U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission File Number 000-49908
CYTODYN, INC.
(Exact name of registrant as specified in its charter)
Colorado 75-3056237
(State or other jurisdiction of (I.R.S. Employer or
incorporation or organization) Identification No.)
1511 Third Street Santa Fe, NM 87505
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 505-988-5520
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Title of class
Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] No
Indicate by checkmark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). [ ] Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Act). [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. $ 15,201,858
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of November 30, 2010 the
registrant had 20,942,296 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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CYTODYN, INC
FORM 10-K FOR THE YEAR ENDED MAY 31, 2010
TABLE OF CONTENTS
PART I
Item 1. Business......................................................... 2
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.............. 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities.............. 12
Item 6. Selected Financial Data.......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 14
Item 8. Financial Statements and Supplementary Data...................... 22
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure........................................... 43
Item 9A. Controls and Procedures.......................................... 43
Item 9B. Other Information................................................ 44
PART III
Item 10. Directors, Executive Officers and Corporate Governance........... 45
Item 11. Executive Compensation........................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management
And Related Stockholder Matters................................ 50
Item 13. Certain Relationships and Related Transactions and
Director Independence.......................................... 51
Item 14. Principal Accounting Fees and Services........................... 51
Item 15. Exhibits, Financial Statement Schedules.......................... 53
1
Item 1. Business
The Company
CytoDyn, Inc. is a Colorado corporation, with its principal business office at
1511 Third Street, Santa Fe, New Mexico, 87505; telephone: (505) 988-5520,
facsimile: (800) 417-7252, and website address: www.cytodyn.com. Originally
incorporated as Rexray Corporation on May 2, 2002, the Company was renamed
CytoDyn, Inc. when Rexray acquired, in October 2003, all of the intellectual
property of CytoDyn of New Mexico, Inc. in exchange for 5,362,640 shares of no
par value common stock. We discovered and are developing a class of therapeutic
monoclonal antibodies to address significant unmet medical needs in the area of
HIV/AIDS.
In October 2003 we entered into an Acquisition Agreement with CytoDyn of New
Mexico, Inc., pursuant to which we effected a one for two reverse split of our
common stock, and amended our articles of incorporation to change our name from
Rexray Corporation to CytoDyn, Inc. The acquisition was accounted for as a
reverse merger and recapitalization of the Company. Pursuant to the acquisition
agreement, we were assigned the patent license agreement dated July 1, 1994
between CytoDyn of New Mexico and Allen D. Allen covering three United States
patents along with foreign counterpart patents which describe a method for
treating HIV disease with the use of monoclonal antibodies. We also acquired the
trademarks, CytoDyn and Cytolin, and a related trademark symbol. The license
acquired gives us the worldwide, exclusive right to develop, market and sell the
HIV therapies from the patents, technology and know-how invented by Mr. Allen.
The term of the license agreement is for the life of the patents of which the
first will expire in 2013. The 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.
CytoDyn, Inc. is a biotechnology company (concept company) that develops
pharmaceutical products to be marketed by one or more pharmaceutical marketing
companies. Typically, the biotechnology company does not realize income from the
sale of product sold directly by the biotechnology company. Rather, the
biotechnology company develops a pharmaceutical product using funds provided by
investors until the development of the product has progressed to the point where
the biotechnology company can enter into a strategic alliance with a
pharmaceutical marketing company. While there is no guarantee as to if or when
CytoDyn will enter into such a strategic alliance, or what its terms might be,
the pharmaceutical marketing company typically acquires a significant stake in
the biotechnology company, thereafter providing the funds for completion of drug
development, obtaining a right of first-refusal to market the drug if approved,
along with an option to buy out the biotechnology company in stages, the last
stage usually being after the drug has been marketed for a number of years. A
maximum return on investment for those investing in the biotechnology company is
usually achieved when the strategic alliance is in place or has been for a
number of years, and before the product actually enters the marketplace.
2
Subsidiaries
Advanced Genetic Technologies, Inc.
On January 30, 2007, the Company acquired the subsidiary Advanced Genetic
Tehcnologies, Inc. which holds the exclusive right to develop an improved
version of Cytolin(R) using two antibodies invented at Harvard University
Medical School's CBR Institute for Biomedical Research pursuant to an
acquisition agreement. The Company has not used these two antibodies in our
research and development efforts to date but we intend on using these in future
research and development efforts.
In exchange for $100,000 and seven years of prepaid license fees, the Company
issued 100,000 preferred shares of unregistered stock to Utek Corp. in exchange
for 1,000 shares or 100% of Advanced Genetic Technologies, Inc. common stock. On
July 2009, the preferred shares were converted into 2,356,000 common shares of
the Company's stock.
Advanced Influenza Technologies, Inc.
In June 2006 the company acquired pursuant to an acquisition agreement the
subsidiary Advanced Influenza Technologies, Inc., ("AITI"). AITI was
incorporated under the laws of Florida on June 9, 2006. The Company issued
2,000,000 shares of unregistered securities for 1,000 shares or 100% of AITI
stock. The Company acquired a prepaid sponsored research project for $162,000, a
license agreement for $150,000, and acquired $109,399 in expenses associated
with the license agreement and cash of $512,200. This subsidiary was abandoned
as the Company terminated the license agreement acquired by AITI for a DNA
plasmid vaccine from the University of Massachusetts.
Business
Treatment for HIV/AIDS Cytolin(R)
CytoDyn, Inc. discovered and is developing a class of therapeutic monoclonal
antibodies to address significant unmet medical needs in the areas of HIV &
AIDS. Cytolin(R) has been observed to treat HIV/AIDS through immunologic
mechanisms that delay the ability of HIV infection to impair the immune system,
leading to the illness known as Acquired Immune Deficiency Syndrome or AIDS.
3
How it Was Discovered
Just over a decade ago, three scientists who were working independently of each
other discovered why HIV does not cause disease in the other mammals it can
infect. There are, of course, other viruses that are similar to HIV and that can
cause AIDS-like diseases in animals, such as simian immunodeficiency virus (SIV)
and feline immunodeficiency virus (FIV). However, the human immunodeficiency
virus (HIV) only causes disease in humans and not in the other mammals it can
infect, such as chimpanzees. In discovering why this is the case, researchers
also demonstrated why humans infected with HIV lose all of their CD4 T cells
even though only a minority of those cells become infected with HIV. This was
demonstrated by Joyce Zarling[1] at the Yerkes Primate Research Center, Leonard
Adelman[2] at the University of Southern California, and Allen D. Allen then at
Olive View-UCLA Medical Center. The seminal paper, published in the Journal of
Immunology in 1990, was by Zarling. She and her colleagues conducted a
cross-species study. It proved to a scientific certainty that the reason only
humans develop AIDS in response to HIV infection is that only humans respond to
the infection with a proliferation of cytotoxic T lymphocytes (CTL) that
indiscriminately kill human CD4 T cells, including healthy, uninfected CD4 T
cells.
The question that Zarling and Adelman did not answer is why this should be the
case. In terms of understanding the mechanisms involved in HIV disease, one
should ask what particular mechanism the anti-self, anti-CD4 CTL use to
indiscriminately destroy human CD4 T cells. Because of the huge volume of
HIV-literature that was focused on many diverse issues, the key was to know
where to look. As a consequence, Allen was able to ascertain the cytotoxic
mechanism because he had a model to start with.
Hepatitis, when associated with hepatitis B and C virus, has been known for
years to be a disease that is triggered by an infection and that results in the
destruction of the liver by CTL. The destruction of the liver occurs because its
surface becomes coated with intercellular adhesion molecules (ICAM). The
co-receptor to ICAM is LFA-1. What makes a CD8 T cell a cytotoxic cell rather
than a suppressor cell is the overproduction of LFA-1. When the CTL circulate
through the liver, the LFA-1 binds to the ICAM killing the hepatocytes or liver
cells. Interferon-alpha is the gold standard for treating serum hepatitis
because it down regulates the ICAM molecules on the liver so that the CTL do not
harm that organ. Not surprisingly, then, Bofill, et al have shown that increased
numbers of CTL predict the decline of CD4 T cells in HIV patients. By knowing
the mechanism of action, Allen[10] was able to identify a class of monoclonal
antibodies that could prevent the indiscriminate destruction of CD4 T cells by
CTL. Cytolin(R) is one such antibody and is our lead product.
Why Cytolin(R) is a Unique Treatment for Early HIV Infection
During the past decade, significant improvements in the antiviral "cocktails"
used to treat HIV/AIDS have transformed this once fatal disease into a chronic,
manageable condition. These drugs are the ingredients of Highly Active
Antiretroviral Therapy (HAART), which has saved countless lives and is well
tolerated by most patients, although all drugs have side effects.
4
The current standard of treatment recommends withholding antiviral drugs until
the disease has progressed to the point where the drugs are required to maintain
a patient's health, typically a period of about five years from initial
infection. A chief reason for withholding treatment during the early years of
HIV infection is that antiviral drugs attack the virus directly. As a result,
natural selection promotes the evolution of HIV into species that are resistant
to those drugs. If antiviral drugs were prescribed too early, then the virus
might become resistant to those drugs, rendering them ineffective, by the time
they were necessary to maintain a patient's health.
Cytolin(R) is a monoclonal antibody administered by intravenous infusion and
might expand the standard of treatment. In preliminary clinical trials, and in
compassionate use involving hundreds of patients treated for about two years,
Cytolin(R) produced encouraging results in delaying or reversing disease
progression while acquiring a good safety record.
Significantly, Cytolin(R) is not an antiviral drug although it has a
significant, albeit indirect, antiviral effect (log reduction in viral burden).
A first-in-class drug, Cytolin(R) is designed to prevent the wholesale
destruction of helpful CD4 T cells by a person's own killer T cells. The killer
T cells are made by the human body in response to HIV infection as part of the
natural defense against the virus. As first shown by Zarling, et al in 1990
(Journal of Immunology, vol. 144, page 2992), the ability of these killer T
cells to indiscriminately destroy CD4 T cells is a trait unique to humans,
explaining why HIV infection does not cause disease in the other species the
virus can infect. It has been known since the beginning of the AIDS pandemic
that a wholesale loss of CD4 T cells is the reason why individuals infected with
HIV become susceptible to the opportunistic infections and cancers that
characterize AIDS. Up until the 1990s when three independent studies identified
the killer T cells as the cause of the problem, the reason for the wholesale
loss of CD4 cells remained a mystery because the virus infects relatively few
CD4 T cells.
The fact that Cytolin(R) has no direct effect on the life-cycle of the virus
precludes the emergence of Cytolin(R)-resistant virus due to the long-term use
of Cytolin(R). This is in contrast to the antiviral drugs whose use promotes the
evolution of drug-resistant virus. Consequently, a potential indication for
Cytolin(R) would be to administer it early in the infection in order to delay
the natural progression of the disease and, therefore, the time when antiviral
drugs become necessary. If so, healthcare providers could treat individuals
infected with HIV more quickly, rather than spending years just watching and
waiting.
Monoclonal Antibodies
Genetically engineered monoclonal antibodies are man-made antibodies that target
specific antigens on a cell or compound. Advances in antibody production
technologies, such as high productivity cell culture has enabled manufacturers
to produce antibody products more cost-effectively. Many monoclonal antibodies
have been approved for marketing as therapeutics by the FDA, and a large number
of monoclonal antibodies are currently under investigation in clinical trials.
Other companies have monoclonal antibodies in clinical research to treat
HIV/AIDS however their approach is completely different from ours. Our
monoclonal antibody treats HIV disease by preventing killer T cells from
destroying the CD4 T cells in humans infected with HIV. It is the wholesale loss
of CD4 T cells in humans infected with HIV that results in a suppression of the
immune system, leading to the illness known as Acquired Immune Deficiency
Syndrome or AIDS.
5
Cytolin(R) Research Experience
Our President and CEO, Allen D. Allen, has been researching treatments for HIV
and AIDS since 1987. He received three U.S. patents and additional foreign
counterpart patents, now licensed to us, covering the use of these antibodies
for treating patients with HIV. Our leading drug candidate, Cytolin(R), is based
on a monoclonal antibody that protects CD4 cells from CD8 cells, thus preventing
the weakening of the immune system.
