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EVOLUTIONARY GENOMICS, INC. - Quarter Report: 2017 June (Form 10-Q)

Quarterly Report


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017


OR


¨

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

Commission File Number: 000-54129

——————————

EVOLUTIONARY GENOMICS, INC.

(Exact name of small business issuer as specified in its charter)

Nevada

 

26-4369698

(State of other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)


1026 Anaconda Drive, Castle Rock, CO 80108

(Address of principal executive offices including zip code)

(720) 900-8666

(Issuer's telephone number)

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 þ  No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ  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     ¨

(Do not check if a smaller

Smaller reporting company  þ

 

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 þ


As of June 30, 2017, 2016, the Registrant had 5,881,898 shares of common stock, $.001 par value and 577,063 shares of Series A-1 preferred stock, $.001 par value outstanding.

 

 







EVOLUTIONARY GENOMICS, INC.

INDEX

 

Page
Number

 

 

PART I.  FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

1

 

 

Condensed and Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016

2

 

 

Condensed and Consolidated Statements of Operations, Three and Six Months ended June 30, 2017 and 2016 (unaudited)

3

 

 

Condensed and Consolidated Statements of Cash Flows, Three Months ended June 30, 2017 and 2016 (unaudited)

4

 

 

Notes to Condensed and Consolidated Financial Statements

5

 

 

Item 2.

Management's Discussion and Analysis of Financial Conditions and Results of Operations

14

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

18

 

 

Item 4.

Controls and Procedures

18

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

19

 

 

Item 1A.

Risk Factors

19

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

 

 

Item 3.

Defaults Upon Senior Securities

19

 

 

Item 4.

Mine Safety Disclosures.

19

 

 

Item 5.

Other Information

19

 

 

Item 6.

Exhibits

19








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 June 30, 2017 and 2016 and for the periods then ended 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 consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2016 audited financial statements. The results of operations for these interim periods are not necessarily indicative of the results for the entire year.




1



Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Balance Sheets


 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

A S S E T S

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

91,738

 

 

$

2,057,548

 

Accounts receivable

 

 

 

 

 

9,289

 

Trading securities

 

 

1,288,998

 

 

 

64,299

 

Prepaid expenses

 

 

16,439

 

 

 

22,414

 

Total current assets

 

 

1,397,175

 

 

 

2,153,550

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

185,601

 

 

 

205,726

 

Intangible assets, net

 

 

4,042,097

 

 

 

4,043,398

 

Total non-current assets

 

 

4,227,698

 

 

 

4,249,124

 

Total assets

 

$

5,624,873

 

 

$

6,402,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L I A B I L I T I E S  A N D  S T O C K H O L D E R S '  EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,841

 

 

$

46,064

 

Total current liabilities

 

 

11,841

 

 

 

46,064

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Deferred tax liability

 

 

1,485,683

 

 

 

1,485,683

 

Total liabilities

 

 

1,497,524

 

 

 

1,531,747

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Preferred Stock subject to possible redemption, $0.001 par value,

 

 

 

 

 

 

 

 

20,000,000 authorized at June 30, 2017 and December 31, 2016

 

 

 

 

 

 

 

 

Series A-1 Convertible Preferred Stock, $0.001 par value; 600,000

 

 

 

 

 

 

 

 

shares authorized, 577,063 shares issued and outstanding at

 

 

 

 

 

 

 

 

June 30, 2017 and December 31, 2016; liquidation

 

 

 

 

 

 

 

 

preference of $3,347,311

 

 

3,029,579

 

 

 

3,029,579

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common Stock, $0.001 par value; 780,000,000 shares authorized,

 

 

 

 

 

 

 

 

5,881,898 shares issued and outstanding at June 30, 2017

 

 

5,882

 

 

 

5,882

 

and December 31, 2016

 

 

 

 

 

 

 

 

Preferred Stock

 

 

317,732

 

 

 

196,549

 

Additional paid-in capital

 

 

12,510,637

 

 

 

12,579,212

 

Accumulated deficit

 

 

(11,736,481

)

 

 

(10,940,295

)

Total stockholders' equity

 

 

1,097,770

 

 

 

