UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: August 31, 2004 Commission File Number 000-49908
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CYTODYN, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 75-3056237
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 W. DeVargas Street, Suite 1, Santa Fe, New Mexico 87501
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(Address of principal executive offices) (Zip code)
(505) 988-5520
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, no par value 8,069,307
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Class Number of shares outstanding at October 5, 2004
Transitional Small Business Disclosure Format: Yes No X
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This document is comprised of 11 pages.
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INDEX
Page
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheet, August 31, 2004 (unaudited)........................3
Condensed statements of operations, three months ended
August 31, 2004 (unaudited) and 2003 (unaudited), and October 28,
2003 (inception) through August 31, 2004 (unaudited).....................4
Condensed statements of cash flows, three months ended
August 31, 2004 (unaudited) and 2003 (unaudited) and October 28,
2003 (inception) through August 31, 2004 (unaudited).....................5
Notes to condensed financial statements (unaudited).........................6
Item 2. Management's Discussion and Analysis or Plan of Operation..........7
Item 3. Controls and Procedures............................................9
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings..................................................9
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities............................................10
Item 3. Defaults Upon Senior Securities...................................10
Item 4. Submission of Matters to a Vote of Security Holders...............10
Item 5. Other Information.................................................10
Item 6. Exhibits..........................................................10
Signatures...................................................................11
2
Part I, Item 1. Financial Statements
CYTODYN, INC.
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
August 31, 2004
Assets
Current Assets:
Cash ...................................................... $ 76,435
Prepaid expenses .......................................... 9,854
-----------
Total current assets ........................ 86,289
Property and equipment, less accumulated
depreciation of $496 ...................................... 6,006
Deposit ....................................................... 495
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$ 92,790
===========
Liabilities and Shareholders' Deficit
Liabilities:
Accounts payable .......................................... $ 132,084
Accrued liabilities ....................................... 9,327
Indebtedness to related parties (Note 2) .................. 71,694
-----------
Total liabilities ........................... 213,105
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Commitments and contingencies (Note 6) ........................ --
Shareholders' deficit (Note 4):
Preferred stock, no par value; 5,000,000 shares authorized,
-0- shares issued and outstanding ...................... --
Common stock, no par value; 25,000,000 shares authorized,
8,069,307 shares issued and outstanding ................ 1,916,334
Additional paid-in capital ................................ 24,014
Accumulated deficit ....................................... (1,601,912)
Deficit accumulated during development stage .............. (458,751)
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Total shareholders' deficit ................. (120,315)
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$ 92,790
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See accompanying notes to condensed financial statements
3
CYTODYN, INC.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
October 28,
For the Three Months Ended 2003
August 31, Through
-------------------------- August 31,
2004 2003 2004
----------- ----------- -----------
Operating expenses:
General and administrative (Note 8) .... $ 120,409 $ 5,043 $ 458,139
Depreciation ........................... 292 -- 496
----------- ----------- -----------
Total operating expenses 120,701 5,043 458,635
----------- ----------- -----------
Operating loss ......... (120,701) (5,043) (458,635)
Interest income ............................ 176 -- 519
Interest expense ........................... (182) -- (635)
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Loss before income taxes (120,707) (5,043) (458,751)
Income tax provision (Note 5) .............. -- -- --
----------- ----------- -----------
Net loss ............... $ (120,707) $ (5,043) $ (458,751)
=========== =========== ===========
Basic and diluted loss per share ........... $ (0.01) $ (0.00)
=========== ===========
Basic and diluted weighted average
common shares outstanding .............. 8,069,307 5,362,640
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See accompanying notes to condensed financial statements
4
CYTODYN, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
October 28,
For the Three Months Ended 2003
August 31, Through
-------------------------- August 31,
2004 2003 2004
----------- ----------- -----------
Net cash used in
operating activities ..... $ (107,874) $ (5,043) $ (464,769)
----------- ----------- -----------
Cash flows from investing activities:
Property and equipment purchases .............. (3,167) -- (6,502)
----------- ----------- -----------
Net cash used in
investing activities ..... (3,167) -- (6,502)
----------- ----------- -----------
Cash flows from financing activities:
Capital contributions by president (Note 2) ... 512 4,500 512
Proceeds from notes payable issued to
related parties (Note 2) ................... -- -- 111,194
Repayment of notes payable to related
parties (Note 2) ........................... -- -- (50,000)
Proceeds from the sale of common stock (Note 4) -- -- 540,000
Payment of offering costs (Note 4) ............ -- -- (54,000)
----------- ----------- -----------
Net cash provided by
financing activities ..... 512 4,500 547,706
----------- ----------- -----------
Net change in cash ....... (110,529) (543) 76,435
Cash, beginning of period ......................... 186,964 3,238 --
----------- ----------- -----------
Cash, end of period ............................... $ 76,435 $ 2,695 $ 76,435
=========== =========== ===========
Supplemental disclosure of cash flow information:
Income taxes .................................. $ -- $ -- $ --
=========== =========== ===========
Interest ...................................... $ 182 $ -- $ --
=========== =========== ===========
See accompanying notes to condensed financial statements
5
CYTODYN, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The condensed financial statements presented herein have been prepared by the
Company in accordance with the instructions for Form 10-QSB and the accounting
policies in its Form 10-KSB filed for the year ended May 31, 2004 and should be
read in conjunction with the notes thereto.
