Filed pursuant to Rule 424(b)(3)
Registration No. 333-272815

 

PROSPECTUS SUPPLEMENT NO. 6

(to Prospectus dated October 11, 2023)

Graphic

Up to 205,652,848 Shares of Common Stock

 

 

 

This prospectus supplement updates, amends and supplements the prospectus dated October 11, 2023, relating to our Registration Statement on Form S-1 (Registration No. 333-272815) (as supplemented or amended from time to time, the “Prospectus”). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.

 

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on January 16, 2024 (the “2024 Second Quarter 10-Q”), which is set forth below.

 

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference. The Prospectus, together with this prospectus supplement, relates to  the resale of up to 74,903,789 shares of our common stock, par value $0.001 per share (the “common stock”), and 130,749,059 shares of our common stock underlying certain warrants (collectively, the “Shares”), by the selling stockholders identified in the Prospectus under “Selling Stockholders”.

Our common stock is quoted on the OTCQB of OTC Markets Group, Inc. under the symbol “CYDY.” On January 18, 2024 the closing price of our common stock was $0.18 per share.

 

Investing in our securities involves risk. You should carefully consider the risks that we have described under the section captioned “Risk Factors” in the Prospectus on page 8 and in Part II, Item 1A of the 2024 Second Quarter 10-Q before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is January 19, 2024. 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q


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

For the quarterly period ended November 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1933

For the transition period from                  to                 

Commission File Number: 000-49908


CYTODYN INC.

(Exact name of registrant as specified in its charter)


Delaware

83-1887078

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer or

Identification No.)

 

 

1111 Main Street, Suite 660

Vancouver, Washington

98660

(Address of principal executive offices)

(Zip Code)

(360) 980-8524

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)


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

Title of Each Class 

    

Trading
Symbol(s)

    

Name of Each Exchange
on Which Registered

None

None

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

 

 

 

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes      No  

On December 31, 2023, there were 979,527 thousand shares outstanding of the registrant’s $0.001 par value common stock.



PART I. Financial Information

Item 1. Consolidated Financial Statements

CytoDyn Inc.

Consolidated Balance Sheets

(Unaudited, in thousands, except par value)

November 30, 2023

    

May 31, 2023

Assets

 

Current assets:

 

 

  

Cash

$

147

$

2,541

Restricted cash

 

6,577

 

6,507

Prepaid expenses

 

1,578

 

1,167

Prepaid service fees

 

538

 

590

Total current assets

 

8,840

 

10,805

Other non-current assets

 

400

 

487

Total assets

$

9,240

$

11,292

Liabilities and Stockholders’ Deficit

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

62,328

$

62,725

Accrued liabilities and compensation

 

9,150

 

6,669

Accrued interest on convertible notes

 

12,936

 

10,598

Accrued dividends on convertible preferred stock

 

6,049

 

5,308

Convertible notes payable, net

 

32,914

 

34,417

Derivative liability - equity instruments

33

79

Total current liabilities

 

123,410

 

119,796

Notes payable, net

714

Operating leases

 

211

 

283

Total liabilities

 

123,621

 

120,793

Commitments and Contingencies (Note 8)

 

  

 

  

Stockholders’ deficit:

 

  

 

  

Preferred stock, $0.001 par value; 5,000 shares authorized:

 

  

 

  

Series B convertible preferred stock, $0.001 par value; 400 authorized; 19 issued and outstanding at November 30, 2023 and May 31, 2023

 

 

Series C convertible preferred stock, $0.001 par value; 8 authorized; 6 issued and outstanding at November 30, 2023 and May 31, 2023

 

 

Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at November 30, 2023 and May 31, 2023

 

 

Common stock, $0.001 par value; 1,750,000 shares authorized; 971,729 and 919,053 issued, and 971,286 and 918,610 outstanding at November 30, 2023 and May 31, 2023, respectively

 

971

 

919

Treasury stock, $0.001 par value; 443 shares at November 30, 2023 and May 31, 2023

Additional paid-in capital

 

747,472

 

731,270

Accumulated deficit

 

(862,824)

 

(841,690)

Total stockholders’ deficit

 

(114,381)

 

(109,501)

Total liabilities and stockholders' deficit

$

9,240

$

11,292

See accompanying notes to consolidated financial statements.

