See accompanying condensed notes to unaudited consolidated financial statements.
See accompanying condensed notes to unaudited consolidated financial statements.
SILO PHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
| |
Series
B
Preferred Stock | | |
Series
C
Preferred Stock | | |
Common
Stock | | |
Additional
Paid
In | | |
Deferred | | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Compensation | | |
Deficit | | |
Equity | |
Balance,
December 31, 2021 | |
| - | | |
$ | - | | |
| 227 | | |
$ | - | | |
| 98,636,970 | | |
$ | 9,864 | | |
$ | 12,314,979 | | |
$ | - | | |
$ | (3,262,577 | ) | |
$ | 9,062,266 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
options issued as stock based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 94,915 | | |
| (49,906 | ) | |
| - | | |
| 45,009 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common
stock issued for conversion of Series C preferred stock | |
| - | | |
| - | | |
| (227 | ) | |
| - | | |
| 758,334 | | |
| 76 | | |
| (76 | ) | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (604,072 | ) | |
| (604,072 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 99,395,304 | | |
$ | 9,940 | | |
$ | 12,409,818 | | |
$ | (49,906 | ) | |
$ | (3,866,649 | ) | |
$ | 8,503,203 | |
| |
Series
B
Preferred Stock | | |
Series
C
Preferred Stock | | |
Common
Stock | | |
Additional
Paid
In | | |
Accumulated | | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | | |
Equity | |
Balance,
December 31, 2020 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 85,141,956 | | |
$ | 8,514 | | |
$ | 7,034,502 | | |
$ | - | | |
$ | (5,762,321 | ) | |
$ | 1,280,695 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Series
C preferred stock issued for cash, net of offering cost | |
| - | | |
| - | | |
| 4,276 | | |
| - | | |
| - | | |
| - | | |
| 3,794,102 | | |
| - | | |
| - | | |
| 3,794,102 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deemed
dividend upon issuance of preferred stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,403,997 | | |
| - | | |
| (1,403,997 | ) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common
stock warrants granted for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 83,728 | | |
| - | | |
| - | | |
| 83,728 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (930,702 | ) | |
| (930,702 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance,
March 31, 2021 | |
| - | | |
$ | - | | |
| 4,276 | | |
$ | - | | |
| 85,141,956 | | |
$ | 8,514 | | |
$ | 12,316,329 | | |
$ | - | | |
$ | (8,097,020 | ) | |
$ | 4,227,823 | |
See accompanying condensed notes to unaudited consolidated financial statements.
SILO PHARMA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
For the
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (604,072 | ) | |
$ | (930,702 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Bad debt recovery | |
| (20,000 | ) | |
| (7,500 | ) |
Stock-based compensation | |
| 45,009 | | |
| 83,728 | |
Amortization of prepaid stock-based expense | |
| - | | |
| 101,222 | |
Net unrealized (gain) loss on equity investments | |
| 161,798 | | |
| (38,750 | ) |
Equity shares earned for services | |
| (85,733 | ) | |
| - | |
Change in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (69,667 | ) | |
| (109,914 | ) |
Assets of discontinued operations | |
| - | | |
| (11,181 | ) |
Interest receivable | |
| (1,184 | ) | |
| - | |
Accounts payable and accrued expenses | |
| (262,130 | ) | |
| 110,967 | |
Insurance payable | |
| 64,839 | | |
| - | |
Deferred revenue | |
| (18,025 | ) | |
| 482,812 | |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (789,165 | ) | |
| (319,318 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Collection on note receivable written off prior to 2019 | |
| - | | |
| 7,500 | |
Collection on note receivable | |
| 20,000 | | |
| 23,500 | |
| |
| | | |
| | |
NET CASH PROVIDED BY INVESTING ACTIVITIES | |
| 20,000 | | |
| 31,000 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Net proceeds from sale of preferred stock | |
| - | | |
| 3,794,102 | |
Advance from a related party | |
| - | | |
| 2,366 | |
| |
| | | |
| | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| - | | |
| 3,796,468 | |
| |
| | | |
| | |
NET CHANGE IN CASH AND CASH EQUIVALENTS: | |
| (769,165 | ) | |
| 3,508,150 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - beginning of the period | |
| 9,837,001 | | |
| 1,128,389 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - end of the period | |
$ | 9,067,836 | | |
$ | 4,636,539 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | 224 | |
Income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Common stock issued for conversion of Series C preferred stock | |
$ | 76 | | |
$ | - | |
Common stock warrants granted for services | |
$ | - | | |
$ | 83,728 | |
Increase in equity investments recorded as deferred revenue pursuant to a patent license agreement | |
$ | - | | |
$ | 531,250 | |
See accompanying condensed notes to unaudited consolidated financial statements.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(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
8) pursuant to which, among other things, UMB granted the Company an exclusive, option to negotiate and obtain an exclusive, sublicensable,
royalty-bearing license to 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 8). The Company plans to actively pursue the acquisition
and/or development of intellectual property or technology rights to treat rare diseases, and to ultimately expand the Company’s
business to focus on this new line of business.
On
September 30, 2021, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase Agreement) with NFID,
LLC, a Florida limited liability company (the “Buyer”), whereby the Buyer purchased from the Company certain assets, properties,
and rights in connection with the Company’s NFID trademark name, logos, domain, and apparel clothing and accessories for a purchase
price of $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).
