See accompanying condensed notes to unaudited consolidated
financial statements.
See accompanying condensed notes to unaudited consolidated
financial statements.
See accompanying condensed notes to unaudited consolidated
financial statements.
See accompanying condensed notes to unaudited consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (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. In addition to the Company’s primary focus on psychedelic
research, the Company has been engaged in the development of a streetwear apparel brand, NFID.
On October 4, 2013, the Company filed a Form N-54A
and elected to become a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940
Act”). In addition, the Company previously elected to be treated for federal income tax purpose as a regulated investment company
(“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”). Through September 29,
2018, the Company met the definition of RIC in accordance with the guidance under Accounting Standards Codification (“ASC”)
Topic 946 “Financial Services – Investment Companies”. On September 29, 2018, the Company filed Form N-54C, Notification
of Withdrawal of Election to be Subject to Section 55 through 65 of the 1940 Act, as the Company changed the nature of its business so
as to cease to be a business development company (See Note 2 – Basis of Presentation). Additionally, since 2017, the Company has
been subject to income taxes at corporate tax rates.
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 9) pursuant to which, among other things, UMB
granted the Company an exclusive, option to negotiate and obtain an exclusive, sublicensable, royalty-bearing license to with respect
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 (“Master License Agreement”) with UMB (see Note 9). 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation
Management acknowledges its responsibility for
the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of
normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its
operations for the periods presented. The accompanying unaudited condensed 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 condensed consolidated financial statements should be read in conjunction with the summary of significant
accounting policies and notes to the financial statements for the year ended December 31, 2020 included in the Company’s Annual
Report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2021.
Going Concern
These unaudited condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements,
the Company had a net loss and cash used in operations of $930,702 and $311,818, respectively, for the three months ended March 31, 2021.
Additionally, the Company had an accumulated deficit of $8,097,020 at March 31, 2021 and has generated minimal revenues under its new
business plan. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable
operations or become cash flow positive or raise additional capital pursuant to debt or equity financings. The Company may seek to raise
additional capital through additional debt and/or equity financings to fund its operations in the future; however, no assurance can be
provided that the Company will be able to raise additional capital on favorable terms, or at all. If the Company is unable to raise additional
capital or secure additional lending in the future to fund its business plan, the Company may need to curtail or cease its operations.
On February 9, 2021, the Company entered into securities purchase agreements with certain institutional and accredited investors pursuant
to which it sold an aggregate of 4,276 shares of its newly designated Series C Convertible Preferred Stock and warrants to purchase up
to 14,253,323 shares of it ss common stock for gross proceeds of approximately $4,276,000, before deducting placement agent and other
offering expenses. The closing of the offering occurred on February 12, 2021 (See Note 7). These unaudited condensed consolidated financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
Use of Estimates
The
preparation of unaudited condensed 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 three months ended March 31, 2021 and 2020 include the collectability of notes receivable, the valuation
of the Company’s equity investments, estimates for obsolete and slow-moving inventory, 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.
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 $250,000 or by the Securities Investor Protection Corporation up to $250,000. To reduce its risk associated with the failure of
such financial institutions, the Company evaluates, at least annually, the rating of the financial institutions in which it holds deposits.
At March 31, 2021 and December 31, 2020, the Company had cash in excess of FDIC limits of approximately $4,388,000, and approximately
$880,000, respectively.
Notes 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 recognized as general
and administrative expense.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets - current
of $230,408 and $241,091 at March 31, 2021 and December 31, 2020, respectively, consist primarily of costs paid for future services which
will occur within a year. Prepaid expenses and other current assets – non-current of $19,375 and $0 at March 31, 2021 and December
31, 2020, respectively, consist primarily of costs paid for future services which will occur after a year. Prepaid expenses may include
prepayments in cash and equity instruments for consulting, business advisory, legal services, license fees, research and development
fees, and insurance which are being amortized over the terms of their respective agreements.
Inventory
Inventory consisting of raw materials and finished
goods are stated at the lower of cost and net realizable value utilizing the first-in, first-out method. A reserve is established when
management determines that certain inventories may not be saleable. If inventory costs exceed expected net realizable value due to obsolescence
or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the net realizable
value. These reserves shall be recorded based on estimates and included in cost of sales. The Company did not record an inventory write-down
of its raw material during the three months ended March 31, 2021.
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 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.
Equity Investments, at Cost
Equity investments,
at cost are comprised mainly of non-marketable capital stock and stock warrants, are recorded at cost, as adjusted for other than temporary
impairment write-downs and are evaluated for impairment periodically.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
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.
Product sales are recognized when the product
is shipped to the customer and title is transferred and are recorded net of any discounts or allowances.
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 9).
Cost of Revenues
The primary components of cost of revenues on
apparel include the cost of the product, production costs, warehouse storage costs and shipping fees.
