UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM10-K

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 20192020

or

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number000-49908

 

 

 

LOGOLOGO

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

Identification No.)

1111 Main Street, Suite 660

Vancouver, Washington

 98660
(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, including area code:(360) 980-8524

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

None. None. None.

Securities registered pursuant to Section 12(g) of the Act:

Title of class

Common Stock, par value $0.001 per share

 

 


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    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  ☐    No  ☒

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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
   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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).    Yes  ☐    No  ☒

State the aggregate market value of the voting andnon-voting common equity held bynon-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and askedask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $144,497,302$106,487,002 as of November 30, 2018.2019.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of June 30, 2019,July 31, 2020, the registrant had 364,748,563568,242,391 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

 

Document

 

Parts Into Which

Incorporated

Portions of the Proxy Statement for the 20192020 Annual Meeting of Stockholders

 Part III

 

 

 


CYTODYN INC.

FORM10-K FOR THE YEAR ENDED MAY 31, 20192020

Table of Contents

 

     Page
PART I2 

PART ITEM 

4

ITEM 1.

  BUSINESSBUSINESS   24 

ITEM ITEM 1A.

  RISK FACTORSRISK FACTORS   1421 

ITEM ITEM 1B.

  UNRESOLVED STAFF COMMENTS STAFF COMMENTS   3755 

ITEM ITEM 2.

  PROPERTIESPROPERTIES   3755 

ITEM ITEM 3.

  LEGAL PROCEEDINGS PROCEEDINGS   3755 

ITEM ITEM 4.

  MINE SAFETY DISCLOSURESMINE SAFETY DISCLOSURES   3756 

PART II

  3756 

ITEM ITEM 5.

  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES EQUITY SECURITIES   3756 

ITEM ITEM 6.

  SELECTED FINANCIAL DATASELECTED FINANCIAL DATA   3858 

ITEM ITEM 7.

  MANAGEMENTS DISCUSSIONMANAGEMENT’S DISCUSSION AND ANALYSIS ANALYSIS OF FINANCIAL CONDITION FINANCIAL CONDITION AND RESULTS RESULTS OF OPERATIONS OPERATIONS   3958 

ITEM 8.ITEM 7A.

  FINANCIAL STATEMENTSQUANTITITATIVE AND SUPPLEMENTARY DATA QUALITATIVE DISCLOSURES ABOUT MARKET RISK   4973 

ITEM 9.ITEM 8.

  CHANGESINFINANCIAL STATEMENTS AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTINGAND FINANCIAL DISCLOSURE SUPPLEMENTARY DATA   7873 

ITEM 9A.ITEM 9.

  CONTROLSCHANGES IN AND PROCEDURES DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   78116 

ITEM 9B.ITEM 9A.

  OTHER INFORMATIONCONTROLS AND PROCEDURES   79117 

ITEM 9B.

OTHER INFORMATION117

PART III

  79118 

ITEM ITEM 10.

  DIRECTORS, EXECUTIVE OFFICERSDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE CORPORATE GOVERNANCE   79118 

ITEM ITEM 11.

  EXECUTIVE COMPENSATIONEXECUTIVE COMPENSATION   79118 

ITEM ITEM 12.

  SECURITY OWNERSHIPSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS CERTAIN BENEFICIAL OWNERS AND MANAGEMENT MANAGEMENT AND RELATED STOCKHOLDER MATTERS RELATED STOCKHOLDER MATTERS   79118 

ITEM ITEM 13.

  CERTAIN RELATIONSHIPSCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE DIRECTOR INDEPENDENCE   79118 

ITEM ITEM 14.

  PRINCIPAL ACCOUNTANT FEESPRINCIPAL ACCOUNTANT FEES AND SERVICES SERVICES   79118 

PART IV

  79119 

ITEM ITEM 15.

  EXHIBITSEXHIBITS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENT SCHEDULES   79119 

ITEM ITEM 16.

  FORMFORM 10-K SUMMARYSUMMARY   79125 

1


FORWARD-LOOKING STATEMENTS

This annual report contains certain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict, including our clinical focuspriorities and our current and proposed trials. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as “believes,” “hopes,” “intends,” “estimates,” “expects,” “projects,” “plans,” “anticipates” and variations thereof, or the use of future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Our forward-looking statements are not guarantees of performance and actual results could differ materially from those contained in or expressed by such statements. In evaluating all such statements, we urge you to specifically consider various risk factors identified in this annual report, including the matters set forth under the heading “Risk Factors,” any of which could cause actual results to differ materially from those indicated by our forward-looking statements.

Our forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic, scientific, and competitive data and information on current business plans. Forward-looking statements specifically include statements about leronlimab, its ability to have positive health outcomes, the possible results of clinical trials, studies or other programs or ability to continue those programs, the ability to obtain regulatory approval for commercial sales, the market for actual commercial sales, and the impact of health epidemics, including the ongoing COVID-19 pandemic, on our business and operations. You should not place undue reliance on our forward-looking statements, which are subject to risks and uncertainties relating to, among other things: (i) the sufficiency of ourthe Company’s cash position, and our ongoing(ii) the Company’s ability to raise additional capital to fund ourits operations, (ii) our ability to complete(iii) the filing of a Biologics License Application (“BLA”) with the U.S. Food and Drug Administration (“FDA”) for leronlimab (PRO 140), as a combination therapy for the Human Immunodeficiency Virus (“HIV”), (iii) ourCompany’s ability to meet ourits debt obligations, if any, (iv) ourthe Company’s ability to enter into partnership or licensing arrangements with third-parties, (v) the Company’s ability to identify patients to enroll in ourits clinical trials in a timely fashion, (v) our(vi) the Company’s ability to achieve approval of a marketable product, (vi)(vii) the design, implementation and conduct of the Company’s clinical trials, (vii)(viii) the results of ourthe Company’s clinical trials, including the possibility of unfavorable clinical trial results, for any clinical indication, (viii)(ix) the market for, and marketability of, any product that is approved, (ix) our ability to enter into partnership or licensing arrangements with third parties, (x) the existence or development of vaccines, drugs, or other treatments for infection with HIV that are viewed by medical professionals or patients as superior to ourthe Company’s products, (xi) regulatory initiatives, compliance with governmental regulations and the regulatory approval process, (xii) litigation affecting the Company or its products; (xiii) general economic and business conditions, (xiii)(ix) changes in foreign, political, and social conditions, (xiv) the specific risk factors discussed under the heading “Risk Factors” below, and (xv) various other matters, many of which are beyond ourthe Company’s control. Should one or more of these risks or uncertainties develop, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated, or otherwise indicated by our forward-looking statements.

We intend that all forward-looking statements made in this annual report on Form10-K will be subject to the safe harbor protection of the federal securities laws pursuant to Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), to the extent applicable. Except as required by law, we do not undertake any responsibility to update these forward-looking statements to take into account events or circumstances that occur after the date of this annual report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events whichthat may cause actual results to differ from those expressed or implied by these forward-looking statements.

PART I

 

Item 1.

Business.

Overview/Corporate HistoryHistory/Business Overview

CytoDyn Inc. was originally incorporated under the laws of Colorado on May 2, 2002 under the name RexRay Corporation (our previous name). Effective August 27, 2015, we completed a reincorporation from

Colorado to Delaware. Our principal business office is 1111 Main Street, Suite 660, Vancouver, Washington 98660. Our website can be found atwww.cytodyn.com. We will make available on our website, free of charge, the proxy statements and reports on Forms8-K,10-K,8-K, 10-K, and10-Q that we file with the United States Securities and Exchange Commission (“SEC”) as soon as reasonably practicable, after such material is electronically filed with or furnished to, the SEC. We do not intend to incorporate any contents from our website into this annual report. Unless the context otherwise requires, references in this annual report to “CytoDyn,” the “Company,” “we,” “our,” or “us” are to CytoDyn Inc. and its subsidiaries.

We are a late-stage biotechnology company focused on the clinical development and potential commercialization of leronlimab (PRO 140), a CCR5 antagonist to treat HIV infection, with the potential for multiple therapeutic indications. In November 2018, the United States Adopted Names Council adopted “leronlimab” as the official nonproprietary name for PRO 140. The names leronlimab and PRO 140 will be used interchangeably throughout this annual report. The Company has also received conditional acceptance by the U.S. Food and Drug Administration (the “FDA”) of the proprietary name Vyrologix (pronounced—vie-ro-loj-iks) for leronlimab as a combination therapy for highly treatment experienced HIV patients in the United States. In addition, the Company has also received a notice of allowance from the U.S. Trademark Office for the trademark “Vyrologix”.

The preclinical and clinical development of PRO 140 was led by Progenics Pharmaceuticals, Inc. (“Progenics”) through 2011. The Company acquired the asset from Progenics in October 2012, as described in “PRO 140 Acquisition and Licensing Arrangements” below. In February 2018, we announced we had met the primary endpoint in its Phase 3 trial for leronlimab as a combination therapy with HAART for highly treatment experienced HIV patients, and filed the non-clinical portion of our Biologics License Application (“BLA) on March 18, 2019. We filed with the FDA the clinical, along with the Chemistry, Manufacturing, and Controls (“CMC”) portions of the BLA April and May of 2020. In July 2020, we received a Refusal to File letter from the FDA regarding the BLA filing, and requested a Type A meeting to discuss the FDA’s request for additional information.

Our current business strategy is to prioritize the completionresubmit our BLA filing for leronlimab as a combination therapy for highly treatment experienced HIV patients as soon as possible, to seek approval for leronlimab as a potential therapeutic benefit for COVID-19 patients with mild-to-moderate, as well as, severe to critical indications, to advance our clinical trials with leronlimab for various forms of cancer, including, among others, our Phase 1b/2 clinical trial for metastatic triple-negative breast cancer and Phase 2 trial for 22 solid tumor cancers, to continue our Phase 2 trial for graft-versus-host disease (“GvHD”), to finalize with the FDA our submitted protocol for a pivotal Phase 3 clinical trial with leronlimab as a monotherapy for HIV patients and to concurrently to explore other cancer and immunologic indications for leronlimab.

2


Overview

Leronlimab as a CCR5 Antagonist

We are focused on developing leronlimab, a monoclonal antibody C - C—C chemokine receptor type 5 (“CCR5”) receptor antagonist, to be used as a platform drug for a variety of indications. The target of leronlimab is the immunologic receptor CCR5. The CCR5 receptor is a protein located on the surface of a variety of cells including white blood cells and cancer cells. On white blood cells, it serves as a receptor for chemical attractants called chemokines. The CCR5 receptor is also theco-receptor needed for certain strains of HIV to infect healthyT-cells. Recent research has identified the CCR5 receptor as an important target for many disease processes including cancer metastasis and certain immunological conditions. Leronlimab is a unique humanized monoclonal antibody. Leronlimab prevents certain strains of HIV from using the CCR5 receptor as an entry gateway for healthy cells.Pre-clinical research has also shown that leronlimab blocks calcium channel signaling of the CCR5 receptor when present on the cancer cell surface. Calcium channel signaling of the CCR5 receptor is a crucial component to the spread of metastatic cancer.

Due

Leronlimab binds to the second extracellular loop and N-terminus of the CCR5 receptor, and due to its selectivity and target-specific mechanism of action, leronlimab appears to allow chemokine binding (CCL3, CCL4) at therapeutic doses and appears not to be an agonist of the CCR5 receptor (i.e., it does not appear to activate the immune function of the receptor).CCR5 receptor through agonist activity. This apparent target specificity differentiates leronlimab from other CCR5 antagonists. Leronlimab is a competitive rather than allosteric inhibitor of the CCR5 receptor. Other potential advantages of leronlimab include longer half-life and less frequent dosing requirements.

The CCR5 receptor has been identified as a target in HIV, GvHD, NASH, cancer metastasis, transplantation medicine, multiple sclerosis, traumatic brain injury, stroke recovery, and a variety of inflammatory conditions.conditions, including potentially COVID-19. As we progress in evaluating leronlimab via a pathwaysmulti-pathways approach, we see an opportunity to build a broad pipeline of indications through label expansion following initial approval for multi-drug resistant HIV.

The preclinical and clinical development of PRO 140 was led by Progenics Pharmaceuticals, Inc. (“Progenics”) through 2011. We acquired the asset from Progenics in October 2012, as described in “PRO 140 Acquisition and Licensing Arrangements” below, and filed thenon-clinical portion of our BLA on March 18, 2019. Thenon-clinical portion constitutes the first of three sections of the BLA, and we are progressing forward with the preparation and submission of the clinical and Chemistry, Manufacturing, and Controls (“CMC”) portions.

Leronlimab and Human Immunodeficiency Virus (“HIV”)

We believe the leronlimab antibody shows promise as a powerful anti-viralantiviral agent with the advantage of fewer side effects, lower toxicity and less frequent dosing requirements, as compared to daily drug therapies currently in use for the treatment of HIV. The leronlimab antibody belongs to a class of HIV therapies known as entry inhibitors that block HIV from entering into and infecting certain cells. Leronlimab blocks HIV from entering a cell by binding to a molecule called CCR5, a normal cell surface receptor protein to which certain strains of HIV, referred to as “R5” strains, attach as part of HIV’s entry into a cell.

Leronlimab does not appear to affect the normal function of the CCR5co-receptor for HIV. Instead, leronlimab binds to a precise site on CCR5 that R5 strains of HIV use to enter the cell and, in doing so, inhibits the ability of these strains of HIV to infect the cell without appearing to affect the cell’s normal function. The R5 strains of HIV currently represent approximately 67% of all HIV infections in the United States. As a result, we believe leronlimab represents a distinct class of CCR5 inhibitors with advantageous virological and immunological properties and may provide a unique tool to treat HIV infected patients.

We believe leronlimab is uniquely positioned to address a growing HIV market, as an alternative, or in addition to current therapies, which are failing primarily due to patientnon-compliance, which causes drug resistance. Several factors give rise to patientnon-compliance issues, such as toxicity and side effects, coupled with the need for a strict regimen of daily dosing. In eight clinical trials previously conducted, leronlimab was generally well tolerated, and nolimited drug-related serious adverse events (“SAEs”), or dose-proportional adverse events (“AEs”), were reported. In addition, there were no dose-limiting toxicities or patterns of drug-related toxicities observed during these trials. The results of these studies established that leronlimab’s antiviral activity was potent, rapid, prolonged, dose-dependent, and statistically significant following a single dose. Because leronlimab’s mechanism of action (for a monoclonal antibody use in HIV) is a relatively new therapeutic approach, it provides a very useful method of suppressing the virus in treatment-experienced patients who have failed a prior HIV regimen and need new treatment options. Leronlimab, as a single agent therapy, has also demonstrated that it could potentially replace highly active antiretroviral therapy (“HAART”) altogether for a subpopulation of R5 patients who have suppressed viral load with HAART, but who are seeking an alternative treatment that affords the patient an improved quality of life, with the advantages of fewer side effects, lower toxicity and less frequent dosing requirements.

3


To date, leronlimab has been tested and administered to patients predominantly as a subcutaneous injection. We believe that if leronlimab is approved by the FDA for use as an injectable for HIV, it may be an attractive and marketable therapeutic option for patients, particularly in the following scenarios:

 

Patients desiring a break from existing treatment regimens, whether due to side-effects or for any personal reasons;

 

Patients with difficulty adhering to daily drug regimens;

 

Patients who poorly tolerate existing therapies;

Patients with compromised organ function, such as hepatitis C (“HCV”)co-infection;

 

Patients with complex concomitant medical requirements; and

 

Patients who choose not to start their HAART regimen immediately after being infected with HIV.

Clinical trials for leronlimab have demonstrated potent antiretroviral activity (as compared to existing treatments) and no drug-related SAEs or dose-proportional AEs. Consequently, we believe that leronlimab has the potential to be the first long-acting (weekly or every other week), self-administered HIV therapy. Leronlimab appears to inhibit CCR5-tropic HIV while preserving CCR5’s natural function. As a result, we believe leronlimab represents a distinct class of CCR5 inhibitors with unique virological and immunological properties and may provide another distinct tool to treatHIV-infected patients.

Our ongoingHIV-related clinical trials, as summarized below, have been designed to demonstrate the proof of concept that leronlimab monotherapy can continue to suppress the viral load in certainHIV-infected, treatment-experienced patients who had suppressed viral load on HAART, but would like an alternative treatment that provides a higher quality of life with one dose a week through a self-injection. Once the viral load is undetectable, weekly administration of leronlimab can help maintain the suppressed viral load in a subpopulation of R5 patients over an extended period of time (currently shown to be in excess of four and a halfsix years). Based on the preliminary results of such studies, we believe that a leronlimab treatment option could also address the unmet medical need for therapy options for certainHIV-infected patients with uncontrolled viral load, despite conventional HAART treatments. Accordingly, we recently submitted to the FDA a pivotal Phase 3 trial protocol for leronlimab as monotherapy.

Importantly and in parallel with the submission of our pivotal trial protocol for monotherapy, we recently announced the completion of the development of a receptor occupancy test to measure the expression of CCR5 in HIV and tumor cells that are occupied by leronlimab. Development of this test could more precisely guide us in identification of HIV patients at screening for monotherapy, thereby potentially improving therapeutic success, along with further identifying cancer-patient candidates who have a form of cancer that CCR5 is over expressed. Subsequently, we entered into

Leronlimab and Coronavirus Disease 2019

SARS-CoV-2 was identified as the cause of an exclusive worldwide licensing agreement with IncellDXoutbreak of respiratory illness first detected in Wuhan, China. The origin of SARS-CoV-2 causing the COVID-19 disease is uncertain, and the virus is highly contagious. COVID-19 typically transmits person to sellperson through respiratory droplets, commonly resulting from close personal contact. Coronaviruses are a large family of viruses, some causing illness in people and others that circulate among animals. For confirmed non-commercialCOVID-19 grade quantitiesinfections, symptoms have included fever, cough, and shortness of breath. The symptoms of PA-14COVID-19 may appear in as few as two days or PRO 140as long as 14 days after exposure. Clinical manifestations in patients have ranged from non-existent to severe and fatal. At this time, there are minimal treatment options for useCOVID-19.

Based upon analyses of leronlimab’s potential effect on the immune system and the results from over 60 Emergency Investigation New Drug (EIND) authorizations provided by the FDA, the Company initiated two clinical trials for COVID-19, a Phase 2 randomized clinical trial for mild-to-moderateCOVID-19 population in the developmentU.S. and commercializationa Phase 3 randomized clinical trial for severe to critically ill COVID-19 population in several hospitals throughout the country. Following the completion of immunoassaysthe Phase 2 trial, the Company reported positive results for quantitative measurementsafety in July 2020. The Top-line Report from the trial, including efficacy and safety data, is expected to be submitted to the FDA in August 2020. Recently, the Data Safety Monitoring Committee for the ongoing Phase 3 trial completed its first safety review of CCR5 levels on human cells.patients with severe to critical COVID-19 and reported it saw no cause to modify the study. The DSMC reviewed compiled safety data from 149 of the 169 patients enrolled in the Phase 3 trial. The DSMC did not raise any concerns regarding safety and recommended that the trial continue. As such, the Company will conduct a full interim analysis once 195 patients are enrolled, as provided in the trial’s protocol.

Leronlimab and Cancer

Research indicates that the CCR5 receptor is the “GPS” system of a cancer cell that promotes metastatic disease.Pre-clinical studies have shown that leronlimab blocks the calcium channel signaling of the CCR5 receptor and has the potential to disable the GPS system. CCR5 inhibition may disrupt signaling and ultimately the spread of CCR5+ Circulating Tumor Cells (“CTCs”). Current therapies are directed to the primary tumor, rather than the movement or spread of cancer in the bloodstream. Metastatic disease, not the primary tumor, is the cause of death in the vast majority of cancer patients.

Research has shown that a majority of sampled patients in certain studies had increased CCR5 expression in their breast cancer. Increased CCR5 expression is an indicator of disease status in several cancers. Research has shown three key properties of the CCR5’s mechanism of action (“MOA”) in cancer. The first is that the CCR5 receptor on cancer cells was responsible for the migration and invasion of cells into the bloodstream, which leads to metastasis of breast, prostate, and colon cancer. The second is that blocking the CCR5 receptor also turns on anti-tumor fighting properties restoring immune function. The third key finding was that blockage of the CCR5/CCL5 interaction had a synergistic effect with chemotherapeutic therapy and controlled cancer progression. Chemotherapy traditionally increased expression of CCR5 so blocking it is expected to reduce the levels of invasion and metastasis.

In late November 2018, we received FDA approval of our Investigational New Drug application (“IND”) submission and subsequently initiated a Phase 1b/2 clinical trial for metastatic triple-negative breast cancer (“mTNBC”) patients. We have since announced that we will begin multiplepre-clinical studies on melanoma cancer, pancreatic, breast, prostate, colon, lung, liver, and stomach cancer. Pending the results of such studies, we could eventually advance multiple Phase 2 clinical trials with leronlimab in the cancer arena. We have reported that ourpre-clinical research with leronlimab was able to reduce by more than 98% the incidence of human breast cancer metastasis in a mouse xenograft model for cancer through six weeks with leronlimab. The temporal equivalency of the murine 6 weeks study may be up to 6 years in humans. In May 2019, the FDA granted Fast Track Designation for leronlimab (PRO 140) for use in combination with carboplatin for the treatment of patients with CCR5-positive mTNBC. In addition, the Company has intiated a Phase 2 basket trial with leronlimab for the treatment of 22 solid tumor cancers.

4


Leronlimab and Immunological Applications

We are continuing to explore opportunities for clinical applications for leronlimab involving the CCR5 receptor, other thanHIV-related treatments, such as inflammatory conditions, autoimmune diseases and cancer.

The target of leronlimab is the immunologic receptor CCR5. We believe that the CCR5 receptor is more than the door for HIV to enterT-cells: it is also a crucial component in inflammatory responses. This could open the potential for multiple pipeline opportunities for leronlimab.

The CCR5 receptor is a protein located on the surface of white blood cells that serves as a receptor for chemical attractants called chemokines. Chemokines are the key orchestrators of leukocyte trafficking by attracting immune cells to the sites of inflammation. At the site of an inflammatory reaction, chemokines are released. These chemokines are specific for CCR5 and cause the migration ofT-cells to these sites promoting further inflammation. The mechanism of action of PRO 140 has the potential to block the movement ofT-cells to inflammatory sites, which could be instrumental in diminishing or eliminating inflammatory responses. Some disease processes that could benefit from CCR5 blockade include transplantation rejection, autoimmunity and chronic inflammation such as rheumatoid arthritis and psoriasis.

Due to leronlimab’s MOA, we believe leronlimab may have significant advantages in terms of reduced side effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation ofT-cells. We have already reported encouraging human safety data for our clinical trials with leronlimab inHIV-infected patients.

We have initiated our first clinical trial with leronlimab in an immunological indication – a Phase 2 clinical trial with leronlimab for GvHD in reduced intensity conditioning (“RIC”) patients with acute myeloid leukemia

(“AML”) or myelodysplastic syndrome (“MDS”) who are undergoing bone marrow stem cell transplantation. GvHD represents an unmet medical need, with patients who contract GvHD during stem cell transplant having a significantly decreased1-year survival rate with relapsed GvHD as the leading cause of death. Ourpre-clinical study in GvHD has been published in the peer-reviewed journalBiology of Blood and Marrow Transplantation. The FDA has granted orphan drug designation to leronlimab for the prevention of acute GvHD.

GvHD is a risk when patients receive bone marrow stem cells donated from another person. GvHD is a serious complication that limits the use of Bone Marrow Stem Cell (“BMSC”) transplantation in patients with blood cancers. GvHD occurs when the donor’s immune cells attack the patient’s normal tissues (skin, liver, gut). GvHD can be acute or chronic. Its severity depends on the differences in tissue type between patient and donor. Acute GvHD can occur soon after the transplanted cells begin to appear in the recipient and can range from mild to severe and can be life-threatening.

The CCR5 receptor, the target for leronlimab, appears to be an important mediator of GvHD, especially in the organ damage that is the usual cause of death. We believe that the CCR5 receptor on engrafted cells is critical for the development of acute GvHD and by blocking this receptor from recognizing certain immune signaling molecules could be a viable approach to mitigating acute GvHD. The potential of leronlimab to prevent this life-threatening condition could help extend the use of BMSC transplantation to effectively treat more patients.

We are also exploring the ability of leronlimab to prevent the progression ofNon-Alcoholic Fatty Liver Disease (“NAFLD”) intoNon-Alcoholic Steatohepatitis (“NASH”). NAFLD is an inflammatory disease caused by thebuild-up of fat in hepatocytes (steatosis). In severe cases, NAFLD progresses into NASH. It is estimated that 30% to 40% of adults in the United States have NAFLD, while 3% to 12% of adults in the United States have NASH. If left untreated, NASH may progress to hepatocellular carcinoma and is expected to become the leading cause of liver transplantation by 2020.

We continue to expand the clinical focus with leronlimab to include the evaluation in certain cancer and immunological indications where CCR5 antagonism has shown initial promise.

Prostate Diagnostic Test—PCa Test

An important asset inundergoing continued evaluation and development that we acquired from ProstaGene, LLC (“ProstaGene”) is the Prostate Diagnostic Test (the “PCa Test”). This test, developed by a leading oncologist, is intended to determine outcomes of patients diagnosed with prostate cancer compared to the Gleason score, the current standard test for prostate cancer diagnosis. It leverages technology using an artificial intelligence approach based on gene signatures. The PCa Test employs 16 gene biomarker signatures for prognostication and therapeutic substratification of prostate cancer using sophisticated proprietary artificial intelligence algorithms.

5


Prostate cancer is the most commonly diagnosed cancer in men, except for non-melanoma skin cancer. About one in nine men in the United States will be diagnosed with prostate cancer during their lifetimes. It is believed to be the second leading cause of cancer death among men in the United States. Worldwide, it is estimated that there are well over 1 million new cases of prostate cancer and 366,000 prostate cancer deaths annually.

The current standard of care for treating prostate cancer is based upon the Gleason score. Patients with prostate cancer with a low Gleason score are observed, while those with higher Gleason scores typically undergo radical prostatectomy. The PCa Test potentially provides a “second opinion” and therefore could provide valuable guidance to assist physicians and patients to make more educated and informed decision regarding appropriate treatments. Our plan for the PCa Test is to successfully advance its development to obtain a Section 510(k) clearance from the FDA for commercial use or toout-license the proprietary technology to a third party.

Current Clinical Trials

We will require a significant amount of additional capital to complete the preparation and submission of the remaining two sections of our BLA filing and to complete our clinical trial programs for leronlimab.leronlimab, which are designed to accelerate and maximize the leverage of our multi-pathway approach to identifying and evaluating multiple opportunities for clinical indications. See “Liquidity and Capital Resources” under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

To facilitate our clinical research plans and trials, we have previously engaged Amarex Clinical Research, LLC (“Amarex”), as our principal contract research organization (“CRO”), to provide comprehensive regulatory and clinical trial management services.

Leronlimab is currently being studied in the following clinical trials:

Phase 2 Trial to Evaluate the Efficacy and Safety of Leronlimab for Mild-to-Moderate Coronavirus Disease 2019 (COVID-19). This is a two-arm, randomized, double blind, placebo controlled multicenter study to evaluate the safety and efficacy of leronlimab in patients with mild-to-moderate symptoms of respiratory illness caused by the coronavirus 2019 infection completed in July 2020. Patients were randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo were administered via subcutaneous injection. The study has three phases: Screening Period, Treatment Period and Follow-Up Period. A total of 84 subjects were randomized 2:1 (active drug to placebo) in this study. The primary outcome measures are clinical improvement as assessed by change in total symptom score (for fever, myalgia, dyspnea and cough). Secondary outcome measures include: (1) time to clinical resolution, (2) change from baseline in National Early Warning Score 2 (NEWS2), (3) change from baseline in pulse oxygen saturation, (4) change from baseline in the patient’s health status on a 7-category ordinal scale, (5) incidence of hospitalization, (6) duration (days) of hospitalization, (7) incidence of mechanical ventilation supply, (8) duration (days) of mechanical ventilation supply, (9) incidence of oxygen use, (10) duration (days) of oxygen use, (11) mortality rate, (12) time to return to normal activity. Enrollment was completed in July 2020 and the Company has recently reported positive safety results. The Top-line Report from the trial, including efficacy and safety data, is expected to be submitted to the FDA in August 2020.

Phase 3 Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients With Severe or Critical Coronavirus Disease 2019 (COVID-19). This is a two-arm, randomized, double blind, placebo controlled, adaptive design multicenter study to evaluate the safety and efficacy of leronlimab in patients with severe or critical symptoms of respiratory illness caused by coronavirus 2019 infection. Patients will be randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo will be administered via subcutaneous injection. The study will have three phases: Screening Period, Treatment Period, and Follow-Up Period. The primary outcome measured in this study is: all-cause mortality at Day 28. Secondary outcomes measured are: (1) all-cause mortality at Day 14, (2) change in clinical status of subject at Day 14, (3) change in clinical status of subject at Day 28, and (4) change from baseline in Sequential Organ Failure Assessment (SOFA) score at Day 14. Recently, the Data Safety Monitoring Committee for the ongoing Phase 3 trial completed its first safety review of patients with severe and critical COVID-19 and reported it saw no cause to modify the study. The DSMC reviewed compiled safety data from 149 of the 169 patients enrolled in the Phase 3 trial. The DSMC did not raise any concerns regarding safety and recommended that the trial continue. As such, the Company will conduct a full interim analysis once 195 patients are enrolled, as provided in the trial’s protocol.

Phase 2b Extension Study for HIV, as Monotherapy. Currently, there are four patients in this ongoing extension study and each has surpassed four andone-halfsix years of suppressed viral load with PRO 140 as a single agent therapy. This extension study will be discontinued upon any FDA approval of leronlimab.

Rollover Study for HIV as Combination Therapy. This study is designed for patients who successfully completed the pivotal Phase 2b/3 Combination Therapy trial (which met its primary endpoint and serves as the

basis for our current BLA filing) and for whom the treating physicians request a continuation of leronlimab therapy in order to maintain suppressed viral load. This extension study will be discontinued upon any FDA approval of leronlimab.

Phase 2b/3 Investigative Trial for HIV, as Long-term Monotherapy.Enrollment for this trial is now closed after reaching 500 patients. This trial assesses using leronlimab subcutaneously as a long-acting single-agent maintenance therapy for 48 weeks in patients with suppressed viral load with CCR5-tropicHIV-1 infection. The primary endpoint is the proportion of participants with a suppressed viral load to those who experienced virologic failure. The secondary endpoint is the length of time to virologic failure. We completed the evaluation two higher-dose arms, one with 525 mg dose (a 50% increase from the original dosage of 350 mg), as well as a 700 mg dose. We recently reported that interim data suggested that both the 525 mg and the 700 mg dosages are achieving a responder rate of approximately 90% after the initial 10 weeks. This trial has also been used to provide safety data for the BLA filing for leronlimab as a combination therapy. In view of the high responder rate at the increased dosage levels, coupled with the newly developed CCR5 occupancy test, we recently filed a pivotal trial protocol with the FDA for leronlimab as a monotherapy. Upon finalization with the FDA of the pivotal trial protocol for monotherapy, this Phase2b/3 investigative trial will likely be discontinued. In the interim, several patients are continuing in an extension study who have requested continued access to leronlimab.

Phase 1b/2 Trial for Triple-Negative Breast Cancer. We recently received clearance fromThis trial is to evaluate the FDA for our IND submissionfeasibility of leronlimab combined with carboplatin in patients with CCR5+ metastatic triple negative breast cancer. The Phase 1b portion is a dose escalation phase with three dose levels (cohorts) of leronlimab in combination with a fixed dose of carboplatin. The Phase 2 portion is a single arm study with 30 patients to initiate a Phase 1b/2 clinical trial for metastatic triple-negative breast cancer patients.test the hypothesis that the combination of carboplatin intravenously and maximum tolerated dose of leronlimab subcutaneously will increase progression free survival. In May 2019, the FDA granted leronlimab Fast Track designation for use in combination with carboplatin. We have identified five clinical trial sites and expect to dose the first patients during the third quarter of calendar 2019. The change in circulating tumor cells (“CTCs”) number will be evaluated every 21 days during treatment and will be used as an initial prognostic marker for efficacy. UpThe first patient was treated in September 2019.

Compassionate Use Study of Leronlimab in Breast Cancer. This is a single arm, compassionate use study with 30 patients for leronlimab (PRO 140) combined with a treatment of physician’s choice (TPC) in patients with CCR5+ mTNBC. Leronlimab (PRO 140) will be administered subcutaneously as weekly dose of 350 mg until disease progression or intolerable toxicity. Treatment of Physician’s Choice (TPC) is defined as one of the following single-agent chemotherapy drugs administrated according to 48local practice: eribulin, gemcitabine, capecitabine, paclitaxel, nab-paclitaxel, vinorelbine, ixabepilone, or carboplatin. In this study, patients are expectedwill be evaluated for tumor response approximately every 3 months or according to be enrolledinstitution’s standard practice by CT, PET/CT or MRI with contrast (per treating investigator’s discretion) using the same method as at baseline.

Basket Trial for 22 Solid Tumor Cancers. This is a Phase 2 study to test the safety and efficacy of leronlimab on 22 different solid tumor cancers, including brain-glioblastoma, melanoma, lung, breast, ovarian, pancreas, bladder, throat, stomach, colon, testicular, uterine, among other indications. The first patient was treated in this study. First patient dosing is expected in the third quarter of calendar 2019.April 2020.

Phase 2 Trial for Graft-versus-Host Disease. This Phase 2multi-center100-day study with 60 patients is designed to evaluate the feasibility of the use of leronlimab as anadd-on therapy to standard GvHD prophylaxis treatment for prevention of acute GvHD in adult patients with AML or MDS undergoing allogeneic hematopoietic stem cell transplantation (“HST”). Enrollment of the first patient was announced in May of 2017. On October 5, 2017, we announced that the FDA had granted orphan drug designation to leronlimab (PRO 140) for the prevention of GvHD. In March 2018, we announced that the Independent Data Monitoring Committee (“IDMC”) for leronlimab (PRO 140) Phase 2 trial in GvHD had completed a planned interim analysis of trial data on the first 10 patients enrolled. Following this review of data from the first 10 patients in the Phase 2 trial, we filed amendments to the protocol with the FDA. The amendments included switching the pretreatment conditioning regimen from aggressive myeloablative (“MA”)

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conditioning to a reduced intensity conditioning

(“RIC”), and switching from a blindedone-for-one randomized placebo-controlled design to an open-label design under which all enrollees receive leronlimab. The amendments also provide for a 100% increase in the dose of leronlimab, to 700 mg, to more closely mimicpre-clinical dosing. The next review of data by the IDMC will occur following enrollment of 10 patients under the amended protocol after each patient has been dosed for 30 days. Due to the necessary prioritization of limited capital, enrollment under the amended protocol has been temporarily delayed.

Other Product Candidates

Except as otherwise disclosed above, until certain clinical trials for leronlimab have advanced further and the remaining two section of our BLA filing are submitted, we do not plan to devote material resources towards the development, research, testing, approval or commercialization of other product candidates.

PRO 140 Acquisition and Licensing Arrangements

We originally acquired PRO 140, as well as certain other related assets, including the existing inventory of PRO 140 bulk drug substance, intellectual property, and FDA regulatory filings, pursuant to an Asset Purchase Agreement, dated as of July 25, 2012 and effective October 16, 2012 (the “Progenics Purchase Agreement”), between CytoDyn and Progenics. Pursuant to the Progenics Purchase Agreement, we are required to pay Progenics a remaining milestone payment and royalties as follows: (i) $5,000,000 at the time of the first U.S. new drug application approval by the FDA or othernon-U.S. approval for the sale of PRO 140; and (ii) royalty payments of up to 5% on net sales during the period beginning on the date of the first commercial sale of PRO 140 until the later of (a) the expiration of the last to expire patent included in the acquired assets, and (b) 10 years, in each case determined on acountry-by country basis. To the extent that such remaining milestone payment and royalties are not timely made, under the terms of the Progenics Purchase Agreement, Progenics has certain repurchase rights relating to the assets sold to us thereunder.

Payments to Progenics are in addition to payments due under a Development and License Agreement, dated April 30, 1999 (the “PDL License”), between Protein Design Labs (now AbbVie Inc.) and Progenics, which was assigned to us in the Progenics Purchase Agreement, pursuant to which we have an exclusive worldwide license to develop, make, have made, import, use, sell, offer to sell or have sold products that incorporate the humanized form of the PRO 140 antibody developed under the agreement. Pursuant to the PDL License, we are required to pay AbbVie Inc. remaining milestone payments and royalties as follows: (i) $500,000 upon filing a Biologic License Application with the FDA ornon-U.S. equivalent regulatory body; (ii) $500,000 upon FDA approval or approval by anothernon-U.S. equivalent regulatory body; and (iii) royalties of up to 3.5% of net sales for the longer of 10 years and the date of expiration of the last to expire licensed patent. Additionally, the PDL License provides for an annual maintenance fee of $150,000 until royalties paid exceed that amount. To the extent that such remaining milestone payments and royalties are not timely made, under the terms of the PDL License, AbbVie Inc. has certain termination rights relating to our license of PRO 140 thereunder.

Effective July 29, 2015, we entered into a License Agreement (the “Lonza Agreement”) with Lonza Sales AG (“Lonza”) covering Lonza’s “systemknow-how” technology with respect to our use of proprietary cell lines to manufacture new PRO 140 material. The Lonza Agreement provides for an annual license fee and future royalty payments, both of which varies based on whether Lonza, or we or our strategic partner manufactures PRO 140. We currently use antwo independent partyparties as a contract manufacturermanufacturers for PRO 140. Therefore, if this arrangement continues, an annual license fee of £300,000£600,000 (approximately US$365,000USD785,000 given current exchange rate) would continue to apply, as well as a royalty, up to 2% of the net selling price upon commercialization of PRO 140,leronlimab (PRO 140), excluding value added taxes and similar amounts.

Patents, Proprietary Technology and Data Exclusivity

Protection of ourthe Company’s intellectual property rights is important to our business. We may file patent applications in the U.S., Canada, China, and Japan, European countries that are party to the European Patent Convention and other countries on a selective basis in order to protect inventions we consider to be important to the development of our business.

Generally, patents issued in the U.S. are effective for either (i) 20 years from the earliest asserted filing date, if the application was filed on or after June 8, 1995, or (ii) the longer of 17 years from the date of issue or 20

years from the earliest asserted filing date, if the application was filed prior to that date. A U.S. patent, to be selected by us upon receipt of FDA regulatory approval, may be subject to up to a five-year patent term extension in certain instances. While the duration of foreign patents varies in accordance with the provisions of applicable local law, most countries provide for a patent term of 20 years measured from the application filing date and some may also allow for patent term extension to compensate for regulatory approval delay. We pursue opportunities for seeking new meaningful patent protection on an ongoing basis. We currently anticipate, that, absent patent term extension, patent protection relating to the PRO 140leronlimab (PRO 140) antibody itself will start to expire in 2023, certain methods of using PRO 140leronlimab (PRO 140) for treatment ofHIV-1 will start to expire in 2026, certain formulations comprising PRO 140leronlimab (PRO 140) will start to expire in 2031, and certain methods of using small-molecule CCR5 antagonists for treatment of cancer metastasis will start to expire in 2032.

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Patents do not enable us to preclude competitors from commercializing drugs in direct competition with our products that are not covered by granted and enforceable patent claims. Consequently, patents may not provide us with any meaningful competitive advantage. See related risk factors under the heading “Risk Factors” below. We may also rely on data exclusivity, trade secrets and proprietaryknow-how to develop and attempt to achieve a competitive position with our product candidates. We generally require our employees, consultants and partners who have access to our proprietary information to sign confidentiality agreements in an effort to protect our intellectual property.

Separate from and in addition to the patent rights noted above, we expect that PRO 140leronlimab (PRO 140) will be subject to at least a12-year data exclusivity period measured from the first date of FDA licensure, during which period no other applications referencing PRO 140leronlimab (PRO 140) will be approved by FDA. Further, no other applications referencing PRO 140leronlimab (PRO 140) will be accepted by FDA for a4-year period measured from the first date of FDA licensure. Accordingly, this period of data exclusivity is expected to provide at least a12-year term of protection against competing products shown to be biosimilar or interchangeable with PRO 140.leronlimab (PRO 140). Similar data exclusivity or data protection periods of up to about five years or more are provided in at least Australia, Canada, Europe, Japan, and New Zealand.

We note that data exclusivity is not an extension of patent rights, and it does not prevent the introduction of generic versions of the innovative drug during the data exclusivity period, as long as the marketing approval of the generic version does not use or rely upon the innovator’s test data. Patents and data exclusivity are different concepts, protect different subject matter, arise from different efforts, and have different legal effects over different time periods.

Information with respect to our current patent portfolio as of June 28, 2019,30, 2020, is set forth below.

 

  Number of Patents   Expiration
Dates(1)
   Number of Patent
Applications
   Number of Patents      Number of Patent
Applications
 
  U.S.   International       U.S.   International  U.S.   International   

Expiration

Dates(1)

  U.S.   International 

PRO 140 product candidate(2)

   8    35    2018-2032    12    26 

Prostate cancer diagnostics

         2   

Leronlimab (PRO 140) product candidate(2)

   10    37   2018-2032   20    27 

Methods involving treatment of cancer metastasis and anti-CCR5 agents

   1    3    2032-2033    3    12    1    11   2032-2033   3    9 

Mouse model

         1    1          1    1 

 

(1) 

Patent term extensions and pending patent applications may extend periods of patent protection.

(2)

PRO 140Leronlimab (PRO 140) patents and applications relate to the antibody, formulations, and HIV-1, COVID-19, GvHD,Cancer, immunomodulation and cancerGvHD treatments.

Research, development and commercialization of a biopharmaceutical product often require choosing between alternative development and optimization routes at various stages in the development process. Preferred routes depend upon current—and may be affected by subsequent—discoveries and test results, availability of financial resources, and other factors, and cannot be identified with certainty. There are numerous third-party

patents in fields in which we work, and we may need to obtain licenses under patents of others in order to pursue a preferred development route of one or more of our product candidates. The need to obtain a license would decrease the ultimate value and profitability of an affected product. If we cannot negotiate such a license, we might have to pursue a less desirable development route or terminate the program altogether. See “Risk Factors” below.

Government Regulation

Regulation of Health Care Industry

The health care industry is highly regulated, and state and federal health care laws and regulations are applicable to certain aspects of our business. For example, there are federal and state health care laws and regulations that apply to the business relationships between health care providers and suppliers, the privacy and security of health information and the conduct of clinical research.

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Regulation of Products

The design, testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products is regulated by numerous third parties, including the FDA, foreign governments, independent standards auditors and our customers.

In the United States, biological products and medical devices, including diagnostic products, have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling, import, export and safety reporting. The exercise of broad regulatory powers by the FDA through its and its Center for Biological Evaluation and Research and its Center for Devices and Radiological Health continues to result in increases in the amounts of testing and documentation for FDA clearance of current and new biologic products and medical devices. The FDA can ban certain products; detain or seize adulterated or misbranded products; order repair, replacement or refund of these products; and require notification of health professionals and others with regard to products that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and restrain certain violations of the Federal Food, Drug, and Cosmetic Act, as amended, or the Public Health Service Act pertaining to certain products or initiate action for criminal prosecution of such violations.

The lengthy process of seeking 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.

Pharmaceutical products such as leronlimab (PRO 140) may not be commercially marketed without prior approval from the FDA and comparable agencies in foreign countries. In the United States, the process for obtaining FDA approval for products like leronlimab (PRO 140) typically includespre-clinical studies, the filing of an IND, human clinical trials and filing and approval of either a New Drug Application (“NDA”), for chemical pharmaceutical products, or a BLA for biological pharmaceutical products, such as leronlimab (PRO 140).leronlimab. The results ofpre-clinical testing, which include laboratory evaluation of product chemistry and formulation, animal studies to assess the potential safety and efficacy of the product and its formulations, details concerning the drug manufacturing process and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that must be reviewed and become effective before clinical testing can begin. The study protocol and informed consent information for patients in clinical trials must also be submitted to an independent institutional review board (“IRB”), for approval. Once a sponsor submits an IND, the sponsor must wait 30 calendar days before initiating any clinical trials, during which time the FDA has an opportunity to review the IND and raise concerns or questions relating to the proposed clinical trials outlined in the IND. If the FDA has comments or questions, they must be resolved to the satisfaction of the FDA before clinical trials can begin. In addition, the

FDA, an IRB or we may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA. Ournon-clinical and clinical studies must conform to the FDA’s Good Laboratory Practice (“GLP”), and Good Clinical Practice (“GCP”), requirements, which are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of study patients. Information for certain clinical trials also must be publicly disclosed within certain time limits on the clinical trial registry and results databank maintained by the National Institutes of Health (“NIH”).

The results of thepre-clinical and clinical testing, chemistry, manufacturing and control information and proposed labeling are then submitted to the FDA in the form of either an NDA or BLA for review and potential approval to commence commercial sales. In responding to an NDA or BLA, the FDA may grant marketing approval, request additional information in a complete response letter, or deny the approval if it determines that the NDA or BLA does not provide an adequate basis for approval. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require additional testing. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific indications, and sometimes with specified post-marketing commitments. Any approval required from the FDA might not be obtained on a timely basis, if at all.

Among the conditions for an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with current Good Manufacturing Practices (“cGMPs”). In complying with cGMPs, we must expend time, money and effort in the areas of training, production and quality control within our own organization and at our contract manufacturing laboratories. A successful inspection of the manufacturing facility by the FDA is a prerequisite for final approval of a biological product like leronlimab (PRO140). Following approval of the NDA or BLA, we and our third-party manufacturers remain subject to periodic inspections by the FDA. We also face similar inspections coordinated by the European Medicines Agency by inspectors from particular European Union (“EU”) member countries that conduct inspections on behalf of the EU and from other foreign regulatory authorities. Any determination by the FDA or other regulatory authorities of manufacturing or other deficiencies could materially adversely affect our business.

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Regulatory requirements and approval processes in EU countries are similar in principle to those in the United States and can be at least as costly and uncertain. The EU has established a unified centralized filing and approval system administered by the Committee for Medicinal Products for Human Use designed to reduce the administrative burden of processing applications for pharmaceutical products derived from new technologies. In addition to obtaining regulatory approval of products, it is generally necessary to obtain regulatory approval of the facility in which the product will be manufactured.

We use and plan to continue to use third-party manufacturers to produce our products in clinical and commercial quantities. Future FDA inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product, including new safety risks, or the failure to comply with requirements may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including withdrawal or recall of the product from the market or other voluntary orFDA-initiated action that could delay further marketing. Newly discovered or developed safety or efficacy data may require changes to an approved product’s approved labeling, including the addition of new warnings and contraindications, the imposition of additional mandatory post-market studies or clinical trials, or the imposition of or revisions to a risk evaluation mitigation strategies (“REMS “) program, including distribution and/or use restrictions.

Once a BLA is approved, a product will be subject to certain post-approval requirements, including requirements for adverse event reporting and submission of periodic reports to the FDA, recordkeeping, product sampling and distribution, and, as discussed above, may be subject to mandatory post-market study and REMS requirements. In addition, the FDA strictly regulates the promotional claims that may be made about prescription

drug products and biologics. In particular, a drug or biologic may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promotedoff-label uses may be subject to significant liability. The FDA also requires substantiation of any claims of superiority of one product over another, including the requirement that such claims be proven by adequate and well-controlledhead-to-head clinical trials. The FDA also requires all promotional materials that discuss the use or effectiveness of a prescription drug or biologic to disclose in a balanced manner the risks and safety profile of the product.

Regulation of Laboratory Operations

Clinical laboratories that perform laboratory testing (except for research purposes only) on human patients are subject to regulation under Clinical Laboratory Improvement Amendments (“CLIA”). CLIA regulates clinical laboratories by requiring that the laboratory be certified by the federal government, licensed by the state and comply with various operational, personnel and quality requirements intended to ensure that clinical laboratory test results are accurate, reliable and timely. State law and regulations also apply to the operation of clinical laboratories.

State Governments

Most states in which we operate have regulations that parallel federal regulations. Most states conduct periodic unannounced inspections and require licensing under such state’s procedures. Our research and development activities and the manufacture and marketing of our products are and will be subject to rigorous regulations relating to product safety and efficacy by numerous governmental authorities in the United States and other countries.

Other Laws and Regulations

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.

Environmental

We are subject to a variety of federal, state and local environmental protection measures. We believe that our operations comply in all material respects with applicable environmental laws and regulations. Our compliance with these regulations did not have during the past year and is not expected to have a material effect upon our capital expenditures, cash flows, earnings or competitive position.

Registrational Clinical Trials Process

Described below is the traditional registrational drug development track. Our current business strategy is to focus on completing our BLA filing for leronlimab as a combination therapy for highly treatment experienced HIV patients, advance the regulatory process of the clinical outcomes from our two COVID-19 clinical trials, advance our Phase 1b/2 clinical trial metastatic triple-negative breast cancer, continue our Phase 2 basket trial for 22 solid tumor cancers and Phase 2 trial for GvHD, finalize with the FDA our submitted protocol for a pivotal Phase 3 clinical trial with leronlimab as a monotherapy for HIV patients and to concurrently explore other cancer and immunologic indications for leronlimab.

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Phase 1

Phase 1 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 patients. 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 1, sufficient information about the investigational product’s pharmacokinetics and pharmacological effects are obtained to permit the design of well-controlled, scientifically valid, Phase 2 studies. Phase 1 studies of PRO 140 have been conducted and completed by or on behalf of Progenics by certain principal investigators prior to our acquisition of PRO 140.

Phase 2

Phase 2 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 2 studies are typically well-controlled, closely monitored, and conducted in a relatively small number of patients, often involving several hundred people. In some cases, depending upon the need for a new drug, a particular drug candidate may be licensed for sale in interstate commerce after a “pivotal” Phase 2 trial.

