UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ 

 

EVOLUTIONARY GENOMICS, INC.

(Exact name of registrant as specified in its charter)

Nevada	000-54129	26-4369698
(State of other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification N)

 

1026 Anaconda Drive, Castle Rock CO 80108

(Address of Principal Executive Office)

 

Registrants telephone number, including area code: (720) 900-8666

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of March 31, 2021, the Registrant had 5,881,898 shares of common stock, $.001 par value, 577,063 shares of Series A-1 preferred stock, $.001 par value and 102,860 shares of Series A-2 preferred stock, $.001 par value outstanding. The Registrant’s common stock trades on the OTC Markets under the trading symbol “FNAM”.

 

 

 

 

EVOLUTIONARY GENOMICS, INC.

INDEX

 

		Page Number
	PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed and Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	2
	Condensed and Consolidated Statements of Operations, Three Months ended March 31, 2021 and 2020 (unaudited)	3
	Condensed and Consolidated Statements of Stockholders’ Deficit for the Quarterly Periods Ended March 31, 2021 and 2020 (unaudited)	4
	Condensed and Consolidated Statements of Cash Flows, Three Months ended March 31, 2021 and 2020 (unaudited)	5
	Notes to Condensed and Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Conditions and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
	PART II. OTHER INFORMATION
Item 1,	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures.	20
Item 5.	Other Information	20
Item 6.	Exhibits	20

 

 

PART I. FINANCIAL STATEMENTS

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by Evolutionary Genomics, Inc., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2021 and for the three month periods ended March 31, 2021 and 2020 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed and consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2020 audited financial statements. The results of operations for these interim periods are not necessarily indicative of the results for the entire year.

 

 

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Balance Sheets

 

		March 31,				December 31,
		2021				2020
		(unaudited)
ASSETS
Current assets
Cash		$	97,558			$	215,836
Prepaid expenses			58,292				61,757
Total current assets			155,850				277,593
Non-current assets
Property and equipment, net			42,747				50,763
Intangible assets, net			3,412,656				3,664,343
Total non-current assets			3,455,403				3,715,106
Total assets		$	3,611,253			$	3,992,699
LIABILITIES AND STOCKHOLDERS'  DEFICIT
Current liabilities
Accounts payable and accrued expenses		$	4,135			$	3,164
Total current liabilities			4,135				3,164
Long-term liabilities
Notes payable			2,322,226				2,245,831
Total liabilities			2,326,361				2,248,995
Commitments and contingencies
Preferred Stock subject to possible redemption, $0.001 par value,
20,000,000 authorized at March 31, 2021 and December 31, 2020
Series A-1 Convertible Preferred Stock, $0.001 par value; 600,000
shares authorized, 577,063 shares issued and outstanding at
March 31, 2021  and December 31, 2020; liquidation
preference at March 31, 2021 of $4,272,380			3,029,579				3,029,579
Series A-2 Convertible Preferred Stock, $0.001 par value; 200,000
shares authorized, 102,860 shares issued and outstanding at
March 31, 2021 and December 31, 2020; liquidation
preference at March 31, 2021 of $622,457			540,015				540,015
Total preferred stock subject to possible redemption			3,569,594				3,569,594
Stockholders' deficit
Preferred Stock			1,307,620				1,236,228
Common Stock, $0.001 par value; 780,000,000 shares authorized, 5,881,898
shares issued and outstanding at March 31, 2021 and December 31, 2020			5,882				5,882
Additional paid-in capital			11,999,090				12,015,552
Accumulated deficit			(15,597,294	)			(15,083,552	)
Total stockholders' deficit			(2,284,702	)			(1,825,890	)
Total liabilities and stockholders' deficit		$	3,611,253			$	3,992,699

 

The accompanying notes are an integral part of the consolidated financial statements. 

 

 

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Operations

For the Three Months ended March 31, 2021 and 2020

(unaudited)

 

		2021				2020
Grant revenue		$	—			$	12,500
Operating expenses
Research and development			96,815				93,222
Salaries and benefits			92,430				92,430
General and administrative			324,605				56,665
Total operating expenses			513,850				242,317
Operating loss			(513,850	)			(229,817	)
Other income (expenses):
Investment income			108				1
Unrealized loss on investments			—				(12,000	)
Total other income (expenses)			108				(11,999	)
Loss before income taxes			(513,742	)			(241,816	)
Income taxes			—				—
Net loss			(513,742	)			(241,816	)
Preferred stock dividend			(71,392	)			(71,391	)
Net loss attributable to common stockholders		$	(585,134	)		$	(313,207	)
Net loss per common share, basic and diluted		$	(0.10	)		$	(0.05	)
Weighted average common shares outstanding, basic and diluted			5,881,898				5,881,898

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statement of Stockholders' Deficit

 

		Three Months Ended March 31, 2021
		Common Stock								Preferred				Additional				Accumulated				Stockholders'
		Shares				Amount				Dividend				Paid-In Capital				Deficit				Deficit
Balance, December 31, 2020			5,881,898			$	5,882			$	1,236,228			$	12,015,552			$	(15,083,552	)		$	(1,825,890	)
Stock compensation			—				—				—				54,930				—				54,930
Preferred stock dividends			—				—				71,392				(71,392	)			—				—
Net loss			—				—				—				—				(513,742	)			(513,742	)
Balance, March 31, 2021			5,881,898			$	5,882			$	1,307,620			$	11,999,090			$	(15,597,294	)		$	(2,284,702	)

 

