SILO 10-Q
Silo Pharma, Inc. (SILO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ___________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
As
of November 13, 2023,
SILO
PHARMA, INC. AND SUBSIDIARY
FORM 10-Q
SEPTEMBER 30, 2023
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our ability to obtain additional funds for our operations; |
| ● | our financial performance; |
| ● | risks relating to the timing and costs of clinical trials and the timing and costs of other expenses; |
| ● | risks related to market acceptance of products; |
| ● | intellectual property risks; |
| ● | the impact of government regulation and developments relating to our competitors or our industry; |
| ● | our competitive position; |
| ● | our industry environment; |
| ● | our anticipated financial and operating results, including anticipated sources of revenues; |
| ● | assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches; |
| ● | our estimates of our expenses, losses, future revenue and capital requirements, including our needs for additional financing; |
| ● | our ability to attract and retain qualified key management and technical personnel; |
| ● | statements regarding our goals, intensions, plans and expectations, including the introduction of new products and markets; |
| ● | general business and economic conditions, such as inflationary pressures, geopolitical conditions including, but not limited to, the conflict between Russia and the Ukraine, the conflict between Israel and Gaza, and the effects and duration of outbreaks of public health emergencies, such as COVID-19; and |
| ● | our cash needs and financing plans. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILO PHARMA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Equity investments | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Note receivable, including interest receivable of $ | ||||||||
| Total Current Assets | ||||||||
| Prepaid expenses and other assets - non-current | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue - current portion | ||||||||
| Total Current Liabilities | ||||||||
| LONG TERM LIABILITIES: | ||||||||
| Deferred revenue - long-term portion | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitment and Contingencies (see Note 8) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Series C convertible preferred stock, $ |
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| Common stock, $ |
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| Additional paid-in capital | ||||||||
| Treasury stock, at cost ( | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
1
SILO PHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| LICENSE FEE REVENUES: | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Compensation expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Research and development | ||||||||||||||||
| Insurance expense | ||||||||||||||||
| Bad debt recovery | ( | ) | ||||||||||||||
| Selling, general and administrative expenses | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest and dividend income, net | ||||||||||||||||
| Other income from equity shares earned for lock up agreement | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Net realized loss on equity investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Penalty from early termination of CD | ( | ) | ||||||||||||||
| Net unrealized loss on equity investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Other expense | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ) | ||||||||||||||
| LOSS FROM DISCONTINUED OPERATIONS | ( | ) | ||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| COMPREHENSIVE LOSS: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Unrealized gain (loss) on short-term investments | ( | ) | ||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
2
SILO PHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| Series
C Preferred Stock | Common Stock | Additional Paid In | Treasury
Stock | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Income (Loss) | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Unrealized gain - short-term investments | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Cancellation of treasury stock | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Unrealized loss - short-term investments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Cancellation of treasury stock | - | - | - | |||||||||||||||||||||||||||||||||||||
| Unrealized gain - short-term investments | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Series
C Preferred Stock | Common Stock | Additional Paid In | Treasury Stock | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Income (Loss) | Deficit | Equity | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of Series C preferred stock | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Amortization of prepaid stock-based compensation | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Sales of common stock | - | - | |||||||||||||||||||||||||||||||||||||||
| Accretion of stock- based options expense | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Amortization of prepaid stock-based compensation | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
3
SILO PHARMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Bad debt recovery | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Amortization of prepaid stock-based professional fees | ||||||||
| Net realized loss on equity investments | ||||||||
| Net unrealized loss on equity investments | ||||||||
| Equity shares earned for lock up agreement | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Interest receivable | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Insurance payable | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of short-term investments | ( | ) | ||||||
| Sale of short-term investments | ||||||||
| Collection on note receivable | ||||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from sale of common stock | ||||||||
| Purchase of treasury stock | ( | ) | ||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | ( | ) | ||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS: | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - beginning of the period | ||||||||
| CASH AND CASH EQUIVALENTS - end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Change in accumulated other comprehensive loss on short-term investments | $ | $ | ||||||
| Cancellation of treasury stock | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
4
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
NOTE 1 – ORGANIZATION AND BUSINESS
Silo Pharma, Inc. (formerly Uppercut Brands, Inc.) (the “Company”) was incorporated in the State of New York on July 13, 2010, under the name Gold Swap, Inc. On January 24, 2013, the Company changed its state of incorporation from New York to Delaware.
The Company is a developmental stage biopharmaceutical company focused on merging traditional therapeutics with psychedelic research. The Company seeks to acquire and/or develop intellectual property or technology rights from leading universities and researchers to treat rare diseases, including the use of psychedelic drugs, such as psilocybin, and the potential benefits they may have in certain cases involving depression, mental health issues and neurological disorders. The Company is focused on merging traditional therapeutics with psychedelic research for people suffering from indications such as depression, post-traumatic stress disorder (“PTSD”), Alzheimer’s, Parkinson’s, and other rare neurological disorders. The Company’s mission is to identify assets to license and fund the research which the Company believes will be transformative to the well-being of patients and the health care industry. The Company was engaged in the development of a streetwear apparel brand, NFID (see below).
On May 21, 2019, the Company filed an amendment to its Certificate of Incorporation with the State of Delaware to change its name from Point Capital, Inc. to Uppercut Brands, Inc. Thereafter, on September 24, 2020, the Company filed an amendment to its Certificate of Incorporation with the State of Delaware to change its name from Uppercut Brands, Inc. to Silo Pharma, Inc.
On April 8, 2020, the Company incorporated a new wholly-owned subsidiary, Silo Pharma Inc., in the State of Florida. The Company has also secured the domain name www.silopharma.com. The Company has been exploring opportunities to expand the Company’s business by seeking to acquire and/or develop intellectual property or technology rights from leading universities and researchers to treat rare diseases, including the use of psychedelic drugs, such as psilocybin, and the potential benefits they may have in certain cases involving depression, mental health issues and neurological disorders. In July 2020, through the Company’s newly formed subsidiary, the Company entered into a commercial evaluation license and option agreement with University of Maryland, Baltimore (“UMB”) (see Note 8) pursuant to which, among other things, UMB granted the Company an exclusive, option to negotiate and obtain an exclusive, sublicensable, royalty-bearing license to certain technology. The option was extended and exercised on January 13, 2021. On February 12, 2021, the Company entered into a Master License Agreement with UMB (see Note 8). The Company plans to actively pursue the acquisition and/or development of intellectual property or technology rights to treat rare diseases, and to ultimately expand the Company’s business to focus on this new line of business.
On
September 30, 2021, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement) with
NFID, LLC, a Florida limited liability company (the “Buyer”), whereby the Buyer purchased from the Company certain
assets, properties, and rights in connection with the Company’s NFID trademark name, logos, domain, and apparel clothing and
accessories for a purchase price of $
On September 14, 2022, the Company filed a Certificate of Amendment to the Amended and Restated Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-50 reverse stock split (the “Reverse Stock Split”) with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment became effective on September 14, 2022. The Reverse Stock Split was previously approved by the sole director and the majority of stockholders of the Company. The Reverse Stock Split was deemed effective at the open of business on September 15, 2022. All share and per share data in the consolidated financial statements have been retroactively adjusted to reflect the effect of the reverse stock split.
5
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the instructions to Form 10-Q, and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for financial information. The Company’s consolidated financial statements include financial statements for Silo Pharma, Inc. and its inactive wholly-owned subsidiary with the same name as the parent entity, Silo Pharma, Inc. All intercompany transactions and balances have been eliminated in consolidation. Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring and non-recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements. These unaudited consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 24, 2023.
In accordance with, Accounting Standard Codification (“ASC”) 205-20 “Discontinued Operations” establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result, the NFID, LLC component’s results of operations have been classified as discontinued operations on a retrospective basis for all periods presented. Accordingly, the results of operations of this component, for all periods, are separately reported as “discontinued operations” on the consolidated statements of operations.
Liquidity
As
reflected in the accompanying unaudited consolidated financial statements, the Company generated a net loss of $
The positive working capital serves to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern. The Company believes that the Company has sufficient cash and liquid short-term investments to meet its obligations for a minimum of twelve months from the date of this filing.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from estimates. Significant estimates during the nine months ended September 30, 2023 and 2022 include the collectability of notes receivable, the percentage of completion of research and development projects, valuation of equity investments, valuation allowances for deferred tax assets, the fair value of warrants issued with debt and for services, and the fair value of shares and stock options issued for services.
6
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company
places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $
Short-Term Investments
The Company’s portfolio of short-term investments consists of marketable debt securities which are comprised solely of that are all highly rated U.S. government securities with maturities of more than three months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the consolidated balance sheet and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive income and as a component of the consolidated statements of comprehensive loss. Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income (expense), net in the consolidated statements of operations and comprehensive loss.
An impairment loss may be recognized when the decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary declines in fair value below the cost basis each quarter, or whenever events or changes in circumstances indicate that the cost basis of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis.
The
Company recorded $
Equity Investments, at Fair Value
Realized gain or loss is recognized when an investment is disposed of and is computed as the difference between the Company’s carrying value and the net proceeds received from such disposition. Realized gains and losses on investment transactions are determined by specific identification. Net unrealized appreciation or depreciation is computed as the difference between the fair value of the investment and the cost basis of such investment. Net unrealized gains or losses for equity investments are recognized in operations as the difference between the carrying value at the beginning of the period and the fair value at the end of the period.
