Silo Pharma, Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part II, Item 1A.

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” and “Silo,” refer to Silo Pharma, Inc., a Nevada corporation, and its subsidiaries on a consolidated basis

Overview

We are a developmental stage biopharmaceutical company developing novel therapeutics that address under-served conditions using therapies that include conventional drugs and psychedelic formulations. We are focused on developing (i) an intranasal drug targeting PTSD and stress-induced anxiety disorders (SPC-15); (ii) a time-release ketamine-based loaded implant for fibromyalgia and chronic pain relief (SP-26); (iii) an intranasal com-pound for the treatment of Alzheimer’s disease (SPC-14); and (iv) a CNS-homing peptide targeting the central nervous system in multiple sclerosis (SPU-16).

Recent Developments

July 2024 Registered Direct Offering and Concurrent Private Placement

On July 18, 2024, we entered into a securities purchase agreement (the “July 2024 Purchase Agreement”) with certain institutional investors, pursuant to which we agreed to sell 763,638 shares (the “July 2024 Shares”) of our common stock, at a purchase price of $2.75 per share (the “July 2024 Offering”) for gross proceeds of approximately $2.1 million, prior to deducting placement agent’s fees and other offering expenses payable by us. We intend to use the net proceeds from the offering for working capital and other general corporate purposes. The shares were offered pursuant to our shelf registration statement on Form S-3 (File No. 333-276658), which was declared effective by the Securities Exchange Commission on January 30, 2024.

Concurrently with the sale of July 2024 Shares pursuant to the July 2024 Purchase Agreement in a private placement, for each share of Common Stock purchased by the investors, such investors received an unregistered warrant (the “July 2024 Investor Warrant”) to purchase one share of Common Stock, or 763,638 shares in the aggregate (the “July 2024 Investor Warrant Shares”). The July 2024 Investor Warrants have an exercise price of $2.75 per share, and are exercisable immediately upon issuance for a five-year period.

The closing of the sales of these securities under the Purchase Agreement took place on July 22, 2024.

On April 23, 2024, we entered into an engagement agreement with H.C. Wainwright & Co., LLC, as exclusive placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to act as placement agent on a reasonable “best efforts” basis in connection with the July 2024 Offering. We agreed to pay the Placement Agent an aggregate cash fee equal to 7.5% of the gross proceeds from the sale of securities in the Offering and a management fee equal to 1.0% of the gross proceeds raised in the Offering. We issued the Placement Agent’s designees warrants (the “July 2024 Placement Agent Warrants”) to purchase up to 7.5% of the aggregate number of July 2024 Shares, or warrants to purchase up to 57,273 shares of Common Stock, at an exercise price equal to 125.0% of the offering price per share of Common Stock, or $3.4375 per share. The July 2024 Placement Agent Warrants are exercisable immediately upon issuance for a period of five years following the commencement of the sales pursuant to the July 2024 Offering.

Exclusive License Agreement with Columbia University

On July 1, 2024, we entered into an Exclusive License Agreement with Columbia University with an effective date of June 28, 2024 under which we were granted an exclusive license to further develop, manufacture, and commercialize SPC-15 worldwide. See “----License Agreements between the Company and Vendor—Exclusive License Agreement with Columbia University.”

Results of Operations

Comparison of Our Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

The following table summarizes the results of operations for the three and nine months ended September 30, 2024 and 2023 and were based primarily on the comparative unaudited consolidated financial statements, footnotes and related information for the periods identified and should be read in conjunction with the unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report.

Revenues

During the three and nine months ended September 30, 2024 and 2023, we generated minimal revenues from operations. For the three months ended September 30, 2024 and 2023, revenues amounted to $18,025 and $18,025, respectively. For the nine months ended September 30, 2024 and 2023, revenues amounted to $54,076 and $54,076, respectively. Such revenues are deferred revenues received under the Aikido License and Sublicense Agreement and are recognized over the estimated 15-year term of the related UMB license agreement.

Cost of Revenues

During the three months ended September 30, 2024 and 2023, cost of revenues amounted to $1,459 and $1,459, respectively. During the nine months ended September 30, 2024 and 2023, cost of revenues amounted to $4,378 and $4,378, respectively. Cost of revenues consists of license fees related to the UMB License and Sublicense Agreement, which are being amortized into cost of revenues over the estimated 15-year terms of their respective agreements with Akido and UMB.

