Business context and reporting period
Filing identity: The supplied filing is Uppercut Brands, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2020, filed August 14, 2020. It is not filed under Silo Pharma, Inc.; Silo Pharma is identified as Uppercut’s newly formed subsidiary.
Uppercut reported a minimally operating NFID apparel business and described exploring a shift into pharmaceutical and university-licensed technology. In July 2020, its subsidiary Silo Pharma entered a University of Maryland, Baltimore evaluation and option agreement concerning CNS-homing peptides and potential applications in multiple sclerosis and other neuroinflammatory conditions.
Financial results and liquidity
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | $2,216 | $2,510 |
| Gross profit | $883 | $1,093 |
| Gross margin | About 40% | About 44% |
| Operating loss | $(996,693) | $(1,156,051) |
| Net loss | $(1,375,031) | $(1,613,908) |
| Net loss available to common stockholders | $(1,444,031) | $(1,682,908) |
| Basic and diluted loss per share | $(0.04) | $(0.04) |
For the six months, operating cash used was $340,056, investing cash provided was $15,000, and financing cash provided was $2,132,633. Cash increased by $1,807,577 to $1,919,329. Financing was primarily from common-stock sales. At June 30, current assets were $2,795,997, current liabilities were $80,051, and working capital was $2,715,946. Total liabilities were $91,693, including an $18,900 PPP note; the October 2019 convertible notes had been exchanged for common stock and no longer remained outstanding. The balance sheet also reported $400,000 of redeemable Series A preferred stock, converted into 2,000,000 common shares on August 3, 2020.
Material changes versus the prior comparable period
- Revenue rose from zero in the first half of 2019 to just $2,510 in the first half of 2020; the business remained at a very early commercial stage.
- Six-month net loss increased to $1.61 million from $365,734. Operating expenses rose to $1.16 million from $364,439, driven chiefly by stock compensation and professional fees.
- Other expense increased substantially, including $268,125 of debt-discount amortization and a $198,000 loss on extinguishment of convertible debt. A $69,000 deemed dividend from the Series B exchange further increased the loss attributable to common stockholders.
- Cash and working capital increased materially, principally after the April 2020 private placement, which raised $2,399,500 gross and $2,038,090 net, and additional share sales. Common shares outstanding increased to 83,141,956 at quarter-end from 23,604,207 at year-end 2019.
Outlook, risks, contingencies and unusual items
- Going concern: Management said substantial doubt exists about the company’s ability to continue as a going concern for the twelve months following issuance. It stated available cash would not meet working-capital needs for at least twelve months and that additional financing may be needed; without funding, operations may be curtailed. No financing agreements were in place.
- Strategy and costs: Management was exploring university technology and rare-disease opportunities while continuing NFID apparel plans. The UMB agreement requires a $10,000 initial license fee and grants an evaluation license plus an option to negotiate a further license; this was a subsequent event, not a quarter-end operating result.
- COVID-19: Management reported no material operational impact to date, but could not estimate the pandemic’s duration or eventual effects. It cited possible weaker product demand and reduced access to capital.
- Other risks: The company depended substantially on two suppliers for raw materials and inventory. Series A preferred stock had redemption rights triggered by specified events. The April private-placement registration-rights agreement provides for liquidated damages, subject to a cap, if specified registration deadlines are missed.
- Controls: Management concluded disclosure controls were not effective at June 30, 2020, citing insufficient segregation of accounting duties, limited management review, and inadequate system and manual controls. No material control changes were reported during the quarter.
- The filing reported no pending material legal proceedings and no material changes to previously disclosed risk factors other than the added economic and COVID-19 risk discussion.
Important facts for investors to verify
- Confirm the issuer: this is an Uppercut Brands, Inc. filing, with Silo Pharma described only as its subsidiary—not a Silo Pharma 10-Q.
- Review the company’s post-quarter financing, cash runway, and any developments affecting management’s going-concern assessment.
- Verify the status, costs, milestones, and rights under the UMB license and option agreement, and whether the proposed pharmaceutical expansion has advanced beyond evaluation.
- Assess the scale and terms of the large equity issuance, related dilution, stock-based compensation, and the August 2020 Series A conversion.
- Track remediation of the disclosed material control weaknesses and compliance with private-placement registration obligations.