UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1933
For Quarter Ended: August 31, 2009 Commission File Number 000-49908
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CYTODYN, INC.
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(Exact name of registrant as specified in its charter)
75-3056237 COLORADO
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(I.R.S. Employer Identification No.) State or other jurisdiction
of incorporation organization
1511 Third Street, Santa Fe, 87505
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(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (505) 988-5520
(Former address, changed sine last report)
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 No X
--- ---
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes No
--- ---
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Indicate by check mark whether the registrant is a large accelerated filer, and
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See Definition of "accelerated filer, large accelerated filer, and smaller
reporting company" in 12(b)2 of the Exchange Act (check one)
Large Accelerated Filer Accelerated Filer
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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 Exchange Act): Yes No X
--- ---
On August 31, 2010, there were 19,890,796 shares outstanding of the registrant's
no par common stock.
TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
---------------------
Item 1 Financial Statements
--------------------
Condensed Consolidated Balance Sheets as of August 31, 2009
(unaudited) and May 31, 2009 1
Condensed Consolidated Statement of Operations for the
Three months Ended August 31, 2009 and 2008, and for the
period from October 28, 2003 to August 31, 2009 (unaudited) 2
Condensed Consolidated Statement of Changes in Stockholders'
Deficit for the Period from October 28, 2003 to August 31,
2009 (unaudited) 3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended August 31, 2009 and 2008 and for the
Period from October 28, 2003 to August 31, 2009 (unaudited) 8
Notes to Condensed Consolidated Financial Statements
(unaudited) 10
Item 2 Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations. 18
------------------------------------
Item 3 Quantitative and Qualitative Disclosures About Market Risk 22
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Item 4T Controls and Procedures 22
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PART II OTHER INFORMATION
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Item 1 Legal Proceedings 23
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Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 23
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Item 3 Defaults Upon Senior Securities 23
-------------------------------
Item 4 Reserved and removed 23
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Item 5 Other Information 23
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Item 6 Exhibits 23
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PART I
Item 1. Financial Statements
Cytodyn, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheet
August 31, May 31,
2009 2009
(unaudited)
----------- -----------
Assets
Current Assets:
Cash $ 94,901 $ 265,520
Prepaid insurance 7,933 --
Prepaid license fees 7,500 7,500
----------- -----------
Total current assets 110,334 273,020
Furniture and equipment, net 3,501 1,963
Intangible assets, net 40 161
Other Assets 27,725 29,600
----------- -----------
$ 141,600 $ 304,744
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 266,931 $ 269,870
Accrued liabilities 8,953 49,424
Short-term portion of legal accrual 25,000 25,000
Indebtedness to related parties - short-term portion 40,000 --
Short-term portion of notes payable 27,500 67,500
Accrued interest payable 27,893 80,329
----------- -----------
Total current liabilities 396,277 492,123
Long Term Liabilities
Accrued salaries - related party 229,500 229,500
Notes payable -- 70,500
Convertible notes payable, net 6,937 21,937
Indebtedness to related parties 150,985 190,985
----------- -----------
Total Liabilities 783,699 1,005,045
----------- -----------
Shareholders' deficit:
Preferred stock, no par value; 5,000,000 shares authorized,
-0- shares issued and outstanding -- 167,500
Common stock, no par value; 25,000,000 shares authorized,
19,139,315 and 16,221,315 shares issued and outstanding
at August 31, 2009 and May 31, 2009, respectively 6,717,743 6,285,587
Additional paid-in capital 3,110,928 2,994,153
Accumulated deficit on unrelated dormant operations (1,601,912) (1,601,912)
Deficit accumulated during development stage (8,868,858) (8,545,629)
----------- -----------
Total shareholders' deficit (642,099) (700,301)
----------- -----------
$ 141,600 $ 304,744
=========== ===========
See accompanying notes to condensed consolidated financial statements.
