Edgar Filing: CYTODYN INC

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 the Quarterly period Ended: November 30, 2006
-----------------

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)

227 E. Palace Avenue, Suite M, Santa Fe, New Mexico 87501
--------------------------------------------------- -----
(Address of principal executive offices) (Zip code)

(505) 988-5520
(Registrant's telephone number, including area code)
(Former address, changed sine last report)

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
--- ---

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 11,267,264
-------------------------- ----------
Class Number of shares outstanding at November 30, 2006

Transitional Small Business Disclosure Format: Yes No X
--- ---

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes No X
--- ---

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TABLE OF CONTENTS

PAGE
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PART I FINANCIAL INFORMATION

Item 1 Financial Statements F-1
---------------------

Item 2 Plan of Operation 3
------------------

Item 3 Controls and Procedures 7
------------------------

PART II OTHER INFORMATION

Item 1 Legal Proceedings 9
------------------

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 10
------------------------------------------------------------

Item 3 Defaults Upon Senior Securities 11
--------------------------------

Item 4 Submission of Matters to a Vote of Security Holders 11
----------------------------------------------------

Item 5 Other Information 11
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Item 6 Exhibits 11
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Part I Item 1. Financial Statements
-----------------------------------

Page
----

Condensed Consolidated Balance Sheets at November 30, 2006 and
May 31, 2006........................................................... F-2

Condensed Consolidated Statements of Operations for the three and
six months ended November 30, 2006 and 2005 and the period from
October 28, 2003 (inception) through November 30, 2006................. F-3

Condensed Consolidated Statements of Changes in Shareholders' Deficit
for the six months ended November 30, 2006 and for the period from
October 28, 2003 (inception) through November 30, 2006................. F-4

Condensed Consolidated Statements of Cash Flows for the six months
ended November 30, 2006 and 2005 and for the period from
October 28, 2003 (inception) through November 30, 2006................. F-6

Notes to Condensed Consolidated Financial Statements..................... F-8

F-1

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated
Balance Sheet

Assets

November 30, 2006 May 31, 2006
Current Assets: (unaudited) (audited)
----------------- --------------

Cash ...................................... $ 248,974 $ 125,320
Prepaid Insurance ......................... 16,335 36,100
Prepaid Sponsored Research ................ 40,700 --
----------------- -------------

Total current assets ............ 306,009 161,420

Furniture and equipment, net .................. 4,860 2,334

Intangible asset, net ......................... 564 1,128

Deposit ....................................... 495 495
----------------- -------------

$ 311,928 $ 165,377
================= =============

Liabilities and Shareholders' Deficit

Current Liabilities:
Accounts payable ........................... $ 81,563 $ 110,267
Accrued liabilities ........................ 126,517 133,588
Accrued interest payable ................... 8,183 5,267
Convertible notes payable, net ............. 3,165 23,863
Indebtedness to related parties ............ 455,701 393,360
----------------- -------------
Total current liabilities ........ 675,129 666,345

Commitments and contingencies ................. 150,000 150,000
----------------- -------------
Total liabilities ................ 825,129 816,345
----------------- -------------

Shareholders' deficit :
Preferred stock, no par value;
5,000,000 shares authorized,
-0- shares issued and outstanding ......... -- --
Common stock, no par value;
20,000,000 shares authorized,
11,267,264 and 9,147,664 shares
issued and outstanding, respectively ...... 4,146,465 3,062,566
Stock for Prepaid Services ................. (77,168) (267,060)
Additional paid-in capital ................. 1,704,071 1,324,509
Accumulated deficit ........................ (1,601,912) (1,601,912)
Deficit accumulated during development stage (4,684,657) (3,169,071)
----------------- -------------
Total shareholders' deficit ...... (513,201) (650,968)
----------------- -------------

$ 311,928 $ 165,377
================= =============

F-2

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operation
Unaudited

Three Months Ended Six Months Ended October 28, 2003
November 30, November 30, (Inception)
---------------------------- ---------------------------- through
Operating expenses: 2006 2005 2006 2005 November 30, 2006
------------ ------------ ------------ ------------ -----------------

General and administrative ............ $ 538,681 $ 82,624 $ 886,123 $ 138,550 2,999,459
Amortization / Depreciation ........... 122,845 536 123,465 1,024 127,441
Research and Development .............. -- -- 321,741 -- 684,083
Legal Fees ............................ 20,552 -- 52,541 11,131 119,291
Commitments and Contingencies ......... -- -- -- -- 150,000
------------ ------------ ------------ ------------ -----------------
Total operating expenses ...... 682,078 83,160 1,383,870 150,705 4,080,274
------------ ------------ ------------ ------------ -----------------
Operating loss ................ (682,078) (83,160) (1,383,870) (150,705) (4,080,274)

Interest income .......................... 481 84 920 98 1,598
Interest expense:
Interest on convertible debt and
other notes........................... (46,057) (124) (132,636) (2,004) (604,101)

Other ................................. -- -- -- -- (1,880)
------------ ------------ ------------ ------------ -----------------
Loss before income taxes ...... (727,654) (83,200) (1,515,586) (152,611) (4,684,657)

Income tax provision ..................... -- -- -- -- --
------------ ------------ ------------ ------------ -----------------

Net loss ...................... $ (727,654) $ (83,200) $ (1,515,586) $ (152,611) (4,684,657)
============ ============ ============ ============ =================

Basic and diluted loss per share ......... (0.06) $ (0.01) $ (0.14) $ (0.02) $ (0.56)
============ ============ ============ ============ =================

Basic and diluted weighted average
common shares outstanding ............... 11,262,187 8,535,057 10,706,208 8,468,363 8,437,354
============ ============ ============ ============ =================

F-3

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated Statement of Changes in Shareholders' Deficit

Deficit
Accumulated
Preferred Stock Common Stock Stock for Additional During
--------------- ---------------------- Prepaid Paid-in Accumulated Development
Shares Amount Shares Amount Services Capital Deficit Stage Total
------ ------ ---------- ---------- --------- ----------- ----------- ----------- -----------
As Restated As Restated As Restated
----------- ----------- -----------

