UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: August 31, 2005 Commission File Number 000-49908
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CYTODYN, INC.
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(Exact name of small business issuer as specified in its charter)
COLORADO 75-3056237
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 W. DeVargas Street, Suite 1, Santa Fe, New Mexico 87501
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(Address of principal executive offices) (Zip code)
(505) 988-5520
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, no par value 8,519,307
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Class Number of shares outstanding at April 18, 2005
Transitional Small Business Disclosure Format: Yes No X
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This document is comprised of 18 pages.
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INDEX
Page
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet, August 31, 2005 (unaudited).................... 3
Condensed Statements of Operations, three months ended
August 31, 2005 (unaudited) and 2004 (unaudited)..................... 4
Condensed Statements of Changes in Shareholders' Deficit, three
months ended August 31, 2005 (unaudited)............................. 5
Notes to condensed financial statements (unaudited)..................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation...... 12
Item 3. Controls and Procedures........................................ 15
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 16
Item 2. Changes in Securities and Small Business Issuer Purchases of
Equity Securities........................................... 17
Item 3. Defaults Upon Senior Securities................................ 17
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Item 5. Other Information.............................................. 17
Item 6. Exhibits....................................................... 17
Signatures................................................................ 18
2
Part I, Item 1. Financial Statements
CYTODYN, INC.
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
August 31, 2005
Assets
Current assets:
Cash ...................................................... $ 98,526
Prepaid expenses .......................................... 26,409
-----------
Total current assets ........................ 124,935
Furniture and equipment, less accumulated
depreciation of $1,316 .................................... 3,222
Intangible asset, less accumulated
amortization of $1,047 .................................... 1,853
Deposit ....................................................... 495
-----------
$ 130,505
===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable .......................................... $ 75,794
Accrued liabilities ....................................... 1,850
Indebtedness to related parties (Note 2) .................. 572,402
-----------
Total curernt liabilities ................... 650,046
-----------
Commitments (Note 7) .......................................... --
Shareholders' deficit:
Preferred stock, no par value; 5,000,000 shares authorized,
-0- shares issued and outstanding ...................... --
Common stock, no par value; 25,000,000 shares authorized,
8,519,307 shares issued and outstanding ................ 2,225,967
Additional paid-in capital ................................ 40,942
Accumulated deficit ....................................... (1,601,912)
Deficit accumulated during development stage .............. (1,184,538)
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Total shareholders' deficit ................. (519,541)
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$ 130,505
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See accompanying notes to condensed financial statements
3
CYTODYN, INC.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
Three Months Ended
August 31,
--------------------------
2005 2004
----------- -----------
Operating expenses:
General and administrative ................ $ 67,057 $ 120,409
Depreciation .............................. 488 292
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Total operating expenses... 67,545 120,701
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Operating loss ............ (67,545) (120,701)
Interest income ............................... 14 176
Interest expense .............................. (1,880) (182)
----------- -----------
Loss before income taxes... (69,411) (120,707)
Income tax provision (Note 4) ................. -- --
----------- -----------
Net loss .................. $ (69,411) $ (120,707)
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Basic and diluted loss per share .............. $ (0.01) $ (0.01)
=========== ===========
Basic and diluted weighted average
common shares outstanding ................. 8,489,453 8,069,307
=========== ===========
See accompanying notes to condensed financial statements
4
CYTODYN, INC.
