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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, 2020
 
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, 2020, there were 598,132,866 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 per share data)
 
     November 30, 2020
(unaudited)
    May 31, 2020
(audited)
 
Assets
                
Current assets:
                
Cash
   $ 29,407     $ 14,282  
Restricted cash
     —         10  
Inventories
     99,071       19,147  
Prepaid expenses
     900       498  
Prepaid service fees
     1,416       2,890  
    
 
 
   
 
 
 
Total current assets
     130,794       36,827  
Operating leases
right-of-use
asset
     391       176  
Property and equipment, net
     115       55  
Intangibles, net
     12,462       13,456  
    
 
 
   
 
 
 
Total assets
   $ 143,762     $ 50,514  
    
 
 
   
 
 
 
Liabilities and Stockholders’ (Deficit) Equity
                
Current liabilities:
                
Accounts payable
   $ 46,083     $ 29,479  
Accrued liabilities and compensation
     15,911       6,879  
Accrued interest on convertible notes
     1,133       292  
Accrued dividends on convertible preferred stock
     1,816       981  
Current portion of operating leases payable
     111       115  
Current portion of long-term convertible notes payable, net
     50,676       6,745  
Warrant exercise proceeds held in trust
     —         10  
    
 
 
   
 
 
 
Total current liabilities
     115,730       44,501  
    
 
 
   
 
 
 
Long-term liabilities:
                
Convertible notes payable, net
     —         8,431  
Operating leases liability
     286       63  
Accounts payable
 
 
34,280
 
 
 
—  
 
    
 
 
   
 
 
 
Total long-term liabilities
     34,566       8,494  
    
 
 
   
 
 
 
Total liabilities
     150,296       52,995  
    
 
 
   
 
 
 
Commitments and Contingencies (Note 10)
            
Stockholders’ (Deficit) Equity
                
Preferred Stock, $0.001 par value; 5,000 shares authorized
                
Series D convertible preferred stock, $0.001 par value; 12 authorized; 9 issued and outstanding at November 30, 2020 and May 31, 2020, respectively
     —         —    
Series C convertible preferred stock, $0.001 par value; 8 authorized; 8 issued and outstanding at November 30, 2020 and May 31, 2020, respectively
     —         —    
Series B convertible preferred stock, $0.001 par value; 400 shares authorized, 87 and 92 shares issued and outstanding at November 30, 2020 and May 31, 2020, respectively
     —         —    
Common stock, $0.001 par value; 800,000 shares authorized, 590,279 and 519,261 issued and
589,837 and 518,976 outstanding at November 30, 2020 and May 31, 2020, respectively
     590       519  
Additional
paid-in
capital
     414,463       351,711  
Accumulated (deficit)
     (421,587     (354,711
Less: Treasury stock, $0.001 par value (442 and 286 shares at November 30, 2020 and May 31,2020, respectively)
     —         —    
    
 
 
   
 
 
 
Total stockholders’ (deficit) equity
     (6,534     (2,481
    
 
 
   
 
 
 
Total liabilities and stockholders’ (deficit) equity
   $ 143,762     $ 50,514  
 
  
 
 
   
 
 
 
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,  
     2020     2019     2020     2019  
Operating expenses:
        
General and administrative
   $ 7,551     $ 3,094     $ 17,426     $ 6,140  
Research and development
     16,446       8,527       31,738       17,582  
Amortization and depreciation
     506       500       1,011       1,031  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     24,503       12,121       50,175       24,753  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating loss
     (24,503     (12,121     (50,175     (24,753
Interest income
     —         2       —         2  
Change in fair value of derivative liabilities
     —         203       —         829  
Loss on extinguishment of convertible note
     (4,169     —         (4,169     —    
Interest expense:
        
Finance charges
     (231     (1,549     (137     (1,558
Amortization of discount on convertible notes
     (1,243     (439     (2,582     (1,470
Amortization of debt issuance costs
     (15     (120     (19     (404
Inducement interest expense
     (3,758     (283     (7,103     (2,713
Interest on convertible notes payable
     (1,047     (553     (1,613     (957
  
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense
     (6,294     (2,944     (11,454     (7,102
  
 
 
   
 
 
   
 
 
   
 
 
 
Loss before income taxes
     (34,966     (14,860     (65,798     (31,024
Income tax benefit
     —         —         —         —    
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
   $ (34,966   $ (14,860   $ (65,798   $ (31,024
  
 
 
   
 
 
   
 
 
   
 
 
 
Basic and diluted loss per share
   $ (0.06   $ (0.04   $ (0.12   $ (0.08
  
 
 
   
 
 
   
 
 
   
 
 
 
Basic and diluted weighted average common shares outstanding
     577,945       389,138       566,677       376,822  
  
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
4

CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit)/ Equity
(Unaudited)
(In thousands, expect per share data)
 
     Preferred Stock      Common Stock      Treasury Stock  
     Shares      Amount      Shares      Amount      Shares      Amount  
Balance May 31, 2019
     95      $ —          329,554      $ 330        159      $ —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
First Quarter Fiscal Year Ended May 31, 2020
                                                     
Issuance of stock for convertible note repayment
     —          —          3,014        3        —          —    
Proceeds from registered direct offering ($0.50
 
per share)
     —          —          5,640        6        —          —    
Offering costs related to registered direct offering
     —          —          —          —          —          —    
Proceeds from public warrant tender offers
     —          —          45,376        45        —          —    
Offering costs related to public warrant tender offers
     —          —          —          —          —          —    
Inducement interest expense - tender offers and debt conversions
     —          —          —          —          —          —    
Proceeds from Series C preferred stock offering
     2        —          —          —          —          —    
Offering costs related to Series C preferred stock offering
     —          —          —          —          —          —    
Dividends on Series C preferred stock
     —          —          —          —          —          —    
Legal fees in connection with equity offerings
     —          —          —          —          —          —    
Stock-based compensation
     —          —          —          —          —          —    
Net Loss August 31, 2019
     —          —          —          —          —          —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance August 31, 2019
     97      $ —          383,584      $ 384        159      $ —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Second Quarter Fiscal Year Ended May 31, 2020
                                                     
Issuance of stock for convertible note repayment
     —          —          2,270        2        —          —    
Note conversion and extension fees
     —          —          —          —          —          —    
Proceeds from registered direct offering ($0.50
 per share)
     —          —          13,461        13        —          —    
Offering costs related to registered direct offering
     —          —          —          —          —          —    
Proceeds from public warrant tender offers
     —          —          —          —          —          —    
Offering costs related to public warrant tender offers
     —          —          —          —          —          —    
Inducement interest expense - debt conversion
     —          —          —          —          —          —    
Proceeds from Series C preferred stock offering
     3        —          —          —          —          —    
Offering costs related to Series C preferred stock offering
     —          —          —          —          —          —    
Exercise of option to repurchase common stock
     —          —          —          —          —          —    
Dividends on Series C preferred stock
     —          —          —          —          —          —    
Legal fees in connection with equity offerings
     —          —          —          —          —          —    
Stock-based compensation
     —          —          —          —          —          —    
Net Loss November 30, 2019
     —          —          —          —          —          —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance November 30, 2019
     100      $ —          399,315      $ 399        159      $ —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
See accompanying notes to consolidated financial statements.
 
5

CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit)/ Equity
(Unaudited)
(In thousands, except per share data)
 
     Additional
Paid-In Capital
    Accumulated
Deficit
    Total     Fiscal Year
To Date
 
Balance May 31, 2019
   $ 220,120     $ (229,364   $ (8,914   $ (8,914
  
 
 
   
 
 
   
 
 
   
 
 
 
First Quarter Fiscal Year Ended May 31, 2020
                                
Issuance of stock for convertible note repayment
     1,002       —         1,005       1,005  
Proceeds from registered direct offering ($0.50
 per share)
     2,250       —         2,256       2,256  
Offering costs related to registered direct offering
     (260     —         (260     (260
Proceeds from public warrant tender offers
     11,855       —         11,900       11,900  
Offering costs related to public warrant tender offers
     (1,058     —         (1,058     (1,058
Inducement interest expense - tender offers and debt conversions
     2,430       —         2,430       2,430  
Proceeds from Series C preferred stock offering
     1,754       —         1,754       1,754  
Offering costs related to Series C preferred stock offering
     (198     —         (198     (198
Dividends on Series C preferred stock
     —         (110     (110     (110
Legal fees in connection with equity offerings
     (16     —         (16     (16
Stock-based compensation
     581       —         581       581  
Net Loss August 31, 2019
     —         (16,164     (16,164     (16,164
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance August 31, 2019
   $ 238,460     $ (245,638   $ (6,794   $ (6,794
  
 
 
   
 
 
   
 
 
   
 
 
 
Second Quarter Fiscal Year Ended May 31, 2020
                                
Issuance of stock for convertible note repayment
     738       —         740       1,745  
Note conversion and extension fees
     (217     —         (217     (217
Proceeds from registered direct offering ($0.50
 per share)
     4,396       —         4,409       6,665  
Offering costs related to registered direct offering
     (74     —         (74     (334
Proceeds from public warrant tender offers
     —         —         —         11,900  
Offering costs related to public warrant tender offers
     —         —         —         (1,058
Inducement interest expense - debt conversion
     283       —         283       2,713  
Proceeds from Series C preferred stock offering
     2,788       —         2,788       4,542  
Offering costs related to Series C preferred stock offering
     (182     —         (182     (380
Exercise of option to repurchase common stock
     (8     —         (8     (8
Dividends on Series C preferred stock
     —         (151     (151     (261
Legal fees in connection with equity offerings
     —         —         —         (16
Stock-based compensation
     434       —         434       1,015  
Net Loss November 30, 2019
     —         (14,860     (14,860     (31,024
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 30, 2019
   $ 246,618     $ (260,649   $ (13,632   $ (13,632
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
6

CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit)/ Equity
(Unaudited)
(In thousands, except per share data)
 
     Preferred Stock      Common Stock      Treasury Stock  
     Shares     Amount      Shares      Amount      Shares      Amount  
Balance May 31, 2020
     109     $ —          519,261      $ 519        286      $ —    
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
First Quarter Fiscal Year Ended May 31, 2021
                                                    
Issuance of stock for convertible note repayment
     —         —          2,119        2        —          —    
Issuance of legal settlement shares
     —         —          4,000        4        —          —    
Exercise of stock options
     —         —          100        —          —          —    
Stock issued for incentive compensation and tendered for income tax
     —         —          323        —          156        —    
Conversion of Series B preferred stock to common stock
     (5     —          50        —          —          —    
Private warrant exchange
     —         —          16,544        17        —          —    
Exercise of warrants
     —         —          27,928        28        —          —    
Inducement interest expense related to private warrant exchange
     —         —          —          —          —          —    
Offering costs related to private warrant exchange
     —         —          —          —          —          —    
Dividend declared and paid on Series B preferred stock
($0.25 per share)
     —         —          —          —          —          —    
Dividends accrued on preferred stock
     —         —          —          —          —          —    
Stock-based compensation
     —         —          —          —          —          —    
Net loss August 31, 2020
     —         —          —          —          —          —    
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance August 31, 2020
     104     $ —          570,325      $ 570        442      $ —    
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Second Quarter Fiscal Year Ended May 31, 2021
                                                    
Issuance of stock for convertible note repayment
     —         —          4,293        4        —          —    
Exercise of stock options
     —         —          10        —          —          —    
Stock issued for incentive compensation and tendered for income tax
     —         —          —          —          —          —    
Stock issued for private offering ($1.50
 
per share)
     —         —          667        1        —          —    
Private warrant exchange
     —         —          12,480        13        —          —    
Exercise of warrants
     —         —          2,504        2        —          —    
Inducement interest expense related to private warrant exchange
     —         —          —          —          —          —    
Offering costs related to private warrant exchange
     —         —          —          —          —          —    
Dividend declared and paid on Series B preferred stock
($0.25 per share)
     —         —          —          —          —          —    
Dividends accrued on preferred stock
     —         —          —          —          —          —    
Stock-based compensation
     —         —          —          —          —          —    
Net loss November 30, 2020
     —         —          —          —          —          —    
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Balance November 30, 2020
     104     $ —          590,279      $ 590        442      $ —    
    
 
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
See accompanying notes to consolidated financial statements.
 
7

CytoDyn Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit)/ Equity
(Unaudited)
(In thousands, except per share data)
 
     Additional
Paid-In Capital
    Accumulated
Deficit
    Total     Fiscal Year
To Date
 
Balance May 31, 2020
   $ 351,711     $ (354,711   $ (2,481   $ (2,481
    
 
 
   
 
 
   
 
 
   
 
 
 
First Quarter Fiscal Year Ended May 31, 2021
                                
Issuance of stock for convertible note repayment
     9,535       —         9,537       9,537  
Issuance of legal settlement shares
     (4     —         —         —    
Exercise of stock options
     39       —         39       39  
Stock issued for incentive compensation and tendered for income tax
     828       —         828       828  
Conversion of Series B preferred stock to common stock
     —         —         —         —    
Private warrant exchange
     7,787       —         7,804       7,804  
Exercise of warrants
     13,441       —         13,469       13,469  
Inducement interest expense related to private warrant exchange
     3,345       —         3,345       3,345  
Offering costs related to private warrant exchange
     (364     —         (364     (364
Dividend declared and paid on Series B preferred stock
($0.25 per share)
     —         (243     (243     (243
Dividends accrued on preferred stock
     —         (420     (420     (420
Stock-based compensation
     2,086       —         2,086       2,086  
Net loss August 31, 2020
     —         (30,832     (30,832     (30,832
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance August 31, 2020
   $ 388,404     $ (386,206   $ 2,768     $ 2,768  
    
 
 
   
 
 
   
 
 
   
 
 
 
Second Quarter Fiscal Year Ended May 31, 2021
                                
Issuance of stock for convertible note repayment
     11,549       —         11,553       21,090  
Exercise of stock options
     10       —         10       49  
Stock issued for incentive compensation and tendered for income tax
     —         —         —         828  
Stock issued for private offering ($1.50
 per share)
     999       —         1,000       1,000  
Private warrant exchange
     4,583       —         4,596       12,400  
Exercise of warrants
     1,737       —         1,739       15,208  
Inducement interest expense related to private warrant exchange
     3,758       —         3,758       7,103  
Offering costs related to private warrant exchange
     —         —         —         (364
Dividend declared and paid on Series B preferred stock
($0.25 per share)
     —         —         —         (243
Dividends accrued on preferred stock
     —         (415     (415     (835
Stock-based compensation
     3,423       —         3,423       5,509  
Net loss November 30, 2020
     —         (34,966     (34,966     (65,798
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance November 30, 2020
   $ 414,463     $ (421,587   $ (6,534   $ (6,534
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
8

CytoDyn Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
     Six Months Ended November 30,  
     2020     2019  
Cash flows from operating activities:
    
Net loss
   $ (65,798   $ (31,024
Adjustments to reconcile net loss to net cash used in operating activities:
    
Amortization and depreciation
     1,011       1,031  
Amortization of debt issuance costs
     19       404  
Amortization of discount on convertible notes
     2,582       1,470  
Inducement interest expense
     7,103       2,713  
Interest expense associated with accretion of convertible notes payable
     —         688  
Change in fair value of derivative liabilities
     —         (829
Stock-based compensation
     7,115       1,015  
Loss on extinguishment of convertible note
     4,169       —    
Changes in operating assets and liabilities:
    
(Increase) in inventories
     (79,924     —    
Decrease (increase) in prepaid expenses
     1,072       (228
Increase in accounts payable and accrued expenses
     61,532       2,785  
  
 
 
   
 
 
 
Net cash used in operating activities
     (61,119     (21,975
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Furniture and equipment purchases
     (77     (14
  
 
 
   
 
 
 
Net cash used in investing activities
     (77     (14
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Proceeds from warrant transactions, net of offering costs
     12,035      
10,506
 
Proceeds from sale of common stock and warrants
     1,000       6,665  
Proceeds from exercise of warrants
     15,209        
Proceeds from sale of preferred stock, net of offering costs
     —         4,149  
Proceeds from registered direct financing held in trust
     —         791  
Payment on convertible notes
     (950     (1,310
Exercise of option to repurchase shares held in escrow
     —         (8
Release of funds held in trust for warrant tender offer
     (10     (854
Proceeds from exercise of stock options
     48       —    
Payment of payroll witholdings related to tender of common stock for income tax withholding
     (778     —    
Proceeds from convertible notes payable, net
     50,000       —    
Payment of convertible notes conversion offering costs
     —         (217
Dividend declared and paid on Series B preferred stock
     (243     —    
  
 
 
   
 
 
 
Net cash provided by financing activities
     76,311       19,722  
  
 
 
   
 
 
 
Net change in cash
     15,115       (2,267
Cash, beginning of period
     14,292       3,467  
  
 
 
   
 
 
 
Cash, end of period
   $ 29,407     $ 1,200  
  
 
 
   
 
 
 
Supplemental disclosure of cash flow information:
    
Cash paid during the period for interest
   $ 138     $ 255  
  
 
 
   
 
 
 
Non-cash
investing and financing transactions:
    
Conversion of principal and interest of convertible notes to common stock
   $ 16,922     $ 1,899  
  
 
 
   
 
 
 
Accrued dividends on convertible preferred stock
   $ 835     $ 261  
  
 
 
   
 
 
 
See accompanying notes to consolidated financial statements.
 
9

CYTODYN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 2020
(UNAUDITED)
Note 1. Organization
CytoDyn Inc. (the “Company”) was originally incorporated under the laws of Colorado on May 2, 2002 under the name RexRay Corporation (its previous name) and, effective August 27, 2015, reincorporated under the laws of Delaware. The Company is a late-stage biotechnology company developing innovative treatments for multiple therapeutic indications based on leronlimab, a novel humanized monoclonal antibody targeting the CCR5 receptor. Leronlimab is in a class of therapeutic monoclonal antibodies designed to address unmet medical needs in the areas of Human Immunodeficiency Virus (“HIV”), Cancer, Immunology, and novel coronavirus disease (“COVID-19”).
With respect to HIV, the CCR5 receptor appears to play a key role in the ability of HIV to enter and infect healthy
T-cells.
The Company’s lead product candidate, leronlimab, belongs to a class of HIV therapies known as entry inhibitors. These therapies block HIV from entering into and infecting certain cells.
With respect to Cancer and Immunology, the CCR5 receptor also appears to be implicated in human metastasis and in immune-mediated illnesses such as triple-negative breast cancer, other metastatic solid tumor cancers,
graft-vs-host
disease (“GvHD”), and
Non-Alcoholic
Steatohepatitis (“NASH”).
More recently, the Company expanded its clinical focus with leronlimab to include evaluating its effectiveness in multiple other autoimmune indications where CCR5 antagonism has shown initial promise, as well as
COVID-19.
The Company targets leronlimab treatment as a therapy for patients who experience respiratory complications as a result of contracting
COVID-19.
The Company believes leronlimab provides therapeutic benefit by enhancing the immune response while mitigating the “cytokine storm” that leads to morbidity and mortality in patients experiencing this syndrome.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated interim financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of typical recurring adjustments, needed to fairly present the financial results of the periods presented. The consolidated financial statements and notes thereto are presented as prescribed by
Form 10-Q. Accordingly,
certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted.
The accompanying consolidated financial statements should be read in conjunction with the financial statements for the fiscal years ended May 31, 2020 and 2019 and notes thereto in the Company’s Annual Report on
Form 10-K for
the fiscal year ended May 31, 2020, filed with the Securities and Exchange Commission on August 14, 2020. Operating results for the three and six months ended November 30, 2020 are not necessarily indicative of the results that may be expected for the entire year. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and six months ended November 30, 2020 and November 30, 2019, (b) the financial position at November 30, 2020 and (c) cash flows for the six month periods ended November 30, 2020 and November 30, 2019.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, CytoDyn Operations Inc. and Advanced Genetic Technologies, Inc. (“AGTI”), of which AGTI is a dormant entity. All intercompany transactions and balances are eliminated in consolidation.
Reclassifications
Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities, total stockholders’ (deficit) equity, net loss or loss per share.
 
