UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28, 2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1933 |
For the transition period from to
Commission File Number: 000-49908
CYTODYN INC.
(Exact name of registrant as specified in its charter)
Delaware | 83-1887078 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer or Identification No.) |
|
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1111 Main Street, Suite 660 Vancouver, Washington | 98660 |
(Address of principal executive offices) | (Zip Code) |
(360) 980-8524
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading |
| Name of Each Exchange |
|---|---|---|---|---|
None. | None. |
Indicate by check mark whether the registrant (1) 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
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Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
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| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
On March 31, 2022, there were 718,319,606 shares outstanding of the registrant’s $0.001 par value common stock.
TABLE OF CONTENTS
2
PART I. Financial Information
Item 1. Consolidated Financial Statements
CytoDyn Inc.
Consolidated Balance Sheets
(Unaudited, in thousands, except par value)
| February 28, 2022 |
| May 31, 2021 | |||
(Revised) (1) | ||||||
Assets |
|
|
|
| ||
Current assets: |
|
|
| |||
Cash | $ | 1,363 | $ | 33,943 | ||
Restricted cash |
| 1,000 |
| — | ||
Inventories, net | 82,668 | 93,479 | ||||
Prepaid expenses |
| 6,135 |
| 616 | ||
Prepaid service fees |
| 1,183 |
| 1,543 | ||
Total current assets |
| 92,349 |
| 129,581 | ||
Operating leases - right-of-use asset |
| 570 |
| 712 | ||
Property and equipment, net |
| 117 |
| 134 | ||
Intangibles, net |
| 1,043 |
| 1,653 | ||
Total assets | $ | 94,079 | $ | 132,080 | ||
Liabilities and Stockholders’ (Deficit) Equity |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Accounts payable | $ | 62,393 | $ | 65,897 | ||
Accrued liabilities and compensation |
| 9,418 |
| 19,073 | ||
Accrued interest on convertible notes |
| 4,857 |
| 2,007 | ||
Accrued dividends on convertible preferred stock |
| 3,635 |
| 2,647 | ||
Operating leases |
| 136 |
| 175 | ||
Convertible notes payable, net |
| 35,647 |
| 62,747 | ||
Total current liabilities |
| 116,086 |
| 152,546 | ||
Long-term liabilities - operating leases |
| 453 |
| 552 | ||
Total liabilities |
| 116,539 |
| 153,098 | ||
Commitments and Contingencies (Note 10) |
|
|
|
| ||
Stockholders’ (deficit) equity: |
|
|
|
| ||
Preferred Stock, $0.001 par value; 5,000 shares authorized: |
|
|
|
| ||
Series B convertible preferred stock, $0.001 par value; 400 shares authorized; 19 and 79 shares and at February 28, 2022 and May 31, 2021, respectively |
|
| ||||
Series C convertible preferred stock, $0.001 par value; 8 authorized; 7 and 8 and at February 28, 2022 and May 31, 2021, respectively |
|
| ||||
Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at February 28, 2022 and May 31, 2021, respectively |
|
| ||||
Common stock, $0.001 par value; 1,000,000 shares authorized; 713,730 and 626,123 issued, and 713,287 and 625,680 outstanding at February 28, 2022 and May 31, 2021, respectively |
| 713 |
| 626 | ||
Additional paid-in capital |
| 612,905 |
| 512,796 | ||
Accumulated deficit |
| (636,078) |
| (534,440) | ||
Treasury stock, $0.001 par value; 443 at February 28, 2022 and May 31, 2021 |
|
| ||||
Total stockholders’ deficit |
| (22,460) |
| (21,018) | ||
Total liabilities and stockholders' equity | $ | 94,079 | $ | 132,080 | ||
(1) See Note 2, Correction of Immaterial Misstatements in Prior Period Financial Statements in Form 10-Q for the period ended November 30, 2021.
See accompanying notes to consolidated financial statements.
