Certain information included in this Quarterly Report on Form
10-Q
contains, or incorporates by reference, forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. The words
"anticipate," "believe," "hope," "expect," "intend," "predict," "plan," "seek,"
"estimate," "project," "continue," "could," "may," and similar terms and
expressions, or the use of future tense, are intended to identify
forward-looking statements. These statements include, among others, statements
about leronlimab, its ability to have positive health outcomes, the impact of
health epidemics, including the ongoing
COVID-19
pandemic, and information regarding future operations, future capital
expenditures and future net cash flows. Such statements reflect current views
with respect to future events and financial performance and involve risks and
uncertainties, including, without limitation, (i) the sufficiency of the
Company's cash position, (ii) the Company's ability to raise additional capital
to fund its operations, (iii) the Company's ability to meet its debt
obligations, if any, (iv) the Company's ability to enter into partnership or
licensing arrangements with third-parties, (v) the Company's ability to identify
patients to enroll in its clinical trials in a timely fashion, (vi) the
Company's ability to achieve approval of a marketable product, (vii) the design,
implementation and conduct of the Company's clinical trials, (viii) the results
of the Company's clinical trials, including the possibility of unfavorable
clinical trial results, (ix) the market for, and marketability of, any product
that is approved, (x) the existence or development of vaccines, drugs, or other
treatments that are viewed by medical professionals or patients as superior to
the Company's products, (xi) regulatory initiatives, compliance with
governmental regulations and the regulatory approval process, (xi) regulatory
initiatives and compliance with governmental regulations and the regulatory
approval process, (xii) litigation affecting the Company or its products;
(xiii) general economic and business conditions, (ix) changes in foreign,
political, and social conditions, and (xv) various other matters, many of which
are beyond our control. Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove to be incorrect, actual results
may vary materially and adversely from those anticipated, believed, estimated,
or otherwise indicated. Consequently, all of the forward-looking statements made
in this filing are qualified by these cautionary statements and there can be no
assurance of the actual results or developments. For a discussion of the risks
and uncertainties that could materially and adversely affect the Company's
financial condition and results of operations, see "Risk Factors" set forth in
our Annual Report on Form
10-K
for the year ended May 31, 2020, filed with the SEC on August 14, 2020, and in
our subsequent filings with the SEC, including those risks and uncertainties
identified in Part II, Item 1A of this Quarterly Report.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the other sections of this
Quarterly Report, including our financial statements and related notes appearing
elsewhere herein. To the extent not otherwise defined herein, capitalized terms
shall have the same meanings as in such financial statements and related notes.
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 risk, uncertainties
and assumptions. The actual results may differ materially from those anticipated
and set forth in such forward-looking statements.
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.
Overview
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.
Our current business strategy is to resubmit our Biologics License Application
("BLA") filing for leronlimab as a combination therapy for highly
treatment-experienced HIV patients as soon as possible. In addition, we are also
pursuing approval for leronlimab as a potential therapeutic benefit for
COVID-19
patients, cancer, and other indications. We are currently also engaged in
conducting clinical trials in a Phase 1b/2 clinical trial for metastatic
triple-negative breast cancer, Phase 2 trial for 22 solid tumor cancers, and a
Phase 2 NASH trial.
During the quarter ended November 30, 2020, we have continued to work on the
resubmission of our BLA filing with the FDA for leronlimab as a combination
therapy for highly treatment-experienced HIV patients, and to advance our
clinical trials to evaluate the safety and efficacy of leronlimab as a treatment
for HIV, as a therapeutic for
COVID-19,
and as a treatment for various forms of cancers. An update of the status of our
clinical trials is below.
HIV Applications
Phase 2b/3 Pivotal Trial for HIV, as Combination Therapy
This trial was successfully completed and is the basis for our current BLA
filing with the FDA. The last two portions of the BLA (clinical and
manufacturing) were submitted to the FDA in April 2020, and the submission was
completed on May 11, 2020. In July 2020, however, the Company received a Refusal
to File letter from the FDA regarding its BLA filing requesting additional