3


CytoDyn Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

Three months ended November 30,

Six months ended November 30,

    

2023

    

2022

    

2023

    

2022

Operating expenses:

 

  

 

  

 

  

 

  

 

General and administrative

$

2,311

$

5,043

$

4,999

$

11,376

Research and development

 

1,079

 

137

 

2,993

 

713

Amortization and depreciation

 

8

 

54

 

18

 

153

Inventory charge

17,929

20,633

Total operating expenses

 

3,398

 

23,163

 

8,010

 

32,875

Operating loss

 

(3,398)

 

(23,163)

 

(8,010)

 

(32,875)

Interest and other expenses:

Interest on convertible notes

 

(1,164)

 

(1,159)

 

(2,361)

 

(2,305)

Amortization of discount on convertible notes

(142)

(580)

(542)

(1,156)

Amortization of debt issuance costs

 

(3)

 

(18)

 

(369)

 

(34)

Issuance costs for private placement of shares and warrants through placement agent (Note 5)

(906)

(906)

Loss on induced conversion

 

(636)

(638)

(2,640)

(638)

Finance charges

 

(891)

 

(937)

 

(1,803)

 

(1,877)

Loss on note extinguishment

 

(2,406)

 

 

(4,490)

 

Gain (loss) on derivatives

(17)

(13)

(8,601)

Total interest and other expenses

 

(6,165)

 

(3,332)

 

(13,124)

 

(14,611)

Loss before income taxes

 

(9,563)

 

(26,495)

 

(21,134)

 

(47,486)

Income tax benefit

 

 

 

 

Net loss

$

(9,563)

$

(26,495)

$

(21,134)

$

(47,486)

Basic and diluted:

Weighted average common shares outstanding

958,988

813,373

941,191

800,545

Loss per share

$

(0.01)

$

(0.03)

$

(0.02)

$

(0.07)

See accompanying notes to consolidated financial statements.

4


CytoDyn Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

(Unaudited, in thousands)

Preferred stock

Common stock

Treasury stock

    

Additional

    

Accumulated

    

Total stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

paid-in capital

deficit

deficit

Balance at May 31, 2023

34

$

919,053

$

919

443

$

$

731,270

$

(841,690)

$

(109,501)

Issuance of stock for convertible note repayment

8,661

8

 

1,492

 

 

1,500

Loss on induced conversion

 

2,004

 

 

2,004

Warrants issued in note offering

 

170

 

 

170

Stock issued for compensation

686

1

 

154

 

 

155

Warrant exercises

3,000

3

 

297

 

 

300

Dividends accrued on Series C and D convertible preferred stock

 

(373)

 

 

(373)

Reclassification of warrants from liability to equity classified

79

79

Stock-based compensation

 

348

 

 

348

Net loss

 

 

(11,571)

 

(11,571)

Balance at August 31, 2023

34

931,400

931

443

735,441

(853,261)

(116,889)

Issuance of stock for convertible note repayment

3,535

4

496

 

500

Loss on induced conversion

636

636

Warrants issued in note offering

10

10

Note conversion

14,339

14

4,379

4,393

Stock issued for compensation

559

1

97

98

Stock issued for private offering

21,453

21

6,307

 

6,328

Dividends accrued on Series C and D convertible preferred stock

(368)

 

(368)

Stock-based compensation

474

 

474

Net loss

(9,563)

 

(9,563)

Balance at November 30, 2023

34

$

971,286

$

971

443

$

$

747,472

$

(862,824)

$

(114,381)

Preferred stock

Common stock

Treasury stock

    

Additional

    

Accumulated

    

Total stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

paid-in capital 

deficit

deficit

Balance at May 31, 2022 

35

$

720,028

$

720

443

$

$

671,013

$

(766,131)

$

(94,398)

Stock issued for compensation

879

1

 

344

 

 

345

Stock issued for private offerings

85,378

85

 

17,459

 

 

17,544

Issuance costs related to stock issued for private offerings

 

(6,289)

 

 

(6,289)

Conversion of Series C convertible preferred stock to common stock

(1)

1,136

1

 

(1)

 

 

Warrant exercises

657

1

 

263

 

 

264

Deemed dividend paid in common stock due to down round provision, recorded in additional paid-in capital

4,620

5

 

(5)

 

 

Accrued preferred stock dividends

 

(384)

 

 

(384)

Reclassification of warrants from liability to equity classified

8,601

8,601

Stock-based compensation

 

996

 

 

996

Reclassification of prior period preferred stock dividends

(4,265)

4,265

Net loss

 

 

(20,991)

 

(20,991)

Balance at August 31, 2022

34

812,698

813

443

687,732

(782,857)

(94,312)

Issuance of stock for convertible note repayment

 

1,822

 

2

 

 

498

 

 

500

Loss on induced conversion

638

638

Stock issued for compensation

 

765

 

 

 

310

 

 

310

Exercise of warrants, net of issuance costs

 

9,652

 

10

 

 

2,123

 

 

2,133

Make-whole shares related to private warrant exchange

 

23

 

 

 

 

 

Dividend paid in common stock upon conversion of Series C convertible preferred stock ($0.50 per share)

319

159

159

Dividends accrued on Series C and D convertible preferred stock

 

 

 

 

(369)

 

 

(369)

Stock-based compensation

 

 

 

 

1,467

 

 

1,467

Net loss

 

 

 

 

 

(26,495)

 

(26,495)

Balance at November 30, 2022

34

$

825,279

$

825

443

$

$

692,558

$

(809,352)

$

(115,969)

See accompanying notes to consolidated financial statements.