In the opinion of management, the accompanying condensed financial statements
contain all adjustments (consisting only of normal recurring adjustments) which
are necessary to provide a fair presentation of operating results for the
interim periods presented. The results of operations presented for the three
months ended August 31, 2004 are not necessarily indicative of the results to be
expected for the year.
The Company is in the development stage in accordance with Statements of
Financial Accounting Standards (SFAS) No. 7 "Accounting and Reporting by
Development Stage Enterprises".
Financial data presented herein are unaudited.
Note 2: Related Party Transactions
During the three months ended August 31, 2004, the Company's president paid
administrative expenses on behalf of the Company totaling $4,500. The payment
has been recorded as contributed capital and is included in the accompanying
condensed financial statements as "Additional paid-in capital".
Note 3: Income taxes
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses for all
periods presented resulting in a deferred tax asset, which was fully allowed for
by a valuation allowance; therefore, the net benefit and expense resulted in
$-0- income taxes.
6
Part I. Item 2. Management's Discussion and Analysis or Plan of Operation
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CYTODYN, INC.
(A Development Stage Company)
Plan of Operation
During the next 12 months, our objectives are:
o To continue our clinical trials of Cytolin,
o To continue our efforts to protect our technology by obtaining
additional patents in The United Kingdom and the European Union,
o To develop an established market for our shares, and raise funds to
support our research and development efforts, the clinical trials
relating to Cytolin, and our general and administrative expenses, and
o To explore joint venture arrangements for other possible
pharmaceutical products.
Continuing Clinical Trials. Phase I clinical trials were conducted by Symbion
Research International under the sponsorship of Amerimmune, Inc. during 2002. We
believe that the data from these trials support approval by the FDA of Phase II
trials, and we intend to seek approval for the Phase II trials. We will work
with Symbion International and their Phase I trial data and we plan to submit
our application for approval of Phase II/III pivotal studies. If the Phase
II/III study is approved, we expect it, together with the pre-Phase II/III
efforts, to cost an estimated $2,050,000 to $3,350,000, plus estimated
manufacturing and supply costs of $350,000 to $400,000. These trials can take
anywhere from 29 to 42 months. Until we have met with the FDA, which we plan to
do within the next 6 months, we cannot be certain what additional studies,
assuming that Phase II/III study supports the efficacy and safety of Cytolin,
will be required to receive marketing approval.
If we are unable to complete clinical trials on a timely basis, with favorable
results, our costs will increase significantly and we may not have enough
capital to support further research and development and continue in business.
Also, if we incur significant delays in being able to market our product, even
if we are ultimately able to do so, we will be delayed in earning revenues and
probably will require additional financing to continue in business.
Patents
During fiscal year 2004, several European patents were granted with respect to
our technology. The new patents are covered by our License Agreement with Allen
D. Allen, our president. These patents are designated European Patent No. 94
912826.8, for the United Kingdom, Germany, France, Switzerland, Italy, the
Netherlands, Portugal, Spain, and Sweden, and are the counterparts to our United
States Patent No. 5424066. Patents are pending in those same countries which, if
granted, will be the equivalent of our United States Patent No. 5651970. We
estimate the costs associated with these pending patents to be approximately
$65,000, including amounts we have already spent. We may file additional patents
during the current fiscal year if our research and development efforts warrant
them, but we do not have any such potential patents identified at this time.
Litigation
For a thorough discussion of our pending litigation, please see the section
entitled "Legal Proceedings." In Part 2 Item 1.
We were plaintiffs in two pending cases, CytoDyn of New Mexico, Inc. et. al., v.
Amerimmune Pharmaceuticals, Inc. et al., Case number BC290154 and the other in
Ventura County, in a case captioned CytoDyn, Inc., et al. v. Amerimmune, Inc. et
al., Case number SC039250., each involving our rights to the patented technology
underlying Cytolin and any other products we might wish to develop.
7
Establishing a Market and Obtaining Funding
We will require funding during the 2005 fiscal year in order to continue our
research and development efforts and to stay in business. The amount of that
funding is directly related to the clinical trials we are able to conduct and
the amounts we will need for our company operations.
We filed a registration statement on Form SB-2 on June 1, 2004, covering the
sale of 250,000 shares of common stock at $0.75 per share, for total proceeds of
$187,500, to be used primarily for general and administrative expense, SEC
compliance costs, and legal and accounting fees. This registration statement has
not yet gone effective, and we cannot assure that it will or that the shares
that would be offered would sell. We intend, if this offering does go effective
and if the shares sell, to seek an established market for our securities on an
established quotation system, such as the NASD over-the-counter bulletin board,
which we hope would give us a wider base of investors. We may not, however, be
able to achieve our goals.