		Three Months Ended March 31, 2020
		Common Stock								Preferred				Additional				Accumulated				Stockholders'
		Shares				Amount				Dividend				Paid-In Capital				Deficit				Deficit
Balance, December 31, 2019			5,881,898			$	5,882			$	950,661			$	12,081,401			$	(13,371,669	)		$	(333,725	)
Stock compensation			—				—				—				54,930				—				54,930
Preferred stock dividends			—				—				71,391				(71,391	)			—				—
Net loss			—				—				—				—				(241,816	)			(241,816	)
Balance, March 31, 2020			5,881,898			$	5,882			$	1,022,052			$	12,064,940			$	(13,613,485	)		$	(520,611	)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Cash Flows

For the Three Months ended March 31, 2021 and 2020

(unaudited)

 

		2021				2020
Cash flows from operating activities:
Net loss		$	(513,742	)		$	(241,816	)
Adjustments to reconcile net loss to net
cash flows from operating activities
Depreciation and amortization			259,703				10,180
Stock-based compensation			54,930				54,930
Unrealized loss on investments			—				12,000
Changes in operating assets and liabilities:
Accounts receivable			—				6,845
Prepaid expenses			3,465				8,913
Accounts payable and accrued expenses			971				114,160
Cash flows from operating activities			(194,673	)			(34,788	)
Cash flows from investing activities:
Cash flows from investing activities			—				—
Cash flows from financing activities:
Proceeds from issuance of notes payable			76,395				—
Cash flows from financing activities			76,395				—
Net change in cash			(118,278	)			(34,788	)
Cash, beginning of period			215,836				45,441
Cash, end of period		$	97,558			$	10,653
Supplemental cash flow information
Preferred stock dividend accrual		$	71,392			$	71,391

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Note 1: Business Activity

 

Evolutionary Genomics, Inc. (the “Company,” “We,” or “Our”) has developed a technology platform, the Adapted Traits Platform (“ATP”), to identify commercially valuable genes that control important traits in animals and plants. We are using the ATP to identify genes to improve crop plant traits such as yield, sugar content, biomass, drought tolerance, and pest/disease resistance. Our platform identifies key genes that have changed successfully to impart new or improved traits.

 

In the past, the Company performed research on behalf of governmental organizations, non-profit foundations and commercial entities and received revenue from grants and commercial research contracts. We have not received any revenue from these grant arrangements since early 2020. The Company now focuses on research projects that may lead to long-term licensing arrangements with agricultural seed companies and crop producers as with our soybean and banana projects. These projects take several years to develop, and successful commercialization may take many years to produce license royalty payments. Our banana project, in cooperation with Dole Food Company is an example that has resulted in notes payable funding for the development phase of our banana genes and may result in a long-term royalty bearing license once the development phase is complete.

 

During 2014, the Company purchased 75.16% of the outstanding stock of Fona, Inc., (“Fona”) a public shell company. Since Fona was a public shell company which did not constitute a business and the purchase was done in contemplation of a reverse merger, the Company accounted for the payment as a distribution to Fona shareholders. The Company also entered into an Agreement and Plan of Merger (the “Merger”), which was consummated on October 19, 2015. As a result of the Merger, Evolutionary Genomics, Inc. became a wholly owned subsidiary of Fona. For accounting purposes, the merger was treated as a reverse acquisition with Evolutionary Genomics, Inc. as the acquirer and Fona as the acquired party. Subsequent to the Merger, Fona was renamed Evolutionary Genomics, Inc. and our subsidiary was renamed from Evolutionary Genomics, Inc. to EG Crop Science, Inc.

 

Note 2: Summary of Significant Accounting Policies

 

Principals of Consolidation: These consolidated financial statements include the accounts of Evolutionary Genomics, Inc. and its wholly owned subsidiary. All material intercompany transactions and balances have been eliminated.

 

Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

These consolidated financial statements have been prepared on the basis of going concern. Management’s plans to address the Company’s liquidity are discussed further in Note 13.

 

Cash: The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash.

 

Property and Equipment: Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided for by the straight-line method over three- to seven-year estimated useful lives for software, furniture and fixtures and equipment. Maintenance and repairs are expensed as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized.

 

Long-Lived Assets: The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. An impairment is considered to exist if the total estimated undiscounted cash flows are less than the carrying amount of the asset. An impairment loss is measured and recorded to the extent that the carrying amount of the asset exceeds its estimated fair value. No asset impairment was recorded during the three months ended March 31, 2021 and 2020.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Intangible Assets: Intangible assets include acquired research in progress and patents on the Company’s core technology for gene identification. Patents are amortized over their expected useful life of 20 years using the straight-line method. Acquired research in progress was placed into service on August 19, 2020 in conjunction with the Development and Commercialization Agreement and is being amortized over four years consistent with the term of the Dole agreement using the straight-line method. Costs incurred to renew intangible assets are expensed in the period incurred, while costs incurred to extend the lives of patents are capitalized and amortized over the remaining useful life of the asset. Intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any intangible assets may be impaired, an evaluation of recoverability is performed. An impairment is considered to exist if the total estimated undiscounted cash flows are less than the carrying amount of the asset. No impairment was recorded during the three months ended March 31, 2021 and 2020.

 

Revenue Recognition: Grant revenue consists of funding under cost reimbursement programs primarily from federal and non-profit foundation sources for qualified research and development activities performed by us. However, these amounts are subject to change upon review by federal and non-profit foundations prior to receipt of invoice amounts submitted. Such amounts are invoiced and recorded as revenue as grant-funded activities are performed.

 

Income Taxes: Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established, increased or decreased, an income tax charge or benefit is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. As of March 31, 2021 and December 31, 2020, a full valuation allowance has been established on the net deferred tax asset.

 

Under the Income Tax topic of the ASC, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has no accruals for uncertain tax benefits.

 

Stock-Based Compensation: The Company accounts for stock option awards in accordance with ASC 718. The estimated grant-date fair value of stock-based awards is expensed over the requisite service period, which is typically equivalent to the vesting term of the award.