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information. In August and September 2020, the FDA provided written responses to
the Company's questions and met telephonically with Company key personnel and
its clinical research organization concerning its recent BLA for this HIV
combination therapy to expedite the resubmission of its BLA filing for this
indication. The Company expects to resubmit its BLA filing in the first half of
calendar year 2021.
This trial for leronlimab as a combination therapy to existing highly active
antiretroviral therapy ("HAART") drug regimens for highly treatment experienced
HIV patients achieved its primary endpoint with
a p-value of
0.0032. Most of the patients who have completed this trial have transitioned to
an
FDA-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 to maintain suppressed viral load. This
extension study will be discontinued upon any FDA approval of leronlimab.
Phase 2b Extension Study for HIV, as Monotherapy
Currently, there are five patients in this ongoing extension study, and each has
surpassed six years of suppressed viral load with leronlimab as a single agent
therapy. 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 closed after reaching over 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-tropic
HIV-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
with 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 reported in August 2019
that interim data suggested 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. Given the high responder rate at the increased dosage
levels, coupled with the newly developed CCR5 occupancy test, we filed a pivotal
trial protocol with the FDA for leronlimab as a monotherapy in May 2019. Many
patients who completed the Phase 2b/3 trial and requested continued access to
leronlimab are continuing in an extension study.
COVID-19
Indication
Phase 2 Trial to Evaluate the Efficacy and Safety of Leronlimab for
Mild-to-Moderate
Coronavirus Disease 2019
(COVID-19)
This
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 coronavirus 2019 infection was
completed in July 2020. Patients were randomized to receive weekly doses of 700
mg leronlimab or placebo for two weeks. Leronlimab and placebo were administered
via subcutaneous injection. The study has three phases: Screening Period,
Treatment Period, and
Follow-Up
Period. A total of 86 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, and (12) time to return
to normal activity. Enrollment was completed in July 2020, and the Company
reported positive safety results. The topline report from the trial, including
efficacy and complete safety data, demonstrated clinically significant results
for the primary endpoint and statistically significant results for the secondary
outcome for NEWS2 was submitted to the FDA in August 2020. The Company is
currently exploring various forms of authorizations for use and potential
approvals with several countries.
Phase 3 Trial to Evaluate the Efficacy and Safety of Leronlimab for Patients
with
Severe-to-
Critical Coronavirus Disease 2019
(COVID-19).

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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-to-critical
symptoms of respiratory illness caused by COVID19. Patients were randomized to
receive weekly doses of 700 mg leronlimab or placebo for two weeks. Leronlimab
and placebo will be administered via subcutaneous injection. The study has 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. In October, 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. In August 2020, the DSMC
reviewed compiled safety data from 149 of the 169 patients enrolled in the Phase
3 trial. The DSMC did not raise any safety concerns and recommended the trial
continue without any modification. The Company completed enrollment in December
2020 with 394 patients and, accordingly, the last patient enrolled will reach 28
days in
mid-January
2021.
Cancer and Immunological Indications for Leronlimab
We are continuing to explore opportunities for clinical indications for
leronlimab involving the CCR5 receptor, other than
HIV-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 enter
T-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 of
T-cells
to these sites promoting further inflammation. The mechanism of action of
leronlimab has the potential to block the movement of
T-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 mechanism of action ("MOA"), we believe leronlimab may have
significant advantages in reducing side effects over other CCR5 antagonists.
Prior studies have demonstrated that leronlimab does not cause direct activation
of
T-cells. We
have reported encouraging human safety data for our clinical trials with
leronlimab in
HIV-infected
patients.
We initiated our first clinical trial with leronlimab in an immunological
indication in March 2020 - 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 decreased
1-year
survival rate with relapsed GvHD as the leading cause of death. Our
pre-clinical
study in GvHD has been published in the peer-reviewed journal Biology of Blood
and Marrow Transplantation. In October 2017, the FDA granted orphan drug
designation to leronlimab to prevent acute GvHD. Due to the lack of patients
during the
COVID-19
pandemic, the Company is suspending its Phase 2 trial for acute GvHD to focus on
more acute priorities.
Phase 1b/2 Trial for Triple-Negative Breast Cancer
This trial evaluates the feasibility of leronlimab combined with carboplatin in
patients with CCR5+ metastatic triple-negative breast cancer. The first portion
is a dose-escalation phase with three dose levels (cohorts) of leronlimab
combined with a fixed dose of carboplatin. The second 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") 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, and the Company
reported encouraging initial results from the first patient in November 2019. In
January 2020, the Company filed for Breakthrough Therapy designation ("BTD")
with the U.S. Food and Drug Administration (FDA) for the use of leronlimab as
adjuvant therapy for the treatment of metastatic triple-negative breast cancer
(mTNBC).
Breakthrough Therapy designation is a process designed to expedite the
development and review of drugs intended to treat a serious condition, and
preliminary clinical evidence indicates that the drug may demonstrate
substantial improvement over available therapy on a clinically significant
endpoint(s). In addition, breakthrough therapy should have a compelling
scientific rationale and promising

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MOA, such as targeting a molecular driver of disease. If the BTD is granted, it
will fall under one of three subcategories that (a) address a serious condition
with poor outcomes for which there is no Standard of Care (SoC), (b) provide
substantial efficacy improvement of a well characterized SoC for a serious
condition with poor outcomes, or (c) provide substantial therapeutic index
advantage over a well characterized SoC for a serious condition with poor
outcomes. If a BTD is granted the possible outcomes are (a) conditional or full
approval, (b) expedited development, (c) rolling submission, or (d) review
shortened.
To determine whether the improvement over available therapy is substantial is a
matter of judgment and depends on both the magnitude of the treatment effect,
including the duration of the effect and the importance of the observed clinical
outcome. In general, preliminary clinical evidence should show a clear advantage
over available therapy. A breakthrough therapy is a drug:

• intended alone or in combination with one or more other drugs to treat a


          serious or life-threatening disease or condition, and

• preliminary clinical evidence indicates that the drug may demonstrate

substantial improvement over existing therapies on one or more clinically

significant endpoints, such as substantial treatment effects observed

early in clinical development.