1,841,348

 

Total liabilities and stockholders' equity

 

$

5,624,873

 

 

$

6,402,674

 




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

2



Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Operations

(unaudited)


 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service and grant revenue

 

$

6,010

 

 

$

50,255

 

 

$

32,690

 

 

$

118,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

137,818

 

 

 

139,458

 

 

 

507,381

 

 

 

309,042

 

Salaries and benefits

 

 

62,467

 

 

 

84,876

 

 

 

147,611

 

 

 

125,466

 

General and administrative

 

 

55,947

 

 

 

79,717

 

 

 

150,076

 

 

 

156,863

 

Total operating expenses

 

 

256,232

 

 

 

304,051

 

 

 

805,068

 

 

 

591,371

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss)

 

 

(250,222

)

 

 

(253,796

)

 

 

(772,378

)

 

 

(473,132

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income

 

 

2,626

 

 

 

3,312

 

 

 

3,270

 

 

 

4,512

 

Realized (loss) gain on the sale of investments

 

 

 

 

 

(273

)

 

 

 

 

 

8,699

 

Unrealized (loss) on trading securities

 

 

(19,921

)

 

 

(68,791

)

 

 

(27,078

)

 

 

(150,643

)

Total other (expenses)

 

 

(17,295

)

 

 

(65,752

)

 

 

(23,808

)

 

 

(137,432

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(267,517

)

 

 

(319,548

)

 

 

(796,186

)

 

 

(610,564

)

Preferred stock dividend

 

 

(60,591

)

 

 

(58,592

)

 

 

(121,183

)

 

 

(72,076

)

Net loss attributable to common stockholders

 

$

(328,108

)

 

$

(378,140

)

 

$

(917,369

)

 

$

(682,640

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.06

)

 

$

(0.06

)

 

$

(0.16

)

 

$

(0.12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

5,881,898

 

 

 

5,881,898

 

 

 

5,881,898

 

 

 

5,881,898

 




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

3



Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Cash Flows

(unaudited)


 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(796,186

)

 

$

(610,564

)

Adjustments to reconcile net loss to net cash flows from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,426

 

 

 

17,411

 

Stock-based compensation

 

 

52,608

 

 

 

37,966

 

Realized gain on sale of trading securities

 

 

 

 

 

(8,699

)

Unrealized loss on trading securities

 

 

27,078

 

 

 

150,643

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

9,289

 

 

 

(33,146

)

Prepaid expenses

 

 

5,975

 

 

 

3,296

 

Accounts payable and accrued expenses

 

 

(34,223

)

 

 

(124,633

)

Billings in excess of costs

 

 

 

 

 

(49,982

)

Cash flows from operating activities

 

 

(714,033

)

 

 

(617,708

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

 

 

 

(103,196

)

Proceeds from sale of investments

 

 

 

 

 

718,184

 

Proceeds from sale of investment in VetDC, Inc.

 

 

 

 

 

55,000

 

Purchase of trading securities, net

 

 

(1,251,777

)

 

 

(2,672,802

)

Cash flows from investing activities

 

 

(1,251,777

)

 

 

(2,002,814

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of Preferred Stock, net of offering expense

 

 

 

 

 

2,904,033

 

Cash flows from financing activities

 

 

 

 

 

2,904,033

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(1,965,810

)

 

 

283,511

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

2,057,548

 

 

 

3,823

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

91,738

 

 

$

287,334

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Preferred stock dividend accrual

 

$

121,183

 

 

$

72,076

 





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

4



 


EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (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.


The Company performs its research on behalf of governmental organizations, non-profit foundations, and commercial entities and receives revenue from grants and commercial research contracts. These grants/contracts contain fixed-fee arrangements and may also have licensing provisions upon effective commercialization of research results. Successful commercialization may take many years to produce license royalty payments. Ownership of intellectual property developed in research projects varies from the Company retaining no rights to intellectual property, to joint ownership, to the Company retaining all rights.


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 does 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, Inc. 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, 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.


Note 2: Summary of Significant Accounting Policies


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


Use of Estimates: The preparation of condensed and 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 condensed and consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.


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.  