In 1993, a small group of scientists and doctors treated six HIV-infected
patients with Cytolin(R). Blood and skin tests of these patients demonstrated
that the antibody was producing improvements in the immune function of each
patient. In 1995, subacute and acute toxicology studies found Cytolin(R) safe to
administer to humans.
A relatively small number of physicians in the United States administered
Cytolin(R) to their HIV-infected patients over two years. As results from this
initial use became available, other physicians obtained and administered
Cytolin(R) to their patients as well. Four of the doctors using Cytolin(R)
allowed CytoDyn's predecessor to send in an independent Institutional Review
Board to inspect the medical records of 188 patients treated with Cytolin(R)
once or twice a month over 18 months. Data were recorded and summarized and
formed part of the material presented to the FDA as an early indication of the
safety and potential efficacy of Cytolin(R).
In 1996, the FDA approved a drug master file, designated BB-DMF#6836, for the
manufacture of Cytolin(R) at Vista Biologicals Corporation. CytoDyn of New
Mexico and Vista Biologicals Corporation worked cooperatively to develop the
drug master file. In accordance with the practice of the FDA, the drug master
file was issued to and became the property of the entity with the capacity to
manufacture the drug, in this case Vista Biologicals Corporation. By contract
with Vista Biologicals Corporation, CytoDyn of New Mexico had the exclusive
right to reference the drug master file, that is, to authorize Vista Biologicals
Corporation to manufacture Cytolin(R) in accordance with the terms of the drug
master file.
In 1996, the FDA also designated our investigational new drug application for
Cytolin(R) as BB-IND #6845, and subsequently approved a clinical trial.
In 2002, Symbion Research International, a contract research organization,
completed a Phase I a/b clinical trial of Cytolin(R). The trial was sponsored by
Amerimmune, Inc., the previous licensee of CytoDyn of New Mexico but Symbion was
never paid for its work. As a result, its work product became Symbion's. We
entered into a buy-sell agreement with Symbion to purchase the Phase Ia study
data in 2004. The Phase Ia study, conducted in 13 subjects suffering from
HIV/AIDS, found Cytolin(R) to be safe and well tolerated. The initial safety
study affirmed the safety and tolerability of the drug in these dose groups, as
well as preliminary efficacy in lowering the concentration of HIV by up to one
log (measurement of efficacy) and increasing T-cell counts in the study's
patient population with no severe adverse events reported. Some of the data were
presented as an abstract and poster session, entitled "Phase I Study of
Anti-LFA-1 Monoclonal Antibody (Cytolin(R) in Adults with HIV Infection" at the
9th Conference on Retroviruses and Opportunistic Infections held in Seattle,
Washington on February 24-28 2002 as well as the 16th International AIDS
Conference held August 2006 in Toronto, Canada.
6
The Company went through a period of years where legal issues delayed the
progress of this treatment. Also, at the time Cytolin(R) was discovered, the
medical community was just beginning to develop antivirals as the protocol for
treating HIV patients. Cytolin(R) is an immune based therapy that does not
directly attack the virus and thus is not an antiviral. Cytolin(R) is part of a
class of drugs called monoclonal antibodies or "targeted therapies". These
targeted therapies did not exist when the Company was first formed. Today there
are many that treat other serious diseases such as Cancer and Autoimmune
diseases. Our Company's approach to HIV disease was unique but not incorrect. No
other company is or has developed a targeted therapy that works like Cytolin(R)
for HIV disease.
Current Clinical Trials
CytoDyn has agreed to provide a research grant and GMP product to Massachusetts
General Hospital for the purpose of conducting an ex-vivo study of Cytolin(R).
The study has enrolled 10 adults with early HIV infection and 10 healthy
controls, each of whom will be required to participate for six months. The study
began in July 2010 therefore we expect the study to be completed by January
2011. The study design and objectives are available to view at
http://clinicaltrials.gov, search word, cytolin.
The Principal Investigator is Eric S. Rosenberg, MD, an Associate Professor of
Medicine in the Infectious Diseases Division of Massachusetts General Hospital
and a prominent researcher specializing in HIV/AIDS. More than the Principal
Investigator, Dr. Rosenberg designed the protocol for the study after an
extensive review of the relevant literature and human experience related to
Cytolin(R).
Risks of Academic Research
Massachusetts General Hospital is a nonprofit, tax-exempt facility with the
mission of improving the public health by engaging in research for the purpose
of discovering and making available to the public new and improved medical
treatments and information. As a consequence, Massachusetts General Hospital
does not conduct studies unless its researchers are free to publish the study
results as, how, and when they see fit, provided only that the trade secrets of
CytoDyn may not be disclosed.
When researchers have such unrestricted freedom to publish, it can pose a risk
to the company developing a drug. This is because the outcome of clinical
research is uncertain and the results may differ significantly from the
expectations of the company and the researchers. However, CytoDyn's management
believes this risk is minimal inasmuch as Cytolin(R) has already been used to
treat hundreds of patients over extended periods of time. Consequently, the
study is unlikely to produce unexpected or surprising results that would call
the safety and efficacy of Cytolin(R) into question. Nonetheless, the study may
fail to meet its objectives for any number of reasons. These include but are not
limited to the failure of in-vivo events to manifest in vitro, enrollment of
patients whose HIV infection is still too early, and the failure of a sufficient
number of human subjects to complete the study.
The Company's Approach to New Drug Development is Combining Elements From The
Public and Private Sectors
7
New Drug Development in The Public Sector
The federal government obtains tax dollars from individuals and corporations and
redistributes those dollars to public teaching hospitals for the purpose of
funding basic medical research. Faculty members at most public teaching
hospitals are expected to publish original research papers in the peer-review
journals. Since these published papers constitute a contribution to medical
knowledge, this knowledge provides society with an intangible benefit in return
for the tax dollars expended. A significant portion of the basic science that
underlies Cytolin(R), i.e., the "prior art," was funded by the National
Institute of Allergies and Infectious Diseases.
New Drug Development in The Private Sector
Individual and institutional investors voluntarily place their money at risk to
provide operating capital for use by the drug companies. These companies conduct
their own clinical trials. The new drugs that were successful generated such
large earnings that the drug companies have historically offered investors a
substantial return on investment.
The Company's Model of New Drug Development
The study CytoDyn is funding at Massachusetts General Hospital is
science-intensive, and is intended as a prelude to a follow-on clinical trial
that may or may not be conducted by the same institution.. Over and above
conducting the study, Massachusetts General Hospital, not CytoDyn, designed the
study and serves as its sponsor, all as part of its mission of "improving the
public health by engaging in research for the purpose of discovering and making
available to the public new and improved medical drugs and information," to
quote the recitals of the agreement between Massachusetts General Hospital and
CytoDyn, Inc.
In other words, CytoDyn is funding research of a type that is usually funded by
the government, except that the funds represent money voluntarily placed at risk
by investors rather than tax dollars. In particular, while CytoDyn will retain
its intellectual property rights and will have access to the study data, it will
not own the data, which will be owned by Massachusetts General Hospital. The
research provides Massachusetts General Hospital the opportunity to pursue its
mission of conducting basic and potentially seminal research using funds from a
non-governmental source that belongs to a deep-pocket segment of the economy and
is generally more flexible than the government. The advantage for the Company is
in avoiding the high costs arising from the FDA's regulation of clinical trials,
especially when the trials are sponsored by a drug company. The Company will
also benefit from a prestigious teaching hospital confirming the Company's
research.
The FDA licenses medicinal products for sale in interstate commerce under a
particular label only if they receive data supporting that label and only if
some company asks them to do so. CytoDyn may or may not be the company that
requests a license to market Cytolin(R) under a label. Under our current
thinking we hope to enter into a strategic alliance after the next two studies
under which a larger pharmaceutical marketing company will seek a license from
the FDA to market Cytolin(R) and under a license from us to use our intellectual
property in that manner. However there is no guarantee that we will wind up
pursuing this strategy.
Timing and anticipated completion dates for research and development.
---------------------------------------------------------------------
We estimate that the initial clinical trial to be conducted by Massachusetts
General Hospital will take one year to complete. The study enrollment began
January 13, 2010, hence the completion of the clinical trial is expected in
January 2011. The Company's intention is to either fund additional clinical
trials and/or enter into a strategic alliance.
8
Traditional Clinical Trials Process
Phase I
Phase I includes the initial introduction of an investigational new drug or
biologic into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in a small number of healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the investigational product in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence on
effectiveness. During Phase I, sufficient information about the investigational
product's pharmacokinetics and pharmacological effects are obtained to permit
the design of well-controlled, scientifically valid, Phase II studies.
Phase II
Phase II includes the early controlled clinical studies conducted to obtain some
preliminary data on the effectiveness of the drug for a particular indication or
indications in patients with the disease or condition. This phase of testing
also helps determine the common short-term side effects and risks associated
with the drug. Phase II studies are typically well-controlled, closely
monitored, and conducted in a relatively small number of patients, usually
involving several hundred people. In some cases, depending upon the need for a
new drug, it may be licensed for sale in interstate commerce after a "pivotal"
Phase II trial.
Phase III
Phase III studies are expanded controlled clinical studies. They are performed
after preliminary evidence suggesting effectiveness of the drug has been
obtained in Phase II, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit/risk relationship of the drug. Phase III studies also provide an
adequate basis for extrapolating the results to the general population and
transmitting that information in the physician labeling. Phase III studies
usually include several hundred to several thousand people.
CytoDyn may enter into a strategic alliance with a pharmaceutical marketing
company after completion of the current clinical trial or after completion of
the second clinical trial. There is no guarantee that a strategic alliance would
be achieved after either of those trials.
Competition
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. CytoDyn will compete with other
more established biotechnology companies with greater financial resources.
Our potential competitors include entities that develop and produce therapeutic
agents for treatment of human and animal disease. These include numerous public
and private academic and research organizations and pharmaceutical and
biotechnology companies pursuing production of, among other things, biologics
from cell cultures, genetically engineered drugs and natural and chemically
synthesized drugs. Almost all of these potential competitors have substantially
greater capital resources, research and development capabilities, manufacturing
and marketing resources and experience than CytoDyn. Our competitors may succeed
in developing potential drugs or processes that are more effective or less
9
costly than any that may be developed by CytoDyn, or that gain regulatory
approval prior to our potential drugs. Worldwide, there are many antiviral drugs
for treating HIV and AIDS. In seeking to manufacture, distribute and market the
various potential drugs we intend to develop, we face competition from
established pharmaceutical companies. All of our potential competitors in this
field have considerably greater financial and personnel resources than we
possess. CytoDyn also expects that the number of its competitors and potential
competitors will increase as more potential drugs receive commercial marketing
approvals from the FDA or analogous foreign regulatory agencies. Any of these
competitors may be more successful than CytoDyn in manufacturing, marketing and
distributing its potential drugs.
Manufacturing and Source for Raw Materials
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. $163,265 was paid by November 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 early 2011.
The initial clinical trial which is being conducted by Massachusetts General
Hospital will cost the Company approximately $550,000 of which $412,000 was paid
by November 2010. In May 2010, the Company agreed to provide an additional
$204,000 for the current clinical trial of Cytolin(R) which 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. Pursuant to our agreement with MGH, the balance of $137,000
will be due on January 21, 2011.
Patents and Trademarks
We have a License Agreement with Allen D. Allen, our President and CEO that
gives us the exclusive right to develop, market and profit from his technology
worldwide. This includes issued U.S. patents 5,424,066; 5,651,970 and 6,534,057,
foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian and Canadian patents have been obtained as
well. The original expiration dates of the U.S. patents are 2013 to 2016. There
is an automatic extension of the expiration date on U.S. patents equal to the
number of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. We estimate the costs
associated with these issued patents to be approximately $100,000 per year. The
Company intends to file a new patent application covering its humanized
version(s) of Cytolin(R) during the next fiscal year if our research and
development efforts warrant it.
