Silo Pharma, Inc. — FY 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020, compared with FY 2019. Although the request metadata says “2020 Q4,” this filing reports full-year results; it does not provide a clear standalone fourth-quarter financial summary. Filed March 29, 2021.
Business context
Silo describes itself as a developmental-stage biopharmaceutical company pursuing university and research partnerships for potential therapies in rare diseases, neurological conditions, and mental health, including psychedelic-related research. It also operated the NFID apparel brand, which generated the reported product sales. As of March 25, 2021, the company reported one full-time employee.
Financial results and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Sales | $40,923 | $40,569 |
| Cost of sales | $176,126 | $27,387 |
| Gross profit (loss) | $(135,203) | $13,182 |
| Operating expenses | $2,437,764 | $943,585 |
| Loss from operations | $(2,572,967) | $(930,403) |
| Other expense, net | $(464,550) | $(82,891) |
| Net loss | $(3,037,517) | $(1,013,294) |
| Net loss per common share, basic and diluted | $(0.05) | $(0.04) |
| Cash used in operating activities | $(1,156,996) | $(794,324) |
| Cash and cash equivalents at year-end | $1,128,389 | $111,752 |
| Working capital at year-end | $1,284,941 | $377,108 |
FY 2020 gross margin was approximately negative 331%, versus approximately positive 32% in FY 2019, reflecting cost of sales above sales. A $137,947 inventory write-down was included in FY 2020 cost of sales. No product revenue from the biopharmaceutical business is reported.
Total assets were $1,426,664 and total liabilities were $145,969 at December 31, 2020. Liabilities included a $18,900 Paycheck Protection Program note, of which $14,654 was current and $4,246 long term; the company reported no convertible notes outstanding after exchanging them for common stock in 2020. Operating cash outflow exceeded the prior year; financing activities provided $2,134,633, principally from common-stock sales.
Material changes and unusual items
- Net loss increased by approximately 202% year over year, while operating expenses rose to $2.44 million from $0.94 million. Professional fees and compensation were major expense categories; professional fees included stock-based consulting costs.
- Stock-based compensation was a significant non-cash expense. The company issued 7,630,949 shares to its CEO under an employment agreement, valued at $610,476, and issued shares for advisory and consulting services.
- Common shares outstanding increased from 23,604,207 at year-end 2019 to 85,141,956 at year-end 2020. The filing also reports 85,176,956 shares outstanding as of March 25, 2021.
- In April 2020, the company raised gross proceeds of $2,399,500 in a common-stock private placement and exchanged convertible notes and Series B preferred stock for common shares. The note exchange resulted in a reported debt-extinguishment loss of about $198,000; the preferred-stock exchange resulted in a $69,000 deemed dividend.
- The company recorded $165,376 in bad-debt expense, principally related to a note receivable. The auditor identified valuation of notes and accrued interest receivable as a critical audit matter. The company subsequently collected $23,500 on that receivable on March 10, 2021.
Outlook, risks, and contingencies
- Going concern: Management and the auditor stated that substantial doubt exists about the company’s ability to continue as a going concern for 12 months from the report’s issuance. Management said existing cash would not cover working-capital requirements for at least 12 months and that further financing was needed; failure to obtain it could require curtailing or ceasing operations.
- Subsequent financing: In February 2021, the company raised approximately $4.276 million gross through Series C convertible preferred stock and warrants, before offering costs. The securities include warrants for up to 14,253,323 common shares, plus placement-agent warrants for up to 2,850,664 shares. The financing provides funds but creates potential dilution. The filing says net proceeds were expected to support working capital and execution of the business plan.
- Research and licensing: The Maastricht University Parkinson’s study, signed in November 2020, carries a total fee of 433,885 euros (reported as approximately $507,602), excluding VAT, through 2024. A University of Maryland, Baltimore study agreement of up to $81,474 and the definitive UMB license were entered into after year-end. The UMB license includes a $75,000 fee, royalties, milestone payments, minimum royalties, and a share of sublicense income.
- Licensing income: A January 2021 license to AIkido included a $500,000 cash payment and 2% royalties on defined net sales. The company reported collecting the cash payment in January 2021 and said it would recognize it as revenue over the license term. A February 2021 binding letter of intent with AIkido provided for a further $50,000 fee and royalties tied to the UMB license, subject to completion of the sublicense.
- Regulatory and development risks: The company has no approved therapies and warns that drug development, clinical trials, regulatory approval, patient enrollment, commercialization, reimbursement, and intellectual-property protection are uncertain. Psilocybin and psilocin are Schedule I controlled substances in the United States, creating substantial compliance and potential rescheduling hurdles.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2020. Reported material weaknesses included insufficient segregation of duties and inadequate system and manual controls. The auditor expressed an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- COVID-19: Management said operations had not been materially affected as of the filing, but the eventual impact remained uncertain. No quantitative impact estimate was provided.
Investor facts to verify
- Cash runway and actual financing needs after the February 2021 financing, including offering costs, cash burn, and any further capital raised.
- Potential dilution from Series C conversion, investor and placement-agent warrants, and the company’s increased authorized common shares.
- Progress, costs, milestones, and obligations under the Maastricht and UMB research arrangements, and whether the AIkido sublicense was completed on final terms.
- Collection status and remaining recoverability of receivables, and the timing and accounting for AIkido license consideration and any future royalties.
- Remediation of the disclosed material weaknesses and whether internal controls have become effective.
- Whether NFID operations continue and whether the company can generate meaningful revenue beyond apparel and licensing arrangements.