In connection with our private placement of securities in late 2003 and early
2004, we granted certain registration rights to the purchasers of our common
stock and to our financial representative. The holders of these shares may
demand that we register their shares for sale. We estimate that such a
registration could cost us approximately $30,000, for which we would have to
find funding.
In addition to operating funds, we will need from approximately $750,000 to
$3,750,000 for research and development, including clinical trials, and
manufacturing and supply costs, depending upon whether we are approved by the
FDA to conduct a Phase II/III pivotal study.
We do not have any of this funding arranged or secured, and we do not yet have
plans for raising the funding we require. We anticipate that we will seek the
funding through further equity offerings, either by private placement or by
registered offering, or by possible joint venture arrangements with other
parties. If we are unable to secure the necessary funding, we will not be able
to conduct our research and development activities or to continue in business.
Exploring Joint Ventures
While we continue to pursue FDA approval of our Cytolin product, we are also
considering entering into joint ventures to develop other types of products. We
have, for instance, entered into a nondisclosure agreement with another
development stage biotech company to discuss the possibility of the joint
development of drugs to treat neuropsychiatric diseases or disorders. These
discussions are in the early stages and we do not know if we will enter into a
joint venture or other arrangement with this company or if any products might
ensue from our efforts.
We may also pursue joint ventures or other arrangements to obtain funding for
our Cytolin-related endeavors, but we have not pursued this possibility and do
not have any prospects at this time.
Other Matters
We do not expect, in the next 12 months, to make any significant expenditures
for equipment, nor do we expect to make any significant changes in the number of
employees that we have. We have no off-balance sheet arrangements.
8
Part I. Item 3. Controls and Procedures
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(a) Evaluation of disclosure controls and procedures
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We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed within 90 days of the filing
date of this report, our chief executive officer and the chief
financial officer concluded that our disclosure controls and procedures
were adequate.
(b) Changes in internal controls
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There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to
the date of the evaluation of those controls by the chief executive
officer and chief financial officer.
Part 2. Other Information
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Item 1 - Legal Proceedings.
CytoDyn, Inc.. v. Amerimmune, Inc. et al., Los Angeles Superior Court
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Case No. BC 290154.
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The court dismissed the case stating that our attorney did not present
the evidence in an orderly and logical fashion. We may appeal this
decision if it is cost effective in comparison to our other remedies
available to us. The officer and directors of CytoDyn of New Mexico
will continue to defend the cross-complaint. Management believes the
cross-complaint is without merit and chances of an unfavorable outcome
are remote.
CytoDyn, Inc., et al. v. Amerimmune, Inc. et al., Case number SC039250,
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California Superior Court in and for the County of Ventura.
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The principal relief sought was a declaration that the license granted
and the assignment of the technology, patents and drug application made
pursuant to the Conditional License Agreement were terminated no later
than September 12, 2001, and that Allen and we are the owners of the
technology, patents and investigational new drug application, free of
any claims of the defendants. Costs, attorney's fees, and other "just
and proper" relief also were sought.
This case was decided in favor of the plaintiffs, CytoDyn and Allen, on
October 4, 2004 and the plaintiffs were awarded the declaratory relief
sought and attorneys' fees.
Symbion Research International, Inc., v. Amerimmune, Inc. et al., Case
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number SC035668, California Superior Court in and for the County of
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Ventura.
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We were not a party to this action; however the action affects
intellectual property which is important to us.
A default was entered against Amerimmune, Inc. on December 18, 2003. A
judgment was entered in favor of Symbion International on September 17,
2004 granting the declarative relief sought.
9
The intellectual property generated in the early phase FDA clinical
trials is necessary to obtain approval for, and to conduct, further FDA
clinical tests of Cytolin. Because a satisfactory result was obtained
in this action, we anticipate negotiating an agreement with Symbion
that will allow the use in subsequent phases of clinical test of
Cytolin of the research data generated in the early phases.
Item 2 - Changes in Securities and Small Business Issuer Purchases of Equity
Securities.
No response required.
Item 3 - Defaults Upon Senior Securities.
No response required.
Item 4 - Submission of Matters to a Vote of Security Holders.
No response required.
Item 5 - Other Information.
No response required.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
1. 31.1: Certification by the CEO
2. 31.2: Certification by the CFO
3. 32.1: Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 - CEO
4. 32.2: Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 - CFO
(b) Reports on Form 8-K:
None.
10
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three months ended August 31, 2004 have
been included.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTODYN, INC.
(Registrant)
DATE: October 12, 2004 BY: /s/ Allen D. Allen
---------------- --------------------------
Allen D. Allen
President and CEO
11