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 theSEC , 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 ofMinnesota inNovember 1990 under the nameFonahome Corporation . OnMarch 24, 2009 , the Company reincorporated in the state ofNevada 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. OnJune 6, 2014 ,Evolutionary Genomics, Inc. , aDelaware corporation merged withFona, Inc. treated as a reverse acquisition withEvolutionary Genomics, Inc. as the acquirer and Fona as the acquired party. Subsequent to the Merger,Fona, Inc. was renamedEvolutionary Genomics, Inc. and our subsidiary was renamed fromEvolutionary Genomics, Inc. toEG Crop Science, Inc. OnMay 9, 2016 , we formedICAM Therapeutics, Inc. (aDelaware corporation) as a wholly owned subsidiary ofEvolutionary 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 theSEC . OnAugust 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". OnJune 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 SirAlbert 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, likeEvolutionary Genomics , identify and develop genes that impact traits of interest to the industry and market those genes to these seed companies. 14
-------------------------------------------------------------------------------- OnJune 26, 2018 , the Company was awarded an Advanced Industries Accelerator Grant by theState 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 theUniversity 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. OnApril 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. OnDecember 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 inCanada ,Brazil andChina and has additional patents pending inArgentina andIndia . OnJanuary 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 theUniversity 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 theUniversity of Missouri and the Wisconsin Crop Innovation Center. We previously expected to complete the soybean research in the second quarter of 2020. Our academic labs informed us that they are not able to perform the SCN testing due to the COVID-19 pandemic and we now believe that the project will be delayed until later in 2020. If this research is not completed within a reasonable timeframe or within estimated costs, future licensing revenue, the valuation of our research in progress and the financial condition of the Company could be significantly impacted. The full impact that COVID-19 will have on our business will depend on a number of factors such as the duration and extent of COVID-19, the effect of governmental actions, responses of our third-party research partners, and general economic activity, as described in Part II, Item 1A "Risk Factors" in this Form 10-Q. 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 are being transferred to theUniversity of Missouri for SCN resistance testing which we now expect to happen later in 2020. 15
-------------------------------------------------------------------------------- If we are able to resume SCN resistance testing and results confirm the findings of theUniversity 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 ofEvolutionary Genomics' control and there can be no guarantee that we will ever generate any revenue from these potential agreements. IfEvolutionary 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 . The Company has identified pest/disease resistance genes in other commercially valuable crops. The Company is currently engaged with theUniversity 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 requireEvolutionary 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. OnJanuary 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 ofPanama 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 andSouth America tothe 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 theBill 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 theUSDA and FDA in several crops. Even inEurope , use of CRISPR technology has gained substantial traction. 16
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On
OnAugust 19, 2020 , the Company entered into a Development and Commercialization Agreement withDole 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 whichPanama 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 inLatin America fromMexico toPeru . Adoption of the new variety will be dependent upon its effectiveness and the infection rate ofPanama disease.
There are many risks associated with achieving these desired results including but not limited to:
- We may not be able to adequately establish patent protection for our intellectual property or others may have competing claims; - Others may develop competitive approaches to compete with our genes;
- Our transformation academic labs may fail to develop enough events for
testing;
- Our genes may cause unforeseen and undesirable changes beyond the pest
resistance such as yield degradation or changes in the appearance or taste of the fruit; - Our genes may fail to deliver the desired results of resistance to Fusarium; - Globally regulations and/or consumer preference may prevent the
successful commercial launch of bananas with genetics changed using our
methods; and
- We will be dependent on others for the successful production and
marketing of bananas with our genes and many factors will be outside of
our control.
- Our cash flow is highly dependent upon our only expected source of
funding provided under our Development and Commercialization Agreement
withDole Food Company . - Our expected future royalty revenue will be highly dependent upon the successful execution of the banana development project in the
Development and Commercialization Agreement with
the negotiation of a long term royalty licensing agreement expected in
the third year of that agreement.
These and other risk factors are discussed in more detail in our 10-K filing
dated
Evolutionary Genomics has no registered trademarks. The Company had two full time employees and one part-time employee as ofJune 30, 2020 and leases its operating facility on a month-to-month basis afterJune 30, 2017 .Evolutionary Genomics is not currently involved in or aware of any threatened or actual legal proceedings. 17
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Unaudited Results of Operations
Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Percent of Percent of Percent of Percent of Amount Revenue Amount Revenue Amount Revenue Amount Revenue Grant revenue $ - N/A$ 50,753 100.0 %$ 12,500 100.0 %$ 83,119 100.0 % Research and development 167,526 N/A 113,658 223.9
% 260,748 2086.0 % 245,342 295.2 % Salaries and benefits
93,229 N/A 42,062 82.9
% 185,659 1485.3 % 96,841 116.5 % General and administrative 49,842
N/A 66,360 130.8 % 106,507 852.1 % 124,614 149.9 %
Total
operating
expenses 310,597 N/A 222,080 437.6
% 552,914 4423.3 % 466,797 561.6 % Operating loss (310,597 )
N/A (171,327 ) -337.6 % (540,414 ) -4323.3 % (383,678 ) -461.6 % Other income and (expenses) 15,799 N/A (10,418 ) -20.5 % 3,800 30.4 % 1,536 1.8 % Income Taxes - N/A - 0.0 % - 0.0 % - 0.0 % Net loss$ (294,798 ) N/A$ (181,745 ) -358.1
%
N/A (66,004 ) -130.0 % (142,783 ) -1142.3 % (126,595 ) -152.3 % Net loss attributable to common stockholders$ (366,190 ) N/A$ (247,749 ) -488.1
%
Service and Grant Revenue Service revenue decreased$70,619 , or 85.0%, to$12,500 for the six months endedJune 30, 2020 from$83,119 for the six months endedJune 30, 2019 . The decrease was due to decreased revenue recognized from theState of Colorado grant which ended inJanuary 2020 .
