UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2019


OR

 

o

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

 

For the transition period from: _____________ to _____________

 

Evolutionary Genomics, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

000-54129

 

26-4369698

(State or other jurisdiction of

incorporation or organization)

 

(Commission File Number)

 

(I.R.S. Employer

Identification Number)


1026 Anaconda Drive, Castle Rock, Colorado 80108

(Address of Principal Executive Offices)

  

  

Registrant’s telephone number, including area code: (720) 900-8666

 

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


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A


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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o   No þ


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 o


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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ   No o


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ


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     þ

 

Smaller reporting company  þ

 

 

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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   o Yes   þ No


The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2019 was $7,470,182 based on the closing price on the last day of trading prior to June 30, 2019.


Shares outstanding as of December 31, 2019 were 5,881,898 shares of common stock, $.001 par value and 577,063 shares of Series A-1 preferred stock, par value $.001 and 102,860 shares of Series A-2 preferred stock, par value $.001.


DOCUMENTS INCORPORATED BY REFERENCE:   None

 

 




 


Evolutionary Genomics, Inc.


TABLE OF CONTENTS



 

 

PAGE

 

PART I

 

ITEM 1.

Business

1

ITEM 1A.

Risk Factors

9

ITEM 1B.

Unresolved Staff Comments

16

ITEM 2.

Properties

16

ITEM 3.

Legal Proceedings

17

ITEM 4.

Mine Safety Disclosures

17

 

 

 

 

PART II

 

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

ITEM 6.

Selected Financial Data

18

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

20

ITEM 8.

Financial Statements

20

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

21

ITEM 9A.

Controls and Procedures

21

ITEM 9B.

Other Information

22

 

 

 

 

PART III

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

23

ITEM 11.

Executive Compensation

25

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

26

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

26

ITEM 14.

Principal Accounting Fees and Services

27

 

 

 

 

PART IV

 

ITEM 15.

Exhibits, Financial Statement Schedules

28

 

 

 

SIGNATURES

29





i



 


Cautionary Statement 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.


PART I


ITEM 1. BUSINESS


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 Company was originally formed to develop and market an interactive information and advertising service.


From December 1999 through October 2015, the Company had no significant business operations. On March 3, 2009, the Company held a shareholder meeting approving the Stock Purchase Agreement and an Agreement and Plan of Merger effectively changing the name of the Company to Fona Inc., a Nevada corporation (“Re-incorporation Merger”) and simultaneously adopting the capital structure of Fona Inc., which includes total authorized capital stock of 800,000,000 shares, of which 780,000,000 are common stock and 20,000,000 are blank check preferred stock. The preferred stock may be issued from time to time in one or more series with such designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, as shall be stated in the resolutions adopted by the Corporation’s Board providing for the issuance of such preferred stock or series thereof. On 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 June 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. 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.


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.


The public may read and copy any materials the Company files with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.




1



 


GENERAL BUSINESS PLAN


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.


EG Technology – The Adapted Traits Platform (“ATP’)


Genomics research generates vast amounts of sequence data for thousands of genes. Some companies use this sequence data to try to predict the function of each gene and its potential to impact key traits. Others try to match the thousands of random deoxyribonucleic acid (“DNA”) changes between individuals with differences in traits. Evolutionary Genomics’ approach is to first narrow the search to genes that have undergone adaptive evolution (positively selected genes) in an organism that has an adapted trait of potential commercial value. To identify genes with impact on commercially desirable traits, Evolutionary Genomics screens first for positively selected genes. Evolutionary Genomics then focuses functional genomics efforts on demonstrating the effects of these genes on the desired traits.


Evolutionary Genomics uses the Adapted Traits Platform to perform high throughput molecular evolution analysis to identify positively selected genes based on Ka/Ks analysis (as defined below). Ka/Ks analysis was developed to document the role of positive selection on known protein coding genes. Molecular-level adaptive evolution is indicated when comparisons of homologous protein coding sequences from closely related species show that the number of amino acid differences fixed due to selection exceeds what can be expected by neutral evolution. Molecular-level positive selection can be detected in protein-coding genes by pairwise comparisons of the ratios of non-synonymous nucleotide substitutions per non-synonymous site (Ka) to synonymous substitutions per synonymous site (Ks). The algorithm, by comparing substitutions per site, takes into account, in rigorous fashion, the effect of bias and degeneracy in the genetic code, and also compensates for the effects of multiple hits at the same site. Ka/Ks ratios significantly greater than unity strongly suggest that positive selection has fixed greater numbers of amino acid replacements than can be expected as a result of chance alone.


Dr. Walter Messier, a Company founder and our Chief Technology Officer, published a seminal paper in the field: Messier and Stewart (1997) “Episodic adaptive evolution of primate lysozymes” Nature 385:151-154. The work described in this publication demonstrated that a known lysozyme gene that had been recruited for a new function to aid in digestion of leaves as a food source in certain monkeys had the kind of adaptive genetic changes indicating that the lysozyme gene had evolved more rapidly than the neutral substitution rate, indicating Darwinian positive selection. Many groups have used such methods to document Darwinian positive selection in other proteins. It was Dr. Messier’s insight that genes controlling a trait of interest could be identified by using molecular evolution analysis as a screen, comparing genes in a species with a trait to genes of a closely related species lacking the trait. The adapted genes found in such a screen could then be validated to determine their role in the presence or absence of the trait of interest.


Agricultural Industry


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.




2



 


Business Model


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.


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 with partial validation complete and full validation results expected in mid-2020. Evolutionary Genomics has had discussions with seed companies to commercialize the genes and intends to continue those discussions in 2020 with two generation, whole plant validation results. The Company has extended this pest resistance research to other crops including bananas, beans, tomatoes, cotton and maize.


On August 6, 2015, the Company was awarded an Advanced Industries Accelerator Grant by the State of Colorado in the amount of $250,000 to fund further research in the development of pest resistance genes in soybeans and other crops and sweetness genes in tomatoes. Through December 31, 2017, the Company recognized all of the revenue from the contract. 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. As of December 31, 2019, the Company has recognized $237,500 of the revenue from the contract.  The Company maintains ownership of all intellectual property developed from the use of grant funds.


During 2013 and 2014 EG performed research on two projects for the Bill and Melinda Gates Foundation. On November 1, 2012 Evolutionary Genomics entered into a Master Services Agreement and Work Order #1 under that agreement with the Bill and Melinda Gates Foundation for the validation of EG 261 orthologs in beans and cowpeas. That validation work was completed in 2016. The market for beans and cowpeas is considerably smaller than for soybeans and we do not intend to market them to the seed companies for commercialization. Evolutionary Genomics has recognized the full $762,000 it is entitled to under that work order.


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.


Evolutionary Genomics’ Business Strategy


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 11, 2019, 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. The Company has also discovered additional candidate genes that may impact pathogen resistance. There can be no assurance that any of these genes will be proven effective in validation testing or lead to licensing agreements or revenue.




3



 


The single most valuable step in the process of crop improvement is the identification of the key genes among the 30,000 in the genome that has the desired impact. EG set out to find genes in soybeans that impact pest and disease resistance. We identified two that showed promise and, in hairy root assays on one of these genes, EG261, at the University of Wisconsin – Madison, proved that EG261 impacted resistance. When we discussed these results with the larger seed companies, they indicated interest but wanted to see two generation, whole plant testing results before entering licensing negotiations. We have engaged the University of Missouri and the Wisconsin Crop Innovation Center to independently perform these validation studies for us.


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


With transgenic change to plants, we use multiple tools to try to land the gene in the right spot in the genome but it is still an imperfect artform. We need to generate enough events in which the gene lands in the right place and is then inherited into the next generation with the right expression level. A low percentage of all attempts result in a testable event and, even then, you cannot be sure that the gene falls into the perfect spot or is expressed at the optimal level. We must generate enough events so that we have a few that genuinely show the impact of the gene. False negatives are the rule and we cannot be discouraged by them. A small number of successes can greatly outweigh a large number of false negatives.


Over the last four years, the lab at the University of Missouri has been attempting to create transgenic events with eleven constructs of EG261 and EG19 along with controls which are tested to confirm that the gene landed in the genome and was inherited into the next generation. Heritable events are then grown to seed and the seeds are tested to see if they are homozygous and are tested to see how many copies of the gene are inherited. The seeds from these homozygous plants are the T2 generation that is tested for resistance impact. Promising T2 lines are grown to see to generate T3 plants for further resistance testing. When enough data is accumulated, we will present our results to seed companies.


On December 3, 2014, Evolutionary Genomics entered into a Fee for Service Agreement with The Curators of the University of Missouri for the development of transgenic soybean plants with candidate genes for SCN resistance with total contract payments, including amendments, totaling $357,310 of which $214,386 has been paid through December 31, 2019. On May 2, 2018, the Company notified the University of Missouri that the performance under this contract did not appear to meet certain guaranteed minimum requirements. On January 22, 2020, the Company entered into an amendment with the University of Missouri reducing the contract amount to $214,386 all of which has been paid as of December 31, 2019.


A critical element of the research with the University of Missouri was to generate a large enough number of heritable single copy events to facilitate the next stage of resistance testing with Dr. Nguyen’s lab at the University of Missouri. There have been a small number of events indicating of the impact of both EG261 and EG19 but not nearly enough events were produced to create robust data sets. We continue to process the small number of viable events at the University of Missouri to test for SCN resistance and results are expected in 2020.


It is critical to note that the soybean transformation project difficulties at the University of Missouri do not reflect on the efficacy of our genes but, instead, are a reflection of their process not creating enough transgenic events.


We needed to generate additional viable events at another institution and 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 will test to assure us of successful events. WCIC currently has events from seven constructs of EG261 and EG19 growing in their greenhouses. These plants will be harvested in May 2020 for generation T2 seeds. The T2 generation seedlings will be tested for SCN resistance in June 2020. If these tests are positive, it is our intention to market the genes to the industry in mid-2020.






4



 


If results from the whole plant validation trials confirm the findings of the University of Wisconsin-Madison for EG261 and the effectiveness of the new genes, the Company will enter negotiations for a long-term research collaboration and licensing agreement with seed companies. If these negotiations are successful, this type of agreement will likely have an upfront payment, milestone payments during their testing and a licensing royalty stream once the genes are incorporated into commercial seed lines. The testing phase includes field trials which may proceed for several years prior to generating licensing revenue. There are many risks in this process including some that are outside of Evolutionary Genomics’ control and there can be no guarantee that we will ever generate any revenue from these potential agreements. 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 $262,476.


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


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 believe that we are uniquely qualified to provide a solution to this crisis. 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, 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 be best 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.  In fact, 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.




5



 


On June 26, 2019, we filed a United States patent application titled IDENTIFICATION AND RESISTANCE GENES FROM WILD RELATIVES OF BANANA AND THEIR USES IN CONTROLLING PANAMA DISEASE. We have also entered into discussions with the largest banana companies in the world. Based on previous experience and common practice in the agriculture industry, we believe that potential agreements with these companies may include some combination of upfront payments for research completed to date, partial or full funding of validation trials, lumpsum milestone payments and/or long term royalty payments upon their use of our gene in production.  The Company is engaged in advanced discussions with one of these banana companies regarding a relationship to further develop our banana genes through transformation and validation.  We expect to incur significant expenses for the transformation and validation of our banana genes over the next twenty-four months which we expect to be funded by this agreement.  There can be no assurance that we will reach such an agreement or that the funding will be available.


If we are able to successfully transform and validate our banana genes, which will likely take approximately twenty-four months, we hope to enter into a long term royalty contract with one or more banana producers based on banana revenue, banana plants produced or acres planted with plants with our gene.  There are many risks associated with achieving these desired results including but not limited to:


-We may not reach agreement with any of the banana companies for funding of the transformation/validation;

-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;

-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 other companies for the successful production and marketing of bananas with our genes and many factors will be outside of our control.


Competition


Evolutionary Genomics’ competition is very broad from the largest seed companies like Monsanto Company, Syngenta AG, Bayer Crop Science, Dupont Pioneer and Dow and others to the smallest grower who is successful in breeding new, improved varieties. These same competitors are also Evolutionary Genomics customers as Evolutionary Genomics seeks to license intellectual property for commercialization into their seed lines. Many of these companies are exponentially larger with many more resources at their disposal and there can be no assurance that EG can continue to compete with them or interest them in licensing our intellectual property.