In 2019, the FDA's Center for Drug Evaluation and Research (CDER) approved 29 of
48 novel drugs that used at least one expedited approval method. 13 of these
drugs approved originated from a Breakthrough Therapy designation, which
represents 27% of the drugs approved during the year.
Compassionate Use Study of Leronlimab in Breast Cancer
This is a
single-arm,
compassionate use study with 30 patients for leronlimab combined with a
treatment of physician's choice (TPC) in patients with CCR5+ mTNBC. Leronlimab
will be administered subcutaneously at a weekly dose of 350 mg until disease
progression or intolerable toxicity. Based on our success in the Phase 1b/2
mTNBC trial with 350 mg dose, we were able to transition all of the
compassionate use patients to 525 mg dose. 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 three months or according to
the 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, and
enrollment is ongoing.
Phase 2 Trial and IND for NASH
In October 2019, the FDA granted clearance to CytoDyn to proceed with a Phase 2
study to test whether leronlimab may control the devastating effects of liver
fibrosis associated with Nonalcoholic steatohepatitis ("NASH"). This trial is
designed to be a
60-patient,
multi-center, randomized, double-blind, placebo-controlled Phase 2 study of the
safety and efficacy of leronlimab in adult patients with NASH. The first patient
was enrolled in December 2020.
Phase 2 Trial for Metastatic Colorectal Cancer
In early September 2019, the FDA granted clearance to proceed with Phase 2
studies of leronlimab and regorafenib as a combination therapy for metastatic
colorectal cancer. This Phase 2 study will enroll 30 patients and is designed to
test the hypothesis that the combination of leronlimab, administered as a
subcutaneous injection, and regorafenib, administered orally, will increase
progression-free survival in patients with CCR5-positive metastatic colorectal
cancer. We have not initiated this trial because metastatic colorectal cancer
patients can also enroll in the Phase 2 basket trial.
Pre-clinical
Studies for Multiple Cancer Indications
We plan to initiate multiple
pre-clinical
studies with leronlimab for melanoma, pancreatic, breast, prostate colon, lung,
liver, and stomach cancers. An ongoing
pre-clinical
study conducted by the Company reported in May 2019 that leronlimab reduces by
more than 98% human breast cancer metastasis in a murine xenograft model. We
were granted Fast Track designation for leronlimab for use in triple-negative
breast cancer. In addition,
pre-clinical
results in a colorectal cancer study are likewise encouraging.

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We will require a significant amount of additional capital to complete the
foregoing clinical trials for HIV and complete our BLA submission, as well as to
advance our trials in the oncology and immunology space, including but not
limited to triple-negative breast cancer, certain other cancer indications and
NASH. See "Liquidity and Capital Resources" below.
Scientific Advisory Board
On September 1, 2020, we announced the formation of a scientific advisory board
to advise the Company on developing leronlimab for multiple therapeutic
indications. The initial members of the scientific advisory board include
leading HIV, NASH, Oncology, and Rheumatological clinical experts and
researchers, including Gero Hütter, M.D., Ph.D., German hematologist, best known
for the bone marrow transplant resulting in the cure of the first HIV patient;
Hope S. Rugo, M.D., Professor, Department of Medicine (Hematology/Oncology) and
Director of the Breast Oncology Clinical Trials Education Program at University
of California San Francisco; Richard T. Maziarz, M.D., Professor, Medical
Director of the Adult Blood and Marrow Stem Cell Transplant and Cellular Therapy
Program Knight Cancer Institute at Oregon Health & Science University (OHSU);
Jonah B. Sacha, Ph.D., Professor, VGTI-Vaccine and Gene Therapy Institute at
OHSU; Mazen Noureddin, M.D., a hepatologist and Director, Cedars-Sinai Liver
Transplant Program in Los Angeles; Norman B. Gaylis, M.D., nationally and
internationally recognized specialist in rheumatology and autoimmune diseases;
Eric D. Mininberg, M.D., Oncology Specialist, Piedmont Cancer Institute, a
member of the MD Anderson Cancer Network; and Lishomwa Ndhlovu, M.D., Ph.D.,
Assistant Professor, Immunology, Department of Medicine, Division of Infectious
Disease at Weill Cornell Medicine in New York.
Results of Operations
Results of Operations for the three and six months ended November 30, 2020 and
2019
The following table sets forth our consolidated operating results for the three
and six months ended November 30, 2020 compared to the three and six months
ended November 30, 2019, respectively (in thousands):