On
March 11, 2022, the Company stockholders approved granting discretionary authority to the Company’s Board of Directors to amend
the Company’s Certificate of Incorporation to effect one or more consolidations of the Company’s issued and outstanding shares
of common stock, pursuant to which the shares of common stock would be combined and reclassified into one share of common stock at a
ratio within the range from 1-for-5 up to 1-for-50 (the “Reverse Stock Split”), provided that, (X) that the Company shall
not effect Reverse Stock Splits that, in the aggregate, exceeds 1-for-50, and (Y) any Reverse Stock Split is completed no later than
February 8, 2023. As of the date of this report, the Company had not effected a Reverse Stock Split.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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,
2021 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 28, 2022.
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 NFID, LLC component’s
results of operations have been classified as discontinued operations on a retrospective basis for all periods presented. Accordingly,
the results of operations of this component, for all periods, are separately reported as “discontinued operations” on the
condensed consolidated statements of operations.
Liquidity
As
reflected in the accompanying condensed consolidated financial statements, the Company generated a net loss of $604,072 and used cash
in operations of $789,165 during the three months ended March 31, 2022. Additionally, the Company has an accumulated deficit of $3,866,469
at March 31, 2022. As of March 31, 2022, the Company had working capital of $9,325,469.
These
events served to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as
a going concern. The Company believes that the Company has sufficient cash to meet its obligations for a minimum of twelve months from
the date of this filing.
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, 2022 and year ended December 31, 2021 include the collectability of notes
receivable, valuation of 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, 2022 and December 31, 2021, the Company had cash in excess
of FDIC limits of approximately $8,600,000, and approximately $9,100,000, respectively.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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 $206,451 and $145,324 at March 31, 2022 and December 31, 2021, respectively, consist primarily
of costs paid for future services which will occur within a year. Prepaid expenses and other current assets – non-current of $35,199
and $26,659 at March 31, 2022 and December 31, 2021, 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.
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 8).
Product
sales were recognized when the NFID products were shipped to the customer and title was transferred and were recorded net of any discounts
or allowances which are separately reported as “discontinued operations” on the 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 8).
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.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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, 2022 and December 31, 2021 that would require either recognition or disclosure
in the accompanying condensed consolidated financial statements.
The
Company recognized income tax expense of $0 and $24,876 for the three months ended March 31, 2022 and year ended December 31, 2021, respectively.
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, 2022 and 2021, research and development costs were $170,279 and $48,602, 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 three months ended March 31, 2022 and 2021:
| |
March 31,
2022 | | |
March 31,
2021 | |
Series C convertible preferred stock | |
| — | | |
| 14,253,333 | |
Stock options | |
| 1,100,000 | | |
| 300,000 | |
Warrants | |
| 17,353,987 | | |
| 17,353,987 | |
| |
| 18,453,987 | | |
| 31,907,320 | |
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain
separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments
in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion
features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in
substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single
liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured
at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation
models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance
in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point
to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities
in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance.
To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments
in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
|
1. |
Add a disclosure objective |
|
|
|
|
2. |
Add information about events
or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly
changed |
|
|
|
|
3. |
Add information on which
party controls the conversion rights |
|
|
|
|
4. |
Align disclosure requirements
for contingently convertible instruments with disclosure requirements for other convertible instruments |
|
|
|
|
5. |
Require that existing fair
value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in
the aggregate. |
Additionally,
for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures
about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the
premium amount recorded as paid-in capital.
The
amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as
defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods
within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt
the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying
the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year
in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative
effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an
entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment
to the opening balance of retained earnings in the first comparative period presented. The Company adopted ASU 2020-06 during the three
months ended March 31, 2022 and it did not have material impact on its condensed consolidated financial statements.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses
issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment
is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted. The Company adopted ASU 2020-06 during the three months ended March 31, 2022 and did not have material impact
on its condensed consolidated financial statements
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect
on the Company’s consolidated financial statements.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE
3 – FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures
about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the
fair value of financial instruments are based on pertinent information available to the Company on Mach 31, 2022. Accordingly, the estimates
presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial
instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are
observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect
market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
|
Level
1 - |
Inputs
are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
|
|
|
|
Level
2 - |
Inputs
are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated
by observable market data. |
|
|
|
|
Level
3 - |
Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information. |
The
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 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 March 31, 2022 and December 31, 2021:
| |
At March 31, 2022 | | |
At December 31, 2021 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Equity investments consisting of common stock, at fair value | |
$ | 343,930 | | |
$ | — | | |
$ | — | | |
$ | 419,995 | | |
| — | | |
$ | — | |
The
following table summarizes activity in the Company’s equity investments, at fair value for the periods presented:
| |
March 31, 2022 | | |
December 31, 2021 | |
Balance, beginning of the year | |
$ | 419,995 | | |
$ | — | |
Additions | |
| 85,733 | | |
| 531,250 | |
Sales | |
| — | | |
| (359,843 | ) |
Unrealized (loss) gain | |
| (161,798 | ) | |
| 248,588 | |
Balance, end of the year | |
$ | 343,930 | | |
$ | 419,995 | |
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
During the three months ended March 31, 2022,
the Company received 77,939 shares of Home Bistro, Inc. common stock with grant date fair value of $85,733 or $1.10 per share, in exchange
for entering into a lock up and leak out agreement which was recorded as other income from equity shares earned for services in the accompanying
condensed consolidated statement of operations. The Company measures equity securities received for services at fair value on the date
of receipt.
