| As filed with the Securities and Exchange Commission on November 20, 2024 |
Registration Statement No. 333-______ |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM F-7
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
_______________
Burcon NutraScience Corporation
(Exact name of Registrant as specified in its charter)
British Columbia
(Province or other jurisdiction of incorporation or organization) |
2000
(Primary Standard Industrial Classification Code Number
(if applicable)) |
98-0686585
(I.R.S. Employer Identification Number
(if applicable)) |
Suite 490 - 999 West Broadway
Vancouver, British Columbia, Canada
V5Z 1K5
(604) 733-0896
(Address and telephone number of Registrant's principal executive offices)
CT Corporation System
28 Liberty St.
New York, NY 10005
212-894-8940
(NAME, ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF AGENT FOR SERVICE IN THE UNITED STATES)
________________
Copies to:
Kimberley R. Anderson
Dorsey & Whitney LLP
Columbia Center
701 Fifth Avenue, Suite 6100
Seattle, Washington 98104-7043
(206) 903-8800 |
Victor Gerchikov
Stikeman Elliott LLP
Suite 1700, Park Place
666 Burrard Street
Vancouver, British Columbia, Canada
V6C 2X8
(604) 631-1300 |
_______________
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.
This registration statement and any amendment thereto shall become effective upon filing with the Commission in accordance with Rule 467(a).
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction's shelf prospectus offering procedures, check the following box. ☐
CALCULATION OF REGISTRATION FEE
|
Title of each class of securities
to be registered
|
Amount to be
registered
|
Proposed
maximum offering
price per common share
|
Proposed
maximum aggregate offering price (1) (2)
|
Amount of
registration fee (1) (2)
|
|
Common Shares
|
142,628,096
|
U.S.$0.0608
|
U.S.$8,671,859.55
|
U.S.$1,327.66
|
(1) Estimated solely for the purpose of calculating the registration fee pursuant to General Instruction II.F.
(2) Based on the Canadian offering price of Cdn$0.085 converted using exchange rate of Cdn.$1.00 to U.S.$0.7153, the daily average rate as reported by the Bank of Canada on November 19, 2024.
If, as a result of stock splits, stock dividends or similar transactions, the number of securities purported to be registered on this registration statement changes, the provisions of Rule 416 under the Securities Act of 1933, as amended, shall apply to this registration statement.
PART I-INFORMATION REQUIRED TO BE SENT TO SHAREHOLDERS
Item 1. Home Jurisdiction Document
Rights Offering Circular and Notice to Security Holders, attached hereto.
All references to CDN $ or $ in the Rights Offering Circular and Notice to Security Holders refer to Canadian Dollars.
Item 2. Informational Legends
See the Rights Offering Circular, attached hereto.
Item 3. Incorporation of Certain Information by Reference
None.
Item 4. List of Documents Filed with the Commission
The documents filed with the United States Securities and Exchange Commission as part of this registration statement are listed in the Rights Offering Circular under the caption "Documents Filed as Part of the Registration Statement".
This rights offering circular (this "Circular") is prepared by management. No securities regulatory authority or regulator has assessed the merits of these securities or reviewed this Circular. Any representation to the contrary is an offence.
This is the Circular we referred to in the November 20, 2024 rights offering notice, which you should have already received. If you are a registered shareholder, your rights direct registration advice and subscription form were enclosed with the rights offering notice. This circular should be read in conjunction with the rights offering notice and our continuous disclosure prior to making an investment decision.
This Circular does not constitute an offer or a solicitation to any person in any jurisdiction in which such offer or solicitation is unlawful. The Rights Offering (as defined below) is not being made to, nor will deposits be accepted from or on behalf of, Burcon shareholders in any jurisdiction in which the making or acceptance of the Rights Offering would not be in compliance with the laws of such jurisdiction. However, Burcon may, in its sole discretion, take such action as it may deem necessary to extend the Rights Offering in any such jurisdiction.
| Rights Offering Circular |
November 20, 2024 |
BURCON NUTRASCIENCE CORPORATION
We currently have sufficient working capital to last 3 months. We require at least 65% of the offering to last 12 months.
This rights offering is made by a Canadian issuer that is permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare this Circular in accordance with the disclosure requirements under Canadian securities laws. Prospective investors should be aware that those requirements are different from those of the United States. Financial statements included or incorporated herein have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and are subject to Canadian auditing and auditor independence standards, and thus may not be comparable to financial statements of United States companies.
Prospective investors should be aware that the acquisition of the securities described herein may have tax consequences both in the United States and in Canada. Such consequences for investors who are resident in, or citizens of, the United States may not be described fully herein.
The enforcement by investors of civil liabilities under U.S. federal securities laws may be affected adversely by the fact that the issuer is organized under the laws of the British Columbia, Canada, that some of its directors and officers are residents of Canada, and that a substantial portion of the assets of the issuer and of said persons are located outside the United States.
THE SECURITIES OFFERED UNDER THIS RIGHTS OFFERING HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION ("SEC") OR ANY STATE SECURITIES REGULATOR NOR HAS THE SEC OR ANY STATE SECURITIES REGULATOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
SUMMARY OF OFFERING
Reference in this notice to "we", "our", "us" and similar terms means Burcon NutraScience Corporation ("Burcon" or the "Company"). Reference in this notice to "you", "your" and similar terms mean to Burcon shareholders. Unless otherwise indicated, reference herein to "$" or "dollar" are to Canadian dollars. Certain terms used in this Circular are defined elsewhere herein.
WHY ARE YOU READING THIS CIRCULAR?
We are issuing to the holders of common shares in the capital of the Company (the “Common Shares”) of record at 5:00 p.m. (Toronto time) on November 27, 2024 (the “Record Date”) and who are resident in Canada and to shareholders in the United States (subject to restrictions in certain states as set forth in the following paragraph) (the “Eligible Jurisdictions”) and outside the Eligible Jurisdictions where the Company is eligible to make such offer, transferrable rights (“Rights”) to subscribe for Common Shares on the terms described in this Circular (the “Rights Offering”). This Circular provides additional details about the Rights Offering referred to in the Rights Offering notice dated November 20, 2024 (the “Notice”), a copy of which has been filed on SEDAR+ at www.sedarplus.ca and will be mailed to the holders of Common Shares on or about December 2, 2024.
This circular covers the offer and sale of the Common Shares issuable upon exercise of the Rights within the United States under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"). Notwithstanding registration under the U.S. Securities Act, the securities or blue sky laws of certain states (including Arizona, Arkansas, California, Minnesota, Ohio, and Wisconsin) may restrict exercise of the Rights. The Company intends to seek an exemption from the registration requirements of Arizona, Arkansas, Minnesota, and Wisconsin (the "Filing States") to allow the exercise of Rights by shareholders in those states. In certain states, including California and Ohio and any Filing State in which the Company is unable to obtain an exemption from state registration requirements, Rights may only be exercised by shareholders to which solicitations may be addressed without registration under the relevant state securities laws ("Eligible U.S. Institutions"). Shareholders resident in, or that hold their securities for the account or benefit of any person in, any such jurisdiction that wish to determine if they are Eligible U.S. Institutions should contact the Company, Attention: Dorothy Law at dlaw@burcon.ca. Holders in, or that hold their securities for the account or benefit of any person in, such jurisdictions that are not Eligible U.S. Institutions will not be permitted to exercise their Rights ("Ineligible U.S. Holders"). Neither the offering notice nor this circular is to be constructed as an offering of the Common Shares issuable upon exercise of the Rights to any Ineligible U.S. Holder.
WHAT IS BEING OFFERED?
Each holder of Common Shares on the Record Date resident in an Eligible Jurisdiction (an "Eligible Holder") will receive one Right for each Common Share held as of the Record Date.
WHAT DOES ONE RIGHT ENTITLE YOU TO RECEIVE?
You are entitled to subscribe for one Common Share for each Rights held upon payment of the Subscription Price (as defined below) per share (the "Basic Subscription Privilege"). No fractional Common Shares will be issued. If you exercise your Basic Subscription Privilege in full, you will also be entitled to subscribe pro rata for Common Shares (the "Additional Common Shares") not otherwise purchased, if any, pursuant to the Basic Subscription Privilege (the "Additional Subscription Privilege").
WHAT IS THE SUBSCRIPTION PRICE?
The subscription price per Common Share is $0.085 (the “Subscription Price”).
WHEN DOES THE OFFER EXPIRE?
The Rights may be exercised commencing on November 27, 2024 until 5:00 p.m. (Toronto time) on February 12, 2025 (the “Expiry Time”). Rights not exercised at or before the Expiry Time will be void and of no value.
WHAT ARE THE SIGNIFICANT ATTRIBUTES OF THE RIGHTS ISSUED UNDER THE RIGHTS OFFERING AND THE SECURITIES TO BE ISSUED UPON THE EXERCISE OF THE RIGHTS?
The Rights permit the holders thereof to subscribe for and purchase from Burcon an aggregate of up to 142,628,096 Common Shares based on the 142,628,096 Common Shares outstanding as of the date hereof and one Right is required to acquire one Common Share. During this period, the Rights will trade on the Toronto Stock Exchange (the "TSX") and holders of Rights may sell their Rights through facilities of the TSX. The Rights may not be transferred to any person within the United States. The Rights held by holders in the United States may be transferred only through the facilities of the TSX in transactions that comply with Regulation S under the U.S. Securities Act. The Rights are fully transferable into and within Canada and will be evidenced by direct registration system advice ( "Rights DRS Advice") representing the number of Rights to which you are entitled as of the Record Date. One Right will entitle the holder thereof to subscribe for one Common Share at the Subscription Price prior to the Expiry Time.
The authorized capital of the Company consists of an unlimited number of Common Shares without par value. As at the date hereof, there are 142,628,096 Common Shares issued and outstanding as fully paid and non-assessable. In addition, as of the date hereof, the Company has outstanding incentive stock options to purchase 8,845,056 Common Shares, outstanding restricted share units redeemable for 323,000 Common Shares, as well as outstanding warrants to purchase 28,030,037 Common Shares. Assuming all of the Rights are exercised and no other issuances of Common Shares occur before the Expiry Time, the Company will have 285,256,192 Common Shares outstanding immediately after the Expiry Time.
The holders of Common Shares are entitled to one vote per Common Share held at meetings of the holders of Common Shares, to dividends if, as and when declared by the Company's board of directors and, in the event of the liquidation, dissolution or winding-up of the Company, to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, subject to the rights of any securities having priority over the Common Shares.
WHAT ARE THE MINIMUM AND MAXIMUM NUMBER OR AMOUNT OF COMMON SHARES THAT MAY BE ISSUED UNDER THE RIGHTS OFFERING?
The Rights Offering is not subject to any minimum subscription level. Based on the 142,628,096 Common Shares outstanding as of the date hereof, a maximum of 142,628,096 Common Shares will be issued upon exercise of the Rights as one Right will entitle the holder thereof to subscribe for one Common Share.
WHERE WILL THE RIGHTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THE RIGHTS BE LISTED FOR TRADING?
The Common Shares are listed on the TSX under the symbol “BU”, the OTCQB (“OTC”) under the symbol “BRCNF”, and the Frankfurt Stock Exchange (“FWB”) under the symbol “BNE”. The TSX has conditionally approved the listing of the Rights and the Common Shares issuable upon the exercise of the Rights. Such listing will be subject to the Company fulfilling all of the listing requirements of the TSX. The Rights will be listed on the TSX under the symbol “BU.RT” and holders of Rights may sell their Rights through facilities of the TSX. See “Are there restrictions on the resale of securities?” below. Trading in the Rights on the TSX will cease at 12:00 p.m. (Toronto time) on February 12, 2025.
FORWARD LOOKING STATEMENTS
This Circular contains certain "forward-looking statements" and "forward-looking information" as defined under applicable Canadian and U.S. securities laws (collectively, "forward-looking statements"). All statements, other than statements of historical fact, are forward-looking statements. When used in this Circular, the words "estimate", "project", "believe", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", or the negatives of these words or other variations thereof and comparable terminology are intended to identify forward-looking statements. The forward-looking statements pertain to, among other things: the timing of and other procedural matters associated with the Rights Offering; the funds to be raised under the Rights Offering; estimated costs of the Rights Offering; the successful completion of the Rights Offering; the use of proceeds from the Rights Offering, including any discussions of potential expansions of production capacity; the Company's estimate of how long the funds raised in the Rights Offering will last from the Expiry Time; the anticipated dilution of shareholders of the Company and liquidity and working capital of the Company.
The forward-looking statements are based on a number of key expectations and assumptions made by management of the Company, including, but not limited to: the maximum number of Common Shares being issued pursuant to the Rights Offering; the estimated cost of the Rights Offering; the estimated amount of funds raised under the Rights Offering; the operating expenses of the Company following the Expiry Time; the availability of additional capital; the Company's ability to continue as a going concern; and general economic and financial market conditions.
Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on such forward-looking statements. The forward-looking statements reflect the Company's current views with respect to future events based on currently available information and are inherently subject to risks and uncertainties. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this Circular, including, but not limited to: the maximum number of Common Shares being issued pursuant to the Rights Offering being lower than expected; the uncertainty associated with estimating actual costs incurred in the Rights Offering; the actual amount of funds raised under the Rights Offering; the actual operating expenses of the Company for the 12-month period following the Expiry Time; delays in obtaining or failure to obtain required approvals to complete the Rights Offering; the impact of issuance of additional Common Shares on the market price of the Common Shares; the condition of the global economy; and the Company's access to funding and its ability to provide the capital required for product development, operations and marketing efforts, and working capital requirements.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in assumptions or the occurrence of anticipated or unanticipated events, except as required by law.
The Company qualifies all the forward-looking statements contained in this Circular by the foregoing cautionary statements.
USE OF AVAILABLE FUNDS
WHAT WILL OUR AVAILABLE FUNDS BE UPON THE CLOSING OF THE RIGHTS OFFERING?
The following table outlines our available funds upon closing of the Rights Offering:
| |
|
|
Assuming 15% of
offering |
|
|
Assuming 50% of
offering |
|
|
Assuming 75% of
offering |
|
|
Assuming 100% of
offering |
|
| A |
Amount to be raised by this offering |
$ |
1,818,508 |
|
$ |
6,061,694 |
|
$ |
9,092,541 |
|
$ |
12,123,388 |
|
| B |
Selling commissions and fees |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| C |
Estimated offering costs (e.g., legal, accounting, audit) |
$ |
225,000 |
|
$ |
225,000 |
|
$ |
225,000 |
|
$ |
225,000 |
|
| D |
Available funds: D = A - (B+C) |
$ |
1,593,508 |
|
$ |
5,836,694 |
|
$ |
8,867,541 |
|
$ |
11,898,388 |
|
As at September 30, 2024 the Company's working capital deficiency (current liabilities in excess of current assets) was approximately $4.8 million. The Company's working capital since March 31, 2024 has decreased due to tranche 1 of the Company's secured loan becoming current, ongoing research, commercial launch of new protein products and operational costs. On November 13, 2024, the Company extended the maturity date of tranche 1 of the secured loan to July 1, 2026, remediating the working capital deficiency.
HOW WILL WE USE THE AVAILABLE FUNDS?
| Description of intended use of available funds listed in order of priority |
|
Assuming 15% of
offering |
|
|
Assuming 50% of
offering |
|
|
Assuming 75% of
offering |
|
|
Assuming 100% of
offering |
|
| Research and development |
$ |
790,000 |
|
$ |
850,000 |
|
$ |
1,700,000 |
|
$ |
1,700,000 |
|
| Operating expenses |
$ |
703,508 |
|
$ |
4,886,694 |
|
$ |
7,067,541 |
|
$ |
10,098,388 |
|
| Due Diligence |
$ |
100,000 |
|
$ |
100,000 |
|
$ |
100,000 |
|
$ |
100,000 |
|
| Total: Equal to D in the available funds |
$ |
1,593,508 |
|
$ |
5,836,694 |
|
$ |
8,867,541 |
|
$ |
11,898,388 |
|
We plan to use the net proceeds of the Rights Offering primarily to provide sufficient funds for ongoing operational costs for an estimated 18 to 24 months. In addition, and as part of Burcon's capital light business strategy, the Company has begun to explore options to expand its production capacity. Burcon plans to use part of the net proceeds from the Rights Offering to conduct due diligence on and potentially negotiate for an opportunity to expand its production capacity by acquiring the rights to access a production facility. Such opportunity, if determined to be beneficial to Burcon and successfully negotiated, is anticipated to represent a commercial lease of a production facility. As at the date of this Circular, the Company is exploring potential options with respect to expanding its production capacity and due diligence is ongoing.
If the Rights Offering is closed at an amount of 65% of the target proceeds, the Company expects to have sufficient working capital to undertake the planned operations for at least 12 months.
There can be no assurance that any due diligence or negotiation will result in a definitive agreement on terms that would be beneficial to the Company. If the Company is not able to enter into a definitive agreement for access to a new production facility as described above, the Company will continue to explore other alternatives that will advance its capital light strategy.
The net proceeds will also be used for fees and expenses related to the above and for general corporate purposes, research and development and working capital. In addition to the available funds described above following the Rights Offering, the Company had additional capacity as of September 30, 2024 to draw approximately C$4 million under tranche 2 of its secured loan facility, provided by a related party, which can be allocated to capital expenditures and operational costs. On November 20, 2024, Burcon drew C$1 million from tranche 2 of the secured loan facility.
The Company anticipates that any proceeds from the Rights Offering used for research and development will be focused on further optimizing its hemp and canola proteins to support customer sales and to commercialize sunflower proteins and strategic partner discussions. Research and development work, ranging from functional applications work to shelf-life testing, is and will continue to be undertaken. Burcon will continue to operate its technical centre in Winnipeg to provide samples for potential market applications for its hemp, canola, pea and sunflower proteins to potential customers.
The completion of the Rights Offering is not conditional upon the Company receiving any minimum amount of subscriptions for Common Shares.
We intend to spend the available funds as stated and the above use of net proceeds reflects the current intention of the Company based on information currently available to it and on current circumstances, economic and otherwise. We will reallocate funds only for sound business reasons. The actual use of the net proceeds of the Rights Offering may vary depending on operational and capital needs and the progress of the research and development programs from time to time. Accordingly, management of the Company will have the discretion in the application of the proceeds of the Rights Offering. Unallocated funds, if any, will be used for general working capital purposes of the Company.
If the amount raised is less than the 65% threshold amount, this could constrain the Company’s ability to support ongoing operations of both its existing operations and any new production facility (as described above). In order to satisfy all of its short-term liquidity requirements through the 12 months following the completion of the Rights Offering, Burcon requires completion of at least 65% of the Rights Offering. For these reasons, if at least 65% of the Rights Offering is not subscribed for, there is substantial doubt that Burcon will be able to continue as a going concern.
HOW LONG WILL THE AVAILABLE FUNDS LAST?
The Company estimates that the funds raised in the Rights Offering, assuming 65% participation in the Rights Offering, will last until December 2026, approximately 18 to 24 months from the Expiry Time based on current estimates of future production and revenue.
Our only present means of acquiring investment capital is by means of the sale of our Common Shares. There is no assurance that we will be able to raise additional financing in the future. For these reasons, if at least 65% of the Rights Offering is not subscribed for, there is substantial doubt that we will be able to continue as a going concern.
INSIDER PARTICIPATION
WILL INSIDERS BE PARTICIPATING?
The Company believes, after reasonable inquiry, that certain directors, senior officers and persons controlling over 10% of the Common Shares of the Company, as the date hereof, intend to exercise some or all of their Basic Subscription Privilege in connection with the Rights Offering; however, the number of Rights that may be exercised by such insiders of the Company cannot be ascertained as at the date of this circular.
As at the date hereof, insiders of the Company own or exercise control or direction over, directly or indirectly, 40,568,881 Common Shares, representing approximately 28.44% of the issued and outstanding Common Shares. Assuming the full take-up their Basic Subscription Privileges, these insiders would own an aggregate of 81,137,762 Common Shares following the Rights Offering.