Balance at October 28,
2003, following
recapitalization ..... -- $ -- 6,252,640 $1,425,334 $ -- $ 23,502 $(1,594,042) $ -- $ (145,206)
February through April
2004, sale of common
stock less offering
costs of $54,000
($.30/share) ......... -- -- 1,800,000 486,000 -- -- -- -- 486,000
February 2004, shares
issued to former
officer as payment for
working capital advance
($.30/share) ......... -- -- 16,667 5,000 -- -- -- -- 5,000
Net loss, year ended
May 31, 2004 ......... -- -- -- -- -- -- (7,870) (338,044) 345,914)
------ ------ ---------- ---------- --------- ----------- ----------- ----------- -----------
Balance at May 31,
2004 ................. -- -- 8,069,307 1,916,334 -- 23,502 (1,601,912) (338,044) (120)
July 2004, capital
contribution by an
officer .............. -- -- -- -- -- 512 -- -- 512
November 2004, common
stock warrants
granted .............. -- -- -- -- -- 11,928 -- -- 11,928
February 2005, capital
contribution by an
officer .............. -- -- -- -- -- 5,000 -- -- 5,000
Net loss, year ended
May 31, 2005 ......... -- -- -- -- -- -- -- (777,083) (777,083)
------ ------ ---------- ---------- --------- ----------- ----------- ----------- -----------
Balance at May 31,
2005 ................. -- -- 8,069,307 1,916,334 -- 40,942 (1,601,912) (1,115,127) (759,763)
June through July 2005,
sale of common stock
less offering costs
of $27,867
($0.75/share) ........ -- -- 289,890 189,550 -- -- -- -- 189,550
August 2005, common
shares issued to
extinguish promissory
notes payable and
related interest
($0.75/share) ........ -- -- 160,110 120,082 -- -- -- -- 120,082
May 2006, common shares
issued to extinguish
convertible debt ..... -- -- 350,000 437,500 -- -- -- -- 437,500
November 2005, 94,500
warrants exercised
($0.30/share) ........ -- -- 94,500 28,350 -- -- -- -- 28,350
January through April
2006, common shares
issued for prepaid
services ............. -- -- 183,857 370,750 (370,750) -- -- -- --

F-4

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated Statement of Changes in Shareholders' Deficit

January through June
2006, warrants issued
with convertible
debt ................. -- -- -- -- -- 274,950 -- -- 274,950
January through May
2006, beneficial
conversion feature of
convertible debt ..... -- -- -- -- -- 234,550 -- -- 234,550
March through May 2006,
stock options granted
to consultants ....... -- -- -- -- -- 687,726 -- -- 687,726
March 2006, stock
options issued to
extinguish debt ...... -- -- -- -- -- 86,341 -- -- 86,341
-- -- -- -- -- -- -- (2,053,944) (2,053,944)
------ ------ ---------- ---------- --------- ----------- ----------- ----------- -----------
Balance at May 31,
2006 ................. -- $ -- 9,147,664 $3,062,566 $(267,060) $ 1,324,509 $(1,601,912) $(3,169,071) $ (650,968)
====== ====== ========== ========== ========= =========== =========== =========== ===========

Common stock issued to
extinguish Convertible
Debt ................. -- -- 119,600 149,500 -- -- -- -- 149,500

Stock issued for AITI
acquisition .......... -- -- 2,000,000 934,399 -- -- -- -- 934,399

Amrotization of Prepaid
Stock Services ....... -- -- -- -- 189,892 -- -- -- 189,892

Stock-Based
Compensation ......... -- -- -- -- -- 287,062 -- -- 287,062

Warrants issued with
Convertible Debt ..... -- -- -- -- -- 92,500 -- -- 92,500

Net Loss November 30,
2006 ................. -- -- -- -- -- -- -- (1,515,586) (1,515,586)
------ ------ ---------- ---------- --------- ----------- ----------- ----------- -----------
Balance at November 30,
2006 (unaudited) ..... -- $ -- 11,267,264 $4,146,465 $ (77,168) $ 1,704,071 $(1,601,912) $(4,684,657) $ (513,201)
====== ====== ========== ========== ========= =========== =========== =========== ===========

F-5

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
Unaudited

Six Months Ended October 28, 2003
November 30 (Inception)
-------------------------- through
2006 2005 November 30, 2006
----------- ----------- -----------------

Cash flows from operating activities:
Net loss .......................................... $(1,515,586) $ (152,611) $ (4,684,657)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization /Depreciation ..................... 123,465 1,024 127,441
Amortization of original issue discount ........ 128,802 -- 463,602
Purchased in-process Research & Development .... 259,399 -- 259,399
Stock-based compensation ....................... 478,575 -- 1,283,203
Changes in current assets and liabilities:
prepaid expenses ............................ 18,143 25,869 (16,335)
deposits .................................... -- (495)
accounts payable and accrued liabilities .... (32,859) (17,644) 366,263
----------- ----------- -----------------
Net cash used in
operating activities ........................ (540,061) (143,362) (2,201,579)
----------- ----------- -----------------
Cash flows from investing activities:
Furniture and equipment purchases ................. (3,326) (936) (10,764)
----------- ----------- -----------------
Net cash used in
investing activities ........................... (3,326) (936) (10,764)
----------- ----------- -----------------
Cash flows from financing activities:
Capital contributions by president ................ -- -- 5,512
Proceeds of notes payable to related parties ...... 62,341 -- 601,694
Payments of related party notes ................... -- (38,227) (38,227)
Proceeds from convertible notes ................... 92,500 -- 673,000
Proceeds from the sale of common stock ............ -- 245,768 785,767
Payments for offering costs ....................... -- (28,785) (81,867)
Proceeds from acqusition of AITI .................. 512,200 -- 512,200
----------- ----------- -----------------
Net cash provided by
financing activities ........................... 667,041 178,756 2,458,079
----------- ----------- -----------------

Net change in cash ............................. 123,654 34,458 245,736

Cash, beginning of period ............................ 125,320 930 3,238
----------- ----------- -----------------

Cash, end of period .................................. $ 248,974 $ 35,388 $ 248,974
=========== =========== =================

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ................................... $ -- $ -- $ --
=========== =========== =================
Interest ....................................... $ -- $ 138 $ 1,126
=========== =========== =================

F-6

CYTODYN, INC.
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
Unaudited

Non-cash investing and financing transactions:
Net assets acquired in exchange for common
stock in CytoDyn/Rexray business
combination .................................. $ -- $ -- $ 7,542
=========== =========== =================
Common stock issued to former officer to
repay working capital advance ................ $ -- $ -- $ 5,000
=========== =========== =================
Common stock issued for convertible debt ...... $ 149,500 $ -- $ 587,000
=========== =========== =================
Common stock issued for debt .................. $ -- $ 122,748 $ 122,748
=========== =========== =================
Options to purchase common stock issued
for debt ..................................... $ -- $ -- $ 86,341
=========== =========== =================
Original issue discount and intrinsic value
of beneficial conversion feature related
to debt issued with warrants ................. $ 92,500 $ -- $ 602,000
=========== =========== =================

On July 18, 2006 the company issued 2,000,000 shares of unregistered
restricted common stock for 1,000 shares of AITI common stock. The
acquistion was accounted for as an asset purchase (See Note 2). The
company acquired a prepaid sponsored research project for $162,800, a
license agreement for $150,000, and acquired $109,399 in expenses
associated with the license agreement. Additionally, subsequent to the
acquistion, the company expensed the entire license agreement as a
component of research and development expense.

F-7

CYTODYN, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
As of November 30, 2006 (unaudited) and May 31, 2006 (audited)
and for the six months ended November 30, 2006 and 2005 (unaudited)
and for the period October 28, 2003 (inception date)
through November 30, 2006 (unaudited)

1 - Organization:

The Company was incorporated under the laws of Colorado on May 2, 2002 under the
name Rexray Corporation ("Rexray"). The Company entered the development stage
effective October 28, 2003 and follows Statements of Financial Accounting
Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage
Enterprises". On October 27, 2003, Rexray changed its name to CytoDyn, Inc.

