U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                               FORM 10-KSB/Amended

            [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended May 31, 2006

        [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

For the transition period from _________to _________


                        Commission File Number 000-49908


                                  CYTODYN, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


                Colorado                                   75-3056237
    -------------------------------                   --------------------
    (State or other jurisdiction of                   (I.R.S. Employer or
     incorporation or organization)                    Identification No.)


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


Telephone Number: 505-988-5520

Securities Registered under Section 12(b) of the Exchange Act:  None

Securities Registered under Section 12(g) of the Exchange Act:

     Common Stock, no par value

Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for which shorter
period that the was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ...

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Revenues for the most recent fiscal year $0

Aggregate market value of the voting and non-voting common stock held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of common stock as of a specified
within the past 60 days. $12,379,378

Number of shares of common stock outstanding as of August 29, 2006:  11,225,264





                                  CYTODYN, INC

                   FORM 10-KSB FOR THE YEAR ENDED MAY 31, 2006

                                TABLE OF CONTENTS




                                     PART I
Item 1.   Description of Business...........................................   3
Item 2.   Description of Property...........................................  20
Item 3.   Legal Proceedings.................................................  20
Item 4.   Submission of Matters to a Vote of Security Holders...............  22

                                    PART II
Item 5.   Market for Common Equity andRelated Stockholder Matters...........  22
Item 6.   Management's Discussion and Analysis or Plan of Operation.........  24
Item 7.   Financial Statements..............................................  33
Item 8.   Changes in and Disagreements With Accountants on Accounting and
            Financial Disclosure............................................  33
Item 8A.  Controls and Procedures...........................................  33
Item 8B.  Other Information.................................................  34

                                    PART III
Item 9.   Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act................  34
Item 10.  Executive Compensation............................................  38
Item 11.  Security Ownership of Certain Beneficial Owners and Management
            And Related Stockholder Matters.................................  40
Item 12.  Certain Relationships and Related Transactions....................  41
Item 13.  Exhibits..........................................................  42
Item 14.  Principal Accountant Fees and Services............................  43





                                       2



Item 1.      Description of Business

Our Business
------------

In October 2003 we entered into an Acquisition Agreement with CytoDyn of New
Mexico, Inc., pursuant to which we effected a two for one reverse split of our
common stock, and amended our articles of incorporation to change our name from
Rexray Corporation to CytoDyn, Inc. Pursuant to the acquisition agreement, we
were assigned the patent license agreement dated July 1, 1994 between CytoDyn of
New Mexico and Allen D. Allen covering three United States patents along with
foreign counterpart patents which describe a method for treating HIV disease
with the use of monoclonal antibodies. We also acquired the trademarks, CytoDyn
and Cytolin, and a related trademark symbol. The license acquired gives us the
worldwide, exclusive right to develop, market and sell the HIV therapies from
the patents, technology and know-how invented by Mr. Allen. The term of the
agreement is for the life of the patents of which the first shall expire in
2013. As consideration for the intellectual property and trademarks we paid
CytoDyn of New Mexico $10,000 in cash and issued 5,362,640 post-split shares of
common stock to CytoDyn of New Mexico.

We have three full time employees, Allen D. Allen, our Chief Executive Officer,
and Corinne Allen, Vice President of Business Development and Stacia Roum
Executive Assistant and three part time employees, Wellington Ewen, our Chief
Financial Officer and Annie Siegel and Elias Siegel, Administrative staff.

In the last two fiscal years, there have not been any research and/or
development expenditures by us or our predecessor companies.

CytoDyn New Mexico previously licensed the technology out for development and
had not been an operating business since 1998. We were only incorporated in May
2002 and were not an operaing entity until the acquisition of the license in
October 2003. We expect to incur significant research and development expenses
in the near future. However, our expenditures in the last two fiscal years have
been for general and administrative purposes, legal fees, acquisition costs and
patent protection.

Our principal executive offices are located at 227 E Palace Ave., Suite M ,
Santa Fe, New Mexico 87501; telephone: (505) 988-5520, facsimile: (800)
417-7252, and website address: www.cytodyn.com.

CytoDyn(R), Cytolin(R) and the graphic logo shown below are our registered
trademarks.

     [GRAPHIC OMITTED]




                                       3


The Biotechnology Industry
--------------------------

As reported by the Biotechnology Industry Organization, there are more than 300
biotech drug products and vaccines currently in clinical trials targeting more
than 200 diseases, including various cancers, Alzheimer's disease, heart
disease, diabetes, multiple sclerosis, AIDS and arthritis. Biotechnology is
responsible for hundreds of medical diagnostic tests that keep the blood supply
safe from the AIDS virus and detect other conditions early enough to be
successfully treated. As of Dec. 31, 2003, there were 1,473 biotechnology
companies in the United States, of which 314 were publicly held. Market
capitalization, the total value of publicly traded biotech companies (U.S.) at
market prices, was $311 billion as of early April 2005. The biotechnology
industry has mushroomed since 1992, with U.S. health-care biotech revenues
increasing from $8 billion in 1992 to $39 billion in 2003. The U.S.
biotechnology industry employed 198,300 people as of Dec. 31, 2003.
Biotechnology is one of the most research-intensive industries in the world. The
U.S. biotech industry spent $17.9 billion on research and development in 2003.
The top five biotech companies spent an average of $101,200 per employee on R&D
in 2002. The biotech industry is regulated by the U.S. Food and Drug
Administration (FDA), the Environmental Protection Agency (EPA) and the
Department of Agriculture (USDA).

Background on HIV and AIDS
--------------------------

UNAIDS, the Joint United Nations Programme on HIV/AIDS, estimates that 70
million people are living with HIV/AIDS, reflecting a steady increase since
1999, especially in sub-Saharan Africa, as well as in Asia and the Pacific,
Eastern Europe and Central Asia. According to the AIDS epidemic update, December
2003, in 2003, about 3 million people died from HIV/AIDS, and another 5 million
contracted the disease. Another 4 million new infections are estimated to occur
annually. No cure is currently known for HIV.

The human immune system is the body's primary defense against disease. It
consists of a vast number of specialized cells and proteins that assist in
detecting and destroying foreign organisms and eliminating disease cells.
Normally, the body's immune system can distinguish between normal cells and
those that appear to be foreign by recognizing proteins, or antigens. CD4 "watch
dog" cells identify foreign cells, and the immune system launches an antibody
response against the foreign organisms or cells.

HIV triggers a flaw in the human immune system that leads to its destruction.
Patients with HIV proliferate CD8 "killer" cells, which kill off CD4 watch dog
cells, whether healthy or not, leading to the loss of immune function. But for
this flaw, HIV infection in humans might be similar in character to the
infection in other primates, which can be infected with HIV without the
destruction of their immune systems because their CD8 killer cells do not
destroy their CD4 cells. The destruction of CD4 cells in humans leaves those
persons susceptible to certain cancers and other infections that would normally
not be fatal to a person with a normal number of CD4 cells. When AIDS first
surfaced in the United States, no medicines were available to combat the
underlying immune deficiency, and few treatments were available to combat the
diseases that resulted. Since then, the United States Food and Drug
Administration (FDA) has approved a number of drugs in two groups, both
antivirals, for treating HIV infection. These groups are:

                                       4


Drugs that interrupt an early stage of the virus making copies of itself; and
Drugs that treat HIV infection by interrupting virus replication at a later step
in the virus' life cycle.

Frequently, these two groups of drugs are used in combinations for treatment.
Treatment with these drugs, whether alone or in combination, has two primary
drawbacks: the virus can mutate to avoid the attack, rendering the drugs
ineffective, and the side effects can be severe. Some of the first group of
drugs can cause a decrease of red or white blood cells, especially when taken in
later stages of the disease. Some may also cause inflammation of the pancreas
painful nerve damage, in addition to other severe reactions. The most common
side effects in the second group of drugs include nausea, diarrhea, and other
gastrointestinal symptoms. This second group can also interact with other drugs
to produce severe side effects. Current research and development for HIV is
focused on therapies to reduce the side effects of the antiviral drugs so as to
enhance the efficacy of existing treatments and delay the progression of the HIV
virus.

Potential drugs
---------------

Cytolin
-------

Our president, Allen D. Allen, has been researching treatments for HIV and AIDS
since 1987. He identified a family of monoclonal antibodies that protect the CD4
watchdog cells from the CD8 killer cells of the immune systems of people
infected with HIV. He received three U.S. patents and additional foreign
counterpart patents, now licensed to us, covering the use of these antibodies
for treating patients with HIV. Our leading drug candidate, Cytolin, is based on
a monoclonal antibody that protects CD4 cells from CD8 cells, thus preventing
the weakening of the immune system.

In 1993, a small group of scientists and doctors treated six HIV-infected
patients with Cytolin. Blood and skin tests of these patients demonstrated that
the antibody was producing improvements in the immune function of each patient.
In 1995, subacute and acute toxicology studies found Cytolin safe to administer
to humans.

A relatively small number of physicians in the United States administered
Cytolin to their HIV-infected patients over two years. As results from this
initial use became available, other physicians obtained and administered Cytolin
to their patients as well. Four of the doctors using Cytolin allowed CytoDyn's
predecessor to send in an independent Institutional Review Board to inspect the
medical records of 188 patients treated with Cytolin once or twice a month over
18 months. Data were recorded and summarized and formed part of the material
presented to the FDA as an early indication of the safety and potential efficacy
of Cytolin.

In 1996, the FDA approved a drug master file, designated BB-DMF#6836, for the
manufacture of Cytolin at Vista Biologicals Corporation. CytoDyn of New Mexico
and Vista Biologicals Corporation worked cooperatively to develop the drug
master file. In accord with the practice of the FDA, the drug master file was
issued to and became the property of the entity with the capacity to manufacture
the drug, in this case Vista Biologicals Corporation. By contract with Vista
Biologicals Corporation, CytoDyn of New Mexico had the exclusive right to
reference the drug master file, that is, to authorize Vista
BiologicalsCorporation to manufacture Cytolin in accordance with the terms of
the drug master file.

                                       5


In 1996, the FDA also designated our investigational new drug application for
Cytolin as BB-IND #6845, and subsequently approved a clinical trial.

In 2002, Symbion Research International, a contract research organization,
completed a Phase I a/b clinical trial of Cytolin. The trial was sponsored by
Amerimmune, Inc., the previous licensee of CytoDyn of New Mexico but Symbion was
never paid for its work. As a result, its work product became Symbion's. We
entered into a buy-sell agreement with Symbion to purchase the Phase Ia study
data in 2004. The Phase Ia study, conducted in 13 subjects suffering from
HIV/AIDS, found Cytolin to be safe and well tolerated. The initial safety study
affirmed the safety and tolerability of the drug in these dose groups, as well
as preliminary efficacy in lowering the concentration of HIV by up to one log
(measurement of efficacy) and increasing T-cell counts in the study's patient
population with no severe adverse events reported. Some of the data were
presented as an abstract and poster session, entitled "Phase I Study of
Anti-LFA-1 Monoclonal Antibody (Cytolin(R)) in Adults with HIV Infection" at the
9th Conference on Retroviruses and Opportunistic Infections held in Seattle,
Washington on February 24-28 2002 as well as the 16th International AIDS
Conference held this August 2006 in Toronto, Canada.

We intend to develop Cytolin and other antibodies covered by the licensed
patents as a treatment for HIV/AIDS in the U.S. and other countries. However, we
must raise sufficient and substantial capital in order to pursue these
objectives.

Other Potential Drugs
---------------------

On July 17, 2006 we acquired Advanced Influenza Technologies, Inc. (AITI) as a
wholly owned subsidiary. AITI has licensed a portfolio of patents from the
University of Massachusetts for the development of a family of plasmid-DNA
products to protect human subjects against several strains of influenza (the
flu). The University has until [1 year from the effective date of the
contract--see and attach contract with Utek] to manufacture, successfully test,
and deliver to AITI three "seeds" that can be used for the commercial
manufacturing of plasmid-DNA products or, in the alternative, a single
polyvalent product, depending upon what the FDA might require. In the event the
University fails to make timely delivery of these seeds, AITI could then abandon
the project with no further financial obligations or could continue with a
different timeline.

CytoDyn is also negotiating with Kings College in London, England for the
formulation of Formaxycin(TM) as a topical dermatological product to improve the
appearance of human skin by eliminating dysplastic conditions.

Product Liability Insurance
---------------------------

The testing, marketing and sale of therapeutic products for use in humans entail
an inherent risk of allegations of product liability, and there can be no
assurance that product liability claims will not be asserted against us. We have
not obtained product liability insurance, and there can be no assurance that we
will be able to obtain insurance coverage in the future on acceptable terms or
that any claims against us will not exceed the amount of such coverage.


                                       6


Government Regulation
---------------------

The estimated cost and length and stage of each process of FDA approval for
Cytolinis outlined as followed:

Purchase of Phase I data: $362,000 ($275,000 outstanding $87,000 has been paid)
End of Phase 1/Pre Phase 11 FDA: 6 months; $100,000
Phase II(b) study $3,144,981
Cost to Investigators: $2,000,000
Manufacturing for Clinical Trials: 3-6 months; $ 450,000

Total time and cost estimated to get FDA approval for a Biologics Licensing
Application (BLA)to sell Cytolin to certain HIV patients is approximately 29-42
months, at an estimated 6,056,981.

Regulatory Approval Process - Summary
-------------------------------------

On October 1, 2003, the FDA transferred certain product oversight
responsibilities from the Center for Biologics Evaluation and Research (CBER) to
the Center for Drug Evaluation and Research (CDER). The review and approval of
Cytolin(R) is now under the jurisdiction of the Division of Monoclonal
Antibodies in the CDER Office of Pharmaceutical Science: Office of Biotechnology
Products.

Under current law, all new drugs and biologic products need clinical proof that
they are safe and effective before they can be approved for marketing in the
United States. The approval of Cytolin will be subject to submission of aBLA,
submitted to CDER. The BLA is the vehicle through which CytoDyn will formally
propose that the FDA approve Cytolin for sale in the United States. To obtain
this authorization, CytoDyn will submit for review, as contained in the BLA,
nonclinical (in vitro and animal) and clinical (human) test data and analyses,
drug information, and descriptions of manufacturing procedures.

The BLA must provide sufficient information, data, and analyses to permit FDA
reviewers to reach several key decisions, including:

whether Cytolin is safe and effective for its proposed use(s), and whether the
benefits of Cytolin outweigh its risks; whether the proposed labeling for
Cytolin is appropriate, and, if not, what the labeling should contain; and
whether the methods used in manufacturing Cytolin and the controls used to
maintain quality are adequate to preserve the identity, strength, quality and
purity of Cytolin.

In order to initiate clinical testing of a new drug or therapeutic biologic
product, an Investigational New Drug Application (IND) must be submitted to FDA.
In most cases, the IND summarizes preclinical studies. The purpose of
preclinical studies - animal pharmacology/toxicology testing - is to develop
adequate data to support a decision that it is reasonably safe to proceed with
human trials of the drug.

If an IND is considered `allowable' by FDA, the sponsor may begin clinical
trials in humans. The standard procedure for clinical testing involves studies
from Phase I to Phase III.

We have not yet submitted an IND for the DNA Plasmid influenza drugs as we will
first need the University of Massachusetts to produce the three seeds needed for
the commercial manufacturing process. This expected to take two years before we
would apply to the FDA for human studies. In general the FDA regulatory process
is the same for all therapeutics products.


                                       7


Clinical Trials Process
-----------------------

Phase I
-------

Phase 1 includes the initial introduction of an investigational new drug or
biologic into humans. These studies are closely monitored and may be conducted
in patients, but are usually conducted in a small number of healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the investigational product in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence on
effectiveness. During Phase 1, sufficient information about the investigational
product's pharmacokinetics and pharmacological effects are obtained to permit
the design of well-controlled, scientifically valid, Phase 2 studies.