The primary components of cost of revenues on
license fees include 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 9).
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 March 31, 2021 and December 31, 2020 that would require either recognition or disclosure in the accompanying unaudited condensed consolidated
financial statements.
Research and development
In accordance with ASC 730-10, “Research
and Development-Overall,” research and development costs are expensed when incurred. During the three months ended March 31,
2021 and 2020, research and development costs were $48,602 and $0, respectively.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
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
earnings per share is computed by dividing net income 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 included convertible preferred shares and stock options are excluded from the computation of diluted shares
outstanding if they would have an anti-dilutive impact on the Company’s net losses. The following potentially dilutive shares have
been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for the three months ended March
31, 2021 and 2020:
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
Series A convertible preferred stock
|
|
|
-
|
|
|
|
2,000,000
|
|
Series B convertible preferred stock
|
|
|
-
|
|
|
|
575,000
|
|
Series C convertible preferred stock
|
|
|
14,253,333
|
|
|
|
-
|
|
Convertible notes
|
|
|
-
|
|
|
|
1,650,000
|
|
Stock options
|
|
|
300,000
|
|
|
|
300,000
|
|
Warrants
|
|
|
17,353,987
|
|
|
|
2,225,000
|
|
Leases
In February 2016, the FASB issued 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 new 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. The new standard requires lessors to account for leases using
an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.
The pronouncement requires a modified retrospective method of adoption and was effective on January 1, 2019, with early adoption permitted.
For the Company’s administrative office lease, the Company analyzed if it would be required to record a lease liability and a right-of-use
asset on its condensed 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.
New Accounting Pronouncements
Accounting standards that have been issued or
proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the Company’s financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 – FAIR VALUE OF FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company follows ASC 820, “Fair Value
Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis.
ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires
the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
ASC 820 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. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are prioritized below:
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 Company analyzes all financial instruments
with features of both liabilities and equity under the FASB’s 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.
The carrying amounts reported in the unaudited
condensed consolidated balance sheets for cash, inventory, 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.
Equity investments, at fair value
The Company accounted for certain equity investments
at fair value using level 1, level 2 and level 3 valuations. Assets and liabilities measured at fair value on a recurring basis are as
follows at March 31, 2021 and December 31, 2020:
|
|
At
March 31, 2021
(Unaudited)
|
|
|
At December 31, 2020
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Equity investments, at fair value
|
|
$
|
—
|
|
|
$
|
570,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
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 instruments.
At March 31, 2021, equity investments, at fair
value consisted of preferred equity securities of one entity, AIkido Pharma, Inc. (see Note 9).
Equity investments are carried at fair value
with unrealized gains or losses included in income (expense). Realized gains and losses are determined on a specific identification
basis and are included in other income (expense). 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.
The following are the Company’s equity
investments, at fair value owned by levels within the fair value hierarchy at March 31, 2021:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Preferred Stock
|
|
|
—
|
|
|
|
570,000
|
|
|
|
—
|
|
|
|
570,000
|
|
Total Investments
|
|
$
|
—
|
|
|
$
|
570,000
|
|
|
$
|
—
|
|
|
$
|
570,000
|
|
At March 31, 2021 and December 31, 2020, equity
investments, at fair value consisted of the following components:
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
Equity investments, at original cost
|
|
$
|
531,250
|
|
|
$
|
—
|
|
Gross unrealized appreciation
|
|
|
38,750
|
|
|
|
—
|
|
Equity investments, at fair market value
|
|
$
|
570,000
|
|
|
$
|
—
|
|
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
Equity Investments, at Cost
At March 31, 2021 and
December 31, 2020, equity investments, at cost of $200 comprised mainly of non-marketable capital stock and stock warrants, are recorded
at cost, as adjusted for other than temporary impairment write-downs and are evaluated for impairment periodically.
NOTE 4 – INVENTORY
At March 31, 2021, and December 31, 2020, inventory,
including jackets, t-shirts, sweatshirts, hats and fabric, consisted of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,285
|
|
|
$
|
1,425
|
|
Finished goods
|
|
|
43,380
|
|
|
|
32,059
|
|
Inventory
|
|
$
|
44,665
|
|
|
$
|
33,484
|
|
NOTE 5
– NOTES RECEIVABLE
On
September 28, 2018, the Company and Blind Faith Concepts Holdings, Inc. (the “Seller”) executed a two-year promissory
note receivable agreement with a principal balance of $200,000 of which $100,000 was funded to the Seller in September 2018 and the remaining
$100,000 was funded in October 2018. The promissory note accrued interest at a rate of 6% per annum, and the Company was repaid in interest
only payments on a quarterly basis, until the maturity date of September 27, 2020, at which time the full principal and any interest
payments was due to the Company. At the time the promissory note receivable agreement was executed, the Company also executed a security
interest and pledge agreement with the borrower pursuant to which the borrower pledged all of the assets of its company as security for
the performance of the note obligations.