This reflects the intentions of such insiders as of the date hereof to the extent such intentions are reasonably known to the Company, but such insiders may alter their intentions before the Expiry Time. No assurance can be given that the respective insiders will exercise their Rights.
WHO ARE THE HOLDERS OF 10% OR MORE OF OUR SECURITIES BEFORE AND AFTER THE RIGHTS OFFERING?
To the knowledge of the Company, after reasonable inquiry, the only persons or companies who beneficially own, or control or direct, directly or indirectly, voting securities of the Company carrying more than 10% of the voting rights attached to the voting securities of the Company are as follows:
|
Name
|
Holdings before the Rights
Offering(1)
|
Holdings after the Rights Offering(2)
|
|
Firewood Elite Limited ("Firewood")
|
25,643,932(3) Common Shares or 17.98%
|
51,287,864 Common Shares or 17.98%
|
Note:
1. Based on 142,628,096 Common Shares issued and outstanding as of the date hereof.
2. Assuming Firewood or its affiliates subscribes for such number of Common Shares under the Rights Offering to maintain its pro-rata holdings.
3. 17,584,458 of these shares are held by Large Scale Investments Limited and 8,059,474 of these shares are held by Great Intelligence Limited, both of which are direct wholly-owned subsidiaries of Firewood. Firewood is wholly-owned by Mr. Alan Chan, a director of the Company.
DILUTION
IF YOU DO NOT EXERCISE YOUR RIGHTS, BY HOW MUCH WILL YOUR SECURITY HOLDINGS BE DILUTED?
If a shareholder elects not to exercise Rights, the value of the Common Shares held by such shareholder may be diluted as a result of the exercise of Rights by other shareholders by approximately 50%, assuming the issuance of the maximum number of Common Shares under the Rights Offering.
HOW TO EXERCISE THE RIGHTS
HOW DOES A SECURITY HOLDER THAT IS A REGISTERED HOLDER PARTICIPATE IN THE RIGHTS OFFERING?
If you are a registered holder of Common Shares on the Record Date resident in an Eligible Jurisdiction, you will find a Rights DRS Advice along with a subscription form (the "Subscription Form") enclosed with the Notice mailed to you on or about December 2, 2024. Registered holders of Common Shares resident outside the Eligible Jurisdictions will be sent the Notice for information purposes only, together with a letter advising them that their Rights will be held by the Subscription Agent (as defined below), who will hold such Rights as agent for the benefit of all such Ineligible Holders.
One Right and payment of the Subscription Price are required to subscribe for one Common Share under the Basic Subscription Privilege. The holder of a Rights DRS Advice may subscribe for all or any lesser whole number of Common Shares to which the Rights DRS Advice entitles such holder by completing and executing Box 1 on the face of the Subscription Form and delivering the Rights DRS Advice and Subscription Form so completed and executed together with the aggregate Subscription Price for such Common Shares to Computershare Investor Services Inc., the subscription agent retained by Burcon in connection with the Rights Offering (the "Subscription Agent"). The Subscription Price is payable in Canadian funds by certified cheque, bank draft or money order payable to the order of "Computershare Investor Services Inc." All payments, together with the Rights DRS Advice and Subscription Form duly completed, must be sent to the office of the Subscription Agent (the "Subscription Office") before the Expiry Time by courier to 8th Floor, 100 University Ave., Toronto, Ontario M5J 2Y1, Canada, Attention: Corporate Actions or by mail to P.O. Box 7021 31 Adelaide St. E. Toronto, Ontario M5C 3H2, Canada, Attention: Corporate Actions. The method of delivery of a subscription is at each holder's discretion and risk. Delivery to the Subscription Agent will only be effective when the subscription is actually received by the Subscription Agent at the Subscription Office. If mail is used for delivery of a subscription, sufficient time must be allowed to avoid late delivery, and registered mail is suggested. Completion of Box 1 on the Subscription Form constitutes a representation that the holder of a Rights DRS Advice is neither an Ineligible Holder (as defined below) nor the agent of any such person.
HOW DOES A SECURITY HOLDER THAT IS NOT A REGISTERED HOLDER PARTICIPATE IN THE RIGHTS OFFERING?
Only registered Eligible Holders will be provided with Rights DRS Advice. For Eligible Holders whose Common Shares are held through a securities broker or dealer, bank or trust company or other participant (each, a "Participant") in the book based system administered by CDS Clearing and Depositary Services Inc. ("CDS") or Depository Trust Company ("DTC") (such shareholders being referred to as "Beneficial Eligible Holders"), a Rights DRS Advice will be issued in registered form to CDS or DTC, as the case may be, and will be deposited with CDS or DTC, as the case may be. The Company expects that each Beneficial Eligible Holder will receive a confirmation of the number of Rights issued to it from its Participant in accordance with the practices and procedures of that Participant. CDS and DTC will be responsible for establishing and maintaining book-entry accounts for Participants holding Rights. A Beneficial Eligible Holder holding Common Shares through a Participant may subscribe for Common Shares by instructing the Participant holding its Rights to exercise all or a specified number of such Rights and forwarding the aggregate Subscription Price for each Common Share subscribed for in accordance with the terms of the Rights Offering to the Participant which holds the Beneficial Eligible Holder's Rights. Participants may have an earlier deadline for receipt of instructions and payment than the Expiry Time.
The aggregate Subscription Price is payable by direct debit from the Beneficial Eligible Holder's brokerage account or by electronic funds transfer or other payment mechanism satisfactory to the Participant. The entire Subscription Price for Common Shares subscribed for must be paid at the time of subscription and must be received by the Subscription Agent prior to the Expiry Time. Accordingly, if a Beneficial Eligible Holder is subscribing through a Participant, such Beneficial Eligible Holder must deliver payment (by method described above) and instructions to the Participant sufficiently in advance of the Expiry Time to allow the Participant to properly exercise the Rights on such Beneficial Eligible Holder's behalf.
Participants that hold Rights for more than one Beneficial Eligible Holder may, upon providing evidence satisfactory to the Company and the Subscription Agent, exercise Rights on behalf of its accounts on the same basis as if the Beneficial Eligible Holders were holders of Common Shares.
The Company and the Subscription Agent shall have no liability for: (a) the records maintained by CDS or DTC, as the case may be, or Participants relating to the Rights or the book-entry accounts maintained by CDS or DTC, as the case may be; (b) maintaining, supervising or reviewing any records relating to such Rights; (c) any advice or representation made or given by CDS, DTC or Participants with respect to the rules and regulations of CDS or DTC, as the case may be; (d) any action to be taken by CDS, DTC or Participants; or (e) any failure by Participants to take any action or any matter relating to the Rights or the exercise thereof.
The ability of a person having an interest in Rights held through a Participant to pledge such interest or otherwise take action with respect to such interest (other than through a Participant) may be limited due to the lack of a physical Rights DRS Advice.
Beneficial Eligible Holders whose Common Shares are held through a Participant must arrange purchases or transfers of Rights and the exercise of Rights to purchase Common Shares through their Participant. The Company anticipates that each such purchaser of a Right or Common Shares will receive a customer confirmation of purchase from the Participant from whom such Right or Common Shares is purchased in accordance with the practices and procedures of such Participant.
WHO IS ELIGIBLE TO RECEIVE RIGHTS?
Holders of Common Shares on the Record Date resident in an Eligible Jurisdiction are eligible to receive Rights. The Rights and Common Shares have not and will not be registered under the laws of any jurisdiction outside of the Eligible Jurisdictions.
If you are a holder of Common Shares on the Record Date resident outside of an Eligible Jurisdiction (an “Ineligible Holder”), you will find an exempt purchaser status certificate (“Exempt Status Certificate”) enclosed with the Notice mailed to you on or about December 2, 2024. If you deliver a completed and executed Exempt Status Certificate to Burcon on or before February 5, 2025 and your eligibility to participate in the Rights Offering is confirmed by Burcon, the Subscription Agent will forward to you a Rights DRS Advice evidencing the number of Rights you are entitled to. If you do not satisfy Burcon as to your eligibility to participate in the Rights Offering on or before February 5, 2025, the Subscription Agent will attempt, on a best efforts basis, to sell your rights on the TSX prior to the Expiry Time. The Subscription Agent’s ability to sell the Rights, and the prices obtained for the Rights, are dependent on market conditions. The proceeds received by the Subscription Agent, if any, from the sale of the Rights, net of any applicable costs, expenses and taxes, will be divided among the Ineligible Holders on a pro rata basis according to the total number of Common Shares held by them on the Record Date. The Subscription Agent will not be required to make any such payment to any Ineligible Holder if the amount owing to such holder is less than $10.00.
An Ineligible Holder who wishes to exercise Rights, and who is resident of a jurisdiction where the Rights Offering and the distribution and exercise of Rights is lawful and exempt from any prospectus or similar filing requirement, must complete and deliver the Exempt Status Certificate. Among other things, an Ineligible Holder seeking eligibility to participate in the Rights Offering must represent and warrant to the Company and the Subscription Agent and their respective directors, officers and employees that under the laws of such person's place of residence, such person is entitled to receive, own and exercise the Rights and that the distribution to, and exercise by, such person of such Rights is not unlawful and is exempt from any prospectus or similar filing requirement under the laws applicable to such person or the laws of such person's place of residence and does not require obtaining any approvals of a regulatory authority in such person's place of residence. In addition, such Ineligible Holder must acknowledge that the Company and the Subscription Agent and their respective directors, officers, and employees are relying on such representations and warranties and are entitled and requested to do so in accepting such subscription and in issuing and distributing the subscribed for Common Shares. The Company may, in its sole discretion, determine such person's eligibility.
The Subscription Agent will hold the Rights of Ineligible Holders until February 5, 2025, following which the Subscription Agent will, prior to the Expiry Time, attempt to sell such Rights on the TSX, on a best efforts basis. The Subscription Agent’s ability to sell the Rights, and the prices obtained for the Rights, are dependent on market conditions. The Subscription Agent will not be subject to any liability for failure to sell any Rights held for the benefit of Ineligible Holders at any particular price or prices, or at all. The proceeds received by the Subscription Agent, if any, from the sale of the Rights delivered to it, net of any applicable costs, expenses and taxes will be divided among the Ineligible Holders on a pro rata basis according to the total number of Common Shares held by them on the Record Date. The Subscription Agent will mail cheques to the Ineligible Holders at their addresses appearing in the records of the Subscription Agent for their respective proportions of those net proceeds, subject to any applicable taxes which must be withheld for particular Ineligible Holders, provided that the Subscription Agent will not be required to make any such payment to any Ineligible Holder if the amount owing to such holder is less than $10.00. Such amount will be used by the Company to offset a portion of the remuneration of the Subscription Agent for its services.
The Rights Offering does not constitute an offer or a solicitation to any person in any jurisdiction in which such offer or solicitation is unlawful. The Rights Offering is not being made to, nor will subscriptions be accepted from or on behalf of, holders of Rights in any jurisdiction in which the making or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Company may, in its sole discretion, take such action as it may deem necessary to extend the Rights Offering to holders of Common Shares in such jurisdiction. Any person resident outside of Canada or the United States (excluding certain states discussed in this Circular), who is subject to the laws of a jurisdiction where the Rights Offering may be lawful, should seek advice from a lawyer or other qualified securities authority to satisfy himself, herself or itself with respect to the availability and applicability of any exemption or other provision of the applicable securities legislation that would make the Rights Offering to him, her or it lawful.
WHAT IS THE ADDITIONAL SUBSCRIPTION PRIVILEGE AND HOW CAN YOU EXERCISE THIS PRIVILEGE?
A holder of a Rights DRS Advice who subscribes, pursuant to the Basic Subscription Privilege, for all of the Common Shares to which a Rights DRS Advice entitles such holder may subscribe for Additional Common Shares at the Subscription Price by completing and executing Box 2 of the Subscription Form and delivering the Rights DRS Advice and Subscription Form so completed and executed together with the aggregate Subscription Price for such Additional Common Shares to the Subscription Agent. If there is an insufficient number of Common Shares available to satisfy the subscriptions for Additional Common Shares, the number of Common Shares, if any, available to a subscriber for Additional Common Shares will be equal to the lesser of: (a) the number of Common Shares for which the subscriber has subscribed under the Additional Subscription Privilege; and (b) the number (disregarding fractions) obtained by multiplying the aggregate number of Additional Common Shares that may be acquired upon exercise of the Rights issued that were not exercised under the Basic Subscription Privilege by a fraction, the numerator of which is the number of Common Shares subscribed for by such holder under the Basic Subscription Privilege and the denominator of which is the aggregate number of Common Shares acquired under the Basic Subscription Privilege by all participants that have subscribed for Additional Common Shares under the Additional Subscription Privilege.
If any holder of Rights has subscribed for fewer Additional Common Shares than such holder's pro rata allotment of Additional Common Shares, the excess Additional Common Shares will be allocated in the manner set out in (b) above among the holders who were allotted fewer Additional Common Shares than they subscribed for.
To subscribe for Additional Common Shares pursuant to the Additional Subscription Privilege, a holder of Rights must complete and execute Box 2, as well as Box 1, on the Subscription Form and deliver the Subscription Form and Rights DRS Advice so completed and executed together with the aggregate Subscription Price for such Additional Common Shares to the Subscription Agent at the Subscription Office. The Subscription Price is payable in Canadian funds by certified cheque, bank draft or money order payable to the order of "Computershare Investor Services Inc." All payments, together with the Rights DRS Advice and Box 1 and Box 2 duly completed on the Subscription Form, must be received by the Subscription Agent at the Subscription Office before the Expiry Time. Subscribers for Additional Common Shares will be notified as soon as practicable after the Expiry Time of the number of Additional Common Shares, if any, allotted to them. Any excess subscription monies will be returned by mail without interest or deduction.
HOW DOES A RIGHTS HOLDER SELL OR TRANSFER RIGHTS?
The Rights will be listed on the TSX until 12:00 p.m. (Toronto time) on February 12, 2025.
A holder of Rights may, rather than exercising such holder's Rights to subscribe for Common Shares, sell or transfer such Rights into and within Canada to others (except Ineligible Holders) personally or through the usual investment channels (such as stock brokers or investment dealers qualified to do business in the holder's jurisdiction). Holders of Rights DRS Advice may elect to exercise only a portion of their Rights and dispose of the remainder or dispose of all of their Rights. Any commission or other fee payable in connection with the exercise or any trade of Rights (other than the fee for services to be performed by the Subscription Agent as described herein) is the responsibility of the holder of such Rights. Depending on the number of Rights a holder may wish to sell, the commission payable in connection with a sale of Rights could exceed the proceeds received from such sale.
If you wish to transfer your rights, follow the provided instructions attached to the Rights DRS Advice. For this purpose, an "Eligible Institution" means a major Canadian Schedule I chartered bank, a member of the Securities Transfer Agents Medallion Program (STAMP), a member of the Stock Exchanges Medallion Program (SEMP) or a member of the New York Stock Exchange, Inc. Medallion Signature Program (MSP). Members of these programs are usually members of recognized stock exchanges in Canada and members of the Investment Dealers Association of Canada.
A Rights DRS Advice will not be registered in the name of an Ineligible Holders.
If you are a beneficial holder, you must arrange for the transfer of Rights through CDS, DTC or otherwise.
The Rights may not be transferred to a person within the United States and for Eligible Holders resident in the United States, Rights may be transferred only in transactions outside of the United States in accordance with Regulation S under the U.S. Securities Act, which will permit the resale of the Rights by persons through the facilities of the TSX, provided that the offer is not made to a person in the United States, neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, and no "directed selling efforts" are conducted in the United States in connection with the resale. "Directed selling efforts" means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the securities being offered. Certain additional conditions are applicable to the Company's "affiliates", as that term is defined under the U.S. Securities Act. In order to enforce this resale restriction, holders thereof will be required to execute a declaration certifying that such sale is being made outside the United States in accordance with Regulation S under the U.S. Securities Act. Any person within the United States that acquires the Rights through the facilities of the TSX or otherwise, other than pursuant to the initial distribution of Rights by the Company, may be unable to exercise such Rights in accordance with the U.S. Securities Act or applicable securities laws of any state of the United States.
The Company reserves the right to reject any such exercise of the Rights by a person within the United States that subsequently acquires the Rights and the acquisition of the Rights by such person within the United States does not constitute an offer of the underlying Common Shares to such person.
WHEN CAN YOU TRADE SECURITIES ISSUABLE UPON THE EXERCISE OF YOUR RIGHTS?
The Common Shares are listed on the TSX under the symbol "BU", on the OTC under the symbol "BRCNF", and the FWB under the symbol "BNE". The TSX has conditionally approved the listing of the Common Shares issuable upon the exercise of the Rights. Such listing will be subject to the Company fulfilling all of the listing requirements of the TSX. The Common Shares issuable upon the exercise of the Rights will also be listed on TSX. The Common Shares issuable upon the exercise of the Rights will be available for trading on or about November 27, 2024 .
ARE THERE RESTRICTIONS ON THE RESALE OF SECURITIES?
The Rights being issued hereunder and the Common Shares issuable upon exercise of the Rights are being distributed by the Company pursuant to exemptions from the registration and prospectus requirements under Canadian securities legislation.
Resale of the Rights and the underlying Common Shares may be subject to restrictions pursuant to applicable securities legislation then in force. Set out below is a general summary of the restrictions governing first trades in the Rights and the underlying Common Shares in Canada. Additional restrictions apply to "insiders" of the Company and holders of Rights and underlying Common Shares who are "control persons" or the equivalent or who are deemed to be part of what is commonly referred to as a "control block" in respect of the Company for purposes of securities legislation. Each holder is urged to consult his, her or its professional advisors to determine the exact conditions and restrictions applicable to trades of the Rights and the underlying Common Shares.
Generally, the first trade in Rights and the Common Shares issuable upon exercise of the Rights will be exempt from the prospectus requirements of Canadian securities legislation, if: (a) the Company is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade; (b) the trade is not a control distribution; (c) no unusual effort is made to prepare the market or to create a demand for the Rights or the Common Shares; (d) no extraordinary commission or other consideration is paid in respect of such trade; and (e) if the selling securityholder is an insider or officer of the Company, the selling securityholder has no reasonable grounds to believe that the Company is in default of securities legislation. If such conditions have not been met, then the Rights and the Common Shares may not be resold except pursuant to a prospectus or prospectus exemption, which may only be available in limited circumstances. As of the date hereof, the Company has been a reporting issuer for more than four months in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia.
The Company has filed with the SEC in the United States a registration statement on Form F-7 under the U.S. Securities Act (the "Registration Statement") so that the Common Shares issuable upon the exercise of the Rights will not be subject to transfer restrictions. However, for such Eligible Holders resident in the United States, the Rights may be transferred only in transactions outside of the United States in accordance with Regulation S under the U.S. Securities Act, which will permit the resale of the Rights by persons through the facilities of the TSX, provided that the offer is not made to a person in the United States, neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, and no "directed selling efforts", as that term is defined in Regulation S under the U.S. Securities Act, are conducted in the United States in connection with the resale. Certain additional conditions are applicable to the Company's "affiliates", as that term is defined under the U.S. Securities Act. In order to enforce this resale restriction, holders thereof will be required to execute a declaration certifying that such sale is being made outside the United States in accordance with Regulation S under the U.S. Securities Act.
The foregoing is a summary only and is not intended to be exhaustive. Holders of Rights or the underlying Common Shares should consult with their advisors concerning restrictions on resale, and should not resell their Rights or the underlying Common Shares until they have determined that any such resale is in compliance with the requirements of applicable legislation.
WILL WE ISSUE FRACTIONAL UNDERLYING SECURITIES UPON EXERCISE OF THE RIGHTS?
No fractional Common Shares will be issued. Where the exercise of Rights would otherwise have entitled a Rights holder to receive fractional Common Shares, the Rights holder's entitlement will be rounded down to the next lowest whole number of Common Shares.
SUBSCRIPTION AGENT
WHO IS THE SUBSCRIPTION AGENT?