CytoDyn(R) and Cytolin(R) are our registered trademarks. Our service trademark
mark symbol is:
[GRAPHIC OMITTED]
10
Government Regulation
Our research and development activities and the manufacture and marketing of our
products are subject to rigorous regulations relating to product safety and
efficacy by numerous governmental authorities in the United States and other
countries. The Federal Food, Drug and Cosmetic Act and other federal and state
statutes and regulations govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising
and promotion of our products in the U.S. The lengthy process of seeking drug
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Failure to comply
with applicable regulations can result in refusal by the FDA to approve product
license applications. The FDA also has the authority to revoke previously
granted product approvals.
We are subject to various laws and regulations relating to safe working
conditions, clinical, laboratory and manufacturing practices, the experimental
use of animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with our research. The extent of government regulation applying to
our business that might result from any legislative or administrative action
cannot be accurately predicted.
Research and Development Costs
Company sponsored research and development expenses were $328,775, $468,700,
And $1,748,703 in 2010, 2009 and for the period October 28, 2003 through May 31,
2010, respectively. We expect that research and development expenses will
increase as we seek to expand development of our current and future product
pipeline. They have decreased over the past two years.
Employees
We have four full time employees and a varying number of consultants engaged in
management and product development. CytoDyn is severely understaffed and will
expand its employee force if we complete further financings estimated to be $5
million to $15 million. There can be no assurance we will be able to locate or
secure suitable employees upon acceptable terms in the future.
Item 1A. Risk Factors
This item is not required for smaller reporting companies
Item 2. Properties
Our principal offices are located at 1511 Third Street, Santa Fe, New Mexico
87505. We have leased approximately 1,200 square feet of office space for one
year beginning September 1, 2010 until August 31, 2011 at $1,650 per month.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
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 shares to 100,000,000 shares. The effective date
of the amendment was April 29, 2010.
11
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Price Ranges of Common Stock
CytoDyn, Inc. trades on the OTC Pink Sheets under the ticker symbol CYDY.
Aggregate Number of Holders of Common Stock
The approximate number of record holders of our common stock on November 30,
2010 as 750. This includes shareholders that hold the shares in street name with
Broker/Dealers.
The table below provides the high and low sales prices of our common stock for
the periods indicated, as reported by the Pink Sheets quotations system:
Price Range of Outstanding Common Stock
---------------------------------------------------------------------
Year Ended May 31, 2010
---------------------------------------------------------------------
High Low
--------------------------------------------------- -------- --------
First Quarter Ended August 31, 2009 $ .70 $ .21
--------------------------------------------------- -------- --------
Second Quarter Ended November 30, 2009 1.97 .50
--------------------------------------------------- -------- --------
Third Quarter Ended February 28, 2010 2.06 1.55
--------------------------------------------------- -------- --------
Fourth Quarter Ended May 31, 2010 2.08 1.30
---------------------------------------------------------------------
---------------------------------------------------------------------
Year Ended May 31, 2009
---------------------------------------------------------------------
High Low
--------------------------------------------------- -------- --------
First Quarter Ended August 31, 2008 $1.00 $ .30
--------------------------------------------------- -------- --------
Second Quarter Ended November 30, 2008 $ .66 $ .35
--------------------------------------------------- -------- --------
Third Quarter Ended February 28, 2009 $ .49 $ .29
--------------------------------------------------- -------- --------
Fourth Quarter Ended May 31, 2009 $ .80 $ .25
---------------------------------------------------------------------
Dividends.
----------
Holders of our common stock and preferred stock are entitled to receive
dividends as may be declared from time to time by our Board of Directors. We
have not paid any cash dividends on our common stock and do not anticipate
paying any in the foreseeable future. Management's current policy is to retain
earnings, if any, for use in CytoDyn's operations and for expansion of the
business.
12
Securities Authorized for Issuance under Equity Compensation Plans.
Equity Compensation Plan Information
The following table sets forth information regarding outstanding options and
rights and shares reserved for future issuance under our existing equity
compensation plans as of May 31, 2010:
(a) (b) (c)
Number of securities Weighted-Average Number of securities
to be issued future exercise remaining available for
upon exercise of price of outstanding issuance under equity
outstanding options, options, warrants, compensation plans
Plan category warrants and rights and rights (excluding securities)
------------------- -------------------- -------------------- -----------------------
Equity compensation 4,201,122 3,398,878
plans approved by
security holders
Equity compensation 3,459,054
plans not approved
by security
holders(1)
Total(2) 7,660,176 $1.42 3,398,878
-----------
(1) As of May 31, 2010 we had: 19,875,895 shares of common stock issued and
outstanding; 3,398,878 shares currently reserved and available for future
option grants.
Recent Sales of Unregistered Securities
During the three months ended May 31, 2010, the Company issued 632,000 shares of
common stock at $.50 per share, and realized cash proceeds of approximately
$288,000, net of approximately $28,000 in offering costs. In connection with the
sales, the Company relied on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended and Rule 506 under the Act. The investors
were all "accredited investors" as such term is defined in Rule 501 of
Regulation D.
During the three months ended May 31, 2010 the Company issued 25,700 shares of
Series B Convertible Preferred Stock (Series B) at $5.00 per share for cash
proceeds totaling approximately $128,500. The Series B is convertible into ten
shares of the Company's common stock, with an effective fixed conversion price
of $.50 per share. In connection with the sales, the Company relied on the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended and
Rule 506 under the Act. The investors were all "accredited investors" as such
term is defined in Rule 501 of Regulation D.
13
Item 6. Selected Financial Data
This item is not required for Smaller Reporting Companies
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE
OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH
STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT
LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN,
POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET
PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE
FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY
STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere herein. This discussion and analysis contains
forward-looking statements including information about possible or assumed
results of our financial conditions, operations, plans, objectives and
performance that involve risk, uncertainties and assumptions. The actual results
may differ materially from those anticipated in such forward-looking statements.
The words expect, anticipate, estimate or similar expressions are also used to
indicate forward-looking statements.
Background of our Company
CytoDyn, Inc. discovered and is developing a class of therapeutic monoclonal
antibodies to address significant unmet medical needs in the area of HIV/AIDS.
CytoDyn, Inc. has sponsored a research grant to Massachusetts General Hospital
in Boston, Massachusetts, to design and sponsor clinical trials in addition to
conducting those trials on our lead product Cytolin(R), an immune therapy
intended to treat early HIV infection. Although CytoDyn, Inc. will retain all of
its intellectual property rights and will have access to the study data, the
data will be owned by Massachusetts General Hospital (MGH). A chief benefit for
CytoDyn, Inc. is that the Company will not have to deal directly with the FDA.
Moreover, the high costs and long delays associated with the FDA's oversight of
clinical trials may be significantly reduced in the case of clinical trials
designed and sponsored by a leading teaching hospital.
14
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 our current 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 $412,000 was paid by November 30, 2010. The
balance of $137,500 is due in January 2011.
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. $163,265 was paid by November 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 early 2011.
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).
Subsequently, CytoDyn, Inc. may fund a follow-up clinical trial 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 common shares to secure the capital needed
for the follow-up study. We cannot yet estimate the cost of a follow up study at
this time.
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 2011.
15
=============================================================================
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.
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.
16
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
intend to file for an additional patent during the next fiscal year covering our
humanized version of Cytolin(R) if our research and development efforts warrant
it.
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 December 3, 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.
17
Results of Operations
Results of operations for the year ended May 31, 2010 compared to May 31, 2009
are as follows:
For the years ended May 31, 2010 and 2009 the Company had no activities
that produced revenues from operations.
For the year ended May 31, 2010, the Company had a net loss of
approximately ($3,737,000) compared to a net loss of approximately
$(1,573,000) for the corresponding period in 2009. For the year ended May
31, 2010 and 2009, the Company incurred operating expenses consisting
primarily of stock-based compensation, consulting and salaries, research
and development, and amortization.
The operating expenses for the years ended May 31, 2010 and 2009 are as follows:
2010 2009
-------------- --------------
Stock-based compensation $ 1,740,000 $ 628,000
Legal and accounting 209,000 123,000
Salaries and consulting 962,000 437,000
Research and development 329,000 469,000
Amortization 4,000 9,000
Other 429,000 203,000
-------------- --------------
Total $ 3,673,000 $ 1,869,000
============== ==============
Stock-based compensation increased approximately $1,112,000 primarily due to a a
significant grant of options in the fourth quarter of fiscal year 2010. A
significant amount of the grants had immediate vesting rights, which resulted in
a significant increase in stock-based compensation in the fourth quarter of
2010. Legal and accounting expense increased approximately $86,000 as we
incurred increases in audit and accounting fees relative to an increase in our
registration filings, which was offset by a decrease in legal fees as our past
litigation was settled in fiscal year 2009. Salary and consulting expense
increased approximately $525,000 in 2010 relative to 2009, as our operations
increased with the our increases in cash proceeds from equity offerings, which
allowed us to hire our Chief Operating Officer. Additionally, some of our
employees converted from part time to full time during fiscal year 2010. The
research and development expenses decreased approximately $140,000 from fiscal
year 2010 to 2009. During 2009 we incurred significant expenditures related to
the manufacturing of products used in our clinical trials that are currently in
process. We expect research and development expenses to increase as our clinical
trials progress.
Interest expense in 2010 related to convertible debt increased relative to 2009
due to fully amortizing our beneficial conversion feature associated with the
conversion option related to this debt. There was no beneficial conversion
features associated with convertible debt during 2009. Interest expense related
to interest on notes payable decreased from fiscal year 2010 to 2009, as we paid
down certain notes during 2010.
During 2009, we recognized approximately $337,000 in other income related to the
extinguishment of certain debt. Given our current operating environment, we
determined that the extinguishment was not extraordinary, but is not included in
the operating income of the Company. The extinguishment was due to the statute
of limitations expiring on a contract that created the debt.
18
Liquidity and Capital Resources
On May 31, 2010 we had working capital of $346,000 as compared to a negative
working capital of approximately ($219,000) on May 31, 2009.
Cash Flows
Cash used in operating activities of approximately $2,146,000 during fiscal year
2010 increased approximately $859,000 from approximately $1,287,000 in 2009. The
increase in the cash used in operating activities for the above periods was
primarily attributable to the following:
o Net loss increased approximately $2,164,000, with an increase in
accounts payable, accrued interest payable, and accrued liabilities
decreasing approximately $99,000.
The above increases were partially offset by the following:
o Stock-based compensation increased approximately $1,112,000 from 2009
to 2010.
o Debt extinguishment gain of approximately $337,000 in 2009.
There were no other significant changes in cash used in operating activities
from 2009 to 2010.
There were no material changes in cash flows from investing activities from 2009
to 2010.
Cash flows provided by financing activities of approximately $2,585,000 during
fiscal year 2010 increased approximately $1,116,000 from approximately
$1,469,000 during 2009. The increase in cash provided by financing activities
for the above periods was primarily attributable to the following:
o Cash proceeds from the sale of Series B convertible stock increased
approximately $2,009,000
o Proceeds from the sale of treasury stock increased approximately
$559,000.
The above increases were partially offset by the following:
o Proceeds from the sale of common stock decreased approximately
$923,000 from 2009 to 2010.
o Purchases of treasury stock increased approximately $436,000 from 2009
to 2010.
o Payments related to equity offering costs increased approximately
$72,000 from 2009 to 2010.
There were no other significant changes in cash provided by financing activities
from 2009 to 2010.
19
As shown in the accompanying Financial Statements, for the year ended May 31,
2010 and 2009, and since October 28, 2003 through May 31, 2010 we incurred net
losses of approximately $(3,737,000) and $(1,573,000) and $(12,283,000),
respectively. As of May 31, 2010, we have not emerged from the development
stage. In view of these matters, our ability to continue as a going concern is
dependent upon our ability to begin operations and to achieve a level of
profitability. Since inception, we have financed our activities principally from
the sale of public equity securities and proceeds from notes payable. We intend
to finance our future development activities and our 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
October 28, 2003 through May 31, 2010 we raised cash of approximately $5,594,000
(net of offering costs) through private placements of common and preferred stock
financings and $1,537,000 through the issuance related party notes payable and
convertible notes. Additionally, the Company has raised approximately $612,000
from the issuance of common stock and preferred stock in conjunction with
certain acquisitions in prior years.
