See accompanying condensed notes to unaudited
consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. 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’s 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 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 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.
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 $60,000 in the form of a promissory
note amounting to $60,000. The promissory note bears 8% interest per annum and matures on October 1, 2023. Accordingly, the results of
operations of this component, for all periods presented, are separately reported as “discontinued operations” on the condensed
consolidated statements of operations (see Note 4).
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 and non-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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
In accordance with, 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 condensed consolidated statements of operations.
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 cash used in operations of $1,504,145 for the nine months ended September 30, 2021. Additionally, the Company
had an accumulated deficit of $2,173,891 at September 30, 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). Additionally, the Company received proceeds from sale of its
equity investments for $6,736,070 in September 2021 (see Note 3). 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.
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 nine
months ended September 30, 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 September 30, 2021 and December 31, 2020, the Company had cash in excess of FDIC limits of approximately $9.8 million, 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 $220,590 and $241,091 at September 30, 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 $28,118 and $0 at September 30, 2021
and December 31, 2020, respectively, consist primarily of costs paid for license fees and 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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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.
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.
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 9).
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 condensed 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 9).
The primary components of cost of revenues on
NFID apparel include the cost of the product, production costs, warehouse storage costs and shipping fees which are separately reported
as “discontinued operations” on the condensed consolidated statements of operations.
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, 2021 and December 31, 2020 that would require either recognition or disclosure in the accompanying unaudited condensed
consolidated financial statements.
The Company recognized income tax expense of
$19,133 for the nine months ended September 30, 2021.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (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,
2021 and 2020, research and development costs were $217,962 and $0, respectively. During the three months ended September 30, 2021 and
2020, research and development costs were $70,514 and $0, respectively.
Net Income (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 are the potentially dilutive
shares for the nine months ended September 30, 2021 and 2020:
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Series A convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
Series B convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
Series C convertible preferred stock
|
|
|
756,667
|
|
|
|
-
|
|
|
Stock options
|
|
|
300,000
|
|
|
|
300,000
|
|
|
Warrants
|
|
|
17,353,987
|
|
|
|
-
|
|
The following is a reconciliation of the numerator
and denominator used in the basic and diluted earnings per share (“EPS”) calculations.
|
|
|
Three months
ended
September 30,
2021
|
|
|
Three months
ended
September 30,
2020
|
|
|
Nine months
ended
September 30,
2021
|
|
|
Nine months
ended
September 30,
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,385,119
|
|
|
$
|
(633,795
|
)
|
|
$
|
3,588,430
|
|
|
$
|
(2,316,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock
|
|
|
98,636,970
|
|
|
|
84,416,681
|
|
|
|
93,594,877
|
|
|
|
59,512,252
|
|
|
Dilutive effect of convertible instruments
|
|
|
1,056,513
|
|
|
|
-
|
|
|
|
1,056,513
|
|
|
|
-
|
|
|
Diluted weighted-average of common stock
|
|
|
99,693,483
|
|
|
|
41,653,825
|
|
|
|
94,651,390
|
|
|
|
80,631,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
|
Diluted
|
|
|
0.06
|
|
|
|
(0.01
|
)
|
|
|
0.04
|
|
|
|
(0.04
|
)
|
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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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.
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, 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 September 30, 2021 and December 31, 2020:
|
|
|
At September 30, 2021
(Unaudited)
|
|
|
At December 31, 2020
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Equity investments, at fair value
|
|
$
|
820,126
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
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 September 30, 2021, equity investments, at
fair value consisted of common equity securities of two entities, including 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. For the nine months ended
September 30, 2021, we recorded a net realized gain on equity investments of $6,655,120 primarily attributed to a gain from the sale
of the Company’s equity investment in DatChat, Inc. and Aikido Pharma, Inc.