Phase 2 is often broken into Phase 2a, which can be used to refer to “pilot trials,” or more limited trials evaluating exposure response in patients, and Phase 2b trials that are designed to evaluate dosing efficacy and ranges.

Phase 3

Phase 3 studies are expanded controlled clinical studies. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained in Phase 2, 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 3 studies also provide an adequate basis for extrapolating the results to the general population and transmitting that information in the physician labeling. Phase 3 studies usually involve significantly larger groups of patients, and considerable additional expense. We were required to pay significant fees to third parties upon the first patient dosing in a Phase 3 trial of leronlimab, and we may be required to make additional fee payments to third parties upon the completion of additional milestones. See the discussion under the subheading “PRO 140 Acquisition and Licensing Arrangements” above.

Competition

The pharmaceutical, biotechnology and diagnostic industries are characterized by rapidly evolving technology and intense competition. Our development efforts may compete with more established biotechnology companies that have significantly greater financial and managerial resources than we do.

Advancing leronlimab to commercialization is our highest priority. Leronlimab blocks a cell receptor called CCR5, which is the entry point for most strains of HIV virus. Pfizer’s Maraviroc (Selzentry®) is the only currently approved CCR5 blocking agent. Maraviroc, like all other HIV approved drugs, must be taken daily and is believed to have side effects and toxicity. For these reasons, we believe that our lead product, leronlimab, a monoclonal antibody, may prove to be useful in patients that cannot tolerate existing HIV therapies or desire a respite from those therapies. Nonetheless, manufacturers of current therapies, such as Pfizer, Gilead Sciences, Merck, Bristol-Myers Squibb and ViiV Healthcare, are very large, multi-national corporations with significant resources. We expect that these companies will compete fiercely to defend and expand their market share.

To construct a HAART regimen, three drugs from two classes of drugs are typically needed. Currently there are only five different classes of drugs from which four are primarily used to construct a HAART regimen. Each

of these four classes of drugs has many drugs available in its respective class, except the entry inhibitor (“EI”) class, which has only two drugs available. The only two drugs in the EI class approved by the FDA are Maraviroc, a small molecule drug (which is taken orally once or twice a day) and Ibalizumab (which is an IV infusion administered once every two weeks). If approved, we believe that leronlimab will be only the second approved drug outside of the main four classes of drugs approved for HIV since 2007.

The only other monoclonal antibody that recently received FDA approval isTMB-335, also referred to as Ibalizumab, which was developed by TaiMed Biologics. Ibalizumab targets the CD4 receptor onT-cells which is one of the twoco-receptors required for HIV entry intoT-cells.

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Our potential competitors include entities that develop and produce therapeutic agents. 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. Our competitors may succeed in developing potential drugs or processes that are more effective or less costly than any that may be developed by us or that gain regulatory approval prior to our potential drug candidates. Worldwide, there are many antiviral drugs for treating HIV. In seeking to manufacture, distribute and market the potential drugs we hope to have approved, we face competition from established pharmaceutical companies. Many of these potential competitors have substantially greater capital resources, management expertise, research and development capabilities, manufacturing and marketing resources and experience than we do.

We also expect that the number of our 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 us in manufacturing, marketing and distributing HIV treatments, as well as for new therapies for cancer and immunological disorders.

While we are encouraged from the clinical outcomes from over 60 Emergency Investigation New Drug (EIND) authorizations granted by the FDA and the preliminary results from our two COVID-19 trials, there are hundreds of companies concurrently exploring therapies for COVID-19, including clinical trials. Many of these potential competitors have substantially greater capital resources, management expertise, research and development capabilities, manufacturing and marketing resources and experience than we do.

As we evaluate leronlimab for potential indications in cancer and immunology, we will face competition from formidable global research-based pharmaceutical companies. Potential competitors such as Roche, Celgene, Bristol-Myers Squibb, Merck, AbbVie and many others have vast financial, managerial, technical, commercialization and marketing resources than we do than we do.

Manufacturing

We do not own or operate manufacturing facilities for the production of leronlimab. As such, we must depend on third-party manufacturing organizations and suppliers for all of our clinical trial quantities of leronlimab, in addition to previously manufactured supplies of commercial grade leronlimab. We continue to explore alternative manufacturing sources, in order to ensure that we have access to sufficient manufacturing capacity in order to meet potential demand for leronlimab in a cost-efficient manner.

We have engaged Samsung Biologics and AEC Biologics, two global contract manufacturing organizations (“CMOs”), to initiate thescale-up to commercial batch quantities of product, and develop the necessary controls and specifications to manufacture product on a consistent and reproducible manner. We have also contracted with a suitable CMOCMOs to fill, label, and package product into the final commercial package for commercial use. In order to commercialize product, thisscaled-up material will need to be validated under best practices, and demonstrated to meet approved specifications on an ongoing basis. GMP material will be produced as needed to support clinical trials for all therapeutic indications and until commercial product is approved by the FDA. We will rely on CMO’s for all of our developmental and commercial needs.

Regulation of Medical Devices, Including Diagnostics such as the PCa Test

Medical Device Classification

The FDA classifies medical devices into one of the following three classes on the basis of the amount of risk associated with the medical device and the controls deemed necessary to reasonably ensure their safety and effectiveness:

 

Class I, requiring general controls, including labeling, device listing, reporting and, for some products, adherence to good manufacturing practices through the FDA’s quality system regulations and pre-market notification;

 

Class II, requiring general controls and special controls, which may include performance standards and post-market surveillance; or

 

Class III, requiring general controls and approval of a premarket approval application (“PMA”), which may include post-market approval conditions and post-market surveillance.

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As a result of the intended use of the PCa Test and the technology upon which it is based, we anticipate that the PCa test could be regulated by FDA as either a Class III or a Class II medical device.

US Regulatory Approval Process

Products that are regulated as medical devices and that require review by the FDA are subject to either a premarket notification, also known as a 510(k), which must be submitted to the FDA for clearance, or a PMA application, which the FDA must approve prior to marketing in the U.S. We believe that the PCa Test will be subject to the 510(k) premarket notification procedure, but the FDA will ultimately determine the appropriate regulatory path.

To obtain 510(k) marketing clearance for a medical device, an applicant must submit a premarket notification application to the FDA demonstrating that the device is “substantially equivalent” to a predicate device, which is typically a legally marketed Class II device in the United States. A device is substantially equivalent to a predicate device if it has the same intended use and (i) the same technological characteristics, or (ii) has different technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or effectiveness. In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence. While less onerous than the PMA process, the 510(k) process can be lengthy and expensive. The current average time between submission of a 510(k) application and FDA clearance is approximately six months. In addition, significant modifications to a cleared 510(k) device may require the submission of a new 510(k).

A PMA must be submitted to the FDA if a device cannot be cleared through another approval process or is not otherwise exempt from the FDA’s premarket clearance and approval requirements. A PMA is required for most Class III medical devices. A PMA must generally be supported by extensive data, including without limitation technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use. During the review period, the FDA will typically request additional information or clarification of the information previously provided. Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the PMA and provide recommendations to the FDA as to the approvability of the device, although the FDA may or may not accept any such panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the manufacturing facility or facilities involved with producing the device to ensure compliance with the cGMP regulations. Upon approval of a PMA, the FDA may require that certain conditions of approval, such as conducting a post-market approval clinical trial, be met.

The PMA approval process can be lengthy and expensive and requires an applicant to demonstrate the safety and efficacy of the device based, in part, on data obtained from clinical trials. The PMA process is

estimated to take from one to three years or longer, from the time the PMA application is submitted to the FDA until an approval is obtained.

Further, if post-approval modifications are made that affect the safety or efficacy of the device, including, for example, certain types of modifications to the device’s indication for use, manufacturing process, labeling or design, then new PMAs or PMA supplements would be required. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is typically limited to information needed to support the changes from the device covered by the original PMA and accordingly may not require as extensive clinical and other data. Further, if post-approval modifications are made that affect the safety or efficacy of the device, including, for example, certain types of modifications to the device’s indication for use, manufacturing process, labeling or design, then new PMAs or PMA supplements would be required. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is typically limited to information needed to support the changes from the device covered by the original PMA and accordingly may not require as extensive clinical and other data.

WeOur plan for the PCa Test is to successfully advance its development to obtain a Section 510(k) clearance from the FDA for commercial use or to out-license the proprietary technology to a third-party. However, we have not submitted to the FDA for either a 510(k) application or a PMA, or commenced clinical trials. Even if we conduct successful preclinical and clinical studies and submit a 510(k) application or PMA, the FDA may not permit commercialization of the PCa Test for the desired indications, on a timely basis, or at all. Our inability to achieve regulatory approval for the PCa Test in the U.S. for the desired indication could materially adversely affect our ability to grow this aspect of our business.

Post-Approval Regulation

After a medical device obtains approval from the applicable regulatory agency and is launched in the market, numerous post-approval regulatory requirements apply, including:

 

product listing and establishment registration;

 

requirements that manufacturers, including third-party manufacturers, follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;

 

labeling and other advertising regulations, including prohibitions against the promotion of products for uncleared, unapproved or off-label use or indication;

 

approval of product modifications that affect the safety or effectiveness of any of our devices that may achieve approval;

 

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post-approval restrictions or conditions, including post-approval study commitments;

 

post-market surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness data for the device;

 

the recall authority of the applicable government agency and regulations pertaining to voluntary recalls; and

 

reporting requirements, including reports of incidents in which a product may have caused or contributed to a death or serious injury or in which a product malfunctioned, and notices of corrections or removals.

Failure by us or by our third-party manufacturers and other suppliers to comply with applicable regulatory requirements could result in enforcement action by various regulatory authorities, which may result in monetary fines, the imposition of operating restrictions, product recalls, criminal prosecution or other sanctions.

Research and Development Costs

OurThe Company’s research and development expenses totaled approximately $52.6 million, $42.5 million $38.2 million and $20.2$38.2 million for the fiscal years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, respectively. We expect our research and development expenses to continue to increase in future periods as the activity within ourthe Company’s clinical trials expands and ourthe Company’s biologics manufacturing processes and related regulatory compliance activities increase.

Employees and Consultants

We currently have 1019 full-time employees, as well as several independent consultants assisting us with ourthe Company’s BLA preparation, manufacturing activities, regulatory matters and management of our clinical trials. There can be no assurances, however, that we will be able to identify or hire and retain additional employees or consultants on acceptable terms in the future.

 

Item 1A.

Risk Factors.

The risks enumerated below are not the only risks we face, and the listed risk factors are not intended to be anall-inclusive discussion of all of the potential risks relating to our business. Any of the risk factors described below could significantly and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently known or that are currently considered to be immaterial may also materially and adversely affect our business.

Risks Related to Our Business

We are a clinical stage biotechnology company and have a history of significant operating losses; we expect to continue to incur operating losses, and we may never achieve or maintain profitability.

We have not generated any revenue from product sales, licensing, or other potential sales to date. Since our inception, we have incurred operating losses in each year due to costs incurred in connection with research and development activities and general and administrative expenses associated with our operations. Our current drug candidate, leronlimab, is in the later stages of clinical trials and the filing offor multiple indications. The Company submitted a BLA is underway.for leronlimab as a combination therapy with highly active antiretroviral therapy (HAART) for HIV patients to the FDA for review in April 2020 and completed our submission on May 11, 2020. In July 2020, the Company received a Refusal to File letter from the FDA regarding the BLA filing, and we have requested a Type A meeting to discuss the FDA’s request for additional information. During the fiscal years ended May 31, 20192020 and 2018,2019, we incurred net losses of approximately $56.2$124.4 million and $50.1$56.2 million, respectively, and at May 31, 2019,2020, we had an accumulated deficit of approximately $229.4$354.7 million and a stockholders’ deficit of $8.9$2.5 million. We expect to incur losses for the foreseeable future without any meaningful corresponding revenues as we continue development of, and seek regulatory approvals for, our drug candidate and commercialize any approved product usages.leronlimab. If our current drug candidateleronlimab fails to gain regulatory approval, or if it or other candidates we ownacquire or license in the future do not achieve approval and market acceptance, we will not be able to generate any revenue, or explore other opportunities to enhance stockholder value, such as through a sale. If we fail to generate revenue and eventually become and remain profitable, or if we are unable to fund our continuing losses, our shareholders could lose all or part of their investments.

Any failureOur auditors have issued a going concern opinion, and we will not be able to attractachieve our objectives and retain skilled directors, executives, employees and consultants could impairwill have to cease operations if we cannot adequately fund our drug development and commercialization activities.operations.

Our business depends onauditors issued an opinion, which includes a going concern exception, in connection with the skills, performance, and dedicationaudit of our directors, executive officers and key scientific and technical advisors. All of our current scientific advisors are independent contractors and are either self-employed or employed by other organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other organizations, which may affect their abilityannual financial statements for the fiscal year ended May 31, 2020. A going concern exception to provide services to us in a timely manner. We may need to recruit additional directors, executive management employees, and advisers, particularly scientific and technical personnel, which will require additional financial resources. In addition,an audit opinion means that there is currently intense competitionsubstantial doubt that we can continue as an ongoing business for skilled directors, executives and employees with relevant scientific and technical expertise, and this competition is likely to continue.the next 12 months. If we are unable to attractcontinue as a going concern, we might have to liquidate our assets and retain persons with sufficient scientific, technicalthe values we receive

for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and managerial experience, weour lack of cash resources may be forced to limit or delay our product development activities or may experience difficulties in successfully conducting our business, which wouldmaterially adversely affect our operationsshare price and financial condition.

The loss or transition of any member of our senior management team or any key employee could adversely affect our business.

Our success depends significantly on the continued individual and collective contributions of our senior management team and key employees. The individual and collective efforts of these employees will be important as we continue to develop our tests and services, and as we expand our commercial activities. The loss of the services of any member of our senior management team or the inability to hire and retain experienced management personnel could harm our operating results.

In July 2019, Dr. Richard G. Pestell was terminated as our Chief Medical Officer. The complexity inherent in integrating a new key member of the senior management team with existing senior management may limit the effectiveness of any such successor or otherwise adversely affect our business. Leadership transitions can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover of other key officers and employees. Specifically, a leadership transition in the commercial team may cause uncertainty about or a disruption to our commercial organization, which may impact our ability to achieve sales and revenue targets.

We expectraise new capital or to rely on third party manufacturers and will be dependent on their quality and effectiveness.

Our primary product candidate and potential drug candidates require precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing standards, including failure to detect or control unexpected events or unanticipated manufacturing errors or the frequent occurrence of such errors, could result in patient injury or death, discontinuance or delay of ongoing or planned clinical trials, delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals and other problems that could seriously hurt our business. Contract manufacturers of biopharmaceutical drugs can encounter difficulties involving manufacturing processes, facilities, operations, production yields, quality control, compliance and shortages of qualified personnel. These manufacturers are subject to stringent regulatory requirements, including the FDA’s current good-manufacturing-practices (cGMP) regulations and similar foreign laws and standards. If our contract manufacturers fail to maintain ongoing compliance at any time, we may be unable to obtain regulatory approval for our products. In addition, the production of our product candidate could be interrupted, resulting in delays or discontinuance of our clinical trials, disruption in our release of commercial supplies, or other factors that could cause increases in costs and loss of potential revenues.

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If for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreementscritical contractual relations with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our active pharmaceutical ingredient, or API, or our finished products or should cease doing business with us, we could experience significant interruptions in the supply of our drug candidates or may not be able to create a supply of our drug candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of our drug candidates might be negatively affected. Our inability to coordinate the efforts of our third party manufacturing partners, or the lack of capacity available at our third party manufacturing partners, could impair our ability to supply our drug candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant interruptions in the supply of our drug candidates if we decided to transfer the manufacture of our drug candidates to one or more alternative manufacturers in an effort to deal with the difficulties.

We cannot guarantee that our manufacturing and supply partners will be able to manufacture our drug candidates at commercial scale on a cost-effective basis. If the commercial-scale manufacturing costs of our drug candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guaranteethird-parties. There is no assurance that we will be able to enhanceadequately fund our operations in the future.

Our business and optimize outputoperations could be adversely affected by the effects of health epidemics, including the ongoing COVID-19 pandemic.

We could be negatively affected by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of COVID-19 began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets.

Our operational and financial performance has already been affected by the impact of the COVID-19 pandemic. Our clinical trials have experienced delays in patient enrollment, potentially due to prioritization of hospital resources toward the COVID-19 pandemic, or concerns among patients about participating in clinical trials during a public health emergency. The COVID-19 pandemic is also affecting the operations of government entities, such as the FDA, as well as contract research organizations, third-party manufacturers, and other third-parties upon whom we rely. As a result of “shelter-in-place” orders, quarantines or similar orders or restrictions to control the spread of COVID-19, many companies, including our own, have implemented work-from-home policies for their employees. The effects of these stay at home orders and work-from-home policies may be negatively impacting productivity, resulting in delays in our commercial manufacturing process.clinical programs and timelines. The extent of the impact on our operations depends in part on the time these restrictions remain in place, and whether restrictions are reinstated as a result of a rising surge in COVID-19 cases. These and similar disruptions in our operations could negatively impact our business, operating results and financial condition.

The spread of COVID-19 has also led to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty. To the extent the COVID-19 pandemic adversely affects our business, financial results and value of our common stock, it may also affect our ability to access capital and obtain financing, which could in the future negatively affect our liquidity and ability to continue as a going concern.

The global pandemic of COVID-19 continues to evolve rapidly, and the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full impact of potential delays or effects on our business, our clinical trials, our ability to access the capital markets, or supply chains or on the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

Our information technology systems could fail to perform adequately or we may fail to adequately protect such information technology systems against data corruption, cyber-based attacks, or network security breaches.

We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic information. In particular, we depend on our information technology infrastructure to effectively manage our business data, accounting, and other business processes and electronic communications between our personnel and corporate partners. If we cannot enhancedo not allocate and optimize output,effectively manage the resources necessary to build and sustain an appropriate technology infrastructure, our business, and financial condition therefore could be materially adversely affected. In addition, security breaches or system failures of this infrastructure can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. If we are unable to

prevent such breaches or failures, our operations could be disrupted, or we may notsuffer financial damage or loss because of lost or misappropriated information.

The ongoing COVID-19 pandemic is introducing additional risk to our information technology systems as a result of employees, contractors and other corporate partners working remotely. As a result of the increased remote workforce, we must increasingly rely on information technology systems that are outside our direct control. These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber criminals are increasing their attacks on individual employees, utilizing interest in pandemic-related information to increase business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems. If one of our employees falls victim to these attacks, or our information technology systems or those of our partners are compromised, our operations could be able to reduce our costs over time.disrupted, or we may suffer financial loss, loss or misappropriation of intellectual property or other critical assets, reputational loss or regulatory fines and intervention.

We havemay be at increased risk of becoming the target of cyber-attacks because of our research involving leronlimab for treatment of COVID-19.

Cybersecurity authorities in the United States are currently investigating a very limited number of internalincidents in which hackers are targeting pharmaceutical companies, medical research organizations, and universities in order to steal sensitive research data and intellectual property related to efforts to contain and treat coronavirus. In July, the US Justice Department accused several different groups of hackers of targeting companies conducting COVID-19 vaccine development personnel, making us dependentresearch on consulting relationshipsbehalf of a foreign intelligence services. Because of leronlimab’s potential effect on the immune system, it has been administered to COVID patients under single patient Emergency Investigation New Drug (EIND) authorizations, and strategic alliances with industry partners.the Company has initiated two clinical trials for COVID-19, a Phase 2 randomized clinical trial for mild-to-moderateCOVID-19 population in the U.S. and a Phase 2b/3 randomized clinical trial for severe and critically ill COVID-19 population in several hospitals throughout the country. As a result of our ongoing clinical trials for leronlimab to treat COVID-19, our information technology systems, employees, contractors and corporate partners may be at greater risk for cyber-based attacks.

Since our inception, we have been insolvent and have required debt and equity financing to maintain operations.

We currentlySince our inception, we have four employees dedicatednot achieved cash flows from revenues sufficient to CMC activities and quality control. We rely and intend to continue to rely on third parties to supplement many of these functions. We contract with Amarex, a full service contract research organization, to manage our clinical trials.cover basic operating costs. As a result, we will be dependenthave relied heavily on consultantsdebt and strategic partnersequity financing. Equity financing, in our development and commercialization activities, and it may be administratively challenging to monitor and coordinate these relationships. If we do not appropriately manage our relationships with third parties, we may not be able to successfully manage development, testing, and preparation of our BLA filing for our leronlimab drug candidate or other products or commercialize any products that are approved, which would haveparticular, has created a material and adversedilutive effect on our business, financial condition andcommon stock, price.

which has hampered our ability to attract reasonable financing terms. If we issue additional equity or convertible debt securities, we will continue to reduce the percentage ownership of our then-existing stockholders. We will needmay also be required to outsource and rely on third parties forgrant the clinical development and manufacture, sales and marketingholders of product candidate, andnew securities rights, preferences or privileges senior to those possessed by our future success will be dependentthen-existing stockholders in order to induce them to invest in our company. The issuance of these senior securities may adversely affect the holders of our common stock by restricting dividends on the timeliness and effectivenesscommon stock, diluting the voting power of the effortscommon stock or subordinating the liquidation rights of these third parties.

We are dependent on third parties for important aspects of our product development strategy. We do not have the required financial and human resources to carry out independently thepre-clinical and clinical development for our product candidate, and do not have the capability or resources to manufacture, market or sell our current product candidate.common stock. As a result we contract with and relyof these or other factors, the issuance of additional equity or convertible debt securities could have an adverse impact on third parties for important functions, including testing, storing, and manufacturing our products and managing and conducting clinical trials from which we may obtain a benefit. We have recently entered into several agreements with third parties for such services. If problems develop in our relationships with third parties, or if such parties fail to perform as expected, it could lead to delays or lack of progress, significant cost increases, changes in our strategies, and even failurethe market price of our product initiatives.

Any manufacturing problem orcommon stock. For the loss of a contract manufacturer could be disruptiveforeseeable future, we will continue to rely upon debt and equity financing to maintain our operations and result in lost sales. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a future contract manufacturer caused by problems at suppliers could delay shipmentthose of our drug candidates, increase our cost of goods sold and result in lost sales.subsidiaries.

We will need substantial additional funding to resubmit our BLA filing for leronlimab as a combination therapy with highly active antiretroviral therapy (HAART) for HIV patients, and to complete our COVID-19 clinical trials and our Phase 1b/2 clinical trial for triple-negative breast cancer, to continue our Phase 2 clinical trial for GvHD, to fund development of leronlimab for other indications, such as cancer and immunologic indications, and to operate our business, and such funding may not be available or, if it is available, such financing is likely to substantially dilute our existing stockholders.

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The discovery, development, and commercialization of new treatments, such as our leronlimab product candidate, entail significant costs. In addition, to the extent further development and clinical trials of leronlimab for other indications, such asCOVID-19, cancer, and immunological disorders, continue to appear promising and we elect to fund its development and commercialization, we will need to raise substantial additional capital, or enter into strategic partnerships, to enable us to:

 

fund clinical trials and seek regulatory approvals;

��

access manufacturing and commercialization capabilities;

 

pay required license fees, milestone payments, and maintenance fees to Progenics, Lonza and AbbVie Inc.;

 

develop, test, and, if approved, market our product candidate;

 

acquire or license additional internal systems and other infrastructure;

 

hire and support additional management and scientific personnel; and

 

explore additional indications for leronlimab, such as in the area of cancer and immunology.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance our cash needs primarily through public or private equity offerings, debt financings or through strategic alliances. We cannot be certain that additional funding will be available on acceptable terms or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative development programs or future commercialization initiatives. In addition, any additional funding that we do obtain will dilute the ownership held by our existing security holders. The amount of this dilution may be substantially increased if the trading price of our common stock is lower at the time of any financing.financing, or if we issue new shares at a lower price per share than prior financings. For example, the terms of certain of our convertible notes provide for full-ratchet anti-dilution protection, pursuant to which the conversion price of the convertible note will be automatically reduced to equal the effective price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered under the Securities Act of 1933, as amended. Regardless, the economic dilution to stockholders will be significant if our stock price does not increase significantly, or if the effective price of any sale is below the price paid by a particular shareholder. Any debt financing could involve substantial restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for the additional financing that we will require, and we do not have commitments from any third partiesthird-parties to provide any future financing. If we fail to obtain additional funding as needed, we may be forced to cease or scale back operations, and our results, financial condition and stock price would be adversely affected.

The amount of financing we require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than we expect.

Our future funding requirements will depend on many factors, including, but not limited to:

 

the costs of our ongoing clinical trial programs andpre-clinical studies, including our Phase1b/2Phase 2b/3 clinical trial for triple-negative breast cancer, oursevere and critically ill COVID-19 patients, a Phase 2 randomized clinical trial for GvHD, a potential pivotal Phase 3 monotherapy trial for HIV and other development activities conducted by us directly, and our ability to successfully concludein the studies and achieve favorable results;

mild-to-moderateCOVID-19 population, a Phase 1b/2 clinical trial for triple-negative breast cancer, our Phase 2 clinical trial for GvHD, a potential pivotal Phase 3 monotherapy trial for HIV and other development activities conducted by us directly, and our ability to successfully conclude the studies and achieve favorable results;

 

our ability to attract strategic partners to pay for or share costs related to our product development efforts;

 

the costs and timing of seeking and obtaining regulatory approvals and making related milestone payments due to Progenics, Lonza and AbbVie Inc.;

 

the costs of filing, prosecuting, maintaining and enforcing patents and other intellectual property rights and defending against potential claims of infringement;

 

decisions to hire additional scientific or administrative personnel or consultants;

 

our ability to manage administrative and other costs of our operations; and

 

the presence or absence of adverse developments in our clinical trial and commercialization readiness programs.

If any of these factors cause our funding needs to be greater than expected, our operations, financial condition, ability to continue operations and stock price may be adversely affected.

Our future cash requirements may differ significantly from our current estimates.

Our cash requirements may differ significantly from our estimates from time to time, depending on a number of factors, including:

 

the time and costs involved in obtaining regulatory approvals;

the costs and results of our clinical trial programs andpre-clinical studies we are undertaking or may in the future pursue with leronlimab;

 

the time and costs involved in our CMC activities;

 

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the time and costs involved to complete the remaining two sections of our BLA submission;

the time and costs involved in obtaining regulatory approvals;

whether our outstanding convertible notes are converted into equity or we receive additional cash upon the exercise of our outstanding common stock warrants;equity;

 

whether we receive additional cash upon the exercise of our outstanding warrants and options for common stock;

 

whether we are able to obtain funding under future licensing agreements, strategic partnerships, or other collaborative relationships, if any;

 

the costs of compliance with laws, regulations, or judicial decisions applicable to us; and

 

the costs of general and administrative infrastructure required to manage our business and protect corporate assets and stockholder interests.

If we underestimate our cash requirements, we may need to raise additional funds, which funding may not be available on acceptable terms or at all. If we fail to raise additional funds on a timely basis we willmay need to scale back our business plans, which may require us to delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative development programs or future commercialization initiatives, which would adversely affect our business, financial condition, and stock price, andprice. If we deplete our cash reserves, we may even be forced to discontinue our operations and liquidate our assets.

We are currently focused on the development of a single product candidate.

Our product development efforts are currently focused on a single product, leronlimab, for which we are researching multiple indications. If leronlimab fails to achieve clinical endpoints or exhibits unanticipated

toxicity or if a superior product is developed by a competitor, our prospects for obtaining regulatory approval and commercialization may be negatively impacted. In the long-term, we hope to establish a pipeline of product candidates, and we have identified additional product candidates that we may be able to acquire or license in the future. However, at this time, we do not have any formal agreements granting us any rights to such additional product candidates.

Clinical trialsIf we are expensive, time-consuming and subjectnot able to delay.

Clinical trials are subject to rigorousobtain any required regulatory requirements and are expensive and time-consuming to design, implement and manage. The length of time and number of trial sites and patients required for clinical trials vary substantially based on the type, complexity, novelty, intended use and any safety concerns relating to a drug candidate. Clinical trials for other indicationsapprovals for leronlimab, may take significantly longerwe will not be able to complete than leronlimab’s HIV trial program, if clinical trials for other indications are pursued at all.

The commencementcommercialize our primary product candidate, which would materially and completion of clinical trials could be delayed or prevented  by many factors, including, but not limited to:

periodic amendments to clinical trial protocols to address certain variables which arise during the course of a trial must be negotiated with and approved by the FDA;

slower than expected rates of patient recruitment and enrollment which has occurred in connection with certain of our trials, including as a result of competition with other clinical trials for patients, limited numbers of patients that meet the enrollment criteria, or the introduction of alternative therapies or drugs by others;

our ability to obtain regulatory or other approvals to commence and conduct clinical trials in the manner we or our partners consider appropriate for timely development;

our ability to identify and reach agreement on acceptable terms with prospective clinical trial sites and entities involved in the conduct of our clinical trials;

unforeseen issues with our relationship with our contract clinical management services provider;

delays in paying third-party vendors of biopharmaceutical services;

lack of effectiveness of our drug candidates during clinical trials; or

unforeseen safety issues.

Product development costs for our products will increase if we have delays in testing or approval or if we need to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA and institutional review boards, or IRBs, for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, any IRBs, or other reviewing entities, or

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any of our clinical study sites suspend or terminate any of our clinical studies of our drug candidates, our commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harmadversely affect our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory approval of our drug candidates. In addition, if one or more clinical studies are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of our drug candidates could be significantly reduced.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA ornon-U.S. regulatory authoritiesstock price.

We must successfully initiate and complete a clinical trial for leronlimab as a monotherapy for HIV before we can apply for marketing approval. Although test results have been positive thus far, the process of obtaining approval of a drug product for use in humans is extremely lengthy and time-consuming, and numerous factors may prevent our successful development of leronlimab, including negative results in ongoing and future clinical trials, and inability to obtain sufficient additional funding to continue to pursue development. Our clinical trials may be unsuccessful, which would materially harm our business. Even if our ongoing clinical trials are successful, we will be required to conduct additional clinical trials to establish the safety and efficacy of leronlimab, or any future drug candidates, before an NDA or BLA can be filed with the FDA for marketing approval.

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in early phases of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize leronlimab, or any future drug candidates. The resultsresearch, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. We are not permitted to market a drug candidate as prescription pharmaceutical products in the United States until we receive approval of an NDA or BLA from the priorFDA or in foreign markets until we receive the requisite approval from comparable regulatory authorities in such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA or BLA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or BLA to the FDA and even fewer are eventually approved for commercialization. The Company filed a BLA for leronlimab mayas a combination therapy for highly treatment experienced HIV patients with the FDA on April 27, 2020, and submitted additional FDA requested clinical datasets on May 11, 2020. In July 2020, the FDA issued a Refusal to File the BLA stating that it needed additional information to complete its substantive review. The FDA’s request requires additional analysis of completed trials and does not necessarilyrequire any additional clinical trials to be predictiveconducted, and the Company is working diligently to provide the information required by the FDA in order to resubmit its BLA for this combination therapy. However, even upon submission of the resultsadditional information to the FDA, there can be no assurance as to if or when the FDA will declare the filing complete.

Although the completion and resubmission of future clinical trials orpre-clinical studies. Clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorilyour BLA for leronlimab is in prior clinical trials nonetheless have failed to obtain FDA approval. The development timeline andprocess, receipt of necessary regulatory approval and commercialization prospects for leronlimab,is subject to a number of risks, including the following:

the FDA or comparable foreign regulatory authorities or IRBs may disagree with the design or implementation of our business and financial prospects, could be adversely affected by unforeseen risks and events.clinical trials;

Further, leronlimab

we may not be approved even after if it achieved its primary endpoint in its pivotal Phase 3 clinical trial. In addition, anyable to provide acceptable evidence of these regulatory authorities may change its requirements for the approvalsafety and efficacy of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that, if successful, would potentially form the basis for an application for approval by the FDA or another regulatory authority. The FDA may require us to procure the development of a companion diagnostic test to help identify patients who may be more likely to respond to leronlimab for certain uses. Furthermore, any of these regulatory authorities may also approve leronlimab for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials.our drug candidates;

The FDA andnon-U.S. regulatory authorities retain broad discretion in evaluating

the results of our clinical trials and in determining whethermay not be satisfactory or may not meet the results demonstrate that leronlimab is safe and effective. If prior to approval, we arelevel of statistical or clinical significance required to conduct additional preclinical trials, clinical studiesby the FDA, the European Medicines Agency (“EMA”), or other types of testing of leronlimab, including after the completion of our current and planned later phase clinical trials, we will need substantial additional funds, and there is no assurance that the results of any such additional clinical trials will be sufficient for approval.

Clinical trials may fail to demonstrate the desired safety and efficacy of our product candidate, which could prevent or significantly delay completion of clinical development and regulatory approval.

Prior to receiving approval to commercialize leronlimab or any other product candidates, we must adequately demonstrate to the FDA and anycomparable foreign regulatory authorities for marketing approval;

the dosing of our drug candidates in jurisdictionsa particular clinical trial may not be at an optimal level;

patients in which we seek approval that leronlimab or any other product candidate is sufficiently safe and effective with substantial evidence from well-controlledour clinical trials which we believe we have achieved in our Phase 3 combination therapy trial. In clinical trials, we will need to demonstrate efficacy for the treatment of specific indications and monitor safety throughout the clinical development process and following approval. If clinical work by us or others leads to undesirablemay suffer adverse effects in patients, it could delayfor reasons that may or prevent us from furthering the regulatory approval process or cause us to cease clinical trials with respect to any drug candidate. If our current or future preclinical studies or clinical trials are unsuccessful, our business will be significantly harmed and our stock price would be negatively affected.

Our product candidate is subject to the risks of failure inherent in drug-related product development. Preclinical studies may not yield results that adequately support our regulatory applications. Even if these applications are filed with respectbe related to our product candidate, the results of preclinical studies do not necessarily predict the results of clinical trials. In addition, even if we believe drug candidates;

the data collected from clinical trials of our product candidate are promising, these data may not be sufficient to support approval by the FDAsubmission of an NDA or foreignother submission or to obtain regulatory authorities. If regulatory authorities do not approve our product, or if we fail to maintain regulatory compliance, we would be unable to commercialize our product, and our business, results of operations and financial condition would be harmed.

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We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidate.

Identifying and qualifying patients to participate in clinical trials of our product candidate is critical to our success. The timing of our clinical trials depends on the rate at which we can recruit patients to participate in testing our product candidate. If patients are unwilling to participate in our trials because of negative publicity from adverse eventsapproval in the biotechnology industries, public perception of vaccine safety issuesUnited States or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether.

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required enrollment criteria, to complete our clinical trials in a timely manner. Patient enrollment is affected by several factors, including:

severity of the disease under investigation;elsewhere;

 

designthe FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of the trial protocol;

size of the patient population;

eligibility criteriathird-party manufacturers with which we contract for the trial in question;

perceived risksclinical and benefits of the product candidate being tested;

proximity and availability of clinical trial sites for prospective patients;

availability of competing vaccines and/or therapies and related clinical trials;

efforts to facilitate timely enrollment in clinical trials;

patient referral practices of physicians;commercial supplies; and

 

ability to monitor patients adequately during and after treatment.

We may not be able to initiatethe approval policies or continue clinical trials if we cannot enroll a sufficient numberregulations of eligible patients to participate in the clinical trials required by regulatory agencies.

Even if we enroll a sufficient number of eligible patients to initiate our clinical trials, we may be unable to maintain participation of these patients throughout the course of the clinical trial as required by the clinical trial protocol, in which event we may be unable to use the research results from those patients. If we have difficulty enrolling, and maintaining the enrollment of a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.

Leronliamb may cause undesirable side effects or have other properties that delay or prevent its regulatory approval or limit their commercial potential.

Undesirable side effects caused by our product candidate or even competing products in development that utilize a common mechanism of action could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or othercomparable foreign regulatory authorities and potential product liability claims. While leronlimab was generally well tolerated and no drug-related serious adverse events or dose-proportional adverse events were reported, our understanding of the relationship between adverse events reportedmay significantly change in future clinical trials of other product candidates may change as we gather more information, and unexpected adverse events may be observed. Routine review and analysis of post-marketing safety surveillance and clinical trials will provide additional information, for example, potential evidence of rare, population-specific or long-term adverse reactions, and may adversely affect the commercialization of the product, and even lead to the suspension or withdrawal of product marketing authorization.

If we or others identify undesirable side effects caused by leronlimab either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:

manner rendering our clinical trials may be put on hold;data insufficient for approval.

we may be unableFailure to obtain regulatory approval for our product candidate;

regulatory authorities may withdraw approvals of our products;

regulatory authorities may require additional warnings onleronlimab for the label;

a medication guide outlining the risks of such side effects for distribution to patients may be required;

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we could be sued and held liable for harm caused to patients; and

our reputation may suffer.

Any of these events couldforegoing or any other reasons will prevent us from achievingcommercializing such product candidate as a prescription product, and our ability to generate revenue will be materially impaired. We cannot guarantee regulators will agree with our assessment of the results of our clinical trials or maintaining marketing approvals for and market acceptancethat such trials will be considered by regulators to have shown safety or efficacy of our product candidate. The FDA, EMA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.

We have only limited experience in filing the applications necessary to gain regulatory approvals and expect to continue to rely on consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA approval requires the submission of pre-clinical, clinical and/or pharmacokinetic data, information about product manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a product candidate’s safety and efficacy for each indication. Our drug candidates may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use with respect to one or all intended indications.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of regulatory authorities. Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory marketing approval for our drug candidate in any indication will prevent us from commercializing such product candidate, and could have a material adverse effect on our business and financial results.

We may not be ableability to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and technologies, and wegenerate revenue will be dependent on our corporate partners if we do.

We may seek to enter into a strategic alliance with a pharmaceutical company for the further development and approval of one or more of our product candidates. Strategic alliances potentially provide us with additional funds, expertise, access, and other resources in exchange for exclusive ornon-exclusive licenses or other rights to the technologies and products that we are currently developing or may explore in the future. We cannot give any assurance that we will be able to enter into strategic relationships with a pharmaceutical company or others in the near future or at all, or maintain our current relationships. In addition, we cannot assure you that any agreements we do reach will achieve our goals or be on terms that prove to be economically beneficial to us. When we do enter into strategic or contractual relationships, we become dependent on the successful performance of our partners or counterparties. If they fail to perform as expected, such failure could adversely affect our financial condition, lead to increases in our capital needs, or hinder or delay our development efforts.materially impaired.

Although leronlimab PRO 140 has been designated for fast track approval by the FDA, our ability to obtain accelerated approval may be lost.

The FDA designated PRO 140 for fast track consideration in 2006. The letter ascribing this designation stated that, if the clinical development program pursued for leronlimab PRO 140 did not continue to meet the criteria for fast track designation, the IND application would not be reviewed under the fast track program. There is no assurance that the FDA will ultimately consider leronlimab PRO 140 for approval on an accelerated basis. Failure to maintain eligibility for fast track review will likely result in requirements for longer or additional clinical trials and a slower approval process, resulting in additional costs and, therefore, additional capital, which will likely result in further delay in the potential realization of revenues from commercialization of leronlimab PRO 140.

Although we have applied with the FDA for breakthrough therapy designation for leronlimab, for certainHIV-related treatments, such a designation may not lead to a faster development or regulatory review or approval process, and it may not increase the likelihood that leronlimab will receive marketing approval in the United States.

We applied with the FDA for breakthrough therapy designation for leronlimab, for certainHIV-related treatments. The FDA, in its comments to us, requested additional trial data to support our request for such designation. We currently plan to submit additional data to the FDA as it becomes available to us from our pivotal Phase 2b/3 combination trial. A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and for which preliminary clinical evidence indicates substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs and biologics that have been designated as breakthrough therapies, interaction and communication between the FDA and the applicant can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products designated as breakthrough therapies by the FDA may, in some cases, also be eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe leronlimab PRO 140 meets the criteria for designation as a breakthrough therapy, the FDA may disagree. In any event, the receipt of a breakthrough therapy designation for leronlimab may not result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and, in any event, does not assure ultimate approval by the FDA. In addition, even if leronlimab does qualify as a breakthrough therapy, the FDA may later decide that leronlimab no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. The foregoing considerations could result in additional costs and/or delay in the potential realization of revenues from commercialization of leronlimab.

If we are not able to obtain any required regulatory approvalsAlthough the FDA has granted orphan drug designation for leronlimab for the prevention of GvHD, we willmay not be able to commercialize our primary product candidate, which would materially and adversely affect our business, financial condition and stock price.obtain or maintain orphan drug exclusivity for leronlimab.

We have received orphan drug designation by the FDA for leronlimab in connection with our Phase 2 trial for GvHD. We may not be able to obtain or maintain orphan drug exclusivity for leronlimab. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the FDA will be precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United States. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

Even with orphan drug exclusivity for leronlimab, such exclusivity may not effectively protect the product from competition, because FDA has taken the position that, under certain circumstances, another drug with the same active moiety can be approved for the same condition. Specifically, the FDA’s regulations provide that it can approve another drug with the same active moiety for the same condition, if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

We must successfully initiate and complete a clinical trial for leronlimab as a monotherapy for HIV before we can apply for marketing approval. Although test results have been positive thus far, the process of obtaining approval of a drug product for use in humans is extremely lengthy and time-consuming, and numerous factors

may prevent our successful development of leronlimab, including negative results in ongoing and future clinical trials, and inability to obtain sufficient additional funding to continue to pursue development. Our clinical trials may be unsuccessful, which would materially harm our business. Even if our ongoing

The results from the prior clinical trials of leronlimab may not necessarily be predictive of the results of future clinical trials or pre-clinical studies. Clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in prior clinical trials nonetheless have failed to obtain FDA approval. The development timeline and regulatory approval and commercialization prospects for leronlimab, including our business and financial prospects, could be adversely affected by unforeseen risks and events.

Further, leronlimab may not be approved even after if it achieved its primary endpoint in its pivotal Phase 3 clinical trial. In addition, any of these regulatory authorities may change its requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that, if successful, would potentially form the basis for an application for approval by the FDA or another regulatory authority. The FDA may require us to procure the development of a companion diagnostic test to help identify patients who may be more likely to respond to leronlimab for certain uses. Furthermore, any of these regulatory authorities may also approve leronlimab for fewer or more limited indications than we will berequest or may grant approval contingent on the performance of costly post-marketing clinical trials.

The FDA and non-U.S. regulatory authorities retain broad discretion in evaluating the results of our clinical trials and in determining whether the results demonstrate that leronlimab is safe and effective. If prior to approval, we are required to conduct additional preclinical trials, clinical studies or other types of testing of leronlimab, including after the completion of our current and planned later phase clinical trials, we will need substantial additional funds, and there is no assurance that the results of any such additional clinical trials will be sufficient for approval.

Leronliamb may cause undesirable side effects or have other properties that delay or prevent its regulatory approval or limit their commercial potential.

Undesirable side effects caused by leronlimab or even competing products in development that utilize a common mechanism of action could cause regulatory authorities to establishinterrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and expose the company to potential product liability claims. While leronlimab has been generally well tolerated and no drug-related serious adverse events or dose-proportional adverse events were reported, our understanding of the relationship between adverse events reported in future clinical trials of other product candidates may change as we gather more information, and unexpected adverse events may be observed. Routine review and analysis of post-marketing safety surveillance and clinical trials will provide additional information, for example, potential evidence of rare, population-specific or long-term adverse reactions, and may adversely affect the commercialization of the product, and even lead to the suspension or withdrawal of product marketing authorization.

If we or others identify undesirable side effects caused by leronlimab either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:

our clinical trials may be put on hold;

we may be unable to obtain regulatory approval for our product candidate;

regulatory authorities may withdraw approvals of our products;

regulatory authorities may require additional warnings on the label;

a medication guide outlining the risks of such side effects for distribution to patients may be required;

we could be sued and held liable for harm caused to patients; and

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining marketing approvals for and market acceptance of leronlimab and could have a material adverse effect on our business and financial results.

Clinical trials may fail to demonstrate the desired safety and efficacy of our product candidates, which could prevent or significantly delay completion of clinical development and regulatory approval.

Prior to receiving approval to commercialize leronlimab or any other product candidates, we must adequately demonstrate to the FDA and any foreign regulatory authorities in jurisdictions in which we seek approval that leronlimab or any other product candidate is sufficiently safe and effective with substantial evidence from well-controlled clinical trials, which we believe we have achieved in our Phase 3 combination therapy trial for leronlimab as a combination therapy for highly treatment experienced HIV patients.

In clinical trials, we will need to demonstrate efficacy for the treatment of specific indications and monitor safety throughout the clinical development process and following approval. If clinical work by us or others leads to undesirable adverse effects in patients, it could delay or prevent us from furthering the regulatory approval process or cause us to cease clinical trials with respect to any drug candidates, before an NDAcandidate. If our current or BLA canfuture preclinical studies or clinical trials are unsuccessful, our business will be significantly harmed and our stock price would be negatively affected.

Any product candidate, including leronlimab, is subject to the risks of failure inherent in drug-related product development. Preclinical studies may not yield results that adequately support our regulatory applications. Even if these applications are filed with the FDA for marketing approval of any ofrespect to our drug candidates.

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Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in early phases ofpre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interimproduct candidate, the results of a clinical trialpreclinical studies do not necessarily predict final results. A failurethe results of oneclinical trials. In addition, even if we believe the data collected from clinical trials of our product candidate are promising, these data may not be sufficient to support approval by the FDA or moreforeign regulatory authorities. If regulatory authorities do not approve our product, or if we fail to maintain regulatory compliance, we would be unable to commercialize our product, and our business, results of operations and financial condition would be harmed.

We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidate.

Identifying and qualifying patients to participate in clinical trials of our product candidate is critical to our success. The timing of our clinical trials depends on the rate at which we can occur at any stagerecruit patients to participate in testing our product candidate. If patients are unwilling to participate in our trials because of testing. concerns about participating in clinical trials during the COVID-19 pandemic or other public health emergency, negative publicity from adverse events in the biotechnology industries, public perception of vaccine safety issues or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether.

We may experience numerous unforeseen eventsnot be able to identify, recruit and enroll a sufficient number of patients, or those with the required enrollment criteria, to complete our clinical trials in a timely manner. Patient enrollment is affected by several factors, including:

severity of the disease under investigation;

design of the trial protocol;

size of the patient population;

eligibility criteria for the trial in question;

perceived risks and benefits of the product candidate being tested;

proximity and availability of clinical trial sites for prospective patients;

availability of competing vaccines and/or therapies and related clinical trials;

efforts to facilitate timely enrollment in clinical trials;

patient referral practices of physicians; and

ability to monitor patients adequately during and after treatment.

We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies.

Even if we enroll a sufficient number of eligible patients to initiate our clinical trials, we may be unable to maintain participation of these patients throughout the course of the clinical trial as required by the clinical trial protocol, in which event we may be unable to use the research results from those patients. If we have difficulty enrolling, and maintaining the enrollment of a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.

Clinical trials are expensive, time-consuming and subject to delay.

Clinical trials are subject to rigorous regulatory requirements and are expensive and time-consuming to design, implement and manage. The length of time and number of trial sites and patients required for clinical trials vary substantially based on the type, complexity, novelty, intended use and any safety concerns relating to a drug candidate. Clinical trials for other indications for leronlimab may take significantly longer to complete than leronlimab’s HIV trial program, and, in some instances, we may decide not to pursue clinical trials for other indications.

The commencement and completion of clinical trials could be delayed or prevented by many factors, including, but not limited to:

periodic amendments to clinical trial protocols to address certain variables which arise during the course of a trial must be negotiated with and approved by the FDA;

slower than expected rates of patient recruitment and enrollment which has occurred in connection with certain of our trials, including as a result of COVID-19 fears, quarantines or other stay-at-home orders from government authorities, competition with other clinical trials for patients, limited numbers of patients that meet the clinical trial process that could delayenrollment criteria, or prevent the introduction of alternative therapies or drugs by others;

our ability to receiveobtain regulatory approval or commercialize our drug candidates. The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertisingother approvals to commence and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authoritiesconduct clinical trials in the United Statesmanner we or our partners consider appropriate for timely development;

our ability to identify and other countries, which regulations differ from country to country. We are not permitted to market any of our drug candidates as prescription pharmaceutical productsreach agreement on acceptable terms with prospective clinical trial sites and entities involved in the United States until we receive approval of an NDA or BLA from the FDA or in foreign markets until we receive the requisite approval from comparable regulatory authorities in such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA or BLA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or BLA to the FDA and even fewer are eventually approved for commercialization. We have never submitted an NDA or BLA to the FDA or any comparable applications to other regulatory authorities. If our development efforts for our drug candidates, including regulatory approval, are not successful for our planned indications, or if adequate demand for our drug candidates is not generated, our business will be harmed.

Receipt of necessary regulatory approval is subject to a number of risks, including the following:

the FDA or comparable foreign regulatory authorities or IRBs may disagree with the design or implementationconduct of our clinical trials;

 

unforeseen issues with our relationship with our contract clinical management services provider;

delays in paying third-party vendors of biopharmaceutical services;

lack of effectiveness of our drug candidates during clinical trials; or

unforeseen safety issues.

Product development costs for our products will increase if we have delays in testing or approval or if we need to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements

and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA and institutional review boards, or IRBs, for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, any IRBs, or other reviewing entities, or any of our clinical study sites suspend or terminate any of our clinical studies of our drug candidates, our commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory approval of our drug candidates. In addition, if one or more clinical studies are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of our drug candidates could be significantly reduced.

We depend on the Vyera License Agreement for the commercialization of leronlimab for the treatment of HIV in humans in the U.S. Vyera’s failure to successfully commercialize leronlimab for the treatment of HIV in the U.S. could have a material adverse effect on our business, financial condition and results of operations.