Operating Expenses

For the three and nine months ended September 30, 2024 and 2023, total operating expenses consisted of the following:

• Compensation Expense:

For the three months ended September 30, 2024 and 2023, compensation expense amounted to $169,736 and $379,294, respectively, a decrease of $209,558, or 55.3%. During the three months ended September 30, 2023, we paid a bonus of $200,000 as compared to $0 during the three months ended September 30, 2024.

For the nine months ended September 30, 2024 and 2023, compensation expense was $511,463 and $710,737, respectively, a decrease of $199,274, or 28.0%. During the nine months ended September 30, 2023, we paid a bonus of $200,000 as compared to $0 during the nine months ended September 30, 2024.

• Professional Fees:

For the three months ended September 30, 2024 and 2023, professional fees were $258,887 and $338,164 and, respectively, a decrease of $79,277, or 23.4%. The decrease was primarily attributable to a decrease in legal and accounting fees of $24,659, a decrease in other consulting fees of $77,365, and a decrease in stock-based consulting fees of $22,517 related to the amortization of prepaid expense on previously issued shares to consultants for business advisory and strategic planning services, offset by an increase in investor relations of $45,264.

For the nine months ended September 30, 2024 and 2023, professional fees were $899,954 and $1,273,729 and, respectively, a decrease of $373,775, or 29.3%. The decrease was primarily attributable to a decrease in other consulting fees of $322,288, a decrease in legal fees of $172,516, and a decrease in stock-based consulting fees of $90,067 related to the amortization of prepaid expense on previously issued shares to consultants for business advisory and strategic planning services, offset by an increase in investor relations of $201,876, and an increase in accounting and auditing fees of $9,220.

• Research and Development:

For the three months ended September 30, 2024 and 2023, we incurred research and development expense of $517,548 and $174,495, respectively, an increase of $343,053, or 196.6%.

For the nine months ended September 30, 2024 and 2023, we incurred research and development expense of $1,292,437 and $508,127, respectively, an increase of $784,310, or 154.4%.

The increase was a result of an increase in research and development costs in connection with the Investigator-sponsored Study Agreement with UCSF, UMB, Columbia University, and other parties.

• Insurance Expense:

For the three months ended September 30, 2024 and 2023, insurance expense was $21,100 and $25,915, respectively, a decrease of $4,815, or 18.6%. For the nine months ended September 30, 2024 and 2023, insurance expense was $63,905 and $72,811, respectively, a decrease of $8,906, or 12.2%.

This decrease was a result of decrease in the cost of renewal of the D&O insurance policy.

• Selling, General and Administrative Expenses:

Selling, general and administrative expenses include advertising and promotion, patent related expenses, public company expenses, custodian fees, bank service charges, travel, and other office expenses.

For the three months ended September 30, 2024 and 2023, selling, general and administrative expenses (income) were $59,350 and $(127,904), respectively, a negative change of $187,254 or 146.4%. The change was primarily attributed to a decrease in Delaware franchise taxes of $166,369 resulting from a reincorporation of the Company in Nevada, offset by a net increase in other general and administrative expenses of $20,885.

For the nine months ended September 30, 2024 and 2023, selling, general and administrative expenses were $174,281 and $176,162, respectively, a decrease of $1,881 or 1.1%.

Loss from Operations

For the three months ended September 30, 2024 and 2023, loss from operations amounted to $1,010,055 and $773,398 respectively, an increase of $236,657, or 30.6%. For the nine months ended September 30, 2024 and 2023, loss from operations amounted to $2,892,342 and $2,691,868, respectively, an increase of $200,474, or 7.4%.

The increases in loss from operations in each of the three and nine month periods ended September 30, 2024 were primarily a result of the changes in operating expenses discussed above.

Other Income (Expenses), net

For the three months ended September 30, 2024 and 2023, other income, net amounted to $81,241 and $113,238, respectively, a decrease of $31,997, or 28.3%. The decrease in other income, net was primarily due to a decrease in interest and dividend income of $31,238, and an increase in foreign currency transaction loss of $2,618, offset by a decrease in net realized loss on short-term investments of $1,862.

For the nine months ended September 30, 2024 and 2023, other income (expense), net amounted to $230,082 and $112,361, respectively, an increase of $117,721, or 104.8%. The increase in other income (expenses), net was primarily due to a decrease in penalty expense of $166,034 which was incurred during the 2023 period due to the early termination of a certificate of deposit, a decrease in net unrealized loss on equity investment of $3,118, and a decrease in net realized loss on short-term investments of $3,016, offset by an increase in foreign currency transaction loss of $14,242, a decrease in interest and dividend income of $39,991, and an increase in interest expense of $214.