1
Cytodyn, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
October 28,
2003
Three months ended, through
8/31/2009 8/31/2008 8/31/2009
------------ ------------ ------------
Operating expenses:
General and administrative $ 248,905 $ 257,697 $ 6,073,723
Amortization / depreciation 585 389 176,477
Research and development 6,490 265,000 1,426,418
Legal fees 19,559 29,354 710,333
------------ ------------ ------------
Total operating expenses 275,539 552,440 8,386,951
------------ ------------ ------------
Operating loss (275,539) (552,440) (8,386,951)
Interest income -- -- 1,627
Extinguishment of debt -- -- 337,342
Interest expense:
Interest on convertible debt (38,604) -- (734,863)
Interest on notes payable (9,086) (6,310) (86,013)
------------ ------------ ------------
Loss before income taxes (323,229) (558,750) (8,868,858)
Income tax provision -- -- --
------------ ------------ ------------
Net loss $ (323,229) $ (558,750) $ (8,868,858)
============ ============ ============
Basic and diluted loss per share $ (.02) $ (0.04) $ (.84)
============ ============ ============
Basic and diluted weighted average
common shares outstanding 18,174,179 12,514,407 10,594,513
============ ============ ============
See accompanying notes to condensed consolidated financial statements
2
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through August 31, 2009
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)
See accompanying notes to condensed consolidated financial statements
3
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through August 31, 2009
Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
----------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
-------- --------- ---------- ---------- --------- ---------- ----------- ----------- -----------
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 condensed consolidated financial statements
4
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through August 31, 2009
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)
See accompanying notes to condensed consolidated financial statements
5
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through August 31, 2009
Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
----------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
-------- --------- ---------- ---------- --------- ---------- ----------- ----------- -----------
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)
Stock issued for cash, -- -- 3,023,308 1,511,654 -- -- -- -- 1,511,654
$.50/share
Stock issued for services -- -- 388,200 194,100 -- -- -- -- 194,100
$.50/share
Stock issued for services
$.37/share -- -- 150,000 55,500 -- -- -- -- 55,500
Stock-based compensation -- -- -- -- -- 371,996 -- -- 371,996
Stock issued in payment
of accounts payable, -- -- 98,000 49,000 -- -- -- -- 49,000
$.50/share
Stock issued for services
$.42/share -- -- 15,400 6,468 -- -- -- -- 6,468
See accompanying notes to condensed consolidated financial statements
6
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Deficit
Period October 28, 2003 through August 31, 2009
Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
----------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
-------- --------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Capital contribution -- -- -- -- -- 8,900 -- -- 8,900
Net loss, ended
May 31, 2009 -- -- -- -- -- -- -- (1,572,804) (1,572,804)
-------- --------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at May 31,2009 100,000 $ 167,500 16,221,315 $6,285,587 $ -- $2,994,153 $(1,601,912) $(8,545,629) $ (700,301)
Stock issued for cash,
At $.50/share -- -- 236,400 118,200 -- -- -- -- 118,200
Conversion of debt to
Common stock at
$.45/share -- -- 325,458 146,456 -- -- -- -- 146,456
Conversion of preferred
Stock to common stock (100,000) (167,500) 2,356,142 167,500 -- -- -- -- --
Stock-based compensation -- -- -- -- -- 78,171 -- -- 78,171
Original issue discount
Convertible debt with
Beneficial conversion
Feature -- -- -- -- -- 38,604 -- -- 38,604
Net loss, ended
August 31, 2009 -- -- -- -- -- -- -- (323,229) (323,229)
-------- --------- ---------- ---------- --------- ---------- ----------- ----------- -----------
Balance at
August 31, 2009 -- -- 19,139,315 $6,717,743 -- $3,110,928 $(1,601,912) $(8,868,858) $ (642,099)
======== ========= ========== ========== ========= ========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements
7
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
October 28,
Three Months Ended 2003
------------------------ through
8/31/2009 8/31/2008 8/31/2009
---------- ---------- -----------
Cash flows from operating activities
Net loss $ (323,229) $ (558,750) (8,868,858)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization / depreciation 585 389 176,477
Amortization of original issue discount 38,604 -- 717,202
Extinguishment of debt -- -- (337,342)
Purchased in process research and development -- -- 274,399
Stock-based compensation 78,171 120,158 2,922,910
Changes in current assets and liabilities:
Accrued legal settlement -- -- 25,000
Prepaid expenses (7,933) 12,520 (15,433)
Other assets 1,875 2,015 (27,725)
Accounts payable, accrued
interest and accrued liabilities (74,890) 40,905 554,233
Deposits -- -- --
---------- ---------- -----------
Net cash used in operating activities (286,817) (382,763) (4,579,137)
---------- ---------- -----------
Cash flows from investing activities:
Furniture and equipment purchases (2,002) -- (14,717)
---------- ---------- -----------
Net cash used in investing activities (2,002) -- (14,717)
---------- ---------- -----------
Cash flows from financing activities:
Capital contributions by president -- -- 12,412
Proceeds from notes payable to related parties -- -- 702,649
Payments on notes payable to related parties -- (25,993) (120,498)
Proceeds from notes payable issued to individuals -- -- 145,000