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services received follows the provisions of ASC Topic 718. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

Research and Development: Research and development costs are expensed as incurred. In instances where we enter into agreements with third parties for research and development activities, we may prepay for services at the initiation of the contract. We record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed.

 

Net Loss Per Common Share: Basic net (loss) income per common share excludes any dilutive effects of equity instruments. We compute basic net (loss) income per common share using the weighted average number of common shares outstanding during the period. We compute diluted net (loss) income per common share using the weighted average number of common shares and common stock equivalents outstanding during the period. For the three months ended March 31, 2021, common stock equivalents including 679,923 shares of convertible preferred stock and options for 1,081,667 shares of common stock were excluded because their effect was anti-dilutive. For the three months ended March 31, 2020, common stock equivalents including 679,923 shares of convertible preferred stock, options for 1,081,667 shares of common stock and warrants for 110,856 shares of common stock were excluded because their effect was anti-dilutive.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Note 3: New Accounting Standards

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments,” which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within that reporting period and is not expected to have an impact on the Company’s consolidated financial statements.

 

Note 4: Fair Value Measurements

 

The Company complies with the provisions of ASC 820, in measuring fair value and in disclosing fair value measurements at the measurement date. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under other accounting pronouncements. Fair value is an exit price, representing the amount 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. Fair value measurements also reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model.

 

ASC 820 provides three levels of the fair value hierarchy as described below:

 

	Level 1 Inputs	–	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
	Level 2 Inputs	–	Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities.
	Level 3 Inputs	–	Unobservable inputs that are supported by little or no market activity.

 

When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

 

The carrying value of financial instruments, including cash, receivables, accounts payable, and accrued expenses, approximates their fair value at March 31, 2021 and December 31, 2020, due to the relatively short-term nature of these instruments.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Note 5: Property and Equipment

 

Property and equipment is comprised of the following:

 

		March 31,				December 31,
		2021				2020
Equipment		$	432,499			$	432,499
Software			63,179				63,179
Furniture and fixtures			7,987				7,987
			503,665				503,665
Accumulated depreciation			(460,918	)			(452,902	)
Property and equipment, net		$	42,747			$	50,763

 

Depreciation expense for the three months ended March 31, 2021 and 2020 was $8,016 and $9,529, respectively.

 

Note 6: Intangible Assets

 

Intangible assets are comprised of the following:

 

		March 31,				December 31,
		2021				2020
Acquired research in progress - definite lived		$	4,016,596			$	4,016,596
Patents			52,045				52,045
Accumulated amortization			(655,985	)			(404,298	)
Intangible assets, net		$	3,412,656			$	3,664,343

 

The Company expects to recognize amortization expense related to its acquired research in progress and patents according to the following:

 

Year Ending			Amortization
December 31, 2021			$	755,064
December 31, 2022				1,006,751
December 31, 2023				1,006,751
December 31, 2024				638,105
December 31, 2025				2,602
Thereafter				3,383
Total			$	3,412,656

 

Amortization expense for the acquired research in progress and patents during the three months ended March 31, 2021 and 2020 was $251,687 and $651, respectively.

 

In its merger completed on October 19, 2015, the Company acquired research in progress. The value of the acquired research in progress was based upon several factors including, evaluation of other intangible assets, the purchase price, estimated future cash flows, and the amounts expended on the research to date. The research in progress was the identification and validation of genes to provide pest and disease resistance to plants performed by EG I. With the banana development project contract in place and the expected marketing of our soybean genes in mid-2021, the Company placed this asset in service on August 19, 2020. Additional costs to complete the soybean research are expected to be approximately $65,000, which will be expensed as incurred. The timing and cost of additional research may vary from these estimates as the success of the research is subject to many factors outside of the Company’s control.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Note 7: Notes Payable

 

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”): On February 22, 2021, the Company received $76,395 in proceeds from the PPP, which was created under the Coronavirus Aid, Relief and Economic Security Act (CARES). Under the program, the Company may apply for forgiveness of the debt based on the use of the proceeds over an 8-week or a 24-week period following funding of the loan. To the extent that the loan is not forgiven, the loan accrues interest at 1 percent and has monthly payments of $1,792.53 starting July 22, 2022. The Company expects this loan to be forgiven within the year ending December 31, 2021 after it meets the requirements of the forgiveness provisions.

 

SBA Economic Injury Disaster Loan: On June 5, 2020, the Company received a $3,000 Economic Injury Disaster Loan (“EIDL”) advance and $150,000 in proceeds from the SBA’s EIDL Program. Installment payments, including interest at the rate of 3.75% per annum, of $731 monthly over thirty years from the date of the promissory note will begin twelve months from the date of the promissory note (June 5, 2022). The Company granted to the SBA a continuing security interest in all tangible and intangible personal property. The Company may not make any distribution of assets of the Company to any shareholder without the written consent of the SBA. As of March 31, 2021, the Company recognized $4,135 of accrued interest on the note.

 

Dole Food Company:

 

On August 19, 2020, the Company entered into a Development and Commercialization Agreement (“DCA”) with Dole Food Company (“Dole”) for the development of our banana genes. The DCA provides for payments from Dole to the Company of $800,000 upon execution, $800,000 by the twelve-month anniversary (August 19, 2021), $250,000 by the thirty-six month anniversary and $250,000 by the forty-eight month anniversary. Dole will also reimburse the Company for costs incurred at the University of Wisconsin-Madison (“UW”) not to exceed $2,200,000 in coordination with the Standard Research Agreement that the Company entered into with UW on September 18, 2020. The agreement with UW includes payments from the Company to UW in the amount of $2,159,719 over the two-year expected term of the project. If the UW research is successful, Dole expects to incur costs of approximately $750,000 to perform field trials.