Service revenue decreased
Operating Expenses
Operating expenses increased
Operating expenses increased
Research and Development
Research and development increased$15,406 , or 6.3%, to$260,748 for the six months endedJune 30, 2020 from$245,342 for the six months endedJune 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$53,868 , or 47.4%, to$167,526 for the three months endedJune 30, 2020 from$113,658 for the three months endedJune 30, 2019 . The increase was primarily due to increased costs on our soybean pest resistance project and higher patent costs partially offset by decreased costs for our banana disease resistance project.
Salaries and Benefits
Salaries and benefits increased
18
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Salaries and benefits increased
General and Administrative
General and administrative expenses decreased$18,107 , or 14.5%, to$106,507 for the six months endedJune 30, 2020 from$124,614 for the six months endedJune 30, 2019 . The decrease was primarily due to decreased professional fees. General and administrative expenses decreased$16,518 , or 24.9%, to$49,842 for the three months endedJune 30, 2020 from$66,360 for the three months endedJune 30, 2019 . The decrease was primarily due to one quarter of directors' fees in the three months endedJune 30, 2020 compared to two quarters of directors' fees that were paid in the three months endedJune 30, 2019 .
Other Income and (Expenses)
Total other income and (expense) increased$2,264 , or 147.4%, to$3,800 of income for the six months endedJune 30, 2020 from$1,536 of income for the six months endedJune 30, 2019 . The increase was primarily due to an increase in the market price of marketable securities. Total other income and (expense) increased$26,217 , or 251.7%, to$15,799 of income for the three months endedJune 30, 2020 from ($10,418 ) of expense for the three months endedJune 30, 2019 . The increase was primarily due to an increase in the market price of marketable securities.
Net Loss
Net loss increased$154,472 , or 40.4%, to$536,614 for the six months endedJune 30, 2020 from$382,142 for the six months endedJune 30, 2019 . The increase was primarily due to decreased revenue from theState of Colorado grant, increased patent costs, increased stock compensation costs and increased professional fees and partially offset by decreased costs on our soybean and banana projects and an increase in the market price of marketable securities. Net loss increased$113,053 , or 62.2%, to$294,798 for the three months endedJune 30, 2020 from$181,745 for the three months endedJune 30, 2019 . The increase was primarily due to decreased revenue from theState of Colorado grant, increased patent costs, increased soybean project costs and increased stock compensation costs partially offset by decreased costs on our banana project and an increase in the market price of marketable securities.
Financial Condition
The Company's working capital decreased$213,470 to ($114,722 ) as ofJune 30, 2020 from$98,748 as ofDecember 31, 2019 primarily due the net loss partially offset by an increase in accounts payable and accrued expenses and proceeds from notes payable. Liquidity The Company has historically financed operations through cash flows from operations and equity transactions. Net cash used in operating activities was$267,258 for the six months endedJune 30, 2020 compared to$326,443 for the six months endedJune 30, 2019 . The$59,185 , or 18.1%, decrease was primarily due to an increase in accounts payable and an increase in stock compensation partially offset by the increased net operating loss. Net cash flows for investing activities was$0 for the six months endedJune 30, 2020 and 2019. Net cash provided from financing activities was$224,268 of proceeds from notes payable for the six months endedJune 30, 2020 and$540,015 of proceeds from the issuance of preferred stock in the six months endedJune 30, 2019 . Sources of funding to meet prospective cash requirements include the Company's existing cash balances and investments along with funding from our agreement withDole Fruit . As ofJune 30, 2020 we had$2,451 in our bank accounts and$45,493 of trading securities. OnApril 17, 2020 , the Company received$71,268 in funding from the SBA under their Paycheck Protection Program. To the extent the loan is not forgiven, the loan accrues interest at 1 percent and has monthly payments of$4,010.75 startingOctober 16, 2020 . 19
-------------------------------------------------------------------------------- OnAugust 19, 2020 , the Company entered into a Development and Commercialization Agreement withDole 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.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have a material current effect, or that are reasonably likely to have a material future effect, on its financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. Contractual Obligations The Company leases its operating facility and pays its rent in monthly installments. The lease was renewed inJune 2016 for a period of twelve months and monthly rentals for the period ofJuly 1, 2016 throughDecember 31, 2019 are$2,378 per month which continues on a month-to-month basis. There is no minimum lease commitment as ofJune 30, 2020 . Renewals afterJune 30, 2017 are by mutual agreement. The Company's rent expense for the three months endedJune 30, 2020 and 2019 was$14,268 and$14,268 , respectively. OnFebruary 21, 2015 ,Evolutionary Genomics entered into aSponsored Research Contract with The Curators of theUniversity of Missouri for phenotyping transgenic soybean plants. As amended the contract calls for payments to be made on a per plant basis with no minimum future payments. We expect to continue this contract and will likely have additional amounts payable but the amount is indeterminable. ITEM 3.
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