Note Receivable
The Company recognizes an allowance for losses on notes receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current note receivable aging, and expected future write-offs, as well as an assessment of specific identifiable accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recorded as part of general and administrative expenses.
7
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Prepaid Expenses
Prepaid
expenses and other current assets of $
Revenue Recognition
The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
The Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts.
For the license and royalty income, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement. Payments received from the licensee that are related to future periods are recorded as deferred revenue to be recognized as revenues over the term of the related license agreement (see Note 8).
Product sales were recognized when the NFID products were shipped to the customer and title was transferred and were recorded net of any discounts or allowances which are separately reported as “discontinued operations” on the consolidated statements of operations.
Cost of Revenues
The primary components of cost of revenues on license fees included the cost of the license fees. Payments made to the licensor that are related to future periods are recorded as prepaid expense to be amortized over the term of the related license agreement (see Note 8).
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) ASC 740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. The Company does not believe it has any uncertain tax positions as of September 30, 2023 and December 31, 2022 that would require either recognition or disclosure in the accompanying unaudited consolidated financial statements.
8
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Research and Development
In
accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred.
During the nine months ended September 30, 2023 and 2022, research and development costs were $
Leases
Leases are accounted for using ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to recognize a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. As of September 30, 2023 and December 31, 2022, the Company has no leases. The Company will analyze any lease to determine if it would be required to record a lease liability and a right of use asset on its consolidated balance sheets at fair value upon adoption of ASU 2016-02. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Net Loss per Common Share
Basic loss per share is computed by dividing net loss allocable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period using the as-if converted method. Potentially dilutive securities which include stock options and stock warrants are excluded from the computation of diluted shares outstanding if they would have an anti-dilutive impact on the Company’s net losses.
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated financial statements.
9
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Fair Value Measurements and Fair Value of Financial Instruments
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on September 30, 2023 and December 31, 2022. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
| Level 1 - | Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| Level 2 - | Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| Level 3 - | Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying value of certain financial instruments, including cash and cash equivalents, prepaid expenses and other current assets, notes receivable, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Short-term investments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Equity investments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company’s short-term investments and equity investments are level 1 measurements and are based on redemption value at each date.
Short-Term Investments – Debt Securities, at Fair Value
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Balance, beginning period | $ | $ | ||||||
| Additions | ||||||||
| Sales at original cost | ( | ) | ||||||
| Unrealized losses | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
10
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Equity Investments, at Fair Value
The following table summarizes activity in the Company’s equity investments, at fair value for the periods presented:
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Balance, beginning period | $ | $ | ||||||
| Additions | ||||||||
| Sales at original cost | ( | ) | ||||||
| Unrealized loss | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
On
September 30, 2023 and December 31, 2022, equity instruments, at fair value consisted of
During
the nine months ended September 30, 2022, the Company received
During
the nine months ended September 30, 2022, the Company sold its equity investments in Aikido Pharma, Inc. with cost of $
Equity investments are carried at fair value with unrealized gains or losses which are recorded as net unrealized gain (loss) on equity investments in the accompanying unaudited consolidated statement of operations and comprehensive loss. Realized gains and losses are determined on a specific identification basis which is recorded as net realized gain (loss) on equity investments in the unaudited consolidated statement of operations and comprehensive loss. The Company reviews equity investments, at fair value, for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.
NOTE 4 – DISPOSAL OF THE DISCONTINUED OPERATIONS OF THE NFID BUSINESS
On September 30, 2021, the Company entered
into and closed on an Asset Purchase Agreement (see Note 1) with NFID, LLC, an unrelated party, a Florida limited liability company,
whereby the Company sold certain assets, properties, and rights in connection with its NFID trademark name, logos, domain, and
apparel clothing and accessories for a purchase price of $
ASC 205-20 “Discontinued Operations” establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result, the component’s results of operations have been classified as discontinued operations on a retrospective basis for all periods presented. Accordingly, the results of operations of this component, for all periods, are separately reported as “discontinued operations” on the unaudited consolidated statements of operations.
11
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Product sales, net | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Total operating and other non-operating expenses | ( | ) | ||||||
| Loss from discontinued operations | $ | $ | ( | ) | ||||
NOTE 5 – NOTE RECEIVABLE
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Principal amount of note receivable | $ | $ | ||||||
| Accrued interest receivable | ||||||||
| Note receivable – current | $ | $ | ||||||
On
September 30, 2021, the Company executed a note receivable agreement with NFID, LLC in connection with an Asset Purchase Agreement
(see Note 4). The promissory note bore
NOTE 6 – STOCKHOLDERS’ EQUITY
Shares Authorized
The
Company has
Series A and Series B Convertible Preferred Stock
In
April 2013, the Company designated
Series C Convertible Preferred Stock
On
February 9, 2021, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred
Stock (the “Certificate of Designations”) with the Delaware Secretary of State, designating
| ● | Designation. The Company has designated |
12
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
| ● | Dividends. Holders of Series C Convertible preferred stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. No other dividends shall be paid on shares of the Series C Convertible preferred stock. | |
| ● | Liquidation. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series C Convertible preferred stock shall be entitled to receive the same amount that a holder of common stock would receive if the Series C Convertible preferred stock were fully converted (disregarding any conversion limitations) which amounts shall be paid pari passu with all holders of common stock. | |
| ● | Voting Rights. Except as otherwise provided in the Certificate of Designations or as otherwise required by law, the Series C Convertible preferred stock shall have no voting rights. However, as long as any shares of Series C Convertible preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series C Convertible preferred stock, (a) alter or change adversely the powers, preferences or rights given to the Series C Convertible preferred stock or alter or amend the Certificate of Designations, (b) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series C Convertible preferred stock, (c) increase the number of authorized shares of Series C Convertible preferred stock, or (d) enter into any agreement with respect to any of the foregoing. | |
| ● | Conversion. Each share of Series C Convertible preferred stock is convertible, at any time and from time to time after the issuance date, at the option of the holder, into such number of shares of common stock determined by dividing the Series C Stated Value by the Series C Conversion Price. “Series C Conversion Price” means $ | |
| ● | Forced Conversion. Notwithstanding anything herein to the contrary, after the date that the Company’s stockholder approval is obtained and deemed effective, the Company may deliver a written notice to all holders (the “Forced Conversion Notice Date”) to cause each holder to convert all or part of such holder’s Series C Convertible preferred stock pursuant to Section 6 (“Forced Conversion”), it being agreed that the “Conversion Date” shall be deemed to occur no later than the earlier of (i) two (2) trading days and (ii) the number of trading days comprising the standard settlement period following the Forced Conversion Notice Date; provided, however, a holder shall only be required to convert pursuant to a Forced Conversion to the extent that such conversion would not cause a holder to exceed its beneficial ownership limitation. On March 10, 2021, the Company obtained the stockholders’ approval forcing the conversion of all the Series C Convertible preferred stock. On April 12, 2021, the Company notified holders of | |
| ● | Exercisability. |
Conversion of Series C Convertible Preferred Stock into Common Stock
On
March 31, 2022, the Company notified holders of the remaining
As
of September 30, 2023 and December 31, 2022, there were
13
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Sale of Common Stock
On
September 26, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Laidlaw &
Company (UK) Ltd., as representative of the several underwriters identified therein (the “Underwriters”), relating to the
public offering (the “Offering”) of
Stock Repurchase Plan
On
January 26, 2023, the Company’s Board of Directors authorized a stock repurchase plan to repurchase up to $
Stock Options
On
January 18, 2021, the Company’s board of directors (“Board”) approved the Silo Pharma, Inc. 2020 Omnibus Equity Incentive
Plan (the “2020 Plan”) to incentivize employees, officers, directors and consultants of the Company and its affiliates.
On
December 29, 2021 and effective January 1, 2022, the Board granted an aggregate of
During
the nine months ended September 30, 2023 and 2022, the Company amortized $
14
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
| Number
of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2022 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Forfeited | - | |||||||||||||||
| Balance Outstanding, September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2023 | $ | $ | ||||||||||||||
Stock Warrants
| Number
of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance Outstanding, December 31, 2022 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Balance Outstanding, September 30, 2023 | $ | |||||||||||||||
| Exercisable, September 30, 2023 | $ | |||||||||||||||
NOTE 7 – CONCENTRATIONS
Customer concentration
For
the nine months ended September 30, 2023 and 2022, one licensee accounted for
Vendor concentrations
For
the nine months ended September 30, 2023 and 2022, one licensor accounted for
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
Eric Weisblum
On
April 17, 2020, the Company entered into an employment agreement (“Employment Agreement”) with Eric Weisblum to serve as
Chief Executive Officer and Chief Financial Officer of the Company. The term of the Employment Agreement will continue for a period of
one year from the date of execution date thereof and automatically renews for successive one-year periods at the end of each term until
either party delivers written notice of their intent not to renew at least six months prior to the expiration of the then effective term.