5


CytoDyn Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Six months ended November 30,

    

2023

    

2022

Cash flows from operating activities:

 

  

 

Net loss

$

(21,134)

$

(47,486)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Amortization and depreciation

 

18

 

153

Amortization of debt issuance costs

 

369

 

34

Issuance costs for private placement of shares and warrants through placement agent

906

Amortization of discount on convertible notes

 

542

 

1,156

Loss on derivatives

13

8,601

Loss on induced conversion

2,640

638

Loss on note extinguishment

 

4,490

 

Inventory charge

20,633

Stock-based compensation

 

1,075

 

3,118

Changes in operating assets and liabilities:

 

 

  

(Increase) decrease in prepaid expenses and other assets

(290)

(303)

(Decrease) increase in accounts payable and accrued expenses

 

4,374

 

(2,024)

Net cash used in operating activities

 

(6,997)

 

(15,480)

Cash flows from investing activities:

 

  

 

  

Net cash Provided by/used in investing activities

 

 

Cash flows from financing activities:

 

  

 

  

Proceeds from warrant transactions, net of offering costs

2,133

Proceeds from sale of common stock and warrants, net of issuance costs

 

3,016

 

11,255

Proceeds from warrant exercises

 

300

 

264

Proceeds held in trust

 

 

200

Proceeds from convertible note and warrant issuances, net of issuance costs

1,357

Net cash provided by financing activities

 

4,673

 

13,852

Net change in cash and restricted cash

 

(2,324)

 

(1,628)

Cash and restricted cash at beginning of period

 

9,048

 

4,231

Cash and restricted cash at end of period

$

6,724

$

2,603

Cash and restricted cash consisted of the following:

Cash

$

147

$

2,403

Restricted cash

6,577

200

Total cash and restricted cash

$

6,724

$

2,603

Supplemental disclosure:

Cash paid for interest

$

38

$

Non-cash investing and financing transactions:

 

  

 

  

Derivative liability associated with warrants

$

80

$

8,601

Issuance of common stock for principal of convertible notes

$

2,000

$

500

Accrued dividends on Series C and D convertible preferred stock

$

741

$

753

Warrants issued to placement agent

$

413

$

159

Deemed dividend on common stock issued due to down round provision, recorded in additional paid-in capital

$

$

5,294

Note conversion to common stock and warrants

$

2,295

$

See accompanying notes to consolidated financial statements.

6


CYTODYN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF NOVEMBER 30, 2023

(Unaudited)

Note 1. Organization

CytoDyn Inc. (together with its wholly owned subsidiaries, the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002, under the name RexRay Corporation and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a clinical-stage biotechnology company focused on the clinical development of innovative treatments for multiple therapeutic indications based on its product candidate, leronlimab, a novel humanized monoclonal antibody targeting the C-C chemokine receptor type 5 (“CCR5”).

The Company has been investigating leronlimab as a viral entry inhibitor for treatment of human immunodeficiency virus (“HIV”), believed to competitively bind to the N-terminus and second extracellular loop of the CCR5 receptor. For immunology, the CCR5 receptor is believed to be implicated in immune-mediated illnesses such as Metabolic dysfunction-associated steatohepatitis (“MASH”), replacement for the term nonalcoholic steatohepatitis (“NASH”). Leronlimab is being or has been studied in MASH, MASH-HIV, solid tumors in oncology, and other HIV indications where CCR5 is believed to play an integral role.

Note 2. Summary of Significant Accounting Policies

Basis of presentation

The unaudited interim consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiary, CytoDyn Operations Inc. All intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) have been omitted in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The interim financial information and notes thereto should be read in conjunction with the Company's latest Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (the “2023 Form 10-K”). The results of operations for the periods presented are not necessarily indicative of results to be expected for the entire fiscal year or for any other future annual or interim period.

Reclassifications

Certain prior year and prior quarter amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation. Such reclassifications did not have a material effect on the Company’s previously reported financial position, results of operations, stockholders’ deficit, or net cash provided by operating activities.

Going concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of approximately $21.1 million for the six months ended November 30, 2023, and has an accumulated deficit of approximately $862.8 million as of November 30, 2023. These factors, among several others, including the various matters discussed in Note 8, Commitments and Contingencies, 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.