2 - Summary of Significant Accounting Policies:

Basis of Presentation - The accompanying consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and reflect all adjustments, consisting solely of
normal recurring adjustments, needed to fairly present the financial results for
these periods.

The condensed consolidated financial statements and notes are presented as
permitted by Form 10-QSB. Accordingly, certain information and note disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted. The accompanying consolidated financial statements should be read
in conjunction with the financial statements for the years ended May 31, 2006
and 2005 and notes thereto in the Company's annual report on Form 10-KSB/A for
the year ended May 31, 2006, filed with the Securities and Exchange Commission
on November 9, 2006. Operating results for the three and six months ended
November 30, 2006 are not necessarily indicative of the results that may be
expected for the entire year.

In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three and six month period ended November 30, 2006 and 2005
and the Period October 28, 2003 (Date of Inception) through November 30, 2006,
(b) the financial position at November 30, 2006, and (c) cash flows for the six
month period ended November 30, 2006 and 2005, and the Period October 28, 2003
(Date of Inception) through November 30, 2006, have been made. Principles of
Consolidation. - The consolidated financials statements include the accounts of
CytoDyn Inc and its wholly owned subsidiary; Advanced Influenza Technologies,
Inc. All intercompany transactions and balances are eliminated in consolidation.

Going Concern - The 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 financial statements, the Company is currently in the development
stage with losses for all periods presented. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.

The 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 medical
treatment, obtain FDA approval, outsource manufacturing of the treatment, and
ultimately to attain profitability. The Company intends to seek additional
funding through equity offerings to fund its business plan. There is no
assurance that the Company will be successful in these endeavors.

F-8

Acquisition - On July 18, 2006 CytoDyn, Inc. entered into an acquisition
agreement with UTEK Corporation, to purchased all 1,000 issued and outstanding
shares of Advanced Influenza Technologies, Inc. (AITI), a Florida Corporation in
exchange for 2,000,000 unregistered restricted common shares of CytoDyn, Inc
stock. The term of the licensing agreement is until the later of 20 years from
the filing date of the licensed patents or the expiration of the last to expire
patent of the licensed patents.

The transaction was accounted for as an asset purchase, and not an acquisition
of a business, as AITI had no employees, operations, or customers, and was
essentially a shell corporation to hold the assets acquired. Pursuant to the
agreement, the Company acquired $512,200 in cash, and a prepaid sponsored
research project of $162,800 from the University of Massachusetts to further the
technology associated with certain acquired licenses. The $162,800 is being
amortized into research and development expense as the services are provided.
The company valued the assets acquired based on the consideration received
rather than the fair market value of the shares issued, as the company believed
this was more indicative of the value of the assets acquired. In addition to the
cash, and the prepaid sponsored research project, the Company acquired the
worldwide nonexclusive and exclusive license agreements from the University of
Massachusetts for certain technologies. The license agreements were recorded as
research and development expense, as the patent rights or license agreements are
being used in a particular research project, and have no alternative future use
outside of this project. Including the license agreements, a total of $259,399
of in-process research and development was acquired related to the acquisition,
which is included as a component of research and development expense for the
period ended November 30, 2006.The license agreement grants the Company the
exclusive right to develop and commercialize the licensed products associated
with certain existing patents.

Milestone fees are payable to the University per licensed product and due within
30 days of the event of certain occurrences required.

The University shall also receive 4% royalties on net sales of the license
products.

AITI also has agreed to fund a two year ($325,600) unrestricted project for
($162,800 per year) under the Sponsored Research Agreement with the primary
objective during the first year to conduct lab work to provide well documented
research studies. If after one year the desired outcome is not achieved the
agreement can be cancelled and the second year's payment is not required.

Use of Estimates - The preparation of the consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less when acquired, to
be cash equivalents. The Company had no cash equivalents as of November 30, 2006
or May 31, 2006. The Company maintains its cash in bank deposit accounts, which
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts.

Furniture, Equipment and Depreciation - Furniture and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, generally three to seven years. Maintenance
and repairs are charged to expense as incurred and major improvements or

F-9

betterments are capitalized. Gains or losses on sales or retirements are
included in the statement of operations in the year of disposition.

Impairment of Long-Lived Assets - The Company evaluates the carrying value of
any long-lived assets under the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted future cash flows estimated to be
generated by those assets are less than the assets' carrying amount. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying value or fair
value, less costs to sell. There were no impairment charges for the three and
six months ended November 30, 2006 and 2005, and for the period October 28, 2003
(inception date) through November 30, 2006.

Research and Development - Research and development costs are expensed as
incurred.

Financial Instruments - At November 30, 2006, and May 31, 2006, the carrying
value of the Company's financial instruments approximate fair value due to the
short-term maturity of the instruments.

Stock-based compensation - In December 2004, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 123 (Revised 2004), Share-Based Payments ("SFAS
No. 123R"). SFAS No. 123R 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. SFAS No. 123R is effective as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005 and
accordingly the Company adopted this standard on June 1, 2006.

SFAS No. 123R provides for two transition methods. The "modified prospective"
method requires that share-based compensation expense be recorded for any
employee options granted after the adoption date and for the unvested portion of
any employee options outstanding as of the adoption date. The "modified
retrospective" method requires that, beginning June 1, 2006, all prior periods
presented be restated to reflect the impact of share-based compensation expense
consistent with the proforma disclosures previously required under SFAS No. 123.
The Company adopted the modified prospective application of SFAS No.123(R)
effective June 1, 2006, and as a result, has not restated its financial results
for prior periods.

Prior to June 1, 2006, the Company had adopted SFAS No. 123, Accounting for
Stock-Based Compensation. As provided for by SFAS No. 123, the Company had
elected to continue to account for its stock-based compensation programs
according to the provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees. Accordingly, compensation expense
had been recognized to the extent of employee or director services rendered
based on the intrinsic value of stock options granted under the plan. The
Company accounted for common stock, stock options, and warrants granted to
non-employees based on the fair market value of the instrument, using the
Black-Scholes option pricing model based on assumptions for expected stock price
volatility, term of the option, risk-free interest rate and expected dividend
yield at the grant date.

For all awards granted prior to June 1, 2006, the unearned deferred fair value
of stock-based compensation was recognized as an expense on a straight-line
basis over the remaining requisite service period, ranging from three months to
four years.

F-10

There was no impact on operating results and per share information had the
Company accounted for stock based compensation in accordance with SFAS No. 123R
for the three and six months ended November 30, 2005.