3
CytoDyn Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
Three months ended February 28, | Nine months ended February 28, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(Revised) (1) | (Revised) (1) | ||||||||||||
Revenue: | |||||||||||||
Product revenue | $ | — | $ | — | $ | 266 | $ | — | |||||
Total revenue | — | — | 266 | — | |||||||||
Cost of goods sold: | |||||||||||||
Cost of goods sold | — | — | 53 | — | |||||||||
Total cost of goods sold | — | — | 53 | — | |||||||||
Gross margin | — | — | 213 | — | |||||||||
Operating expenses: |
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|
|
|
|
|
|
| ||||
General and administrative | 10,140 | 7,902 | 33,960 | 25,328 | |||||||||
Research and development |
| 9,128 |
| 12,323 |
| 31,952 |
| 44,061 | |||||
Amortization and depreciation |
| 129 |
| 511 |
| 657 |
| 1,522 | |||||
Intangible asset impairment charge | — | 10,049 | — | 10,049 | |||||||||
Total operating expenses |
| 19,397 |
| 30,785 |
| 66,569 |
| 80,960 | |||||
Operating loss |
| (19,397) |
| (30,785) |
| (66,356) |
| (80,960) | |||||
Interest and other expense: | |||||||||||||
Interest on convertible notes |
| (1,187) |
| (1,257) |
| (4,299) |
| (2,870) | |||||
Amortization of discount on convertible notes | (637) | (157) | (2,382) | (2,739) | |||||||||
Amortization of debt issuance costs |
| (19) |
| (21) |
| (70) |
| (40) | |||||
Loss on extinguishment of convertible notes |
| (3,109) | (7,625) | (11,072) | (11,794) | ||||||||
Finance charges |
| (7,025) |
| (1) |
| (8,084) |
| (138) | |||||
Inducement interest expense |
| (954) |
| (5,360) |
| (6,186) |
| (12,922) | |||||
Legal settlement |
| — |
| — |
| (1,941) |
| — | |||||
Total interest and other expense |
| (12,931) |
| (14,421) |
| (34,034) |
| (30,503) | |||||
Loss before income taxes |
| (32,328) |
| (45,206) |
| (100,390) |
| (111,463) | |||||
Income tax benefit |
| — |
| — |
| — |
| — | |||||
Net loss | $ | (32,328) | $ | (45,206) | $ | (100,390) | $ | (111,463) | |||||
Basic and diluted loss per share | (0.05) | (0.08) | (0.15) | (0.19) | |||||||||
Basic and diluted weighted average common shares outstanding |
| 695,614 |
| 577,854 |
| 663,373 |
| 595,226 | |||||
(1) See Note 2, Correction of Immaterial Misstatements in Prior Period Financial Statements in Form 10-Q for the period ended November 30, 2021.
See accompanying notes to consolidated financial statements.
4
CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit) Equity
(Unaudited, in thousands)
Preferred stock | Common stock | Treasury stock |
| Additional |
| Accumulated |
| Total stockholders' | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | paid-in capital | deficit | (deficit) equity | ||||||||||
(Revised) (1) | (Revised) (1) | (Revised) (1) | ||||||||||||||||||||||
Balance at May 31, 2021 | 96 | $ | — | 626,123 | $ | 626 | 443 | $ | — | $ | 512,796 | $ | (534,440) | $ | (21,018) | |||||||||
For the three months ended August 31, 2021: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — | — | 11,816 | 12 | — | — |
| 18,483 |
| — |
| 18,495 | ||||||||||||
Issuance of legal settlement warrants | — | — | — | — | — | — |
| 1,744 |
| — |
| 1,744 | ||||||||||||
Exercise of stock options | — | — | 300 | — | — | — |
| 189 |
| — |
| 189 | ||||||||||||
Stock issued for incentive compensation and tendered for income tax | — | — | 1,014 | 1 | — | — |
| (1) |
| — |
| — | ||||||||||||
Stock issued for private offering ($1.00 per share) | — | — | 2,872 | 3 | — | — |
| 2,869 |
| — |
| 2,872 | ||||||||||||
Private warrant exchange | — | — | 1,327 | 1 | — | — |
| 774 |
| — |
| 775 | ||||||||||||
Exercise of warrants | — | — | 668 | 1 | — | — |
| 502 |
| — |
| 503 | ||||||||||||
Inducement interest expense related to private warrant exchange | — | — | — | — | — | — |
| 528 |
| — |
| 528 | ||||||||||||
Dividends accrued on Series C and D preferred stock | — | — | — | — | — | — |
| — |
| (420) |
| (420) | ||||||||||||
Stock-based compensation | — | — | — | — | — | — |
| 2,597 |
| — |
| 2,597 | ||||||||||||
Net loss | — | — | — | — | — | — |
| — |
| (31,458) |
| (31,458) | ||||||||||||
Balance at August 31, 2021 | 96 | — | 644,120 | 644 | 443 | — | 540,481 | (566,318) | (25,193) | |||||||||||||||
For the three months ended November 30, 2021: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — | — | 8,162 | 8 | — | — | 11,505 | — |
| 11,513 | ||||||||||||||
Exercise of stock options | — | — | 210 | — | — | — | 200 | — |
| 200 | ||||||||||||||
Private warrant exchange | — | — | 6,593 | 7 | — | — | 4,608 | — |
| 4,615 | ||||||||||||||
Stock issued for private offering ($1.00 - $1.80 per share) | — | — | 25,178 | 25 | — | — | 27,282 | — |
| 27,307 | ||||||||||||||
Issuance costs related to stock issued for private offering | — | — | — | — | — | — | (1,418) | — | (1,418) | |||||||||||||||
Conversion of Series B convertible preferred stock to common stock | (60) | — | 600 | 1 | — | — | — | — | 1 | |||||||||||||||