On December 17, 2019, we entered into the Vyera License Agreement under which we granted Vyera an exclusive royalty-bearing license to commercialize pharmaceutical preparations containing leronlimab for treatment of HIV in humans in the U.S. Pursuant to the terms of the Vyera License Agreement, Vyera is obligated to use commercially reasonable efforts (as defined in the Vyera License Agreement) to commercialize leronlimab for the treatment of HIV in humans in the U.S.

Under the terms of the Vyera License Agreement, Vyera will make payments to us of up to $87.0 million based upon the achievement of certain sales and regulatory milestones. In addition, Vyera will pay a royalty to us equal to fifty percent of Vyera’s gross profit margin from leronlimab sales (defined in the Vyera License Agreement as “Net Sales”) in the U.S. The right to potential future payments under the Vyera License Agreement represents a significant portion of the value of the Vyera License Agreement. We cannot be certain we will receive any future payments under the Vyera License Agreement, which would adversely affect the trading price of our common stock and have a material adverse effect on our business, financial condition and results of operations.

Vyera’s ability to successfully commercialize and generate revenues from leronlimab depends on a number of factors, including Vyera’s ability to:

develop and execute its sales and marketing strategies for leronlimab;

achieve, maintain and grow market acceptance of, and demand for, leronlimab;

obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third- party payers;

maintain and manage the necessary sales, marketing, manufacturing, managed markets, and other capabilities and infrastructure that are required to successfully integrate and commercialize leronlimab; and

comply with applicable legal and regulatory requirements.

Additional factors that may affect the success of our commercialization arrangement with Vyera include the following:

we may not succeed in getting leronlimab approved or approved with commercially competitive labeling;

Vyera may prioritize the commercialization of its other products over leronlimab;

Vyera may pursue higher-priority programs, or change the focus of its marketing programs;

Vyera may acquire or develop alternative products;

Vyera may in the future choose to devote fewer resources to leronlimab;

changes in laws and regulations applicable to, and scrutiny of, the pharmaceutical industry;

market acceptance of leronlimab may fail to materialize, increase or may decrease;

Vyera may experience financial difficulties; and

Vyera may fail to comply with its obligations under our Vyera License Agreement and related agreements.

Any of the preceding factors could affect Vyera’s commitment to, and ability to perform, its obligations under the Vyera License Agreement, which, in turn could adversely affect the commercial success of leronlimab for the treatment of HIV in humans in the U.S. Any failure by Vyera to successfully commercialize leronlimab for the treatment of HIV in humans in the U.S. could have a material adverse effect on our business, financial condition and results of operations.

If Vyera is not successful in commercializing leronlimab for the treatment of HIV in humans in the U.S., our revenues and our business will suffer.

The commercial success of leronlimab for the treatment of HIV in humans in the U.S. will depend almost entirely on Vyera’s commercialization efforts. Pursuant to the Vyera License Agreement, Vyera is responsible for marketing, pricing, promoting, selling and distributing leronlimab for the treatment of HIV in humans in the U.S. If the Vyera License Agreement is terminated in accordance with its terms, including due to a party’s failure to perform its obligations or responsibilities under the Vyera License Agreement, we would need to commercialize leronlimab ourselves, for which we currently have no infrastructure, or alternatively enter into a new agreement with another commercialization partner, of which no assurance can be given. If we are unable to build the necessary infrastructure to commercialize leronlimab ourselves, which would substantially increase our expenses and capital requirements, which we are currently unable to fund, or are unable to find a suitable replacement commercialization partner, we would be unable to generate any revenue from leronlimab. Even if we are successful at replacing the commercialization capabilities of Vyera, potential revenues and/or royalties from leronlimab could be adversely affected.

Vyera may market other products, for which leronlimab will vie for Vyera’s, promotional, marketing, and selling resources. If Vyera fails to commit sufficient promotional, marketing and selling resources to leronlimab, our potential royalties and receipt of milestone payments could be adversely impacted. Additionally, there can be no assurance that Vyera will commit the resources required for the successful commercialization of leronlimab.

If Vyera prices leronlimab inappropriately, fails to position and sell leronlimab properly, targets inappropriate physician specialties, or otherwise does not provide sufficient promotional support, potential product revenue and our potential royalties and milestone payments could be materially adversely affected.

Vyera’s promotional, marketing and sales activities in connection with leronlimab are subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program. The federal False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. If Vyera’s activities are found to be in violation of these laws or any other federal and state fraud and abuse laws, Vyera may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal healthcare programs and

the curtailment or restructuring of its activities with regard to the commercialization of leronlimab, which could harm the commercial success of leronlimab and have a material adverse effect on our business, financial condition and results of operations.

We will depend on Vyera and any other future licensees and royalty-agreement counterparties for the determination of royalty and milestone payments. While we typically have primary or back-up rights to audit our licensees and royalty-agreement counterparties, the independent auditors may have difficulty determining the correct royalty calculation, we may not be able to provide acceptable evidencedetect errors and payment calculations may call for retroactive adjustments. We may have to exercise legal remedies, if available, to resolve any disputes resulting from the audit.

The royalty and milestone payments we may receive pursuant to the Vyera License Agreement and any future license or commercialization agreements are dependent on our licensees based on their reported achievement of regulatory milestones and product sales. Each licensee’s calculation of the safetyroyalty payments is subject to and efficacydependent upon the adequacy and accuracy of our drug candidates;

the results of our clinical trialsits sales and accounting functions, and errors may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, the European Medicines Agency (“EMA”), or other comparable foreign regulatory authorities for marketing approval;

the dosing of our drug candidates in a particular clinical trial may not be at an optimal level;

patients in our clinical trials may suffer adverse effects for reasons that may or may not be relatedoccur from time to our drug candidates;

the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approvaltime in the United States calculations made by a licensee and/or elsewhere;

the FDA or comparable foreign regulatory authoritiesa licensee may fail to approvereport the manufacturing processesachievement of royalties or facilities of third-party manufacturers with which we contractmilestones in whole or in part. Our license and royalty agreements typically provide us the primary or back-up right to audit the calculations and sales data for clinical and commercial supplies; and

the approval policies or regulationsassociated royalty payments; however, such audits may occur many months following our recognition of the FDAroyalty revenue, may require us to adjust our royalty revenues in later periods and may require expense on the part of the Company. Further, our licensees and royalty-agreement counterparties may be uncooperative or comparable foreign regulatory authoritieshave insufficient records, which may significantly changecomplicate and delay the audit process.

Although we intend to regularly exercise our royalty audit rights as necessary and to the extent available, we rely in a manner renderingthe first instance on our clinical data insufficient for approval.

Failurelicensees and royalty-agreement counterparties to obtain regulatory approval foraccurately report the achievement of milestones and royalty sales and calculate and pay applicable milestones and royalties and, upon exercise of such royalty and other audit rights, we rely on licensees’ and royalty-agreement counterparties’ cooperation in performing such audits. In the absence of such cooperation, we may be forced to exercise legal remedies, if available, to enforce our agreements.

Any failure of any of our drug candidates for the foregoing or any other reasons will prevent us from commercializing such product candidate as a prescription product,upstream suppliers to deliver necessary quantities of leronlimab could result in delays in our commercialization schedule and adversely affect our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will agree withmeet our assessment of the results of our clinical trials or that such trials will be considered by regulatorssupply obligations to have shown safety or efficacy of our product candidate. The FDA, EMA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, orpre-clinical or other studies.Vyera. In addition, varying interpretations of the data obtained frompre-clinical and clinical testing could delay, limit we may still be obligated to satisfy obligations to our upstream suppliers and/or prevent regulatory approval of a product candidate.licensors even if Vyera’s commercialization achievements are insufficient to enable us to fully satisfy such obligations.

We have only limited experiencedepend on our upstream supply agreements with various partners to satisfy our obligations under the Vyera Supply Agreement to supply leronlimab to Vyera for commercialization. A failure in filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third party contract research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA approval requires the submission ofpre-clinical, clinical and/or pharmacokinetic data, information about product manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a product candidate’s safety and efficacy for each indication. Our drug candidates may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use with respect to one or all intended indications.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of regulatory authorities. Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in one jurisdiction may negativelyupstream supply chain could adversely impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory marketing approval formeet our drug candidate in any indication will prevent us from commercializing such product candidate,supply obligations under the Vyera Supply Agreement and ourcould impact Vyera’s ability to generate revenuesuccessfully commercialize leronlimab. We have obligations to our upstream suppliers and licensors that are independent of Vyera’s obligations to us. Therefore, if Vyera is not able to successfully commercialize leronlimab, we may still be obligated to meet certain of our obligations to our upstream suppliers. There can be no assurances that Vyera’s commercialization of leronlimab will be materially impaired.sufficient to enable us to meet the obligations to our upstream suppliers and/or licensors.

21We anticipate being able to provide to Vyera, in satisfaction of our supply obligations thereto, certain inventory of product that we have on hand in connection with the launch and initial commercialization period of leronlimab. If we are unable to do so due to dating restrictions at the time of regulatory approval of leronlimab,


the launch of leronlimab may be delayed and we will likely incur additional costs in order to provide Vyera with sufficient product for the launch and the initial commercialization period of leronlimab.

Even if we obtain marketing approval forThe commercialization of leronlimab we must successfully commercialize it.is subject to several risks.

ApprovalRegulatory approval of leronlimab is no guarantee of commercial success. The sale and marketing of drug products is a complicated and multifaceted process, and many approved drugs are not commercially successful.

At present, we have no sales or marketing personnel. In order to commercialize products that are approved for commercial sales, we must either collaborate with third parties that have such commercial infrastructure or develop our own sales and marketing infrastructure. If we are not successful in entering into appropriate collaboration arrangements, or recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty successfully commercializing leronlimab, which would adversely affect our business, operating results and financial condition.

If approved for marketing, the commercial success of leronlimab will depend upon its acceptance by customers and other stakeholders, including physicians, patients and health care payors. The degree of market acceptance of leronlimab will depend on a number of factors, including:

 

demonstration of clinical safety and efficacy;

 

relative convenience and ease of administration;

 

the prevalence and severity of any adverse effects;

 

the willingness of physicians to prescribe leronlimab and of the target patient population to try new therapies;

 

safety, tolerability and efficacy of leronlimab compared to competing products;

 

the introduction of any new products that may in the future become available to treat indications for which leronlimab PRO 140 may be approved;

 

new procedures or methods of treatment that may reduce the incidences of any of the indications in which our drug candidates may show utility;

 

pricing and cost-effectiveness;

 

the inclusion or omission of leronlimab in applicable treatment guidelines;

 

the effectiveness of our or any future collaborators’ sales and marketing strategies;

 

limitations or warnings contained in FDA approved labeling;

 

our ability to obtain and maintain sufficient third partythird-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third partythird-party payors; and

 

the willingness of patients to payout-of-pocket in the absence of third partythird-party coverage or reimbursement.

If leronlimab, or any of our drug candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our drug candidates may require significant resources and may never be successful.

In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our drug candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render our drug candidates not commercially viable. For example, regulatory authorities may approve our drug candidates for fewer or more limited indications than we request, may not approve the prices we intend to charge for our drug candidates, may grant approval contingent

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on the performance of costly post-marketing clinical trials, or may approve our drug candidates with labels that do not include the labeling claims necessary or desirable for the successful commercialization of a particular indication.

Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals, such as risk management plans and a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA may also require a REMS for an approved product when new safety information emerges. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of our drug candidates. Moreover, product approvals may be withdrawn fornon-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our drug candidates.

Certain agreements and related license agreements require us to make significant milestone, royalty, and other payments, which will require additional financing and, in the event we do commercialize our leronlimab product, decrease the revenues we may ultimately receive on sales. To the extent that such milestone, royalty and other payments are not timely made, the counterparties to such agreements in certain cases have repurchase and termination rights thereunder with respect to leronlimab.

Under the Progenics Purchase Agreement, the PDL License and the Lonza Agreement, we must pay to Progenics, AbbVie Inc. and Lonza significant milestone payments, license fees for “system know-how” technology, and royalties. In order to make the various milestone and license payments that are required, we will need to raise additional funds. In addition, our royalty obligations will reduce the economic benefits to us of any future sales if we do receive regulatory approval and seek to commercialize leronlimab. To the extent that such milestone payments and royalties are not timely made, under each their respective agreements, Progenics has certain repurchase rights relating to the assets sold to us, and AbbVie Inc. has certain termination rights relating to our license of leronlimab under the PDL License. For more information, see “Business—PRO 140 Acquisition and Licenses,” as well as the Progenics Purchase Agreement, the PDL License and the Lonza Agreement, each of which are incorporated by reference, respectively, as Exhibits 2.1, 10.3 and 10.4 to this Form 10-K.

Any failure to attract and retain skilled directors, executives, employees and consultants could impair our drug development and commercialization activities.

Our business depends on the skills, performance, and dedication of our directors, executive officers and key scientific and technical advisors. All of our current scientific advisors are independent contractors and are either self-employed or employed by other organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory contracts with other organizations, which may affect their ability to provide services to us in a timely manner. We may need to recruit additional directors, executive management employees, and advisers, particularly scientific and technical personnel, which will require additional financial resources. In addition, there is currently intense competition for skilled directors, executives and employees with relevant scientific and technical expertise, and this competition is likely to continue. We compete for these qualified personnel against companies with greater financial resources than ours. In order to successfully recruit qualified employees, we will likely need to offer a combination of base salary and equity compensation. These future issuances of our equity securities will dilute existing stockholders’ ownership interests. If we are unable to attract and retain persons with sufficient scientific, technical and managerial experience, we may be forced to limit or delay our product development activities or may experience difficulties in successfully conducting our business, which would adversely affect our operations and financial condition.

The loss or transition of any member of our senior management team or any key employee could adversely affect our business.

Our success depends significantly on the continued individual and collective contributions of our senior management team and key employees. The individual and collective efforts of these employees will be important as we continue to develop our tests and services, and as we expand our commercial activities. The loss of the

services of any member of our senior management team or the inability to hire and retain experienced management personnel could harm our operating results.

We have experienced significant turnover among our senior executives over the past two years. Our Chief Medical Officer was terminated in July 2019, after joining the company in November 2018, and our Chief Financial Officer left the Company in April 2020, after being promoted to this role in November 2019. The complexity inherent in integrating a new key member of the senior management team with existing senior management may limit the effectiveness of any such successor or otherwise adversely affect our business. Leadership transitions can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover of other key officers and employees. Specifically, a leadership transition in the commercial team may cause uncertainty about or a disruption to our commercial organization, which may impact our ability to achieve sales and revenue targets. Further, we may incur significant expenses related to any executive transition costs that may impact our operating results. Finding suitable replacements for senior management and other key employees can be difficult, and there can be no assurance we will continue to be successful in retaining or attracting qualified personnel in the future.

We have a very limited number of internal research and development personnel, making us dependent on consulting relationships and strategic alliances with industry partners.

We currently have five employees dedicated to Chemistry, Manufacturing, and Controls, or CMC activities and quality control. We rely and intend to continue to rely on third-parties to supplement many of these functions. We contract with Amarex, a full service contract research organization, to manage our clinical trials. As a result, we are dependent on consultants and strategic partners in our development and commercialization activities, and it may be administratively challenging to monitor and coordinate these relationships. If we do not appropriately manage our relationships with third-parties, we may not be able to successfully manage development, testing, and preparation of our BLA filings for our product or commercialize any product approved, which would have a material and adverse effect on our business, financial condition and stock price.

Our competitors may develop drugs that are more effective, safer and less expensive than ours.

We are engaged in the HIV treatment sector of the biopharmaceutical industry, which is intensely competitive. There are current treatments that are quite effective at controlling the effects of HIV, and we expect that new developments by other companies and academic institutions in the areas of HIV treatment will continue. If approved for marketing by the FDA, depending on the approved clinical indication, our product candidate may be competing with existing and future antiviral treatments for HIV.

Our competitors may:

develop drug candidates and market drugs that increase the levels of safety or efficacy that our product candidate will need to show in order to obtain regulatory approval;

develop drug candidates and market drugs that are less expensive or more effective than ours;

commercialize competing drugs before we or our partners can launch any products we are working to develop;

hold or obtain proprietary rights that could prevent us from commercializing our products; and/or

introduce therapies or market drugs that render our product candidate obsolete.

We expect to compete against large pharmaceutical and biotechnology companies and smaller companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions, government agencies and other public and private research organizations. These competitors, in nearly all cases, operate

research and development programs that have substantially greater financial resources than we do. Our competitors also have significantly greater experience in:

developing drug and other product candidates;

undertaking preclinical testing and clinical trials;

building relationships with key customers and opinion-leading physicians;

obtaining and maintaining FDA and other regulatory approvals;

formulating and manufacturing drugs;

launching, marketing and selling drugs; and

providing management oversight for all of the above-listed operational functions.

If we fail to achieve superiority over other existing or newly developed treatments, we may be unable to obtain regulatory approval. If our competitors market drugs that are less expensive, safer or more effective than our product candidate, or that gain or maintain greater market acceptance, we may not be able to compete effectively.

We will need to outsource and rely on third-parties for the clinical development and manufacture, sales and marketing of product candidate, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third-parties.

We are dependent on third-parties for important aspects of our product development strategy. We do not have the required financial and human resources to carry out independently the pre-clinical and clinical development for our product candidate, and do not have the capability or resources to manufacture, market or sell our current product candidate. As a result, we contract with and rely on third-parties for important functions, including testing, storing, and manufacturing our products and managing and conducting clinical trials from which we may obtain a benefit. We have recently entered into several agreements with third-parties for such services. If problems develop in our relationships with third-parties, or if such parties fail to perform as expected, it could lead to delays or lack of progress, significant cost increases, changes in our strategies, and even failure of our product initiatives.

Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a future contract manufacturer caused by problems at suppliers could delay shipment of our drug candidates, increase our cost of goods sold and result in lost sales.

We expect to rely on third-party manufacturers and will be dependent on their quality and effectiveness.

Our primary product candidate leronlimab and potential drug candidates require precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing standards, including failure to detect or control unexpected events or unanticipated manufacturing errors or the frequent occurrence of such errors, could result in patient injury or death, discontinuance or delay of ongoing or planned clinical trials, delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals and other problems that could seriously hurt our business. Contract manufacturers of biopharmaceutical drugs can encounter difficulties involving manufacturing processes, facilities, operations, production yields, quality control, compliance and shortages of qualified personnel. These manufacturers are subject to stringent regulatory requirements, including the FDA’s current good-manufacturing-practices (cGMP) regulations and similar foreign laws and standards. If our contract manufacturers fail to maintain ongoing compliance at any time, we may be unable to obtain regulatory approval for our products. In addition, the production of our product candidate could be interrupted, resulting in delays or discontinuance of our clinical trials, disruption in our release of commercial supplies, or other factors that could cause increases in costs and loss of potential revenues.

If for any reason, these third-parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them, nor can we be certain that any such third-parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our active pharmaceutical ingredient, or API, or our finished products, or should these manufacturers cease doing business with us, we could experience significant interruptions in the supply of our drug candidates or may not be able to create a supply of our drug candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of our drug candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply our drug candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant interruptions in the supply of our drug candidates if we decided to transfer the manufacture of our drug candidates to one or more alternative manufacturers in an effort to deal with the difficulties.

We cannot guarantee our manufacturing and supply partners will be able to manufacture our drug candidates at commercial scale on a cost-effective basis. If the commercial-scale manufacturing costs of our drug candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.

We may not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and technologies, and we will be dependent on our corporate partners if we do.

We may seek to enter into a strategic alliance with a pharmaceutical company for the further development and approval of one or more of our product candidates. Strategic alliances potentially provide us with additional funds, expertise, access, and other resources in exchange for exclusive or non-exclusive licenses or other rights to the technologies and products that we are currently developing or may explore in the future. We cannot give any assurance we will be able to enter into strategic relationships with a pharmaceutical company or others in the near future or at all, or maintain our current relationships. In addition, we cannot assure you any agreements we do reach will achieve our goals or be on terms that prove to be economically beneficial to us. When we do enter into strategic or contractual relationships, we become dependent on the successful performance of our partners or counterparties. If they fail to perform as expected, such failure could adversely affect our financial condition, lead to increases in our capital needs, or hinder or delay our development efforts.

We currently have no sales and marketing organization. If we are unable to secure a sales and marketing partner or establish satisfactory sales and marketing capabilities, we may not successfully commercialize it.leronlimab.

Approval of leronlimab is no guarantee of commercial success. The sale and marketing of drug products is a complicated and multifaceted process, and many approved drugs are not commercially successful.

At present, we have no sales or marketing personnel. In order to commercialize products that are approved for commercial sales, we must either collaborate with third partiesthird-parties that have such commercial infrastructure or develop our own sales and marketing infrastructure. If we are not successful in entering into appropriate collaboration arrangements, or recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty successfully commercializing leronlimab, which would adversely affect our business, operating results and financial condition.

We may have limited or no control over the sales, marketing and distribution activities of third partiesthird-parties in connection with current and future collaboration agreements. Our future revenues may depend heavily on the success of the efforts of these thirdthird- parties. If we elect to establish a sales and marketing infrastructure we may not realize a positive return on this investment. In addition, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize our drug candidates without strategic partners or licensees include:

 

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our drug candidates;

 

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

Even if we obtain marketing approval for leronlimab, we will be subject to ongoing regulatory obligations and oversight.

Even if we obtain marketing approval for leronlimab, we will be subject to ongoing obligations and continued regulatory review, which will result in significant risks and significant additional expenses. Additionally, leronlimab could be subject to labeling and other restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements, or if we experience unanticipated problems with leronlimab.

Even if we obtain FDA approval of leronlimab for an indication, the FDA may still impose significant restrictions on its indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials, and post-market surveillance to monitor safety and efficacy. Leronlimab will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current cGMPs, which are requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.

With respect to sales and marketing activities by us or any future partner, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. We may also be subject, directly or indirectly through our customers and partners, to various

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fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.

In addition, if any of our drug candidates are approved for an indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly

regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for any of our drug candidates, physicians may nevertheless legally prescribe such products to their patients in a manner that is inconsistent with the approved label. However, if we are found to have promoted suchoff-label uses, we may become subject to significant liability and government fines. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging inoff-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.

If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, or if we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions:

 

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

issuance of warning letters or untitled letters;

 

injunctions or the imposition of civil or criminal penalties or monetary fines;

 

suspension of any ongoing clinical trials;

 

refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

 

suspension of, or imposition of restrictions on, operations, including costly new manufacturing requirements; and/or

 

product seizure or detention or refusal to permit the import or export of product.

The occurrence of any event or penalty described above may inhibit our ability to commercialize our drug candidates and generate revenue. Adverse regulatory action, whetherpre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.

Although the FDA has granted orphan drug designation for leronlimab for the prevention of GvHD, we may not be able to obtain or maintain orphan drug exclusivity for leronlimab.

We have received orphan drug designation by the FDA for leronlimab in connection with our Phase 2 trial for GvHD. We may not be able to obtain or maintain orphan drug exclusivity for leronlimab. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the FDA will be precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United States. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

Even with orphan drug exclusivity for leronlimab, such exclusivity may not effectively protect the product from competition, because FDA has taken the position that, under certain circumstances, another drug with the same active moiety can be approved for the same condition. Specifically, the FDA’s regulations provide that it can approve another drug with the same active moiety for the same condition, if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

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Our future growth depends, in part, on our ability to enter into and succeed in markets outside of the United States, where we may choose to rely on third partythird-party collaborations and will be subject to additional regulatory and commercial burdens, risks and other uncertainties.

Our future profitability will depend, in part, on our ability to gain approval of and commercialize our drug candidates innon-U.S. markets. In some or all of thesenon-U.S. markets, we intend to enter into licensing and contractual collaborations with third partiesthird-parties to handle some or all of the tasks and responsibilities necessary to succeed. Our activities innon-U.S. markets are subject to additional risks and uncertainties, including:

 

our ability to enter into favorable licensing and contractual arrangements with our partners;

 

our ability to select partners who are capable of achieving success at the tasks they agree to perform;

 

obtaining timely and sufficient favorable approval terms for our drug candidates;

 

obtaining favorable pricing and reimbursement;

 

our inability to directly control commercial activities because we are relying on third parties;third-parties;

 

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

import or export licensing requirements;

 

longer accounts receivable collection times;

 

longer lead times for shipping;

 

language barriers for technical training;

 

reduced protection of intellectual property rights in some foreign countries;

 

foreign currency exchange rate fluctuations; and

 

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

International sales of our drug candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, and trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.

Our competitors may develop drugs that are more effective, safer and less expensive than ours.

We are engaged in the HIV treatment sector of the biopharmaceutical industry, which is intensely competitive. There are current treatments that are quite effective at controlling the effects of HIV, and we expect that new developments by other companies and academic institutions in the areas of HIV treatment will continue. If approved for marketing by the FDA, depending on the approved clinical indication, our product candidate may be competing with existing and future antiviral treatments for HIV.

Our competitors may:

develop drug candidates and market drugs that increase the levels of safety or efficacy that our product candidate will need to show in order to obtain regulatory approval;

develop drug candidates and market drugs that are less expensive or more effective than ours;

commercialize competing drugs before we or our partners can launch any products we are working to develop;

hold or obtain proprietary rights that could prevent us from commercializing our products; or

introduce therapies or market drugs that render our product candidate obsolete.

We expect to compete against large pharmaceutical and biotechnology companies and smaller companies that are collaborating with larger pharmaceutical companies, new companies, academic institutions, government agencies and other public and private research organizations. These competitors, in nearly all cases, operate research and development programs that have substantially greater financial resources than we do. Our competitors also have significantly greater experience in:

developing drug and other product candidates;

undertaking preclinical testing and clinical trials;

building relationships with key customers and opinion-leading physicians;

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obtaining and maintaining FDA and other regulatory approvals;

formulating and manufacturing drugs;

launching, marketing and selling drugs; and

providing management oversight for all of the above-listed operational functions.

If we fail to achieve superiority over other existing or newly developed treatments, we may be unable to obtain regulatory approval. If our competitors market drugs that are less expensive, safer or more effective than our product candidate, or that gain or maintain greater market acceptance, we may not be able to compete effectively.

We may not be able to successfully manufacture our product candidate in sufficient quantities for late-stage clinical development, andscale-up manufacturing processes for commercial production, which would delay or prevent us from developing our product candidate and commercializing approved product, if any.

In order to conduct larger-scale or late-stage clinical trials, we need to maintain sufficient product inventory. A failure to manufacture a product candidate in a timely manner or unexpected failure of product in inventory due to unacceptable test results may lead to significant delays in clinical development. For commercialization of any resulting product, if that candidate is approved for sale, we will need to manufacture it in larger quantities while preserving its quality. Our CMOs may not be able to successfully increase the manufacturing capacity for our product candidate in a timely or cost-effective manner, or at all. In addition, quality issues may arise during development,scale-up and validation of commercial manufacturing processes. If we are unable to successfully develop robust, commercial-scale processes to manufacture our product candidate in sufficient quality and quantity, the regulatory approval or commercial launch of our product candidate may be delayed, which could significantly harm our business.

We may be subject to potential product liability and other claims that could materially affect our business and financial condition.

The development and sale of medical products exposes us to the risk of significant damages from product liability and other claims, and the use of our product candidate in clinical trials may result in adverse effects. We cannot predict all the possible harms or adverse effects that may result. We maintain a modest amount of product liability insurance to provide some protections from claims. Nonetheless, we may not have sufficient resources to pay for any liabilities resulting from a personal injury or other claim, even if it is partially covered by insurance. In addition to the possibility of direct claims, we may be required to indemnify third partiesthird-parties against damages and other liabilities arising out of our development, commercialization and other business activities, which would increase our liability exposure. If third partiesthird-parties that have agreed to indemnify us fail to do so, we may be held responsible for those damages and other liabilities as well.

If we market our drug candidates in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.

The FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved prescribing information. While physicians may prescribe an approved product for aso-called “off label” use, it is unlawful for a pharmaceutical company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such conduct may be subject to significant liability. Similarly, industry codes in the European Union and other foreign jurisdictions prohibit companies from engaging inoff-label promotion and regulatory agencies in various countries enforce violations

of the code with civil penalties. While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies may disagree with our assessment and may issue untitled letters, warning letters or may institute other civil or criminal enforcement proceedings. In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include the U.S. Anti-Kickback Statute, U.S. False Claims Act and similar state laws. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.

The U.S. Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not, in all cases, meet all of the criteria for safe harbor protection from anti-

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kickbackanti-kickback liability. Moreover, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the U.S. Anti-Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid.

Over the past few years, pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging inoff-label promotion that caused claims to be submitted to Medicare or Medicaid fornon-covered,off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include substantial civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, substantial criminal fines and imprisonment.

Legislative, regulatory, or medical cost reimbursement changes may adversely affect our business.

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to the health care system in the U.S. and in other jurisdictions may change the nature of and regulatory requirements relating to drug discovery, clinical testing and regulatory approvals, limit or eliminate payments for medical procedures and treatments, or subject the pricing of pharmaceuticals to government control. Outside the U.S., and particularly in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In addition, third-party payers in the U.S. are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drug products. Consequently, significant uncertainty exists as to the reimbursement status of newly approved health care products. Significant changes in the health care system in the U.S. or elsewhere, including changes resulting from adverse trends in third-party reimbursement programs, could have a material adverse effect on our projected future operating results and our ability to raise capital, commercialize products, and remain in business.

Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.

Our ability to successfully market our product candidate will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our product and related treatments. Countries in which our product candidate is expected to be sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our drug candidates profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care costs in ways that are likely to impact our development of products including:

 

failing to approve or challenging the prices charged for health care products;

 

introducing reimportation schemes from lower priced jurisdictions;

 

limiting both coverage and the amount of reimbursement for new therapeutic products;

 

denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational by third-party payors; and

 

refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.

If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations require us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form10-K for that fiscal year. Management determined that as of May 31, 2019,2020, our disclosure controls and procedures and internal control over financial reporting were effective. Prior to the

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fiscal year ended May 31, 2017, our disclosure controls and procedures and internal control over financial reporting were not effective, due to material weaknesses in our internal control over financial reporting related to inadequate segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions. Any failure to maintain our controls or operation of these controls, could harm our operations, decrease the reliability of our financial reporting, and cause us to fail to meet our financial reporting obligations, which could adversely affect our business and reduce our stock price.

We may not be able to attract or retain a majority of independent directors.

Our boardThe Company’s Board of directorsDirectors (the “Board”) may not be comprised of a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers could establish policies and enter into transactions without independent review and approval thereof. If we are unable to attract and retain qualified, independent directors, the management of the business could be compromised.

We currently do not have a majority of independent directors serving onCurrently our Board consists of Directors, which may afford less protectionsix members; four of whom are independent and two of whom are members of management. It is difficult to our stockholders than if ourretain and recruit independent directors. If the Board of Directors had a majority of independent directors, and our audit committee currently does not have a “financial expert” as defined by applicable SEC requirements. If we are unable to attract and retain qualified, independent directors, the oversight of our business could be compromised.

As of the date of this annual report, a majority of our directors did not satisfy the standards for independence as specified by the SEC and the listing standards of The Nasdaq Stock Market (the “NASDAQ Rules”) pursuant to which we evaluate director independence. If our Board of Directors is not made up of a majority of independent directors, there may be a lower level of oversight on executive management, and ourthe Board of Directors may be influenced by the concerns, issues or objectives of management, including compensation and governance issues, to a greater extent than would occur with a majority of independent directors. As a result, the composition of ourthe Board of Directors may afford less protection to our stockholders than if ourthe Board of Directors were composed of a majority of independent directors.

A lack of independent directors may also make it difficult to create appropriately sized board committees meeting the requirements of our board committeethe charters of the Board Committees and the NASDAQ Ruleslisting standards of The Nasdaq Stock Market, pursuant to which we evaluate director independence. Historically, we have strived to have an audit committee comprisedeach of at least three independent directors and other board committeesour

Board Committees comprised solely of independent directors. Currently, our Audit Committee has only two members, one of whom is an audit committee has only one member, who is independent under the NASDAQ Rules and applicable SEC requirements,financial expert, and our other board committees include certain non-independentCompensation and Nominating & Corporate Governance Committees also consist of two independent directors. Due to the lack offact that we currently only have four independent directors, it may beis difficult to establish appropriately sized and effective operating board committees comprised of independent members to oversee committee functions. This structure givesfunctions without overburdening our executive officers additional control over certain corporate governance issues, including compensation matters and audit issues for internal control and reporting purposes, with more limited oversight of our executive officers’ decisions and activities.

In addition, as previously reported in our Form 8-K filed August 14, 2019, the chairman of our audit committee resigned from the Board of Directors effective August 12, 2019. As a result, as of the date of this annual report, our audit committee no longer had a “financial expert” as defined by applicable SEC requirements. We are currently attempting to identify additional qualified individuals who are independent, and who have sufficient experience in finance and accounting to satisfy the definition of an audit committee “financial expert.” Until we have done so, we may be unable to establish or maintain effective internal control over financial reporting, oversee the relationship with our independent auditing firm, adequately assess the impact on our financial reporting of any newly issued accounting rules or standards, adequately assess our processes relating to our risk and control environment and evaluate our internal and independent audit processes. As a result, we may discover material weaknesses in our internal control over financial reporting and/or disclosure controls and procedures, which we may not successfully remediate on a timely basis or at all. Any failure to remediate any future material weaknesses, or to implement required new or improved controls, could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements.existing directors.

As we attempt to identify new board members, we may find that highly-qualified individuals are not available or willing to serve as directors or on a committee. There can be no assurance that we will be able to identify, recruit and ultimately secure the services of such individuals in a timely manner or at all. If we are unable to attract and retain qualified individuals who possess the necessary technical, scientific and financial expertise and management and operational experience, our ability to successfully develop, test and commercialize our product candidate and generate revenues may be negatively affected.

Our success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product candidates and research technologies.

Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and the claim scope of patents, our ability to enforce our existing patents and to obtain and enforce patents that may issue from any pending or future patent applications is uncertain and involves complex legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology and pharmaceutical patents. Thus,patents.We have pending patents for certain indications for our core product candidate, and continue to seek patent coverage for various potential therapeutic applications for leronlimab. However, we cannot be sure that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable by a court of law, will provide us with any significant protection against competing products, or will afford us a commercial advantage over competitive products. If one or more products resulting from our product candidates is approved for sale by the FDA and we do not have adequate intellectual property protection for those products, competitors could duplicate them for approval and sale in the United States without repeating the extensive testing required of us or our partners to obtain FDA approval.

Certain agreements and related license agreements require us to make significant milestone, royalty, and other payments, which will require additional financing and, in the event we do commercialize our leronlimab product, decrease the revenues we may ultimately receive on sales. To the extent that such milestone, royalty and other payments are not timely made, the counterparties to such agreements in certain cases have repurchase and termination rights thereunder with respect to leronlimab.

Under the Progenics Purchase Agreement, the PDL License and the Lonza Agreement, we must pay to Progenics, AbbVie Inc. and Lonza significant milestone payments, license fees for “systemknow-how” technology and royalties. In order to make the various milestone and license payments that are required, we will need to raise additional funds. In addition, our royalty obligations will reduce the economic benefits to us of any future sales if we do receive regulatory approval and seek to commercialize leronlimab. To the extent that such milestone payments and royalties are not timely made, under each their respective agreements, Progenics has certain repurchase rights relating to the assets sold to us, and AbbVie Inc. has certain termination rights relating to our license of leronlimab under the PDL License. For more information, see “Business—PRO 140 Acquisition and Licenses,” as well as the Progenics Purchase Agreement, the PDL License and the Lonza Agreement, each of which are filed, respectively, as Exhibits 2.1, 10.13 and 10.19 to this Form10-K.

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Known third partythird-party patent rights could delay or otherwise adversely affect our planned development and sale of leronlimab. We have identified but not exhaustively analyzed other patents that could relate to our proposed products.

We are aware of patent rights held by a third partythird-party that may cover certain compositions within our leronlimab candidate. The patent holder has the right to prevent others from making, using, or selling a drug that incorporates the patented compositions, while the patent remains in force. While we believe that the third party’sthird-party’s patent rights will not affect our planned development, regulatory clearance, and eventual marketing, commercial production, and sale of leronlimab, there can be no assurance that this will be the case. The relevant patent expires before we expect to commercially introduce leronlimab. In addition, the Hatch-Waxman exemption to U.S. patent law permits all uses of compounds in clinical trials and for other purposes reasonably related to obtaining FDA clearance of drugs that will be sold only after patent expiration, so our use of leronlimab in thoseFDA-related activities does not infringe the patent holder’s rights. However, were the patent holder to assert its rights against us before expiration of the patent for activities unrelated to FDA clearance, the development and ultimate sale of a leronlimab product could be significantly delayed, and we could incur the expense of defending a patent infringement suit and potential liability for damages for periods prior to the patent’s expiration.

In connection with our acquisition of rights to leronlimab, our patent counsel conducted afreedom-to-operate search that identified other patents that could relate to our proposed leronlimab candidate. Sufficient research and analysis is currently being conducted to enable us to reach the conclusion that leronlimab likely does not infringe those patent rights. If any of the holders of the identified patents were to assert patent

rights against us, the development and sale of leronlimab could be delayed, we could be required to spend time and money defending patent litigation, and we could incur liability for infringement or be enjoined from producing our products if the patent holders prevailed in an infringement suit.

If we are sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome would have a significant adverse effect on our business.

Our ability to commercialize our product candidate depends on our ability to use, manufacture and sell that product without infringing the patents or other proprietary rights of third parties.third-parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third partiesthird-parties exist in the monoclonal antibody therapeutic area in which we are developing our product candidate and seeking new potential product candidates. There may be existing patents, unknown to us, on which our activities with our product candidate could infringe.

If a third partythird-party claims that our actions or products or technologies infringe on its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including, but not limited to:

 

infringement and other intellectual property claims that, even if meritless, can be costly and time-consuming, delay the regulatory approval process and divert management’s attention from our core business operations;

 

substantial damages for infringement, if a court determines that our products or technologies infringe a third party’sthird-party’s patent or other proprietary rights;

 

a court prohibiting us from selling or licensing our products or technologies unless the holder licenses the patent or other proprietary rights to us, which it is not required to do; and

 

even if a license is available from a holder, we may have to pay substantial royalties or grant cross-licenses to our patents or other proprietary rights.

If any of these events occur, it could significantly harm our operations and financial condition and negatively affect our stock price.

Although no third partythird-party has asserted a claim of infringement against us, others may hold proprietary rights that could prevent our product candidate from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to our product candidate or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market leronlimab or any other product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign leronlimab or any other product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing leronlimab or another product candidate, which could harm our business, financial condition and operating results.

We may undertake infringement or other legal proceedings against third parties,third-parties, causing us to spend substantial resources on litigation and exposing our own intellectual property portfolio to challenge.

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We may come to believe that third partiesthird-parties are infringing on our patents or other proprietary rights. To prevent infringement or unauthorized use, we may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming and would distract management’s attention. Also, in an infringement or misappropriation proceeding a court may decide that one or more of our patents is invalid, unenforceable, or both, in which case third partiesthird-parties may be able to use our technology without paying license fees or royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other party from using the technology at issue on the ground that the other party’s activities are not covered by our patents.

We may become involved in disputes with our present or future contract partners over intellectual property ownership or other matters, which would have a significant effect on our business.

Inventions discovered in the course of performance of contracts with third partiesthird-parties may become jointly owned by our strategic partners and us, in some cases, and the exclusive property of one of us, in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention or whether it is jointly owned, and disputes could arise regarding ownership or use of those inventions. Other disputes may also arise relating to the performance or alleged breach of our agreements with third parties.third-parties. Any disputes could be costly and time-consuming, and an unfavorable outcome could have a significant adverse effect on our business.

We are involved in a number of legal proceedings and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, some of these outcomes could adversely affect our business and financial condition.

We are, or may become, involved in legal proceedings, government and agency investigations, and derivative litigation (see discussion of Legal Proceedings in Item 1 of this Report). We have faced and will continue to face allegations by securities litigation law firms claiming our disclosures are misleading, incomplete, or that we or our officers and directors have violated securities laws. We cannot predict with certainty the outcomes of these legal proceedings. The outcome of some of these legal proceeding could require us to take, or refrain from taking, actions which could negatively affect our operations or could require us to pay substantial amounts of money adversely affecting our financial condition and results of operations. Additionally, defending against lawsuits and legal proceedings may involve significant expense and diversion of management’s attention and resources. Negative publicity surrounding such legal proceedings may also harm our reputation and adversely impact our business and financial condition.

We are subject to the oversight of the SEC and other regulatory agencies. Investigations by those agencies could divert management’s focus and could have a material adverse effect on our reputation and financial condition.

We are subject to the regulation and oversight of the SEC and state regulatory agencies, in addition to the FDA. As a result, we may face legal or administrative proceedings by these agencies. We are unable to predict the effect of any investigations on our business, financial condition or reputation. In addition, publicity surrounding any investigation, even if ultimately resolved in our favor, could have a material adverse effect on our business.

Our information technology systems could fail to perform adequately or we may fail to adequately protect such information technology systems against data corruption, cyber-based attacks, or network security breaches.

We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic information. In particular, we depend on our information technology infrastructure to effectively manage our business data, accounting, and other business processes and electronic communications between our personnel and corporate partners. If we do not allocate and effectively manage the resources necessary to build and sustain an appropriate technology infrastructure, our business, and financial condition therefore could be materially adversely affected. In addition, security breaches or system failures of this infrastructure can create system disruptions, shutdowns, or unauthorized disclosure of confidential information. If we are unable to prevent such breaches or failures, our operations could be disrupted, or we may suffer financial damage or loss because of lost or misappropriated information.

If the FDA or comparable foreign regulatory authorities approve generic or biosimilar versions of any product candidate that receive marketing approval, or if any product approval we obtain does not provide us with the exclusivity periods we hope to achieve, sales of our product could be adversely affected.

As part of the ongoing efforts of governmental authorities to lower health care costs by facilitating generic competition to pharmaceutical products, the Biologics Price Competition and Innovation Act (“BPCIA”) enacted as part of the Health Care Reform Law, created a new abbreviated regulatory approval pathway in the United States for biological products that are found to be “biosimilar” to or “interchangeable” with a biological “reference product” previously licensed under a BLA. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively by relying to some extent on the data generated by the reference product’s sponsor and the FDA’s previous review and approval of the reference product. Under the BPCIA, a biosimilar sponsor’s ability to seek or obtain approval through the abbreviated pathway is limited by periods of exclusivity granted by the FDA to the holder of the reference product’s BLA, and no biosimilar application may be accepted by the FDA for review until four years after the date the reference product was first licensed by the FDA, and no biosimilar application, once accepted, may receive final approval until 12 years after the reference product was first licensed by the FDA.

Once approved, biosimilars likely would compete with, and in some circumstances may be deemed under applicable laws to be “interchangeable with,” the previously approved reference product. The extent to which a

biosimilar, once approved, will be substituted for any one of our product candidates, if approved, in a way that is similar to traditional generic substitutionfor non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Although there is uncertainty regarding the impact of this new program, it seems likely that if any of our product candidates are approved by the FDA, there is risk that the approval of a biosimilar competitor to one of our products could have an adverse impact on our business. In particular, a biosimilar could be significantly less costly to bring to market and priced significantly lower than our product, if approved by the FDA.

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We may also be subject to competition from biosimilar products in Europe. To date a number of biosimilar products have been authorized by the EMA. As in the United States the regulatory approval pathway for biosimilar products in Europe is abbreviated. A biosimilar sponsor must however still provide all of the preclinical and clinical data required to demonstrate the similarity of their product with the reference product. The level of data required is assessed on a case by case basis but it will be less than that required for an original biological product. The pathway is more complex than the abridged procedure that may be followed to obtain authorization of a generic version ofa non-biological product but it would still allow the biosimilar product to be brought to market more quickly and less expensively than our original product. That said, in Europe applications for marketing authorizations in relation to biosimilar products are subject to the same data and market exclusivity as apply togeneric non-biologic products so no biosimilar product could be approved or placed on the market during the periods such exclusivity applies to our product. Marketing authorization of a biosimilar product in Europe does not guarantee that the biosimilar product may be substituted for the reference product. Interchangeability of a biosimilar product with the reference product is not assessed by the EMA but this determination is left to each of the member states. We cannot know at this stage the extent to which any biosimilar product would be interchangeable with our reference product, and this may vary between member states.

Our business success partially depends on our ability to successfully commercialize novel diagnostic tests and services, which is time consuming and complex, and our development efforts may fail.

Part of our business strategy is to develop and commercialize the PCa Test. We have not yet applied for clearance or approval from the FDA for the PCa Test, and would need to complete additional validations before we are ready to apply. We believe it would likely take two years or more to conduct the studies and trials necessary to obtain approval from the FDA to commercially launch the PCa Test. Once we do apply, we may not receive FDA clearance or approval for the commercial use of our test on a timely basis, or at all. We believe the long-term success of our business partially depends on our ability to fully validate, develop and commercialize the PCa Test. Research, development and commercialization of diagnostic tests is time-consuming, uncertain and complex.

Our diagnostic test may not succeed in reliably diagnosing or predicting cancer with the sensitivity and specificity necessary to be clinically useful, and thus may not succeed commercially. Prior to commercializing our diagnostic test, we must undertake time-consuming and costly development activities, including clinical studies, and obtain regulatory clearance or approval, which may be denied. This development process involves a high degree of risk, substantial expenditures and will occur over several years. Our development efforts may fail for many reasons, including:

 

failure of the test at the research or development stage;

 

difficulty in accessing archival tissue samples, especially tissue samples with known clinical results; or

 

lack of sufficient clinical validation data to support the effectiveness of the test.

Tests that appear promising in early development may fail to be validated in subsequent studies, and even if we achieve positive results, we may ultimately fail to obtain the necessary regulatory clearances or approvals. There is substantial risk that our research and development projects will not result in commercial tests, and that

success in early clinical trials will not be replicated in later studies. At any point, we may abandon development of a test or be required to expend considerable resources repeating clinical trials, which would adversely impact the timing for generating potential revenues from the test. In addition, as we develop our test, we will have to make significant investments in research, development and marketing resources. If a clinical validation study of a particular test then fails to demonstrate the outlined goals of the study, we might choose to abandon the development of that test. Further, our ability to develop and launch any diagnostic tests will likely depend on our receipt of additional funding. Additionally, if the supply of reagents or equipment on which our test in development or commercial test relies becomes unavailable and we have to source replacement reagents or equipment for our test, additional validation activities will be required and we may need to obtain regulatory clearances or approvals for the modified test.

The diagnostic business is heavily regulated, and if we are unable to obtain regulatory clearance or approvals in the United States, if we experience delays in receiving clearance or approvals, or if we do not gain acceptance from customers, our diagnostics growth strategy may not be successful.

In the United States, diagnostic tests and services are regulated under CLIA, the Federal Food, Drug, and Cosmetic Act, and various state laws. Diagnostic tests offered solely for use within a proprietary laboratory may be marketed as laboratory developed tests (“LDTs”). LDTs are regulated by the Center for Medicare and Medicaid Services (“CMS”) under CLIA, but, under the FDA’s enforcement framework, are not currently regulated by FDA. Although the FDA has statutory authority to assure that medical devices, including LDTs, are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to LDTs. Specifically, under current FDA enforcement policies and more recent draft guidance, LDTs generally do not require FDA premarket clearance or approval before commercialization.

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Under our current strategy, the PCa Test would be subject to the FDA’s applicable medical device regulations. For example, this test could become subject to the FDA’s requirements for premarket review. Unless an exemption applies, generally, before a new medical device or a new use for a medical device may be sold or distributed in the United States, the medical device must receive premarket marketing authorization from the FDA, which is generally either FDA clearance of a 510(k) premarket notification or premarket approval of a Premarket Approval application. As a result, before we can market or distribute our test in the United States for use by other clinical testing laboratories, we must first obtain premarket marketing authorization (generally referred to as premarket clearance or premarket approval throughout this document) from the FDA. We have not yet applied for clearance or approval from the FDA, and would need to complete additional validations before we are ready to apply. We believe it would likely take two years or more to conduct the studies and trials necessary to obtain approval from the FDA to commercially launch the PCa Test. Once we do apply, we may not receive FDA clearance or approval for the commercial use of our test on a timely basis, or at all. If we are unable to obtain clearance or approval or if clinical diagnostic laboratories do not accept our test, our ability to grow our business by deploying our test could be compromised.

The commercial success of our prospective diagnostic business could be compromised if third-party payors, including insurance companies, managed care organizations and Medicare, do not provide coverage and reimbursement, refuse to enter into contracts with us, or delay payments for our diagnostic tests.

Pathologists and oncologists may not order our diagnostic test unless third-party payors, such as insurance companies, managed care organizations and government payors, such as Medicare and Medicaid, pay a substantial portion of the test price. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our diagnostic test. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. Coverage and reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that testtests using our technologies are:

 

32


not experimental or investigational;

medically necessary;

 

appropriate for the specific patient;

 

cost-effective;

 

supported by peer-reviewed publications; and

 

included in clinical practice guidelinesguidelines.

Uncertainty surrounds third-party payor coverage and reimbursement of any test incorporating new technology, including the PCa Test. Even if we obtain marketing clearance or approval to market diagnostic tests, our future revenues will depend upon the size of any markets in which our product candidate has received clearance or approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidate in those markets.