7


The Company’s continuance as a going concern is dependent upon its ability to obtain additional operating capital, complete the development of its product candidate, leronlimab, obtain approval to commercialize leronlimab from regulatory agencies, continue to outsource manufacturing of leronlimab, and ultimately achieve revenues and attain profitability. The Company plans to continue to engage in research and development activities related to leronlimab and a new or modified longer-acting therapeutic for multiple indications and expects to incur significant research and development expenses in the future, primarily related to its regulatory compliance, including seeking the lifting of the U.S Food and Drug Administration’s (the “FDA”) clinical hold with regard to the Company’s HIV program, performing additional pre-clinical and clinical studies in various indications, and seeking regulatory approval for its product candidate for commercialization. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs primarily from the sale of equity and debt securities, combined with additional funding from other sources. However, there can be no assurance that the Company will be successful in these endeavors.

Use of estimates

The preparation of the consolidated financial statements in accordance with accounting principles GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are assessed each period and updated to reflect current information, such as the status of our analysis of the results of our clinical trials and/or discussions with the FDA which could have an impact on the Company’s significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Significant estimates include, but are not limited to, those relating to capitalization and write-off of pre-launch inventories, charges for excess and obsolete inventories, research and development expenses, commitments and contingencies, stock-based compensation, and the assumptions used to value warrants and warrant modifications. Actual results could differ from these estimates.

Restricted cash

As of November 30, 2023, the Company had recorded approximately $6.6 million of restricted cash. The restricted cash is related to cash held as collateral in connection with a surety bond that was posted as required in the Amarex litigation and will remain as restricted cash until the litigation is resolved.

Recent Accounting Pronouncements

In July 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-03“Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”). This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Bulletin ("SAB") number 120. ASU 2023-03 does not provide any new guidance and is immediately effective. ASU 2023-03 did not have a material impact on the consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments clarify or improve disclosure and presentation requirements on various disclosure areas, including the statement of cash flows, earnings per share, debt, equity, and derivatives. The amendments will align the requirements in the FASB ASC with the SEC’s regulations. The amendments in this ASU will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will not be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. The Company is currently evaluating the impact of the amendments on its financial statement disclosures.

8


On December 14, 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The ASU is effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the effect of this update on its consolidated financial statements and related disclosures.

Note 3. Accounts Payable and Accrued Liabilities and Compensation

As of November 30, 2023 and May 31, 2023, the accounts payable balance was approximately $62.3 million and $62.7 million, respectively, with two vendors accounting for 70% and 72% of the total balance of accounts payable at the respective dates.

The components of accrued liabilities and compensation are as follows (in thousands):

November 30, 2023

May 31, 2023

Compensation and related expense

$

228

$

335

Legal fees and settlement

81

168

Clinical expense

346

187

Accrued inventory charges and expenses

 

7,023

 

4,978

License fees

1,330

862

Lease payable

142

139

Total accrued liabilities

$

9,150

$

6,669

Note 4. Convertible Instruments and Accrued Interest

Convertible preferred stock

The following table presents the number of potentially issuable shares of common stock should shares of preferred stock and amounts of undeclared and accrued preferred dividends be converted to common stock.

November 30, 2023

May 31, 2023

(in thousands except conversion rate)

    

Series B

    

Series C

    

Series D

    

Series B

    

Series C

    

Series D

Shares of preferred stock outstanding

19

6

9

19

6

9

Common stock conversion rate

10:1

2,000:1

1,250:1

10:1

2,000:1

1,250:1

Total shares of common stock if converted

190

12,670

10,565

190

12,670

10,565

Undeclared dividends

$

17

$

-

$

-

$

15

$

-

$

-

Accrued dividends

$

-

$

2,818

$

3,231

$

-

$

2,500

$

2,808

Total shares of common stock if dividends converted

34

5,636

6,462

30

5,000

5,616

Under the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), dividends on its outstanding shares of Series B Convertible Preferred Stock (the “Series B preferred stock”) may be paid in cash or shares of the Company’s common stock at the option of the Company. Dividends on outstanding shares of Series C Convertible Preferred Stock (the “Series C preferred stock”) and Series D Convertible Preferred Stock (the “Series D preferred stock”) are payable in cash or shares of common stock at the election of the holder. The preferred stockholders have the right to dividends only when and if declared by the Company’s Board of Directors. Under Section 170 of the Delaware General Corporation Law, the Company is permitted to pay dividends only out of capital surplus or, if none, out of net profits for the fiscal year in which the dividend is declared or net profits from the preceding fiscal year.

Series B preferred stock provides for a liquidation preference over the common shares of $5.00 per share, plus any accrued and unpaid dividends. In the event of liquidation, holders of Series C and Series D preferred stock will be entitled to receive, on a pari passu basis, and in preference of any payment or distribution to holders of the Series B preferred stock and common stock, an amount per share equal to $1,000 per share plus any accrued and unpaid dividends.