Exercise of warrants | — | — | 963 | 1 | — | — | 532 | — | 533 | |||||||||||||||
Inducement interest expense related to private warrant exchange | — | — | — | — | — | — | 4,704 | — |
| 4,704 | ||||||||||||||
Dividend declared and paid in common stock on Series B preferred stock ($0.25 per share) | — | — | 35 | — | — | — | 17 | (17) |
| — | ||||||||||||||
Dividends accrued on Series C and D preferred stock | — | — | — | — | — | — | — | (414) |
| (414) | ||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 2,060 | — |
| 2,060 | ||||||||||||||
Net loss | — | — | — | — | — | — | — | (36,604) |
| (36,604) | ||||||||||||||
Balance at November 30, 2021 | 36 | — | 685,861 | 686 | 443 | — | 589,971 | (603,353) | (12,696) | |||||||||||||||
For the three months ended February 28, 2022: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — | — | 17,132 | 17 | — | — | — | — | 12,048 | — | — | — | 12,065 | |||||||||||
Stock issued for private offering ($0.40 - $1.00 per share) | — | — | 6,860 | 7 | — | — | 3,545 | — |
| 3,552 | ||||||||||||||
Conversion of Series C convertible preferred stock to common stock | (1) | — | 2,200 | 2 | — | — | (2) | — |
| — | ||||||||||||||
Exercise of warrants | — | — | 11 | — | — | — | — | — |
| — | ||||||||||||||
Modification of previously issued equity | — | — | 1,179 | 1 | — | — | 953 | — |
| 954 | ||||||||||||||
Dividend declared and paid in common stock upon conversion of Series C preferred stock ($0.50 per share) | — | — | 487 | — | — | — | 243 | — |
| 243 | ||||||||||||||
Dividends accrued on Series C and D preferred stock | — | — | — | — | — | — | — | (397) |
| (397) | ||||||||||||||
Finance charges related to warrant issuance for surety bond backstop agreement | — | — | — | — | — | — | 6,585 | — | 6,585 | |||||||||||||||
Stock-based compensation | — | — | — | — | — | — | (438) | — |
| (438) | ||||||||||||||
Net loss | — | — | — | — | — | — | — | (32,328) |
| (32,328) | ||||||||||||||
Balance at February 28, 2022 | 35 | $ | — | 713,730 | $ | 713 | 443 | $ | — | $ | 612,905 | $ | (636,078) | $ | (22,460) | |||||||||
| (1) | See Note 2, Correction of Immaterial Misstatements in Prior Period Financial Statements in Form 10-Q for the period ended November 30, 2021. |
See accompanying notes to consolidated financial statements.
5
CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit) Equity
(Unaudited, in thousands)
Preferred stock | Common stock | Treasury stock |
| Additional |
| Accumulated |
| Total stockholders' | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | paid-in capital | deficit | (deficit) equity | ||||||||||
(Revised) (1) | (Revised) (1) | (Revised) (1) | ||||||||||||||||||||||
Balance at May 31, 2020 | 109 | $ | — | 519,261 | $ | 519 | 286 | $ | — | $ | 372,301 | $ | (375,301) | $ | (2,481) | |||||||||
For the three months ended August 31, 2020: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — | — | 2,119 | 2 | — | — |
| 9,535 |
| — |
| 9,537 | ||||||||||||
Issuance of legal settlement warrants | — | — | 4,000 | 4 | — | — |
| (4) |
| — |
| — | ||||||||||||
Exercise of stock options | — | — | 100 | — | — | — |
| 39 |
| — |
| 39 | ||||||||||||
Stock issued for incentive compensation and tendered for income tax | — | — | 323 | — | 156 | — |
| 828 |
| — |
| 828 | ||||||||||||
Conversion of Series B preferred stock to common stock | (5) | — | 50 | — | — | — |
| — |
| — |
| — | ||||||||||||
Private warrant exchange | — | — | 16,544 | 17 | — | — |
| 7,787 |
| — |
| 7,804 | ||||||||||||
Exercise of warrants | — | — | 27,928 | 28 | — | — |
| 12,662 |
| — |
| 12,690 | ||||||||||||
Inducement interest expense related to private warrant exchange | — | — | — | — | — | — |
| 3,345 |
| — |
| 3,345 | ||||||||||||
Offering costs related to private warrant exchange | — | — | — | — | — | — |
| (364) |
| — |
| (364) | ||||||||||||
Dividend declared and paid on Series B preferred stock ($0.25 per share) | — | — | — | — | — | — |
| — |
| (243) |
| (243) | ||||||||||||
Dividends accrued on Series C and D preferred stock | — | — | — | — | — | — |
| — |
| (420) |
| (420) | ||||||||||||
Stock-based compensation | — | — | — | — | — | — |
| 2,865 |
| — |
| 2,865 | ||||||||||||
Net loss | — | — | — | — | — | — |
| — |
| (30,832) |
| (30,832) | ||||||||||||
Balance at August 31, 2020 | 104 | — | 570,325 | 570 | 442 | — | 408,994 | (406,796) | 2,768 | |||||||||||||||
For the three months ended November 30, 2020: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — |
| — | 4,293 |
| 4 | — |
| — |
| 11,549 |
| — |
| 11,553 | |||||||||
Exercise of stock options | — |
| — | 10 |
| — | — |
| — |
| 10 |
| — |
| 10 | |||||||||
Stock issued for private offering ($1.50 per share) | — |
| — | 667 |
| 1 | — |
| — |
| 999 |
| — |
| 1,000 | |||||||||
Private warrant exchange | — | — | 12,480 | 13 | — | 4,583 | 4,596 | |||||||||||||||||