Effective June 1, 2006 ,the estimated fair value of options and warrants granted
is determined in accordance with SFAS No. 123R on the date of grant using the
Black-Scholes option valuation model with the following weighted-average
assumptions. Risk free interest rate of 4.56% to 5.2%; dividend yield 0%;
volatility 153% to 161% and expected life of five years. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the
expected term of the stock options. The expected volatility is based on the
historical volatility of the Company's common stock. The Company has not paid
any dividends on its common stock since its inception and does not anticipate
paying dividends on its common stock in the foreseeable future. The computation
of the expected option term is based on the "simplfied method" as the Company's
stock options are "plain vanilla" options, and the Company has a limited history
of exercise data. For common stock options and warrants with graded vesting, the
Company recognizes the related compensation costs associated with these options
and warrants on a straight line basis over the requisite service period.

SFAS No. 123R requires forfeitures to be estimated 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 option forfeitures at 0% as of November 30,
2006 and incorporated this rate in the estimated fair value of employee option
grants.

As a result of adopting SFAS No. 123R, the Company's operating loss, loss before
income taxes, and net loss were approximately $50,000, $287,000, and $287,000
lower for the three and six months ended November 30, 2006, and for the period
October 28, 2003 (inception date) through November 30, 2006 than if the Company
had continued to account for stock based compensation under APB Opinion No. 25.
The impact to basic and diluted weighted averages was approximately $(.00),
$(.03), and $(.03 )per share, for the above periods, respectively.

Net cash proceeds from the exercise of stock options and warrants were $0 for
the three and six months ended November 30, 2006. At November 30, 2006, there
was $966,153 of unrecognized compensation cost related to share-based payments
for unvested options, which is expected to be recognized over a weighted average
period of 2.68 years.

The following table represents stock option and warrants activity as of and for
the six months ended November 30, 2006.

Weighted
Weighted Average
Average Remaining Aggregate
Number Exercise Contractual Intrinsic
of shares Price Life Value
---------- -------- ----------- ---------

Options and warrants outstanding - May 31, 2006 1,532,222 $1.73
Granted 515,000 $1.25
Exercised -- --
Forfeited/expired/cancelled -- --
Options and warrants Outstanding - November 30, 2006 2,047,222 $1.61 7.22 years $ 275,600

Outstanding Exercisable - November 30, 2006

$1,469,257 $1.57 6.36 years $ 275,600
========== ======== =========== =========

F-11

The total grant date fair value of options vested during the six months ended
November 30, 2006 and 2005 was approximately $282,000 and $0, respectively. The
grant date fair value of options granted for the six months ended November 30,
2006 and 2005 was $1.03 and $0, respectively.

Stock Issued for Services
-------------------------

During the year ended May 31, 2006, the Company issued common stock for certain
services to a public relations company and a technology company. The Company
recorded into additional paid in capital, the fair value of the common stock
issued based on the quoted market price of the Company's common stock at the
date of the respective agreements with the above parties. A contra-equity was
recorded for the above services, which is being amortized into compensation
expense and additional paid in capital over the requisite service period of the
agreements. During the three and six month periods ended November 30, 2006, and
for the period October 28, 2003 (inception date) through November 30, 2006,
approximately $99,000,$190,000 and $289,000 was recognized as compensation
expense related to these agreements, respectively. As of November 30, 2006, the
unamortized portion of the stock for services was approximately $77,000. There
was no compensation expense associated with these stock transactions for the
three and six months ended November 30, 2005.

Earnings (Loss) per Common Share -. Basic earnings (loss) per share is computed
by dividing the net income or loss by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share is
computed by dividing net income (loss) by the weighted average common shares and
potentially dilutive common share equivalents. The effects of potential common
stock equivalents are not included in computations when their effect is
antidilutive. Because of the net loss for the three and six month period ended
November 30, 2006 and 2005, the basic and diluted weighted average shares
outstanding are the same, since including the additional shares would have an
antidilutive effect on the loss per share calculation. Common stock options and
warrants to purchase 2,047,222 and 481,500 shares of common stock were not
included in the computation of basic and diluted weighted average common shares
outstanding for the three and six months ended November 30, 2006 and 2005,
respectively because the effect of such options would be anti-dilutive.

Reclassification - Certain prior period amounts have been reclassified to comply
with current period presentation.

3 - Recent Accounting Pronouncements:

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections.
This statement, which replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
requires that a voluntary change in accounting principle be applied
retrospectively to all prior period financial statements presented, unless it is
impracticable to do so. SFAS 154 also provides that a change in method of
depreciating or amortizing a long-lived nonfinancial asset be accounted for as a
change in estimate effected by a change in accounting principle, and also
provides that correction of errors in previously issued financial statements
should be termed a "restatement." SFAS 154 is effective for our fiscal year
beginning July 1, 2006. We anticipate that the adoption of SFAS 154 will not
have a material impact on our financial statements.

F-12

In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments--an amendment of FASB Statements No. 133 and 140. This
statement allows financial instruments that have embedded derivatives to be
accounted for as a whole (eliminating the need to bifurcate the derivative from
its host) if the holder elects to account for the whole instrument on a fair
value basis. SFAS 155 shall be effective for all financial instruments acquired,
issued, or subject to a remeasurement (new basis) event occurring after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
We anticipate that SFAS 155 will not have a material impact on our financial
statements.

In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial
Assets--an amendment of FASB Statement No. 140. The statement addresses the
recognition and measurement of separately recognized servicing assets and
liabilities and provides an approach to simplify efforts to obtain hedge-like
(offset) accounting. Entities shall adopt this statement as of the beginning of
the first fiscal year that begins after September 15, 2006. Earlier adoption is
permitted as of the beginning of an entity's fiscal year, provided the entity
has not yet issued financial statements, including interim financial statements,
for any period of that fiscal year. The effective date of this statement is the
date that an entity adopts the requirements of this statement. We anticipate
that SFAS 156 will not have a material impact on our financial statements.

In September 2006, Statement 157, Fair Value Measurements, was issued by the
FASB and is effective for financial statements for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Statement 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. We anticipate that SFAS 157 will not
have a material impact on our financial statements.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Current Year Misstatements." SAB No. 108 requires
analysis of misstatements using both an income statement (rollover) approach and
a balance sheet (iron curtain) approach in assessing materiality and provides a
one-time cumulative effect transition adjustment. SAB No. 108 is effective for
our 2006 annual financial statements. We are currently assessing the potential
impact that the adoption of SAB no. 108 will have on our consolidated financial
statements. The adoption of SAB No. 108 is not expected to materially impact the
consolidated financial statements.

We have reviewed all other recently issued, but not yet effective, accounting
pronouncements and do not believe any such pronouncements will have a material
impact on our financial statements.

4 - Convertible Notes - During the year ended May 31, 2006, the Company issued
convertible promissory notes with 407,600 warrants to purchase common stock to
individuals in exchange for proceeds totaling $509,500. $437,500 of the
convertible debt was converted into common stock. As of May 31, 2006, the
remaining unamortized discount associated with the convertible notes was $72,000
and $48,137 respectively. The notes bear interest at five percent per annum and
mature in January and February 2007. Principal and accrued interest are payable
in any combination of cash and common stock of the Company at the option of the
lender. The Company can repay principal and accrued interest with common stock
at the rate of $1.25 per share.