The Employment Agreement provided for a base salary of $
15
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
On
January 18, 2021, the Company and Mr. Weisblum entered into the first amendment (the “Amendment”) to the Employment Agreement,
effective as of January 1, 2021. Pursuant to the Amendment Mr. Weisblum’s base salary was increased from $
On
October 12, 2022, the Company entered into a new employment agreement with Eric Weisblum (the “2022 Weisblum Employment Agreement”)
pursuant to which Mr. Weisblum’s (i) base salary will be $
Daniel Ryweck
On
September 27, 2022, the Board appointed Daniel Ryweck as Chief Financial Officer of the Company. On September 28, 2022, the Company entered
into an employment agreement (the “Ryweck Employment Agreement”) with Mr. Ryweck. Pursuant to the terms of the Ryweck Employment
Agreement, Mr. Ryweck will (i) receive a base salary at an annual rate of $
On
October 12, 2022, the Company entered into an amendment to the Ryweck Employment Agreement by and between the Company and Daniel Ryweck
dated September 27, 2022, pursuant to which Mr. Ryweck’s base salary was increased to $
Dr. James Kuo
On
January 27, 2022, the Company and Dr. James Kuo entered into an employment agreement (“Kuo Employment Agreement”) for Dr.
Kuo to serve as the Vice President of Research & Development. The Kuo Employment Agreement shall be effective as of the date of the
agreement and shall automatically renew for a period of one year at every anniversary of the effective date, with the same terms and
conditions, unless either party provides written notice of its intention not to extend the term of the Kuo Employment Agreement at least
thirty days prior to the applicable renewal date. Dr. Kuo shall be paid an annual base salary of $
16
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
License Agreements between the Company and Vendors
University of Maryland, Baltimore - License Agreement for Development and Use of Central Nervous System-Homing Peptides
Commercial Evaluation License and Option Agreement with the University of Maryland, Baltimore
Effective as of July 15, 2020, the Company, through its wholly-owned subsidiary, Silo Pharma, Inc. (see Note 1) and University of Maryland, Baltimore (“UMB”) (collectively as “Parties”), entered into a commercial evaluation license and option agreement (“License Agreement”), granting the Company an exclusive, non-sublicensable, non-transferable license to with respect to the exploration of the potential use of central nervous system-homing peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory pathology. The License Agreement also granted the Company an exclusive option to negotiate and obtain an exclusive, sublicensable, royalty-bearing license (“Exclusive Option”) with respect to the subject technology. The License Agreement had a term of six months from the effective date however if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first. The Company exercised its Exclusive Option on January 13, 2021 and entered into a Master License Agreement on February 12, 2021. Both parties may terminate this agreement within thirty days by giving written notice.
University of Maryland, Baltimore - License Agreement for Development and Use of Joint-Homing Peptides
Commercial Evaluation License and Option Agreement with the University of Maryland, Baltimore
Effective as of February 26, 2021, the Company, through its wholly-subsidiary, Silo Pharma, Inc., and University of Maryland, Baltimore (“UMB”) (collectively as “Parties”), entered into a commercial evaluation license and option agreement (“License Agreement”), which granted the Company an exclusive, non-sublicensable, non-transferable license with respect to the exploration of the potential use of joint-homing peptides for use in the investigation and treatment of arthritogenic processes. The License Agreement also granted the Company an exclusive option to negotiate and obtain an exclusive, sublicensable, royalty-bearing license (“Exclusive Option”) with respect to the subject technology. The License Agreement had a term of six months from the effective date. Both parties could have terminated the License Agreement within thirty days by giving a written notice.
On July 6, 2021, the Company entered into a First Amendment Agreement (“First Amendment”) with UMB to extend the term of the original License Agreement by an additional six months such that the First Amendment was effective until February 25, 2022. However, if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first.
On January 28, 2022, the Parties entered into a second amendment to the commercial evaluation and license agreement dated February 26, 2021 (“Second Amendment”). The Second Amendment extended the term of the original license agreement until December 31, 2022. However, if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first.
On
June 22, 2022, the Parties entered into a third amendment to the commercial evaluation and license agreement dated February 26, 2021
(“Third Amendment”). The Third Amendment expands the scope of the license granted in the License Agreement to add additional
patent rights with respect to an invention generally known as Peptide-Targeted Liposomal Delivery for Treatment Diagnosis, and Imaging
of Diseases and Disorders. In consideration of the licenses granted under this Third Amendment, the Company agreed to pay a one-time,
non-refundable fee of $
On
December 16, 2022, the Company and UMB entered into a fourth amendment to License Agreement (the “Fourth Amendment”) to extend
the term of the License Agreement until March 31, 2023. In addition, the parties agreed in the Fourth Amendment to allow the Company
to extend the term of the License Agreement to June 30, 2023 by paying UMB a fee of $
On
June 28, 2023, the Company and UMB entered into a fifth amendment to License Agreement (the “Fifth Amendment”) to extend
the term of the License Agreement until September 30, 2023. The Company may at its option extend this Agreement until December 31, 2023,
by providing written notice to University on or before August 31, 2023, and by paying an additional license fee of $
17
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Master License Agreement with the University of Maryland, Baltimore
As disclosed above, effective as of February 12, 2021, the Company and University of Maryland, Baltimore (“UMB”), entered into the Master License Agreement (“Master License Agreement”) which grants the Company an exclusive, worldwide, sublicensable, royalty-bearing license to certain intellectual property: (i) to make, have made, use, sell, offer to sell, and import certain licensed products and: (ii) to use the invention titled, “Central nervous system-homing peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory pathology” and UMB’s confidential information to develop and perform certain licensed processes for the therapeutic treatment of neuroinflammatory disease.
The
Master License Agreement will remain in effect on a Licensed Product-by-Licensed Product basis and country-by-country basis until the
later of: (a) the last patent covered under the Master License Agreement expires, (b) the expiration of data protection, new chemical
entity, orphan drug exclusivity, regulatory exclusivity, or other legally enforceable market exclusivity, if applicable, or (c)
The
Company may assign, sublicense, grant, or otherwise convey any rights or obligations under the Master License Agreement to a Company
affiliate, without obtaining prior written consent from UMB provided that it meets the terms defined in the Master License Agreement.
The Company may grant sublicenses of some or all of the rights granted by the Master License Agreement, provided that there is no uncured
default or breach of any material term or condition under the Master License Agreement, by Company, at the time of the grant, and that
the grant complies with the terms and conditions of the Master License Agreement. The Company shall be and shall remain responsible for
the performance by each of the Company’s sublicensee. Any sublicense shall be consistent with and subject to the terms and conditions
of the Master License Agreement and shall incorporate terms and conditions sufficient to enable Company to comply with the Master License
Agreement. The Company or Company affiliates shall pay to UMB a percentage of all income received from its sublicensee as follows: (i)
Pursuant
to the Master License Agreement, the Company shall pay UMB; (i) a license fee, (ii) certain event-based milestone payments (see below
for payment terms), (iii) royalty payments depending on net revenues (see below for payment terms), and (iv) a tiered percentage of sublicense
income. The Company paid to UMB a license fee of $
| Milestone | Payment | |||
| $ | ||||
| $ | ||||
| $ | ||||
| $ | ||||
| $ | ||||
18
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Royalty Payments Terms:
| (i) |
| (ii) |
| (iii) |
| Years | Minimum Annual Royalty | |||
| $ | ||||
| $ | ||||
| $ | ||||
| $ | ||||
| $ | ||||
In
April 2021, in connection with the Company’s Sublicense Agreement with Aikido Pharma Inc. (see below - Patent License Agreement
with Aikido Pharma Inc.), the Company paid
License Agreements between the Company and Customer
Customer Patent License Agreement with Aikido Pharma Inc.
On January 5, 2021, the Company and its subsidiary Silo Pharma, Inc., entered into a patent license agreement (“License Agreement”) (collectively, the “Licensor”) with Aikido Pharma Inc. (“Aikido” or the “Customer”), as amended on April 12, 2021, pursuant to which the Licensor granted Aikido an exclusive, worldwide (“Territory”), sublicensable, royalty-bearing license to certain intellectual property: (i) to make, have made, use, provide, import, export, lease, distribute, sell, offer for sale, develop and advertise certain licensed products and (ii) to develop and perform certain licensed processes for the treatment of cancer and symptoms caused by cancer (“Field of Use”).
The
License Agreement also provided that, if the Licensor exercised the option granted to it pursuant to its commercial evaluation license
and option agreement with UMB, effective as of July 15, 2020, it would grant Aikido a non-exclusive sublicense (“Right”)
to certain UMB patent rights in the field of neuroinflammatory diseases occurring in patients diagnosed with cancer (“Field”).