On November 2, 2018, the Company and Seller entered
into a promissory note agreement (“Promissory Note Agreement”) with a principal balance of $50,000. Pursuant to the Promissory
Note Agreement, the $50,000 note was a deposit and credit towards the acquisition of the assets of Lust for Life Group such as inventory,
trademarks and logos. Pursuant to the Promissory Note Agreement, since the purchase did not close within 30 days from date of the Promissory
Note, the note receivable became immediately due. Through the date of default, the outstanding principal balance accrued interest at
an interest rate of 10% per annum payable on a monthly basis. Upon default, the interest rate increased to 18% per annum. As of December
31, 2018, the Company determined that this note receivable was doubtful and accordingly, recorded an allowance for doubtful account and
bad debt expense of $50,000.
In December 2019, pursuant to claim purchase
agreements (“Claim Purchase Agreements”), the Company sold its notes receivable and related interest receivable balances
in the aggregate amount of $277,305 to an investor. Pursuant to the Claim Purchase Agreements, the investor agreed to pay the Company
the purchase price of $277,305 on the earlier of the payment of six-monthly installments or upon the liquidation of settlement securities
of the Seller pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. The first installment was be made following entry
and full effectuation of a court order approving the settlement of the claim which occurred on March 6, 2020 in the United States District
Court for the District of Maryland Northern Division. Additionally, on January 6, 2020, the Company and the Seller entered into a settlement
agreement related to notes receivable. In lieu of the Company seeking default and foreclosure against the Seller pursuant to the note
agreements, the Company received 10,420 shares of the Seller’s convertible Series B Preferred Stock. Since the shares of Series
B Preferred Stock have limited marketability, no value was placed on these shares. Between April 2020 and December 2020, the Company
collected an aggregate of $30,000 on the notes receivable balance. During the year ended December 31, 2020, the Company recorded
a total allowance for doubtful account and bad debt expense of $174,376 (consisting of the principal balance of $146,500 and interest
receivable of $27,876) due to slow collection of the installment payments pursuant to the Claim Purchase Agreements.
During the year ended December 31, 2020, the
Company recorded $9,000 to bad debt recovery for cash payment received on an older note receivable that was previously written off prior
to 2019. On March 10, 2021, the Company collected $23,500 related to this note receivable. As of March 31, 2021 and December 31, 2020,
notes receivable, net, consisted of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
Principal amounts
of notes receivable
|
|
$
|
220,000
|
|
|
$
|
250,000
|
Collections on notes receivables
|
|
|
(23,500
|
)
|
|
|
(30,000)
|
Less: allowance for doubtful
accounts
|
|
|
(196,500
|
)
|
|
|
(196,500)
|
Notes receivable, net
|
|
$
|
—
|
|
|
$
|
23,500
|
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
NOTE 6 - NOTE PAYABLE
Paycheck Protection Program Funding
On April 30, 2020, the Company received federal
funding in the amount of $18,900 through the Paycheck Protection Program (the “PPP”). PPP funds had certain restrictions
on use of the funding proceeds, and generally must be repaid within two years and accrued interest at a rate of 1% per annum. The PPP
loan may, under circumstances, be forgiven. No payment was due by the Company during the nine months period beginning on the date of
this note (“Deferral Period”). Commencing one month after the expiration of the Deferral Period, the Company was to pay the
lender monthly payments of principal and interest, each in equal amount required to fully amortize by the maturity date. If a payment
on this note was more than ten days late, the lender would charge a late fee of up to 5% of the unpaid portion of the regularly scheduled
payment. As of March 31, 2021, the principal balance of this note amounted to $18,900 and accrued interest of $174.
During the three months ended March 31, 2021,
the Company recognized $47 of interest expense.
|
|
As of
March 31,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
|
|
|
|
|
Principal amount
|
|
$
|
18,900
|
|
|
$
|
18,900
|
|
Less: current portion
|
|
|
(17,837
|
)
|
|
|
(14,654
|
)
|
Note payable - long term portion
|
|
$
|
1,063
|
|
|
$
|
4,246
|
|
Minimum principal payments under note payable
to unrelated parties at March 31, 2021 were as follows:
Year ended December 31, 2021
|
|
$
|
14,654
|
|
Year ended December 31, 2022
|
|
|
4,246
|
|
Total principal payments
|
|
$
|
18,900
|
|
In April 2021, the Company was notified by
the Small Business Administration that the principal and accrued interest under the PPP loan has been forgiven in full (see Note 10).