Accounts Receivable: Accounts receivable are carried at cost less an allowance for doubtful accounts, if an allowance is deemed necessary. On a periodic basis the Company evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based upon the history of past write-offs, collections, and current credit conditions. A receivable is written off when it is determined that all reasonable collection efforts have been exhausted and the potential for recovery is considered remote. The Company recorded no allowance for doubtful accounts as of June 30, 2017 and December 31, 2016. Recoveries of receivables previously written off are recorded when received. The Company does not charge interest on past-due receivables.






5



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



Trading Securities: The Company’s short-term investments are comprised of equity securities, treasury bonds and bank certificates of deposit, all of which are classified as trading securities and are carried at their fair value based on the quoted market prices of the securities at June 30, 2017 and December 31, 2016. Net realized and unrealized gains and losses on trading securities are included in net earnings. For purpose of determining realized gains and losses, the cost of securities sold is based on specific identification.


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 of 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 six months ended June 30, 2017 and 2016.


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 is an indefinite-lived intangible asset until the development is complete at which time the useful life of the asset will be assigned. 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.


Revenue Recognition: The Company recognizes revenue where persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Service revenues are generally recognized as fees for service contracts, including payments for Company personnel on a per-day basis and reimbursement for subcontractors and supplies on a cost-incurred basis. Under our milestone-based contracts, consideration associated with at-risk substantive performance milestones is recognized as revenue upon the achievement of the related milestone, as defined in the respective contracts. All revenue for the six months ended June 30, 2017 and 2016 was from sources inside the United States, was from contractual research projects and grants, and there was no licensing revenue. The Company recorded no other revenue for the six months ended June 30, 2017 and 2016.


In our Master Services Agreement with the Bill and Melinda Gates Foundation, we grant them a royalty-free license for use of intellectual property developed in low-income economies and lower-middle-income economies according to the World Bank classification and expressly excludes all of North America and Europe. The Company retains all rights to the use of intellectual property outside of these regions.


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 condensed and consolidated financial statements and net deferred tax assets are adjusted accordingly. As of June 30, 2017 and December 31, 2016, 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.  




6



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



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 505-50. 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 six months ended June 30, 2017, common stock equivalents including 577,063 shares of convertible preferred stock, options for 566,667 shares of common stock and warrants for 110,884 shares of common stock were excluded because their effect was anti-dilutive.


Subsequent Events: The Company has evaluated all subsequent events through the date of this filing.  


Note 3: New Accounting Standards


Recently Adopted Accounting Standards


In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The adoption of this guidance did not have an impact on the condensed and consolidated financial statements.


In November 2014, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) Related to the Balance Sheet Classification of Deferred Taxes,” which will require entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as non-current in a classified balance sheet. The ASU simplifies the current guidance (ASC 740-10-45-4), which requires entities to separately present DTAs and DTLs as current and non-current in a classified balance sheet. The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Adoption has not had a material impact on the condensed and consolidated financial statements.


In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718)." This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. We have adopted this standard.




7



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



Recently Issued Accounting Standards


In May 2014, and further amended in August 2015, March 2016 and April 2016, ASUs No. 2014-09, No. 2015-14, No. 2016-08, and No. 2016-10 were issued related to revenue from contracts with customers which supersedes existing revenue recognition guidance.  In August 2015, the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. The core principle of the comprehensive new guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The guidance defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The new standard permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company will apply the retrospective method and expects incremental disclosures.


In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adoption.


In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.  This ASU is intended to improve the recognition and measurement of financial instruments. Among other things, this ASU requires certain equity investments to be measured at fair value with changes in fair value recognized in net income. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The Company is currently assessing the impact this guidance will have on its condensed and 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.