Exercise of warrants | — | — | 2,504 | 2 | — | 1,737 | 1,739 | |||||||||||||||||
Inducement interest expense related to private warrant exchange | — |
| — | — |
| — | — |
| — |
| 4,217 |
| — |
| 4,217 | |||||||||
Dividends accrued on Series C and D preferred stock | — |
| — | — |
| — | — |
| — |
| — |
| (415) |
| (415) | |||||||||
Stock-based compensation | — |
| — | — |
| — | — |
| — |
| 3,423 |
| — |
| 3,423 | |||||||||
Net loss | — |
| — | — |
| — | — |
| — |
| — |
| (35,425) |
| (35,425) | |||||||||
Balance at November 30, 2020 | 104 | — | 590,279 | 590 | 442 | — | 435,512 | (442,636) | (6,534) | |||||||||||||||
For the three months ended February 28, 2021: | ||||||||||||||||||||||||
Issuance of stock for convertible note repayment | — |
| — | 4,013 |
| 4 | — |
| — |
| 20,500 |
| — |
| 20,504 | |||||||||
Exercise of stock options | — |
| — | 2,471 |
| 2 | — |
| — |
| 1,778 |
| — |
| 1,780 | |||||||||
Conversion of Series B preferred stock to common stock | (8) |
| — | 80 |
| — | — |
| — |
| — |
| — |
| — | |||||||||
Private warrant exchange | — | — | 5,939 | 6 | — | — | 3,461 | — | 3,467 | |||||||||||||||
Exercise of warrants | — | — | 6,638 | 7 | — | — | 3,432 | — | 3,439 | |||||||||||||||
Inducement interest expense related to private warrant exchange | — | — | — | — | — | — | 5,360 | — | 5,360 | |||||||||||||||
Offering costs related to private warrant exchange | — | — | — | — | — | — | (131) | — | (131) | |||||||||||||||
Dividends accrued on preferred stock | — | — | — | — | — | — | — | (411) | (411) | |||||||||||||||
Stock-based compensation | — |
| — | — |
| — | — |
| — |
| 1,937 |
| — |
| 1,937 | |||||||||
Net loss | — |
| — | — |
| — | — |
| — |
| — |
| (45,206) |
| (45,206) | |||||||||
Balance at February 28, 2021 | 96 | $ | — | 609,420 | $ | 609 | 442 | $ | — | $ | 471,849 | $ | (488,253) | $ | (15,795) | |||||||||
| (1) | See Note 2, Correction of Immaterial Misstatements in Prior Period Financial Statements in Form 10-Q for the period ended November 30, 2021. |
See accompanying notes to consolidated financial statements.
6
CytoDyn Inc.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine months ended February 28, | |||||||
| 2022 |
| 2021 |
| |||
(Revised) (1) | |||||||
Cash flows from operating activities: |
|
|
|
| |||
Net loss | $ | (100,390) | $ | (111,463) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
| |||
Amortization and depreciation |
| 657 |
| 1,522 | |||
Amortization of debt issuance costs |
| 70 |
| 40 | |||
Amortization of discount on convertible notes |
| 2,382 |
| 2,739 | |||
Non-cash warrant issuance cost for legal settlement | 1,744 | — | |||||
Inducement interest expense and non-cash finance charges |
| 14,270 |
| 12,922 | |||
Inventory reserve and write offs | 8,916 | 4,835 | |||||
Stock-based compensation |
| 4,219 |
| 9,053 | |||
Loss on extinguishment of convertible notes |
| 11,072 |
| 11,794 | |||
Intangible asset impairment charge | — | 10,049 | |||||
Changes in operating assets and liabilities: |
|
|
| ||||
Decrease (increase) in inventories | 1,895 | (79,226) | |||||
(Increase) decrease in prepaid expenses | (5,159) | 362 | |||||
(Decrease) increase in accounts payable and accrued expenses |
| (11,355) |
| 52,606 | |||
Net cash used in operating activities |
| (71,679) |
| (84,767) | |||
Cash flows from investing activities: |
|
|
|
| |||
Furniture and equipment purchases |
| (30) |
| (100) | |||
Net cash used in investing activities |
| (30) |
| (100) | |||
Cash flows from financing activities: |
|
|
|
| |||
Proceeds from warrant transactions, net of offering costs | 5,390 | 15,371 | |||||
Proceeds from sale of common stock and warrants, net of issuance costs |
| 33,313 |
| 1,000 | |||
Proceeds from warrant exercises |
| 1,036 |
| 18,647 | |||
Payment on convertible notes |
| — |
| (950) | |||
Release of restricted cash held in trust for warrant tender offer |
| — |
| (10) | |||
Proceeds from stock option exercises | 390 | 1,829 | |||||
Payment of payroll withholdings related to tender of common stock for income tax withholding | — | (778) | |||||
Proceeds from convertible notes payable, net |
| — |
| 50,000 | |||
Dividend declared and paid on Series B preferred stock | — | (243) | |||||
Net cash provided by financing activities |
| 40,129 |
| 84,866 | |||
Net change in cash and restricted cash |
| (31,580) |
| (1) | |||
Cash and restricted cash, beginning of period |
| 33,943 |
| 14,292 | |||
Cash and restricted cash, end of period | $ | 2,363 | $ | 14,291 | |||
Cash and restricted cash consisted of the following: | |||||||
Cash | $ | 1,363 | $ | 14,291 | |||
Restricted cash | 1,000 | — | |||||
Total cash and restricted cash | $ | 2,363 | $ | 14,291 | |||
Supplemental disclosure of cash flow information: |
|
|
|
| |||
Cash paid during the period for interest | $ | 63 | $ | 140 | |||
Non-cash investing and financing transactions: |