9


Convertible notes and accrued interest

November 30, 2023

May 31, 2023

(in thousands)

    

April 2, 2021 Note

    

April 23, 2021 Note

    

Short-term Notes

Total

    

April 2, 2021 Note

    

April 23, 2021 Note

Placement Agent Notes

Total

Convertible notes payable outstanding principal

$

4,081

$

29,369

$

250

$

33,700

$

6,081

$

29,369

$

1,000

$

36,450

Less: Unamortized debt discount and issuance costs

(102)

(607)

(77)

(786)

(211)

(822)

(286)

(1,319)

Convertible notes payable, net

3,979

28,762

173

32,914

5,870

28,547

714

35,131

Accrued interest on convertible notes

4,261

8,675

-

12,936

3,804

6,789

5

10,598

Outstanding convertible notes payable, net and accrued interest

$

8,240

$

37,437

$

173

$

45,850

$

9,674

$

35,336

$

719

$

45,729

Reconciliation of changes to the outstanding balance of convertible notes, including accrued interest, were as follows:

(in thousands)

April 2, 2021 Note

April 23, 2021 Note

Placement Agent Notes

Short-Term Notes

Total

Outstanding balance at May 31, 2023

$

9,674

$

35,336

$

719

$

-

$

45,729

Consideration received

-

-

975

169

1,144

Amortization of issuance discount and costs

109

215

583

4

911

Interest expense

457

1,886

18

-

2,361

Fair market value of shares and warrants exchanged for repayment

(2,640)

-

(4,379)

-

(7,019)

Difference between market value of
common shares and reduction of principal

640

-

2,084

-

2,724

Outstanding balance at November 30, 2023

$

8,240

$

37,437

$

-

$

173

$

45,850

April 2, 2021 & April 23, 2021 Notes

Key terms of the outstanding convertible notes are as follows:

November 30, 2023

    

April 2, 2021 Note

    

April 23, 2021 Note

Interest rate per annum

10

%

10

%

Conversion price per share upon five trading days' notice

$

10.00

$

10.00

Party that controls the conversion rights

Investor

Investor

Maturity date

April 5, 2025

April 23, 2025

Security interest

All Company assets excluding intellectual property

In addition to standard anti-dilution adjustments, the conversion price of the April 2, 2021 Note and April 23, 2021 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 “Securities Act”). The April 2, 2021 Note and April 23, 2021 Note provide for liquidated damages upon failure to deliver common stock within specified timeframes and require the Company to maintain a share reservation of 6.0 million shares of common stock for each Note.

During the six months ended November 30, 2023, in satisfaction of redemptions, the Company and the April 2, 2021 Noteholder entered into four exchange agreements, pursuant to which the April 2, 2021 Note was partitioned into new notes (the “Partitioned Notes”) with an aggregate principal amount of $2.0 million, which was exchanged concurrently with the issuance of approximately 12.2 million shares of common stock. The outstanding balance of the

10


April 2, 2021 Note was reduced by the Partitioned Notes to a principal amount of $4.1 million. The Company accounted for the Partitioned Notes and exchange settlements as induced conversions, and, accordingly, recorded a non-cash loss on convertible debt induced conversion of $2.6 million for the six months ended November 30, 2023.

As of December 31, 2023, the holders of the April 2 and April 23 Notes waived all provisions in the convertible notes that, based on the occurrence of various events through that date, could have triggered the imposition of a default interest rate, a downward adjustment of the conversion price, or specified other provisions relating to default, breach or imposition of a penalty. Accordingly, the Company was not in default under the notes on December 31, 2023.

Please refer to Note 6, Convertible Instruments and Accrued Interest, in the Company’s 2023 Form 10-K for additional information.

Placement Agent Notes

During the period April through June 2023, the Company entered into securities purchase agreements pursuant to which the Company issued secured promissory notes bearing interest at a rate of 6.0% and with an 18-month term to accredited investors through a placement agent (“Placement Agent Notes”) for a total principal amount of $2.3 million, of which $1.3 million was sold in June 2023. The Placement Agent Notes were secured by the net cash recovery, if any, by the Company in its dispute with Amarex and provided the investors with a right to convert the unpaid principal and accrued but unpaid interest into shares of common stock upon the occurrence of an event of default. The Placement Agent Notes had maturity dates during the fiscal year ending May 31, 2025.

In connection with the sale in June 2023, the Company issued warrants to investors to purchase approximately 1.3 million shares of common stock with a three-year term and an exercise price of $0.50 per share. The net proceeds from the sale of the Placement Agent Notes in June of approximately $1.1 million reflect issuance costs of approximately $0.2 million. The Company also issued warrants to purchase approximately 0.4 million shares of common stock to the placement agent with a ten-year term and an exercise price of $0.26 per share, which the Company accounted for as additional issuance costs related to the sale of Placement Agent Notes in June 2023. The Company allocated the proceeds between the liability-classified Placement Agent Notes and the equity-classified warrants based on their relative fair values.

