Director
Allen D. Allen. Mr. Allen has been Chairman of our Board and our President and
Chief Executive Officer since October, 2003. Before joining CytoDyn, he was the
Chairman of the Board of Directors and Chief Executive Officer of CytoDyn of New
Mexico, Inc., since its inception in 1994. From 1990 to 1994 he was a research
associate with Olive View-UCLA Medical Center, where he collaborated and
published with various medical professors original research on HIV, dermatology
and general immunology and was the co-investigator on an autologous vaccine
study. From 1986 to 1990 Mr. Allen was director of scientific affairs, Center
for Viral Diseases, Northridge, California, where he conducted and published
original research on a large cohort of patients with complex constellations of
neuroimmunologic complaints. From 1971 to 1986 he was president of Algorithms,
Incorporated where he conducted and published original research in the areas of
artificial intelligence, perception, man and machine systems and societal
engineering. Over the past thirty years, he has published numerous papers in the
peer review science and medical journals. He has also served as an investigator
on clinical research sponsored by major pharmaceutical companies, such as Ortho
Biotech, Johnson & Johnson, and Sanofi-Winthrop. Mr. Allen invented and patented
the family of HIV/AIDS therapies licensed to CytoDyn. He is a member of the
American Physical Society and the American Federation of Scientists, a life
member of the Institute of Electrical and Electronics Engineers, and a founding
member of the Editorial Board of Physics
48
Essays. Mr. Allen received an Associates of Arts degree from the University of
California at Berkeley in 1957 and attended the University of California at Los
Angeles from 1957 to 1959. In 1953 he received a national ARS Student Award in
aeronautics from the American Rocket Society (now the Institute of Aeronautics
and Astronautics). Mr. Allen is the father of Corinne E. Allen, our Chief
Financial Officer.
Corinne Allen, CPA. Ms. Allen has been an officer and/or director of the Company
since October 2003.Ms. Allen has been our Chief Financial Officer from October
28, 2003 through May 2004. From 2004 until July 2009 Ms. Allen served as Vice
President of Business Development at which time she was appointed Chief
Financial Officer. Ms. Allen served as Secretary and Treasurer of CytoDyn of New
Mexico, Inc. where she was also a Director from June, 1994 to October 2003. Ms.
Allen is a licensed Certified Public Accountant. From 1999 to 2003, Ms. Allen
was employed as a Senior Manager at Deloitte & Touche in San Francisco, and,
from 1992 to 1998 was a CPA at Hallquist Jones P.C. She has over 24 years
experience in the accounting industry. Ms. Allen received a B.S. in Business
Administration from California State University Northridge with a specialty in
Accounting Theory and Practice in 1992. She has been a Certified Public
Accountant since January 1997. Ms. Allen is the daughter of Allen D. Allen, our
Chairman and CEO. Ms. Allen is a member of the American Institute of Certified
Public Accountants (AICPA).
Nader Pourhassan, PhD. Dr. Pourhassan became the Company's Chief Operating
Officer in May 2008. Born in Tehran, Iran in 1963, Dr. Pourhassan immigrated to
the United States in 1977 and became a U.S. citizen in 1991. He received his
Bachelor of Science from Utah State University in 1985, his Masters of Science
from Brigham Young University in 1990 and his PhD from the University of Utah in
1998. Before joining the company Dr. Pourhassan was an instructor in engineering
and a successful self made business man.
Gregory A. Gould, CPA. Mr. Gould has been a Director since March 20, 2006 and a
member of our Audit Committee and Compensation Committee since May 15, 2006. Mr.
Gould has been the Chief Financial Officer and Treasurer of SeraCare Life
Sciences, Inc., since August 2006 and the Secretary of the Company since
November 2006. From August 2005 to August 2006, Mr. Gould provided financial and
accounting consulting services through his consulting company, Gould LLC. From
April 2005 to August 2005, Mr. Gould served as the Chief Financial Officer and
Senior Vice President of Integrated BioPharma, Inc., a life sciences company
serving the pharmaceutical, biotechnology and nutraceutical markets. Prior to
that, from February 2004 through January 2005, Mr. Gould served as the Chief
Financial Officer, Treasurer and Secretary of Atrix Laboratories, Inc., an
emerging specialty pharmaceutical company focused on advanced drug delivery.
