EVOLUTIONARY GENOMICS, INC. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

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

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EVOLUTIONARY GENOMICS, INC.

(Exact name of registrant as specified in its charter)

(720) 900-8666

(Registrant's telephone number, including area code)

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

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 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 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.

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 September 30, 2020, 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

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 September 30, 2020 and for the three and nine month periods ended September 30, 2020 and 2019 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, 2019 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

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

2

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Operations

(unaudited)

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

3

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statement of Stockholders' Equity

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

4

Evolutionary Genomics, Inc. and Subsidiary

Condensed and Consolidated Statements of Cash Flows

 (unaudited)

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

5

EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (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 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 condensed and 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 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.  

Investment: The Company’s short-term investment is equity securities carried at their fair value based on the quoted market price of the securities at September 30, 2020 and December 31, 2019. Net realized and unrealized gains and losses on investments are included in net earnings. For purposes 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.

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 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

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 nine months ended September 30, 2020 and 2019.

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 discussed in Note 7 and is being amortized over a twelve year, nine month period consistent with the remaining patent life 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 nine months ended September 30, 2020 and 2019.

Revenue Recognition: In May 2014, the FASB issued new guidance related to revenue recognition, which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. It defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance.

Grant revenue, which is not within the scope of Topic 606, consists of funding under cost reimbursement programs primarily from federal and non-profit foundation sources for qualified research and development activities performed by us, and as such, are not based on estimates that are susceptible to change. 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 condensed and consolidated financial statements and net deferred tax assets are adjusted accordingly. As of September 30, 2020 and December 31, 2019, 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.

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 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

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 nine months ended September 30, 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. For the three months ended September 30, 2020, common stock equivalents including 679,923 shares of convertible preferred stock, options for 895,000 shares of common stock and warrants for 110,856 shares of common stock were excluded because their effect was anti-dilutive, and options for 186,667 shares of common stock equivalents were included in the diluted weighted average common shares outstanding.  For the nine months and three months ended September 30, 2019, common stock equivalents including 679,923 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 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 a significant impact on the Company’s 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.

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 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

The following table presents the Company’s financial assets that were accounted for at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, by level within the fair value hierarchy:

For the Company’s Level 1 measures, which represent common stock in publicly traded companies, 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, accrued expenses and debt, approximates their fair value at September 30, 2020 and December 31, 2019 due to the relatively short-term nature of these instruments or the existence of variable interest rates that approximate prevailing market rates.

Note 5: Property and Equipment

Property and equipment is comprised of the following:

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $28,590 and $28,589, respectively. Depreciation expense for the three months ended September 30, 2020 and 2019 was $9,530 and $9,529, respectively.

Note 6: Intangible Assets

Intangible assets are comprised of the following:

The Company expects to recognize $317,629 of amortization expense related to its acquired research in progress and patents during each of the next five years and the remaining $2,409,246 thereafter. Amortization expense for the acquired research in progress and patents during the nine months ended September 30, 2020 and 2019 was $38,201 and $1,952, respectively. Amortization expense for the acquired research in progress and patents during the three months ended September 30, 2020 and 2019 was $36,900 and $651, respectively.

9

 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (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. 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 late in 2020, the Company placed this asset in service on August 19, 2020. Additional costs to complete the soybean research are expected to be approximately $67,600, 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.

Note 7: Notes Payable

Small Business Administration (“SBA”) Paycheck Protection Program:  On April 17, 2020, the Company received $71,268 in proceeds from the SBA Paycheck Protection Program.  Under the program, the Company may apply for forgiveness of the debt based on the use of the proceeds over the 24-week period following funding of the loan.  As of September 30, 2020, the Company’s qualified use of proceeds has exceeded the loan amount and expects to receive forgiveness for the full loan amount.  To the extent that the loan is not forgiven, the loan accrues interest at 1 percent and has monthly payments of $4,010.75 starting October 16, 2020.

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, 2021).  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 September 30, 2020, the Company recognized $1,323 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, $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 which 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 $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 the first $800,000 on August 26, 2020, the Company executed the first note under this DCA and recorded it as a long term note payable for financial statement purposes.  The note is non-interest bearing and allows 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.

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 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

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 September 30, 2020 and December 31, 2019, 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.