Phase II
--------

Phase 2 includes the early controlled clinical studies conducted to obtain some
preliminary data on the effectiveness of the drug for a particular indication or
indications in patients with the disease or condition. This phase of testing
also helps determine the common short-term side effects and risks associated
with the drug. Phase 2 studies are typically well-controlled, closely monitored,
and conducted in a relatively small number of patients, usually involving
several hundred people.

Phase III
---------

Phase 3 studies are expanded controlled clinical studies. They are performed
after preliminary evidence suggesting effectiveness of the drug has been
obtained in Phase 2, and are intended to gather the additional information about
effectiveness and safety that is needed to evaluate the overall benefit/risk
relationship of the drug. Phase 3 studies also provide an adequate basis for
extrapolating the results to the general population and transmitting that
information in the physician labeling. Phase 3 studies usually include several
hundred to several thousand people.

Clinical Development and Regulatory Approval
--------------------------------------------

To date an allowable IND has been submitted for Cytolin and Cytolin has been
studied in two Phase I controlled clinical studies (Phase Ia and Phase
Ib/II(a)). Data has also been collected from four physicians who treated
patients with Cytolin in an uncontrolled clinical setting from 1983 to 1995.

CytoDyn has retained the services of Hyman, Phelps & McNamara, a Washington D.C.
law firm with an expertise in FDA regulatory affairs to assist the Company in
its dealings with the FDA during a review by the FDA of court orders and public
records related to CytoDyn's sponsorship of Cytolin, awarded first by the FDA
and then by court order. The FDA has indicated a willingness to abide by
applicable court orders despite false and misleading information received from a
third party (see Legal Proceedings). Should the FDA not abide by the orders of
courts of competent jurisdiction, it would delay or prevent CytoDyn from
offering a preliminary version of Cytolin for use as salvage therapy by HIV
patients failing Highly Active Antiretroviral Therapy (HAART). This could have a
negative effect on the Company's manufacturing costs, time to market in the
United States, and in other ways that cannot be predicted or estimated. However,
while the Company can offer no guarantee as to what the FDA may do, the Company
believes that the FDA will abide by law and the public interest.

                                       8


Once adequate clinical testing of Cytolin is complete, the BLA must be submitted
to FDA containing full reports of the studies such that CDER can evaluate the
data. Data from the controlled clinical trials are especially important because
they provide the only basis, under law, for demonstrating safety and
effectiveness. The clinical trials answer the questions: "Does this drug work
for the proposed use?" and "Is the drug safe?" From analyses of the data, CDER
reviewers assess the benefit-to-risk relationship and based on CDER's
assessment, the BLA for Cytolin will either be considered approvable, approvable
with minor changes, or not approvable. Once considered approvable, the sale and
marketing of Cytolin may legally proceed in the United States.

In order to obtain approval for the sale and marketing of Cytolin in the United
States, the clinical development strategy described below has been devised.

1.   Safety and efficacy data have been assembled into an abbreviated clinical
     study report for the Phase Ia study and a clinical report synopsis for the
     Phase Ib/II study. The data demonstrate that in these studies Cytolin was
     safe and well tolerated in HIV positive individuals. In addition, the Phase
     Ib/II(a) study provided some initial evidence of efficacy for maintaining a
     reduction in viral load and a correlated increase in CD4+ T-lymphocytes.

2.   A Pre-Phase II(b) meeting will be requested with CDER. CDER encourages
     these meetings before conducting large-scale controlled clinical trials in
     order to obtain CDER advice about the design of the study plan and to
     ensure that planned studies will be acceptable. At this meeting safety and
     efficacy data from the two completed studies (Phase Ia and Phase Ib/II)
     will be presented to CDER. In addition, the clinical study design for the
     planned study (Phase II(b)) will also be presented. In addition to
     obtaining FDA agreement on study design, the goal of this meeting will also
     be to discuss the possibility for considering the Phase II(b) study
     suitable for granting treatment INDs to requesting physicians for patients
     who have failed Highly Active Antiretroviral Therapy (HAART).

3.   Following FDA review, discussion, and feedback, the Phase II(b) study will
     be conducted. We have entered into a preliminary agreement to have the
     study conducted by Dr. Jacob Lalezari, a leading HIV research physician in
     San Francisco, CA. As currently drafted, this is a double-blind,
     placebo-controlled, multi-center, 2-part study of Cytolin to be conducted
     in approximately 200 subjects. Part 1 is designed to determine dose-regimen
     and Part 2 is designed to study the safety and efficacy of long-term
     administration of Cytolin of the most efficacious dose regimen as
     determined from Part 1. The target population for the study is HIV
     seropositive adults who are receiving a standard course of three- or
     four-drug HAART (combination anitviral therapy) after failing their first
     HAART regimen. Duration of treatment in the study will be approximately 48
     weeks.

4.   Data for this  study will be  compiled  into a  clinical  study  report and
     submitted to the FDA. Endpoints will include, but are not limited to:

                                       9


     o    Proportion of responders after 12 weeks (A responder will be define
          by a = 0.5 log reduction in HIV-1 viral load or reduction in viral
          load below the level of detection.);
     o    Safety;
     o    Change from baseline in CD4+ T-cell count after 12 and 24 weeks (Part
          1 and Part 2, respectively);
     o    Pharmacokinetics (percent Cytolin binding); and
     o    Time to treatment with additional HAART drugs or other HIV therapies.

5.   An End-of-Phase II meeting will be requested with the FDA to present safety
     and efficacy data from the Phase II study, as well as to summarize safety
     and efficacy across all studies.

         Cytolin is a good candidate for obtaining regulatory approval after
Phase II, provided the safety and efficacy data are compelling. FDA has
established that a sustained reduction (e.g., 24 weeks) in HIV-1 viral load is
highly predictive of meaningful clinical benefit and is a sufficient surrogate
endpoint for obtaining approval for drugs intended to treat HIV. The Phase II
study has been designed to evaluate safety and efficacy in a subject population
that has very few treatment options and will evaluate efficacy in maintaining a
reduced HIV-1 viral load. A strong argument will be presented to FDA to consider
the Phase II data sufficient for the basis of providing treatment INDs to
requesting physicians.

6.   Depending on the meeting outcome, development will continue with the
     initiation of aPhase III clinical study.

We may encounter significant difficulties or costs in our efforts to obtain FDA
approvals, which could delay or preclude us from marketing any potential drugs
that we may develop.

Noncompliance with applicable requirements can result in criminal prosecution
and fines, recall or seizure of potential drugs, total or partial suspension of
production, refusal of the government to approve Biological License
Applications, BLAs, Product License Applications, PLAs, New Drug Applications,
NDAs, or refusal to allow us to enter into supply contracts. The FDA also has
the authority to revoke product licenses and establishment licenses previously
granted.

Sales of biological and pharmaceutical potential products outside the United
States are subject to foreign regulatory requirements that vary widely from
country to country. Whether or not FDA approval has been obtained, approval of a
product by a comparable regulatory authority of a foreign country must generally
be obtained prior to the commencement of marketing in that country.

Our contract manufacturers will also subject to regulation by the Occupational
Safety and Health Administration (OSHA) and the Environmental Protection Agency
(PA) and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations.

We signed a consulting contract with Symbion Research International Inc, the
contract research organization that prepared the Phase Ia/b clinical trials of
Cytolin. We have also entered into a buy-sell agreement with Symbion to
purchase the Phase Ia/b clinical data and the Phase II study protocol. We will
be attempting to obtain permission to advance to a Phase II study on Cytolin.

We will not know for sure if certain studies will be required and what the total
costs of such studies until we have a meeting with the FDA which we expect to
take place within the next six months. We estimate that the cost for the "End of
Phase I/Pre- Phase II" meeting with the FDA will be $50,000 to $100,000. We also
estimate costs for the Phase II Study will be $ $3,144,981 for the Contract
Research Organization. We expect the Phase II Study to take 29 to 42 months to
complete at a cost estimated to be to $6,056,981 Included in these estimated
costs, we believe themanufacturing and supply costs to be $450,000Substantially
more capital will need to be obtained to get FDA approval for Cytolin's general
use in the U.S. and to conduct further studies that the FDA may require.


                                       10


Plasmid DNA Products for Preventing Influenza (the flu. No IND has yet been
submitted to the FDA. Once the University of Massachusetts has developed the
seeds for the commercial manufacturing process, we can then estimate the costs
to go through the FDA regulatory approval process. We believe we have earmarked
enough cash to do the manufacturing which should be about $250,000.

Patents
-------

We have licensed the following patents from Mr. Allen D. Allen, the Inventor and
Registered OwnerU.S. Patent Nos. 5424066 5651970 and 6534057, and foreign
counterpart patents.

We have also licensed the following foreign patents: Canada, Australia, United
Kingdom, Germany, Switzerland, France, Italy, Netherlands, Portugal, Spain and
Sweden. These patents are the equivalent of the U.S. Patent No. 5424066. There
is also a European patent pending which would be the equivalent of U.S. Patents
No. 5651970.

The patents are registered to Allen D. Allen, the inventor and are licensed
exclusively to us until they expire, the first of which is to occur in 2013. We
will develop, market and sell the technology contained in the patents in
accordance with the license agreement (See Exhibit 10.6 for Patent License
Agreement).

CytoDyn owns the registered trademarks, CytoDyn and Cytolin, and a related
trademark of our graphic logo.

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
  ------------------ --------------- -------------- ------------- -----------

                                       11



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.

Competition
-----------

The pharmaceutical industry is an expanding and rapidly changing industry
characterized by intense competition. CytoDyn will compete with other more
established biotechnology companies with greater financial resources than us.

Our potential competitors include entities that develop and produce therapeutic
agents for treatment of human and animal disease. These include numerous public
and private academic and research organizations and pharmaceutical and
biotechnology companies pursuing production of, among other things, biologics
from cell cultures, genetically engineered drugs and natural and chemically
synthesized drugs. Almost all of these potential competitors have substantially
greater capital resources, research and development capabilities, manufacturing
and marketing resources and experience than CytoDyn. Our competitors may succeed
in developing potential drugs or processes that are more effective or less
costly than any that may be developed by CytoDyn, or that gain regulatory
approval prior to our potential drugs. Worldwide, there are many antiviral drugs
for treating HIV and AIDS. In seeking to manufacture, distribute and market the
various potential drugs we intend to develop, we face competition from
established pharmaceutical companies. All of our potential competitors in this
field have considerably greater financial and personnel resources than we
possess. Also, based on the premise that HIV patients lose their CD4 cells
because of the way some white blood cells stick together in people infected with
the virus, Johns Hopkins Medical School owns patents on specific antibodies
which were licensed or acquired by Genentech Corporation and are believed to
prevent the clumping of white blood cells, which is known as syncytia. It is
possible that these antibodies may be licensed by Genentech and marketed in
competition with Cytolin. CytoDyn also expects that the number of its
competitors and potential competitors will increase as more potential drugs
receive commercial marketing approvals from the FDA or analogous foreign
regulatory agencies. Any of these competitors may be more successful than
CytoDyn in manufacturing, marketing and distributing its potential drugs.

                                       12


There are many other vaccine related products in development by the major
pharmaceutical companies. Although AITI has the patents for using its
DNA-plasmidsto protect human subjects from influenza [the flu], other companies
may produce a superior product.

There are many other products on the market and in development than can compete
with Formaxycin. Since Formaxycin has not yet been formulated its specific
product advantages cannot be known at this time. Under the best of circumstances
the company anticipates there will be several other products competing with
Formaxycin.

There can be no assurances that CytoDyn will be able to successfully
commercialize any of the products in its pipeline.

Seasonality
-----------

Our business is not materially affected by seasonal factors.

Employees
---------

We have three full time employees, two part-time employees, and several
consultants engaged in management and product development. CytoDyn is severely
understaffed and will expand its employee force if we completee further
financings estimated to be $5 to $15 million. There can be no assurance we will
be able to locate or secure suit able employees upon acceptable terms in the
future. These have expired and have not been renewed.

RISK FACTORS

An investment in our shares is very risky. You should only invest if you can
afford to lose your entire investment. Before you invest, carefully consider the
risks we discuss in this section, as well as the information elsewhere in these
materials. You should also consider the information we incorporate by reference,
and information that we file with the Securities and Exchange Commission from
time to time.

In addition to other information included in this report, the following factors
should be considered in evaluating our business and future prospects:

Risks Related to Our Financial Condition
----------------------------------------

Our Accountant Has Expressed a Substantial Doubt that We Can Continue As a Going
Concern. If We Do Not Continue As a Going Concern, Investors Could Lose Their
Entire Investment.

We have accumulated losses since our inception, and our independent accountant
has expressed that there is a substantial doubt that we may continue as a going
concern. If we do not continue as a going concern, there will be no way for
investors to recoup their investments.

                                       13


We Are a Business With No Revenues to Date and Cannot Commence Clinical Trials
Unless We Can Overcome the Many Obstacles We Face.

We are a development-stage company with no prior business operations and no
revenues. We are presently engaged in the early stage development of certain
potential drugs. Unless we are able to secure adequate funding, we may not be
able to successfully develop and market our potential drugs and our business
will most likely fail. Because of our limited operating history, you may not
have adequate information on which you can base an evaluation of our business
and prospects. To date, our efforts have been allocated primarily to the
following: aggressively patenting our technology; organizational activities;
developing a business plan; obtaining interim funding; acquiring technology and
working toward the ultimate successful development of our potential drugs. In
order to establish ourselves in the bio pharmaceutical market, we are dependent
upon funding by sales of our securities and the successful development and
marketing of our potential drugs. As a research and development company, we face
increased risks, uncertainties, difficulties and expenses such that an
investment in our common stock may be worthless if our business fails. We have a
history of losses and a large accumulated deficit and we expect future losses
that may cause our stock price to lose its value.

For the fiscal years ended May 31, 2005 and May 31, 2006, we incurred net losses
of $777,083and $1,489,700, respectively. The losses since the company's
development stage (October 23, 2003 through May 31, 2006) were $2,604,827.
CytoDyn of New Mexico incurred approximately $1.3 in net losses before it
assigned its license to us. We expect to lose more money as we spend additional
capital to develop and market our technologies and establish our infrastructure
and organization to support anticipated operations. We cannot be certain whether
we will ever earn a significant amount of revenues or profit, or, if we do, that
we will be able to continue earning such revenues or profit. Also, the current
economic weakness may limit our ability to develop and ultimately market our
technologies. Any of these factors could cause our stock price to decline and
result in you losing a portion or all of your investment.

Risks Related to Our Business
-----------------------------

Our Inability to Retain and Attract Key Personnel Could Cause Our Business to
Fail.

We believe that our future success will depend on the abilities and continued
service of certain of our senior management and executive officers, particularly
our president and CEO and those persons involved in the research and development
of our potential drugs. If we are unable to retain the services of these
persons, or if we are unable to attract additional qualified employees,
researchers and consultants, we may be unable to successfully finalize and
eventually market our drugs being developed, which would have a material adverse
effect on our business.

                                       14


Our Research and Development Efforts May Note Result In Commercially Viable
Potential Drugs Which Could Result in a Loss of Investment.

Our technologies are in the development stage. Further research and development
efforts will be required to develop these technologies to the point where they
can be incorporated into commercially viable or salable potential drugs. We have
set forth in this report our proposed research and development program as it is
currently conceived. We cannot assure you, however, that this program will be
accomplished in the order or in the time frame set forth. We reserve the right
to modify the research and development program. We may not succeed in developing
commercially viable potential drugs from our technologies. If not, our ability
to generate revenues from our technologies will be severely limited. This would
result in the loss of all or part of your investment.