Patents


Evolutionary Genomics is the owner of the following issued and pending patent applications:


Patent/App Serial #

Jurisdiction

Title

Filing Date

Issue Date

Expire Date

6743580  /  09875666

United States

METHODS FOR PRODUCING TRANSGENIC PLANTS CONTAINING EVOLUTIONARILY SIGNIFICANT POLYNUCLEOTIDES

6/6/2001

6/1/2004

6/6/2021

8710300  /  13949035

United States

EXPRESSION OF DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS ENHANCES PATHOGEN RESISTANCE IN PLANTS

7/23/2013

4/29/2014

7/23/2033

9834783  /  13901071

United States

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/23/2013

12/5/2017

5/23/2033

P130101827

Argentina

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/24/2013

 

5/24/2033

2872128

Canada

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/23/2013

9/19/2017

5/23/2033

112014029381-3

Brazil

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/23/2013

9/19/2017

5/23/2033



6



 





10112/DELNP/14

India

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/23/2013

 

5/23/2033

ZL201380039727.4

China

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

5/23/2013

7/25/2017

5/23/2033

9605274  /  14479550

United States

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

9/8/2014

3/28/2017

9/8/2034

62/961923

United States

EXPRESSION OF F-BOX/KELCH-REPEAT GENE EG19, DIRIGENT GENE EG19, THEIR ORTHOLOGS AND PARALOGS ENHANCES PATHOGEN RESISTANCE IN PLANTS

1/16/2020

 

 

9862962  /  14775142

United States

IDENTIFICATION AND USE OF TOMATO GENES CONTROLLING SALT/DROUGHT TOLERANCE AND FRUIT SWEETNESS

9/11/2015

1/9/2018

9/11/2035

15827299

United States

IDENTIFICATION AND USE OF TOMATO GENES CONTROLLING SALT/DROUGHT TOLERANCE AND FRUIT SWEETNESS

11/30/2017

 

 

10577625/15800179

United States

DIRIGENT GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS

11/1/2017

3/3/2020

11/1/2037

15/827299

United States

IDENTIFICATION AND USE OF GRAPE GENES CONTROLLING SALT/DROUGHT TOLERANCE AND FRUIT SWEETNESS

11/30/2017

 

 

16509273.0

United States

IDENTIFICATION AND USE OF GRAPE GENES CONTROLLING SALT/DROUGHT TOLERANCE AND FRUIT SWEETNESS

7/11/2019

 

 

62/866,872

United States

IDENTIFICATION AND RESISTANCE GENES FROM WILD RELATIVES OF BANANA AND THEIR USES IN CONTROLLING PANAMA DISEASE

6/26/2019

 

 


Material Agreements


Effective March 1, 2012, Evolutionary Genomics entered into an Agreement for Contract Services with Smith Bucklin Corporation (the “Contractor”) on behalf of the United Soybean Board. The contract includes the payment of certain royalties, as defined in the Agreement. Evolutionary Genomics retains all ownership of patents and intellectual property developed in the project and is obligated to pay royalties to the United Soybean Board of ten percent of the sale of products derived from the soybean genes that were the subject of the research performed or from royalties received from the sale of products by a third party not to exceed 150% of the total amount paid to Evolutionary Genomics under this Agreement. Evolutionary Genomics recognized revenue of $262,476 from this contract, thus limiting any future royalties to a total of $393,714. The project term has expired but the royalty provisions remain in perpetuity.


On December 3, 2014, Evolutionary Genomics entered into a Fee for Service Agreement with The Curators of the University of Missouri for the development of transgenic soybean plants with candidate genes for SCN resistance with total contract payments, including amendments, totaling $357,310 of which $214,386 has been paid through December 31, 2019. On May 2, 2018, the Company notified the University of Missouri that the performance under this contract did not appear to meet certain guaranteed minimum requirements. On January 22, 2020, the Company entered into an amendment with the University of Missouri reducing the contract amount to $214,386 all of which has been paid as of December 31, 2019. On February 21, 2015 the Company entered into the Sponsored Research Contract with The Curators of the University of Missouri for phenotyping of transgenic soybean samples on a per unit basis. On August 1, 2016, the Company entered into an Industry Sponsored Project Agreement with The Curators of the University of Missouri for similar research into genes for pest/disease resistance in tomatoes and corn. This research was halted in 2019 and the Company has paid the University for all research completed as of December 31, 2019.  No further amounts will be due under this contract. Evolutionary Genomics retains sole ownership of all patents and intellectual property, royalty free for all materials (including previously identified genes).


On May 3, 2018 and amended on January 9, 2019, the Company entered into a Service Agreement with the Wisconsin Crop Innovation Center for the transformation and development of transgenic soybean plants using our EG261 and EG19 genes. Including the amendment the total amount of this contract is $141,631, of which $72,791 has been recognized through December 31, 2019. The Company expects to recognize the remaining $68,840 in the year ending December 31, 2020. Evolutionary Genomics will retain sole ownership of all patents and intellectual property, royalty free for all materials (including previously identified genes).




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On June 26, 2018, the Company was awarded an Advanced Industries Accelerated Grant by the State of Colorado in the amount of $250,000 to fund further research in the development of pest resistance genes in soybeans and other crops and sweetness genes in tomatoes. Through December 31, 2019, the Company has recognized $237,500 of the revenue from the contract and expects to recognize the remaining $12,500 of revenue in the year ending December 31, 2020. The Company maintains ownership of all intellectual property developed from the use of the grant funds and is not required to repay grant funds or pay royalties.


Trademarks


Evolutionary Genomics has no registered trademarks.


Employees


Evolutionary Genomics had two full time employees and one part time employee as of December 31, 2019.


Facilities


The Company leases its operating facility, under a lease through June 30, 2017 paid in monthly installments of $2,378 per month. The lease continues on a month-to-month basis with a monthly rental of $2,378. Renewals are by mutual agreement.


Legal Proceedings


Evolutionary Genomics is not currently involved in or aware of any threatened or actual legal proceedings.


Capitalization


The Company is authorized to issue up to 780,000,000 shares of Common Stock and up to 20,000,000 shares of preferred stock. As of December 31, 2019, the Company had 5,881,898 shares of Common Stock outstanding, 577,063 shares of Series A-1 Preferred Stock (“Series A-1”) outstanding and 102,860 shares of Series A-2 Preferred Stock (“Series A-2”) outstanding. 1,400,000 shares of common stock have been reserved for issuance pursuant to the Company’s 2015 Stock Incentive Plan. Option grants have been issued for 340,000 shares of common stock at an exercise price of $0.55 per share, 490,000 shares of common stock at an exercise price of $1.50 per share, 150,000 shares of common stock at an exercise price of $1.65 per share, 180,000 shares of common stock at an exercise price of $3.00 per share, 100,000 shares of common stock at an exercise price of $3.30 per share and 100,000 shares of common stock at an exercise price of $3.50 per share. Options for 120,000 shares have been exercised, 158,333 have been cancelled and option grants of 1,081,667 shares remain outstanding as of December 31, 2019. 110,884 shares of common stock have been reserved for issuance upon the exercise of warrants outstanding as of December 31, 2019. Those warrants have an average exercise price of $6.60 per share.


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 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.


The Corporation is required to establish a segregated non-interest bearing trust account (the “Sinking Fund Account”) for the benefit of the Holders. 50% of all licensing fees received by the Corporation shall be deposited in the Sinking Fund Account within five (5) Business Days of receipt of any such fees by the Corporation. In the event that the amount of cash in the Sinking Fund Account exceeds the liquidation preference of all issued and outstanding shares of Series A-1 and Series A-2 Preferred Stock not previously redeemed or converted pursuant to the terms hereof, the Corporation shall deliver a notice to the Holders (the “Mandatory Redemption Notice” and the date such notice is deemed delivered hereunder, the “Mandatory Redemption Notice Date”) of its obligation to redeem all of the then outstanding shares of Series A-1 and Series A-2 Preferred Stock (i) for cash in an amount equal to the liquidation preference per share and (ii) by issuing such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying (x) the number of shares of Series A-1 and Series A-2 Preferred Stock so to be redeemed by (y) the liquidation preference per share of the Series A-1 and Series A-2 Preferred Stock, and then by dividing such product by (z) the conversion price per share, payable and issuable, respectively, in full on the 5th Trading Day following the Mandatory Redemption Notice Date. This is considered a contingent redemption feature.




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


Optional Redemption; Sinking Fund Account: The Company may elect to redeem some or all of the then outstanding shares of Series A-1 and Series A-2, (i) for cash in an amount equal to the liquidation preference per share, $5.25 per share as of December 31, 2019, 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 December 31, 2019, 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 multiplied by the amount invested. 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 has been paid. As of December 31, 2019, there were $950,661 in accrued preferred 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.


ITEM 1A.  RISK FACTORS


We may require substantial additional funding and may be unable to raise capital when needed, which could force us to delay, reduce or eliminate planned activities or result in our inability to continue as a going concern.


The Company is engaged in advanced discussions with one of these banana companies regarding a relationship to further develop our banana genes through transformation and validation.  We expect to reach an agreement within the next ninety days which we expect will include initial payments to the Company sufficient to fund the cash flow for the next twelve months and beyond.  We also expect to incur significant expenses for the transformation and validation of our banana genes over the next twenty-four months which we expect to be funded in full by this agreement.  There can be no assurance that we will reach such an agreement or that the funding will be available.


As of December 31, 2019 we had $45,441 in our bank accounts, $6,845 of receivables under our grant agreement and $41,694 of trading securities. This will not be enough to pay for our expenses for the year ending December 31, 2020 without any additional revenue from grants or licensing revenue or additional capital infusions. We expect to market our soybean genes and our banana genes in 2020 which may lead revenue. We have flexibility to reduce operating costs and also to delay research projects. We will require additional capital to complete our projects. Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:


·

the duration and results of the research projects;


·

unexpected delays or costs incurred in the acquisition of plant materials needed in these research projects and with subcontracts that perform various parts of these projects;


·

the time and cost in preparing, filing, prosecuting, maintaining and enforcing patent claims;


·

other unexpected developments encountered in implementing our business development, research development and commercialization strategies; and


·

further arrangements, if any, with collaborators.




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We may attempt to raise additional funds through public or private financings, collaborations with other companies or financing from other sources. Additional funding may not be available on terms which are acceptable to us or at all. If adequate funding is not available to us on reasonable terms, we may need to delay, reduce or eliminate one or more of our research and development projects or obtain funds on terms less favorable than we would otherwise accept. To the extent that additional capital is raised through the sale of equity securities or securities convertible into or exchangeable for equity securities, the issuance of those securities could result in dilution to our stockholders. Moreover, the incurrence of debt financing could result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations. This could render us more vulnerable to competitive pressures and economic downturns.


In addition, if we do not meet our payment obligations to third parties as they come due, we may be subject to litigation claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management and may result in unfavorable results that could further adversely impact our financial condition.


We have relied on the availability of grant funding to fund some of our research efforts and our inability to compete successfully for these limited grant funding opportunities may significantly affect our results of operations and our ability to complete research projects.


We have traditionally funded many of our research projects, partially or wholly, using grant funding provided by government programs, industry associations and grant making institutions. The availability of these funds is impacted by many factors including changing political priorities, fiscal budget issues, agency priorities, availability of funds and competition from other grant seekers. Our ability to present proposals that fit within grant making guidelines and which are attractive relative to other proposals submitted may significantly impact our ability to fund our research projects.


Efforts to protect our intellectual property rights and to defend claims against us can increase our costs and will not always succeed; any failures could adversely affect profitability or restrict our ability to do business.


Intellectual property rights are crucial to our business. We endeavor to obtain and protect our intellectual property rights in jurisdictions in which products are produced from the biotechnology that we produce and in jurisdictions into which those products are imported. Different nations may provide limited rights and inconsistent duration of protection for our intellectual property. We may be unable to obtain protection for our intellectual property in key jurisdictions. Even if protection is obtained, competitors, farmers or others may raise legal challenges to our rights or illegally infringe on our rights, including through means that may be difficult to prevent or detect. In addition, because of the rapid pace of technological change, and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. These patents could reduce the value of our commercial or pipeline biotechnology or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter how valuable to our business. We cannot assure we would be able to obtain such a license on acceptable terms. In addition, patent laws are subject to change and any change in our ability to protect the intellectual property that we develop may impact our ability to commercialize that intellectual property. The extent to which we succeed or fail in our efforts to protect our intellectual property will affect our costs, sales and other results of operations.


Genes that we have discovered and may discover in the future with expected desirable impact on traits may, upon further research and field trials, be revealed to also have undesirable impact on traits.


Evolutionary Genomics’ gene discovery process focuses on the identification of positively selected genes that impact the trait of interest that we are working on. When we further test them in lab validation, we are again focused on whether they have the desired impact on the trait of interest and we are specifically testing for that outcome. Laboratory experiments are under more ideal circumstances than field trials and use in production and there can be no guarantee that the lab result will be repeated under those conditions. Additional field trials and use in production may also reveal undesirable impacts on other traits that were not a focused part of our research. For example, the soybean genes that we have discovered may be found to have a negative impact on yield, oil content or the growth cycle. These may impact our ability to realize revenue from the commercialization of our biotechnology and may expose us to liability for undesirable outcomes that we don’t anticipate.




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Undesirable results from our ongoing research may result in expensing of our acquired research in progress.


We currently carry $4,016,596 of acquired research in progress on our balance sheet as an intangible asset pending the completion of research projects at the University of Missouri and the Wisconsin Crop Innovation Center. We believe that enough data will be produced from these projects and we will be able to market the soybean and banana genes in 2020 with the desired result of a licensing agreement with one of the major seed or banana companies which would lead to the amortization of this asset. If these projects produce undesirable results and we are unable to successfully market the genes, we may need to expense the intangible asset.