Because each payor generally determines for its own enrollees or insured patients whether to cover or otherwise establish a policy to reimburse a diagnostic test, seeking payor approvals is a time-consuming and costly process. We cannot be certain that coverage for our tests(FDA-cleared/approved or LDT) will be provided in the future by third-party payors. If we cannot obtain coverage and reimbursement from private and governmental payors such as Medicare and Medicaid for our new tests or test enhancements that we may develop in the future, our ability to generate revenues from our diagnostic tests and clinical services could be limited, which may have a material adverse effect on our financial condition, results of operations and cash flow. Further, we may likely experience in the future, delays and temporary interruptions in the receipt of payments from third-party payors due to missing documentation and other issues, which could cause delay in collecting our future revenue.

If we are unable to successfully validate our laboratory tests and services, we will not be able to increase revenues.

Prospective customers such as physicians may not order our proprietary test, and third-party payors may not reimburse for our test, unless we are able to provide compelling evidence that the test is useful and produces actionable information with respect to diagnosis and prognosis. We believe that we will need to finance and successfully complete additional and more powerful studies, and then effectively disseminate the results of those studies, to drive widespread adoption of our test.

If the market for our test and services does not experience significant growth or if our test and services do not achieve broad acceptance, our operations will suffer.

We cannot accurately predict the future growth rate or the size of the market for our prospective test and services. The expansion of this market depends on a number of factors, such as:

 

the results of clinical trials;

 

the cost, performance and reliability of our test and services, and the tests and services offered by competitors;

 

customers’ perceptions regarding the benefits of our test and services;

 

customers’ satisfaction with our test and services; and

 

marketing efforts and publicity regarding our test and services.

If we are unable to execute our marketing strategy for our test and our test is unable to gain acceptance in the market, we may be unable to generate sufficient revenue to sustain our business.

Although we believe that our prospective diagnostic test represents promising commercial opportunities, our tests may never gain significant acceptance in the marketplace and therefore may never generate substantial

revenue or profits for us. We need to develop a market for our test through physician education and awareness programs. Gaining acceptance in medical communities requires that we perform additional studies after validating the efficacy of our test and services for the diagnosis, prognosis and treatment of cancer, and that we obtain acceptance of the results of those studies using our tests for publication in leading peer-reviewed medical journals. The results of any studies are always uncertain and even if we believe such studies demonstrate the value of our tests, the process of publication in leading medical journals is subject to a peer review process and peer reviewers may not consider the results of our studies sufficiently novel or worthy of publication. Failure to have our studies published in peer-reviewed journals would limit the adoption of our tests. Our ability to successfully market the tests that we may develop will depend on numerous factors, including:

 

whether health care providers believe our diagnostic test provides clinical utility;

 

33


whether the medical community accepts that our diagnostic test is sufficiently sensitive and specific to be meaningfulin-patient care and treatment decisions; and

 

whether health insurers, government health programs and other third-party payors will cover and pay for our diagnostic test and, if so, whether they will adequately reimburse us.

Failure to achieve widespread market acceptance of our diagnostic test would materially harm our business, financial condition and results of operations.

If we cannot develop tests to keep pace with rapid advances in technology, medicine and science, our operating results and competitive position could be harmed.

In recent years, there have been numerous advances in technologies relating to the diagnosis and treatment of cancer. There are several new cancer drugs under development that may increase patient survival time. There have also been advances in methods used to analyze very large amounts of genomic information. We must continuously develop new tests to keep pace with evolving standards of care. Our tests could become obsolete unless we continually innovate and expand them to demonstrate benefit in patients treated with new therapies. If we cannot adequately demonstrate the applicability of our tests to new treatments, sales of our tests and services could decline, which would have a material adverse effect on our business, financial condition and results of operations.

Our auditors have issued a going concern opinion, and we will not be able to achieve our objectives and will have to cease operations if we cannot adequately fund our operations.

Our auditors issued an opinion, which includes a going concern exception, in connection with the audit of our annual financial statements for the fiscal year ended May 31, 2019. A going concern exception to an audit opinion means that there is substantial doubt that we can continue as an ongoing business for the next 12 months. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. In addition, the inclusion of an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern and our lack of cash resources may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties. There is no assurance that we will be able to adequately fund our operations in the future.

Since our inception, we have been insolvent and have required debt and equity financing to maintain operations.

Since our inception, we have not achieved cashflows from revenues sufficient to cover basic costs. As a result, we have relied heavily on debt and equity financing. Equity financing, in particular, has created a dilutive effect on our common stock, which has hampered our ability to attract reasonable financing terms. For the foreseeable future, we will continue to rely upon debt and equity financing to maintain our operations and those of our subsidiaries.

The 2017 comprehensive tax reform bill could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law new tax legislation, or the Tax Cuts and Jobs Act (TCJA), which significantly reforms the Internal Revenue Code of 1986, as amended. The Tax Act,TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses); limitation of the deduction of net operating losses generated in tax years beginning after December 31, 2017 to 80% of taxable income, indefinite carryforward of net operating losses generated in tax years after 2018 and elimination of net operating loss carrybacks; changes in the treatment of offshore earnings regardless of whether they are repatriated; current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, mandatory capitalization of research and development expenses beginning in 2022; immediate deductions for certain new investments instead of deductions for depreciation expense over time; further deduction limits on executive compensation; and modifying, repealing and creating many other business deductions and credits, including the reduction in the orphan drug credit from 50% to 25% of qualifying expenditures. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax ActTCJA is uncertain and our business and financial condition could be adversely affected. The impact of this tax reform on holders

Any impairment of our common stockintangible assets could negatively impact our results of operations and financial condition.

We evaluate assets on our balance sheet, including intangible assets, in connection with our fiscal year end reporting or whenever events or changes in circumstances indicate that their carrying value may not be

recoverable. We monitor factors or indicators, such as unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and industries that would require an impairment test. The test for impairment of intangible assets requires a comparison of the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is also uncertainless than its carrying value, the asset is considered impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. We may experience unforeseen events that could adversely affect the value of our intangible assets and trigger an impairment evaluation. Future determinations of significant impairments of intangible assets as a result of an impairment test or any accelerated amortization of intangible assets could be adverse. This periodic report doeshave a negative impact on the Company’s results of operations and financial condition.

The manufacture of pre-launch inventories involves the risk that the FDA may not discuss anyapproves such tax legislationproducts for marketing on a timely basis or at all.

Pre-launch inventories consist primarily of our product candidate prior to the manner in which it might affect usdate that we anticipate that such products will receive FDA final marketing approval. Approval may require additional or our stockholdersdifferent testing and/or specifications than what was performed in the future. We urge our stockholdersmanufacture of such pre- launch inventory. If any of these risks were to consult with their legal and tax advisorsmaterialize with respect to a given product or if the launch of such legislation.product is significantly postponed, we may have to write-off the pre-launch inventories, which could be material.

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Risks Relating to Our Common Stock

The significant number of shares of common stock issuable upon the exercise of outstanding common stock options and warrants could adversely affect the trading price of our common stock.

If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. In addition, as of MayJuly 31, 2019,2020, we have 14,501,87215,423,661 shares subject to outstanding options under our stock option plans, 10,374,144299,354 shares reserved for future issuance under our equity compensation plan and 164,089,97772,737,302 shares issuable upon exercise of outstanding warrants. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

We are subject to variable conversion prices and adjustments related to certain of our convertible notes and our convertible preferred stock which could cause significant dilution to stockholders and adversely impact the price of our common stock.

We have currently outstanding shares of Series B, Series C and Series D Preferred Stock, as well as convertible secured promissory notes, all of which is convertible into common stock at variable conversion prices and adjustments. As a result, future conversion of debt and or convertible preferred shares or issuance of new convertible debt may result in significant dilution to our stockholders. As of July 31, 2020, we have reserved 37,902,576 shares of common stock that is potentially issuable upon conversion of our outstanding shares of preferred stock and convertible notes.

Although we have filed an application to list our securities on Nasdaq, there can be no assurance that our securities will be so listed or, if listed, that we will be able to comply with the continued listing standards.

On July 15, 2020, we announced that we had filed a comprehensive listing application package with The Nasdaq Stock Market to request an uplisting of the Company’s common stock. Although we believe we satisfy the initial listing requirements for The Nasdaq Capital Market,® the Nasdaq has not approved our application, and there can be no assurance that Nasdaq will agree, approve us for listing on the Nasdaq and, even if our

securities are listed, we cannot assure you that we will be able to maintain such listing. In addition, if after listing, Nasdaq delists our securities from trading on its exchange for failure to meet the continued listing standards, our Company and our shareholders could face significant material adverse consequences including a limited availability of market quotations for our common stock, confirmation that our stock is “penny stock” and subject to increased regulations, and a decreased ability to issue additional securities or obtain additional financing in the future.

The price of our common stock has been and could remain volatile, and the market price of our common stock may decrease.

The market price of our common stock has historically experienced and may continue to experience significant volatility. From June 1, 20172019 through May 31, 2019,2020, the market price of our common stock has fluctuated from a high of $0.79$3.84 per share in the quarter ended February 28, 2018, to a low of $0.37$0.26 per share, in quarter ending May 31, 2019.and our stock price reached a 52 week high of $10.01 on June 30, 2020. The volatile nature of our common share price may cause investment losses for our stockholders. In addition, the market price of stock in small capitalization biotech companies is often driven by investor sentiment, expectation and perception, all of which may be independent of fundamental, objective and intrinsic valuation metrics or traditional financial performance metrics, thereby exacerbating volatility. In addition, our common stock is quoted on the OTCQB of the OTC Markets marketplace, which may increase price quotation volatility and could limit liquidity, all of which may adversely affect the market price of our shares.

If we implement a reverse stock split, there can be no assurances that the price per share of our common stock will increase proportionately with the reverse stock split, or at all.

Reducing the number of outstanding shares of our common stock through a reverse stock split is intended, absent other factors, to increase the per share market price of our common stock, including in preparation for a potential uplisting to a national securities exchange. However, other factors, such as our financial results, market conditions and the market perception of our business, may adversely affect the market price of our common stock. As a result, there can be no assurance that a reverse stock split, if completed, will result in making our common stock more attractive to a broader range of institutional and other investors, that the per share market price of our common stock will increase following a reverse stock split or that the per share market price of our common stock will not decrease in the future. Additionally, we cannot assure shareholders that the per share market price per share of our common stock after a reverse stock split, if completed, will increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split. Accordingly, the total market capitalization of our common stock after a reverse stock split may be lower than the total market capitalization before the reverse stock split.

If the beneficial ownership of our stock becomes highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions.

Our significant stockholders may exercise substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets, or any other significant corporate transactions. These stockholders may also vote against a change of control, even if such a change of control would benefit our other stockholders. See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” below.

Our common stock is classified as “penny stock” and trading of our shares may be restricted by the SEC’s penny stock regulations.

Rules15g-1 through15g-9 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) impose sales practice and disclosure requirements on certain brokers-dealers who engage in transactions involving a “penny stock.” The SEC has adopted regulations which generally define “penny stock” to be any

equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock that is not otherwise exempt, the broker-dealer

35


must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules may discourage investor interest in and limit the marketability of our common stock.

Future sales of our securities could adversely affect the market price of our common stock and our future capital-raising activities could involve the issuance of equity securities, which would dilute your investment and could result in a decline in the trading price of our common stock.

We may sell securities in the public or private equity markets if and when conditions are favorable, or at prices per share below the current market price of our common stock, even if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our shares and our ability to raise capital. We may issue additional shares of common stock in future financing transactions or as incentive compensation for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests represented by our then-outstanding shares of common stock. Moreover, sales of substantial amounts of shares in the public market, or the perception that such sales could occur, may adversely affect the prevailing market price of our common stock and make it more difficult for us to raise additional capital.

Purchasers in future offerings may experience immediate and substantial dilution.

The current trading price of the common stock is higher than the current net tangible book value per share of our common stock. Therefore, if you purchase shares of common stock in future offerings, if any, you may incur immediate and substantial dilution in the pro forma net tangible book value per share of common stock from the price per share that you pay for the common stock. In addition, you will experience dilution when we issue additional shares of common stock that we are permitted or required to issue under convertible notes, outstanding options and warrants and under our equity incentive plan or other compensation plans.

Our certificate of incorporation allows for our Board of Directors to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our Board of Directors has the authority to designate and issue up to 5,000,000 shares of our preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board of Directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.

We do not expect any cash dividends to be paid on our common shares in the foreseeable future.

We have never declared or paid a cash dividend on our common shares and we do not anticipate declaring or paying dividends on our common shares for the foreseeable future. We expect to use future financing proceeds and earnings, if any, to fund operating expenses. Consequently, common stockholders’ only opportunity to achieve a return on their investment is if the price of our stock appreciates and they sell their shares at a profit. We cannot assure common stockholders of a positive return on their investment when they sell their shares or that stockholders will not lose the entire amount of their investment.

Anti-takeover provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our Board of Directors and management.

Certain provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for shares of common stock. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors.Board. These provisions also could limit the price that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Among other things, these provisions:

 

36


allow us to designate and issue shares of preferred stock, without stockholder approval, that could adversely affect the rights, preferences and privileges of the holders of our common stock and could make it more difficult or less economically beneficial to acquire or seek to acquire us.

 

provide that special meetings of stockholders may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative majority of the entire Board of Directors.

 

provide that stockholders may, at a special stockholders meeting called for the purpose of removing directors, remove the entire Board of Directors or any lesser number, but only with cause, by a majority vote of the shares entitled to vote at an election of directors.

 

do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority stockholders to effect changes in our Board of Directors.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed period of time.

 

Item 1B.

Unresolved Staff Comments.

None.

 

Item 2.

Properties.

Our principal office location is 1111 Main Street, Suite 660, Vancouver, Washington 98660. We lease 1,8124,969 square feet in a commercial office building pursuant to a lease that expires on April 30, 20212026 at a current cost of $3,506$9,901 per month, plus modest annual increases. We also lease 1,911 square feet of office space in Fort Lauderdale, Florida pursuant to a lease that expires on March 31, 2022 at a cost of approximately $8,300 per month, plus modest annual increase. Such space is currently being marketed for a subtenant.

 

Item 3.

Legal Proceedings.

None.

As of May 31, 2020, we were not a party to any material pending legal proceeds except as described below. From time to time, we aremay become involved in claims and suits that arise in the ordinary course of our business.

Management currently believes that the resolution of any such claims against us, if any, will not have a material adverse effect on our business, financial condition or results of operations.

On April 24, 2020, certain stockholders of the Company, including two former directors and a company controlled by a former director filed a derivative stockholder complaint in the Court of Chancery of the State of Delaware, alleging claims for breach of fiduciary duty and unjust enrichment against the Company’s CEO, current and former CFO, CMO, and current and former members of the Company’s board of directors in connection with certain equity grant awards to these individuals in December 2019 and January 2020. The Company was named as a nominal defendant. The plaintiffs seek the rescission of the awards, a finding that the named directors breached their fiduciary duty to the Company, and an unnamed amount of damages. The Company has appointed a special litigation committee, consisting solely of independent directors not named in the complaint, to investigate the allegations in the complaint. The litigation has been stayed by the court pending resolution of the investigation by the special litigation committee.

On July 25, 2019, the Company’s Board terminated the employment of Dr. Richard G. Pestell, the Company’s former Chief Medical Officer. On August 22, 2019, Dr. Pestell filed a lawsuit naming the Company and its Chief Executive Officer and the Chairman of the Board in the U.S. District Court for the District of Delaware, and has amended his complaint several times since its initial filing. The complaint alleges a breach of Dr. Pestell’s employment agreement, wage and hour claims, and seeks damages in the amount of certain severance entitlements thereunder pertaining to non-cause termination, among other relief. The treatment of those entitlements and of certain previously granted unvested stock options and shares of restricted common stock, which were subject to a repurchase option, are expected to be determined by the outcome of this litigation. The Company has filed counterclaims as well a motion to dismiss the action, which was partially granted as to certain wage and hour claims in June 2020. The Company disputes Pestell’s claims and intends to vigorously defend the action.

Item 4.

Mine Safety Disclosures.

Not applicable.

PARTPart II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is presently quoted on the OTCQB of the OTC Markets marketplace under the trading symbol CYDY. Historically, trading in our stock has been very limited and the trades that have occurred cannot be characterized as amounting to an established public trading market. As a result, the trading prices of our common stock may not reflect the price that would result if our stock was actively traded.

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The following are high and low bid prices quoted on the OTCQB during the periods indicated. The quotations reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not represent actual transactions:

 

   High   Low 

Fiscal Year Ended May 31, 2019:

    

First quarter ended August 31, 2018

  $0.71   $0.40 

Second quarter ended November 30, 2018

  $0.70   $0.50 

Third quarter ended February 28, 2019

  $0.62   $0.46 

Fourth quarter ended May 31, 2019

  $0.55   $0.37 

Fiscal Year Ended May 31, 2018:

    

First quarter ended August 31, 2017

  $0.79   $0.56 

Second quarter ended November 30, 2017

  $0.70   $0.56 

Third quarter ended February 28, 2018

  $0.84   $0.52 

Fourth quarter ended May 31, 2018

  $0.79   $0.45 
   High   Low 

Fiscal Year Ended May 31, 2020:

    

First quarter ended August 31, 2019

  $0.55   $0.38 

Second quarter ended November 30, 2019

  $0.41   $0.26 

Third quarter ended February 28, 2020

  $1.65   $0.26 

Fourth quarter ended May 31, 2020

  $3.84   $0.81 

   High   Low 

Fiscal Year Ended May 31, 2019:

    

First quarter ended August 31, 2018

  $0.71   $0.40 

Second quarter ended November 30, 2018

  $0.70   $0.50 

Third quarter ended February 28, 2019

  $0.62   $0.46 

Fourth quarter ended May 31, 2019

  $0.55   $0.37 

Holders

The number of record holders of our common stock on June 30, 2019July 31, 2020 was approximately 860.910.

Dividends

Holders of our common stock are entitled to receive dividends as may be declared from time to time by our Board. While we have no restrictions on our ability to pay dividends, other than the preferential rights provided to the holders of our outstanding preferred stock, as described below, we have not paid any cash dividends since inception on our common stock and do not anticipate paying any in the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations.

Holders of 3,2468,452 shares of Series D Convertible Preferred Stock are entitled to receive, at the option of the holder, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series D Preferred Stock, to be paid per share of Series D Preferred Stock. Any dividends paid by us will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to holders of Common Stock. Dividends on the Series D Preferred Stock are mandatory and cumulative and there are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Preferred Stock does not have redemption rights. The stated value per share for the Series D Preferred Stock is $1,000 (the “Stated Value”). Dividends payable to holders of Series D are payable on December 31 of each year and the holder can elect to be paid in cash or in common stock. If all holders elected to receive the 2020 dividend in the form of common stock, approximately 960,000 shares of common stock would be issued in the form of dividend. If such 2020 dividends were to be paid in the form of cash, such cash dividends would total approximately $768,000 at December 31, 2019.

Holders of 8,203 shares of Series C Convertible Preferred Stock are entitled to receive, at the option of the holder, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series C Preferred Stock, to be paid per share of Series C Preferred Stock. Any dividends paid by us will first be paid to the holders of Series C Preferred Stock prior and in preference to any payment or distribution to holders of Common Stock. Dividends on the Series C Preferred Stock are mandatory and cumulative and there are no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Preferred Stock does not have redemption rights. The stated value per share for the Series C Preferred Stock is $1,000 (the “Stated Value”). Dividends payable to holders of Series C are payable on December 31 of each year and the holder can elect to be paid in cash or in common stock. If all holders elected to receive the 20192020 dividend in the form of common stock, approximately 510,4692,381,000 shares of common stock would be issued in the form of dividend. If such 20192020 dividends were to be paid in the form of cash, such cash dividends would total approximately $255,000$1,191,000 at December 31, 2019.

Holders of 92,100 shares of Series B Convertible Preferred Stock are entitled to receive, in preference to the common stock, annual cumulative dividends equal to $0.25 per share per annum from the date of issuance, which shall accrue, whether or not declared. At the time shares of Series B Preferred Stock are converted into common shares, accrued and unpaid dividends will be paid, at the election of the Company, in cash or with common shares. In the event we elect to pay dividends with common shares, the shares issued will be valued at $0.50 per share. As of JuneOn July 30, 2019, if we2020, the Board declared a dividend and elected to pay such dividend in the form of common stock, approximately 391,000 shares of common stock would be issuedcash in the formaggregate amount of dividend.approximately $243,000 to all Series B Convertible Preferred stockholders.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the year ended May 31, 2018 we purchased 159,011 shares of $0.001 par value treasury stock.

Unregistered Sales of Equity Securities

From June 3, 2019 to July 26, 2019, we received four redemption notices from the holder of our convertible note issued on June 26, 2018 requesting the redemptions of $655,000 of the outstanding balance thereof. In satisfaction of the redemption notices, we issued 1,984,769 shares of Common Stock to the note holder in accordance with the terms of the convertible note. Following the redemptions, the outstanding balance of the convertible note, including accrued but unpaid interest, was approximately $4.2 million. We relied on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933 in connection with the issuance and sale of the convertible promissory note and underlying shares of Common Stock.

The information required regarding our equity compensation plans will be contained in, and is incorporated herein by reference to our 2020 Proxy Statement under the caption “Equity Compensation Plan Information.”

Item 6.

Selected Financial Data

Item 6. Selected Financial DataAs a smaller reporting company we are not required to provide the information required by this Item.

Not applicable.

38


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this Annual Report, including our consolidated financial statements and related notes set forth in Item 8. This discussion and analysis contains forward-looking statements, including information about possible or assumed results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated and set forth in such forward-looking statements.

Business Highlights

During the past fiscal year ending May 31, 2019,2020, we commenced several initiatives to advance our lead product candidate, leronlimab (PRO 140).leronlimab. The following is a brief summary of key accomplishments during the most recent fiscal year:

 

Raised approximately $57$85 million in capital through offerings of equity and convertible debt offeringssecuritities, combined with proceeds from the exercise of warrants and a warrant exchange offer;stock options;

 

Filed with the FDA the first of threefinal two sections of our first BLA, withwhich is now subject to our submission of additional requested information before the remaining two sections anticipated for completion;FDA will confirm the filing is complete;

 

Entered into a long-term commercial manufacturing agreement with Samsung BioLogics Co., Ltd. to ensure sufficient availability of cost efficient inventoryour first commercialization and supply agreements for the distribution and sale of leronlimab to meet expected demand post approval;in the U.S. for HIV, upon FDA approval, with Vyera Pharmaceuticals, LLC;

 

Filed a pivotal trial protocol withOur drug candidate, leronlimab, received over 60 Emergency Investigational New Drug (EIND) authorizations from the FDA for leronlimab as a monotherapy for HIVto treat COVID-19 patients;

 

DefinedInitiated negotiations for a distribution and initiated our new strategic focus by rapidly and concurrently exploring opportunitiessupply agreement with American Regent, Inc. for several cancer and immunologic indicationsdistribution of leronlimab for leronlimab;

Completed the asset acquisitiontreatment of ProstaGene LLC via anall-stockCOVID-19 transaction;in the U.S. (the definitive agreement was executed in July 2020);

 

Initiated our firsttwo double-blinded, placebo controlled clinical trial in cancertrials for leronlimab,COVID-19, a Phase 1b/2 for patients with mild to moderate indications and a Phase 3 for patients with severe to critical symptoms

Advanced the clinical trialtrials to evaluate the safety and efficacy of leronlimab for several cancer indications by treating the first patients in metatstatic triple-negative breast cancer, which received Fast Track designation from the FDA in May 2019;

Initiatedpre-clinical studies with leronlimab for colonmetastatic breast cancer and breast cancer, both of which have reported promising results;a basket trial for 22 solid tumor cancers

 

Initiated apre-clinical study with leronlimab to assess its ability to prevent the progression ofNon-Alcoholic Fatty Liver Disease (NAFLD) into NASH;

Continued exploratory discussions with third parties regarding licensing opportunities;

Presented results of our clinical trials andpre-clinical studies at numerous medical and scientific conferences; Phase 2 trial for colon cancer; and

 

CollaboratedInitiated a Phase 2 clinical trial with a scientific laboratory to develop a CCR5 receptor occupancy testleronlimab for leronlimab, a CCR5 antagonist, which is anticipated to provide improved patient screening for two indications: (i) patient candidates for leronlimab as a HIV monotherapy in order to achieve optimal dosing and (ii) cancer patients, due to the over expressiontreatment of CCR5 in certain forms of cancer.non-alcoholic steatohepatitis (NASH).

Results of Operations

Clinical Trials Update

Phase 2b Extension Study for HIV, as Monotherapy

Currently, there are four patients in this ongoing extension study and each has surpassed four andone-halfsix years of suppressed viral load with PRO 140leronlimab0 as a single agent therapy. This extension study will be discontinued upon any FDA approval of leronlimab.

Phase 2b/3 Pivotal Trial for HIV, as Combination Therapy

This trial was successfully completed and is the basis for our current BLA, for which the first of threeremaining two sections waswere submitted to the FDA in March 2019.April and May of 2020. The completion of the filing is subject to the Company providing additional information requested by the FDA. This trial for leronlimab as a combination therapy to existing HAART drug regimens for highly treatment experienced HIV patients achieved its primary endpoint witha p-value of 0.0032. Nearly all patients who have completed this trial have transitioned to aFDA-cleared rollover study, as requested by the treating physicians to enable the patients to have continued access to leronlimab.

Rollover Study for HIV as Combination Therapy

This study is designed for patients who successfully completed the pivotal Phase 2b/3 Combination Therapy trial and for whom the treating physicians request a continuation of leronlimab therapy in order to maintain suppressed viral load. This extension study will be discontinued upon any FDA approval of leronlimab.

39


Phase 2b/3 Investigative Trial for HIV, as Long-term Monotherapy

Enrollment for this trial is now closed after reaching 500 patients. This trial assesses the subcutaneous use of leronlimab as a long-acting single-agent maintenance therapy for 48 weeks in patients with suppressed viral load with CCR5-tropicHIV-1 infection. The primary endpoint is the proportion of participants with a suppressed viral load to those who experienced virologic failure. The secondary endpoint is the length of time to virologic failure. We completed the evaluation two higher-dose arms, one with 525 mg dose (a 50% increase from the original dosage of 350 mg), as well as a 700 mg dose. We recently reported that interim data suggested that both the 525 mg and the 700 mg dosages are achieving a responder rate of approximately 90% after the initial 10 weeks. This trial has also been used to provide safety data for the BLA filing for leronlimab as a combination therapy. In view of the high responder rate at the increased dosage levels, coupled with the newly developed CCR5 occupancy test, we recently filed a pivotal trial protocol with the FDA for leronlimab as a monotherapy. Upon finalization with the FDA of the pivotal trial protocol for monotherapy, the Phase2b/3 investigative trial will likely be discontinued. In the interim, several patients are continuing in an extension study who have requested continued access to leronlimab.

Cancer and Immunological Applications for Leronlimab

We are continuing to advance our exploration ofexplore opportunities for clinical applications for leronlimab involving the CCR5 receptor, other thanHIV-related treatments, such as cancer, inflammatory conditions, autoimmune diseases and autoimmune diseases.cancer.

The target of leronlimab is the important G protein coupledimmunologic receptor CCR5. We believe that the CCR5 receptor is more than the pathwaydoor for HIV to HIV replication;enter T-cells: it is also a crucial component ofin inflammatory responses and is a key mediator in many cancer metastasis. We believe this opensresponses. This could open the potential for multiple pipeline opportunities for leronlimab.

The CCR5 receptor is a protein located on the surface of white blood cells and cancer epithelial cells that serves as a receptor for chemical attractants called chemokines. Chemokines are the key orchestrators of leukocyte trafficking by attracting immune cells to the sites of inflammation.

At the site of an inflammatory reaction, chemokines are released. These chemokines are specific for CCR5 and cause the migration ofT-cells to these sites promoting further inflammation. We believe theThe mechanism of action of leronlimabPRO 140 has the potential to block the movement ofT-cells to inflammatory sites, which could be instrumental in diminishing or eliminating inflammatory responses. CCR5 is also expressed on the surface of epithelial cells in certain cancers. Some disease processes that we believe could benefit from CCR5 blockade include many types of common cancers, GvHD (a reaction occurring in some patients after bone marrow transplantation),transplantation rejection, autoimmunity and chronic inflammation such as rheumatoid arthritis and psoriasis. Recent published data has shown that the cancer cells within the tumor consist of two types ofcells-one with CCR5 and others without them. The published data clearly indicated that cancer cells that can metastasize express CCR5. Metastases are the cause of death in the vast majority of cancer patients. A prior publication indicates that CCR5 antagonists can turn off certain calcium signaling and reduce the migration of CCR5 positive cancer cells. Inhibition of CCR5 signaling blocks the guided migration and reduces the metastasis. Leronlimab has demonstrated (in anin-vitro study) that it also turns off calcium signaling and blocks breast cancer cellular invasion. Furthermore, published studies showed current chemotherapy induces CCR5, and CCR5 antagonists enhance the effectiveness of current chemotherapies, potentially allowing a reduction in chemotherapy, which may provide an improved quality of life for patients.

Research has demonstrated three key properties of the CCR5’s MOA in cancer. The first is that the CCR5 receptor on cancer cells was responsible for the migration and invasion of cells into the blood stream, which leads to metastasis of breast, prostate, and colon cancer. The second is that blocking the CCR5 also turns on anti-tumor fighting properties restoring immune function. The third key finding was that blockage of the CCR5/CCL5 interaction had a synergistic effect with chemotherapeutic therapy and controlled cancer progression. Chemotherapy traditionally increased expression of CCR5 so blocking it is expected to reduce the levels of invasion of metastasis.

Due to itsleronlimab’s MOA, we believe leronlimab may have significant advantages in terms of reduced side effects over other CCR5 antagonists. Prior studies have demonstrated that leronlimab does not cause direct activation ofT-cells. We We have already reported encouraging human safety data for our clinical trials with leronlimab inHIV-infected patients.

We also previouslyhave initiated our first clinical trial with leronlimab in an immunological indication – a Phase 2 clinical trial with leronlimab for GvHD in reduced intensity conditioning (“RIC”) patients with AMLacute myeloid leukemia (“AML”) or MDSmyelodysplastic syndrome (“MDS”) who are undergoing bone marrow stem cell transplantation. As noted below, enrollment underGvHD represents an unmet medical need, with patients who contract GvHD during stem cell transplant having a significantly decreased 1-year survival rate with relapsed GvHD as the amended protocolleading cause of death. Our pre-clinical study in GvHD has been published in the peer-reviewed journal Biology of Blood and Marrow Transplantation. The FDA has granted orphan drug designation to leronlimab for the prevention of acute GvHD.

GvHD trial has been delayed subjectis a risk when patients receive bone marrow stem cells donated from another person. GvHD is a serious complication that limits the use of Bone Marrow Stem Cell (“BMSC”) transplantation in patients with blood cancers. GvHD occurs when the donor’s immune cells attack the patient’s normal tissues (skin, liver, gut). GvHD can be acute or chronic. Its severity depends on the differences in tissue type between patient and donor. Acute GvHD can occur soon after the transplanted cells begin to increased capital resources. In addition, we also intendappear in the recipient and can range from mild to explore potential strategic partnerships with certain pharmaceutical companies, includingsevere and can be life-threatening.

The CCR5 receptor, the target for leronlimab, appears to be an important mediator of GvHD, especially in the organ damage that is the usual cause of death. We believe that the CCR5 receptor on engrafted cells is critical for the development offollow-on technologies involving acute GvHD and by blocking this receptor from recognizing certain immune signaling molecules could be a viable approach to mitigating acute GvHD. The potential of leronlimab to prevent this life-threatening condition could help extend the use of BMSC transplantation to effectively treat more patients.

COVID-19

Phase 2 Trial to Evaluate the Efficacy and Safety of Leronlimab for Mild to Moderate Coronavirus Disease 2019 (COVID-19).

This is a two-arm, randomized, double blind, placebo controlled multicenter study to evaluate the safety and efficacy of leronlimab alongside their existing products.in patients with mild-to-moderate symptoms of respiratory illness caused by coronavirus 2019 infection was completed in July 2020. Patients were randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo were administered via subcutaneous injection. The study has three phases: Screening Period, Treatment Period and Follow-Up Period. A total of 75 subjects were randomized 2:1 (active drug to placebo) in this study. The primary outcome measures are clinical improvement as assessed by change in total symptom score (for fever, myalgia, dyspnea and cough). Secondary outcome measures include: (1) time to clinical resolution, (2) change from baseline in National Early Warning Score 2 (NEWS2), (3) change from baseline in pulse oxygen saturation, (4) change from baseline in the patient’s health status on a 7-category ordinal scale, (5) incidence of hospitalization, (6) duration (days) of hospitalization,

We will require a significant amount

(7) incidence of additional capitalmechanical ventilation supply, (8) duration (days) of mechanical ventilation supply, (9) incidence of oxygen use, (10) duration (days) of oxygen use, (11) mortality rate, (12) time to completereturn to normal activity. Enrollment was completed in July 2020 and the foregoing clinical trials for HIVCompany has recently reported positive safety results. The topline report from the trial, including efficacy and complete our BLA submission, as well as to advance our trials for triple-negative breast cancer, certain cancer indications and GvHD. See “Liquidity and Capital Resources” below.

40


Phase 1b/2 Trial for Triple-Negative Breast Cancer

We recently received clearance from the FDA for our IND submission to initiate a Phase 1b/2 clinical trial for metastatic triple-negative breast cancer patients. In May 2019, the FDA granted leronlimab Fast Track designation for use in combination with carboplatin. We have identified five clinical trial sites and expect to dose the first patients during the third quarter of calendar 2019. The change in circulating tumor cells (“CTCs”) number will be evaluated every 21 days during treatment and will be used as an initial prognostic marker for efficacy. Up to 48 patients aresafety data, is expected to be submitted to the FDA in August 2020.

Phase 3 Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients With Severe or Critical Coronavirus Disease 2019 (COVID-19).

This is a two-arm, randomized, double blind, placebo controlled, adaptive design multicenter study to evaluate the safety and efficacy of leronlimab in patients with severe or critical symptoms of respiratory illness caused by coronavirus 2019 infection. Patients will be randomized to receive weekly doses of 700 mg leronlimab, or placebo. Leronlimab and placebo will be administered via subcutaneous injection. The study will have three phases: Screening Period, Treatment Period, and Follow-Up Period. The primary outcome measured in this study is: all-cause mortality at Day 28. Secondary outcomes measured are: (1) all-cause mortality at Day 14, (2) change in clinical status of subject at Day 14, (3) change in clinical status of subject at Day 28, and (4) change from baseline in Sequential Organ Failure Assessment (SOFA) score at Day 14. Recently, the Data Safety Monitoring Committee for the ongoing Phase 3 trial completed its first safety review of patients with severe and critical COVID-19 and reported it saw no cause to modify the study. The DSMC reviewed compiled safety data from 149 of the 169 patients enrolled in this study.

Pre-clinical Studies for Multiple Cancer Indications

Wethe Phase 3 trial. The DSMC did not raise any concerns regarding safety and recommended that the trial continue. As such, the Company will conduct a full interim analysis once 195 patients are initiating multiplepre-clinical studies with leronlimab for melanoma, pancreatic, breast, prostate colon, lung, liver and stomach cancers. An ongoingpre-clinical study conducted by us recently reported that leronlimab reduces by more than 98% human breast cancer metastasisenrolled, as provided in a murine xenograft model. Based upon these strong results, we filed for Orphan Drug Designation for its Phase 1b/2 triple negative breast cancer trial. In addition,pre-clinical results in a colorectal cancer study are likewise encouraging.the trial’s protocol.

Phase 2 Trial for Graft-versus-Host Disease

This Phase 2 multi-center multi-center100-day100-day study with 60 patients is designed to evaluate the feasibility of the use of leronlimab as anadd-on therapy to standard GvHD prophylaxis treatment for prevention of acute GvHD in adult patients with acute myeloid leukemia (“AML”)AML or myelodysplastic syndrome (“MDS”)MDS undergoing allogeneic hematopoietic stem cell transplantation (“HST”). Enrollment of the first patient was announced in May of 2017. On October 5, 2017, we announced that the FDA had granted orphan drug designation to leronlimab (PRO 140) for the prevention of GvHD. In March 2018, we announced that the Independent Data Monitoring Committee (“IDMC”) for leronlimab (PRO 140) Phase 2 trial in GvHD had completed a planned interim analysis of trial data on the first 10 patients enrolled. Following this review of data from the first 10 patients in the Phase 2 trial, we filed amendments to the protocol with the FDA. The amendments included switching the pretreatment conditioning regimen from aggressive myeloablative (“MA”) conditioning to a reduced intensity conditioning (“RIC”), and switching from a blindedone-for-one randomized placebo-controlled design to an open-label design under which all enrollees receive leronlimab. The amendments also provide for a 100% increase in the dose of leronlimab, to 700 mg, to more closely mimicpre-clinical dosing. The next review of data by the IDMC will occur following enrollment of 10 patients under the amended protocol after each patient has been dosed for 30 days. Due to the necessary prioritization of limited capital, enrollment under the amended protocol has been temporarily delayed.

Phase 1b/2 Trial for Triple-Negative Breast Cancer

This trial is to evaluate the feasibility of leronlimab combined with carboplatin in patients with CCR5+ metastatic triple negative breast cancer. The Phase 1b portion is a dose escalation phase with three dose levels (cohorts) of leronlimab in combination with a fixed dose of carboplatin. The Phase 2 portion is a single arm study with 30 patients to test the hypothesis that the combination of carboplatin intravenously and maximum tolerated dose of leronlimab subcutaneously will increase progression free survival. In May 2019, the FDA granted leronlimab Fast Track designation for use in combination with carboplatin. The change in circulating tumor cells (“CTCs”) number will be evaluated every 21 days during treatment and will be used as an initial prognostic marker for efficacy. The first patient was treated in September 2019.

Compassionate Use Study of Leronlimab in Breast Cancer

This is a single arm, compassionate use study with 30 patients for leronlimab (PRO 140) combined with a treatment of physician’s choice (TPC) in patients with CCR5+ mTNBC. Leronlimab (PRO 140) will be administered subcutaneously as weekly dose of 350 mg until disease progression or intolerable toxicity. Treatment of Physician’s Choice (TPC) is defined as one of the following single-agent chemotherapy drugs administrated according to local practice: eribulin, gemcitabine, capecitabine, paclitaxel, nab-paclitaxel, vinorelbine, ixabepilone, or carboplatin. In this study, patients will be evaluated for tumor response approximately every 3 months or according to institution’s standard practice by CT, PET/CT or MRI with contrast (per treating investigator’s discretion) using the same method as at baseline.

Basket Trial for 22 Solid Tumor Cancers

This is a Phase 2 study to test the safety and efficacy of leronlimab on 22 different solid tumor cancers, including brain-glioblastoma, melanoma, lung, breast, ovarian, pancreas, bladder, throat, stomach, colon, testicular, uterine, among other indications. The first patient was treated in April 2020.

Licensing Opportunities

We are currently evaluatingcontinue to evaluate strategic licensing opportunities with respect to the assets acquired in our November 2018 acquisition of ProstaGene, including potential licensing or other opportunities to monetize intellectual property assets relating to prostate cancer diagnostics. As an integral part of the acquisition of ProstaGene, we acquired the PCa Test, which provides substantial additive discriminative value for predicting outcomes of patients diagnosed with prostate cancer compared to the intermediate Gleason score, the current standard for prostate cancer diagnosis. The clinical objective is to more precisely guide therapeutic options for men, thereby avoiding unnecessary surgery (prostatectomy) and radiation and/or chemotherapy with its attendant side effects.

In addition, we continue to conduct exploratory discussions with third parties who have expressed an interest in a licensing arrangementwith respect to our assets, including pre-clinical and clinical findings for leronlimab for HIV indications;a wide array of clinical indications. As recently completed license agreements demonstrate, such proposed arrangementsagreements are country or region specific.

41specific and are limited to a specific clinical indication for leronlimab.


Results of operations for the yearyears ended May 31, 2020, 2019 2018 and 2017,2018, are as follows:

For the years ended May 31, 2019,2020, May 31, 20182019 and 2017,2018, we had no activities that produced revenues from operations. The following schedule sets forth the percentage of total expenses as a percent of net loss for the years ended May 31, 2020, 2019 2018 and 2017.2018.

 

  Percentage of Total Net Loss   Percentage of Total Net Loss 
  Years Ended May 31,   Years Ended May 31, 
  2019 2018 2017   2020 2019 2018 

Operating expenses:

              

General and administrative

  $12,116,743  (0.22)%  $7,340,605  (0.15)%  $6,758,606  (0.26)%   $19,972,804  (0.16)%  $12,116,743  (0.22)%  $7,340,605  (0.15)% 

Research and development

   42,490,144  (0.76 38,222,580  (0.76 20,205,743  (0.78   52,639,981  (0.42 42,490,144  (0.76 38,222,580  (0.76

Amortization and depreciation

   1,245,167  (0.02 356,128  (0.01 366,385  (0.01   2,034,440  (0.02 1,245,167  (0.02 356,128  (0.01
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total operating expenses

   55,852,054  (0.99 45,919,313  (0.92 27,330,734  (1.06   74,647,225  (0.73 55,852,054  (0.99 45,919,313  (0.92
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Operating loss

   (55,852,054 (0.99 (45,919,313 (0.92 (27,330,734 (1.06   (74,647,225 (0.60 (55,852,054 (0.99 (45,919,313 (0.92

Other income (expense):

              

Other income

   500,000  0.00  —    —    —    —   

Interest income

   4,306  0.00  3,620  0.00  15,167  0.00    5,318  0.00  4,306  0.00  3,620  0.00 

Legal settlement

   (22,500,000 0.18   —     —     —     —   

Loss on extinguishment of convertible notes

   (1,519,603 (0.03  —     —     —     —      —     —    (1,519,603 (0.03      

Change in fair value of derivative liability

   1,666,469  0.03  1,690,935  0.03  2,164,533  0.08    (9,541,704 0.08  1,666,469  0.03  1,690,935  0.03 

Interest expense:

              

Finance charges

   (935,630 0.01  —    —    —    —   

Amortization of discount on convertible notes

   (1,707,068 (0.03 (1,666,017 (0.03  —     —      (1,644,625 0.01  (1,707,068 (0.03 (1,666,017 (0.03

Amortization of debt issuance costs

   (459,085 (0.01 (435,609 (0.01  —     —      (404,340 0.00  (459,085 (0.01 (435,609 (0.01

Interest related to derivative liability

   —     —     —     —    (540,330 (0.02   —    —    —    —    —    —   

Inducement interest – warrant exercises and debt conversion

   (7,904,353 0.06  —    —    —    —   

Inducement interest related to warrant extension

   —     —    (826,252 (0.02 (72,437 (0.00   —    —    —    —    (826,252 (0.02

Inducement interest related to warrant tender offer

   (195,927 (0.00 (393,685 (0.01  —     —      —     —    (195,927 (0.00 (393,685 (0.01

Inducement interest related to convertible notes

   —     —    (2,352,045 (0.05  —     —      —    —    —    —    (2,352,045 (0.05

Interest on convertible notes payable

   (950,617 (0.02 (251,315 (0.01  —     —      (7,330,843 0.06  (950,617 (0.02 (251,315 (0.01
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total interest expense

   (3,312,697 (0.06 (5,924,923 (0.12 (612,767 (0.02   (18,219,791 0.15  (3,312,697 (0.06 (5,924,923 (0.12
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Loss before income taxes

   (59,013,579 (1.05 (50,149,681 (1.00 (25,763,801 (1.00   (124,403,402 1.00  (59,013,579 (1.05 (50,149,681 (1.00

Income tax benefit

   2,826,919  0.05   —     —     —     —      —     —    2,826,919  0.05  —    —   
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Net loss

  $(56,186,660 (1.00)%  $(50,149,681 (1.00)%  $(25,763,801 (1.00)%   $(124,403,402 (1.00)%  $(56,186,660 (1.00)%  $(50,149,681 (1.00)% 
  

 

   

 

   

 

    

 

   

 

   

 

  

Basic and diluted loss per share

  $(0.21  $(0.29  $(0.19   $(0.30  $(0.21  $(0.29 
  

 

   

 

   

 

    

 

   

 

   

 

  

Basic and diluted weighted average common shares outstanding

   272,040,933   174,885,422   138,004,461     421,077,605   272,040,933   174,885,422  
  

 

   

 

   

 

    

 

   

 

   

 

  

Results of operations for the years ended May 31, 20192020 and 20182019

For the years ended May 31, 20192020 and 2018,2019, we had a net loss of approximately $56.2$124.4 million and $50.1$56.2 million, respectively. The increase in net loss of approximately $6.1$68.2 million for fiscal 20192020 over 20182019 was primarily attributable to increased R&D expenses of approximately $4.3$10.1 million, and an increase in G&A expenses of approximately $4.8$7.9 million, offset by a lowernon-cash legal settlement charge of $22.5 million an increase in interest expense of $2.6 million.approximately $14.9 million, and an increase of approximately $11.2 million in the change in fair value of derivative liability. The loss per share for the fiscal year ended May 31, 20192020 was $(0.21)$(0.30) compared to $(0.29)$(0.21) for the prior fiscal year.

42


Total operating expenses for the years ended May 31, 20192020 and 20182019 were approximately as follows:

 

  2019   2018   2020   2019 

General and administrative:

        

Salaries and other compensation

  $3,781,000   $2,454,000   $5,488,000   $3,781,000 

Stock-based compensation

   3,388,000    1,291,000    6,548,000    3,388,000 

Other

   4,948,000    3,596,000    7,937,000    4,948,000 
  

 

   

 

   

 

   

 

 

Total general and administrative

   12,117,000    7,341,000    19,973,000    12,117,000 
  

 

   

 

 

Research and development

   42,490,000    38,223,000    52,640,000    42,490,000 

Amortization and depreciation

   1,245,000    356,000    2,034,000    1,245,000 
  

 

   

 

   

 

   

 

 

Total operating expenses

  $55,852,000   $45,920,000   $74,647,000   $55,852,000 
  

 

   

 

   

 

   

 

 

For the fiscal year ended May 31, 20192020 and May 31, 2018,2019, operating expenses totaled approximately $55.9$74.6 million and $45.9$55.9 million, respectively, consisting primarily of research and development (“R&D”) expenses of $42.5$52.6 million, general and administrative expenses of approximately $12.1$20.0 million and amortization and depreciation of approximately $1.2$2.0 million. The increase in operating expenses over the comparable 20182019 period was attributable to an increase in R&D expenses of approximately $4.3$10.1 million owing to higher clinical trial and manufacturing-relatedscale-up manufacturing related expenses and to an increase in general and administrative expenses of approximately $4.8$7.9 million, or 65.1%64.8% over the prior fiscal year.

General and administrative expenses, totaled approximately $12.1$20.0 million and $7.3$12.1 million, respectively, for fiscal 20192020 and 2018.2019. General and administrative expenses were comprised of salaries and benefits,non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in general and administrative expenses of approximately $4.8$7.9 million, or 65.1%64.8%, for the fiscal year ended May 31, 20192020 over the comparable 20182019 period was primarily due to increasednon-cash stock-based compensation, employee compensation and related expenses, along with higher professional services fees.

We record research and development expenses where directly identifiable, which approximated the following for the years ended May 31, 20192020 and 2018:2019:

 

  2019   2018   2020   2019 

Research and development:

        

Clinical

  $25,264,000   $22,543,000   $29,553,000   $25,264,000 

Non-Clinical

   155,000   $887,000    2,999,000    155,000 

CMC

   16,353,000   $14,240,000    19,392,000    16,353,000 

Licenses and patent fees

   718,000   $553,000    696,000    718,000 
  

 

   

 

   

 

   

 

 

Total research and development

  $42,490,000   $38,223,000   $52,640,000   $42,490,000 
  

 

   

 

   

 

   

 

 

R&D expenses totaled approximately $42.5$52.6 million for the fiscal year ended May 31, 20192020 and increased approximately $4.3$10.1 million, or 11.2%23.9%, over the same 20182019 period. This increase was attributable to higher clinical trial expenses associated with the Phase 2b/3 investigative monotherapy trial and various oncology

studies, offset in part by lower expenses for the completed Phase 3 combination therapy trial. HigherCMC-related expenses in connection with the preparation of ourthe Company’s BLA filing also contributed to the increase in R&D expenses over the prior fiscal year. The future trend of R&D expenses will be dependent on the timing of resubmission of and FDA approval of our BLA filing, the timing of FDA clearance of our pivotal trial protocol for leronlimab as a monotherapy for HIV patients, the clinical progression of the triple-negative breast cancer and GvHD trials, along with the outcome of thepre-clinical studies for several cancer indications. R&D expenses will also increase due to CMC scale-up manufacturing related activities in preparation for approval and commercialization of leronlimab. Until satisfaction of the generally accepted accounting principles (“GAAP”) standard for capitalization of such costs pursuant to ASC 350, all CMC manufacturing costs will continue to be expensed as R&D.

Amortization and depreciation expense of approximately $1.2$2.0 million rose by approximately $0.9$0.8 million due in part to the increased amortization attributable to recording a full year of amortization expense related to the intangible assets acquired in the November 2018 transaction with ProstaGene LLC.

For the fiscal year ended May 31, 2019, we2020, the Company recognized an unrealizednon-cash benefitcharges from the decreaseincrease in the fair value of derivative liabilityliabilities of approximately $1.7$9.5 million, as compared to a similarnon-cash benefit of approximately $1.7 million in the comparable 20182019 period. The total net change in derivative liability is attributable to three underlying financial instruments: (i) certainCertain warrants and two convertible note instruments that each contain a contingent cash settlement provision which originatedgiving rise to a derivative liability were issued in September 2016, accounted for approximately $0.9 million, (ii) a certain long-term convertible note payable, originating in June 2018 which was subsequently amended to provide for variable rate redemptions by the holder and (iii) a certain long-term convertible note payable, which originated in January 2019. The combined change in derivative liability ascribed to the two long-term convertible notes contributed approximately $0.8 million to the unrealizednon-cash benefit for the fiscal year ended May 31, 2019.2019, respectively. For each reporting period, we determinethe Company determines the fair value of the derivative liabilities and recordrecords a correspondingnon-cash benefit ornon-cash charge, as a consequence of a decrease or increase, respectively, in the calculated derivative liabilities.