From 1996 through October 2003, Mr. Gould served as Director of Finance and then
as the Chief Financial Officer and Treasurer of Colorado MEDtech, a high tech
software development, product design and manufacturing company. Mr. Gould holds
a B.S. in Business Administration from the University of Colorado, Boulder and
is a Certified Public Accountant in the State of Colorado.
49
Ronald J. Tropp, Esq. Mr. Tropp was a Director of the Company from October, 2003
to January 31, 2006 and was reappointed in January 2007. He served as Director
for CytoDyn of New Mexico, Inc. Mr. Tropp received his Bachelor of Arts degree
from Swarthmore College 1965, and a Juris Doctorate from the University of
Wisconsin - Madison in 1968. He is admitted to the practice of law in New York
and California. He has practiced entertainment and transactional law for over 25
years and has been representing CytoDyn and CytoDyn of New Mexico, Inc. since
the Fall of 1999. Previously, he served as corporate counsel and director for
Pacific Coast Medical Enterprises, which owned five acute care hospitals in
Southern California.
George F. Dembow. Mr. Dembow has been a Director since February 2008. From 1972
to today, he started and built Arizona Natural Resources, Inc., a manufacturer
and contractor of cosmetics, toiletries and candles Mr. Dembow attended Cornell
University in Ithaca, NY 1950 to 1954 and graduated with a BS with an additional
year credit toward an MBA. Mr. Dembow was a Fighter pilot in the USAF 1954 -
1957. He was Employed by Fischbach and Moore, Inc., a world-wide electrical
contractor traded on the New York Stock Exchange from 1958 to 1966, becoming a
Vice-President in Washington, DC in 1963. Mr. Dembow was President and Co-Owner
of Apache Airlines, Inc., a commuter airline operating from Phoenix, Arizona
with scheduled service in Arizona, Nevada, Montana and North Dakota from 1966 to
1971.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
Directors, Officers and beneficial owners of more than 10% of our common stock
to file reports of ownership and reports of changes in the ownership with the
Securities and Exchange Commission. Such persons are required by Securities and
Exchange Commission regulations to furnish us with copies of all Section 16(a)
forms they file.
Code of Ethics.
We have adopted a Code of Ethics for our Senior Executive Officers as well as a
Code of Business Conduct and an Insider Trading Policy for the Company. These
can all be found on our website at www.cytodyn.com under the Management tab.
Audit Committee
The Board of Directors has resolved to establish an audit committee composed of
our Chief Financial Officer Corinne Allen, CPA and Board members, Gregory A.
Gould, CPA, Ronald J. Tropp, Esq and George F. Dembow. Two of the members of the
audit committee are "financial experts" as defined in Regulation S-B Item
401(e)(1)(ii)(2). Mr. Gould, Mr. Tropp and Mr. Dembow are the independent
members of the Audit Committee at this time. An Audit Committee Charter was
adopted by the Board of Directors and became effective on June 1, 2007.
50
Item 11. Executive Compensation
The following table provides an overview of compensation that CytoDyn, Inc. paid
to the Named Executive Officers for the fiscal years ended May 31, 2008 and
2007.
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
Summary Compensation Table
(a) (b) (d) (e) (f) (g) (h)
Stock Option All other
Salary Bonus Awards Awards Compensation Total
Name and principal position Year ($) ($) ($) ($) ($) ($)
--------------------------- --------- ---------- ----- ------ ------ ------------ -------
Allen D. Allen,
President & CEO (1) 5/31/2008 150,000 - - 60,556 - 210,556
5/31/2007 150,000 - - 37,281 - 187,281
Corinne Allen, CFO (1) 5/31/2008 100,000 - - 60,556 - 160,556
5/31/2007 100,000 - - 37,281 - 137,281
Nader Pourhassan, COO (2) 5/31/2008 - - - - - -
5/31/2007 - - - - - -
1. As of February 2006, Mr. Allen's salary was approved by Board of
Directors for $150,000. Ms. Allen was approved for salary of $100,000 in
February 2006 by the Board of Directors.