Others may find additional genes or other methods of accomplishing the same desired outcome that our biotechnology does, rendering our biotechnology less valuable or commercializable.


There are many other companies pursuing similar gene discovery programs and other approaches to solving the same issues that we are addressing and many of these companies have vastly more resources than we do. Even when we identify genes that impact desired traits, there may be other genes that have a similar or greater effect on these traits. For example, one or more of the other genes in soybeans and bananas may have an impact on pest/disease resistance similar to our genes or there may be other orthologs of the genes that we have discovered in other varieties that have a greater impact. In addition, other companies may develop commercial chemicals that compete with genetic changes to solve the issues that we are addressing. Any of these may impact our ability to realize revenue from the commercialization of our biotechnology.


The successful development of our research efforts and commercialization of our biotechnology will be necessary for our growth and profitability.


We intend to use recent successes in which we have identified genes that may have an impact on pest/disease resistance in soybeans and bananas and look for similar genes in other crops. This research may result in significant costs incurred without any commercial value produced. We also intend to attempt to improve the potential pest/disease resistance genes we have identified. Even if we find effective genes, we may not be able to find a commercial market for them. There can be no assurance we will be able to achieve any improvement and performing this research may also result in significant costs incurred without any commercial value produced. The processes of breeding, biotechnology trait discovery and development and trait integration are lengthy and a very small percentage of the genes identified in research are selected for commercialization. The length of time and the risk associated with the breeding and biotech pipelines are interlinked because both are required as a package for commercial success in markets where biotech traits are approved for growers. Commercial success frequently depends on being the first company to the market, and many of our competitors are also making considerable investments in similar new biotechnology. Consequently, if we are not able to fund extensive research and development activities and deliver new products to the markets we serve on a timely basis, our growth and operations will be harmed including, but not limited to, the possible impairment of our intangible assets.


We rely heavily on our founder, Walter Messier, our current Chief Science Officer. The loss of his services would have a material adverse effect upon us and our business and prospects.


Our success depends, to a significant extent, upon the continued services of Walter Messier, who is a founder of Evolutionary Genomics and our current Chief Science Officer. Since inception, we have been dependent upon Dr. Messier, who is the inventor on most of our patents and responsible for the development of our core Adapted Traits Platform. If Dr. Messier or any key management personnel resign to join a competitor or form a competing company, the loss of such personnel, together with the loss of any customers or potential customers due to such executive’s departure, could materially and adversely affect our business and results of operations.


We are dependent on a technically trained workforce and an inability to retain or effectively recruit such employees could have a material adverse effect on our business, financial condition and results of operations.


Our ability to compete effectively depends largely on our ability to attract and retain certain key personnel, including additional researchers that we intend to hire in order to pursue our planned research projects. Industry demand for such skilled employees, however, exceeds the number of personnel available, and the competition for attracting and retaining these employees is intense. Because of this intense competition for skilled employees, we may be unable to retain our existing personnel or attract additional qualified employees to keep up with future business needs. If this should happen, our business, operating results and financial condition could be adversely affected.




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In addition, we intend to hire business development and marketing personnel and advisors to promote and market the biotechnology that we develop. We cannot assure you that we will be able to recruit and retain qualified personnel and advisors to perform these functions. Our inability to hire and then retain such personnel, advisors and scientists could have a materially adverse effect on our business and our projects.


We may pursue future growth through strategic acquisitions and alliances which may not yield anticipated benefits and may adversely affect our operating results, financial condition and existing business.


We may seek to grow in the future through strategic acquisitions in order to complement and expand our business. The success of our acquisition strategy will depend on, among other things:


·

the availability of suitable candidates;


·

competition from other companies for the purchase of available candidates;


·

our ability to value those candidates accurately and negotiate favorable terms for those acquisitions;


·

the availability of funds to finance acquisitions;


·

the ability to establish new informational, operational and financial systems to meet the needs of our business;


·

the ability to achieve anticipated synergies, including with respect to complementary products; and


·

the availability of management resources to oversee the integration and operation of the acquired businesses.


If we are not successful in integrating acquired businesses and completing acquisitions in the future, we may be required to reevaluate our acquisition strategy. We also may incur substantial expenses and devote significant management time and resources in seeking to complete acquisitions. Acquired businesses may fail to meet our performance expectations. If we do not achieve the anticipated benefits of an acquisition as rapidly as expected, or at all, investors or analysts may not perceive the same benefits of the acquisition as we do. If these risks materialize, our stock price could be materially adversely affected.


We may not obtain the necessary permits and authorizations to operate our business.

 

We may not be able to obtain or maintain the necessary licenses, permits, authorizations or accreditations, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the agricultural industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations or accreditations could result in restrictions on our ability to operate our business, which could have a material adverse effect on our business.

 

Competition in agricultural biotechnology has significantly affected and will continue to affect our revenue and results of operations.


Many companies engage in research and development of plant biotechnology and breeding and speed in getting a new product to market can be a significant competitive advantage. Our competitors’ success could render the biotechnology that we identify as less competitive, resulting in reduced sales compared to our expectations or past results. We expect to see increasing competition from agricultural biotechnology firms and from major agrichemical, seed and food companies. The extent to which we can realize cash and profit from our business will depend on our ability to control research costs, predict and respond effectively to competitor products and marketing; and develop new products and services attractive to our customers.





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Our customers are subject to extensive regulation affecting their use of our biotechnology, which may affect our revenue and profitability.


Regulatory and legislative requirements affect the development and distribution of products made from the biotechnology that we produce, including the testing and planting of seeds containing our biotechnology traits and the import of crops grown from those seeds, and non-compliance can harm our revenue and profitability. Obtaining testing, planting and import approvals for seeds or biotechnology traits can be time-consuming and costly, with no guarantee of success. The failure to receive necessary permits or approvals could have near- and long-term effects on our ability to sell some current and future biotechnology. Concern about unintended but unavoidable trace amounts (sometimes called “adventitious presence”) of commercial biotechnology traits in conventional (non-biotechnology) seed, or in the grain or products produced from conventional or organic crops, among other things, could lead to increased regulation or legislation, which may include: liability transfer mechanisms that may include financial protection insurance; possible restrictions or moratoria on testing, planting or use of biotechnology traits; and requirements for labeling and traceability, which requirements may cause food processors and food companies to avoid biotechnology and select non-biotechnology crop sources and can affect farmer seed purchase decisions and, ultimately the sale and use of the biotechnology that we produce. Legislation encouraging or discouraging the planting of specific crops can also harm our sales.


The degree of public acceptance or perceived public acceptance of products made from our biotechnology can affect our sales and results of operations by affecting planting approvals, regulatory requirements and farmer purchase decisions.


Some opponents of the use of biotechnology in agriculture raise public concern about the potential for adverse effects of products produced using genetic information that we provide to our customers on human or animal health, other plants and the environment. The potential for adventitious presence of commercial biotechnology traits in conventional seed, or in the grain or products produced from conventional or organic crops, is another factor that can affect general public acceptance of these traits. Public concern can affect the timing of, and whether our customers are able to obtain, government approvals. Even after approvals are granted, public concern may lead to increased regulation or legislation or litigation concerning prior regulatory approvals, which could affect our sales and results of operations by affecting planting approvals and may adversely affect sales of our customers’ products to farmers, due to their concerns about available markets for the sale of crops or other products derived from biotechnology which may lead to less demand from our customers. In addition, opponents of agricultural biotechnology have attacked farmers’ fields and facilities used by agricultural biotechnology companies and may launch future attacks against farmers’ fields and our field testing sites and research, production, or other facilities, which could affect our sales and our costs.


We are dependent upon other companies to integrate biotechnology that we have licensed to them into their breeding operations for our future license revenue.


We perform research for other entities under grant and research agreements that provide service revenue. In addition to the service revenue, our long-term profitability depends on the commercialization of the biotechnology that we provide to other companies for their commercial breeding lines. The extent to which our biotechnology is integrated into these breeding lines is largely outside of our control and can take many years. If our biotechnology is not integrated into breeding lines, we may not realize license revenue which may affect our results of operations.


The biotechnology industry is subject to rapid technological change, and if we fail to keep up with such change, our results of operations and financial condition could be adversely impacted.


Biotechnology has undergone and is subject to rapid and significant change. We expect that the technologies associated with biotechnology research and development will continue to develop rapidly. Our failure to keep pace with such rapid change could result in our products becoming obsolete and we may be unable to recoup any expenses incurred with developing such products, which may adversely affect our future revenues and financial condition.




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The Company may be required to expend substantial sums in order to bring it into compliance with the various reporting requirements applicable to public companies and/or to prepare required financial statements, and such efforts may harm operating results or be unsuccessful altogether.


We are subject to many of the requirements applicable to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which requires that the Company evaluate and report on its system of internal controls. If the Company’s finance and accounting staff or internal controls over financial reporting are inadequate, it may be required to hire additional staff and incur substantial legal and accounting costs to address such inadequacies. Moreover, the Company cannot be certain that its remedial measures to correct current material weaknesses will be effective. Any failure to implement required or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or increase its risk of material weaknesses in internal controls.


Members of our management team have significant influence over us.


Our officers and directors own, directly or indirectly approximately 34.6% of the outstanding shares of common and preferred stock, excluding options and warrants. Including options and warrants, our officers and directors own, directly or indirectly, approximately 41.7% of the outstanding shares of common stock. These stockholders, therefore, have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including Mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. The interests of these stockholders may differ from the interests of our other stockholders.


Our certificate of incorporation and bylaws and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.


Our certificate of incorporation and bylaws and law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. We currently have 577,063 shares of Series A-1 preferred stock issued and outstanding and 102,860 shares of Series A-2 preferred stock issued and outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock and existing holders of preferred stock, and therefore, reduce the value of those securities. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.


Provisions of our certificate of incorporation and bylaws and law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, the certificate of incorporation and bylaws and law, as applicable, among other things:


·

provide the board of directors with the ability to alter the bylaws without stockholder approval;


·

place limitations on the removal of directors;


·

provide that the Board of Directors may change the size of the Board; and


·

provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.


These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.




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We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.


We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any after payments due to preferred shareholders, of our shares may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able to resell their shares of our common stock at or above the price they paid for them.


The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.


As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The OTC Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We will need to hire additional employees in the future or engage outside consultants to help us comply with these requirements, which will increase our costs and expenses. Specifically, management identified the following control deficiencies: (1) the Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC’s reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.


In addition, changing laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for public companies, increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from our business activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.


Being a public company and the associated public company rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.


As a result of disclosure of information in filings required of a public company, our business and financial condition has become more visible, which we believe may result in threatened or actual litigation. If such claims are successful, our business and operating results would be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.


As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.




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We are required pursuant to Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We also are required to disclose changes made in our internal control and procedures on a quarterly basis. Eventually, we may be required to obtain a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.


As we are unable to assert that our internal control over financial reporting is effective, or, if when required, our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.


Our ability to use our net operating loss carry-forwards and certain other tax attributes is limited by Sections 382 and 383 of the Internal Revenue Code.


Subject to certain limitations, a corporation may offset a net operating loss carryforward against profit earned in a future year to determine its U.S. federal income tax expenses for such year. Sections 382 and 383 of the Internal Revenue Code of 1986 limit a corporation’s ability to utilize its net operating loss carryforwards and certain other tax attributes (including research credits) to offset future federal taxable income or tax if, in general, the corporation experiences a cumulative ownership change of more than 50% over any rolling three-year period. State net operating loss carryforwards (and certain other tax attributes) may be similarly limited. For the year ended December 31, 2019, we recorded no state tax liability. An ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation’s business, results of operations, financial condition and cash flow.


As of December 31, 2018, we had available total federal and state net operating loss carryforwards of approximately $7,140,000 plus additional net operating losses generated in the year ending December 31, 2019. These NOL’s expire at various intervals through the year 2037 except for the NOL’s for the years ending December 31, 2018 and 2019 which have no expiration date.


Additional ownership changes may occur in the future as a result of additional equity offerings or events over which we will have little or no control, including purchases and sales of our equity by our five-percent security holders, the emergence of new five-percent security holders, redemptions of our securities or certain changes in the ownership of any of our five percent security holders.


If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.


The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock, or publishes unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.


ITEM 1B. UNRESOLVED STAFF COMMENTS


Not applicable.


ITEM 2. PROPERTIES


The Company has no owned properties and at this time has no agreements to acquire any properties. The Company currently maintains a rent-free mailing address at 1026 Anaconda Drive, Castle Rock, CO 80108, which is the address of the office of its Chief Executive Officer and lab facilities on lease at 1801 Sunset Place, Unit C, Longmont CO 80501. The Company leases its operating facility, under a lease through June 30, 2017 paid in monthly installments of $2,378 per month. The lease continues on a month-to-month basis with a monthly rental of $2,378. Renewals are by mutual agreement.




16



 


ITEM 3. LEGAL PROCEEDINGS


The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated.


ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.