Since October 28, 2003 through May 31, 2010, we have incurred approximately
$1,749,000 of research and development costs and approximately $11,785,000 in
operating expenses. We have incurred significant net losses and negative cash
flows from operations since our inception. As of May 31, 2010, we had an
accumulated deficit of approximately $13,884,000 and working capital of
approximately $346,000.
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. We currently do not have any significant material
commitments related to capital expenditures. As described above, we do have
material commitments related to clinical trials of our product.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
20
We believe that the following critical policies affect our more significant
judgments and estimates used in preparation of our financial statements.
We use the Black-Scholes option pricing model to estimate the fair value of
stock-based awards on the date of grant utilizing certain assumptions that
require judgments and estimates. These assumptions include estimates for
volatility, expected term, and risk-free interest rates in determining the fair
value of the stock-based awards.
We issue common stock to consultants for various services. Costs for these
transactions are measured at the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more readily
measurable. This determination requires judgment in terms of the consideration
being measured.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable for smaller reporting companies
21
Item 8. Financial Statements and Supplementary Data
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 23
CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2010 AND MAY 31, 2009 24
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED
MAY 31, 2010 AND 2009, AND FOR THE PERIOD FROM
OCTOBER 28, 2003 TO MAY 31, 2010 25
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE PERIOD FROM OCTOBER 28, 2003 TO MAY 31, 2010 26
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
MAY 31, 2010 AND 2009 AND FOR THE PERIOD FROM
OCTOBER 28, 2003 TO MAY 31, 2010 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 34
22
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CytoDyn, Inc. (A Development Stage Company)
Santa Fe, New Mexico
We have audited the accompanying consolidated balance sheets of CytoDyn, Inc. (a
development stage company) as of May 31, 2010 and 2009 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended and the period from October 28, 2003 through May
31, 2010. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required at this time, to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CytoDyn, Inc. as of
May 31, 2010 and 2009 and the results of its operations and its cash flows for
the years then ended and the period from October 28, 2003 through May 31, 2010
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company incurred a net loss of
$(3,736,944) for the year ended May 31, 2010 and has an accumulated deficit of
$(13,884,485) for the period October 28, 2003 through May 31, 2010,
respectively, which raises a substantial doubt about its ability to continue as
a going concern. Management's plans in regards to this matter are described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Pender Newkirk & Company LLP
-----------------------------------
Pender Newkirk & Company LLP
Certified Public Accountants
Tampa, Florida
December 3, 2010
23
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
May 31,
----------------------------
2010 2009
------------ ------------
Assets
Current assets:
Cash $ 700,497 $ 265,520
Prepaid insurance 12,127 --
Prepaid license fees 7,500 7,500
------------ ------------
Total current assets 720,124 273,020
Furniture and equipment, net 3,549 1,963
Intangible assets, net -- 161
Other assets 23,975 29,600
------------ ------------
$ 747,648 $ 304,744
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 178,956 $ 269,870
Accrued liabilities 15,209 49,424
Short-term portion of commitment
and contingencies -- 25,000
Indebtedness to related parties
Short-term portion 153,985 --
Accrued interest payable 25,575 80,329
Short-term portion of notes payable -- 67,500
------------ ------------
Total current liabilities 373,725 492,123
------------ ------------
Other liabilities:
Accrued salaries - related party 229,500 229,500
Notes payable, less current portion -- 70,500
Convertible notes payable, net 6,937 21,937
Indebtedness to related parties -- 190,985
------------ ------------
Total liabilities 610,162 1,005,045
------------ ------------
Shareholders' equity (deficit):
Series A Convertible Preferred stock;
no par value;5,000,000 shares authorized;
-0- and 100,000 shares issued and outstanding
at May 31, 2010 and 2009, respectively -- 167,500
Series B Convertible preferred stock;
No par value; 400,000 shares authorized;
400,000 and -0- shares issued and outstanding
at May 31, 2010 and 2009, respectively 2,009,000 --
Treasury stock at cost, 200,000 and -0- shares
held at May 31, 2010 and 2009, respectively (100,000) --
Additional paid-in capital-treasury stock 313,080 --
Common stock; no par value; 100,000,000 shares
authorized; 20,075,895 and 16,221,315 shares
issued and outstanding at May 31, 2010
and 2009, respectively 7,145,304 6,285,587
Additional paid-in capital 4,703,875 2,994,153
Prepaid stock services (49,288) --
Accumulated deficit on unrelated
dormant operations (1,601,912) (1,601,912)
Deficit accumulated during development stage (12,282,573) (8,545,629)
------------ ------------
Total shareholders' equity (deficit) 137,486 (700,301)
------------ ------------
$ 747,648 $ 304,744
============ ============
See accompanying notes to consolidated financial statements.
24
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
October 28,
Year Ended May 31, 2003
---------------------------- through
2010 2009 May 31, 2010
------------ ------------ ------------
Operating expenses:
General and administrative $ 3,300,815 $ 1,291,773 $ 9,125,633
Amortization / depreciation 2,077 9,392 177,969
Research and development 328,775 468,700 1,748,703
Legal fees 41,795 99,385 732,569
------------ ------------ ------------
Total operating expenses 3,673,462 1,869,250 11,784,874
------------ ------------ ------------
Operating loss (3,673,462) (1,869,250) (11,784,874)
Interest income -- -- 1,627
Extinguishment of debt -- 337,342 337,342
Interest expense:
Interest on convertible debt (38,604) -- (734,863)
Interest on notes payable (24,878) (40,896) (101,805)
------------ ------------ ------------
Loss before income taxes (3,736,944) (1,572,804) (12,282,573)
Income tax provision -- -- --
------------ ------------ ------------
Net loss $ (3,736,944) $ (1,572,804) $(12,282,573)
============ ============ ============
Constructive preferred
stock dividends (6,000,000) -- (6,000,000)
------------ ------------ ------------
Net loss applicable to
common shareholders $ (9,736,944) $ (1,572,804) $(18,282,573)
============ ============ ============
Basic and diluted loss per share $ (.51) $ (0.11) $ (1.57)
============ ============ ============
Basic and diluted weighted average
common shares outstanding 18,999,234 14,210,631 11,579,304
============ ============ ============
See accompanying notes to consolidated financial statements.
25
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 28, 2003,
following recapitalization -- -- 6,252,640 $ 1,425,334 -- --
February through April 2004,
sale of common stock less
offering costs of $54,000
($.30/share) -- -- 1,800,000 486,000 -- --
February 2004, shares issued
to former officer as payment
for working capital advance
($.30/share) -- -- 16,667 5,000 -- --
Net loss at year ended
May 31, 2004 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2004 -- -- 8,069,307 1,916,334 -- --
July 2004, capital
contribution by an officer -- -- -- -- -- --
November 2004, common
stock warrants granted -- -- -- -- -- --
February 2005, capital
contribution by an officer -- -- -- -- -- --
Net loss at year ended
May 31, 2005 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2005 -- -- 8,069,307 1,916,334 -- --
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC Services Capital Deficit Stage Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 28, 2003,
following recapitalization -- -- $ 23,502 $ (1,594,042) -- $ (145,206)
February through April 2004,
sale of common stock less
offering costs of $54,000
($.30/share) -- -- -- -- -- 486,000
February 2004, shares issued
to former officer as payment
for working capital advance
($.30/share) -- -- -- -- -- 5,000
Net loss at year ended
May 31, 2004 -- -- -- (7,870) (338,044) (345,914)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2004 -- -- 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 -- -- 40,942 (1,601,912) (1,115,127) (759,763)
See accompanying notes to consolidated financial statements.
26
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
June through July 2005, sale
of common stock less
offering costs of $27,867
($.75/share) -- -- 289,890 189,550 -- --
August 2005, common shares
issued to extinguish
promissory notes payable and
related interest ($.75/share) -- -- 160,110 120,082 -- --
May 2006, common shares issued
to extinguish convertible debt -- -- 350,000 437,500 -- --
November 2005, 94,500 warrants
exercised ($.30/share) -- -- 94,500 28,350 -- --
January through April 2006,
common shares issued for
prepaid services -- -- 183,857 370,750 -- --
Amortization of prepaid
stock services -- -- -- -- -- --
January through June 2006,
warrants issued
with convertible debt -- -- -- -- -- --
January through May 2006,
beneficial conversion feature
of convertible debt -- -- -- -- -- --
March through May 2006, stock
options granted to consultants -- -- -- -- -- --
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC Services Capital Deficit Stage Total
------------ ------------ ------------ ------------ ------------ ------------
June through July 2005, sale
of common stock less
offering costs of $27,867
($.75/share) -- -- -- -- -- 189,550
August 2005, common shares
issued to extinguish
promissory notes payable and
related interest ($.75/share) -- -- -- -- -- 120,082
May 2006, common shares issued
to extinguish convertible debt -- -- -- -- -- 437,500
November 2005, 94,500 warrants
exercised ($.30/share) -- -- -- -- -- 28,350
January through April 2006,
common shares issued for
prepaid services -- (370,750) -- -- -- --
Amortization of prepaid
stock services -- 103,690 -- -- -- 103,690
January through June 2006,
warrants issued
with convertible debt -- -- 274,950 -- -- 274,950
January through May 2006,
beneficial conversion feature
of convertible debt -- -- 234,550 -- -- 234,550
March through May 2006, stock
options granted to consultants -- -- 687,726 -- -- 687,726
See accompanying notes to consolidated financial statements.
27
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
March 2006, stock options
issued to extinguish debt -- -- -- -- -- --
Net loss at year ended
May 31, 2006 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2006 -- -- 9,147,664 3,062,566 -- --
Common stock issued to
extinguish convertible debt -- -- 119,600 149,500 -- --
Common stock issued for
AITI acquisition -- -- 2,000,000 934,399 -- --
Amortization of
prepaid stock services -- -- -- -- -- --
Common stock payable for
prepaid services -- -- -- -- -- --
Stock-based compensation -- -- -- -- -- --
Warrants issued with
convertible debt -- -- -- -- -- --
Common stock issued for
services -- -- 30,000 26,400 -- --
Preferred shares issued AGTI 100,000 167,500 -- -- -- --
Net loss, May 31, 2007 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2007 100,000 167,500 11,297,264 4,172,865 -- --
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC 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 -- (267,060) 1,324,509 (1,601,912) (3,169,071) (650,968)
Common stock issued to
extinguish convertible debt -- -- -- -- -- 149,500
Common stock issued for
AITI acquisition -- -- -- -- -- 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 -- -- -- -- -- 26,400
Preferred shares issued AGTI -- -- -- -- -- 167,500
Net loss, May 31, 2007 -- -- -- -- (2,610,070) (2,610,070)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2007 -- (106,521) 2,072,993 (1,601,912) (5,779,141) (1,074,216)
See accompanying notes to consolidated financial statements.
28
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Amortization of prepaid
stock for services -- -- -- -- -- --
Stock based compensation -- -- -- -- -- --
Common stock issued to
extinguish convertible debt -- -- 750,000 75,000 -- --
Rescission of common
stock issued for services -- -- (142,857) (100,000) -- --
Original issue discount
convertible debt with
warrants -- -- -- -- -- --
Original issue discount
convertible debt with
beneficial conversion feature -- -- -- -- -- --
Stock issued for cash
($.50/share) -- -- 642,000 321,000 -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2008 100,000 $ 167,500 12,546,407 $ 4,468,865 -- --
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC 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 -- -- -- -- -- 75,000
Rescission of common
stock issued for services -- -- -- -- -- (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) -- -- -- -- -- 321,000
Net loss -- -- -- -- (1,193,684) (1,193,684)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2008 -- -- $ 2,613,257 $ (1,601,912) $ (6,972,825) $ (1,325,115)
See accompanying notes to consolidated financial statements.