Pursuant to the License Agreement, Aikido agreed to pay the Licensor, among other things, (i) a one-time non-refundable cash payment
of $
Pursuant
to the License Agreement, the Company is required to prepare, file, prosecute, and maintain the licensed patents. Unless earlier terminated,
the term of the license to the licensed patents will continue until the expiration or abandonment of all issued patents and filed patent
applications within the licensed patents. The Company may terminate the License Agreement upon 30 day written notice if Aikido fails
to pay any amounts due and payable to the Company or if Aikido or any of its affiliates brings a patent challenge against the Company,
assists others in bringing a legal or administrative challenge to the validity, scope, or enforceability of or opposes any of the licensed
patents (“Patent Challenge”) against the Company (except as required under a court order or subpoena). Aikido may terminate
the Agreement at any time without cause, and without incurring any additional penalty, (i) by providing at least 30 days’ prior
written notice and paying the Company all amounts due to it through such termination effective date. Either party may terminate the Agreement
for material breaches that have failed to be cured within 60 days after receiving written notice. The Company collected the non-refundable
cash payment of $
19
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Prior
to the April 12, 2021, issuance of the common stock in lieu of the Series M Convertible Preferred Stock as discussed above, the Company
valued the
During
the nine months ended September 30, 2023 and 2022, the Company recognized license fee revenues of $
The
Right shall be, to the full extent permitted by and on terms and conditions required by UMB, for a term consistent with the term of patent
and technology licenses that UMB normally grants. In the event that the Company exercises its option and executes a license with UMB
to the UMB patent rights within 40 days after the execution of such UMB license, for consideration to be agreed upon and paid by Aikido,
which consideration shall in no event exceed
Customer Sublicense Agreement with Aikido Pharma Inc.
On April 6, 2021 (the “Sublicense Agreement Effective Date”), the Company entered into the Sublicense Agreement with Aikido pursuant to which the Company granted Aikido an exclusive worldwide sublicense to (i) make, have made, use, sell, offer to sell and import the Licensed Products (as defined below) and (ii) in connection therewith to (A) use an invention known as “Central nervous system-homing peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory pathology” which was sublicensed to the Company pursuant to the Master License Agreement and (B) practice certain patent rights (“Patent Rights”) for the therapeutic treatment of neuroinflammatory disease in cancer patients. “Licensed Products” means any product, service, or process, the development, making, use, offer for sale, sale, importation, or providing of which: (i) is covered by one or more claims of the Patent Rights; or (ii) contains, comprises, utilizes, incorporates, or is derived from the Invention or any technology disclosed in the Patent Rights.
Pursuant
to the Sublicense Agreement, Aikido agreed to pay the Company (i) an upfront license fee of $
20
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
Sponsored Study and Research Agreements between the Company and Vendors
Investigator-Sponsored Study Agreement with University of Maryland, Baltimore
On
January 5, 2021, the Company entered into an investigator-sponsored study agreement (“Sponsored Study Agreement”) with the
University of Maryland, Baltimore. The research project is a clinical study to examine a novel peptide-guided drug delivery approach
for the treatment of multiple sclerosis (“MS”). More specifically, the study is designed to evaluate (1) whether MS-1-displaying
liposomes can effectively deliver dexamethasone to the CNS and (2) whether MS-1-displaying liposomes are superior to plain liposomes,
also known as free drug, in inhibiting the relapses and progression of experimental autoimmune encephalomyelitis. Pursuant to the Sponsored
Study Agreement, the research shall commence on March 1, 2021 and will continue until substantial completion, subject to renewal upon
mutual written consent of the parties. The total cost under the Sponsored Study Agreement shall not exceed $
Sponsored Research Agreement with The Regents of the University of California
On
June 1, 2021 (the “Effective Date”), the Company entered into a sponsored research agreement (the “Sponsored Research
Agreement”) with The Regents of the University of California, on behalf of its San Francisco Campus (“UCSF”) pursuant
to which UCSF shall conduct a study to examine psilocybin’s effect on inflammatory activity in humans to accelerate its implementation
as a potential treatment for Parkinson’s Disease, chronic pain, and bipolar disorder. Pursuant to the Agreement, the Company shall
pay UCSF a total fee of $
Sponsored Research Agreement with University of Maryland, Baltimore
On July 6, 2021, the Company and University of Maryland, Baltimore (“UMB”) entered into a sponsored research agreement (“July 2021 Sponsored Research Agreement”) pursuant to which UMB shall evaluate the pharmacokinetics of dexamethasone delivered to arthritic rats via liposome. The research pursuant to the July 2021 Sponsored Research Agreement shall commence on September 1, 2021 and will continue until the substantial completion thereof, subject to renewal upon written consent of the parties. The July 2021 Sponsored Research Agreement may be terminated by either party upon 30 days’ prior written notice to the other party. In addition, if either party commits any material breach of or defaults with respect to any terms or conditions of the July 2021 Sponsored Research Agreement and fails to remedy such default or breach within 10 business days after written notice from the other party, the party giving notice may terminate the July 2021 Sponsored Research Agreement as of the date of receipt of such notice by the other party. If the Company terminates the July 2021 Sponsored Research Agreement for any reason other than an uncured material breach by UMB, the Company shall relinquish any and all rights it may have in the Results (as defined in the July 2021 Sponsored Research Agreement) to UMB. In addition, if the July 2021 Sponsored Research Agreement is terminated early, the Company, among other things, will pay all costs incurred and accrued by UMB as of the date of termination.
Pursuant
to the terms of the July 2021 Sponsored Research Agreement, UMB granted the Company an option (the “Option”) to negotiate
and obtain an exclusive license to any UMB Arising IP (as defined in the July 2021 Sponsored Research Agreement) and UMB’s rights
in any Joint Arising IP (as defined in the July 2021 Sponsored Research Agreement) (collectively, the “UMB IP”). The Company
may exercise the Option by giving UMB written notice within 60 days after it receives notice from UMB of the UMB IP.
| Payment | |||||||
| 1 | $ | ||||||
| 2 | $ | ||||||
| 3 | $ | ||||||
21
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
The
Company paid the first payment of $
On June 7, 2022, the Company and UMB amended the July 2021 Sponsored Research Agreement whereby both parties agreed to make changes to the original project work and budget. The amendment had no effect on the consolidated financial statements.
Sponsored Research Agreement with Columbia University
During
the nine months ended September 30, 2023 and 2022, the Company recorded research and development expense of $
Research Agreement with Reprocell
On
October 25, 2022, (the “Effective Date”), the Company entered into a research agreement (the “Reprocell Research Agreement”)
with Reprocell Europe Ltd. (“Reprocell”) pursuant to which Reprocell shall conduct a study to assess the binding of a peptide
on healthy and rheumatoid arthritis synovial tissue. Pursuant to the Reprocell Research Agreement, the Company shall pay Reprocell a
total fee of $
During
the nine months ended September 30, 2023 and 2022, the Company entered into other research and development agreements. In connection
with such agreements, the Company recorded research and development expenses of $
22
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
| Year ended September 30, | Amount | ||||
| 2024 | $ | ||||
| Total | $ | ||||
Joint Venture Agreement with Zylö Therapeutics, Inc.
On April 22, 2021 (“Effective Date”), the Company entered into a Joint Venture Agreement (“JV Agreement”) with Zylö Therapeutics, Inc. (“ZTI”) pursuant to which the parties agreed to form a joint venture entity, to be named Ketamine Joint Venture, LLC (“Joint Venture”), to, among other things, focus on the clinical development of ketamine using ZTI’s Z-pod™ technology (“Venture”). Pursuant to the JV Agreement, the Company shall act as the manager (“Manager”) of the Joint Venture. The Joint Venture shall terminate if the development program does not meet certain specifications and milestones as set forth in the JV Agreement within 30 days of the date set forth in the JV Agreement. Notwithstanding the foregoing, the Manager may, in its sole discretion, terminate the Joint Venture at any time.
Furthermore, pursuant to the terms of the JV Agreement, ZTI shall grant the Joint Venture a sublicense pursuant to its license agreement (the “License Agreement”) with Albert Einstein College of Medicine dated November 27, 2017, in the event that the Company or a third party makes a request indicating that the patented technology (the “Patented Technology”) licensed to ZTI pursuant to the License Agreement is needed to advance the development of the Joint Venture or it is contemplated or determined that the Patented Technology will be sold. Furthermore, pursuant to the JV Agreement, ZTI granted the Company an exclusive option to enter into a separate joint venture for the clinical development of psilocybin using ZTI’s Z-pod™ technology on the same terms and conditions set forth in the JV Agreement, which option expired 24 months after the JV Effective Date.
Amended Service Agreement
On
September 10, 2021 (“Effective Date”), the Company entered into an Amendment Agreement (“Amended Service Agreement”)
to a certain service agreement dated on September 8, 2020 with the University of Texas (“University”) at Austin whereby the
University will provide advisory service and assist the Company on identifying license and sponsored research opportunities for the Company.
The Company shall pay the University $
NOTE 9 – SUBSEQUENT EVENTS
On
January 26, 2023, the Company’s Board of Directors authorized a stock repurchase plan to repurchase up to $
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission , or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part II, Item 1A.
Overview
We are a developmental stage biopharmaceutical company focused on merging traditional therapeutics with psychedelic research. We are committed to developing innovative solutions to address a variety of underserved conditions. In these uncertain times, the mental health of the nation and beyond is being put to the test. More than ever, creative new therapies are needed to address the health challenges of today. Combining our resources with world-class medical research partners, we hope to make significant advances in the medical and psychedelic space.
Rare Disease Therapeutics
We seek to acquire and/or develop intellectual property or technology rights from leading universities and researchers to treat rare diseases, including the use of psychedelic drugs, such as psilocybin, and the potential benefits they may have in certain cases involving depression, mental health issues and neurological disorders. We are focused on merging traditional therapeutics with psychedelic research for people suffering from indications such as depression, post-traumatic stress disorder (“PTSD”), Parkinson’s, and other rare neurological disorders. Our mission is to identify assets to license and fund the research which we believe will be transformative to the well-being of patients and the health care industry.