8



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the condensed and consolidated balance sheets:


 

 

Total

 

 

Quoted Prices in Active Markets for Identical Items

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

Balance at December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

64,299

 

 

$

64,299

 

 

$

 

 

$

 

 

 

$

64,299

 

 

$

64,299

 

 

$

 

 

$

 

Balance at June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

1,288,998

 

 

$

1,288,998

 

 

$

 

 

$

 

 

 

$

1,288,998

 

 

$

1,288,998

 

 

$

 

 

$

 


The following summarizes the valuation technique for assets and liabilities measured and recorded at fair value:


For the Company’s Level 1 measures, which represent common stock in publicly traded companies, treasury bonds or bank certificates of deposit, fair value is based on the last closing trade occurring on, or closest to, the respective period end date. The carrying value of financial instruments, including cash, receivables, accounts payable, and accrued expenses, approximates their fair value at June 30, 2017 and December 31, 2016 due to the relatively short-term nature of these instruments.


Note 5: Property and Equipment


Property and equipment is comprised of the following:


 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Equipment

 

$

432,499

 

 

$

432,499

 

Software

 

 

63,179

 

 

 

63,179

 

Furniture and fixtures

 

 

7,987

 

 

 

7,987

 

 

 

 

503,665

 

 

 

503,665

 

Accumulated depreciation

 

 

(318,064

)

 

 

(297,939

)

Property and equipment, net

 

$

185,601

 

 

$

205,726

 


Depreciation expense for the six months ended June 30, 2017 and 2016 was $20,125 and $16,109, respectively.


Note 6: Intangible Assets


Intangible assets are comprised of the following:


 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Acquired research in progress - indefinite lived

 

$

4,016,596

 

 

$

4,016,596

 

Patents

 

 

52,045

 

 

 

52,045

 

Accumulated amortization

 

 

(26,544

)

 

 

(25,243

)

Intangible assets, net

 

$

4,042,097

 

 

$

4,043,398

 


The Company expects to recognize $2,603 of amortization expense related to its patents during each of the next five years and the remaining $12,486 thereafter. Amortization expense for the patents during the six months ended June 30, 2017 and 2016 was $1,301 and $1,301, respectively.




9



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



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. Acquired research in progress is an indefinite lived intangible asset until the development phase is complete, at which time a useful life of the asset will be determined. The research in progress was the identification and validation of genes to provide pest and disease resistance to soybean plants performed by EG I, LLC. The research had been in process since November 2010 and the Company expects to complete the research and place this asset in service in late 2017. Additional costs to complete the research are expected to be approximately $260,424, 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. If this research is not completed within a reasonable timeframe or within estimated costs, future licensing revenue and the financial condition of the Company could be significantly impacted.


Note 7: 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”).  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 shall be entitled to receive out of the assets of the Company for each share of Series A-1 an amount equal to its stated value, $5.25 per share as of June 30, 2017, 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.  The holders shall be entitled to convert their shares of Series A-1 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 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.


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 June 30, 2017, subject to adjustment and (ii) by issuing one share, subject to adjustment, of Common Stock for each share of Series A-1 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 June 30, 2017, 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 dividends at the rate of 8% per annum. The dividend amount shall accrue and shall be payable in shares of Common Stock upon the conversion of the Series A-1, or upon the redemption of the Series A-1.  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 until dividends of Series A-1 been paid.  As of June 30, 2017, there were $317,732 in accrued stock dividends.


Voting: The holders of the Series A-1 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.




10



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



Warrants: As of June 30, 2017 and December 31, 2016, the Company had outstanding warrants to purchase 110,884 and 113,479 shares, respectively of the Company’s Common Stock. The following table summarizes the status of the Company’s aggregate warrants outstanding:


 

 

Number of Warrants

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Term

(Years)

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2016

 

 

113,479

 

 

$

6.60

 

 

 

4.78

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

113,479

 

 

$

6.60

 

 

 

3.78

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

(2,595

)

 

 

6.60

 

 

 

 

Balance, June 30, 2017

 

 

110,884

 

 

$

6.60

 

 

 

3.38

 


Note 8: 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 reload in the Plan for future issuance. For the six months ended June 30, 2017 and 2016, the Company recorded compensation costs for incentive stock options of $52,608 and $37,966, respectively. 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 six months ended June 30, 2017 and 380,000 options at exercises prices of $3.00 and $3.50 per share during the six months ended June 30, 2016.


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.  