 

The DCA also specifies that the Company will execute notes payable to Dole for the funding that Dole is providing up to $5,050,000. Upon receipt of $800,000 on August 26, 2020 and $1,295,831 on December 29, 2020, the Company executed the notes under this DCA and recorded them as long-term notes payable for financial statement purposes. The notes are non-interest bearing and allow Dole to offset fifty percent of future royalty payments to the Company by reducing the amount of principal due on these notes. Other than this offset of future royalty payments, repayment of principal and interest is only required in the case of termination of the DCA by Dole for cause.

 

Note 8: Stockholders’ Equity and Warrants

 

The Amended and Restated Certificate of Incorporation of the Company dated October 19, 2015 authorized the issuance of 800,000,000 shares of all classes of stock including 780,000,000 shares of Common Stock having a par value of $0.001 per share and 20,000,000 shares of Preferred Stock having a par value of $0.001 per share, 600,000 of which were designated as Series A-1 Convertible Preferred Stock (“Series A-1”) and 200,000 of which were designated as Series A-2 Convertible Preferred Stock (“Series A-2”). The Board of Directors, without a vote of the shareholders, is authorized to issue additional shares of Preferred Stock in series and to establish the characteristics thereof.

 

Liquidation: Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A-1 and Series A-2 shall be entitled to receive out of the assets of the Company for each share of Series A-1 and Series A-2 an amount equal to its stated value, $5.25 per share as of March 31, 2021 and December 31, 2020, plus any accrued but unpaid dividends before any distribution or payment shall be made to the holders of any other class or series of stock of the Company that ranks junior to the Series A-1 and Series A-2. The holders shall be entitled to convert their shares of Series A-1 and Series A-2 into Common Stock at any time prior to the consummation of a Liquidation. This is considered a contingent redemption feature.

 

Conversion: The holders of Series A-1 and Series A-2 may convert their shares into shares of Common Stock, at the option of the holder, on a one-share-for-one-share basis and shall be subject to certain adjustments at any time.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

Optional Redemption; Sinking Fund Account: The Company may elect to redeem some or all of the then outstanding shares of Series A-1, (i) for cash in an amount equal to the liquidation preference per share, $5.25 per share as of March 31, 2021, subject to adjustment and (ii) by issuing one share, subject to adjustment, of Common Stock for each share of Series A-1 and Series A-2 outstanding being redeemed. 50% of all licensing fees received by the Company will be deposited into a separate sinking fund for use in an optional redemption. As of March 31, 2021, no licensing revenue has been received under these provisions and no sinking fund account has been established.

 

Dividends: The Company shall pay to the holders of the Series A-1 and Series A-2 dividends at the rate of 8% per annum and the Company has accrued these dividends since issuance of the Series A-1 and Series A-2. The dividend amount shall accrue and shall be payable in shares of Common Stock upon the conversion of the Series A-1 and Series A-2, or upon the redemption of the Series A-1 and Series A-2. No dividends shall be paid on any Common Stock of the Company or any capital stock of the Company that ranks junior to the Series A-1 and Series A-2 until dividends of Series A-1 and Series A-2 been paid. As of March 31, 2021, there were $1,307,620 in accrued stock dividends.

 

Voting: The holders of the Series A-1 and Series A-2 are entitled to vote on all matters submitted to the stockholders for a vote on an as-if-converted to Common Stock basis, with all stockholders voting as a single class.

 

Note 9: Stock-Based Compensation

 

The Company grants stock-based instruments under the 2015 Stock Incentive Plan (“Plan”) for which 1,400,000 shares of the Company’s Common Stock has been reserved. The Plan allows for the issuance of incentive stock options and non-qualified stock options with a maximum contractual term of 10 years. Shares and options that are cancelled are available for reissuance under the Plan. For three months ended March 31, 2021 and 2020, the Company recorded compensation costs for stock options of $54,930. Stock options are generally issued with an exercise price at or above the estimated per-share value of the Company’s Common Stock. The Company granted no options during the three months ended March 31, 2021 and 2020.

 

Management has valued the options at their date of grant utilizing the Black-Scholes option pricing model. As of the issuance of the outstanding options, there was not a public market for the Company’s shares. Accordingly, the Company utilized the value obtained in equity transactions with unrelated parties to estimate the fair value of the Company’s Common Stock on the date of grant. Volatility of the underlying common shares was determined based on the historical volatility for similar companies that are actively traded in the public markets for a term consistent with the expected life of the options. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options on the date of the grant. Due to the lack of sufficient historical activity, the expected life of the options was estimated using the formula set forth in Securities and Exchange Commission SAB 107.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

The following table summarizes the status of the Company’s aggregate stock options granted:

 

			Number of   Options				Weighted Average Exercise Price				Weighted Average Remaining Term(Years)				Total Intrinsic Value
Balance, January 1, 2020				1,081,667			$	1.74				7.67
Granted				—				—				—
Exercised				—				—				—
Cancelled				—				—				—
Balance, December 31, 2020				1,081,667			$	1.74				6.67
Balance, January 1, 2021				1,081,667			$	1.74				6.67
Granted				—				—				—
Exercised				—				—				—
Cancelled				—				—				—
Balance, March 31, 2021				1,081,667			$	1.74				6.42			$	—
Exercisable at March 31, 2021				688,332			$	1.85				5.19			$	65,333

 

During the three months ended March 31, 2021 and 2020, options for 0 and 0 shares vested, respectively. As of March 31, 2021 there was $350,520 of unrecognized compensation cost related to share-based compensation arrangements that will be recognized through the year ending December 31, 2022.

 

Note 10: Commitments and Contingencies

 

Officer Indemnification: Under the Company’s organizational documents, the Company’s officers, employees, and directors are indemnified against certain liabilities arising out of the performance of their duties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects any risk of loss to be remote. The Company also has an insurance policy for its directors and officers to insure them against liabilities arising from their performance in their positions with the Company.