                                                    Three Months Ended November 30,                 Change                  Six Months Ended November 30,                 Change
                                                     2020                    2019                $            %              2020                   2019               $            %
Operating expenses:
General and administrative                      $         7,551         $         3,094      $   4,457         144 %    $       17,426         $        6,140      $  11,286         184 %
Research and development                                 16,446                   8,527          7,919          93 %            31,738                 17,582         14,156          81 %
Amortization and depreciation                               506                     500              6           1 %             1,011                  1,031            (20 )        -2 %

Total operating expenses                                 24,503                  12,121         12,382         102 %            50,175

24,753 25,422 103 %



Operating loss                                          (24,503 )               (12,121 )      (12,382 )       102 %           (50,175 )              (24,753 )      (25,422 )       103 %
Interest income                                              -                        2             (2 )      -100 %                -                       2             (2 )      -100 %
Change in fair value of derivative
liabilities                                                  -                      203           (203 )      -100 %                -                     829           (829 )      -100 %
Loss on extinguishment of convertible note               (4,169 )                    -          (4,169 )      -100 %            (4,169 )                   -          (4,169 )      -100 %
Interest expense:                                                                                                                   -                      -
Finance charges                                            (231 )                (1,549 )        1,318         -85 %              (137 )               (1,558 )        1,421         -91 %
Amortization of discount on convertible notes            (1,243 )                  (439 )         (804 )       183 %            (2,582 )               (1,470 )       (1,112 )        76 %
Amortization of debt issuance costs                         (15 )                  (120 )          105         -88 %               (19 )                 (404 )          385         -95 %
Inducement interest expense                              (3,758 )                  (283 )       (3,475 )      1228 %            (7,103 )               (2,713 )       (4,390 )       162 %
Interest on convertible note payable                     (1,047 )                  (553 )         (494 )        89 %            (1,613 )

(957 ) (656 ) 69 %



Total interest expense                                   (6,294 )                (2,944 )       (3,350 )       114 %           (11,454 )

(7,102 ) (4,352 ) 61 %



Loss before income taxes                                (34,966 )               (14,860 )      (20,106 )       135 %           (65,798 )              (31,024 )      (34,774 )       112 %
Income tax benefit                                           -                       -              -           -                   -                      -              -           -

Net loss                                        $       (34,966 )       $

(14,860 ) $ (20,106 ) 135 % $ (65,798 ) $ (31,024 ) $ (34,774 ) 112 %



Basic and diluted loss per share                $         (0.06 )       $

(0.04 ) $ (0.02 ) 51 % $ (0.12 ) $ (0.08 ) $ (0.04 ) 45 %



Basic and diluted weighted average common
shares outstanding                                      577,945                 389,138        188,807          49 %           566,677                376,822        189,855          50 %



Revenues
For the three months ended November 30, 2020 and 2019, we had no activities that
produced revenues from operations.
General and Administrative Expenses
General and Administrative, or G&A, expenses totaled approximately $7.6 million
and $3.1 million for the three months ended November 30, 2020 and 2019,
respectively, and 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 $4.5 million, or 144%, for the three months ended November 30,
2020 over the comparable period a year ago was due to increased
non-cash
stock-based compensation expense of approximately $3.0 million, higher salaries
and benefits attributable to increased compensation and the number of employees
of approximately $0.8 million, increased professional service fees of
$0.3 million, increased insurance expense of $0.2 million, coupled with
increases in other corporate and administrative expenses of approximately
$0.2 million.