F-13

During the six months ended November 30, 2006, the Company issued $92,000 in
convertible notes with $74,000 detachable common stock warrants. The warrants to
purchase common stock which accompanied the convertible promissory notes are
exercisable at $2.50 per share, vest immediately, and expire in October 2010.
Additionally, the Company recorded an original issue discount based on the fair
value of the warrants. There was no intrinsic value associated with the
conversion feature. To recognize the original issue discount, the Company
discounted the notes and increased additional paid-in capital. The discounts are
amortized over the life of the debt. During the three and six month periods
ended November 30, 2006, and for the period October 28, 2003 (inception date)
through November 30, 2006 the Company amortized approximately $84,000, $129,000,
and $129,000 of the discount, respectively, which is included as a component of
interest expense. As of November 30, 2006, the face amount and unamortized
discount related to convertible notes was $15,000 and $11,835 respectively.

5 - Commitments and Contingencies - In 2001 CytoDyn of New Mexico, Inc. as a
shareholder, sued its licensee Amerimmune Pharmaceuticals, Inc.(API) and its
directors in order to prevent the destruction of the API. CytoDyn New Mexico
Inc's attorney did not prosecute the case properly and the Los Angeles Superior
Court awarded attorneys' fees in the amount of approximately $150,000 to the
insurance company of API. In 2003 CytoDyn, Inc. acquired the assets of CytoDyn
of New Mexico, Inc.

We have appealed the Court's order. We may or may not prevail on appeal,
therefore, a $150,000 liability entitled "Commitments and contingencies" has
been accrued on the Company's balance sheet.

6 - Related Party Transactions - As of November 30, 2006, the Company owed two
officers promissory notes totaling of $71,375. The notes are due on demand and
carry no interest rate. Management plans to repay the notes through cash
payments, issuance of the Company's common stock, or a combination thereof. The
balance due of $71,375 remained unpaid at November 30, 2006 and is included in
the accompanying condensed financial statements as "Indebtedness to related
parties".

A former director has provided legal services to the Company over the past
several years. As of November 30, 2006, the Company owed the former director
$46,985 and it is included in the accompanying financial statements as
"Indebtedness to related parties"as of November 30, 2005. As of November 30,
2006, no arrangements had been made for the Company to repay the balance of this
obligation. The Company anticipates that the former director will continue to
provide legal services in the future.

The Company's former director, Peggy C. Pence, PhD., is the President and Chief
Executive Officer of Symbion Research International, Inc. ("Symbion"). On
January 5, 2005, the Company entered into a buy-sell agreement to purchase
certain intellectual property owned by Symbion. The agreement describes the
intellectual property in detail which summarized, is the Phase I clinical data
and the protocol for the Phase II study. This intellectual property is necessary
to obtain approval for, and to conduct, further FDA clinical tests of Cytolin.
Cytolin is a potential new drug being developed by the company for the treatment
of Human Immunodeficiency Virus ("HIV").

Under the terms of this agreement:

- The Company may purchase Symbion's Phase I clinical data in connection with
obtaining approval from the FDA to conduct the Phase II/Phase III studies
for Cytolin.
- The Company granted 83,122 non-qualified stock options with an exercise
price of $.75 per share that vested immediately and are exercisable over 5
years.

F-14

- The Company will pay $25,000 to Symbion by February 10, 2005, 30 days after
execution of the agreement.
- The Company will pay $275,000 to Symbion once the Company's secondary
financing is received.

The Company paid Symbion $25,000 out of loan proceeds received in March 2005.
Although the payment was late, Symbion accepted it and the contract is in force.
The Company issued the above-referenced 83,122 non-qualified stock options on
March 20, 2006.

The results of the Phase II/III studies for Cytolin shall be the sole property
of the Company upon Symbion's receipt of the final payment called for by this
agreement. If all remaining payments are not received, the property shall revert
to Symbion. The balance due of $337,341 is included in the accompanying
financial statements as "Indebtedness to related parties".

The above related party transactions were not consumated at arms length.

7. Legal Matters

The Company is occasionally a party to other litigation or threat of litigation
arising in the normal course of business. Management after consulation with
legal counsel, does not believe that the resolution of any such matters will
have a material effect on the Company's financial postion or results of
operations.

F-15

Part I. Item 2. Management's Discussion and Analysis or Plan of Operation
-------------------------------------------------------------------------

Item 2. Plan of Operation

During the next 12 months, our objectives are
o to meet with the FDA and seek approval to continue Phase II(b) clinical
trial of Cytolin;
o to obtain three seeds from the University of Massachusetts from plasmid-DNA
products to protect human subjects from the flu, and, depending upon the
animal data provided by the University, to have a pre-IND meeting with the
FDA.
o to begin formulation of Formaxycin(TM)as a topical product.
o to continue our efforts to protect our technology by obtaining additional
patents in The United Kingdom, the European Union and Hong Kong;
o to raise approximately $2 to $8 million in additional funds needed to
support our research and development efforts, the clinical trials relating
to Cytolin and our general and administrative expenses, while keeping
dilution to a minimum if possible.
o to explore joint venture arrangements for or in combination with other
possible pharmaceutical products.

Continuing Clinical Trials:

Phase I(b)/II(a) 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(b)
trials. We are purchasing the data from these trials from Symbion and will use
the data to present to the FDA.

Projected costs to complete our research and development and to obtain FDA
approval of a Biologics Licensing Application:

We have negotiated with Symbion International for the right to use the Phase
I(b)II(a) data for a total of $362,000 and to seek approval for the Phase II(b)
trials from the FDA. If the Phase II study is approved by the FDA, we expect it,
together with the pre-Phase II efforts, to cost an estimated $6,056,981 for
Symbion to conduct the clinical trials, including estimated manufacturing and
supply costs of $450,000 and $362,000 for the Phase Ia/b data.

Once AITI has obtained the seeds from the University of Massachusetts, AITI will
begin developing a commercial manufacturing method in consultation with the FDA.
We believe we have earmarked sufficient funds on hand to complete this task.

Timing and anticipated completion dates for research and development.
--------------------------------------------------------------------------------
Clinical trials for Cytolin can take anywhere from 29 to 42 months. Until we
have met with the FDA, which we plan to do within the next six months, we cannot
be certain what additional work must be done before commencing Phase II(b)
trials of Cytolin(R). Until we receive the seeds from the University of
Massachusetts and have had a pre-IND meeting with the FDA, we cannot be certain
what additional work will be required for beginning studies of the plasmid DNA
products.