At
March 31, 2022 and December 31, 2021, equity investments, at fair value consisted of common equity securities of two entities, Home Bistro,
Inc. and Aikido Pharma, Inc. (see Note 8).
Equity
investments are carried at fair value with unrealized gains or losses which is recorded as net unrealized gain (loss) on equity investments
in the accompanying condensed consolidated statement of operations. Realized gains and losses are determined on a specific identification
basis which is recorded as net realized gain (loss) on equity investments in the consolidated statement of operations. The Company reviews
equity investments, at fair value for impairment whenever circumstances and situations change such that there is an indication that the
carrying amounts may not be recovered.
ASC
825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless
a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
equity instruments.
Equity
Investments at Cost
At
March 31, 2022 and December 31, 2021, the Company did not have non-marketable capital stock and stock warrants, recorded at cost.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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.
The
following table set forth the selected financial data of the Company’s gain from sale of the NFID business on September 30, 2021:
| |
September 30,
2021 | |
Assets: | |
| | |
Current assets: | |
| | |
Inventory, net | |
$ | 58,447 | |
Total assets | |
$ | 58,447 | |
| |
| | |
Liabilities: | |
| | |
Current liabilities: | |
| | |
Total liabilities | |
$ | — | |
Net asset of NFID business disposed | |
$ | 58,447 | |
Consideration in the form of a note receivable | |
| (60,000 | ) |
Gain from sale of NFID business | |
$ | (1,553 | ) |
The
summarized operating result of discontinued operations of the NFID Business included in the Company’s condensed consolidated statements
of operations for the three months ended March 31, 2022 and 2021 is as follows:
| |
For the Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Product sales, net | |
$ | — | | |
$ | 30,246 | |
Cost of sales | |
| 1,079 | | |
| 31,325 | |
Gross profit (loss) | |
| (1,079 | ) | |
| (1,079 | ) |
Total operating and other non-operating expenses | |
| (84 | ) | |
| (65,888 | ) |
Loss from discontinued operations | |
$ | (1,163 | ) | |
$ | (66,967 | ) |
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE
5 – NOTES RECEIVABLE
As
of March 31, 2022 and December 31, 2021, notes receivable, net, consisted of the following:
| |
March 31,
2022 | | |
December 31,
2021 | |
Principal amounts of notes receivable | |
$ | 115,500 | | |
$ | 220,000 | |
Additional notes receivable | |
| — | | |
| 60,000 | |
Collections on notes receivables | |
| (20,000 | ) | |
| (164,500 | ) |
Less: allowance for doubtful accounts | |
| (35,500 | ) | |
| (55,500 | ) |
Total Notes receivable, net | |
| 60,000 | | |
| 60,000 | |
Less: notes receivable, net – current portion | |
| — | | |
| — | |
Notes receivable – non-current | |
$ | 60,000 | | |
$ | 60,000 | |
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 years ended December 31, 2021, the Company recovered an aggregate of $7,500 bad debt previously written off during the periods
between 2018 to 2020, recorded as bad debt recovery in the accompanying consolidated statement of operations.
During the year ended December 31, 2021, the Company
received $23,500 of payment and recovered $141,000 of the of the $196,500 bad debt allowance. 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. During the three months ended March 31, 2022, $20,000 was collected
under this settlement agreement and $35,500 remains collectible under this settlement agreement and such amount has been fully reserved
as of March 31, 2022.
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. The outstanding principal and accrued interest
shall be due and payable on maturity. As of December 31, 2021, this note receivable had outstanding principal receivable of $60,000 and
accrued interest receivable of $1,210 for a total receivable balance of $61,210. As of March 31, 2022, this note receivable had outstanding
principal receivable of $60,000 and accrued interest receivable of $2,394 for a total receivable balance of $62,394 which is reflected
in the accompanying consolidated balance sheet as note receivable – non-current.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE
6 – STOCKHOLDERS’ EQUITY
Shares
Authorized
The
Company has 505,000,000 shares authorized which consist of 500,000,000 shares of common stock and 5,000,000 shares of preferred stock.
Preferred
Stock
In
April 2013, the Company designated 1,000,000 shares of preferred stock as Series A Convertible Preferred Stock and in November 2019,
the Company designated 2,000 shares of preferred stock as Series B Convertible Preferred Stock. As of March 31, 2022 and December 31,
2021, there were no shares of the Series A and Series B preferred stock issued and outstanding.
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. |
|
● |
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 Series C Convertible preferred stock pursuant to Section 6 (“Forced Conversion”),
it being agreed that the “Conversion Date” shall be deemed to occur no later than the earlier of (i) two (2) trading
days and (ii) the number of trading days comprising the standard settlement period following the Forced Conversion Notice Date; provided,
however, a holder shall only be required to convert pursuant to a Forced Conversion to the extent that such conversion would not
cause a holder to exceed its beneficial ownership limitation. On March 10, 2021, the Company obtained the stockholders’ approval
forcing the conversion of all the Series C Convertible preferred stock. On April 12, 2021, the Company notified holders of 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 for additional conversions in 2022). |
| ● | 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%. |
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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.
