Silo Pharma, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited statements are consolidated. Silo is a developmental-stage biopharmaceutical company pursuing university-licensed research for neurological, psychiatric, and other conditions, including psychedelic-related research. It sold its NFID apparel business on September 30, 2021, and reports that activity as discontinued operations.
Financial performance and position
| Metric | Q3 2021 | Nine months 2021 | Comparable 2020 |
|---|---|---|---|
| Continuing-operations license revenue | $18,025 | $53,238 | $0 |
| Gross profit on license revenue | $16,566 | $49,694 | $0 |
| Operating loss | $(463,942) | $(1,801,927) | $(558,893) / $(1,610,142) |
| Consolidated net income (loss) | $6,385,119 | $4,992,427 | $(633,795) / $(2,247,703) |
| Net income (loss) available to common stockholders | $6,385,119 | $3,588,430 | $(633,795) / $(2,316,703) |
| Basic and diluted EPS | $0.06 | $0.04 | $(0.01) / $(0.04) |
The comparable-period figures in the final column are Q3 2020 / nine months 2020. License revenue had a high reported gross margin, but was minimal in scale. The large 2021 profit chiefly reflects a $6.66 million realized gain on equity investments sold and $369,626 of unrealized investment gains—not operating profitability. The nine-month common-stockholder result also reflects a $1.40 million deemed dividend related to Series C preferred stock.
- Expenses: Nine-month operating expenses rose to $1.85 million from $1.61 million. Professional fees increased to $1.27 million; R&D was $217,962 versus none in 2020. Compensation fell to $222,177 from $717,198, largely because 2020 included substantial stock-based compensation.
- Cash flow: Operating activities used $1.50 million, compared with $620,673 used in the prior-year period. Investing activities provided $6.84 million, principally from equity-investment sales. Financing provided $3.79 million, principally net Series C proceeds.
- Liquidity: Cash and cash equivalents were $10.26 million at September 30, 2021, up from $1.13 million at December 31, 2020. Working capital was $11.02 million, compared with $1.28 million. Current assets were $11.30 million and current liabilities $283,389.
- Debt and liabilities: No note payable remained at quarter-end; the $18,900 PPP loan and accrued interest were forgiven in 2021. Total liabilities were $1.24 million, mostly deferred revenue ($1.03 million), rather than financial debt. The company held $820,126 of publicly traded equity investments at fair value.
- Equity: Common shares outstanding were 98,636,970 at September 30 and 98,671,970 as of November 10, 2021. There were also 17,353,987 outstanding warrants, generally exercisable at a weighted-average price of $0.31, and 227 Series C preferred shares remaining.
Material changes and business developments
- Silo raised approximately $4.28 million gross through a February 2021 Series C preferred-stock and warrant financing, and converted most Series C shares into 13,495,014 common shares in April. The financing and warrants create potential dilution.
- In September, Silo sold its DatChat and Aikido equity investments, receiving $6.74 million and recognizing the $6.66 million realized gain. It retained $820,126 of equity investments at quarter-end.
- The company sold NFID assets for a $60,000 promissory note bearing 8% interest and due October 2023. NFID generated a nine-month discontinued-operations loss of $227,469; the sale produced a $1,553 gain.
- Revenue came primarily from Aikido license arrangements. Silo recognized $53,238 in nine-month license revenue while recording $1.03 million of related deferred revenue to be recognized over the license term. One licensee accounted for all biopharma revenue.
Outlook, risks, and unusual items
- Going concern and funding: Despite quarter-end cash of $10.26 million, management said available cash would not meet working-capital needs for at least 12 months from the report date. The filing states that operating cash use, minimal revenue, and accumulated deficit of $2.17 million raise substantial doubt about the company’s ability to continue as a going concern. Management said it may need more debt or equity financing and could curtail or cease operations if funding is unavailable. No financing arrangements were in place.
- Research commitments: Programs include UMB peptide and drug-delivery work, UCSF psilocybin research, and a proposed ketamine joint venture with Zylö Therapeutics. The joint venture entity had not yet been formed at the report date; Silo’s stated contribution is $225,000. The Maastricht study was terminated in September without further obligations. COVID-19 had delayed an UMB study and could delay research or clinical activities more broadly.
- Subsequent event: On October 1, 2021, Silo entered a Columbia University research agreement with total stated support of approximately $1.44 million over one year; it paid the first $430,825 in November. The research relates to ketamine combinations and includes an option to negotiate a license.
- Operating and regulatory risks: The business is pre-commercial, with research, licensing, intellectual-property, clinical-trial, regulatory, market-acceptance, and financing risks. Psilocybin is a Schedule I controlled substance; research timelines and outcomes are uncertain. The filing warns that COVID-19 could disrupt research, clinical work, regulatory review, and access to capital.
- Controls and contingencies: Management concluded disclosure controls were ineffective due to material weaknesses, including limited accounting segregation of duties, insufficient review layers, and inadequate system and manual controls. The company reported no material legal proceedings and no material change in previously disclosed risk factors.
Investor verification priorities
- Confirm cash runway and expected spending against management’s statement that available cash would not cover at least 12 months of working-capital needs.
- Separate recurring operating performance from investment gains; verify the valuation, sale proceeds, and remaining holdings of equity investments.
- Review financing dilution, including remaining preferred shares, warrants, exercise terms, and the share count after the reporting date.
- Track license revenue concentration, deferred-revenue recognition, and whether Aikido milestones or royalties become payable or collectible.
- Verify research milestones, the unformed ketamine joint venture, and the funding and obligations under the Columbia agreement.
- Monitor remediation of internal-control material weaknesses and the company’s continuing going-concern assessment.