Payments on notes payable issued to individuals -- (7,000) (7,000)
Proceeds from convertible notes payable -- -- 686,000
Proceeds from the sale of common stock 118,200 345,500 2,708,271
Payments for offering costs -- -- (81,867)
Proceeds from issuance of stock of AITI acquisition -- -- 512,200
Proceeds from issuance of stock of AGTI acquisition -- -- 100,000
Proceeds from exercise of warrants -- -- 28,350
---------- ---------- -----------
Net cash provided by financing activities 118,200 312,507 4,685,517
---------- ---------- -----------
Net change in cash (170,619) (70,256) 91,663
Cash, beginning of period 265,520 85,435 3,238
---------- ---------- -----------
Cash, end of period $ 94,901 $ 15,179 94,901
========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ -- $ -- --
========== ========== ===========
Interest $ -- $ -- 3,036
========== ========== ===========
8
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
October 28,
Three Months Ended 2003
------------------------ through
8/31/2009 8/31/2008 8/31/2009
---------- ---------- -----------
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 -- -- 662,000
========== ========== ===========
Common stock issued for debt 125,500 -- 245,582
========== ========== ===========
Common stock issued for accrued interest payable 20,956 -- 20,956
========== ========== ===========
Common stock issued on payment of accounts payable -- 49,000 49,000
========== ========== ===========
Options to purchase common stock issued for debt -- -- 62,341
========== ========== ===========
Original issue discount and intrinsic value of beneficial
conversion feature related to debt 38,604 -- 719,266
========== ========== ===========
Common stock issued for preferred stock 167,500 -- 167,000
========== ========== ===========
See accompanying notes to condensed consolidated financial statements
9
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
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 the
Company entered into an Acquisition Agreement with CytoDyn of New Mexico, Inc.,
pursuant to which the Company effected a one for two reverse split of our common
stock, and amended the Company's articles of incorporation to change the
Company's 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, the Company was 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. The Company also acquired the trademarks, CytoDyn and Cytolin, and a
related trademark symbol. The license acquired gives the Company 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 the Company 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 Financial
Standard Accounting Codification No. 915, Development Stage Entities.
Advanced Influenza Technologies, Inc. ("AITI") was incorporated under the laws
of Florida on June 9, 2006 pursuant to an acquisition during 2006.
Advanced Genetic Technologies, Inc. ("AGTI") was incorporated under the laws of
Florida on December 18, 2006 pursuant to an acquisition during 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.
10
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
2 - Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) and reflect all adjustments, consisting solely of normal
recurring adjustments, needed to fairly present the financial results for these
periods. The condensed consolidated financial statements and notes are presented
as permitted by Form 10-Q. Accordingly, certain information and note disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted.
The accompanying consolidated financial statements should be read in conjunction
with the financial statements for the years ended May 31, 2009 and 2008 and
notes thereto in the Company's annual report on Form 10-K for the year ended May
31, 2009, filed with the Securities and Exchange Commission on August 9, 2010.
Operating results for the three months ended August 31, 2009 and 2008 are not
necessarily indicative of the results that may be expected for the entire year.
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three month periods ended August 31, 2009 and 2008 and the
period October 28, 2003 through August 31, 2009, (b) the financial position at
August 31, 2009, and (c) cash flows for the three month periods ended August 31,
2009 and 2008 and the period October 28, 2003 through August 31, 2009, have been
made.
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 August 31, 2010 these
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
The consolidated financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
obtain additional operating capital, complete development of its 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.
11
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
Use of Estimates
The preparation of the consolidated financial statements in accordance 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 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 August 31, 2009 or May 31, 2009. 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, Equipment and Depreciation
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 any 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 the three months ended August 31, 2009 and 2008, and for
the period October 28, 2003 through August 31, 2009.
Research and Development
Research and development costs are expensed as incurred.
12
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
Financial Instruments
At August 31, 2009 and May 31, 2009, 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.
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. 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 the
straight-line basis over the requisite service period.
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 August 31, 2009 and
2008.
13
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
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 (ii) the date at which
the counterparty's performance is complete.