2. Dr. Pourhassan entered into a personal services agreement with the
Company in May 2008. His annual base salary per his personal services
agreement is $200,000 beginning June 1, 2008.
Compensation of Directors
Our Directors receive 25,000 stock options each year for their services as
Directors. The Directors receive no cash compensation.
51
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the number of shares of common stock covered
by outstanding stock option awards that are exercisable and unexercisable for
each of our named executive officers as of May 31, 2008.
(a) (b) (c) (d) (e)
# of Securities
Underlying Unexercised
Options at FYE
May 31, 2008 (#) Options
Exercise
Unexercised Options Options Price Expiration
Name Exercisable/Unexercisable ($) Date
------------------- ------------------------- ------------- ---------
Allen D. Allen, CEO 154,142 220,858 2.68/1.10/.65 2016/2017
Corinne Allen, CFO 154,142 220,858 2.68/1.10/.65 2016/2017
(1) Unless otherwise indicated, the business address of each Shareholder is c/o
CytoDyn, Inc., 1511 Third Street, Santa Fe, NM 87505.
(2) (3)Includes options that have been granted and vested:
Mr. Allen has options to purchase 375,000 Shares of common stock. 154,142 have
vested. None have been exercised to date. 50,000 were Granted in FYE 2006 and
25,000 were Granted in FYE 2007, 300,000 were Granted in FYE 2008.
Ms. Allen has options to purchase 375,000 Shares of common stock. 154,142 have
vested. None have been exercised to date. 50,000 were Granted in FYE 2006,
25,000 were Granted in FYE 2007, 300,000 were Granted in FYE 2008.
We know of no arrangements concerning anyone's ownership of stock, which may, at
a subsequent date, result in a change of control.
52
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth the beneficial ownership of our common stock as
of May 31, 2008, by (i) each person or entity who is known by us to own
beneficially more than 5% of the outstanding shares of common stock, (ii) each
of our Directors, (iii) each of the Executive Officers named in the Summary
Compensation Table, and (iv) all of our Directors and Executive Officers as a
Group
Amount And
Nature of
Beneficial Approximate
Name And Address of Beneficial Owner (1) Ownership (2)(3) Percent Owned
---------------------------------------- ---------------- -------------
Utek Corp (not officers or directors) 3,083,170 23%
Allen D. Allen, CEO 1,786,415 13%
Corinne Allen, CFO 1,510,921 11%
Nader Pourhassan, COO 220,000 2%
Gregory A. Gould, Director 80,000 1%
Ronald J. Tropp, Director 110,000 1%
George F. Dembow, Director 367,000 3%
TOTAL OFFICERS AND DIRECTORS AS A GROUP 4,074,336 30%
(1) Unless otherwise indicated, the business address of each Shareholder is
c/o CytoDyn, Inc., 1511 Third Street, Santa Fe, New Mexico 87505.
(2) Each Shareholder has sole voting and investment power for the Shares
they beneficially own. This table is based upon information supplied by
Officers, Directors, Principal Shareholders, and Schedules 13D and 13G
filed with the SEC. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. Shares of common stock
subject to options and warrants currently exercisable, or exercisable
within 60 days of May 31, 2008, are deemed outstanding for computing the
ownership percentage of the person holding such options or warrants, but
are not deemed outstanding for computing the ownership percentage of any
other person. Except as otherwise noted, we believe that each of the
Shareholders named in the table have sole voting and investment power with
respect to all Shares of common stock shown as beneficially owned by them,
subject to applicable community property laws.
(3) Includes options that have been granted and vested:
Item 13. Certain Relationships and Related Transactions and Director
Independence
Related Party Transactions, Actual or Proposed, In Last 2 Years. We propose to
be, or during the last two years were, party to certain transactions involving
amounts in excess of $120,000, in which our Directors, Executive Officers,
others hold more than 5% of any class of our securities, or their immediate
family members, had or will have a material interest. The interested parties and
transactions are described below.
Services Provided by Ronald J. Tropp. Director, Ronald J. Tropp, Esq., has
provided legal services to us and to CytoDyn of New Mexico, Inc. for a number of
years. Currently, we owe him the sum of $40,985 for these services. Mr. Tropp
received 60,000 options as partial payment of his services. We anticipate that
Mr. Tropp will provide additional legal services to us in the future.