(A Development Stage Company)
Condensed Statements of Changes in Shareholders' Deficit
(Unaudited)
Preferred Stock Common Stock
------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
Balance at June 1, 2005 ...................... -- $ -- 8,069,307 $ 1,916,334
June through July 2005, sale of common
stock less offering costs of $27,867
($.75/share) (Note 5) .................... -- -- 289,890 189,551
August 2005, common shares issued to
extinguish promissory notes payable and
related interest ($.75/share) (Note 3)... -- -- 160,110 120,082
Net loss, year ended May 31, 2004 ............ -- -- -- --
----------- ----------- ----------- -----------
Balance at August 31, 2005 ................... -- $ -- 8,519,307 $ 2,225,967
=========== =========== =========== ===========
Deficit
Accumulated
Additional During
Paid-in Accumulated Development
Capital Deficit Stage Total
----------- ----------- ----------- -----------
Balance at June 1, 2005 ...................... $ 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) (Note 5) .................... -- -- -- 189,551
August 2005, common shares issued to
extinguish promissory notes payable and
related interest ($.75/share) (Note 3)... -- -- -- 120,082
Net loss, year ended May 31, 2004 ............ -- -- (69,411) (69,411)
----------- ----------- ----------- -----------
Balance at August 31, 2005 ................... $ 40,942 $(1,601,912) $(1,184,538) $ (519,541)
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
5
CYTODYN, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
August 31,
------------------------
2005 2004
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Net cash used in
operating activities .................... $ (57,892) $ (107,874)
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Cash flows from investing activities:
Property and equipment purchases ...................... (936) (3,167)
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Net cash used in
investing activities .................... (936) (3,167)
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Cash flows from financing activities:
Capital contributions by president (Note 2) ........... -- 512
Proceeds from notes payable issued to
related parties (Note 5) ........................... 5,197 --
Payment of notes payable to related parties (Note 2)... (38,324) --
Proceeds from the sale of common stock ................ 217,418 --
Payments for offering costs ........................... (27,867) --
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Net cash provided by
financing activities .................... 156,424 512
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Net change in cash ......................... 97,596 (110,529)
Cash, beginning of period ................................. 930 186,964
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Cash, end of period ....................................... $ 98,526 $ 76,435
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ....................................... $ -- $ --
========== ==========
Interest ........................................... $ 14 $ 182
========== ==========
Noncash investing and financing transactions:
Common stock issued to extinguish promissory
notes payable and related interest (Note 3) ..... $ 122,748 $ --
========== ==========
See accompanying notes to condensed financial statements
6
CYTODYN, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The condensed financial statements presented herein have been prepared by the
Company in accordance with the instructions for Form 10-QSB and the accounting
policies in its Form 10-KSB filed for the year ended May 31, 2005 and should be
read in conjunction with the notes thereto.
In the opinion of management, the accompanying condensed financial statements
contain all adjustments (consisting only of normal recurring adjustments) which
are necessary to provide a fair presentation of operating results for the
interim periods presented. The results of operations presented for the period
ended August 31, 2005 are not necessarily indicative of the results to be
expected for the year.
The Company is in the development stage in accordance with Statements of
Financial Accounting Standards (SFAS) No. 7 "Accounting and Reporting by
Development Stage Enterprises".
Financial data presented herein are unaudited.
Note 2: Related Party Transactions
During the nine months ended February 28, 2005, the Company's president paid
administrative expenses on behalf of the Company totaling $5,512. The payments
have been recorded as contributed capital and is included in the accompanying
condensed financial statements as "Additional paid-in capital".
As of May 31, 2005, the Company owed two officers promissory notes totaling of
$86,502. The notes are due on demand and carry no interest rate. On June 2,
2005, an officer advanced the Company an additional $5,000 for working capital;
on July 13, 2005, the Company repaid an officer $38,324; and on August 31, 2005,
an officer advanced the Company $197. Management plans to repay the notes
through cash payments, issuance of the Company's common stock, or a combination
thereof. The balance due of $53,375 remained unpaid at August 31, 2005 and is
included in the accompanying condensed financial statements as "Indebtedness to
related parties".
A director has provided legal services to the Company over the past several
years. As of August 31, 2005, the Company owed the director $87,185 for legal
services, which is included in the accompanying financial statements as
"Indebtedness to related parties". As of August 31, 2005, no arrangements had
been made for the Company to repay this obligation. There is no interest and the
note is due on demand. The Company anticipates that the director will continue
to provide legal services in the future.