17



 


PART II


ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES


There is only a very limited market for the Company's securities. The Company’s securities are included on the OTCQB under the symbol FNAM. As of December 31, 2019, there were outstanding options for 1,081,667 shares of common stock and outstanding warrants to purchase 110,884 shares of common stock.


As of March 12, 2020, there were approximately 325 holders of the Company's common stock.


No cash dividends have been paid by the Company on any of its securities since the renewal of its charter and such cash dividends are not contemplated in the foreseeable future.


ITEM 6. SELECTED FINANCIAL DATA


Not applicable.


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with the Audited Financial Statements and related notes included elsewhere in this 10-K. The following discussion includes certain forward-looking statements. For a discussion of important factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.


Recent Highlights of Evolutionary Genomics


·

During 2013, Evolutionary Genomics received results from our contracted independent lab at the University of Wisconsin-Madison confirming that Evolutionary Genomics gene, EG261, has a significant impact on resistance to soybean cyst nematodes.


·

On April 29, 2014, the United States Patent Office issued patent number 13,949,035 to Evolutionary Genomics for DIRIGNET GENE EG261 AND ITS ORTHOLOGS AND PARALOGS AND THEIR USES FOR PATHOGEN RESISTANCE IN PLANTS. In 2017 and 2018, Evolutionary Genomics was issued several additional patents on our soybean genes and a patent on our tomato sweetness and salt tolerance genes.

·

Starting in 2014 and continuing into 2019, Evolutionary Genomics engaged the University of Missouri for the two generation, whole plant validation of the soybean pest resistance genes. During 2016, the early stages of that research led to the partial validation of the Company’s second soybean pathogen resistance gene, EG19. During 2018, it became clear that the University of Missouri was not going to be able to produce enough viable events. Although the transformation project at the University of Missouri has been concluded, results from testing of SCN resistance on events generated both at the University of Missouri and the Wisconsin Crop Innovation Center are expected in 2020.


·

During 2018 and continuing into 2020, Evolutionary Genomics engaged the Wisconsin Crop Innovation Center to transform soybean plants using our EG261 and EG19 genes and to develop resulting plants through generation T2 seeds.


·

During 2019, we identified and filed a patent application for our gene in bananas for disease resistance.  We have engaged in discussions with large banana companies for the transformation/validation of these genes.




18



 


Consolidated Results of Operations:


 

 

Twelve Months Ended December 31,

 

 

 

2019

 

 

2018

 

 

 

Amount

 

 

Percent of Revenue

 

 

Amount

 

 

Percent of Revenue

 

Service and grant revenue

 

$

122,686

 

 

 

100.0

%

 

$

114,814

 

 

 

100.0

%

Research and development

 

 

472,613

 

 

 

385.2

%

 

 

473,992

 

 

 

412.8

%

Salaries and benefits

 

 

205,828

 

 

 

167.8

%

 

 

248,577

 

 

 

216.5

%

General and administrative

 

 

219,070

 

 

 

178.6

%

 

 

229,044

 

 

 

199.5

%

Total operating expenses

 

 

897,511

 

 

 

731.6

%

 

 

951,613

 

 

 

828.8

%

Operating (loss)

 

 

(774,825

)

 

 

-631.6

%

 

 

(836,799

)

 

 

-728.8

%

Other income and (expenses)

 

 

13,592

 

 

 

11.1

%

 

 

(261,818

)

 

 

-228.0

%

Income Taxes

 

 

(31,907

)

 

 

-26.0

%

 

 

 

 

 

0.0

%

Net loss

 

$

(793,140

)

 

 

-646.5

%

 

$

(1,098,617

)

 

 

-956.9

%

Preferred stock dividend

 

 

(269,379

)

 

 

-219.6

%

 

 

(242,367

)

 

 

-211.1

%

Net loss attributable to common stockholders

 

$

(1,062,519

)

 

 

-866.0

%

 

$

(1,340,984

)

 

 

-1168.0

%


Service Revenue


Service revenue increased $7,872, or 6.9%, to $122,686 for the year ended December 31, 2019 from $114,814 for the year ended December 31, 2018. The increase was primarily due to the increase in revenue received from the State of Colorado grant awarded to the Company during the year ended December 31, 2018.


Operating Expenses


Operating expenses decreased $54,102, or 5.7%, to $897,511 for the year ended December 31, 2019 from $951,613 for the year ended December 31, 2018. 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 $1,379, or 0.3%, to $472,613 for the year ended December 31, 2019 from $473,992 for the year ended December 31, 2018. The decrease was primarily due to decreased costs incurred on our pest resistance projects partially offset by increased patent costs.


Salaries and Benefits


Salaries and benefits decreased $42,749, or 17.2%, to $205,828 for the year ended December 31, 2019 from $248,577 for the year ended December 31, 2018. The decrease was due to decreased stock compensation costs.


General and Administrative


General and administrative expenses decreased $9,974, or 4.4%, to $219,070 for the year ended December 31, 2019 from $229,044 for the year ended December 31, 2018. The decrease was primarily due to decreased professional fees paid to attorneys, accountants and consultants.


Other Income and (Expenses)


Total other income and (expenses) changed $275,410, or 105.2%, to other income of $13,592 for the year ended December 31, 2019 from expense of $261,818 for the year ended December 31, 2018. The change was primarily due to unrealized gains on trading securities.




19



 


Income Taxes


The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from the maximum rate of 35% to 21%; limitations on the deductibility of interest expense and executive compensation; eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.


Net Loss


Net loss decreased $337,384, or 30.7%, to $761,233 for the year ended December 31, 2019 from $1,098,617 for the year ended December 31, 2018. The decrease in net loss was primarily due to the change in unrealized gains on trading securities and decreased stock compensation costs.


Financial Condition


The Company’s working capital decreased $124,669 to $98,748 as of December 31, 2019 from $223,417 as of December 31, 2018 primarily due to the net loss from operations, decreases in cash and accounts receivable, increase in accounts payable and accrued expenses, partially offset by unrealized gains on trading securities and preferred stock issuances.


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 $625,980 for the year ended December 31, 2019 compared to $748,837 for the year ended December 31, 2018. The $122,857, or 16.4%, decrease was primarily due to the decreased net operating loss, a decrease in accounts receivable and an increase in accounts payable and accrued expenses partially offset by a unrealized gain on investments compared to an unrealized loss in the prior year and a decrease in stock compensation. Net cash flows for investing activities was $0 for the years ended December 31, 2019 and 2018. Net cash provided from financing activities was $540,015 from preferred stock issuances and $0 for the years ended December 31, 2019 and 2018.


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, under a lease through June 30, 2017 paid in monthly installments of $2,378 per month. The lease continues on a month-to-month basis with a monthly rental of $2,378. Renewals are by mutual agreement. The Company’s rent expense for the years ended December 31, 2019 and 2018 was $28,535 and $26,157, respectively.


Critical Accounting Policies


For a review of our critical accounting policies, please refer to our audited financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA


The information required by this item appears beginning on page F-1 following the signature pages of this report and is incorporated herein by reference.




20



 


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


There are no disagreements with the accountants on accounting and financial disclosures.


ITEM 9A. CONTROLS AND PROCEDURES


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 our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our reports to the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange 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, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures are not effective at these reasonable assurance levels for the reasons stated below.


The Company’s 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.


Management’s Annual Report on Internal Control over Financial Reporting


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


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


Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — 1992 Integrated Framework. Based on this evaluation, our management, with the participation of the President, concluded that, as of December 31, 2019, our internal control over financial reporting was not effective due to the material weaknesses in the system of internal control described below.



21



 


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


Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable cost-effective steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.


Changes in internal controls


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


ITEM 9B. OTHER INFORMATION


None.





22



 


PART III.


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


Officers and Directors


The following table sets forth certain information concerning each of the Company’s directors and executive officers:


Name

 

Age

 

Position

Steve B. Warnecke

 

63

 

Chairman of the Board, President, CEO, CFO

Walter Messier

 

64

 

Treasurer, Secretary

Virginia Orndorff

 

69

 

Director

Mark Boggess

 

59

 

Director


Compliance with Section 16 (a) of the Exchange Act


Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our ordinary shares to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such Forms, we believe that during the year ended December 31, 2019 there were no delinquent filers.


Code of Conduct


Committees


We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee as of the filing of this report. Our Board of Directors performs the principal functions of an Audit Committee. We currently do not have an audit committee financial expert on our Board of Directors. We believe that an audit committee financial expert is not required because the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time. However, we intend to implement a comprehensive corporate governance program, including establishing various board committees in the future.


There are no agreements or understandings for any officer or director to resign at the request of another person and none of the above named officers and directors are acting on behalf of or will act at the direction of any other person.


There is no family relationship between any director or executive officer of the company.


The board of directors presently has no committees.


Set forth below are the names of all directors and executive officers of the Company, all positions and offices with the Company held by each such person, the period during which he has served as such, and the business experience of such persons during at least the last five years:


Steve B. Warnecke was appointed Chief Financial Officer, Treasurer, Secretary and member of the board of directors of the Company on June 6, 2014, and became its principal executive officer as President, Chief Executive Officer and Chairman of the Board on October 1, 2014. Mr. Warnecke has served as a member of the board of directors of Evolutionary Genomics since September 2010 and was appointed as Chief Executive Officer in November 2010. Mr. Warnecke has served part-time roles as Chairman of the Board of Directors and Chief Financial Officer for VetDC, Inc. since November 2012, President of CereScan Corp from November 2016 to August 2018 and Chairman of the Pink Lightning Foundation (supporting Children’s Hospitals and cystic fibrosis research) since November 2011. He has also served as Senior Vice-President of Children’s Hospital Colorado Foundation from 2003 through January 2017 and been a member of the Board of Directors of CereScan since October 2014. Previously, Mr. Warnecke served as Lead Independent Director and Audit Committee Chair for Evolving Systems, Inc. (NASDAQ: EVOL, an international telecom software company) from 2003 to January 2011, as Chief Financial Officer of Targeted Medical Pharma, Inc. from January 2011 to May 2011, as Chief Financial Officer and member of the Board of Directors for Bacterin International, Inc. (NASDAQ: BONE), a biologics and medical device company from 2008 to 2010, member of the Board of Directors of Emmaus Life Sciences, Inc. in 2011, member of the Board of Directors of Boppy Company from 2005 to 2008, Senior Vice-President of Strategic Planning for First Data/Western Union (NYSE: FDC) from 2001 to 2002 and Chief Financial Officer for Frontier Airlines (former NASDAQ company acquired by Republic Airways) from 1999 to 2001. Mr. Warnecke graduated from the University of Iowa with a BBA in Accounting, Finance and Management and passed the Certified Public Accountant exam in 1979.



23



 


Virginia Orndorff was appointed as a director of the Company on October 1, 2014. She has served as a member of the Evolutionary Genomics board of directors since 2000. From February 2015 to the present, Ms. Orndorff has served as Executive Director, Chief Executive Officer and Director of the Colorado Institute for Drug, Device and Diagnostic Development. Since February 2012 Ms. Orndorff has served as Chief Executive Officer of SixOne Solutions, LLC, an early-stage oncology company. She has served on Colorado’s State Board of Pharmacy since March 2012. She served as Chief Executive Officer and President of Evolutionary Genomics from 2000 to November 2010. From 1997 to 2000, Ms. Orndorff served as Vice President then President and Chief Executive Officer of GenoPlex, Inc. of Denver and served as Director of Technology/Business Development of NeXstar Pharmaceuticals, Inc. of Boulder, Colorado, from 1993 to 1997. From 1989 to 1993 she served as the Director of Biotechnology Programs for the Colorado Advanced Technology Institute in Denver. Ms. Orndorff was employed by the Georgia Institute of Technology as Manager of a biotechnology start-up incubator (the Health Science Technology Center) from 1987 to 1989; prior to that for eight years by Genex Corporation of Gaithersburg, Maryland, first as a Laboratory Supervisor then as Manager of Technology Assessment. From 1975 to 1979, Ms. Orndorff had served as a Microbiologist at Stanford Research Institute. She received a BA in Biology from the University of California at Santa Cruz, an MA in Microbiology from California State University at San Jose, and an MBA from Loyola College (where she graduated second in her class).