Our Potential Drugs Have Not Yet Been Extensively Tested On Humans, and Their
Efficacy Is Not Yet Known. If We Cannot Develop Effective Potential Drugs, Our
Business Will Fail.

There are numerous legal, scientific and regulatory risks that may prevent us
from carrying out our project to develop the drugs in our pipeline. Investment
in CytoDyn must be considered highly speculative because, among other reasons,
only limited testing on humans has been conducted. It is possible that our
proposed therapies will not be effective for treating their indications disease
or that they will have adverse side effects on human subjects which will
prohibit or undermine their intended use. Consequently, investment in our
securities involves a high degree of risk and only those persons of adequate
financial means, who have no need for liquidity with respect to the investment,
and can bear the risk of losing all or part of the investment, are suitable for
such investment.

In Order to Create Some of Our Potential Drugs, We Will Need to License or
Purchase Clones. If We Are Unable to Do So, We May Not Be Able to Continue
Development of Some of Our Potential Drugs.

Some of the patents licensed by us cover the use of certain antibodies to treat
HIV disease. Antibodies are produced in a process similar to that of making
wine. A seed or "clone" is planted to grow a cellbank. The cell bank is then
used to grow a crop of cells. Cells are harvested from the cell bank and then
fermented or otherwise processed to make raw antibodies. Finally, the raw
antibodies are purified and vialed using an FDA approved method. CytoDyn does
not currently own or license the clones used to produce antibodies. We have not
yet completed negotiations with the owners of the needed clones, and there can
be no assurance that we will be able to obtain such an agreement. In the event
we are unable to obtain a clone license, our use of the antibody will be
restricted to research only. In order to protect these potential drugs, we must
be able to license the clones, and no such license has yet been negotiated.

We Are Dependent Upon Patents CytoDyn and AITI Have Licensed The Failure to
Maintain These Licenses May Cause Our Business to Fail.

We currently have the right to use patent and proprietary rights which are
material to the development of our HIV treatments, by assignment of a license
from Allen D. Allen, the owner of the patents. The license requires us to defend
the licensed patents from infringement. If we were to fail to defend or maintain
patents or other protections of the licensed patents and proprietary technology,
it may have a materially adverse effect on our ability to develop our potential
drugs.

                                       15


AITI currently has the right to develop and market the plasmid-DNA technology
developed at the University of Massachusetts to protect human subjects from the
flu.

If we fail to make progress payments or to defend our rights, it may have a
materially adverse effect on our ability to develop our potential drugs.

We May Not Have the Opportunity to Enter Into Strategic Partnerships For the
Commercialization of Our Technologies Which Could Have a Severe Negative Impact
on Our Ability to Market Our Potential Drugs.

We intend to enter into strategic partnerships or other relationships with
established biomedical, pharmaceutical and biopharmaceutical companies to obtain
the necessary regulatory approvals and to undertake the manufacturing and
marketing efforts required for commercializing our potential drugs. However, we
do not have commitments at this time from any potential partners. If we are
unable to enter into any new partnerships, then we may be unable to commence the
commercialization of our potential drugs.

A Market For Our Potential Drugs May Not Develop, Causing a Failure of Our
Business.

Our future success will depend, in part, on the market acceptance, and the
timing of such acceptance, of new potential drugs or technologies that may be
developed or acquired. To achieve market acceptance, we must make substantial
marketing efforts and spend significant funds to inform potential customers and
the public of the perceived benefits of these potential drugs. We currently have
limited evidence on which to evaluate the market reaction to potential drugs
that may be developed, and there can be no assurance that any potential drugs
will obtain market acceptance and fill the market need that is perceived to
exist.

Our Business Depends on Our Ability to Protect Our Proprietary Technology. If We
Cannot Protect It, Our Business May Fail.

We have entered, and will continue to enter, into confidentiality agreements
with our employees, consultants, advisors and collaborators. Corinne Allen our
Vice President of Business Development and Wellington Ewen our Chief Financial
Officer, have entered into Proprietary Information and Inventions Agreements in
order to protect our proprietary information. Allen D. Allen as the Inventor of
the technology is bound under the Patent License Agreement licensed to CytoDyn.

However, these parties may not honor these agreements and we may not be able to
successfully protect our rights to unpatented trade secrets and know-how. Others
may independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets and know-how. Although
we encourage and expect all of our employees to abide by any confidentiality
agreement with a prior employer, competing companies may allege trade secret
violations and similar claims against us. We may collaborate with universities
and governmental research organizations which, as a result, may acquire part of
the rights to any inventions or technical information derived from collaboration
with them. To facilitate development and commercialization of a proprietary
technology base, we may need to obtain licenses to patents or other proprietary
rights from other parties. Obtaining and maintaining such licenses may require
the payment of substantial amounts. In addition, if we are unable to obtain
these types of licenses, our product development and commercialization efforts
may be delayed or precluded. We may incur substantial costs and be required to
expend substantial resources in asserting or protecting our intellectual
property rights, or in defending suits against us related to intellectual
property rights. Disputes regarding intellectual property rights could
substantially delay product development or commercialization activities.
Disputes regarding intellectual property rights might include state, federal or
foreign court litigation as well as patent interference, patent reexamination,
patent reissue, or trademark opposition proceedings in the United States Patent
and Trademark Office. Opposition or revocation proceedings could be instituted
in a foreign patent office. An adverse decision in any proceeding regarding
intellectual property rights could result in the loss or limitation of our
rights to a patent, an invention or trademark.

                                       16


We Will Engage Contract Manufacturers to Produce Our Potential Drugs, Including
Our Potential HIV Drugs.

Our dependence on third party manufacturers creates a risk that the manufacturer
will become unable to perform work for us, or perform it properly, or the
manufacturer may go out of business. This would create a substantial delay in
the development of our products, which would have a materially adverse effect on
our business.

As a Producer of Potential Drugs, We May Be Exposed to Product Liability and
Recall Risks for Which Insurance Coverage Is Expensive, Limited and Potentially
Inadequate.

We produce potential drugs, which, if approved for use by humans, subjects us to
risks of product liability claims or product recalls, particularly in the event
of false positive or false negative reports. The drug platform we are developing
is also subject to product liability claims with respect to safety of the
product, especially with regard to potential side effects. At the moment we have
no product liability insurance, but even if we are successful in obtaining
insurance for our potential drugs, a product recall or a successful product
liability claim or claims that exceed our insurance coverage could have a
material adverse effect on us. Product liability insurance is expensive. In the
future we may not be able to obtain coverage on acceptable terms, if at all.
Moreover, our insurance coverage may not adequately protect us from liability
that we incur in connection with clinical trials or sales of our potential
drugs.

Our Management Has Substantial Voting Control Over All Matters.

As of May 31, 2006 Allen D. Allen our president holds 2,118,515 and Corinne
Allen, our Secretary and Vice President, holds 1,064,071of our 11,225,264 shares
of common stock outstanding. This gives them significant influence and 34%
voting control over all matters submitted to a vote of the shareholders.

Technological Changes May Render Our Potential Drugs Obsolete.

The biopharmaceutical industry is subject to rapid and significant technological
change, and our ability to compete is dependent in large part on its ability
continually to enhance and improve its potential drugs and technologies. In
order to do so, we must effectively utilize and expand its research and
development capabilities, and, once developed, expeditiously convert new
technology into potential drugs and processes which can be commercialized. Our
competitors may succeed in developing technologies, potential drugs and
processes that render our processes and potential drugs obsolete. Certain
companies have filed applications for or have been issued patents and may obtain
additional patents and proprietary rights relating to potential drugs or
processes competitive with or otherwise related to those of CytoDyn. The scope
and viability of these patents, the extent to which we may be required to obtain
licenses under these patents or under other proprietary rights and the cost and
availability of licenses are unknown, but these factors may limit our ability to
market potential drugs.

                                       17


It Is Uncertain If Healthcare Facilities, Providers and Insurance Companies Will
Approve Benefits or Reimbursement for Their Members for Our Potential Drugs,
Thus Rendering Them More Expensive and More Difficult to Market.

The industry is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operations of
healthcare industry participants. During the past several years, state and
federal government regulation of reimbursement rates and capital expenditures in
the United States has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment in the
healthcare industry. Healthcare industry participants may react to these
proposals by curtailing or deferring use of new treatments for disease,
including treatments utilizing the biologics that CytoDyn is developing.

We Need to Raise at least $2,000,000 to $8,000,000 within the next 12 month s or
We May Not Be Able to Continue Our Business.

There is sufficient cash on hand to operate the business through the end of the
calendar year. However, additional funds will need to be acquired to operate
beyond the calendar year.

If CytoDyn has to fund its own clinical trials we must raise $2,000,000 to
$8,000,000 through capitol, borrowing, or out-licensing.

If a foreign or domestic governmental or other public entity funds our clinical
trials, of Cytolin(R) ,the design and/or execution may be less than optimal and
the company could wind up having to commit to manufacturing costs in the U.S.
and overseas which could adversely effect the cost of doing business.

Risks Related to Legal Proceedings
----------------------------------

Management's Responsibility Is to Protect Our Patents, Trademarks and
Technology. This Includes Legal Expenses to Oppose Attempts to Steal, Convert or
Misappropriate Our Property.

We have been targeted in the past and have had to spend significant legal fees
to recover our property. Please see disclosures under "Legal Proceedings" below.
If we are unsuccessful in opposing efforts to steal, convert or misappropriate
our property, this could have a materially adverse effect on our business.

Risks Related to Regulatory Approvals and Clearances
----------------------------------------------------

The Time Needed to Obtain Regulatory Approvals and Respond to Changes In
Regulatory Requirements Could Cause Our Business to Fail.

On October 1, 2003, the Food and Drug Administration (FDA) transferred certain
product oversight responsibilities from the Center for Biologics Evaluation and
Research (CBER) to the Center for Drug Evaluation and Research (CDER). The
review and approval of Cytolin(R) is now under the jurisdiction of the Division
of Monoclonal Antibodies in the CDER Office of Pharmaceutical Science: Office of
Biotechnology Products.

                                       18


Under current law, all new drugs and biologic products need clinical proof that
they are safe and effective before they can be approved for marketing in the
United States. The approval of our drugs will be subject to submission of a
Licensing Application , submitted to the FDA. A license application is the
vehicle through which CytoDyn will formally propose that the FDA approve our
products for sale in the United States. To obtain this authorization, CytoDyn
will submit for review, as contained in theapplication, nonclinical (in vitro
and animal) and clinical (human) test data and analyses, drug information, and
descriptions of manufacturing procedures. The submission of a licensing
application to the FDA does not guarantee that an approval or clearance to
market a product will be received.

This process could be costly and lengthy. There may be delays that increases our
costs to develop new potential drugs as well as the risk that we will not
succeed in introducing or selling them in the United States or other countries.

Newly promulgated or changed regulations could also require us to undergo
additional trials or procedures, or could make it impractical or impossible for
us to market our potential drugs for certain uses, in certain markets, or at
all.

Failure to comply with FDA or similar international regulatory bodies or other
requirements may require us to suspend production of our potential drugs which
could result in further losses or inability to produce revenues.

Risks Related to Our Common Stock
---------------------------------

Our stock is thinly traded and highly volatile which may make it difficult or
impossible for investors to sell their shares.Our common stock is a "penny
stock" as defined in the Exchange Act, which are traded in the over-the-counter
market on the over-the-counter bulletin board. As a result, investors may find
it more difficult to dispose of or obtain accurate quotations as to the price of
the shares of the common stock being registered hereby. In addition, the "penny
stock" rules adopted by the Securities Exchange Commission under the Exchange
Act subject the sale of the shares of our common stock to certain regulations
which impose sales practice requirements on broker/dealers. For example,
brokers/dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in such securities. Included in these documents are the following:

     o    the bid and offer price quotes in and for the "penny stock", and the
          number of shares to which the quoted prices apply;
     o    the brokerage firm's compensation for the trade;
     o    the compensation received by the brokerage firm's sales person for the
          trade;

     o    the brokerage firm must send the investor a monthly account statement
          that gives an estimate of the value of each "penny stock" in the
          investor's account;
     o    and a written statement of the investor's financial situation and
          investment goals.

Legal remedies, which may be available to you as an investor in "penny stocks",
are as follows:

     o    if "penny stock" is sold to you in violation of your rights listed
          above, or other federal or state securities laws, you may be able to
          cancel your purchase and get your money back;
     o    if the stocks are sold in a fraudulent manner, you may be able to sue
          the persons and firms that committed the fraud for damages;
     o    and if you have signed an arbitration agreement, however, you may have
          to pursue your claim through arbitration.


                                       19


If the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker/dealer, the broker/dealer must
also approve the potential customer's account by obtaining information
concerning the customer's financial situation, investment experience and
investment objectives. The broker/dealer must also make a determination whether
the transaction is suitable for the customer and whether the customer has
sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Securities and Exchange Commission's rules may
limit the number of potential purchasers of the shares of our common stock.
Resale restrictions on transferring "penny stocks" are sometimes imposed by some
states, which may make transaction in our stock more difficult and may reduce
the value of the investment. Various state securities laws pose restrictions on
transferring "penny stocks" and as a result, investors in our common stock may
have the ability to sell their shares of our common stock impaired.

Item 2.      Description of Property

Our principal offices are located at 227 E. Palace Avenue, Suite M, Santa Fe,
New Mexico 87501. We lease this 750 square foot office space on a annual basis
with ability to renew for $895 per month.

Item 3.      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.

In connection with that settlement, Mr. Lewis and Maya LLC were awarded by the
Los Angeles Superior Court attorneys' fees in the amount of approximately
$150,000. We have appealed the Court's order. The matter has not yet been
briefed. Management believes we have a strong basis to appeal. This judgement
has been accrued the accompanying financial statements.

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.


                                       20


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 intellectuial 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.

                                       21


Item 4.      Submission of Matters to a Vote of Security Holders

                  None.


Item 5.      Market for Common Equity, Related Stockholder Matters and Small
             Business Issuer Purchases of Equity Securities

Market Information.
-------------------

The principal market for trading our common stock is the NASD OTC Bulletin Board
under the symbol CYDY.OB. As of August 29, 2006 we had approximately 151 holders
of our common stock, plus what is held in street name which we cannot determine.

Dividends.
----------

Holders of our common stock are entitled to receive dividends as may be declared
from time to time by our Board of Directors. We have not paid any cash dividends
on our common stock and do not anticipate paying any in the foreseeable future.
Management's current policy is to retain earnings, if any, for use in CytoDyn's
operations and for expansion of the business.

Price Range of Outstanding Common Stock

------------------------------------------ -------- --------
Year Ended May 31, 2006
------------------------------------------ -------- --------
                                             High     Low
------------------------------------------ -------- --------
First Quarter Ended August 31, 2005          N/A      N/A
------------------------------------------ -------- --------
Second Quarter Ended November 30, 2005       3.25      .50
------------------------------------------ -------- --------
Third Quarter Ended February 28, 2006        2.45     1.35
------------------------------------------ -------- --------
Fourth Quarter Ended May 31, 2006            3.04     1.80
------------------------------------------ -------- --------

Securities Authorized for Issuance under Equity Compensation Plans.