Legal settlement expense (non-cash) for the fiscal year ended May 31, 2020 of $22.5 million related to the issuance of shares of common stock as a settlement for a claim filed by the note holder of the January 2019 Note alleging that the note holder was owed additional shares upon conversion of the note. The $22.5 million increase over the 2019 fiscal year was attributable to no legal settlement expense in the prior year.

43


Interest expense for the fiscal year ended May 31, 20192020 of approximately $3.3$18.2 million decreasedincreased approximately $2.6$14.9 million from the 20182019 fiscal year due primarily to lowernon-cash inducement interest on a private warrant tender offer that was completed in May 2019, and no comparable inducement interest expense related to warrant extensions and convertible notes, which were in incurred in the 2018 fiscal year, offset by an increase in interest accrued on convertible notes payable of approximately $0.7$6.4 million, inducement interest expense related to warrant exercises and debt extensions of $7.7 million, and vendor finance charges of $0.9 million.

The future trends of all expenses will be driven, in large part, by the future outcomes of clinical trials and the corresponding effect on research and development expenses, as well as general and administrative expenses, in addition to the manufacturing of new commercial leronlimab upon any FDA approval. We require a significant amount of additional capital, and our ability to continue to fund operations will continue to depend on our ability to raise such capital. See in particular, “Liquidity and Capital Resources” below and Item 1A “Risk Factors” above.

Results of operations for the years ended May 31, 20182019 and 20172018

For the years ended May 31, 2019 and 2018, and 2017, wethe Company had a net loss of approximately $50.1$56.2 million and $25.8$50.1 million, respectively. The increase in net loss of approximately $24.3$6.1 million for fiscal 20182019 over 20172018 was primarily attributable to increased R&D expenses of approximately $18.0$4.3 million and an increase in G&A expenses of approximately $4.8 million, offset by a decreased interest expense of approximately $5.3 million and a modest increase in general and administrative expense of approximately $0.6 million, combined with a reduction in thenon-cash benefit in fair value of derivative liability of approximately $0.5$2.6 million. The loss per share for the fiscal year ended May 31, 20182019 was $(0.29)$(0.21) compared to $(0.19)$(0.29) for the prior 2017 fiscal year.

The

Total operating expenses for the years ended May 31, 2019 and 2018 and 2017 and approximatedwere approximately as follows:

 

  2018   2017   2019   2018 

General and administrative:

        

Salaries and other compensation

  $2,454,000   $2,332,000   $3,781,000   $2,454,000 

Stock-based compensation

   1,291,000    1,205,000    3,388,000    1,291,000 

Other

   3,596,000    3,222,000    4,948,000    3,596,000 
  

 

   

 

   

 

   

 

 

Total general and administrative

   7,341,000    6,759,000    12,117,000    7,341,000 

Research and development

   38,223,000    20,206,000    42,490,000    38,223,000 

Amortization and depreciation

   356,000    366,000    1,245,000    356,000 
  

 

   

 

   

 

   

 

 

Total operating expenses

  $45,920,000   $27,331,000   $55,852,000   $45,920,000 
  

 

   

 

   

 

   

 

 

For the fiscal year ended May 31, 20182019 and May 31, 2017,2018, operating expenses totaled approximately $45.9$55.9 million and $27.3$45.9 million, respectively, consisting primarily of R&D expenses of $38.2$42.5 million, general and administrative expenses of approximately $7.3$12.1 million and amortization and depreciation of approximately $0.4$1.2 million. The increase in operating expenses over the comparable 20172018 period was attributable to an increase in R&D expenses of approximately $18.0$4.3 million owing to higher clinical trial and manufacturing-relatedmanufacturing related expenses and a modestto an increase in general and administrative expenses of approximately $0.6$4.8 million, primarily related to an increase in consulting services and employee-related expenses.or 65.1% over the prior fiscal year.

General and administrative expenses, totaled approximately $7.3$12.1 million and $6.8$7.3 million, respectively, for fiscal 20182019 and 2017.2018. General and administrative expenses were comprised of salaries and benefits,non-cash stock-based compensation expense, professional fees, insurance and various other expenses. The increase in general and administrative expenses of approximately $0.6$4.8 million, or 8.6%65.1%, for the fiscal year ended May 31, 20182019 over the comparable 20172018 period was primarily due to increased consultingnon-cash stock-based compensation, employee compensation and related expenses, along with higher professional services fees.

We record research and employee-related expenses.development expenses where directly identifiable, which approximated the following for the years ended May 31, 2019 and 2018:

   2019   2018 

Research and development:

    

Clinical

  $25,264,000   $22,543,000 

Non-Clinical

   155,000   $887,000 

CMC

   16,353,000   $14,240,000 

Licenses and patent fees

   718,000   $553,000 
  

 

 

   

 

 

 

Total research and development

  $42,490,000   $38,223,000 
  

 

 

   

 

 

 

R&D expenses which totaled approximately $38.2$42.5 million for the fiscal year ended May 31, 2018,2019 and increased approximately $18.0$4.3 million, or 89.2%11.2%, over the same 20172018 period. This increase was attributable to higher clinical trial expenses combinedassociated with an expansion of our CMC activitiesthe Phase 2b/3 investigative monotherapy trial and various oncology studies, offset in part by lower expenses for the completed Phase 3 combination therapy trial. Higher CMC-related expenses in connection with the preparation of a BLA. We expectour BLA filing also contributed to the increase in R&D expenses over the prior fiscal year.

Amortization and depreciation expense of approximately $1.2 million rose by approximately $0.9 million due in part to maintain at this level, as the two ongoing Phase 2b/3 trialsincreased amortization attributable to the intangible assets acquired in the November 2018 transaction with leronlimab for HIV therapy continue, along with their related rollover studies, combined with the Phase 2 GvHD trial, and the expenses to continue activities related to manufacturing cGMP leronlimab material for the BLA and for future use.ProstaGene LLC.

44


We record research and development expenses where directly identifiable, approximately as follows for the years ended May 31, 2018 and 2017:

   Year Ended May 31, 
   2018   2017 

Research and development:

    

Clinical

  $22,543,000   $9,846,000 

Non-Clinical

  $887,000   $691,000 

CMC

  $14,240,000   $8,998,000 

Licenses and patent fees

  $553,000   $671,000 
  

 

 

   

 

 

 

Total research and development

  $38,223,000   $20,206,000 
  

 

 

   

 

 

 

For the fiscal year ended May 31, 2018, we2019, the Company recognized an unrealizednon-cash benefit from the decrease in derivative liability of approximately $1.7 million, as compared to an approximatea similar non-cash benefit of $2.2 million in the

comparable 20172018 period. The total net change in derivative liability is attributable to three underlying financial instruments: (i) certain warrants that contain a contingent cash settlement provision, which gives rise to a derivative liability, originated in September 2016.2016, accounted for approximately $0.9 million, (ii) a certain long-term convertible note payable, originating in June 2018, which was subsequently amended to provide for variable rate redemptions by the holder and (iii) a certain long-term convertible note payable, which originated in January 2019. The combined change in derivative liability ascribed to the two long-term convertible notes contributed approximately $0.8 million to the unrealized non-cash benefit for the fiscal year ended May 31, 2019. For each reporting period, we determinethe Company determines the fair value of the derivative liabilityliabilities and recordrecords a correspondingnon-cash benefit ornon-cash charge, as a consequence of a decrease or increase, respectively, in the calculated derivative liability.liabilities.

Interest expense for the fiscal year ended May 31, 20182019 of approximately $5.9$3.3 million increaseddecreased approximately $5.3$2.6 million overfrom the 20172018 fiscal year due primarily to an increase inlower non-cash interest of approximately $3.5 million related to inducement interest on (i) convertible notes; (ii) the expiration date extension of certain warrants and (iii) thea private warrant tender offer that was completed in March 2018, coupled with cashMay 2019, and no comparable inducement interest expense of approximately $0.3 million on arelated to warrant extensions and convertible note andnotes, which were in incurred in the 2018 fiscal year, offset by an increase in amortization of debt discount and issuance costsinterest accrued on convertible notes payable of approximately $2.1 million, offset by a reduction in interest related to derivative liability of approximately $0.5$0.7 million.

The future trends of all expenses will be driven, in large part, by the future outcomes of clinical trials and the correlative effect on research and development expenses, as well as general and administrative expenses, in addition to the manufacturing of new commercial leronlimab, along with the increasing activities to prepare and file a BLA. We require a significant amount of additional capital, and our ability to continue to fund operations will continue to depend on our ability to raise such capital. See in particular, “Liquidity and Capital Resources” below and Item 1A “Risk Factors” above.

Fluctuations in Quarterly Operating Results

We haveThe Company has historically experienced significant fluctuations in our quarterly operating results and we expect such fluctuations are expected to continue in the future. OurThe Company’s operating results may fluctuate due to a number of factors, such as the timing of product manufacturing activities, patient enrollment or completion rates in various trials, coupled with potential amendments to clinical trial protocol. As anon-revenue generating company, we are regularly conducting offerings to raise capital, which can create various forms of amortization of issuance costs ornon-cash interest expense. In addition, a portion of the aforementioned derivative liabilities is tied to certain securities which include a probability estimate of a fundamental transaction and to our stock price,contingent cash settlement provision, which can vary substantially from quarter to quarter, thereby creating anon-cash charge or benefit.

Liquidity and Capital Resources

OurThe Company’s cash position of approximately $3.5$14.3 million at May 31, 20192020 increased approximately $2.2$10.8 million as compared to a balance of approximately $1.2$3.5 million at May 31, 2018.2019. The increase was attributable to net cash provided by financing activities of approximately $52.7$79.7 million exceeding net cash used in operating activities of approximately $50.5$68.8 million by approximately $2.2$10.9 million. Despite ourthe Company’s negative working capital position, vendor relations remain accommodative and we do not currently anticipate delays in our BLA filingbusiness initiatives schedule due to liquidity constraints.

Cash Flows

Net cash used in operating activities totaled approximately $50.5$68.8 million during the fiscal year ended May 31, 2019,2020, which reflects an increase of approximately $20.6$18.3 million of net cash used in operating activities over the approximate $29.9$50.5 million in fiscal 2018.2019. The increase in net cash used in operating activities was due to an increase in net loss of approximately $6$68.2 million, attributable to an increase in non-cash legal settlement expense of $22.5 million, an increase in interest related expenses of approximately $13.8 million, an increase in losses from change in fair value of derivative liabilities of approximately $11.2 million, an increase in stock-based compensation of approximately $3.2 million, an increase in deferred tax benefit of approximately $2.8 million, and a net change in the components of net working capital of approximately $13.4$2.8 million.

WeThe Company made nominal investments in equipment and website development costs totaling approximately $45,000$61,000 during the fiscal year ended May 31, 2019.2020.

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Net cash provided by financing activities of approximately $52.7$79.7 million for the year ended May 31, 20192020 increased approximately $23.3$27.0 million over $29.4$52.7 million of net cash provided by financing activities during

fiscal year ended May 31, 2018.2019. The increase in net cash provided from financing activities was primarily attributable to an increase in net proceeds from warrant exercises of approximately $38.4 million, an increase of approximately $10.3 million in proceeds from the sale of preferred stock and increase of approximately $5.6 million in proceeds from stock option exercises, coupled with a decrease to proceeds received from the sale of common stock and warrants of approximately $13.1$25.6 million coupled with an increase of approximately $10.6 million in proceeds from convertible notes and net proceeds of approximately $3.1 million from a preferred convertible stock offering induring the 20192020 fiscal year.

Capital Requirements

We haveThe Company has not generated revenue to date, and dodoes not expect to generate product revenue until after it receives approval from the FDA approval of leronlimab. We expect that wefor its BLA for leronlimab as a combination therapy with HAART for highly treatment experienced HIV patients. The Company expects it will continue to incur operating losses as expenses continue to increase as we proceed with completion of our BLA, prepare for commercialization of leronlimab and continue ourpre-clinical and clinical trial programs. The future trends of all expenses will be driven, in large part, by the timing of the anticipated approval of ourthe Company’s BLA, the magnitude of our commercialization readiness, future clinical trial strategy and timing of the commencement of our future revenue stream. WeThe Company will require a significant amount of additional capital in the future in anticipation of a fully commercialized leronlimab product.

Contract Manufacturing

During the fourth quarter of fiscal 2019, wethe Company entered into a Master Services Agreement and Product Specific Agreement (collectively, the “Samsung Agreement”) with Samsung BioLogics Co., Ltd. (“Samsung”), pursuant to which Samsung will perform technology transfer, process validation, manufacturing and supply services for the commercial supply of leronlimab. In April 2019 weDuring fiscal year 2020, the Company delivered to Samsung a purchase order for $33orders totaling $28 million worth of process validation and technology transfer services related to the manufacture of leronlimab and payments totaling $14 million with additional payments by us scheduled to be made throughout calendar 2020.

Under the Samsung Agreement, thea purchase order is binding and we arethe Company is obligated to pay the full amount.

amount of the purchase order. Under the terms of the Samsung Agreement, we arethe Company is obligated to make specified minimum purchases of leronlimab from Samsung pursuant to forecasted requirements, which we willthe Company is required to provide to Samsung. The first forecast will be delivered to Samsung by March 31, 2020. Thereafter, we must provide Samsung with a rolling quarterly forecastschedules 11 manufacturing batches all beginning in the first quarter of fiscal year 2021, setting forth the total quantity of commercial grade leronlimab that we expectthe Company expects to require in the following years. We estimateThe Company estimates that initialramp-up costs to manufacture commercial grade leronlimab at scale could total approximately $60$116 million, with approximately $30$69 million payable over the course of calendar 2020, of which $30 million has been paid as of the date of this filing, and approximately $30$23 million payable during calendar 2021, and approximately $24 million payable in January of 2022. Thereafter, the first quarter of 2021. Thereafter, weCompany will pay Samsung per 15,000L batch according to the pricing terms specified in the Samsung Agreement.

The Samsung Agreement has an initial term ending in December 2027 and will be automatically extended for additional two yeartwo-year periods unless either party gives notice of termination at least six months prior to the then currentthen-current term. Either party may terminate the Samsung Agreement in the event of the other party’s insolvency or uncured material breach, and wethe Company may terminate the agreement in the event of a voluntary or involuntary complete market withdrawal of leronlimab from commercial markets, with one and half year’s prior notice. Neither party may assign the agreement without the consent of the other, except in the event of a sale of all or substantially all of the assets of a party to which the agreement relates.

On May 22, 2020, the Company entered into a Drug Product Manufacturing Services Agreement with Samsung (the “Samsung Vial Filling Agreement”), pursuant to which Samsung will perform technology transfer, process validation, vial filling and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab. Under the terms of the Samsung Vial Filling Agreement, the Company is obligated to have specified minimum quantities of vials filed with leronlimab by Samsung pursuant to forecasted requirements which the Company is required to provide to Samsung. The Company has not provided a forecast to Samsung, however, based on set-up related costs and manufacturing commitments pursuant to the Samsung Agreement, the

Company expects to deliver commitments of approximately $2.3 million in the form of purchase orders related to the Samsung Vial Filling Agreement through January 2021.

In addition to the Samsung Agreement, we have also previously entered into an arrangement with another third partythird-party contract manufacturer to provide process transfer, validation and manufacturing services for leronlimab. In the event that we terminate the agreement with this manufacturer, we may incur certain financial penalties which would become payable to the manufacturer. Conditioned upon the timing of termination, the financial penalties may total approximately $8.3$2.1 million. These amount and timing of the financial commitments under an agreement with our secondary contract manufacturer will depend on the timing of the anticipated approval of our BLA and the initial product demand forecast, which is critical to align the timing of capital resources in order to ensure availability of sufficient quantities of commercial product.

Management believes that two contract manufacturers may best serve our strategic objectives for the anticipated BLA filing and, if approved, the long-term commercial manufacturing capabilities for leronlimab. Management will continue to assess manufacturing capacity requirements as new market information becomes available regarding anticipated demand, subject to FDA approval.

Distribution

On July 2, 2020, the Company entered into an exclusive Distribution and Supply Agreement (the “Distribution Agreement”) with American Regent, Inc. (“American Regent”) with respect to the distribution of the Company’s leronlimab (PRO140) drug for the treatment of COVID-19 in the United States. Under the Distribution Agreement, the Company appointed American Regent as the sole and exclusive authorized distributor in the United States of any subcutaneous injectable biopharmaceutical drug product labeled for treating COVID-19 that contains CytoDyn’s leronlimab as the only active pharmaceutical ingredient (the “Product”). The grant of exclusive distribution rights to American Regent does not extend to any intravenous or infusible biopharmaceutical drug product, or any other product of CytoDyn containing leronlimab that is not labeled for treating COVID-19. Under the Distribution Agreement, American Regent shall, at its cost, use commercially reasonable efforts to market the Product in the United States, and the Company remains responsible, at its cost, to pursue, own and maintain the applicable regulatory approvals necessary to market and manufacture the Product. As described above, the Company is currently conducting a Phase 2b/3 clinical trial for 390 severe-to-critically ill COVID-19 patients, and a Phase 2 randomized clinical trial with 75 patients in the mild-to-moderateCOVID-19 population. If results from these trials indicate positive clinical outcomes for the COVID-19 patients to sufficiently meet the primary and secondary endpoints for the trials, the Company expects to seek approval from the U.S. Food and Drug Administration.

Contract Research

We haveThe Company entered into project work orders for each of our clinical trials with our CRO and related laboratory vendors. Under the terms of these agreements, we havethe Company prepaid certain execution fees for direct services costs. In connection with ourits clinical trials, we havethe Company has entered into separate project work orders for each trial with ourits CRO. In the event that we terminatethe Company terminates any trial, weit may incur certain financial penalties which would become payable to the CRO. Conditioned upon the form of termination of any one trial, the financial penalties may range up to $0.3$0.8 million. In the remote circumstance that we terminatethe Company terminates all clinical trials, the collective financial penalties may range from an approximate low of $0.5$1.6 million to an approximate high of $1.2$3.6 million.

46


Licensing

Under the Progenics Purchase Agreement, we are required to pay Progenics the following ongoing milestone payments and royalties: (i) $5.0 million at the time of the first U.S. new drug application approval by the FDA or othernon-U.S. approval for the sale of leronlimab (PRO 140); and (ii) royalty payments of up to five percent (5%) on net sales during the period beginning on the date of the first commercial sale of leronlimab (PRO

(PRO 140) until the later of (a) the expiration of the last to expire patent included in the acquired assets, and (b) 10 years, in each case determined on acountry-by country basis. In addition, under a Development and License Agreement, dated April 30, 1999 (the “PDL License”), between Protein Design Labs (now AbbVie Inc.) and Progenics, which was previously assigned to us, we are required to pay AbbVie Inc. additional milestone payments and royalties as follows: (i) $0.5 million upon filing a BLA with the FDA ornon-U.S. equivalent regulatory body; (ii) $0.5 million upon FDA approval or approval by anothernon-U.S. equivalent regulatory body; and (iii) royalties of up to 3.5% of net sales for the longer of 10 years and the date of expiration of the last to expire licensed patent. Additionally, the PDL License provides for an annual maintenance fee of $150,000 until royalties paid exceed that amount.

On December 17, 2019, the Company entered into a Commercialization and License Agreement and a Supply Agreement with Vyera Pharmaceuticals, LLC. Pursuant to the License Agreement, the Company granted Vyera an exclusive royalty-bearing license to commercialize pharmaceutical preparations containing leronlimab for treatment of HIV in humans in the United States.

Pursuant to the terms of the License Agreement, and subject to the conditions set forth therein, Vyera will bear the cost of, and be responsible for, among other things, commercializing the product in the territory and will use commercially reasonable efforts to commercialize the product in the field in the territory. Under the terms of the License Agreement, CytoDyn is permitted to license the product outside of the territory for uses in the field or outside the field or inside the territory for uses outside of the field.

In consideration of the license and other rights granted by the Company, Vyera has agreed to pay the Company, within three business days of the effective date of the License Agreement, a $0.5 million license issue fee, with additional payments totaling up to approximately $87.0 million to be made upon the achievement of certain sales and regulatory milestones. Certain milestones are subject to reduction if not achieved within an agreed-upon timeframe. Vyera may also pay the Company additional potential milestone payments upon the regulatory approval of the Product for certain subsequent indications in the field. Whether a particular subsequent indication qualifies for an additional milestone payment shall be determined in good faith by the parties. In addition, during the Royalty Term (as defined below), Vyera is obligated to pay the Company a royalty equal to 50% of Vyera’s gross profit margin from product sales (defined in the License Agreement as “Net Sales”) in the territory. The royalty is subject to reduction during the Royalty Term after patent expiry and expiry of regulatory exclusivity. Following expiration of the Royalty Term, Vyera will continue to maintain non-exclusive rights to commercialize the Product.

The Company appointed American Regent as the sole and exclusive authorized distributor in the United States of any subcutaneous injectable biopharmaceutical drug product labeled for treating COVID-19 that contains CytoDyn’s leronlimab (a humanized monoclonal antibody (also known as PRO 140) targeting against the CCR5 receptor) as the only active pharmaceutical ingredient (the “Product”). The grant of exclusive distribution rights to American Regent does not extend to any intravenous or infusible biopharmaceutical drug product, or any other product of CytoDyn containing leronlimab that is not labeled for treating COVID-19.

Under the Agreement, American Regent shall, at its cost, use commercially reasonable efforts to market the Product in the United States, including, without limitation, directing the methods of sale and distribution, organization and management of sales and marketing and pricing in accordance with the terms and conditions of the Agreement. American Regent shall solely set the resale prices for the Product in accordance with applicable law. Pursuant to the Agreement, the Company remains responsible, at its cost, to pursue, own and maintain the applicable regulatory approvals necessary to market the Product in the United States, and for manufacturing the Product once regulatory approvals have been received.

The term of the Agreement extends for three years after the date of the first commercial sale of the Product, and will renew by mutual agreement of the parties for one additional one-year term, unless American Regent notifies the Company of its intention to have the Agreement terminate at the end of the initial term at least six (6) months prior to the end of the initial term. Either party is entitled to terminate the Agreement at any time in

the event of material breach by the other party that remains uncured after thirty (30) calendar days following written notice thereof, and either party may terminate the Agreement immediately, at its option, upon written notice in the event that a court of competent jurisdiction declares the other party insolvent or bankrupt, or a bankruptcy proceeding is commenced against the other party or the other party files a proposal, assignment for the benefit of creditors, arrangement, composition or seeks similar relief under any applicable law, or the other party is in receivership. The Company is also entitled to terminate the Agreement at any time after the first Commercial Sale upon six (6) months advance written notice to American Regent, or upon ninety (90) days written notice to American Regent following American Regent’s change of control. American Regent is entitled to terminate the Agreement upon six (6) months advance written notice to the Company if, following due diligence and/or a quality inspection of the manufacturing facility associated with the Product, it determines that the distribution of the Product by American Regent should not be pursued, or if there is an unresolved supply interruption as described in the Agreement. In addition, American Regent may terminate the Agreement immediately upon written notice to the Company if (a) American Regent determines there is an unacceptable risk of using American Regent’s NDC Number on the Product labeling, (b) if the parties fail to execute a quality agreement and safety data exchange agreement within forty five (45) days of July 2, 2020, (c) if American Regent is named in any patent or trade secret infringement matter filed by a third party (with certain exceptions) resulting from American Regent’s marketing of the Product and such matter survives a motion to dismiss or has not been resolved within six (6) months after American Regent first receives written notice of the alleged infringement, (d) if any regulatory authority in the United States requires the cessation of sale or distribution of the Product, (e) if the Company materially impedes American Regent’s efforts to implement a recall, market withdrawal or field correction of the Product, or (f) if there is a negative net profit from American Regent’s sales of the Product for two (2) consecutive calendar quarters.

As of the date of this filing, while we have completed andthe Company had filed the first ofall three portions of ourits BLA, it remains uncertain ashowever, in July 2020, the Company received a Refusal to when the remaining two portions will be filed. Further, if the BLA is accepted byFile letter from the FDA it is management’s conclusion thatrequesting additional information. The Company has requested a Type A meeting and plans to supply the probability of achieving the subsequent future clinical development and regulatory milestones is not reasonably determinable, thus the future milestone payments payable to Progenics and itssub-licensors are deemed contingent consideration and, therefore, are not currently accruable.additional information in a timely manner.

Going Concern

As reported in the accompanying financial statements, during the year ended May 31, 2020, May 31, 2019 and May 31, 2018, and May 31, 2017, wethe Company incurred net losses of approximately $124.4 million, $56.2 million and $50.1 million, and $25.8 million respectively. We haveThe Company has no activities that produced revenue in the periods presented and have sustained operating losses since inception.

WeThe Company currently requirerequires and will continue to require a significant amount of additional capital to fund operations, pay ourits accounts payables, and ourits ability to continue as a going concern is dependent upon ourits ability to raise such additional capital, commercialize ourits product and achieve profitability. If we arethe Company is not able to raise such additional capital on a timely basis or on favorable terms, weit may need to scale back our operations or slow down or cease completion of the remaining two sections of our BLA filing, including related CMCCMC-related activities, which could materially delay the filing of the last two sections of the BLA submission. Ourcommercialization initiatives, thereby deferring its ability to achieve profitability. The Company’s failure to raise additional capital could also affect ourits relationships with key vendors, disrupting ourits ability to timely execute ourits business plan. In extreme cases, weit could be forced to file for bankruptcy protection, discontinue ourits operations or liquidate ourits assets.

Since inception, we havethe Company has financed ourits activities principally from the sale of public and private equity securities and proceeds from convertible notes payable and related party notes payable. We intendThe Company intends to finance ourits future operating activities and ourits working capital needs largely from the sale of equity and debt securities, combined with additional potential funding from other traditional financing sources. As of the date of this filing, we havethe Company has approximately 104105 million shares of common stock authorized and available for issuance under our certificate of incorporation, as amended, and approximately $156$135 million available for future registered offerings of securities under our universal shelf registration statement on FormS-3, which was declared effective on March 7, 2018 and expires March 7, 2021 (assuming the full exercise of outstanding warrants, at the currently applicable exercise prices, that were previously issued in registered transactions thereunder).

The sale of equity and convertible debt securities to raise additional capital may result in dilution to stockholders and those securities may have rights senior to those of common shares. If we raisethe Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these activities or other debt could contain covenants that would restrict ourits operations. On January 30, 2019, weMarch 31, 2020 and July 29, 2020, the Company entered into a long-term convertible note,notes, which isare secured by all of our assets, except for our intellectual property, and also includesinclude certain restrictive provisions, such as a limitation on additional indebtedness and future dilutive issuances of securities, any of which could impair our ability to raise additional capital on acceptable terms and conditions. Any other third-party funding arrangements could require usthe Company to relinquish valuable rights. We mayThe Company expects to require additional capital beyond currently anticipated needs. Additional capital, if available, may not be available on reasonable ornon-dilutive terms. Please refer to the matters discussed under the heading “Risk Factors” above.

47


The accompanying consolidated 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. We haveThe Company has incurred losses for all periods presented and havehas a substantial accumulated deficit. As of May 31, 2019,2020, these factors, among several others, could raise substantial doubt about our ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should wethe Company be unable to continue as a going concern. OurThe Company’s continuation as a going concern is dependent upon ourits ability to obtain a significant amount of additional operating capital, complete development of ourits product candidate, obtain FDA approval, outsource manufacturing of ourits product, and ultimately to attain profitability. We intendThe Company intends to seek additional funding through equity or debt offerings, licensing agreements or strategic alliances to implement our business plan. There are no assurances, however, that weit will be successful in these endeavors.

Off-Balance Sheet Arrangements

We doThe Company does not have anyoff-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 expenses during the reporting period. Actual results could differ from those estimates.

We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.

We follow the provisions of FASB ASC815-Derivatives and Hedging (“ASC 815”), FASB ASC480-Distinguishing liabilities from equity (“ASC 480”), ASC470- Debt and debt with conversion and other options (“ASC 470”). We have issued instruments that meet the criteria of derivative liabilities. Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variable (e.g., contingent cash settlement provision), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. We have induced conversion of certain instruments with bifurcated conversion options. We have followed the general extinguishment model to record certain conversion and the extinguishment of derivative liabilities. We utilized a Binomial Lattice Model to value the conversion options, which utilizes assumptions that market participants would likely consider in negotiating the transfer of the convertible options, including early conversions. The assumptions in the model are subject to estimates and judgement.

We value inventory at the lower of cost or net realizable value using the average cost method. Inventories currently consist solely of specialized raw materials to be used for commercial production of the Company’s biologic, leronlimab, which is awaiting regulatory approval. Inventory purchased in preparation for product launches is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory, in light of the status of the product within the regulatory approval process. The Company evaluates its inventory levels on a quarterly basis and writes down inventory that has become obsolete, or has a cost in excess of its expected net realizable value, and inventory quantities in excess of expected requirements. In assessing the lower of cost or net realizable value to pre-launch inventory, the Company relies on independent analysis provided by a third-party knowledgeable of the range of likely commercial prices comparable to current comparable commercial product.

We capitalize 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 we have determined it is probable that these capitalized costs will provide some 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 the compilation of the regulatory application. We closely monitor the status of the product within the regulatory review and approval process, including all relevant communication with regulatory authorities. If we are 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.

For inventories we capitalize in preparation of product launch anticipated future sales, shelf lives, and expected approval date are taken into account when evaluating realizability. The shelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize pre-launch inventory, the Company considers the product stability data of all of the pre-approval inventory procured or produced to date to determine whether it has an adequate shelf life.

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 periodically issue stock options and warrants 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.

We have historically issued convertible promissory notes with detachable warrants to purchase common stock. The conversion options are fixed, but may be beneficial to the note holders at the respective commitment dates. The valuation of the beneficial conversion feature of the notes and of the warrants gives rise to the recognition of a debt discount, which requires the use of certain assumptions inherent in the Black-Scholes option pricing model, including various judgments and estimates.

As discussed in Notes 8 and 9 to the consolidated financial statements, we have significant license and contingent milestone and royalty liabilities. We must estimate the likelihood of paying these contingent liabilities periodically based on the progress of our clinical trials.

 

Item 7A.

Quantitative and Qualitative Disclosure about Market Risk

48

As a smaller reporting company we are not required to provide the information required by this Item.


Item 8.

Financial Statements and Supplementary Data.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

CytoDyn Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CytoDyn Inc. (the Company) as of May 31, 20192020 and 20182019 and the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended May 31, 2019,2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 14, 2019, expressed an unqualified opinion.

The Company’s Ability to Continue as a Going Concern

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 approximately $56,187,000$124,403,000 for the year ended May 31, 20192020 and has an accumulated deficit of approximately $229,363,000$354,711,000 through May 31, 2019,2020, which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Warren Averett, LLC

We have served as the Company’s auditor since 2007.

Birmingham, Alabama

August 14, 2019

502020


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of CytoDyn Inc.

Opinion on Internal Control over Financial Reporting

We have audited CytoDyn Inc.’s (the Company’s) internal control over financial reporting as of May 31, 2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related consolidated statements of operations, changes in stockholders’ (deficit) equity, and cash flows of the Company, and our report dated August 14, 2019, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Warren Averett, LLC

Birmingham, Alabama

August 14, 2019

51


CytoDyn Inc.

Consolidated Balance Sheets

 

  May 31, 2019 May 31, 2018   May 31, 2020 May 31, 2019 

Assets

      

Current assets:

      

Cash

  $2,612,910  $1,231,445   $14,281,830  $2,612,910 

Restricted cash

   853,599   —      10,000  853,599 

Inventories

   19,146,678   —   

Miscellaneous receivables

   90,824   —      —    90,824 

Prepaid expenses

   107,211  227,173    498,005  107,211 

Prepaid service fees

   1,704,876  1,862,009    2,890,519  1,704,876 
  

 

  

 

   

 

  

 

 

Total current assets

   5,369,420  3,320,627    36,827,032  5,369,420 

Furniture and equipment, net

   29,251  11,228 

Operating lease right-of-use assets

   175,743   —   

Property, plant and equipment

   55,488  29,251 

Intangibles, net

   15,475,454  1,567,143    13,455,872  15,475,454 
  

 

  

 

   

 

  

 

 

Total assets

  $20,874,125  $4,898,998   $50,514,135  $20,874,125 
  

 

  

 

 
  

 

  

 

 

Liabilities and Stockholders’ (Deficit) Equity

      

Current liabilities:

      

Accounts payable

  $16,239,434  $15,841,859   $29,479,313  $16,239,434 

Accrued liabilities and compensation

   1,588,552  757,778    6,866,003  1,588,552 

Accrued license fees

   208,600  133,600    12,500  208,600 

Accrued interest on convertible notes

   212,777   —      292,178  212,777 

Accrued dividends on Series C convertible preferred stock

   37,351   —   

Accrued dividends on convertible preferred stock

   981,438  37,351 

Convertible notes payable, net

   3,586,035   —      —    3,586,035 

Current portion of operating leases payable

   114,790   —   

Current portion of long-term convertible notes payable

   4,200,000   —      6,744,444  4,200,000 

Warrant tender offer proceeds held in trust

   853,599   —   

Warrant exercise proceeds held in trust

   10,000  853,599 
  

 

  

 

   

 

  

 

 

Total current liabilities

   26,926,348  16,733,237    44,500,666  26,926,348 
  

 

  

 

 

Long-term liabilities:

      

Convertible notes payable, net

   454,568   —      8,430,556  454,568 

Operating lease liability

   63,391   —   

Derivative liability

   2,407,269  1,323,732    —    2,407,269 
  

 

  

 

   

 

  

 

 

Total long-term liabilities

   2,861,837  1,323,732    8,493,947  2,861,837 
  

 

  

 

   

 

  

 

 

Total liabilities

   29,788,185  18,056,969    52,994,613  29,788,185 

Commitments and Contingencies

   —     —   

Stockholders’ (Deficit) Equity

   
  

 

  

 

 

Commitments and Contingencies (Note 10)

   

Stockholders’ (Deficit) equity

   

Preferred Stock, $0.001 par value; 5,000,000 shares authorized

      

Series C convertible preferred stock, $0.001 par value; 5,000 shares authorized; 3,246 issued and outstanding at May 31, 2019

   3   —   

Series B convertible preferred stock, $0.001 par value; 400,000 shares authorized, 92,100 shares issued and outstanding at May 31, 2019 and May 31, 2018, respectively

   92  92 

Common stock, $0.001 par value; 700,000,000 and 375,000,000 shares authorized, 329,554,763 and 216,881,790 issued and 329,395,752 and 216,722,779 outstanding at May 31, 2019 and May 31, 2018, respectively

   329,555  216,881 

Series D convertible preferred stock, $0.001 par value; 11,737 authorized; 8,452 and 0 issued and outstanding at May 31, 2020 and May 31, 2019, respectively

   8   —   

Series C convertible preferred stock, $0.001 par value; 8,203 authorized; 8,203 and 3,246 issued and outstanding at May 31, 2020 and May 31, 2019, respectively

   8  3 

Series B convertible preferred stock, $0.001 par value; 400,000 shares authorized, 92,100 shares issued and outstanding at May 31, 2020 and May 31, 2019, respectively

   92  92 

Common stock, $0.001 par value; 700,000,000 shares authorized, 519,261,580 and 329,554,763 issued and 518,975,572 and 329,395,752 outstanding at May 31, 2020 and May 31, 2019, respectively

   519,262  329,555 

Additionalpaid-in capital

   220,119,856  159,764,611    351,711,333  220,119,856 

Accumulated (deficit)

   (229,363,407 (173,139,396   (354,710,895 (229,363,407

Less: treasury stock, at par (159,011 shares at $0.001)

   (159 (159

Less: treasury stock, $.001 par value (286,008 and 159,011 shares at May 31, 2020 and May 31, 2019, respectively)

   (286 (159
  

 

  

 

   

 

  

 

 

Total stockholders’ (deficit)

   (8,914,060 (13,157,971   (2,480,478 (8,914,060
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ (deficit) equity

  $20,874,125  $4,898,998 

Total liabilities and stockholders' (deficit) equity

  $50,514,135  $20,874,125 
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

52


CytoDyn Inc.

Consolidated Statements of Operations

 

  Years ended May 31, 
  2019 2018 2017   May 31, 2020 May 31, 2019 May 31, 2018 

Operating expenses:

        

General and administrative

  $12,116,743  $7,340,605  $6,758,606   $19,972,804  $12,116,743  $7,340,605 

Research and development

   42,490,144  38,222,580  20,205,743    52,639,981  42,490,144  38,222,580 

Amortization and depreciation

   1,245,167  356,128  366,385    2,034,440  1,245,167  356,128 
  

 

  

 

  

 

   

 

  

 

  

 

 

Total operating expenses

   55,852,054  45,919,313  27,330,734    74,647,225  55,852,054  45,919,313 
  

 

  

 

  

 

 

Operating loss

   (55,852,054 (45,919,313 (27,330,734   (74,647,225 (55,852,054 (45,919,313

Other income (expense):

        

Other income

   500,000   —     —   

Interest income

   4,306  3,620  15,167    5,318  4,306  3,620 

Change in fair value of derivative liability

   1,666,469  1,690,935  2,164,533 

Loss on extinguishment of convertible notes

   (1,519,603  —     —   

Change in fair value of derivative liabilities

   (9,541,704 1,666,469  1,690,935 

Loss on extinguishment of convertible note

   —    (1,519,603  —   

Legal settlement

   (22,500,000  —     —   

Interest expense:

        

Finance charges

   (935,630  —     —   

Amortization of discount on convertible notes

   (1,707,068 (1,666,017  —      (1,644,625 (1,707,068 (1,666,017

Amortization of debt issuance costs

   (459,085 (435,609  —      (404,340 (459,085 (435,609

Interest related to derivative liability

   —     —    (540,330

Inducement interest related to warrant tender offer

   (195,927 (393,685  —   

Inducement interest related to warrant extension

   —    (826,252 (72,437

Inducement interest related to convertible notes

   —    (2,352,045  —   

Interest on convertible notes payable

   (950,617 (251,315  —   

Inducement interest

   (7,904,353 (195,927 (3,571,982

Interest on convertible note payable

   (7,330,843 (950,617 (251,315
  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest expense

   (3,312,697 (5,924,923 (612,767   (18,219,791 (3,312,697 (5,924,923
  

 

  

 

  

 

 

Loss before income taxes

   (59,013,579 (50,149,681 (25,763,801   (124,403,402 (59,013,579 (50,149,681

Income tax benefit

   2,826,919   —     —      —    2,826,919   —   
  

 

  

 

  

 

   

 

  

 

  

 

 

Net loss

  $(56,186,660)  $(50,149,681 $(25,763,801  $(124,403,402 $(56,186,660 $(50,149,681
  

 

  

 

  

 

   

 

  

 

  

 

 

Basic and diluted loss per share

  $(0.21 $(0.29 $(0.19  $(0.30 $(0.21 $(0.29
  

 

  

 

  

 

   

 

  

 

  

 

 

Basic and diluted weighted average common shares outstanding

   272,040,933  174,885,422  138,004,461    421,077,605  272,040,933  174,885,422 
  

 

  

 

  

 

   

 

  

 

  

 

 

See accompanying notes to consolidated financial statements.

53


CytoDyn Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

 

  Preferred Stock Common Stock   Treasury Stock   Preferred Stock   Common Stock   Treasury Stock 
  Shares Amount Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount 

Balance May 31, 2016

   95,100  $95  123,335,634   $123,336    —     $—   

Interest expense related to warrant extension

   —     —     —      36    —      —   

Stock-based compensation

   —     —     —      —      —      —   

Legal fees in connection with registered offerings

   —     —     —      —      —      —   

Proceeds from private equity offering ($1.00/share)

   —     —    729,500    730    —      —   

Proceeds from registered direct offering ($0.75/share)

    24,538,994    24,539    —      —   

Offering costs related to equity offering

   —     —     —      —      —      —   

Debt discount related to convertible notes payable

   —     —     —      —      —      —   

Conversion of Series B Convertible Preferred ($0.50/share)

   (3,000 (3 40,602    3    —      —   

Proceeds from warrant exercise ($0.50/share)

   —     —    730,765    730    —      —   

Proceeds from warrant exercise ($0.75/share)

   —     ��    43,332    44    —      —   

Cashless exercise of warrants

   —     —    49,417    50    —      —   

Net (loss) for the year ended May 31, 2017

          
  

 

  

 

  

 

   

 

   

 

   

 

 

Balance May 31, 2017

   92,100  $92  149,468,244   $149,468    —     $—      92,100   $92    149,468,244   $149,468    —     $—  
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Stock-based compensation

   —     —     —      —      —      —      —      —      —      —      —      —   

Stock issued for board compensation

   —     —     —      —      —      —      —      —      —      —      —      —   

Stock issued for bonuses and tendered for income tax

   —     —    310,526    311    159,011    (159   —      —      310,526    311    159,011    (159

Proceeds from private equity offering ($0.50/share)

   —     —    35,286,904    35,286    —      —      —      —      35,286,904    35,286    —      —   

Offering costs related to private equity offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Proceeds from registered direct offering ($0.50/share)

   —     —    25,493,853    25,494    —      —      —      —      25,493,853    25,494    —      —   

Offering costs related to registered direct offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Legal fees in connection with equity offerings

   —     —     —      —      —      —      —      —      —      —      —      —   

Proceeds from warrant exercise ($0.50/share)

   —     —    6,322,263    6,322    —      —      —      —      6,322,263    6,322    —      —   

Offering costs related to warrant tender offer

   —     —     —      —      —      —      —      —      —      —      —      —   

Debt discount related to convertible notes payable

   —     —     —      —      —      —      —      —      —      —      —      —   

Interest expense related to warrant extension

   —     —     —      —      —      —      —      —      —      —      —      —   

Interest expense realted to warrant tender offer

   —     —     —      —      —      —   

Interest expense related to warrant tender offer

   —      —      —      —      —      —   

Interest expense related to conversion of notes payable

   —     —     —      —      —      —      —      —      —      —      —      —   

Net (loss) for the year ended May 31, 2018

                      
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance May 31, 2018

   92,100  $92  216,881,790   $216,881    159,011   $(159   92,100   $92    216,881,790   $216,881    159,011   $(159
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Acquisition of ProstaGene LLC

   —     —    18,658,000    18,658    —      —      —      —      18,658,000    18,658    —      —   

Issuance of stock payment shares

   —     —    8,342,000    8,342    —      —      —      —      8,342,000    8,342    —      —   

Issuance of stock for note payable redemption

   —     —    3,756,406    3,757    —      —      —      —      3,756,406    3,757    —      —   

Proceeds from registered direct offering ($0.50/share)

   —     —    23,629,480    23,629    —      —      —      —      23,629,480    23,629    —      —   

Offering costs related to registered direct offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Proceeds from private equity offering ($0.50/share)

   —     —    46,975,170    46,976    —      —      —      —      46,975,170    46,976    —      —   

Offering costs related to private equity offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Offering costs related to debt offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Debt discount and issuance costs related to offering

   —     —     —      —      —      —      —      —      —      —      —      —   

Beneficial conversion feature on note payable and relative fair value associated with warrants

   —     —     —      —      —      —      —      —      —      —      —      —   

Proceeds from private warrant exchange

   —     —    11,311,917    11,312    —      —      —      —      11,311,917    11,312    —      —   

Offering costs related to private warrant exchange

   —     —     —      —      —      —      —      —      —      —      —      —   

Inducement interest expense on private warrant exchange

   —     —     —      —      —      —      —      —      —      —      —      —   

Proceeds from Series C Convertible Preferred offering

   3,246  3   —      —      —      —      3,246    3    —      —      —      —   

Dividends on Series C Convertible Preferred shares

   —     —     —      —      —      —      —      —      —      —      —      —   

Legal fees in connection with equity offerings

   —     —     —      —      —      —      —      —      —      —      —      —   

Stock-based compensation

   —     —     —      —      —      —      —      —      —      —      —      —   

Net (loss) for the year ended May 31, 2019

                      
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance May 31, 2019

   95,346  95  329,554,763    329,555    159,011    (159   95,346   $95    329,554,763   $329,555    159,011   $(159
  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

54See accompanying notes to consolidated financial statements.


CytoDyn Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

 

   Additional
Paid-In Capital
  Accumulated
Deficit
  Total 

Balance May 31, 2016

  $107,307,933  $(97,225,914 $10,205,450 

Interest expense related to warrant extension

   72,398   —     72,434 

Stock-based compensation

   1,204,791   —     1,204,791 

Legal fees in connection with registered offerings

   (280,883  —     (280,883

Proceeds from private equity offering ($1.00/share)

   728,770   —     729,500 

Proceeds from registered direct offering ($0.75/share)

   14,019,713   —     14,044,252 

Offering costs related to equity offering

   (1,804,249  —     (1,804,249

Debt discount related to convertible notes payable

   91,389   —     91,389 

Conversion of Series B Convertible Preferred ($0.50/share)

   —     —     —   

Proceeds from warrant exercise ($0.50/share)

   364,653   —     365,383 

Proceeds from warrant exercise ($0.75/share)

   32,456   —     32,500 

Cashless exercise of warrants

   (50  —     —   

Net (loss) for the year ended May 31, 2017

   —     (25,763,801  (25,763,801
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2017

  $121,736,921  $(122,989,715 $(1,103,234
  

 

 

  

 

 

  

 

 

 

Stock-based compensation

   1,290,777   —     1,290,777 

Stock issued for board compensation

   260,190   —     260,190 

Stock issued for bonuses and tendered for income tax

   104,394   —     104,546 

Proceeds from private equity offering ($0.50/share)

   17,608,165   —     17,643,451 

Offering costs related to private equity offering

   (1,717,597  —     (1,717,597

Proceeds from registered direct offering ($0.50/share)

   13,585,925   —     13,611,419 

Offering costs related to registered direct offering

   (857,149  —     (857,149

Legal fees in connection with equity offerings

   (533,436  —     (533,436

Proceeds from warrant exercise ($0.50/share)

   3,154,809   —     3,161,131 

Offering costs related to warrant tender offer

   (85,381  —     (85,381

Debt discount related to convertible notes payable

   1,645,011   —     1,645,011 

Interest expense related to warrant extension

   826,252   —     826,252 

Interest expense realted to warrant tender offer

   393,685   —     393,685 

Interest expense related to conversion of notes payable

   2,352,045   —     2,352,045 

Net (loss) for the year ended May 31, 2018

   —     (50,149,681  (50,149,681
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2018

  $159,764,611  $(173,139,396 $(13,157,971
  

 

 

  

 

 

  

 

 

 

Acquisition of ProstaGene LLC

   11,539,342   —     11,558,000 

Issuance of stock payment shares

   (8,342  —     —   

Issuance of stock for note payable redemption

   1,451,243   —     1,455,000 

Proceeds from registered direct offering ($0.50/share)

   11,791,110   —     11,814,739 

Offering costs related to registered direct offering

   (1,129,516  —     (1,129,516

Proceeds from private equity offering ($0.50/share)

   23,440,608   —     23,487,584 

Offering costs related to private equity offering

   (2,697,149  —     (2,697,149

Offering costs related to debt offering

   260,636   —     260,636 

Debt discount and issuance costs related to offering

   3,059,159   —     3,059,159 

Beneficial conversion feature on note payable and relative fair value associated with warrants

   3,534,992   —     3,534,992 

Proceeds from private warrant exchange

   2,955,200   —     2,966,512 

Offering costs related to private warrant exchange

   (266,986  —     (266,986

Inducement interest expense on private warrant exchange

   195,927   —     195,927 

Proceeds from Series C Convertible Preferred offering

   3,083,697   —     3,083,700 

Dividends on Series C Convertible Preferred shares

   —     (37,351  (37,351

Legal fees in connection with equity offerings

   (242,771  —     (242,771

Stock-based compensation

   3,388,095   —     3,388,095 

Net (loss) for the year ended May 31, 2019

   —     (56,186,660  (56,186,660
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2019

   220,119,856   (229,363,407  (8,914,060
  

 

 

  

 

 

  

 

 

 
   Preferred Stock   Common Stock   Treasury Stock 
   Shares   Amount   Shares   Amount   Shares   Amount 

Issuance of stock for note payable redemptions and conversions

   —     $—      22,967,227   $22,967    —     $—   

Note conversion and extension fees

   —      —      8,232,006    8,232    —      —   

Proceeds from registered direct offering

   —      —      38,856,094    38,857    —      —   

Offering costs related to registered direct offering

   —      —      —      —      —      —   

Proceeds from warrant exercises

   —      —      42,023,872    42,024    —      —   

Relative fair market value associated with warrants exercised

   —      —      —      —      —      —   

Proceeds from public warrant tender offers

   —      —      45,375,923    45,376    —      —   

Offering costs related to public warrant tender offers

   —      —      —      —      —      —   

Inducement interest expense—tender offers and debt conversions

   —      —      —      —      —      —   

Proceeds from private warrant exchange

   —      —      20,528,745    20,527    —      —   

Offering costs related to private warrant exchange

   —      —      —      —      —      —   

Inducement interest expense—private warrant exchange

   —      —      —      —      —      —   

Proceeds from Series C Preferred offering

   4,957    5    —      —      —      —   

Offering costs related to Series C Preferred offering

   —      —      —      —      —      —   

Exercise of option to repurchase common stock

   —      —      —      —      —      —   

Dividends on Series C Preferred shares

   —      —      —      —      —      —   

Proceeds from Series D Preferred offering

   8,452    8    —      —      —      —   

Offering costs related to Series D Preferred offering

   —      —      —      —      —      —   

Dividends on Series D Preferred shares

   —      —      —      —      —      —   

Legal fees in connection with equity offerings

   —      —      —      —      —      —   

Stock issued for services

   —      —      2,620,000    2,620    —      —   

Stock issued for bonuses and tendered for income tax

   —      —      379,880    380    126,997    (127

Exercise of stock options

   —      —      8,723,070    8,724    —      —   

Stock-based compensation

   —      —      —      —      —      —   

Legal settlement

   —      —      —      —      —      —   

Net Loss for May 31, 2020

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance May 31, 2020

   108,755   $108    519,261,580   $519,262    286,008   $(286
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

55statements.