|
|
|
| |||
Issuance of common stock for principal and interest of convertible notes | $ | 31,001 | $ | 29,800 | |||
Accrued dividends on convertible Series C and D preferred stock | $ | 988 | $ | 1,246 | |||
Dividend declared and paid in common stock on Series B and C preferred stock conversions | $ | 260 | $ | — | |||
Common stock issued upon conversion of preferred stock | $ | 2 | $ | — | |||
Common stock issued related to modification of equity agreements | $ | 1 | $ | — | |||
(1) See Note 2, Correction of Immaterial Misstatements in Prior Period Financial Statements in Form 10-Q for the period ended November 30, 2021.
See accompanying notes to consolidated financial statements.
7
CYTODYN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 2022
(UNAUDITED)
Note 1. Organization
CytoDyn Inc. (together with its wholly own subsidiaries, the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002, under the name RexRay Corporation and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a late-stage biotechnology company focused on the clinical development of innovative treatments for multiple therapeutic indications based on its product candidate,leronlimab (PRO 140), a novel humanized monoclonal antibody targeting the CCR5 receptor. The Company is studying leronlimab in human immunodeficiency virus (“HIV”), oncology, non-alcoholic steatohepatitis (“NASH”), and coronavirus disease (“COVID-19”). The consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiaries, CytoDyn Operations Inc. and Advanced Genetic Technologies, Inc. (“AGTI”); AGTI is a dormant entity.
Leronlimab is being investigated as a viral entry inhibitor for HIV, believed to competitively bind to the N-terminus and second extracellular loop of the CCR5 receptor. For immunology, the CCR5 receptor is believed to be implicated in immune-mediated illnesses such as NASH. Leronlimab is being studied in NASH, oncology, COVID-19, and other therapeutic indications where CCR5 is believed to play an integral role.
The Company capitalizes inventories procured or produced in preparation for product launches sufficient to support estimated initial market demand subject to regulatory approval for commercial sale. The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from its Phase 2b/3 clinical trial for leronlimab as a combination therapy with highly active antiretroviral therapy (“HAART”) for highly treatment-experienced HIV patients, as well as information gathered from meetings with the U.S. Food and Drug Administration (“FDA”) related to its Biologic License Application (“BLA”) for this indication. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients. The FDA informed the Company the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company is working with consultants to cure the BLA deficiencies noted and plans to resubmit the BLA as soon as practical. In November 2021, the Company resubmitted the non-clinical and chemistry, manufacturing, and controls (“CMC”) sections of the BLA and is currently reevaluating when it expects to complete the clinical section. As of March 2022, the FDA had commenced its review of the CMC section. The Company is in dispute with its former contract research organization (“CRO”), as described in Note 10, Commitments and Contingencies, Legal Proceedings. Recently, in the context of the litigation, the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO’s services. Additionally, the FDA recently placed the HIV program on a partial clinical hold, which may affect the ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will update the status of its anticipated resubmission of the clinical section of the BLA once it completes its evaluation. The Company anticipates that when the FDA completes its review of the BLA following completion of the resubmission, leronlimab will be approved, and market acceptance of leronlimab as a treatment for HIV will be forthcoming, enabling the Company to sell the amount of pre-launch inventory on-hand prior to its expiration. Refer to Note 2, Summary of Significant Accounting Policies, Inventories, Note 3, Inventories, net, and Note 10, Commitments and Contingencies, and Part II, Item 2. Regulatory Matters, and Item 1A. Risk Factors for additional information.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
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The unaudited interim consolidated financial statements include the accounts of CytoDyn Inc. and its subsidiaries and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim period. The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2021, as amended by Amendment No. 1 filed with the SEC on September 28, 2021 (the “2021 Form 10-K”). The results of operations for the three and nine months ended February 28, 2022, are not necessarily indicative of results to be expected for the entire fiscal year.