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G&A expenses totaled approximately $17.4 million and $6.1 million for the six
months ended November 30, 2020 and 2019, respectively, and 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 $11.3 million, or 184%, for the six months ended November 30, 2020
over the same period last year was due to increased
non-cash
stock-based compensation expense of approximately $6.1 million, higher salaries
and benefits attributable to increased compensation and the number of employees
of approximately $3.4 million, increased professional service fees of
$0.9 million, increased insurance expense of approximately $0.4 million, coupled
with increases in other corporate and administrative expenses of approximately
$0.5 million.
Research and Development Expenses
Research and Development, or R&D expenses, which totaled approximately
$16.5 million and $8.5 million for the three months ended November 30, 2020 and
2019, respectively, increased approximately $7.9 million, or 93%, over the
comparable 2019 period due to an increase of $6.9 million in manufacturing
activity related to the commercialization of leronlimab, an increase of
$2.6 million in clinical trial costs related to
COVID-19,
and an increase of $0.4 million in clinical trial costs related to oncology and
immunology indications, offset by a decrease of $2.4 million in extension
studies related to HIV. For the quarter ended November 30, 2020, R&D
expenditures continue to be primarily devoted to: (1) increased CMC (chemistry,
manufacturing, and controls) activities related to clinical and
commercialization inventories, (2) three HIV extension studies, which continue
to provide leronlimab to patients who have successfully completed a trial,
(3) COVID-19
clinical trials and (4) increased clinical trials for oncology and immunology
indications.
R&D expenses, which totaled approximately $31.7 and $17.6 million for the six
months ended November 30, 2020 and 2019, increased approximately $14.2 million,
or 81%, over the comparable 2019 period due to an increase of $10.7 million in
manufacturing activity related to the commercialization of leronlimab, an
increase of $8.3 million in clinical trial costs related to
COVID-19,
and an increase of $1.7 million in clinical trial costs related to oncology and
immunology indications, and an increase of $0.8 million related to
non-clinical
studies, offset by a decrease of $7.3 million in extension studies related to
HIV. For the six months ended November 30, 2020, R&D expenditures continue to be
primarily devoted to: (1) increased CMC (chemistry, manufacturing, and controls)
activities related to clinical and commercialization inventories, (2) three HIV
extension studies, which continue to provide leronlimab to patients who have
successfully completed a trial,
(3) COVID-19
clinical trials and (4) increased clinical trials for oncology and immunology
indications.
We expect future R&D expenses to be dependent on the timing of 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 and regulatory
progression related to
COVID-19,
oncology and immunology trials, along with the outcome of the
pre-clinical
studies for several other cancer indications. R&D expenses are also expected to
increase due to CMC activities in preparation for approval and commercialization
of leronlimab.
Amortization and depreciation expenses
Amortization and depreciation expenses for the three and six months ended
November 30, 2020 was approximately $0.5 million and $1.0 million, respectively,
and were flat compared to the respective 2019 comparable periods. This expense
is primarily attributable to the amortization of intangible assets recognized
with the acquisition of ProstaGene, LLC.
Operating Expenses
For the three months ended November 30, 2020 and 2019, operating expenses
totaled approximately $24.5 million and $12.1 million, respectively, consisting
of G&A expenses, R&D expenses, and amortization and depreciation. The increase
in operating expenses of approximately $12.4 million, or 102%, over the 2019
period was attributable to increased G&A expenses of approximately $4.5 million
and increased R&D expenses of approximately $7.9 million.
For the six months ended November 30, 2020 and 2019, operating expenses totaled
approximately $50.2 million and $24.8 million, respectively, consisting of G&A
expenses, R&D expenses, and amortization and depreciation. The increase in
operating expenses of approximately $25.4 million, or 103%, over the comparable
2019
six-month
period was attributable to increased G&A expenses of approximately $11.3 million
and increased R&D expenses of approximately $14.2 million.
The future trends in expenses will be driven, in large part, by the future
outcomes of
pre-clinical
studies and clinical trials and their related effect on research and development
expenses, general and administrative expenses, and the manufacturing of new
commercial leronlimab. 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, "Capital Requirements" and
"Going Concern" below and Item 1A. Risk Factors in our Annual Report on
Form 10-K for
the year ended May 31, 2020.

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Change in Fair Value of Derivative Liabilities
For the three and six months ended November 30, 2020, we realized a decrease in
change in fair value of derivative liabilities of $0.2 million and $0.8 million,
or 100%, respectively, when compared to the same periods in 2019, due to the
originating instruments being exercised and settled during the fiscal year ended
May 31, 2020. The related underlying instruments were certain warrants which
originated in September 2016 and two convertible note instruments originated in
June 2018 and January 2019 containing contingent cash settlement provisions that
gave rise to a derivative liability. For each reporting period, the Company
determined the fair value of the derivative liability and recorded a
corresponding
non-cash
benefit or
non-cash
charge, as a consequence of a decrease or increase, respectively, in the
calculated derivative liability.
Loss on extinguishment of convertible note
For the three and six months ended November 30, 2020, we recognized a
non-cash
loss on the extinguishment of a convertible note of approximately $4.2, we did
not recognize any losses on the extinguishment of debt during the same
comparable periods in 2019, resulting from negotiated note payment settlements
in which debt was agreed to be settled in exchange for shares issued at a price
less than the closing price for the day. The originating underlying convertible
note was entered into on March 31, 2020 and fully retired during November 2020.
Interest Expense
Interest expense for the three months ended November 30, 2020 totaled
approximately $6.3 million. The increase of approximately $3.4 million over the
comparable period in 2019 was driven primarily by an increase in
non-cash
inducement interest expense related to private warrant exchanges of
approximately $3.5 million, an increase in
non-cash
amortization of discount on convertible notes of approximately $0.8 million, an
increase in interest on convertible notes payable of $0.5 million, offset by a
decrease of $1.3 million related to financing of trade payables and a decrease
in amortization of debt issuance costs of $0.1 million.
Interest expense for the six months ended November 30, 2020 totaled
approximately $11.5 million. The increase of approximately $4.4 million over the
comparable period in 2019 was driven primarily by an increase of an increase in
non-cash
inducement interest expense related to private warrant exchanges of
approximately $4.4 million, an increase in
non-cash
amortization of discount on convertible notes of approximately $1.1 million, an
increase in interest on convertible notes payable of $0.7 million, offset by a
decrease of $1.4 million related to financing of trade payables and a decrease
in amortization of debt issuance costs of $0.4 million.
Net Loss
For the three months ended November 30, 2020 and 2019, we had a net loss of
approximately $35.0 million and $14.9 million, respectively. The increase in net
loss of approximately $20.1 million was due largely to higher G&A expenses,
higher R&D expenses, and higher interest expense.
For the six months ended November 30, 2020 and 2019, we had a net loss of
approximately $65.8 million and $31.0 million, respectively. The increase in net
loss of approximately $34.8 million was due largely to higher G&A expenses,
higher R&D expenses, higher
non-cash
debt extinguishment losses, and higher
non-cash
interest expense.
Loss per Share
For the three months ended November 30, 2020 and 2019, we had loss per share of
$0.06 and $0.04, respectively. The increase in loss per share of $0.02 as
compared to a year ago, was due to an increased net loss of approximately
$20.1 million over the comparable period in 2019, partially offset by a
significant increase in the number of weighted average common shares
outstanding. The increase in common stock was due to common stock issuances
associated with the exercise of warrants and stock options, settlement of
convertible notes with shares, and a private placement of equity.
For the six months ended November 30, 2020 and 2019, we had loss per share of
$0.12 and $0.08, respectively. The increase in loss per share of $0.04 as
compared to a year ago, was due to an increased net loss of approximately
$34.8 million over the comparable period in 2019, partially offset by a
significant increase in the number of weighted average common shares
outstanding. The increase in common stock was due to common stock issuances
associated with the exercise of warrants and stock options, settlement of
convertible notes with shares, and a private placement of equity.
Liquidity and Capital Resources
Cash
The Company's cash position of approximately $29.4 million at November 30, 2020
increased approximately $15.1 million as compared to a balance of approximately
$14.3 million at May 31, 2020.

