Filing summary
Company identity discrepancy: The request identifies Silo Pharma, Inc., but the supplied filing is Uppercut Brands, Inc. (formerly Point Capital, Inc.), Form 10-Q for the quarter ended June 30, 2019. This summary covers the supplied filing, not Silo Pharma.
Business context and reporting period
Uppercut had shifted from a business development company to a consumer-products business and was developing NFID, a unisex footwear and apparel brand. It acquired NFID assets in September 2018 and said it was no longer making new equity investments. The unaudited filing reports the three and six months ended June 30, 2019, with comparisons to 2018.
Financial results and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2019 and 2018 | $0 in 2019 and 2018 |
| Operating expenses | $189,874 vs. $76,108 | $364,439 vs. $210,963 |
| Net loss | $242,211 vs. $315,914 | $365,734 vs. $298,365 |
| Basic and diluted loss per share | $0.01 vs. $0.01 | $0.02 vs. $0.01 |
No operating revenue means operating margins are not meaningful. Six-month 2019 net loss included a $45,768 realized investment gain and a $52,339 unrealized investment loss; other expense, net was $1,295.
At June 30, 2019, cash was $76,971; current assets were $306,097; current liabilities were $32,592; and working capital was $273,505. Total assets were $535,537 and stockholders’ equity was $102,945. Current liabilities included a $5,076 insurance finance loan. The company also had $400,000 of redeemable Series A convertible preferred stock, classified as temporary equity, with holder redemption rights upon specified triggering events. It reported no material capital expenditure commitments and no off-balance-sheet arrangements.
For the six months, operating cash use was $301,427, investing cash inflow was $58,987 from investment sales, and financing cash use was $17,268 for repayment of the insurance loan. Cash declined by $259,708 from year-end 2018. The company reported a $200,000 net note receivable, including a $50,000 allowance against a $250,000 principal balance.
Material changes versus prior comparable periods
Operating expenses increased 149% for the quarter and 73% for the six-month period, mainly reflecting higher compensation, professional fees and NFID-related consulting and development costs. Six-month net loss increased 23%, although quarterly net loss declined 23%, in part because investment-related losses were lower than in 2018. Cash fell from $336,679 at December 31, 2018, and working capital decreased 53% to $273,505. Reported common shares outstanding were 23,467,540 at June 30, 2019, versus 23,417,540 at year-end.
Comparisons also reflect the company’s September 2018 change from investment-company accounting to corporate accounting; the filing says 2018 amounts were reclassified for presentation, but prior periods were not restated.
Outlook, risks and unusual items
- Management expected NFID.com to launch apparel in the third quarter of 2019, using direct-to-consumer sales and digital marketing. This was a plan, not a reported outcome.
- Management stated existing cash would not cover working-capital needs for at least 12 months from the filing date. It was seeking additional debt or equity financing, had no financing agreements in place, and warned that failure to obtain funding could force it to curtail or cease operations.
- The filing states that recurring losses, operating cash use, accumulated deficit of $2,008,244 and lack of revenue under the new business plan raise substantial doubt about the company’s ability to continue as a going concern.
- The $149,970 fair-value equity investment was entirely in one company, Ipsidy Inc., and represented about 28% of total assets. Management planned to sell the shares for working capital, NFID development or acquisitions; investment values and sale proceeds could change.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2019. Management cited limited segregation of accounting duties and inadequate system and manual controls, and said material weaknesses could persist.
- Three hundred thousand options were granted at a $0.0001 exercise price; $43,737 of related compensation expense was recognized in the six-month period. The company also issued shares to a marketing consultant.
- The filing reported no pending material legal proceedings and marked risk factors “not applicable.”
Most important facts to verify
- Confirm the intended issuer: the supplied document is Uppercut Brands, not Silo Pharma.
- Verify whether NFID launched as planned and whether the company generated revenue or obtained financing after June 30, 2019.
- Assess the going-concern warning against cash burn, available liquidity and subsequent funding or operating developments.
- Check the realizable value and sale status of the concentrated Ipsidy holding and collectability of the $200,000 net note receivable.
- Review the redeemable preferred stock terms, potential conversion dilution, and progress addressing the disclosed control weaknesses.