NOTE 7 – STOCKHOLDERS’ EQUITY
Preferred stock
The Company has authorized the issuance of 5,000,000
shares of preferred stock, $0.0001 par value. The Company’s board of directors is authorized, at any time, and from time to time,
to provide for the issuance of shares of preferred stock in one or more series, and to determine the designations, preferences, limitations
and relative or other rights of the preferred stock or any series thereof. In April 2013, 1,000,000 shares of preferred stock were designated
as Series A Convertible Preferred Stock, and in November 2019, 2,000 shares of preferred stock were designated as Series B Convertible
Preferred Stock.
Certificate of Designation of 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 4,280 shares of preferred stock as Series C Convertible Preferred Stock.
Designation. The Company has designated
4,280 shares of preferred stock as Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock has a par
value of $0.0001 per share and a stated value of $1,000 (the “Series C Stated Value”).
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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
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 $0.30, subject to adjustment in the event of stock split, stock dividends, subsequent right offerings and similar
recapitalization transactions.
Exercisability. A holder of
Series C Convertible Preferred Stock may not convert any portion of the Series C Convertible Preferred Stock to the extent that the holder,
together with its affiliates and any other person or entity acting as a group, would own more than 4.99% (or, upon election by a holder
prior to issuance, 9.99%) of the outstanding shares of the Company’s common stock after conversion, which beneficial ownership
limitation may be increased by the holder up to, but not exceeding, 9.99%.
Series C Convertible Preferred Stock Financing
On February 9, 2021 (the “Effectiveness
Date”), the Company entered into securities purchase agreements (collectively, the “Series C Purchase Agreements”)
with certain institutional and accredited investors for the sale of an aggregate of 4,276 shares of the Company’s Series C Convertible
Preferred Stock and warrants (the “February Warrants”) to purchase up to 14,253,323 shares (the “February Warrant Shares”)
of the Company’s common stock for gross proceeds of approximately $4,276,000, before deducting placement agent and other offering
expenses of $481,898 which are offset against the proceeds in additional paid in capital. The offering closed on February 12, 2021. Accordingly,
the Company recognized a total deemed dividend of $1,403,997 for the beneficial conversion feature in connection with the issuance of
these Series C Convertible Preferred Stock.
The February Warrants are exercisable for a period
of five years from the date of issuance at an exercise price of $0.30 per share. If, after a period of 180 days after the date of issuance
of the February Warrants, a registration statement covering the resale of the February Warrant Shares is not effective, the holders may
exercise the February Warrants by means of a cashless exercise.
The Series C Convertible Preferred Stock and
the February Warrants each contain a beneficial ownership limitation that restricts each of the investor’s ability to exercise
the February Warrants and convert the Series C Convertible Preferred Stock such that the number of shares of the Company common stock
held by each of them and their affiliates after such conversion or exercise does not exceed 4.99% (or, at the election of the Investor,
9.99%) of the Company’s then issued and outstanding shares of common stock.
The Series C Purchase Agreement also provides
that until the 18 month anniversary of the Effectiveness Date, in the event of a subsequent financing (except for certain exempt issuances
as provided in the Series C Purchase Agreement) by the Company, each investor will have the right to participate in such subsequent financing
up to an amount equal to the investor’s proportionate share of the subsequent financing based on such investor’s participation
in the offering on the same terms, conditions and price provided for in the subsequent financing up to an amount equal to 50% of the
subsequent financing. In addition, pursuant to the Series C Purchase Agreement, the Company has agreed that neither it nor its subsidiaries
will enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents
to file any registration statement other than as contemplated pursuant to the Registration Rights Agreement (as defined below) for a
period of 90 days from the Effectiveness Date. Furthermore, subject to certain exceptions, the Company is prohibited from effecting or
entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents
involving a Variable Rate Transaction (as defined in the Series C Purchase Agreement).
In
connection with the offering, the Company entered into separate registration rights agreements (“Registration Rights Agreements”)
with the investors pursuant to which the Company agreed to undertake to file a registration statement (the “Registration Statement”)
to register the resale of the Registrable Securities (as defined in the Registration Rights Agreement) within ten calendar days following
the Effectiveness Date. The Company agreed to use its best efforts to cause the Registration Statement covering the Registrable Securities
to be declared effective no later than the 60th calendar day following the Effectiveness Date, or in the event of a full
review by the Securities and Exchange Commission, the 90th calendar day following the Effectiveness Date, and to maintain
the effectiveness of the Registration Statement until all of the Registrable Securities have been sold or are otherwise able to be sold
pursuant to Rule 144 under the Securities Act of 1933, as amended. If the Company fails to file the Registration Statement or have it
declared effective by the dates set forth above, amongst other things, the Company will be obligated to pay the investors damages in
the amount of 1% of their subscription amount, per month, until such events are satisfied.