Mark Boggess, Ph.D. was appointed as a director of the Company on October 1, 2014. He has served as a director of Evolutionary Genomics since 2010. Dr. Boggess has a diverse background in the animal sciences and animal industries. Born and raised on a typical Iowa farm, he served as a swine and beef cattle extension specialist with the University of Idaho in Twin Falls from 1990 to 1994 he was responsible for all swine extension and educational programming and served as the animal breeding resource specialist for the University beef extension team. From 1994 to 2004, Dr. Boggess served as President of Salmon Creek Farms, LLC where was responsible for development of the Salmon Creek Farms Natural Pork program and branded product line, at Independent Meat Company in Twin Falls, ID. From 2004 to 2009, Dr. Boggess assumed the position of Director of Animal Science for the National Pork Board where he was responsible for program direction and industry funding coordination for research in pork quality; nutritional efficiency; sow lifetime productivity; genomics-genetics; alternatives to antimicrobials; production-management systems and bio-technology. Dr. Boggess also served as the National Pork Board liaison for animal science to producers, academia, media, regulators and the National Pork Producers Council and directed numerous pork industry based advisory groups. From 2009 to 2014, Dr. Boggess served as the National Program Leader for Food Animal Production and the National Program Leader for Pasture, Forage and Rangeland Systems for the USDA Agriculture Research Service in Beltsville, Maryland. In this role, Dr. Boggess directed ARS research for diverse programs in genetics and genomics, nutrition, reproductive physiology, animal welfare and meat quality. Dr. Boggess also directed research to improve pasture and rangeland management practices and land-use strategies, improve and restore the ecology of western rangelands and improve the capacity and efficiency of forage-based food animal production systems. Currently, Dr. Boggess serves as the Director of the U.S. Dairy Forage Research Center in Madison, WI. The USDFRC is unique in the world in that research programs are fully integrated and include research and expertise in soil science/ecology, forage breeding and management, forage handling and environmental engineering, animal nutrition, animal genetics/genomics, nutrient cycling/waste management, and dairy systems sustainability and management. In this role Dr. Boggess manages and directs the research programs for 21 scientists and approximately 75 support staff. The USDFRC includes two research farms in rural Wisconsin as well as offices and laboratories on the campus of the University of Wisconsin. Dr. Boggess attended Iowa State University receiving a BS degree in Animal Science in 1983. After receiving an MS degree from Cornell University with a major in Animal Breeding in 1985, Dr. Boggess returned to Iowa State University, receiving his PhD in 1990, also in Animal Breeding.


Walter Messier, Ph.D. was appointed Secretary and Treasurer of the Company on October 1, 2014. He is a Founder of Evolutionary Genomics and has served as its Chief Technology Officer since 2000 and has served as its Secretary since 2007. Dr. Messier has published in such prestigious scientific journals as Nature, Nature Medicine, Current Biology, and Science. Dr. Messier is recognized as an authority on the use and interpretation of Ka/Ks algorithms. Dr. Messier’s research on the detection of molecular-level positive selection in the primates is well known. In addition to the research programs Dr. Messier developed and spearheads at Evolutionary Genomics, he is currently collaborating with colleagues in several areas, including identification and validation of novel targets for breast cancer therapeutics, identification and validation of novel targets for HIV/AIDS therapeutics, the role of molecular Darwinian selection in human speciation, and creation of more powerful algorithms for the detection of molecular Darwinian selection. Dr. Messier received his Masters of Science from the State University of New York at New Paltz, and his Ph.D. from the University of Albany (State University of New York).




24



 


CONFLICTS OF INTEREST


The Company’s officers and directors have in the past and may in the future be officers and directors of other companies. Consequently, they may have potential inherent conflicts of interest in serving as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates it will not devote all of its time to the Company’s affairs. The officers and directors of the Company may in the future become shareholders, officers or directors of other companies which may be formed for the purpose of engaging in business activities similar to those conducted by the Company. The Company does not currently have a right of first refusal pertaining to opportunities that come to management’s attention even if the opportunities relate to the Company’s proposed business operations.


The officers and directors are under no obligation to make any opportunities that come to their attention in the performance of their duties for any other companies or in any other manner available to the Company. Except as set forth above, the Company has not adopted any other conflict of interest policy with respect to such transactions.


ITEM 11.  EXECUTIVE COMPENSATION


The following table summarizes compensation of our executive officers:


 

 

 

 

 

 

 

 

 

 

 

Option

 

 

 

 

 

 

 

Name and Position

 

Year

 

 

Salary

 

 

Bonus

 

 

Awards

 

 

Other

 

 

Total

 

Steve B. Warnecke

 

2019

 

 

$

150,000

 

 

$

 

 

$

151,846

 

 

$

10,000

 

 

$

311,846

 

Chief Executive Officer

 

2018

 

 

$

150,000

 

 

$

 

 

$

 

 

$

10,000

 

 

$

160,000

 

Chairman of the Board

 

2017

 

 

$

150,000

 

 

$

1,000

 

 

$

 

 

$

10,000

 

 

$

161,000

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walter Messier

 

2019

 

 

$

150,000

 

 

$

 

 

$

310,598

 

 

$

 

 

$

460,598

 

Chief Technology Officer

 

2018

 

 

$

150,000

 

 

$

 

 

$

 

 

$

 

 

$

150,000

 

Secretary

 

2017

 

 

$

150,000

 

 

$

10,000

 

 

$

 

 

$

 

 

$

160,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Virginia Orndorff

 

2019

 

 

$

 

 

$

 

 

$

46,890

 

 

$

10,000

 

 

$

56,890

 

Director

 

2018

 

 

$

 

 

$

 

 

$

 

 

$

10,000

 

 

$

10,000

 

 

 

2017

 

 

$

 

 

$

 

 

$

 

 

$

10,000

 

 

$

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Boggess

 

2019

 

 

$

 

 

$

 

 

$

46,590

 

 

$

10,000

 

 

$

56,590

 

Director

 

2018

 

 

$

 

 

$

 

 

$

 

 

$

10,000

 

 

$

10,000

 

 

 

2017

 

 

$

 

 

$

 

 

$

 

 

$

10,000

 

 

$

10,000

 


The Company had no employment agreements as of December 31, 2019 and paid cash compensation to each to its directors of $10,000 during the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, Evolutionary Genomics issued option grants for 15,000 shares each to Virginia Orndorff and Mark Boggess, 300,000 shares to Walter Messier and 150,000 shares to Steve Warnecke. The amounts reported under “Option Awards” in the above table reflect the grant date fair value of these awards as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation, rather than amounts paid to or realized by the named individual.  The value of the option awards was estimated using the Black-Scholes option pricing model.  The valuation assumptions used in the valuation of options granted may be found in the Notes to our financial statements included in this annual report on Form 10-K.




25



 


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


Principal Stockholders


The following table sets forth certain information as of December 31, 2019 regarding the beneficial ownership of the Company’s common stock by (i) each stockholder known by the Company to be the beneficial owner of more than 5% of our common stock, (ii) by each director and executive officer of the Company and (iii) by all executive officers and directors of the Company as a group. Each of the persons named in the table has sole voting and investment power with respect to common stock beneficially owned. The percentage ownership is the number of shares of common stock owned compared to the combined number of shares of common and preferred stock outstanding. None of the officers or directors own any shares of preferred stock.


 

 

Number of

 

 

Percentage

 

 

 

Shares Owned

 

 

of Shares

 

Name and Address

 

or Controlled

 

 

Owned

 

Steve B. Warnecke

 

 

1,932,088

(1)

 

 

29.91

%

1026 Anaconda Drive

 

 

 

 

 

 

 

 

Castle Rock, CO  80108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Virginia Orndorff

 

 

119,204

(2)

 

 

1.85

%

1026 Anaconda Drive

 

 

 

 

 

 

 

 

Castle Rock, CO  80108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Boggess

 

 

26,000

(3)

 

 

0.40

%

1026 Anaconda Drive

 

 

 

 

 

 

 

 

Castle Rock, CO  80108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walter Messier

 

 

160,615

(4)

 

 

2.49

%

1026 Anaconda Drive

 

 

 

 

 

 

 

 

Castle Rock, CO  80108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Officers and Directors as a Group (1)

 

 

2,237,907

 

 

 

34.65

%

———————

(1)

Mr. Warnecke is Chief Executive Officer and Chairman of the Board of the Company.  Mr. Warnecke holds options for 66,667 shares exercisable at $.55 per share, 100,000 shares exercisable at $3.30 per share and 150,000 shares execisable at $1.65 per share.

(2)

Ms. Orndorff is a Director of the Company.  Ms. Orndorff holds options for 20,000 shares exercisable at $.55 per share, 15,000 shares exercisable at $3.00 per share and 45,000 shares exercisable at $1.50 per share.

(3)

Mark Boggess is a Director of the Company.  Mr. Boggess holds options for 15,000 shares exercisable at $3.00 per share and 45,000 shares exercisable at $1.50 per share.

(4)

Dr. Messier is the Company’s Treasurer and Secretary.  Dr. Messier holds options for 100,000 shares exercisable at $.55 per share, 100,000 shares exercisable at $3.00 per share and 300,000 shares exercisable at $1.50 per share..


ITEMS 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE


We maintain a mailing address at the offices of our president, Steve B. Warnecke, located at 1026 Anaconda Drive, Castle Rock, CO 80108 for which we pay no rent. There have been no transactions or proposed transactions in which the amount involved exceeds $120,000 for the last two completed fiscal years in which any of our directors, executive officers of beneficial holders of more than 5% of the outstanding shares of common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.




26



 


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


Audit Fees


The aggregate fees billed during the years ended December 31, 2019 and 2018 for professional services rendered by our principal accountant, Plante & Moran PLLC for the audit of our annual financial statements and quarterly reviews were $42,569 and $43,597, respectively.


Audit Related Fees


The Company incurred no fees for the year ended December 31, 2019 and 2018 for audit related services by our principal accountant that were reasonably related to the performance of the audit or review of our financial statements, and not reported under Audit Fees above.


Tax Fees


For the years ended December 31, 2019 and 2018, there were no fees for professional services rendered by our principal accountant for tax preparation.


All Other Fees


We did not incur any fees for other professional services rendered by our principal accountant during the fiscal year ended December 31, 2019 and 2018.






27



 


PART IV.


ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES


(a)

The following Exhibits are filed as part of this registration statement unless otherwise indicated:


 

 

 

 

 

Incorporated by Reference

 

Filed or Furnished

Exhibit No.

 

Description

 

 

Form

 

Date

 

 

Number

 

Herewith

2.1

 

Amended and Restated Agreement and Plan of Merger, dated as of March 2, 2015, by and among Fona, Inc., Evolutionary Genomics, Inc., EG I, LLC, Fona Merger Sub, Inc. and Fona Merger Sub, LLC

 

 

10-K

 

3/5/2015

 

 

10.1

 

 

3.1

 

Form of Amended and Restated Articles of Incorporation

 

 

8-K

 

10/23/2015

 

 

3.1

 

 

3.2

 

Bylaws of the Company

 

 

10

 

9/23/2010

 

 

3.2

 

 

3.3

 

Certificate of Designations, Preferences and Rights of Series A-1 Preferred Stock

 

 

8-K

 

2/25/2016

 

 

3.1

 

 

3.4

 

Certificate of Designations, Preferences and Rights of Series A-2 Preferred Stock

 

 

 

 

 

 

 

 

 

Filed

4.1

 

Specimen Stock Certificate

 

 

8-K

 

10/23/2015

 

 

4.1

 

 

10.1

 

Equity Incentive Plan

 

 

S-4

 

4/2/2015

 

 

10.1

 

 

10.2

 

Tennessee State University Agreement

 

 

S-4/A

 

7/2/2015

 

 

10.2

 

 

10.3

 

Tennessee State University Amendment

 

 

S-4/A

 

7/2/2015

 

 

10.3

 

 

10.4

 

Fee for Services Agreement University of Missouri

 

 

S-4/A

 

7/2/2015

 

 

10.4

 

 

10.5

 

Contract for Services University of Missouri

 

 

S-4/A

 

7/2/2015

 

 

10.5

 

 

10.6

 

Bill and Melinda Gates Foundation MSA

 

 

S-4/A

 

7/2/2015

 

 

10.6

 

 

10.7

 

Bill and Melinda Gates Foundation WO 1

 

 

S-4/A

 

7/2/2015

 

 

10.7

 

 

10.8

 

State of Colorado Grant Agreement

 

 

10-K

 

2/19/2016

 

 

10.8

 

 

10.9

 

Amendment 1 to the UM Nguyen Sponsored Research Contract

 

 

10-K

 

2/10/2017

 

 

10.9

 

 

10.10

 

Amendment 2 to the UM Zhang Sponsored Research Contract

 

 

10-K

 

2/10/2017

 

 

10.10

 

 

10.11

 

Wisconsin Crop Innovation Center Service Agreement and Amendment

 

 

10-K

 

4/1/2019

 

 

10.11

 

 

10.12

 

State of Colorado Grant Agreement

 

 

10-K

 

4/1/2019

 

 

10.12

 

 

10.13

 

Notice of Termination–Sponsored Research Agreement

 

 

 

 

 

 

 

 

 

Filed

21.1

 

Subsidiaries of Evolutionary Genomics, Inc.

 

 

10-K

 

3/5/2018

 

 

21.1

 

 

31.1

 

Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

Filed

31.2

 

Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

Filed

32.1

 

Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

Furnished

32.2

 

Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

Furnished

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

Filed

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

Filed

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed




28



 



SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Castle Rock, State of Colorado on March 30, 2020.


 

EVOLUTIONARY GENOMICS, INC.