10

Going Concern
The consolidated accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company had losses for all periods presented. The Company incurred a net loss of $65.8 million for the six months ended November 30, 2020 and has an accumulated deficit of $421.6 million as of November 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional operating capital, complete development of its product candidate, obtain U.S. Food & Drug Administration (“FDA”) approval, outsource manufacturing of the product candidate, and ultimately achieve initial revenues and attain profitability. The Company is currently engaging in significant research and development activities related to its product candidate for multiple indications, and expects to incur significant research and development expenses in the future primarily related to its clinical trials. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs largely from the sale of equity and debt securities, combined with additional funding from other traditional sources. There can be no assurance, however, that the Company will be successful in these endeavors.
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and 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 expenses during the reporting period. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease could have on our significant accounting estimates and assumptions. The Company’s estimates are based on historical experience and on various market and other relevant, appropriate assumptions. Actual results could differ from these estimates.
Cash
Cash is maintained at federally insured financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. Balances in excess of federally insured limits at November 30, 2020 and May 31, 2020 approximated $29.2 million and $14.0 million, respectively.
Identified Intangible Assets
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350
Intangibles-Goodwill and Other
, which establishes accounting standards for the impairment of long-lived assets such as intangible assets subject to amortization. The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying value, the asset is considered impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. There were no impairment charges for the six months ended November 30, 2020 and 2019. The value of the Company’s patents would be significantly impaired by any adverse developments as they relate to the clinical trials pursuant to the patents acquired as discussed in Note
8
.
Research and Development
Research and development costs are expensed as incurred. Clinical trial costs incurred through third parties are expensed as the contracted work is performed. Contingent milestone payments that are due to third parties under research and development collaboration arrangements or other contractual agreements are expensed when the milestone conditions are probable and the amount of payment is reasonably estimable, see further discussion in Note 9 and 10.
Inventory
The Company values inventory at the lower of cost or net realizable value using the average cost method. Inventories consist of raw materials, bulk drug substance, and drug product in unlabeled vials to be used for commercialization of the Company’s biologic, leronlimab, which is in the regulatory approval process. The consumption of raw materials during production is classified as
work-in-progress
until saleable. Once it is determined to be in saleable condition following regulatory approval, inventory is classified as finished goods. Inventory is evaluated for recoverability by considering the likelihood that revenue will be obtained from the future sale of the related inventory, in light of the status of the product within the regulatory approval process.
 
11

The Company evaluates its inventory levels on a quarterly basis and writes down inventory that has become obsolete, or has a cost in excess of its expected net realizable value, and inventory quantities in excess of expected requirements. In assessing the lower of cost or net realizable value
for
pre-launch
inventory, the Company relies on independent analyses provided by third parties knowledgeable of the range of likely commercial prices comparable to current comparable commercial product.
Inventories Procured or Produced in Preparation for Product Launches
The Company capitalizes inventories procured or produced in preparation for product launches sufficient to support estimated initial market demand. Typically, capitalization of such inventory begins when the results of clinical trials have reached a status sufficient to support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced, and the Company has determined it is probable that these capitalized costs will provide some future economic benefit in excess of capitalized costs. The material factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, and the compilation of the regulatory application. The Company closely monitors the status of the product within the regulatory review and approval process, including all relevant communication with regulatory authorities. If the Company is aware of any specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory may no longer qualify for capitalization.
Anticipated future sales, shelf lives, and expected approval date are taken into account when evaluating realizability of capitalized inventory. The shelf life of a product is determined as part of the regulatory approval process; however, in assessing whether to capitalize
pre-launch
inventory, the Company considers the product stability data of all of the
pre-approval
inventory procured or produced to date to determine whether there is adequate shelf life.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued liabilities, and short-term and long-term debt. As of November 30, 2020, the carrying value of the Company’s cash, accounts payable, and accrued liabilities approximate their fair value due to the short-term maturity of the instruments. Short-term and long-term debt are reported at amortized cost in the Consolidated Balance Sheets. The remaining financial instruments are reported in the Consolidated Balance Sheets at amounts that approximate current fair values.
During the fiscal year ending May 31, 2020, the Company carried derivative financial instruments at fair value as required by U.S. GAAP. Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variables (e.g., interest rate, security price, variable conversion rate or other variables), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. The Company follows the provisions of ASC 815,
Derivatives and Hedging,
as their instruments are recorded as a derivative liability, at fair value, and ASC 480,
Distinguishing Liabilities from Equity,
as it relates to warrant liability, with changes in fair value reflected in the Consolidated Statement of Operations.
The fair value hierarchy specifies three levels of inputs that may be used to measure fair value as follows:
 
   
Level 1. Quoted prices in active markets for identical assets or liabilities.
 
   
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also
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 which 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 cannot be corroborated with observable market data.
The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of November 30, 2020 and May 31, 2020. As of November 30, 2020, there were no assets or liabilities measured at fair value using Level 3 inputs; previous outstanding derivative warrants and related convertible debt had been converted prior to May 31, 2020 according to the terms of the agreements.
 
12

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. These instruments are not quoted on an active market. During the 2020 fiscal year, the Company used a Binomial Lattice Model to estimate the value of the warrant derivative liability and a Monte Carlo Simulation to value the derivative liability of the redemption provision within a convertible promissory note. These valuation models were used because management believes they reflect all the assumptions that market participants would likely consider in negotiating the transfer of the instruments.
The Company’s derivative liabilities were classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models.
The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from inception to the year ended May 31, 2020 (in thousands):
 
Investor warrants issued with registered direct equity offering
   $ 4,360  
Placement agent warrants issued with registered direct equity offering
     819  
Fair value adjustments
     (3,855
  
 
 
 
Balance at May 31, 2018
     1,324  
Inception date value of redemption provisions
     2,750  
Fair value adjustments—convertible notes
     (745
Fair value adjustments—warrants
     (922
  
 
 
 
Balance at May 31, 2019
     2,407  
Fair value adjustments—convertible notes
     (2,005
Fair value adjustments—warrants
     11,547  
Exercise of derivative warrants
     (11,949
  
 
 
 
Balance at May 31, 2020
   $ —  
  
 
 
 
Operating Leases
Operating leases are included in operating lease
right-of-use
(“ROU”) assets, current portion of operating leases payable and operating leases liabilities in the Consolidated Balance Sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms do not include options to extend or terminate the lease as it is not reasonably certain that it will exercise these options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and
non-lease
components, which are generally accounted for separately.
Stock-Based Compensation
U.S. GAAP requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award (requisite service period), when designated milestones have been achieved or when pre-defined performance conditions are met.
The Company accounts for stock-based awards established by the fair market value of the instrument using the Black-Scholes option pricing model utilizing certain weighted average assumptions including stock price volatility, expected term and risk-free interest rates, as of the grant date. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the stock-based award. The expected volatility is based on the historical volatility of the Company’s common stock on monthly intervals. The computation of the expected option term is based on the “simplified method,” as the Company issuances are considered “plain vanilla” options. For stock-based awards with defined vesting, the Company recognizes compensation expense over the requisite service period, when designated milestones have been achieved or when pre-defined performance conditions are met. The Company estimates forfeitures at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Based on limited historical experience of forfeitures, the Company estimated future unvested forfeitures at 0% for all periods presented. Periodically, the Company will issue restricted common stock to executives or third parties as compensation for services rendered. Such stock awards are valued at fair market value on the effective date of the Company’s obligation.
 
13

The Company periodically issues stock options or warrants to consultants for various services. The Black-Scholes option pricing model, as described more fully above, is utilized to measure the fair value of the equity instruments on the date of issuance. The Company recognizes the compensation expense associated with the equity instruments over the requisite service or vesting period.​​​​​​​
Debt
The Company has historically issued promissory notes at a discount and
has
incurred direct debt issuance costs. Debt discount and issuance costs are capitalized and amortized over the life of the convertible promissory note in accordance with ASC
470-35
Debt Subsequent Measurement
.
Offering Costs
The Company periodically incurs direct incremental costs associated with the sale of equity securities as fully described in Note
11
. The costs are recorded as a component of equity upon receipt of the proceeds.
Loss per Common Share
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share would include the weighted average common shares outstanding and potentially dilutive common 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 the loss per share.
For this reason, the following options, warrants, unvested restricted stock units, convertible preferred stock including undeclared dividends and share reservations for convertible notes, which are issuable into common stock were not included in the computation of basic and diluted weighted average number of shares of common stock outstanding for the six months ended November 30, 2020 and November 30, 2019 (in thousands), respectively:
 
    
Six Months Ended November 30,
 
    
2020
    
2019
 
Stock options, warrants & unvested restricted stock
     82,796        177,457  
Convertible notes payable
     12,000        10,048  
Convertible preferred stock
     31,490        17,550  
Income Taxes
Deferred taxes are provided on the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Future tax benefits for net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company follows the provisions of FASB ASC
740-10,
Uncertainty in Income Taxes
. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there are no unrecognized benefits for all periods presented. The Company has not recognized interest expense or penalties as a result of the implementation of ASC
740-10.
If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefit in interest expense and penalties in operating expenses.
In accordance with Section 15 of the Internal Revenue Code, the Company utilized a federal statutory rate of 21% for the six months ended November 30, 2020 and November 30, 2019. The net tax expense for the
six
months ended November 30, 2020 and 2019, was
zero
. The Company had a full valuation allowance as of November 30, 2020 and May 31, 2020, as management does not consider it more than likely than not that the benefits from the deferred taxes will be realized.
Recent Accounting Pronouncements
Recent accounting pronouncements, other than below, issued by the FASB (including its EITF), the AICPA and the SEC did not or are not believed by management to have a material effect on the Company’s present or future consolidated financial statements.
 