29
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Stock issued for cash ($.50/share) -- -- 3,023,308 $ 1,511,654 -- --
Stock issued for services
($.50/share) -- -- 388,200 194,100 -- --
Stock issued for services
($.37/share) -- -- 150,000 55,500 -- --
Stock based compensation -- -- -- -- -- --
Stock issued in payment of
accounts payable, ($.50/share) -- -- 98,000 49,000 -- --
Stock issued for services
($.42/share) -- -- 15,400 6,468 -- --
Capital contribution -- -- -- -- -- --
Net loss ended May 31, 2009 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2009 100,000 $ 167,500 16,221,315 $ 6,285,587 -- --
Stock issued for cash ($.50/share) -- -- 236,400 118,200 -- --
Stock issued for cash ($.50/share)
less offering costs of $28,000 -- -- 632,000 290,500 -- --
Stock issued for cash ($.50/share)
less offering costs of $15,229 -- -- 304,580 137,061 -- --
Conversion of debt to
Common stock ($.45/share) -- -- 325,458 146,456 -- --
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC Services Capital Deficit Stage Total
------------ ------------ ------------ ------------ ------------ ------------
Stock issued for cash ($.50/share) -- -- -- -- -- $ 1,511,654
Stock issued for services
($.50/share) -- -- -- -- -- 194,100
Stock issued for services
($.37/share) -- -- -- -- -- 55,500
Stock based compensation -- -- 371,996 -- -- 371,996
Stock issued in payment of
accounts payable, ($.50/share) -- -- -- -- -- 49,000
Stock issued for services
($.42/share) -- -- -- -- -- 6,468
Capital contribution -- -- 8,900 -- -- 8,900
Net loss ended May 31, 2009 -- -- -- -- (1,572,804) (1,572,804)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2009 -- -- $ 2,994,153 $ (1,601,912) $ (8,545,629) $ (700,301)
Stock issued for cash ($.50/share) -- -- -- -- -- 118,200
Stock issued for cash ($.50/share)
less offering costs of $28,000 -- -- -- -- -- 290,500
Stock issued for cash ($.50/share)
less offering costs of $15,229 -- -- -- -- -- 137,061
Conversion of debt to
Common stock ($.45/share) -- -- -- -- -- 146,456
See accompanying notes to consolidated financial statements.
30
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity
Period October 28, 2003 through May 31, 2010
Preferred Stock Common Stock Treasury Stock
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Conversion of preferred
Stock to common stock (100,000) (167,500) 2,356,142 167,500 -- --
Stock-based compensation -- -- -- -- -- --
Original issue discount
Convertible debt with
Beneficial conversion Feature -- -- -- -- -- --
Repurchase of common stock
($.28/share) -- -- -- -- (1,200,000) (336,000)
Repurchase of common stock
($.50/share) -- -- -- -- (200,000) (100,000)
Stock issued for cash ($.50/share) -- -- -- -- 550,000 154,000
Stock issued for services
($1.45/share) -- -- -- -- 81,580 22,842
Stock issued for cash ($.50/share)
less offering costs of $28,421 -- -- -- -- 568,420 159,158
Amortization of prepaid
Stock for services -- -- -- -- -- --
Series B Convertible Preferred
stock issued for cash ($5.00/share) 400,000 2,009,000 -- -- -- --
Net Loss, ended May 31, 2010 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2010 400,000 $ 2,009,000 20,075,895 $ 7,145,304 (200,000) $ (100,000)
============ ============ ============ ============ ============ ============
Deficit
Accumulated
Treasury Stock for Additional During
Stock Prepaid Paid-in Accumulated Development
APIC Services Capital Deficit Stage Total
------------ ------------ ------------ ------------ ------------ ------------
Conversion of preferred
Stock to common stock -- -- -- -- -- --
Stock-based compensation -- -- 1,671,118 -- -- 1,671,118
Original issue discount
Convertible debt with
Beneficial conversion Feature -- -- 38,604 -- -- 38,604
Repurchase of common stock
($.28/share) -- -- -- -- -- (336,000)
Repurchase of common stock
($.50/share) -- -- -- -- -- (100,000)
Stock issued for cash ($.50/share) 123,000 -- -- -- -- 277,000
Stock issued for services
($1.45/share) 95,449 (118,291) -- -- -- --
Stock issued for cash ($.50/share)
less offering costs of $28,421 94,631 -- -- -- -- 253,789
Amortization of prepaid
Stock for services -- 69,003 -- -- -- 69,003
Series B Convertible Preferred
stock issued for cash ($5.00/share) -- -- -- -- -- 2,009,000
Net Loss, ended May 31, 2010 -- -- -- -- (3,736,944) (3,736,944)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31,2010 $ 313,080 $ (49,288) $ 4,703,875 $ (1,601,912) $(12,282,573) $ 137,486
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
31
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
October 28,
Year Ended May 31, 2003
---------------------------- through
2010 2009 May 31, 2010
------------ ------------ ------------
Cash flows from operating activities
Net loss $ (3,736,944) $ (1,572,804) $(12,282,573)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization / depreciation 2,077 9,392 177,969
Amortization of original issue discount 38,604 1,010 717,202
Extinguishment of debt -- (337,342) (337,342)
Purchased in-process research and
development -- -- 274,399
Stock-based compensation 1,740,121 628,064 4,534,021
Changes in current assets and liabilities:
Accrued legal settlement (25,000) -- --
Increase in prepaid expenses (12,127) 36,482 (19,627)
Decrease in other assets 5,786 7,640 (23,975)
Decrease in accounts payable, accrued
interest and accrued liabilities (158,927) (59,447) 519,196
------------ ------------ ------------
Net cash used in operating activities (2,146,410) (1,287,005) (6,440,730)
------------ ------------ ------------
Cash flows from investing activities:
Furniture and equipment purchases (3,663) (1,951) (16,378)
------------ ------------ ------------
(3,663) (1,951) (16,378)
------------ ------------ ------------
Cash flows from financing activities:
Capital contributions by executive -- 8,900 14,412
Proceeds from notes payable to related parties 3,000 -- 705,649
Payments on notes payable to related parties (40,000) (44,513) (160,498)
Proceeds from notes payable issued to individuals -- -- 145,000
Payments on notes payable issued to individuals (27,500) (7,000) (34,500)
Proceeds from convertible notes payable -- -- 686,000
Proceeds from the sale of common stock 588,990 1,511,654 3,179,061
Proceeds from Series B preferred stock 2,009,000 -- 2,009,000
Purchase of treasury stock (436,000) -- (436,000)
Proceeds from sale of treasury stock 559,210 -- 559,210
Payments for offering costs (71,650) -- (153,517)
Proceeds from issuance of stock for AITI acquisition -- -- 512,200
Proceeds from issuance of stock for AGTI acquisition -- -- 100,000
Proceeds from exercise of warrants -- -- 28,350
------------ ------------ ------------
Net cash provided by financing activities 2,585,050 1,469,041 7,154,367
------------ ------------ ------------
Net change in cash 434,977 180,085 697,259
Cash, beginning of period 265,520 85,435 3,238
------------ ------------ ------------
Cash, end of period $ 700,497 $ 265,520 $ 700,497
============ ============ ============
See accompanying notes to consolidated financial statements
32
CytoDyn, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
October 28,
Year Ended May 31, 2003
---------------------------- through
2010 2009 May 31, 2010
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ -- $ -- $ --
============ ============ ============
Interest $ -- $ -- $ 3,036
============ ============ ============
Non-cash investing and financing transactions:
Net assets acquired in exchange for common stock
in CytoDyn/Rexray business combination $ -- $ -- $ 7,542
============ ============ ============
Common stock issued to former officer to repay
working capital advance $ -- $ -- $ 5,000
============ ============ ============
Common stock issued for convertible debt $ -- $ -- $ 662,000
============ ============ ============
Common stock issued for debt $ 125,500 $ -- $ 245,582
============ ============ ============
Common stock issued for accrued interest payable $ 20,956 -- $ 20,956
============ ============ ============
Options to purchase common stock issued for debt $ -- $ -- $ 62,341
============ ============ ============
Original issue discount and intrinsic value of
beneficial conversion feature related to debt
issued with warrants $ 38,604 $ -- $ 719,266
============ ============ ============
Common stock issued for preferred stock $ 167,500 $ -- $ 167,500
============ ============ ============
Treasury stock issued for prepaid services $ 118,291 $ -- $ 118,291
============ ============ ============
Common stock issued on payment of accounts payable $ -- $ 49,000 $ 49,000
============ ============ ============
See accompanying notes to consolidated financial statements.
33
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Organization
CytoDyn, Inc. (the "Company") was incorporated under the laws of Colorado on May
2, 2002 under the name Rexray Corporation ("Rexray"). In October 2003 we entered
into an Acquisition Agreement with CytoDyn of New Mexico, Inc., pursuant to
which we effected a one for two reverse split of our common stock, and amended
our articles of incorporation to change our name from Rexray Corporation to
CytoDyn, Inc. The acquisition was a accounted for as a reverse merger and
recapitalization of the Company. Pursuant to the acquisition agreement, we were
assigned the patent license agreement dated July 1, 1994 between CytoDyn of New
Mexico and Allen D. Allen covering three United States patents along with
foreign counterpart patents which describe a method for treating HIV disease
with the use of monoclonal antibodies. We also acquired the trademarks, CytoDyn
and Cytolin, and a related trademark symbol. The license acquired gives us the
worldwide, exclusive right to develop, market and sell the HIV therapies from
the patents, technology and know-how invented by Mr. Allen. The term of the
license agreement is for the life of the patents. The original expiration dates
on the issued patents are 2013 to 2016. There is an automatic extension of the
expiration date on U.S. patents equal to the number of years the drug under the
patent is being studied in clinical trials. Typically this provides another four
to five years on the earliest claims. CytoDyn's counsel expects its patents to
be extended until 2017 to 2020 depending upon the original date of the issued
patents. As consideration for the intellectual property and trademarks we paid
CytoDyn of New Mexico $10,000 in cash and issued 5,362,640 post-split shares of
common stock to CytoDyn of New Mexico.
The Company entered the development stage effective October 28, 2003 upon the
reverse merger and recapitalization of the Company and follows 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.
2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial 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 December 3, 2010 these
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
34
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
obtain additional operating capital, complete development of its medical
treatment, obtain FDA approval, outsource manufacturing of the treatment, and
ultimately to attain profitability. The Company intends to seek additional
funding through equity offerings and licensing agreements to fund its business
plan. There is no assurance that the Company will be successful in these
endeavors.
Use of Estimates
The preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when acquired to be cash equivalents. The
Company had no cash equivalents as of May 31, 2010 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 and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
generally three to seven years. Maintenance and repairs are charged to expense
as incurred and major improvements or betterments are capitalized. Gains or
losses on sales or retirements are included in the consolidated statements of
operations in the year of disposition.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets under U.S. GAAP,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted future
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. If such assets are impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying value or fair value, less costs to sell. There were no impairment
charges for years ended May 31, 2010 and 2009, and for the period October 28,
2003 to May 31, 2010.
Research and Development
Research and development costs are expensed as incurred.
35
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
At May 31, 2010 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. Prior to June 1, 2006, the Company recognized compensation expense to
the extent of employee or director services rendered based on the intrinsic
value of stock options granted under the plan.
The Company accounts for common stock options, and common stock warrants granted
based on the fair market value of the instrument using the Black-Scholes option
pricing model utilizing certain weighted average assumptions such as expected
stock price volatility, term of the options and warrants, risk-free interest
rates, and expected dividend yield at the grant date. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the
expected term of the stock options. The expected volatility is based on the
historical volatility of the Company's common stock at consistent intervals. The
Company has not paid any dividends on its common stock since its inception and
does not anticipate paying dividends on its common stock in the foreseeable
future. The computation of the expected option term is based on the "simplified
method" as the Company's stock options are "plain vanilla" options and the
Company has a limited history of exercise data. For common stock options and
warrants with graded vesting, the Company recognizes the related compensation
costs associated with these options and warrants on a straight-line basis over
the requisite service period.
36
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. GAAP requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates. Based on limited historical experience of forfeitures, the Company
estimated future unvested option forfeitures at 0% as of May 31, 2010 and May
31, 2009.
Stock for Services
The Company issues common stock and common stock options to consultants for
various services. Costs for these transactions are measured at the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The value of the common stock is measured
at the earlier of (i) the date at which a firm commitment for performance by the
counterparty to earn the equity instruments is reached or (i) the date at which
the counterparty's performance is complete.