Reclassifications
Certain prior year and prior quarter amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not have any effect on the Company’s financial position, results of operations, stockholders’ (deficit) equity, or net cash flows previously reported.
Correction of Immaterial Misstatements in Prior Period Financial Statements
During the preparation of the quarterly financial statements as of and for the period ended November 30, 2021, the Company identified an error in how non-cash inducement interest expense was calculated in previous reporting periods dating back to fiscal year 2018. The original inducement expense model was designed to calculate non-cash inducement interest expense specific to inducements that modified the warrant term (e.g., extension of the term or modification of exercise price) without settling the instrument. However, starting in fiscal year 2018, inducements were primarily structured to result in a settlement of the warrant, not merely a modification of a warrant that would remain outstanding for some period. The error was identified when the model started to calculate a gain on substantially all inducements, which was inconsistent with the economics of the arrangements. The error resulted in an understatement of non-cash inducement interest expense and additional paid-in capital. The Company assessed the materiality of the misstatement in accordance with Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, as well as SEC Staff Accounting Bulletins No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that the misstatement was not material to the Company’s consolidated financial statements for the prior periods and, accordingly, that amendments of previously filed reports were not required. For additional information about this correction refer to Note 2, Summary of Significant Accounting Policies, of the Form 10-Q for the interim period ended November 30, 2021.
Going Concern
The consolidated accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of $100.4 million for the nine months ended February 28, 2022 and has an accumulated deficit of $636.1 million as of February 28, 2022. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional operating capital, complete development of its product candidate, leronlimab, obtain approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve substantial revenues, and to attain profitability. The Company continues to pursue significant research and development activities related to leronlimab for multiple indications and expects to incur significant research and development expenses in the future primarily related to its clinical trials. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs primarily from the sale of equity and debt securities, combined with additional funding from other traditional sources. However, there can be no assurance, however, that the Company will be successful in these endeavors.
9
Use of Estimates
The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are assessed each period and updated to reflect current information, such as the status of our analysis of the results of our clinical trials and discussions with the United States Food and Drug Administration (the “FDA”) which could have an impact on the Company’s significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Significant estimates include, but are not limited, to those relating to stock-based compensation, capitalization of pre-launch inventories, reserve for excess and obsolete inventories, revenue recognition, research and development expenses, determination of right of use assets under lease transactions and related lease obligations, commitments and contingencies, and the assumptions used to value warrants, warrant modifications and useful lives for property and equipment and related depreciation calculations. Actual results could differ from these estimates.
Revenue Recognition
The Company accounts for and recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s revenue is generated solely through the sale of leronlimab. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Contracts with customers are generally in the form of a written purchase order that outlines the promised goods and the agreed upon price. Such orders are often accompanied by a master supply or distribution agreement that establishes the terms and conditions, rights of the parties, delivery terms, and pricing. The Company assesses collectability based on a number of factors, including the creditworthiness of the customer.
For the Company’s sole contract to date, the customer submits purchase orders to purchase of a specified quantity of leronlimab vials; therefore, the delivery of the ordered quantity per the purchase order is accounted for as one performance obligation. The Company does not offer discounts or rebates.
The transaction price is determined based on the agreed upon rates per vial indicated in the purchase order or master supply agreement applied to the quantity of leronlimab vials that the customer requested in the purchase order. As the Company’s contracts include only one performance obligation, the delivery of the product to the customer, all of the transaction price is allocated to the one performance obligation. Therefore, upon delivery of the product quantity equal to the quantity requested in the purchase order, there are no remaining performance obligations. The Company’s shipping and handling activities are considered a fulfillment cost. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. The Company has not adjusted the transaction price for significant financing since the time period between the transfer of goods and payment is less than one year.
The Company recognizes revenue at a point in time when control of the products is transferred to the customer. Management applies judgment in evaluating when a customer obtains control of the promised good which is generally when the product is delivered to the customer. The Company’s customer contract includes a standard assurance warranty to guarantee that its products comply with agreed specifications. The Company grants a conditional right of return of product in the customer’s inventory upon an adverse regulatory ruling. The Company continually evaluates the probability of such occurrence. If necessary, the Company will defer revenue recognized based on its estimate of the right of return, which considers the probability that an adverse regulatory ruling will occur and its estimate of product in the customer’s inventory.
Disaggregation of Revenue – The Company’s revenues are derived solely from the sale of leronlimab vials. The Company believes the revenues are presented at the appropriate level of detail in the accompanying consolidated statement of operations.
10
Contract Assets and Liabilities – The Company’s performance obligations for its contracts with customers are satisfied at a point in time through the delivery of leronlimab vials to its customer. The Company did not have revenues during the nine months ended February 28, 2021 and had $0.3 million in revenues in the nine months ended February 28, 2022. The Company did not have any contract assets or as of February 28, 2021 or 2022. For all periods presented, the Company did not recognize revenues from amounts that were previously included in a contract liability balance. In addition, for all periods presented, there was no revenue recognized in a reporting period from performance obligations satisfied in previous periods.