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Inventory
The Company's inventory position of approximately $99.1 million at November 30,
2020 increased approximately $80.0 million as compared to a balance of
approximately $19.1 million at May 31, 2020 in preparation for
commercialization. This inventory increase is related to raw materials purchased
for future commercial production and
work-in-progress
inventory related to the substantially completed commercial production of
pre-launch
inventories of leronlimab, in expectation of approval of the product as a
combination therapy for HIV patients in the United States.
Work-in-progress
consists of bulk drug substance, which is the manufactured drug stored in bulk
storage, and drug product, which is the manufactured drug in unlabeled vials.
Bulk drug substance and drug product comprised approximately $41.1 million and
$29.7 million, respectively, of
work-in-progress
inventory. See "Capital Requirements-Contract Manufacturing" below for a further
discussion of commitments with third-party contract manufacturing partners.
Cash Flows
The increase in cash for the six months ended November 30, 2020 of approximately
$15.1 million was attributable to net cash provided by financing activities of
approximately $76.3 million exceeding net cash used in operating activities of
approximately $61.1 million and cash used in investing activities of
approximately $0.1 million.

                                                   Six Months Ended November 30,            Change
(in thousands)                                      2020                  2019                $
Net cash (used in) provided by:
Net cash used in operating activities          $      (61,119)       $      (21,975)      $ (39,144)
Net cash used in investing activities          $          (77)       $          (14)      $     (63)
Net cash provided by financing activities      $        76,311       $

19,722 $ 56,589




Cash Used in Operating Activities
Net cash used in operating activities totaled approximately $61.1 million during
the six months ended November 30, 2020, which reflects an increase of
approximately $39.1 million of net cash used in operating activities over the
six months ended November 30, 2019. The increase in net cash used in operating
activities was due to $79.9 million of cash used to procure leronlimab, an
increase in net loss of $34.8 million, offset in part by an increase in accounts
payables and accrued liabilities of $58.7 million, an increase in noncash
stock-based compensation of $6.1 million, an increase in
non-cash
inducement interest expense of $4.4 million, an increase in
non-cash
loss on extinguishment of debt of $4.2 million, a decrease in prepaid asset of
approximately $1.3 million, and an increase in
non-cash
amortization of debt discount of approximately $1.1 million, when compared to
the changes in the comparable period in 2019.
Cash Used in Investing Activities
Net cash used in investing activities was approximately $0.1 million during the
six months ended November 30, 2020, which reflects an immaterial increase over a
year ago attributable to the purchase of office equipment and furniture.
Cash Provided by Financing Activities
Net cash provided by financing activities of approximately $76.3 million during
the six months ended November 30, 2020, increased approximately $56.6 million
over net cash provided by financing activities during the six months ended
November 30, 2019. The increase in net cash provided from financing activities
was primarily attributable to the increase in net proceeds of $50.0 million from
the issuance of convertible promissory notes, the increase in net proceeds from
warrant and stock option transactions of approximately $18.2 million, and the
increase in net proceeds from convertible promissory note repayments of
$0.4 million, offset by a decrease in net proceeds from the sales of common and
preferred stock of approximately $11.2 million, an increase for payment of
income tax withholdings in exchange for the tender of common stock of
approximately $0.8 million, when compared to the same period in the 2019 prior
year.
Convertible Debt
A summary of our various convertible debt arrangements is included in Note 5.
Convertible Instruments of the Notes to the Consolidated Financial Statements
included in Part I, Item I of this Quarterly Report on Form
10-Q.
November 2020 Note
In November 2020, we issued a 10%
2-year
convertible note with a principal amount of $28.5 million resulting in net cash
proceeds of $25.0, after $3.4 million of debt discount and $0.1 million of
offering costs. The note accrues interest daily at a rate of 10% per annum,
contains a stated conversion price of $10.00 per share, and matures in November
2022. The November 2020 Note requires monthly debt reduction payments of
$7.5 million for the six months beginning in November 2020 which can also be
satisfied by payments on the July 2020 Note and/or March 2020 Note. After six
months past the issuance date, the noteholder can request monthly redemptions of
up to $3.5 million.