CytoDyn Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

   Additional
Paid-In

Capital
  Accumulated
Deficit
  Total 

Balance May 31, 2017

  $121,736,921  $(122,989,715 $(1,103,234

Stock-based compensation

   1,290,777   —     1,290,777 

Stock issued for board compensation

   260,190   —     260,190 

Stock issued for bonuses and tendered for income tax

   104,394   —     104,546 

Proceeds from private equity offering ($0.50/share)

   17,608,165   —     17,643,451 

Offering costs related to private equity offering

   (1,717,597  —     (1,717,597

Proceeds from registered direct offering ($0.50/share)

   13,585,925   —     13,611,419 

Offering costs related to registered direct offering

   (857,149  —     (857,149

Legal fees in connection with equity offerings

   (533,436  —     (533,436

Proceeds from warrant exercise ($0.50/share)

   3,154,809   —     3,161,131 

Offering costs related to warrant tender offer

   (85,381  —     (85,381

Debt discount related to convertible notes payable

   1,645,011   —     1,645,011 

Interest expense related to warrant extension

   826,252   —     826,252 

Interest expense related to warrant tender offer

   393,685   —     393,685 

Interest expense related to conversion of notes payable

   2,352,045   —     2,352,045 

Net (loss) for the year ended May 31, 2018

   —     (50,149,681  (50,149,681
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2018

  $159,764,611  $(173,139,396 $(13,157,971
  

 

 

  

 

 

  

 

 

 

Acquisition of ProstaGene LLC

   11,539,342   —     11,558,000 

Issuance of stock payment shares

   (8,342  —     —   

Issuance of stock for note payable redemption

   1,451,243   —     1,455,000 

Proceeds from registered direct offering ($0.50/share)

   11,791,110   —     11,814,739 

Offering costs related to registered direct offering

   (1,129,516  —     (1,129,516

Proceeds from private equity offering ($0.50/share)

   23,440,608   —     23,487,584 

Offering costs related to private equity offering

   (2,697,149  —     (2,697,149

Offering costs related to debt offering

   260,636   —     260,636 

Debt discount and issuance costs related to offering

   3,059,159   —     3,059,159 

Beneficial conversion feature on note payable and relative fair value associated with warrants

   3,534,992   —     3,534,992 

Proceeds from private warrant exchange

   2,955,200   —     2,966,512 

Offering costs related to private warrant exchange

   (266,986  —     (266,986

Inducement interest expense on private warrant exchange

   195,927   —     195,927 

Proceeds from Series C Convertible Preferred offering

   3,083,697   —     3,083,700 

Dividends on Series C Convertible Preferred shares

   —     (37,351  (37,351

Legal fees in connection with equity offerings

   (242,771  —     (242,771

Stock-based compensation

   3,388,095   —     3,388,095 

Net (loss) for the year ended May 31, 2019

   —     (56,186,660  (56,186,660
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2019

  $220,119,856  $(229,363,407 $(8,914,060
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

CytoDyn Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

   Additional
Paid-In Capital
  Accumulated
Deficit
  Total 

Issuance of stock for note payable redemptions and conversions

  $10,799,221  $—    $10,822,188 

Note conversion and extension fees

   3,890,973   —     3,899,205 

Proceeds from registered direct offering

   12,626,942   —     12,665,799 

Offering costs related to registered direct offering

   (377,859  —     (377,859

Proceeds from warrant exercises

   20,458,091   —     20,500,115 

Relative fair market value associated with warrants exercised

   11,948,972   —     11,948,972 

Proceeds from public warrant tender offers

   11,854,884   —     11,900,260 

Offering costs related to public warrant tender offers

   (1,058,466  —     (1,058,466

Inducement interest expense—tender offers and debt conversions

   2,713,014   —     2,713,014 

Proceeds from private warrant exchange

   6,000,566   —     6,021,093 

Offering costs related to private warrant exchange

   (197,253  —     (197,253

Inducement interest expense—private warrant exchange

   5,191,338   —     5,191,338 

Proceeds from Series C Preferred offering

   4,956,995   —     4,957,000 

Offering costs related to Series C Preferred offering

   (432,368  —     (432,368

Exercise of option to repurchase common stock

   (8,342  —     (8,342

Dividends on Series C Preferred shares

   —     (671,971  (671,971

Proceeds from Series D Preferred offering

   8,451,992   —     8,452,000 

Offering costs related to Series D Preferred offering

   (4,645  —     (4,645

Dividends on Series D Preferred shares

      (272,115  (272,115

Legal fees in connection with equity offerings

   (15,877  —     (15,877

Stock issued for services

   (2,620  —     —   

Stock issued for bonuses and tendered for income tax

   154,299   —     154,552 

Exercise of stock options

   5,593,817   —     5,602,541 

Stock-based compensation

   6,547,803   —     6,547,803 

Legal settlement

   22,500,000   —     —   

Net Loss for May 31, 2020

   —     (124,403,402  (124,403,402
  

 

 

  

 

 

  

 

 

 

Balance May 31, 2020

  $351,711,333  $(354,710,895 $(2,480,478
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

CytoDyn Inc.

Consolidated Statements of Cash Flows

 

   Years ended May 31, 
   2019  2018  2017 

Cash flows from operating activities:

    

Net loss

  $(56,186,660 $(50,149,681 $(25,763,801

Adjustments to reconcile net loss to net cash used in operating activities:

    

Amortization and depreciation

   1,245,167   356,128   366,385 

Amortization of debt issuance costs

   459,085   435,609   —   

Amortization of discount on convertible notes

   1,707,068   1,666,017   —   

Loss on extinguishment of convertible notes

   1,519,603   —     —   

Deferred income tax benefit

   (2,826,919  —     —   

Inducement interest expense

   195,927   —     72,437 

Interest expense associated with warrant extension

   —     826,252   —   

Interest expense association with warrant tender offer

   —     393,685   —   

Interest expense associated with conversion of notes

   —     2,352,045   —   

Interest expense associated with derivative liability

   —     —     540,330 

Interest expense associated with accretion of convertible notes payable

   512,594   —     —   

Change in fair value of derivative liability

   (1,666,469  (1,690,935  (2,164,533

Stock-based compensation

   3,388,095   1,290,777   1,204,791 

Changes in current assets and liabilities:

    

Decrease (increase) in miscellaneous receivables

   (90,824  —     —   

Decrease (increase) in prepaid expenses

   (464,201  2,256,173   (2,492,789

Increase (decrease) in accounts payable and accrued expenses

   1,741,370   12,365,959   1,504,712 
  

 

 

  

 

 

  

 

 

 

Net cash used in operating activities

   (50,466,164  (29,897,971  (26,732,468
  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

    

Furniture and equipment purchases

   (25,731  —     (11,114

Intangibles

   (19,553  —     —   
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (45,284  —     (11,114
  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

    

Proceeds from sale of common stock and warrants

   38,268,839   25,224,212   19,133,755 

Proceeds from sale of preferred stock

   3,083,700   —     —   

Proceeds from warrant exercises

   —     3,161,131   397,883 

Proceeds from convertible notes payable

   15,460,000   4,888,500   1,150,000 

Payment of offering costs

   (4,336,426  (3,558,789  (1,804,249

Payment of debt issuance costs

   (583,200  —     —   

Payment of payroll taxes related to tender of common stock

    

for income tax withholding

   —     (102,064  —   

Repayment of principal and interest on convertible note

   —     (259,157  —   

Proceeds from warrant tender offer in process—held in trust

   853,599   —     —   
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   52,746,512   29,353,833   18,877,389 
  

 

 

  

 

 

  

 

 

 

Net change in cash

   2,235,064   (544,138  (7,866,193

Cash, beginning of period

   1,231,445   1,775,583   9,641,776 
  

 

 

  

 

 

  

 

 

 

Cash, end of period

  $3,466,509  $1,231,445  $1,775,583 
  

 

 

  

 

 

  

 

 

 

56


CytoDyn Inc.

Consolidated Statements of Cash Flows

   Years ended May 31, 
   2019   2018   2017 

Supplemental disclosure of cash flow information:

      

Cash paid during the period for interest

   —     $9,157    —   
  

 

 

   

 

 

   

 

 

 

Non-cash investing and financing transactions:

      

Accrued interest converted into note payable

  $225,245    —      —   
  

 

 

   

 

 

   

 

 

 

Accrued dividends on Series C Convertible Preferred stock

  $37,351    —      —   
  

 

 

   

 

 

   

 

 

 

Common stock issued for acquisition of ProstaGene LLC

  $11,558,000    —      —   
  

 

 

   

 

 

   

 

 

 

Derivative liability associated with convertible notes payable

  $2,750,006    —      —   
  

 

 

   

 

 

   

 

 

 

Beneficial conversion feature and fair value of warrant issued with note payable

  $3,534,992    —      —   
  

 

 

   

 

 

   

 

 

 

Debt discount associated with convertible notes payable

  $3,059,159   $1,574,628   $91,389 
  

 

 

   

 

 

   

 

 

 

Financing costs associated with investor warrants

   —      —     $819,200 
  

 

 

   

 

 

   

 

 

 

Common stock issued in connection with an employment agreement

  $8,342    —      —   
  

 

 

   

 

 

   

 

 

 

Common stock issued for accrued bonus compensation

   —     $214,263    —   
  

 

 

   

 

 

   

 

 

 

Common stock issued for board compensation

   —     $260,190    —   
  

 

 

   

 

 

   

 

 

 

Common stock issued for conversion redemption

  $1,455,000    —      —   
  

 

 

   

 

 

   

 

 

 

Common stock issued upon conversion of convertible debt

   —     $5,788,500    —   
  

 

 

   

 

 

   

 

 

 

Common stock issued for accrued interest payable

   —     $242,158    —   
  

 

 

   

 

 

   

 

 

 

Financing costs associated with placement agent warrants

  $260,636   $70,383    —   
  

 

 

   

 

 

   

 

 

 

Derivative liability associated with warrants

   —      —     $5,179,200 
  

 

 

   

 

 

   

 

 

 
   Year Ended 
   May 31, 2020  May 31, 2019  May 31, 2018 

Cash flows from operating activities:

    

Net loss

  $(124,403,402 $(56,186,660 $(50,149,681

Adjustments to reconcile net loss to net cash used by operating activities:

    

Amortization and depreciation

   2,034,440   1,245,167   356,128 

Amortization of debt issuance costs

   404,340   459,085   435,609 

Amortization of discount on convertible notes

   1,644,625   1,707,068   1,666,017 

Legal settlement

   22,500,000   —     —   

Inducement interest

   7,904,353   195,927   —   

Interest expense associated with warrant extension

   —     —     826,252 

Interest expense associated with warrant tender offer

   —     —     393,685 

Interest expense associated with conversion of notes

   —     —     2,352,045 

Interest expense associated with accretion of convertible notes payable

   6,615,146   512,594   —   

Change in fair value of derivative liabilities

   9,541,704   (1,666,469  (1,690,935

Stock-based compensation

   6,547,803   3,388,095   1,290,777 

Loss on extinguishment of convertible note

   —     1,519,603   —   

Deferred income tax benefit

   —     (2,826,919  —   

Changes in current assets and liabilities:

    

(Increase) in inventories

   (19,146,678  —     —   

Decrease in miscellaneous receivables

   90,824   (90,824  —   

Decrease (increase) in prepaid expenses

   (1,576,437  (464,201  2,256,173 

Increase (decrease) in accounts payable and accrued expenses

   19,039,667   1,741,370   12,365,959 
  

 

 

  

 

 

  

 

 

 

Net cash used in operating activities

   (68,803,615  (50,466,164  (29,897,971
  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

    

Intangibles

   —     (19,553  —   

Furniture and equipment purchases

   (41,095  (25,731  —   
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (41,095  (45,284  —   
  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

    

Proceeds from sale of common stock and warrants

   12,665,799   38,268,839   25,224,212 

Proceeds from sale of preferred stock

   13,409,000   3,083,700   —   

Proceeds from stock option excercises

   5,602,541   —     —   

Proceeds from warrant exercises

   38,421,468   —     3,161,131 

Principal paid on maturity of short-term convertible notes

   (460,000  —     —   

Convertible note redemptions paid in cash

   (1,725,000  —     —   

Exercise of option to repurchase shares held in escrow

   (8,342  —     —   

Payment of bonuses and payroll taxes related to tender of common stock for income tax withholding

   (88,568  —     (102,064

(Release) proceeds of funds held in trust for warrant tender offer

   (843,599  853,599   —   

Proceeds from convertible note payable, net

   15,000,000   15,460,000   4,888,500 

Payment of debt issuance costs

   —     (583,200  —   

Repayment of principal and interest on convertible note

   —     —     (259,157

Payment of offering costs

   (2,303,268  (4,336,426  (3,558,789
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   79,670,031   52,746,512   29,353,833 
  

 

 

  

 

 

  

 

 

 

Net change in cash

   10,825,321   2,235,064   (544,138

Cash, beginning of period

   3,466,509   1,231,445   1,775,583 
  

 

 

  

 

 

  

 

 

 

Cash, end of period

  $14,291,830  $3,466,509  $1,231,445 
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

57

   Year Ended 
   May 31, 2020   May 31, 2019   May 31, 2018 

Supplemental disclosure of cash flow information:

 

Cash paid during the period for interest

  $242,817   $—     $9,157 
  

 

 

   

 

 

   

 

 

 

Non-cash investing and financing transactions:

 

Derivative liability associated with warrants

  $11,948,972   $—     $—   
  

 

 

   

 

 

   

 

 

 

Common stock issued for accrued bonus compensation

  $154,552   $—     $214,263 
  

 

 

   

 

 

   

 

 

 

Accrued dividends on Series D Convertible Preferred stock

  $272,115   $—     $—   
  

 

 

   

 

 

   

 

 

 

Common stock issued for services

  $2,620   $8,342   $260,190 
  

 

 

   

 

 

   

 

 

 

Accrued dividends on Series C Convertible Preferred stock

  $671,971   $37,351   $—   
  

 

 

   

 

 

   

 

 

 

Issuance of stock for note payable redemption and conversions

  $14,938,193   $1,455,000   $5,788,500 
  

 

 

   

 

 

   

 

 

 

Accrued interest converted into note payable

  $153,876   $225,245   $—   
  

 

 

   

 

 

   

 

 

 

Common stock issued for acquisition of ProstaGene, LLC

  $—     $11,558,000   $—   
  

 

 

   

 

 

   

 

 

 

Beneficial conversion feature and fair value of warrant issued with note payable

  $—     $3,534,992   $—   
  

 

 

   

 

 

   

 

 

 

Debt discount associated with convertible notes payable

  $—     $3,059,159   $1,574,628 
  

 

 

   

 

 

   

 

 

 

Derivative liability associated with a convertible note payable

  $—     $2,750,006   $—   
  

 

 

   

 

 

   

 

 

 

Financing costs associated with placement agent warrants

  $—     $260,635   $70,383 
  

 

 

   

 

 

   

 

 

 

Common stock issued for accrued interest payable

  $—     $—     $242,158 
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.


CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF MAY 31, 20192020

Note 1 – Organization

CytoDyn Inc. (the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002 under the name RexRay Corporation (its previous name) and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a clinical-stagelate-stage biotechnology company developing innovative treatments for multiple therapeutic indications based on leronlimab, a novel humanized monoclonal antibody targeting the CCR5 receptor. Leronlimab is in a class of therapeutic monoclonal antibodies designed to address unmet medical needs in the areas of Human Immunodeficiency Virus (“HIV”), Cancer, and Immunology.

With respect to HIV, the CCR5 receptor appears to play a key role in the ability of Human Immunodeficiency Virus (“HIV”)HIV to enter and infect healthyT-cells. The CCR5 receptor also appears to be implicated in human metastasis and in immune-mediated illnesses such asgraft-vs-host disease (“GvHD”) andNon-Alcoholic Steatohepatitis (“NASH”). The Company’s lead product candidate, leronlimab, belongs to a class of HIV therapies known as entry inhibitors. These therapies block HIV from entering into and infecting certain cells.

TheWith respect to Cancer and Immunology, the CCR5 receptor also appears to be implicated in human metastasis and in immune-mediated illnesses such as triple-negative breast cancer, other metastatic solid tumor cancers, graft-vs-host disease (“GvHD”), and Non-Alcoholic Steatohepatitis (“NASH”).

More recently, the Company has developed a class of therapeutic monoclonal antibodies to address unmet medical needs in the areas of HIV and GvHD. In addition, we areis expanding the clinical focus with leronlimab to include the evaluationevaluating its effectiveness in certain cancer and immunologicalmultiple other autoimmune indications where CCR antagonism has shown initial promise.promise, as well as the novel coronavirus disease (“COVID-19”). The Company targets leronlimab treatment as a therapy for patients who experience respiratory complications as a result of contracting COVID-19. The Company believes leronlimab provides therapeutic benefit by enhancing the immune response while mitigating the “cytokine storm” that leads to morbidity and mortality in patients experiencing this syndrome.

Note 2 – Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiaries, CytoDyn Operations Inc., Advanced Genetic Technologies, Inc. (“AGTI”) and CytoDyn Veterinary Medicine LLC (“CVM”), of which both AGTI and CVM are dormant entities. All intercompany transactions and balances are eliminated in consolidation.

Reclassifications

Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the 20192020 presentation. These reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities, total stockholders’ (deficit) equity, net loss or earnings per shares.

Going Concern

The consolidated 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 had losses for all periods presented. The Company incurred a net loss of $124,403,402, $56,186,660 $50,149,681 and $25,763,801$50,149,681 for the years ended May 31, 2019,2020, May 31, 2018,2019, and May 31, 2017,2018, respectively, and has an accumulated deficit of $229,363,407$354,710,895 as of May 31, 2019.2020. These factors, among several 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, obtain U.S. Food and Drug Administration (the “FDA”) approval, outsource manufacturing of the product candidate, and ultimately achieve initial revenues and attain profitability. The Company is currently engaging in significant research and development activities related to its product candidate, 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 largely from the sale of equity and debt securities, combined with additional funding from other traditional sources. There can be no assurance, however, that the Company will be successful in these endeavors.

Use of Estimates

The preparation of the consolidated financial statements in accordance with 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

Cash is maintained at federally insured financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced, nor does it expect to experience any losses related to these balances. Balances in excess of federally insured limits at May 31, 20192020 and May 31, 20182019 approximated $3.3$14.0 million and $1.1$3.3 million, respectively, which included restricted cash of approximately $0.0 million and $0.9 million, and$-0-,respectively.

58


Identified Intangible Assets

The Company follows the provisions of FASB ASC Topic 350 Intangibles-Goodwill and Other, which establishes accounting standards for the impairment of long-lived assets such as intangible assets subject to amortization. The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying value, the asset is considered impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. There were no impairment charges for the years ended May 31, 2019,2020, May 31, 2018,2019, and May 31, 2017.2018. The value of the Company’s patents would be significantly impaired by any adverse developments as they relate to the clinical trials pursuant to the patents acquired as discussed in Notes 7 and 9.Note 8.

Research and Development

Research and development costs are expensed as incurred. Clinical trial costs incurred through third partiesthird-parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third partiesthird-parties under research and development collaboration arrangements or other contractual agreements, the milestone payment obligations are expensed when the milestone conditions are probable and the amount of payment is reasonably estimable.

Pre-launch InventoryInventories

The Company mayscale-upvalues inventory at the lower of cost or net realizable value using the average cost method. Inventories currently consist solely of specialized raw materials to be used for commercial production of the

Company’s biologic, leronlimab, which is awaiting regulatory approval. Inventory purchased in preparation for product launches is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory, in light of the status of the product within the regulatory approval process. The Company evaluates its inventory levels on a quarterly basis and make commercial quantitieswrites down inventory that has become obsolete, or has a cost in excess of its expected net realizable value, and inventory quantities in excess of expected requirements. In assessing the lower of cost or net realizable value to pre-launch inventory, the Company relies on independent analysis provided by a third-party knowledgeable of the range of likely commercial prices of current comparable commercial product.

Inventories Procured or Produced in Preparation for Product Launches

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 some 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 date it anticipates that such product will receive final FDA approval.filing of regulatory applications, and the compilation of the regulatory application. Thescale-up and commercial production ofpre-launch inventories involves Company closely monitors the risk that such products may not be approved for commercial use by the FDA on a timely basis, or ever. This risk notwithstanding, the Company mayscale-up and buildpre-launch inventories of product that have not yet received final governmental approval when the Company believes that such action is appropriate in relation to the commercial valuestatus of the product within the regulatory review and approval process, including all relevant communication 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.

For inventories capitalized in preparation for product launch, opportunity.anticipated future sales, shelf lives, and expected approval date are taken into account when evaluating realizability. The determinationshelf-life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize is made once the Company (or its third party development partners) has filed a BLA, that has been acknowledged by the FDA as containing sufficient information to allow the FDA to conduct its review in an efficient and timely manner and management is reasonably certain that all regulatory and legal hurdles will be cleared. This determination is based on the particular facts and circumstances relating to the expected FDA approval of the drug product being considered. As of May 31, 2019 and May 31, 2018, the Company did not havepre-launch inventory, that qualified for capitalization pursuantthe Company considers the product stability data of all of the pre-approval inventory procured or produced to U.S. GAAP ASC 330 Inventory.date to determine whether it has an adequate shelf life.

Fair Value of Financial Instruments

At May 31, 20192020 and May 31, 2018,2019, the carrying value of the Company’s cash, accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of the instruments. The Company carries derivative financial instruments at fair value as required by U.S. GAAP.

Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variables (e.g., interest rate, security price, variable conversion rate or other variables), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. The Company follows the provisions of ASC 815, Derivatives and Hedging as their instruments are recorded as a derivative liability, at fair value, and ASC 480, Distinguishing Liabilities from Equity as it relates to warrant liability, with changes in fair value reflected in income.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived

valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also includenon-binding market market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. These Level 3 inputs also includenon-binding market market consensus prices ornon-binding broker broker quotes that the Company was unable to corroborate with observable market data.

59


Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of May 31, 20192020 and May 31, 20182019 is as follows:

 

  Fair Value Measurement at   Fair Value Measurement at 
  May 31, 2019 (1)   May 31, 2018 (1) 
  Using       Using       Fair Value Measurement at
May 31, 2020 (1)
   Fair Value Measurement at
May 31, 2019 (1)
 
  Level 3   Total   Level 3   Total   Using
Level 3
   Total   Using
Level 3
   Total 

Liabilities:

                

Derivative liability - convertible note redemption provision

  $—     $—     $2,005,137   $2,005,137 

Derivative liability - warrants

  $2,005,137   $2,005,137   $—     $—      —      —      402,132    402,132 

Derivative liability - convertible note redemption provision

   402,132    402,132    1,323,732    1,323,732 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total liability

  $2,407,269   $2,407,269   $1,323,732   $1,323,732   $—     $—     $2,407,269   $2,407,269 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of May 31, 20192020 and May 31, 2018.2019. As of May 31, 2020, there were no longer any assets or liabilities measured at fair value using Level 3 inputs because all derivative warrants and convertible debt had been converted according to the terms of the agreements.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. These instruments are not quoted on an active market. The Company uses a Binomial Lattice Model to estimate the value of the warrant derivative liability and a Monte Carlo Simulation to value the derivative liability of the redemption provision within a convertible promissory note. These valuation models were used because management believes they reflect all the assumptions that market participants would likely consider in negotiating the transfer of the instruments. The Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models.

The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from inception to May 31, 2019:2020:

 

Investor warrants issued with registered direct equity offering

  $4,360,000   $4,360,000 

Placement agent warrants issued with registered direct equity offering

   819,200    819,200 

Fair value adjustments

   (3,855,468   (3,855,468
  

 

   

 

 

Balance at May 31, 2018

   1,323,732    1,323,732 

Inception date value of redemption provisions

   2,750,006    2,750,006 

Fair value adjustments - convertible notes

   (744,869   (744,869

Fair value adjustments - warrants

   (921,600   (921,600
  

 

   

 

 

Balance at May 31, 2019

  $2,407,269   $2,407,269 

Fair value adjustments - convertible notes

   (2,005,137

Fair value adjustments - warrants

   11,546,840 

Exercise of derivative warrants

   (11,948,972
  

 

   

 

 

Balance at May 31, 2020

  $—   
  

 

 

Operating Leases

Effective June 1, 2019, the Company now determines whether an arrangement is considered a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on its consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms do not include options to extend or terminate the lease as it is not reasonably certain that it will exercise these options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

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) or when designated milestones have been achieved.

The Company accounts for stock-based awards established by the fair market value of the instrument using the Black-Scholes option pricing model utilizing certain weighted average assumptions including stock price volatility, expected term and risk-free interest rates, as of the grant date. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the stock-based award. The expected volatility is based on the historical volatility of the Company’s common stock on monthly intervals. The computation of the expected option term is based on the “simplified method,” as the Company issuances are considered “plain vanilla” options. For stock-based awards with defined vesting, the Company recognizes compensation expense over the requisite service period or when designated milestones have been achieved. The Company estimates forfeitures 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 forfeitures at 0% for all periods presented.

Common Stock

On June 7, 2018, at a special meeting ofUnder the Company’s stockholders, a proposal was approvedCertificate of Incorporation, as amended, the Company is authorized to increaseissue up to 800,000,000 shares of common stock. As of May 31, 2020, the total number of authorizedCompany had 518,975,572 shares of common stock of the Company from 375,000,000 to 450,000,000. On November 8, 2018, at the 2018 Annual Meeting of Stockholders, a proposal was approved to increase the total number of authorized shares of common stock of the Company from 450,000,000 to 600,000,000. Subsequently, on May 22, 2019, at a special meeting of stockholders, a proposal was approved to increase the total number of authorized shares of common stock of the Company from 600,000,000 to 700,000,000.outstanding.

60


Preferred Stock

The Company’s Board of Directors is authorized to issue up to 5,000,000 shares of preferred stock without stockholder approval. As of May 31, 2019,2020, the Company hashad 400,000 shares authorized the issuance of 400,000and 92,100 shares outstanding of Series B convertible preferred stock, 8,203 shares authorized and 5,000 sharesoutstanding of Series C convertible preferred stock, and 11,737 shares authorized and 8,452 shares outstanding of which 92,100 shares and 3,246 shares, respectively, were outstanding.Series D convertible preferred stock. The remaining authorized preferred shares authorized have no specified rights.

Treasury Stock

Treasury stock purchases are accounted for under the par value method, whereby the cost of the acquired stock is recorded at par value. As of the year ended May 31, 2019,2020, the Company has purchased a total of 159,011holds 286,008 shares of $0.001 par value common stock as treasury stock.

Debt Discount

During the years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, the Company incurred approximately $2.1 million, $4.2 million, and $1.5 million, and $92,000, respectively, of debt discount related to the issuance of short-term convertible promissory notes, issued with detachable warrants, as described in Note 4.5. The discount was amortized over the life of the convertible promissory notes and the Company recognized approximately $1.6 million, $1.7 million, and $1.6 million, and$-0-, of related amortization expense for the years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, respectively.

Debt Issuance Costs

During the years ended May 31, 20192020 and May 31, 2018,2019, the Company incurred direct costs associated with the issuance of short-term convertible promissory notes, as described in Note 4,5, and recorded approximately $1.0$0.0 million and $0.4$1.0 million, respectively, of debt issuance costs. The Company recognized approximately $0.4 million, $0.5 million, and $0.4 million and-0- of related amortization expense for the years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, respectively.

Offering Costs

During the years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, the Company incurred approximately $2.3 million, $4.3 million, $3.5 million, and $1.8$3.5 million respectively, in direct incremental costs associated with the sale of equity securities. The offering costs were recorded as a component of equity upon receipt of the proceeds, as fully described in Notes 1011, 12, and 11.13.

Stock Based Compensation for Services

The Company periodically issues warrants to consultants for various services. The Black-Scholes option pricing model, as described more fully above, is utilized to measure the fair value of the equity instruments on the date of issuance. The Company recognizes the compensation expense associated with the equity instruments over the requisite service or vesting period.

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 would include the weighted average common shares outstanding and potentially dilutive common share equivalents. 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. For this reason, common stock options and warrants to purchase 178,591,849, 132,385,269;131,360,528, 178,591,849; and 77,859,626132,385,269 shares of common stock were not included in the computation of basic and diluted weighted average common shares outstanding for the years ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, respectively. As of May 31, 2020 and May 31, 2019 the Company had convertible notes outstanding, including accrued interest, that could convert into 3,864,298 and 11,345,852 common shares, respectively; and shares of Series D, Series C and Series B convertible preferred stock, including undeclared dividends, that could potentially convert in the aggregate of 95,346into 30,129,860, and 7,973,911 common shares, can potentially convert into 7,413,000 shares of common stock.respectively.

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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 carry forwards 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 ASC740-10 Uncertainty in Income Taxes (“ASC740-10”). A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits for all periods presented. The Company has not recognized interest expense or penalties as a result of the implementation of ASC740-10. 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.

In accordance with Section 15 of the Internal Revenue Code, we utilized a federal statutory rate of 21% for our fiscal 2020 and 2019 tax year.years. The Company had no net tax expense for the year ended May 31, 2019, is2020 and a tax benefit of $2.8 million.million for the year ended May 31, 2019. The Company has a full valuation allowance as of May 31, 2020 and May 31, 2019, as management does not consider it more than likely than not that the benefits from the deferred taxes will be realized.

Note 3 – Recent Accounting Pronouncements

Recent accounting pronouncements, other than below, issued by the Financial Accounting Standards Board (“FASB”) (including its EITF)Emerging Issues Task Force), the American Institute of Certified Public AccountantsAICPA and the U.S. Securities and Exchange Commission (the “SEC”)SEC did not, or are not, believed by management to have a material effect on the Company’s present or future financial statements.

In MayDecember 2019, the FASB issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate consistent application. The standard will become effective for us beginning on January 1, 2021. The Company is currently evaluating the new standard to determine the potential impact on its financial condition, results of operations, cash flows, and financial statement disclosures.

In July 2017, the FASB issued “ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” ASU 2017-09 “Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting.” The amendments in this update provide guidance about which changes2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the terms or conditionsentity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a share-based payment award requiredown round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to apply modification accountingcommon shareholders in Topic 718. The amendments in this update are effective for allcomputing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The adoptionwill recognize the value of ASU 2017-09 did not havethe down round as a material impact on the Company’s consolidated financial statements.

In August 2018, FASB issued Accounting Standards Update (“ASU”)No. 2018-13 “Fair Value Measurement (Topic 820) Disclosure Framework Changesbeneficial conversion discount to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update provides guidance that remove, modify and addbe amortized to the disclosure requirements related to fair value measurements.earnings. The guidance removes the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidanceASU 2017-11 is effective for fiscal years beginning after December 15, 20192018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company doesadopted ASU 2017-11 for the year ended May 31, 2020, and applied ASU 2017-11 on a full retrospective basis. Prior to fiscal year 2020 the company did not expectevaluate the impact of ASU 2017-11. The effect of the restrospective and current period adoption is immaterial to have a material impact on its consolidatedthe Company’s financial statements.

In June 2018,August 2020, the FASB issued ASUNo. 2018-07 “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share Based Payment Accounting”. The amendments“ASU 2020-06, Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging—Contracts in this Update expandEntity’s Own Equity (Subtopic 815-40)” which simplifies the scope of stock compensation to include share-based payment transactionsaccounting for acquiring goods and services from nonemployees.convertible instruments. The guidance inremoves certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update does not apply to transactions involving equity instruments granted to a lender or investor that provides financing to the issuer. The guidanceNo. 2020-06 is effective for fiscal years beginning after December 31, 201815, 2021, including interim periods within the fiscal year. The Company is currently assessing the impact this Update may have on its consolidated financial statements.

In March 2018, FASB issued ASUNo. 2018-05 “Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments in this Update add various Securities and Exchange Commission (“SEC”) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible, to provide a reasonable estimate. The Company has provided a reasonable estimate in the notes to the consolidated financial statements.

In July 2017, the FASB issued ASUNo. 2017-11 “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).”The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure

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requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years,years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2018. Early adoption2020. The Company is permitted for all entities, including adoption in an interim period. If an entity early adoptscurrently evaluating the amendments in an interim period, any adjustments should be reflectedpotential on its financial statements.

Note 4 – Inventories

The Company’s inventory as of May 31, 2020 and May 31, 2019 was $19,146,678 and $0, respectively. Inventory as of May 31, 2020 consisted of raw materials purchased for use in the beginningcommercial manufacturing of pre-launch inventories of leronlimab to support the Company’s expected approval of the fiscal yearproduct as a combination therapy for HIV patients in the United States. The Company believes that includes that interim period. Management is currently assessing the impact the adoption of ASU2017-11 will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASUNo. 2016-02 “Leases (Topic 842)” and subsequent amendmentsmaterial uncertainties related to the initial guidance: ASUultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from Phase 3 clinical trial results, and information gathered No. 2017-13,from pre-filing meetings ASUNo. 2018-10, ASUNo. 2018-11, ASUNo. 2018-20with the FDA for the BLA. The BLA was initially submitted with the FDA in April 2020 and ASUNo. 2019-01 (collectively, Topic 842). Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize leases with a term greater than one year as aright-of-use asset and corresponding liability, measured at the present value of the lease payments.BLA submission was completed on May 11, 2020. In July 2018,2020, the FASB issued supplemental adoption guidanceCompany received a Refusal to File letter from the FDA regarding its BLA filing requesting additional information, and clarificationthe Company has requested a Type A meeting to Topic 842 within ASU2018-10 “Codification Improvements to Topic 842, Leases” and ASU2018-11 “Leases (Topic 842): Targeted Improvements.” The guidancediscuss the FDA’s request for additional information, which the Company expects will become effective for us beginning in the first quarter ofbe resolved on a timely basis during calendar year 2020. The modified retrospective transition approach is required. The Company does not expect the adoption to have a material impact on its consolidated financial statements.

Note 45 – Convertible Instruments

Series D Convertible Preferred Stock

On January 28, 2020, the Company filed a certificate of designation (the “Series D Certificate of Designation”) to authorize 11,737 shares of Series D Convertible Preferred Stock, $0.001 par value per share (“Series D Preferred Stock”), and on January 31, 2020 issued 7,570 shares of Series D Convertible Preferred Stock, at $1,000.00 per share for cash proceeds totaling approximately $7,565,000, net of offering costs of $5,000. On March 13, 2020, the Company issued an additional 882 shares of Series D Preferred Stock at $1,000.00 per share resulting in net proceeds of $882,000. As of May 31, 2020, 8,452 shares remain outstanding. The Series D Certificate of Designation provides, among other things, that holders of Series D Preferred Stock shall be entitled to receive cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series D Preferred Stock, to be paid, at the option of the holder, in cash or in shares of common stock at the rate of $0.50 per share. Any dividends paid by the Company will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series D Preferred Stock shall be cumulative and there are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Dividends are to be paid annually in arrears on the last day of December each year. The Series D Preferred Stock does not have redemption rights. The stated value per share for the Series D Preferred Stock is $1,000.00 (the “Series D Stated Value”). In the event of any liquidation, dissolution or winding up of the Company, the holders of Series D Preferred Stock will be entitled, on a pari passu basis with the holders of the Series C Preferred Stock and in preference to any payment or distribution to any holders of the Series B Preferred Stock or Common Stock, an amount per share equal to the Series D Stated Value plus the amount of any accrued and unpaid dividends.. If, at any time while the Series D Preferred Stock is outstanding, the Company effects any reorganization, merger or sale of the Company or substantially all of its assets (each a “Fundamental Transaction”), a holder of the Series D Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series D Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series D Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of common stock determined by dividing the Series D Stated Value by the conversion price of $0.80 (subject to adjustment as set forth in the certificate of designation for the Series D Preferred Stock). No fractional shares will be issued upon the conversion of the Series D Preferred Stock. Except as otherwise provided in the Series D Certificate of Designation or as otherwise required by law, the Series D Preferred Stock has no voting rights. As of May 31, 2020, the accrued dividends were approximately $272,000, or 544,000 shares of common stock. There were no accrued dividends as of May 31, 2019.

Series C Convertible Preferred Stock

On March 20, 2019, the Company authorizedfiled a certificate of designation (the “Series C Certificate of Designation”) to authorize 5,000 shares and issued 3,246 shares of Series C Convertible Preferred Stock, $0.001 par value Convertible Preferred Stockper

share (“Series C Preferred Stock”), at $1,000.00 per share for cash proceeds totaling $3,083,700, net of placement agent fees of $162,300,$162,300. On August 29, 2019, the Company issued the remaining 1,754 shares of Series C Preferred Stock at $1,000.00 per share for cash proceeds totaling $1,542,545, net of placement agent fees and legal fees totaling $211,455. On October 11, 2019, the Company amended its certificate of designation to authorized an increase in authorized Series C Preferred Stock from 5,000 shares to 20,000 shares. Between October 21, 2019 and November 8, 2019, the Company issued an additional 2,788 shares of Series C Convertible Preferred Stock, and on December 6, 2020 the Company issued 415 shares of Series C Convertible Preferred Stock. On January 28, 2020, the Company further amended its Series C Certificate of Designation to reduce the number of authorized shares of Series C Preferred Stock from 20,000 shares to 8,203 shares, all of which 3,246 shares remain outstanding atas of May 31, 2019.2020. The Series C Certificate of Designation provides, among other things, that holders of Series C Preferred Stock shall be entitled to receive, out of any assets at the option of the holder,time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series C Preferred Stock, to be paid per share of Series C Preferred Stock.Stock, which dividends shall accrue whether or not declared. Any dividends paid by the Company will first be paid to the holders of Series C Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series C Preferred Stock are mandatory and cumulative and there are no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Dividends are to be paid annually in arrears on the last day of December each year. The Series C Preferred Stock does not have redemption rights. The stated value per share for the Series C Preferred Stock is $1,000$1,000.00 (the “Stated“Series C Stated Value”). In the event of any liquidation, dissolution or winding up of the Company, the Series C Preferred Stock will be paid, on a pari passu basis with the holders of the Series D Preferred Stock and prior and in preference to any payment or distribution on any shares of common stock, currently outstanding series of preferred stock, or subsequent series of preferred stock, an amount per share equal to the Series C Stated Value and the amount of any accrued and unpaid dividends. The holders of the Series C Preferred Stock will then receive distributions along with the holders of common stock on a pari passu basis according to the number of shares of common stock the Series C Preferred holders would be entitled if they converted their shares of Series C Preferred Stock at the time of such distribution. If, at any time while the Series C Preferred Stock is outstanding, the Company effects any reorganization, merger or sale of the Company or substantially all of its assets (each a “Fundamental Transaction”),Fundamental Transaction, a holder of the Series C Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series C Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series C Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of the Company’s common stock determined by dividing the Series C Stated Value by the conversion price of $0.50 per share (subject to adjustment as set forth in the Certificate of Designation). No fractional shares will be issued upon the conversion of the Series C Preferred Stock. Except as otherwise provided in the Series C Certificate of Designation or as otherwise required by law, the Series C Preferred Stock has no voting rights. As of May 31, 2019,2020, the accrued dividends were approximately $65,000$709,000 or 130,0001,419,000 shares of common stock. There were no accrued dividends as of May 31, 2019.

Series B Convertible Preferred Stock

During fiscal 2010, the Company issued 400,000 shares of Series B Convertible Preferred Stock, $0.001 par value Convertible Preferred Stockper share (“Series B Preferred Stock”) at $5.00 per share for cash proceeds totaling $2,009,000, of which 92,100 shares remainremained outstanding at May 31, 2019.2020. Each share of the Series B Preferred Stock is convertible into ten shares of the Company’s $0.001 par valuecommon stock. At the option of the Company, dividends on the Series B Preferred Stock may be paid in cash or shares of the Company’s common stock, including any accrued dividends, with an effective fixed conversion price ofvalued at $0.50 per share. The holders of the Series B Preferred Stock can only convert their shares to shares of common sharesstock provided the Company has sufficient authorized shares of common sharesstock at the time of conversion. Accordingly, the conversion option was contingent upon the Company increasing its authorized common shares, which

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occurred in April 2010, when the Company’s stockholders approved an increase in the authorized shares of common stock to 100,000,000. At the commitment date, which occurred upon such stockholder approval, the conversion option related to the Series B Preferred Stock was beneficial. The intrinsic value of the conversion option at the commitment date resulted in a constructive dividend to the Series B Preferred Stock holders of approximately $6,000,000. The constructive dividend increased and decreased additionalpaid-in capital by identical amounts. The Series B Preferred Stock has liquidation preferences over the common shares at $5.00 per share, plus any accrued and unpaid dividends. Dividends are payable to the Series B Preferred Stock holders when declared by

the boardBoard of directorsDirectors at the rate of $0.25 per share per annum. Such dividends are cumulative and accrue whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available. TheExcept as provided by law, the Series B Preferred Stock holders have no voting rights. As of May 31, 20192020, and May 31, 2018,2019, the undeclared accrued dividends were approximately $216,000$245,000 or 432,000490,000, shares of common stock, and approximately $199,000$222,000, or 387,000444,000 shares of common stock, respectively. On July 30, 2020, in connection with the conversion of 5,000 shares of Series B Preferred Stock to common stock, the Company paid to the holders of the Series B Preferred Stock a dividend of $243,285. As of July 30, 2020, there are 87,100 shares of Series B Preferred Stock outstanding.

2018 Short-term Convertible Notes

During the fiscal year ended May 31, 2018, the Company issued approximately $4.89 million in aggregate principal of short-term Convertible Notes, (the “2018 Short-term Convertible Notes”) with a maturity date of January 31, 2018, and related warrants to investors for cash. The principal amount of the 2018 Short-term Convertible Notes, including any accrued but unpaid interest thereon, was convertible at the election of the holder at any time into shares of common shares at any time prior to maturity at a conversion price of $0.75 per share. The 2018 Short-term Convertible Notes bore simple interest at the annual rate of 7%. Principal and accrued interest, to the extent not previously paid or converted, is due and payable on the maturity date. At the commitment date, the Company determined that the conversion feature related to these 2018 Short-term Convertible Notes to be beneficial to the investors. As a result, the Company determined the intrinsic value of the beneficial conversion feature utilizing the fair value of the underlying common stock on the commitment dates and the effective conversion price after discounting the 2018 Short-term Convertible Notes for the fair value of the related warrants. In connection with the sale of the 2018 Short-term Convertible Notes, detachable common stock warrants to purchase a total of 4,025,656 common shares, with an exercise price of $1.00 per share and a five-year term were issued to the investors. The Company determined the fair value of the warrants at issuance using the Black-Scholes option pricing model utilizing certain weighted average assumptions, such as expected stock price volatility, expected term of the warrants, risk-free interest rates and expected dividend yield at the grant date.

 

   2018

Expected dividend yield

  0%

Stock price volatility

  69.80%

Expected term

  5 year

Risk-free interest rate

  1.77 - 1.93%

Grant-date fair value

  $0.30 - $0.39

The fair value of the warrants, coupled with the beneficial conversion features, were recorded as a debt discount to the 2018 Short-term Convertible Notes and a corresponding increase to additionalpaid-in capital was amortized over the term of the 2018 Short-term Convertible Notes. The Company incurred debt discount of approximately $1.6 million related to the beneficial conversion feature and detachable warrants issued with the notes during the year ended May 31, 2018. Accordingly, the Company recognized approximately$-0- and $1.6 million ofnon-cash debt discount during the year ended May 31, 2019 and May 31, 2018, respectively. In connection with the 2018 Short-term Convertible Notes, the Company incurred direct issuance costs of approximately $0.4 million during the year ended May 31, 2018. The issuance costs were amortized over the term of the 2018 Short-term Convertible Notes and accordingly the Company recognized approximately$-0- and $0.4 million of debt issuance costs during the years ended May 31, 2019 and May 31, 2018, respectively. On January 31, 2018, in connection with a registered direct equity offering, as fully described in Note 11,13, the 2018 Short-term Convertible Notes in an aggregate principal amount of $5,788,500, plus accrued unpaid interest of approximately $243,000 were sold for 12,062,728 shares of common stock. The 2018 Short-term Convertible Note investors also received warrants to purchase 7,718,010 shares of common stock. The securities were sold at a combined purchase price of $0.50 per share of common stock and related warrants, for aggregate gross proceeds to the Company of approximately $6.0 million. TheIn 2018, the Company repaid one 2018 Short-term

Convertible Note, including accrued interest in the aggregate of approximately $259,000. During the years ended May 31, 2020, May 31, 2019 and May 31, 2018, the Company recognized approximately$-0-,$-0- and $75,000, of interest expense related to the note.

Activity related to the 2018 Short-term Convertible Notes was as follows:

 

   2018 

Face amount of Short-Term Convertible Notes

  $6,038,500 
  

 

 

 

Unamortized discount

   —   

Registered direct offering

   (5,788,500

Note repayment

   (250,000
  

 

 

 

Carrying value of Short-term Convertible Notes

  $—   
  

 

 

 

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   2018 

Face amount of Short-term Convertible Notes

  $6,038,500 

Unamortized discount

   —   

Registered direct offering

   (5,788,500

Note repayment

   (250,000
  

 

 

 

Carrying value of Short-term Convertible Notes

  $—  
  

 

 

 

2019 Short-term Convertible Notes

During the year ended May 31, 2019, the Company issued approximately $5.5 million of nine-month unsecured Convertible Notes (the “2019 Short-term Convertible Notes”) and related warrants to investors for cash. The principal amount of the 2019 Short-term Convertible Notes, including any accrued but unpaid interest thereon, is convertible at the election of the holder at any time into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. The 2019 Short-term Convertible Notes bear simple interest at the annual rate of 10%. Principal and accrued interest, to the extent not previously paid or converted, is due and payable on the maturity date. At the commitment dates, the Company determined that the conversion feature related to these 2019 Short-term Convertible Notes to be beneficial to the investors. As a result, the Company determined the intrinsic value of the beneficial conversion feature utilizing the fair value of the underlying common stock on the commitment dates and the effective conversion price after discounting the 2019 Short-term Convertible Notes for the fair value of the related warrants. In connection with the sale of the 2019 short-term Notes, detachable common stock warrants to purchase a total of 5,460,000 common shares, with an exercise price of $0.30 per share and a five-year term were issued to the investors. The Company determined the fair value of the warrants at issuance using the Black-Scholes option pricing model utilizing certain weighted average assumptions, such as expected stock price volatility, expected term of the warrants, risk-free interest rates and expected dividend yield at the grant date.

 

   2018 - 2019 2019

Expected dividend yield

  0%

Stock price volatility

  55.8 - 55.88%

Expected term

  5 year

Risk-free interest rate

  2.48 - 2.56%

Grant-date fair value

  $0.30 - $0.38

The fair value of the warrants, coupled with the beneficial conversion features, were recorded as a debt discount to the 2019 Short-term Convertible Notes and a corresponding increase to additionalpaid-in capital and will be amortized over the life of the 2019 Short-term Convertible Notes. In connection with the 2019 Short-term Convertible Notes, the placement agent earned a “tail fee” comprised of warrants covering 972,000 shares of common stock and a cash fee of $583,200. The placement agent warrants are exercisable at a price of $0.50 per share and will expire five years from the date of issuance and include a cashless exercise provision. During the year ended May 31, 2019, and in connection with the 2019 Short-term Convertible Notes, the Company incurred debt discount and issuance costs of approximately $3.0 million, related to the beneficial conversion feature and detachable warrants issued with the 2019 Short-term Convertible Notes and approximately $0.8 in issuance costs. The debt discount and issuance costs will be amortized over the term of the 2019 Short-term Convertible Notes. Accordingly, the Company recognized approximately $1.7 million and $0.5 million of debt discount and issuance costs, respectively, during the year ended May 31, 2019.

Beginning on September 30, 2019 and through November 14, 2019, principal and interest totaling approximately $5.9 million came due. Holders of notes totaling approximately $1.1 million in principal and accrued interest agreed to extend their notes for another three months, and holders of notes totaling approximately $4.1 million in principal and accrued interest agreed to extend their notes for another six months. One note-holder with principal and accrued interest totaling approximately $0.2 million converted to shares of common stock of the Company.

During the quarter ended November 30, 2019, a total of approximately $0.7 million of principal and accrued interest was repaid in cash. In addition, detachable stock warrants to purchase a total of 4,750,000 warrants with a five-year term and an exercise price of $0.30 per share were issued to investors who extended their notes. One investor received 200,000 warrants with a five-year term and an exercise price of $0.45 per share for converting the entire principal and accrued interest on its note. In connection with the note extensions and conversion, the Company recorded a non-cash inducement interest expense of approximately $0.3 million during the quarter ended November 30, 2019. The new principal amount of the 2019 Short-term Convertible Notes, including any accrued but unpaid interest thereon, is convertible at the election of the holder at any time into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. The 2019 Short-term Convertible Notes bear simple interest at the annual rate of 10%. Principal and accrued interest, to the extent not previously paid or converted, is due and payable on the maturity date. At the new commitment dates, the Company determined that there was a decrease in the fair value of the embedded conversion option resulting from the modification, the value of which is not required to be recognized under U.S. GAAP.

On December 31, 2019, the holder of a 2019 Short-term Convertible Note in the aggregate principal amount of $549,912, including accrued but unpaid interest, tendered a notice of conversion at the stated conversion rate of $0.50 per share. The Company issued 1,099,823 shares of common stock in satisfaction of the conversion notice.