Earnings (Loss) per Common Share
Basic earnings (loss) per share is computed by dividing the net income or loss
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income (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 antidilutive. Because of the net loss for
the three month periods ended August 31, 2009 and 2008, the basic and diluted
weighted average shares outstanding are the same since including the additional
shares would have an antidilutive effect on the loss per share calculation.
Common stock option and warrants to purchase 5,094,176 and 3,432,222 shares of
common stock were not included in the computation of basic and diluted weighted
average common shares outstanding for the three months ended August 31, 2009 and
2008, respectively.
Reclassification
Certain prior period amounts have been reclassified to comply with current
period presentation.
3 - Recent Accounting Pronouncements:
Recent accounting pronouncements issued by the FASB (including its EITF), the
AICPA, and the SEC did not or are not believed by management to have a material
impact on the Company's present or future financial statements.
4 - Convertible Notes:
In July 2009, the Company amended certain promissory notes into convertible
notes that can be converted into shares of common stock. The notes had a fixed
conversion price of $.45 per share. During the three months ended August 31,
2009, $146,456 in notes and accrued interest converted into 325,458 shares of
common stock. At the commitment date, the conversion option associated with the
notes was deemed to have a beneficial conversion feature (BCF), and the Company
recorded a BCF of $38,604 as a debt discount and corresponding increase to
additional paid-in capital. For the three months ended August 31, 2009, the
Company recorded $38,604 in interest expense as the debt discount was fully
amortized upon the conversion of the notes into common stock.
In June, 2009, an investor converted 100,000 shares of Series A Preferred stock
into 2,356,142 shares of restricted common stock. At the commitment date, there
was no beneficial conversion feature associated with the convertible preferred
stock, and accordingly, no constructive dividend was recorded by the Company.
5 - Equity:
The Company has one stock-based equity plan at August 31, 2009. 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
August 31 2009 the company had 448,878 shares available for future stock option
grants under the plan.
14
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2009
(UNAUDITED)
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 three month periods ended August 31:
2009 2008
------ -----------------
Risk free rate -- 2.56% - 2.84%
Dividend Yield -- 0.00
Volatility -- 124.00% - 156.00%
Expected term -- 3.00 years
During the three months ended August 31, 2009 the Company granted 118,200
warrants with an exercise price of $1.00, immediate vesting, and expiration date
of five years from the date of grant. The warrants were issued in conjunction
with the issuance of common stock to certain investors pursuant to a private
placement, which entitled the investors to one common stock warrant for each
dollar of common stock purchased. Accordingly, these warrants were not valued in
the above Black-Scholes model.
Net cash proceeds from the exercise of stock options and warrants were $0 for
the three months ending August 31, 2009 and 2008, respectively. Compensation
expense related to stock options and warrants was approximately $78,000, and
$120,000 for the three months ended August 31, 2009 and, 2008, respectively.
The grant date fair value of options vested during the three month periods ended
August 31, 2009 and 2008 was approximately $74,000 and $121,000, respectively.
The weighted average grant date fair value of options and warrants granted
during the three month periods ended August 31, 2009 and 2008 was $-0- and $.30,
respectively. As of August 31, 2009 there was approximately $223,000 of
unrecognized compensation costs related to share-based payments for unvested
options, which is expected to be recognized over a weighted average period of
..73 years.
The following table represents stock option and warrant activity as of and for
the three months ended August 31, 2009:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Life Value
--------- -------- ----------- ---------
Options and warrants
outstanding - May 31, 2009 4,975,976 $1.30 6.52 $ 143,000
Granted 118,200 $1.00
Exercised --
Forfeited/expired/cancelled --
Options and warrants
outstanding - August, 31 2009 5,094,176 $1.18 5.10 $ 179,180
Outstanding exercisable
- August 31, 2009 4,864,922 $1.19 4.98 $ 179,180
15
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF August 31, 2009
(UNAUDITED)
6 - Commitments and Contingencies:
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 percent per annum. The Company paid $27,500 in January
2010. As of August 31, 2009, the Company has an accrual of $25,000 related to
this settlement Agreement.
7 - Related Party Transactions:
A director provided legal services to the Company over the past several years.
As of August 31, 2009, the Company owed the director $40,985 and it is included
in the accompanying consolidated financial statements as "indebtedness to
related parties" as of August 31, 2009. As of August 31, 2009 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. Since this has not been paid as of August 31, 2010, it is treated as
long-term in the accompanying financial statements.