11



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (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, 2016

 

 

186,667

 

 

$

0.55

 

 

 

7.39

 

 

 

 

 

Granted

 

 

380,000

 

 

 

3.21

 

 

 

10.00

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

566,667

 

 

$

2.33

 

 

 

7.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2016

 

 

216,667

 

 

$

0.89

 

 

 

7.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2017

 

 

566,667

 

 

$

2.33

 

 

 

7.95

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2017

 

 

566,667

 

 

$

2.33

 

 

 

7.45

 

 

$

85,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2017

 

 

333,334

 

 

$

1.71

 

 

 

6.68

 

 

$

85,867

 


During the six months ended June 30, 2017 and 2016, options for 116,667 and 0 shares vested, respectively. As of June 30, 2017, there was $169,706 unrecognized compensation cost related to share-based compensation arrangements that will be recognized over the next 23 months.


Note 9: 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 June 30, 2017 are $2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as of June 30, 2017.  Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for the six months ended June 30, 2017 and 2016 was $14,267 and $13,750, respectively.


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.


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 June 30, 2017, thus limiting any future royalties as of June 30, 2017 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 six months ended June 30, 2017 and 2016 because it has not received any revenue from the sale of products to date.



12



EVOLUTIONARY GENOMICS, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017 (Unaudited)



Note 10: 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, 1,932,088 shares or 29.9% of the Common Stock outstanding as of June 30, 2017.  


VetDC, Inc.: VetDC, Inc., a Delaware C corporation, is focused on developing pet therapeutic products and is related to the Company through common ownership and management. During the year ended December 31, 2016, the Company sold all of its remaining shares of VetDC, Inc.


Note 11: Concentrations


Revenue and Account Receivable Concentrations: The Company is dependent on a relatively few sources of revenue from grants and commercial research contracts. For the six months ended June 30, 2017, the Company had one customer that represented all gross service revenue. As of June 30, 2017 and December 31, 2016, 100% of the Company’s accounts receivable were due from one customer. As of June 30, 2017 and December 31, 2016, the maximum exposure to credit losses for this customer was $0 and $9,289, respectively. Loss of this customer without acquisition of additional customers could significantly impact the Company’s revenue.


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.




13



  



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 Articles of Merger of Fonahome Corporation, a Minnesota Corporation, into Fona, Inc., a Nevada Corporation, were filed with the Nevada Secretary of State.  On September 6, 2014, Evolutionary Genomics, Inc., a Delaware corporation (“EG”), EG I, LLC (“EG I”) and Fona, Inc., a Nevada corporation (“Fona”), Fona Merger Sub, Inc., a Delaware corporation (“Sub”) and Fona Merger Sub, LLC, a Colorado limited liability company (“Sub LLC”), entered into an Agreement and Plan of Merger as amended by the Amended and Restated Agreement and Plan of Merger dated March 2, 2015 (the “Merger Agreement”), pursuant to which, on October 19, 2015 Sub merged with EG and Sub LLC merged with EG I, with each EG and EG I surviving as wholly owned subsidiaries of Fona.  On October 19, 2015, Fona changed its name to Evolutionary Genomics, Inc.  The Company maintains headquarters at the office of its Chief Executive Officer. The Company maintains a website at www.evolgen.com.


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 September 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 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 has led to increased yield, drought tolerance and disease/pest resistance. These advances have also led to an increased concentration within the providers of seed to the industry. The top seed companies control much of the implementation of new seed 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 seed companies.




14



  



Evolutionary Genomics’ primary source of revenue to date has been contract services revenue for research performed by Evolutionary Genomics on behalf of other commercial entities and grant income received from governmental agencies, industry associations and grant making foundations for research performed. Ownership of the intellectual property developed can vary from Evolutionary Genomics retaining all intellectual property rights to retaining none of the developed intellectual property for the crop that is the subject of the project. In addition to the revenue resulting from contract services and grants, Evolutionary Genomics has entered into licensing agreements for the commercial use of intellectual property that we have developed. Licensing revenue can be lump sum payments, milestone payments upon achievement of defined goals and/or percentages of revenue for products sold by licensee. These payments are often many years after completion of gene identification project as licensees engage in significant additional testing including field trials prior to integration into licensee commercial germplasm lines. There can be no guarantee that these licensing agreements will result in any additional revenue for Evolutionary Genomics as further development of licensed intellectual property is mostly controlled by the licensee.


