Silo Pharma, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 28, 2022. This is an annual report, not a standalone fourth-quarter report. Silo is a development-stage biopharmaceutical company pursuing licensed and research-stage programs involving psychedelics, ketamine and drug-delivery technologies. It had no approved therapies and reported minimal operating revenue.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue from continuing operations | $71,264 | $0 |
| Gross profit | $66,260 | $0 |
| Operating expenses | $2,810,603 | $2,201,719 |
| Operating loss from continuing operations | $(2,744,343) | $(2,201,719) |
| Other income (expense), net | $6,926,327 | $(464,550) |
| Net income (loss) | $3,903,741 | $(3,037,517) |
| Net income (loss) available to common stockholders | $2,499,744 | $(3,106,517) |
| Cash used in operating activities | $(2,278,016) | $(1,156,996) |
| Cash and cash equivalents at year-end | $9,837,001 | $1,128,389 |
| Working capital at year-end | $9,912,281 | $1,284,941 |
- 2021 gross margin was approximately 93%, calculated on only $71,264 of license-fee revenue.
- Net income was principally supported by a $6,660,483 realized gain on equity investments, primarily the sale of DatChat shares, and a $248,588 unrealized investment gain. It does not reflect profitable core operations.
- Research and development expense rose to $693,910 from $26,250; professional fees increased to $1,598,367 from $1,173,717. Total operating expenses increased 28%.
- Investing activities provided $7,192,526, including $7,020,526 of net proceeds from equity-investment sales. Financing activities provided $3,794,102, principally from Series C preferred-stock financing.
- Year-end total liabilities were $1,427,923, including $1,009,986 of deferred revenue. No notes payable remained outstanding; the PPP loan was forgiven in 2021.
- Management said available funds were expected to cover obligations for at least 12 months from the filing date. The company nevertheless expects to need additional capital over time.
Material changes and business developments
- The company shifted toward biopharmaceutical research and reported the NFID apparel business as discontinued operations after selling its assets in September 2021 for a $60,000 note receivable. NFID generated a $253,367 discontinued-operations loss in 2021, versus $371,248 in 2020.
- Research arrangements expanded to include Columbia University, UMB and UCSF. Columbia’s sponsored research program had a stated total cost of $1,436,082; the company paid $430,825 in November 2021.
- The company entered a joint-venture agreement with Zylö Therapeutics for ketamine development using Z-pod technology, with a planned $225,000 company contribution and initial ownership of 51%. The venture entity had not been formed as of the report date.
- Under the UMB license, the company granted Aikido Pharma a sublicense and received a $50,000 upfront fee, with potential milestone payments of up to $1.9 million and royalties. A separate Aikido license generated a $500,000 cash payment and Aikido shares; related license payments are recognized over time.
- Series C financing generated $3,794,102 in net proceeds. The preferred-stock financing and associated warrants created substantial potential dilution; 13,495,014 common shares were issued upon conversion of 4,049 preferred shares in April 2021.
Outlook, risks and unusual items
- No quantified revenue, earnings or clinical-development guidance was provided. Management described plans to pursue research, licensing and development opportunities, but commercialization depends on future research results, regulatory approvals and financing.
- Major risks include continued operating losses and cash burn, dependence on additional financing, uncertain clinical outcomes and timelines, intellectual-property and licensing risks, and the company’s limited operating history and two full-time employees as of March 2022.
- Psilocybin and psilocin are Schedule I controlled substances in the United States. Research and any future commercialization face DEA, FDA and state regulatory requirements; rescheduling and reimbursement are uncertain. COVID-19 had delayed at least one UMB study and could disrupt research activity more broadly.
- Management reported ineffective disclosure controls and internal control over financial reporting at December 31, 2021. Identified material weaknesses included inadequate segregation of accounting duties and inadequate system and manual controls. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness; it reported no critical audit matters.
- Other notable items: the $19,082 PPP forgiveness gain; a $1,403,997 deemed dividend from the Series C beneficial conversion feature; and a $60,000 NFID note receivable due October 2023, bearing 8% interest. The company disclosed no material legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Reconcile reported net income to recurring operating performance, especially the $6.66 million realized investment gain and the continuing operating loss.
- Review the audited cash-flow statement, current and long-term liabilities, deferred license revenue, and management’s 12-month liquidity assessment against ongoing research spending and funding needs.
- Assess actual progress, timelines and remaining costs for Columbia, UMB and UCSF research, and confirm the status of the unformed Zylö joint venture and its proposed contribution.
- Evaluate dilution exposure from Series C preferred shares, warrants, options and future financing needs; compare these instruments with the reported common shares outstanding.
- Track remediation of the disclosed internal-control material weaknesses and confirm subsequent filings report effective controls.