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 director of the company during 2008. Accordingly, the notes
are classified as related party notes as of August 31, 2009 and have been
designated as long-term as the notes have been extended multiple times and have
no stated maturity date and has not been repaid as of August 31, 2010.
8 - Subsequent Events:
In September 2009, the Company entered into an agreement with Massachusetts
General Hospital (MGH) 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 $550,000 of which 50%, or $275,000, was paid to Massachusetts
General Hospital by March 2010. During 2009 the Company agreed to provide an
additional $204,000 to Massachusetts General Hospital for the current clinical
trial of Cytolin(R). Additionally, per the agreement with MGH, the Company is
obligated to pay an additional $137,000 by September 21, 2010. This amount is
included in the cost above. This will enable the Principal Investigator to hire
additional personnel in order to ensure that key data from the study will be
available by December 31, 2010.
In January 2010, the Company approved the grant of 2,177,238 stock options to
employees and consultants. The options have an exercise price of $1.95, expire
ten years from grant, and vest over three years. The grant is contingent upon
the shareholder approval of the increase in the authorized common shares from 25
to 100 million shares as discussed below.
In September 2009, the Company's Board of Directors approved a Private Placement
to sell up to 400,000 shares of the Company's Series B Convertible Preferred
Stock, no par value. This offering was only available to accredited investors as
defined under the 1933 Securities Act ("The Act"). The offering commenced on or
about September 23, 2009 and was completed on March 29, 2010. All 400,000 shares
were sold and the gross proceeds from the sale were $2,000,000. Each share of
Series B Convertible Preferred Stock will receive a 5% annual dividend and is
convertible into ten (10) shares of Common Stock. The conversion option is
contingent upon shareholder approval of the increase in the authorized common
shares from 25 to 100 million shares as discussed below.
16
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF August 31, 2009
(UNAUDITED)
In October 2009, the Company's Board of Directors approved a Private Placement
to sell up to 2,000,000 shares of the Company's common stock, no par value, at a
price of $.50 per share. The offering commenced on or about November 2009 and
was completed on March 29, 2010. All 2,000,000 shares were sold for proceeds
totaling $1,000,000.
In December 2009, and May 2010, the Company repurchased 1,200,000 and 200,000
shares of common stock at $.28 and $.50 per share, respectively.
In February 2010, the Company negotiated a contract with Vista Biologicals
Corporation to manufacture a humanized version of the Company's lead product,
Cytolin(R) at a cost of $229,500, which will be paid over twelve (12) months
beginning in March 2010.
In April 2010, the Board issued 200,000 warrants to purchase the Company's
common stock to Eware and Evolution Holdings, LLC with an exercise price of
$2.00 per share. The warrants expire September 12, 2010.
In April 2010, the Board authorized the conversion of promissory notes totaling
$9,000 into common stock at $.45 per share.
On April 24, 2010 the Company's shareholders approved an amendment to the
Company's Articles of Incorporation increasing the number of authorized shares
of common stock from 25,000,000 to 100,000,000 shares effective as of April 29,
2010. The shareholders also approved to increase the number of shares available
in the Company's Stock Option and Incentive plan from 2,000,000 to 5,000,000.
In January 2010, two of the Company's executives forgave approximately $230,000
in accrued salaries that are included as "Accrued salaries - related party" at
May 31, 2009.
On August 23, 2010 the Company renewed the office lease at 1511 Third Street in
Santa Fe, NM for one year and $1,650 per month.
On August 19, 2010 the Company's Board of Directors approved a Private Placement
Offering to sell the Company's no par value common stock to accredited investors
only at a price of $1.00 to raise up to $2,000,000.
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the related notes thereto
included in this Quarterly Report on Form 10-Q. The discussion and analysis
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (Exchange Act). These forward-looking statements are
based on our current expectations and entail various risks and uncertainties.
Our actual results could differ materially from those projected in the
forward-looking statements as a result of various factors including those set
forth in "Risk Factors" of the Company's May 31,2009 Form 10-K.
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.
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.
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
$565,000, all of which was paid by September 2008. The initial clinical trial to
be conducted by Massachusetts General Hospital will cost the Company
approximately $550,000 of which $275,000 was paid by March 18, 2010. Per our
agreement the Company owes another $137,500 to MGH by September 21, 2010. The
Company has the funds available to satisfy this payment due.