Performance Obligations – The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s contract, each unit of product delivered to the customer represents a separate performance obligation; therefore, future deliveries of the product are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Inventories
Previously Expensed Inventories
The Company has recorded revenue related to sales of vials for emergency purposes only, solely to treat critically ill COVID-19 patients in the Philippines under Compassionate Special Permit. Cost of goods sold has been minimal because the vials sold were expensed in prior periods as research and development expense, as they were manufactured prior to the Company’s capitalization of pre-launch inventories as described below. Accordingly, all inventory amounts represent pre-launch inventories, and do not include any inventories previously expensed as research and development expense.
Capitalized Pre-launch Inventories
The Company’s pre-launch inventories consist of raw materials purchased for commercial production and work-in-progress inventory related to the substantially completed commercial production of pre-launch inventories of leronlimab to support the Company’s expected approval of the product as a combination therapy for HIV patients in the United States. Work-in-progress consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials.
The Company values inventory at the lower of cost or net realizable value using the average cost method. Inventories consist of raw materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic, leronlimab, which is in the regulatory approval process. The consumption of raw materials during production is classified as work-in-progress until saleable. Once it is determined to be in saleable condition, following regulatory approval, inventory is classified as finished goods. Inventory is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory considering the status of the product within the regulatory approval process.
The Company capitalizes inventories procured or produced in preparation for product launches sufficient to support estimated initial market demand. Typically, capitalization of such inventory begins when the results of clinical trials have reached a status sufficient to support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced, and the Company has determined it is probable that these capitalized costs will provide future economic benefit in excess of capitalized costs. The material factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, and status of the Company’s regulatory applications. The Company closely monitors the status of the product within the regulatory review and approval process, including all relevant communications with regulatory authorities. If the Company is aware of any specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory may no longer qualify for capitalization.
11
The Company utilizes resins, a reusable raw material, in its bulk drug manufacturing process. Shelf-life of a resin used in commercial manufacturing of biologics is determined by the number of cycles for which it has been validated to be used in a manufacturing process, before it is considered unusable. Unpacked and unused resins have a manufacturer’s expiration date by which resins are expected to start being used in the manufacturing process without loss of their properties. Prior to a new manufacturing campaign, and between manufacturing campaigns, the resins are removed from storage, are treated and tested for suitability. Once resins are used in the manufacturing process, their shelf-life is measured by a validated predetermined number of manufacturing cycles they are usable for, conditional on appropriate storage solution under controlled environment between production campaigns, as well as by performing pre-production usability testing. Before a manufacturing campaign, each resin is tested for suitability. Regardless of the number of cycles, if a resin fails to meet prespecified suitability parameters it may not be used in manufacturing; likewise even if the resin meets suitability criteria beyond the lifetime cycles, it may no longer be used. The cost of the resins used in a manufacturing campaign is allocated to the cost of the drug product in vials.
The Company evaluates its inventory levels on a quarterly basis and writes down inventory that became obsolete, has a cost in excess of its expected net realizable value, or is in quantities in excess of expected requirements. In assessing the lower of cost or net realizable value for pre-launch inventory, the Company relies on independent analyses provided by third parties knowledgeable about the range of likely commercial prices comparable to current comparable commercial product. Quarterly, the Company also evaluates whether certain raw materials held in its inventory are expected to reach the end of their estimated shelf-lives based on passage of time, the number of manufacturing cycles they are used in and results of pre-production testing prior to the expected production date, or when resins used in the manufacturing process fail suitability tests, and records reserves if it is expected that such inventories will become obsolete prior to the expected production date.
Anticipated future sales, shelf lives, and expected approval date are considered when evaluating realizability of capitalized inventory. The shelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize pre-launch inventories, the Company considers the product stability data of all of the pre-approval inventory procured or produced to date to determine whether there is adequate shelf life. When the remaining shelf-life of drug product inventory is less than 12 months, it is likely that it will not be accepted by potential customers. However, as inventories approach their shelf-life expiration, the Company may perform additional stability testing to determine if the inventory is still viable, which can result in an extension of its shelf-life and revaluation of the need for and the amount of the previously recorded reserves. Further, in addition to performing additional stability testing, certain raw materials inventory may be sold in its then current condition prior to reaching expiration. If the Company determines it is not likely shelf-life will be able to be extended or the inventory cannot be sold prior to expiration, the Company will record the inventory down to its net realizable value.
Restricted cash
The Company records cash received from fundraising activities before the closing of the transaction as restricted cash on its consolidated balance sheets. As of February 28, 2022, the balance was $1.0 million. Refer to Note 12, Subsequent Events, for further information.
For additional information about the Company’s significant accounting policies, refer to Note 2, Summary of Significant Accounting Policies, of the 2021 Form 10-K.
