Filing identity and period
Important identity mismatch: The supplied filing is Uppercut Brands, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2020—not a filing identified as Silo Pharma, Inc. The summary below reflects the filing provided. Uppercut Brands describes its business as developing and selling NFID streetwear apparel.
Financial results and position
Unless otherwise noted, amounts are in U.S. dollars.
| Metric | Q1 2020 | Q1 2019 / prior balance-sheet date |
|---|---|---|
| Revenue | $294 | $0 |
| Cost of sales / gross profit | $84 / $210 | $0 / $0 |
| Operating expenses | $159,568 | $174,565 |
| Operating loss | $(159,358) | $(174,565) |
| Net loss | $(238,877) | $(123,523) |
| Net loss per share, basic and diluted | $(0.01) | $(0.01) |
| Cash used in operations | $(117,609) | $(149,524) |
| Cash at period end | $9,143 | $111,752 at Dec. 31, 2019 |
| Working capital | $138,231 | $377,108 at Dec. 31, 2019 |
| Total assets | $403,817 | $493,845 at Dec. 31, 2019 |
| Current liabilities | $265,586 | $116,737 at Dec. 31, 2019 |
Gross margin was approximately 71% on only $294 of sales; revenue is not yet meaningful relative to operating costs. The filing reports no material capital-expenditure commitments. It does not provide a clear standalone total-debt figure; at March 31, convertible notes had $330,000 principal and a $144,375 carrying amount net of discount, and a $15,000 related-party note was outstanding.
Changes versus the prior comparable period
- Net loss increased $115,354 (93.4%), principally because the company recorded $82,500 of noncash convertible-debt discount amortization and did not repeat the prior-year $48,493 unrealized investment gain.
- Operating expenses fell $14,997, including lower professional fees, partly offset by $35,019 in new product-development costs. Operating loss narrowed by $15,207.
- Operating cash use improved by $31,915 year over year, but cash declined $102,609 during Q1. Working capital fell $238,877 from year-end, reflecting lower current assets and higher current liabilities.
Outlook, risks and unusual items
- Going concern: Management says substantial doubt exists about the company’s ability to continue as a going concern for 12 months after the report’s issuance. It states cash on hand is insufficient for at least 12 months and that failure to raise capital could require curtailing operations. The company had minimal revenue and an accumulated deficit of $2,894,681.
- Subsequent financing and conversions: After quarter-end, holders exchanged $330,000 of convertible notes and 1,650,000 warrants for 4,125,000 common shares at $0.08 per share; the company recorded a $198,000 debt-extinguishment loss. Series B preferred stock and related warrants were exchanged for 1,437,500 common shares, with a reported $69,000 deemed dividend. The company also sold 7,764,366 shares for $77,644 at $0.01 per share.
- On April 28, the company sold 29,993,750 shares at $0.08 for $2,399,500 gross proceeds, before $173,950 in placement-agent fees and $118,460 in other offering expenses. Management expected net proceeds to fund working capital and execute its existing business. CEO-related loans of $15,000 and $20,000 were repaid in April.
- Other post-quarter share-based arrangements included 3,468,841 consulting shares, 5,117,343 advisory shares and 7,630,949 shares granted to the CEO. The CEO’s base salary was increased to $120,000. These and the financing and exchange issuances are material dilution considerations.
- COVID-19: Management said operations had not been materially affected as of the report and the business remained open as of May 14, 2020, but it could not estimate the pandemic’s duration or impact; weaker demand and reduced access to capital were identified risks.
- Controls: Disclosure controls and procedures were not effective at March 31, 2020. Reported weaknesses included insufficient segregation of accounting duties, inadequate management review and inadequate system and manual controls.
- The company relies substantially on two suppliers; loss of either could adversely affect operations. It reported no pending material legal proceedings and no material changes to previously disclosed risk factors other than the economic and COVID-19 risks described.
Most important facts for investors to verify
- Confirm the issuer: the provided document is for Uppercut Brands, Inc., not Silo Pharma, Inc.
- Review the going-concern disclosure, cash runway and whether subsequent financing proceeds were sufficient to support operations.
- Reconcile post-quarter share issuances and the filing’s reported 83,141,956 shares outstanding as of May 12, 2020 with the substantial dilution described.
- Verify the accounting and final effects of the debt and preferred-stock exchanges, related losses or deemed dividends, and service-share awards.
- Assess whether NFID sales can scale beyond the reported $294 of quarterly revenue, and monitor operating costs, supplier concentration and remediation of control weaknesses.