Computershare Investor Services Inc., the Subscription Agent, is the depositary for the Rights Offering. The Subscription Agent has been appointed to receive subscriptions and payments from holders of Rights and to perform the services relating to the exercise and transfer of the Rights.
ADDITIONAL INFORMATION
WHERE CAN YOU FIND MORE INFORMATION ABOUT US?
For further information regarding the Company, please refer to the continuous disclosure documents filed by the Company with Canadian securities regulatory authorities on SEDAR+ at www.sedarplus.ca and the Company’s website at www.burcon.ca.
MATERIAL FACTS AND MATERIAL CHANGES
There is no material fact or material change about the Company that has not been generally disclosed.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed with the SEC as part of the Registration Statement of which this Circular forms a part: (i) the Company's Annual Information Form for the year ended March 31, 2024; (ii) the Company's audited consolidated annual financial statements as at and for the years ended March 31, 2024 and 2023; (iii) management's discussion and analysis for the audited consolidated annual financial statements for the years ended March 31, 2024 and 2023; (iv) the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2024 and 2023 and the corresponding management's discussion and analysis; (v) the Company's management information circular dated August 1, 2024; (vi) the consent of KPMG LLP; (vii) press release dated November 20, 2024; and (viii) the powers of attorney. Shareholders in the U.S. are encouraged to read the Registration Statement, including exhibits, carefully and in their entirety.
BURCON NUTRASCIENCE CORPORATION
("BURCON")
NOTICE TO SECURITY HOLDERS - November 20, 2024
The purpose of this notice is to advise holders of common shares in the capital of Burcon (the "Common Shares") of a proposed offering of rights ("Rights") of Burcon (the "Rights Offering").
Reference in this notice to "we", "our", "us" and similar terms means Burcon. Reference in this notice to "you", "your" and similar terms mean to Burcon shareholders.
We currently have sufficient working capital to last 3 months. We require at least 65% of the offering to last 12 months.
WHO CAN PARTICIPATE IN THE RIGHTS OFFERING?
Holders of Common Shares of record as at 5:00 p.m. (Toronto time) on November 27, 2024 (the "Record Date") may participate in the Rights Offering. However, as discussed below, the Rights will only be offered to shareholders of Burcon (the "Eligible Holders") in all of the Provinces and Territories of Canada and to shareholders resident in the United States except as discussed under "When And How Can You Exercise Your Rights?" (the "Eligible Jurisdictions").
WHO IS ELIGIBLE TO RECEIVE RIGHTS?
The Rights will be offered to the Eligible Holders in the Eligible Jurisdictions. You will be presumed to be resident in the place shown in our records as your registered address, unless the contrary is shown to our satisfaction.
This notice is not to be construed as an offering of the Rights, nor are the Common Shares issuable upon exercise of the Rights offered for sale, in any jurisdiction outside the Eligible Jurisdictions or to shareholders who are resident of any jurisdiction other than the Eligible Jurisdictions (the "Ineligible Holders"). The Rights and Common Shares have not and will not be registered under the laws of any jurisdiction outside the Eligible Jurisdictions.
Ineligible Holders will not receive a Rights DRS Advice (as defined below) but will be sent a letter describing how Ineligible Holders may participate in the Rights Offering by acquiring Rights and the securities issuable upon the exercise of the Rights.
HOW MANY RIGHTS ARE WE OFFERING?
We are offering a total of 142,628,096 Rights to purchase 142,628,096 Common Shares pursuant to the Rights Offering.
HOW MANY RIGHTS WILL YOU RECEIVE?
Each Eligible Holder will receive one Right for each Common Share held as of the Record Date.
WHAT DOES ONE RIGHT ENTITLE YOU TO RECEIVE?
Before the Expiry Time (as defined below) you will be entitled to subscribe (the "Basic Subscription Privilege") for one Common Share for every one Right held upon payment of the subscription price of $0.085 per Common Share (the "Subscription Price"). No fractional Common Shares will be issued.
Any Eligible Holder who exercises all of their Rights under the Basic Subscription Privilege will also have the additional privilege of subscribing, pro rata, for additional Common Shares at the Subscription Price (the "Additional Subscription Privilege"). The Common Shares available under the Additional Subscription Privilege will be those Common Shares issuable under the Rights Offering that have not been subscribed and paid for under the Basic Subscription Privilege by 5:00 p.m. (Toronto time) on February 12, 2025.
Any Eligible Holder who exercises their Rights must enclose payment in Canadian funds by certified cheque, bank draft or money order payable to the order of Computershare Investor Services Inc. (the "Subscription Agent"), the subscription agent retained by Burcon in connection with the Rights Offering.
HOW WILL YOU RECEIVE YOUR RIGHTS?
If you are a registered holder of Common Shares on the Record Date resident in the Eligible Jurisdictions, you will find a direct registration system advice (a "Rights DRS Advice") representing the total number of Rights to which you are entitled to as at the Record Date enclosed with this notice.
If you are an Ineligible Holder, you will find enclosed an exempt purchaser status certificate. If you deliver a completed and executed exempt purchaser status certificate to Burcon on or before February 5, 2025 and your eligibility to participate in the Rights Offering is confirmed by Burcon, the Subscription Agent will forward to you a Rights DRS Advice evidencing the number of Rights you are entitled to. If you do not satisfy Burcon as to your eligibility to participate in the Rights Offering on or before February 5, 2025, the Subscription Agent will attempt, on a best efforts basis, to sell your rights on the Toronto Stock Exchange ("TSX") prior to the Expiry Time. The Subscription Agent's ability to sell the rights, and the prices obtained for the rights, are dependent on market conditions. The proceeds received by the Subscription Agent, if any, from the sale of the rights, net of any applicable costs, expenses and taxes, will be divided among the Ineligible Holders on a pro rata basis according to the total number of Common Shares held by them on the Record Date. The Subscription Agent will not be required to make any such payment to any Ineligible Holder if the amount owing to such holder is less than $10.00.
WHEN AND HOW CAN YOU EXERCISE YOUR RIGHTS?
The Rights may be exercised commencing on November 27, 2024 until 5:00 p.m. (Toronto time) on February 12, 2025 (the "Expiry Time"). Rights not exercised at or before the Expiry Time will be void and of no value. The Rights will be listed on the TSX under the symbol "BU.RT" and the holders of the Rights may trade them through the facilities of the TSX. Trading in the rights on the TSX will cease at 12:00 p.m. (Toronto time) on February 12, 2025.
Only registered Eligible Holders will be provided with Rights DRS Advice. If you hold your Common Shares through a securities broker or dealer, bank or trust company or other participant (each, a "Participant") in the book-based system administered by CDS Clearing and Depositary Services Inc. ("CDS") or Depository Trust Company ("DTC"), a Rights DRS Advice will be issued in registered form to CDS or DTC, as the case may be, and will be deposited with CDS or DTC, as the case may be. Burcon expects that each beneficial Eligible Holder will receive a confirmation of the number of Rights issued to it from its Participant in accordance with the practices and procedures of that Participant. CDS and DTC will be responsible for establishing and maintaining book-entry accounts for Participants holding Rights. Participants may establish their own deadlines for receiving instructions prior to the Expiry Time and you should therefore immediately contact your Participant to instruct them to exercise or sell or transfer your rights.
The offer and sale of the Common Shares issuable upon exercise of the Rights within the United States is being registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"). Notwithstanding registration under the U.S. Securities Act, the securities or blue sky laws of certain states (including Arizona, Arkansas, California, Minnesota, Ohio, and Wisconsin) may restrict exercise of the Rights. The Company intends to seek an exemption from the registration requirements of Arizona, Arkansas, Minnesota, and Wisconsin (the "Filing States") to allow the exercise of Rights by shareholders in those states. In certain states, including California, Ohio and any Filing State in which the Company is unable to obtain an exemption from state registration requirements, Rights may only be exercised by shareholders to which solicitations may be addressed without registration under the relevant state securities laws ("Eligible U.S. Institutions"). Shareholders resident in, or that hold their securities for the account or benefit of any person in, any such jurisdiction that wish to determine if they are Eligible U.S. Institutions should contact the Company, Attention Dorothy Law at dlaw@burcon.ca. Holders in, or that hold their securities for the account or benefit of any person in, such jurisdictions that are not Eligible U.S. Institutions will not be permitted to exercise their Rights but may transfer the Rights outside of the United Sates in accordance with Regulation S under the U.S. Securities Act.
WHAT ARE THE NEXT STEPS?
This document contains key information you should know about Burcon. You can find more details in Burcon's rights offering circular dated November 20, 2024. To obtain a copy, visit Burcon's profile on the SEDAR+ website at www.sedarplus.ca, visit www.burcon.ca, ask your dealer representative for a copy or contact Dorothy Law at dlaw@burcon.ca. You should read the rights offering circular, along with Burcon's continuous disclosure record, to make an informed decision. Holders in the United States should also review the Company's Registration Statement on Form F-7 filed with the United States Securities and Exchange Commission that can be found at www.sec.gov.
"Kip Underwood"
Kip Underwood
Chief Executive Officer
PART II-INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS
The exhibits to this registration statement are:
PART III-CONSENT TO SERVICE OF PROCESS
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-7 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Town and Country, Missouri on November 20, 2024.
BURCON NUTRASCIENCE CORPORATION
By: "Kip Underwood"
Kip Underwood
Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
The Registrant and each person whose signature appears below constitutes and appoints each of Kip Underwood and Robert Peets as his true and lawful attorney-in-fact and agent with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and registration statements filed pursuant to Rule 429 under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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Title |
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Date |
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| "Kip Underwood" |
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| Kip Underwood |
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Chief Executive Officer
(Principal Executive Officer) |
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November 20, 2024 |
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| "Robert Peets" |
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| Robert Peets |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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November 20, 2024 |
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| "Peter H. Kappel" |
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| Peter H. Kappel |
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Chairman of the Board and Director |
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November 20, 2024 |
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| "Alan Chan" |
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| Alan Chan |
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Director |
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November 20, 2024 |
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| "Debora Fang" |
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| Debora Fang |
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Director |
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November 20, 2024 |
| "Jeanne McCaherty" |
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| Jeanne McCaherty |
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Director |
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November 20, 2024 |
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| "Alfred Lau" |
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| Alfred Lau |
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Director |
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November 20, 2024 |
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| "Aaron Ratner" |
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| Aaron Ratner |
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Director |
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November 20, 2024 |
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| "John Vassallo" |
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| John Vassallo |
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Director |
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November 20, 2024 |
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| "James Peter Pekar" |
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| James Peter Pekar |
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Director |
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November 20, 2024 |
AUTHORIZED REPRESENTATIVE
Pursuant to the requirement of Section 6(a) of the Securities Act of 1933, as amended, the undersigned has signed this Registration Statement, solely in the capacity of the duly authorized representative of Burcon NutraScience Corporation in the United States in the state of Missouri in the city of Town and Country on November 20, 2024.
By: "Kip Underwood"
Kip Underwood
Chief Executive Officer
INDEX TO EXHIBITS
BURCON NUTRASCIENCE CORPORATION
1946 West Broadway
Vancouver, B.C.
V6J 1Z2
CANADA
Telephone: (604) 733-0896
Facsimile: (604) 733-8821
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED MARCH 31, 2024
June 26, 2024
Table of Contents
PRELIMINARY NOTES
Effective Date of Information
All information in this Annual Information Form ("AIF") is as of March 31, 2024 unless otherwise indicated.
Forward Looking Statements
This AIF contains certain "forward-looking statements" and "forward-looking information" as defined under applicable Canadian and US securities laws (collectively, "forward-looking statements") which may include, but are not limited to, statements with respect to possible events, conditions, acquisitions, or results of operations that are based on assumptions about future conditions and courses of action and include future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection, and also include, but are not limited to, statements with respect to the future financial and operating performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. When used in this AIF the words "estimate", "budget", "project", "believe", "anticipate", "intend", "expect", "plan", "projects", "predict", "may", "should", "will", or the negatives of these words or other variations thereof and comparable terminology or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved are intended to identify forward-looking statements. The forward-looking statements pertain to, among other things:
- continued development of the Company's products and business;
- the Company's growth strategy;
- the Company's strategies for commercialization of its products;
- production costs and pricing of its plant proteins;
- marketing strategies for the Company's plant proteins;
- development of commercial applications for its plant proteins;
- ability to produce proteins and protein isolates in commercial quantities with sufficient grade and quality at cost-effective prices;
- ability to produce proteins and protein isolates at a cost level which will make them competitive with animal proteins;
- construction, commissioning and operation of production facilities;
- future protection of intellectual property and improvements to existing processes and products;
- input and other costs; and
- liquidity and working capital.
The forward-looking statements are based on a number of key expectations and assumptions made by management of the Company, including, but not limited to:
- the Company's ability to identify a suitable joint venture partner for its protein extraction and purification strategies;
- the Company's ability to execute its strategic and business strategies;
- the Company's and its potential partners' ability to construct, commission and operate its production facility;
- the Company's ability to contract with partner manufacturers to produce its plant proteins;
- the Company's or its potential licensing partners' ability to generate new sales;
- the Company's or its potential licensing partners' ability to produce, deliver and sell the expected product volumes at the expected prices;
- the Company's ability to obtain required regulatory approvals;
- the Company's ability to control costs;
- the Company's ability to obtain and maintain intellectual property rights and trade secret protection;
- market acceptance and demand for the Company's or its potential licensing partners' products;
- the successful execution of the Company's business plan;
- achievement of current timetables for product development programs and sales;
- the availability and cost of labour and supplies;
- the availability of additional capital; and
- general economic and financial market conditions.
Although the Company believes that the factors and assumptions used to develop the forward-looking statements are reasonable, undue reliance should not be placed on such forward-looking statements. The forward-looking statements reflect the Company's current views with respect to future events based on currently available information and are inherently subject to risks and uncertainties. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this AIF, including, but not limited to:
- the condition of the global economy;
- market acceptance of the Company's products;
- availability of input materials;
- changes in input materials and product pricing;
- changes in the Company's customers' requirements, the competitive environment and related market conditions;
- delays in the construction, commissioning and operation of production facilities;
- product development delays;
- changes in the availability or price of labour and supplies;
- the Company's ability to attract and retain business partners, suppliers, employees and customers;
- changing food or feed ingredient industry regulations;
- the Company's access to funding and its ability to provide the capital required for product development, operations and marketing efforts, and working capital requirements;
- the Company's ability to protect its intellectual property; and
- risks and uncertainty related to and arising from the global COVID-19 pandemic and possible future pandemics.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in assumptions or the occurrence of anticipated or unanticipated events, except as required by law.
The Company qualifies all the forward-looking statements contained in this AIF by the foregoing cautionary statements.
Material risk factors that could cause actual results to differ materially from the forward-looking information are contained under the heading "Risk Factors" beginning on page 43.
Currency
All dollar amounts in this AIF are expressed in Canadian dollars, unless otherwise indicated.
CORPORATE STRUCTURE
Burcon NutraScience Corporation ("Burcon" or the "Company") was incorporated under the Business Corporations Act (Yukon) on November 3, 1998 under the name "Burcon Capital Corp." and extra-provincially registered in British Columbia on February 5, 1999. Burcon changed its name to "Burcon NutraScience Corporation" on October 18, 1999. On September 25, 2020, Burcon continued into British Columbia as a British Columbia company under the Business Corporations Act (British Columbia). The head office of Burcon is located at 1946 West Broadway, Vancouver, B.C., V6J 1Z2. The registered office of Burcon is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8.
INTERCORPORATE RELATIONSHIPS
Burcon owns 100% of the issued and outstanding shares of its subsidiary, Burcon NutraScience (MB) Corp. ("Burcon-MB") which was incorporated under the Corporations Act (Manitoba) on February 28, 1992 under the name B.M.W. Canola Inc. Its name was changed to Burcon NutraScience (MB) Corp. on May 30, 2000.
Burcon owns 100% of the issued and outstanding shares of its subsidiary, Burcon NutraScience Holdings Corp. ("Burcon Holdings") which was incorporated under the Canada Business Corporations Act on May 22, 2019. Burcon Holdings owns 31.6% of the issued and outstanding shares of Merit Functional Foods Corporation (formerly Burcon Functional Foods Corporation). On May 15, 2019, Burcon Functional Foods Corporation was incorporated under the Canada Business Corporations Act. Its name was changed to Merit Functional Foods Corporation on June 20, 2019.
GENERAL DEVELOPMENT OF THE BUSINESS
Burcon was formed in November 1998 as a venture capital pool corporation whose principal business was to identify and evaluate assets, properties or businesses for acquisition. On October 8, 1999, Burcon acquired Burcon-MB. General developments of Burcon during the last three fiscal years ended March 31, 2024, March 31, 2023 and March 31, 2022 are described below.
Financings
Since October 1999, Burcon has raised gross proceeds of approximately $125.0 million through the sale of equity securities on both a public and private basis, the exercise of stock options and share purchase warrants, through rights offerings to existing shareholders and issuance of convertible securities. The proceeds have been used, and will continue to be used, to fund research, development, regulatory recognition and commercialization of Burcon's patented and patent-pending protein extraction and purification technologies. Burcon's technologies not only enable the production of plant protein ingredients but also relate to applications of the proteins produced therefrom into products, including food and beverages.
On June 20, 2022, Burcon and Large Scale Investments Limited ("Large Scale") entered into a loan agreement (the "2022 Loan Agreement") pursuant to which Large Scale will provide Burcon with a secured loan (the "2022 Large Scale Loan") of up to $10 million (the "Loan Amount"). Large Scale is a wholly-owned subsidiary of Firewood Elite Limited, which in turn is wholly-owned by Mr. Alan Chan, a director of Burcon. Upon the satisfaction of certain conditions with respect to each tranche, the Loan Amount will be available in two tranches of $5 million each.
The first tranche closed on June 22, 2024 and originally had a maturity date of July 1, 2024. On August 2, 2023, the Burcon and Large Scale entered into a letter agreement to extend the maturity date to July 1, 2025. The second tranche closed on December 17, 2023 and will have a maturity date of December 17, 2025 (each of July 1, 2025 and December 17, 2025 referred to as the "Maturity Date").
Large Scale will be paid a commitment fee of 1% of the undrawn amount of the Loan Amount under each tranche on: (i) the closing date of such tranche and (ii) each annual anniversary of the closing date of such tranche. The drawn portion of the Loan Amount will bear interest at a rate of 8% per annum (the "Principal Balance"). Interest on the Principal Balance will accrue monthly, not in advance, and will be payable on the Maturity Date of the applicable tranche. As of the date of this AIF, a total of $6 million has been drawn under the 2022 Large Scale Loan. In connection with the first tranche, Large Scale was paid a commitment fee of $50,000 in August 2022 and an additional $50,000 is payable to Large Scale as a commitment fee for the closing of the second tranche. See "Material Contracts".
On May 8, 2023 Burcon announced a fully-subscribed non-brokered private placement of units (the "2023 Units") at an issue price of $0.265 per Unit (the "May 2023 Offering"). Each 2023 Unit consists of one common share of the Company (a "Common Share") and one Common Share purchase warrant (each whole Common Share purchase warrant, a "2023 Warrant"). Each 2023 Warrant is exercisable to acquire one Common Share (a "2023 Warrant Share") for a period of 36 months following the closing of the applicable tranche under the Offering (the "Closing") at an exercise price of $0.35 per 2023 Warrant Share. The May 2023 Offering closed in three separate tranches on each of May 9, 2023, May 12, 2023 and May 16, 2023. Burcon issued an aggregate of 12,880,829 2023 Units and raised gross proceeds of $3,413,420. In connection with the May 2023 Offering, Burcon paid finders fees in the aggregate amount of $9,440, representing 4% of the gross proceeds raised from certain placees under the May 2023 Offering.