Date we expect to begin benefiting from the product:
--------------------------------------------------------------------------------
We hope to complete our research and development of all Cytolin clinical trials
needed for approval of a marketing application, if at all, by December 2012 but
might get product into the clinic for the limited indication of salvage therapy
as early as 2009 via treatment INDs depending upon the results from Phase II(b).
We hope to begin in fiscal 2007 a placebo-controlled proof-of-principle trial of
plasmid DNA containing two common influenza A antigens. This would allow us to
use the inactivated flu vaccine as a safe and available surrogate for the wild
virus. If successful, this could justify the manufacturing and safety testing of
a polyvalent product to be stockpiled by public health officials to prevent a
future lethal pandemic associated with the avian (bird) virus. The indication
for the seasonal antigens would probably be limited to individuals at high risk,
such as children, the elderly, and those with chronic diseases, such as COPD.
Much depends upon the next couple of flu seasons, the potential emergence of
avian-mammalian hybrid influenza viruses, and competing vaccines.

Risks and uncertainties associated with completing development within reasonable
period of time and if products are not completed on a timely basis:

Even if we are able to complete the development within a reasonable period of
time our competitors could still come out with something competitive to our
product. Toxicity in the product could go undetected until Phase IV Safety
Surveillance after drug approval. We may have to continue to litigate to protect
technology, or challenges to patents that have not yet expired, etc. The medical
community may not accept our product. There may be an inability to secure 3rd
party payees such as if medicare would cover costs. Post registration
manufacturing problems or downturn of economy or industry could also be risks.

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. Please see
the section entitled "Risk Factors."

Patents
We have a License Agreement with Allen D. Allen, our president that gives us the
exclusive right to develop his technology worldwide. This includes issued U.S.
patents 5,424,066; 5,651,970 and 6,534,057, foreign counterparts, as well as
European Patent No. 94 912826.8, for the United Kingdom, Germany, France,
Switzerland, Italy, the Netherlands, Portugal, Spain, and Sweden. Other Patents
are pending in those same countries 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 other than Hong Kong. The license
acquired gives us the right to develop Mr. Allen's patents worldwide.

Our wholly owned subsidiary AITI has a non-exclusive license to the following
patents from the University of Massachusetts

----------------- ------------- ------------ ----------- ---------
Serial Number Filing Date Issue Date Patent # Country
----------------- ------------- ------------ ----------- ---------
08/009,833 1/27/1993 7/1/1997 5,643,578 USA
----------------- ------------- ------------ ----------- ---------
08/187,879 1/27/1994 1/11/2005 6,841,381 USA
----------------- ------------- ------------ ----------- ---------
10/763,049 1/22/2004 NA pending USA
----------------- ------------- ------------ ----------- ---------
PCT/US93/02394 3/17/1993 NA NA PCT
----------------- ------------- ------------ ----------- ---------
PCT/US95/00997 1/25/1995 NA NA PCT
----------------- ------------- ------------ ----------- ---------
93907536 3/17/1993 NA NA EP
----------------- ------------- ------------ ----------- ---------
01202355.2 6/18/2001 NA NA EP
----------------- ------------- ------------ ----------- ---------
2,132,836 9/23/1994 NA NA CA
----------------- ------------- ------------ ----------- ---------
2,181,832 1/25/1995 NA NA CA
----------------- ------------- ------------ ----------- ---------
07-520142 1/25/1995 NA NA JP
----------------- ------------- ------------ ----------- ---------
2003-28160 7/29/2003 NA NA JP
----------------- ------------- ------------ ----------- ---------
JP7507203
----------------- ------------- ------------ ----------- ---------
JP9508622T
----------------- ------------- ------------ ----------- ---------
JP2004099603
----------------- ------------- ------------ ----------- ---------
AU3150295
----------------- ------------- ------------ ----------- ---------

Our wholly owned subsidiary AITI has an exclusive license to the following
patents(s) exclusively from the University of Massachusetts

University invention disclosure UMMC04-96 entitled "Influenza Nucleic Acids,
Polypeptides, and Uses Thereof" as embodied in Patent Applications 60/655,979;
11,362,617; and PCT/US2006/006701 and naming Shan Lu and Shixia Wang as
inventors.

Litigation
For a thorough discussion of our pending litigation, please see the section
entitled "Legal Proceedings."

Establishing a Market and Obtaining Funding
On June 17, 2005 5:00pm EST, the Securities and Exchange Commission declared our
public registration prospectus effective. 450,000 shares were then sold at $0.75
per shares and the offering was closed July 31, 2005. The proceeds from the
public offering paid were used for working capital.

As of May 31, 2005, we had seven unsecured notes payable to individuals,
totaling $121,000.
The notes were issued in February and March 2005, carried a 5% interest rate,
and were to mature one year from the date of the note. On August 29, 2005, the
Company extinguished the outstanding promissory notes at related accrued
interest with the issuance of 160,110 shares of its common stock.

From January 2006 through January 4, 2007 we raised $602,000 through convertible
promissorynotes at a conversion price of $1.25 with warrants attached and
exercisable at $2.50 per share and an interest rate of 5% per annum. $587,000 of
the notes have been converted into 469,600 common shares. 12,000 shares remain
from convertible notes outstanding of $15,000. To date, none of the warrants
have been exercised.

When we acquired the wholly owned subsidiary Advanced Influenza Technologies
Inc. AITI, in July 2006, we acquired $675,000 in cash of which $162,800 was paid
to the University of Massachusetts for the development of the seeds, leaving net
available funds of $512,200.

We will require additional funding during the 2007 fiscal year in order to
continue with research and development efforts. In addition to operating funds,
we will need from approximately $2,000,000 to $8,000,000 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(b) study
of Cytolin and/or a Phase I study of plasmid DNA.

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.

The 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
financial statements, the Company is currently in the development stage with
losses for all periods presented. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern.

The financial statements do not include any adjustments relating to the
recoverability 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 medical treatments, obtain FDA approval,
outsource manufacturing of the treatments, and ultimately to attain
profitability. The Company intends to seek additional funding through equity
offerings or licensing agreements to fund its business plan. There is no
assurance that the Company will be successful in these endeavors.

Joint Ventures

Buy-Sell Agreement with Symbion Research International. Effective
January 5, 2005.

Peggy C. Pence, PhD., is the President and Chief Executive Officer of Symbion
Research International, Inc. On January 5, 2005, we entered into a buy-sell
agreement to purchase intellectual property owned by Symbion. The agreement
describes the intellectual property in detail which summarized, is the Phase 1
clinical data and the protocol for the Phase II study.

Under the terms of this agreement:

o CytoDyn, Inc may purchase Symbion's Phase I clinical data in connection
with obtaining approval from the FDA to conduct the Phase II/Phase III
stud(ies) for Cytolin.
o CytoDyn, Inc granted 83,122 non-qualified stock options with an exercise
price of $.75 per share in March 2006 - Symbion requested in September 2006
that these options be cancelled and the remaining $62,341 would be payable
in cash. We therefore cancelled these options previously granted.
o CytoDyn, Inc paid $25,000 in March 2005.
o CytoDyn, Inc will pay $275,000 plus the additional $62,341 to Symbion over
this next fiscal year 2007.

The results of the Phase II(b) stud(ies) for Cytolin shall be the sole property
of CytoDyn, Inc upon Symbion's receipt of the final payment called for by this
agreement. If all remaining payments are not received, the property shall revert
to Symbion.