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 September 30, 2020, 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 September 30, 2020, 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 September 30, 2020, there were $1,164,836 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.

Warrants: As of September 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase 110,856 and 110,884 shares, respectively of the Company’s Common Stock. The following table summarizes the status of the Company’s aggregate warrants outstanding:

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 the nine months ended September 30, 2020 and 2019, the Company recorded compensation costs for stock options of $164,789 and $21,841, 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 nine months ended September 30, 2020 and 2019.

11

 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

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.

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

During the nine months ended September 30, 2020 and 2019, options for 0 and 116,667 shares vested, respectively. As of September 30, 2020, there was $460,379 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 December 31, 2019 are $2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as of September 30, 2020. Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for each of the nine months ended September 30, 2020 and 2019 was $21,401.

Research Agreement: On September 18, 2020, the Company entered into a Standard Research Agreement with the University of Wisconsin-Madison for the development of our banana genes.  The agreement includes payments from the Company to UW 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 Food Company in accordance with our Development and Commercialization Agreement dated August 19, 2020.

12

 EVOLUTIONARY GENOMICS, INC. AND SUBSIDIARY

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 AND 2019 (Unaudited)

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, 1,932,088 shares or 29.9% of the Common Stock outstanding as of September 30, 2020.

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

On August 19, 2020, the Company entered into a Development and Commercialization Agreement with Dole Food Company 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. 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 balances to 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. We expect that the funding from these sources will be more than enough to cover our operating expenses for the next twelve months.  If the funding does not arrive per the agreement, the Company may not be able to meet its obligations as they become due.

Note 14: Income Taxes

The Company recorded a deferred tax liability related to the indefinite lived in progress research and development that was acquired as part of the merger on October 19, 2015 and discussed further in Note 6.  During the three month period ended September 30, 2020, in conjunction with the DCA entered into and discussed further in Note 7, the Company placed the in progress research and development in service and began to amortize this asset over a twelve year, nine month life.  As a result, the Company reassessed the net deferred tax assets and related valuation allowance as the indefinite lived in progress research and development now has a finite life.  This reassessment resulted in the Company relieving a portion of the valuation allowance of $987,353 during the three month period ended September 30, 2020.

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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. The capital structure 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 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.

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On June 26, 2018, the Company was awarded an Advanced Industries Accelerator Grant by the State of Colorado in the amount of $250,000 to identify and validate pathogen resistance genes in bananas and complete validation and marketing tomato and corn genes. The Company maintains ownership of all intellectual property developed from the use of grant funds.  The Company has recognized all revenue from this grant.

Evolutionary Genomics intends to continue to pursue grant funding from governmental agencies, industry associations and grant making foundations. These sources of funding are often subject to limitations in available funds, funding priorities in areas other than 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.

The single most valuable step in the process of crop improvement is the identification of the key genes among the 30,000 or more in the genome that has the desired impact. Evolutionary Genomics’ soybean pest resistance project is an illustration of the evolution of a project from concept through marketing to seed companies. The project has yielded identified genes for pest resistance in soybeans and, in hairy root assays on one of these genes, EG261, at the University of Wisconsin – Madison, proved that EG261 impacted resistance. Evolutionary Genomics has had discussions with seed companies to commercialize the genes and intends to continue those discussions after completion of validation testing with two generation, whole plant validation results. The Company has extended this pest resistance research to other crops including beans, tomatoes, cotton and maize in various stages or progress.

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, the United States Patent and Trademark Office issued patent 9,834,783 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 16, 2020, 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 with the University of Missouri and with the Wisconsin Crop Innovation Center. Evolutionary Genomics 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 and EG19 at the University of Missouri and the Wisconsin Crop Innovation Center.

As a small company restricted by our limited resources, we cannot afford to generate vast numbers of 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 in soybeans, EG261 and EG19.  We cannot assure you that these identified genes will be successful in SCN testing or field trials.

We entered into a Service Agreement with Wisconsin Crop Innovation Center (“WCIC”) under which they have transformed soybeans using our genes. WCIC guarantees a minimum number of successful events, have helped to establish the right combinations to achieve a range of expression and tested to assure us of successful events. WCIC has harvested the seeds of events from seven constructs of EG261 and EG19. These seeds have been transferred to the University of Missouri for SCN resistance testing which are currently underway and are expected to generate validation results over the next six months.