On March 12, 2024, Burcon announced that it completed a non-brokered private placement of units of the Company (the "2024 Units") at an issue price of $0.215 per 2024 Unit for gross proceeds of $4,364,160 (the "March 2024 Offering"). Pursuant to the March 2024 Offering, the Company issued 20,298,418 2024 Units at a price of $0.215 per 2024 Unit. Each 2024 Unit consists of one common share in the capital of the Company (each, a "Common Share") and one-half of one Common Share purchase warrant of the Company (each whole warrant, a "2024 Warrant"). Each 2024 Warrant entitles the holder thereof to purchase one Common Share (each a "2024 Warrant Share") at a price of $0.27 per 2024 Warrant Share for a period of 24 months after the closing date of the March 2024 Offering. All securities issued in connection with the March 2024 Offering are subject to a statutory hold period in Canada expiring four months and one day from the closing of the private placement. In connection with the March 2024 Offering, the Company paid finders fees in the aggregate amount of $5,160, representing 4% of the gross proceeds raised from certain placees under the May 2024 Offering.
The Company's fiscal year end is March 31. During fiscal years 2022 to 2024, Burcon raised or borrowed a total of approximately $14.1 million in capital as follows:
• During fiscal year 2024, Burcon drew $1 million under the 2022 Large Scale Loan and raised an aggregate of $7,777,580 from the May 2023 Offering and the March 2024 Offering.
• During fiscal year 2023, Burcon drew $5 million under the 2022 Large Scale Loan.
• During fiscal year 2022, certain officers, directors and employees exercised options to purchase common shares of the Company for proceeds of approximately $60,000.
• During the fiscal year 2022, holders of warrants from the 2020 Offering exercised warrants to purchase common shares of the Company for proceeds of approximately $212,000.
The proceeds raised from the transactions described above have been used and, as applicable, will continue to be used to:
• accelerate its commercial plans to meet the surging customer demand for its protein products;
• accelerate launch plans for its protein products;
• fund the activities associated with the production and sale of its hemp proteins;
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fund the investment by Burcon in Merit Foods and Burcon's obligations under the Amended and Restated Shareholders' Agreement;
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fund the activities associated with Burcon's obligations under the Amended and Restated License Agreement, for the commercialization of Burcon's pea and canola proteins;
• fund the activities associated with identifying a strategic partner to acquire the assets of Merit Foods.
• fund the activities associated with efforts relating to identifying a strategic partner for the commercialization of Burcon's other proteins, including sunflower;
• further develop Burcon's protein extraction and purification technologies and pursue new related products;
• pursue and develop new applications from the functional attributes of Burcon's proteins;
• fund Burcon's patent activities; and
• provide general working capital.
Stock Exchange Listing
Burcon's common shares have been listed on the Toronto Stock Exchange (the "TSX") since June 2009 under the symbol "BU". Prior thereto, Burcon's common shares were listed on the TSX Venture Exchange (the "TSXV"). The Company's common shares are also listed on the Frankfurt Stock Exchange under the symbol "BNE". The Company's common shares traded on The NASDAQ Global Market from 2011 to 2018 and on The NASDAQ Capital Market ("NASDAQ Capital Market") under the symbol "BRCN" from May 25, 2021 to September 9, 2022. Since the delisting from the NASDAQ Capital Market, the Company's common shares were quoted on the OTC Pink Market under the symbol "BRCNF". On May 8, 2024, Burcon's common shares began trading on the OTC QB venture market under the same symbol.
Merit Functional Foods Corporation
On May 23, 2019, Burcon Holdings entered into a shareholders agreement (the "Original Shareholders Agreement") with RBT Holdco Ltd. ("RBT Holdco") and 10039406 Manitoba Ltd. ("Crew Holdco") (RBT Holdco and Crew Holdco together referred to as the "Other Shareholders") to become shareholders of Merit Functional Foods Corporation (formerly Burcon Functional Foods Corporation) ("Merit" or "Merit Foods"). Initially, Burcon Holdings held 40%, RBT Holdco held 40% and Crew Holdco held 20% of the issued and outstanding common shares of Merit Foods. Merit Foods was formed for the commercial production, sales, marketing and distribution worldwide of Burcon's pea protein, pulse protein and canola protein products. See "Material Contracts".
On August 27, 2020, Burcon announced that Merit Foods received a $30 million investment (the "Investment") from a new equity partner, Bunge Limited. The Investment was completed by way of a subscription by Bunge for shares from treasury and the advancement of shareholder loans by Bunge. Concurrently with the Investment, Bunge purchased additional shares and debt from the Other Shareholders. As a result of the Investment, Bunge initially owned a 25% equity interest in Merit Foods, Burcon owned a 33.33% equity interest in Merit Foods and the Other Shareholders owned, collectively, the remaining 41.67% equity interest in Merit Foods.
On August 27, 2020, Burcon Holdings entered into an amended and restated unanimous shareholders agreement (the "Amended and Restated Shareholders Agreement") with Bunge, the Other Shareholders, Tirem Holdings Limited Partnership and Burcon. Among other things, the Amended and Restated Shareholders Agreements sets out the respective rights and obligations of the shareholders of Merit Foods in respect of Merit Foods, the shares owned by the shareholders and the management and conduct of the business of Merit Foods, including matters requiring board of directors' approval or shareholder approval and the rights of the parties with respect to restrictions on transfers and transfers to third parties. On October 13, 2021, Bunge exercised its right to subscribe for additional common shares of Merit Foods for an aggregate subscription price of $4.95 million ("Bunge October 2021 Investment"). Following the Bunge October 2021 Investment, Bunge's ownership interest in Merit Foods increased to 28.91%, Burcon's ownership decreased to 31.6% and the Other Shareholders collectively owned 39.49%.
The Amended and Restated Shareholders Agreement amends and restates the Original Shareholders Agreement described above. See "Material Contracts".
On May 23, 2019, Burcon and its wholly-owned subsidiary, Burcon-MB entered into a license and production agreement with Merit Foods (the "Original Merit License Agreement"). Under the Original Merit License Agreement, Burcon granted an exclusive, royalty-bearing, worldwide license (the "Merit License") to Merit Foods to use and exploit Burcon's pea, pulse and canola protein technologies to make, have made, use and market and sell Burcon's pea, pulse and canola proteins (the "Merit Licensed Products"). See "Material Contracts".
Concurrently with the signing of the Amended and Restated Shareholders Agreement, Burcon and Burcon-MB entered into an amended and restated license and production agreement (the "Amended and Restated License Agreement") on August 27, 2020. The Amended and Restated License Agreement amends and restates the Original Merit License Agreement. See "Material Contracts".
On February 9, 2021, Burcon announced that Merit Foods completed the first commercial production runs of Peazazz® and Peazac® pea proteins at its state-of-the-art plant protein production facility in Manitoba, Canada, dedicated to the production, under license, of Burcon's novel pea and canola protein ingredients. Construction of the facility was formally completed on December 31, 2020. On April 12, 2021, Burcon announced that Merit Foods achieved first commercial production of its novel lineup of Puratein® canola proteins. The facility was commissioned on December 31, 2021 and achieved the production output threshold as defined under the Amended and Restated License Agreement for the Flex Production Facility to have attained commissioned status.
On May 23, 2019, Burcon, Burcon-MB and Merit Foods entered into a services agreement (the "Services Agreement") pursuant to which Burcon and Burcon-MB will provide certain services (the "Services") to Merit Foods in support of Merit Foods' business. The Services commenced on July 3, 2019 and the agreement had an initial term ending on June 30, 2022. Under the Services Agreement, Burcon and Burcon-MB provided general management/administrative/technical services, research and analytical services and sample production services. The Services were charged to Merit Foods based on rates set out in the Services Agreement.
On May 4, 2020, Burcon announced that Merit Foods had secured a debt financing package of up to $85 million of capital from a syndicate of lenders including Export Development Canada ("EDC"), Farm Credit Canada ("FCC") and the Canadian Imperial Bank of Commerce ("CIBC"). To facilitate the financing, Burcon provided a short-term letter of credit in the amount of $6.5 million in favor of EDC (the "Letter of Credit"), which was to remain in place until no later than September 30, 2020, and also provided a $4 million guarantee of Merit Foods' debt obligations (the "Guarantee"). The Other Shareholders also provided similar guarantees up to an aggregate maximum liability of $6 million. Burcon Holdings and the Other Shareholders also pledged their shares of Merit as security and provided general guarantees to EDC and FCC and guarantees in the aggregate amount o $1,250,000 to CIBC, of which Burcon Holdings' proportionate share was $500,000. In connection with the Investment in August 2020, Burcon Holdings' guarantee amount was subsequently reduced to $416,625.
In connection with the Investment and following the deposit by Merit Foods of $10 million of the proceeds of the Investment into a designated account, EDC and FCC released the Guarantee. Burcon had signed the released guarantees in favour of each of EDC and FCC on April 24, 2020, pursuant to which Burcon agreed to guarantee all the indebtedness, liabilities and obligations of Merit under the loan agreements between EDC, FCC and Merit Foods. The guarantees provided by the Other Shareholders in connection with the financing were also released. EDC also released and returned to Burcon the Letter of Credit described above.
On June 22, 2020, Burcon announced that Merit Foods had secured additional debt financing of $10 million in the form of a 10-year interest free loan from Agriculture and Agri-Food Canada. On July 28, 2020, Her Majesty the Queen in Right of Canada as represented by the Minister of Agriculture and Agri-Food (the "Minister"), Merit Foods, Merit Foods' subsidiary, 11410083 Canada Ltd., Burcon Holdings and the Other Shareholders entered into the Repayable Contribution Agreement For The AgriInnovate Program (the "AIP Agreement") pursuant to which the Minister provided a $10 million 10-year interest free loan (the "AIP Loan") to Merit Foods and 11410083 Canada Ltd. (the "Recipients") for the purpose of facilitating the commercialization of a patent protected, world-leading plant protein extraction process for purposes of supporting the growth of the pea, pulses and canola industries. The interest free loan, repayable over 10 years, was approved under the Agriculture and Agri-Food Canada's AgriInnovate Program. Burcon Holdings and each of the Other Shareholders provided joint and several guarantees to secure the obligations of the Recipients under the AIP Loan. See "Material Contracts".
In October 2021, the shareholders of the Other Shareholders (the "EDC Guarantors") provided guarantees in the aggregate amount of $10 million (the "EDC Guarantee") to EDC in order for Merit Foods to meet certain credit requirements required by EDC under the loan agreements with EDC. Burcon Holdings and the EDC Guarantors entered into a reciprocal indemnity agreement (the "EDC Indemnity Agreement"). Under the EDC Indemnity Agreement, if any EDC Guarantor (each, a "EDC Paying Guarantor") is required to make payment under the EDC Guarantee and any other EDC Guarantor and Burcon Holdings (each, a "EDC Contributing Guarantor") has not made a corresponding payment equal to its Contributive Share, such EDC Contributing Guarantor(s) shall pay the EDC Paying Guarantor such amounts so that, after payment, all obligations and liabilities under the EDC Guarantee will have been borne by the EDC Guarantors in their respective Contributive Shares. Burcon Holdings' Contributive Share under the EDC Indemnity agreement was 44.44%. The obligations of Burcon Holdings and the EDC Guarantors would terminate upon the termination or release by EDC of the EDC Guarantors' obligations under the EDC Guarantee. Burcon Holdings' potential liability under the EDC Reciprocal Indemnity Agreement was approximately $4.44 million.
In October 2021, as a result of the Bunge October 2021 Investment, the aggregate liability of the EDC Guarantors under the EDC Guarantee was reduced to $5.05 million, and Burcon Holdings' maximum liability under the EDC Indemnity Agreement was reduced to $2.24 million.
In January 2022, FCC agreed to provide Merit Foods with a further credit facility of $10 million. In connection with the amendment of the FCC and EDC loan agreements, the EDC Guarantors and Burcon Holdings entered into an amended and restated reciprocal indemnity agreement (the "Amended and Restated Indemnity Agreement") to reflect the reduction in the EDC Guarantee amount to $5.05 million.
In May 2022, Burcon Holdings, Bunge and the Other Shareholders advanced an aggregate $10 million loan ("May 2022 Shareholder Loan") to Merit Foods to address liquidity requirements of Merit Foods as it ramps up production and sales at its pea and canola protein production facility. Burcon Holdings' proportionate share of the May 2022 Shareholder Loan was $3.16 million. The May 2022 Shareholder Loan had a term of 15 years, was initially non-interest-bearing and had terms similar to previously advanced shareholder loans. The May 2022 Shareholder Loan was subordinated to any indebtedness owed by Merit Foods to each of its financial lenders, whether secured or unsecured. As a result of the May 2022 Shareholder Loan, EDC released the EDC Guarantors from the EDC Guarantee. Under the terms of the Amended and Restated Indemnity Agreement, the obligations of Burcon Holdings and the EDC Guarantors terminated upon the release by EDC of the EDC Guarantee. See "Material Contracts".
In September 2022, Burcon Holdings, Bunge and the Other Shareholders advanced a further aggregate $3 million loan ("September 2022 Shareholder Loan") to Merit Foods. Similar to the May 2022 Shareholder Loan, the September 2022 Shareholder Loan was intended to address liquidity requirements of Merit Foods as it continued to ramp up production and sales at its pea and canola protein production facility. The September 2022 Shareholder Loan had the same repayment terms as the May 2022 Shareholder Loan and was subordinated to any indebtedness owed by Merit Foods to each of its financial lenders, whether secured or unsecured.
In late 2022, Merit began a process to identify a new strategic investor for its business. By February 2023, no new investor had been identified. On February 8, 2023, Burcon announced that it had been in discussions with Merit's lenders to propose terms that could maintain Merit's business momentum at the time and provide a path to profitability. The Company made efforts to raise interim financing for Merit while working on a more specific, longer-term funding solutions.
On March 1, 2023, PricewaterhouseCoopers Inc. (the "Receiver") was appointed by order (the "Order") by The Court of King's Bench (Manitoba) (the "Court") to be Receiver of all the assets, properties and undertakings of Merit and 11410083 Canada Ltd ("114"). 114 is the registered owner of the land located at 400 Goldenrod Drive, Winnipeg, Manitoba where Merit's production facility is located. Pursuant to the Order, the Receiver is authorized to sell all of the assets, undertakings and properties of Merit and 114 (the "Property"). After its appointment, the Receiver set out a sales process for the Property, including a timeline and process for review and acceptance of offers. On April 24, 2023, Burcon announced that, in cooperation with an industry plant protein company, it was participating in a bid to acquire the Property. On May 8, 2023, Burcon announced that the Receiver had notified Burcon and the industry participant that the bid submitted was not accepted. Following this decision, Burcon continued to work with additional industry participants, who had expressed an interest in jointly acquiring the Property, to formulate an alternative bid for the Property. As of the date of this AIF, the sales process is ongoing.
Burcon will need to assess the outcome of the sales process and the effect on the Amended and Restated License Agreement. If the successful acquiror of the Property wishes to produce and sell the Merit Licensed Products, such an acquiror will be required to pay and Burcon will have the ability to receive royalties under the Amended and Restated License Agreement. On May 29, 2024, Burcon announced that it will be launching its canola protein. In order to retain its exclusive Merit License, Merit Foods was required to meet certain commercialization obligations by certain deadlines, failing which Burcon could exercise its option to convert the Merit License to a non-exclusive license. Burcon has exercised its option to convert the Merit License to a non-exclusive license and therefore, Burcon will be entitled to make, have made, use, market and sell Merit Licensed Products on a non-exclusive basis and to grant any such rights to any other person.
General Developments
In January 2022, Burcon announced that Mr. Johann Tergesen would be stepping down as President and Chief Executive Officer of the Company. After Mr. Tergesen's departure on February 28, 2022, Mr. Peter Kappel was appointed as interim Chief Executive Officer on March 1, 2022 while the Company, with the assistance of Kincannon & Reed, an executive search firm specialising in the food and agribusiness sectors, searched for a new chief executive officer. On November 7, 2022, the Company appointed Mr. Kip Underwood, an executive with over 25 years of experience in the food and specialty protein industry, as Chief Executive Officer of Burcon. Mr. Kappel relinquished his role as interim Chief Executive Officer and continues to act as a director and chairman of the board of directors.
On September 1, 2022, PricewaterhouseCoopers LLP resigned as auditor of Burcon. KPMG LLP was appointed as Burcon's auditor on November 23, 2022.
On May 10, 2023, Burcon announced that it successfully completed end-to-end validation trials of its novel sunflower protein process using commercial-scale equipment at Burcon's Winnipeg Technical Centre, making the process ready for commercial scale-up. Burcon's sunflower protein isolates are greater than 90% pure protein, have a neutral flavour profile and are white in color allowing incorporation into many plant-based foods. During fiscal year 2024, Burcon entered into a number of material transfer agreements with potential customers and has received positive feedback. Burcon continues to explore potential opportunities to commercialize its sunflower protein process.
On May 24, 2023, Burcon announced that it would be expanding its protein development and innovation business by offering pilot plant processing and scale-up validation as a service for third parties. Burcon's Winnipeg Technical Centre comprises 10,000 square feet of lab and pilot-scale production area utilizing state-of-the-art commercial processing equipment for start-to-finish product development. Manufacturers looking to upcycle by-products, develop end-to-end processes or to validate and scale-up a process can leverage the Company's infrastructure and food processing expertise. As of the date of this AIF, Burcon has completed contract research services for an industry peer and continues to engage in discussions with other parties to provide contract services.
On July 5, 2023, Burcon announced a partnership with HPS Food and Ingredients Inc. ("HPS"), a global leader in hempseed-based food ingredients, pursuant to which the parties would work together to explore the commercialization of Burcon's high purity, soluble hempseed protein isolate ("HPI"). The collaboration aims to capitalize on the thriving hempseed protein market trend and deliver exceptional plant-based protein solutions to customers worldwide. After completing certain market development work and conducted due diligence, the parties launched the HPI at the Institute of Food Technologists 2023 Annual Meeting and Exposition ("IFT First") in Chicago, Illinois during July 16-19, 2023. Initial feedback from potential customers at IFT First was positive. Thereafter, Burcon and HPS participated in various food and beverage trade shows to showcase the HPI, including Natural Products Expo East in Philadelphia, Pennsylvania, SupplySide West in Las Vegas, Nevada, Natural Products West in Anaheim, California and SupplySide East in Secaucus, New Jersey. Burcon and HPS received extensive positive feedback from potential customers at these tradeshows. See "Burcon's Product Portfolio" below.
In March 2024, Burcon announced that it received a co-investment from Protein Industries Canada ("PIC") for the scale-up and commercialization of hempseed and sunflower seed protein. PIC is an industry-led, not-for-profit organization committed to positioning Canada as a global source of high-quality plant protein ingredients. It is one of Canada's five innovation superclusters, which are government-initiated efforts to boost Canada's job market, GDP, research and innovations. In collaboration with HPS and Puratos Canada, Burcon will lead the commercialization efforts for its new-to-the-world high purity hempseed and sunflower seed protein ingredients. The $6.9 million project includes a $3 million co-investment from PIC to support the commercial scale-up of these novel protein ingredients and the development into innovative consumer food and beverage applications.
During fiscal year 2024, Burcon conducted an extensive review of its patent portfolio and strategies to ensure alignment with the Company's strategic goals. The process undertaken allowed the Company to add intellectual property in the areas of new-to-the-world technologies while simultaneously eliminating patents that have limited commercial value. Through optimization of its intellectual property portfolio, Burcon's patent expenses were significantly reduced.
Burcon's Product Portfolio
Hemp
In December 2023, Burcon announced that it had entered into a production agreement with its partner manufacturer to bring the HPI to market. Burcon planned to combine its proprietary equipment with the existing infrastructure and manufacturing capabilities of its contract partner to commercially produce the HPI. Working closely with its partner manufacturer, Burcon announced in March 2024 that it successfully completed end-to-end validation trials and the start of commercial-scale production for its high purity 95% hempseed protein isolate. On April 29, 2024, Burcon announced that, together with HPS, it had achieved its first commercial sales of HPI.