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.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Conversion
of Series C Convertible Preferred Stock into Common Stock
On
March 31, 2022, 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
March 31, 2022, the Company converted 227 Series C Convertible preferred stock into 758,334 shares of common stock. As of March 31, 2022,
there were no shares of Series C Convertible preferred stock issued and outstanding.
Stock
Options
On
January 18, 2021, the Company’s board of directors (“Board”) approved the Silo Pharma, Inc. 2020 Omnibus Equity Incentive
Plan (the “2020 Plan”) to incentivize employees, officers, directors and consultants of the Company and its affiliates. 8,500,000
shares of common stock are reserved and available for issuance under the 2020 Plan, provided that certain exempt awards (as defined in
the 2020 Plan), shall not count against such share limit. The 2020 Plan provides for the grant, from time to time, at the discretion
of the 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 2020 Plan
shall terminate on the tenth anniversary of the date of adoption by the Board. Subject to certain restrictions, the Board may amend or
terminate the Plan at any time and for any reason. An amendment of the 2020 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 2020 Plan was approved by the
stockholders.
On
January 31, 2022, pursuant to an Employment Agreement (see Note 8), an aggregate of 800,000 incentive stock options were issued
under the 2020 Plan, to Dr. Kou, exercisable at $0.20 per share and expires on January 31, 2032. The stock options vest as follows:
(i) 300,000 stock options upon issuance; (ii) 250,000 vests on October 31, 2022 and; (iii) 250,000 vests on October 31, 2023. The
800,000 stock options had a fair value of $94,914 which were valued at the grant date using a Binomial Lattice option pricing model
with the following assumptions: risk-free interest rate of 1.18%, expected dividend yield of 0%, expected term of 2 years using the
simplified method and expected volatility of 117% based on historical volatility. The Company recorded the fair value of the
unvested stock options, in the amount of $59,322, as deferred compensation which is being amortized over the vesting period. During
the three months ended March 31, 2022, the Company amortized $9,416 of the deferred compensation which was recorded as compensation
expenses in the accompanying condensed consolidated statement of operations. As of March 31, 2022, the deferred compensation had a
balance of $49,906.
Stock
option activities for the three months ended March 31, 2022 are summarized as follows:
| |
Number of
Options | | |
Weighted
Average Exercise Price | | |
Weighted Average Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value | |
Balance Outstanding, December 31, 2021 | |
| 300,000 | | |
$ | 0.0001 | | |
| 2.5 | | |
$ | 63,030 | |
Granted pursuant to employment agreement (see Note 8) | |
| 800,000 | | |
$ | 0.2000 | | |
| 9.8 | | |
$ | 8,160 | |
Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Balance Outstanding, March 31, 2022 | |
| 1,100,000 | | |
$ | 0.1500 | | |
| 7.8 | | |
$ | 71,190 | |
Exercisable, March 31, 2022 | |
| 600,000 | | |
$ | 0.1000 | | |
| 6.1 | | |
$ | 66,090 | |
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Stock
Warrants
Warrant
activities for the three months ended March 31, 2022 are summarized as follows:
| |
Number of
Warrants | | |
Weighted
Average Exercise Price | | |
Weighted Average
Remaining
Contractual Term
(Years) | | |
Aggregate Intrinsic Value | |
Balance Outstanding, December 31, 2021 | |
| 17,353,987 | | |
$ | 0.31 | | |
| 4.1 | | |
$ | — | |
Granted/Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Balance Outstanding, March 31, 2022 | |
| 17,353,987 | | |
$ | 0.31 | | |
| 3.9 | | |
$ | — | |
Exercisable, March 31, 2022 | |
| 17,353,987 | | |
$ | 0.31 | | |
| 3.9 | | |
$ | — | |
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 year ended December 31, 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
7 – CONCENTRATIONS
Customer
Concentration
For
the three months ended March 31, 2022 and 2021, no customer accounted for over 10% of total revenues from apparel sales included in discontinued
operations.
For
the three months ended March 31, 2022 and 2021, one licensee accounted for 100% total revenues from customer license fee.
Vendor
Concentrations
For
the three months ended March 31, 2022 and 2021, one licensor accounted for 100% of the Company’s vendor license agreements (see
below) related to the Company’s biopharmaceutical operation.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Employment
Agreement
Eric
Weisblum
On
April 17, 2020, the Company entered into an employment agreement (“Employment Agreement”) with Eric Weisblum to serve as
Chief Executive Officer and Chief Financial Officer of the Company. The term of the Employment Agreement will continue for a period of
one year from the date of execution date thereof and automatically renews for successive one-year periods at the end of each term until
either party delivers written notice of their intent not to review at least six months prior to the expiration of the then effective
term. The Employment Agreement provided for a base salary of $120,000 and 7,630,949 of vested shares of the Company’s common stock
in April 2020. In addition, Mr. Weisblum shall be eligible to earn a bonus, subject to the sole discretion of the Company’s Board
of Directors (“Board”). The Employment Agreement may be terminated by either the Company or Mr. Weisblum at any time and
for any reason upon 60 days prior written notice. Upon termination of the Employment Agreement, Mr. Weisblum 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 he may be entitled as of the termination date (collectively, the “Accrued Amounts”).