If we are able to confirm the findings of the University of Wisconsin-Madison for EG261 and the effectiveness of the new gene, EG19, the Company will look to enter into negotiations for a long-term research collaboration and licensing agreement with seed companies. 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. If Evolutionary Genomics receives product royalties from the soybean genes, it is required to pay the United Soybean Board a ten percent royalty stream not to exceed 150% of the grant amount of $262,400.

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The Company has identified pest/disease resistance genes in other commercially valuable crops. The Company is currently engaged with the University of Missouri to perform two generation, whole plant testing of genes in tomatoes and corn that may lead to increased pest/disease resistance. This project is currently on hold pending results from our soybean project and the availability of funding. 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.

Evolutionary Genomics has identified a gene in tomatoes that impacts the plant’s ability to tolerate salt and a gene that appears to control sweetness. On January 9, 2018, the United States Patent and Trademark Office issued patent 9,862,962 titled IDENTIFICATION AND USE OF TOMATO GENES CONTROLLING SALT/DROUGHT TOLERANCE AND FRUIT SWEETNESS. Despite discussions with seed companies, the Company has not been able to reach any agreement to license these genes and there can be no assurance that we will ever realize any revenue from these genes.

In 2014, the Company began a project to identify genes in cotton that may impact traits of commercial interest. In particular, we intend to focus on pest resistance and fiber length. We have used our Adapted Traits Platform to identify positively selected candidate genes and intend to further research these genes to confirm that they were positively selected. If any of these genes remain promising, we intend to contract with an independent lab to validate the effectiveness of those genes. These studies can be very costly and there can be no assurance that we will be successful with this project.

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. This market is now critically imperiled.

In 2018, the Company began a project to identify genes in wild banana relatives that are resistant to Fusarium. We have previously used our technology to identify genes in common beans and, in our project for the Bill and Melinda Gates Foundation in common beans, proved that these genes provided increased resistance to Fusarium fungus. 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.

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On August 19, 2020, the Company entered into a Development and Commercialization Agreement with Dole Food Company 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. 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 balances to 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. We expect that the funding from these sources will be more than enough to cover our operating expenses for the next twelve months.  If the funding does not arrive per the agreement, the Company may not be able to meet its obligations as they become due.

If we are able to successfully transform and validate our banana genes, which will likely take 24-36 months, 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 proved 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:

These and other risk factors are discussed in more detail in our 10-K filing dated March 30, 2020.

Evolutionary Genomics has no registered trademarks. The Company had two full time employees and one part-time employee as of September 30, 2020 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.

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Unaudited Results of Operations

Service and Grant Revenue

Service revenue decreased $103,341, or 89.2%, to $12,500 for the nine months ended September 30, 2020 from $115,841 for the nine months ended September 30, 2019. The decrease was due to decreased revenue recognized from the State of Colorado grant which ended in January 2020.

Service revenue decreased $32,722, or 100.0%, to $0 for the three months ended September 30, 2020 from $32,722 for the three months ended September 30, 2019. The decrease was due to decreased revenue recognized from the State of Colorado grant which ended in January 2020.

Operating Expenses

Operating expenses increased $365,393, or 55.2% to $1,027,423 for the nine months ended September 30, 2020 from $662,030 for the nine months ended September 30, 2019. Changes in these items are described below.

Operating expenses increased $279,276, or 143.0% to $474,509 for the three months ended September 30, 2020 from $195,233 for the three months ended September 30, 2019. Changes in these items are described below.

Research and Development

Research and development increased $37,767, or 10.5%, to $398,880 for the nine months ended September 30, 2020 from $361,113 for the nine months ended September 30, 2019. The increase was primarily due to increased patent costs partially offset by decreased costs for our soybean pest resistance project and our banana disease resistance project.

Research and development increased $22,361, or 19.3%, to $138,132 for the three months ended September 30, 2020 from $115,771 for the three months ended September 30, 2019. The increase was primarily due to increased patent costs.

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Salaries and Benefits

Salaries and benefits increased $268,748, or 200.0%, to $403,089 for the nine months ended September 30, 2020 from $134,341 for the nine months ended September 30, 2019. The increase was primarily due to increased stock compensation costs and bonuses.