Sunflower
Premium sunflower protein isolate, that contains greater than 90% protein purity and has exceptional taste and functionality, has the potential of setting a new benchmark in the growing plant-based ingredients market. In March 2022, Burcon entered into a collaborative agreement with PIC for the development of high-quality protein ingredients from sunflower seeds. Burcon partnered with Pristine Gourmet, a processor of 100% pure Canadian non-GMO cold pressed virgin oils, to develop Burcon's novel process for the production of sunflower protein ingredients. The project was intended to fine-tune and scale up an economical extraction and isolation process from the by-product (pressed cake) of sunflower oil production. The project was completed on March 31, 2023.
Burcon has refined and validated extraction technology to produce high quality sunflower protein ingredients from cold-pressed sunflower meal, the waste stream from sunflower oil production, which is currently used for animal feed. Burcon has optimized this extraction process and scaled it up in its pilot plant to produce premium sunflower protein isolate, that contains greater than 90% protein purity and has exceptional taste and functionality. Burcon has also conducted some preliminary functionality and application testing of the sunflower protein produced on the pilot scale. As the world's third largest oilseed crop, behind soy and canola, sunflower seed has significant potential to be a major source of protein within the plant-based food revolution. Unlocking the potential of protein present in sunflower seed for mainstream food ingredient applications could mean unlocking vast quantities of novel plant protein worldwide.
As disclosed above, PIC approved a second project for Burcon to produce and commercial hempseed and sunflower protein isolates. This project is expected to bring to market high-value, high purity, novel plant protein ingredients sourced from hempseeds and sunflower seeds. These new proteins will be extracted from existing low-value by-product "waste streams" of the sunflower and hempseed processing industries. The patented technologies that will be scaled up are environmentally friendly water-based clean processes, without the use of any harsh chemicals.
These novel protein ingredients (hempseed protein isolate and sunflower seed protein isolate and concentrate) is expected to expand the toolboxes of food technologists and product developers, and open new doors to a vast array of potential food applications.
During the fiscal year, Burcon pursued discussions with potential partners to commercialize its sunflower technology. Initial feedback from customers sampling Burcon's sunflower proteins has been positive. As of the date of this AIF, the discussions with potential partners are ongoing.
Canola
Burcon's technologies allow it to extract and purify three types of canola proteins from canola meal, a co-product (together with canola oil) of the canola seed crushing industry. Burcon has branded these canola proteins under the trade names "Puratein®", "Supertein®" and "Nutratein®".
During fiscal year 2022 and 2023, Merit Foods was notified by Health Canada that the data provided in Merit's submission supports that Supertein®, Puratein® and Nutratein® are safe for general food use. See "Regulatory Approval for Marketing Puratein®, Supertein® and Nutratein® Canola Proteins".
Through Merit Foods, Burcon's canola proteins received acceptance from leading food and beverage customers. During fiscal year 2024, Burcon received interest from potential customers for its canola proteins, which demonstrated a continued demand for these products. On May 29, 2024, Burcon announced the launch of its high-purity, nutritionally complete canola protein, with expected production and sales by the latter half of 2024.
Pea
Pea protein is popular plant-based protein ingredient which can be used in a wide variety of food products. One of the reasons is that pea protein is able to deliver functionality and protein nutrition to products without the issues of allergenicity and genetic modification that may be present with other proteins. Pea proteins currently available in the market are sold for use in a variety of food products including: meat alternatives; snacks and cereals; diet products (high protein foods); ready-to-mix and ready-to-drink beverages as well as in nutritional supplements such as meal replacement shakes.
On October 21, 2019, Burcon announced that it had received a GRAS (Generally Recognized As Safe) no-objection letter from the US Food and Drug Administration ("FDA") for its Peazazz® and Peazac® pea proteins. Burcon had successfully obtained self-affirmed GRAS status for its Peazazz® and Peazac® pea protein products and had made its submission to the FDA for GRAS notification on June 15, 2018. This "Letter of No Objection" is issued by the FDA, after an extensive review of all of the scientific data submitted by Burcon, to confirm that the FDA has no questions or concerns regarding the safety of Burcon's pea protein ingredients. Receipt of GRAS notification is a significant commercial milestone and is important for the acceptance and use of these proteins by global food and beverage companies.
Through Merit Foods, Burcon's pea proteins received acceptance from leading food and beverage customers. Burcon believes that a pathway exists in the future for its pea proteins and will continue to explore ways to commercialize these proteins.
Soy
Soy protein isolate is used as a functional ingredient or fortifier in a wide variety of food products including meat alternatives, dairy alternatives, protein shakes, ready-to-drink beverages, protein cereal bars, soups and sauces, meats and meat alternatives, and breads and baked goods. In addition to enhancing the protein content of foods, soy protein isolates are used by food manufacturers for their functional applications. These applications include the ability to emulsify, whip, bind and add viscosity to foods. See "Description of the Business".
Burcon has developed technologies to extract and purify soy protein from a variety of soy materials. These technologies encompass various processes to produce a soy protein which Burcon has branded as "CLARISOY®". A number of different processes are used to produce CLARISOY® soy protein specific for certain applications ranging from soluble and transparent beverages with a pH of 4.0 and below to neutral beverages with a pH of 7.0 or higher. CLARISOY® is specifically designed to enable beverage manufacturers to meet the demand for great-tasting, nutritionally enhanced beverages targeted to the ever-growing number of health and wellness minded consumers. Potential applications for CLARISOY® include: sports nutrition beverages, citrus-based drinks, fruit-flavoured beverages, lemonades, powdered beverage mixes and in numerous non-beverage plant-based applications.
Specialty Proteins and Phytochemical Extractions
Burcon's extraction and purification technologies can also be used to produce specialty proteins such as flax proteins. Burcon's core extraction and purification technology is versatile and can be adapted to process a range of oilseed and non-oilseed meals to produce high-value protein products for use in the food and beverage industries.
The demand for plant proteins in the protein market continues to grow and as such, Burcon believes that there may be niche market opportunities for its specialty protein ingredients. Burcon will continue to explore these opportunities as they arise.
DESCRIPTION OF THE BUSINESS
The protein ingredient industry continues to experience rapid growth, with plant proteins in particular experiencing high demand. This increase in demand for plant proteins is fuelled by consumers' desire for food that both better for them and better for the planet. As consumers continue to gain a deeper understanding of how their food choices affect the health of our planet, plant based foods will continue to be sought as part of the solution. External issues such as melamine tampering/contamination, mad cow disease, E. coli, swine flu, avian flu and the growing use of antibiotics in animal production, as well as demographic trends are all combining to produce significant demand for plant proteins.
Two major attributes are relevant to the commercial value of protein as an ingredient: functional value and nutritional value.
Functional Value
Proteins possess a wide range of attributes essential to the structure and textural integrity of food products. These relevant properties include: solubility, viscosity, water-binding, gelation, cohesion, adhesion, elasticity, emulsification, foaming, whipping, fat-binding, film forming and flavour-enhancing qualities.
In weighing the commercial potential of any protein ingredient, its functional utility is, in some cases, more important than its nutritional value. For example, although the nutritional value of wheat protein is comparatively low, (the Protein Digestibility Corrected Amino Acid Score ("PDCAAS") of whole wheat is 0.40), only wheat protein-called gluten-will make a traditional loaf of bread. Thus, the functionality of wheat protein makes it a staple in the North American diet. At the top end of the functional scale, egg white protein will whip, coagulate, and form films. Such functional versatility makes egg white one of the most valuable food proteins. Certain of Burcon's proteins can be made to mimic many of egg's functions, and in certain instances can outperform egg.
Nutritional Value
Proteins are organic compounds made up of carbon, hydrogen, oxygen and nitrogen. It is the presence of the nitrogen that sets proteins apart from other nutrients. Nitrogen is essential to human life, but since we have no other source of nitrogen-unlike plants, we are unable to absorb it as a nutrient from the ground-one of the most important roles of dietary protein is to bring nitrogen into the body.
Proteins are made up of sub-units called amino acids. There are twenty dietary amino acids, typically subdivided into two categories: non-essential amino acids, which can be made within the body, and essential amino acids which must come from diet.
Amino acids supplied from dietary protein are needed for synthesis of body proteins in muscle, organs, bone and skin, and for synthesis of enzymes, certain hormones, antibodies and a host of bodily processes.
The essential amino acids are lysine, methionine + cysteine, threonine, tryptophan, leucine, isoleucine, valine, phenylalanine, arginine and histidine (adults do not require a dietary supply of arginine).
A diet deficient in one or more of the essential amino acids impairs growth in children, causes adults to lose muscle mass, and lowers the body's resistance to a variety of diseases. Extreme protein deficiency can be a cause of death. An adequate daily supply of high-quality protein is essential to optimal growth and health.
The nutritional supplements industry has seen rapid growth in the use of protein ingredients over the past ten years. Protein or nutrition bars, once consumed only by endurance athletes, are now widely available and protein-rich meal-replacement products and dietary supplements have become supermarket staples and are sold in large quantities at the retail level and online. Protein supplements are also increasingly and successfully being promoted to the expanding market of consumers, including seniors and for specialized markets such as infant and medical nutrition. Potential nutritional applications for protein isolates include ready-to-drink and ready-to-mix beverages, nutrition bars, protein powders and any other concentrated protein supplement.
Pea
Field pea, or Pisum sativum in Latin, is part of the legume family and was one of the earliest cultivated food crops. A pea is most commonly the green or yellow small spherical seed inside a peapod that contains multiple peas. The pea plant is grown in cool-weather conditions in many parts of the world, including Canada, Europe and temperate regions of Asia.
Peas are consumed as a vegetable worldwide for their high nutritional value and health benefits, being high in protein, fibre, starch, vitamins and minerals. Peas are also not considered a major allergen. As part of the legume family, pea plants have the ability to lock in nitrogen from the atmosphere and store it in their root nodules. This nitrogen-fixation ability allows producers to use less fertilizer and replenish the soil with nitrogen, making peas a much desired sustainable crop.
Pea protein is increasing in popularity as a plant-based protein ingredient which can be used in a wide variety of food products. One of the reasons is that pea protein is able to deliver functionality and protein nutrition to products without the issues of allergenicity and genetic modification that may be present with other proteins. Pea proteins currently available in the market are sold for use in a variety of food products including: meat alternatives; snacks and cereals; diet products (high protein foods); ready-to-mix and ready-to-drink beverages as well as in nutritional supplements such as meal replacement shakes.
Peazazz®
Peazazz® pea protein is a uniquely soluble, clean and neutral-tasting pea protein that is suitable for dairy alternative food and beverages. Burcon believes that Peazazz® is the purest pea protein on the market, has clean flavour characteristics and is well suited for use in plant-based milk, yogurt, ice cream as well as a variety of other healthy and great tasting food and beverage product applications. Its valuable nutritional and functional characteristics make Peazazz® an attractive product to companies looking for an alternative plant protein ingredient.
Burcon's Peazazz® pea protein can be produced from a non-GMO source and pea protein is not considered a major allergen. Consumers are increasingly looking for clean-label and "free-from" products. Burcon's Peazazz® pea protein is dairy-free, soy-free, gluten-free, allergen and GMO-free and does not require allergen labelling.
Burcon is not aware of any pea protein isolate in the market that is clean-tasting with superior solubility like Peazazz®. Burcon expects the introduction of Peazazz® pea protein to be able to gain a share of the pea protein market, as well as expand the pea protein market to include (what it previously could not) a broader range of product applications.
Pea Protein Production
Current production of pea protein products in the market involves the use of either a dry fractionation process or a combination of both dry and aqueous fractionation processes. Mechanical separation from a dry fractionation process is used to produce pea protein flours and concentrates, which contain a lower protein content. An aqueous fractionation process is used to produce pea protein isolates with higher protein content ideal for use in human food and beverage applications. Current methods of production often result in a pea protein that retains its vegetable off-flavour, insoluble in solution and imparts undesirable color and aroma into food applications. Burcon has developed and filed applications to obtain patent protection for novel processes allowing for the production of uniquely soluble pea proteins with clean flavour characteristics suitable for various food and beverage applications.
Canola
Canola is the North American name for the enhanced variation of rapeseed first developed and introduced in 1974 when a Canadian researcher bred a "double low" variety of rapeseed with reduced levels of the two negative elements naturally occurring in rapeseed: erucic acid and glucosinolates. This type of rapeseed is known in Europe and parts of Asia as rapeseed or oilseed rape and has become the world's second largest oilseed crop. The growth of rapeseed as an international crop can be attributed to three factors: the ability to grow rapeseed in temperate climates; favourable production costs; and a beneficial fatty acid profile for the oil, which is high in monounsaturates.
Each canola plant produces yellow flowers which produce pods that are similar in shape to pea pods and about 1/5th the size. Within the pods are tiny round seeds that are crushed to obtain canola oil. After the oil is removed through processing at a canola crushing plant, the remainder of the seed (approximately 60% by weight) is canola meal. Canola meal is the raw material used to produce Puratein® canola protein, Supertein® canola protein and Nutratein® canola protein from Burcon's extraction technologies. Canola meal is comprised of approximately 35% protein. Canola meal is in abundant and relatively inexpensive supply and is sold almost exclusively as an animal feed ingredient; however, its protein value, even in feed applications, is limited by the presence of a large amount of fiber and other anti-nutritional factors naturally present in canola seed. Burcon's extraction process separates the protein from the fiber and from most of the naturally occurring anti-nutritional factors.
In the past, numerous attempts have been made at finding an economically viable method to extract canola protein from canola meal. There is a significant amount of scientific publications describing various methods to do so, most of which publications also underscore numerous reasons for the scientific interest in obtaining canola protein isolate, including, amongst others: a unique amino acid profile, rich in sulfur containing amino acids; an abundant source of protein; and two distinct protein fractions. However, none of the existing technologies described in the scientific literature is commercially applied at present. Major drawbacks of the existing technologies, which often use alkaline extraction followed by isoelectric precipitation, include the insufficient purity of the canola protein isolate, unacceptable colour and taste of the canola protein products as well as the resulting protein's limitations regarding functionality. Phenolics that are naturally present in canola oxidize readily in alkaline conditions causing dark coloration of the final protein product.
Burcon's canola protein extraction process does not use harsh chemicals but rather is based primarily on making use of physical separation and purification techniques. At the core of Burcon's canola protein production process is a micelle formation step, which separates the two naturally occurring proteins in canola: napin and cruciferin. Processing of these two fractions results in the cruciferin-rich canola protein isolate Puratein® canola protein and the napin-rich canola protein isolate Supertein® canola protein. Burcon has also developed Nutratein® canola protein, which consists of a blend of the two fractions.
Canola Protein
Potential nutritional applications for canola proteins include meat alternatives, egg alternatives, non-dairy frozen desserts, ready-to-mix beverages, whipped toppings and nutrition bars and any other concentrated protein supplement.
Based on the recommendations of the Joint Expert Consultation of the Food and Agricultural Organization ("FAO") and World Health Organization ("WHO") in 1989, the FDA and the FAO/WHO adopted in 1993 the PDCAAS as the preferred method for measuring the quality of a protein based on the amino acid requirements of humans. The PDCAAS method for evaluating protein quality is based on the needs of humans. The quality of a protein is based on the amino acid requirements of a 2 to 5 year old child, which is considered to be the most nutritionally demanding age group, other than infants. After adjusting for digestibility, the protein quality rankings of a specific protein evaluated under the PDCAAS method are compared to a standard amino acid profile with the highest possible score being a 1.0. A PDCAAS score of 1.0 means that, after digestion of the protein, it provides 100% or more of all the essential amino acids required. Proteins with a PDCAAS of 1.0 include egg and cow's milk.
The PDCAAS scoring system has since been updated by the FAO/WHO/United Nations University ("UNU") in 2002, altering the reference amount of specific amino acids and also dividing the requirement by age groups of children 1-2 years and 3-10 years. In the Report of a Joint FAO/WHO expert consultation on protein and amino acid requirements in human nutrition, the FAO/WHO/UNU came to the conclusion that previous reports considerably overestimated the protein requirements. Despite the foregoing, the FDA has neither formally adopted the updated levels recommended in the 2002 report nor advised food companies to use these updated levels when calculating PDCAAS values.
Based on the PDCAAS method, the PDCAAS scores for Burcon's canola proteins are as follows:
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Canola Protein
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FAO/WHO 1989
mg/g protein
(2-5 years old)
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FAO/WHO/UNU 2002
mg/g protein
(3-10 years old)
|
|
Puratein®
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0.60
|
0.72
|
|
Supertein®
|
0.71
|
0.91
|
|
Nutratein®
|
0.90
|
1.00
|
Burcon's canola protein has a score in the range of 0.60 to 0.90 under the 1989 FAO/WHO pattern and a score in the range of 0.72 - 1.00 under the 2002 FAO/WHO/UNU pattern, suggesting that Burcon's canola protein is a good quality protein source.
Puratein® Canola Protein
Puratein® canola protein is a canola protein isolate comprised mainly of globulin proteins. The functional properties of Puratein® canola protein include emulsification, gel formation, thickening, formation of heat-stable foams, and water- and ingredient-binding. Applications for Puratein® canola protein include meat alternatives such as burgers and sausages and nutrition bars. Puratein® canola protein has a savoury flavour profile with no off-flavours.
Supertein® Canola Protein
Supertein® canola protein is a light coloured powder with a mild flavour. It is a highly soluble canola protein isolate, at over 90% protein purity, comprised principally of albumin proteins. The functional properties of Supertein® canola protein include high solubility across the pH range, good foaming and whipping capacity that exceeds the performance of egg albumen. Applications for Supertein® canola protein include non-dairy frozen desserts, egg alternative, plant-based marshmallows, plant-based ready-to-mix beverages, whipped toppings and plant based bars, among many others.
The exceptional cysteine content of canola protein has long been of interest to nutritional scientists. A potential link between canola protein's high cysteine content and disease prevention has been reported in a study in the British Journal of Nutrition entitled "Rapeseed protein inhibits the initiation of insulin resistance by a high-saturated fat, high-sucrose diet in rats" by Mariotti F., Hermier D., Sarrat C., Magné J., Fénart E., Evrard J., et al 2008 Nov; 100(5):984-91. The study's aim was to determine whether rapeseed protein, described by the study's authors as "an emergent cysteine-rich protein" could inhibit the onset of the metabolic syndrome. The main finding of the study "is that rapeseed protein substituted for milk protein inhibited the onset of insulin resistance in rats fed the high-saturated fat, high-sucrose diet". The authors further noted that rapeseed protein mitigated certain factors associated with metabolic syndrome: "The study's result highlights the importance of the type of protein as a major component of diet quality, in terms of cardiovascular and diabetic risks." Supertein® canola protein is rich in sulfur-containing amino acids and particularly rich in cysteine. The typical cysteine content of Burcon's Supertein® canola protein is nearly double that of whey protein, which is recognized for its high cysteine content. The findings in the study reported in the British Journal of Nutrition suggest that Supertein® may have potential applications in the prevention of metabolic syndrome.
Nutratein® Canola Protein
With purity levels at over 90% protein, Nutratein® canola protein is comprised of a mixture of globulin and albumin proteins. Nutratein® canola protein is a fine powder that has good solubility across a broad pH range. Nutratein® canola protein has an excellent amino acid profile and its PDCAAS score makes it an excellent choice for use in meat and egg alternatives, and other plant-based functional foods. Nutratein® canola protein benefits from having high cysteine content, one of the limiting amino acids, making Nutratein® a nutritional complement to amino acid profile of other plant proteins having a low or deficient cysteine content.
Soy
According to the Soyfoods Association of North America, the soybean was introduced to North America around the 1760s. Today, soybeans are the largest oilseed crop in the world with Brazil being the largest producer of this crop, followed by the United States, Argentina and China. Soybeans are similar in size and colour to peas and are primarily cultivated for their oil and protein. Soybeans are the largest single source of edible oil and accounted for approximately 59%‡ of the world's total oilseed production in 2019. In addition to being a source of oil and protein, soybean meal is used in animal feed for the production of meat and eggs. Soy flour is used in the commercial baking industry while soy hulls are processed to make breads, cereal and snacks.