During June 2023, an amendment was entered into with the investors of the Placement Agent Notes, which stated that the principal amount and accrued but unpaid interest on the notes would be converted into shares of common stock and warrants as of the first closing of a subsequent private placement of common stock and warrants through a placement agent. The deemed purchase price of a unit of one share plus one warrant was fixed at 90% of the lower of the intraday volume weighted average price (“VWAP”) on the date of the first closing and last closing of the private placement, while the exercise price of the warrants was set at $0.306 per share, compared to $0.50 per share in the original private placement.

In July 2023, the first closing of the subsequent private placement of common stock and warrants through a placement agent occurred. Therefore, the Placement Agent Notes were converted into units with the same pricing as the private placement described in Note 5, Equity Awards and Warrants – Private placement of common stock and warrants through placement agent. The $2.1 million difference in fair value between the shares and warrants and the principal amount of the Placement Agent Notes was accounted for as a loss on note extinguishment. See Note 5, Equity Awards and Warrants – Liability-classified equity instruments for additional information.

11


Short-term Notes

During November 2023, the Company began issuing unsecured promissory notes bearing interest at a rate of 10% to accredited investors under a securities purchase agreement through a placement agent (“Short-term Notes”). Short-term Notes for a total principal amount of $0.3 million were issued in November 2023. The principal amount and accrued but unpaid interest on the notes will be converted into units consisting of shares of common stock and warrants as of the first closing of a subsequent private placement of common stock and warrants through a placement agent at a 20% discount to the price at which the units are sold in the private placement. The Short-term Notes’ maturity date is June 7, 2024. The Company also agreed to issue warrants at the final closing of the sale of Short-term Notes to purchase one share of common stock for each dollar of principal amount of Short-term Notes sold. The warrants have a five-year term and an exercise price of $0.35 per share. The net proceeds from the sale of the Short-term Notes in November 2023 of $0.2 million reflect issuance costs of approximately $37.5 thousand. The Company allocated the proceeds between the liability-classified Short-term Notes and the equity-classified warrants based on their relative fair values.

The Company also agreed to issue warrants to purchase shares of common stock to the placement agent with a ten-year term, with the number of warrants and the exercise price of the warrants to be determined by the share price on the final closing date of the sale of Short-term Notes. The Company accounted for the warrants to be issued to the placement agent as additional issuance costs. See Note 5, Equity Awards and Warrants – Liability-classified equity instruments for additional information.

Note 5. Equity Awards and Warrants

Liability-classified equity instruments

During April and May 2023, the Company sold Placement Agent Notes through a placement agent. See Note 4, Convertible Instruments and Accrued Interest – Placement Agent Notes. The Company agreed to issue warrants to the placement agent as part of the issuance costs with an exercise price that was not determined until the final closing date. As the exercise price of the warrants was to be fixed based on the final terms of the offering, the Company accounted for the warrants as a liability-classified warrant beginning on the initial closing date until the final closing date. The value of the warrants at May 31, 2023, was recorded as a derivative liability on the balance sheet, and the change in the fair value of the warrants was recorded as a gain or loss on derivatives. On June 23, 2023, the final closing of the Placement Agent Notes occurred, and the fair value of the warrants became equity classified.

On July 31, 2023, the Placement Agent Notes were converted into units that had similar terms to units being offered in a private placement of shares and warrants through a placement agent. See Private placement of common stock and warrants through placement agent below. As the unit price was not determinable until the final closing date of the subsequent private placement, the units related to the conversion of the Placement Agent Notes were recorded as a liability and at fair value. On October 23, 2023, the private placement was concluded, which finalized the unit purchase price at $0.16, and the fair value of the units became equity-classified.

During November 2023, in connection with the issuance of the Short-term Notes as described in Note 4, Convertible Instruments and Accrued Interest – Short-term Notes, the Company agreed to issue warrants to the placement agent as part of the issuance costs, with the ultimate number of warrants and exercise price to be determined as of the final closing date of a private placement of common stock and warrants through a placement agent that commenced in December 2023. As the number of warrants and the exercise price of the warrants will be variable until the final closing date, the Company accounted for the warrants as a liability-classified warrant beginning on the initial closing date until the final closing date. The value of the warrants was recorded as a derivative liability on the balance sheet, and the change in the fair value of the warrants is recorded as a gain or loss on derivatives.

In accordance with the prescribed accounting guidance, the Company measured fair value of liability-classified equity instruments using fair value hierarchy which include:

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

12


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 include non-binding 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 include non-binding market consensus prices or non-binding broker quotes that the Company was unable to corroborate with observable market data.