The Registration Statement was filed and declared effective in April 2021.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
In addition, pursuant to the terms of the offering,
the Company issued Bradley Woods & Co, Ltd. and Katalyst Securities LLC warrants (the “Placement Agent Warrants”) to
purchase up to an aggregate of 2,850,664 shares of common stock, or 10% of the shares of common stock issuable upon conversion of the
Series C Preferred Stock and February Warrant Shares sold in the offering. The Placement Agent Warrants are exercisable for a period
of five years from the closing date of the offering at an exercise price of $0.35 per share, subject to adjustment.
The net proceeds of the offering are expected
to be used for working capital purposes and to further execute on the Company’s existing business.
Common stock
Increase in Authorized Shares
On March 10, 2021, the Company filed an amendment
to its Certificate of Incorporation with the Secretary of State of Delaware to increase the authorized number of shares of common stock
of the Company from 100,000,000 shares to 500,000,000 shares.
Stock options
On January 18, 2021, the board of directors (“Board
of Directors” or “Board”) of the Company approved the Silo Pharma, Inc. 2020 Omnibus Equity Incentive Plan (the “Plan”)
to incentivize employees, officers, directors and consultants of the Company and its affiliates. 8,500,000 shares of common stock are
reserved and available for issuance under the Plan, provided that certain exempt awards (as defined in the Plan), shall not count against
such share limit. The Plan provides for the grant, from time to time, at the discretion of the Company’s Board or a committee thereof,
of cash, stock options, including incentive stock options and nonqualified stock options, restricted stock, dividend equivalents, restricted
stock units, stock appreciation units and other stock or cash-based awards. The Plan shall terminate on the tenth anniversary of
the date of adoption by the Board of Directors. Subject to certain restrictions, the Board of Directors may amend or terminate the Plan
at any time and for any reason. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to
the extent required by applicable laws, rules or regulations. On March 10, 2021, the stockholders of the Company approved the Plan.
Stock option activities for the three months
ended March 31, 2021 are summarized as follows:
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding, December 31, 2020
|
|
|
300,000
|
|
|
$
|
0.0001
|
|
|
|
3.5
|
|
|
|
127,290
|
|
Granted/issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance Outstanding, March 31, 2021
|
|
|
300,000
|
|
|
$
|
0.0001
|
|
|
|
3.29
|
|
|
$
|
86,970
|
|
Exercisable, March 31, 2021
|
|
|
300,000
|
|
|
$
|
0.0001
|
|
|
|
3.29
|
|
|
$
|
86,970
|
|
Warrants
Warrant activities for the three months ended
March 31, 2021 are summarized as follows:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual
Term (Years)
|
|
|
Aggregate Intrinsic Value
|
|
Balance Outstanding, December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
17,353,987
|
|
|
|
0.31
|
|
|
|
5.00
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance Outstanding, March 31, 2021
|
|
|
17,353,987
|
|
|
$
|
0.31
|
|
|
|
4.87
|
|
|
$
|
22,500
|
|
Exercisable, March 31, 2021
|
|
|
17,353,987
|
|
|
$
|
0.31
|
|
|
|
4.87
|
|
|
$
|
22,500
|
|
On January 18, 2021, the Company granted warrants
to purchase up to 250,000 shares of the Company’s common stock in exchange for legal services rendered. The warrants have a term
of five years from the date of grant and are exercisable at an exercise price of $0.20 per share. The warrants were valued on the grant
date at approximately $0.33 per warrant for a total of $83,728 using a Black-Scholes option pricing model with the following assumptions:
stock price of $0.35 per share (based on the quoted trading price on the date of grant), volatility of 169%, expected term of five year,
and a risk-free interest rate of 0.46%. During the three months ended March 31, 2021, the Company recorded stock-based compensation of
$83,728.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
On February 9, 2021, the Company entered into
pursuant to securities purchase agreements with certain investors pursuant to which it sold warrants to purchase up to 14,253,323 shares
of the Company’s common stock and 4,276 shares of the Company’s Series C Convertible Preferred Stock. The February Warrants
are exercisable for a period of five years from the date of issuance at an exercise price of $0.30 per share, subject to adjustment.
If, after a period of 180 days after the date of issuance of the February Warrants, a registration statement covering the resale of the
February Warrant Shares is not effective, the holders may exercise the February Warrants by means of a cashless exercise. In addition,
pursuant to the terms of the offering, the Company issued the Placement Agent Warrants to purchase up to an aggregate of 2,850,664 shares
of common stock to its placement agents, or 10% of the shares of common stock issuable upon conversion of the Series C Preferred Stock
and February Warrant Shares sold in the offering. The Placement Agent Warrants are exercisable for a period of five years from the closing
date of the offering at an exercise price of $0.35 per share, subject to adjustment (see Series C Convertible Preferred Stock Financing
above). Such warrants issued to various investors and to the placement agents were recorded as additional paid in capital with an offsetting
debit applied against additional paid in capital, thus these warrants have no further accounting effect within the equity section.