 

 

 

March 30, 2020

By:

/s/ Steve B. Warnecke

 

Name:

Steve B. Warnecke

 

Title:

Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board


Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature

 

Title

 

Date

 

 

 

 

 

/s/ Steve B. Warnecke

    

President, Chief Executive Officer, Chief Financial Officer, Director (Principal Executive Officer, Principal Financial/Accounting Officer)

    

March 30, 2020

Steve B. Warnecke

 

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Virginia Orndorff

 

Director

 

March 30, 2020

Virginia Orndorff

 

 

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Mark Boggess

 

Director

 

March 30, 2020

Mark Boggess

 

 

 

 






29



 


Evolutionary Genomics, Inc. and Subsidiary

Consolidated Financial Statements

December 31, 2019 and 2018






Contents



Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets

F-4

 

 

Consolidated Statements of Operations

F-5

 

 

Consolidated Statement of Stockholders’ Equity

F-6

 

 

Consolidated Statements of Cash Flows

F-7

 

 

Notes to Consolidated Financial Statements

F-8











F-1



 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Stockholders and Board of Directors of

Evolutionary Genomics, Inc. and Subsidiary


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Evolutionary Genomics, Inc. and subsidiary (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion


The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.


Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.


Emphasis of Matter


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 13 to the consolidated financial statements, the Company has not generated significant revenue and suffered recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



We have served as the Company’s auditor since 2014.


Denver, Colorado

March 30, 2020




F-2



 


Evolutionary Genomics, Inc. and Subsidiary

Consolidated Balance Sheets


 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

45,441

 

 

$

131,406

 

Accounts receivable

 

 

6,845

 

 

 

40,439

 

Investments

 

 

41,694

 

 

 

28,200

 

Prepaid expenses

 

 

24,183

 

 

 

23,372

 

Total current assets

 

 

118,163

 

 

 

223,417

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

88,882

 

 

 

127,001

 

Intangible assets, net

 

 

4,035,592

 

 

 

4,038,194

 

Total non-current assets

 

 

4,124,474

 

 

 

4,165,195

 

Total assets

 

$

4,242,637

 

 

$

4,388,612

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS'  (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,415

 

 

$

 

Total current liabilities

 

 

19,415

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Deferred tax liability

 

 

987,353

 

 

 

955,446

 

Total liabilities

 

 

1,006,768

 

 

 

955,446

 

Commitments and contingencies

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

20,000,000 authorized at December 31, 2019 and 2018

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

shares authorized, 577,063 shares issued and outstanding at

 

 

 

 

 

 

 

 

December 31, 2019 and 2018; liquidation

 

 

 

 

 

 

 

 

preference at December 31, 2019 of $3,953,227

 

 

3,029,579

 

 

 

3,029,579

 

Series A-2 Convertible Preferred Stock, $0.001 par value; 200,000

 

 

 

 

 

 

 

 

shares authorized, 102,860 shares issued and outstanding at December 31,

 

 

 

 

 

 

 

 

2019 and no shares as of December 31, 2018; liquidation

 

 

 

 

 

 

 

 

preference at December 31, 2019 of $567,028

 

 

540,015

 

 

 

 

Total preferred stock subject to possible redemption

 

 

3,569,594

 

 

 

3,029,579

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred Stock

 

 

950,661

 

 

 

681,282

 

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

 

 

 

 

 

 

 

 

5,881,898 shares issued and outstanding at December 31, 2019 and 2018

 

 

5,882

 

 

 

5,882

 

Additional paid-in capital

 

 

12,081,401

 

 

 

12,294,952

 

Accumulated deficit

 

 

(13,371,669

)

 

 

(12,578,529

)

Total stockholders' (deficit) equity

 

 

(333,725

)

 

 

403,587

 

Total liabilities and stockholders' (deficit) equity

 

$

4,242,637

 

 

$

4,388,612

 




See notes to consolidated financial statements



F-3



 


Evolutionary Genomics, Inc. and Subsidiary

Consolidated Statements of Operations


 

 

For the years ended

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Service and grant revenue

 

$

122,686

 

 

$

114,814

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

472,613

 

 

 

473,992

 

Salaries and benefits

 

 

205,828

 

 

 

248,577

 

General and administrative

 

 

219,070

 

 

 

229,044

 

Total operating expenses

 

 

897,511

 

 

 

951,613

 

 

 

 

 

 

 

 

 

 

Operating (loss)

 

 

(774,825

)

 

 

(836,799

)

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

Investment income

 

 

98

 

 

 

694

 

Unrealized gain (loss) on investments

 

 

13,494

 

 

 

(262,512

)

Total other income (expenses)

 

 

13,592

 

 

 

(261,818

)

Loss before income taxes

 

 

(761,233

)

 

 

(1,098,617

)

Income taxes

 

 

(31,907

)

 

 

 

Net loss

 

 

(793,140

)

 

 

(1,098,617

)

Preferred stock dividend

 

 

(269,379

)

 

 

(242,367

)

Net loss attributable to common stockholders

 

$

(1,062,519

)

 

$

(1,340,984

)

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.18

)

 

$

(0.23

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

5,881,898

 

 

 

5,881,898

 


See notes to consolidated financial statements




F-4



 


Evolutionary Genomics, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity


 

 

Twelve Months Ended December 31, 2019

 

 

 

Common Stock

 

 

Preferred

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Dividend

 

 

Paid-In Capital

 

 

Deficit

 

 

(Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

5,881,898

 

 

$

5,882

 

 

$

681,282

 

 

$

12,294,952

 

 

$

(12,578,529

)

 

$

403,587

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

17,278

 

 

 

 

 

 

17,278

 

Preferred stock dividends

 

 

 

 

 

 

 

 

60,591

 

 

 

(60,591

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(208,797

)

 

 

(208,797

)

Balance, March 31, 2019

 

 

5,881,898

 

 

$

5,882

 

 

$

741,873

 

 

$

12,251,639

 

 

$

(12,787,326

)

 

$

212,068

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

4,563

 

 

 

 

 

 

4,563

 

Preferred stock dividends

 

 

 

 

 

 

 

 

66,004

 

 

 

(66,004

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(189,363

)

 

 

(189,363

)

Balance, June 30, 2019

 

 

5,881,898

 

 

$

5,882

 

 

$

807,877

 

 

$

12,190,198

 

 

$

(12,976,689

)

 

$

27,268

 

Preferred stock dividends

 

 

 

 

 

 

 

 

71,392

 

 

 

(71,392

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162,873

)

 

 

(162,873

)

Balance, September 30, 2019

 

 

5,881,898

 

 

$

5,882

 

 

$

879,269

 

 

$

12,118,806

 

 

$

(13,139,562

)

 

$

(135,605

)

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

33,987

 

 

 

 

 

 

33,987

 

Preferred stock dividends

 

 

 

 

 

 

 

 

71,392

 

 

 

(71,392

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(232,107

)

 

 

(232,107

)

Balance, December 31, 2019

 

 

5,881,898

 

 

$

5,882

 

 

$

950,661

 

 

$

12,081,401

 

 

$

(13,371,669

)

 

$

(333,725

)


 

 

Twelve Months Ended December 31, 2018

 

 

 

Common Stock

 

 

Preferred

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Dividend

 

 

Paid-In Capital

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

5,881,898

 

 

$

5,882

 

 

$

438,915

 

 

$

12,438,742

 

 

$

(11,479,912

)

 

$

1,403,627

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

24,644

 

 

 

 

 

 

24,644

 

Preferred stock dividends

 

 

 

 

 

 

 

 

60,592

 

 

 

(60,592

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(290,071

)

 

 

(290,071

)

Balance, March 31, 2018

 

 

5,881,898

 

 

$

5,882

 

 

$

499,507

 

 

$

12,402,794

 

 

$

(11,769,983

)

 

$

1,138,200

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

24,644

 

 

 

 

 

 

24,644

 

Preferred stock dividends

 

 

 

 

 

 

 

 

60,592

 

 

 

(60,592

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(358,041

)

 

 

(358,041

)

Balance, June 30, 2018

 

 

5,881,898

 

 

$

5,882

 

 

$

560,099

 

 

$

12,366,846

 

 

$

(12,128,024

)

 

$

804,803

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

24,642

 

 

 

 

 

 

24,642

 

Preferred stock dividends

 

 

 

 

 

 

 

 

60,591

 

 

 

(60,591

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(265,299

)

 

 

(265,299

)

Balance, September 30, 2018

 

 

5,881,898

 

 

$

5,882

 

 

$

620,690

 

 

$

12,330,897

 

 

$

(12,393,323

)

 

$

564,146

 

Stock compensation

 

 

 

 

 

 

 

 

 

 

 

24,647

 

 

 

 

 

 

24,647

 

Preferred stock dividends

 

 

 

 

 

 

 

 

60,592

 

 

 

(60,592

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(185,206

)

 

 

(185,206

)

Balance, December 31, 2018

 

 

5,881,898

 

 

$

5,882

 

 

$

681,282

 

 

$

12,294,952

 

 

$

(12,578,529

)

 

$

403,587

 



See notes to consolidated financial statements




F-5





Evolutionary Genomics, Inc. and Subsidiary

Consolidated Statements of Cash Flows


 

 

For the years ended

December 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(793,140

)

 

$

(1,098,617

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,721

 

 

 

41,077

 

Stock-based compensation

 

 

55,828

 

 

 

98,577

 

Unrealized (gain) loss on investments

 

 

(13,494

)

 

 

262,512

 

Deferred income taxes

 

 

31,907

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

33,594

 

 

 

(40,439

)

Prepaid expenses

 

 

(811

)

 

 

(1,307

)

Accounts payable and accrued expenses

 

 

19,415

 

 

 

(10,640

)

Cash flows from operating activities

 

 

(625,980

)

 

 

(748,837

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of preferred stock

 

 

540,015

 

 

 

 

Cash flows from financing activities

 

 

540,015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(85,965

)

 

 

(748,837

)

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

131,406

 

 

 

880,243

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

45,441

 

 

$

131,406

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Preferred stock dividend accrual

 

$

269,379

 

 

$

242,367

 


See notes to consolidated financial statements




F-6



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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


Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.


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.


Investments: The Company’s short-term investments are comprised of equity securities and are carried at their fair value based on the quoted market prices of the securities at December 31, 2019 and 2018. Net realized and unrealized gains and losses on investments 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.




F-7



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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 years ended December 31, 2019 and 2018.


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. 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 discounted cash flows are less than the carrying amount of the asset. No impairment was recorded during the years ended December 31, 2019 and 2018. Realization of this asset is dependent upon the successful completion of the Company’s research and development efforts.


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. The Company adopted this standard on January 1, 2018 using the modified-retrospective method and it did not have a material impact on the consolidated financial statements.


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 consolidated financial statements and net deferred tax assets are adjusted accordingly. As of 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 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.




F-8



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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 year ended December 31, 2019, common stock equivalents including 577,063 shares of Series A-1 convertible preferred stock, 102,860 shares of Series A-2 convertible preferred stock, options for 1,081,667 shares of common stock and warrants for 110,884 shares of common stock were excluded because their effect was anti-dilutive. For the year ended December 31, 2018, 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 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. There was no impact as the Company only has month-to-month leases.


In July 2017, the FASB issued ASU No. ASU 2017-11 which changes the accounting for equity instruments that include a down round feature. For public entities, this update is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. There was no impact on the consolidated financial statements and related disclosures.


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, 2019, including interim periods within that reporting period and did not have an impact on the Company’s consolidated financial statements.

 

Note 4: Fair Value Measurements


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




F-9



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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


Level 1 Inputs – Quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2 Inputs – Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities.


Level 3 Inputs – Unobservable inputs that are supported by little or no market activity.


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


The following table presents the Company’s financial assets that were accounted for at fair value on a recurring basis as of December 31, 2019 and 2018, by level within the fair value hierarchy:


 

 

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, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

28,200

 

 

$

28,200

 

 

$

 

 

$

 

 

 

$

28,200

 

 

$

28,200

 

 

$

 

 

$

 

Balance at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

$

41,694

 

 

$

41,694

 

 

$

 

 

$

 

 

 

$

41,694

 

 

$

41,694

 

 

$

 

 

$

 


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, and accrued expenses, approximates their fair value at December 31, 2019 and 2018 due to the relatively short-term nature of these instruments.


Note 5: Property and Equipment


Property and equipment is comprised of the following:


 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Equipment

 

$

432,499

 

 

$

432,499

 

Software

 

 

63,179

 

 

 

63,179

 

Furniture and fixtures

 

 

7,987

 

 

 

7,987

 

 

 

 

503,665

 

 

 

503,665

 

Accumulated depreciation

 

 

(414,783

)

 

 

(376,664

)

Property and equipment, net

 

$

88,882

 

 

$

127,001

 


Depreciation expense for the years ended December 31, 2019 and 2018 was $38,119 and $38,475, respectively.




F-10



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



Note 6: Intangible Assets


Intangible assets are comprised of the following:


 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Acquired research in progress - indefinite lived

 

$

4,016,596

 

 

$

4,016,596

 

Patents

 

 

52,045

 

 

 

52,045

 

Accumulated amortization

 

 

(33,049

)

 

 

(30,447

)

Intangible assets, net

 

$

4,035,592

 

 

$

4,038,194

 


The Company expects to recognize $2,602 of amortization expense related to its patents during each of the next five years and the remaining $5,986 thereafter. Amortization expense for the patents during the years ended December 31, 2019 and 2018 was $2,602 and $2,602, respectively.