 

Lease Commitments: The Company leases its operating facility and pays its rent in monthly installments. The lease was renewed in June 2016 for a period of twelve months and monthly rentals for the period of July 1, 2016 through March 31, 2021 are $2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as of March 31, 2021. Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for the three months ended March 31, 2021 and 2020 was $7,134.

 

Royalty: Effective March 1, 2012, the Company entered into an Agreement for Contract Services with SmithBucklin Corporation (the “Contractor”) on behalf of the United Soybean Board. The contract includes the payment of certain royalties, as defined in the Agreement.

 

 

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 AND 2020 (Unaudited)

 

The Company is obligated to pay royalties to the United Soybean Board of 10% of the sale of products derived from the soybean genes that were the subject of the research performed by the Contractor or from royalties received by the Company from the sale of products by a third party not to exceed 150% of the total amount paid to the Contractor under this Agreement. The Company has recognized to date grant revenue from the contract of $262,400 as of March 31, 2021, thus limiting any future royalties as of March 31, 2021 to a total of $393,600. The Company has not accrued or paid any royalties under the terms of the Agreement as of and during the three months ended March 31, 2021 because it has not received any revenue from the sale of products to date.

 

Other Commitments: On September 18, 2020, the Company entered into a Standard Research Agreement with UW for the development of our banana genes. The agreement includes payments from the Company in the amount of $2,159,719 over the two-year expected term of the project. These costs will be reimbursed, in the form of notes payable by Dole in accordance with our DCA.

 

Note 11: Related Parties and Transactions

 

Steve B. Warnecke: Mr. Warnecke is the Company’s Chief Executive Officer and Chairman of the Board and owns, directly or indirectly, 1,902,088 shares or 29.45% of the Common Stock outstanding as of March 31, 2021.

 

Note 12: Concentrations

 

Considerations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash balances at high-credit, quality financial institutions. The balances, at times, may exceed federally insured limits. The Company routinely monitors the credit quality of its customers.

 

Note 13: Liquidity

 

As of March 31, 2021, the Company had $97,558 in bank accounts. The Company’s current projections for cash required in operations over the twelve months ending March 31, 2022 is $1,323,669. This raises substantial doubt as to the Company’s ability to continue as a going concern.

 

To address these factors, management believes that it will secure additional funding to meet prospective cash requirements. Management believes the Company’s existing cash balances along with funding from our agreement with Dole, prospective funding from marketing additional genes and additional contributions from our largest shareholder will provide the necessary liquidity to meet our obligations as they come due over the next year. We expect that the funding from these sources will be more than enough to cover our obligations for the next twelve months. However, if the funding does not arrive, the Company may not be able to meet its obligations as they become due.

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Caution Regarding Forward-Looking Information

 

This report includes “forward-looking statements” that are subject to risks, uncertainties and other factors. All statements other than statements of historical fact are statements that could be deemed forward-looking statements including continued compliance with government regulations, changing legislation or regulatory environments; any statements of expectation or belief and any statements of assumptions underlying any of the foregoing. These risks, uncertainties and other factors, and the general risks associated with the businesses of the Company described in the reports and other documents filed with the SEC, could cause actual results to differ materially from those referred to in the forward-looking statements. The Company cautions readers not to rely on these forward-looking statements. All forward-looking statements are based on information currently available to the Company and are qualified in their entirety by this cautionary statement. The Company anticipates that subsequent events and developments may cause its views to change. The information contained in this report speaks as of the date hereof and the Company has or undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise unless required by law.

 

Company Overview

 

Evolutionary Genomics, Inc. (the "registrant" or "Company") was incorporated under the laws of the state of Minnesota in November 1990 under the name Fonahome Corporation. On March 24, 2009, the Company reincorporated in the state of Nevada and merged with its wholly-owned subsidiary, Fona, Inc., adopting the surviving company’s name, Fona, Inc. and simultaneously adopted the capital structure of Fona Inc., which includes total authorized capital stock of 800,000,000 shares, of which 780,000,000 are common stock and 20,000,000 are blank check preferred stock. The preferred stock may be issued from time to time in one or more series with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, as shall be stated in the resolutions adopted by the Corporation’s Board providing for the issuance of such preferred stock or series thereof.

 

On June 6, 2014, Evolutionary Genomics, Inc., a Delaware corporation merged with Fona, Inc. treated as a reverse acquisition with Evolutionary Genomics, Inc. as the acquirer and Fona as the acquired party. Subsequent to the Merger, Fona, Inc. was renamed Evolutionary Genomics, Inc. and our subsidiary was renamed from Evolutionary Genomics, Inc. to EG Crop Science, Inc. On May 9, 2016, we formed ICAM Therapeutics, Inc. (a Delaware corporation) as a wholly owned subsidiary of Evolutionary Genomics, Inc. We have not incurred any transactions in this company nor have we established any business plan for the future.

 

The Company maintains headquarters at the office of its Chief Executive Officer. The Company maintains a website at www.evolgen.com. The Company is not required to deliver an annual report to security holders and at this time does not anticipate the distribution of such a report. The Company will file reports with the SEC.

 

On August 14, 2000, the Company was issued patent number 6274319, titled “Methods to identify evolutionarily significant changes in polynucleotide and polypeptide sequences in domestic plants and animals”. On June 1, 2004, the Company was issued patent number 6743580, titled “Methods for producing transgenic plants containing evolutionarily significant polynucleotides”. These patents are for the core Adapted Traits Platform that we use for the discovery of genes in humans, animals and commercial crops. The Company has applied the Adapted Traits Platform in research projects including identifying genes believed to be responsible for increases in yield in corn, increases in yield in rice, salt tolerance and sugar content in tomatoes and pest/disease resistance in soybeans, bananas and multiple other crops.