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‡ Source: www.soystats.com
Each soybean is comprised of approximately 40% protein, 35% carbohydrate (including fiber), 20% oil, and 5% ash.
Soy Protein
Commercially sold soy protein is available in predominantly three forms: soy flour, soy concentrates and soy protein isolates. After cracking and dehulling the soybean, soy processors roll them into flakes. Oil from the soybean flakes is removed and then the flakes are dried. The defatted flakes are then further processed into soy protein.
Soy protein isolate is the purest of the three forms of soy protein and contains over 90% protein, on a moisture free basis. Soy protein isolates are relatively neutral in flavour and odour and are used primarily by the food industry. Today, soy protein isolate is used in a variety of food applications, including as a protein replacement for dairy proteins in food or in products such as protein shakes, power bars, soups and sauces, meat alternatives, breads and baked goods. Soy protein isolates are desired by food manufacturers for their functional applications. These applications include the ability to emulsify, whip, bind and add viscosity to foods.
In addition to its functional attributes, soy protein isolate provides nutritional enhancement to foods. Soy protein contains all the essential amino acids required for human nutrition.
Numerous studies have been conducted on the health benefits of soy protein. In October 1999, the FDA approved a health claim for soy protein and its role in reducing the risk of coronary heart disease. In March 2015, after a meta-analysis of scientific studies, Health Canada's Food Directorate concluded that scientific evidence exists to support a health claim about soy protein and blood cholesterol lowering. The evidence supports a direction of effect towards a reduction in total and LDL cholesterol levels when soy protein is consumed.
The quest for healthier lifestyles has led consumers to search for healthier alternatives to animal protein. The FDA's and Health Canada's approval of a health claim for soy protein has fuelled soy protein's increasing popularity and general acceptance among consumers. These factors, along with the desire by consumers for food producers to find sustainable ways to produce food for humans, are expected to sustain market demand for soy protein isolates. Burcon intends to participate in this growing market through its CLARISOY® soy protein.
CLARISOY®
In November 2008, Burcon announced that it had developed a soy protein which it branded as CLARISOY®. Burcon has developed technologies to extract and purify soy protein from a variety of soy materials. These technologies encompass various processes to produce CLARISOY® soy protein. A number of different processes are used to produce CLARISOY® soy protein specific for certain applications ranging from soluble and transparent beverages with a pH of 4.0 and below to neutral beverages with a pH of 7.0 or higher. CLARISOY® is specifically designed to enable beverage manufacturers to meet the demand for great-tasting, nutritionally enhanced beverages targeted to the ever-growing number of health and wellness minded consumers.
Based on the PDCAAS method, Burcon's CLARISOY® soy protein has a score of 0.98 and 1.00 under the 1989 FAO/WHO pattern and the 2002 FAO/WHO/UNU pattern, respectively, suggesting that Burcon's CLARISOY® soy protein is a good quality protein source.
Soy Protein Production
Pursuant to the terms of the ADM License and Production ADM successfully commissioned the first full-scale CLARISOY® production facility in November 2016. Although ADM made efforts to market and sell CLARISOY® soy protein into a number of different markets and product applications, ADM was unable to achieve meaningful sales for CLARISOY® soy protein. Burcon and ADM agreed to terminate the ADM License and Production Agreement effective August 7, 2020. See "Material Contracts".
Burcon is investigating alternative paths to bring its soy protein technologies to the market. Soy protein is a complete plant-based protein ingredient that accounts for the largest share of the overall plant-based proteins market. Burcon intends to pursue all available opportunities to commercialize and monetize its soy protein intellectual property portfolio.
Sunflower
Sunflower protein combines many beneficial attributes for human consumption: good digestibility index, good amino acid profile, free of priority allergens, good flavor, and good functionality. According to data from the US Department of Agriculture Foreign Agricultural Service (USDA FAS); World sunflower meal production is projected to approximately 22.4 million tons for the 2023/24 season. Sunflower meal is rich in protein content (25-30%) and used mainly as nutritious animal feed. Unlocking the potential of protein present in sunflower meal for mainstream food ingredient applications means that Burcon could potentially be unlocking vast quantities of novel plant protein worldwide. Sunflower protein does not present any allergenicity issues, unlike other mainstream plant-based proteins like soya. Its clean taste and off-white color make it an ideal ingredient for food applications where other traditional plant-based proteins have to-date not been able to provide satisfying solutions.
Burcon's promising initial extraction trials have produced high purity sunflower protein isolates. The protein samples showed very favorable color and taste profiles, that could potentially make them ideal for meat alternative applications, along with beverages, dairy milk replacers, and other ready to use drinks.
Hemp
One of Burcon's pipeline technologies involves the extraction and purification of protein from industrial hempseeds, which is currently being crushed for its high value hemp oil.
Burcon is able to adapt its processing technologies to extract and purify protein from hempseeds, producing a food-grade hemp protein isolate. Burcon has certain granted patents for hemp protein and possesses the skill and know-how to produce a great tasting and functionally superior hemp protein isolate. Burcon continues to develop its hemp protein technologies with the objective of securing a strategic partnership to commercialize hemp protein isolates.
The global industrial hemp market is currently at US$5.3 billion and growing rapidly. This growth is driven in part by the increasing acceptance by consumers and the regulatory easing on hemp-related crops and retails products. Despite the rapid growth, the industrial hemp market is still in its nascent stages and supply of hempseed is limited to niche areas. Burcon expects that acreage allocated to hempseed production will continue to increase as consumers demand more plant-based products. Current suppliers of hemp protein are serving a niche market with hemp protein isolate product of approximately 70% protein content. Burcon can produce a greater than 90% hemp protein isolate, which Burcon believes is higher in purity and better tasting than any hemp protein product available on the market today.
Factors that make the hemp opportunity compelling for Burcon to pursue include 1) current market demand outweighs availability of supply for hemp protein; 2) current market offerings of hemp protein are low in quality with strong off-flavour and off-colouring, limiting the use in food and beverage applications; and 3) Burcon can produce a high-quality hemp protein isolate that has exceptionally clean taste and excellent functionality.
Research and Development
Burcon has designed and built a semi-works production facility, complete with an analytical laboratory, for the development and production of proteins from various plant sources. The semi-works plant utilizes commercial-scale equipment and is capable of producing the tonnage amounts required by food and beverage makers looking to conduct full-scale market evaluations of Burcon's proteins in their consumer products.
Burcon has over 20 years of experience in developing high-quality vegetable protein ingredients and has successfully developed Peazazz®, Peazac® and Peazac® 850 pea proteins, three unique canola proteins, Supertein®, Puratein® and Nutratein® canola proteins, CLARISOY® soy protein and launched its hemp protein isolate during fiscal year 2024. Burcon is currently developing other specialty proteins such as sunflower.
Objectives
For fiscal 2025, Burcon's main objectives are to ramp hemp protein production to meet demand and successfully launch our canola protein isolate. Beyond our hemp and canola protein products, Burcon will seek additional routes to market for the balance of our protein portfolio. Burcon will focus on both partner development for the commercialization of its sunflower proteins while evaluating licensing strategies or other alternatives for its pea and soy protein isolate technologies.
Burcon's activities will include:
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working with its partner manufacturer to secure production capacity to meet expected demand for hemp and canola proteins;
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working with HPS Ingredients to market and sell Burcon's hemp proteins to generate revenues
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identifying and securing a strategic partner(s) with the goal of commercializing its plant protein technologies including sunflower, soy, canola and pea protein technology;
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advancing Burcon's pipeline of plant-based protein technologies by conducting research to develop and refine its extraction and purification processes for novel protein products;
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file patent applications to protect intellectual property arising from research and development of new protein technologies;
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secure and perform further contract research projects at the Winnipeg Technical Centre in order to continue engaging the market place and enhance Burcon's leadership position in plant protein technologies;
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continue to refine its protein extraction and purification technologies, develop new technologies and related products;
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further strengthen and expand its core intellectual property portfolio;
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explore opportunities for acquiring or licensing into Burcon, novel technologies that will complement or enhance Burcon's intellectual property portfolio and business initiatives; and
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pursue product development agreements with major food, beverage and nutritional product companies to develop improved or novel applications for Burcon's other specialty proteins into their products.
Intellectual Property
Patents
In October 1999, Burcon acquired the shares of Burcon-MB. At the time of the acquisition, Burcon-MB held patents and applications covering the protein micellar mass process for extracting and producing a canola protein isolate. Since the acquisition, Burcon has focused on developing its protein extraction and purification processes and seeking patent protection for its developments. Through Burcon-MB, Burcon has filed patent applications in various countries over its inventions. Burcon's patent applications can be grouped into three categories:
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applications to protect additional novel protein extraction and purification technologies;
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applications to protect the uses of Puratein®, Supertein® and Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® pea protein, and other plant proteins, including sunflower and hemp proteins, for example, as functional food and beverage ingredients; and
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applications to protect the "signature characteristics" of Puratein®, Supertein® and Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® and Peazac® pea proteins and other plant proteins, including sunflower and hemp proteins.
As of the date of this AIF, Burcon's patents and patent applications cover 49 distinct inventions. Burcon has filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. As at the date of this AIF, Burcon holds 129 issued patents in various countries, including patents covering composition of matter and a number of key processes and uses of Burcon's products as functional food and beverage ingredients, 61 of which have been issued in the U.S. Burcon holds patents or has filed patent applications in: Australia, Brazil, Canada, China, Hong Kong, India, Japan, the European Union, Mexico, Russia, South Africa, South Korea, Thailand and the United States. Burcon currently has over 81 patent applications that are being reviewed by the patent offices in various countries, 13 of which are U.S. patent applications.
Granted U.S. Patents
Burcon holds 61 issued patents in the United States relating to soy protein, canola protein, flax protein and pulse (including pea) protein and protein from other oilseeds including sunflower and hemp. Although the initial protein micellar mass canola protein isolate patents acquired from Burcon-MB have expired, Burcon holds patents covering improvements made by Burcon to the protein extraction and purification technologies. These new inventions include:
Soy
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processes to extract and purify soy protein from various soy material to produce soy protein products that are soluble in acidic medium and produces heat stable solutions suitable for protein fortification of sport drinks and other beverages;
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use of soy protein products in acidic beverages and other products;
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protection covering the composition and signature characteristics of Burcon's CLARISOY® soy protein;
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alternative processes for producing soy protein products;
Canola
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technologies for improving the quality of input meal prior to the purification and extraction process, to result in better protein;
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process improvements to produce canola protein isolate efficiently and to obtain higher yields of canola protein isolate;
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processes for reducing phytic acid in the production of protein isolates from oilseed meals. Phytic acid is a naturally occurring anti-nutritional component found in oilseed meals such as canola meal and soybean meal;
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protection covering important processing conditions for producing Supertein® canola protein as well as for the preparation of a highly refined Supertein® canola protein and product characteristics;
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protection covering the composition of the dominant species of protein in Burcon's Puratein® canola protein. Puratein® is a cruciferin-rich canola protein isolate comprised principally of globulin proteins, allowing it to have unique functional qualities;
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protection covering the process for producing Nutratein® canola protein;
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processes to improve the final colour profile of Puratein® canola protein and Supertein® canola protein;
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applications for the uses of canola protein as a functional food and beverage ingredient;
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the use of canola protein as a flavour enhancer in a food product;
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alternative processes for producing canola protein isolates;
Pea and other Pulses
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characteristics of pulse (including pea) protein product prepared by key pulse protein purification procedure;
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alternative pulse (including pea) protein product having signature characteristics, including properties in low pH solution;
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characteristics of alternative pulse (including pea) protein product geared towards neutral or near neutral pH food applications and food composition comprising this protein product;
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protection covering the processes for producing pulse (including pea) protein products having reduced astringency in low pH solutions and signature characteristics of such products;
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alternative process for preparing pulse (including pea) protein products and signature characteristics of such products;
Flax
Sunflower
Hemp
- process for the production of hemp protein isolate.
Patent Strategy
Burcon believes that it has developed a dynamic patent portfolio by seeking protection for new technologies as well as further protecting current technologies. In addition, Burcon has filed patent applications to cover alternative extraction technologies, which, in Burcon's opinion, would not be as commercially viable. Such filings have been made as part of Burcon's defensive strategy to gain as much protection in the protein extraction and purification space as possible. Burcon will continue its research and development to further refine its processes and make new discoveries. The Company will continue to file additional patent applications to protect these discoveries.
As part of Burcon's annual review of its patent portfolio, Burcon may cease to maintain certain non-core patents and patent applications which it deems to be non-essential or redundant for the purposes of achieving its strategic objectives by not paying annuities or maintenance payments when due. In the course of optimizing its patent portfolio, Burcon conducted a review during the fiscal year with the goal of focusing on the technologies with the greatest potential value. This process will allow the efficient protection of essential and emerging technologies in key markets and jurisdictions as Burcon's technology offerings continues to grow and evolve.
Trade-marks
Burcon has obtained trade-mark registrations for "Nutratein", "Supertein", "CLARISOY" in Canada, as well as "Puratein", "Peazazz", "Peazac" and the slogan "A New World in Protein" in Canada and the United States. Burcon has also filed a trademark application "Nutratein-PS", "Nutratein-TZ" in Canada, a trademark application for "CLARISOY" in the United States and holds the "CLARISOY" trademark registration in Japan.
On June 4, 2020, Burcon granted Merit Foods a royalty-free non-exclusive license (the "Original Trademark License Agreement") to certain Burcon trademarks registered by Burcon in association with the products under the Merit License as long as the Merit License is exclusive.
Effective August 27, 2020, Burcon and Merit Foods entered into the amended and restated trademark license agreement (the "Amended and Restated Trademark License Agreement"). The Amended and Restated Trademark License Agreement amends and restates the Original Trademark License Agreement. Under the Amended and Restated Trademark License Agreement, Burcon has granted Merit Foods an exclusive, worldwide, royalty-free and non-transferable license to use certain of the Burcon's trademarks in connection with certain goods and/or services as long as the Merit License is in effect unless terminated in accordance with the terms of the Amended and Restated Trademark License Agreement or by mutual agreement between the parties. Merit Foods granted Burcon a reciprocal license to use certain of Merit Foods' trademarks for certain goods and/or services under the Amended and Restated Trademark License Agreement on the same terms but for the license being non-exclusive.
Facilities
Burcon's head office is located at 1946 West Broadway, Vancouver, British Columbia, Canada in leased office space. Through Burcon-MB, Burcon leases the premises where the Winnipeg Technical Centre is located at market rental rates. These premises are located at 1388 Waller Avenue, Winnipeg, Manitoba, Canada. The lease will expire on August 31, 2025. The premises include a 10,333 square foot facility in a light industrial park. Burcon owns the equipment in this facility which includes tanks of up to 20,000 litre capacity, membrane systems, centrifuges, filter presses, various dryers and laboratory analytical equipment. Burcon operates exclusively and independently within these facilities under the immediate direction of its management. Certain services such as laboratory testing and analysis which cannot be conducted internally are contracted out as necessary.
Personnel
As of March 31, 2024, Burcon-MB had 16 employees and/or contractors with varying degrees of technical expertise who perform the duties relating to the operation of the research laboratory and pilot plant in Winnipeg. Additionally, as of March 31, 2024, Burcon had 9 employees and/or contractors responsible for accounting, legal, administration, corporate development, investor and public relations, legal and research and development activities who were predominantly located at Burcon's head office in Vancouver.
Competitive Conditions
The protein ingredient market is a global industry dominated by a few relatively large participants. Burcon believes that the selective use of alliances and partnerships could lower certain risks and may be the fastest and most profitable approach to maximizing revenues and cash flow.
Burcon recognizes that within the agriculture and agri-food industry, there are a number of large industry participants with significant resources that dominated the plant protein ingredient industry. Five major industry participants who sell plant protein ingredients to the food and beverage industries include Archer Daniels Midland Company ("ADM"), Bunge Limited ("Bunge"), Cargill Inc. ("Cargill"), International Flavors and Fragrances ("IFF") and Ingredion Incorporated ("Ingredion").
ADM is a public company with annual revenues of approximately US$93.94 billion (fiscal 2023). It is a multinational company that produces among other things, ethanol, high fructose corn syrup, soy flour, soy protein concentrate, soy protein isolate and other specialty ingredients. It is currently one of the world's largest processor of oilseed crops.
Bunge is a public company listed on the New York Stock Exchange and headquartered in St. Louis, Missouri, with annual revenues of US$57.629 billion (fiscal 2024). Bunge is world's largest oilseed processor with one of the largest canola origination footprint and multinational platforms in its portfolio. Bunge has reported that it is investing US$550 million to build a soy protein concentrate facility to meet the rising customer demand for plant-based protein ingredients.
Cargill is the U.S.'s largest private company with annual revenues of US$177 billion (fiscal 2023). Cargill is an international producer, marketer, processor and distributor of agricultural, food, financial and industrial products and is one of the world's largest canola crushers.
IFF is a global producer and supplier of value-added ingredients for the flavours, fragrances and cosmetics industry with annual revenues of US$11.479 billion (fiscal 2023). Headquartered in New York, IFF has been active with acquisitions in the last few years. In June 2019, Dow Chemical and DuPont, after merging for two years, completed its dissolution forming three companies: Dow, DuPont and Corteva. In December 2019, DuPont announced that its Nutrition and Biosciences ("N&B") business will be merging with International Flavors & Fragrances Inc. ("IFF")(NYSE: IFF)(Euronext Paris: IFF)(TASE: IFF) to form a global leader in high-value ingredients and solutions for global Food & Beverage, Home & Personal Care and Health & Wellness markets. Currently, IFF is a major supplier of products including soy proteins, probiotics, enzymes and ingredients for creating scents and tastes for consumer products.
Ingredion is a multinational ingredient supplier based out of Westchester, Illinois with annual revenues of US$8.16 billion (fiscal 2023). Ingredion specializes in sugar-reduction sweeteners, starches and plant-based ingredients, in particular, pea protein ingredients. In November 2020, Ingredion announced that it had agreed to acquire 100% ownership in Verdient Foods, a pea protein producer out of Vanscoy, Saskatchewan. Together with its pea facility in South Sioux City, Nebraska, Ingredion supplies pea protein isolates, concentrates, flours and pea-based starch and fibres.
The pea protein industry outside of China is dominated by four major participants: Roquette Freres ("Roquette"), Cosucra Groupe Warcoing, Nutri-Pea Limited and Puris Foods. Based in France, Roquette is a private company which produces more than 700 by-products from the starch extracted from corn, wheat, potatoes and peas. It has grown to become the second largest producer of starch in Europe and fifth largest producer in the world. Roquette is currently the largest participant in the pea protein industry. In 2017, Roquette announced the construction of a $400 million pea protein facility in Portage la Prairie, Manitoba. Construction was stalled for most of 2018 to include expansion plans and the completion date was pushed back from 2019 to 2021. The near-$500 million pea protein facility, the largest in the world, was set to be commissioned in mid to late 2021 with an annual processing capacity of 125,000 tonnes of peas. With the combined capacity of Roquette's pea protein plant in Vic-Sur-Aisne, France, Roquette will become the largest pea protein producer in the world.
Cosucra Groupe Warcoing is a Belgian group of independent companies dedicated to the development, production and promotion of natural ingredients from chicory and yellow pea. Cosucra's line of products includes pea protein isolate, pea fibre, pea hull fibre and pea native starch.
Puris Foods, formerly World Food Processing, is another participant in the pea protein industry. Puris has been processing pulse crops in Iowa, US, since 1985 and has recently expanded capacity to include downstream production of pea protein products. In January 2018, Cargill entered into a joint venture agreement with Puris, with an initial investment of $25 million to expand the capacity of Puris' Turtle Lake, Wisconsin production facility. In August 2019, Cargill invested an additional $75 million to more than double the capacity of Puris' existing 200,000 square-foot pea protein facility in Dawson, Minnesota. Puris Foods is the largest North American producer of pea protein.