Net Loss

For the three months ended September 30, 2024, net loss amounted to $928,814 or $0.22 loss per common share (basic and diluted), as compared to net loss of $660,160, or $(0.21) loss per common share (basic and diluted) for the three months ended September 30, 2023, an increase of $268,654, or 40.7%. For the nine months ended September 30, 2024, net loss amounted to $2,662,260 or $0.78 loss per common share (basic and diluted), as compared to net loss of $2,579,507, or $(0.82) loss per common share (basic and diluted) for the nine months ended September 30, 2023, an increase of $82,753, or 3.2%.

The changes in each of the three and nine month periods ended September 30, 2024 were primarily a result of the changes discussed above.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had working capital of $7,216,955, $3,154,443 in short-term investments, and $4,860,890 in cash and cash equivalents as of September 30, 2024, and working capital of $6,905,568, $4,140,880 in short-term investments and $3,524,308 in cash and cash equivalents as of December 31, 2023, respectively.

The increase in working capital of $311,387 was primarily attributable to a net increase in current assets of $580,629, offset by an increase in current liabilities of $269,242 due to an increase in accounts payable.

Cash Flows

A summary of cash flow activities is summarized as follows:

• 24-

Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 and 2023 were $2,916,482 and $2,314,486, respectively, an increase of $601,996, or 26.0%.

• Net cash used in operating activities for the nine months ended September 30, 2024 primarily reflected a net loss of $2,662,260 and the prepayment of research and development fees and other fees of $226,105.
• Net cash used in operating activities for the nine months ended September 30, 2023 primarily reflected a net loss of $2,579,507, adjusted for the add-back of non-cash items such as net realized and unrealized loss on equity investments of $7,159, stock-based compensation of $12,711, and amortization of prepaid stock-based professional fees of $90,067, and changes in operating asset and liabilities primarily consisting of an increase in prepaid expenses and other current assets of $29,703, an increase of interest receivable of $3,590, an increase in accounts payable and accrued expenses of $242,453, and a decrease in deferred revenue of $54,076.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by (used in) investing activities for the nine months ended September 30, 2024 and 2023 were $1,011,436 and $(8,576,011), respectively, a positive change of $9,587,447, or 111.8%.

• Net cash provided by investing activities for the nine months ended September 30, 2024 was $1,0011,436 which consisted of proceeds from the sale of short-term investments of $1,149,320, offset by aggregate payments for the purchase of short-term investments of $137,884.
• Net cash used in investing activities for the nine months ended September 30, 2023 was $8,576,011 which consisted of aggregate payments for the purchase of short-term investments of $10,467,096 offset by proceeds from the sale of short-term investments of $1,891,085.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by (used in) financing activities for the nine months ended September 30, 2024 and 2023 was $3,241,628 and $(276,698), respectively, a positive change of $3,414,741, or 1,272.0%.

• Net cash provided by financing activities for the nine months ended September 30, 2024 was $3,241,628 which consisted of net proceeds from sale of common stock and pre-funded warrants of $1,673,216, net proceeds from sale of common stock and warrants of $1,741,522, and proceeds from the exercise of pre-funded warrants of $3, offset by the purchase of treasury stock of $173,113.
• Net cash used in financing activities for the nine months ended September 30, 2023 was $276,698 which consisted of the purchase of treasury stock.

Cash Requirements

We believe that our current cash and cash equivalent amount and short-term investment amount will provide sufficient cash required to meet our obligations for a minimum of twelve months from the date of this filing.

Other than cash requirements pursuant to research and development agreements, we currently have no other material commitments for any capital expenditures.

Liquidity

As reflected in the accompanying unaudited consolidated financial statements, we generated a net loss of $2,662,260 and used cash in operations of $2,916,482 during the nine months ended September 30, 2024. Additionally, we have an accumulated deficit of $13,534,071 on September 30, 2024. As of September 30, 2024, we had working capital of $7,216,955.

The positive working capital serves to mitigate the conditions that historically raised substantial doubt about our ability to continue as a going concern. We believe that the Company has sufficient cash to meet its obligations for a minimum of twelve months from the date of this filing.

Off-Balance Sheet Arrangements

None.

Critical Accounting Estimates

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.

Research and Development

In accordance with ASC 730-10, “Research and Development-Overall,” research and development costs are expensed when incurred.

Recently Issued Accounting Standards Not Yet Effective or Adopted

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying unaudited condensed consolidated financial statements.

We are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective as of September 30, 2024.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

• We lack segregation of duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel; and.
• We have not implemented adequate system and manual controls.

Until such time as we expand our staff to include additional accounting personnel, it is likely we will continue to report material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 25, 2024 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.