(Loss) Per Common Share
Basic (loss) per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period. Diluted (loss)
per share is computed by dividing net (loss) by the weighted average common
shares and potentially dilutive common share equivalents. The effects of
potential common stock equivalents are not included in computations when their
effect is anti-dilutive. Because of the net losses for all periods presented,
the basic and diluted weighted average shares outstanding are the same since
including the additional shares would have an anti-dilutive effect on the loss
per share calculation. Common stock option and warrants to purchase 7,660,176,
4,975,976 and 7,660,176 shares of common stock were not included in the
computation of diluted weighted average common shares outstanding for the
periods ended May 31, 2010, 2009 and for the period October 28, 2003 to May 31,
2010 respectively, as inclusion would be anti-dilutive for these periods.
Additionally, 400,000 shares of Series B convertible stock can potentially
convert into 4,000,000 shares of common stock.
Income Taxes
Deferred taxes are provided on the asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Future tax benefits for net operating loss carryforwards are recognized to the
extent that realization of these benefits is considered more likely than not.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
The Company follows the provisions of FASB ASC 740-10 "Uncertainty in Income
Taxes" (ASC 740-10), January 1, 2007. The Company has not recognized a liability
as a result of the implementation of ASC 740-10. A reconciliation of the
beginning and ending amount of unrecognized tax benefits has not been provided
since there are no unrecognized benefits at May 31, 2010 or 2009 and since the
date of adoption. The Company has not recognized interest expense or penalties
as a result of the implementation of ASC 740-10. If there were an unrecognized
tax benefit, the Company would recognize interest accrued related to
unrecognized tax benefit in interest expense and penalties in operating
expenses. The Company is subject to examination by the Internal Revenue Service
and state tax authorities for tax years ending after 2006.
Reclassification
Certain prior period amounts have been reclassified to comply with current
period presentation.
37
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 - Stock Options and Warrants
The Company has one stock-based equity plan at May 31, 2010. The 2005 Stock
Incentive Plan as amended (the "Plan") was authorized to issue options and
warrants to purchase up to 5,000,000 shares of the Company's common stock. As of
May 31, 2009 the Company had 3,398,878 shares available for future stock option
grants under the plan.
The estimated fair value of options and warrants is determined using the
Black-Scholes option valuation model with the following weighted-average
assumptions for the periods ended May 31, 2010 and 2009:
2010 2009
----------- -----------
Risk free rate 1.67 2.84%
Dividend yield - -
Volatility 125.0% 124.0%
Expected term 3 years 3.0 years
Net cash proceeds from the exercise of stock options and warrants were $0 for
the periods ended May 31, 2010 and May 31, 2009, respectively and approximately
$28,000 for the period October 28, 2003 to May 31, 2010. Compensation expense
related to stock options and warrants was approximately $1,671,000, and $372,000
for the periods ended May 31, 2010 and 2009, respectively. During 2010 and 2009,
the Company granted 2,566,000 and 205,000 options to employees, consultants and
directors, which were valued and recorded as compensation expense above.
Additionally, the Company granted 118,200 and 1,649,754 of warrants in
conjunction with the issuance of common stock during 2010 and 2009,respectivley.
The warrants have an exercise price of $1.00 per share, immediate vesting, and
expire five years from the date of grant.
The grant date fair value of options and warrants vested during the periods
ended May 31, 2010 and 2009 was approximately $1,662,000 and $356,000,
respectively. The weighted average grant date fair value of options and warrants
granted during the periods ended May 31, 2010 and 2009 was $1.40 and $.30
respectively. As of May 31, 2010, there was approximately $2,234,000 of
unrecognized compensation costs related to share-based payments for unvested
options, which is expected to be recognized over a weighted average period of
2.78 years.
The following table represents stock option and warrants activity for the
periods ended May 31, 2010 and 2009:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Life Value
--------- -------- ----------- ---------
Options and warrants
outstanding - May 31, 2008 3,227,222 1.30 6.52 143,000
Granted 1,854,754 .93 - -
Exercised - - - -
Forfeited/expired/cancelled (106,000) - - -
--------- -------- ----------- ---------
Options and warrants
outstanding - May 31, 2009 4,975,976 1.18 5.37 164,500
Granted 2,684,200 1.86 - -
Exercised - - - -
Forfeited/expired/cancelled - - - -
--------- -------- ----------- ---------
Options and warrants
outstanding May 31, 2010 7,660,176 1.42 5.41 2,761,129
========= ======== =========== =========
Exercisable - May 31, 2010 6,063,824 1.30 5.76 2,726,162
========= ======== =========== =========
38
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 - Stock issued for services and cash
Treasury stock
During fiscal year 2010 the Company acquired 1,200,000 and 200,000 shares of
common stock at $.28 and $.50 per share, respectively. The shares were included
at cost as part of the Company's treasury stock. During fiscal year 2010, the
Company reissued 1,118,420 treasury shares at $.50 per share, and realized net
cash proceeds of approximately $531,000, net of approximately $28,000 in
offering costs. The excess proceeds received related to the reissuance of
treasury stock at cost is included as treasury stock additional paid-in capital.
As of May 31, 2010, approximately $313,000 is included in equity as treasury
stock additional paid-in capital, with approximately $100,000 included as a
contra-equity for the remaining treasury stock acquired at cost.
Additionally, during fiscal year 2010, the Company reissued 81,580 shares of
treasury stock for certain consulting services at $1.45 per share, which
represented the fair market value of the Company's common stock at the
commitment date. The prepaid stock services are amortized over the life of the
consulting agreement, and during fiscal year 2010, the Company recognized
approximately $69,000 in consulting expense related to this consulting
agreement.
Common stock
During the fiscal year 2010, the Company issued 1,172,980 shares of common stock
at $.50 per share, and realized cash proceeds of approximately $546,000, net of
approximately $43,000 in offering costs.
Preferred 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.
During fiscal year 2010 the Company issued 400,000 shares of Series B
Convertible Preferred Stock (Series B) at approximately $5.00 per share for cash
proceeds totaling $2,009,000. The Series B is convertible into ten shares of the
Company's common stock including any accrued dividend, with an effective fixed
conversion price of $.50 per share. The holders of the Series B can only convert
their shares to common shares provided the Company has sufficient authorized
common shares at the time of conversion. Accordingly, the conversion option is
contingent upon the Company increasing their authorized common shares, which
occurred April 2010 when the Company's shareholders voted at a special meeting
to increase the authorized shares. At the commitment date, which occurred upon
the shareholders approving the increase in the authorized shares, the conversion
option related to the Series B was beneficial. The intrinsic value of the
conversion option at the commitment date resulted in a a constructive dividend
to the Series B holders of approximately $6,000,000. The series B has no
mandatory conversion feature or any net cash settlement features, and
accordingly, was deemed to be a component of equity. The constructive dividend
increased and decreased additional paid-in capital by the same amount. The
Series B has liquidation preferences over the common share holders at $5.00 per
share plus any accrued dividends. Dividends are payable to the Series B holders
when declared by the board of directors at $.25 per share. The Series B holders
have no voting rights.
39
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 - Recent Accounting Pronouncements
Other 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.
6 - Income Taxes
Deferred taxes are recorded for all existing temporary differences in the
Company's assets and liabilities for income tax and financial reporting
purposes. Due to the valuation allowance for deferred tax assets, as noted
below, there was no net deferred tax benefit or expense for the periods ended
May 31, 2010 and 2009, and for the period ended October 28, 2003 through May 31,
2009.
Reconciliation of the federal statutory income tax rate of 34 percent to the
effective income tax rate is as follows for all periods presented:
Income tax provision at statutory rate 34.0%
State income taxes, net 3.5
Valuation allowance (37.5)
------
0.0%
======
Net deferred tax assets and liabilities are comprised of the following as of May
31, 2010 and 2009:
Deferred tax asset (liability) current:
Accrued salary and expenses $ 97,000 $ 134,000
Warrant amortization (800) 29,000
Valuation allowance (96,200) (163,000)
----------- -----------
$ 0 $ 0
=========== ===========
Deferred tax asset (liability) non-current
Net operating loss $ 3,019,000 $ 2,258,000
Expense on non-qualified stock
options and OID amortization 943,000 336,000
Other 26,500 3,000
Valuation allowance $(3,988,500) $(2,597,000)
----------- -----------
$ 0 $ 0
=========== ===========
40
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax benefit for the period presented is offset by a valuation allowance
established against deferred tax assets arising from operating losses and other
temporary differences, the realization of which could not be considered more
likely than not. In future periods, tax benefits and related tax deferred assets
will be recognized when management considers realization of such amounts to be
more likely than not.
At May 31, 2010, the Company had available net operating loss carryforwards of
approximately $8,100,000 which expire beginning in 2022.
7 - 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 fiscal year 2010, $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
be beneficial, and the Company recorded a beneficial conversion feature of
$38,604 related to the intrinsic value of the conversion option as a debt
discount and corresponding increase to additional paid-in capital. For fiscal
year 2010, the Company recorded $38,604 in interest expense as the debt discount
was fully amortized upon the conversion of the notes into common stock.
8 - 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 May 31, 2010, all amounts related to this litigation have been paid
and settled.
9 - Related Party Transactions
A director provided legal services to the Company over the past several years.
As of May 31, 2010 the Company owed the director $43,985 and it is included in
the accompanying consolidated financial statements as "indebtedness to related
parties" as of May 31, 2010. As of May 31, 2010 no arrangements had been made
for the Company to repay the balance of this obligation. The amount has been
classified as short-term, as the amount is payable on demand. The Company
anticipates that the director will continue to provide legal services in the
future.
In May and July 2007, the Company issued $150,000 in promissory notes with a
stated interest rate of 14% to a director of the Company, and a maturity date of
six months from the issuance date. During fiscal year 2010, the Company made
cash payments of $40,000 on the notes. As of May 31, 2010, the balance on the
notes is $110,000. The notes have no stated maturity, and are essentially
payable upon demand. Accordingly, the Company has classified the balance as
short-term obligation as of May 31, 2010.
A former director of the Company was owed $337,342 related to certain clinical
research data that was obtained by the former director and later purchased by
the Company. During 2009, the contract that created the debt, expired pursuant
to the statute of limitations. As a result, during the period ended May 31,
2009, the Company recognized $337,342 in income due to the extinguishment of
this debt.
41
CYTODYN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Patents
The Company has a License Agreement with Allen D. Allen the Company's President
and CEO that gives the exclusive right to develop market, sell and profit his
technology worldwide. This includes issued U.S. patents 5,424,066; 5.651,970 and
6,534,057, foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian, and Canadian patents have been obtained as
well. The term of the license agreement is for the life of the patents. The
original expiration dates on the issued patents are 2013 to 2016. There is an
automatic extension of the expiration date on U.S. patents equal to the number
of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. The Company estimates
the costs associated with these issued patents to be approximately $100,000 per
year. The Company intends to file additional patents during the next fiscal year
covering its humanized version of Cytolin(R) if the research and development
efforts warrant it.
10 - 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 75%, or $412,000, was paid to Massachusetts
General Hospital by November 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 October 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. The balance of $137,500 is due by January 21,
2011.
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. $163,265 was paid by November 30, 2010.
In July 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, 2010.
In August 2010, the Company renewed the office lease for $1,650 per month for
one year.
In August 2010 the Company's Board of Directors approved a private placement
offering to sell 2,000,000 shares of the Company's no par common stock to
accredited investors at $1.00 per share. The Company has raised approximately
$316,000 in cash related to this private placement.
In September 2010, the Company issued 25,000 stock options each to a director
and a consultant at an exercise price of $1.20. The options expire in 2020.
42
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Other Information
(a) Disclosure Controls and Procedures
Disclosure Controls and Procedures
----------------------------------
As of May 31, 2010, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, management has
evaluated the effectiveness of the design and operations of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were not effective as of May 31, 2010 as a
result of the material weakness in internal control over financial reporting
discussed below.
(b) Changes in Internal Control over Financial Reporting
Changes in Control Over Financial Reporting
-------------------------------------------
No change in the Company's internal control over financial reporting occurred
during the year ended May 31, 2010, that materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, our Chief Executive Officer
and Chief Financial Officer to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal control over
financial reporting includes policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the Company's transactions; (ii) provide reasonable assurance that transactions
are recorded as necessary for preparation of our financial statements and that
receipts and expenditures of the Company's assets are made in accordance with
authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of the Company's financial statements would be prevented or
detected.