On January 31, 2020, the holder of a 2019 Short-term Convertible Note in the aggregate principal amount of $512,063, including accrued but unpaid interest, tendered a notice of conversion at the stated conversion rate of $0.50 per share. The Company issued 1,025,205 shares of common stock in satisfaction of the conversion notice.

During April 2020, the holders of the remaining outstanding 2019 Short-term Convertible Note in the aggregate principal amount of $4,116,005, including accrued but unpaid interest, tendered notices of conversion at the stated conversion rate of $0.50. The Company issued 8,232,006 shares of common stock in satisfaction of the conversion notices.

Activity related to the 2019 Short-term Convertible Notes was as follows:

 

  May 31, 2019   May 31, 2018   May 31, 2020   May 31, 2019   May 31, 2018 

Face value of Short-term convertible Notes

  $5,460,000   $—     $5,460,000   $5,460,000   $—  
  

 

   

 

   

 

     

Unamortized discount

   (1,469,625   —      —      (1,469,625   —   

Unamortized issuance costs

   (404,340   —      —      (404,340   —   

Accrued interest converted into principal

   153,876    —      —   

Note repayment

   (460,000   —      —   

Note conversions into common stock

   (5,153,876   —      —   
  

 

   

 

   

 

   

 

   

 

 

Carrying value of Short-term Convertible Notes

  $3,586,035   $—     $—    $3,586,035   $—  
  

 

   

 

   

 

   

 

   

 

 

The Company recognized approximately $444,000, $213,000, and$-0- of interest expense duringfor the fiscal years ended May 31, 2020, May 31, 2019, and May 31, 2018, respectively.

Long-term Convertible Notes - June 2018 Note

On June 26, 2018, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note (the “June 2018 Note”) with atwo-year term term to an institutional accredited

investor in the initial principal amount of $5.7 million. The investor gave consideration of $5.0 million to the Company. The June 2018 Note bears interest of 10% and is convertible into common stock, at a conversion rate of $0.55 per share. The June 2018 Note is convertibleprovided for conversion in total, or in part, of the outstanding balance, into common stock of the Company at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the June 2018 Note. The Investor may redeem any portion of the June 2018 Note, and allowed for redemption, at any time after six months from the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $350,000. The securities purchase agreement requiresrequired the Company to reserve shares for future conversions or redemptions by dividing the outstanding principal balance plus accrued interest by the conversion price of $0.55 per share times 1.5. As a result of the entry into the January 2019 Note (as defined below), the Company’s obligations under the June 2018 Note are nowwere secured by all of the assets of the Company, excluding the Company’s intellectual property.

65


Effective November 15, 2018, the June 2018 Note was amended to allow the Investor to redeem the monthly redemption amount of $350,000 in cash or stock, at the lesser of (i) $0.55, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The variable rate redemption provision meets the definition of a derivative instrument and subsequent to the amendment, it no longer meets the criteria to be considered indexed to the Company’s own stock. As of November 15, 2018, the redemption provision requires bifurcation as a derivative liability at fair value under the guidance in ASC Topic No. 815, “Derivatives and Hedging.”

The amendment of the June 2018 Note was also evaluated under ASC Topic470-50-40, “Debt “Debt Modifications and Extinguishments.” Based on the guidance, the instruments were determined to be substantially different, and debt extinguishment accounting was applied. We recorded approximately $1.5 million as an extinguishment loss, which was the difference in the net carrying value of the June 2018 Note prior to the amendment of approximately $5.4 million, and the fair value of the June 2018 Note and embedded derivatives after the amendment of approximately $6.9 million. The extinguishment loss includes awrite-off of of unamortized debt issuance costs and the debt discount associated with the original the June 2018 Note.

During the twelve months ended May 31, 20192020 and May 31, 2018,2019, the Company recognized approximately $383,000 and $386,000, and$-0-, of interest expense related to the June 2018 Note. During the twelve months ended May 31, 2019, the Company received redemption notices from the holder of the Company’s June 2018 Note, requesting an aggregate redemption of $1,455,000 of the outstanding balance thereof. In satisfaction of the redemption notices, the Company issued shares of common stock totaling 3,756,406 to the June 2018 Note holder in accordance with the terms of the June 2018 Note. During the year ended May 31, 2020, the Company received a redemption notice requesting an aggregate redemption of $4,476,000 settling the remaining outstanding balance in full, including accrued but unpaid interest. In satisfaction of the redemption notice, the Company issued shares of common stock totaling 8,512,622 and paid cash totaling $525,000 to the June 2018 Note holder in accordance with the terms of the June 2018 Note. Following the redemptions, the outstanding balance of the convertible June 2018 Note including accrued but unpaid interest, was approximately $4.5 million.has been fully satisfied and there is no outstanding balance.

Long-term Convertible Notes - January 2019 Note

On January 30, 2019, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note (the “January 2019 Note”) with atwo-year term term to the holder of the June 2018 Note in the initial principal amount of $5.7 million. In connection with the issuance of the January 2019 Note, the Company granted a lien against all of the assets of the Company, excluding the Company’s intellectual property, to secure all obligations owed to the investor by the Company (including those under both the January 2019 Note and the June 2018 Note). The investor gave consideration of $5.0 million to the Company, reflecting original issue discount of $0.6 million and issuance costs of $0.1 million. The January 2019 Note bears interest of 10% and is convertible into common stock, at $0.50 per share. The January 2019 Note is convertibleprovided for conversion in total, or in part, of the outstanding balance, into common stock of the Company at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the Note. The Company

analyzed the conversion option for derivative accounting treatment under ASC 815 and determined that the embedded conversion option did not qualify for derivative accounting.

The InvestorJanuary 2019 Note provided the investor may redeem any portion of the January 2019 Note at any time after six months from the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $350,000. The monthly redemption amount may be paid in cash or stock, at the Company’s election, at the lesser of (i) $0.50, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The redemption provision meets the definition of a derivative instrument and does not meet the criteria to be considered indexed to the Company’s own stock. Therefore, the redemption provision requires bifurcation as a derivative liability at fair value under the guidance in ASC Topic No. 815 (“ASC 815”). The securities purchase agreement requires the Company to reserve 20,000,000 shares for future conversions or redemptions.

In conjunction with the January 2019 Note, the investor received a warrant to purchase 5,000,000 shares of common stock with an exercise price of $0.30 which is exercisable until the5-year anniversary anniversary of the date of issuance. The warrant achieved equity classification at inception. The net proceeds of $5.0 million were allocated first to the redemption provision at its fair value, then to the warrants at their relative fair value and the beneficial conversion feature at its intrinsic value as follows:

 

  January 30, 2019   January 30, 2019 

Fair value of redemption provision

  $1,465,008   $1,465,008 

Relative fair value of equity classified warrants

   858,353    858,353 

Beneficial conversion feature

   2,676,639    2,676,639 
  

 

   

 

 

Net proceeds of January 2019 Note

  $5,000,000 
  $5,000,000   

 

 
  

 

 

Under the guidance of ASC 815, after allocation of proceeds to the redemption provision, relative fair value of equity classified warrants and the beneficial conversion feature, there were no proceeds remaining to allocate to convertible note payable. Therefore, principal, accrued interest, debt discount and offering costs will be recognized as interest expense, which represents the accretion of the convertible note payable and related debt discount and issuance costs. During the years ended May 31, 20192020 and May 31, 2018,2019, the Company recognized approximately $6,145,000 and $126,000, and$-0-, respectively, of interest expense related to the January 2019 Note.

66 Interest expense recorded during the year ended May 31, 2020 included approximately $5,760,000 representing accretion of the remaining unamortized discount on the Note which was recognized immediately upon conversion of the debt in accordance with ASC 470-20-40-1. During the year ended May 31, 2020, the Company received a redemption notice from the holder of the Company’s January 2019 Note, requesting an aggregate redemption of approximately $6,271,000 settling the remaining outstanding balance in full, including accrued interest. In satisfaction of the redemption notice, the Company issued shares of common stock totaling 10,842,255 and paid cash totaling $850,000 to the January 2019 Note holder in accordance with the terms of the January 2019 Note. Following the redemption, the January 2019 Note has been fully satisfied and there is no outstanding balance.


Activity related to the June 2018 Note and the January 2019 Note is as follows:

 

  Short Term   Long Term   Total   Short Term   Long Term   Total 

June 2018 Note

  $2,100,000   $3,600,000   $5,700,000   $2,100,000   $3,600,000   $5,700,000 

Monthly redemption provision

   2,100,000    (2,100,000   —      2,100,000    (2,100,000   —   

Note amendment, net

   —      111,410    111,410    —      111,410    111,410 

Redemptions

   —      (1,455,000   (1,455,000   —      (1,455,00 �� (1,455,00

Interest accretion - June 2018 and January 2019 Notes

   —      298,158    298,158    —      298,158    298,158 
  

 

   

 

   

 

   

 

   

 

   

 

 

Carrying value of Notes at May 31, 2019

  $4,200,000   $454,568   $4,654,568 

Carrying value of Notes at May 31,

   4,200,00    454,568    4,654,568 

Redemptions

   (10,688,640   (56,597   (10,745,237

Interest accretion - June 2018

   6,488,640    38,838    6,527,478 

Extinguishment of note

   —      (436,809   (436,809
  

 

   

 

   

 

   

 

   

 

   

 

 

Carrying value of Notes at May 31, 2020

  $—     $—     $—   
  

 

   

 

   

 

   

 

   

 

   

 

 

March 31, 2020 Convertible Promissory Note

On March 31, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a secured convertible promissory note with a two-year maturity to an institutional accredited investor in the initial principal amount of $17.1 million. The Company received consideration of $15.0 million, reflecting an original issue discount of $2.1 million. The Note is secured by all of the assets of the Company, excluding the Company’s intellectual property.

Interest accrues on the outstanding balance of the Note at 10% per annum. Upon the occurrence of an Event of Default, interest accrues at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any Event of Default, the Investor may accelerate the outstanding balance payable under the Note, which will increase automatically upon such acceleration by 15%, 10% or 5%, depending on the nature of the Event of Default.

The Investor may convert all or any part the outstanding balance of the Note into shares of Common Stock at an initial conversion price of $4.50 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations specified in the Note. On April 3, 2020, the Company amended the Note limiting monthly issuances of Common Stock resulting from conversions to 1,000,000 shares in any calendar month during the first six months (“April 3, 2020 Conversion Limitation Amendment”), and further amended the Note to remove this conversion limitation in July 2020. In addition to standard anti-dilution adjustments, the conversion price of the Note is subject to full-ratchet anti-dilution protection, pursuant to which the conversion price will be automatically reduced to equal the effective price per share in any new offering by the Company of equity securities that have registration rights, are registered or become registered under the Securities Act of 1933, as amended. The Note provides for liquidated damages upon failure to deliver Common Stock within specified timeframes.

The Investor may redeem any portion of the Note, at any time after six months from the issue date, upon three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $950,000. The Note requires the Company to satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay the outstanding balance of the Note, in part or in full, at a 15% premium to par value, at any time upon fifteen trading days’ notice.

Investor may sell Conversion Shares pursuant to a registration statement prior to the date that is six (6) months from the issue date and will be limited to 1,000,000 shares per calendar month (the “Volume Limitation”);

provided, however, in the event any intra-day trading price of the Common Stock during the applicable time period meets or exceeds $4.50 per share then the Volume Limitation shall not apply for the remainder of the calendar month or the five trading days thereafter, whichever is longer.

Pursuant to the terms of the Agreement and the Note, the Company must obtain the Investor’s consent before assuming additional debt with aggregate net proceeds to the Company of less than $15 million. Upon any such approval, the outstanding principal balance of the Notes shall increase automatically by 5% upon the issuance of such additional debt.

The Company agreed to use commercially reasonable efforts to file a Registration Statement on Form S-3 with the SEC by April 30, 2020 registering a number of shares of Common Stock sufficient to convert the entire Outstanding Balance of the Note plus, if legally permissible, 1,666,668 shares of Common Stock from Investor’s February 12, 2020 warrant exercise plus 833,332 shares of Common Stock from Investor’s February 4, 2020 warrant exercise, which S-3 was declared effective on May 11, 2020.

The embedded conversion feature in the secured convertible promissory Note was analyzed under ASC 815 to determine if it achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective conversion rate was greater than the market value of the Company’s stock upon issuance.

Certain default put provisions were not considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions was de minimis. We reconsider the value of the default put provisions each reporting period to determine if the value becomes material to the financial statements.

The original issue discount of $2.1 million related to these convertible notes has been recorded as a discount on the convertible notes and the discount is being amortized over the term of the convertible note. Amortization of debt discounts during the year ended May 31, 2020 amounted to $175,000 and are recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for the Note of $1,925,000 as of May 31, 2020, is being amortized over the term of the Note.

Note 5—6 – Derivative Liabilities

The investor and placement agent warrants issued in connection with a registered direct offering in September 2016 contained a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer or share exchange, whereby such other Person or group acquires more than 50% of the outstanding common stock). If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a successor entity, then the warrantholderwarrant holder has the option to receive cash equal to the fair value of the remaining unexercised portion of the warrant. Due to this contingent cash settlement provision, the investor and placement agent warrants require liability classification as derivatives in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging” and are recorded at fair value.

The following tables summarizesummarizes changes in the fair value of the warrant derivative liability and related common shares as of

inception date September 15, 2016, prior year end date May 31, 20182019 and current year end date May 31, 2019:    2020.

 

  Shares Indexed   Derivative Liability   Shares
Indexed
   Derivative
Liability
 

Inception to date September 15, 2016

   7,333,334   $5,179,200    7,333,334   $5,179,200 

Balance May 31, 2018

   7,733,334    1,323,732 

Change in fair value of derivative liability

   —      (4,777,068
  

 

   

 

 

Balance May 31, 2019

   7,733,334   $402,132    7,733,334    402,132 

Change in fair value of derivative liability

   —      11,546,840 

Fair value of warrants exercised

   7,733,334    (11,948,972
  

 

   

 

 

Balance May 31, 2020

   —     $—   
  

 

   

 

 

Changes in the fair value of the derivative liability are reported as “Change in fair value of derivative liability” in the Consolidated Statements of Operations. During the years ended May 31, 2019, May 31, 2018,2020 and May 31, 2017,2019 the Company recognized a net,non-cash (loss) gain of approximately $0.9 million, $1.7($11.5) million, and $2.2$0.9 million, respectively, due to the changes in the fair value of the liability associated with such classified warrants.

ASC 820 “Fair Value Measurement” provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition. Fair values for the warrants were determined using a Binomial Lattice Model.valuation model.

The Company estimated the fair value of the warrant derivative liability as of inception May 31, 2018date September 15, 2016, and May 31, 2019 using the following assumptions:

 

  September 15, May 31, May 31, 
  2016 2018 2019   September 15,
2016
 May 31,
2019
 

Fair value of underlying stock

  $0.78  $0.49  $0.39   $0.78  $0.39 

Risk free rate

   1.20 2.63 1.94   1.20 1.94

Expected term (years)

   5  3.3  2.29    5  2.29 

Stock price volatility

   106 64 61   106 61

Expected dividend yield

   —     —     —      —     —   

Probability of Fundamental Transaction

   50 50 50

Probability of fundamental transaction

   50 50

Probability of holder requesting cash payment

   50 50 50   50 50

The Warrants were fully exercised by May 31, 2020.

Due to the fundamental transaction provisions,provision contained in the warrants, which could provide for early redemption of the warrants, the model also considered subjective assumptions related to the fundamental transaction provision. The fair value of the warrants will be significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and managementsmanagement’s assumptions related to the fundamental transaction provision.provisions.

As described above in Note 45 above, the redemption provision embedded in the June 2018 and January 2019 Notes required bifurcation and measurement at fair value as a derivative. The fair value of the Note redemption provision derivative liabilities was calculated using a Monte Carlo Simulation which uses randomly generated stock-price paths obtained through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision will be significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s assumptions related to the redemption factor. The Company estimated the fair value of the redemptive provision using the following assumptions on the closing date of November 15, 2018, January 30, 2019, and May 31, 2019:

 

         May 31, 2019 
   November 15,
2018
  January 30,
2019
  June
Note
  January
Note
 

Fair value of underlying stock

  $0.57  $0.49  $0.39  $0.39 

Risk free rate

   2.78  2.52  2.21  1.95

Expected term (in years)

   1.61   2   1.07   1.67 

Stock price volatility

   58.8  61  62.2  62.2

Expected dividend yield

   —     —     —     —   

Discount factor

   85  85  85  85

67As discussed above, the June 2018 and January 2019 Notes have been fully satisfied and there is no outstanding balance as of May 31, 2020.


   November 15,
2018
  January 30,
2019
  May 31, 2019 
  June Note  January Note 

Fair value of underlying stock

  $0.57  $0.49  $0.39  $0.39 

Risk free rate

   2.78  2.52  2.21  1.95

Expected term (in years)

   1.61   2   1.07   1.67 

Stock price volatility

   58.8  61  62.2  62.2

Expected dividend yield

   —     —     —     —   

Discount factor

   85  85  85  85

The following table summarizes the fair value of the convertible note redemption provision derivative liability related to notes which fully converted during January 2020 as of inception dates November 15, 2018 and January 30, 2019 and the fair value as of May 31, 2019:

 

   Derivative Liability       Derivative Liability 
 Net Proceeds Inception Date May 31, 2019   Net Proceeds   Inception date   May 31, 2019 

Inception date June 2018 Note, November 15, 2018

 $5,000,000  $1,284,988  $847,103   $5,000,000   $1,284,988   $847,103 

Inception date January 2019 Note, January 30, 2019

 5,000,000  1,465,008  1,158,034    5,000,000    1,465,008    1,158,034 
   

 

       

 

 
   $2,005,137       $2,005,137 
   

 

       

 

 

The Company recognized approximately $745,000 $2,005,000 and $352,000 ofnon-cash gain, gain, due to the changes in the fair value of the liability associated with such classified redemption provision betweenfor the inception dateyear ended May 31, 2020 and May 31, 2019.2019, respectively.

Note 67 – Stock Options and Warrants

The Company has one active stock-based equity plan at May 31, 2019,2020, the CytoDyn Inc. 2012 Equity Incentive Plan (the “2012 Plan”) and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding, the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan” and, together with the 2012 Plan, the “Incentive Plans”). The 2012 Plan was approved by stockholders at the Company’s 2012 annual meeting to replace the 2004 Plan. The 2012 Plan was amended by stockholder approval in February 2015 to increase the number of shares available for issuance from 3,000,000 to 5,000,000 shares of common stock, and in March 2016 to increase the number of shares available for issuance from 5,000,000 to 7,000,000 shares of common stock. At the annual meeting of stockholders held onstock, in August 24, 2017 the stockholders approved an amendment to the 2012 Plan to increase the number of shares available for issuance from 7,000,000 to 15,000,000 shares of common stock. At a special meeting of stockholders held onstock and in May 22, 2019 the stockholders approved an amendment to the 2012 Plan to increase the number of shares available for issuance from 15,000,000 to 25,000,000 shares of common stock. As of May 31, 2019,2020, the Company had 10,374,1441,162,511 shares available for future stock-based grants under the 2012 Plan, as amended.

Stock Options

During the year ended May 31, 2019, the Company granted annual stock option awards to directors to purchase a total of 1,219,726 shares of common stock with an exercise prices ranging between $0.49 and $0.57 per share. These option awards vest quarterly over one year and have aten-year term. The grant date fair value related to these options ranged from $0.29 per share to $0.31 per share.

During the year ended May 31, 2019, the Company granted, to executive management and employees, stock options covering an aggregate of 3,715,000 shares of common stock, with exercise prices ranging between $0.48 and $0.57 per share. The option awards vest annually over three years, except for one award covering 950,000 shares, which vests ratably by month over 24 months. All awards have aten-year term and grant date fair values ranging from $0.26 per share to $0.41 per share.

On January 4, 2019, in connection withDuring the resignationyear ended May 31, 2020, the Company granted annual stock option awards to directors to purchase a total of a director, the Company’s Board of Directors approved the acceleration of all outstanding unvested stock options held by the director, to vest immediately upon the effectiveness of his resignation and to retain the stock options’ exercise period through their respective expiration date. Stock options covering 1,145,8343,236,815 shares of common stock were subject to acceleration.with an exercise prices ranging between $0.39 and $2.25 per share. The other termsperiod over which option awards vest vary, 2,512,329 of the accelerated stock options remained otherwise unchanged. In addition,vest immediately at the expiration terms of certain other previously awardedgrant date and 724,486 options vest quarterly over one year. All awards have a ten-year term and grant date fair values ranging from $0.19 per share to $1.65 per share.

During the year ended May 31, 2020, the Company granted, to executive management, employees and consultants, stock options covering an aggregate of 150,0008,690,000 shares of common stock were extendedwith exercise prices ranging between $0.30 and $1.10 per share. The option awards vesting periods vary, 437,500 options vest quarterly over a one year period, 890,000 options vest annually over a three year period, 1,112,500 vest monthly over a one year period, 1,650,000 vest upon the Company reaching certain performance milestones with regard to its submission of its BLA for HIV combination therapy to the FDA, and 4,600,000 vest immediately at the grant date. All option awards have a ten-year term and grant date fair values ranging from five years$0.12 per share to 10 years. The other terms$0.79 per share.

During the year ended May 31, 2020, the Company issued 8,723,070 shares of common stock in connection with the extendedexercise of stock options remained otherwise unchanged.covering an aggregate of 8,753,828 shares. The stated exercise price ranged from $0.39 to $1.09 per share which resulted in aggregate gross proceeds of approximately $5.6 million.

Warrants

On June 15, 2018, in connection with a registered direct equity offering, as fully described in Note 11,13, the Company issued warrants covering 1,970,000 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.75 per share. In connection with the registered direct offering, the Company also issued warrants covering 133,600 shares of common stock to the placement agent. The placement agent warrants have a five-year term and an exercise price of $0.55 per share.

68


During the year ended May 31, 2019, in connection with a private equity offering, as fully described in Note 10,12, the Company issued warrants covering a total of 23,487,585 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.75 per share. In connection with this offering, the Company also issued warrants covering 4,446,917 shares of common stock to the placement agent. The placement agent warrants have a five-year term, an exercise price of $0.50 per share and a cashless exercise provision.

During the year ended May 31, 2019 the Company issued compensable warrants covering an aggregate of 300,000 shares of common stock to consultants. The warrants have a five-year term, an exercise price of $0.56 per share and a grant date fair value of $0.30 per share. In addition, the Company issued a warrant covering 500,000 shares of common stock to a director. The warrant has aten-year term, an exercise price of $0.51 per share and a grant date fair value of $0.28 per share.

During the year ended May 31, 2019 in connection with the offering of 2019 Short-term Convertible Notes, as fully described in Note 4,5, the Company issued warrants covering a total of 5,460,000 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.30 per share. In connection with this offering, the Company also issued warrants covering 972,000 shares of common stock to the placement agent. The placement agent warrants have a five-year term, an exercise price of $0.50 per share and a cashless exercise provision.

On January 31, February 7 and February 13, 2019, in connection with a registered direct equity offering, the Company issued warrants covering a total of 5,364,240 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.50 per share. In connection with this offering, the Company also issued warrants covering 965,563 shares of common stock to the placement agent. The placement agent warrants have a five-year term, an exercise price of $0.50 per share and a cashless exercise provision.

During the year ended May 31, 2019, in connection with a Secured Convertible Promissory Note, the Company issued warrants covering a total of 5,000,000 shares of common stock to an investor. The investor warrants have a five-year term and an exercise price of $0.30 per share.

During the year ended May 31, 2019, in connection with the issuancesale of Series C Convertible Preferred Stock, the Company issued warrants covering a total of 3,895,000 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.50 per share. In connection with this offering, the Company issued warrants to two lead investors covering an aggregate of 1,000,000 shares of common stock. The lead investor warrants have a five-year term, and an exercise price of $0.50 per share.

On April 5, 2019 and April 15, 2019, in connection with a registered direct equity offering, as fully described in Note 11,13, the Company issued warrants covering 5,465,500 shares of common stock to investors. The investor warrants have a five-year term and an exercise price of $0.50 per share. In connection with the registered direct offering, the Company also issued warrants covering 938,790 shares of common stock to the placement agent. The placement agent warrants have a five-year term and an exercise price of $0.50 per share.

On March 13, 2020, in connection with the sale of Series D convertible preferred stock the Company issued warrants covering a total of 275,625 shares of common stock to investor. The investor warrants have an exercise price of $1.00 per share and a five-year term.

During the year ended May 31, 2020, the Company issued 42,029,203 shares of common stock in connection with the exercise of 45,305,642 warrants. The stated exercise price ranged from $0.30 to $1.35 per share, which resulted in aggregate gross proceeds of approximately $20.5 million.

Compensation expense related to stock options and warrants for the fiscal years ended May 31, 2020, May 31, 2019 and May 31, 2018 and May 31, 2017 was approximately $6.5 million, $3.4 million $1.3 million and $1.2$1.3 million, respectively. The grant date fair value of options and warrants vested during the fiscal years ended May 31, 2020, May 31, 2019, and May 31, 2018 and May 31, 2017 was approximately $3.3 million, $2.1 million, $1.4 million and $0.9$1.4 million, respectively. As of May 31, 2019,2020, there was approximately $4.3$0.8 million of unrecognized compensation expense related to share-based payments for unvested options, withwhich is expected to be recognized over a weighted-average period of approximately 2.418.04 years.

The following table represents stock option and warrant activity for the yearyears ended May 31, 2019:2019 and May 31, 2020:

 

          Weighted       Number of
Shares
   Weighted
Average
Exercise Price
   Weighted
Average
Remaining
Contractual Life
in Years
   Aggregate
Intrinsic Value
 
          Average     
      Weighted   Remaining     
  Number of   Average   Contractual Life   Aggregate 
  Shares   Exercise Price   in Years   Intrinsic Value 

Options and warrants outstanding - May 31, 2018

   132,385,269   $0.80    3.78   $3,673 

Options and warrants outstanding—May 31, 2018

   132,385,269   $0.80    3.78   $3,673 
  

 

         

 

       

Granted

   64,834,121   $0.57    —      —      64,834,121   $0.57    —      —   

Exercised

   (7,541,279  $0.40    —      —      (7,541,279  $0.40    —      —   

Forfeited/expired/cancelled

   (11,086,262  $0.81    —      —      (11,086,262  $0.81    —      —   
  

 

         

 

       

Options and warrants outstanding - May 31, 2019

   178,591,849    0.71    3.75    896,400 

Options and warrants outstanding—May 31, 2019

   178,591,849   $0.71    3.66   $896,400 
  

 

         

 

       

Outstanding exercisable - May 31, 2019

   175,116,515   $0.71    3.66   $896,400 

Granted

   57,720,125   $0.47    —      —   

Exercised

   (101,852,619  $0.56    —      —   

Forfeited/expired/cancelled

   (3,098,826  $0.74    —      —   
  

 

         

 

       

Options and warrants outstanding—May 31, 2020

   131,360,529    0.65    5.79   $302,961,000 
  

 

       

Outstanding exercisable—May 31, 2020

   131,357,234   $0.65    3.79   $295,704,000 
  

 

       

Note 78 – Acquisition of patents and intangibles

As discussed in Note 9 below, the Company consummated an asset purchase on October 16, 2012, and paid $3,500,000 for certain assets, including intellectual property, certain related licenses and sublicenses, FDA filings and various forms of the PRO 140 drug substance. The Company followed the guidance in ASC 805 “Business Combinations” to determine if the Company acquired a business. Based on the prescribed accounting, the Company acquired assets and not a business. As of May 31, 2020 and 2019, the Company

69


has recorded and is amortizing $3,500,000 of intangible assets inrelated to the form of patents.patent rights acquired. The Company estimates the acquired patents havepatent has an estimated life of ten years. Subsequent to the acquisition date, the Company has continued to expand, amend and file new patents central to its current clinical trial strategies, which, in turn, have extended the protection period for certain methods of using PRO 140 and formulations comprising PRO 140 out through at least 2031 and 2038, respectively, in various countries.

On November 16, 2018, the Company completed the acquisition of substantially all of the assets of ProstaGene, LLC (“ProstaGene”), a biotechnologystart-up company, which included patents related to clinical research, a proprietary CCR5 technology for early cancer diagnosis, and a noncompetition agreement with ProstaGene’s founder and Chief Executive Officer, Richard G. Pestell, M.D., Ph.D.Dr. Pestell. The Company accounted for the ProstaGene acquisition as an asset acquisition under ASC805-10-55 “Business Combinations” because the assets retained from ProstaGene do not include an assembled workforce, and the gross value of the assets acquired meets the screen test in ASC805-10-55-5A related to substantially all of the fair value being concentrated in a single asset or group of assets (i.e., the proprietary technology and patents) and, thus, is not considered a business. Thus, management concluded that the acquisition did not include both an input and substantive processes that together significantly contribute to the ability to create outputs. The acquisition of ProstaGene’s assets expandsexpanded the Company’s clinical development of leronlimab (PRO 140) into cancer indications and potential commercialization of certain cancer diagnostic tests. The aggregate purchase price paid for the ProstaGene acquisition was $11,558,000 based on the issuance of 20,278,000 shares of the Company’s common stock at $0.57 per share, including 1,620,000 shares earned, but not yet issued, byto the investment bank for advisory services. In connection with the purchase, the Company entered into a Stock Restriction Agreement with Dr. Pestell, (the “Stock Restriction Agreement”), restricting the transfer of 8,342,000 shares of common

stock payable to Dr. Pestell for a three-year period from the closing date of the ProstaGene transaction (the “Restricted Shares”). InThe Stock Restriction Agreement provided that in the event Dr. Pestell’s employment with the Company is terminated by Dr. Pestell not for Good Reason or by the Company for Cause, as defined in Dr. Pestell’s employment agreement with the Company, the Company will have an option to repurchase such Restricted Shares from Dr. Pestell at a purchase price of $0.001 per share. The Restricted Shares will vest and be released from the Stock Restriction Agreement in three equal annual installments commencing one year after the closing date of the acquisition of ProstaGene. On July 25, 2019, the Company’s Board terminated the employment of Dr. Richard G. Pestell prior to the vesting of any of the Restricted Shares. The vesting and/or release or forfeiture of the Restricted Shares is currently subject to litigation between the Company and Dr. Pestell.

A summary of the net purchase price and allocation to the acquired assets is as follows:

 

  Prostagene LLC   Prostagene
LLC
 

CytoDyn Inc. Equity

  $11,558,000   $11,558,000 

Acquisition Expenses

   741,297    741,297 

Release of Deferred Tax Asset

   2,826,919    2,826,919 
  

 

   

 

 

Total Cost of Acquisition

  $15,126,216   $15,126,216 
  

 

   

 

 

Intangible Assets

  $15,126,216   $15,126,216 

Other

   —      —   
  

 

   

 

 

Allocation of Acquisition Costs

  $15,126,216   $15,126,216 
  

 

   

 

 

Assets acquired from ProstaGene include (1) patents issued in the United States and Australia related to “Prostate Cancer Cell Lines, Gene Signatures and Uses Thereof” and “Use of Modulators of CCR5 in the Treatment of Cancer and Cancer Metastasis,” (2) an algorithm used to identify a14-gene signature to predict the likelihood and severity of cancer diagnoses, and (3) a noncompetition agreement in connection with an employment agreement with Dr. Pestell as Chief Medical Officer of the Company. The fair value of the assets acquired approximates the consideration paid. The Company did not assume any liabilities. The fair value of the technology acquired is identified using the Income Approach. The fair value of the patents acquired is identified using the Cost to Reproduce Method. The fair value of noncompetition agreement acquired is identified using the Residual Value Method. Goodwill is not recorded as the transaction represents an asset acquisition in accordance with ASU2017-01. Acquisition costs for asset acquisitions are capitalized and included in the total cost of the transaction. In addition, pursuant to ASC 805, the net tax effect of the deferred tax liability arising from the book to tax basis differences is recorded as a cost of the acquisition

As of May 31, 2020 and 2019, the Company has recorded and is amortizing $4,600,000 of intangible assets in the form of patents attributable to the PRO 140 acquisition and the ProstaGene transaction. The Company estimates the acquired patents have an estimated life of ten years. Subsequent to the acquisition dates, the Company has continued to expand, amend and file new patents central to its current clinical trial strategies, which, in turn, have extended the protection period for certain methods of using PRO 140 and formulations comprising PRO 140 out through at least 2031 and 2038, respectively, in various countries.

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The following presents intangible assets activity, inclusive of patents:

 

  May 31, 2019   May 31, 2018   May 31,
2020
   May 31,
2019
 

Gross carrying amounts

  $3,500,000   $3,500,000   $3,500,000   $3,500,000 

Intangible asset acquisition:

        

Prostagene, LLC

   15,126,216    —   

ProstaGene, LLC

   15,126,216    15,126,216 

Website development costs

   19,553      19,553    19,553 

Accumulated amortization

   (3,170,315   (1,968,846   (5,189,897   (3,170,315
  

 

   

 

   

 

   

 

 

Total amortizable intangible assets, net

   15,475,454    1,531,154    13,455,872    15,475,454 

Patents currently not amortized

   —      35,989    —      —   
  

 

   

 

   

 

   

 

 

Carrying value of intangibles, net

  $15,475,454   $1,567,143   $13,455,872   $15,475,454 
  

 

   

 

   

 

   

 

 

Amortization expense related to all intangible assets was approximately $2,020,000 for the fiscal year ended May 31, 2020, approximately $1,237,000 for the fiscal year ended May 31, 2019 and approximately $350,000 for each of the fiscal yearsyear ended May 31, 2018 and May 31, 2017.2018. The estimated aggregate future amortization expense related to the Company’s intangible assets with finite lives is estimated to be approximately $2$2.0 million per year for the next two years,year, approximately $1.7 million the following year, and approximately $1.4$1.2 million for the next year, and $1.2$1.0 million per year for the following year.2 years.

Note 89 – License Agreements

The Company has atwo license agreementagreements with a third-party licensor covering the licensor’s “systemknow-how” technology with respect to the Company’s use of proprietary cell lines to manufacture new PRO 140leronlimab (PRO 140) material. The Company accrues an annual license feefees of £300,000£600,000 (approximately US$365,000741,000 utilizing current exchange rates), which isfees are payable annually in December. The December 2018 payment date was extended to April 15, 2019 and the December 2017 date payment was extended to March 15, 2018. Future annual license fees and royalty rate will vary depending on whether the Company manufactures PRO 140,leronlimab (PRO 140), utilizes the third-party licensor as a contract manufacturer, or utilizes an independent party as a contract manufacturer. The licensor does not charge an annual license fee when it serves as the manufacturer. In addition, the Company will incur royalties of up to 0.75% to 2% of net sales, depending upon who serves as the manufacturer, when the Company commences their first commercial sale, which will continue as long as the license agreement is maintained. For the fiscal year ended May 31, 2020 the Company had recorded a prepaid asset of approximately $100,000 recorded related to this arrangement. For the year ended May 31, 2019 the Company had recorded an accrued liability of approximately $160,000 related to this arrangement.

Note 910 – Commitments and Contingencies

Under the Progenics Purchase Agreement, the Company acquired rights to the HIV viral-entry inhibitor drug candidate PRO 140, a humanized anti-CCR5 monoclonal antibody, as well as certain other related assets, including the existing inventory of bulk PRO 140 drug product, intellectual property, certain related licenses and sublicenses, and FDA regulatory filings. In connection with purchase, the Company has one remaining milestone payment of $5.0 million, which will become due at the time of the first U.S. new drug application approval by the FDA or othernon-U.S. approval for the sale of PRO 140. In addition, the Company will incur royalty payments of up to 5% on net sales during the period beginning on the date of the first commercial sale of PRO 140 until the later of (a) the expiration of the last to expire patent included in the acquired assets, and (b) 10 years, in each case determined on acountry-by country basis.

During the year ended May 31, 2016 the Company paid a milestone obligation of $1.5 million owed to Progenics as a result of the first dosing in a U.S. Phase 3 trial. To the extent that the remaining milestone payment and royalties are not timely made, under the terms of the Progenics Purchase Agreement, Progenics has certain repurchase rights relating to the assets sold to the Company thereunder. As of the date of this filing, it is management’s conclusion that the probability of achieving the subsequent future scientific research milestone is not reasonably determinable, thus the future milestone payments payable to Progenics and itssub-licensors are deemed contingent consideration and, therefore, are not currently accruable.

Payments to the third-party licensor and to Progenics are in addition to payments due under a Development and License Agreement, dated April 30, 1999 (the “PDL License”), between Protein Design Labs (now AbbVie Inc.) (“PDL”) and Progenics, which was assigned to the Company in the Progenics Purchase Agreement, pursuant to which the Company has an exclusive worldwide license to develop, make, have made, import, use, sell, offer to sell or have sold products that incorporate the humanized form of the PRO 140 antibody developed by PDL under the agreement the Company has paid various milestone obligations, with two remaining milestone payments of $0.5 million each, one payment of $0.5 million upon filing a BLA with the FDA ornon-U.S. equivalent regulatory body and a second payment of $0.5 million, which will become due upon FDA approval or approval by anothernon-U.S. equivalent regulatory body. In addition, the Company will incur royalties of up to 3.5% of net sales for the longer of 10 years and the date of expiration of the last to expire licensed patent. Additionally, the PDL License provides for an annual maintenance fee of $150,000 or until annual royalties paid exceed that amount. To the extent the remaining milestone payment and royalties are not timely made, under the terms of the PDL License, AbbVie Inc. has certain termination rights relating to the Company’s license of PRO 140 thereunder. As of the date of this filing, it is management’s conclusion that the probability of achieving the subsequent future scientific research milestones is not reasonably determinable, thus the future milestone payments payable to PDL, Progenics and itssub-licensors are deemed contingent consideration and, therefore, are not currently accruable.

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During the fourth quarter of fiscal 2019, the Company entered into a Master Services Agreement and Product Specific Agreement (collectively, the “Samsung Agreement”) with Samsung BioLogics Co., Ltd. (“Samsung”), pursuant to which Samsung will perform technology transfer, process validation, manufacturing and supply services for the commercial supply of leronlimab. In April 2019As of fiscal year end 2020, the Company delivered to Samsung a purchase order for $33orders totaling approximately $28 million worth of process validation and technology transfer services related to the manufacture of leronlimab and payments totaling $14 million, with additional payments by the Company scheduled to be made throughout calendar 2020. Under the Samsung Agreement, the purchase order is binding and the Company is obligated to pay the full amount of the purchase order. Under the terms of the Samsung Agreement, the Company is obligated to make specified minimum purchases of leronlimab from Samsung pursuant to forecasted requirements which the Company willis required to provide to Samsung. The first forecast will be delivered to Samsung by March 31, 2020. Thereafter,schedules 11 manufacturing batches all beginning in the Company must provide Samsung with a rolling quarterly forecastfirst quarter of fiscal year 2021, setting forth the total quantity of commercial grade leronlimab that the Company expects to require in the following years. The Company estimates that initialramp-up costs to manufacture commercial grade leronlimab at scale could total approximately $60$116 million, with approximately $30$69 million payable over the course of calendar 2020, of which $30 million has been paid as of the date of this filing, and approximately $30$23 million payable during calendar 2021, and approximately

$24 million payable in the first quarterJanaury of 2021.2022. Thereafter, the Company will pay Samsung per 15,000L batch according to the pricing terms specified in the Samsung Agreement. The Samsung Agreement has an initial term ending in December 2027 and will be automatically extended for additional two yeartwo-year periods unless either party gives notice of termination at least six months prior to the then current term. Either party may terminate the Samsung Agreement in the event of the other party’s insolvency or uncured material breach, and the Company may terminate the agreement in the event of a voluntary or involuntary complete market withdrawal of leronlimab from commercial markets, with one and half year’s prior notice. Neither party may assign the agreement without the consent of the other, except in the event of a sale of all or substantially all of the assets of a party to which the agreement relates.

On May 22, 2020, the Company entered into a Drug Product Manufacturing Services Agreement with Samsung (the “Samsung Vial Filling Agreement”), pursuant to which Samsung will perform technology transfer, process validation, vial filling and storage services for clinical, pre-approval inspection, and commercial supply of leronlimab. Under the terms of the Samsung Vial Filling Agreement, the Company is obligated to have specified minimum quantities of vials filed with leronlimab by Samsung pursuant to forecasted requirements which the Company is required to provide to Samsung. The Company has not provided a forecast to Samsung, however based on set-up related costs and manufacturing commitments pursuant to the Samsung Agreement the Company expects to deliver commitments of approximately $2.3 million in the form of purchase orders related to the Samsung Vial Filling Agreement through January 2021.

In addition to our manufacturing agreement with Samsung, the Company also previously entered into an arrangement with another third partythird-party contract manufacturer to provide process transfer, validation and manufacturing services for leronlimab. In the event that the Company terminates the agreement with this manufacturer, the Company may incur certain financial penalties which would become payable to the manufacturer. Conditioned upon the timing of termination, the financial penalties may total approximately $8.3$2.1 million. These amount and timing of the financial commitments under an agreement with our secondary contract manufacturer will depend on the timing of the anticipated approval of our BLA and the initial product demand forecast, which is critical to align the timing of capital resources in order to ensure availability of sufficient quantities of commercial product.

The Company has entered into project work orders, as amended, for each of its CRO and related laboratory vendors. Under the terms of these agreements, the Company incurs execution fees for direct services costs, which are recorded as a current asset. In the event the Company were to terminate any trial, it may incur certain financial penalties which would become payable to the CRO. Conditioned upon the form of termination of any one trial, the financial penalties may range up to $0.3$0.8 million. In the remote circumstance that the Company would terminate all clinical trials, the collective financial penalties may range from an approximate low of $0.5$1.6 million to an approximate high of $1.2$3.6 million.

On June 29, 2020, the Company issued the note holder of the January 2019 Note 4,000,000 shares of common stock with a settlement value of $22.5 million. These shares were issued as settlement for a claim filed by the note holder against the Company alleging that the note holder was owed additional shares upon conversion of the note compared to the number of shares requested of the Company by the note holder upon conversion.

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.

Note 10—11 – Public Warrant Tender Offerings

During June 1, 2019 to July 31, 2019, the Company conducted two public warrant tender offers, in which accredited investors purchased common stock at either $0.30 or $0.40 per share. Pursuant to the offering, the Company sold a total of 45,375,923 shares of common stock, $0.001 par value, for aggregate gross proceeds of

approximately $11.9 million. The Company paid placement agent fees of approximately $1.1 million for services in connection with the tender offers. The Company also recorded a non-cash inducement interest expense of approximately $2.4 million in connection with the tender offers.

Note 12 – Private Securities Offerings

On November 30, 2017, the Company completed an offer and sale (the “Make-Whole Offering”) of an aggregate of 503,015 shares of Common Stock (the “Make-Whole Shares”) and warrants to purchase up to 251,504 shares of common stock (the “Make-Whole Warrants” and, collectively with the Make-Whole Shares, the “Make-Whole Securities”). The Make-Whole Securities issued were unregistered.

The Make-Whole Securities were offered pursuant to a form of Waiver and Subscription Agreement (the “Waiver and Subscription Agreement”). The Make-Whole Securities representrepresented the difference in the numbers of shares of Common Stock and warrants that would have been sold to investors in the September 2017 Offering had the reduced purchase price of $0.65 per share of Common Stock and related Warrants in the October 2017 Offering, registered direct offering (as compared to $0.75 in the September 2017 Offering) and the reduced warrant exercise price of $0.75 in the October 2017 Offering (as compared to $1.00 in the September 2017 Offering) applied to the September 2017 Offering as well. The Make-Whole Securities were offered as

72


consideration for the release of potential claims by participating investors. In connection with these arrangements, the exercise prices of any warrants previously sold in the September 2017 Offering to participating investors has also been reduced to $0.75 from $1.00. In addition, warrants previously issued to the placement agent (or its designees) in respect of participating investors have also been proportionately adjusted to reflect a reduced exercise price of $0.715 (as compared to $0.825 in the September 2017 Offering) and 26,702 additional shares.

In connection with thean November 24, 2017 Offer to amend and exercise certain eligible warrants at a reduced exercise price of $0.50 per share of common stock, on March 23, 2018, the Company issued 2,470,585 shares of common stock to warrant holders who participated in the Offer, in exchange for their eligible warrants, in a private securities offering.

During the year ended May 31, 2018, the Company conducted a private equity offering, in which accredited investors purchased unregistered common stock at $0.50 per share with warrant coverage ratio of 100%, based on the number of shares of common stock purchased. Pursuant to the offering, the Company sold a total of 35,286,904 shares of common stock for aggregate gross proceeds of $17.6 million and issued warrants covering an aggregate of 35,286,904 shares of common stock with a five-year term and an exercise price of $0.75 per share. In connection with the offering, the placement agent received a warrant covering 2,813,491 shares of common stock, with a five-year term, an exercise price of $0.55 per share, and includeincluding a cashless exercise provision.

During the year ended May 31, 2019, the Company conducted private equity offerings (the “Equity Offerings”), in which accredited investors purchased unregistered common stock at $0.50 per share with warrant coverage of 50% based on the number of shares of common stock purchased. Pursuant to the Equity Offerings, the Company sold a total of 46,975,170 shares of common stock, $0.001 par value, for aggregate gross proceeds of approximately $23.5 million and issued five-year warrants covering 23,487,585 shares of common stock.stock, with an exercise price of $.75 per share. In conjunction with the Equity Offerings, the Company paid an aggregate cash fee of approximately $2.7 million to the placement agent and issued warrants covering an aggregate of 4,446,917 shares of common stock to the placement agent as additional compensation.

On May 8, 2019, the Company entered into a private warrant exchange in which accredited investors purchased unregistered common stock at the lower of the stated exercise price on their warrant or $0.40 per share of common stock. The Company sold 7,541,279 shares of common stock, as well as 3,770,638 additional shares as an inducement to exercise their warrants, for a total of 11,311,917 shares of common stock, $0.001 par value.

Aggregate gross proceeds from the private warrant exchange were approximately $3.0 million. In conjunction with the private warrant exchange, the Company incurred anon-cash inducement interest expense of approximately $0.2 million and paid an aggregate cash fee of approximately $0.3 million to the placement agent.

On December 20, 2019, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered common stock at a range of $0.22 to $0.25 per share as compared to the stated exercise price ranging from 0.45 to $0.75 per share of common stock. The Company sold 3,350,000 shares of common stock, as well as 1,340,000 additional shares as an inducement to exercise their warrants, for a total of 4,690,000 shares of common stock, $0.001 par value. Aggregate gross proceeds from the private warrant exchange were approximately $0.8 million.

On December 30, 2019, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered common stock at a reduced exercise price per share of $0.50 for any warrant with a stated exercise price greater than $0.50 per share and no discount for warrants with a stated exercise price equal to or less than $0.50 per share. The Company sold 2,230,000 shares of common stock, as well as 446,000 additional shares as an inducement to exercise their warrants, for a total of 2,676,000 shares of common stock, $0.001 par value. Aggregate gross proceeds from the private warrant exchange were approximately $1.1 million.

During January 2020, the Company entered into a private warrant exchange in which certain accredited investors purchased unregistered common stock at a reduced exercise price per share of $0.50 for any warrant with a stated exercise price greater than $0.50 per share and no discount for warrants with a stated exercise price equal to or less than $0.50 per share. The Company issued 4,040,000 shares of common stock, as well as 408,000 additional shares as an inducement to exercise their warrants, for a total of 4,448,000 shares of common stock, $0.001 par value. Aggregate gross proceeds from the private warrant exchange were approximately $1.9 million.

From February 28, 2020, the Company entered into a private warrant exchange in which certain accredited investors purchased common stock at a range of $0.18 to $0.45 per share as compared to the stated exercise price on their warrant, which ranged from $0.30 to $0.75 per share of common stock. The Company issued 7,842,500 shares of common stock, as well as 784,245 additional shares as an inducement to exercise their warrants, for a total of 8,626,745 shares of common stock, $0.001 par value. Aggregate gross proceeds from the private warrant exchange were approximately $2.2 million.

On March 4, 2020, the Completed a private warrant exchange in which an accredited investor purchased Common Stock at a price of $0.45 per share as compared to the stated exercise price of $0.75. The Company issued 80,000 shares of Common Stock, as well as 8,000 additional shares as an inducement to exercise their warrants, for a total of 88,000 shares of common stock, $0.001 par value, resulting in gross proceeds of approximately $36,000.

For the year-ended May 31, 2020 the Company recorded non-cash inducement interest expense of approximately $5.5 million in connection with the private warrant exchange offerings.

Note 11—13 – Registered Direct Equity Offerings

On June 15, 2018, the Company entered into subscription agreements with certain investors for the sale of 1,970,000 shares of common stock at a purchase price of $0.50 per shares in a registered direct offering, (the “June 2018 Offering”), pursuant to a registration statement on FormS-3. The investors in the June 2018 Offeringthis offering also received warrants to purchase 1,970,000 shares of common stock with an exercise price of $0.75 per share and a five-year term. The Company received net proceeds from the June 2018 Offeringoffering of approximately $0.9 million. In addition, the placement agent received warrants covering 133,600 shares of common stock (or 8% of total shares sold to investors) with a per share exercise price of $0.55, a five-year term and include a cashless exercise provision.

Between January 31, 2019 and February 13, 2019, the Company entered into subscription agreements with certain investors for the sale of 10,728,480 shares of common stock at a purchase price of $0.50 per share in a

registered direct offering, pursuant to a registration statement on FormS-3. The investors in this offering also received warrants to purchase 5,364,240 shares of common stock with an exercise price of $0.50 per share and a five-year term. The Company received net proceeds from the offering of approximately $4.8 million. In addition, the placement agent received warrants covering 965,563 shares of common stock (or 9% of total shares sold to investors) with a per share exercise price of $0.50 and a five-year term and included a cashless exercise provision.