Mr. Weisblum employment may also be terminated by the Company at any time, with cause, death or disability (as defined in the Employment
Agreement). Upon the termination of the Employment Agreement for death or disability, Mr. Weisblum shall be entitled to receive the Accrued
Amounts. The Employment Agreement also contains covenants prohibiting Mr. Weisblum from disclosing confidential information with respect
to the Company.
On
January 18, 2021, the Company and Mr. Weisblum entered into the first amendment (the “Amendment”) to the Employment Agreement,
effective as of January 1, 2021. Pursuant to the Amendment Mr. Weisblum’s base salary was increased from $120,000 per year to $180,000
per year and all the terms and provisions of the Employment Agreement shall remain in full force and effect.
Dr.
James Kuo
On
January 27, 2022, the Company and Dr. James Kuo entered into an employment agreement (“Kuo Employment Agreement”) for
Dr. Kuo to serve as the Vice President of Research & Development. The Kuo Employment Agreement shall be effective as of the date
of the agreement and shall automatically renew for a period of one year at every anniversary of the effective date, with the same
terms and conditions, unless either party provides written notice of its intention not to extend the term of the Kuo Employment
Agreement at least thirty days’ prior to the applicable renewal date. Dr. Kuo shall be paid an annual base salary of $30,000.
For each twelve-month period of his employment, Dr. Kuo shall be entitled to a bonus whereby amount and terms shall be in the sole
and absolute discretion of the Board of Directors (“Board”) and shall be payable at the Company’s sole option in
stock or in cash. In addition, an aggregate of 800,000 incentive stock options were granted under the 2020 Plan to Dr. Kou,
exercisable at $0.20 per share and expires on January 31, 2032. The stock options vest as follows: (i) 300,000 stock options upon
issuance; (ii) 250,000 vests on October 31, 2022 and; (iii) 250,000 vests on October 31, 2023. The 800,000 stock options had a fair
value of $94,914 which valued at grant date using Binomial Lattice option pricing model with the following assumptions: risk-free
interest rate of 1.18%, expected dividend yield of 0%, expected term of 2 years using the simplified method and expected volatility
of 117% based on calculated volatility. The Company recorded the fair value of the unvested stock options, in the amount of $59,322,
as deferred compensation which is being amortized over the vesting period. During the three months ended March 31, 2022, the Company
amortized $9,416 of the deferred compensation which was recorded as compensation expenses in the accompanying condensed consolidated
statement of operations. As of March 31, 2022, the deferred compensation had a balance of $49,906 (see Note 6).
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
License
Agreements between the Company and Vendors
University
of Maryland, Baltimore - License Agreement for Development and Use of Central Nervous System-Homing Peptides
Commercial
Evaluation License and Option Agreement with the University of Maryland, Baltimore
Effective
as of July 15, 2020, the Company, through its wholly-owned subsidiary, Silo Pharma, Inc. (see Note 1) and University of Maryland, Baltimore
(“UMB”), entered into a commercial evaluation license and option agreement (“License Agreement”), granting the
Company an exclusive, non-sublicensable, non-transferable license to with respect to the exploration of the potential use of central
nervous system-homing peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory
pathology. The License Agreement also granted the Company an exclusive option to negotiate and obtain an exclusive, sublicensable, royalty-bearing
license (“Exclusive Option”) to with respect to the subject technology. The License Agreement had a term of six months from
the effective date however if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation
period (as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first. The Company exercised
its Exclusive Option on January 13, 2021 and entered into a Master License Agreement on February 12, 2021. Both parties may terminate
this agreement within thirty days by giving a written notice. In July 2020, the Company paid a license fee of $10,000 to UMB pursuant
to the License 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.
Master
License Agreement with the University of Maryland, Baltimore
As
disclosed above, effective as of February 12, 2021, the Company and University of Maryland, Baltimore (“UMB”), entered into
the Master License Agreement (“Master License Agreement”) which grants the Company an exclusive, worldwide, sublicensable,
royalty-bearing license to certain intellectual property: (i) to make, have made, use, sell, offer to sell, and import certain licensed
products and: (ii) to use the invention titled, “Central nervous system-homing peptides in vivo and their use for the investigation
and treatment of multiple sclerosis and other neuroinflammatory pathology” and UMB’s confidential information to develop
and perform certain licensed processes for the therapeutic treatment of neuroinflammatory disease.
The
Master License Agreement will remain in effect on a Licensed Product-by-Licensed Product basis and country-by-country basis until the
later of: (a) the last patent covered under the Master License Agreement expires, (b) the expiration of data protection, new chemical
entity, orphan drug exclusivity, regulatory exclusivity, or other legally enforceable market exclusivity, if applicable, or (c) 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.
The
Company may assign, sublicense, grant, or otherwise convey any rights or obligations under the Master License Agreement to a Company
affiliate, without obtaining prior written consent from UMB provided that it meets the terms defined in the Master License Agreement.