Based in Manitoba, Canada, Nutri-Pea Limited is a privately-owned company specializing in the manufacture of food ingredients derived from Canadian yellow field peas. Nutri-Pea extracts fibre, starch and protein products from yellow field peas. In 2018, Nutri-Pea Limited was acquired by G.S. Dunn Limited, an Ontario-based supplier of dry milled mustard products.
Rising commodity prices have had a noticeable impact on the global aquaculture and livestock farming sectors in recent years, as through their direct impact on feed costs as well as on energy costs. These rising input prices have in turn been one of the factors that has increased the cost to produce animal proteins (egg protein products as well as the dairy proteins, casein and whey). Burcon anticipates that under commercial production levels, it will be able to produce its plant protein isolates at a cost level which will make them significantly competitive with animal proteins.
Burcon offers a value proposition for both the multibillion-dollar oilseed crushing industry which produces enormous volumes of canola meal, soybean meal and sunflower meal that currently sell as relatively low-margin animal feed. Burcon has the technology and know-how to add value to these oilseed meals by extracting unique and potentially valuable food proteins.
For the branded consumer product companies and food ingredient companies, the value proposition comes from both the novel properties of Burcon's proteins as well as the inherent first-mover advantage. Exclusivity through patent protection and the first-mover advantage could add significant value to Burcon's opportunity in an industry where first-movers dominate, and market share changes slowly.
See also "Risk Factors".
Environmental, Social and Governance ("ESG") Matters
Burcon's extraction processes use no harsh chemicals and emit no noxious odours or significant waste products. Biodegradable, natural and/or recyclable input materials, end-products and by-products are used and, therefore, are expected to present no significant environmental risk. As such, Burcon does not foresee any financial and operational effects of environmental protection or requirements on the capital expenditures, earnings and the competitive position of Burcon in the current financial year or in the foreseeable future.
In a 2018 meta analysis study by Poor & Nemecek ("Reducing food's environmental impacts through producers and consumers" dated June 1, 2018), it was highlighted that the world food supply chain produces 26% of anthropogenic green house gas ("GHG") emissions (creating 13.7 billion metric tons of carbon dioxide equivalent) and that meat and dairy production uses 83% of farmland and causes 60% of agriculture's greenhouse gas emissions; but provides only 37% of proteins. The study also noted that producing 1kg of beef protein creates at least 50 times more GHG emissions than producing 1kg of plant protein. The study suggests, that moving to a plant-based diet has the potential to reduce food's GHG emissions by 49% and concludes that avoiding meat and dairy products is the single biggest way to reduce our environmental impact on the planet.
In its report "The Untapped Climate Opportunity in Alternative Proteins" dated July 2022, the Boston Consulting Group , one of the world's largest consulting firms, and Blue Horizon Corporation, a global investor in various industries including the global food system, reported that investment in improving and scaling up the production of meat and dairy alternatives resulted in three times more greenhouse gas reductions compared with investment in green cement technology, seven times more than green buildings and eleven times more than zero-emission cars. The report noted that investments in plant-based alternatives to meat, led to far greater reductions in GHG emissions than other green investments.
The report also showed that investment in alternative proteins grew from $1 billion in 2019 to $5 billion in 2021. Alternative proteins formed only 2% of meat, egg and dairy products sold, but is expected to rise to 11% in 2035, based on current growth trends. The report notes that widespread adoption of alternative proteins could play a critical role reducing the effects of climate change.
As part of Burcon's sustainability initiatives to reduce the environmental impact of food and agriculture through its plant-based protein technologies, management is actively investigating sustainability disclosure frameworks to which Burcon may utilize to identify and quantify its carbon footprint of its technologies and ongoing research and development. Identifying the sustainability issues pertinent to Burcon's operations and technologies is the first step in the process of reducing environmental emissions.
In June 2023, The International Sustainability Standards Board (ISSB) released standards which set out requirements for sustainability (IFRS S1) and climate-related (IFRS S2) financial disclosures (ISSB Standards). The Canadian Sustainability Standards Board (CSSB) then published, in March 2024, two draft standards (CSDS 1 and CSDS2), which are almost identical to the ISSB Standards for comment and could be finalized by the end of 2024. In addition, the Canadian Securities Administrators (CSA) intend to modify the proposed National Instrument 51-107 taking into account the CSSB standards and expects to implement mandatory sustainability reporting for issuers soon. Reporting requirements will generally require governance disclosure, strategy disclosure, risk management disclosure and metrics and targets disclosure.
Based on Burcon's preliminary materiality assessment of its operations, Burcon has identified the following top five sustainability issues it believes are most material to its business and stakeholders:
1. Greenhouse gas emissions
2. Energy management
3. Water and wastewater management
4. Product quality and safety
5. Employee health and safety
Burcon is in a unique position where it conducts research and development on a small pilot scale to develop technologies for the global commercialization of its novel protein ingredients. As such, Burcon does not believe it is exposed to environmental and climate-related issues on the same scale as major agricultural and ingredient processors. Nevertheless, Burcon believes it may be in the best interests of Burcon, its stakeholders and investors for the Company to identify and provide transparency around its sustainability initiatives to address the ESG issues most relevant to the Company.
With a goal to assess Burcon's carbon footprint, Burcon intends to further explore methods of data collection, where the Company can begin to quantify the top five environmental impacts listed above associated with all the stages of technology development - from conception to commercialization. To meet mandatory reporting requirements once implemented, Burcon expects that it may be required to engage a consultant with expertise on ESG matters to assist Burcon with this process. Burcon believes that a comprehensive ESG review and preparation of a report may require at least 12 months or more to complete.
Obtaining Regulatory Approval For Marketing Burcon's Proteins
Brief overview of United States GRAS
A substance may be "generally recognized as safe" or "GRAS" as a food ingredient based on two principles: it is a prior sanctioned substance, meaning that it has been used in food before 1958; or it is determined to be GRAS by scientific experts based on scientific procedures. Substances that are GRAS under conditions of their intended use are exempted from the usual Federal Food, Drug, and Cosmetic Act ("FFDCA") food additive requirements.
A substance may be classified as GRAS Self-Affirmed or GRAS Notified. GRAS Self-Affirmed means that the manufacturer of the substance has performed all necessary research, including the formation of an expert panel to review safety concerns, and is prepared to use these findings to defend its product's GRAS status. GRAS notification is a voluntary procedure whereby a company informs the FDA of its determination that the use of a substance is GRAS. The FDA evaluates the submitted notice and informs the applicant whether the submitted notice provides a sufficient basis for the GRAS determination and whether information in the notice or otherwise available to the FDA, raises issues that lead the FDA to question whether use of the substance is GRAS. The substance is considered GRAS Notified when the FDA issues a "no questions" letter; i.e., has no further challenges on the product's GRAS status.
Brief overview of Canadian Novel Food Regulations
Canadian Food and Drug Regulations require a manufacturer to notify the Food Directorate, Health Products and Food Branch of Health Canada in writing of its intention to sell or advertise for sale a novel food. In Canada, a novel food is considered a food that does not have a history of safe use in humans or that has been manufactured by a process that has not been previously applied to it and which causes it to undergo a major change. The novel food notification, containing detailed information about the product and information establishing its safety, is reviewed by the Health Canada Food Directorate. Once the review is completed and there are no outstanding concerns with the safety assessment and it is determined that there are no health risks in consuming the novel food, a document is drafted proposing that the food be permitted for sale. This document is presented to the Food Rulings Committee, and if found acceptable, then the petitioner receives a no objection letter to the sale of novel food product as human food in Canada as specified in the notification.
Brief overview of European Novel Food Regulations
Where a new ingredient has not been used to a significant degree in human food in the EU market prior to May 1997, the ingredient is regarded as a novel food ingredient and would be regulated under the 2018 Regulation (EU) No 2015/2283 concerning Novel Foods and Novel Food Ingredients.
Under the 2018 Regulation (EU) No 2015/2283, the definition of a novel food includes a description of the following:
- food consisting of, isolated from or produced from plants or their parts, except when the food has a history of safe food use within the Union and is consisting of, isolated from or produced from a plant or a variety of the same species obtained by:
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traditional propagating practices which have been used for food production within the Union before 15 May 1997; or
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non-traditional propagating practices which have not been used for food production within the Union before 15 May 1997, where those practices do not give rise to significant changes in the composition or structure of the food affecting its nutritional value, metabolism or level of undesirable substances.
Novel Food authorization may be sought by submission of a Novel Food Application. EU regulations also now provide for Generic authorisations of Novel Foods, allowing a food business operator to place an authorised Novel Food on the European Union market if the authorised conditions of use, labelling requirements, and specifications are respected.
Regulatory Approval For Marketing Puratein®, Supertein® and Nutratein® Canola Proteins
United States
During fiscal 2008, Burcon, in conjunction with ADM, pursued GRAS Self-Affirmed regulatory recognition for Puratein® canola protein and Supertein® canola protein, based on scientific procedures. Scientific studies were conducted during fiscal 2008 and based on those studies, Burcon and ADM prepared a dossier of data that included scientific information about canola, how canola is grown, handled and processed, Burcon's protein extraction process and finally, the intended uses of the proteins in foods and beverages. A panel of qualified experts in the fields of food safety, toxicology, nutritional sciences, food allergies and pediatric nutrition reviewed the dossier to which it also had input and affirmed unanimously that the proteins are safe for their intended uses. In October 2008, Burcon's Puratein® canola protein and Supertein® canola protein achieved self-affirmed GRAS status.
To enhance consumer acceptance of Puratein® canola protein and Supertein® canola protein, Burcon and ADM chose to pursue GRAS notification for Puratein® canola protein and Supertein® canola protein. On January 19, 2010, Burcon announced that it had filed a formal notification with the FDA, and on August 30, 2010, Burcon announced that the FDA issued a no objection letter with respect to Puratein® and Supertein® canola protein. This response indicates that the FDA has no objection to the conclusion that Puratein® and Supertein® are Generally Recognized as Safe (GRAS) among qualified experts for use alone or together as an ingredient in dairy products, grain products, fruit and vegetable juices and beverages, salad dressings, meal replacements and nutritional bars.
On February 20, 2020, Burcon submitted a supplement to its GRAS Notification concerning Puratein® and Supertein® canola protein, which included a revised list of food and beverage categories in which the products may be used alone or together, namely baked goods and baking mixes; beverages and beverage bases; breakfast cereals; cheeses; coffee and tea; confections and frostings; dairy product analogs; egg products; fats and oils; fish products; frozen dairy desserts; fruit and water ices; gelatins, puddings and fillings; grain products and pastas; gravies and sauces; milk products; nut and nut products; plant protein products; processed fruits and fruit juices; processed vegetables and vegetable juices; snack foods; soft candy; and soups and soup mixes. On August 12, 2021, the FDA issued a letter indicating they had no questions at the time regarding Burcon's conclusion that Puratein® and Supertein® canola protein are GRAS under their intended conditions of use.
Burcon's Nutratein® canola protein production process results in a canola protein isolate that is rich in both of the two major storage proteins found in canola: napin and cruciferin. Therefore, Nutratein® canola protein is a blended canola protein that consists of the napin-rich protein fraction (Supertein®) and the cruciferin-rich protein fraction (Puratein®) of canola.
Burcon believes that, based on Puratein® and Supertein® being GRAS for their intended uses in human food, Nutratein® canola protein can also be affirmed as GRAS for its intended uses in human food applications.
Canada
In 2020, Merit Foods submitted a novel food notification to Health Canada to allow the sale of Supertein® (Merit Foods' Puratein® HS) a napin-rich canola protein isolate for use as a food ingredient to replace protein found in a wide variety of foods. In order to determine whether this protein isolate could be sold in Canada as food, scientists at Health Canada with expertise in molecular biology, microbiology, toxicology, chemistry, allergies, and nutrition conducted a thorough analysis of the data and the protocols provided by Merit Foods to ensure the validity of the results. To ensure that Supertein® is safe for consumption, the scientists considered how the product was developed, its nutritional composition, whether it could be toxic or cause allergic reactions, and its predicted dietary exposure in the Canadian population. Following this assessment, it was determined that Supertein® is safe for the general population. However, Health Canada noted that as canola belongs to the mustard family of plants, individuals with mustard allergies may react to proteins present in the product. For this reason, Supertein® must be labelled with a statement to the effect that the product "may not be suitable for people with mustard allergy." Health Canada recommends that people with mustard allergies should not consume canola protein.
Merit Foods also submitted a novel food notification to Health Canada for the approval of Puratein® and Nutratein® canola proteins as novel foods in Canada. In October 2022, Merit Foods was notified by Health Canada that the data provided in Merit's submission supports that Puratein® and Nutratein® are safe for general food use. Similar to the assessment of Supertein®, Health Canada will require that Puratein® and Nutratein® will be labelled with a statement indicating that these protein isolates may not be suitable for those with an allergy to mustard.
Europe
Burcon believes that its canola protein can be considered as an approved Novel Food Ingredient in the European Union/United Kingdom, based on favorable reviews/decisions from the European Foods Safety Authority's ("EFSA") Scientific Opinion on the safety of rapeseed protein isolate as a Novel Food ingredient, the Food Safety Authority of Ireland's ("FSAI") Substantial Equivalence Opinion on rapeseed protein, and the European Commission Implementing Decision under Regulation (EC) No 258/97 authorising the placing on the market of rapeseed protein as a novel food ingredient. Burcon believes that its canola protein is similar to the authorised rapeseed protein and therefore should be approved as a Novel Food Ingredient. Although Burcon believes that "rapeseed protein" is similar to canola protein, there can be no assurance that the regulatory authorities will not require further submissions from Burcon to substantiate this claim.
Regulatory Approval For Marketing Peazazz® and Peazac®
Despite peas and pea protein being widely accepted and consumed, Burcon has, in the process of discussions with potential strategic partners, been informed by certain major food and beverage manufacturers that they require all of their procured ingredients to be GRAS approved to ensure consistent quality and safety in their end products. On October 21, 2019, Burcon announced that it had received a GRAS (Generally Recognized As Safe) no-objection (no questions) letter from the US Food and Drug Administration ("FDA") for its Peazazz® and Peazac® pea proteins. Burcon had successfully obtained self-affirmed GRAS status for its Peazazz® and Peazac® pea protein products and had made its submission to the FDA for GRAS notification on June 15, 2018.
Regulatory Approval For Marketing CLARISOY®
Food-grade soy protein isolate first became available on October 2, 1959 with the dedication of Central Soya's edible soy isolate, Promine D, production facility in Chicago. An edible soy isolate and edible spun soy fiber has also been available since 1960 from the Ralston Purina Company in St. Louis, where they had originally developed the technology. While soy proteins and soy protein isolates themselves have not been granted GRAS status by the FDA, they are widely used in food and nutritional applications including infant formula. As a result, Burcon does not anticipate any regulatory process for its CLARISOY® soy protein. However, there can be no assurance that the FDA will not require companies producing and selling soy protein isolates to meet additional regulatory requirements in the future.
Regulatory Approval For Marketing Hemp Protein Isolate
For the United States, Burcon has successfully obtained GRAS Self-Affirmed status for its hemp protein isolate. Health Canada has classified a number of food products derived from hemp seeds, including Industrial hemp (Cannabis sativa) seed (heart), Industrial hemp (Cannabis sativa) seed flour and protein concentrate derived from the defatted hemp (Cannabis sativa) seeds, as not novel based on a history of safe use as a food. Burcon believes that its hemp protein isolate should be similarly considered not novel.
Regulatory Approval For Marketing Sunflower Protein Products
Burcon is in the process of identifying and satisfying regulatory requirements for its sunflower products in markets of interest.
Risk Factors
Patents and Proprietary Rights
Burcon's success will depend, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of others or having others infringe on its rights. Burcon has filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. As at the date of this AIF, Burcon has been granted a total of 129 patents in various countries including patents covering composition of matter and a number of key processes for producing and using Burcon's protein products as functional food and beverage ingredients. Of those patents, 61 have been granted in the United States. Countries in which Burcon holds issued patents or has filed patent applications are: Australia, Brazil, Canada, China, Hong Kong, the European Union, India, Japan, Mexico, Russia, South Africa, South Korea, Thailand and the United States. Currently, Burcon has over 81 patent applications that are being reviewed by the patent offices in those countries.
The patent positions of food processing and manufacturing businesses, including Burcon's, are uncertain and involve complex legal and factual questions for which important legal issues are largely unresolved. For example, the coverage claimed in a patent application can be significantly reduced before a patent is issued. There can be no assurance that Burcon's pending patent applications will result in the issuance of patents, that Burcon will develop additional proprietary products that are patentable, that any patents issued to Burcon will provide it with adequate protection or any competitive advantages, that such patents will not be successfully challenged by any third parties or that the patents of others will not impede Burcon's ability to commercialize its technology. Furthermore, there can be no assurance that others will not independently develop products or technologies similar to Burcon's or, if patents are issued to Burcon, design around any patented products developed by Burcon.
Publication of discoveries in the scientific or patent literature often lag behind actual discoveries. As a consequence, Burcon cannot be certain that it was the first creator of inventions covered by issued patents or pending patent applications or that it was the first to file patent applications for such inventions. Moreover, Burcon might have to participate in interference proceedings declared by the United States Patent and Trademark Office or other proceedings outside the United States, including oppositions, to determine priority of invention or patentability. An unfavourable outcome in an interference or opposition proceeding could preclude Burcon from selling products using the technology or require Burcon to obtain license rights from prevailing third parties. There is no guarantee that any prevailing party would offer Burcon a license or that Burcon could acquire any license made available to it on commercially acceptable terms. There can be no assurance that the patents that Burcon has received or may be able to obtain in the future would be held valid or enforceable by a court or that a competitor's technology or product would be found to infringe such patents.
Part of Burcon's intellectual property is in the form of trade secrets and know-how and may not be protected by patents. There can be no assurance that Burcon will be able to protect its trade secrets. To help protect Burcon's rights, Burcon requires its employees, consultants, advisors and collaborators to enter into confidentiality agreements. There can be no assurance that these agreements will provide meaningful protection for Burcon's trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure.
Protection of Intellectual Property is Expensive
During the year, Burcon conducted a strategic review of its patent portfolio to eliminate patents that have limited commercial value. The processes resulted in a significant reduction in patent expenses during the year. Although Burcon continues to add patent applications for its new protein technologies, there is no assurance that these new applications will be granted or whether sufficient protection for its inventions will be obtained.
Burcon's future success and competitive position depends in part on its ability to obtain and maintain certain proprietary intellectual property rights used in its principal product candidates. Any such success may be achieved in part by prosecuting claims against others who it believes are infringing its rights and by defending claims of intellectual property infringement brought by its competitors and others. Burcon's involvement in any such intellectual property litigation could result in significant expense incurred by Burcon, adversely affecting the development of product candidates or sales of such challenged product or intellectual property and diversion of efforts of Burcon's technical and management personnel, whether or not such litigation is resolved in Burcon's favour. Some of Burcon's competitors may be able to sustain the costs of complex patent litigation more effectively than Burcon because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Burcon's ability to continue its operations. In the event of an adverse outcome as a defendant in any such litigation, Burcon may, among other things, be required to:
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pay substantial damages;
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cease the development, manufacture, use or sale of product candidates or products that infringe upon the intellectual property of others;
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expend significant resources to design around a patent or to develop or acquire non-infringing intellectual property;
No assurance can be provided that Burcon would be successful in such development or in the acquisition of non-infringing technology or that such licenses for such infringing technology would be available upon reasonable terms, if at all. Any such development, acquisition or license could require the expenditure of substantial time and other resources and could have a material adverse effect on Burcon's business and financial results. If Burcon does not obtain such licenses, it could encounter delays in the introduction of products or could find that the development, manufacture or sale of products requiring such licenses could be prohibited.
Should third parties file patent applications or be issued patents claiming technology also claimed by Burcon in pending applications, Burcon may be required to participate in interference proceedings with the United States Patent and Trademark Office, or other proceedings outside the United States, including oppositions, to determine priority of invention or patentability, which could result in substantial cost to Burcon even if the eventual outcome were favourable to Burcon.