14

In December 2019, the FASB issued ASU
No. 2019-12,
Simplifying the Accounting for Income Taxes (Topic 740)
. The objective of the standard is to improve areas of U.S. GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate consistent application. The standard will become effective for the Company beginning on January 1, 2021. The Company is currently evaluating the new standard to determine the potential impact on its financial condition, results of operations, cash flows, and financial statement disclosures.
In August 2020, the FASB issued ASU
No. 2020-06,
Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)
which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update
No. 2020-06
is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the potential impact, if any, on its consolidated financial statements.
Note 3. Inventories
The Company’s inventory as of November 30, 2020 and May 31, 2020 was $99.1 million and $19.1 million, respectively. Inventory as of November 30, 2020 consisted of 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 to support the Company’s expected approval of the product as a combination therapy for HIV patients in the United States.
Work-in-progress
consists of bulk drug substance, which is the manufactured drug stored in bulk storage, and drug product, which is the manufactured drug in unlabeled vials. Bulk drug substance and drug product comprised approximately $41.1 million and $29.7 million, respectively, of
work-in-progress
inventory.
The Company believes that material uncertainties related to the ultimate regulatory approval of leronlimab for commercial sale have been significantly reduced based on positive data from the Phase 3 clinical trial results, and information gathered from
pre-filing
meetings with the FDA for the BLA. The last two portions of the BLA (clinical and manufacturing) were submitted with the FDA in April 2020 and the BLA submission was completed on May 11, 2020. In July 2020, the Company received a Refusal to File letter from the FDA regarding its BLA filing requesting additional 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 is working diligently to resubmit the BLA, which it expects to file in the first half of calendar year 2021.
Inventories as of November 30, 2020 and May 31, 2020 are presented below (in thousands):
    
November 30, 2020
    
May 31, 2020
 
Raw materials
   $ 28,294      $ 19,147  
Work-in-progress
     70,777        —    
    
 
 
    
 
 
 
Total
   $ 99,071      $ 19,147  
    
 
 
    
 
 
 
Note 4. Long-term Accounts Payable
During the quarter ended November 30, 2020, in connection with the Samsung commitments as described below in Note 10, the Company negotiated non-standard payment terms for certain payables. The agreed upon payment terms resulted in due dates beyond one year of our reporting date. The
non-current
accounts payable balance as of November 30, 2020 was $34.3 million.
Note 5. Convertible Instruments
Series D Convertible Preferred Stock
As o
f November 30, 2020,
 the Company had authorized
11,737
shares of Series D Preferred Stock,
$0.001
par value per share (“Series D Preferred Stock”), of which 8,452 remain outstanding. The Series D Certificate of Designation provides, among other things, holders of Series D Preferred Stock the right to receive, out of any assets at the time legally available therefore and when and as declared by the Board of Directors, cumulative dividends at the rate
of ten percent (10%) per share per annum of the stated value of the Series D Preferred Stock, to be paid, at the option of the holder, in cash or in shares of common stock at the rate of $0.50 per share. Any dividends paid by the Company will first be paid to the holders of Series D Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series D Preferred Stock shall be cumulative and there are no sinking fund provisions applicable to the Series D Preferred Stock. The Series D Dividends are to be paid annually in arrears on the last day of December each year. The Series D Preferred Stock does not have redemption rights. The stated value per share for the Series D Preferred Stock is $1,000.00 (the “Series D Stated Value”).
 
15

In the event of any liquidation, dissolution or winding up of the Company, the holders of Series D Preferred Stock will be entitled to receive, on a pari passu basis with the holders of the Series C Preferred Stock and in preference to any payment or distribution to any holders of the Series B Preferred Stock or common stock, an amount per share equal to the Series D Stated Value plus the amount of any accrued and unpaid dividends. If, at any time while the Series D Preferred Stock is outstanding, the Company effects any reorganization, merger or sale of the Company or substantially all of its assets (each a “Fundamental Transaction”), a holder of the Series D Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series D Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series D Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of common stock determined by dividing the Series D Stated Value by the conversion price of $0.80 (subject to adjustment as set forth in the certificate of designation for the Series D Preferred Stock). No fractional shares will be issued upon the conversion of the Series D Preferred Stock. Except as otherwise provided in the Series D Certificate of Designation or as otherwise required by law, the Series D Preferred Stock has no voting rights. As of November 30, 2020,
and May 31, 2020, the accrued dividends were
approximately $0.7 
million or approximately 1.4 million shares of common stock, and approximately $0.3 million or
approximately 0.5 million shares of common stock.
Series C Convertible Preferred Stock
As of November 30, 2020
, the Company had authorized
8,203 shares of Series C Preferred Stock, $0.001 par value per share (“Series C Preferred Stock”),
of which 8,203 shares remain
outstanding. The Series C Certificate of Designation provides, among other things, that holders of Series C Preferred Stock shall be entitled to receive, out of any assets at the time legally available therefor, cumulative dividends at the rate of ten percent (10%) per share per annum of the stated value of the Series C Preferred Stock, to be paid per share of Series C Preferred Stock, which dividends shall accrue whether or not declared. Any dividends paid by the Company will first be paid to the holders of Series C Preferred Stock prior and in preference to any payment or distribution to holders of common stock. Dividends on the Series C Preferred Stock are mandatory and cumulative and there are no sinking fund provisions applicable to the Series C Preferred Stock. The Series C Dividends are to be paid annually in arrears on the last day of December each year. The Series C Preferred Stock does not have redemption rights. The stated value per share for the Series C Preferred Stock is $1,000 (the “Series C Stated Value”).
In the event of any liquidation, dissolution or winding up of the Company, the Series C Preferred Stock will be entitled to receive, on a pari passu basis with the holders of the Series D Preferred Stock and prior and in preference to any payment or distribution on any shares of common stock, currently outstanding series of preferred stock, or subsequent series of preferred stock, an amount per share equal to the Series C Stated Value and the amount of any accrued and unpaid dividends. If, at any time while the Series C Preferred Stock is outstanding, the Company effects any Fundamental Transaction, a holder of the Series C Preferred Stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series C Preferred Stock immediately prior to the Fundamental Transaction. Each share of Series C Preferred Stock is convertible at any time at the holder’s option into that number of fully paid and nonassessable shares of the Company’s common stock determined by dividing the Series C Stated Value by the conversion price of $0.50 per share (subject to adjustment as set forth in the Certificate of Designation). No fractional shares will be issued upon the conversion of the Series C Preferred Stock. Except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series C Preferred Stock has no voting rights. As of November 30, 2020, and
May 31, 2020
, the accrued dividends were approximately $1.1 million or 2.2 million shares of common stock, and approximately $0.7 million or 1.4 million shares of common stock, respectively.
Series B Convertible Preferred Stock
As of November 30, 2020
, the Company had authorized
400,000 shares of Series B Convertible Preferred Stock, $0.001 par value per share
(“Series B Preferred Stock”), of which 87,100 remain outstanding. Each share of the Series B Preferred Stock is convertible into ten (10) shares of the Company’s common stock. At the option of the Company, dividends on the Series B Preferred Stock may be paid in cash or shares of the Company’s common stock, valued at
$0.50 per share. The holders of the Series B Preferred Stock can only convert their shares to shares of common stock provided the Company has sufficient authorized shares of common stock at the time of conversion. The Series B Preferred Stock has liquidation preferences over the common shares at $5.00 per share, plus any accrued and unpaid dividends. Dividends are payable to the Series B Preferred stockholders when declared by the Board of Directors at the rate of $0.25 per share per annum. Such dividends are cumulative and accrue whether or not declared and whether or not there are any profits, surplus or other funds or assets of the Company legally available. Except as provided by law, the Series B holders have no voting rights. On July 30, 2020, the Board declared a dividend and elected to pay such dividend in the form of cash in the aggregate
 