We negotiated a contract with manufacturer Vista Biologicals Corporation to
manufacture a humanized version of the company's lead product, Cytolin(R) at a
cost of $229,500, which will be paid over twelve (12) months beginning in March
2010. $47,500 was paid by May 2010. Although a murine (mouse) version of
Cytolin(R) was used for previous human experience that included some 200
patients successfully treated for up to two years, as well as an encouraging
Phase I(b)/II(a) study, the Company believes that a fully-humanized version is
necessary for the clinical trial that is expected to follow the current one.
The Company expects to have its proprietary, fully-humanized version of
Cytolin(R) ready for bulk manufacturing in 2010 in time for a possible follow-up
clinical trial.
Human subjects have been 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. The enrollment was closed as of July
23, 2010 therefore we expect the study to be completed by January 2011.
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 "Cytolin" as search terms (case
sensitive).
18
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.
=============================================================================
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 the 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.
19
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.
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, sell 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.
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 August 31, 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.
20
Results of Operations
---------------------
Results of Operations for the three months ended August 31, 2009 and 2008 are as
follows:
For the three months ended August 31, 2009 and 2008 the Company had no
activities that produced revenues from operations.
For the three months ended August 31, 2009, the Company had a net loss of
$(323,229) compared to a net loss of $(558,750) for the corresponding period in
2008. For the three months ended August 31, 2009 and 2008, the Company incurred
operating expenses of $(275,539) and $(552,440), respectively, consisting
primarily of, consulting expense, stock-based compensation, professional fees,
and salaries. The most significant change in operating expenses for the
respective periods related to the decrease in research and development expenses
of $259,000 related to the development of Cytolin (R). The decrease corresponds
to the timing of the various proceeds received from the Company's private
placements discussed below. However, the Company expects research and
development expenses to increase in the future, as the Company's subsequent
financings have allowed further development of Cytolin (R), as discussed in our
background above.
Liquidity and Capital Resources
As shown in the accompanying Financial Statements, for the three months ended
August 31, 2009 and 2008, and since October 28, 2003 through August 31, 2009 the
Company has had net losses of $(323,229) and $(558,750) and $(8,868,858),
respectively. As of August 31, 2009, 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.
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
inception through August 31, 2009 we raised cash of approximately $2,626,000
(net of offering costs) common stock financings and approximately $1,534,000
through the issuance notes payable.
Since October 28, 2003 through August 31, 2009, we have incurred $1,426,000 of
research and development costs and approximately $8,387,000 in operating
expenses.
We have incurred significant net losses and negative cash flows from operations
since our inception. As of August 31, 2009, we had an accumulated deficit of
approximately $(10,471,000) and a working capital deficit of approximately
$(286,000).
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.
In October 2009, the Company's Board of Directors approved a Private Placement
to Sell up to 2,000,000 shares of the Company's common stock, no par value, at a
price of $.50 per share. The offering commenced on or about November 2009 and
was completed on March 29, 2010. All 2,000,000 shares were sold for proceeds
totaling $1,000,000.
In September 2009, the Company raised $2,000,000 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 per share. The preferred
shares are convertible into common shares at $.50 per share or 10 shares of
common for every preferred share issued.
21
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4T. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d015(e) under the Exchange Act) as of the three
month period ending August 31, 2009 covered by this quarterly report on Form
10Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures were not effective as required under Rules
13a015(e) and 15d-15(e) under the Exchange Act. This conclusion by the Company's
Chief Executive Officer and Chief Financial Officer does not relate to reporting
periods after August 31, 2009.
Changes in Control Over Financial Reporting
No change in the Company's internal control over financial reporting occurred
during the quarter ended August 31, 2009, that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
22
Part II
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity and Use of Proceeds
In April 2008 our Board of Directors approved a Private Placement Memorandum to
sell 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").
During the three month period ended August 31, 2009, the Company sold 236,400
restricted common shares at $.50 per share. In addition, certain promissory note
holders converted $146,456 of debt and accrued interest into 325,458 shares of
restricted common stock. An investor converted preferred stock into 2,356,142
shares of restricted common stock.
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.
Item 3. Defaults Upon Senior Securities
None
Item 4. Reserved and removed
Item 5. Other Information
None
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
23
SIGNATURES
CYTODYN, INC.
Registrant)
DATE: August 31, 2010 BY: /s/ Allen D. Allen
----------------------- -----------------------------
Allen D. Allen
President and CEO
24