The Company may grant sublicenses of some or all of the rights granted by the Master License Agreement, provided that there is no uncured
default or breach of any material term or condition under the Master License Agreement, by Company, at the time of the grant, and that
the grant complies with the terms and conditions of the Master License Agreement. The Company shall be and shall remain responsible for
the performance by each of the Company’s sublicensee. Any sublicense shall be consistent with and subject to the terms and conditions
of the Master License Agreement and shall incorporate terms and conditions sufficient to enable Company to comply with the Master License
Agreement. The Company or Company affiliates shall pay to UMB a percentage of all income received from its sublicensee as follows: (i)
25% of the Company’s 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 the Company’s 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, 2022
(UNAUDITED)
Pursuant
to the Master License Agreement, the Company shall pay UMB; (i) a license fee, (ii) certain event-based milestone payments (see below
for payment terms), (iii) royalty payments depending on net revenues (see below for payment terms), and (iv) a tiered percentage of sublicense
income. The Company shall pay to UMB a license fee of $75,000, payable as follows: (a) $25,000 shall be due within 30 days following
the effective date; and (b) $50,000 on or before the first anniversary of the 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
$25,000 license fee on February 17, 2021 which was recorded as prepaid expense and is being amortized over the 15-year term. The Company
recognized amortization expense of $4,375 in 2021. During the three months ended March 31, 2022, the Company recognized amortization
expense of $1,250. At December 31, 2021, prepaid expense and other current assets – current amounted $5,000 and prepaid expense
– non-current amounts $15,625. At March 31, 2022, prepaid expense and other current assets – current amounted $5,000 and
prepaid expense – non-current amounts $14,375 as reflected in the accompanying condensed consolidated balance sheets.
Milestone
Payment Terms:
Milestone | |
Payment | |
Filing of an Investigational New Drug (or any foreign equivalent) for a Licensed Product | |
$ | 50,000 | |
Dosing of first patient in a Phase 1 Clinical Trial of a Licensed Product | |
$ | 100,000 | |
Dosing of first patient in a Phase 2 Clinical Trial of a Licensed Product | |
$ | 250,000 | |
Receipt of New Drug Application (“NDA”) (or foreign equivalent) approval for a Licensed Product | |
$ | 500,000 | |
Achievement of First Commercial Sale of Licensed Product | |
$ | 1,000,000 | |
Royalty
Payments Terms:
| (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 |
| | |
| (iii) | a
minimum annual royalty payments, as follows: |
Years | |
Minimum Annual Royalty | |
Prior to First Commercial Sale | |
$ | N/A | |
Year of First Commercial Sale | |
$ | N/A | |
First calendar year following the First Commercial Sale | |
$ | 25,000 | |
Second calendar year following the First Commercial Sale | |
$ | 25,000 | |
Third calendar year following the First Commercial Sale | |
$ | 100,000 | |
In
April 2021, in connection with the Company’s Sublicense Agreement with Aikido Pharma Inc. (see below - Patent License Agreement
with Aikido Pharma Inc.), the Company paid 25% of its sublicense income to UMB, pursuant to the Master License Agreement, which amounted
to $12,500. The Company recognized amortization expense of $628 in 2021. During the three months ended March 31, 2022, the Company recognized
amortization expense of $210. At December 31, 2021, prepaid expense and other current assets – current amounted $838 and prepaid
expenses – non-current amounts $11,034. At March 31, 2022, prepaid expense and other current assets – current amounted $838
and prepaid expenses – non-current amounts $10,824 as reflected in the accompanying condensed consolidated balance sheets.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
University
of Maryland, Baltimore - License Agreement for Development and Use of Joint-Homing Peptides
Commercial
Evaluation License and Option Agreement with the University of Maryland, Baltimore
Effective
as of February 26, 2021, the Company, through its wholly-subsidiary, Silo Pharma, Inc., and University of Maryland, Baltimore (“UMB”),
entered into a commercial evaluation license and option agreement (“License Agreement”), which granted the Company an exclusive,
non-sublicensable, non-transferable license to with respect to the exploration of the potential use of joint-homing peptides for use
in the investigation and treatment of arthritogenic processes. The License Agreement also granted the Company an exclusive option to
negotiate and obtain an exclusive, sublicensable, royalty-bearing license (“Exclusive Option”) to with respect to the subject
technology. The License Agreement had a term of six months from the effective date. Both parties could have terminated the License Agreement
within thirty days by giving a written notice.
On
July 6, 2021, the Company entered into a First Amendment Agreement (“Amended License Agreement”) with UMB to extend the term
of the original License Agreement by an additional six months such that the Amended License Agreement was effective until February 25,
2022 however, if the Company exercises the Exclusive Option, the License Agreement shall expire at the end of the negotiation period
(as defined in the License Agreement) or upon execution of a master license agreement, whichever occurs first. The Company paid a license
fee of $10,000 to UMB in March 2021 pursuant to the License Agreement which was recorded in professional fees during the year ended December
31, 2021, since the Company could not conclude that such costs would be recoverable for this early-stage venture.