7
The Company's director, Peggy C. Pence, PhD., is the President and Chief
Executive Officer of Symbion Research International, Inc. ("Symbion"). On
January 5, 2005, the Company entered into a buy-sell agreement to purchase
certain intellectual property owned by Symbion. The agreement describes the
intellectual property in detail which summarized, is the Phase I clinical data
and the protocol for the Phase II/III study. This intellectual property is
necessary to obtain approval for, and to conduct, further FDA clinical tests of
Cytolin. Cytolin is a potential new drug being developed by the company for the
treatment of Human Immunodeficiency Virus ("HIV"). Under the terms of this
agreement:
o The Company may purchase Symbion's Phase I clinical data in connection
with obtaining approval from the FDA to conduct the Phase II/Phase III
studies for Cytolin.
o The Company will grant 83,122 non-qualified stock options with an
exercise price of $.75 per share that will vest immediately and be
exercisable over 5 years.
o The Company will pay $25,000 to Symbion by February 10, 2005, 30 days
after execution of the agreement.
o The Company will pay $275,000 to Symbion once the Company's secondary
financing is received.
The Company paid Symbion $25,000 out of loan proceeds received in March 2005.
Although the payment was late, Symbion accepted it and the contract is in force.
In the event the Company's shareholders do not approve the Company's option plan
by December 31, 2005, the Company will pay Symbion $62,342.
The results of the Phase II/III studies for Cytolin shall be the sole property
of the Company upon Symbion's receipt of the final payment called for by this
agreement. If all remaining payments are not received, the property shall revert
to Symbion. The balance due of $337,342 is included in the accompanying
financial statements as "Indebtedness to related parties".
Note 3: Notes Payable
As of May 31, 2005, the Company had seven unsecured notes payable to
individuals, totaling $121,000. The notes were issued in February and March
2005, carried a 5% interest rate, and were to mature one year from the date of
the note. On August 29, 2005, the Company extinguished the outstanding
promissory notes at related accrued interest with the issuance of 160,110 shares
of its common stock.
Note 4: Income Taxes
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses for all
periods presented resulting in a deferred tax asset, which was fully allowed for
by a valuation allowance; therefore, the net benefit and expense resulted in
$-0- income taxes.
Note 5: Shareholders' Equity
Common Stock Sales The Company filed a Registration Statement on Form SB-2 with
the SEC to offer for sale 450,000 common shares at a price of $.75 per share.
The SEC declared the Form SB-2 effective June 17, 2005. The Company completed
its public offering on July 31, 2005. The Company sold 289,890 shares of its
common stock for net proceeds of $189,551, after deducting offering costs
totaling $27,867.
8
Note 6: Commitment and Contingency
The Company has signed Personal Service Agreements with three officers that
cover the two years ended May 31, 2005 and 2006. Under the terms of the
agreements, if an officer is terminated by the Company without cause or
terminates service for good cause within three months of a change in control,
the Company is required to pay the officer the balance of the base salary for
the term of the agreement and for an additional 12 months after the expiration
of the term.
Note 7: General and Administrative Expenses General and administrative expenses
consist of the following:
For The Three Months Ended
August 31,
---------------------------
2005 2004
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Salaries and payroll taxes...... $ 42,798 $ 41,376
Legal .......................... -- 33,737
Other professional fees ........ 1,000 3,094
Patent fees .................... 4,964 --
Insurance ...................... 10,177 36,100
Office, travel, and other ...... 8,118 6,102
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$ 67,057 $ 120,409
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Note 8: Financial Information - Development Stage
Following is the Statement of Operations for the period in which the Company has
been in the development stage as required by SFAS No. 7.
October 28, 2003 Through August 31, 2005
Operating expenses:
General and administrative ............. $ 770,007
Legal fees, related party .............. 45,950
Depreciation ........................... 2,363
Research and development................ 362,342
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Total operating expenses ........... 1,180,662
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Operating loss ..................... (1,180,662)
Interest income ........................... 591
Interest expense .......................... (4,467)
------------
Loss before income taxes ........... (1,184,538)
Income tax provision ...................... --
------------
Net loss ........................... $ (1,184,538)
============
9
Following is the Statement of Cash Flows for the period in which the Company has
been in the development stage as required by SFAS No. 7.