The United States Patent and Trademark Office issued to the Company patent 8,710,300 titled EXPRESSION OF DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS ENHANCES PATHOGEN RESISTANCE IN PLANTS on April 29, 2014 and patent 9,605,274 titled DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS on March 28, 2017. Evolutionary Genomics has also filed international patents on EG261 and engaged in discussions with seed companies regarding further validation of the effectiveness of EG261. Based on information received in those discussions, Evolutionary Genomics has engaged in a whole plant validation trial of EG261, EG19 (another soybean pest resistance gene) and a synthetic gene with the University of Missouri. The Company has also discovered additional candidate genes that may impact pathogen resistance in multiple crops and genes that may impact fiber length in cotton. There can be no assurance that any of these genes will be proven effective in validation testing or lead to licensing agreements or revenue and this strategy will require Evolutionary Genomics to incur significant research costs prior to any confirmation of commercial viability.


Evolutionary Genomics intends to pursue grant funding from governmental agencies, industry associations and grant making foundations but these sources of funding are often subject to limitations in available funds, funding priorities in areas other than the our area of focus, political uncertainties, long approval processes and competition with other research proposals. If such funding is not available, Evolutionary Genomics may incur the costs of these projects with the prospect of revenue uncertain and likely many years in the future.


Evolutionary Genomics has no registered trademarks. The Company had three full time employees and one part time employee as of June 30, 2017 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.


Results of Operations


 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

Amount

 

 

Percent of Revenue

 

 

Amount

 

 

Percent of Revenue

 

 

Amount

 

 

Percent of Revenue

 

 

Amount

 

 

Percent of Revenue

 

Service and grant revenue

 

$

6,010

 

 

 

100.0

%

 

$

50,255

 

 

 

100.0

%

 

$

32,690

 

 

 

100.0

%

 

$

118,239

 

 

 

100.0

%

Research and development

 

 

137,818

 

 

 

2293.1

%

 

 

139,458

 

 

 

277.5

%

 

 

507,381

 

 

 

1552.1

%

 

 

309,042

 

 

 

261.4

%

Salaries and benefits

 

 

62,467

 

 

 

1039.4

%

 

 

84,876

 

 

 

168.9

%

 

 

147,611

 

 

 

451.5

%

 

 

125,466

 

 

 

106.1

%

General and administrative

 

 

55,947

 

 

 

930.9

%

 

 

79,717

 

 

 

158.6

%

 

 

150,076

 

 

 

459.1

%

 

 

156,863

 

 

 

132.7

%

Total operating expenses

 

 

256,232

 

 

 

4263.4

%

 

 

304,051

 

 

 

605.0

%

 

 

805,068

 

 

 

2462.7

%

 

 

591,371

 

 

 

500.1

%

Operating (loss)

 

 

(250,222

)

 

 

-4163.4

%

 

 

(253,796

)

 

 

-505.0

%

 

 

(772,378

)

 

 

-2362.7

%

 

 

(473,132

)

 

 

-400.1

%

Other income and (expenses)

 

 

(17,295

)

 

 

-287.8

%

 

 

(65,752

)

 

 

-130.8

%

 

 

(23,808

)

 

 

-72.8

%

 

 

(137,432

)

 

 

-116.2

%

Net loss

 

$

(267,517

)

 

 

-4451.2

%

 

$

(319,548

)

 

 

-635.9

%

 

$

(796,186

)

 

 

-2435.6

%

 

$

(610,564

)

 

 

-516.4

%

Preferred stock dividend

 

 

(60,591

)

 

 

-1008.2

%

 

 

(58,592

)

 

 

-116.6

%

 

 

(121,183

)

 

 

-370.7

%

 

 

 

 

 

0.0

%

Net loss attributable to common stockholders

 

$

(328,108

)

 

 

-5459.4

%

 

$

(378,140

)

 

 

-752.4

%

 

$

(917,369

)

 

 

-2806.3

%

 

$

(610,564

)

 

 

-516.4

%




15



  



Service and Grant Revenue


Service revenue decreased $44,245, or 88.0%, to $6,010 for the three months ended June 30, 2017 from $50,255 for the three months ended June 30, 2016. The decrease was primarily due to decreased revenue recognized from Bill and Melinda Gates Foundation and from the State of Colorado grant, both of which are complete.