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July 2020 Note
In July 2020, we issued a convertible note with a principal amount of
$28.5 million resulting in net cash proceeds of $25.0, after $3.4 million of
debt discount and $0.1 million of offering costs. The note accrues interest
daily consists at a rate of 10% per annum, contains a stated conversion price of
$10.00 per share, and matures in July 2022. Beginning after six months past the
issuance date, the noteholder can request monthly redemptions up to
$1.6 million.
March 2020 Note
During the quarter ended November 30, 2020, this note was fully retired as a
result of the noteholder exercising the monthly redemption provision the Company
applying the monthly Debt Reduction Amount required under the November 2020 Note
to the March 2020 Note. As of November 30, 2020, there was no amount outstanding
under this note.
Common Stock
We have 800.0 million authorized shares of common stock. As of November 30,
2020, we had 590.3 million shares of common stock outstanding, 57.0 million
shares of common stock issuable up the exercise of warrants, 31.5 shares of
common stock issuable upon conversion of preferred convertible stock and
undeclared dividends, 25.8 million shares of common stock issuable upon the
exercise of outstanding stock options or the vesting of outstanding restricted
stock units, 15.7 million shares of common stock reserved for future issuance
under our equity compensation plans, and 12.0 million shares of common stock
reserved and issuable up conversion of outstanding convertible notes. As a
result, as of November 30, 2020, we had approximately 68.2 million authorized
shares of common stock available for issuance.
Capital Requirements
We have not generated revenue to date, and we do not expect to generate product
revenue until FDA approval of leronlimab as a combination therapy for HIV,
unless various approvals for
COVID-19
are realized sooner. We expect to continue to incur operating losses as expenses
continue to increase as we proceed with preparation for commercialization of
leronlimab and continue our
pre-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 our BLA, the
magnitude of our commercialization readiness, future clinical trial strategy and
timing of the commencement of our future revenue stream.
To date, we have not seen any impact due to
COVID-19
on our ability to access capital. However, the spread of
COVID-19
has led to disruption and volatility in the global capital markets, which
increases the cost of, and adversely affects access to, capital and increases
economic uncertainty, and 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.
Contract Manufacturing
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. As of the quarter ended
November 30, 2020, the Company delivered to Samsung purchase orders totaling
approximately $116 million related to the manufacture of leronlimab and payments
totaling $40 million, with additional payments scheduled to be made throughout
calendar 2021 and 2022. As of November 30, 2020, the Company has recorded
current liabilities of approximately $44 million and long-term liabilities of
$34 million related to inventory manufactured pursuant to the Samsung Agreement.
Under the Samsung Agreement, the purchase order is binding and the Company is
obligated to pay the full amount of the purchase order, and make specified
minimum purchases of leronlimab from Samsung pursuant to forecasted requirements
which the Company is required to provide to Samsung. The first forecast
scheduled 11 manufacturing batches setting forth the total quantity of
commercial grade leronlimab the Company expects to require during calendar year
2020, as of the quarter ended November 30, 2020 all batches were substantially
complete. The Company estimates initial
ramp-up
costs to manufacture commercial grade leronlimab at scale could total
approximately $127 million, with approximately $64 million payable over the
course of calendar year 2020, of which $45 million has been paid as of the date
of this filing, approximately $37 million payable during calendar year 2021, and
approximately $26 million payable in calendar year 2022. Thereafter, the Company
will pay Samsung per 15,000L batch according to the pricing terms specified in
the Samsung Agreement.