The following are the Company’s equity
investments, at fair value owned by levels within the fair value hierarchy at September 30, 2021:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Common Stock
|
|
$
|
820,126
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820,126
|
|
|
Total Investments
|
|
$
|
820,126
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
820,126
|
|
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
The following table summarizes activity in the Company’s equity investments, at fair value for the periods presented:
|
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
|
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Additions
|
|
|
531,250
|
|
|
|
—
|
|
|
Sales
|
|
|
(80,750
|
)
|
|
|
—
|
|
|
Unrealized gain
|
|
|
369,626
|
|
|
|
—
|
|
|
Balance, end of period
|
|
$
|
820,126
|
|
|
$
|
—
|
|
At September 30, 2021and December 31, 2020, equity
investments, at fair value consisted of the following components:
|
|
|
September
30,
2021
|
|
|
December 31,
2020
|
|
|
Equity investments, at original cost
|
|
$
|
450,500
|
|
|
$
|
—
|
|
|
Gross unrealized appreciation
|
|
|
369,626
|
|
|
|
—
|
|
|
Equity investments, at fair market value
|
|
$
|
820,126
|
|
|
$
|
—
|
|
Equity Investments, at Cost
At September 30, 2021
and December 31, 2020, equity investments, at cost of $0 and $200, respectively, 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 – 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 $60,000 in the form of a promissory note amounting to $60,000. The promissory note bears 8% interest per annum and matures on
October 1, 2023. Note receivable – non-current amounted to $60,000 as of September 30, 2021.
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 condensed consolidated statements of operations.
As of September 30, 2021 and December 31, 2020,
assets of discontinued operations amounted $0 and $33,484, respectively, which primarily consisted of NFID inventory.
The following table set forth the selected financial
data of the Company’s gain from sale of the NFID business for the three and nine months ended September 30, 2021.
|
|
|
September 30,
2021
|
|
|
Assets:
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Inventory,
net
|
|
$
|
58,447
|
|
|
Total
assets
|
|
$
|
58,447
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Total
liabilities
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Carrying
value of NFID business on date of sale
|
|
$
|
58,447
|
|
|
Total
consideration
|
|
|
(60,000)
|
|
|
Net
gain from sale of NFID business
|
|
$
|
1,553
|
|
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
The summarized operating result of discontinued
operations of the NFID Business included in the Company’s unaudited condensed consolidated statements of operations for the three
and nine months ended September 30, 2021 and 2020 is as follows:
|
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Product
sales, net
|
|
$
|
39,236
|
|
|
$
|
16,285
|
|
|
$
|
119,541
|
|
|
$
|
18,795
|
|
|
Cost
of sales
|
|
|
30,637
|
|
|
|
29,450
|
|
|
|
98,998
|
|
|
|
30,866
|
|
|
Gross
profit (loss)
|
|
|
8,599
|
|
|
|
(13,165
|
)
|
|
|
20,543
|
|
|
|
(12,071
|
)
|
|
Total
operating and other non-operating expenses
|
|
|
(97,471
|
)
|
|
|
(64,162
|
)
|
|
|
(249,565
|
)
|
|
|
(170,058
|
)
|
|
Gain
from sale of NFID business
|
|
|
1,553
|
|
|
|
-
|
|
|
|
1,553
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
$
|
(87,319
|
)
|
|
$
|
(77,327
|
)
|
|
$
|
(227,469
|
)
|
|
$
|
(182,129
|
)
|
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 nine months ended September 30, 2021
and the year ended December 31, 2020, the Company recorded $7,500 and $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. On June 7, 2021, the Company and the investor, entered into a settlement agreement whereby both parties agreed to settle
the remaining balance of this note receivable which was previously written off in year 2020 for a total settlement amount of $196,000
to be paid as follows i) an initial payment of $46,000 upon execution of the settlement agreement and ii) $10,000 per month for fifteen
months. Between June 9, 2021 and September 7, 2021, the Company collected a total of $76,000 and accordingly reduced the allowance for
doubtful accounts against bad debt recovery for cash payment received.
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 bears 8% interest
per annum and matures on October 1, 2023. Note receivable – non-current amounted to $60,000 as of September 30, 2021.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
As of September 30, 2021 and December 31, 2020,
notes receivable, net, consisted of the following:
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Principal amounts of notes receivable
|
|
$
|
280,000
|
|
|
$
|
250,000
|
|
|
Collections on notes receivables
|
|
|
(107,000
|
)
|
|
|
(30,000
|
)
|
|
Less: allowance for doubtful accounts
|
|
|
(113,000
|
)
|
|
|
(196,500
|
)
|
|
Less: notes receivable, net – current portion
|
|
|
—
|
|
|
|
(23,500
|
)
|
|
Notes receivable – non-current
|
|
$
|
60,000
|
|
|
$
|
—
|
|
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 December 31, 2020, the principal balance of this note amounted to $18,900 and accrued interest of $174.