On April 5, 2019 and April 15, 2019, the Company entered into subscription agreements with certain investors for the sale of 10,931,000 shares of common stock at a purchase price of $0.50 per share in a registered direct offering, pursuant to a registration statement on FormS-3. The investors in this offering also received warrants to purchase 5,465,500 shares of common stock with an exercise price of $0.50 per share and a five-year term. The Company received net proceeds from the offering of approximately $5.0 million. In addition, the placement agent received warrants covering 938,790 shares of common stock (or 9% of the total shares sold to investors) with a per share exercise price of $0.50 and a five-year term and included a cashless exercise provision.

During June 1, 2019 to November 30, 2019, the Company entered into subscription agreements with certain investors for the sale of 19,100,333 shares of common stock at purchase prices ranging between $0.30 and $0.40 per share in registered direct offerings, pursuant to a registration statement on Form S-3. The investors in these offerings also received warrants to purchase 11,987,250 shares of common stock with an exercise price of $0.45 per share and a five-year term. The Company received net proceeds from the offerings of approximately $6.3 million. In addition, the placement agent received warrants covering 655,305 shares of common stock (or 1.3% of total shares sold to investors) with per share exercise prices ranging between $0.40 and $0.444, a five-year term and a cashless exercise provision.

73On December 9, 2019, the Company entered into subscription agreements with certain investors for the sale of 2,568,330 shares of common stock at a purchase price of $0.30 per share in a registered direct offering, pursuant to a registration statement on Form S-3. The investors in this offering also received warrants to purchase 1,926,248 shares of common stock with an exercise price of $0.45 per share and a five-year term. The Company received net proceeds from the offering of approximately $0.75 million.

On December 13, 2019, the Company entered into subscription agreements with certain investors for the sale of 2,433,333 shares of common stock at a purchase price of $0.30 per share in a registered direct offering, pursuant to a registration statement on Form S-3. The investors in this offering also received warrants to purchase 1,825,000 shares of common stock with an exercise price of $0.45 per share and a five-year term. The Company received net proceeds from the offering of approximately $0.73 million.

On December 23, 2019, the Company entered into subscription agreements for the sale of 14,754,098 shares of common stock and warrants to purchase up to an aggregate of 7,377,049 shares of common stock for a combined purchase price of $0.305 per share, pursuant to a registration statement on Form S-3. The Company received net proceeds from this Offering of approximately $4.5 million. Each share of common stock was sold together with one-half of one warrant to purchase one share of common stock for a combined purchase price of $0.305 per share. As partial consideration for execution of the License Agreement and the Supply Agreement, Vyera’s parent company, Phoenixus AG (“Phoenixus”), made a $4.0 million equity investment in the Company. The December 23, 2019 offering also included $0.5 million of shares of common stock and related warrants sold to an entity associated with David F. Welch, a member of the Company’s board of directors, on terms identical to those applicable to Phoenixus.

Note 14 – Stock Grants to Employees

On December 24, 2019, the Company issued a total of 379,880 shares of registered common stock to two executives in connection with the stock portion of their incentive compensation earned for the fiscal year ended May 31, 2018. The two executives simultaneously tendered back to the Company a total of 126,997 shares of the registered common stock to cover the income tax withholding requirements.


On January 28, 2020, the Company awarded 11,650,000 performance shares to certain of its directors and executive officers outside of the 2012 Plan “January 2020 Performance Shares”). The awards will vest and be settled in shares of common stock of the Company if the Company achieves FDA Breakthrough Therapy designation for cancer within 6 months of the award date and if certain other requirements have been met. The awards lapsed on July 28, 2020.

Note 1215 – Employee Benefit Plan

The Company has an employee savings plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of its employees. The Company makes a qualifiednon-elective contribution of 3%, which consequently vests immediately. In addition, participants in the Plan may contribute a percentage of their compensation, but not in excess of the maximum allowed under the Code. During the year ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017,2018, the Company incurred an expense of approximately $97,000, $111,000 $61,000 and $40,300,$61,000, respectively, for qualifiednon-elective contributions.

Note 1316 – 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. Other than approximately a $2.8 million benefit from a basis difference in the acquired assets of ProstaGene, due to the valuation allowance for deferred tax assets, as noted below, there was no other net deferred tax benefit or expense for the periods ended May 31, 2019,2020, May 31, 20182019 and May 31, 2017.2018.

Reconciliation of the federal statutory income tax rate of 21% for the year ended May 31, 2019,2020, the federal statutory blended rate of 21% for the year ended May 31, 2019 and the federal statutory rate of 28.6% for the year ended May 31, 2018, and the federal statutory rate of 34% for the year ended May 31, 2017, to the effective income tax rate is as follows for all periods presented:

 

   2019  2018  2017 

Income tax provision at statutory rate:

   21.0  28.6  34.0

State income taxes net

   —     —     —   

Rate Change

   —     (34.8  —   

Loss on debt extinguishment

   (0.5  —     —   

Derivative gain/loss

   0.6   1.0   2.8 

Valuation allowance release from Asset Acquisition

   4.8   —     —   

Non-deductible debt issuance costs

   —     (0.2  —   

Non-deductible interest on conversion

   (0.3  (0.1  —   

Inducement charge

   (0.1  (2.0  (1.0

Other

   —     (1.1  —   

Miscellaneous

   —     (0.1  (0.1

Current year credits generated

   —     4.4   —   

Credit carry forward generated (released)

   (3.8  4.1   —   

Valuation allowance

   (16.9  0.3   (35.7
  

 

 

  

 

 

  

 

 

 
   4.8%  0%  0% 
  

 

 

  

 

 

  

 

 

 

74

   2020  2019  2018 

Income tax provision at statutory rate:

   21.0  21.0  28.6

State income taxes net

   —     —     —   

Rate change

   —     —     (34.8

Loss on debt extinguishment

   —     (0.5  —   

Derivative gain (loss)

   (1.6  0.6   1.0 

Valuation allowance release from asset acquisition

   —     4.8   —   

Non-deductible debt issuance costs

   (0.1  —     (0.2

Non-deductible interest on convertible notes

   (1.2  (0.3  (0.1

Inducement interest expense

   (1.3  (0.1  (2.0

Other

   (0.3  —     (1.1

Miscellaneous

   —     —     (0.1

Current year credits generated

   —     —     4.4 

Credit carry forward generated (released)

   (0.1  (3.8  4.1 

Non-deductible debt discount amortization

   (0.3  —     —   

IRC 162(m) limitation

   (2.4  —     —   

Stock compensation in excess of ASC 718

   3.2   —     —   

Non-deductible legal settlement expense

   (3.8  —     —   

Valuation allowance

   (13.1  (16.9  0.3 
  

 

 

  

 

 

  

 

 

 

Effective income tax rate

   0.0%   4.8%   0.0% 
  

 

 

  

 

 

  

 

 

 


Net deferred tax assets and liabilities are comprised of the following as of May 31, 20192020 and 2018:2019:

 

   2019   2018 

Deferred tax asset (liability)non-current:

    

Net Operating Loss

   39,996,561    29,230,279 

Credits

   2,062,692    4,260,470 

ASC 718 Expense on NQO’s

   3,628,085    2,916,585 

Charitable Contribution - Carry forward

   —      —   

Accrued Expenses

   251,293    117,880 

Fixed Assets

   (340   174 

Amortization

   329,360    139,875 

Capitalized Debt Issuance Costs

   —      —   

Debt Discount

   (308,621   —   

Basis difference in acquired assets

   (2,826,919   —   

Valuation allowance

   (43,132,111   (36,665,263
  

 

 

   

 

 

 
   —      —   
  

 

 

   

 

 

 

Noncurrent asset

   43,132,111    36,665,263 

Valuation Allowance

   (43,132,111   (36,665,263
  

 

 

   

 

 

 
   —      —   
  

 

 

   

 

 

 
   2020   2019 

Deferred tax asset (liability) non-current:

    

Net operating loss

  $55,624,018   $39,996,561 

Credits

   2,062,692    2,062,692 

ASC 718 expense on NQO’s

   4,069,035    3,628,085 

Charitable contribution—carry forward

   —      —   

Accrued vacation & payroll

   111,514    —   

ASC 842 lease accounting

   (429   —   

Accrued expenses

   349,384    251,293 

Fixed assets

   (454   (340

Amortization

   372,877    329,360 

Debt discount

   —      (308,621

Basis difference in acquired assets

   (2,483,097   (2,826,919

Valuation allowance

   (60,105,540   (43,132,111
  

 

 

   

 

 

 

Deferred tax asset (liability) non-current

  $—     $—   
  

 

 

   

 

 

 

Noncurrent asset (liabilities)

   60,105,540    43,132,111 

Valuation allowance

   (60,105,540   (43,132,111
  

 

 

   

 

 

 

Deferred tax asset (liability) non-current

  $—     $—   
  

 

 

   

 

 

 

The income 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, 2019,2020, May 31, 20182019 and May 31, 20172018 the Company had available net operating loss carry forwards of approximately $264.9 million, $190.5 million $139.2 million and $95.6$139.2 million, respectively, which expire beginning in 2023.

The Company’s income tax returns remain subject to examination by all tax jurisdictions for tax years ended May 31, 20152016 through 2018.2019.

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Note 1417 – Related Party Transactions

On July 26, 2017, Jordan G. Naydenov, a director with the Company, participated in the private placement of 2017 Notes, as fully described in Note 4 above. Mr. Naydenov purchased a promissory note, bearing interest of 7%, for $100,000 in aggregate principal and received a warrant covering 66,666 shares of common stock at an exercise price of $1.00. The terms and conditions of Mr. Naydenov’s investment were identical to those offered to all other investors in the offering and his investment was approved by the Audit Committee of the Board of Directors.

On July 28, 2017, AVCP, participated in the private placement of 2017 Notes, as fully described in Note 4 above. Carl C. Dockery, the principal of AVCP, is a directorDirectors (the “Board”) reviews and approves all related party transactions. The above terms and amounts are not necessarily indicative of the Company. AVCP purchased a promissory note, bearing interest of 7%, for $50,000 in aggregate principal and received a warrant covering 33,333 shares of common stock at an exercise price of $1.00. The terms and conditions of the AVCP investment were identical to those offered to all other investors in the offering and his investment was approved by the Audit Committee of the Board of Directors.

On November 8, 2017, in connectionamounts that would have been incurred had comparable transactions been entered into with a private equity offering, a limited liability company in which Anthony D. Caracciolo, Executive Chairman of the Company, holds a partial ownership interest, purchased $100,000 of common stock and warrants on terms identical to those applicable to the other investors in the private equity offering.

On January 31, 2018 each of Mr. Caracciolo, Mr. Naydenov and AVCP participated with other investors in the offering of common stock and warrants in satisfaction of the payment obligations relating to the 2017 Notes, as fully described in Note 11 above.independent parties.

On July 12, 2018, the Company announced certain leadership changes in connection with the strategic expansion and entry into certain cancer and immunologic indications. In connection with such leadership changes and effective July 11, 2018, Denis R. Burger, Ph.D. and A. Bruce Montgomery, M.D., resigned as members the Board of Directors.Board. Dr. Burger also resigned as Chief Science Officer of the Company, which was not an executive officer position. On July 10, 2018, Inin connection with the resignations of Dr. Burger and Dr. Montgomery, the Board of Directors determined to accelerate the vesting of all outstanding and unvested stock options held by Dr. Burger and Dr. Montgomery. Upon the effectiveness of their resignations, stock options covering 500,000 shares and 100,000 shares, held by Dr. Burger and Dr. Montgomery, respectively, became fully vested. The stock options retained their exercise period through their respective expiration dates and the terms of the stock options remained otherwise unchanged.

On November 16, 2018, the Company closed its acquisition of ProstaGene assets, as described in Note 7.8. In connection with the closing of the acquisition, the Company hired Dr.Richard Pestell, M.D., as its Chief Medical Officer. As previously disclosed by the Company, prior to the acquisition Dr. Pestell iswas the holder of approximately 77.2% of the outstanding equity interests in ProstaGene and consequently holdsheld an indirect interest in approximately (i) 8,611,427 of 13,258,000 shares of the Company’s common stock and (ii) 4,171,013 of 5,400,000 shares of common stock, currently held in escrow for the benefit of ProstaGene and its members, which arewere subject to forfeiture to satisfy certain indemnity obligations of ProstaGene and will besubject to being released ratably every six months over the eighteen-month period following the closing date. In addition, as specified in a Stock Restriction Agreement with the Company entered into on the closing date, 8,342,000 additional shares of common stock previously distributed to Dr. Pestell in the ProstaGene acquisition are currently subject to transfer restrictions and forfeiture obligations, subject to certain continuing employment obligations of Dr. Pestell, which will vest ratably each year over the three-years period following the closing date.obligations.

As specified in a Confidential Information, Inventions and Noncompetition Agreement between the Company and Dr. Pestell, which was entered into on the closing date of the ProstaGene acquisition, the Company mayobtained the right to participate in the development and license of certain intellectual property created by Dr. Pestell, in connection with Dr. Pestell’s then ongoing research obligations to outside academic institutions. The Company also hasobtained the right to work with Dr. Pestell to manage any potential conflict between the Company’s clinical development activities and such ongoing research obligations.

On December 10, 2018, Anthony D. Caracciolo resigned as the Chairman of the Board of Directors, but remained a director and Scott A. Kelly, M.D., was named Chairman of the Board of Directors.Board. On December 19, 2018, the Compensation Committee of the Board of Directors approved an amendment to certain compensation arrangements for Anthony D. Caracciolo, pursuant to which his employment with the Company would be extended through April 16, 2019, at a salary reduced from $16,667 to $5,000 per month, with continuing benefits. In addition, the Compensation Committee approved an extension to 10 years of the expiration terms of certain previously awarded stock options covering an aggregate of 150,000 shares of the Company’s common stock, provided that such stock optionswere out-of-the-money upon the date of such extension. These arrangements were conditioned upon Mr. Caracciolo’s agreement to resign from the Board of Directors upon identification by the Company of an appropriately qualified candidate to fill the vacancy. Mr. Caracciolo had agreed to the foregoing terms and his resignation was effective January 10, 2019. These arrangements were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

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On January 8, 2019, Argonne Trading LLC (“Argonne”), participated in the private placement of convertible promissory notes, as fully described in Note 4.5. Michael A. Klump, the manager of Argonne, iswas a director of the Company.Company at the time of investment. Argonne purchased a convertible promissory note, bearing interest of 10% for $500,000 in aggregate principal and received a warrant covering 500,000 shares of common stock at an exercise price of $0.30 per share. The terms and conditions of the Argonne investment were identical to those offered to all other investors in the offering and his investment was approved by the Audit Committee of the Board of Directors.Board.

On May 8, 2019, Dr. David F. Welch entered into Exercise Agreements for warrants beneficially owned by him, covering an aggregate of 1,651,281 shares of common stock and 825,640 additional shares. Additionally, Michael A. Klump entered into Exercise Agreements for warrants beneficially owned by him, covering an aggregate of 3,625,000 shares of common stock and 1,812,499 additional shares. Dr. Welch and Mr. Klump arewere members of the Company’s board of directors at the time of exercise and participated on terms identical to those applicable to other investors.

On July 15, 2019, the Company entered into consulting agreements with two of its directors, one with Scott A. Kelly, M.D. in the capacity of non-executive Chief Science Officer, the other with David F. Welch, Ph.D. in the capacity of non-executive interim Strategy Advisor. Dr. Kelly’s agreement terminated on April 9, 2020 when he became the Company’s Chief Medical Officer in a full-time employee capacity. On September 12, 2019, the

Company and Dr. Welch agreed to amend his consulting agreement to eliminate any cash compensation (including previously earned entitlements) thereunder and in October 2019, the consulting agreement between Dr. Welch and the Company was terminated. The Audit CommitteeCompany has issued stock options covering an aggregate of 1,375,000 shares of common stock to Dr. Kelly and Dr. Welch as compensation pursuant to such agreements, including options to Dr. Kelly for 750,000 shares at an exercise price of $0.385, on September 12, 2019, and 187,500 shares at an exercise price of $0.39, on October 7, 2019; and options to Dr. Welch for 250,000 shares at an exercise price of $0.385, on September 12, 2019, and 187,500 shares at an exercise price of $0.39, on October 7, 2019. The options granted on September 12, 2019 vested immediately upon issuance and have a 10-year expiration term. The options issued on October 7, 2019 vest in four equal quarterly installments beginning on the grant date and have a 10-year expiration term.

On June 12, 2019, the Company concluded a warrant tender offer (the “June 2019 Warrant Tender Offer”) for certain outstanding series of eligible warrants, offering the holders of such warrants the opportunity to amend and exercise their warrants at a reduced exercise price equal to the lower of (i) their respective existing exercise price or (ii) $0.40 per share of common stock. As an inducement to holders to participate in the June 2019 Warrant Tender Offer, the Company offered to issue to participating holders shares of common stock equal to an additional 50% of the Boardnumber of Directors reviewsshares issuable upon exercise of the eligible warrants (collectively, the “Additional Shares”). Dr. Kelly validly tendered warrants beneficially owned by him, covering an aggregate of 50,000 shares of common stock, and approves all related party transactions.received 25,000 Additional Shares. Dr. Kelly participated on terms identical to those applicable to other holders in the June 2019 Warrant Tender Offer.

On July 31, 2019, the Company concluded an additional warrant tender offer on terms identical to the June 2019 Warrant Tender Offer (the “July 2019 Warrant Tender Offer”). Dr. Welch tendered warrants beneficially owned by him, covering an aggregate of 1,000,000 shares of common stock, and received 500,000 Additional Shares. Dr. Welch participated on terms identical to those applicable to other holders in the July 2019 Warrant Tender Offer.

On September 30, 2019, an entity controlled by Dr. Welch exchanged a 2019 Short-term Convertible Note in the principal amount of $1 million and accrued but unpaid interest of $75,343, for an Exchange Note in the principal amount of $1,075,343 and a warrant to purchase 1,000,000 shares of common stock. The aboveentity controlled by Dr. Welch participated on similar terms to the other holders in the exchange.

On October 8, 2019, an entity controlled by then director, Mr. Michael Klump, exchanged a 2019 Short-term Convertible Note in the principal amount of $0.5 million and accrued but unpaid interest of $37,397, for an Exchange Note in the principal amount of $537,397 and a warrant to purchase 500,000 shares of common stock. The entity controlled by Mr. Klump participated on similar terms to the other holders in the exchange.

On December 13, 2019, Mr. Jordan Naydenov, a director of the Company, participated in a registered direct equity offering. Mr. Naydenov purchased 833,333 shares of common stock and received warrants covering 625,000 shares. The terms and amounts are not necessarily indicativeconditions of Mr. Naydenov’s $250,000 investment were identical to those offered to other investors in this offering.

On December 23, 2019, an entity controlled by Dr. Welch participated in a registered direct equity offering. The entity controlled by Dr. Welch purchased 1,639,344 shares of common stock and received warrants covering 819,672 shares. The terms and conditions of the $500,000 investment made by the entity controlled by Dr. Welch were identical to those offered to other investors in this offering.

On January 31, 2020, an entity controlled by Dr. Welch participated in the January 31, 2020 offering. The entity controlled by Dr. Welch purchased 1,000 shares of Series D convertible preferred shares and received warrants covering 500,000 shares of common stock. The terms and amounts that would have been incurred had comparable transactions beenconditions of the $1,000,000 investment made by the entity controlled by Dr. Welch were identical to those offered to other investors in this offering.

On February 26, 2020, an entity controlled by Dr. Welch entered into with independent parties.a private warrant exchange in which the entity purchased common stock at $0.18 per share as compared to the stated exercise price on the warrants of $0.30 per share of common stock. The entity controlled by Dr. Welch purchased 1,819,672 shares of common stock, as well as 181,967 additional shares as an inducement to exercise their warrants, for a total of 2,001,639 shares of common stock. The terms and conditions of the approximate $330,000 investment made by the entity controlled by Dr. Welch were identical to those offered to other investors in this offering.

Note 1518 – Subsequent Events

In March 2020, the World Health Organization declared COVID-19 a pandemic. We could be negatively affected by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

On May 14, 2019,June 10, 2020 and July 27, 2020, the Company commencedentered into Amendment #1 and Amendment #2, respectively, to the June 2019 Tender Offer, offeringSamsung Agreement to increase the holderspurchase order quantity of such warrants the opportunitytotal drug substance batches to amend and exercise their warrants at the lowerbe produced during calendar year 2020 by seven batches for a total of the warrant exercise price or $0.40 per share in exchange for which the Company would issue participating holders an additional 50%13 batches. Two batches have already been manufactured as of May 31, 2020. The incremental seven batches to be manufactured during calendar year 2020 will be reduced against the number of shares issuable upon exercise of their original warrants. The terms and conditions of the June 2019 Tender Offer were included in the Company’s ScheduleTO-I filed with the SEC on May 14, 2019. The June 2019 Tender Offer closed on June 12, 2019 with net proceeds of approximately $8.3 million after the payment of placement agent fees of approximately $0.8 million.

From June 3, 2019 to July 26, 2019,forecasted batches the Company received four redemption noticesplanned to have manufactured during calendar year 2021. As part of this arrangement Samsung has allowed for the deferral of payments of certain costs to calendar years 2020, 2021 and 2022. These amendments increase the approximate contract commitment to approximately $103 million from the holder of the Company’s convertible note, requesting redemptions in the aggregate amount of $655,000 of the outstanding balance thereof. In satisfaction of the redemption notices,approximately $60 million.

During June 2020, the Company issued 1,984,769 sharesentered into a private warrant exchange in which certain accredited investors purchased common stock at a range of Common Stock$0.21 to $0.95 per share as compared to the note holder in accordance with the termsstated exercise price ranging from 0.35 to $1.35 per share of the convertible note. Following the redemptions, the outstanding balance of the convertible note, including accrued but unpaid interest, was approximately $4.2 million.

In connection with the Company’s warrant tender offer (the “June 2019 Tender Offer”) which closed on June 12, 2019, Dr. Scott A. Kelly validly tendered warrants beneficially owned by him, covering an aggregate of 50,000common stock. The Company sold 16,543,539 shares of common stock and received 25,000 additional shareswhich resulted in aggregate gross proceeds of common stock. Additionally, two entities affiliated with Carl C. Dockery, a director ofapproximately $7.8 million.

From June 1, 2020 to July 24, 2020, the Company validly tendered warrants beneficially owned by him, covering an aggregate of 1,425,000issued 24,130,630 shares of common stock in connection with the exercise of 24,853,675 warrant and received 712,500 additional shares. Dr. Kelly and Mr. Dockery are membersstock option exercises. Accredited investors purchased common stock at the stated exercise price range of the Company’s board$0.30 to $1.35 per share which resulted in aggregate gross proceeds of directors and participated on terms identical to those applicable to other participating warrant holders.approximately $10.8 million.

On June 11, 2019,16, 2020, the Compensation Committee of the board of directors approved a stock option awardCompany granted 105,000 warrants to an employee covering 75,000consultants to purchase 105,000 shares of common stock with an exercise price of $0.43$0.45 per share.share and a five-year term.

On June 22, 2020, the Company amended its lease agreement for its principal office in Vancouver, WA increasing the rentable square footage to 4,969 through January 31, 2021 and to 6,433 effective February 1, 2021. The amended lease calls for a five-year term effective through April 30, 2026. Monthly rent payments through January 31, 2020 of $9,901, monthly rent payments of $13,012 from February 1, 2021 through April 30, 2021, monthly rent payments of $13,670 effective May 1, 2021, and thereafter monthly rent payment increases of three percent effective annually on May 1 of each year beginning in 2022.

During June 2020 and July 2020, the Company granted stock option vests ratablyawards to employees and directors of the Company totaling 640,000 shares of common stock, with exercise prices ranging from $3.12 to $6.15. The awards vest annually over three years withand have a 10-yearten-year contractual term.

From June 26, 2020 to July 27, 2020, the note holder of the March 31, 2020 Convertible Promissory Note converted in aggregate $9,537,500 of combined principal and accrued interest into 2,119,444 shares of common stock at the $4.50 per share conversion price.

On June 16, 2019,July 2, 2020, the Compensation CommitteeCompany signed an exclusive Distribution and Supply Agreement with American Regent, Inc. with respect to the distribution of the board Company’s leronlimab (PRO140) drug for the treatment of directorsCOVID-19 in the United States. Under the terms of the agreement, CytoDyn will supply leronlimab for the treatment of COVID-19 for distribution by American Regent and receive quarterly payments based on a profit-sharing arrangement. The Company has completed a Phase 2 randomized clinical trial for mild-to-moderate COVID-19 population and is currently running a Phase 2b/3 clinical trial for severe and critically ill COVID-19 patients. If results from these trials indicate positive clinical outcomes for the COVID-19 patients to sufficiently meet the primary endpoints for the trials, the Company will seek approval from the FDA. This agreement is contingent upon receiving this FDA approval.

In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA submission in April and May of 2020 for leronlimab as a combination therapy with HAART for highly treatment experienced HIV patients. The FDA informed the Company its BLA did not contain certain information needed to complete a substantive review and therefore, the FDA would not file the BLA. The FDA’s request does not require any additional clinical trials to be conducted, rather that the Company conduct specifically requested additional analysis of the completed trials data. The Company has scheduled a Type A meeting to discuss the FDA’s request for additional information. The Company expects to resubmit the BLA with the additionally required data by the end of calendar year 2020.

On July 22, 2020, the Company held a special meeting of stockholders at which stockholders approved to amend the Company’s Certificate of Incorporation to increase the total number of authorized shares of common stock of the Company from 700,000,000 to 800,000,000. On July 23, 2020, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Certificate of Incorporation, increasing the total number of authorized shares of common stock, optionpar value $0.001 per share, from 700,000,000 to 800,000,000.

On July 28, 2020, the January 2020 Performance Shares awards were forfeited as the Company did not achieve FDA Breakthrough Therapy designation for cancer within 6 months of the January 28, 2020 award date.

On July 29, 2020, the Company entered into a Securities Purchase Agreement pursuant to two employees covering 25,000which the Company issued a secured convertible promissory note with a two-year maturity to an institutional accredited investor in the initial principal amount of $28.5 million. The Note is secured by all of the assets of the Company, excluding the Company’s intellectual property. The Investor gave consideration of $25.0 million, reflecting original issue discount of $3.4 million and $0.1 million of debt offering costs. The Company anticipates using the proceeds for general working capital purposes.

On July 30, 2020, the Board declared a dividend and elected to pay such dividend in the form of cash in the aggregate amount of approximately $243,000 to all Series B Convertibles Preferred stockholders. The dividend was payable on July 30, 2020, to Series B Convertible Preferred stockholders as of July 30, 2020.

On July 31, 2020, the Company issued 323,157 shares of common stock to each employee with an exercise priceNader Pourhassan, of $0.44 per share. Each option vests ratably over three years with a 10-year term.

On June 18, 2019, the board of directors approved a stock option awardwhich 156,570 were tendered back to an employee covering 100,000 shares of common stock with an exercise price of $0.52 per share. The option vests ratably over three years with a 10-year term.

On June 18, 2019, the board of directors approved the recommendation from the Compensation Committee to maintain the current non-employee director compensation plan for the 2020 fiscal year without modification. Accordingly, the board of directors approved an annual stock option award covering 100,000 shares of common stock for each of the six non-employee directors with an exercise price of $0.52 per share. Each option vests in four equal quarterly installments over one year with a 10-year term. In addition, the board of directors approved a stock option award to an employee covering 50,000 shares of common stock with an exercise price of $0.90 per share. The option was fully vested upon grant date with a 10-year term.

On June 24, 2019, the Company commencedto cover the July 2019 Tender Offer, offering the holders of such warrants the opportunity to amend and exercise their original warrants upon identical terms as the June 2019 Tender Offer. The terms and conditions of the July 2019 Tender Offer were included in the Company’s ScheduleTO-I filed with the SEC on June 24, 2019, as amended. The July 2019 Tender Offer closed on July 31, 2019 with net proceeds of approximately $2.5 million after the payment of placement agent fees of approximately $237,000.

On July 15, 2019, the Company entered into a Consulting Agreement with Scott A. Kelly, M.D., who is currently Chairman of the Board of Directors. The agreement names Dr. Kelly to thenon-executive position of Chief Science Officer, with compensation of $20,000 in cash per month payable in arrears and the grant of a stock option to be determined by the Board of Directors, which are in addition to any fees that Dr. Kelly currently earns as a director. The Company expects to evaluate the term of the agreement on amonth-to month basis.

On July 15, 2019, the Company entered into a Consulting Agreement with David F. Welch, Ph.D. who is currently a member of the Board of Directors. The agreement names Dr. Welch to thenon-executive position of Strategy Advisor, with compensation of $20,000 in cash per month payable in arrears and the grant of a stock option to be determined by the Board of Directors, which are in addition to any fees that Dr. Welch currently earns as a director. The Company expects to evaluate the term of the agreement on amonth-to month basis.income tax withholding requirements.

 

77


On July 25, 2019, the board of directors of the Company terminated the employment of Dr. Richard G. Pestell, the Company’s Chief Medical Officer, for cause pursuant to the terms of his employment agreement with the Company and effective immediately. Pursuant to the terms of his employment agreement, upon such termination, Dr. Pestell resigned from his position as a director of the Company. Dr. Pestell was not a member of any board committees. As of the date of this filing, the Company does not believe the carrying value of certain intangible assets acquired in the asset acquisition with ProstaGene, LLC are impaired, including an assessment of the fair value of thenon-compete agreement with Dr. Pestell, which effectiveness survives one year following the termination of his employment for any reason.

In connection with the Company’s warrant tender offer, which closed on July 31, 2019, Dr. David F. Welch tendered Original Warrants beneficially owned by him, covering an aggregate of 1,000,000 shares of Common Stock, and received 500,000 Additional Shares. Dr. Welch is a member of the Company’s board of directors and participated on terms identical to those applicable to other holders of Original Warrants.

On August 12, 2019, Gregory A. Gould submitted his resignation from the board of directors effective immediately.

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is(2) accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and our Chief Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision andOur management, with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2019. Based on2020 (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded, based upon the evaluation our Chief Executive Officer and our Chief Financial Officer concludeddescribed above that, as of May 31, 2020, our disclosure controls and procedures were effective as of May 31, 2019.at the reasonable-assurance level.

Internal Control Over Financial Reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is adefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer, and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reportingprinciples (“GAAP”), and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of the Company’s assets are being made only in accordance with authorizations of our management and directors; and (iii) that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of the Company’s assets are being made only in accordance with authorizations of 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 2019. This evaluation was based on the framework establishedprovided in Internal Control—Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”(“COSO”). Based upon thaton this evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2019.2020.

Attestation Report of Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting has been audited by Warren Averett, LLC, an independent registered public accounting firm, as stated in their report, which appears herein.

78


Changes in Internal Control Over Financial Reporting

There wereDuring the quarter ended May 31, 2020, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended May 31, 2019.reporting.

 

Item 9B.

Other Information.Information

None.None

PARTPart III

 

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by Item 10 relating to our directors, executive officerswill be contained in, and corporate governance is incorporated herein by reference to, our definitive proxy statement for the 2019our 2020 Annual Meeting of Stockholders under the captions “Proposal 1: Election of Directors,” “Information about our Executive Officers,” “Delinquent Section 16(a) Reports” and “Corporate Governance,” to be filed with the SEC within 120 days of the end of the Company’s fiscal year May 31, 20192020 (the “2019“2020 Proxy Statement”).

We have adopted a Codecode of Ethics forethics and business conduct that applies to all of our Senior Executive Officers (thedirectors, officers and employees, including our principal executive officer (who is our Chief Executive Officer,Officer), principal financial officer and principal accounting officer (who is our Chief Financial Officer, Treasurer,Officer), and Secretary), as well as an Insider Trading Policy for the Company. Copies aresenior financial officers, or persons performing similar functions. We make our code of ethics and business conduct available free of charge on our website at www.cytodyn.com.www.cytodyn.com.

 

Item 11.

Executive Compensation.

The information required by Item 11 relating to executive compensation will be contained in, and is incorporated herein by reference to our 20192020 Proxy Statement.Statement under the captions “Executive Compensation” and “Director Compensation”.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 relating to security ownership of certain beneficial owners and management and related stockholders matters will be contained in, and is incorporated herein by reference to our 20192020 Proxy Statement.Statement under the captions “Stock Ownership by Principal Stockholders, Directors and Executive Officers” and “Equity Compensation Plan Information.”

 

Item 13.

Certain Relationships and Related Transactions and Director Independence.

The information required by Item 13 relating to certain relationships and related transactions and director independence will be contained in, and is incorporated herein by reference to our 20192020 Proxy Statement.Statement under the captions “Related Person Transactions,” and “Meetings and Committees of the Board of Directors—Director Independence.”

 

Item 14.

Principal Accountant Fees and Services.

The information required by Item 14 relating to principal accountant fees and services will be contained in, and is incorporated herein by reference to our 20192020 Proxy Statement.Statement under the caption “Matters Relating to the Company’s Independent Registered Public Accounting Firm.”

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules.

The following are filed as part of this Annual Report on Form10-K:

Consolidated Financial Statements

The Consolidated Financial Statements for the years ended May 31, 20192020 and 20182019 are included under Item 8 of this report.

Exhibits

Exhibits are listed in the Exhibit Index which appears immediately following the signature page of this report.

Item 16.

Form10-K Summary.

None.

79


Exhibit

Number

  

Description

  

Plan of Acquisition

  2.1  Asset Purchase Agreement, dated as of July  25, 2012, between CytoDyn Inc. and Progenics Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8-K filed July 30, 2012).
  2.2  AcquisitionTransaction Agreement by and among CytoDyn Inc., Point NewCo, Inc., Point Merger Sub, Inc., ProstaGene, LLC, and Dr.  Richard Pestell, dated August 27, 2018 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report onForm 8-K, as amended, filed August 28, 2018).
  

Articles of Incorporation and Bylaws

  3.13.1*  Amended and Restated Certificate of Incorporation of CytoDyn Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report onForm 8-K12G3 filed November 19, 2018)., as amended.
  3.2Certificate of Designation, Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report onForm 8-K filed March 20, 2019).
    3.3  Amended and Restated Bylaws of CytoDyn Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report onForm 8-K12G3 filed November 19, 2018).
   

Instruments Defining Rights of Security Holders

  4.1*Description of the Registrant’s Capital Stock.
  4.2Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K12G3 filed September 1, 2015).
  4.3Form of Inducement Warrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 25, 2015).
  4.4Form of Consultant Warrant (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-1 filed February 3, 2016).
  4.5Form of Consultant Warrant (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed June 22, 2017).
  4.6  Form of Convertible Promissory Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed June 22, 2017).
  4.24.7  Form of ConvertibleWarrant (Convertible Promissory Note WarrantOffering) (incorporated by reference to Exhibit  4.2 to the Registrant’s Current Report onForm 8-K filed June 22, 2017).
  4.8Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed June 22, 2017).

  4.9  Form of Convertible Promissory Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed June 27, 2018).
  4.44.10Form of Placement Agent Warrant (Private Offerings, as Amended) (incorporated by reference to Exhibit 4.11 to the Registrant’s Annual Report, as amended, on Form 10-K filed July 27, 2018).
  4.11Form of Placement Agent Warrant (Registered Offerings, as Amended) (incorporated by reference to Exhibit 4.12 to the Registrant’s Annual Report, as amended, on Form 10-K filed July 27, 2018).
  4.12Form of Warrant Agreement (Private Offerings) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed September 4, 2018).
  4.13  Amended and Restated Convertible Promissory Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K12G38-K filed November 19, 2018).
  4.54.14  Form of Convertible Promissory Note (December 2018 Convertible Note Offering) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed January 3, 2019).
  4.6Convertible Promissory Note by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed January 30, 2019).
    4.7Convertible Promissory Note Warrant Agreement by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report onForm 8-K filed January 31, 2019).
    4.8Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K12G3 filed September 1, 2015).
    4.9Form of Warrant Agreement (Private Offerings) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed September 4, 2018).


    4.10Form of Warrant Agreement (Registered Offerings) (incorporated by reference to Exhibit 4.1 to the Form8-K filed on April 5, 2019).
    4.114.15  Form of Warrant to Purchase Common Stock (December 2018 Convertible Note Offering) (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report onForm 8-K filed January 3, 2019).
  4.124.16  Form of Inducement WarrantSecured Convertible Promissory Note by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 10.24.1 to the Registrant’s Current Report on Form
8-K filed June 25, 2015).
    4.13Form of Placement Agent Warrant (Private Offerings, as Amended) (incorporated by reference to Exhibit 4.11 to the Registrant’s Annual Report, as amended, onForm 10-K filed July 27, 2018).
    4.14Form of Placement Agent Warrant (Registered Offerings, as Amended) (incorporated by reference to Exhibit 4.12 to the Registrant’s Annual Report, as amended, onForm 10-K filed July 27, 2018).
    4.15Form of Consultant Warrant (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement onForm S-1 filed February 3, 2016).
    4.16Form of Consultant Warrant (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report onForm 8-K filed June 22, 2017)January 30, 2019).
  4.17  Form of Series CWarrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed January 31, 2019).
  4.18Warrant to Purchase Common Stock by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed January 31, 2019).
  4.19Form of Warrant Agreement (Registered Offerings) (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on April 5, 2019).
  4.20Form of Warrant Agreement (Series C Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report onForm 8-K filed March 20, 2019).
  4.184.21  DescriptionForm of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s CapitalCurrent Report on Form 8-K filed August 29, 2019).
  4.22Form of Warrant Agreement (Series C Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on October 22, 2019).
  4.23Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed December 27, 2019).
  4.24Form of Warrant Agreement (Series D Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed February 3, 2020).
  4.25Secured Convertible Promissory Note, as amended, by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 6, 2020).


Material Contracts

10.1 Patent License Agreement between Allen D. Allen and CytoDyn of New Mexico Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form10-KSB filed September 14, 2004).
10.2 Amendment to Patent License Agreement (incorporated by reference to Exhibit 10.6.1 to the Registrant’sForm SB-2/A filed March 21, 2005).
10.3 Development and License Agreement between Protein Design Labs, Inc. (to which AbbVie Biotherapeutics Inc. is successor in interest) and Progenics Pharmaceuticals, Inc. (to which CytoDyn Inc. is successor in interest) effective as of April 30, 1999, as amended by letter agreement dated November 24, 2003 (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form10-K filed August 29, 2013).
10.4 License Agreement between CytoDyn Inc. and Lonza Sales AG dated July 29, 2015 (incorporated by reference to Exhibit  10.1 to the Registrant’s Current Report on Form8-K filed August 4, 2015, as amended on August 19, 2015).
10.5 Development and Manufacturing Services Agreement, dated as of November  9, 2016, by and between CytoDyn Inc. and CMC ICOS Biologics, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s PeriodicQuarterly Report on Form10-Q filed April 13, 2017).
10.6 Work Statement No. 01, dated as of November  9, 2016, by and between CytoDyn Inc. and CMC ICOS Biologics, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s PeriodicQuarterly Report on Form10-Q filed April 13, 2017).
10.7 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s PeriodicQuarterly Report on Form10-Q filed on October 9, 2018).
10.8 Escrow Agreement, dated as of November  16, 2018, by and among ProstaGene, LLC, CytoDyn Inc., and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K12G3  filed November 19, 2018).
10.9 Stock Restriction Agreement, dated as of November 16, 2018, by and among CytoDyn Inc., ProstaGene, LLC and Dr. Richard  G. Pestell (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report onForm 8-K12G3 filed November 19, 2018).
10.10 Confidential Information, Inventions and Noncompetition Agreement, dated as of November  16, 2018, by and among CytoDyn Inc., CytoDyn Operations Inc. and Dr. Richard G. Pestell (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report onForm 8-K12G3  filed November 19, 2018).
  10.11***10.11# Master Services Agreement between CytoDyn Inc. and Samsung BioLogics Co., Ltd, dated April  1, 2019.2019 (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed August 14, 2019).
  10.12***10.12# Product Specific Agreement between CytoDyn Inc. and Samsung BioLogics Co., Ltd, dated April  1, 2019.2019 (incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed August 14, 2019)..
10.13Placement Agent Agreement (August 2019 Offering) (incorporated by reference to Exhibit  10.3 to the Registrant’s Current Report on Form 8-K filed August 29, 2019).
10.14#Commercialization and License Agreement between CytoDyn Inc. and Vyera Pharmaceuticals, LLC, dated December  17, 2019 (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed January 9, 2020).
10.15#Supply Agreement between CytoDyn Inc. and Vyera Pharmaceuticals, LLC, dated December  17, 2019 (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed January 9, 2020).
10.16*#Distribution and Supply Agreement between CytoDyn Inc. and American Regent, Inc.


Offering Documents

  10.1310.17  Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.40 to the Registrant’s Registration Statement on FormS-1 filed February 3, 2016).
  10.1410.18  Form of Securities Purchase Agreement (December 2016 Offering) (incorporated by reference to Exhibit  10.1 to the Registrant’s Current Report on Form8-K filed December 12, 2016.
  10.1510.19  Form of Securities Purchase Agreement (September 2017 Offering) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K filed September 8, 2017).
  10.1610.20  Form of Waiver and Subscription Agreement (Make-Whole Offering) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K filed December 6, 2017).
  10.1710.21  Securities Purchase Agreement, dated June  26, 2018, by and between CytoDyn Inc. and Iliad Research and Trading. L.P. (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report onForm 8-K filed on June 27, 2018).
  10.1810.22  Securities Purchase Agreement, dated January  30, 2019, by and between CytoDyn Inc. and Iliad Research and Trading. L.P. (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report onForm 8-K filed on January 30, 2019).
  10.1910.23Security Agreement dated January  30, 2019 , by and between CytoDyn Inc. and Iliad Research and Trading. L.P. (incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on January 30, 2019).
10.24Form of Subscription Agreement (Registered Direct Offering) (incorporated by reference to Exhibit  10.1 to the Registrant’s Current Report on Form 8-K filed January 31, 2019)
10.25  Form of Subscription Agreement (Series C Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K filed March 20, 2019).
  10.2010.26  Form of Exercise Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8-K filed May 9, 2019).
Compensatory Arrangements10.27Form of Subscription Agreement (August 2019 Offering) (incorporated by reference to Exhibit  10.1 to the Registrant’s Current Report on Form 8-K filed August 29, 2019).
  10.21*10.28Form of Subscription Agreement (August 2019 Series C Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed August 29, 2019).
10.29Form of Subscription Agreement (September 2019 Registered Direct Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed September 19, 2019).
10.30Form of Subscription Agreement (October 2019 Registered Direct Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 3, 2019).
10.31Form of Series C Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 22, 2019).
10.32Form of Subscription Agreement (November 2019 Registered Direct Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 7, 2019).
10.33Form of Subscription Agreement (December 2019 Registered Direct Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 27, 2019).
10.34Form of Warrant Exercise Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed December 27, 2019).
10.35Form of Subscription Agreement (January 2020 Series D Convertible Preferred Stock Offering) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 3, 2020).

10.36Securities Purchase Agreement by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 6, 2020).
10.37Security Agreement by and between CytoDyn Inc. and Iliad Research and Trading, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 6, 2020).

Management Contracts and Compensatory Plans and Arrangements

10.38  CytoDyn Inc. 401(k) Profit Sharing Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s Amendment No.  1 to Annual Report on Form10-K filed August 5, 2011).
  10.22*10.39  CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan”) (incorporated by reference to Exhibit  10.10 to the Registrant’s Amendment No. 1 to Annual Report on Form10-K filed August 5, 2011).
  10.23*10.40  Form of Stock Option Award for Employees under the 2004 Plan (incorporated by reference to Exhibit  10.5 to the Registrant’s Annual Report on Form10-K filed August 29, 2013).
  10.24*10.41Form of Stock Option Award for Non-Employee Directors under the 2004 Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K filed August 29, 2013).
10.42*CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”).
10.43*Form of Stock Option Award Agreement for Executive Employees under the 2012 Plan.
10.44  Form of Stock Option Award Agreement for Employees under the 2012 Plan (incorporated by reference to Exhibit 10.810.3 to the Registrant’s AnnualCurrent Report on Form10-K8-K filed August 29, 2013)June 19, 2020).
  10.25*10.45  Form of Stock Option Award Agreement forNon-Employee Directors under the 2012 Plan (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form10-K filed August 29, 2013).
  10.26*10.46  Form of Stock Option Award Agreement for Employees granted under an arrangement not approved by the Registrant’s shareholders (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form10-K filed August 29, 2013).
  10.27*10.47  Form of Performance Share Award Agreement (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q filed April 9, 2020).
10.48Form of Restricted Stock Option Award forNon-Employee DirectorsUnit Agreement under the 20042012 Plan (incorporated by reference to Exhibit  10.610.1 to the Registrant’s AnnualCurrent Report on Form10-K8-K filed August 29, 2013)June 19, 2020).
  10.28*10.49Form of Performance-Based Restricted Stock Unit Agreement under the 2012 Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed June 19, 2020).
10.50  Form of Stock Option Award Agreement forNon-Employee Directors granted under an arrangement not approved by the Registrant’s shareholders (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form10-K filed August 29, 2013).
  10.29*10.51  Consulting Agreement between CytoDyn Inc. and Denis R. Burger dated February  21, 2014. (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form10-K filed July 10, 2014).
  10.30*10.52Second Amended and Restated Employment Agreement by and between CytoDyn Inc. and Nader Pourhassan dated June  15, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed June 29, 2020).
10.53  Amended and Restated Employment Agreement by and between CytoDyn Inc. and Nader PourhassanMichael D. Mulholland dated January  6, 2015June  15, 2020 (incorporated by reference to Exhibit 10.110.6 to the Registrant’s Current Report on Form8-K filed January 7, 2015)June 19, 2020).


  10.31*Employment Agreement by and between CytoDyn Inc. and Michael D. Mulholland dated January  6, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form8-K filed January 7, 2015).
  10.32*10.54  Amendment to Consulting Agreement between CytoDyn Inc. and Denis R. Burger dated November  3, 2014 (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form10-K filed July 10, 2015).
  10.33*10.55  Amendment to Consulting Agreement between CytoDyn Inc. and Denis R. Burger dated January  19, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8-K filed January 22, 2016).
  10.34*Amended and Restated CytoDyn Inc. 2012 Equity Incentive Plan (the “2012 Plan”) (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on FormS-8 filed March 23, 2018).
  10.35*10.56  Consulting Agreement between CytoDyn Inc. and Richard G. Pestell, M.D., Ph.D. dated as of August  27, 2018 (incorporated by reference to Exhibit 10.3 to the Registrant’s PeriodicQuarterly Report on Form10-Q filed October 9, 2018).
  10.36*10.57  Employment Agreement, dated as of November 16, 2018, by and among CytoDyn, Inc., CytoDyn Operations Inc. and Dr. Richard  G. Pestell (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report onForm 8-K12G3 filed November 19, 2018).
  10.37*10.58*  Amended and Restated Employment Agreement by and between CytoDyn Inc. and Dr. Nitya G. Ray, Ph.D., dated December  22, 2018June 15, 2020.
10.59Consulting Agreement, dated July  15, 2019, between CytoDyn Inc. and Scott A. Kelly, M.D. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K filed December 26, 2018)filed July 19, 2019).
10.60  Consulting Agreement, dated July  15, 2019, between CytoDyn Inc. and David F. Welch, Ph.D. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed July 19, 2019).
10.61Employment Agreement by and between CytoDyn Inc. and Craig S. Eastwood, dated December  6, 2019 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed January 9, 2020).
10.62*General Release and Separation Agreement between CytoDyn Inc. and Craig S. Eastwood, dated April 24, 2020.
10.63*Employment Agreement by and between CytoDyn Inc. and Arian Colachis, dated March 16, 2020.
10.64*Employment Agreement by and between CytoDyn Inc. and Scott A. Kelly, M.D., dated April 10, 2020.

Other

  2121*  Subsidiaries of the Registrant.
  2323*  Consent of Warren Averett, LLC.
  2424*  Power of Attorney of executive officers and directors.directors

  

Certifications

  31.131.1*  Certification of Chief Executive Officer underRule 13a-14(a)..
  31.231.2*  Certification of Chief Financial Officer underRule 13a-14(a).
  32**  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
  XBRL
101.INS  XBRL Instance Document.
101.SCH  XBRL Taxonomy Extension Schema Document.

101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF  XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB  XBRL Taxonomy Extension Label Linkbase Document.
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document.


*

Management contract or compensatory plan or arrangement.

**

FurnishedFiled herewith.

***#

Certain confidential portions of this Exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

Note: All exhibits incorporated by reference to filings other than registration statements are incorporated by reference to filings that have SEC FileNo. 000-49908.

Item 16.

Form 10-K Summary.

None.


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.

 

Date: August 14, 20192020

  

CYTODYN INC.

(Registrant)

  By: 

/s/ Nader Z. Pourhassan

   

Nader Z. Pourhassan, Ph. D.

   

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on August 14, 2019.

Principal Executive Officer and Director:2020.

 

Principal Executive Officer and Director:

/s/ Nader Z. Pourhassan

Nader Z. Pourhassan, Ph. D.

President and Chief Executive Officer, Director

Principal Financial and Accounting Officer:

 

Principal Financial and Accounting Officer:

/s/ Michael D. Mulholland

Michael D. Mulholland

Chief Financial Officer Treasurer and Corporate Secretary

Remaining Directors:

 

*

Scott A. Kelly, M.D.Remaining Directors:

*

Scott A. Kelly, M.D., Chairman

Carl C. Dockery

*

Jordan G. Naydenov

Michael A. Klump

*

Jordan G. Naydenov

*

Samir R. Patel, M.D.

*

Alan P. Timmins

*

David F. Welch, Ph.D.Ph.D

 

* ByBy: 

/s/ Michael D. Mulholland

  Michael D. Mulholland

Date: August 14, 2020

 

Michael D. Mulholland

Attorney-In-Fact

 

126