NOTE 8 – CONCENTRATIONS
Customer concentration
For the three months ended March 31, 2021 and
2020, no customer accounted for over 10% of total revenues from apparel sales. For the three months ended March 31, 2021, one licensee
accounted for 100% of total revenues related to the Company’s biopharmaceutical operation as compared to no licensees for the three
months ended March 31, 2020.
Vendor concentrations
Generally, the Company purchases substantially
all of its raw materials and inventory from two suppliers. The loss of these suppliers may have a material adverse effect on the Company’s
results of operations and financial condition. However, the Company believes that, if necessary, alternate vendors could supply similar
products in adequate quantities to avoid material disruptions to operations.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On April 17, 2020, the Company entered into an
employment agreement (“Employment Agreement”) with the Company’s Chief Executive Officer (“CEO”) pursuant
to which CEO will 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 review at least six months prior to the expiration
of the then effective term. Pursuant to the terms of the Employment Agreement, the CEO was granted 7,630,949 vested shares of the Company’s
common stock in April 2020, and the CEO’s base salary was increased to $120,000. In addition, the CEO shall be eligible to earn
a bonus, subject to the sole discretion of the Company’s Board. On January 18, 2021, the Company entered into an amendment (the
“Amendment”) to the Employment Agreement, effective as of January 1, 2021, pursuant to which the CEO’s base salary was
increased from $120,000 per year to $180,000 per year.
The Employment Agreement may be terminated by
either the Company or CEO at any time and for any reason upon 60 days prior written notice. Upon termination of the Employment Agreement,
the CEO shall be entitled to (i) any equity award that has vested prior to the termination date, (ii) reimbursement of expenses incurred
on or prior to such termination date and (iii) such employee benefits to which the CEO may be entitled as of the termination date (collectively,
the “Accrued Amounts”). The Employment Agreement shall also terminate upon CEO’s death or the Company may terminate
the CEO’s employment upon his disability (as defined in the Employment Agreement). Upon the termination of the CEO’s employment
for death or disability, the CEO shall be entitled to receive the Accrued Amounts. The Employment Agreement also contains covenants prohibiting
the CEO from disclosing confidential information with respect to the Company.
Commercial Evaluation License and Option Agreement
with the University of Baltimore, Maryland
Effective as of July 15, 2020, through the Company’s
wholly-owned subsidiary, Silo Pharma, Inc. (see Note 1), the Company entered into a commercial evaluation license and option agreement
with UMB pursuant to which UMB has granted 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. In addition, UMB granted the Company an exclusive, option to negotiate
and obtain an exclusive, sublicensable, royalty-bearing license to with respect to the subject technology. This agreement originally was
set to expire six months from July 15, 2020 but was extended and exercised on January 13, 2021. Both parties may terminate this agreement
within thirty days by giving a written notice. In July 2020, the Company paid the license fee of $10,000 to UMB pursuant to this agreement
which was recorded in professional fees during the year ended December 31, 2020 since the Company could not conclude that such costs would
be recoverable for this early-stage venture. On February 12, 2021, the Company entered into the Master License Agreement with UMB.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
On
February 26, 2021, through the Company’s wholly-subsidiary, Silo Pharma, Inc., the Company entered into a commercial evaluation
license and option agreement with UMB pursuant to which UMB has 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. In addition, UMB granted the Company an exclusive, option to negotiate and obtain an exclusive, sublicensable,
royalty-bearing license to with respect to the subject technology. This agreement shall expire six months from February 26, 2021, unless
sooner terminated. Both parties may terminate this agreement within thirty days by giving a written notice. Pursuant to the agreement,
the Company paid the license fee of $10,000 to UMB in March 2021 pursuant to this agreement which was recorded in professional fees
during the three months ended March 31, 2021 since the Company could not conclude that such costs would be recoverable for this early-stage
venture.
Master License Agreement with the University
of Baltimore, Maryland
On February 12, 2021 (the “Master License
Agreement Effective Date”), the Company entered into the Master License Agreement (the “Master License Agreement”) with
UMB pursuant to which UMB granted 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.
Pursuant
to the Master License Agreement, the Company shall pay UMB (i) a license fee (ii) certain event-based milestone payments, (iii) royalty
payments depending on net revenues, and (iv) a tiered percentage of sublicense income. The Company shall pay to UMB a license fee of
$75,000, payable as follows: (a) $25,000 shall be due within 30 days following the Master License Agreement Effective Date; and (b) $50,000
on or before the first anniversary of the Master License Agreement Effective Date. The
license fee is non-refundable, and is not creditable against any other fee, royalty, or payment. The Company shall be responsible for
payment of all patent expenses in connection with preparing, filing, prosecution and maintenance of patents or patent applications relating
to the patent rights. The Company paid the $25,000 license fee on February 17, 2021 and was recorded in prepaid expenses to be amortized
over the 15-year term. The Company recognized amortization expense of $625 during the three months ended March 31, 2021. At March 31,
2021, prepaid expense and other current assets – current amounted $5,000 and prepaid expenses – non-current amounts $19,375
as reflected in the accompanying condensed consolidated balance sheets.