Service revenue decreased $85,549, or 72.4%, to $32,690 for the six months ended June 30, 2017 from $118,239 for the six months ended June 30, 2016. The decrease was primarily due to decreased revenue recognized from Bill and Melinda Gates Foundation and from the State of Colorado grant, both of which are complete.


Operating Expenses


Operating expenses decreased $47,819, or 15.7%, to $256,232 for the three months ended June 30, 2017 from $304,051 for the three months ended June 30, 2016 and were 4263.4% of revenue for the three months ended June 30, 2017 compared to 605.0% of revenue for the three months ended June 30, 2016. Operating expenses consist of research and development expense, salaries and benefits and general and administrative expense. Changes in these items are described below.


Operating expenses increased $213,697, or 36.1%, to $805,068 for the six months ended June 30, 2017 from $591,371 for the six months ended June 30, 2016 and were 2462.7% of revenue for the six months ended June 30, 2017 compared to 500.1% of revenue for the six months ended June 30, 2016. Operating expenses consist of research and development expense, salaries and benefits and general and administrative expense. Changes in these items are described below.


Research and Development


Research and development decreased $1,640, or 1.2%, to $137,818 for the three months ended June 30, 2017 from $139,458 for the three months ended June 30, 2016. The decrease was primarily due to decreased patent costs. As a percentage of revenue, research and development expenses were 2293.1% for the three months ended June 30, 2017 compared to 277.5% of revenue for the three months ended June 30, 2016.  


Research and development increased $198,339, or 64.2%, to $507,381 for the six months ended June 30, 2017 from $309,042 for the six months ended June 30, 2016. The increase was primarily due to increased costs on our pest resistance projects. As a percentage of revenue, research and development expenses were 1552.1% for the six months ended June 30, 2017 compared to 261.4% of revenue for the six months ended June 30, 2016.


Salaries and Benefits


Salaries and benefits decreased $22,409, or 26.4%, to $62,467 for the three months ended June 30, 2017 from $84,876 for the three months ended June 30, 2016. The decrease was primarily due to bonuses paid in the first quarter of 2017 compared to the second quarter of 2016.  As a percentage of revenue, salaries and benefits were 1039.4% for the three months ended June 30, 2017 compared to 168.9% of revenue for the three months ended June 30, 2016.


Salaries and benefits increased $22,145, or 17.7%, to $147,611 for the six months ended June 30, 2017 from $125,466 for the six months ended June 30, 2016. The increase was primarily due to stock compensation costs of options granted.  As a percentage of revenue, salaries and benefits were 451.5% for the six months ended June 30, 2017 compared to 106.1% of revenue for the six months ended June 30, 2016.


General and Administrative


General and administrative expenses decreased $23,770, or 29.8%, to $55,947 for the three months ended June 30, 2017 from $79,717 for the three months ended June 30, 2016. The decrease was primarily due to decreased professional fees. As a percentage of revenue, general and administrative expenses were 930.9% for the three months ended June 30, 2017 compared to 158.6% of revenue for the three months ended June 30, 2016.


General and administrative expenses decreased $6,787, or 4.3%, to $150,076 for the six months ended June 30, 2017 from $156,863 for the six months ended June 30, 2016. The decrease was primarily due to decreased professional fees. As a percentage of revenue, general and administrative expenses were 459.1% for the six months ended June 30, 2017 compared to 132.7% of revenue for the six months ended June 30, 2016.




16



  



Other Income and (Expenses)


Total net other expenses decreased $48,457, or 73.7%, to $17,295 from $65,752 for the three months ended June 30, 2016. The decrease was primarily due to unrealized losses on trading securities. As a percentage of revenue, other expenses was 287.8% for the three months ended June 30, 2017 compared to 130.8% of revenue for the three months ended June 30, 2016.