 
16

amount of approximately $0.2 million to all Series B Convertible Preferred stockholders. The dividend was payable to Series B Convertible Preferred stockholders as of July 30, 2020. As of November 30, 2020, and May 31, 2020, the undeclared dividends were approximately $7,700 or 15,400 shares of common stock, and approximately $0.2 million, or 0.5 million shares of common stock, respectively.
2019 Short-term Convertible Notes
During the year ended May 31, 2019, the Company issued approximately $5.5 million of nine-month unsecured Convertible Notes (the “2019 Short-term Convertible Notes”) and related warrants to investors for cash. Beginning on September 30, 2019 and through November 14, 2019, principal and interest totaling approximately $5.9 million came due. Holders of notes totaling approximately $1.1 million in principal and accrued interest agreed to extend their notes for another three months, and holders of notes totaling approximately $4.1 million in principal and accrued interest agreed to extend their notes for another six months. One noteholder with principal and accrued interest totaling approximately $0.2 million converted to shares of common stock of the Company. During the quarter ended November 30, 2019, a total of approximately $0.7 million of principal and accrued interest was repaid in cash. In addition, detachable stock warrants to purchase a total of 4.75 million warrants with a five-year term and an exercise price of $0.30 per share were issued to investors who extended their notes. One investor received 0.2 million warrants with a five-year term and an exercise price of $0.45 per share for converting the entire principal and accrued interest on its note. In connection with the Note extensions and conversion, the Company recorded a
non-cash
inducement interest expense of approximately $0.3 million during the quarter ended November 30, 2019. The new principal amount of the 2019 Short-term Convertible Notes, including any accrued but unpaid interest thereon, was convertible at the election of the holder at any time into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. The 2019 Short-term Convertible Notes incurred simple interest at the annual rate of 10%. Principal and accrued interest, to the extent not previously paid or converted, was due and payable on the maturity date. At the new commitment dates, the Company determined that there was a decrease in the fair value of the embedded conversion option resulting from the modification, the value of which is not required to be recognized under U.S. GAAP.
During the fiscal year ended May 31, 2020, holders of the 2019 Short-term Convertible Note
s
in the aggregate principal amount of $5.2 million, including accrued but unpaid interest, tendered notices of conversion at the stated conversion rate of $0.50 per share. The Company issued approximately 10.4 million shares of common stock in satisfaction of the conversion notices. The Company recognized approximately $0.3 million of interest expense for the six months ended November 30, 2019.
Long-term Convertible Note—June 2018 Note
On June 26, 2018, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note with a
two-year
term to an institutional accredited investor in the initial principal amount of $5.7 million. The investor gave consideration of $5.0 million to the Company (the “June 2018 Note”). The June 2018 Note incurred interest of 10% and was convertible into common stock, at a conversion rate of $0.55 per share. The June 2018 Note provided for conversion in total, or in part, of the outstanding balance, into common stock of the Company at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the June 2018 Note, and allowed for redemption, at any time after six months from the issue date upon five trading days’ notice, subject to maximum monthly redemption amount of $0.35 million. The securities purchase agreement required the Company to reserve shares for future conversions or redemptions by dividing the outstanding principal balance plus accrued interest by the conversion price of $0.55 per share times 1.5. As a result of the entry into the January 2019 Note (as defined below), the Company’s obligations under the June 2018 Note were secured by all of the assets of the Company, excluding the Company’s intellectual property.
Effective November 15, 2018, the June 2018 Note was amended to allow the investor to redeem the monthly redemption amount of $0.35 million in cash or stock, at the lesser of (i) $0.55, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The variable rate redemption provision meets the definition of a derivative instrument and subsequent to the amendment, it no longer meets the criteria to be considered indexed to the Company’s own stock. As of November 15, 2018, the redemption provision required bifurcation as a derivative liability at fair value under the guidance in ASC Topic 815,
Derivatives and Hedging
.
The amendment of the June 2018 Note was also evaluated under ASC Topic
470-50-40,
Debt Modifications and Extinguishments
. Based on the guidance, the instruments were determined to be substantially different, and debt extinguishment accounting was applied. The Company recorded approximately $1.5 million as an extinguishment loss, which was the difference in the net carrying value of the June 2018 Note prior to the amendment of approximately $5.4 million, and the fair value of the June 2018 Note and embedded derivatives after the amendment of approximately $6.9 million. The extinguishment loss includes a
write-off
of unamortized debt issuance costs and the debt discount associated with the original the June 2018 Note.
 
17

During the six months ended November 30, 2019, the Company recognized $0.3 million of interest expense related to the June 2018 Note, respectively. During the year ended May 31, 2020, the Company received a redemption notice requesting an aggregate redemption of approximately $4.5 million settling the remaining outstanding balance in full, including accrued but unpaid interest. In satisfaction of the redemption notice, the Company issued approximately 8.5 million shares of common stock and paid cash totaling approximately $0.5 million to the June 2018 Note holder in accordance with the terms of the June 2018 Note. Following the redemptions, the June 2018 Note was fully satisfied and there is no outstanding balance.
Long-term Convertible Note—January 2019 Note
On January 30, 2019, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note with a
two-year
term to the holder of the June 2018 Note in the initial principal amount of $5.7 million (the “January 2019 Note”). In connection with the issuance of the January 2019 Note, the Company granted a lien against all of the assets of the Company, excluding the Company’s intellectual property, to secure all obligations owed to the investor by the Company (including those under both the January 2019 Note and the June 2018 Note). The investor gave consideration of $5.0 million to the Company, reflecting original issue discount of $0.6 million and issuance costs of $0.1 million. The January 2019 Note incurred interest of 10% and was convertible into common stock, at $0.50 per share. The January 2019 Note provided for conversion in total, or in part, of the outstanding balance, at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the Note. The Company analyzed the conversion option for derivative accounting treatment under ASC 815 and determined that the embedded conversion option did not qualify for derivative accounting.
The January 2019 Note provided the investor with the right to redeem any portion of the January 2019 Note, at any time after six months from the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $0.35 million. The monthly redemption amount may be paid in cash or stock, at the Company’s election, at the lesser of (i) $0.50, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%.
 
The redemption provision met the definition of a derivative instrument and did not meet the criteria to be considered indexed to the Company’s own stock. Therefore, the redemption provision required bifurcation as a derivative liability at fair value under the guidance in ASC Topic 815. The securities purchase agreement required the Company to reserve 20 million shares for future conversions or redemptions.
In conjunction with the January 2019 Note, the investor received a warrant to purchase 5.0 million shares of common stock with an exercise price of $0.30 which is exercisable until the
5-year
anniversary of the date of issuance. All the warrants were exercised during the fiscal year ending May 31, 2020. The warrant achieved equity classification at inception. The net proceeds of $5.0 million were allocated first to the redemption provision at its fair value, then to the warrants at their relative fair value and the beneficial conversion feature at its intrinsic value as follows (in thousands):
 
    
January 30, 2019
 
Fair value of redemption provision
   $ 1,465  
Relative fair value of equity classified warrants
     858  
Beneficial conversion feature
     2,677  
    
 
 
 
Net proceeds of January 2019 Note
   $ 5,000  
    
 
 
 
Under the guidance of ASC 815, after allocation of proceeds to the redemption provision, relative fair value of equity classified warrants and the beneficial conversion feature, there were no proceeds remaining to allocate to convertible note payable. Therefore, principal, accrued interest, debt discount and offering costs will be recognized as interest expense, which represents the accretion of the convertible note payable and related debt discount and issuance costs. During the six months ended November 30, 2019, the Company recognized approximately $0.4 million, of interest expense related to the January 2019 Note. During the year ended May 31, 2020, the Company received a redemption notice from the holder of the Company’s January 2019 Note, requesting an aggregate redemption of approximately $6.3 million settling the remaining outstanding balance in full, including accrued interest. In satisfaction of the redemption notice, the Company issued approximately 10.8 million
shares of common stock
and paid cash totaling $0.85 million to the January 2019 Note holder in accordance with the terms of the January 2019 Note. Following the redemption, the January 2019 Note has been fully satisfied and there is no outstanding balance.
Long-term Convertible Note—March 2020 Note
On March 31, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a secured convertible promissory note with a
two-year
maturity to an accredited investor in the initial principal amount of $17.1 million (the “March 2020 Note”). The Company received consideration of $15.0 million, reflecting an original issue discount of $2.1 million. The March 
2020
Note is secured by all the assets of the Company, excluding the Company’s intellectual property. The March 2020 Note
 
18

incurred interest of 10% per annum and was convertible into common stock, at $4.50 per share. The March 2020 Note provided for conversion in total, or in part, of the outstanding balance, at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations specified in the note. The Company analyzed the conversion option for derivative accounting treatment under ASC 815,
Derivatives and Hedging
, and determined that the embedded conversion option did not qualify for derivative accounting. Certain default put provisions were not considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions was
 de minimis
.
The March 2020 Note provided the investor with the right to redeem any portion of the March 2020 Note, at any time after six months from the issue date, upon three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $0.95 million.
During the quarter ended November 30, 2020, the Company issued an additional secured convertible promissory note to an affiliate of March 2020 noteholder (the “November 2020 Note,” as described below), which obligates the Company to reduce the outstanding balance held by the investor by
$7.5 
million per month (the “Debt Reduction Amount,” as described below), beginning in the month of November 2020.
The original issue discount of $2.1 
million related to the March 2020 Note has been recorded as a discount on the March 2020 Note and the discount has been amortized over the term of the March 2020 Note. Amortization of the March 2020 debt discount during the three and six months ended November 30, 2020 amounted to approximately
$0.7 million and $1.9 million, respectively, and are recorded as interest expense in the accompanying consolidated statements of operations. From June 26, 2020 to July 27, 2020, the investor converted in aggregate approximately $9.5 million of combined principal and accrued interest into approximately 2.1 million shares of common stock at the $4.50 per share conversion price. During the quarter ended November 30, 2020,
the Company received a redemption notice from the holder of the March 2020 Note, requesting a redemption of $0.95 million. In satisfaction of the redemption notice, the Company paid cash of
$0.95 
million to the March 2020 Note holder. Additionally, the Company applied the November 2020 Debt Reduction Amount to this note resulting in the note being fully satisfied. To settle this Debt Reduction Amount, the Company and the investor entered into three seperately negotiated exchange agreements, pursuant to which the remaining balance of the March 2020 Note was partitioned into three new notes (the “Partitioned Notes”). The Company and the investor exchanged the Partitioned Notes for approximately
4.3 
million shares in aggregate of the Company’s common stock,
$0.001 
par value. Following these exchanges, there was no outstanding balance of the March 2020 Note.
In connection with the Debt Reduction Amount, the Company recorded amortization of debt discount of approximately
$0.6  million for the quarter ended November 30, 2020. Additionally, the Company analyzed the restructured note for potential requirement of debt extinguishment accounting under ASC 470,
Debt Modifications and Extinguishments
. The Company concluded debt extinguishment accounting treatment to be necessary and accordingly recorded aggregate debt extinguishment loss of $4.2 
million for the quarter ended November 30, 2020 as the difference between the fair market value of the shares issued and the amount of debt retired.
Long-term Convertible Note—July 2020 Note
On July 29, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a secured convertible promissory note with a
two-year
maturity to an institutional accredited investor in the initial principal amount of $28.5 million (the “July 2020 Note”). The Company received consideration of $25.0 million, reflecting an original issue discount of $3.4 million and issuance costs of $0.1 million. The July 2020 Note is secured by all the assets of the Company, excluding the Company’s intellectual property.
Interest accrues on the outstanding balance of the July 2020 Note at 10% per annum. Upon the occurrence of an event of default, interest accrues at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any event of default, the investor may accelerate the outstanding balance payable under the July 2020 Note, which will increase automatically upon such acceleration by 15%, 10% or 5%, depending on the nature of the event of default. Events of default as referenced herein and not otherwise defined shall have the same meaning as set forth in the July 2020 Note Transaction documents filed as an exhibit to the Company’s current report on Form
8-K
filed July 31, 2020.
The investor may convert all or any part the outstanding balance of the July 2020 Note into shares of common stock at an initial conversion price of $10.00 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations specified in the July 2020 Note. In addition to standard anti-dilution adjustments, the conversion price of the July 2020 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 July 2020 Note provides for liquidated damages upon failure to deliver common stock within specified timeframes, and requires the Company to maintain a share reservation of 6.0 million shares of common stock.
 