53
Note Given and Debt Owed to Allen D. Allen. In January 2004 we issued to Allen
D. Allen, our President, Chief Executive Officer and the Chairman of our Board
of Directors, a non interest bearing promissory note, payable on demand, in the
original principal amount of $22,788. The note reflects advances made to us by
Mr. Allen during the years ending on May 31, 2003 and May 31, 2004. The sum owed
does not bear interest and is payable on demand. As of May 31, 2008 the debt
owed to Allen D. Allen was $16,492.
Notes Given to Corinne Allen. In January 2004, we issued to Corinne E. Allen,
our Vice President of Business Development, Treasurer and Director, two non
interest bearing promissory notes, each payable on demand, in the original
principal amounts of $50,000 and $38,906. The $50,000 note was paid in full in
February, 2004. As of May 31, 2008, the debt owed to Corinne Allen was $28,021.
Patents
The Company has a License Agreement with Allen D. Allen the Company's President
and CEO that gives the exclusive right to develop, market and sell his
technology worldwide. This includes issued U.S. patents 5,424,066; 5.651,970 and
6,534,057, foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian, and Canadian patents have been obtained as
well. The term of the license agreement is for the life of the patents. The
original expiration dates on the issued patents are 2013 to 2016. There is an
automatic extension of the expiration date on U.S. patents equal to the number
of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. The Company estimates
the costs associated with these issued patents to be approximately $100,000 per
year. The Company may file additional patents during the current fiscal year if
the research and development efforts warrant them, but the Company does not have
any such potential patents identified at this time.
Our independent Directors include Ronald J. Tropp, Esq, Gregory Gould, CPA, and
George F. Dembow.
54
Item 14. Principal Accounting Fees and Services
Approval of Services
The Board of Directors has resolved to establish an audit committee composed of
our Chief Financial Officer, Corinne Allen and Board members Gregory A. Gould,
CPA, Ronald J. Tropp and George F. Dembow. The audit committee does not yet have
a charter. Pending proper establishment of the audit committee, the Board of
Directors pre-approves all engagements for audit and non-audit services provided
by the Company's principal accounting firm, Pender Newkirk and Company
Audit Fees
The aggregate fees billed during the fiscal years ended May 31, 2008 and 2007
for professional services rendered by our principal accounting firm, Pender
Newkirk and Company, for the audit of the financial services included in Form
10-K, and for the review of the interim condensed financial statements included
in Form 10-Q, were approximately $89,000 and $67,211, respectively.
Audit Related Fees
The aggregate fees billed during the fiscal years ended May 31, 2008 for
assurance and related services rendered by our current principal accounting
firm, Pender Newkirk & Co., were approximately $0.
Tax Compliance/Preparation Fees
The aggregate fees billed during the fiscal years ended May 31, 2008 and 2007
for professional services rendered by our principal accounting firm, Pender
Newkirk & Co. for tax compliance, tax advice, and tax planning were
approximately $0 and $0, respectively. Tax compliance services include the
preparation of income tax returns filed with the Internal Revenue Service. Tax
advice and planning services included assistance with implementation of tax
planning strategies and consultation on other tax matters.
All Other Fees
The aggregate fees billed during the fiscal years ended May 31, 2008 and 2007
for all other professional services rendered by our principal accounting firm
Pender Newkirk & Co. were approximately $0 and $0, respectively. Other services
consisted of assistance with the interpretation of new accounting standards and
other related services.
55
Board of Directors Pre-Approval Process, Policies and Procedures
----------------------------------------------------------------
Our principal auditors have performed their audit procedures in accordance with
pre-approved policies and procedures established by our Board of Directors. Our
principal auditors have informed our Board of Directors of the scope and nature
of each service provided. With respect to the provisions of services other than
audit, review, or attest services, our principal accountants brought such
services to the attention of our Board of Directors prior to commencing such
services.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
See the Consolidated Financial Statements starting on page 23.
2. Exhibits
The exhibits listed in the Exhibit Index, which appears immediately
following the signature page and is incorporated herein by reference,
and filed as part of this Annual Report on Form 10-K.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYTODYN, INC.