On
January 28, 2022, the Company and University of Maryland, Baltimore (“UMB”) entered into a second amendment to the commercial
evaluation and license agreement dated February 26, 2021 (“Second Amendment”). The Second Amendment to extend the term of
the original license agreement until December 31, 2022. However, if the Company exercises the Exclusive Option, the License Agreement
shall expire at the end of the negotiation period (as defined in the License Agreement) or upon execution of a master license agreement,
whichever occurs first.
License
Agreements between the Company and Customer
Customer
Patent License Agreement with Aikido Pharma Inc.
On
January 5, 2021, the Company and its subsidiary Silo Pharma, Inc., a Florida corporation, entered into a patent license agreement (“License
Agreement”) (collectively, the “Licensor”) and Aikido Pharma Inc. (“Aikido” or the “Customer”),
as amended on April 12, 2021, pursuant to which the Licensor granted Aikido an exclusive, worldwide (“Territory”), sublicensable,
royalty-bearing license to certain intellectual property: (i) to make, have made, use, provide, import, export, lease, distribute, sell,
offer for sale, develop and advertise certain licensed products and (ii) to develop and perform certain licensed processes for the treatment
of cancer and symptoms caused by cancer (“Field of Use”).
The
License Agreement also provided that, if the Licensor exercised the option granted to it pursuant to its commercial evaluation license
and option agreement with UMB, effective as of July 15, 2020, it would grant Aikido a non-exclusive sublicense (“Right”)
to certain UMB patent rights in the field of neuroinflammatory diseases occurring in patients diagnosed with cancer (“Field”).
Pursuant to the License Agreement, Aikido agreed to pay the Licensor, among other things, (i) a one-time non-refundable cash payment
of $500,000 and (ii) royalty payments equal to 2% of net sales (as defined in the License Agreement) in the Field of Use in the Territory.
In addition, Aikido agreed to issue the Licensor 500 shares of Aikido’s 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 License Agreement (“Amended 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 License Agreement, the Company is required to prepare file, prosecute, and maintain the licensed patents. Unless earlier terminated,
the term of the license to the licensed patents will continue until the expiration or abandonment of all issued patents and filed patent
applications within the licensed patents. The Company may terminate the License Agreement upon 30 day written notice if Aikido fails
to pay any amounts due and payable to the Company or if Aikido or any of its affiliates brings a patent challenge against the Company,
assists others in bringing a legal or administrative challenge to the validity, scope, or enforceability of or opposes any of the licensed
patents (“Patent Challenge”) against the Company (except as required under a court order or subpoena). Aikido may terminate
the Agreement at any time without cause, and without incurring any additional penalty, (i) by providing at least 30 days’ prior
written notice and paying the Company all amounts due to it through such termination effective date. Either party may terminate the Agreement
for material breaches that have failed to be cured within 60 days after receiving written notice. The Company collected the non-refundable
cash payment of $500,000 on January 5, 2021 which was recorded as deferred revenue to be recognized as revenues over the 15 year term
of the License Agreement.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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.
Prior
to the April 12, 2021 issuance of the common stock in lieu of the Series M Convertible Preferred Stock as discussed above, the Company
valued the 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 equity
securities received) to be recognized as revenues over the 15-year term. The Company recognized revenue of $68,750 in 2021. During the
three months ended March 31, 2022, the Company recognized revenue of $17,187. At December 31, 2021, deferred revenue – current
portion amounted $68,750 and deferred revenue – long-term portion amounted $893,750. At March 31, 2022, deferred revenue –
current portion amounted $68,750 and deferred revenue – long-term portion amounted $876,563 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.
Customer
Sublicense Agreement with Aikido Pharma Inc.
On
April 6, 2021 (the “Sublicense Agreement Effective Date”), the Company entered into the Sublicense Agreement with Aikido
pursuant to which the Company granted Aikido an exclusive worldwide sublicense to (i) make, have made, use, sell, offer to sell and import
the Licensed Products (as defined below) and (ii) in connection therewith to (A) use an invention known as “Central nervous system-homing
peptides in vivo and their use for the investigation and treatment of multiple sclerosis and other neuroinflammatory pathology”
which was sublicensed to the Company pursuant to the Master License Agreement and (B) practice certain patent rights (“Patent
Rights”) for the therapeutic treatment of neuroinflammatory disease in cancer patients. “Licensed Products” means any
product, service, or process, the development, making, use, offer for sale, sale, importation, or providing of which: (i) is covered
by one or more claims of the Patent Rights; or (ii) contains, comprises, utilizes, incorporates, or is derived from the Invention or
any technology disclosed in the Patent Rights.
Pursuant
to the Sublicense Agreement, Aikido agreed to pay the Company (i) an upfront license fee of $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 revenue of $2,514 in 2021.