Total net other expenses decreased $113,624, or 82.7%, to $23,808 from $137,432 for the six months ended June 30, 2016. The decrease was primarily due to unrealized losses on trading securities. As a percentage of revenue, other expenses was 72.8% for the six months ended June 30, 2017 compared to 116.2% of revenue for the six months ended June 30, 2016.


Income Taxes


The Company records a valuation allowance for certain temporary differences for which it is more likely than not that it will not receive future tax benefits. It assesses its past earnings history and trends, sales backlogs, and projections of future net income. The Company recorded a valuation allowance for the entire amount of the net deferred tax asset because of our history of net losses and its decision that it is unlikely to recognize sufficient net income to realize the benefit of these assets over time until such time that the Company has had a reasonable history of net income. We will continue to review this valuation allowance and make adjustments as appropriate.


As of December 31, 2016 and 2015, the Company maintained federal net operating loss (“NOL”) carry-forwards of $4,158,000 and $3,675,000, respectively.  Use of NOL carry-forwards are limited by the provisions of section 382 of the Internal Revenue Code. As of December 31, 2016, we also maintained a general business tax credit carryover of approximately $211,000 related to our qualifying research and development activities. The NOL carry-forwards and tax credits expire in the years 2027 through 2035.


Net (Loss)


Net (loss) decreased $52,031, or 16.3%, to $267,517 for the three months ended June 30, 2017 from $319,548 for the three months ended June 30, 2016. The decrease was primarily due to decreased professional fees, decreased unrealized losses on trading securities and the timing of bonuses paid partially offset by decreased revenue.


Net (loss) increased $185,622, or 30.4%, to $796,186 for the six months ended June 30, 2017 from $610,564 for the six months ended June 30, 2016. The increase was primarily due to increased costs on our pest resistance projects and decreased revenue partially offset by decreased unrealized losses on trading securities.


Financial Condition


The Company’s working capital decreased $722,152 to $1,385,334 as of June 30, 2017 from $2,107,486 as of December 31, 2016 primarily due the net loss from operations.


Liquidity and Capital Resources


The Company has historically financed operations through cash flows from operations and equity transactions. Net cash used in operating activities was $714,030 for the six months ended June 30, 2017 compared to $617,708 for the six months ended June 30, 2016. The $96,322, or 15.6%, decrease was primarily due to decreased cash used to reduce accounts payable and accrued expenses. Net cash flows used for investing activities decreased to $1,251,777 for the six months ended June 30, 2017 from $2,002,814 for the six months ended June 30, 2016 primarily due to the decreased purchases of trading securities (treasury bonds and bank certificates of deposit). We expect to use proceeds from the sale of these treasury bonds and bank certificates of deposit to fund operations and working capital needs. Net cash provided from financing activities was none for the six months ended June 30, 2017 compared to $2,904,033 for the six months ended June 30, 2016 due to the issuance of preferred stock during the six months ended June 30, 2016.


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.




17



  



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 June 30, 2017 are $2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as of June 30, 2017.  Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for the six months ended June 30, 2017 and 2016 was $14,267 and $13,750, respectively.


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.


Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, as of the end of the period covered by this report, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in the Company’s reports to the Commission is recorded, processed, summarized and reported within the time periods specified in Commission rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the period covered by this report, the Company’s disclosure controls and procedures are not effective at these reasonable assurance levels for the reasons stated below.


Our internal control system is designed to provide reasonable cost-effective 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. There is no assurance that our disclosure controls or our internal controls over financial reporting can prevent all errors. An internal control system, no matter how well designed and operated, has inherent limitations, including the possibility of human error. Because of the inherent limitations in a cost-effective control system, misstatements due to error may occur and not be detected. We monitor our disclosure controls and internal controls and make modifications as we believe appropriate given our financial resources and limited level of activities. Our intent in this regard is that our disclosure controls and our internal controls will improve as systems change and conditions warrant.


(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 during the three months ending June 30, 2017, 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.




18



  



PART II. OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS


None.


ITEM 1A.

RISK FACTORS


Not required by smaller reporting companies.


ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS


During the three months ended June 30, 2017, the Company issued no additional shares of stock.


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








19



  



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

 

 

 

August 2, 2017

 

 









20