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Note 3. Inventories, net
Inventories, net of reserves, are as follows:
(in thousands) |
| February 28, 2022 |
| May 31, 2021 | ||
Raw materials | $ | 19,517 | $ | 28,085 | ||
Work-in-progress |
| 63,151 |
| 65,394 | ||
Total inventories, net | $ | 82,668 | $ | 93,479 | ||
As of February 28, 2022, the remaining shelf-lives of the Company inventories are as follows:
The Company utilizes resins, a reusable raw material, in its bulk drug manufacturing process. Shelf-life of a resin used in commercial manufacturing of biologics is determined by the number of cycles for which it has been validated to be used in a manufacturing process, before it is considered unusable. Unpacked and unused resins have a manufacturer’s expiration date by which resins are expected to start being used in the manufacturing process without loss of their properties. Prior to a new manufacturing campaign, and between manufacturing campaigns, the resins are removed from storage, are treated and tested for suitability. Once resins are used in the manufacturing process, their shelf-life is measured by a validated predetermined number of manufacturing cycles they are usable for, conditional on appropriate storage solution under controlled environment between production campaigns, as well as by performing pre-production usability testing. Before a manufacturing campaign, each resin is tested for suitability. Regardless of the number of cycles, if a resin fails to meet prespecified suitability parameters it may not be used in manufacturing; likewise even if the resin meets suitability criteria beyond the lifetime cycles, it may no longer be used. The cost of the resins used in a manufacturing campaign is allocated to the cost of the drug product in vials.
The Company is in process of validating the resins’ properties based on the number of cycles they have been used for, and the remaining number of manufacturing cycles they may be used for, and expects to conclude its validation by the end of the current fiscal year. At the conclusion of the validation, the Company expects to present shelf-life of resins to be extended beyond the 13 to 24 months, as currently presented and instead to present shelf-life of resins based on remaining production cycles instead of number of months they may be used for. As of February 28, 2022, the Company did not identify any resins that failed suitability validation.
During the three and nine months ended February 28, 2022, the Company reserved $3.3 million and $5.1 million, respectively, for estimated obsolescence of raw materials; none during the three and nine months ended February 28, 2021. In addition, during the same periods of fiscal 2022, the Company expensed $1.8 million and $3.8 million, respectively, and $4.8 million during the nine months ended February 28, 2021, of vialed drug product used for clinical purposes and inventory rendered defective due to manufacturing errors committed by the contract manufacturer during the manufacturing process. These expenses are recorded as research and development expenses in the accompanying consolidated statement of operations.
The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from its Phase 2b/3 clinical trial for leronlimab as a combination therapy with highly active antiretroviral therapy (“HAART”) for highly treatment-experienced HIV
13
patients, as well as information gathered from meetings with the U.S. Food and Drug Administration (“FDA”) related to its Biologic License Application (“BLA”) for this indication. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission for leronlimab as a combination therapy with HAART for highly treatment-experienced HIV patients. The FDA informed the Company the BLA did not contain certain information and data needed to complete a substantive review and therefore, the FDA would not file the BLA. The deficiencies cited by FDA included administrative deficiencies, omissions, corrections to data presentation and related analyses, and clarifications regarding the manufacturing processes. The Company is working with consultants to cure the BLA deficiencies noted and plans to resubmit the BLA as soon as practical. In November 2021, the Company resubmitted the non-clinical and CMC sections of the BLA and is currently reevaluating when it expects to complete the clinical section. As of March 2022, the FDA had commenced its review of the CMC section. The Company is in dispute with its former CRO, as described in Note 10, Commitments and Contingencies, Legal Proceedings. Recently, in the context of the litigation, the Company obtained an order requiring the CRO to release the Company’s clinical data related to the BLA, which the CRO had been withholding. Further, the order granted the Company the right to perform an audit of the CRO’s services. Additionally, the FDA recently placed the HIV program on a partial clinical hold, which may affect the ability to resubmit the BLA. The Company is in the process of evaluating the data, results of the audit, and implications of the partial clinical hold. The Company will update the status of its anticipated resubmission of the clinical section of the BLA once it completes its evaluation. The Company anticipates that when the FDA completes its review of the BLA following completion of the resubmission, leronlimab will be approved, and market acceptance of leronlimab as a treatment for HIV will be forthcoming, enabling the Company to sell the amount of pre-launch inventory on-hand prior to its expiration. Refer to Note 2, Summary of Significant Accounting Policies, Inventories, Note 3, Inventories, net, and Note 10, Commitments and Contingencies, and Part II, Item 2. Regulatory Matters, and Item 1A. Risk Factors for additional information.
Note 4. Intangible assets, net
Intangible assets were as follows:
(in thousands) |
| February 28, 2022 |
| May 31, 2021 | ||
Leronlimab (PRO 140) patent | $ | 3,500 | $ | 3,500 | ||
ProstaGene, LLC intangible asset acquisition, net of impairment |
| 2,926 | 2,926 | |||
Website development costs |
| 20 |
| 20 | ||
Gross carrying value | 6,446 | 6,446 | ||||
Accumulated amortization, net of impairment |
| (5,403) |
| (4 | ||