The table below presents a reconciliation of the beginning and ending balances for liabilities measured at fair value as of May 31, 2023, and November 30, 2023:

(in thousands)

    

Derivative liability

Balance at May 31, 2023

$

79

Value upon notes converted to units in the private offering

 

4,379

Warrants classified as equity during quarter

 

(79)

Gain on derivative due to change in fair market value

 

(4)

Balance at August 31, 2023

$

4,375

Value upon liability-classified equity instruments reclassified to equity

(4,393)

Warrants classified as a liability during quarter

34

Loss on derivative due to change in fair market value

17

Balance at November 30, 2023

$

33

The Company used a Black-Scholes valuation model to estimate the value of the liability-classified warrants using assumptions presented in the table below. The Black-Scholes valuation model was used because management believes it reflects all the assumptions that market participants would likely consider in negotiating the transfer of the warrant. The Company’s derivative liability is classified within Level 3.

    

    

Placement

Note conversion

    

Placement Agent

Note conversion

Note conversion

Placement Agent

Placement Agent

Agent warrants

warrants on

warrants at

warrants at

warrants at

warrants at

warrants at

at May 31, 2023

conversion date

equity classification

August 31, 2023

equity classification

issuance

November 30, 2023

Fair value of underlying stock

$ 0.26

$ 0.21

$ 0.27

$ 0.21

$ 0.17

$ 0.18

$ 0.17

Risk free rate

3.64%

4.18%

3.74%

4.23%

4.81%

4.42%

4.37%

Expected term (in years)

10.00

5.00

10.00

5.00

5.00

10.00

10.00

Stock price volatility

97.90%

124.55%

97.45%

124.06%

124.70%

95.82%

95.82%

Expected dividend yield

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

Equity Incentive Plan (“EIP”)

As of November 30, 2023, the Company had one active stock-based equity plan, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “EIP”). As of November 30, 2023 and May 31, 2023, the EIP covered a total of 56.3 million shares of common stock. The Board also made a determination to waive the “evergreen provision” that would have automatically increased the number of shares of common stock subject to the EIP by an amount equal to 1%

13


of the total outstanding shares on June 1, 2023. The EIP provides for awards of stock options to purchase shares of common stock, restricted and unrestricted shares of common stock, restricted stock units (“RSUs”), and performance share units (“PSUs”). 

The Company recognizes the compensation cost of employee and director services received in exchange for equity awards based on the grant date estimated fair value of the awards. The Company estimates the fair value of RSUs and PSUs using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions ultimately are not met.

 

Stock-based compensation for the three months ended November 30, 2023 and 2022 was $0.6 million and $1.8 million, respectively, and for the six months ended November 30, 2023 and 2022 was $1.1 million and $3.1 million, respectively. Stock-based compensation is recorded in general and administrative costs.

Stock options

Stock option activity is presented in the table below:

Weighted 

average

Weighted

remaining

Aggregate

Number of

average

contractual

intrinsic

(in thousands, except per share data and years)

    

shares

    

exercise price

    

life in years

    

value

Options outstanding at May 31, 2023

 

19,823

$

0.99

 

7.87

$

Granted

 

500

$

0.26

 

 

Exercised

 

$

-

 

 

Forfeited, expired, and cancelled

 

(692)

$

1.45

 

 

Options outstanding at November 30, 2023

 

19,631

$

0.96

 

7.46

$

Options outstanding and exercisable at November 30, 2023

 

14,187

$

1.12

 

6.93

$

During the six months ended November 30, 2023 and 2022, stock options for approximately 0.5 million shares and 12.4 million shares, respectively, were granted. The current year options vest when performance conditions are completed. Of the prior year options, 10.9 million options vest over four years, 1.1 million vested over one year, and 0.4 million vested immediately. The Company records compensation expense based on the Black-Scholes fair value per share of the awards on the grant date. The weighted average fair value per share was $0.23 and $0.34 for the six months ended November 30, 2023 and 2022, respectively.

 

RSUs and PSUs

 

The EIP provides for equity instruments, such as RSUs and PSUs, which grant the right to receive a specified number of shares over a specified period of time. RSUs and PSUs are service-based awards that vest according to the terms of the grant. PSUs have performance-based payout conditions.

 

14


The following table summarizes the Company’s RSU and PSU activity:

  

Number of

Weighted average

remaining contractual

(shares in thousands)

    

RSUs and PSUs (1)

    

grant date fair value

life in years

Unvested RSUs and PSUs at May 31, 2023

 

1,293

$

0.58

0.81

RSUs and PSUs granted

 

RSUs and PSUs forfeited

 

(1,293)

0.58

RSUs and PSUs vested

 

Unvested RSUs and PSUs at November 30, 2023

 

$

(1)

The number of PSUs disclosed in this table are at the target level of 100%.

  

Issuance of shares to consultants and employees

The Board has approved the issuance under the EIP of shares of common stock to consultants as payment for services provided. During the six months ended November 30, 2023 and 2022, a total of 1,091,865 and 510,872 shares of common stock, respectively, were issued pursuant to the respective award agreements with the consultants.