19

The investor may redeem any portion of the July 2020 Note, at any time after six months from the issue date, upon three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $1.6 million. The July 2020 Note requires the Company to satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay the outstanding balance of the July 2020 Note, in part or in full, at a 15% premium to par value, at any time upon 1 trading days’ notice.
Pursuant to the terms of the Agreement and the July 2020 Note, the Company must obtain the investor’s consent before assuming additional debt with aggregate net proceeds to the Company of less than $25.0 million. Upon any such approval, the outstanding principal balance of the July 2020 Note shall increase automatically by 5% upon the issuance of such additional debt.
The Company agreed to use commercially reasonable efforts to file a Registration Statement on Form
S-3
with the SEC by September 15, 2020 registering approximately 2.9 million shares of common stock sufficient to convert the entire principal and interest balance of the July 2020 Note. The Form
S-3
(Registration
No. 333-248823)
was declared effective on September 25, 2020.
The embedded conversion feature in the July 2020 Note was analyzed under ASC 815,
Derivatives and Hedging,
to determine if it achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective conversion rate was greater than the market value of the Company’s stock upon issuance. Certain default put provisions were not considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions was
 de minimis
. The Company reconsiders the value of the default put provisions each reporting period to determine if the value becomes material to the financial statements.
Amortization of debt discounts and issuance costs during the three and six months ended November 30, 2020 amounted to approximately $0.4 million and $0.6 million, respectively, recorded as interest expense. The unamortized discount and issuance costs balance for the July 2020 Note is approximately $2.9 million as of November 30, 2020. The accrued interest balance for the July 2020 Note is approximately $1.0 million as of November 30, 2020. The outstanding balance on the July 2020 Note, including accrued interest, was approximately $29.5 million at November 30, 2020.
Long-term Convertible Note—November 2020 Note
On November 10, 2020, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a secured convertible promissory note with a
two-year
maturity to an institutional accredited investor in the initial principal amount of $28.5 million (the “November 2020 Note”). The Company received consideration of $25.0 million, reflecting an original issue discount of $3.4 million and issuance costs of $0.1 million. The November 2020 Note is secured by all the assets of the Company, excluding the Company’s intellectual property.
Interest accrues on the outstanding balance of the November 2020 Note at 10% per annum. Upon the occurrence of an event of default, interest accrues at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any event of default, the investor may accelerate the outstanding balance payable under the November 2020 Note, which will increase automatically upon such acceleration by 15%, 10% or 5%, depending on the nature of the event of default. Events of default as referenced herein and not otherwise defined shall have the same meaning as set forth in the November 2020 Note Transaction documents filed as an exhibit to the Company’s current report on Form
8-K
filed November 16, 2020.
The investor may convert all or any part the outstanding balance of the November 2020 Note into shares of common stock at an initial conversion price of $10.00 per share upon five trading days’ notice, subject to certain adjustments and volume and ownership limitations specified in the November 2020 Note. In addition to standard anti-dilution adjustments, the conversion price of the November 2020 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 November 2020 Note provides for liquidated damages upon failure to deliver common stock within specified timeframes, and requires the Company to maintain a share reservation of 6.0
million
shares of common stock.
The investor may redeem any portion of the November 2020 Note, at any time after six months from the issue date, upon three trading days’ notice, subject to a Maximum Monthly Redemption Amount of $3.5 million. The November 2020 Note requires the Company to satisfy its redemption obligations in cash within three trading days of the Company’s receipt of such notice. The Company may prepay the outstanding balance of the November 2020 Note, in part or in full, at a 15%
premium to par value, at any time upon 15 trading days’ notice. In addition, beginning in the month of November 2020 and for each of the following five months, the Company is obligated to reduce the outstanding balance of the November 2020 Note by
$7.5 
million per month (the “Debt Reduction Amount”). Payments the Company makes under the March 2020 Note and the July 2020 Note will be credited toward the payment of each
 
20

monthly Debt Reduction Amount. These payments are not subject to the
15
% prepayment premium, which would otherwise be triggered if the Company were to make payments against the notes exceeding the allowed maximum monthly redemption amount. Consistent with ASC
470-50-40-10,
Debt Modifications and Extinguishments
, the Company assessed the restructuring of the outstanding agreements with the investor as either a debt modification or debt extinguishment through performance of the 10% cash flow test. The Company noted the change in present value of future cash flows to be less than 10% for all modifications, and therefore, concluded the restructuring be accounted for as a debt modification.
Pursuant to the terms of the Agreement and the November 2020 Note, the Company must obtain the investor’s consent before assuming additional debt with aggregate net proceeds to the Company of less than $25.0 million. Upon any such approval, the outstanding principal balance of the November 2020 Note shall increase automatically by 5% upon the issuance of such additional debt.
The Company agreed to use commercially reasonable efforts to file a Registration Statement on Form
S-3
with the SEC within 5 days from the date of this quarterly filing registering a number shares of common stock sufficient to convert the entire principal balance of the November 2020 Note.
The embedded conversion feature in the November 2020 Note was analyzed under ASC 815,
Derivatives and Hedging
,
to determine if it achieved equity classification or required bifurcation as a derivative instrument. The embedded conversion feature was considered indexed to the Company’s own stock and met the conditions for equity classification. Accordingly, the embedded conversion feature does not require bifurcation from the host instrument. The Company determined there was no beneficial conversion feature since the effective conversion rate was greater than the market value of the Company’s stock upon issuance.
 
Certain default put provisions were not considered to be clearly and closely related to the host instrument, but the Company concluded that the value of these default put provisions was
 de minimis
. The Company reconsiders the value of the default put provisions each reporting period to determine if the value becomes material to the financial statements.
Amortization of debt discounts and issuance costs during the three and six months ended November 30, 2020 amounted to approximately $0.1 million. The unamortized discount and issuance costs balance for the November 2020 Note is approximately $3.4 million as of November 30, 2020. The accrued interest balance for the November 2020 Note is approximately
$0.1 
million as of November 30, 2020 resulting from approximately $0.1 million of interest expense for the three and six months ended November 30, 2020. The outstanding balance on the November 2020 Note, including accrued interest, was approximately
$28.6 million.
Note
6
. Derivative Liabilities
The investor and placement agent warrants, issued in connection with a registered direct offering in September 2016, contained a provision for net cash settlement in the event that there is a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer or share exchange, whereby such other Person or group acquires more than 50% of the outstanding common stock). If a fundamental transaction occurs in which the consideration issued consists principally of cash or stock in a successor entity, then the warrant holder has the option to receive cash equal to the fair value of the remaining unexercised portion of the warrant. Due to this contingent cash settlement provision, the investor and placement agent warrants require liability classification as derivatives in accordance with ASC 480,
Distinguishing Liabilities from Equity
, and ASC 815,
Derivatives and Hedging,
and are recorded at fair value. All of the investors and placement agent warrants were exercised during the fiscal year ending May 31, 2020.
The following tables summarize the fair value of the warrant derivative liability and related common shares as of inception date September 15, 2016, prior fiscal year end date May 31, 2020 and current reporting date November 30, 2020 (in thousands):
 
    
Shares
Indexed
    
Derivative
Liability
 
Inception to date September 15, 2016
     7,733      $ 5,179  
Change in fair value of derivative liability
     —          (4,777
    
 
 
    
 
 
 
Balance May 31, 2019
     7,733        402  
Change in fair value of derivative liability
     —          11,547  
Fair value of warrants exercised
     7,733        (11,949
    
 
 
    
 
 
 
Balance May 31, 2020
     —          —    
Change in fair value of derivative liability
     —          —    
    
 
 
    
 
 
 
Balance November 30, 2020
     —        $ —    
    
 
 
    
 
 
 
 
21

Changes in the fair value of the derivative liability are reported as “Change in fair value of derivative liability” in the Consolidated Statements of Operations. The Company recognized approximately $0.3  million of
non-cash
gain, due to the changes in the fair value of the liability associated with such classified warrants during the six months ended November 30, 2019.
ASC 820,
Fair Value Measurement
, provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition. Fair values for the warrants were determined using a Binomial Lattice valuation model.