Psilocybin is considered a serotonergic hallucinogen and is an active ingredient in some species of mushrooms. Recent industry studies using psychedelics, such as psilocybin, have been promising, and we believe there is a large unmet need with many people suffering from depression, mental health issues and neurological disorders. While classified as a Schedule I substance under the Controlled Substances Act (“CSA”), there is an accumulating body of evidence that psilocybin may have beneficial effects on depression and other mental health conditions. Therefore, the U.S. Food and Drug Administration (“FDA”) and U.S. Drug Enforcement Agency (“DEA”) have permitted the use of psilocybin in clinical studies for the treatment of a range of psychiatric conditions.
The potential of psilocybin therapy in mental health conditions has been demonstrated in a number of academic-sponsored studies over the last decade. In these early studies, it was observed that psilocybin therapy provided rapid reductions in depression symptoms after a single high dose, with antidepressant effects lasting for up to at least six months for a number of patients. These studies assessed symptoms related to depression and anxiety through a number of widely used and validated scales. The data generated by these studies suggest that psilocybin is generally well-tolerated and may have the potential to treat depression when administered with psychological support.
We have engaged in discussions with a number of world-renowned educational institutions and advisors regarding potential opportunities and have formed a scientific advisory board that is intended to help advise management regarding potential acquisition and development of products.
In addition, as more fully described below, we have entered into a license agreement with the University of Maryland, Baltimore, and have entered into a joint venture with Zylö Therapeutics, Inc., with respect to certain intellectual property and technology that may be used for targeted delivery of potential novel treatments. We have also entered into a sponsored research agreement with Columbia University pursuant to which we have been granted an option to license certain patents and inventions relating to the treatment of Alzheimer’s disease and stress-induced affective disorders using Ketamine in combination with certain other compounds.
We plan to actively pursue the acquisition and/or development of intellectual property or technology rights to treat rare diseases, and to ultimately expand our business to focus on this new line of business.
24
License Agreements between the Company and a Vendor
Vendor License Agreement with the University of Maryland, Baltimore for CNS Homing Peptide
On February 12, 2021, we entered into a Master License Agreement (the “UMB License Agreement”) with the University of Maryland, Baltimore (“UMB”) pursuant to which UMB granted us an exclusive, worldwide, sublicensable, royalty-bearing license to certain intellectual property (i) to make, have made, use, sell, offer to sell, and import certain licensed products and (ii) to use the invention titled, “Central nervous system-homing peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory pathology” (the “Invention”) and UMB’s confidential information to develop and perform certain licensed processes for the therapeutic treatment of neuroinflammatory disease. The term of the License Agreement shall commence on the UMB Effective Date and shall continue until the latest of (i) ten years from the date of First Commercial Sale (as defined in the Sublicense Agreement) of the Licensed Product in such country and (ii) the date of expiration of the last to expire claim of the Patent Rights (as defined in the UMB License Agreement) covering such Licensed Product in such country, or (iii) the expiration of data protection, new chemical entity, orphan drug exclusivity, regulatory exclusivity, or other legally enforceable market exclusivity, if applicable, unless terminated earlier pursuant to the terms of the agreement. Pursuant to the UMB License Agreement, we agreed to pay UMB (i) a license fee of $75,000, (ii) certain event-based milestone payments, (iii) royalty payments, depending on net revenues, (iv) minimum royalty payments, and (v) a tiered percentage of sublicense income. The UMB License Agreement will remain in effect until the later of: (a) the last patent covered under the UMB License Agreement expires, (b) the expiration of data protection, new chemical entity, orphan drug exclusivity, regulatory exclusivity, or other legally enforceable market exclusivity, if applicable, or (c) ten years after the first commercial sale of a licensed product in that country, unless earlier terminated in accordance with the provisions of the UMB License Agreement. The term of the UMB License Agreement shall expire 15 years after the effective date in which (a) there were never any patent rights, (b) there was never any data protection, new chemical entity, orphan drug exclusivity, regulatory exclusivity, or other legally enforceable market exclusivity or (c) there was never a first commercial sale of a licensed product.
As described below, the Company has entered into an investigator sponsored research agreement with UMB related to a clinical study to examine a novel peptide-guided drug delivery approach for the treatment of Multiple Sclerosis.
Commercial Evaluation License and Option Agreement with UMB for Joint Homing Peptide
Effective as of February 26, 2021, the Company, through its wholly-subsidiary, Silo Pharma, Inc., and University of Maryland, Baltimore (“UMB”), entered into a commercial evaluation license and option agreement (“License Agreement”), which granted the Company an exclusive, non-sublicensable, non-transferable license to with respect to the exploration of the potential use of joint-homing peptides for use in the investigation and treatment of arthritogenic processes. The License Agreement also granted the Company an exclusive option to negotiate and obtain an exclusive, sublicensable, royalty-bearing license (“Exclusive Option”) with respect to the subject technology. The License Agreement had a term of six months from the effective date. Both parties could have terminated the License Agreement within thirty days by giving a written notice.
On July 6, 2021, the Company entered into a First Amendment Agreement (“Amended License Agreement”) with UMB to extend the term of the original License Agreement by an additional six months such that the Amended License Agreement was effective until February 25, 2022. However, if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first. The Company paid a license fee of $10,000 to UMB in March 2021 pursuant to the License Agreement, which was expensed, since the Company could not conclude that such costs would be recoverable for this early-stage venture.
On January 28, 2022, the Company and University of Maryland, Baltimore entered into a second amendment to the License Agreement dated February 26, 2021 (“Second Amendment”). The Second Amendment extended the term of the License Agreement until December 31, 2022. However, if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first.
On June 22, 2022, the Company and UMB entered into a third amendment to the License Agreement dated February 26, 2021 under which UMB agreed, to expand the scope of the license granted in the CELA to add additional Patent Rights with respect to an invention generally known as “Peptide-Targeted Liposomal Delivery for Treatment Diagnosis, and Imaging of Diseases and Disorders.”
25
On December 16, 2022, the Company and UMB entered into a fourth amendment to License Agreement (the “Fourth Amendment”) dated February 26, 2021 to extend the term of the License Agreement until March 31, 2023. In addition, the parties agreed in the Fourth Amendment to allow the Company to extend the term of the License Agreement to June 30, 2023 by paying UMB a fee of $1,000 on or before February 28, 2022. This fee was paid and thus the term of the License Agreement was extended to June 30, 2023.
On June 28, 2023, the Company and UMB entered into a fifth amendment to License Agreement (the “Fifth Amendment”) to extend the term of the License Agreement until September 30, 2023. The Company may at its option extend this Agreement until December 31, 2023, by providing written notice to University on or before August 31, 2023, and by paying an additional license fee of $2,500. This fee was paid and the term of the License Agreement was extended to December 31, 2023.
Joint Venture Agreement with Zylö Therapeutics, Inc. for Z-pod™ Technology
On April 22, 2021, the Company entered into a Joint Venture Agreement with Zylö Therapeutics, Inc. (“ZTI”) pursuant to which the parties agreed to form a joint venture entity, to be named Ketamine Joint Venture, LLC, to, among other things, focus on the clinical development of ketamine using ZTI’s Z-pod™ technology. Pursuant to the Joint Venture Agreement, the Company shall act as the manager of the Joint Venture. The Venture shall terminate if the development program does not meet certain specifications and milestones as set forth in the Joint Venture Agreement within 30 days of the date set forth in the Joint Venture Agreement. Notwithstanding the foregoing, the Manager may, in its sole discretion, terminate the Venture at any time.
Pursuant to the terms of the Joint Venture Agreement, (A) the Company shall contribute (1) $225,000 and (2) its expertise and the expertise of its science advisory board and (B) ZTI shall contribute (1) certain rights to certain of its patented technology as set forth in the JV Agreement, (2) a license to the know-how and trade secrets with respect to its Z-pod™ technology for the loading and release of ketamine, (3) ketamine to be used for clinical purposes, (4) reasonable use of its facilities and permits and (5) its expertise and know-how. Pursuant to the Joint Venture Agreement, 51% of the interest in the Joint Venture shall initially be owned by the Company and 49% of the interest in the Joint Venture shall initially be owned by ZTI, subject to adjustment in the event of additional contributions by either party. Notwithstanding the foregoing, in no event shall either party own more than 60% of the interest in the Joint Venture. As of September 30, 2023 and as of the current date of this Quarterly Report, the joint venture entity has not been formed yet.
Furthermore, pursuant to the terms of the JV Agreement, ZTI shall grant the Joint Venture a sublicense pursuant to its license agreement (the “License Agreement”) with Albert Einstein College of Medicine dated November 27, 2017, in the event that the Company or a third party makes a request indicating that the patented technology (the “Patented Technology”) licensed to ZTI pursuant to the License Agreement is needed to advance the development of the Joint Venture or it is contemplated or determined that the Patented Technology will be sold. Furthermore, pursuant to the JV Agreement, ZTI granted the Company an exclusive option to enter into a separate joint venture for the clinical development of psilocybin using ZTI’s Z-pod™ technology on the same terms and conditions set forth in the JV Agreement, which option expired 24 months after the JV Effective Date.