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The Samsung Agreement has an initial term ending in December 2027 and will be
automatically extended for additional
two-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 $3.6 million in the
form of purchase orders related to the Samsung Vial Filling Agreement through
January 2021.
In addition to the Samsung Agreement, the Company has also previously entered
into an arrangement with another third-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 $1.1 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 two contract manufacturers 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.
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. The Agreement also permits each party to
terminate the agreement for certain events of default by the other party, as
enumerated in the Distribution Agreement, and the Company may 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.
As described above, the Company recently completed a Phase 2b/3 clinical trial
for 390
severe-to-critically
ill
COVID-19
patients. If results from this trial indicates statistically significant
clinical outcomes for the
COVID-19
patients to sufficiently meet the primary and secondary endpoints for the trial,
the Company will seek FDA approval.
Contract Research Organization (CRO)
The Company has entered into project work orders for each of our clinical trials
with our CRO and related laboratory vendors. Under the terms of these
agreements, the Company has prepaid certain execution fees for direct services
costs. In connection with our clinical trials, the Company has entered into
separate project work orders for each trial with our CRO. In the event that the
Company terminates any trial, certain financial penalties may be incurred which
would become payable to the CRO. Conditioned upon the form of termination of any
one trial, the financial penalties may range up to $0.6 million. In the remote
circumstance that all clinical trials are terminated, the collective financial
penalties may range from an approximate low of $2.0 million to an approximate
high of $4.0 million.

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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 other
non-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 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 a
country-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 or
non-U.S.
equivalent regulatory body; (ii) $0.5 million upon FDA approval or approval by
another
non-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. As of the date of this filing,
while we have completed and filed the first of three portions of our BLA, it
remains uncertain as to when the remaining two portions will be filed. Further,
until the BLA is accepted by the FDA, it is management's conclusion that 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 its
sub-licensors
are deemed contingent consideration and, therefore, are not currently accruable.
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 incur 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.
Regulatory Matters
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 requested a Type A meeting to
discuss the FDA's request for additional information. The FDA did not schedule a
Type A meeting, but requested the Company submit all questions regarding the
filing in writing. In September 2020, the Company submitted questions to the
FDA, received written responses, and held a telephonic meeting with the FDA to
obtain further clarity on what additional information was required with respect
to the BLA filing. The Company is working to provide the information required by
the FDA in order to resubmit the BLA, which it expects to do in the first half
of 2021.
Going Concern
As reported in the accompanying consolidated financial statements, for the six
months ended November 30, 2020 and November 30, 2019, the Company incurred net
losses of approximately $65.8 million and $31.0 million, respectively. The
Company has no activities that produced revenue in the periods presented and
have sustained operating losses since inception.

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The Company currently requires and will continue to require a significant amount
of additional capital to fund operations, pay our accounts payables, and our
ability to continue as a going concern is dependent upon its ability to raise
such additional capital, commercialize its product and achieve profitability. If
the Company is not able to raise such additional capital on a timely basis or on
favorable terms, it may need to scale back operations or slow
CMO-related
activities, which could materially delay commercialization initiatives, thereby
deferring its ability to achieve profitability. The Company's failure to raise
additional capital could also affect its relationships with key vendors,
disrupting its ability to timely execute our business plan. In extreme cases, it
could be forced to file for bankruptcy protection, discontinue our operations or
liquidate our assets.
Since inception, the Company has financed its activities principally from the
sale of public and private equity securities and proceeds from convertible notes
payable and related party notes payable. The Company intends to finance its
future operating activities and its 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, the Company
has approximately 66.4 million shares of common stock authorized and remaining
available for issuance under our certificate of incorporation, as amended, and
approximately $137 million available for future registered offerings of
securities under our universal shelf registration statement on
Form S-3,
which was declared effective on March 7, 2018 (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 the 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 its operations. On July 29, 2020 and November 10, 2020, the Company
entered into long-term convertible notes, which are secured by all of its
assets, except for its intellectual property and also includes 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 the Company to relinquish
valuable rights. The Company expects to require additional capital beyond
currently anticipated needs. Additional capital, if available, may not be
available on reasonable or
non-dilutive
terms. Please refer to the matters discussed under the heading "Risk Factors" in
our annual report on Form
10-K
filed on August 14, 2020 and under Item 1A. in Part II of this
10-Q.
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 have incurred losses for all
periods presented and have a substantial accumulated deficit. As of November 30,
2020, these factors, among several others, 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 we be unable to continue as a going concern. Our continuation as a going
concern is dependent upon our ability to obtain a significant amount of
additional operating capital, complete development of our product candidate,
obtain FDA approval, outsource manufacturing of our product, and ultimately to
attain profitability. We intend to seek additional funding through equity or
debt offerings, licensing agreements or strategic alliances to advance our
business plan. There are no assurances, however, that we will be successful in
these endeavors.
Off-Balance
Sheet Arrangements
We do not have
any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. 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 (2) accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.

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Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of November 30, 2020 (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 described above that, as of
November 30, 2020, our disclosure controls and procedures were effective at the
reasonable-assurance level.
Changes in Internal Control Over Financial Reporting
During the quarter ended November 30, 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.

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