The Company estimated the fair value of the warrant derivative liability as of inception date September 15, 2016, May 31, 2019 and November 30, 2019, using the following assumptions:
 
   
September 15,
2016
   
May 31,
2019
   
November 30,
2019
 
Fair value of underlying stock
   $ 0.78     $ 0.39     $ 0.28  
Risk free rate
     1.20     1.94     1.61
Expected term (in years)
     5       2.29       1.79  
Stock price volatility
     106     61     63
Expected dividend yield
     —         —         —    
Probability of fundamental transaction
     50     50     50
Probability of holder requesting cash payment
     50     50     50
Due to the fundamental transaction provision contained in the warrants, which could provide for early redemption of the warrants, the model also considered subjective assumptions related to the fundamental transaction provision. The fair value of the warrants will be significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s assumptions related to the fundamental transaction provisions.
As described in Note
5
above, the redemption provision embedded in the June 2018 and January 2019 Notes required bifurcation and measurement at fair value as a derivative. The fair value of the Note redemption provision derivative liabilities was calculated using a Monte Carlo Simulation which uses randomly generated stock-price paths obtained through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision will be significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s assumptions related to the redemption factor.
 
The Company estimated the fair value of the redemptive provision using the following assumptions on the closing date of November 15, 2018, January 30, 2019 and November 30, 2019:
 
                
November 30, 2019
 
    
November 15,
2018
   
January 30,
2019
   
June
Note
   
January
Note
 
Fair value of underlying stock
   $ 0.57     $ 0.49     $ 0.28     $ 0.28  
Risk free rate
     2.78     2.52     1.63     1.60
Expected term (in years)
     1.61       2       0.57       1.17  
Stock price volatility
     58.8     61     66.3     64.1
Expected dividend yield
     —         —         —         —    
Discount factor
     85     85     85     85
As discussed above, the June 2018 and January 2019 Notes were fully satisfied during the fiscal year ended May 31, 2020 and there is no outstanding balance as of November 30, 2020.
The following table summarizes the fair value of the convertible note redemption provision derivative liability as of inception dates November 15, 2018, January 30, 2019 and November 30, 2019 (in thousands):
 
    
Net Proceeds
    
Derivative Liability
 
    
Inception date
    
November 30, 2019
 
Inception date June 2018 Note, November 15, 2018
   $ 5,000      $ 1,285      $ 481  
Inception date January 2019 Note, January 30, 2019
     5,000        1,465        975  
                      
 
 
 
                       $ 1,456  
                      
 
 
 
 
22

The Company recognized approximately $0.6 million of
non-cash
gain, due to the changes in the fair value of the liability associated with such classified redemption provision for the six months ended November 30, 2019. There was no gain or loss for the six months ended November 30, 2020
, as the notes were previously retired.
Note
7
. Stock Options and Warrants
The Company has one active stock-based equity plan at November 30, 2020, the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan (the “2012 Plan”) and one stock-based equity plan that is no longer active, but under which certain prior awards remain outstanding, the CytoDyn Inc. 2004 Stock Incentive Plan (the “2004 Plan” and, together with the 2012 Plan, the “Incentive Plans”). In September 2020, the stockholders approved the CytoDyn Inc. Amended and Restated 2012 Equity Incentive Plan to increase the number of shares available for issuance
from 25
million to
50 
million shares among other amendments. The total number of shares available to be issued will increase on the first day of each fiscal year in an amount equal
to 1%
of the total outstanding shares on the last day of the prior fiscal year, and the term of the Plan was extended for an additional 10 years to September 30, 2030. As of November 30, 2020, the Company had approximately
15.7 
million shares available for future stock-based grants under the 2012 Plan.
Stock Options
Upon the September 30, 2020 stockholder approval of the Amended and Restated 2012 Plan, the Company issued to executives of the Company
non-qualified
stock options covering 3.35 
million shares of common stock, time-vesting restricted stock units (“RSUs”)
covering 1.12 
million shares of common stock, and performance based RSUs (“PSUs”)
covering 4.35 
million shares of common stock. The stock options have a per share exercise price of
$3.12, grant date fair value of $2.12 per share, and vest equally over three years. The RSUs vest equally over three years and grant date fair value of $3.12 per share. The PSUs will vest over the next fiscal year only if certain performance conditions set forth in the awards are met. Concurrent with the stockholder approval, the Company also issued to its
non-employee
directors stock options covering a total of 506,250
shares of common stock, or
168,750
shares of common stock for each director, which represented the remaining portion of the annual director compensation for the fiscal year beginning June 1, 2020. The options were issued with a per share exercise price of
$6.15
, grant date fair value of $4.20 per share, and vest equally over three quarterly installments beginning November 30, 2020.
During the six months ended November 30, 2020, the Company granted stock options, covering an aggregate of 1.3 
million shares of common stock, to employees and consultants with exercise prices ranging between
$2.60 and $6.15 per share. These stock option awards vest annually over three years, with
a ten-year term
and grant date fair values ranging between $1.84 and $4.23 per share.
During the six months ended November 30, 2020, the Company issued 110,000 shares of common stock in connection with the exercise of stock options covering an aggregate of 110,000
shares. The stated exercise price ranged from $0.39 to
$0.98
per share which resulted in aggregate gross proceeds of
$48,300.
Warrants
During the six months ended November 30, 2020, the Company issued compensatory warrants covering an aggregate of
 105,000
shares of common stock to consultants. The warrants have a five-year term and an exercise price of $3.07. The grant date fair value of these warrants was $2.11 per share.
During the six months ended November 30, 2020, the Company issued approximately 21.6 million shares of common stock, $0.001 par value, in connection with the exercise of approximately
21.6
million warrants. The stated exercise price ranged from
$0.30 to $1.35
per share, which resulted in aggregate gross proceeds of
approximately $15.2 
million. Additionally, during the six months ended November 30, 2020, the Company issued approximately 8.9 million shares of common stock, $0.001 par value, in connection with the cashless exercise of approximately 9.6 million warrants with stated exercise prices ranging from $0.50 to $1.35.
Compensation expense related to stock options and warrants for the three and six months ended November 30, 2020 and November 30, 2019 was approximately $3.4 million and $5.5 million and $1.0 million and $1.5 million, respectively. The grant date fair value of options, warrants, and common stock vested during the six months ended November 30, 2020 and 2019 was approximately $3.0 million and $0.9 million, respectively. As of November 30, 2020, there was approximately $12.2 million of unrecognized compensation expense related to share-based payments for unvested options, which is expected to be recognized over a weighted average period of 1.17 years.
 
23

The following table represents stock option and warrant activity as of and for the six months ended November 30, 2020 (in thousands, except per share data):
 
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Life in Years
    
Aggregate Intrinsic
Value
 
Options and warrants outstanding - May 31, 2020
     131,361      $ 0.65        5.79      $ 302,961  
Granted
     5,486      $ 3.61        —          —    
Exercised
     (59,238    $ 0.57        —          —    
Forfeited/expired/cancelled
     (533    $ 0.98        —          —    
    
 
 
                            
Options and warrants outstanding - November 30, 2020
     77,076      $ 0.88        4.38      $ 143,788  
    
 
 
                            
Outstanding exercisable - November 30, 2020
     70,747      $ 0.71        3.97      $ 140,630  
    
 
 
                            
Note
8
. Acquisition of Patents and Intangibles
The Company consummated an asset purchase on October 16, 2012, and paid $3,500,000 for certain assets, including intellectual property, certain related licenses and sublicenses, FDA filings and various forms of the leronlimab (PRO 140) drug substance. The Company followed the guidance in ASC 805,
Business Combinations
, to determine if the Company acquired a business. Based on the prescribed accounting, the Company acquired assets and not a business. As of November 30, 2020 and 2019, the Company has recorded and is amortizing $3,500,000 of intangible assets related to the patent rights acquired. The Company estimates the acquired patent has an estimated life of ten years. Subsequent to the acquisition date, the Company has continued to expand, amend and file new patents central to its current clinical trial strategies, which, in turn, have extended the protection period for certain methods of using leronlimab (PRO 140) and formulations comprising leronlimab (PRO 140) out through at least 2031 and 2038, respectively, in various countries.
On November 16, 2018, the Company completed the acquisition of substantially all of the assets of ProstaGene, LLC (“ProstaGene”), a biotechnology
start-up
company, which included patents related to clinical research, a proprietary CCR5 technology for early cancer diagnosis, and a noncompetition agreement with ProstaGene’s founder and Chief Executive Officer, Richard G. Pestell. The Company accounted for the ProstaGene acquisition as an asset acquisition under
ASC 805-10-55,
Business Combinations,
because the assets retained from ProstaGene do not include an assembled workforce, and the gross value of the assets acquired meets the screen test in
ASC 805-10-55-5A
related to substantially all of the fair value being concentrated in a single asset or group of assets (i.e., the proprietary technology and patents) and, thus, is not considered a business. Thus, management concluded that the acquisition did not include both an input and substantive processes that together significantly contribute to the ability to create outputs. The acquisition of ProstaGene’s assets expanded the Company’s clinical development of leronlimab (PRO 140) into cancer indications and potential commercialization of certain cancer diagnostic tests. The aggregate purchase price paid for the ProstaGene acquisition was $11,558,000 based on the issuance of 20,278,000 shares of the Company’s common stock at $0.57 per share, including 1,620,000 shares to the investment bank for advisory services. In connection with the purchase, the Company entered into a Stock Restriction Agreement with Dr. Pestell, (the “Stock Restriction Agreement”), restricting the transfer of 8,342,000 shares of common stock payable to Dr. Pestell for a three-year period from the closing date of the ProstaGene transaction (the “Restricted Shares”). The Stock Restriction Agreement provided that in the event Dr. Pestell’s employment with the Company is terminated by Dr. Pestell not for Good Reason, or by the Company for Cause, as defined in Dr. Pestell’s employment agreement with the Company, the Company would have an option to repurchase such Restricted Shares from Dr. Pestell at a purchase price of $0.001 per share. The Restricted Shares were to vest and be released from the Stock Restriction Agreement in three equal annual installments commencing one year after the closing date of the acquisition of ProstaGene. On July 25, 2019, the Company’s Board terminated the employment of Dr. Richard G. Pestell prior to the vesting of any of the Restricted Shares. The vesting and/or release or forfeiture of the Restricted Shares is currently subject to litigation between the Company and Dr. Pestell.
A summary of the net purchase price and allocation to the acquired assets is as follows (in thousands):
 