Investigator-Sponsored Study Agreements between the Company and Vendors
Sponsored Research Agreement with Columbia University for the Study of Ketamine in Combination with Other Drugs for Treatment of Alzheimer’s and Depression Disorders
On October 1, 2021, the Company entered into a sponsored research agreement with Columbia University (“Columbia”) pursuant to which Columbia shall conduct two different studies related to all uses of Ketamine or its metabolites in combination with Prucalopride, one of which is related to Alzheimer’s and the other of which is related to Depression, PTSD and Stress Projects. In addition, Company has been granted an option to license certain assets currently under development, including Alzheimer’s disease. The term of the option will commence on the effective date of this agreement and will expire upon the earlier of (i) 90 days after the date of the Company’s receipt of a final research report for each specific research proposal as defined in the agreement or (ii) termination of the research. If the Company elects to exercise the option, both parties will commence negotiation of a license agreement and will execute a license agreement no later than 3 months after the date of the exercise of the option. Columbia University and the Company will work towards developing a therapeutic treatment for patients suffering from Alzheimer’s disease to posttraumatic stress disorder. During a one-year period from the date of this agreement, the Company shall pay a total of $1,436,082 to Columbia University for the support of the research according to the payment schedule as follows: (i) 30% at signing, (ii) 30% at four and half months after the start of the project, (iii) 30% at nine months after the start of the project and, (iv)10% at completion of the project. On October 13, 2022, the Company entered into an amendment of the sponsored research agreement pursuant to which the parties agreed to extend the payment schedule until March 31, 2024. The Company paid the first payment of $430,825 in November 2021 and the second payment of $430,825 in July 2022. On October 13, 2022, the Company entered into an amendment to the Columbia Agreement (the “Columbia Amendment”), pursuant to which the parties agreed to extend the payment schedule, whereby the third payment of $430,825 was due in March 2023. In August 2023, the Company paid $100,000 of this balance and $330,825 of such payment remains unpaid as of September 30, 2023, which is included in accounts payable on the accompanying unaudited consolidated balance sheet. The remaining payment of $143,607 is due upon completion. As of September 30, 2023, we estimate that this research project is approximately 90% complete.
26
Sponsored Research Agreement with University of Maryland, Baltimore for the Study of Targeted liposomal drug delivery for rheumatoid arthritis
On July 6, 2021, we entered into a sponsored research agreement (the “July 2021 Sponsored Research Agreement”) with UMB pursuant to which UMB shall evaluate the pharmacokinetics of dexamethasone delivered to arthritic rats via liposome. The research pursuant to the July 2021 Sponsored Research Agreement commenced on September 1, 2021 and will continue until the substantial completion thereof, subject to renewal upon written consent of the parties with a project timeline of twelve months. The July 2021 Sponsored Research Agreement may be terminated by either party upon 30 days’ prior written notice to the other party. In addition, if either party commits any material breach of or defaults with respect to any terms or conditions of the July 2021 Sponsored Research Agreement and fails to remedy such default or breach within 10 business days after written notice from the other party, the party giving notice may terminate the July 2021 Sponsored Research Agreement as of the date of receipt of such notice by the other party. If the Company terminates the July 2021 Sponsored Research Agreement for any reason other than an uncured material breach by UMB, we shall relinquish any and all rights it may have in the Results (as defined in the July 2021 Sponsored Research Agreement) to UMB. In addition, if the July 2021 Sponsored Research Agreement is terminated early, we, among other things, will pay all costs incurred and accrued by UMB as of the date of termination. Pursuant to the terms of the July 2021 Sponsored Research Agreement, UMB granted us an option (the “Option”) to negotiate and obtain an exclusive license to any UMB Arising IP (as defined in the July 2021 Sponsored Research Agreement) and UMB’s rights in any Joint Arising IP (as defined in the July 2021 Sponsored Research Agreement) (collectively, the “UMB IP”). We may exercise the Option by giving UMB written notice within 60 days after it receives notice from UMB of the UMB IP. We shall pay total fees of $276,285 as set forth in the July 2021 Sponsored Research Agreement. We paid the first payment of $92,095 on September 1, 2021 and on August 31, 2022, we paid the second payment of $92,095. On September 30, 2023 and December 31, 2022, we owed UMB $92,095 which was included in accounts payable on the accompanying unaudited consolidated balance sheets.
Sponsored Research Agreement with The Regents of the University of California for the Effect of Psilocybin on Inflammation in the Blood
On June 1, 2021, the Company entered into a sponsored research agreement (“Sponsored Research Agreement”) with The Regents of the University of California, on behalf of its San Francisco Campus (“UCSF”) pursuant to which UCSF shall conduct a study to examine psilocybin’s effect on inflammatory activity in humans to accelerate its implementation as a potential treatment for Parkinson’s Disease, chronic pain, and bipolar disorder. The purpose of this is to show what effect psilocybin has on inflammation in the blood. The Company believes that this study will help support the UMB homing peptide study. Pursuant to the Agreement, we shall pay UCSF a total fee of $342,850 to conduct the research over the two-year period. The Agreement shall be effective for a period of two years from the effective date, subject to renewal or earlier termination as set forth in the Sponsored Research Agreement.
Investigator-Sponsored Study Agreement with UMB for CNS Homing Peptide
On January 5, 2021, we entered into an investigator-sponsored study agreement with UMB. The research project is a clinical study to examine a novel peptide-guided drug delivery approach for the treatment of Multiple Sclerosis (“MS”). More specifically, the study is designed to evaluate (1) whether MS-1-displaying liposomes can effectively deliver dexamethasone to the central nervous system and (2) whether MS-1-displaying liposomes are superior to plain liposomes, also known as free drug, in inhibiting the relapses and progression of Experimental Autoimmune Encephalomyelitis. Pursuant to the agreement, the research commenced on March 1, 2021 and will continue until substantial completion, subject to renewal upon mutual written consent of the parties. The total cost under the investigator-sponsored study agreement shall not exceed $81,474 which is payable in two equal installments of $40,737 upon execution of the Sponsored Study Agreement and $40,737 upon completion of the project with an estimated project timeline of nine months. The Company paid $40,737 on January 13, 2021. This project is postponed until further notice and the second payment is not due.
Other License Agreements between the Company and a Customer
Customer Patent License Agreement with Aikido Pharma Inc.
On January 5, 2021, we entered into a Patent License Agreement (the “Aikido License Agreement”) with our wholly-owned subsidiary, Silo Pharma, Inc., and Aikido Pharma Inc. (“Aikido”) pursuant to which we granted Aikido an exclusive, worldwide, sublicensable, royalty-bearing license to certain intellectual property (i) to make, have made, use, provide, import, export, lease, distribute, sell, offer for sale, develop and advertise certain licensed products and (ii) to develop and perform certain licensed processes for the treatment of cancer and symptoms caused by cancer. The Aikido License Agreement relates to the rights which we had obtained under the UMB Option Agreement. Pursuant to the Aikido License Agreement, we agreed that if we exercised the UMB Option, we would grant Aikido a non-exclusive sublicense to certain UMB patent rights in the field of neuroinflammatory diseases occurring in patients diagnosed with cancer. The UMB Option was exercised on January 13, 2021. Accordingly, on April 6, 2021, we entered into a sublicense agreement with Aikido pursuant to which we granted Aikido a worldwide exclusive sublicense to our licensed patents under the UMB License Agreement (see below “Sublicense with Aikido Pharma Inc.”).
27
Customer Sublicense Agreement with Aikido Pharma Inc.
On April 6, 2021 (“Effective Date”), we entered into a sublicense agreement (the “Sublicense Agreement”) with Aikido pursuant to which we granted Aikido an exclusive worldwide sublicense to (i) make, have made, use, sell, offer to sell and import the Licensed Products (as defined below) and (ii) in connection therewith to (A) use the Invention that was sublicensed to us pursuant to the UMB License Agreement and (B) practice certain patent rights as set forth in the Sublicense Agreement (the “Patent Rights”) for the therapeutic treatment of neuroinflammatory disease in cancer patients. “Licensed Products” means any product, service, or process, the development, making, use, offer for sale, sale, importation, or providing of which: (i) is covered by one or more claims of the Patent Rights; or (ii) contains, comprises, utilizes, incorporates, or is derived from the Invention or any technology disclosed in the Patent Rights. Pursuant to the Sublicense Agreement, Aikido shall agree to pay the Company (i) an upfront license fee of $50,000, (ii) the same sales-based royalty payments that we are subject to under the UMB License Agreement and (iii) total milestone payments of up to $1.9 million. The Sublicense Agreement shall continue on a Licensed Product-by-Licensed Product and country-by-country basis until the later of (i) the date of expiration of the last to expire claim of the Patent Rights covering such Licensed Product in such country, (ii) the expiration of data protection, new chemical entity, orphan drug exclusivity, regulatory exclusivity or other legally enforceable market exclusivity, if applicable and (iii) 10 years after the first commercial sale of a Licensed Product in that country, unless terminated earlier pursuant to the terms of the Sublicense Agreement. Furthermore, the Sublicense Agreement shall expire 15 years after the Effective Date with respect to any country in which (i) there were never any Patent Rights, (ii) there was never any data protection, new chemical entity, orphan drug exclusivity, regulatory exclusivity or other legally enforceable market exclusivity with respect to a Licensed Product and (ii) there was never a commercial sale of a Licensed Product, unless such agreement is earlier terminated pursuant to its terms. The Company collected the upfront license fee of $50,000 in April 2021.