43
Our management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of May 31, 2010 using the criteria set forth
in the Internal Control over Financial Reporting - Guidance for Smaller Public
Companies issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon the evaluation, our management concluded that our
internal control over financial reporting was not effective as of May 31, 2010
because of material weaknesses in our internal control over financial reporting.
A material weakness is a control deficiency that results in a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis by employees in
the normal course of their assigned functions. Our management concluded that we
have several material weaknesses in our internal control over financial
reporting because of inadequate segregation of duties over authorization, review
and recording of transactions as well as the financial reporting of such
transactions. Due to the Company's limited resources, management has not
developed a plan to mitigate the above material weaknesses. Despite the
existence of these material weaknesses, we believe the financial information
presented herein is materially correct and in accordance with the generally
accepted accounting principles.
As a result of recently passed legislation, this annual report does not include
an attestation report of our registered public accounting firm regarding
internal control over financial reporting.
Item 9B. Other Information
Not applicable
44
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Allen D. Allen 74 Chairman of the Board,
President, Chief Executive
Officer
Corinne Allen, CPA 43 Chief Financial Officer, Vice President,
Nader Pourhassan, PhD. 47 Chief Operating Officer
Ronald J. Tropp, Esq. 67 Director
Gregory Gould, CPA 44 Director
George F. Dembow 77 Director
Jordan Naydenov 50 Director
Kenneth J. Van Ness 59 Director
Allen D. Allen. Mr. Allen has been Chairman of our Board and our President and
Chief Executive Officer since October 2003. Before joining CytoDyn, he was the
Chairman of the Board of Directors and Chief Executive Officer of CytoDyn of New
Mexico, Inc., since its inception in 1994. From 1990 to 1994 he was a research
associate with Olive View-UCLA Medical Center, where he collaborated and
published with various medical professors original research on HIV, dermatology
and general immunology and was the co-investigator on an autologous vaccine
study. From 1986 to 1990 Mr. Allen was director of scientific affairs, Center
for Viral Diseases, Northridge, California, where he conducted and published
original research on a large cohort of patients with complex constellations of
neuroimmunologic complaints. From 1971 to 1986 he was president of Algorithms,
Incorporated where he conducted and published original research in the areas of
artificial intelligence, perception, man and machine systems and societal
engineering. Over the past thirty years, he has published numerous papers in the
peer review science and medical journals. He has also served as an investigator
on clinical research sponsored by major pharmaceutical companies, such as Ortho
Biotech, Johnson & Johnson, and Sanofi-Winthrop. Mr. Allen invented and patented
the family of HIV/AIDS therapies licensed to CytoDyn. He is a member of the
American Physical Society and the American Federation of Scientists, a life
member of the Institute of Electrical and Electronics Engineers, and a founding
member of the Editorial Board of Physics
45
Essays. Mr. Allen received an Associates of Arts degree from the University of
California at Berkeley in 1957 and attended the University of California at Los
Angeles from 1957 to 1959. In 1953 he received a national ARS Student Award in
aeronautics from the American Rocket Society (now the Institute of Aeronautics
and Astronautics). Mr. Allen is the father of Corinne E. Allen, our Chief
Financial Officer.
Corinne Allen, CPA. Ms. Allen has been an officer and/or director of the Company
since October 2003.Ms. Allen has been our Chief Financial Officer from October
28, 2003 through May 2004. From 2004 until July 2009 Ms. Allen served as Vice
President of Business Development at which time she was appointed Chief
Financial Officer. Ms. Allen served as Secretary and Treasurer of CytoDyn of New
Mexico, Inc. where she was also a Director from June, 1994 to October 2003. Ms.
Allen is a licensed Certified Public Accountant. From 1999 to 2003, Ms. Allen
was employed as a Senior Manager at Deloitte & Touche in San Francisco, and,
from 1992 to 1998 was a CPA at Hallquist Jones P.C. She has over 24 years
experience in the accounting industry. Ms. Allen received a B.S. in Business
Administration from California State University Northridge with a specialty in
Accounting Theory and Practice in 1992. She has been a Certified Public
Accountant since January 1997. Ms. Allen is the daughter of Allen D. Allen, our
Chairman and CEO. Ms. Allen is a member of the American Institute of Certified
Public Accountants (AICPA).
Nader Pourhassan, PhD. Dr. Pourhassan became the Company's Chief Operating
Officer in May 2008. Born in Tehran, Iran in 1963, Dr. Pourhassan immigrated to
the United States in 1977 and became a U.S. citizen in 1991. He received his
Bachelor of Science from Utah State University in 1985, his Masters of Science
from Brigham Young University in 1990 and his PhD from the University of Utah in
1998. Before joining the company Dr. Pourhassan was an instructor in engineering
at The Center for Advanced Learning in Utah. Dr. Pourhassan also owned and
operated an export/import and manufacturing business , Apache Art Gallery, which
manufactured snd sold jewelry, pottery and other artifacts.
Gregory A. Gould, CPA. Mr. Gould has been a Director since March 20, 2006 and a
member of our Audit Committee and Compensation Committee since May 15, 2006. Mr.
Gould has been the Chief Financial Officer and Treasurer of SeraCare Life
Sciences, Inc., since August 2006 and the Secretary of the Company since
November 2006. From August 2005 to August 2006, Mr. Gould provided financial and
accounting consulting services through his consulting company, Gould LLC. From
April 2005 to August 2005, Mr. Gould served as the Chief Financial Officer and
Senior Vice President of Integrated BioPharma, Inc., a life sciences company
serving the pharmaceutical, biotechnology and nutraceutical markets. Prior to
that, from February 2004 through January 2005, Mr. Gould served as the Chief
Financial Officer, Treasurer and Secretary of Atrix Laboratories, Inc., an
emerging specialty pharmaceutical company focused on advanced drug delivery.
From 1996 through October 2003, Mr. Gould served as Director of Finance and then
as the Chief Financial Officer and Treasurer of Colorado MEDtech, a high tech
software development, product design and manufacturing company. Mr. Gould holds
a B.S. in Business Administration from the University of Colorado, Boulder and
is a Certified Public Accountant in the State of Colorado.
Ronald J. Tropp, Esq. Mr. Tropp was a Director of the Company from October, 2003
to January 31, 2006 and was reappointed in January 2007. He served as Director
for CytoDyn of New Mexico, Inc. Mr. Tropp received his Bachelor of Arts degree
from Swarthmore College 1965, and a Juris Doctorate from the University of
Wisconsin - Madison in 1968. He is admitted to the practice of law in New York
and California. He has practiced entertainment and transactional law for over 25
years and has been representing CytoDyn and CytoDyn of New Mexico, Inc. since
the Fall of 1999. Previously, he served as corporate counsel and director for
Pacific Coast Medical Enterprises, which owned five acute care hospitals in
Southern California.
46
George F. Dembow. Mr. Dembow has been a Director since February 2008. From 1972
to today, he started and built Arizona Natural Resources, Inc., a manufacturer
and contractor of cosmetics, toiletries and candles Mr. Dembow attended Cornell
University in Ithaca, NY 1950 to 1954 and graduated with a BS with an additional
year credit toward an MBA. Mr. Dembow was a Fighter pilot in the USAF 1954 -
1957. He was Employed by Fischbach and Moore, Inc., a world-wide electrical
contractor traded on the New York Stock Exchange from 1958 to 1966, becoming a
Vice-President in Washington, DC in 1963. Mr. Dembow was President and Co-Owner
of Apache Airlines, Inc., a commuter airline operating from Phoenix, Arizona
with scheduled service in Arizona, Nevada, Montana and North Dakota from 1966 to
1971.
Jordan Naydenov. Mr. Naydenov has been a Director of the Company since June
2009. Mr. Naydenov immigrated to the U.S. in 1982 from Bulgaria where he was a
competitive gymnast. He purchased a gymnasium , Nadeynov Gymnastics and parlayed
it into a successful business empire. He is also the President and Board member
of Milara, Inc., and Milara International leading providers of stencil and
screen printing systems for the surface mount and semiconductor industries,
which he purchased and helped build into a multi-million dollar business.
Kenneth J. Van Ness. Mr. Van Ness has been a Director of the Company since June
2010. During the past 25 years he has held various C level positions in both
domestic, public, private and international companies, in a variety of
industries. His responsibilities combined C level management positions with
profitablity, marketing, operations, staff and investor relations oversight.
Throughout his career he has participated in in equity and debt transactions in
excess of $500M.In the past decade he has focused as a merchant mortgage banker
and investor. Currently he is the managing director of two private equity
companies, Greenwood Hudson Portfolio LLC and Technolgy Capital Services, LLC
comprised of investments in over 20 public companies. In addition Mr. Van Ness
provides consulting services to real estate investors with complex financial
challenges. Mr. Van Ness received a BS from the University of Florida in 1973,
and lives in Florida.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
Directors, Officers and beneficial owners of more than 10% of our common stock
to file reports of ownership and reports of changes in the ownership with the
Securities and Exchange Commission. Such persons are required by Securities and
Exchange Commission regulations to furnish us with copies of all Section 16(a)
forms they file.
Code of Ethics.
We have adopted a Code of Ethics for our Senior Executive Officers as well as a
Code of Business Conduct and an Insider Trading Policy for the Company. These
can all be found on our website at www.cytodyn.com under the Management tab.
Audit Committee
The Board of Directors has resolved to establish an audit committee composed of
our Chief Financial Officer Corinne Allen, CPA and Board members, Gregory A.
Gould, CPA, Ronald J. Tropp, Esq and George F. Dembow. Two of the members of the
audit committee are "financial experts" as defined in Regulation S-B Item
401(e)(1)(ii)(2). Mr. Gould, Mr. Tropp and Mr. Dembow are the independent
members of the Audit Committee at this time. An Audit Committee Charter was
adopted by the Board of Directors and became effective on June 1, 2007.
47
Item 11. Executive Compensation
The following table provides an overview of compensation that CytoDyn, Inc. paid
to the Named Executive Officers for the fiscal years ended May 31, 2010 and 2009
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
(a) (b) (c) (d) (e) (f) (g) (h)
Stock Option All other
Salary Bonus Awards Awards Compensation Total
Name and principal position Year ($) ($) ($) ($) ($) ($)
--------------------------- --------- ---------- ----- ------- ------- ------------ -------
Allen D. Allen,
President & CEO (1) 5/31/2009 60,500 - - - - 60,500
5/31/2010 200,000 27,250 - 426,000 - 653,250
Corinne Allen, CFO (1) 5/31/2009 8,000 - - - - 8,000
5/31/2010 150,000 41,533 - 426,000 - 617,533
Nader Pourhassan, COO (2) 5/31/2009 175,000 - 80,500 - - 255,500
5/31/2010 200,000 50,800 426,000 - - 676,800
1. Table shows actual amounts paid. As of February 2006, Mr. Allen's salary
was approved by Board of Directors for $150,000. In April 2010 Mr. Allen's
salary was approved By the Board of Directors for $200,000 to be paid
semimonthly as cash is available. There is no Employment Agreement with Mr.
Allen. Ms. Allen was approved for salary of $100,000 in February 2006 by
the Board of Directors, and increased to $150,000 in April 2010 to be paid
semimonthly as cash is available. There is no Employment Agreement with Ms.
Allen.
2. Table shows actual amounts paid. Dr. Pourhassan entered into a personal
services agreement with the Company in May 2008 for two yeara. His annual
base salary per his personal services agreement is $200,000 beginning June
1, 2008, and $200,000 in 2010.
Compensation of Directors
Our Directors receive compensation in the form of stock option grants. The
Directors receive no cash compensation. Stock option grants to our
Directors were as follows in 2010:
(a)
Option
Awards
($)
Ronald J. Tropp, Esq. $142,000
Gregory Gould, CPA $177,500
George F. Dembow $71,000
Jordan Naydenov $106,500
Kenneth J. Van Ness $-0-
(a) Option awards represent the grant date fair value of the awards pursuant to
FAS Topic 718
48
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the number of shares of common stock covered
by outstanding stock option awards that are exercisable and unexercisable for
each of our named executive officers as of May 31, 2010.