During the three months ended March 31, 2022, the Company recognized revenue of $838. At December 31, 2021, deferred revenue –
current portion amounted $3,352 and deferred revenue – long-term portion amounted $44,134. At March 31, 2022, deferred revenue
– current portion amounted $3,352 and deferred revenue – long-term portion amounted $43,296 as reflected in the accompanying
condensed consolidated balance sheets.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
Sponsored
Study and Research Agreements between the Company and Vendors
Investigator-Sponsored
Study Agreement with University of Maryland, Baltimore
On
January 5, 2021, the Company entered into an investigator-sponsored study agreement (“Sponsored Study Agreement”) with the
University of Maryland, Baltimore. The research project is a clinical study to examine a novel peptide-guided drug delivery approach
for the treatment of multiple sclerosis (“MS”). More specifically, the study is designed to evaluate (1) whether MS-1-displaying
liposomes can effectively deliver dexamethasone to the CNS and (2) whether MS-1-displaying liposomes are superior to plain liposomes,
also known as free drug, in inhibiting the relapses and progression of experimental autoimmune encephalomyelitis. Pursuant to the Sponsored
Study Agreement, the research shall commence on March 1, 2021 and will continue until substantial completion, subject to renewal upon
mutual written consent of the parties. The total cost under the Sponsored Study Agreement shall not exceed $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. During the
year ended December 31, 2021, the Company fully amortized the prepaid expense of $40,737.
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, second payment
of $40,000 on September 9, 2021 and $20,570 on November 18, 2021, third payment of $60,570 on March 1, 2022, which were recorded to prepaid
expense and other current assets – current to be amortized over the two-year period. In 2021, the Company amortized $92,855 of
the prepaid expense. During the three months ended March 31, 2022, the Company amortized $25,429 of the prepaid expense leaving a prepaid
asset of $25,429 at March 31, 2022.
Sponsored
Research Agreement with University of Maryland, Baltimore
On
July 6, 2021, the Company and University of Maryland, Baltimore (“UMB”) entered into a sponsored research agreement (“July
2021 Sponsored Research Agreement”) pursuant to which UMB shall evaluate the pharmacokinetics of dexamethasone delivered to
arthritic rats via liposome. The research pursuant to the July 2021 Sponsored Research Agreement shall commence on September 1,
2021 and will continue until the substantial completion thereof, subject to renewal upon written consent of the parties. The July 2021
Sponsored Research Agreement may be terminated by either party upon 30 days’ prior written notice to the other party. In addition,
if either party commits any material breach of or defaults with respect to any terms or conditions of the July 2021 Sponsored Research
Agreement and fails to remedy such default or breach within 10 business days after written notice from the other party, the party giving
notice may terminate the July 2021 Sponsored Research Agreement as of the date of receipt of such notice by the other party. If the Company
terminates the July 2021 Sponsored Research Agreement for any reason other than an uncured material breach by UMB, the Company shall
relinquish any and all rights it may have in the Results (as defined in the July 2021 Sponsored Research Agreement) to UMB. In addition,
if the July 2021 Sponsored Research Agreement is terminated early, the Company, among other things, will pay all costs incurred and accrued
by UMB as of the date of termination.
Pursuant
to the terms of the July 2021 Sponsored Research Agreement, UMB granted the Company an option (the “Option”) to negotiate
and obtain an exclusive license to any UMB Arising IP (as defined in the July 2021 Sponsored Research Agreement) and UMB’s rights
in any Joint Arising IP (as defined in the July 2021 Sponsored Research Agreement) (collectively, the “UMB IP”). The Company
may exercise the Option by giving UMB written notice within 60 days after it receives notice from UMB of the UMB IP. 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 and was amortized during the year ended December 31, 2021. The Company paid the second payment of $50,000 on February 1, 2022
which was recorded as research and development expense in the accompanying condensed consolidated statement of operations.
SILO
PHARMA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)
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 which was recorded to prepaid expense and other current assets – current to be amortized over
the estimated project timeline of twelve months. In 2021, the Company amortized $359,021 of the prepaid expense. During the three months
ended March 31, 2022, the Company amortized the remaining prepaid expense of $71,804. As of March 31, 2022 and December 31, 2021, prepaid
expense related to the sponsored research agreement were $0 and $71,804, respectively.
Joint
Venture Agreement with Zylö Therapeutics, Inc.
On
April 22, 2021 (“Effective Date”), the Company entered into a Joint Venture Agreement (“JV Agreement”) with Zylö
Therapeutics, Inc. (“ZTI”) pursuant to which the parties agreed to form a joint venture entity, to be named Ketamine Joint
Venture, LLC (“Joint Venture”), to, among other things, focus on the clinical development of ketamine using ZTI’s Z-pod™
technology (“Venture”). Pursuant to the JV Agreement, the Company shall act as the manager (“Manager”) of the
Joint Venture. The Joint Venture shall terminate if the development program does not meet certain specifications and milestones as set
forth in the JV Agreement within 30 days of the date set forth in the JV Agreement. Notwithstanding the foregoing, the Manager may, in
its sole discretion, terminate the Joint Venture at any time.
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 March 31, 2022 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 (“Effective Date”), the Company entered into an Amendment Agreement (“Amended Service Agreement”)
to a certain service agreement dated on September 8, 2020 with the University of Texas (“University”) at Austin whereby the
University will provide advisory service and assist the Company on identifying license and sponsored research opportunities for the Company.
The Company shall pay the University $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. In 2021, the Company paid $5,000 related to this agreement. During the
three months ended March 31, 2022, the Company paid $5,000 related to this agreement.
NOTE
9 – SUBSEQUENT EVENTS
On
April 19, 2022, the Company entered into research and development service agreement with a service provider. Pursuant to the service
agreement the Company shall pay a total of $58,548 of which $29,274 shall be paid upon the close of the agreement and the remaining $29,274
shall be paid upon completion of services.