During the nine months ended September 30,
2021, the Company recognized $54 of interest expense. 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. Accordingly, the Company recorded the principal balance
of $18,900 and accrued interest of $182 to gain on forgiveness of PPP note payable during the nine months ended September 30, 2021.
|
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Principal amount
|
|
$
|
-
|
|
|
$
|
18,900
|
|
|
Less: current portion
|
|
|
-
|
|
|
|
(14,654
|
)
|
|
Note payable - long term portion
|
|
$
|
-
|
|
|
$
|
4,246
|
|
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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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 $0.30, subject to adjustment in the event of stock split, stock dividends, subsequent right offerings and similar
recapitalization transactions.
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 Sereis 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 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 (see
below).
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).
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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.
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 Placement Agent Warrants were valued at the grant date using a Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 0.50%, expected dividend yield of 0%, expected term of 5 years using the simplified method
and expected volatility of $169% based on comparable and calculated volatility. The aggregate grant date fair value of these
Placement Agent Warrants amounted to approximately $1,106,000 and was recorded against the proceeds with no net effect on the
consolidated financials.
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.
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.
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 nine months ended
September 30, 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
|
|
|
|
74,970
|
|
|
Granted/issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance Outstanding, September 30, 2021
|
|
|
300,000
|
|
|
$
|
0.0001
|
|
|
|
2.79
|
|
|
$
|
58,470
|
|
|
Exercisable, September 30, 2021
|
|
|
300,000
|
|
|
$
|
0.0001
|
|
|
|
2.79
|
|
|
$
|
58,470
|
|
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
Warrants
Warrant activities for the nine months ended
September 30, 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, September 30, 2021
|
|
|
17,353,987
|
|
|
$
|
0.31
|
|
|
|
4.37
|
|
|
$
|
—
|
|
|
Exercisable, September 30, 2021
|
|
|
17,353,987
|
|
|
$
|
0.31
|
|
|
|
4.37
|
|
|
$
|
—
|
|
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 nine months ended September 30, 2021, the Company recorded stock-based compensation
of $83,728.
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 nine months ended September 30, 2021,
one licensee accounted for 100% of total revenues related to the Company’s biopharmaceutical operation as compared to no licensees
for the nine months ended September 30, 2020. For the nine months ended September 30, 2021 and 2020, no customer accounted for over 10%
of total revenues from apparel sales included in discontinued operations.
Vendor concentrations
For the nine months ended September 30, 2021,
one licensor accounted for 100% of the Company’s vendor license agreements (see below) related to the Company’s biopharmaceutical
operation as compared to no licensor for the nine months ended September 30, 2020.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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.
Vendor License Agreements
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.
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 was to expire six months from February 26, 2021, unless sooner terminated. Both parties may
terminate this agreement within thirty days by giving a written notice. On July 6, 2021, the Company entered into a First Amendment Agreement
with UMB pursuant to which the term of the agreement was extended by 6 months such that the agreement shall terminate on February 25,
2022 unless earlier terminated pursuant to the terms thereof; however, if the Company exercises the option, the agreement will expire
at the end of the negotiation period (as defined in the agreement) or upon execution of a master license agreement, whichever occurs
first. 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 nine months ended September 30, 2021 since the Company could not conclude that such costs would
be recoverable for this early-stage venture.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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 which was recorded in prepaid expenses to be amortized over the 15-year term. The Company recognized amortization expense of $3,125
during the nine months ended September 30, 2021. At September 30, 2021, prepaid expense and other current assets – current amounted
$5,000 and prepaid expenses – non-current amounts $16,875 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.
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.
In connection with the Sublicense Agreement with
Aikido (see below), in April 2021, the Company paid $12,500, or 25% of sublicense income to UMB pursuant to the Master License Agreement.
The Company recognized amortization expense of $210 and $419 during the three and nine months ended September 30, 2021, respectively.