October 28, 2003 Through August 31, 2005
Net cash used in
operating activities ............ ($1,109,466)
-----------
Cash flows from investing activities:
Equipment purchases ........................... (7,438)
-----------
Net cash used in
investing activities ............ (7,438)
-----------
Cash flows from financing activities:
Capital contributions by officer ............. 5,512
Proceeds from notes payable issued to
related parties ............................. 501,691
Repayment of notes payable to related
parties ..................................... (88,324)
Proceeds from notes payable issued to
individuals ................................. 121,000
Proceeds from the sale of common stock ....... 757,418
Payment of offering costs .................... (81,867)
-----------
Net cash provided by
financing activities ............ 1,215,430
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Net change in cash ............... $ 98,526
===========
Cash, beginning of period ....................... $ --
===========
Cash, end of period ............................. $ 98,526
===========
Supplemental disclosure of cash flow information:
Income taxes .................................. $ --
===========
Interest ...................................... $ 701
===========
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 to extinguish promissory
note payable and related interest .......... $ 120,082
===========
10
Note 9: Litigation
All current litigation concerns the efforts of the former C.E.O. of Amerimmune
Pharmaceuticals, Inc. to take our technology for his family of closely held
companies.
Rex H. Lewis, a Defendant and former director and C.E.O. of Amerimmune
Pharmaceuticals, Inc. filed a First Amended Cross-Complaint against CytoDyn of
New Mexico, Inc., (predecessor company) Allen D. Allen, Corinne E. Allen, Ronald
J. Tropp, Brian J. McMahon , Daniel M. Strickland, M.D. and unknown others
designated as "Does 101-150".
The Cross-Complaint was settled pursuant to a settlement agreement entered into
by the parties involved. The terms of the agreement are confidential. Maya LLC,
Rex Lewis's company, may file an action against us in the future.
CytoDyn, Inc. and Allen D. Allen v. Amerimmune, Inc. and Amerimmune
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Pharmaceuticals, Inc. v. Biovest International, Inc.
----------------------------------------------------
Commonwealth of Massachusetts, Superior Court, Worcester County, Civil Action
-----------------------------------------------------------------------------
No. 05-0452-C.
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Nature of the claims:
The Company and Allen filed a complaint against Amerimmune, Inc. and Amerimmune
Pharmaceuticals, Inc. (together, "Amerimmune") to domesticate an October 4, 2004
judgment that the Company and Allen obtained against Amerimmune in the Superior
Court of California for Ventura County, case number SC-039250. Further, the
Company and Allen named Biovest International, Inc. ("Biovest") as a
trustee-defendant because Biovest possesses a Cell-Bank, the rights to which the
Company and Allen own.
Progress to Date:
The Company and Allen were successful in having the California judgment
domesticated. Further, the Company and Allen were successful in "charging"
Biovest and securing an order that Biovest transfer the Cell-Bank to the Company
and Allen. However, the transfer has not occurred because recently Amerimmune's
purported successor-in-interest, Maya, Inc. ("Maya"), has sought to intervene in
the case, alleging a competing right to the Cell-Bank. The Court recently heard
oral argument on Maya's Motion to Intervene and has taken the Motion under
advisement. If Maya's Motion to Intervene is denied, the Cell-Bank will be
transferred to the Company and Allen, and the litigation will be concluded
(absent an appeal). Alternatively, if Maya's Motion to Intervene is granted, the
Cell-Bank will not be transferred to any person or entity pending a
determination by the Court of the parties' respective rights to the Cell-Bank.
The Company's Response:
The Company has a superior right to the Cell-Bank, and the Company intends to
litigate the matter vigorously. The outcome of the case is uncertain, however,
in the opinion of our attorneys, the company's claim to the Cell-Bank is strong.