The following table sets forth, as of May 31, 2006, all compensation plans under
which equity securities of CytoDyn, Inc. are authorized for issuance:


                                       22




--------------------------- ---------------------- ---------------------- -------------------------
Plan Category                Number of securities   Weighted average       Number of Securities
                             to be issued upon      exercise price of      remaining available
                             exercise of            outstanding options,   for future issuance
                             outstanding options,   warrants and rights    under equity
                             warrants and rights                           compensation plans
                                                                           (excluding securities
                                                                           reflected in column (a))
                             (a)                    (b)                    (c)
--------------------------- ---------------------- ---------------------- -------------------------
                                                                 
Equity compensation plans
approved by security
holders                           668,122 (2)            2.30                    781,878
--------------------------- ---------------------- ---------------------- -------------------------
Equity compensation plans
not approved by security
holders                           150,000*(1)           $1.00 per share            -0-
--------------------------- ---------------------- ---------------------- -------------------------
Total                             818,122               $3.30                    781,878
--------------------------- ---------------------- ---------------------- -------------------------


(1) This plan is an individual plan pursuant to an employment agreement between
us and Wellington A. Ewen. The plan states he is eligible to receive an option
for 50,000 shares that will become exercisable at the end of his first year of
employment, exercisable at $0.50 a share, additional options for 50,000 shares
that will become exercisable at the end of his second year of employment,
exercisable at $1.00 a share, and options for 50,000 shares that will become
exercisable at the end of his third year of employment, exercisable at $1.50 a
share.

(2)The shareholders approved a Stock Option Plan by vote on January 31, 2006
approving 1,600,000 incentive and/or nonqualified stock options to be available
for issuance by Board of Directors. On March 20, 2006 the board of directors
granted 668,122 stock options to employees and consultants..

Recent Sales of Unregistered Securities
---------------------------------------

During the last two quarters we raised $509,500 through convertible promissory
notes at a conversion price of $1.25 with warrants attached and exercisable at
$2.50 per share. $437,500 of the notes were converted into 350,000 shares.
57,600 shares were issued after May 31, 2006 and converted from the remaining
convertible notes outstanding of $72,000. To date, none of the warrants have
been exercised.

Purchases of Equity Securities
------------------------------

None.


                                       23


Item 6.      Management's Discussion and Analysis or Plan of Operation


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

Overview
--------

We incorporated as Rexray Corporation in Colorado in May 2002. We were
originally a blank check company created to target companies for merger or
acquisition. We issued to our founder, James B. Wiegand 800,000 shares of our
common stock in exchange for services valued at $8,000, and thereafter $3,400
for administrative purposes through a private placement equity offering of
340,000 shares in 2002.

In October 2003, we entered into an acquisition agreement with CytoDyn of New
Mexico, Inc., the purpose of which was to acquire the license to three patents
and foreign counterpart patents. These patents cover the use of monoclonal
antibodies to treat patients with Human Immunodeficiency Virus (HIV) by
protecting crucial cells of the body's immune system that are otherwise killed
by the disease, permitting the immune system to inhibit the disease and protect
against the collateral illnesses that commonly accompany the disease.

We are a development stage company. We have not commenced any significant
product commercialization and, until we do, we will not generate any significant
product revenues. Most of the efforts and resources commenced by the predecessor
New Mexico company, (CytoDyn of New Mexico, Inc, incorporated in New Mexico in
June of 1994) have been directed to research and development of Cytolin and
related technologies. Since inception of the company and the accumulated losses
of the predecessor CytoDyn of New Mexico, we have incurred total research and
development expenses of $4.4, million. As a result of these research and
development costs, we have combined, since inception, incurred operating losses
generating an accumulated deficit of approximately $4,356,739 as of May 31, 2006
our fiscal year end. Since October 2003, when we entered into the acquisition
agreement with Rexray Corporation through May 31, 2006, our accumulated net
losses had been approximately $2,754,827. This company has had no research and
development expenses during the last two fiscal years, as we have been
structuring this new company, focusing on compliance, financing , acquisition of
certain technologies and structure of management. Our research and development
expenses will be incurred once we meet with the FDA for approval of a Phase II
trial of Cytolin and/or a Phase 1 trial of DNA plasmids. We expect to continue
to incur operating losses and we expect the accumulated deficit to increase
until we are able to market a product and have sales sufficient to support our
operations, or until we can generate income from out-licensing products with
positive human experience in clinical trials.

The Acquisition Agreement with CytoDyn of New Mexico. Under the October 28, 2003
acquisition agreement with CytoDyn of New Mexico, we:

Effected a one-for-two reverse split of our common stock, Issued to CytoDyn of
New Mexico 5,362,640 post-split shares, and Amended our articles of
incorporation to change our name to CytoDyn, Inc. Assumed $161,578 in
liabilities related to assigned assets

As consideration for the issuance of our shares to it, CytoDyn of New Mexico:

Assigned a Patent License Agreement dated July 1, 1994 between CytoDyn of New
Mexico and Allen D. Allen, covering United States patent numbers 5424066,
5651970, and 6534057, and related foreign patents and patents pending, for a
method of treating HIV disease with the use of monoclonal antibodies, Assigned
its trademarks, CytoDyn and Cytolin, and related trademark symbol, and Paid
$10,000 in cash.

                                       24


We accounted for the acquisition as a recapitalization of CytoDyn of New Mexico,
with Rexray Corporation as the legal surviving entity. For accounting purposes,
the acquisition has been treated as a recapitalization of CytoDyn of New Mexico,
with Rexray as the legal surviving entity. Since Rexray had minimal assets and
no operations, the recapitalization has been accounted for as the sale of
890,000 shares of CytoDyn of New Mexico common stock for the net assets of
Rexray. Therefore, the historical financial information prior to the date of the
reverse business acquisition is the financial information of CytoDyn of New
Mexico.

History of CytoDyn of New Mexico, Inc.
--------------------------------------

CytoDyn of New Mexico has been, since its incorporation in New Mexico in 1994, a
research and development company focused on developing a treatment for diseases
associated with HIV/AIDS. It has never had operating revenues and has never been
profitable. It is in the process of dissolving and has distributed the 5,362,640
shares of common stock that it received from us in the acquisition to its
shareholders, pro rata. The corporation is in the process of being liquidated.

Summary of Critical Accounting Policies
---------------------------------------

Organization and Basis of Presentation
--------------------------------------

CytoDyn, Inc. (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".

The Company plans to develop therapeutic agents for use against the disease
associated with Human Immunodeficiency Virus ("HIV"). The Company intends to
develop and obtain FDA approval for the use of monoclonal antibodies to treat
patients with HIV by protecting the cells of the body's immune system that are
otherwise killed by the disease. The Company is continuing the research and
development of a treatment for HIV, using technology licensed to it by the
Company's president, and may either repeat Phase I trials, if necessary for
non-clinical reasons, or with FDA approval, conduct a Phase II(b) study. The
Company has not derived any revenues from the licensed technology, but the
Company is planning to pursue further clinical trials.

On October 27, 2003, Rexray changed its name to CytoDyn, Inc.
-------------------------------------------------------------

Acquisition Agreement
---------------------

On October 28, 2003, Rexray, the former Securities and Exchange Commission
("SEC") Registrant, entered into an Acquisition Agreement (the "Agreement") with
CytoDyn of New Mexico, Inc. ("CytoDyn NM"), a company incorporated under the
laws of New Mexico on June 4, 1994. Under the terms of the Agreement, Rexray
agreed to acquire some of the assets of CytoDyn NM in exchange for 5,362,640
shares of its common stock. Following the acquisition, the former shareholders
of CytoDyn NM held approximately 85.8 percent of the Company's outstanding
common stock, resulting in a change in control. However, for accounting
purposes, the acquisition has been treated as a recapitalization of CytoDyn NM,
with Rexray the legal surviving entity. Since Rexray had minimal assets and no
operations, the recapitalization has been accounted for as the sale of 890,000
shares of CytoDyn NM common stock for the net assets of Rexray. Therefore, the
historical financial information prior to the date of the reverse business
acquisition is the financial information of CytoDyn NM.

                                       25


Prior to the Agreement, both Rexray and CytoDyn NM had insignificant operations
and were not devoting efforts to establishing a business. Following the
Agreement, the Company began devoting substantially all efforts to establishing
a new business, but planned principal operations have not yet commenced. As a
result, the Company's inception into the development stage has been established
at October 28, 2003 and, in accordance with SFAS No. 7, the accompanying
financial statements report cumulative financial information from the date of
its inception into the development stage.

Under the terms of the Agreement, CytoDyn NM:

     o    Assigned the patent license agreement between CytoDyn NM and Allen D.
          Allen covering United States patent numbers 5424066, 5651970, and
          6534057, and related foreign patents and patents pending, for a method
          of treating HIV disease with the use of monoclonal antibodies;
     o    Assigned its trademarks, CytoDyn and Cytolin, and related trademark
          symbol; and
     o    Paid $10,000 in cash

In consideration for the above, the Registrant:

     o    Effected a one-for-two reverse split of its common stock;
     o    Issued 5,362,640 shares of its common stock to the shareholders of
          CytoDyn NM;
     o    Amended its Articles of Incorporation to change its name to CytoDyn,
          Inc.; and
     o    Accepted $161,578 in liabilities related to the assigned assets

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.

                                       26


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 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.

Use of Estimates
----------------

The preparation of financial statements in accordance with generally accepted
accounting principles 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 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 at May 31, 2006.

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 3 to 7 years. Maintenance and repairs are charged to expense as
incurred and major improvements or 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.

                                       27


Income Taxes
------------

The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS 109). SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Research and Development
------------------------

Research and development costs are expensed as incurred.

Earnings (Loss) per Common Share
--------------------------------

Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if potentially dilutive common shares had been issued.

At May 31, 2006, there was no variance between basic and diluted loss per share
as there were no potentially dilutive common shares outstanding.

Financial Instruments
---------------------

At May 31, 2006, the fair value of the Company's financial instruments
approximate fair value due to the short-term maturity of the instruments.

Stock-based compensation
------------------------

The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for
Stock Issued to Employees" and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123. SFAS 123 requires the fair value based method of
accounting for stock issued to non-employees in exchange for services.

Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company has
elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25. Pro forma disclosures are included
in Note 6.


                                       28


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; and
     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 purchased 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.
TWe 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 theFDA, which we plan to do within the next sixmonths, 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 Phase 1 studies of the
plasmid DNA products. Date we expect to begin benefiting from the product:

                                       29


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 clinical development of plasmid DNA products by May of 2009 but
much depends upon whether there is another influenza pandemic. As a general rule
of thumb, it takes at least 15 years, and more typically 20 years, from the time
a drug is discovered until it is approved. However, the value of a drug
increases as the risk is reduced by progress along the development track. After
a successful, well-designed and well executed Phase II study, swe may benefit
from licensing-and distribution alliances if the expected sales generated by the
drug are very high.

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 lack of acceptance of 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. 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 other than Hong Kong. The license
acquired gives us the right to develop Mr. Allen's worldwide.


                                       30


Patents
-------

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 continue to be used for working capital. During the last
two quarters we raised $509,500 through convertible promissory notes at a
conversion price of $1.25 with warrants attached and exercisable at $2.50 per
share. $437,500 of the notes were converted into 350,000 shares. 57,600 shares
were issued after May 31, 2006 and converted from the remaining convertible
notes outstanding of $62,000. To date, none of the warrants have been exercised.

                                       31


We will require additional funding during the 2007 fiscal year in order to
continue with research and development efforts and to stay in business. When
we acquired AITI our wholly owned subsidiary, it contained $512,200 in cash In
addition to operating funds, we will need from approximately$2,000,000 to
$8,000,000 to 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.

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.

When we acquired the wholly owned subsidiary Advanced Influenza Technologies
Inc. AITI, 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.

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 that vested immediately and be
          exercisable over 5 years on March 20, 2006.
     o    CytoDyn, Inc paid $25,000 in March 2005.
     o    CytoDyn, Inc will pay $275,000 to Symbion once our secondary financing
          is received.
     o    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.

                                       32


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.

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 funds become available.
We plan to hire two to three additional financial, medical or business experts
in the near future. 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.

Item 7.      Financial Statements

The financial statements and supplementary data required by this item are
submitted in a separate section beginning on page F-1 of this report.


Item 8.      Changes in and Disagreements With Accountants on Accounting and
             Financial Disclosure.

                  None.

Item 8A.     Controls and Procedures.

An evaluation as of the end of the period covered by this report was carried
out, under the supervision and participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic SEC
filings.


                                       33


Item 8B.     Other Information

                  None.

Item 9.      Directors, Executive Officers, Promoters and Control Persons;
             Compliance With Section 10(a) of the Exchange Act.

----------------------- ----- --------------------------------------------------
          Name           Age                  Positions Held *
----------------------- ----- --------------------------------------------------
Allen D. Allen           69    President, Chief Executive Officer, Director
----------------------- ----- --------------------------------------------------
Wellington A. Ewen       66    Chief Financial Officer, Director Audit Committee

----------------------- ----- --------------------------------------------------
Corinne E. Allen         38    Vice President Business Development, Secretary,
                               Treasurer, Director
----------------------- ----- --------------------------------------------------
Gregory A. Gould, CPA    40    Director, Audit Committee Compensation Committee
----------------------- ----- --------------------------------------------------
Jonathan R. Leong        54    Director, Compensation Committee
----------------------- ----- --------------------------------------------------

*   Each officer and Director holds office until his/her successor has been
    elected and qualified.

Allen D. Allen. Mr. Allen has been our chairman of our board and our president
and chief executive officer since October, 2003. Before joining CytoDyn, he was
the chairman of the board of directors and chief executive officer of CytoDyn of
New Mexico, Inc., since its inception in 1994. from 1990 to 1994 he was a
research associate with Olive View-UCLA Medical Center where he collaborated and
published with various medical professors oribinal research on HIV, dermatology
and general immunology and was the co-investigator on an autologous vaccine
study. From1986 to 1990 Mr. Allen was director of scientific affairs, Center for
Viral Diseases, Northridge, California, where he conducted and published
original research on a large cohort of patients with complex constellations of
neuroimmunologic complaints. From 1971 to 1986 he was president of Algorithms,
Incorporated where he conducted and published original research in the areas of
artificial intelligence, perception, man and machine systems and societal
engineering. Over the past thirty years, he has published numerous papers in the
peer review science and medical journals. He has also served as an investigator
on clinical research sponsored by major pharmaceutical companies, such as Ortho
Biotech, Johnson & Johnson, and Sanofi-Winthrop. Mr. Allen invented and patented
the family of HIV/AIDS therapies licensed to CytoDyn. He is a member of the
American Physical Society and the American Federation of Scientists, a life
member of the Institute of Electrical and Electronics Engineers, and a founding
member of the Editorial Board of Physics Essays. Mr. Allen received an
Associates of Arts degree from the University of California at Berkeley in 1957
and attended the University of California at Los Angeles from 1957 to 1959. In
1953 he received a national ARS Student Award in aeronautics from the American
Rocket Society (now the Institute of Aeronautics and Astronautics). Mr. Allen is
the father of Corinne E. Allen, our Vice President of Business Development.

                                       34


Wellington A. Ewen, CPA, MBA. Mr. Ewen, has been our chief financial officer
since May 6, 2004 and our Director since January 31, 2006. He also serves on our
Audit Committee. From 1988 until 2000, Mr. Ewen was owner of Wellington Ewen &
Associates in Malibu, California, which represented many clients as financial
and accounting consultants. He also served as financial and accounting officer
for several development stage pharmaceutical companies, including Entropin, Inc.
from April 1998 to June, 2000. From February, 1999 until his resignation in
2000, he was the chief financial officer of Amerimmune, Inc. From January, 2000
to July, 2000, he also served as a manager at PriceWaterHouseCoopers in Los
Angeles, California. Mr. Ewen is currently licensed as a CPA in Oregon. He
received his Bachelor of Science in 1963 and Master of Business Administration
from Cornell University in 1964.