Additionally, the Company agreed to pay certain
royalty payments as follows:
|
(i)
|
3% on sales of Licensed
Products (as defined in the Master License Agreement) during the applicable calendar year
for sales less than $50,000,000; and
|
|
(ii)
|
5% on sales of Licensed
Products during the applicable calendar year for sales greater than $50,000,000; and
|
Furthermore, the Company agreed to pay UMB minimum
royalty payments, as follows:
Payment
|
|
|
Year
|
$
|
-
|
|
|
Prior to First Commercial Sale
|
$
|
-
|
|
|
Year of First Commercial Sale
|
$
|
25,000
|
|
|
First calendar year following the First Commercial Sale
|
$
|
25,000
|
|
|
Second calendar year following the First Commercial Sale
|
$
|
100,000
|
|
|
Third calendar year following the First Commercial Sale
|
Furthermore, the Company agrees to pay milestone
payments, as follows:
Payment
|
|
|
Milestone
|
$
|
50,000
|
|
|
Filing of an Investigational New Drug (or any foreign equivalent) for a Licensed Product
|
$
|
100,000
|
|
|
Dosing of first patient in a Phase 1 Clinical Trial of a Licensed Product
|
$
|
250,000
|
|
|
Dosing of first patient in a Phase 2 Clinical Trial of a Licensed Product
|
$
|
500,000
|
|
|
Receipt of New Drug Application (“NDA”) (or foreign equivalent) approval for a Licensed
Product
|
$
|
1,000,000
|
|
|
Achievement of First Commercial Sale of Licensed Product
|
The
Company shall pay to UMB a percentage of all sublicense income which is receivable by Company or Company affiliates as follows: (a) 25%
of sublicense income which is receivable with respect to any sublicense that is executed before the filing of an NDA (or foreign equivalent)
for the first licensed product; and (b) 15% of sublicense income which is receivable with respect to any sublicense that is executed
after the filing of an NDA (or foreign equivalent) for the first licensed product.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
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) 10 years after the first commercial sale of a Licensed Product
in that country, unless earlier terminated in accordance with the provisions of the Master License Agreement. The term of the Master
License Agreement shall expire 15 years after the Master License Agreement 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.
Investigator-Sponsored
Study Agreement with Maastricht University of the Netherlands
On November 1, 2020, the Company entered into
an investigator-sponsored study agreement (the “Study Agreement”) with Maastricht University of the Netherlands. The research
project is a clinical study to examine the effects of repeated low doses of psilocybin and lysergic acid diethylamide on cognitive and
emotional dysfunctions in Parkinson’s disease and to understand its mechanism of action. The Study Agreement shall terminate on
October 31, 2024, unless earlier terminated pursuant to the terms thereof. The Company shall pay a total fee of 433,885 Euros ($507,602
USD) exclusive of value added tax to be amortized over the four-year term and payment schedule as follows:
Payment
|
|
|
1
|
|
86,777 Euros ($101,520 USD)
|
|
Upon signing the Study Agreement and was paid in December 2020
|
2
|
|
86,777 Euros ($101,520 USD)
|
|
Obtained approval from ethical committee
|
3
|
|
86,777 Euros ($101,520 USD)
|
|
Data collection has commenced
|
4
|
|
130,166 Euros ($152,281 USD)
|
|
First half of the participants are tested
|
5
|
|
43,885 Euros ($50,760 USD)
|
|
Completion of data collection and delivery of final report
|
In December 2020, the Company paid the first
payment which was recorded to prepaid expense and other current assets - current. The Company recognized amortization expense of $39,549
during the three months ended March 31, 2021.
Investigator-Sponsored
Study Agreement with UMB
On January 5, 2021, the Company entered into
an investigator-sponsored study agreement (the “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 $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 which was recorded in prepaid expense to be amortized over the nine-month period. The Company
recognized amortization expense of $9,053 during the three months ended March 31, 2021.
Patent License Agreement with AIkido Pharma
Inc.
On January 5, 2021, the Company entered into
a patent license agreement (the “Agreement”) with Silo Pharma, Inc., a Florida corporation and wholly-owned subsidiary of
the Company (collectively, the “Licensor”) and AIkido Pharma Inc. (“AIkido”), as amended on April 12, 2021, pursuant
to which the Licensor granted AIkido an exclusive, worldwide (the “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 (the “Field of Use”).