 

In the past century, agriculture has been characterized by enhanced productivity, the use of synthetic fertilizers and pesticides, selective breeding, mechanization, water contamination, and farm subsidies. Proponents of organic farming such as Sir Albert Howard argued in the early 20th century that the overuse of pesticides and synthetic fertilizers damages the long-term fertility of the soil. While this feeling lay dormant for decades, as environmental awareness has increased in the 21st century there has been a movement towards sustainable agriculture by some farmers, consumers, and policymakers.

 

Advances in genetic research and modification of crop species have led to increased yield, drought tolerance and disease/pest resistance. These advances have also led to an increased concentration within the providers of seed and seedling plants to crop producers. The top seed and plantlet providers control much of the implementation of new crop varieties through patents and licensing agreements. Genetic traits providers, like Evolutionary Genomics, identify and develop genes that impact traits of interest to the industry and market those genes to these companies.

 

 

The single most valuable step in the process of crop improvement is the identification of the key genes that have the desired impact. EG set out to find genes in soybeans that impact pest and disease resistance. We identified two that showed promise and, in hairy root assays on one of these genes, EG261, at the University of Wisconsin – Madison, proved that EG261 impacted resistance. When we discussed these results with the larger seed companies, they indicated interest but wanted to see two generation, whole plant testing results before entering licensing negotiations. We have engaged the University of Missouri and the University of Wisconsin’s Wisconsin Crop Innovation Center (“UW”) to independently perform these validation studies for us.

 

As a small company restricted by our limited resources, we cannot afford to generate vast numbers of transformation plant lines, known as events. Moderate success is important enough to indicate that further optimization can lead to significantly improved results. We must prove that there is enough evidence to warrant additional trials by companies with vastly more resources to build on our success but the single most valuable step in this process is the identification of the gene that has the desired impact and we have identified two of these genes, EG261 and EG19.

 

On April 29, 2014, the United States Patent and Trademark Office issued patent 8,710,300 titled EXPRESSION OF DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS ENHANCES PATHOGEN RESISTANCE IN PLANTS. On December 5, 2017 and March 3, 2020, the United States Patent and Trademark Office issued additional patents which extended the previous patent to include additional variations of the gene. During 2017, the Company was issued similar patents in Canada, Brazil and China and has additional patents pending in Argentina and India. On January 15, 2021, the Company filed a patent application on its second soybean pest/disease resistance gene, EG19, and has included that gene in its ongoing two generation, whole plant validation research. The Company has also discovered additional candidate genes that may impact pathogen resistance. There can be no assurance that any of these genes will be proven effective in validation testing or lead to licensing agreements or revenue.

 

We entered into a Service Agreement with UW under which they transformed soybeans using our genes and helped to establish the right combinations to achieve a range of expression. UW grew events from seven constructs of EG261 and EG19 in their greenhouses. These plants were harvested in May 2020 for generation T2 seeds. The seeds were transferred to the University of Missouri and testing began in November 2020. We have completed three cycles of planting, growing and testing and expect to complete another two to three cycles by late summer 2021. The results of the second cycle were discarded because of process issues but the results of the other two cycles were very promising with significant improvement in disease resistance observed in plants transformed with our genes.

 

If results from the next two or three cycles confirm these findings, the Company intends to enter negotiations for a long-term research collaboration and licensing agreement with seed companies. If these negotiations are successful, this type of agreement will likely have an upfront payment, milestone payments during their testing and a licensing royalty stream once the genes are incorporated into commercial seed lines. The testing phase includes field trials which may proceed for several years prior to generating licensing revenue. There are many risks in this process including some that are outside of Evolutionary Genomics’ control and there can be no guarantee that we will ever generate any revenue from these potential agreements.

 

The Company has identified pest/disease resistance genes in other commercially valuable crops. The Company is in various stages of projects identifying genes in tomatoes and corn that may lead to increased pest/disease resistance. If successful, we intend to market them to the seed industry. This strategy will require Evolutionary Genomics to incur significant research costs prior to any confirmation of commercial viability and there can be no guarantee that the desired results can be achieved or that commercialization can be reached.

 

During the 1950s the global banana industry was devastated by a disease (caused by Fusarium fungus) that effectively wiped out the predominate variety of commercial bananas know as Gros Michel leading to the development of the Cavendish banana, which makes up well over 90% of the commercial banana market today. Cavendish was resistant to the strain of Fusarium that wiped out the Gros Michel variety but, in recent years, is being challenged by a new race of Fusarium that threatens to, once again, devastate the global banana industry. This crisis is imminent and has no solution. The recent emergence of Panama Disease TR4 in the Western Hemisphere makes a swift solution to the crisis even more urgent. A substantial part of the banana market consists of exports from Central and South America to the United States.

 

 

In 2018, the Company began a project to identify genes in wild banana relatives that are resistant to Fusarium. We used our platform to isolate a banana gene that controls Fusarium Wilt (FW), aka Panama Disease, Tropical Race 4. The gene, which we have named FusR1 (Fusarium Resistance 1), is a native gene in Musa species, including cultivated bananas. We have found that, for all FW-resistant banana cultivars/species that we have tested, one version of our gene exists while, in all FW-sensitive banana cultivars/species that we have tested, there is a different version of FusR1. And notably, a third version exists in semi-resistant varieties that has allowed us to identify the particular nucleotide changes that are crucial for resistance to Fusarium Wilt.

