Silo Pharma, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020; balance-sheet amounts are compared with December 31, 2020. Silo is an early-stage biopharmaceutical company pursuing licensed research in rare and neuroinflammatory diseases, including psychedelic-related research, while also selling NFID apparel. The filing reports minimal revenue from these activities.
Key financial results
- Revenue: $47,433, versus $294 in Q1 2020, comprising $17,188 of license fees and $30,245 of apparel sales. One licensee generated all biopharma revenue.
- Gross profit and margin: $15,483 and approximately 32.6%, compared with $210 and approximately 71.4%. Apparel cost of revenue ($31,325) exceeded apparel revenue.
- Operating expenses and loss: Operating expenses were $983,586, up from $159,568. Operating loss was $968,103, versus $159,358.
- Net loss: $930,702, versus $238,877. A $1,403,997 deemed dividend on Series C preferred stock increased net loss available to common stockholders to $2,334,699, or $0.03 per share, compared with $0.01 per share in Q1 2020.
- Cash flow: Operating cash use was $311,818, versus $117,609. Investing activities provided $23,500 from a note collection; financing provided $3,796,468, principally from preferred-stock proceeds. Cash increased $3,508,150 to $4,636,539.
- Liquidity: Current assets were $5,481,812 and current liabilities $326,989, yielding working capital of $5,154,823, up from $1,284,941 at year-end 2020. Cash was approximately $4.64 million.
- Debt and liabilities: The PPP loan principal was $18,900 at quarter-end; the company reported it was forgiven in full in April 2021. Total liabilities were $1,273,364, including $1,014,062 of deferred revenue. Stockholders’ equity was $4,227,823.
- Other notable items: Equity investments were reported at $570,200, including a $570,000 fair-value investment in AIkido; the quarter included a $38,750 unrealized gain. Accumulated deficit was $8,097,020.
Material changes versus Q1 2020
- Revenue increased from a very small base, reflecting apparel sales and license-fee recognition under the AIkido agreement.
- Operating expenses increased by $824,018, driven principally by professional fees, compensation, and new research and development activity. Professional fees rose to $698,706 from $77,933.
- Net loss increased by $691,825. Lower interest expense and the unrealized investment gain partly offset higher operating costs.
- Cash and working capital increased following the February Series C financing, which generated $3,794,102 in reported net proceeds. The company issued 4,276 Series C preferred shares and warrants for up to 14,253,323 common shares; placement-agent warrants added potential dilution.
Outlook, risks, contingencies, and unusual items
- Going concern: Management and the financial-statement notes state that substantial doubt exists about the company’s ability to continue as a going concern for 12 months after issuance. Despite quarter-end cash, management said available cash would not meet working-capital needs for at least 12 months and that additional financing may be required. No financing arrangements were in place; failure to raise funds could force curtailment or cessation of operations.
- Research and licensing commitments: The UMB master license carries a $75,000 license fee, sales royalties, milestone payments, minimum royalties after first commercial sale, and sublicense-income sharing. The Maastricht study agreement totals €433,885 (reported as approximately $507,602); the UMB sponsored study is capped at $81,474.
- Subsequent events: In April, AIkido received an exclusive worldwide sublicense, with a $50,000 upfront fee, royalties and milestone payments of up to $1.9 million; the upfront fee was collected after quarter-end. In April, 4,049 Series C shares converted into 13,495,014 common shares, with 227 preferred shares remaining. The company also agreed to contribute $225,000 to a ketamine joint venture with Zylö Therapeutics, initially owning 51% of the venture.
- Risks and contingencies: The filing identifies potential financing needs, clinical-research timing and cost, regulatory and intellectual-property risks, and possible COVID-19-related research delays. The company depends substantially on two inventory suppliers. No material legal proceedings were reported.
- Controls: Management concluded disclosure controls were ineffective because of material weaknesses, including insufficient segregation of duties, inadequate review of complex reporting matters, and inadequate system and manual controls. The company had no audit committee.
- Other unusual exposure: Cash deposits exceeded FDIC insurance limits by approximately $4.388 million at March 31, 2021. The PPP loan forgiveness and joint venture agreement occurred after quarter-end.
Important facts for investors to verify
- Whether the company can secure sufficient financing to address the stated going-concern uncertainty and fund planned research.
- The potential dilution from Series C conversion rights, warrants, and the April conversion; the filing reports 98,671,970 common shares outstanding as of May 14, 2021.
- The status, costs, milestones, and commercial prospects of the UMB, Maastricht, AIkido sublicense, and Zylö joint-venture programs.
- The reported offering expenses are inconsistent: the financial-statement note states $481,898, while MD&A states $484,898. Confirm the correct amount in the underlying filing or transaction disclosures.
- Whether internal-control weaknesses are remediated and whether the company’s highly concentrated, limited revenue base can grow sustainably.