(a) (b) (c) (d) (e)
# of Securities
Underlying Unexercised
Options at FYE
May 31, 2010 (#) Options
Exercise
Unexercised Options Options Price Expiration
Name Exercisable/Unexercisable ($) Date
--------------------- ------------------------- ------------- -----------
Allen D. Allen, CEO 362,283 312,717 $.72 - $2.95 2014 - 2017
Corinne Allen, CFO 362,283 312,717 $.72 - $2.95 2014 - 2017
Nader Pourhassan, COO 10,137 289,863 $1.95 2014
Mr. Allen has options to purchase 675,000 shares of common stock. 362,283 have
vested. None have been exercised to date. 50,000 were Granted in FYE 2006 and
25,000 were Granted in FYE 2007, 300,000 were Granted in FYE 2008. 300,000 were
Granted in FYE 2010.
Ms. Allen has options to purchase 675,000 shares of common stock. 362,283 have
vested. None have been exercised to date. 50,000 were Granted in FYE 2006,
25,000 were Granted in FYE 2007, 300,000 were Granted in FYE 2008. 300,000
Were Granted in FYE 2010.
Dr. Pourhassan has options to purchase 300,000 shares of common stock. 10,137
have cested. None have been exercised to date. The shares were granted in FYE
2010.
We know of no arrangements concerning anyone's ownership of stock, which may, at
a subsequent date, result in a change of control.
49
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth the beneficial ownership of our common stock as
of May 31, 2010, by (i) each person or entity who is known by us to own
beneficially more than 5% of the outstanding shares of common stock, (ii) each
of our Directors, (iii) each of the Executive Officers named in the Summary
Compensation Table, and (iv) all of our Officers and Directors as a Group
Beneficial Approximate
Name And Address of Beneficial Owner (1) Ownership (2)(3) Percent Owned
---------------------------------------- ---------------- -------------
C. David Callaham 1,215,190 5.9%
Allen D. Allen, CEO 1,773,695 8.6%
Corinne Allen, CFO 1,417,204 6.9%
Nader Pourhassan, COO 230,137 1.1%
Gregory A. Gould, Director 109,224 .5%
Ronald J. Tropp, Director 113,379 .5%
George F. Dembow, Director 368,689 1.8%
Jordan Naydenov, Director (4) 1,208,934 5.9%
Kenneth J. Van Ness, Director (5) 2,584,241 12.5%
TOTAL OFFICERS AND DIRECTORS AS A GROUP 9,021,416 38%
(1) Unless otherwise indicated, the business address of each Shareholder is
c/o CytoDyn, Inc., 1511 Third Street, Santa Fe, New Mexico 87505.
(2) Each Shareholder has sole voting and investment power for the Shares
they beneficially own. This table is based upon information supplied by
Officers, Directors, Principal Shareholders, and Schedules 13D and 13G
filed with the SEC. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. Shares of common stock
subject to options and warrants currently exercisable, or exercisable
within 60 days of May 31, 2010, are deemed outstanding for computing the
ownership percentage of the person holding such options or warrants, but
are not deemed outstanding for computing the ownership percentage of any
other person. Except as otherwise noted, we believe that each of the
Shareholders named in the table have sole voting and investment power with
respect to all Shares of common stock shown as beneficially owned by them,
subject to applicable community property laws.
(3) Includes options that have been granted and vested.
(4) Mr. Naydenov owns 60,000 preferred shares Series B that are convertible
into 600,000 common shares which we have included in this table.
(5) Mr. Van Ness beneficially owns his shares indirectly through the
entities Greenwood Hudson Portfolio, LLC and Technology Capital Services
LLC.
50
Item 13. Certain Relationships and Related Transactions and Director
Independence
Related Party Transactions, Actual or Proposed, during the two years ended May
31, 2010. We propose to be, or during the last two years were, party to certain
transactions involving amounts in excess of $120,000, in which our Directors,
Executive Officers, others hold more than 5% of any class of our securities, or
their immediate family members, had or will have a material interest. The
interested parties and transactions are described below.
In May and July 2007, we issued to George Dembow, A director of the Company
$150,000 in interest-bearing promissory notes. The notes Bear interest at 14%
per annum, are unsecured, and have no stated maturity date. As of May 31, 2010,
the balance of the notes is $110,000, and is included as "Indebtedness to
Related parties" in the financial statements.
Patents
The Company has a License Agreement with Allen D. Allen the Company's President
and CEO that gives the exclusive right to develop, market and sell his
technology worldwide. This includes issued U.S. patents 5,424,066; 5.651,970 and
6,534,057, foreign counterparts, as well as European Patents No. 94 912826.8 and
04101437.4. Hong Kong, Australian, and Canadian patents have been obtained as
well. The term of the license agreement is for the life of the patents. The
original expiration dates on the issued patents are 2013 to 2016. There is an
automatic extension of the expiration date on U.S. patents equal to the number
of years the drug under the patent is being studied in clinical trials.
Typically this provides another four to five years on the earliest claims.
CytoDyn's counsel expects its patents to be extended until 2017 to 2020
depending upon the original date of the issued patents. The Company estimates
the costs associated with these issued patents to be approximately $100,000 per
year.
The Company also intends to file for a new patent applications covering
its humanized version(s) of Cytolin(R) during the next fiscal year if our
research and development efforts warrant it.
Item 14. Principal Accounting Fees and Services
Approval of Services
The Board of Directors has resolved to establish an audit committee composed of
Board members Gregory A. Gould, CPA, Ronald J. Tropp and George F. Dembow.
Pending proper establishment of the audit committee, the Board of Directors
pre-approves all engagements for audit and non-audit services provided by the
Company's principal accounting firm, Pender Newkirk and Company.
Audit Fees
The aggregate fees billed during the fiscal years ended May 31, 2010 and 2009
for professional services rendered by our principal accounting firm, Pender
Newkirk and Company, for the audit of the financial statements included in Form
10-K, and for the review of the interim condensed financial statements included
in Form 10-Q, were approximately $148,000 and $129,000, respectively.
51
Audit Related Fees
The aggregate fees billed during the fiscal years ended May 31, 2010 and 2009
for assurance and related services rendered by our current principal accounting
firm, Pender Newkirk & Co., were approximately $0 and $0, respectively.
Tax Compliance/Preparation Fees
The aggregate fees billed during the fiscal years ended May 31, 2010 and 2009
for professional services rendered by our principal accounting firm, Pender
Newkirk Co. for tax compliance, tax advice, and tax planning were approximately
$0 and $0, respectively. Tax compliance services include the preparation of
income tax returns filed with the Internal Revenue Service. Tax advice and
planning services included assistance with implementation of tax planning
strategies and consultation on other tax matters.
All Other Fees
The aggregate fees billed during the fiscal years ended May 31, 2010 and 2009
for all other professional services rendered by our principal accounting firm
Pender Newkirk & Co. were approximately $0 and $0, respectively. Other services
consisted of assistance with the interpretation of new accounting standards and
other related services.
Board of Directors Pre-Approval Process, Policies and Procedures
----------------------------------------------------------------
Our principal auditors have performed their audit procedures in accordance with
pre-approved policies and procedures established by our Board of Directors. Our
principal auditors have informed our Board of Directors of the scope and nature
of each service provided. With respect to the provisions of services other than
audit, review, or attest services, our principal accountants brought such
services to the attention of our Board of Directors prior to commencing such
services.
52
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
See the Consolidated Financial Statements starting on page 22.
2. Exhibits
The exhibits listed in the Exhibit Index, which appears immediately
following the signature page and is incorporated herein by reference,
and filed as part of this Annual Report on Form 10-K.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYTODYN, INC.
Registrant)
Date: December 3, 2010 By: /s/ Allen D. Allen
-----------------------------
Name: Allen D. Allen
Title: President and CEO
Date: December 3, 2010 By: /s/ Corinne Allen
-----------------------------
Name: Corinne Allen
Title: Chief Financial Officer,
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1934 this Annual
Report on Form 10-K was signed by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:
Name Title Date
---- ----- ----
/s/ Gregory Gould Director December 3, 2010
------------------------
Gregory Gould
/s/ Ronald Tropp Director December 3, 2010
------------------------
Ronald Tropp
/s/ George Dembow Director December 3, 2010
------------------------
George Dembow
/s/ Jordan Naydenov Director December 3, 2010
------------------------
Jordan Naydenov
/s/ Kenneth Van Ness Director December 3, 2010
------------------------
Kenneth Van Ness
54
EXHIBITS INDEX
Exhibit
Number Description
------ -----------
Articles of Incorporation and Bylaws
------------------------------------
3.1 Rexray Articles of Incorporation shell company (incorporated herein by
reference to Exhibit 3.1 on Form 10SB12G Registration of Securities for
Small Business Issuers filed July 11, 2002)
3.2 Bylaws of Corporation (incorporated by reference herein to Exhibit 3.2
filed with Form 10SB12G, Registration of Securities for Small Business
Issuer filed July 11, 2002)
3.3 Amendment to the Articles of Incorporation changing company name from
Rexray to CytoDyn, Inc and effective a one for two reverse split of its
common shares (incorporated herein by reference to filed Exhibit 3.3 on
Current Form 8K filed November 12, 2003).
3.4 Amendment to Articles of Incorporation dated September 2009 designating
CytoDyn's preferred Series B non-voting shares sold in a private
placement. (Incorporated by reference to Exhibit 3.4 to Form 10K filed
March 12, 2010).
3.5 Amendment to Articles of Incorporation dated April 29, 2010 increasing
the number Of authorized shares to 100,000,000 (incorporated herein by
reference to Exhibit 3.5 On Current Form 8-K filed April 29, 2010).
Material Contracts
------------------
10.1 Acquisition Agreement for reverse merger acquisition of shell company by
CytoDyn of New Mexico Inc. (incorporated herein by reference to Exhibit
10.1 with Current Form 8KA filed January 12, 2004)
10.2 Patent License Agreement that was assigned under the Acquisition
Agreement (incorporated herein by reference to Exhibit 10.2 with Form
10KSB, Annual Report for Small Business Issuers filed June September 14,
2004)
10.3 Buy Sell Agreement with Symbion Research International (incorporated
herein by reference to Exhibit 10.5.2 with Form 10QSB, Quarterly Report
for Small Business Issuers filed January 12, 2005)
10.4 Amendment to Patent License Agreement (incorporated herein by reference
to Exhibit 10.6.1 filed with Form SB-2 Registration of Securities for
Small Business Issuer filed March 21, 2005)
10.5 Agreement and Plan of Acquisition for subsidiary Advanced Genetic
Technologies Inc (incorporated herein by reference to Exhibit 10.2 with
Current Form 8K filed February 5, 2007)
10.6 Legal Settlement between CytoDyn of New Mexico Inc, Officers Allen D.
Allen and Corinne Allen and CytoDyn, Inc on the one hand and Maya LLC,
Rex Lewis, and AIDS Research LLC on the other hand entered into December
2008. (Incorporated by reference to Exhibit 10.6 to Form 10K filed March
12, 2010).
10.7 Statement of Work for Vista Biologicals Inc to manufacture Cytolin(R),
CytoDyn Inc.'s lead product to be used in human clinical trials entered
into May 2008. (Incorporated by reference to Exhibit 10.7 to Form 10-K
filed March 12, 2010).
10.8 Sponsored Research Agreement between Massachusetts General Hospital and
CytoDyn, Inc e entered into September 28, 2009 for conducting clinical
trials on Cytolin (incorporated herein by reference to Exhibit 10.1 of
CytoDyn Inc. Current report on Form 8-K dated September 29, 2009)
55
Consents of Experts and Counsel
-------------------------------
Certifications
--------------
31.1 Certification by CEO
31.2 Certification by CFO
31.2 Certification of CEO pursuant to 18. U.S.C. Section 1350 as adopted,
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of CFO pursuant to 18. U.S.C. Section 1350 as adopted,
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
Additional Exhibits
-------------------
99.1 Audit Committee Charter by the Board of Directors (incorporated herein
by reference to Exhibit 99.1 with Form 10KSB Annual Report for Small
Business Issuers filed August 30, 2007)
56