Registrant)
Date: March 12, 2010 By: /s/ Allen D. Allen
-----------------------------
Name: Allen D. Allen
Title: President and CEO
Date: March 12, 2010 By: /s/ Corinne Allen
-----------------------------
Name: Corinne Allen
Title: Chief Financial Officer,
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1934 this Annual
Report on Form 10-K was signed by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:
Name Title Date
---- ----- ----
/s/ Gregory Gould Director March 12, 2010
------------------------
Gregory Gould
/s/ Ronald Tropp Director March 12, 2010
------------------------
Ronald Tropp
/s/ George Dembow Director March 12, 2010
------------------------
George Dembow
/s/ Jordan Naydenov Director March 12, 2010
------------------------
Jordan Naydenov
57
EXHIBITS INDEX
Exhibit
Number Description
------ -----------
Articles of Incorporation and Bylaws
------------------------------------
3.1 Rexray Articles of Incorporation shell company (incorporated herein by
reference to Exhibit 3.1 on Form 10SB12G Registration of Securities for
Small Business Issuers filed July 11, 2002)
3.2 Bylaws of Corporation (incorporated by reference herein to Exhibit 3.2
filed with Form 10SB12G, Registration of Securities for Small Business
Issuer filed July 11, 2002)
3.3 Amendment to the Articles of Incorporation changing company name from
Rexray to CytoDyn, Inc and effective a one for two reverse split of its
common shares (incorporated herein by reference to filed Exhibit 3.3 on
Current Form 8K filed November 12, 2003).
3.4 Amendment to Articles of Incorporation dated September 2009 designating
CytoDyn's preferred Series B non-voting shares sold in a private
placement.
Material Contracts
------------------
10.1 Acquisition Agreement for reverse merger acquisition of shell company by
CytoDyn of New Mexico Inc. (incorporated herein by reference to Exhibit
10.1 with Current Form 8KA filed January 12, 2004)
10.2 Patent License Agreement that was assigned under the Acquisition
Agreement (incorporated herein by reference to Exhibit 10.2 with Form
10KSB, Annual Report for Small Business Issuers filed June September 14,
2004)
10.3 Buy Sell Agreement with Symbion Research International (incorporated
herein by reference to Exhibit 10.5.2 with Form 10QSB, Quarterly Report
for Small Business Issuers filed January 12, 2005)
10.4 Amendment to Patent License Agreement (incorporated herein by reference
to Exhibit 10.6.1 filed with Form SB-2 Registration of Securities for
Small Business Issuer filed March 21, 2005)
10.5 Agreement and Plan of Acquisition for subsidiary Advanced Genetic
Technologies Inc (incorporated herein by reference to Exhibit 10.2 with
Current Form 8K filed February 5, 2007)
10.6 Legal Settlement between CytoDyn of New Mexico Inc, Officers Allen D.
Allen and Corinne Allen and CytoDyn, Inc on the one hand and Maya LLC,
Rex Lewis, and AIDS Research LLC on the other hand entered into December
2008.
10.7 Statement of Work for Vista Biologicals Inc to manufacture Cytolin(R),
CytoDyn Inc.'s lead product to be used in human clinical trials entered
into May 2008.
10.8 Sponsored Research Agreement between Massachusetts General Hospital and
CytoDyn, Inc e entered into September 28, 2009 for conducting clinical
trials on Cytolin (incorporated herein by reference to Exhibit 10.1 of
CytoDyn Inc. Current report on Form 8-K dated September 29, 2009)
58
Consents of Experts and Counsel
-------------------------------
23.1 Consent of Pender Newkirk and Company LLP (incorporated herein by
reference to Exhibit 23.1 with Current Form 8K filed October 23, 2006)
Certifications
--------------
31.1 Certification by CEO
31.2 Certification by CFO
31.2 Certification of CEO pursuant to 18. U.S.C. Section 1350 as adopted,
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of CFO pursuant to 18. U.S.C. Section 1350 as adopted,
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
Additional Exhibits
-------------------
99.1 Audit Committee Charter by the Board of Directors (incorporated herein
by reference to Exhibit 99.1 with Form 10KSB Annual Report for Small
Business Issuers filed August 30, 2007)
59