In its merger completed on October 19, 2015, the Company acquired research in progress. The value of the acquired research in progress was based upon several factors including, evaluation of other intangible assets, the purchase price, estimated future cash flows, and the amounts expended on the research to date. 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 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 the second quarter of 2020. Additional costs to complete the research are expected to be approximately $136,000, which will be expensed as incurred. The timing and cost of additional research may vary from these estimates as the success of the research is subject to many factors outside of the Company’s control. 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: Income Taxes


Income tax expense from continuing operations consists of the following:


 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Current income tax expense/(benefit)

 

 

 

 

 

 

Federal

 

$

 

 

$

 

State

 

 

 

 

 

 

Total current income tax expense/(benefit)

 

 

 

 

 

 

Deferred income tax expense/(benefit)

 

 

 

 

 

 

 

 

Federal

 

 

27,096

 

 

 

 

State

 

 

4,811

 

 

 

 

Total deferred tax expense/(benefit)

 

 

31,907

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income tax expense/(benefit)

 

$

31,907

 

 

$

 







F-11



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



Items accounting for the differences between income taxes at statutory income tax rates and the actual effective rate are as follows:


Year Ended December 31,

 

2019

 

 

2018

 

Federal Statutory Rate

 

 

21.00

%

 

 

21.00

%

Effective State Rate

 

 

3.66

%

 

 

3.66

%

Incentive Stock Options

 

 

-1.81

%

 

 

-1.88

%

Officers Life Insurance

 

 

-0.04

%

 

 

0.00

%

Meals And Entertainment

 

 

-0.01

%

 

 

-0.02

%

Organizational Costs

 

 

0.00

%

 

 

0.00

%

R&D Credit

 

 

4.61

%

 

 

0.00

%

Change In Valuation Allowance

 

 

-25.96

%

 

 

-18.12

%

Prior Year Adjustments

 

 

-4.09

%

 

 

0.00

%

Other

 

 

-1.55

%

 

 

-4.64

%

Effective Rate

 

 

-4.19

%

 

 

0.00

%


The components of deferred income tax assets and liabilities were as follows:


 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Deferred tax assets

 

 

 

 

 

 

 

 

Loss carryforwards

 

$

1,933,118

 

 

$

1,753,715

 

Marketable securities

 

 

121,212

 

 

 

124,558

 

Non-qualified stock options

 

 

 

 

 

19,118

 

R&D Credits

 

 

329,186

 

 

 

294,087

 

Less valuation allowance

 

 

(2,372,656

)

 

 

(2,175,021

)

Deferred tax assets

 

$

10,860

 

 

$

16,457

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

Depreciation/amortization

 

$

(10,860

)

 

$

(16,457

)

Intangible assets

 

 

(987,353

)

 

 

(955,446

)

Deferred tax liabilities

 

$

(998,213

)

 

$

(971,903

)

 

 

 

 

 

 

 

 

 

Totals

 

$

(987,353

)

 

$

(955,446

)


The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from the maximum rate of 35% to 21%; limitations on the deductibility of interest expense and executive compensation; eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; changing the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2018; and, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.


The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.


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. The Company assesses its past earnings history and trends and projections of future net income. The Company recorded a valuation allowance for the entire amount of the net deferred tax asset at December 31, 2019 and 2018. The change in the valuation allowance during the years ended December 31, 2019 and 2018 was an increase of $198,000 and $271,000, respectively. The Company will continue to review this valuation allowance and make adjustments as appropriate.



F-12



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



As of December 31, 2019 and 2018, the Company maintained net operating loss (“NOL”) carryforwards of approximately $7,839,000 and $7,140,000. Use of NOL carryforwards are limited by the provisions of Section 382 of the Internal Revenue Code. At this point, the Company has not performed an analysis to determine whether an ownership change (as defined under Section 382) occurred during this year or preceding years. A determination of the potential impact these provisions might have on the utilization of net operating losses will be made when the net operating loss is projected to be utilized. The NOL carryforwards expire at various intervals through 2037, except the NOL for the years beginning after December 31, 2017, which have no expiration date. In addition, the Company has R&D credits of $329,000 that will expire at various intervals through 2039.


The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. At this time, the Company does not have any uncertain tax positions to assess.


Note 8: Stockholders’ Equity and Warrants


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


Liquidation: Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A-1 and Series A-2 shall be entitled to receive out of the assets of the Company for each share of Series A-1 and Series A-2 an amount equal to its stated value, $5.25 per share as of December 31, 2019 and 2018, 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 December 31, 2019, 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 December 31, 2019, 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 December 31, 2019, there were $950,661 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.




F-13



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



Warrants: As of December 31, 2019 and 2018, the Company had outstanding warrants to purchase 110,884 and 110,884 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, 2018

 

 

110,884

 

 

$

6.60

 

 

 

2.87

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

110,884

 

 

$

6.60

 

 

 

1.87

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

110,884

 

 

$

6.60

 

 

 

0.87

 


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 reload in the Plan for future issuance. For the years ended December 31, 2019 and 2018, the Company recorded compensation costs for incentive stock options of $55,828 and $98,577, 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 options for 640,000 shares of common stock during the year ended December 31, 2019 and none in the year ended December 31, 2018.


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.




F-14



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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, 2018

 

 

566,667

 

 

$

2.33

 

 

 

6.95

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

566,667

 

 

$

2.33

 

 

 

5.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

 

566,667

 

 

$

2.33

 

 

 

5.95

 

 

 

 

 

Granted

 

 

640,000

 

 

 

1.54

 

 

 

9.83

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(125,000

)

 

 

3.00

 

 

 

7.00

 

 

 

 

 

Balance, December 31, 2019

 

 

1,081,667

 

 

$

1.74

 

 

 

7.85

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2019

 

 

508,333

 

 

$

1.96

 

 

 

6.08

 

 

$

177,334

 


During the years ended December 31, 2019 and 2018, options for 183,333 and 116,666 shares vested, respectively. As of December 31, 2019, there was $625,168 unrecognized compensation cost related to share-based compensation arrangements that will be recognized over the next four years.


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 December 31, 2019. Renewals after June 30, 2017 are by mutual agreement. The Company’s rent expense for the years ended December 31, 2019 and 2018 was $28,535 and $26,157, 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 December 31, 2019, thus limiting any future royalties as of December 31, 2019 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 years ended December 31, 2019 and 2018 because it has not received any revenue from the sale of products to date.




F-15



Evolutionary Genomics, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2019 and 2018



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 December 31, 2019.


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 and Going Concern


Sources of funding to meet prospective cash requirements include the Company’s existing cash balances and investments along with grant funds. As of December 31, 2019 we had $45,441 in our bank accounts, $6,845 of receivables under our grant agreement and $41,694 of trading securities. This will not be enough to pay for our expenses for the year ending December 31, 2020 without any additional revenue from grants or licensing revenue or additional capital infusions. We expect to market our soybean genes and our banana genes in 2020 which may lead to revenue. We have flexibility to reduce operating costs and also to delay research projects. We will require additional capital to complete our projects. These factors create substantial doubt as to our ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that may result if the Company is unable to continue as a going concern.



F-16


 


EXHIBIT 3.4


EVOLUTIONARY GENOMICS, INC.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,

 

RIGHTS AND LIMITATIONS

 

OF

 

SERIES A-2 CONVERTIBLE PREFERRED STOCK


       The undersigned, the Chief Executive Officer of Evolutionary Genomics, Inc., a Nevada corporation (the “Corporation”), in accordance with the provisions of the Nevada Revised Statutes, does hereby certify:

 

       That pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, a series of preferred stock, par value $0.001 per share, designated as “Series A-2 Convertible Preferred Stock” and consisting of Two Hundred Thousand (200,000) shares, is hereby created by means of the filing of this Certificate of Designation of Preferences, Rights and Limitations of Series A-2 Convertible Preferred Stock of the Corporation (the “Certificate of Designation”) with the Secretary of State of the State of Nevada; and

 

       That this Certificate of Designation was duly approved by the Corporation’s Board of Directors in accordance with the provisions of Section 78.195 of the Nevada Revised Statutes and by the requisite holders of the Corporation’s Series A-2 Convertible Preferred Stock in accordance with the Certificate of Designation.

 

       NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of Series A-2 Convertible Preferred Stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of Series A-2 Convertible Preferred Stock as follows:


TERMS OF SERIES A-2 CONVERTIBLE PREFERRED STOCK

 

 Section 1.      Definitions.                    For the purposes hereof, the following terms shall have the following meanings:

 

A-1 Holder” means holder of Series A-1 Preferred Stock.


A-2 Holder” means holder of Series A-2 Preferred Stock.


Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.


Common Stock" means the Corporation's common stock, par value $0.001 per share, and stock of any other class into which such shares may hereafter have been reclassified or changed.


Conversion Shares” shall have the meaning given such term is Section 5(b)(i) hereof.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

    “Excluded Stock” shall mean Common Stock or other securities of the Corporation issued or to be issued (i) pursuant to the conversion, exercise or exchange of securities outstanding on the Issuance Date, (ii) pursuant to the exercise of any equity securities at an exercise or conversion price greater than the Conversion Price, (iii) in accordance with the Corporation’s stock option plan or stock purchase plan, or otherwise issued to the Corporation’s






 


employees, consultants or directors in transactions not primarily for equity financing purposes and approved by a majority of the members of the Compensation Committee of the Corporation or the Board of Directors, (iv) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the primary purpose of raising capital, (v) except as otherwise provided herein, and following any applicable adjustment in the Conversion Price, upon the actual issuance of Common Stock or securities convertible into Common Stock at the time of exercise of any rights, options or warrants to purchase Common Stock or any securities convertible into Common Stock, as appropriate, or upon conversion or exchange of securities convertible into Common Stock, or (vi) to the extent provided for herein, any shares of Series A-2 Preferred Stock or dividends thereon issued on or after the Issuance Date pursuant to the terms herein.


    “Issuance Date” means the initial issuance date of the Series A-2 Preferred Stock.

 

Person” means a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency.


    “Securities Act” means the Securities Act of 1933, as amended.

 

      “Trading Day” means a day on which the principal Trading Market is open for trading; provided, that in the event that the Common Stock is not listed or quoted on a Trading Market, then Trading Day shall mean a Business Day.

 

      “Trading Market” means whichever of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:  the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the OTC Bulletin Board or any tier of the OTC Markets Group, Inc. (or any successors to any of the foregoing).

 

Section 2.       Designation and Amount; Rank; and Dividends.

 

           a)            Designation and Amount.  The series of preferred stock shall be designated as its Series A-2 Convertible Preferred Stock (the “Series A-2 Preferred Stock”) and the number of shares so designated shall be two hundred thousand (200,000) shares which shall not be subject to increase without the consent of a majority of the holders of the Series A-2 Preferred Stock (individually the “Holder” or collectively the “Holders”). Each share of Series A-2 Preferred Stock shall have a stated value equal to $5.25 (as may be adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Stated Value”). Capitalized terms not otherwise defined herein shall have the meaning given such terms in Section 1 hereof.

 

         b)            Rank.  All shares of the Series A-2 Preferred Stock shall rank (i) senior to the Corporation’s Common Stock, (ii) pari passu with Series A-1 Preferred Stock and any class or series of capital stock of the Corporation hereafter created and specifically ranking, by its terms, on par with the Series A-2 Preferred Stock and (iii) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking, by its terms, senior to the Series A-2 Preferred Stock, in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.


           c)            Dividends.  


i.

The Corporation shall pay to the Holders dividends from net profits or net assets of the Corporation legally available for the payment of such dividends, which shall begin to accrue on and be cumulative from the date of issuance of the Series A-2 Preferred (whether or not such dividends have been declared) in an annual amount equal to the product of (x) the Stated Value of such Series A-2 Preferred and (y) eight percent (8%) per annum (the “Dividend Amount”). The Dividend Amount shall accrue and shall be payable in shares of Common Stock upon the conversion of the Series A-2 Preferred Stock, or upon the redemption of the Series A-2 Preferred Stock, in each case pursuant to the terms hereof.  No dividends shall be paid on any Common Stock of the Corporation or any capital stock of the Corporation that ranks junior to the Series A-2 Preferred Stock during any fiscal year of the Corporation until dividends in the aggregate Dividend Amount per share (as adjusted for any stock dividends, combinations or splits with respect to






 


such shares) of Series A-2 Preferred Stock for the current and each prior Dividend Payment Date shall have been paid or declared and set apart for payment to the Holders.


ii.    In the event that the Corporation shall at any time pay a dividend on the Common Stock, it shall, at the same time, pay to each Holder a dividend equal to the dividend that would have been payable to such Holder if the shares of Series A-2 Preferred Stock held by such Holder had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividends; and provided, further, that so long as any shares of the Series A-2 Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment on any other preferred stock of the Corporation of any series ranking, as to dividends, junior to or on a parity with the Series A-2 Preferred, unless a dividend shall be paid at the same time to each Holder, in an amount such that the holders of such other series of preferred stock, on the one hand, and the Holders of Series A-2 Preferred Stock, on the other, receive dividends in the same relative proportions that each would have received had all such shares of preferred stock been converted into Common Stock immediately prior to the declaration of a dividend on such preferred stock.