Other legal/patent issues:
Cytodyn has recently discovered that former employees of ex-licensee, Amerimmune
Inc., are attempting to convert technology previously adjudicated by the
Superior Court of California, County of Ventura to belong to Symbion Research
International, LLC. The technology involves LFA-1 Alpha subunit antibodies and
the use of the antibodies to treat HIV-infected patients. The former employees
have filed two U.S. patent applications and several foreign patent applications
based on a derivative international patent application. Symbion is taking action
in U.S. District Court to correct the inventorship and assignee in these
applications.
11
Background
Cytodyn granted a license in its patented technology to Amerimmune Inc., which
represented that it would assist in obtaining FDA approval of Cytolin(R).
Amerimmune in turn contracted with Symbion Research International, LLC to assist
with the clinical trials of Cytolin(R). Symbion sued Amerimmune in 2003 in
Superior Court of California, County of Ventura asserting breach for non-payment
for services performed. Symbion prevailed in that suit and the Ventura Court
awarded title to all technology developed during its relationship with
Amerimmune to Symbion. This technology is the subject matter of the patent
applications filed by the former employees of ex-licensee Amerimmune.
Part I. Item 2. Management's Discussion and Analysis or Plan of Operation
------- ---------------------------------------------------------
Plan of Operation
During the next 12 months, our objectives are
o to conduct the further clinical trials needed to get Cytolin to market
o to continue our efforts to protect our technology by obtaining
additional patents in The United Kingdom, the European Union and Hong
Kong and
o Enforcing court judgements that have been awarded to us and Symbion
Research International, Inc.
o to market our shares and establish a solid reasonable market
capitalization,
o to raise approximately $3 to $5 million in additional funds to support
our research and development efforts, the clinical trials relating to
Cytolin, and our general and administrative expenses; and
o to explore joint venture arrangements for other possible
pharmaceutical products.
Continuing Clinical Trials:
Phase I clinical trials were conducted by Symbion Research International under
the sponsorship of Amerimmune, Inc. during 2002. We believe that the data from
these trials support approval by the FDA of Phase II trials. The results of the
Phase I clinical trials were awarded to Symbion by the Superior Court of
California due to a breach of contract on the part of Amerimmune.
Projected costs to complete our research and development and to obtain FDA
--------------------------------------------------------------------------
approval Phase II clinical trials
---------------------------------
We have negotiated with Symbion International for the right to use the Phase 1
data for a total of $362,000 and to seek approval for the Phase II trials from
the FDA. If the Phase II study is approved by the FDA, we expect it,
together with the pre-Phase II efforts, to cost an estimated $2,050,000 to
$3,350,000 for Symbion to conduct the clinical trials, plus estimated
manufacturing and supply costs of $350,000 to $400,000 and $362,000 for the
Phase Ia/b data for a total of $2,762,000 to $ 4,112,000.
Timing and anticipated completion dates for research and development.
---------------------------------------------------------------------
These trials can take anywhere from 29 to 42 months. Until we have met with the
FDA, which we hope to do within the next two months, we cannot be certain what
additional studies, assuming that Phase II study supports the efficacy and
safety of Cytolin, will be required to receive marketing approval.
12
Date we expect to begin benefiting from the product:
----------------------------------------------------
We expect to complete our research and development of all Cytolin clinical
trials needed for approval of a marketing application if at all by December
2009.
Risks and uncertainties associated with completing development within reasonable
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period of time and if products are not completed on a timely basis:
-------------------------------------------------------------------
Even if we are able to complete the development within a reasonable period of
time our competitors could still come out with something competitive to our
product. Toxicity in the product could go undetected until Phase IV Safety
Surveillance after drug approval. We may have to continue to litigate to protect
technology, or challenges to patents that have not yet expired, etc. The medical
community may lack of acceptance of our product. There may be an inability to
secure 3rd party payees such as if medicare would cover costs. Post registration
manufacturing problems or downturn of economy or industry could also be risks.
If we are unable to complete clinical trials on a timely basis, with favorable
results, our costs will increase significantly and we may not have enough
capital to support further research and development and continue in business.