Recent Developments
On January 26, 2023, the Company’s Board of Directors authorized a stock repurchase plan to repurchase up to $1,000,000 of our issued and outstanding common stock, from time to time, with such program to be in place until December 31, 2023. Through September 30, 2023, the Company purchased 129,293 shares of common stock for a cost of $276,698 and cancelled 50,000 of these shares for a cost of $114,758.
Short-Term Investments
Our portfolio of short-term investments consists of marketable debt securities which are comprised solely of that are all highly rated U.S. government securities with maturities of more than three months, but less than one year. We classify these as available-for-sale at purchase date and will reevaluate such designation at each period end date. We may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the consolidated balance sheet and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive gain and as a component of the consolidated statements of comprehensive loss. Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income (expense), net in the consolidated statements of operations.
An impairment loss may be recognized when the decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary declines in fair value below the cost basis each quarter, or whenever events or changes in circumstances indicate that the cost basis of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis.
On September 30, 2023, short-term investments, at fair value, amounted to $8,571,247.
Equity Investments
On September 30, 2023 and December 31, 2022, we had equity investments, at fair value, of $0 and $3,118, respectively, which were comprised mainly of marketable common stock. Equity investments are carried at fair value with unrealized gains or losses which are recorded as net unrealized gain (loss) on equity investments in the accompanying unaudited consolidated statement of operations and comprehensive loss. Realized gains and losses are determined on a specific identification basis which is recorded as net realized gain (loss) on equity investments in the unaudited consolidated statement of operations and comprehensive loss. The Company reviews equity investments, at fair value for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.
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Results of Operations
Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022
The following table summarizes the results of operations for the three and nine months ending September 30, 2023 and 2022 and were based primarily on the comparative unaudited financial statements, footnotes and related information for the periods identified and should be read in conjunction with the unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 18,025 | $ | 18,025 | $ | 54,076 | $ | 54,076 | ||||||||
| Cost of sales | (1,459 | ) | (1,459 | ) | (4,378 | ) | (4,378 | ) | ||||||||
| Gross profit | 16,566 | 16,566 | 49,698 | 49,698 | ||||||||||||
| Operating expenses | (789,964 | ) | (965,720 | ) | (2,741,566 | ) | (2,020,396 | ) | ||||||||
| Operating loss from continuing operations | (773,398 | ) | (949,154 | ) | (2,691,868 | ) | (1,970,698 | ) | ||||||||
| Other income (expense), net | 113,238 | (34,092 | ) | 112,361 | (273,859 | ) | ||||||||||
| Loss from discontinued operations, net of tax | - | - | - | (1,163 | ) | |||||||||||
| Net loss | $ | (660,160 | ) | $ | (983,246 | ) | $ | (2,579,507 | ) | $ | (2,245,720 | ) | ||||
Revenues
During the three and nine months ended September 30, 2023 and 2022, we generated minimal revenues from operations. For the three months ended September 30, 2023 and 2022, revenues consisted of revenues on licensing fees related to our biopharmaceutical operation of $18,025. For the nine months ended September 30, 2023 and 2022, revenues consisted of revenues on licensing fees related to our biopharmaceutical operation of $54,076.
Such revenues are primarily related to the Aikido License and Sublicense Agreement.
Cost of Revenues
During the three months ended September 30, 2023 and 2022, cost of revenues on license fees related to our biopharmaceutical operation amounted to $1,459. During the nine months ended September 30, 2023 and 2022, cost of revenues on license fees related to our biopharmaceutical operation amounted to $4,378.
The primary components of cost of revenues on license fees include the cost of the license fees primarily related to the UMB License and Sublicense Agreement.
Operating Expenses
For the three and nine months ended September 30, 2023 and 2022, total operating expenses consisted of the following:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Compensation expense | $ | 379,294 | $ | 96,529 | $ | 710,737 | $ | 323,922 | ||||||||
| Professional fees | 338,164 | 402,190 | 1,273,729 | 846,617 | ||||||||||||
| Research and development | 174,495 | 375,795 | 508,127 | 651,750 | ||||||||||||
| Insurance expense | 25,915 | 30,865 | 72,811 | 95,023 | ||||||||||||
| Bad debt recovery | - | — | - | (20,000 | ) | |||||||||||
| Selling, general and administrative expenses | (127,904 | ) | 60,341 | 176,162 | 123,084 | |||||||||||
| Total operating expenses | $ | 789,964 | $ | 965,720 | $ | 2,741,566 | $ | 2,020,396 | ||||||||
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| ● | Compensation Expense: | |
For the three months ended September 30, 2023 and 2022, compensation expense amounted to $379,294 and $96,529, respectively, an increase of $282,765, or 292.9%. This increase resulted from an increase in Board of Director fees of $6,250, an increase in payroll expense and related benefits of $93,958, and an increase in executive bonus pay of $200,000, offset by a decrease in stock-based compensation of $17,443.
For the nine months ended September 30, 2023 and 2022, compensation expense amounted to $710,737 and $323,922, respectively, an increase of $386,815, or 119.4%. This increase resulted from, an increase in Board of Director fees of $18,750, an increase in payroll expense and related benefits of $251,279, and an increase in executive bonus pay of $200,000, offset by a decrease in stock-based compensation of $83,214. |
| ● | Professional Fees: | |
For the three months ended September 30, 2023 and 2022, professional fees were $338,164 and $402,190, respectively, a decrease of $64,026, or 15.9%. The decrease was primarily attributable to a decrease in other consulting fees of $33,935, a decrease in in investor relations fees of $75,682, and a decrease in accounting and auditing fees of $6,380, offset by an increase in stock-based consulting fees of $22,517 related to the amortization of prepaid expense on previously issued shares to consultants for business advisory and strategic planning services, and an increase in legal fees of $29,454.
For the nine months ended September 30, 2023 and 2022, professional fees were $1,273,729 and $846,617, respectively, an increase of $427,112, or 50.4%. The increase was primarily attributable to an increase in other consulting fees of $209,928, an increase in stock-based consulting fees of $90,067 related to the amortization of prepaid expense on previously issued shares to consultants for business advisory and strategic planning services, and an increase in legal fees of $210,451, offset by a decrease in investor relations fees of $71,361, and a decrease in accounting and auditing fees of $11,973. During the nine months ended September 30, 2023, we reimbursed Columbia University $171,311 related to patent related legal fees incurred by them on our behalf. |
| ● | Research and Development: | |
For the three months ended September 30, 2023 and 2022, we incurred research and development expenses of $174,495 and $375,795, respectively, a decrease of $201,300, or 53.6%. For the nine months ended September 30, 2023 and 2022, we incurred research and development expenses of $508,127 and $651,750, respectively, a decrease of $143,623, or 22.0%.
The decrease was a result of a decrease in research and development costs in connection with the Investigator-sponsored Study Agreements with UCSF, UMB, Columbia University, and other parties |
| ● | Insurance Expense: | |
For the three months ended September 30, 2023 and 2022, insurance expense amounted to $25,915 and $30,865, respectively, a decrease of $4,950, or 16.0%.
For the nine months ended September 30, 2023 and 2022, insurance expense amounted to $72,811 and $95,023, respectively, a decrease of $22,212, or 23.4%. |
| ● | Bad Debt Recovery: | |
| For the nine months ended September 30, 2022, we recorded bad debt recovery of $20,000. We recorded bad debt recovery from the collection of a previously written off note receivable deemed uncollectible. We did not record such amount in the 2023 periods. |
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| ● | Selling, General and Administrative Expenses: | |
| Selling, general and administrative expenses include advertising and promotion, patent related expenses, public company expenses, custodian fees, bank service charges, travel, and other office expenses. | ||
For the three months ended September 30, 2023 and 2022, selling, general and administrative (income) expenses were $(127,904) and $60,341, respectively, a positive change of $188,245, or 312.0%. The positive change was primarily attributed to the reversal of previously accrued Delaware franchise tax of $186,638. In the second quarter of 2023, we accrued $200,000 of Delaware franchise tax attributable to our reverse stock split which did not include a reduction of our authorized shares. During the third quarter of 2023, we filed our Delaware franchise tax return and paid substantially less franchise taxes.
For the nine months ended September 30, 2023 and 2022, selling, general and administrative expenses were $176,162 and $123,084, respectively, an increase of $53,078, or 43.1%. The increase was primarily attributed to an increase in public company expenses of $8,118, an increase in advertising and marketing expenses of $44,864, an increase in franchise taxes of $28,047, offset by a net decrease in other general and administrative expenses of $27,951. |
Loss from Continuing Operations
For the three months ended September 30, 2023 and 2022, loss from continuing operations amounted to $773,398 and $949,154, respectively, a decrease of $175,756, or 18.5%. The decrease was primarily a result of the changes in operating expenses discussed above.
For the nine months ended September 30, 2023 and 2022, loss from continuing operations amounted to $2,691,868 and $1,970,698, respectively, an increase of $721,170, or 36.6%. The increase was primarily a result of the changes in operating expenses discussed above.