 

We believe that this native banana gene can be introduced into cultivated bananas, particularly the Fusarium-sensitive Cavendish cultivar in order to make these cultivars resistant to Fusarium Wilt. Cavendish cultivars are sterile and seedless, but it should be possible to use MAB (marker assisted breeding), though perhaps difficult and time-consuming, to move FusR1 into Cavendish and other cultivated bananas. We believe that a gene transformation approach would be faster and easier. Given the threat of possible extinction for Cavendish, rapid approaches are not only warranted but essential and minimally genetically edited bananas will be accepted depending upon how the gene transfer is accomplished. Transfer of this native banana gene to cultivated bananas can also be accomplished with CRISPR technology, which allows a targeted, clean, and efficient transfer and which, as compared to more traditional genetic editing techniques, minimizes potential side effects. We believe that Cavendish bananas can be rendered Fusarium Wilt resistant by changing only a few base pairs. These sorts of minimal changes have been allowed by the USDA and FDA in several crops. Even in Europe, use of CRISPR technology has gained substantial traction.

 

On June 26, 2019, we filed a United States patent application titled IDENTIFICATION AND RESISTANCE GENES FROM WILD RELATIVES OF BANANA AND THEIR USES IN CONTROLLING PANAMA DISEASE. We are awaiting review of these patents by the United States Patent Office.

 

On August 19, 2020, the Company entered into the DCA with Dole for the development of plant varieties within the Musa genus of the Musaceae family (including the Cavendish variety of banana) that exhibit resistance to Fusarium Wilt Tropical Race 4 (popularly known as Panama Disease). Subject to compliance with various provisions of the agreement, the agreement includes working capital funding from Dole to the Company over the next four years. In addition to working capital funding, Dole will reimburse the Company for the development of banana plants and incur additional costs for the commercialization of plants upon successful completion of the development portion of this project. In the year ended December 31, 2020, the Company received $800,000 of working capital funding and $1,295,831 of reimbursement of development costs pursuant to this agreement. Per the Agreement, 50% of future royalties may be offset with the research funding provided by Dole. In the event that Dole terminates the agreement for material breach by the Company or the Company’s bankruptcy, the Company must repay all funding provided by Dole within six months of termination. The parties have agreed to negotiate the terms of the long-term license agreement upon successful completion of the development portion of this project.

 

If we are able to successfully transform and validate our banana genes, which will likely take 24-36 months from the start of the project in September 2020, under the terms of the agreement with Dole, we expect to negotiate a long-term royalty contract for the commercialization of banana plants using our genes. This licensing arrangement will likely be exclusively with Dole and contain royalty payments based on the number of plants and/or hectares of plants. Even if EG’s genes are proven to be effective, it is difficult to predict the future revenue stream that any licensing arrangement can generate and will be heavily dependent upon the speed with which Panama Disease spreads throughout the world necessitating a solution and any changes in the price of bananas based on supply and demand. Many articles are available in the public realm detailing the significance of the disease and the spread throughout the world.

 

Since bananas are seedless, they are propagated by clones which allows for very rapid production of plants. An initial batch of 100 successful plants can generate a secondary propagation of over 15,000 plants in one year (enough for 10 hectares) and 15 million in the next generation. There are over 400,000 hectares of banana production in Latin America from Mexico to Peru. Adoption of the new variety will be dependent upon its effectiveness and the infection rate of Panama disease.

 

There are many risks associated with achieving these desired results including but not limited to:

 

	-	We may not be able to adequately establish patent protection for our intellectual property or others may have competing claims.
	-	Others may develop competitive approaches to compete with our genes.
	-	Our transformation academic labs may fail to develop enough events for testing.
	-	Our genes may cause unforeseen and undesirable changes beyond the pest resistance such as yield degradation or changes in the appearance or taste of the fruit.

 

 

	-	Our genes may fail to deliver the desired results of resistance to Fusarium.
	-	Globally regulations and/or consumer preference may prevent the successful commercial launch of bananas with genetics changed using our methods.
	-	We will be dependent on others for the successful production and marketing of bananas with our genes and many factors will be outside of our control.
	-	Our cash flow is highly dependent upon our only expected source of funding provided under our Development and Commercialization Agreement with Dole Food Company.
	-	Our expected future royalty revenue will be highly dependent upon the successful execution of the banana development project in the DCA with Dole and the negotiation of a long-term royalty licensing agreement expected in the third year of that agreement.

 

These and other risk factors are discussed in more detail in our 10-K filing dated March 31, 2021.

 

Evolutionary Genomics has no registered trademarks. The Company had two full time employees and one part-time employee as of March 31, 2021 and leases its operating facility on a month-to-month basis after June 30, 2017. Evolutionary Genomics is not currently involved in or aware of any threatened or actual legal proceedings.

 

Unaudited Results of Operations

 

		Three Months Ended March 31,
		2021								2020
		Amount				Percent of Revenue				Amount				Percent of Revenue
Grant revenue		$	—				N/A			$	12,500				100.0	%
Research and development			96,815				N/A				93,222				745.8	%
Salaries and benefits			92,430				N/A				92,430				739.4	%
General and administrative			324,605				N/A				56,665				453.3	%
Total operating expenses			513,850				N/A				242,317				1938.5	%
Operating (loss)			(513,850	)			N/A				(229,817	)			(1838.5	)%
Other income and (expenses)			108				N/A				(11,999	)			(96.0	)%
Income Taxes			—				N/A				—				0.0	%
Net loss		$	(513,742	)			N/A			$	(241,816	)			(1934.5	)%
Preferred stock dividend			(71,392	)			N/A				(71,391	)			(571.1	)%
Net loss attributable to common stockholders		$	(585,134	)			N/A			$	(313,207	)			(2505.7	)%

 

Grant Revenue

 

Grant revenue decreased $12,500, or 100.0%, to $0 for the three months ended March 31, 2021 from $12,500 for the three months ended March 31, 2020. The decrease was due to decreased revenue recognized from the State of Colorado grant which ended in January 2020.

 

Operating Expenses

 

Operating expenses increased $271,533, or 112.1% to $513,850 for the three months ended March 31, 2021 from $242,317 for the three months ended March 31, 2020. Changes in these items are described below.