Corinne E. Allen, CPA. Ms. Allen has been a director and our secretary and
treasurer since October 2003, and was until May 2004, our chief financial
officer. In May 2004, Ms. Allen became the vice president of business
development. From April 1995 to October 2003, she served as secretary and
treasurer of CytoDyn of New Mexico, Inc. where she was also a director from
June, 1994 to October 2003. Ms. Allen is a licensed Certified Public Accountant.
From 1999 to 2003, Ms. Allen was employed as a senior manager at Deloitte &
Touche, and, from 1992 to 1998 was a CPA at Hallquist Jones P.C. She has over 17
years experience in the accounting industry. Ms. Allen received a B.S. in
Business Administration from California State University Northridge with a
specialty in Accounting Theory and Practice in 1992. She has been a Certified
Public Accountant since January 1997. Ms.Allen is the daughter of Allen D.
Allen. Gregory A. Gould, CPA

Mr. Gould has been a director since March 20, 2006 and a member of our Audit
Committee and Compensation Committee since May 15, 2006. Mr. Gould has worked in
the life sciences industry for the past decade as a senior executive. Until its
acquisition by QLT, Inc. for approximately $850 million in November of 2004, Mr.
Gould served as Chief Financial Officer, Treasurer and Secretary of Atrix
Laboratories, Inc. Atrix was a Nasdaq company with over $60 million in
annualized revenues and 160 employees in two countries. From February of 1996
until its acquisition by KRG Capital Partners in October of 2003, Mr. Gould was
the Director of Finance, and then Chief Financial Officer and Treasurer of
Colorado MEDtech, a Nasdaq company with over $77 million in annualized revenues
and 500 employees located in four States. Mr. Gould received his B.S. in
Business Administration form the University of Colorado at Boulder in 1989. He
is a Certified Public Accountant in Colorado and a member of the Colorado
Society of Certified Public Accountants


                                       35


Jonathan Leong

Mr. Leong has been a director since May 15, 2006 and on the Compensation
Committee since May 15, 2006. Mr. Leong is a prominent Asian-American insurance
executive from Northern California. He has served as a member of the California
Earthquake Authority Advisory Panel, and as a Commissioner for the White House
Initiative on the Asian American and Pacific Islanders. Mr. Leong was a Founding
Member of the National Council of Asian American Business Associations and is a
principal of JLA Global, Inc., an international trading company and national
distributor of various products including health and cosmetic products. As
President of Emerald Bay Resources, Mr. Leong has been responsible for
environmental clean-up projects in Mexico and Puerto Rico.

We have no other significant employees whom we expect to contribute
significantly to our business. We have several consultants who contribute
significantly to our business including, Peggy Pence, Phd. CEO of Symbion, Huey
Hua Asian Consultant, Don Donchuanchom as our Investor Relations Consultant.

We are in the process of establishing a Scientific Advisory Board. Currently
serving on it are Dr. Trevor Hawkins and Dr. Narendar Bhatia.

Trevor N. Hawkins, MD
---------------------

Dr. Hawkins currently serves as Medical Director & Principal Physician at the
Southwest C.A.R.E. Center in Santa Fe, NM. His extensive clinical experience in
managing HIV/AIDS includes having been the Medical Director & Principal
Physician at the AIDS Wellness Program, also in Santa Fe, NM, from 1995 -1996.
Dr. Hawkins' experience with infectious diseases predates the AIDS pandemic.
From 1976-1981 he was the Medical Director of the 30-bed General Hospital near
Bombay, India, where he was Co-investigator for a study of Dengue Fever Virus
with the National Viral Institute, Poona, India. During these years Dr. Hawkins
also served as a field worker who collected data on Non-A/Non-B Hepatitis for
the Centers for Disease Control and Prevention in Atlanta, GA.

Dr. Hawkins is a "doctor's doctor," with skills that go beyond a narrow focus on
infectious diseases. From 1996 through the present time he has been an Associate
Clinical Professor in the Department of Family Practice at the University of New
Mexico. As a teacher of primary care medicine, he spends time at the bedside,
and counsels patients and medical students alike.

Among his many awards was the 1995 Provider of the Year Award through Santa Fe
CARES, with a Commendation from the State of New Mexico. In 1999 Dr. Hawkins was
again honored in Santa Fe, NM with the Human Rights Advocate Award through the
Human Rights Alliance.

More than a caring and worldly healer and teacher, Dr. Hawkins is also a
prominent AIDS researcher. His extensive work on clinical trials includes
GlaxoSmithKline Protocol HPR10006, which has run from 2004 onward as a Pilot,
Phase II, Open-Label, SIngle-Arm Study to Evaluate the Efficacy, Safety,
Tolerability, and Pharmacokinetics of GW640385X when Administered with Ritonavir
in combination with Nucleoside Reverse Transcriptase Inhibitors for 48 weeks in
HIV-1 infected adults. From 2005-2006 he worked on Gilead Sciences Protocol
GS-US-183-0101, a Double-Blind, Randomized, Placebo-Controlled Phase 1/2 Study
of the Safety, Pharmacokinetics & Antiviral Activity of GS-9137 Following Oral
Administration in Subjects Infected with HIV-1.

                                       36


In addition to participating in large multicenter trials, Dr. Hawkins has
published scholarly papers on his own, original AIDS research in the peer-review
journals AIDS Clinical Trials and the Journal of AIDS.

Narender Bhatia, M.D. FACOG

Dr. Bhatia is Professor in Residence at David Geffen School of Medicine at UCLA
and the Chief of the Division of Urogynecology at Harbor/UCLA Medical Center,
University of California at Los Angeles, California.

Dr. Bhatia earned his undergraduate and medical degrees with honors at Punjab
University in India, completed his residency at Albany Medical center of Union
University, Albany, New York, and earned his fellowship in Gynecologic Urology,
Urodynamics and Neurology at Long Beach Memorial Medical Center and V.A.Medical
Center, University of California, Irvine.

Dr. Bhatia has been the Director of the fellowship program in female pelvic
medicine and reconstructive surgery since1982. He is well known nationally and
internationally for his excellence as a pelvic surgeon, urogynecologist, teacher
and researcher. He has published over 160 research papers, monographs, abstracts
and book chapters.

Dr. Bhatia's special areas of research interest include uroneurology of
micturition disorders; the effects of ageing, hormonal manipulation and pelvic
surgery upon bladder and urethral functions; and stem cell research in the
management of urinary incontinence. He has been actively involved in designing
prosthetic devices and surgical instruments for the management of pelvic
prolapse and urinary incontinence.Dr.Bhatia serves as a senior consultant and
advisor to various Pharmaceutical and Biotech companies . Besides maintaining an
active consulting practice in advanced pelvic surgery and urogynecology, Dr.
Bhatia participates in various national and international societies, committees
and lecture series. He serves on the editorial boards of various medical
journals and is also as a reviewer for numerous scientific publications. Dr.
Bhatia has written and obtained numerous instituitional and Pharmaceutical
grants over the years and has served as a principal investigator for many these
grant projects

Compliance with Section 16(a) of the Exchange Act.

Section 16(a) of the Exchange Act requires our Officers and Directors, and
persons who beneficially own more than 10% of our common stock, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and to provide copies of those filings to us. Based solely on our
review of the copies of those forms furnished to us during the fiscal year ended
May 31, 2006, we are aware of the following untimely filings:


------------------- ------------------- ------------------- ------------------
Name                  Position Held       Report              Number of Late
                                                              Reports
------------------- ------------------- ------------------- ------------------

------------------- ------------------- ------------------- ------------------

                                       37


Code of Ethics.
---------------

We have adopted a Code of Ethics for our Chief Executive Officer, Vice President
of Business Development and our Chief Financial Officer. This Code of Ethics can
be found on our website at www.cytodyn.com.


Item 10.     Executive Compensation

The following table provides an overview of compensation that CytoDyn, Inc. paid
to the Named Executive Officers for the fiscal years ended May 31, 2006, 2005


                           Summary Compensation Table

                                    Annual         Long Term
                                 Compensation    Compensation
                                   Awards
---------------------- -------- -------------- ---------------- ----------------
  Name and Principal     Year       Salary        Securities        All Other
       Position                                   Underlying      Compensation
                                                    Options
                                                  (# shares)
---------------------- -------- -------------- ---------------- ----------------
Allen D. Allen,          2006     150,000 (1)          0               0
President, Chief         2005      98,000 (1)          0               0
Executive Officer
---------------------- -------- -------------- ---------------- ----------------
Wellington A. Ewen       2006      50,000 (2)          0               0
Chief Financial          2005      50,000 (2)          0               0
Officer President (3)
---------------------- -------- -------------- ---------------- ----------------
Corinne Allen            2006     100,000
Vice President           2005      60,000
---------------------- -------- -------------- ---------------- ----------------

1.   Mr. Allen's employment agreement with CytoDyn for fiscal year 2005 provides
     for a salary of $98,000. As of February 2006 his salary was approved by
     Board of Directors for $150,000He was paid a total of $32,668 as of the end
     of the fiscal year 2005 , and $90,332.69 for fiscal year 2006 and the
     remainder of his salary was accrued.
2.   Ms. Allen was approved for salary of $100,000 February 2006, she was
     $55,833 for the fiscal year 2006 and the remainder was accrued. In prior
     years her salary was under $100,000.
3.   Mr. Wellington A. Ewen. is eligible to receive an option for 50,000 shares
     that became exercisable at the end of his first year of employment,
     exercisable at $0.50 a share, additional options for 50,000 shares that
     became exercisable at the end of his second year of employment, exercisable
     at $1.00 a share, and options for 50,000 shares that will become
     exercisable at the end of his third year of employment, exercisable at
     $1.50 a share.

Director Compensation
---------------------

Our directors were granted 25,000 nonqualified stock options per person in March
and May 2006. One quarter of the options vest immediately and the remaining
options vest monthly over 48 months. The exercise price was $2.68 for options
granted to Gregory Gould $2.95 for Allen D. Allen and Corinne Allen and $1.96
for Jonathan Leong. The exercise price was based upon the closing bid of the
common stock on March 20, 2006 and May 15, 2006 which were the dates the Board
authorized the granting of the stock options.

                                       38


Personal Service Agreements
---------------------------

These expired and have not yet been renewed by Compensation Committee . We
expect to enter into Personal Service Agreements with our Executives in the next
quarter of this fiscal year 2007.

Proprietary Information And Inventions Agreement
------------------------------------------------

Wellington E. Ewen, our chief financial officer, and Corinne E. Allen, our vice
president for business development, and all other employees have signed and
delivered to us a Proprietary Information and Inventions Agreement For
Employees. Among other things, each agreement provides that:

It is effective from the first date of employment until five years from the date
of termination of employment. Employment is defined to include any time retained
as a consultant or on contract. The employee will refrain from any activity that
is hostile, adverse or competitive, or otherwise interferes with the executive's
service, to us; We are the sole owner of the "Proprietary Information" and all
patents and other rights related to it Any rights that the employee has or may
acquire in the "Proprietary Information" are assigned to us.

The "Proprietary Information" will be kept in confidence and trust during and
after employment All works made by the employee during employment that fall
within our scope of our business are Works for Hire, and we will have the sole
and exclusive copyrights in them.

All "Inventions" made by the employee (either alone or jointly) during the
period of employment, will be disclosed to us and we will be the sole owner of
them, and any related patents and rights.

Change Of Control Agreement
---------------------------

Allen D. Allen, our president and chief executive officer, and Corinne E. Allen,
our vice president for business development, have signed and delivered to us a
Change of Control Agreement. Among other things, each agreement provides that:

o    The Agreement will terminate at the time the executive's employment with us
     terminates or is terminated;
o    Upon termination of the executive's employment by us without "cause" or by
     him or her with "good reason", in either case within 6 months after a
     "change of control", the executive will be entitled to:
          o    Base salary for the remainder of the term and 12 additional
               months
          o    Immediate vesting of all stock options,
          o    4 month period in which to exercise options thereby vested,
          o    Payment of our portion of premiums  under our health plan for the
               shorter of 12 months or the executive's  eligibility for coverage
               under a health plan offered by the executive's new employer, and
          o    Payment of our portion of premiums  under our life insurance plan
               or an equivalent amount for 12 months.


                                       39


Item 11.     Security Ownership of Certain Beneficial Owners and Management and
             Related Stockholder Matters.

The following table sets forth as of August 29, 2006 the beneficial ownership of
common stock by each person who is known by CytoDyn to own beneficially more
than 5% of the outstanding shares of common stock.

     ------------------------- ----------------------- --------------------
      Name and Address of       Amount and Nature of    Percent of Class
      Beneficial Owner          Beneficial Ownership*   Beneficially Owned
     ------------------------- ----------------------- --------------------
      Allen D. Allen(2)          2,118,515                  18.92%
     ------------------------- ----------------------- --------------------
      Corinne E. Allen(2)        1,604,071                  14.89%
     ------------------------- ----------------------- --------------------
      UTEK Corporation           2,040,000 (1)(3)           18.17%
     ------------------------- ----------------------- --------------------

* To CytoDyn's knowledge, all persons have sole voting power of the shares.

(1)  UTEK Corp received  40,000 when we retained  their  services in April 2006.
     They received  another  2,000,000 shares in exchange for the acquisition of
     Advanced Influenza Technologies, Inc. in July 2006.
(2)  Address of  shareholders  Allen D. Allen is 4236  Longridge Ave, Suite 302,
     Studio City, CA 91604  Corinne  Allen is 227 E. Palace Ave,  Suite M, Santa
     Fe, NM 87501
(3)  The address of the shareholder is 202 South Wheeler Street,  Plant City, FL
     33563

The following table sets forth as of August 29, 2006, the number of common stock
beneficially owned by all directors and executive officers.

---------------------------------------- ---------------------- -----------
 Name and Address of Beneficial Owner     Amount and Nature of    Percent
                                           Beneficial Owner(1)   of Class*
---------------------------------------- ---------------------- -----------
Allen D. Allen2                                2,118,515           18.92%
---------------------------------------- ---------------------- -----------
Wellington A. Ewen(2,3)                           -0-                *
---------------------------------------- ---------------------- -----------
Corinne E. Allen(2)                            1,604,071           14.89%
---------------------------------------- ---------------------- -----------
Ronald J. Tropp(2)                                -0-                *
---------------------------------------- ---------------------- -----------
Gregory A. Gould                                   5,000             *
---------------------------------------- ---------------------- ----------
Jonathan Leong                                    24,000             *

---------------------------------------- ---------------------- -----------
All Officers and Directors as a Group          3,756,586           33.46%
---------------------------------------- ---------------------- -----------
*Less than 1% of outstanding common stock

(1)  Each shareholder has sole voting and investment power for the shares.
(2)  The address for the  shareholders  is in care of the  corporation at 227 E.
     Palace Ave, Suite M, Santa Fe, New Mexico 87501
(3)  Mr. Ewen has options to purchase 150,000 shares of common stock in
     connection with an employment agreement. None have yet been exercised. We
     know of no arrangements concerning anyone's ownership of stock, which may,
     at a subsequent date, result in a change of control.

                                       40


Item 12.     Certain Relationships and Related Transactions

Related Party Transactions. We propose to be, or since the beginning of the last
fiscal year were, party to certain transactions involving amounts in excess of
$60,000, in which our directors, executive officers, others hold more than 5% of
any class of our securities, or their immediate family members, had or will have
a material interest. The interested parties and transactions are described
below.

Common Stock, Options and Compensation. For a discussion of transactions within
the past two years having aggregate values in excess of $60,000 and involving
compensation paid or securities issued to our directors or executive officers,
please see the discussions entitled "Executive Compensation" in Part III, Item
10 and "Security Ownership of Certain Beneficial Owners and Management And
Related Stockholder Matters" in Part III, Item 11.