 Section 3.      Voting Rights. Subject to the limitations set forth in Section 8 herein, the Holder of each share of Series A-2 Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A-2 Preferred Stock could be converted for purposes of determining the shares entitled to vote at any regular, annual or special meeting of stockholders of the Corporation, and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A-2 Preferred Stock held by each Holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

 

Section 4.        Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders of Series A-2 Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus, for each share of Series A-2 Preferred Stock an amount equal to its Stated Value plus any accrued but unpaid dividends (the “Liquidation Preference”) before any distribution or payment shall be made to the holders of any other class or series of stock of the Corporation that ranks junior to the Series A-2 Preferred Stock, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders of Series A-2 Preferred Stock and any other class of stock any class or series of capital stock of the Corporation specifically ranking, by its terms, on par with the Series A-2 Preferred Stock and shall be distributed among the holders of those classes of stock ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record Holder of Series A-2 Preferred Stock and the Holders of Series A-2 Preferred Stock shall be entitled to convert their shares of Series A-2 Preferred Stock into Common Stock pursuant to Section 5 hereof at any time prior to the consummation of a Liquidation.

 

Section 5.       Conversion.

 

           a)            Conversions at Option of Holder. The Holder of any share or shares of Series A-2 Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series A-2 Preferred Stock into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying (i) the number of shares of Series A-2 Preferred Stock so to be converted by (ii) the Liquidation Preference per share, and then by dividing such product by (iii) the conversion price of $5.25 per share or, if there has been an adjustment of the conversion price, by the conversion price as last adjusted and in effect at the date any share or shares of Series A-2 Preferred are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the “Conversion Price”).  Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series A-2 Preferred Stock to be converted, the number of shares of Series A-2 Preferred Stock owned prior to the conversion at issue, the number of shares of Series A-2 Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the Holder delivers such Notice of Conversion to the Corporation by facsimile or






 


electronic mail (email) (the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.  To effect conversions, as the case may be, of shares of Series A-2 Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Series A-2 Preferred Stock to the Corporation unless all of the shares of Series A-2 Preferred Stock represented thereby are so converted, in which case the Holder shall deliver the certificate representing such shares of Series A-2 Preferred Stock promptly following the Conversion Date at issue.  Shares of Series A-2 Preferred Stock converted or redeemed in accordance with the terms hereof shall be canceled and may not be reissued.

 

           b)            Mechanics of Conversion.

 

i.               Delivery of Certificate Upon Conversion.  Not later than five (5) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver to the Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of shares of Series A-2 Preferred Stock (the “Conversion Shares”). If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Corporation shall immediately return the certificates representing the shares of Series A-2 Preferred Stock tendered for conversion.

 

ii.           Obligation Absolute.   The Corporation’s obligations to issue and deliver the Conversion Shares upon conversion of Series A-2 Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination.


      iii.           Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of the Series A-2 Preferred Stock, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions of herein) upon the conversion or redemption of all outstanding shares of Series A-2 Preferred Stock.  The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable.


      iv.           Transfer Taxes.   The issuance of certificates for shares of the Common Stock on conversion of the Series A-2 Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Corporation shall not be required to pay any tax that may be payable in respect of  any  transfer  involved  in  the  issuance  and  delivery  of  any  such certificate upon conversion in a name other than that of the Holder of such shares of Series A-2 Preferred Stock so converted and the Corporation shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

Section 6.      Optional Redemption; Sinking Fund Account.  


(a)

At any time after the Issuance Date, the Corporation may deliver a notice to the Holders (the “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to redeem some or all of the then outstanding shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock (together, the “Series A Preferred Stock”), (i) for cash in an amount equal to the Liquidation Preference per share and (ii) by issuing such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying (x) the number of shares of Series A Preferred Stock so to be redeemed by (y) the Liquidation Preference per share of the Series A Preferred Stock, and then by dividing such product by (z) the Conversion Price per share, payable






 


and issuable, respectively, in full on the 5th Trading Day following the Optional Redemption Notice Date.  To be clear, upon redemption pursuant to this Section 6(a), Holders will receive a cash redemption and shares of common stock.


(b)

The Corporation shall, within five (5) Business Days following the Issuance Date, establish a segregated non-interest bearing trust account (the “Sinking Fund Account”) for the benefit of the holders of Series A Preferred Stock.  50% of all licensing fees received by the Corporation following the Issuance Date shall be deposited in the Sinking Fund Account within five (5) Business Days of receipt of any such fees by the Corporation.  In the event that the amount of cash in the Sinking Fund Account exceeds the Liquidation Preference of all issued and outstanding shares of Series A Preferred Stock not previously redeemed or converted pursuant to the terms hereof, the Corporation shall deliver a notice to the Holders (the “Mandatory Redemption Notice” and the date such notice is deemed delivered hereunder, the “Mandatory Redemption Notice Date”) of its obligation to redeem all of the then outstanding shares of Series A Preferred Stock (i) for cash in an amount equal to the Liquidation Preference per share and (ii) by issuing such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying (x) the number of shares of Series A Preferred Stock so to be redeemed by (y) the Liquidation Preference per share of the Series A Preferred Stock, and then by dividing such product by (z) the Conversion Price per share, payable and issuable, respectively, in full on the 5th Trading Day following the Mandatory Redemption Notice Date.


Section 7.       Certain Adjustments.

 

           a)        Stock Dividends and Stock Splits.  If the Corporation, at any time while the Series A-2 Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Series A-2 Preferred Sock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, then the Holders shall receive, upon conversion, the number of shares of Common Stock such Holder would have been entitled to receive assuming such Holder converted such Series A-2 Preferred Stock immediately prior to the applicable event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.


b)                Adjustments for Issuance of Additional Shares of Common Stock.  In the event the Corporation, shall, at any time, from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsection (a) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (“Additional Shares of Common Stock”), other than Excluded Stock, at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced concurrently with such issue, to a price (calculated to the nearest cent) determined in accordance with the following formula:

CP2 = CP1* (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

(i)

“CP2” shall mean the Conversion Price in effect immediately after such issue of Additional Shares of Common Stock;

(ii)

“CP1” shall mean the Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;

(iii)

“A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock;






 


(iv)

“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and

(v)

“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

           c)               Issuance of Common Stock Equivalents. The provisions of this Section 7(c) shall apply if (a) the Corporation, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock ("Convertible Securities"), other than Excluded Stock, or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the "Common Stock Equivalents"), other than Excluded Stock, shall be issued or sold.  If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in Section 7(b).  No adjustment shall be made to the Conversion Price upon the issuance of Common Stock pursuant to the exercise, conversion or exchange of any Convertible Security or Common Stock Equivalent where an adjustment to the Conversion Price was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent.

 

           d)               Certain Issues Excepted.  Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment to the Conversion Price in connection with any issuance of Excluded Stock.

 

           e)               Pro Rata Distributions. If the Corporation, at any time while Series A-2 Preferred Stock is outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case, the Holders shall receive, upon conversion, the number of shares of Common Stock or other property such Holder would have been entitled to receive assuming such Holder converted such Series A-2 Preferred Stock immediately prior to the applicable event. The adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

           f)         Calculations.   All calculations under this Section shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

           g)      Notice to Holders; Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any of this Section, the Corporation shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 
Section 8.       Conversion Restrictions.

 

      a)        Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may a Holder of shares of Series A-2 Preferred Stock convert shares of the Series A-2 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, the number of shares of Common Stock which would result in such Holder and its affiliates beneficially owning (as determined in accordance with






 


Section 13(d) of the Exchange Act, and the rules thereunder) in excess of 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon a Holder providing the Corporation with sixty-one (61) days notice (pursuant to Section 9(b) hereof) (the "Waiver Notice") that such Holder would like to waive this Section 8(a) with regard to any or all shares of Common Stock issuable upon conversion of Series A-2 Preferred Stock, this Section 8(a) shall be of no force or effect with regard to  those  shares of  Series A-2 Preferred Stock referenced in the Waiver Notice.

 

      b)        Notwithstanding anything to the contrary set forth in this Certificate of Designation, at no time may a Holder of shares of Series A-2 Preferred Stock convert shares of the Series A-2 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such Holder and its affiliates at such time, would result in such Holder and its affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act, and the rules thereunder) in excess of 9.99% of the Common Stock outstanding at such time; provided, however, that upon a Holder providing the Corporation with a Waiver Notice that such Holder would like to waive this Section 8(b) with regard to  any or  all shares of  Common Stock issuable upon conversion of Series A-2 Preferred Stock, this Section 8(b) shall be of no force or effect with regard to those shares of Series A-2 Preferred Stock referenced in the Waiver Notice.


Section 9.       Miscellaneous.

 

            a) Notices.  Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without limitation, any Notice of Conversion, shall  be  in  writing  and  delivered  personally,  by  facsimile,  by electronic mail (email) or sent  by  a nationally recognized overnight courier service, addressed to the Corporation.  Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, electronic mail (email), or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number, electronic mail (email) address or address of such Holder appearing on the books of the Corporation, or if no such facsimile telephone number, electronic mail (email) address, or address appears, at the principal place of business of the Holder.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified, or electronic mail (email) at the electronic mail (email) address specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified or electronic mail (email) at the electronic mail (email) address specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given

 

            b)        Lost or Mutilated Series A-2 Preferred Stock Certificate.   If a Holder’s Series A-2 Preferred Stock  certificate shall  be  mutilated,  lost,  stolen  or  destroyed,  the  Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A-2 Preferred Stock so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Corporation.

 

            c)        Transfer and Assignment.  The rights of each Holder hereunder shall be automatically assignable by each Holder to any Person (other than a known competitor of the Corporation) of all or a portion of the Series A-2 Preferred Stock if: (i) the Holder agrees in writing  with  the  transferee  or  assignee  to  assign  such  rights,  and  a  copy  of  such agreement is furnished to the Corporation within a reasonable time after such assignment, (ii) the Corporation is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and  (b)  the  number  of  shares  of  Preferred  Stock  with  respect  to  which  are  being transferred or assigned, and (iii) following such transfer or assignment the further disposition of such Series A-2 Preferred Stock is restricted under the Securities Act and applicable state securities laws.  The rights to transfer and assign the Series A-2 Preferred Stock shall apply to the Holders (and to subsequent) successors and assigns.

 






 


            d)        Waiver.  Any waiver by the Corporation or the Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation.   The failure of the Corporation or the Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver must be in writing.

 

            e)         Severability.  If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.

 

            f)        Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

            g)        Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

 


IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 24th day of April, 2019.

 



EVOLUTIONARY GENOMICS, INC.



By: /s/ Steve B. Warnecke

Name: Steve B. Warnecke

Title:   Chairman, President and Chief Executive Officer


 

             

                 

  

  






 



ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A-2 PREFERRED STOCK)


The undersigned hereby elects to convert the number of shares of Series A-2 Convertible Preferred Stock indicated below, into shares of common stock (the "Common Stock"), of Evolutionary Genomics, Inc., a Nevada corporation (the "Corporation"), according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Corporation in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.

 

Conversion calculations:


Date to Effect Conversion:                                                                                         

 

Number of shares of Series A-2 Preferred Stock owned prior to Conversion:                                                                                                                           

 

Number of shares of Series A-2 Preferred Stock to be Converted:                                                                                                         

 

Number of shares of Common Stock to be Issued:                                                                                                                             

 

  [A-2 HOLDER]

 

  

By: Name: Title:








 


EXHIBIT 10.13


[FNAM_EX10Z13001.JPG]



EXHIBIT 31.1

CERTIFICATION

I, Steve Warnecke, certify that:

1. I have reviewed this annual report on Form 10-K of Evolutionary Genomics, Inc.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting .

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

March 30, 2020

 

 

BY:  

/s/ Steve Warnecke

 

Steve Warnecke

 

Chief Executive Officer

 

(principal executive officer)




EXHIBIT 31.2

CERTIFICATION

I, Steve Warnecke, certify that:

1. I have reviewed this annual report on Form 10-K of Evolutionary Genomics, Inc.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting .

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

March 30, 2020

 

 

BY:  

/s/ Steve Warnecke

 

Steve Warnecke

 

Chief Financial Officer

 

(principal financial officer)




EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Evolutionary Genomics, Inc. (the "Company") on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steve B Warnecke, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




BY:  

/s/ Steve B Warnecke

 

Steve B Warnecke

 

Chief Executive Officer

 

(principal executive officer)

 

March 30, 2020




EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Evolutionary Genomics, Inc. (the "Company") on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steve B Warnecke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




BY:  

/s/ Steve B Warnecke

 

Steve B Warnecke

 

Chief Financial Officer

 

(principal financial officer)

 

March 30, 2020