Other Income (Expenses), net
For the three months ended September 30, 2023 and 2022, other income (expenses), net amounted to $113,238 and $(34,092) respectively, a positive change of $147,330, or 432.1%. The increase in other income (expenses), net was primarily due to an increase in interest and dividend income of $115,197, and a net decrease in net realized and unrealized loss on equity investment of $33,211, offset by an increase in interest expense of $1,078.
For the nine months ended September 30, 2023 and 2022, other income (expenses), net amounted to $112,361 and $(273,859), respectively, a positive change of $386,220, or 141.0%. The positive change in other income (expenses), net was primarily due to an increase in interest and dividend income of $288,377, a decrease in net realized and unrealized loss on equity investment of $353,923, and a decrease in other expenses of $283, offset by an increase in interest expense of $4,596, an increase in penalty expense of $166,034 which was incurred due to the early termination of a certificate of deposit, and a decrease in other income recorded during the 2022 period from equity shares earned for lock up agreement of $85,733.
Loss from Discontinued Operations
For the nine months ended September 30, 2023 and 2022, loss from discontinued operations amounted to $0 and $1,163, respectively, a decrease of $1,163, or 100.0%.
Net Loss
For the three months ended September 30, 2023, net loss amounted to $660,160, or $(0.21) per common share (basic and diluted), as compared to net loss of $983,246, or $(0.49) per common share (basic and diluted) for the three months ended September 30, 2022, an increase of $323,086, or 32.9%. The change was primarily a result of the changes discussed above.
For the nine months ended September 30, 2023, net loss amounted to $2,579,507 or $(0.82) per common share (basic and diluted), as compared to net loss of $2,245,720, or $(1.13) per common share (basic and diluted) for the nine months ended September 30, 2022, an increase of $333,787, or 14.9%. The change was primarily a result of the changes discussed above.
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Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital of $8,241,824, $199,839 in cash and cash equivalents, and short-term investments of $8,571,247 as of September 30, 2023, and working capital of $11,135,738 and $11,367,034 in cash and cash equivalents as of December 31, 2022, respectively.
| September 30, | December 31, | Working Capital | Percentage | |||||||||||||
| 2023 | 2022 | Change | Change | |||||||||||||
| Working capital: | ||||||||||||||||
| Total current assets | $ | 8,920,595 | $ | 11,572,056 | $ | (2,651,461 | ) | (23 | )% | |||||||
| Total current liabilities | 678,771 | 436,318 | (242,453 | ) | (56 | )% | ||||||||||
| Working capital: | $ | 8,241,824 | $ | 11,135,738 | $ | (2,893,914 | ) | (26 | )% | |||||||
The decrease in working capital of $2,893,914 was primarily attributable to a decrease in current assets of $2,651,461 primarily due to a net decrease in cash and cash equivalents of $11,167,195 and a decrease in prepaid expenses and other current assets of $55,985, offset by an increase in short-term investments of $8,571,247, and an increase in current liabilities of $242,453.
Cash Flows
A summary of cash flow activities is summarized as follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash (used in) operating activities | $ | (2,314,486 | ) | $ | (2,611,633 | ) | ||
| Net cash (used in) provided by investing activities | (8,576,011 | ) | 86,707 | |||||
| Cash (used in) provided by financing activities | (276,698 | ) | 4,940,948 | |||||
| Net (decrease) increase in cash | $ | (11,167,195 | ) | $ | 2,416,022 | |||
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 and 2022 were $2,314,486 and $2,611,633, respectively, a decrease of $297,147, or 11%.
| ● | Net cash used in operating activities for the nine months ended September 30, 2023 primarily reflected a net loss of $2,579,507, adjusted for the add-back of non-cash items such as net realized and unrealized loss on equity investments of $7,159, stock-based compensation of $12,711, and amortization of prepaid stock-based professional fees of $90,067, and changes in operating asset and liabilities primarily consisting of an increase in prepaid expenses and other current assets of $29,703, an increase of interest receivable of $3,590, an increase in accounts payable and accrued expenses of $242,453, and a decrease in deferred revenue of $54,076. |
| ● | Net cash used in operating activities for the nine months ended September 30, 2022 primarily reflected a net loss of $2,245,720 adjusted for the add-back of non-cash items such as bad debt recovery of $20,000, stock-based compensation and professional fees of $95,925, net realized loss on equity investments of $104,700, net unrealized loss on equity investments of $256,382, non-cash income from equity investment of $85,733 and changes in operating asset and liabilities primarily consisting of an increase in prepaid expenses of $481,675, an increase in interest receivable of $3,590, a decrease in accounts payable and accrued expenses of $194,292 and a decrease in deferred revenues of $54,077, offset by an increase in insurance payable of $16,447. |
Net Cash (Used in) Provided by Investing Activities
Net cash (used in) provided by investing activities for the nine months ended September 30, 2023 and 2022 were $(8,576,011) and $86,707, respectively, a change of $8,662,718.
| ● | Net cash used in investing activities for the nine months ended September 30, 2023 was $5,576,011 which consisted of aggregate payments for the purchase of short-term investments of $10,467,096 offset by proceeds from the sale of short-term investments of $1,891,085. |
| ● | Net cash provided by investing activities for the nine months ended September 30, 2022 was $20,000 from proceeds of notes receivable collection and $66,707 net proceeds from sale of equity investment. |
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Cash (Used in) Provided by Financing Activities
Net cash (used in) provided by financing activities for the nine months ended September 30, 2023 and 2022 were $(276,698) and $4,957,500, respectively, an increase of $5,217,646, or 106%.
| ● | Net cash used in financing activities for the nine months ended September 30, 2023 was $276,698 which consisted of the purchase of treasury stock. |
| ● | Net cash provided by financing activities for the nine months ended September 30, 2022 was $4,940,948 which consisted of net proceeds from sale of our common stock of $4,940,948. |
Cash Requirements
We believe that our current cash and cash equivalent amount and short-term investment amount will provide sufficient cash required to meet our obligations for a minimum of twelve months from the date of this filing.
Other than cash requirements pursuant to research and development agreements, we currently have no other material commitments for any capital expenditures.
Liquidity
As reflected in the accompanying unaudited consolidated financial statements, we generated a net loss of $2,579,507 and used cash in operations of $2,314,486 during the nine months ended September 30, 2023. Additionally, we have an accumulated deficit of $9,750,635 on September 30, 2023. As of September 30, 2023, we had working capital of $8,241,824.
The positive working capital serves to mitigate the conditions that historically raised substantial doubt about our ability to continue as a going concern. We believe that the Company has sufficient cash to meet its obligations for a minimum of twelve months from the date of this filing.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from estimates. Significant estimates during the nine months ended September 30, 2023 and 2022 include the collectability of notes receivable, the percentage of completion of research and development projects, the valuation of equity investments, estimates of the deemed dividend, valuation allowances for deferred tax assets, the fair value of warrants issued with debt and for services, and the fair value of shares issued for services and in settlements.
Revenue Recognition
The Company applies ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
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The Company records interest and dividend income on an accrual basis to the extent that the Company expects to collect such amounts.
For the license and royalty income, revenue is recognized when the Company satisfies the performance obligation based on the related license agreement. Payments received from the licensee that are related to future periods are recorded as deferred revenue to be recognized as revenues over the term of the related license agreement.
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.
Research and Development
In accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred.
Fair Value of Financial Instruments and Fair Value Measurements
We use the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
| Level 1 - | Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| Level 2 - | Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| Level 3 - | Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments.
Recent Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2020-06 during the first quarter of 2022 and the adoption did not have material impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of September 30, 2023.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:
| ● | We lack segregation of duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel; and. | |
| ● | We have not implemented adequate system and manual controls. |
Until such time as we expand our staff to include additional accounting personnel, it is likely we will continue to report material weaknesses in our internal control over financial reporting.
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 24, 2023 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On January 26, 2023, our Board of Directors authorized a stock repurchase plan to repurchase up to $1,000,000 of our issued and outstanding common stock, from time to time, with such program to be in place until December 31, 2023. Through September 30, 2023, the Company purchased 57,335 shares of common stock for a cost of $130,959 and cancelled 50,000 of these shares for a cost of $114,758.
The following is a summary of our common stock repurchases during the quarterly period ended September 30, 2023:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced program | Maximum number (or approximate dollar value) of shares that may yet be purchased under the program | ||||||||||||
| July 1, 2023 through July 31, 2023 | 28,012 | $ | 2.10 | 28,012 | ||||||||||||
| August 1, 2023 through August 31, 2023 | 15,457 | $ | 2.04 | 15,457 | ||||||||||||
| September 1, 2023 through September 30, 2023 | 28,489 | $ | 1.96 | 28,489 | ||||||||||||
| Total | 71,958 | $ | 2.03 | 71,958 | $ | 723,302 | ||||||||||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SILO PHARMA, INC. | ||
| Dated: November 13, 2023 | By: | /s/ Eric Weisblum |
| Name: | Eric Weisblum | |
| Title: | Chairman and Chief Executive Officer (Principal Executive Officer) | |
| Dated: November 13, 2023 | By: | /s/ Daniel Ryweck |
| Name: | Daniel Ryweck | |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) |
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