Indemnification, Legal Costs and Fees Incurred by Directors and Officers.
-------------------------------------------------------------------------

Note Given and Debt Owed to Allen D. Allen. In January 2004 we issued to Allen
D. Allen, our president, chief executive officer and the chairman of our board
of directors, a non interest bearing promissory note, payable on demand, in the
original principal amount of $22,788 The note reflects advances made to us by
Mr. Allen during the years ending on May 31, 2003 and May 31, 2004. In addition,
we owe the sum of $10,000 to Mr. Allen, who advanced that amount to CytoDyn of
New Mexico for further payment to Rexray Corporation in connection with the
acquisition of the assets of CytoDyn of New Mexico. The sum owed does not bear
interest and is payable on demand. As of May 31, 2006 debt owed to Allen D.
Allen increased by an additional $9,681 The total debt owed to Mr. Allen is
$32,468.

Notes Given to Corinne Allen. In January 2004, we issued to Corinne E. Allen,
our vice president of business development, secretary, treasurer and director,
two non interest bearing promissory notes, each payable on demand, in the
original principal amounts of $50,000 and $38,906. The notes reflected advances
made to us by Ms. Allen during the years ending on May 31, 2003 and May 31,
2004. The $50,000 note was paid in full in February, 2004. The $38,906 note
remains outstanding and does not bear interest.



                                       41


Item 13.     Exhibits

Incorporated by Reference

---------- ---------------------------------------------- -------- -------------
  Exhibit
  Number              Exhibit Description                   Form    Filing Date
---------- ---------------------------------------------- -------- -------------
  2.01      Agreement and Plan of Acquisition               8K        7/21/2006
---------- ---------------------------------------------- -------- -------------
  3.i       Articles of Incorporation                      10SB       7/11/2002
---------- ---------------------------------------------- -------- -------------
  3.i.2     Amendment to Articles of Incorporation          8K       11/12/2003
---------- ---------------------------------------------- -------- -------------
  3.ii      Bylaws                                         10SB       7/11/2002
---------- ---------------------------------------------- -------- -------------
  9.01      Exclusive License Agreement                     8K        7/21/2006
---------- ---------------------------------------------- -------- -------------
  9.02      Nonexclusive License Agreement                  8K        7/21/2006
---------- ---------------------------------------------- -------- -------------
  9.03      Sponsored Research Agreement                    8K        7/21/2006
---------- ---------------------------------------------- -------- -------------
 10.i       Acquisition Agreement Between Rexray            8K/A      1/12/2004
            Corporation and CytoDyn of NM, Inc. dated
            October 28, 2003
---------- ---------------------------------------------- -------- -------------
 10.ii      Patent License Agreement between CytoDyn of    10KSB      9/14/2004
            New Mexico, Inc and Allen D. Allen and
            Amendment to Patent License Agreement
---------- ---------------------------------------------- -------- -------------
 10.iii     Personal Services Agreement between Allen      10KSB      9/14/2004
---------- ---------------------------------------------- -------- -------------
 10.iv      Personal Services Agreement Between            10KSB      9/14/2004
            Wellington A. Ewen and CytoDyn, Inc.
---------- ---------------------------------------------- -------- -------------
 10.v       Personal Services Agreement between Corinne    10KSB      9/14/2004
---------- ---------------------------------------------- -------- -------------
 10.vi      Financial Representative Agreement between     10KSB      9/14/2004
            J.P. Turner & Company, LLC and CytoDyn, Inc
---------- ---------------------------------------------- -------- -------------
 10.vii     Change of Control Agreement between Allen      10KSB      9/14/2004
            D. Allen and CytoDyn, Inc.
---------- ---------------------------------------------- -------- -------------
 10.viii    Change of Control Agreement between Corinne    10KSB      9/14/2004
---------- --------------------------------------------- -------- - ------------
 10.ix      Proprietary Information between Corinne E.     10KSB      9/14/2004
            Allen and CytoDyn
---------- ---------------------------------------------- -------- -------------
 10.x       Proprietary Information between Wellington     10KSB      9/14/2004
            A. Ewen and CytoDyn, Inc.
---------- ---------------------------------------------- -------- -------------
 10.xi      Proprietary Agreement between Allen D.         10KSB      9/14/2004
            Allen and CytoDyn, Inc.
---------- ---------------------------------------------- -------- -------------
 10.xii     Specimen of Common Stock Certificate           SB-2       6/01/2004
---------- ---------------------------------------------- -------- -------------
 10.xiii    Subscription Agreement                         SB-2      6/01/2004
---------- ---------------------------------------------- -------- -------------
 10.xiv     Office Lease Agreement                         SB-2/A    10/21/2004
---------- ---------------------------------------------- -------- -------------
 10.xv      Conditional License Agreement and Court        SB-2/A    10/21/2004
            Order for Its Termination
---------- ---------------------------------------------- -------- -------------
 10.xvi     Master Agreement for Professional Services     SB-2/A    10/21/2004
            with Symbion
---------- ---------------------------------------------- -------- -------------

                                       42


---------- ---------------------------------------------- -------- -------------
  Exhibit
  Number              Exhibit Description                   Form    Filing Date
---------- ---------------------------------------------- -------- -------------
 10.xvii    Amendment No. 1 to Agreement Dated             SB-2/A     1/13/2005
            September 30, 2003
---------- ---------------------------------------------- -------- -------------
 10.xviii   Buy-Sell Agreement                             SB-2/A     1/13/2005
---------- ---------------------------------------------- -------- -------------
 10.xix     Amendment to Patent License Agreement          SB-2/A     3/21/2005
---------- ---------------------------------------------- -------- -------------
 14         Code of Ethics                                 10KSB      9/14/2004
---------- ---------------------------------------------- -------- -------------

Filed Herewith

---------- ----------------------------------------------
 21         Subsidiaries of the Company: None
---------- ----------------------------------------------
 31.1:      Section 302 Certification of Allen D. Allen
---------- ----------------------------------------------
 31.2       Section 302 Certification of Wellington A.
            Ewen
---------- ----------------------------------------------
 32.1       Section 906 Certification of Allen D. Allen
---------- ----------------------------------------------
 32.2       Section 906 Certification of Wellington A.
            Ewen
---------- ----------------------------------------------


Item 14.     Principal Accountant Fees and Services

Approval of Services
--------------------

The Board of Directors has resolved to establish an audit committee composed of
our chief financial officer, Wellington Ewen, Gregory A. Gould, CPA and another
independent member when that person is identified. The audit committee does not
yet have a charter. Pending proper establishment of the audit committee, the
Board of Directors pre-approves all engagements for audit and non-audit services
provided by the Company's principal accounting firm, Cordovano and Honeck, P.C.

Audit Fees
----------

The aggregate fees billed during the fiscal years ended May 31, 2006 and 2005
for professional services rendered by our principal accounting firm, Cordovano
and Honeck, P.C., for the audit of the financial services included in Form
10-KSB, and for the review of the interim condensed financial statements
included in Form 10-QSB, were approximately $15,900 and $9,780, respectively.
Included here are fees associated with the review by Cordovano and Honeck, P.C.
of a registration statement filed with the SEC and the related issuance of
independent accountant consent letters.

Audit Related Fees
------------------

The aggregate fees billed during the fiscal years ended May 31, 2006 and 2005
for assurance and related services rendered by our principal accounting firm,
Cordovano and Honeck, P.C., were approximately $0 and $0 respectively. Assurance
and related service fees include the audit of employee benefit plan financial
statements and audit-related due diligence assistance on potential acquisitions.


                                       43


Tax Compliance/Preparation Fees
-------------------------------

The aggregate fees billed during the fiscal years ended May 31, 2006 and 2005
for professional services rendered by our principal accounting firm, Cordovano
and Honeck, P.C., for tax compliance, tax advice, and tax planning were
approximately and $0, respectively. Tax compliance services include the
preparation of income tax returns filed with the Internal Revenue Service. Tax
advice and planning services included assistance with implementation of tax
planning strategies and consultation on other tax matters.

All Other Fees
--------------

The aggregate fees billed during the fiscal years ended May 31, 2006 and 2005
for all other professional services rendered by our principal accounting firm,
Cordovano and Honeck, P.C., were approximately $0 and $896, respectively. Other
services consisted of assistance with the interpretation of new accounting
standards and other related services.

Chart of Fees Paid to Independent Auditing Firm For Past Two Fiscal Years

----------------------------- ---------------------------------------------
                                       For fiscal years ended May 31,
----------------------------- ---------------------------------------------
 Type of Service                2006      % not        2005      % not
                                           pre-                   pre-
                                        approved(1)            approved(1)
----------------------------- -------- ------------- -------- -------------
Audit fees                    $ 10,000               $  9,780
----------------------------- -------- ------------- -------- -------------
Audit-related fees            $                             0
----------------------------- -------- ------------- -------- -------------
Tax fees
----------------------------- -------- ------------- -------- -------------
     Tax compliance
----------------------------- -------- ------------- -------- -------------
Tax advice & planning
----------------------------- -------- ------------- -------- -------------
Total tax fees
----------------------------- -------- ------------- -------- -------------
All other fees                                            896        100%
----------------------------- -------- ------------- -------- -------------
Total fees                    $                      $
----------------------------- -------- ------------- -------- -------------

     1    These percentages reflect services for which the pre-approval
          requirement is waived under applicable accounting rules.



                                       44


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CytoDyn, Inc.



By:  /s/ Allen D. Allen
--------------------------------------------
Allen D. Allen, Chief Executive Officer
Date:  November 9, 2006


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



/s/ Allen D. Allen                                   Date:  November 9, 2006
--------------------------------------------
Allen D. Allen, President, Chief Executive
Officer, Director

/s/ Wellington A. Ewen                               Date:  November 9, 2006
--------------------------------------------
Wellington A. Ewen, Chief Financial Officer,
Director

/s/ Corinne E. Allen                                 Date:  November 9, 2006
--------------------------------------------
Corinne E. Allen, Vice President of Business
Development, Secretary, Treasurer, Director


/s/ Jonathan Leong                                   Date:  November 9, 2006
--------------------------------------------
Jonathan Leong, Director

/s/ Gregory A. Gould                                 Date:  November 9, 2006
--------------------------------------------
Gregory A. Gould, Director/




                                       45



                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Index to Financial Statements


                                                                           Page
                                                                         -------

Report of Independent Registered Public Accounting Firm..................  F-2

Balance Sheet at May 31, 2006............................................  F-3

Statements of Operations for the years ended May 31, 2006 and 2005
 and the period from October 28, 2003 (inception) through May 31, 2006...  F-4

Statement of Changes in Shareholders' Deficit for the period
 from October 28, 2003 through May 31, 2006..............................  F-5

Statements of Cash Flows for the years ended May 31, 2006 and 2005
 and the period from October 28, 2003 (inception) through May 31, 2006...  F-6

Notes to Financial Statements............................................  F-7



                                      F-1



             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders
CytoDyn, Inc.:


We have audited the accompanying balance sheet of CytoDyn, Inc. (a development
stage company) as of May 31, 2006, and the related statements of operations,
changes in shareholders' deficit, and cash flows for the years ended May 31,
2006 and May 31, 2005 and the period from October 28, 2003 (inception) through
May 31, 2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CytoDyn, Inc. as of May 31,
2006, and the results of its operations and its cash flows for the years ended
May 31, 2006 and May 31, 2005 and the period from October 28, 2003 (inception)
through May 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered significant operating losses since
inception, which raises a substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

As described in Note 14 to the financial statements, the Company has restated
its balance sheet as of May 31, 2006 and its statements of operations, changes
in shareholders' deficit and cash flows for the year ended May 31, 2006 to
correct an error in accounting for the beneficial conversion feature associated
with the convertible notes payable discussed in Note 4.


/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
August 25, 2006, except as to Notes 4, 5 (deleted), 6, 7, and 14,
which is November 1, 2006


                                      F-2


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

                                  May 31, 2006

                                     Assets
                                                                  As Restated
                                                                 (See Note 14)
                                                                  -----------
Current Assets:
    Cash ......................................................   $   125,320
    Prepaid expenses ..........................................       303,160
                                                                  -----------
                  Total current assets ........................       428,480

Furniture and equipment, less accumulated
    depreciation of $2,204 (Note 2) ...........................         2,334
Intangible asset, less accumulated
    amortization of $1,722 (Note 3) ...........................         1,128
Deposit .......................................................           495
                                                                  -----------

                                                                  $   432,437
                                                                  ===========

                      Liabilities and Shareholders' Deficit

Current Liabilities:
    Accounts payable ..........................................   $   110,267
    Accrued liabilities .......................................       133,588
    Accrued interest payable ..................................         5,267
    Notes payable, net (Note 4) ...............................        23,863
    Derivative liability (Note 5) .............................          --
    Indebtedness to related parties (Note 6) ..................       393,360
                                                                  -----------
                  Total current liabilities ...................       666,345

Commitments and contingencies (Note 9) ........................       150,000
                                                                  -----------
                  Total liabilities ...........................       816,345
                                                                  -----------

Shareholders' deficit (Note 7):
    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,
       9,147,664 shares issued and outstanding ................     3,062,566
    Additional paid-in capital ................................     1,324,509
    Accumulated deficit .......................................    (1,601,912)
    Deficit accumulated during development stage ..............    (3,169,071)
                                                                  -----------
                  Total shareholders' deficit .................      (383,908)
                                                                  -----------

                                                                  $   432,437
                                                                  ===========

                 See accompanying notes to financial statements

                                      F-3




                                 CYTODYN, INC.
                         (A Development Stage Company)
                            Statements of Operations


                                                  For the Year Ended         October 28, 2003
                                                        May 31,                 (Inception)
                                             ----------------------------         through
                                                 2006            2005          May 31, 2006
                                             ------------    ------------    ----------------
                                              As Restated                       As Restated
                                             (See Note 14)                     (See Note 14)
                                             ------------                    ----------------
                                                                    
Operating expenses:
   General and administrative
    (Net of $792,702, $11,928, and
    $804,630, respectively, stock-based
    compensation) (Note 10) ..............   $    619,564    $    373,342    $      1,310,586
   Stock-based compensation (Note 7) .....        792,702          11,928             804,630
   Research and development ..............           --           362,342             362,342
   Legal fees, related party (Note 6) ....         20,800          25,900              66,750
   Litigation (Note 9) ...................        150,000            --               150,000
   Depreciation ..........................          2,101           1,671               3,976
                                             ------------    ------------    ----------------
         Total operating expenses ........      1,585,167         775,183           2,698,284
                                             ------------    ------------    ----------------
         Operating loss ..................     (1,585,167)       (775,183)         (2,698,284)

Interest income ..........................            101             234                 678
Interest expense .........................       (468,878)         (2,134)           (471,465)
Gain on derivative liability (Note 5) ....           --              --                  --
Loss on debt extinguishment (Note 5) .....           --              --                  --
                                             ------------    ------------    ----------------
         Loss before income taxes ........     (2,053,944)       (777,083)         (3,169,071)

Income tax provision (Note 8) ............           --              --                  --
                                             ------------    ------------    ----------------

         Net loss ........................   $ (2,053,944)   $   (777,083)   $     (3,169,071)
                                             ============    ============    ================

Basic and diluted loss per share .........   $      (0.24)   $      (0.12)
                                             ============    ============

Basic and diluted weighted average
   common shares outstanding .............      8,639,483       6,557,362
                                             ============    ============





                 See accompanying notes to financial statements

                                      F-4




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

                                                                                                            Deficit
                                                                                                          Accumulated
                                  Preferred Stock         Common Stock         Additional                   During
                                ------------------  ------------------------    Paid-in     Accumulated   Development
                                 Shares    Amount     Shares       Amount       Capital       Deficit        Stage         Total
                                --------  --------  ----------  ------------  ------------  -----------   -----------   -----------
                                                                As Restated   As Restated                 As Restated   As Restated
                                                               (See Note 14) (See Note 14)               (See Note 14) (See Note 14)
                                                                ------------  ------------                -----------   -----------
                                                                                                