Also, if we incur significant delays in being able to market our product, even
if we are ultimately able to do so, we will be delayed in earning revenues and
probably will require additional financing to continue in business.
Patents
During fiscal year 2004, several European patents were granted. The new patents
are covered by our License Agreement with Allen D. Allen, our president that
gives us the exclusive right to develop his technology worldwide. These patents
are designated European Patent No. 94 912826.8, for the United Kingdom, Germany,
France, Switzerland, Italy, the Netherlands, Portugal, Spain, and Sweden, and
are the counterparts to our United States Patent No. 5424066. Patents are
pending in those same countries which, if granted, will be the equivalent of our
United States Patent No. 5651970. We estimate the costs associated with these
pending patents to be approximately $65,000, including amounts we have already
spent. 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 other than Hong Kong. The license
acquired gives us the right to develop Mr. Allen's worldwide. Patents.
Litigation
For a thorough discussion of our pending litigation, please see the section
entitled "Legal Proceedings."
Establishing a Market and Obtaining Funding
On June 17, 2005 5:00pm EST, the Securities and Exchange Commission
declared our public registration prospectus effective. 450,000 shares were then
sold at $0.75 per shares and the offering was closed July 31, 2005. We are
awaiting the assignment of a trading symbol and "a trade date" from the NASD.
The proceeds from the public offering will pay for company expenditures through
January 2006. We will require additional funding during the 2006 fiscal year in
order to continue with research and development efforts and to stay in business.
If we are able to complete further offerings, we will be not be able to pay for
the company's expenses for more than 6 months. Additional funding will have to
occur within the next twelve months in order to continue operations. The amount
of that funding is directly related to the clinical trials we are able to
conduct and the amounts we will need to continue operations.
We will attempt to create a solid market for our company's shares once, and if
we are trading on the OTCBB. We believe this will help obtain additional funding
by creating investor confidence in our company.
13
In addition to operating funds, we will need from approximately $2,762,000 to
$4,112,000 for research and development, including clinical trials, and
manufacturing and supply costs, depending upon whether we are approved by the
FDA to conduct a Phase II study.
We do not have any of this funding arranged or secured, and we do not yet have
plans for raising the funding we require. We anticipate that we will seek the
funding through further equity offerings, either by private placement or by
registered offering, or by possible joint venture arrangements with other
parties. If we are unable to secure the necessary funding, we will not be able
to conduct our research and development activities or to continue in business.
Joint Ventures
Buy-Sell Agreement with Symbion Research International.
Effective January 5, 2005.
Our director, Peggy C. Pence, PhD., is the President and Chief Executive Officer
of Symbion Research International, Inc. On January 5, 2005, we entered into a
buy-sell agreement to purchase intellectual property owned by Symbion. The
agreement describes the intellectual property in detail which summarized, is the
Phase 1 clinical data and the protocol for the Phase II study.
Under the terms of this agreement:
o CytoDyn, Inc may purchase Symbion's Phase I clinical data in
connection with obtaining approval from the FDA to conduct the Phase
II/Phase III stud(ies) for Cytolin.
o CytoDyn, Inc will grant 83,122 non-qualified stock options with an
exercise price of $.75 per share that will vest immediately and be
exercisable over 5 years.
o CytoDyn, Inc will pay $25,000 to Symbion by February 10, 2005, 30 days
after execution of the agreement.
o CytoDyn, Inc will pay $275,000 to Symbion once our secondary financing
is received.
We have paid Symbion $25,000 out of the loan proceeds we received in March 2005.
Although the payment was late, Symbion has accepted it and the contract is in
force.
In the event the shareholders do not approve the company's option plan by
December 31, 2005, CytoDyn, Inc will pay Symbion $62,341.50 in U.S. dollars.
The results of the Phase II/III stud(ies) for Cytolin shall be the sole property
of CytoDyn, Inc upon Symbion's receipt of the final payment called for by this
agreement. If all remaining payments are not received, the property shall revert
to Symbion.
