The consolidated financial statements include the accounts of CytoDyn Inc. and its wholly owned subsidiaries, CytoDyn Operations Inc., Advanced Genetic Technologies, Inc. (“AGTI”) and CytoDyn Veterinary Medicine LLC (“CVM”), of which both AGTI and CVM are dormant entities. All intercompany transactions and balances are eliminated in consolidation.

Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the 2019 presentation. These reclassifications did not have any effect on total current assets, total assets, total current liabilities, total liabilities, total stockholders’ (deficit) equity, net loss or earnings per shares.

The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional operating capital, complete development of its product candidate, obtain U.S. Food and Drug Administration (the “FDA”) approval, outsource manufacturing of the product candidate, and ultimately achieve initial revenues and attain profitability. The Company is currently engaging in significant research and development activities related to its product candidate, and expects to incur significant research and development expenses in the future primarily related to its clinical trials. These research and development activities are subject to significant risks and uncertainties. The Company intends to finance its future development activities and its working capital needs largely from the sale of equity and debt securities, combined with additional funding from other traditional sources. There can be no assurance, however, that the Company will be successful in these endeavors.

Cash is maintained at federally insured financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced, nor does it expect to experience any losses related to these balances. Balances in excess of federally insured limits at May 31, 2019 and May 31, 2018 approximatedmillion, respectively, which included restricted cash of approximately million and $-0-, respectively.

The Company may  and make commercial quantities of its product candidate prior to the date it anticipates that such product will receive final FDA approval. The  and commercial production of  inventories involves the risk that such products may not be approved for commercial use by the FDA on a timely basis, or ever. This risk notwithstanding, the Company may  and build  inventories of product that have not yet received final governmental approval when the Company believes that such action is appropriate in relation to the commercial value of the product launch opportunity. The determination to capitalize is made once the Company (or its third party development partners) has filed a BLA, that has been acknowledged by the FDA as containing sufficient information to allow the FDA to conduct its review in an efficient and timely manner and management is reasonably certain that all regulatory and legal hurdles will be cleared. This determination is based on the particular facts and circumstances relating to the expected FDA approval of the drug product being considered. As of May 31, 2019 and May 31, 2018, the Company did not have  inventory that qualified for capitalization pursuant to U.S. GAAP ASC 330 Inventory.

Derivative financial instruments consist of financial instruments that contain a notional amount and one or more underlying variables (e.g., interest rate, security price, variable conversion rate or other variables), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. The Company follows the provisions of ASC 815, Derivatives and Hedging as their instruments are recorded as a derivative liability, at fair value, and ASC 480, Distinguishing Liabilities from Equity as it relates to warrant liability, with changes in fair value reflected in income.

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  market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. These Level 3 inputs also include  market consensus prices or  broker quotes that the Company was unable to corroborate with observable market data.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. These instruments are not quoted on an active market. The Company uses a Binomial Lattice Model to estimate the value of the warrant derivative liability and a Monte Carlo Simulation to value the derivative liability of the redemption provision within a convertible promissory note. These valuation models were used because management believes they reflect all the assumptions that market participants would likely consider in negotiating the transfer of the instruments. The Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models.

On June 7, 2018, at a special meeting of the Company’s stockholders, a proposal was approved to increase the total number of authorized shares of common stock of the Company from 375,000,000 to 450,000,000.

The Company’s Board of Directors is authorized to issue up to shares of preferred stock without stockholder approval. As of May 31, 2019, the Company has authorized the issuance of shares of Series B convertible preferred stock and shares of Series C convertible preferred stock, of whichshares, respectively, were outstanding. The remaining preferred shares authorized have no specified rights.

During the years ended May 31, 2019, May 31, 2018 and May 31, 2017, the Company incurred approximately $4.2 million, $1.5 million, and $92,000, respectively, of debt discount related to the issuance of short-term convertible promissory notes issued with detachable warrants, as described in Note 4. The discount was amortized over the life of the convertible promissory notes and the Company recognized approximately $1.7 million, $1.6 million, and  of related amortization expense for the years ended May 31, 2019, May 31, 2018 and May 31, 2017, respectively.

During the years ended May 31, 2019 and May 31, 2018, the Company incurred direct costs associated with the issuance of short-term convertible promissory notes, as described in Note 4, and recorded approximately $1.0 million and $0.4 million, respectively, of debt issuance costs. The Company recognized approximately $0.5 million, $0.4 million, and  of related amortization expense for the years ended May 31, 2019, May 31, 2018 and May 31, 2017, respectively.

The Company follows the provisions of FASB ASC  Uncertainty in Income Taxes (“ASC  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  If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefit in interest expense and penalties in operating expenses.

In accordance with Section 15 of the Internal Revenue Code, we utilized a federal statutory rate of 21% for our fiscal 2019 tax year. The net tax expense for the year ended May 31, 2019, is a benefit of $2.8 million. The Company has a full valuation allowance as of May 31, 2019, as management does not consider it more than likely than not that the benefits from the deferred taxes will be realized.