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) (Note 7) ........     --        --     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 (Note 7) ....     --        --          --            --         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) (Note 7) .......     --        --       289,890       189,550         --            --            --         189,550
August 2005, common shares
 issued to extinguish
 promissory notes payable and
 related interest
 ($0.75/share) (Note 4) .......     --        --       160,110       120,082         --            --            --         120,082
May 2006, common shares issued
 to extinguish convertible
 debt (Note 4) ................     --        --       350,000       437,500         --            --            --         437,500
November 2005, 94,500 warrants
 exercised ($0.30/share)
 (Note 7) .....................     --        --        94,500        28,350         --            --            --          28,350
January through April 2006,
 common shares issued for
 services (Note 7) ............     --        --       183,857       370,750         --            --            --         370,750
January through June 2006,
 warrants issued with
 convertible debt (Note 4) ....     --        --          --            --        274,950          --            --         274,950
January through May 2006,
 beneficial conversion feature
 of convertible debt (Note 4) .     --        --          --            --        234,550          --            --         234,550
March through May 2006, stock
 options granted to
 consultants (Note 7) .........     --        --          --            --        687,726          --            --         687,726
March 2006, stock options
 issued to extinguish debt
 (Note 4) .....................     --        --          --            --         86,341          --            --          86,341
Net loss, year ended
 May 31, 2006 .................     --        --          --            --           --            --      (2,053,944)   (2,053,944)
                                --------  --------  ----------   -----------  -----------   -----------   -----------   -----------
Balance at May 31, 2006 .......     --    $   --     9,147,664   $ 3,062,566  $ 1,324,509   $(1,601,912)  $(3,169,071)  $  (383,908)
                                ========  ========  ==========   ===========  ===========   ===========   ===========   ===========



                 See accompanying notes to financial statements

                                      F-5




                                  CYTODYN, INC.
                          (A Development Stage Company)
                            Statements of Cash Flows



                                                          For the Year Ended       October 28, 2003
                                                               May 31,                (Inception)
                                                     --------------------------         through
                                                         2006           2005         May 31, 2006
                                                     -----------    -----------    ----------------
                                                     As Restated                     As Restated
                                                    (See Note 14)                   (See Note 14)
                                                     -----------                   ----------------
                                                                          
Cash flows from operating activities:
   Net loss ......................................   $(2,053,944)   $  (777,083)   $     (3,169,071)
   Adjustments to reconcile net loss to net cash
    used by operating activities:
     Depreciation ................................         2,101          1,671               3,976
     Gain on derivative liability ................          --             --                  --
     Loss on debt extinguishment .................          --             --                  --
     Additional interest on debt
       conversion (Note 4) .......................       356,032           --               356,032
     Stock-based compensation (Note 6) ...........       792,702         11,928             804,630
     Changes in current assets and liabilities:
       Increase in prepaid expenses ..............        (4,759)       (25,039)            (46,100)
       Increase in deposits ......................          --             --                  (495)
       Increase in accounts payable
        and accrued liabilities ..................       305,794         93,844             389,510
                                                     -----------    -----------    ----------------
           Net cash used in
            operating activities .................      (602,074)      (694,679)         (1,661,518)
                                                     -----------    -----------    ----------------

Cash flows from investing activities:
   Equipment purchases ...........................          (936)        (3,167)             (7,438)
                                                     -----------    -----------    ----------------
           Net cash used in
            investing activities .................          (936)        (3,167)             (7,438)
                                                     -----------    -----------    ----------------

Cash flows from financing activities:
   Capital contributions by officer ..............          --            5,512               5,512
   Proceeds from notes payable issued to
    related parties (Note 5) .....................          --          385,300             501,126
   Proceeds from notes payable issued to
    individuals (Note 4) .........................       509,500        121,000             580,500
   Proceeds from the sale of common stock (Note 6)       245,767           --               785,767
   Payment of offering costs (Note 6) ............       (27,867)          --               (81,867)
                                                     -----------    -----------    ----------------
           Net cash provided by
            financing activities .................       727,400        511,812           1,791,038
                                                     -----------    -----------    ----------------

            Net change in cash ...................       124,390       (186,034)            122,082

Cash, beginning of period ........................           930        186,964               3,238
                                                     -----------    -----------    ----------------

Cash, end of period ..............................   $   125,320    $       930    $        125,320
                                                     ===========    ===========    ================

Supplemental disclosure of cash flow information:
   Income taxes ..................................   $      --      $      --                  --
                                                     ===========    ===========    ================
   Interest ......................................   $      --      $       234    $            687
                                                     ===========    ===========    ================

   Non-cash investing and financing transactions:
    Net assets acquired in exchange for common
     stock in CytoDyn/Rexray business
     combination (Note 1) ........................   $      --      $      --      $          7,542
                                                     ===========    ===========    ================
    Common stock issued to former officer to
     repay working capital advance ...............   $      --      $      --                 5,000
                                                     ===========    ===========    ================
    Common stock issued for debt (Note 4) ........   $   120,082    $      --      $        120,082
                                                     ===========    ===========    ================
    Options to purchase common stock issued
     for debt (Note 7) ...........................   $    86,341    $      --      $         86,341
                                                     ===========    ===========    ================
    Common stock issued for convertible
     debt (Note 4) ...............................   $   437,500    $      --      $        437,500
                                                     ===========    ===========    ================



                 See accompanying notes to financial statements

                                      F-6


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


(1)      Summary of Significant Accounting Policies

Organization and Basis of Presentation

CytoDyn, Inc. (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".

The Company plans to develop therapeutic agents for use against the disease
associated with Human Immunodeficiency Virus ("HIV"). The Company intends to
develop and obtain FDA approval for the use of monoclonal antibodies to treat
patients with HIV by protecting the cells of the body's immune system that are
otherwise killed by the disease. The Company is continuing the research and
development of a treatment for HIV, using technology licensed to it by the
Company's president, and may either repeat Phase I trials, if necessary for
non-clinical reasons, or with FDA approval, conduct a Phase II(b) study. The
Company has not derived any revenues from the licensed technology, but the
Company is planning to pursue further clinical trials.

Also, on July 17, 2006, the Company acquired a wholly owned subsidiary (see Note
12). Advanced Influenza Technologies Inc (AITI) which has licensed a portfolio
of patents from the University of Massachusetts for the development of a family
of plasmid-DNA products to protect human subjects against several strains of
influenza (the flu). The University has until one year from the effective date
of the contract to manufacture, successfully test, and deliver to AITI three
"seeds" that can be used for the commercial manufacturing of plasmid-DNA
products or, in the alternative, a single polyvalent product, depending upon
what the FDA might require. In the event the University fails to make timely
delivery of these seeds, AITI could then abandon the project with no further
financial obligations or could continue with a different timeline.

CytoDyn is also negotiating with Kings College in London, England for the
formulation of Formaxycin(TM) as a topical dermatological product to improve the
appearance of human skin by eliminating dysplastic conditions.

On October 27, 2003, Rexray changed its name to CytoDyn, Inc.

Acquisition Agreement
---------------------
On October 28, 2003, Rexray, the former Securities and Exchange Commission
("SEC") Registrant, entered into an Acquisition Agreement (the "Agreement") with
CytoDyn of New Mexico, Inc. ("CytoDyn NM"), a company incorporated under the
laws of New Mexico on June 4, 1994. Under the terms of the Agreement, Rexray
agreed to acquire some of the assets of CytoDyn NM in exchange for 5,362,640
shares of its common stock. Following the acquisition, the former shareholders
of CytoDyn NM held approximately 85.8 percent of the Company's outstanding
common stock, resulting in a change in control. However, for accounting

                                      F-7


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


purposes, the acquisition has been treated as a recapitalization of CytoDyn NM,
with Rexray the legal surviving entity. Since Rexray had minimal assets and no
operations, the recapitalization has been accounted for as the sale of 890,000
shares of CytoDyn NM common stock for the net assets of Rexray. Therefore, the
historical financial information prior to the date of the reverse business
acquisition is the financial information of CytoDyn NM.

Prior to the Agreement, both Rexray and CytoDyn NM had insignificant operations
and were not devoting efforts to establishing a business. Following the
Agreement, the Company began devoting substantially all efforts to establishing
a new business, but planned principal operations have not yet commenced. As a
result, the Company's inception into the development stage has been established
at October 28, 2003 and, in accordance with SFAS No. 7, the accompanying
financial statements report cumulative financial information from the date of
its inception into the development stage.

Under the terms of the Agreement, CytoDyn NM:

    o    Assigned the patent license agreement between CytoDyn NM and Allen D.
         Allen covering United States patent numbers 5424066, 5651970, and
         6534057, and related foreign patents and patents pending, for a method
         of treating HIV disease with the use of monoclonal antibodies;
    o    Assigned its trademarks, CytoDyn and Cytolin, and related trademark
         symbol; and
    o    Paid $10,000 in cash

In consideration for the above, the Registrant:

    o    Effected a one-for-two reverse split of its common stock;
    o    Issued 5,362,640 shares of its common stock to the shareholders of
         CytoDyn NM;
    o    Amended its Articles of Incorporation to change its name to CytoDyn,
         Inc.; and
    o    Accepted $161,578 in liabilities related to the assigned assets

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 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.

Use of Estimates

The preparation of financial statements in accordance with generally accepted
accounting principles 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 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 at May 31, 2006.

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 3 to 7 years. Maintenance and repairs are charged to expense as


                                      F-8


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


incurred and major improvements or 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.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS 109). SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Research and Development

Research and development costs are expensed as incurred.

Earnings (Loss) per Common Share

Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if potentially dilutive common shares had been issued.

At May 31, 2006, there was no variance between basic and diluted loss per share
as there were no potentially dilutive common shares outstanding.

Financial Instruments

At May 31, 2006, the fair value of the Company's financial instruments
approximate fair value due to the short-term maturity of the instruments.

Stock-based compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board ("APB") Opinion 25, "Accounting for
Stock Issued to Employees" and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the


                                      F-9


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


provisions of SFAS No. 123. SFAS 123 requires the fair value based method of
accounting for stock issued to non-employees in exchange for services.

Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company has
elected to continue to determine the value of stock-based compensation
arrangements under the provisions of APB 25. Pro forma disclosures are included
in Note 6.

Recent accounting pronouncements

In November 2004, FASB issued FASB Statement No. 151, Inventory Costs, which
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted materials by requiring those items to be recognized as current
period charges. Additionally, FASB Statement No. 151 requires that fixed
production overheads be allocated to conversion costs based on the normal
capacity of the production facilities. The new standard is effective
prospectively for inventory costs incurred in fiscal years beginning after June
15, 2005. We will adopt the FASB Statement No. 151 on January 1, 2006, and we do
not expect its adoption to have a material effect on our financial position,
results of operations, or cash flows.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29." This Statement eliminates the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect application of SFAS No. 153 to have a material affect on its financial
statements.

In December 2004, the FASB issued FASB Statement No. 123(R), Share-Based
Payment, which is a revision to FASB Statement No. 123, Accounting for
Stock-Based Compensation (FASB 123). FASB Statement No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. We
adopted the fair value based method of accounting for share-based payments
effective June 1, 2006 using the retroactive restatement method described in
FASB Statement No. 148, Accounting for Stock-Based Compensation -- Transition
and Disclosure. Currently, we use the Black-Scholes valuation model to estimate
the value of stock options granted to employees. We expect to adopt FASB
Statement No. 123(R) on June 1, 2006 and expect to apply the modified
prospective method upon adoption. The modified prospective method requires
companies to record compensation cost beginning with the effective date based on
the requirements of FASB Statement No. 123(R) for all share-based payments
granted after the effective date. All awards granted to employees prior to the
effective date of FASB Statement No. 123(R) that remain unvested at the adoption
date will continue to be expensed over the remaining service period in
accordance with FASB 123. We are still in the process of determining the impact
that the adoption of Statement No. 123(R) will have on our financial position,
results of operations or cash flows.

In June 2005, the FASB ratified the consensus reached in EITF Issue No. 05-5,
"Accounting for Early Retirement or Post-employment Programs with Specific
Features (Such As Terms Specified in Altersteilzeit Early Retirement
Arrangements)". EITF Issue No. 05-5 addresses the timing of recognition of
salaries, bonuses and additional pension contributions associated with certain
early retirement arrangements typical in Germany (as well as similar programs).
The Task Force also specifies the accounting for government subsidies related to
these arrangements. EITF Issue No. 05-5 is effective in fiscal years beginning
after December 15, 2005. The adoption of EITF Issue No. 05-5 is not expected to


                                      F-10


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


have a material impact on our financial position, results of operations or cash
flows.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes , which is effective for fiscal years beginning
after December 15, 2006. Earlier adoption is permitted as of the beginning of
the fiscal year, provided an enterprise has not yet issued financial statements,
including financial statements for any interim period, for that fiscal year.
FASB Interpretation No. 48 clarifies the accounting for uncertainty in income
taxes recognized in the financial statements by prescribing a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
new Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition The adoption of FASB Interpretation No. 48 is not expected to have a
material impact on our financial position, results of operations or cash flows.

We have determined that all other recently issued accounting pronouncements will
not have a material impact on our financial position, results of operations or
cash flows or do not apply to our operations.

(2)      Property and Equipment

Property and equipment are as follows at May 31, 2006:

Equipment                       $     2,816
Furniture                             1,722
                                -----------
  Total                               4,538
Less accumulated depreciation        (2,204)
                                -----------
  Net property and equipment    $     2,334
                                ===========

Depreciation expense for 2006 was $2,204

(3)      Intangible Assets

Intangibles are as follows at May 31, 2006:

                                  Website
                                -----------
Cost                            $     2,900
Less accumulated amortization        (1,772)
                                -----------
  Net intangibles               $     1,128
                                ===========

Estimated annual amortization expense at May 31, 2006:

       Fiscal year ended
--------------------------------
            5/31/2007                   967
            5/31/2008                   161



                                      F-11


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


Amortization expense for 2006 was $967.

(4)      Notes Payable

As of May 31, 2005, the Company 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 matured one year from the date of the
note. On August 29, 2005, the Company extinguished the outstanding promissory
notes and related accrued interest with the issuance of 160,110 shares of its
common stock and payment of $3,189 representing $3,172 in principal and accrued
interest and $17 in lieu of fractional shares.

Convertible Note Payable

During the year ended May 31, 2006, the Company issued convertible promissory
notes and warrants to purchase common stock to individuals in exchange for
proceeds totaling $509,500. 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. Accrued interest on the notes totaled
$5,267 at May 31, 2006.

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. Pursuant to APB No. 14, the Company valued the warrants
at their relative fair value of $274,950. To recognize the relative fair value
of the warrants, the Company discounted the notes and increased additional paid
in capital in the financial statements. The discount is amortized over the term
of the notes. During the year ended May 31, 2006, the Company amortized $56,846
of the discount.

In accordance with EITF 98-5 and EITF 00-27, the Company valued the intrinsic
value of the embedded beneficial conversion feature related to the option for
conversion into the Company's common stock at $234,550. To recognize the
beneficial conversion feature, the Company discounted the notes and increased
additional paid-in capital in the accompanying consolidated financial
statements. The discount is amortized over one year. During the year ended May
31, 2006, the Company amortized $48,485 of the discount.

During May 2006, convertible notes totaling $437,500 were converted to 350,000
shares of common stock. Pursuant to EITF 00-27, the Company recognized the
amortized discount of $356,032 as additional interest expense.