Consulting Agreement with Jacob Lalezari, M.D.
We have entered into a consulting agreement with Dr. Jacob Lalezari to consult
with us on our next clinical trials, including but not limited to, revising the
protocol, conducting clinical trials as the medical monitor. Dr. Lalezari is a
premier AIDS doctor in the U.S who has conducted numerous clinical trials for
big pharmaceutical companies such as, Glaxo, Human Genome Sciences, ViTex,
Pfizer, Xcyte, BMS, Roche, and Aventis. His expertise and cooperation could help
us get this treatment approved the fastest, safest way possible.
Confidentiality Agreement with Paramount Capital
We have signed a confidentiality agreement with Paramount Biosciences, LLC,
where Paramount capital agrees not to divulge any confidential information while
conducting due diligence on our company. They are evaluating the possibility of
providing financing, or assisting us in the development of the product.
14
Contract with Mayo Clinic
We entered into a contract with Mayo Clinic to provide for the services of Dr.
Donald W. Northfelt, the principal investigator of the Phase I trials, to
participate in meeting with the FDA. Please see Exhibit 10.1.
Exploring Other Joint Ventures
While we continue to pursue FDA approval of our Cytolin product, we are also
considering entering into joint ventures to develop other types of products. We
have, for instance, entered into a nondisclosure agreement with another
development stage biotech company to discuss the possibility of the joint
development of drugs to treat neuropsychiatric diseases or disorders. These
discussions are in the early stages and we do not know if we will enter into a
joint venture or other arrangement with this company or if any products might
ensue from our efforts.
We may also pursue joint ventures or other arrangements to obtain funding for
our Cytolin-related endeavors, but we have not pursued this possibility and do
not have any prospects at this time.
Other Matters
We do not expect, in the next 12 months, to make any significant expenditures
for equipment. We will continue to staff the company as funds become available.
We plan to hire two to three additional financial, medical or business experts
in the near future. During the fiscal year ended May 31, 2005, we expended
$157,927 in professional fees, consisting of $129,664 legal fees and
professional fees incurred in connection with our public registration, our
additional patent protection filings, and litigating our pending lawsuits, and
$10,676 in accounting and auditing fees. Transfer agent fees and EDGAR filing
fees were $12,643. $5,000 was paid for consulting work to Symbion as under our
consulting agreement. For the year ended May 31, 2005, $87,185 in legal fees was
owed to our director, Ronald Tropp. We expect to incur similar fees in the
current fiscal year, based on our research and development efforts, our need for
additional capital, and continuing litigation.
Part I. Item 3. Controls and Procedures
------- -----------------------
(a) Evaluation of disclosure controls and procedures
------------------------------------------------
We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, our chief executive officer and the chief financial officer
concluded that our disclosure controls and procedures were adequate.
b. Changes in internal controls
----------------------------
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of the evaluation of those controls by the chief executive officer and
chief financial officer.
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Part 2. Other Information
-------------------------
Item 1 - Legal Proceedings.
All current litigation concerns the efforts of the former C.E.O. of Amerimmune
Pharmaceuticals, Inc. to take our technology for his family of closely held
companies.
Rex H. Lewis, a Defendant and former director and C.E.O. of Amerimmune
Pharmaceuticals, Inc. filed a First Amended Cross-Complaint against CytoDyn of
New Mexico, Inc., (predecessor company) Allen D. Allen, Corinne E. Allen, Ronald
J. Tropp, Brian J. McMahon , Daniel M. Strickland, M.D. and unknown others
designated as "Does 101-150".
The Cross-Complaint was settled pursuant to a settlement agreement entered into
by the parties involved. The terms of the agreement are confidential. Maya LLC,
Rex Lewis's company, may file an action against us in the future.
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.