At September 30, 2021, prepaid expense and other current assets – current amounted $838 and prepaid expenses – non-current
amounts $11,243 as reflected in the accompanying condensed consolidated balance sheets.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
Customer License Agreements
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 agreed to issue the Licensor
500 shares of its newly designated Series M Convertible Preferred Stock which were to be converted into an aggregate of 625,000 shares
of the AIkido’s common stock. On April 12, 2021, the Company entered into an amendment to the Patent License Agreement with AIkido
dated January 5, 2021 whereby Aikido issued an aggregate of 625,000 restricted shares of Aikido’s common stock instead of the 500
shares of the Series M Convertible Preferred Stock.
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 was 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 was 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 ($500,000 cash received and $531,250 value of securities received) to be recognized as
revenues over the 15-year term. The Company recognized revenues of $17,188 and $51,562 during the three and nine months ended September
30, 2021, respectively. At September 30, 2021, deferred revenue – current portion amounted $68,750 and deferred revenue –
long-term portion amounted $910,937 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.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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 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. The Company recognized revenues of $838 and $1,675 during the three and nine months ended September
30, 2021, respectively. At September 30, 2021, deferred revenue – current portion amounted $3,353 and deferred revenue –
long-term portion amounted $44,972 as reflected in the accompanying condensed consolidated balance sheets.
Sponsored Study and
Research Agreements
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 of $101,520 which was recorded to prepaid expense and other current assets – current of which approximately $22,318 was
amortized in fiscal 2020. In September 2021, the Company notified Maastricht University of Netherlands for an early termination of this
agreement. Maastricht University of Netherlands has not reached the second phase which is to obtain approval from ethical committee.
The Company has no further obligation after the termination. The Company recognized remaining amortization expense of $107 and $79,202
during the three and nine months ended September 30, 2021, respectively.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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. Currently,
the project has not been completed due to the delays cause by the Covid-19 pandemic. The Company recognized amortization expense of $4,526
and $40,737 during the three and nine months ended September 30, 2021, respectively.
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 $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. The Company paid the first payment of $40,000 pursuant to the payment schedule
on the Sponsored Research Agreement on June 15, 2021 and another $40,000 on September 9, 2021 which were recorded to prepaid expense
and other current assets – current to be amortized over the two-year period. The Company recognized amortization expense of $42,856
and $49,999 during the three and nine months ended September 30, 2021, respectively.
Sponsored Research Agreement with University
of Maryland, Baltimore
On July 6, 2021, the Company 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 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. Pursuant to the July 2021 Sponsored Research Agreement,
the Company shall pay UMB the fees below:
|
Payment
|
|
|
|
1
|
|
$
|
92,095
|
|
|
Upon execution of the July 2021 Sponsored Research Agreement
|
|
2
|
|
$
|
92,095
|
|
|
Six months after the start of project work as outlined in the July 2021 Sponsored Research Agreement
|
|
3
|
|
$
|
92,095
|
|
|
Upon completion of the project work as outlined in the July 2021 Sponsored Research Agreement
|
The Company paid the first payment
of $92,095 on September 1, 2021 which was recorded to prepaid expense and other current assets – current to be amortized over the
estimated project timeline of twelve months. The Company recognized amortization expense of $23,024 during the three and nine months
ended September 30, 2021.
SILO PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 (UNAUDITED)
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. As of September 30, 2021 and as of the current date of this 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
shall expire 24 months after the JV Effective Date.
Amended Service Agreement
On September 10, 2021 (the “Effective Date”),
the Company entered into an Amendment Agreement (the “Amended Service Agreement”) to a certain service agreement dated on
September 8, 2020 with the University of Texas (the “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 $5,000 per quarter starting on the Effective Date. Any cost incurred will be reimbursed only after prior written consent by
the Company. The term of the Amended Service Agreement is for 36 months unless earlier terminated by either party upon giving a written
notice as defined in the agreement. On October 13, 2021, the Company paid $5,000.
NOTE 10 – SUBSEQUENT EVENTS
Sponsored Research
Agreement with Columbia University
On October 1, 2021,
the Company entered into a sponsored research agreement with Columbia University pursuant to which the 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 dated 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 post-traumatic 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. The Company paid the first payment of $430,825 in November
2021.