Following is a schedule of the convertible notes payable net of discount at May
31, 2006:

Notes Payable                     $  509,500
Less converted                      (437,500)
Warrants discount                    (25,977)
Beneficial conversion discount       (22,160)
                                  ----------
                                  $   23,863
                                  ==========

(5)      Intentionally Deleted


                                      F-12


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


(6)      Related Party Transactions

As of May 31, 2005, the Company owed two officers promissory notes totaling of
$86,502. The notes are due on demand and carry no interest rate. On June 2,
2005, an officer advanced the Company an additional $5,000 for working capital;
on July 13, 2005, the Company repaid an officer $38,324; on August 31, 2005, an
officer advanced the Company $197; and on January 4, 2006, an officer advanced
the company $18,000. 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 May 31, 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 May 31, 2005, the Company owed the former director $87,185
for legal services. During the year ended May 31, 2006, the Company incurred an
additional $13,800 in legal services and repaid the former director $30,000. The
Company also extinguished $24,000 by issuing 60,000 options to purchase the
Company's common stock at $2.28 per share and recognized an additional $134,344
in stock-based compensation. The remaining balance of $46,985 is included in the
accompanying financial statements as "Indebtedness to related parties". As of
May 31, 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 will grant 83,122 non-qualified stock options with an
         exercise price of $.75 per share that will vest immediately and be
         exercisable over 5 years.

    -    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 $275,000 is included in the accompanying
financial statements as "Indebtedness to related parties".


                                      F-13


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


(7)      Shareholders' Equity

Preferred Stock

The Board of Directors is authorized to issue shares of preferred stock in
series and to fix the number of shares in such series as well as the
designation, relative rights, powers, preferences, restrictions, and limitations
of all such series. The Company had no preferred shares issued and outstanding
at May 31, 2006.

Common Stock Sales

The Company filed a Registration Statement on Form SB-2 with the SEC to offer
450,000 common shares for sale at a price of $.75 per share. The SEC declared
the Form SB-2 effective June 17, 2005. The Company completed its public offering
on July 31, 2005. The Company sold 289,890 shares of its common stock for net
proceeds of $189,550, after deducting offering costs totaling $27,867.

Common Stock for Services

During the year ended May 31, 2006, the Company issued 1,000 restricted common
shares to an individual for services performed in September 2005. The Company
valued the stock at the price it sold its shares at its public offering and
recognized $750 as stock-based compensation.

During the year ended May 31, 2006, the Company issued 142,857 restricted common
shares to a public relations company in accordance with an agreement to perform
services over the following year. The Company valued the shares at the bid price
on the date the agreement was executed in the amount of $250,000, of which
$86,473 was recognized as stock-based compensation and $163,527 is included in
prepaid expenses.

During the year ended May 31, 2006, the Company issued 40,000 restricted common
shares to a consulting company in accordance with an agreement to perform
services over the following year. The Company valued the shares at the open
price on the date the agreement was executed in the amount of $120,000, of which
$17,753 was recognized as stock-based compensation and $102,247 is included in
prepaid expenses.

Common Stock Awards

During the year ended May 31, 2004, the Company committed to grant to its
financial representative, J.P. Turner & Co. and Max O. Gould, an employee of
J.P. Turner & Co., warrants to purchase 426,000 shares of the Company's common
stock. The warrants carry an exercise price of $.30 per share, vest on the date
of grant and expire after five years from the date of grant. The warrants were
granted on November 25, 2004. On September 22, 2005, warrants to purchase 94,500
shares of the Company's common stock at $.30 per share were exercised. The
Company received proceeds of $28,350.

The Company's common stock had no traded market value on the date of grant. The
market value of the stock was determined to be $.30 per share based on
contemporaneous sales of common stock to unrelated third party investors. The
weighted average exercise price and weighted average fair value of these
warrants as of November 30, 2004 were $0.30 and $0.028, respectively.

The fair value for the warrants granted during the year ended May 31, 2005 was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following assumptions:


                                      F-14


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


           Risk-free interest rate....................         2.00%
           Dividend yield.............................         0.00%
           Volatility factor..........................         0.00%
           Weighted average expected life.............       5 years

During the year ended May 31, 2006, the Company issued warrants to purchase
407,600 shares of the Company's common stock at $2.50 per share in conjunction
with its issuance of convertible debt. (See Note 4, above.) The Company
recognized the relative fair value of the warrants in the amount of $274,950 in
additional paid in capital.

On March 20, 2006, the Company issued non-qualifying options to purchase 50,000
shares of its common stock at $2.28 per share to consultants. The options vested
immediately and expire in ten years. The Company valued the options at $2.64 per
share using the Black-Scholes option pricing model and recognized $131,953 as
stock-based compensation. The Company also issued non-qualifying options to
purchase 60,000 shares of its common stock at $2.28 per share to extinguish
$24,000 debt to a related party and recognized an additional $134,344 as stock
based compensation. (See Note 6, above.)

On March 20, 2006, the Company issued non-qualifying options to purchase 340,000
shares of its common stock at $2.28 per share to directors and consultants.
Twenty-five percent of the options vested immediately and the balance vest 1/48
per month over four years. The Company valued the options at $2.64 per share
using the Black-Scholes option pricing model and recognized $252,363 as
stock-based compensation.

On March 20, 2006, the Company issued non-qualifying options to purchase 83,122
shares of the Company's common stock at $0.75 per share to a related party. (See
Note 5, above.) The options vested immediately. The Company valued the options
at $212,721 and recognized $150,380 as stock-based compensation and $62,341 as
debt reduction.

On May 15, 2006, the Company issued non-qualifying options to purchase 50,000
shares of its common stock 25,000 at $1.96 per share. Twenty-five percent of the
options vested immediately and the balance vest 1/48 per month over four years.
The Company valued the options at $2.27 per share using the Black-Scholes
options pricing model and recognized $18,686 as stock-based compensation.

The fair value for the warrants granted during the year ended May 31, 2006 was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

           Risk-free interest rate....................     4.61% - 5.15%
           Dividend yield.............................         0.00%
           Volatility factor..........................   146.03% - 150.53%
           Weighted average expected life.............     5 - 10 years

Stock Options - Employees

During May 2004, the Company granted 150,000 common stock options to an officer
with exercise prices ranging from $.50 to $1.50 per share. The Company's common
stock had no traded market value on the date of grant. The market value of the
stock was determined to be $.30 per share base on contemporaneous sales of


                                      F-15


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


common stock to unrelated third party investors. The weighted average exercise
price and weighted average fair value of these options as of May 31, 2004 were
$1.00 and $.-0-, respectively. 50,000 options vest on May 10, 2005, an
additional 50,000 options vest on May 1, 2006, and the final 50,000 options vest
on May 1, 2007.

On March 20, 2006, the Company granted incentive stock options to purchase
85,000 shares of the Company's common stock with exercise prices ranging from
$2.68 to $2.95 per share. The Company's common stock traded at $2.68 per share
on the date of grant. The Company valued the shares at their intrinsic value
pursuant to APB No. 25, recognizing $-0- stock-based compensation.

Pro forma information regarding net income and earnings per share is required by
SFAS 123 as if the Company had accounted for its granted stock options under the
fair value method of that Statement. The fair value for the options granted
during the fiscal year ended May 31, 2004 was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

           Risk-free interest rate....................         3.00%
           Dividend yield.............................         0.00%
           Volatility factor..........................         0.00%
           Weighted average expected life.............       3.years

The fair value for the options granted during the fiscal year ended May 31, 2006
was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions:

           Risk-free interest rate....................         4.66%
           Dividend yield.............................         0.00%
           Volatility factor..........................       146.03%
           Weighted average expected life.............        10.00

The Black-Scholes options valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options prior to its public offering had
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options. The options granted in 2004 were determined to have $-0- fair value.
The Company has presented the pro forma net loss and pro forma basic and diluted
loss per common share using the assumptions noted above.



                                      F-16




                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements



                                                        For The Years Ended        October 28, 2003
                                                              May 31,                (Inception)
                                                   ----------------------------        through
                                                       2006            2005          May 31, 2006
                                                   ------------    ------------    ----------------
                                                                          
Net loss, as reported                              $ (2,053,944)   $   (777,083)   $     (3,169,071)

Add:  Stock-based employee compensation                    --              --                  --
expense included in reported net income, net of
related tax effects

Deduct: Total stock-based employee                     (107,775)           --              (107,775)
                                                   ------------    ------------    ----------------
compensation expense determined under fair
value based method for all awards, net of
related tax effects

Proforma net income                                $ (2,161,719)   $   (777,083)   $     (3,276,846)
                                                   ============    ============    ================

Basic and diluted earnings per share as reported   $      (0.24)   $      (0.12)
Basic and diluted earnings per share proforma      $      (0.25)   $      (0.12)


The following schedule summarizes the changes in the Company's outstanding stock
awards:



                                Awards           Awards           Awards
                              Outstanding      Exercisable      Exercisable       Weighted
                            --------------   --------------   --------------       Average
                               Number of        Number of     Exercise Price   Exercise Price
                                Shares           Shares          Per Share        Per Share
                            --------------   --------------   --------------   --------------
                                                                   
Balance at May 31, 2005            576,000          476,000   $0.30 to $1.50    $      0.48
  Awards granted                 1,050,722          744,285   $0.75 to $2.95    $      2.28
  Awards vested                          -           50,000       $1.00         $      1.00
  Awards exercised                 (94,500)         (94,500)      $0.30         $     (0.30)
  Awards canceled/expired                -                -                -    $       -
                            --------------   --------------   --------------   --------------
Balance at May 31, 2006          1,532,222        1,175,785   $0.30 to $2.95    $       1.71



                                      F-17


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


(8)      Income Taxes

A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate is as follows:

                                                 For the Years Ended
                                                 May 31,      May 31,
                                                  2006         2005
                                               ----------   ----------
       U.S. statutory federal graduated rate       34.00%       34.00%
       State income tax rate,
         net of federal benefit ............        3.06%        3.06%
       Net operating loss for which no tax
          benefit is currently available ...      (37.06%)     (37.06%)
                                               ----------   ----------
                                                    0.00%        0.00%
                                               ==========   ==========

At May 31, 2006, federal and state deferred tax assets consisted of a net tax
asset of $534,985, which was fully allowed for in the valuation allowance of
$534,985. The valuation allowance offsets the net deferred tax asset for which
there is no assurance of recovery. The change in the valuation allowance for the
years ended May 31, 2006 and 2005 totaled $534,985 and $287,954. The current tax
benefits also totaled $534,985 and $287,954 for the years ended May 31, 2006 and
2005. The net operating loss carryforward expires through the year 2026.

The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.

Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.

(9)      Commitments and Contingencies

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.

In connection with that settlement, Mr. Lewis and Maya LLC were awarded by the
Los Angeles Superior Court attorneys' fees in the amount of approximately
$150,000. We have appealed the Court's order. The matter has not yet been
briefed. Management believes it is reasonably possible that we will not prevail
on appeal. A $150,000 liability has been accrued on the Company's accompanying
financial statements.


                                      F-18


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


(10)     General and Administrative Expenses

General and administrative expenses consist of the following:

                                               For The Years Ended
                                                     May 31,
                                             -----------------------
                                                2006         2005
                                             ----------   ----------
            Salaries and payroll taxes ...   $  213,295   $  154,879
            Legal ........................      182,412      116,801
            Consulting ...................       40,686         --
            Other professional fees ......       15,076       35,117
            Patent fees ..................       28,997       18,299
            Insurance ....................       41,810       36,234
            Office, travel, and other ....       97,288       12,012
                                             ----------   ----------
                                             $  619,564   $  373,342
                                             ==========   ==========

(11)     Litigation

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

                                      F-19


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


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 .

(13)    Subsequent Events

On July 17, 2006 we acquired Advanced Influenza Technologies, Inc. (AITI) as a
wholly owned subsidiary. AITI has licensed a portfolio of patents from the
University of Massachusetts for the development of a family of plasmid-DNA
products to protect human subjects against several strains of influenza (the
flu). The University has until one year from the effective date of the contract
to manufacture, successfully test, and deliver to AITI three "seeds" that can be
used for the commercial manufacturing of plasmid-DNA products or, in the
alternative, a single polyvalent product, depending upon what the FDA might
require. In the event the University fails to make timely delivery of these
seeds, AITI could then abandon the project with no further financial obligations
or could continue with a different timeline.

(14)     Restatement

The Company has restated its May 31, 2006 Financial Statements to correct an
error in accounting for the beneficial conversion feature associated with the
convertible notes payable discussed in Note 4. The beneficial conversion feature
was originally bifurcated, valued at its fair value, and classified as a
derivative liability pursuant to SFAS 133.

As discussed in Note 4, because the value of the shares due upon conversion at
the option of the holder is fixed at $1.25 per share, it is considered
conventional convertible debt and it has been valued at its intrinsic value
under EITF 98-5, classified as equity, with interest expense recognized over the
life of the debt.

The Company is also correcting an error in accounting for its stock-based
compensation. The Company previously used weekly stock quotes to compute
volatility used in the Black Scholes model for option pricing. The Company
recalculated volatility using daily quotes.


                                      F-20


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements


The following sets forth the effects of the restatement discussed above. Amounts
reflected "As Previously Reported" represent those amounts included in the
Company's initial annual report on Form 10-KSB for the year ended May 31, 2006.



                                  Balance Sheet
                                  May 31, 2006

                                          As
                                      Previously
                                       Reported      Adjustment    As Restated
                                     -----------    -----------    -----------
Derivative liability                 $    75,456    $   (75,456)   $      --
Total current liabilities            $   741,801    $   (75,456)   $   666,345
Total liabilities                    $   891,801    $   (75,456)   $   816,345

Additional paid in capital           $   834,809    $   489,700    $ 1,324,509
Deficit accumulated during
 development stage                   $(2,754,827)   $  (414,244)   $(3,169,071)
Total shareholders' deficit          $  (459,364)   $    75,456    $  (383,908)



                             Statement of Operations
                                  May 31, 2006

                                          As
                                      Previously
                                       Reported      Adjustment    As Restated
                                     -----------    -----------    -----------
Stock-based compensaton              $   537,552    $   255,150    $   792,702
Interest expense                     $  (112,846)   $  (356,032)   $  (468,878)
Gain on derivative liability         $   159,094    $  (159,094)   $      --
Gain (loss) on debt extinguishment   $  (356,032)   $   356,032    $      --
Loss before income taxes             $(1,639,700)   $  (414,244)   $(2,053,944)
Net loss                             $(1,639,700)   $  (414,244)   $(2,053,944)
Basic and diluted loss per share     $     (0.19)   $     (0.05)   $     (0.24)




                                      F-21


                                  CYTODYN, INC.
                          (A Development Stage Company)
                          Notes to Financial Statements



                  Statement of Changes in Shareholders' Deficit
                                  May 31, 2006

                                          As
                                      Previously
                                       Reported      Adjustment    As Restated
                                     -----------    -----------    -----------
January through May 2006,
 beneficial conversion on
 convertible note payable
 (additional paid in capital)        $      --      $   234,550    $   234,550
March though May 2006, stock
 options granted to consultants      $   432,576    $   255,150    $   687,726
Net loss, year ended May 31, 2006    $(1,639,700)   $  (414,244)   $(2,053,944)
Balance, December 31, 2005
  Additional paid in capital         $   834,809    $   489,700    $ 1,324,509
  Deficit Accumulated During
   Development Stage                 $(2,754,827)   $  (414,244)   $(3,169,071)
  Total                              $  (459,364)   $    75,456    $  (383,908)



                            Statement of Cash Flows
                                  May 31, 2006

                                          As
                                      Previously
                                       Reported      Adjustment    As Restated
                                     -----------    -----------    -----------
Net loss                             $(1,639,700)   $  (414,244)   $(2,053,944)
Gain on derivative liability         $  (159,094)   $   159,094    $      --
Loss on debt extinguishment          $   356,032    $  (356,032)   $      --
Additional interest on debt
 conversion                          $      --      $   356,032    $   356,032
Stock-based compensation             $   537,552    $   255,150    $   792,702
Net cash used in operating
 activities                          $  (602,074)   $      --      $  (602,074)





                                      F-22