 

Research and Development

 

Research and development increased $3,593, or 3.9%, to $96,815 for the three months ended March 31, 2021 from $93,222 for the three months ended March 31, 2020. The increase was primarily due to increased costs for our banana disease resistance project.

 

 

Salaries and Benefits

 

Salaries and benefits was unchanged at $92,430 for the three months ended March 31, 2021 and 2020.

 

General and Administrative

 

General and administrative expenses increased $267,940, or 472.8%, to $324,605 for the three months ended March 31, 2021 from $56,665 for the three months ended March 31, 2020. The increase was primarily due to the amortization of our research in progress which was placed into service August 19, 2020.

 

Other Income

 

Total other income increased $12,107, or 100.9%, to $108 for the three months ended March 31, 2021 from ($11,999) for the three months ended March 31, 2020. The loss in the three months ended March 31, 2020 was due to an unrealized loss in our investments which were sold in December 2020.

 

Net Loss

 

Net loss increased $271,926, or 112.5%, to $513,742 for the three months ended March 31, 2021 from $241,816 for the three months ended March 31, 2020. The increase was primarily due to the amortization of our research in progress and decrease in grant revenue.

 

Financial Condition

 

The Company’s working capital decreased $122,714 to $151,715 as of March 31, 2021 from $274,429 as of December 31, 2020 primarily due to the operating loss partially offset by proceeds of notes payable.

 

Liquidity

 

The Company has historically financed operations through debt and equity transactions. Net cash used in operating activities was $194,673 for the three months ended March 31, 2021 compared to $34,788 for the three months ended March 31, 2020. The $159,885, or 459.6%, increase was primarily due to the increased net operating loss and a decrease in accounts payable outstanding. Net cash provided from financing activities was $76,395 from notes payable from the PPP loan in the three months ended March 31, 2021. As of March 31, 2021, the Company had $97,558 in bank accounts. The Company’s current projections for cash required in operations over the twelve months ending March 31, 2022 is $1,323,669. This raises substantial doubt as to the Company’s ability to continue as a going concern.

 

To address these factors, management believes that it will secure additional funding to meet prospective cash requirements. Management believes the Company’s existing cash balances along with funding from our agreement with Dole, prospective funding from marketing additional genes and additional contributions from our largest shareholder will provide the necessary liquidity to meet our obligations as they come due over the next year. We expect that the funding from these sources will be more than enough to cover our obligations for the next twelve months. However, if the funding does not arrive, the Company may not be able to meet its obligations as they become due.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements that have a material current effect, or that are reasonably likely to have a material future effect, on its financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

 

Contractual Obligations

 

The Company leases its operating facility and pays its rent in monthly installments. The lease was renewed in June 2016 for a period of twelve months and monthly rentals for the period of July 1, 2016 through March 31, 2021 are $2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as of March 31, 2021. Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for the three months ended March 31, 2021 and 2020 was $7,134.

 

 

The Company is obligated to pay royalties to the United Soybean Board of 10% of the sale of products derived from the soybean genes that were the subject of the research performed by the Contractor or from royalties received by the Company from the sale of products by a third party not to exceed 150% of the total amount paid to the Contractor under this Agreement. The Company has recognized to date grant revenue from the contract of $262,400 as of March 31, 2021, thus limiting any future royalties as of March 31, 2021 to a total of $393,600. The Company has not accrued or paid any royalties under the terms of the Agreement as of and during the three months ended March 31, 2021 because it has not received any revenue from the sale of products to date.

 

On September 18, 2020, the Company entered into a Standard Research Agreement with UW for the development of our banana genes. The agreement includes payments from the Company in the amount of $2,159,719 over the two-year expected term of the project. These costs will be reimbursed, in the form of notes payable by Dole in accordance with our DCA.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required by smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies such as the Company face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of our operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

 

Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — 2013 Integrated Framework. Based on this evaluation, our management, with the participation of the President, concluded that, as of December 31, 2020, our internal control over financial reporting was not effective due to the material weaknesses in the system of internal control described below.

 

Specifically, management identified the following control deficiencies: (1) the Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC’s reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software. (3) Due to the size of the Company and limited personnel, the Company has not hired an individual with technical accounting expertise within the accounting function.

 

(b) Changes in internal controls.

 

Our Certifying Officers have indicated that there were no changes in our internal controls over financial reporting or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no such control actions with regard to significant deficiencies and material weaknesses.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

Impacts of COVID-19 on our business

 

The impact of a novel strain of coronavirus (COVID-19), and measures to prevent its spread are affecting the macroeconomic environment and while the full impact is uncertain, our business and results of operations could be materially adversely affected. We previously expected to complete the soybean research in the second quarter of 2020. During the second quarter of 2020, our academic labs informed us that they were not starting any new projects due to the COVID-19 pandemic. As of October 2020, the project is underway. If this research is not completed within a reasonable timeframe or within estimated costs, future licensing revenue, the valuation of our research in progress and the financial condition of the Company could be significantly impacted. The impact on our business will depend on a number of factors such as the duration and extent of COVID-19, governmental actions, changes in consumer behavior, responses of our third-party business partners that offer our content through their platforms, and general economic activity.

 

We are attempting to conduct business as usual to the extent possible and are complying with the applicable orders issued by the Governor of Colorado. The Company has been granted the status of essential operations and our staff continues to work in our lab while staggering working hours to limit exposure.

 

The impact of the COVID-19 outbreak may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1		Rule 13a-14(a)/15d-14(a) Certification
31.2		Rule 13a-14(a)/15d-14(a) Certification
32.1		Section 1350 Certification
101		XBRL Interactive Data File

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	EVOLUTIONARY GENOMICS, INC.
BY:	/s/ Steve B Warnecke
	Steve B Warnecke
	Chief Executive Officer and Chief Financial Officer
	May 13, 2021