In addition, the 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 (the “Right”) to certain UMB patent rights in the field
of neuroinflammatory diseases occurring in patients diagnosed with cancer (the “Field”). Pursuant to the Agreement, AIkido
agreed to pay the Licensor, among other things, (i) a one-time non-refundable cash payment of $500,000 and (ii) royalty payments equal
to 2% of Net Sales (as defined in the Agreement) in the Field of Use in the Territory. In addition, AIkido issued the Licensor 500 shares
of its newly designated Series M Convertible Preferred Stock which shall be converted into an aggregate of 625,000 shares of the AIkido’s
common stock.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
Pursuant to the 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 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 $500,000 on January 5, 2021 which will
be recorded in deferred revenues to be recognized as revenues over the term of the Agreement.
With respect to a vote of AIkido’s stockholders
to approve a reverse split of its common stock no later than December 31, 2021 only (“Reverse Stock Split Vote”), each share
of the Series M Convertible Preferred Stock shall be entitled to such number of votes equal to 20,000 shares of AIkido’s common
stock. In addition, each share of the Series M Convertible Preferred Stock shall be convertible, at any time after the earlier of (i)
the date that the Reverse Stock Split Vote is approved by AIkido’s stockholders and (ii) December 31, 2021, at the option of the
holder, into such number of shares of AIkido’s common stock determined by dividing the Stated Value by the Conversion Price. “Stated
Value” means $1,000. “Conversion Price” means $0.80, subject to adjustment. The Company valued the 500 Series M Convertible
Preferred stock which is equivalent into AIkido’s 625,000 shares of common stock at a fair value of $0.85 per common share or $531,250
based quoted trading price of AIkido’s common stock on the date of grant. The Company recorded an equity investment of $531,250
(see Note 3) and deferred revenue of $531,250 to be recognized as revenues over the term of the license.
Accordingly, the Company recorded a total deferred
revenue of $1,031,250 to be recognized as revenues over the 15-year term. The Company recognized revenues of $17,188 during the three
months ended March 31, 2021. At March 31, 2021, deferred revenue – current portion amounted $68,750 and deferred revenue –
long-term portion amounted $945,312 as reflected in the accompanying condensed consolidated balance sheets.
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 110% of any fee payable by the Company to UMB for the right to sublicense the UMB
patent rights. The Company shall grant AIkido a nonexclusive sublicense in the United States to the UMB patent rights in the Field, subject
to the terms of any UMB license Licensor obtains, including any royalty obligations on sublicensees required under any such sublicense.
The option was exercised on January 13, 2021. Accordingly, on April 6, 2021, the Company entered into the Sublicense Agreement with AIkido
pursuant to which it granted AIkido a worldwide exclusive sublicense to its licensed patents under the Master License Agreement.
(See Note 9 “Sublicense with AIkido Pharma Inc.”).
NOTE 10 – SUBSEQUENT EVENTS
Sublicense 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 us (i) an upfront license fee of $50,000, (ii) the same sales-based royalty payments that the Company is subject to under
the Master 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 Sublicense Agreement 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. In connection with this Sublicense Agreement, on April 12, 2021, the Company paid $12,500, or 25% sublicense
income to UMB pursuant to the Master License Agreement (see Note 9).
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 (UNAUDITED)
Amendment to Patent License Agreement with
AIkido
On April 12, 2021, the Company entered into an
amendment to the Patent License Agreement with AIkido dated January 5, 2021 (see Note 9) pursuant to which the parties agreed that AIkido
delivered to the Company 500 shares of the Company’s Series M Convertible Preferred Stock which converted into an aggregate of
625,000 restricted shares of AIkido’s common stock.
Conversion of Series C Convertible Preferred
Stock
On April 12, 2021, the Company notified holders
of its Series C Convertible Preferred Stock of its election to force the conversion to its Series C Convertible Preferred Stock into
shares of the Company’s common stock pursuant to the Certificate of Designations unless such conversion would cause the holder
to exceed its beneficial ownership limitation pursuant to the Certificate of Designations. On April 14, 2021, the Company converted 4,049
Series C Convertible Preferred Stock into 13,495,014 shares of common stock. Currently, there are 227 shares of the Company’s
Series C Convertible Preferred Stock which remain outstanding.
Paycheck Protection Program Funding
In April 2021, the Company was notified by
the Small Business Administration that the principal and accrued interest under the PPP loan has been forgiven in full (see Note 6).
Joint Venture Agreement with Zylö
Therapeutics, Inc.
On April 22, 2021 (the “JV Effective Date”),
the Company entered into a Joint Venture Agreement (the “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 (the “Joint Venture”),
to, among other things, focus on the clinical development of ketamine using ZTI’s Z-pod™ technology (the “Venture”).
Pursuant to the JV Agreement, the Company shall act as the manager (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 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 Venture
at any time.
Pursuant
to the terms of the JV 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 JV 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.
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
shall expire 24 months after the JV Effective Date.