-------------
Nature of the claims:
The Company and Allen filed a complaint against Amerimmune, Inc. and Amerimmune
Pharmaceuticals, Inc. (together, "Amerimmune") to domesticate an October 4, 2004
judgment that the Company and Allen obtained against Amerimmune in the Superior
Court of California for Ventura County, case number SC-039250. Further, the
Company and Allen named Biovest International, Inc. ("Biovest") as a
trustee-defendant because Biovest possesses a Cell-Bank, the rights to which the
Company and Allen own.
Progress to Date:
The Company and Allen were successful in having the California judgment
domesticated. Further, the Company and Allen were successful in "charging"
Biovest and securing an order that Biovest transfer the Cell-Bank to the Company
and Allen. However, the transfer has not occurred because recently Amerimmune's
purported successor-in-interest, Maya, Inc. ("Maya"), has sought to intervene in
the case, alleging a competing right to the Cell-Bank. The Court recently heard
oral argument on Maya's Motion to Intervene and has taken the Motion under
advisement. If Maya's Motion to Intervene is denied, the Cell-Bank will be
transferred to the Company and Allen, and the litigation will be concluded
(absent an appeal). Alternatively, if Maya's Motion to Intervene is granted, the
Cell-Bank will not be transferred to any person or entity pending a
determination by the Court of the parties' respective rights to the Cell-Bank.
The Company's Response:
The Company has a superior right to the Cell-Bank, and the Company intends to
litigate the matter vigorously. The outcome of the case is uncertain, however,
in the opinion of our attorneys, the company's claim to the Cell-Bank is strong.
Other legal/patent issues:
Cytodyn has recently discovered that former employees of ex-licensee, Amerimmune
Inc., are attempting to convert technology previously adjudicated by the
Superior Court of California, County of Ventura to belong to Symbion Research
International, LLC. The technology involves LFA-1 Alpha subunit antibodies and
the use of the antibodies to treat HIV-infected patients. The former employees
have filed two U.S. patent applications and several foreign patent applications
based on a derivative international patent application. Symbion is taking action
in U.S. District Court to correct the inventorship and assignee in these
applications.
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Background
Cytodyn granted a license in its patented technology to Amerimmune Inc., which
represented that it would assist in obtaining FDA approval of Cytolin(R).
Amerimmune in turn contracted with Symbion Research International, LLC to assist
with the clinical trials of Cytolin(R). Symbion sued Amerimmune in 2003 in
Superior Court of California, County of Ventura asserting breach for non-payment
for services performed. Symbion prevailed in that suit and the Ventura Court
awarded title to all technology developed during its relationship with
Amerimmune to Symbion. This technology is the subject matter of the patent
applications filed by the former employees of ex-licensee Amerimmune.
Item 2 - Changes in Securities and Small Business Issuer Purchases of Equity
Securities.
The Company filed a Registration Statement on Form SB-2 with the SEC to offer
for sale 450,000 common shares at a price of $.75 per share. The SEC declared
the Form SB-2 effective June 17, 2005. The Company completed its public offering
on July 31, 2005. The Company sold 289,890 shares of its common stock for net
proceeds of $189,551, after deducting offering costs totaling $27,867.
As of May 31, 2005, the Company had seven unsecured notes payable to
individuals, totaling $121,000. The notes were issued in February and March
2005, carried a 5% interest rate, and were to mature one year from the date of
the note. On August 29, 2005, the Company extinguished the outstanding
promissory notes at related accrued interest with the issuance of 160,110 shares
of its common stock.
Item 3 - Defaults Upon Senior Securities.
No response required.
Item 4 - Submission of Matters to a Vote of Security Holders.
No response required.
Item 5 - Other Information.
No response required.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
1. 31.1: Certification by the CEO
2. 31.2: Certification by the CFO
3. 32.1: Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
CEO
4. 32.2: Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
CFO
5. 10.1 Contract with Mayo Clinic
a. Reports on Form 8-K:
None.
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SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three months ended August 31, 2005 have
been included.
Pursuant to the requirements of the Securities and 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: October 13, 2005 BY: /s/ Allen D. Allen
------------------------
Allen D. Allen
President and CEO
18