Contract with UTEK(r)

We have entered into an agreement with UTEK(r) in March 2006, wherein UTEK(r)
agrees to identify and present new technology and company acquisition
opportunities for CytoDyn in exchange for 40,000 unregistered shares of common
stock. 1/12th of the shares (3,333) shall vest each month during the term of
the12 month agreement.

UTEK(R) is a leading, market-driven technology transfer company that enables
companies to rapidly acquire innovative technologies from universities and
research laboratories worldwide. UTEK facilitates the identification and then
finances the acquisition of external technologies for clients in exchange for
their equity securities. This unique process is called U2B(r). In addition to
its U2B(r) service, UTEK offers both large and small capitalization companies
the tools to search, analyze and manage university intellectual properties. UTEK
has operations in the United States, United Kingdom and Israel. For more
information about UTEK, please visit its website at www.utekcorp.com.

Acquisition of Advanced Influenza Technologies, Inc - a wholly owned subsidiary
-------------------------------------------------------------------------------

On July 18, 2006 CytoDyn, Inc. entered into an Acquisition agreement with UTEK
Corporation, to acquire 100% of the outstanding stock of Advanced Influenza
Technologies, Inc.(AITI), a Florida Corporation in exchange for 2,000,000
unregistered restricted common shares of CytoDyn, Inc stock.

AITI holds the worldwide nonexclusive and exclusive license agreements from the
University of Massachusetts for certain technologies as described in patents:

US Patent Application 60/655,979
US 11,362,617 for "Influenza Nucleic Acids Polypeptides and Uses Therof

US 5,643,578
US 6,841,381
European Patents 93907536 and 01202355.2 for "Immunization by Inoculation of DNA
Transcription Unit"

The term of the licensing agreement is until the later of 20 years from the
filing date of the Licensed Patents or the expiration of the last to expire
patent of the Licensed Patents.

Milestone fees are payable to the University per licensed product and due within
30 days of the event of certain occurrences required.

The University shall also receive 4% royalties of net sales of the licensed
products.

AITI also has agreed to fund a two year ($325,600) unrestricted project for
($162,800 per year) under a Sponsored Research Agreement with the primary
objective during the first year to conduct lab work to provide well documented 3
DNA plasmids (H1,H3 and H5) in preparation for GMP manufacturing. If after one
year the desired outcome is not achieved the agreement can be cancelled and the
second year's payment is not required.

Exploring Other Joint Ventures
While we continue to pursue FDA approval of our existing pipeline products, we
are also considering entering into joint ventures to develop or co-develop other
related, synergistic types of products. We may also pursue joint ventures or
other arrangements to obtain funding 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. We will continue to staff the company as we grow and funds become
available. During the fiscal year ended May 31, 2006, we expended $215,384 in
professional fees, consisting of $150,894 legal fees and professional fees
incurred in connection with our public registration, our additional patent
protection filings, and litigating our pending lawsuits, and $15,900in
accounting and auditing fees. Transfer agent fees and EDGAR filing fees were
$5,926 and $1,979 respectively. $50,685 was paid for consulting work to various
consultants.

The Company was previously trading on the OTCBB. The NASD delisted the Company's
stock effective December 11, 2006 due to the late filing of the August 31, 2006
10QSB/A. The Company is currently trading on the pink sheets under the same
trading symbol CYDY.

Part I. Item 3. Controls and Procedures
---------------------------------------

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of November 30, 2006, to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities Exchange Commission's rules and forms,
including to ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Exchange Act is accumulated and
communicated to management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that as
of November 30, 2006, our disclosure controls and procedures were not effective
at the reasonable assurance level due to the material weakness described below.

A material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. In connection with their review of

our consolidated financial statements for the six months ended November 30,
2006, Pender Newkirk & Company LLP, our independent registered public accounting
firm ("Pender"), advised management and our audit committee of the following
matter that Pender considered to be a material weakness: The organization of our
accounting department did not provide us with the appropriate resources and
adequate technical skills to accurately account for and disclose our activities.

Pender stated that this matter was evidenced by the following issues encountered
in connection with thier review of the consolidated financial statements for the
period ended November 30, 2006: (i) our closing procedures were not adequate and
resulted in significant accounting adjustments, and (ii) we were unable to
adequately perform the financial reporting process as evidenced by a significant
number of management comments related to our consolidated financial statements
and related disclosures for the period ended November 30, 2006. In addition to
issues (i) and (ii) above, which Pender restated as issues encountered in
connection with its review of our consolidated financial statements for the
three and six months ended November 30, 2006, Pender stated that this matter was
further evidenced by inadequate supervision within our accounting department
which contributed to our inability to provide accurate accounting for and
disclosure of certain basic transactions.

As a result of the identification of this matter by Pender, management
evaluated, with consultation from our audit committee, in the second quarter of
2006 and as of November 30, 2006, the impact of our lack of appropriate
resources and adequate technical skills in our accounting department and
concluded, that the control deficiency that resulted in our lack of appropriate
resources and adequate technical skills in our accounting department represented
a material weakness and concluded that, as of November 30, 2006, our disclosure
controls and procedures were not effective at the reasonable assurance level.

Historically, the Company has not had a formal system of controls and procedures
due to the fact that the Company was small in size and had no operations.
Currently, management, with the oversight of the Chief Executive Officer and
Chief Financial Officer, is devoting considerable effort to develop and
implement a formal system of disclosure controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.

To initially address this material weakness, management performed additional
analyses and other procedures to ensure that the financial statements included
herein fairly present, in all material respects, our financial position, results
of operations and cash flows for the periods presented.

Remediation of Material Weakness

To remediate the material weakness in our disclosure controls and procedures
identified above, we have done or intend to do the following, in the periods
specified below:

In the third quarter of 2007, we will develop plans to alter the current
organization of our accounting department to hire additional consultant(s) to
assist in our financial reporting processes, with expertise in public company
financial reporting compliance.

In the third quarter of fiscal year 2007, we will seek guidance from financial
consultants who are certified public accountants with the requisite background
and experience to assist us in identifying and evaluating complex accounting and
reporting matters. In addition, during these periods, we are in the process of
implementing new internal processes for identifying and disclosing both routine
and non-routine transactions and for researching and determining proper
accounting treatment for those transactions. Management is unsure, at the time
of the filing of this report, when the actions described above will remediate
the material weakness also described above. Although management intends to hire
one or more additional accounting supervisory support staff members, future
additional funds will be necessary to support the staff. Until we hire the
necessary additional accounting supervisory support staff members, management
may hire outside consultants to assist us in satisfying our financial reporting
obligations.

Management is unable, however, to estimate our expenditures related to fees paid
or that may be paid in the future to financial consultants in connection with
their guidance in identifying and evaluating complex accounting and reporting
matters. Management is also unable to estimate our expenditures related to the
development of new internal processes for identifying and disclosing both
routine and non-routine transactions and for researching and determining proper
accounting treatment for those transactions. Management is also unable to
estimate our expenditures related to the hiring of other outside consultants to
assist us in satisfying our financial reporting obligations. In addition,
management is unable to estimate our expenditures related to higher fees to be
paid to our independent auditors in connection with their review of this
remediation.