In order to preserve cash resources, the Board has approved the issuance under the EIP of shares of common stock as severance payments to former employees. During the six months ended November 30, 2023 and 2022 a total of 153,027 and 460,095 shares of common stock, respectively, were issued as severance.

Private placement of common stock and warrants through placement agent

In July 2023, the Company commenced a private placement of units consisting of common stock and warrants to accredited investors through a placement agent. Each unit sold included a fixed combination of one share of common stock and one warrant to purchase one share of common stock. The purchase price per unit was $0.16, equal to 90% of the intraday VWAP of the common stock as of the last closing on September 27, 2023. From July through September 2023, the Company sold a total of approximately 21.5 million units for a total of approximately $3.0 million of proceeds, net of issuance costs. The Company classified the securities issued in the private placement as a liability until the final close, when it was reclassified as equity. As part of the offering, the Company issued approximately 21.5 million warrants to investors, with each such warrant having a five-year term and an exercise price of $0.50 per share. The warrants were immediately exercisable. In connection with the above, the Company paid the placement agent a total cash fee of approximately $0.4 million, equal to 12% of the gross proceeds of the offering, as well as a one-time fee for expenses of $5,000, and issued to the placement agent and its designees, a total of approximately 3.2 million warrants with an exercise price of $0.16 per share and a ten-year term, representing 15% of the total number of shares of common stock sold in the offering.

Based on contractual payment terms, the private placement transactions above are considered convertible debt instruments prior to final settlement, and the option to enter a final closing that would lower the purchase price is considered a share-settled redemption feature. Therefore, the approximately $0.9 million of cash and non-cash issuance costs associated with such issuances were capitalized and subsequently recognized through the statement of operations as interest expense on the final closing date. As the VWAP of the final closing was lower than the VWAP on the initial closing, the share-settled redemption feature was triggered, and the Company recorded a $2.4 non-cash million loss on note extinguishment.

In addition, approximately $2.3 million principal and interest of the Placement Agent Notes were converted into approximately 14.3 million units with the same terms as described above except for a warrant exercise price of $0.306. See Note 4, Convertible Instruments and Accrued Interest – Placement Agent Notes, and Liability-classified equity instruments above for additional information.

15


Warrants

Warrant activity is presented in the table below:

Weighted 

average

Weighted

remaining

Aggregate

Number of

average

contractual

intrinsic

(in thousands, except for share data and years)

    

shares

    

exercise price

    

life in years

    

value

Warrants outstanding at May 31, 2023

 

259,910

$

0.37

 

4.57

$

7,276

Granted

 

42,019

$

0.40

 

 

Exercised

 

(3,000)

$

0.10

 

 

Forfeited, expired, and cancelled

 

(5,603)

$

0.75

 

 

Warrants outstanding at November 30, 2023

 

293,326

$

0.37

 

4.31

$

2,902

Warrants outstanding and exercisable at November 30, 2023

 

293,326

$

0.37

 

4.31

$

2,902

Warrant exercises

During the six months ended November 30, 2023, the Company issued approximately 3.0 million shares of common stock in connection with the exercise of an equal number of warrants. The stated exercise price was $0.10 per share, which resulted in aggregate gross proceeds of approximately $0.3 million.

Note 6. Loss per Common Share

Basic loss per share is computed by dividing the net loss adjusted for preferred stock dividends by the weighted average number of common shares outstanding during the period. Diluted loss per share includes the weighted average common shares outstanding and potentially dilutive common stock 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 loss per share. The reconciliation of the numerators and denominators of the basic and diluted net loss per share computations are as follows:

Three months ended November 30,

Six months ended November 30,

(in thousands, except per share amounts)

2023

    

2022

2023

2022

Net loss

$

(9,563)

$

(26,495)

$

(21,134)

$

(47,486)

Less: Deemed dividends

(1,140)

(5,294)

Less: Accrued preferred stock dividends

(368)

(370)

(741)

(756)

Net loss applicable to common stockholders

$

(9,931)

$

(28,005)

$

(21,875)

$

(53,536)

Basic and diluted:

Weighted average common shares outstanding

958,988

813,373

941,191

800,545

Loss per share

$

(0.01)

$

(0.03)

$

(0.02)

$

(0.07)

The table below shows the approximate number of shares of common stock issuable upon the exercise, vesting, or conversion of outstanding options, warrants, unvested RSUs and PSUs, convertible notes, and convertible preferred

16


stock (including undeclared dividends) that were not included in the computation of basic and diluted weighted average number of shares of common stock outstanding for the periods presented:

Three and six months ended November 30,

(in thousands)

2023

    

2022

Stock options, warrants, and unvested restricted stock units

312,956

204,273

Convertible notes

12,000

12,000

Convertible preferred stock

35,558

32,591