    
ProstaGene,
LLC
 
CytoDyn Inc. equity
   $ 11,558  
Acquisition expenses
     741  
Release of deferred tax asset
     2,827  
    
 
 
 
Total cost of acquisition
   $ 15,126  
    
 
 
 
 
24

    
ProstaGene,
LLC
 
Intangible assets
   $ 15,126  
Other
     —    
  
 
 
 
Allocation of acquisition costs
   $ 15,126  
  
 
 
 
Assets acquired from ProstaGene include (1) patents issued in the United States and Australia related to “Prostate Cancer Cell Lines, Gene Signatures and Uses Thereof” and “Use of Modulators of CCR5 in the Treatment of Cancer and Cancer Metastasis,” (2) an algorithm used to identify a
14-gene
signature to predict the likelihood and severity of cancer diagnoses, and (3) a noncompetition agreement in connection with an employment agreement with Dr. Pestell as Chief Medical Officer of the Company. The fair value of the assets acquired approximates the consideration paid. The Company did not assume any liabilities. The fair value of the technology acquired is identified using the Income Approach. The fair value of the patents acquired is identified using the Cost to Reproduce Method. The fair value of noncompetition agreement acquired is identified using the Residual Value Method. Goodwill is not recorded as the transaction represents an asset acquisition in accordance with ASU
2017-01.
Acquisition costs for asset acquisitions are capitalized and included in the total cost of the transaction. In addition, pursuant to ASC 805,
Business Combinations
, the net tax effect of the deferred tax liability arising from the book to tax basis differences is recorded as a cost of the acquisition.
The fair value of the technology acquired is identified using the Income Approach. The fair value of the patents acquired is identified using the Cost to Reproduce Method. The fair value of the noncompetition agreement acquired is identified using the Residual Value Method. Goodwill is not recorded as the transaction represents an asset acquisition in accordance with ASU
2017-01.
Acquisition costs for asset acquisitions are capitalized and included in the total cost of the transaction. In addition, pursuant to ASC 805, the net tax effect of the deferred tax liability arising from the book to tax basis differences is recorded as a cost of the acquisition.

The following presents intangible assets activity, inclusive of patents (in thousands):
 
   
November 30, 2020
   
May 31, 2020
 
Leronlimab (PRO 140) patent
   $ 3,500      $ 3,500  
ProstaGene, LLC intangible asset acquisition
     15,126        15,126  
Website development costs
     20        20  
Accumulated amortization
     (6,184      (5,190
    
 
 
    
 
 
 
Total amortizable intangible assets, net
     12,462        13,456  
Patents currently not amortized
     —          —    
    
 
 
    
 
 
 
Carrying value of intangibles, net
   $ 12,462      $ 13,456  
    
 
 
    
 
 
 
Amortization expense related to all intangible assets was approximately $0.5 million and $1.0 million and $0.5
million and
$1.0
million for the three and six months ended November 30, 2020 and 2019. The following table summarizes the estimated aggregate future amortization expense related to the Company’s intangible assets with finite lives as of November 30, 2020:
 
Fiscal Year
  
Amount
 
2021 (6 months remaining)
  
$
994
 
2022
  
 
1,912
 
2023
  
 
1,301
 
2024
  
 
1,023
 
2025
  
 
1,023
 
Thereafter
  
 
6,209
 
 
  
 
 
 
Total
  
$
12,462
 
 
  
 
 
 
Note
9
. License Agreements
The Company has two license agreements with a third-party licensor covering the licensor’s “system
know-how”
technology with respect to the Company’s use of proprietary cell lines to manufacture new leronlimab (PRO 140) material. The Company accrues annual license fees of £0.6 million (approximately US$0.8 million utilizing current exchange rates), which fees are payable annually in December. Future annual license fees and royalty rate will vary depending on whether the Company manufactures leronlimab (PRO 140), utilizes the third-party licensor as a contract manufacturer, or utilizes an independent party as a contract manufacturer. The licensor does not charge an annual license fee when it serves as the manufacturer. In addition, the Company will incur royalties of up to 0.75% to 2% of net sales, depending upon who serves as the manufacturer, when the Company commences its first commercial sale, which will continue as long as the license agreement is maintained.
Note
10
. Commitments and Contingencies
Commitments with Samsung Biologics
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
 
25

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. 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 our manufacturing agreement with Samsung, the Company 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. The 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.
Commitments with Contract Research Organization (CRO)
The Company has entered into project work orders, as amended, for each of our clinical trials with our CRO and related laboratory vendors. Under the terms of these agreements, the Company incurs execution fees for direct services costs, which are recorded as a current asset. In the event the Company were to terminate any trial, it may incur certain financial penalties which would become payable to the CRO. Conditioned upon the form of termination of any one trial, the financial penalties may range up to
$0.6 
million. In the remote circumstance that the Company would terminate all clinical trials, the collective financial penalties may range from an approximate low of
$2.0 million to an approximate high of $4.0 million.
Other Matters
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.
Note
11
. Private Securities Offerings
On October 14, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors, pursuant to
 which
the investors purchased common stock at a range of $0.24 to $0.80 per share in exchange for warrants with an exercise price ranging from $0.30 to $1.00 per share of common stock. The Company issued approximately 7.0 million shares of common stock, $0.001 par value, in exchange for approximately 6.4 million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $2.7 million. In connection with this transaction, the Company recognized approximately $2.2 million
of
non-cash
inducement interest expense.
 
26

On October 26, 2020, the Company entered into privately negotiated warrant exchange agreements with certain accredited investors, pursuant to
w
hich
the investors purchased common stock at a range of $0.24 to $0.60 per share in exchange for warrants with an exercise price ranging from $0.30 to $0.75 per share of common stock. The Company issued approximately 5.0 million shares of common stock, $0.001 par value, in exchange for approximately 4.5 million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately $1.6 million. In connection with this transaction, the Company recognized approximately $1.4 million
of
non-cash
inducement interest expense.
On November 17, 2020, the Company conducted a private equity offering, in which an accredited investor purchased unregistered common stock at $1.50 per share. Pursuant to the offering, the Company sold approximately 0.67 
million shares of common stock, $0.001 par value, for aggregate proceeds of
$1.0 million.
On November 30, 2020, the Company entered into a privately negotiated warrant exchange agreements with certain accredited investors, pursuant to which the investors purchased common stock at
$0.60
per share in exchange for warrants with an exercise price of
$0.75
per share of common stock. The Company issued
approximately 0.5 
million shares of common stock,
$0.001 par value, in exchange for 0.5 
million warrants to purchase common stock, which resulted in net aggregate proceeds of approximately
$0.3 
million. In connection with this transaction, the Company recognized approximately $0.2 million of
non-cash
inducement interest expense.
As described in Note 5, approximately 4.3 million shares of common stock, $0.001 par value, were issued in exchange for the retirement of the March 2020 Note.
Note
12
. Stock Grants to Employees
As described in Note 7 above, upon the September 30, 2020 stockholder approval of the Amended and Restated 2012 Plan, the Company issued to executives of the Company non-qualified stock options covering 3.35 million shares of common stock, time-vesting restricted stock units (“RSUs”) covering 1.12 million shares of common stock and performance based RSUs (“PSUs”) covering 4.35 million shares of common stock. The RSUs vest equally over
 
three years, and the PSUs will vest over the next fiscal year only if certain performance conditions set forth in the awards are met. The options vest equally over three years.
On October 16, 2020, in connection with his hiring the Company granted Mahboob U. Rahman M.D., Ph.D., FACR, Chief Scientific Officer, 0.2 million time-vesting RSUs. The RSUs vest equally over three years. The grant date fair value of these RSUs was $2.81 per share.
Note
13
. Employee Benefit Plan
The Company has an employee savings plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of its employees. The Company makes a
qualified non-elective contribution
of 3%, which consequently vests immediately. In addition, participants in the Plan may contribute a percentage of their compensation, but not in excess of the maximum allowed under the Code. During the three and six months ended November 30, 2020 and 2019, the Company incurred an expense of approximately $42,000 and $200,000 and $19,800 and $46,000, respectively, for qualified
non-elective
contributions.
Note
1
4
. Related Party Transactions
The Audit Committee of the Board of Directors, comprised of independent directors, or the full Board of Directors, reviews and approves all related party transactions. There were no related party transactions for the quarter ended November 30, 2020.
Note
15
. Subsequent Events
In March 2020, the World Health Organization declared
COVID-19
a pandemic. The
COVID-19
pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The Company’s operational and financial performance has already been affected by the impact of the
COVID-19
pandemic; clinical trials have experienced delays in patient enrollment, potentially due to prioritization of hospital resources toward the
COVID-19
pandemic, or concerns among patients about participating in clinical trials during a public health emergency and the
COVID-19
pandemic is affecting the operations of government entities, such as the FDA, as well as contract research organizations, third-party manufacturers, and other third-parties upon whom the Company relies. As a result of
“shelter-in-place”
orders, quarantines or similar orders or restrictions to control the spread of
COVID-19,
our Company has implemented work-from-home policies for employees. The effects of these stay at home orders and work-from-home policies may be negatively impacting productivity, resulting in delays in clinical programs and timelines. The extent of the impact of the
COVID-19
pandemic on the Company’s operational and financial performance, including on the Company’s ability to execute its business strategies and initiatives in the expected time frame, will