Filing summary
Important identification note: The request identifies Silo Pharma, Inc., but the supplied filing is for Uppercut Brands, Inc. (ticker UCUT at year-end 2019; previously PTCI). This is a Form 10-K for the fiscal year ended December 31, 2019, filed March 20, 2020—not a quarterly report. Confirm the intended company and filing before relying on this summary.
Business context and reporting period
Uppercut had shifted from operating as a business development company to developing and selling apparel, principally its NFID streetwear brand. NFID began launching apparel during 2019, but sales remained minimal. The company described a direct-to-consumer strategy using social media, influencers, limited product releases, and events. It reported one employee, its CEO, with other functions handled by executives or outside providers.
The company’s 2018 financial statements were not restated for its September 2018 change from investment-company to corporate accounting; some comparative figures were reclassified. This transition may affect comparability.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $40,569 | $0 |
| Cost of sales | $27,387 | $0 |
| Gross profit (margin) | $13,182 (32.5%) | $0 |
| Operating expenses | $943,585 | $594,242 |
| Loss from operations | $(930,403) | $(594,242) |
| Net loss | $(1,013,294) | $(969,463) |
| Net loss per common share, basic and diluted | $(0.04) | $(0.02) |
| Cash used in operating activities | $(794,324) | Cash provided: $272,637 |
| Cash and cash equivalents at year-end | $111,752 | $336,679 |
| Working capital at year-end | $377,108 | $578,002 |
Revenue in 2019 included $40,000 from shoe sales and $569 from NFID products. One customer accounted for approximately 98.6% of sales; the filing says the company did not expect further sales from that customer and was no longer selling shoes. The reported 32.5% gross margin therefore reflects a very small and concentrated revenue base.
Operating expenses rose by $349,343, led by higher professional fees and compensation, plus $63,465 of product-development costs. Net loss increased by $43,831 (4.5%); lower net other expense partly offset the larger operating loss. That other expense included a $138,032 realized investment gain and a $170,191 unrealized investment loss.
At December 31, 2019, total assets were $493,845 and current liabilities were $116,737. Stockholders’ deficit was $22,892, alongside $400,000 of redeemable Series A preferred stock presented as temporary equity. Current assets included $200,000 of net notes receivable and $156,366 of inventory. Cash declined by $224,927 during the year.
In October 2019, the company issued convertible notes with $330,000 principal, receiving $295,000 net proceeds after discount and fees. The notes were due in October 2020, carried no interest before default, and were convertible at $0.20 per share; the year-end carrying amount, net of discount, was $61,875. The financing also included warrants for 1,650,000 shares at $0.20. In November, the company received $110,000 net from Series B preferred stock and issued warrants for 575,000 shares at $0.20. The notes and preferred stock have conversion and adjustment provisions that may dilute common shareholders.
Material changes, outlook and risks
- Management and the auditor stated that substantial doubt existed about the company’s ability to continue as a going concern. Management said available cash was insufficient for at least 12 months from the report date and that additional financing was needed; failure to obtain it could require curtailed operations or cessation.
- The company reported no formal revenue or earnings guidance. Management’s stated plan was to seek additional debt or equity financing and develop and market NFID.
- Operating and financing risks include minimal sales, customer concentration, reliance on two principal inventory suppliers, thinly traded OTC shares, and dependence on outside service providers. The company also reported an accumulated deficit of $2,655,804.
- Disclosure controls and internal control over financial reporting were deemed ineffective at year-end due to material weaknesses, including limited segregation of accounting duties and inadequate system and manual controls. The auditor did not provide an internal-control attestation.
- The financial statements received an unqualified audit opinion, but the auditor’s report highlighted the going-concern uncertainty. The company recorded a $29,440 trademark impairment in 2019; trademarks were written down to zero.
- The filing says the company sold notes receivable and related interest balances totaling $277,305 in December 2019, with payment dependent on installments or liquidation of settlement securities. It also describes a January 2020 settlement in which the company received 10,420 shares of the seller’s Series B preferred stock. The filing does not clearly explain the ultimate cash recovery or reconcile these arrangements.
Key facts for investors to verify
- Confirm whether this Uppercut Brands filing is the intended filing; it does not concern Silo Pharma.
- Verify the status and collectability of the notes receivable and the value or disposition of the 10,420 settlement shares.
- Check whether the October 2020 convertible notes were repaid, converted, extended, or defaulted, and assess the dilution and any applicable price adjustments.
- Review subsequent cash balances, financing, sales, and operating plans given the going-concern warning and limited 2019 revenue.
- Assess inventory recoverability and supplier concentration, and determine whether the company restored effective financial reporting controls.