(b)
--------------------------------------------------------------------------------
Changes in Internal Control over Financial Reporting

The changes noted above, specifically, the changes relating to our (i) engaging
of financial consultants who are certified public accountants to assist us in
identifying and evaluating complex accounting and reporting matters, (ii) new
internal processes for identifying and disclosing both routine and non-routine
transactions and for researching and determining proper accounting treatment for
those transactions, and (iii) assignment of individuals to perform these
processes and provision to those individuals of technical and other resources to
help ensure the proper application of accounting principles and the timely and
appropriate disclosure of routine and non-routine transactions, are the only
changes during our most recently completed fiscal quarter that have materially
affected or are reasonably likely to materially affect, our internal control
over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act.

Part II Item 1. Legal Proceedings
---------------------------------

All litigation reflects the efforts of Rex H. Lewis, the previous CEO of our
previous licensee Amerimmune, Inc., to take the property of Amerimmune, Inc.,
CytoDyn, Inc. and our CRO, Symbion Research International, Inc., for his
privately held Nevada corporation, Maya, LLC. Although these efforts have been
multifaceted and interstate in scope, all litigation reflects this one dispute
or artifice.

Rex H. Lewis, a Defendant and former director and C.E.O. of Amerimmune
Pharmaceuticals, Inc. filed a First Amended Cross-Complaint against CytoDyn of
New Mexico, Inc., (predecessor company) Allen D. Allen, Corinne E. Allen, Ronald
J. Tropp, Brian J. McMahon , Daniel M. Strickland, M.D. and unknown others
designated as "Does 101-150".

The Cross-Complaint was settled pursuant to a settlement agreement entered into
by the parties involved. The terms of the agreement are confidential.

CytoDyn, Inc. and Allen D. Allen v. Amerimmune, Inc. and Amerimmune
--------------------------------------------------------------------------------
Pharmaceuticals, Inc. v. Biovest International, Inc., Commonwealth of
Massachusetts, Superior Court, Worcester County, Civil Action No. 05-0452-C.
--------------------------------------------------------------------------------
Nature of the claims:

The Company and Allen filed a complaint against Amerimmune, Inc. and Amerimmune
Pharmaceuticals, Inc. (together, "Amerimmune") to domesticate an October 4, 2004
judgment that the Company and Allen obtained against Amerimmune in the Superior
Court of California for Ventura County, case number SC-039250. Further, the
Company and Allen named Biovest International, Inc. ("Biovest") as a
trustee-defendant because Biovest possesses a Cell-Bank, the rights to which the
Company and Allen own.

Progress to Date:

The Company and Allen were successful in having the California judgment
domesticated. Further, the Company and Allen were successful in "charging"
Biovest and securing an order that Biovest transfer the Cell-Bank to the Company

and Allen. However, the transfer has not occurred because recently Amerimmune's
purported successor-in-interest, Maya, Inc. ("Maya"), intervened. Since CytoDyn
expects to make a new cell bank in any event, this action is opposed because it
is one part of an interstate scheme or artifice to convert our property. The
Company's Response:

The Company has a superior right to the Cell-Bank, and the Company intends to
litigate the matter vigorously.

Expected Outcome:

We cannot express judgment regarding the outcome of the case or the probable
ultimate liability, if any, to be incurred by the Company. However, the
Company's claim to the Cell-Bank is strong.

Other legal/patent issues:

CytoDyn has recently discovered that former employees of ex-licensee, Amerimmune
Inc., are attempting to convert technology previously adjudicated by the
Superior Court of California, County of Ventura to belong to Symbion Research
International, LLC. The technology involves LFA-1 Alpha subunit antibodies and
the use of the antibodies to treat HIV-infected patients. Because of uncertain
consequences resulting from the actions of these rogue Amerimmune Inc.
employees, Symbion Research International is acting to remedy the situation. The
former employees have filed two U.S. patent applications and several foreign
patent applications based on a derivative international patent application.
Symbion Research International intends to correct the inventorship and assignee
in these applications.

Background
CytoDyn granted a license in its patented technology to Amerimmune Inc., which
represented that it would assist in obtaining FDA approval of Cytolin(R).
Amerimmune in turn contracted with Symbion Research International, LLC to assist
with the clinical trials of Cytolin(R). Symbion sued Amerimmune in 2003 in
Superior Court of California, County of Ventura asserting breach for non-payment
of services performed. Symbion prevailed in that suit and the Ventura Court
awarded title to all data and additional intellectual property developed by
Symbion during its relationship with Amerimmune to Symbion. This additional
intellectual property is the subject matter of the patent applications filed by
the former employees of ex-licensee Amerimmune.

Maya LLC v. CytoDyn, et al
--------------------------------------------------------------------------------
Superior Court of Los Angeles Van Nuys Case # EC041590
--------------------------------------------------------------------------------
Maya LLC filed an action in Van Nuys, California alleging a smorgasbord of
complaints against CytoDyn and two of its officers, some of which have been
dismissed on demurrer without leave to amend, some of which can be amended, and
some of which have been sustained but with a request from Maya's attorney that
CytoDyn's attorneys agree to an amended complaint. Management believes that
these events reflect a retaliatory and frivolous action on the part of Maya.
Although the outcome of litigation is uncertain, CytoDyn's in-house counsel
believes an outcome unfavorable to CytoDyn is highly unlikely.

Legal opinions of the Company's attorneys are based on the law and on facts. Due
to jury and jurist nullification, appeals through many courts, which may or may
not be commercially reasonable and which a company may or may not be able to
afford, may be necessary to have the law applied or the proved facts recognized
making the outcome of litigation and the functioning of the American government
uncertain.

Part II. Item 2. Unregistered Sales of Equity and Use of Proceeds
-----------------------------------------------------------------

From March through November 30, 2006 we raised $602,000 through convertible
promissory notes at a conversion price of $1.25 with warrants attached and
exercisable at $2.50 per share. $587,000 of the notes were converted into
469,600 shares. The remaining notes payable amount is $15,000. To date, none of
the warrants have been exercised.

We have entered into an agreement with UTEK(r) in April 2006 wherein UTEK(r)
agrees to identify and present new technology and company acquisition
opportunities for CytoDyn in exchange for 40,000 unregistered shares of our
common stock.

Item 3 Defaults Upon Seniors

None

Item 4 Submission of Matter to a Vote of Security Holders

None

Item 5 Other Information

None

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:

On July 21, 2006 we filed an 8K to disclose our acquisition of AITI

On August 31, 2006 filed an 8K disclosing auditors change in items
reported

SIGNATURES

CYTODYN, INC.
(Registrant)

DATE: January 15, 2007 BY: /s/ Allen D. Allen
---------------- -----------------------
Allen D. Allen
President and CEO