The Timeline for Development and Commercialization of New Food Products Can Be Long
Burcon acquired the initial canola protein extraction technology through Burcon-MB in October 1999. Since then, it has conducted research and development on a number of plant proteins. On June 18, 2012, Burcon announced that ADM has begun commercial production of CLARISOY® soy protein. Although Burcon announced that ADM had successfully commissioned the first full-scale CLARISOY® production facility in November 2016, the parties agreed to terminate the ADM License and Production Agreement in August 2020. Burcon is investigating various paths to bring its soy protein technologies to market. Although Burcon is working on identifying potential partners to commercialize its soy proteins, there can be no assurance that a strategic partner will be found. If Burcon is unable to secure an alternative strategic partner for its soy proteins or find another solution, then the commercialization of its products may be delayed or unsuccessful. On May 23, 2019, Burcon entered into the Original Shareholders' Agreement with the Other Shareholders to form Merit Foods to commercialize its pea and canola protein technologies. Although Merit Foods had completed the construction and commissioning of its first production facility, it had not begun to generate significant revenues from the sale of its products. On March 1, 2023, the Receiver was appointed to sell all of the assets, undertakings and properties of Merit and 114. As of the date of this AIF, the sales process is ongoing. Although Burcon launched its hemp protein isolate during the fiscal year and canola protein subsequent to the fiscal year, it will take time for significant revenues to be generated from the sale of these proteins. As of the date of this AIF, other than hemp, none of Burcon's potential products are commercially available as a food ingredient. The rising popularity of plant proteins has resulted in more companies entering the market to produce plant proteins that could compete with Burcon's proteins. Even if Burcon commercializes a product or products, its business strategy may not be successful.
Burcon Has a History of Net Losses and Negative Operating Cash Flow and May Never Achieve Profitability
Burcon has accumulated net losses of approximately $142.0 million from its date of incorporation through March 31, 2024. Burcon reported minimal royalty revenues from ADM and Merit Foods. Although Burcon has launched its plant processing and scale-up validation services in May 2023, it is not expected to generate significant revenues for Burcon in the short term. In the absence of a strategic partner or definitive plans and timeline for the commercialization of its products, Burcon expects its accumulated net losses will increase as it continues to commercialize its products, its research and development and its product application trials. Burcon expects to continue to incur substantial losses for the foreseeable future. Burcon cannot predict if it will ever achieve profitability and, if it does, it may not be able to sustain or increase its profitability.
Burcon's ability to achieve and maintain profitability will depend on, among other things, the market's acceptance of any of its products that receive regulatory approval. The commercial success of any of Burcon's products will depend on whether:
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they receive public and industry acceptance as a food ingredient and dietary supplement; and
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they may be sold at competitive prices or are able to obtain sufficient royalty revenue from licensing which adequately exceeds Burcon's production (or business) costs.
Market Conditions
As at the March 31, 2024 balance sheet date, Burcon had approximately $4.3 million in cash. During fiscal year 2024, Burcon drew $1 million under the second tranche of under the 2022 Loan Agreement with Large Scale. It may need to raise capital beyond this date in order to meet its business objectives. However, the inherent risk in investing in companies such as Burcon may make it difficult for the Company to obtain capital and financing for its operations. Market-wide retracement for the plant-based industry may negatively impact Burcon's access and ability to raise capital. There can be no assurance that additional financing will be available on acceptable terms, if at all.
Financing Requirements
Since acquiring Burcon-MB on October 8, 1999, Burcon has raised gross proceeds of approximately $125.0 million from the sale or issuance of equity securities and convertible debentures. Developing Burcon's products and conducting product application trials is capital intensive. If Burcon pursues a strategic partnership with for its products, Burcon may need to raise additional capital to fund its objectives and operations beyond this date. Additional financing may not be available on acceptable terms, if at all. If Burcon raises funds by issuing more equity securities, holders of common shares will experience dilution. If Burcon is unable to raise additional funds when it needs them, it may be required to delay, reduce or eliminate some or all of its development programs and some or all of its product application trials. Burcon may also be forced to license technologies to others that it would prefer to develop internally.
Product and Market Related Risks
The long-term success of Burcon's plant proteins hinges upon market acceptance by food and feed ingredient manufacturers and suppliers in numerous product applications. The commercial products manufactured using Burcon's protein and extraction technologies must exhibit certain functional and nutritional characteristics to garner any market share in the industries that are targeted. There can be no assurance that Burcon's products will meet industry standards. Even though Burcon's plant proteins may be found to be functionally acceptable in product applications, there is no assurance that they will obtain market acceptance and within a reasonable time frame. Given that Merit Foods' assets are under receivership and it is uncertain as to whether a purchaser of the assets will continue to produce Burcon's proteins, Burcon must find alternative pathways to produce Burcon's pea proteins. It will be some time before product sales of pea protein will be significant, if at all. In May 2024, Burcon announced the launch of its canola proteins. However, until large quantities of products can be supplied, market acceptance of Burcon's canola proteins products may be delayed. Although Burcon's hemp protein isolate was launched commercially during fiscal year 2024, it will take some time before significant revenues will be generated. In addition to market acceptance of its proteins, Burcon faces pricing risks for its products as it must price its proteins at a premium to market in order to achieve its business objectives.
There are many large companies in the marketplace that manufacture and produce mature and well-known protein ingredients that have been used for many years. These companies also possess far greater financial, marketing and human resources than Burcon. Products such as dried egg white and soy protein isolate have been used in the food processing industry for years with successful results. These protein ingredients are proven to be functional, technologically sound, readily available and reliable. Burcon recognizes that it must devote resources and energy over a long period of time to develop these markets as they tend to be quite conservative. Food companies rely on taste, appearance and health appeal to sell their products and they are unlikely to accept even a lower priced product without comparable or superior functionality. Major companies in the food processing industry have invested hundreds of millions of dollars in brand and product development and will avoid ingredients or processes that may be of questionable or unproven benefit.
Consumer Acceptance
There is a continuing public issue regarding food products derived from genetically modified organisms ("GMOs"). Genetic modification, where a plant's genetic makeup is altered by insertion, deletion or reversal of genes, often from an entirely different organism, should not be confused with traditional plant breeding techniques which have been used for generations to selectively breed plants with desirable traits. In fact, canola is a variation of rapeseed developed by Canadian plant breeders using traditional techniques.
The GMO debate centres on the issue of whether food products derived from GMOs pose potential health risks to consumers and/or the environment. Burcon's processes for extracting a proteins from canola meal and soy are equally effective with starting materials from either GM or non-GM sources and can also utilize oilseed meals other than canola or soy. Therefore, if Burcon chooses to use starting materials from a GMO source, the resultant proteins may be less acceptable to some consumers.
Government Regulatory Approval
The approval, manufacture and sale of food ingredients in Canada, the United States and Europe, such as Burcon's products, are governed by regulatory regimes in those countries which require a manufacturer to be able to demonstrate a product's safety. In order to obtain approval to market a product, a manufacturer may be required to undertake controlled research and testing, which will be subject to government review and approval. There is a risk that government approval may not be received in a timely fashion or at all. See "Obtaining Regulatory Approval for Marketing Burcon's Proteins".
Rapid Technological Change
The food processing industry is subject to rapid and substantial technological change. There can be no assurance that developments by others will not render Burcon's products or technology non-competitive or that Burcon will be able to keep pace with technological developments.
Significant Competition
Technological competition among food industry participants is intense and is expected to increase. Many competitors and potential competitors of Burcon have substantially greater product development capabilities and financial, scientific, marketing, and human resources than Burcon. The plant protein industry has experienced significant growth with increased participation by competitors wanting to seize the opportunity to capture market share. Other companies may succeed in developing products earlier than Burcon, obtaining regulatory approvals for such products more rapidly than Burcon or in developing products that are more effective than those proposed to be developed by Burcon. While Burcon will seek to expand its technological capabilities in order to remain competitive, there can be no assurance that research and development by others will not render Burcon's technology or products obsolete or non-competitive.
Lack of Commercial Manufacturing Experience
Burcon has not yet manufactured any products in substantial quantity. To be successful, Burcon's products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable cost. Although Burcon has launched its canola and hemp protein isolates, these proteins are being manufactured by a partner manufacturer. Burcon does not have an exclusive contract with this partner manufacturer and there is a risk that our partner may not be able to provide sufficient production capabilities to meet Burcon's needs. Although Burcon is in discussions with potential strategic partners to commercialize its sunflower and soy protein technologies, there can be no assurance that a suitable partner will be found. Depending on the outcome of the Merit receivership process, Burcon may need to identify alternative pathways for commercializing its Burcon's pea proteins. No assurance can be given that Burcon will be able to find a solution to manufacture its pea proteins.
Ability to Hire and Retain Key Personnel
Burcon is highly dependent on its senior management and scientific and technical personnel. The competition for qualified personnel in the food industry is intense, and Burcon relies heavily on its ability to attract and retain qualified managerial, scientific and technical personnel. In addition, Burcon's ability to manage growth effectively will require it to continue to implement and improve its management systems and to recruit and train new employees. Burcon believes that it has developed an employee compensation structure that is competitive with similar companies in the market. However, there can be no assurance that Burcon will be able to attract and retain skilled and experienced personnel.
Reliance on Key Personnel
Burcon is dependent on certain members of its management and the loss of the services of one or more of these individuals could adversely affect the Company. After more than 23 years at Burcon, Mr. Johann Tergesen stepped down as President and Chief Executive Officer of Burcon at the end of February 2022. Mr. Kappel was appointed as Burcon's interim Chief Executive Officer on March 1, 2022. On November 7, 2022, Burcon announced the appointment of Mr. Kip Underwood as Burcon's chief executive officer. Neither Burcon nor Burcon-MB has purchased key man insurance on behalf of any member of Burcon's and/or Burcon-MB's senior management.
Product Liability
Food products involve an inherent risk of product liability claims and associated adverse publicity. There can be no assurance that Burcon will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of Burcon's potential products.
Cybersecurity and Data Breach Risks
The efficient operation of Burcon's business is dependent on information technology systems. Use of these systems could give rise to cybersecurity risks, including security breaches, espionage, system disruption, theft, and loss of confidential information. Although Burcon has taken preventative measures to ensure that information stored on our systems are protected, there is no assurance that such measures will be adequate to prevent security breaches or cyber attacks by third parties. A security breach or cyber attack could cause significant disruption to Burcon's business and affect our financial condition or results of operations. Burcon's insurance policies may not provide coverage for security breaches and similar incidents or may have coverage limits which may not be adequate to reimburse us for losses caused by security breaches.
COVID-19 - Pandemic Risk
The COVID-19 outbreak was declared as a pandemic by the World Health Organization on March 11, 2020. Initially, governments worldwide focused on containment of the outbreak and the prevention of further spread by imposing restrictions such as travel bans, self-imposed quarantines, social distancing and temporary closures of non-essential businesses. Although vaccine supplies became secure and immunization rates increased in 2021, the emergence of COVID variants continued to create uncertainty for economies worldwide. The duration and long-term effects of the COVID-19 pandemic is unknown at this time. Even though governments worldwide, including Canada, implemented significant monetary and fiscal relief programs designed to stabilize their economies, it is difficult to measure the efficacy of such programs or the resulting financial impact/burden such programs have on the future of these economies. During fiscal year 2021 and 2022, Burcon implemented measures to ensure the safety of work conditions for its staff at the Winnipeg Technical Centre and at its head office in Vancouver. Burcon's operations have not been significantly impacted by the COVID-19 pandemic. While the COVID-19 pandemic caused certain disruptions and delay in and Merit Foods' business operations, it is not possible to measure the magnitude of the effects on Merit Foods' business. It is not possible to predict whether there will be a resurgence of COVID or other pandemics in the near future and whether the financial and business conditions of Burcon will be impacted in future periods.
DIVIDEND RECORD AND POLICY
There are no restrictions that could prevent Burcon from paying dividends provided that Burcon has retained earnings from which such dividends can be paid. Burcon has not declared any dividends on its Common Shares. The Company's directors have determined that dividends will not be paid until a number of years after it receives revenues from the commercial production of its products, and will only be paid if the directors believe that to do so would be in the best interests of the Company and its shareholders.
DESCRIPTION OF CAPITAL STRUCTURE
The authorized share capital of Burcon consists of an unlimited number of Common Shares without par value. Each holder of Common Shares is entitled to one vote in respect of each Common Share held by such holder at meetings of shareholders. In the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary or any other distribution of its assets among its shareholders, the holders of Common shares will be entitled to receive the remaining property or assets of the Company available for distribution pro rata, in proportion to the number of Common Shares held. As at June 26, 2024, 142,098,096 Common Shares were issued and outstanding. In addition, the Company has 9,611,900 outstanding incentive options to purchase Common Shares, 28,030,037 warrants to purchase Common Shares and 323,000 restrictive share units redeemable into Common Shares as at June 26, 2024.
MARKET FOR SECURITIES
The Common Shares are listed and trade on the TSX under the symbol "BU" since June 18, 2009 and traded on the NASDAQ Capital Market under the symbol "BRCN" from May 25, 2021 to September 22, 2022. Since May 8, 2024, the Common Shares have been quoted for trading on the OTC QB venture market under the symbol "BRNCF". The following table sets forth, for the periods indicated, the reported high and low closing prices and total volume of trading of the Common Shares on the TSX (Canadian dollars):
|
|
TORONTO STOCK EXCHANGE†
|
|
Calendar Period
|
High*
(C$)
|
Low*
(C$)
|
Total Volume
|
|
April 2023
|
0.275
|
0.21
|
1,510,263
|
|
May 2023
|
0.275
|
0.20
|
1,757,047
|
|
June 2023
|
0.25
|
0.13
|
1,749,578
|
|
July 2023
|
0.21
|
0.16
|
912,751
|
|
August 2023
|
0.21
|
0.105
|
1,244,268
|
|
September 2023
|
0.18
|
0.12
|
938,792
|
|
October 2023
|
0.145
|
0.11
|
614,863
|
|
November 2023
|
0.155
|
0.10
|
1,380,801
|
|
December 2023
|
0.31
|
0.11
|
2,986,581
|
|
January 2024
|
0.245
|
0.18
|
595,000
|
|
February 2024
|
0.245
|
0.185
|
544,671
|
|
March 2024
|
0.35
|
0.17
|
1,416,333
|
PRIOR SALES
The following common shares were issued during the fiscal year ended March 31, 2024:
____________________________
† Source: money.tmx.com
* Includes intra-day highs and lows
|
Number of
Common
Shares
|
Issue/
Exercise/
Conversion
Price
|
Date Issued
|
Description of Issuance
|
|
5,784,802
|
See Description of Issuance
|
May 8, 2023
|
Issuance of common shares pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
1,240,566
|
See Description of Issuance
|
May 9, 2023
|
Issuance of common shares pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
1,970,858
|
See Description of Issuance
|
May 11, 2023
|
Issuance of common shares pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
3,627,773
|
See Description of Issuance
|
May 15, 2023
|
Issuance of common shares pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
256,830
|
See Description of Issuance
|
May 16, 2023
|
Issuance of common shares pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
45,520
|
$0.165
|
June 30, 2023
|
Issuance of common shares pursuant to the Company's Restricted Share Unit Plan
|
|
16,380
|
$0.165
|
July 10, 2023
|
Issuance of common shares pursuant to the Company's Restricted Share Unit Plan
|
|
60,059
|
$0.12
|
November 30, 2023
|
Issuance of common shares pursuant to the Company's Restricted Share Unit Plan
|
|
58,985
|
$0.19
|
January 31, 2024
|
Issuance of common shares pursuant to the Company's Restricted Share Unit Plan
|
|
20,298,418
|
See Description of Issuance
|
March 12, 2024
|
Issuance of common shares pursuant to the March 2024 Offering of 20,298,418 units at $0.215 per unit
|
The following securities convertible into common shares were issued during the fiscal year ended March 31, 2024:
Warrants
|
Number of
Warrants
|
Exercise Price
|
Date of Issue
|
Description of Issuance
|
|
5,784,802
|
$0.35
|
May 8, 2023
|
Issuance of warrants pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
1,240,566
|
$0.35
|
May 9, 2023
|
Issuance of warrants pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
1,970,858
|
$0.35
|
May 11, 2023
|
Issuance of warrants pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
3,627,773
|
$0.35
|
May 15, 2023
|
Issuance of warrants pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
256,830
|
$0.35
|
May 16, 2023
|
Issuance of warrants pursuant to the May 2023 Offering of 12,880,829 units at $0.265 per unit
|
|
10,149,208
|
$0.27
|
March 12, 2024
|
Issuance of warrants pursuant to the March 2024 Offering of 20,298,418 units at $0.215 per unit
|
|
5,000,000
|
$0.27
|
March 25, 2024
|
Issuance of warrants pursuant to Strategic Advisory and Consulting Agreement dated March 6, 2024 between Burcon and John Vassallo. See "Conflicts of Interests"
|
Options
|
Number of
Options
|
Exercise Price
|
Date of Issue
|
Description of Issuance
|
|
300,000
|
$0.185
|
July 24, 2023
|
Options granted pursuant to the Company's Amended and Restated 2001 Share Option Plan
|
|
200,000
|
$0.70
|
July 24, 2023
|
Options granted pursuant to the Company's Amended and Restated 2001 Share Option Plan
|
|
1,696,000
|
$0.125
|
November 9, 2023
|
Options granted pursuant to the Company's Amended and Restated 2001 Share Option Plan
|
|
150,000
|
$0.22
|
March 13, 2024
|
Options granted pursuant to the Company's Amended and Restated 2001 Share Option Plan
|
|
555,000
|
$0.215
|
March 18, 2024
|
Options granted pursuant to the Company's Amended and Restated 2001 Share Option Plan
|
Restricted Share Units
|
Number of
Restricted Stock
Units
|
Date of Issue
|
Description of Issuance
|
|
112,000
|
November 9, 2023
|
Restricted share units granted pursuant to the Company's Restricted Share Unit Plan
|
DIRECTORS AND OFFICERS
Directors and Officers
The following chart sets out the name, province or state and country of residence of each director and officer of the Company, each such person's principal occupation during the past five years, the period of time each has served as a director or officer of the Company and the Common Shares beneficially owned or controlled by each of them as at June 26, 2024. A biography of each director and officer, which includes a five year history of employment, follows under "Biographies of Directors and Officers". The term of office of each director will expire at the conclusion of the Company's next annual meeting.
|
Name, Position
and Municipality
of Residence
|
Principal Occupation
During the Previous
Five Years
|
Period as a
Director of
the
Company
|
Common
Shares
Held
|
Options/
Warrants
Held
|
|
David Lorne John Tyrrell,
Director,
Alberta, Canada
|
Lead Director of Burcon from March 1, 2022 to November 2022, Chairman of the Board of Burcon from January 2019 until September 15, 2021; Director, Li Ka Shing Institute of Virology & Distinguished University Professor, University of Alberta since April 2010; Glaxo SmithKline Chair in Virology, Department of Medical Microbiology and Immunology, University of Alberta since 2004; Professor of Medical Microbiology & Immunology, University of Alberta since 1982
|
Since December 1, 2009
|
1,003,054**
|
380,844 Options
23,256 Warrants
|
|
Alan Chan, Director,
Hong Kong, China
|
Executive Director of ITC Properties Group Ltd. (property development and investment) since March 2010; Founder and Managing Partner of Vectr Ventures (Global VC Firm) since 2013
|
Since April 20, 2010
|
25,643,932††
|
315,844 Options
2,777,358 Warrants
|
____________________________
** 26,819 of these Shares are held by Kathleen Tyrrell (daughter) and 23,770 of these Shares are held by spouse, Lee Ann Tyrrell as at June 26, 2024.
††Alan Chan's wholly-owned company, Firewood Elite Limited, held through its wholly-owned subsidiaries Large Scale Investments Limited and Great Intelligence Limited, 25,643,932 common shares of Burcon ("Common Shares"), representing 18.05% of the outstanding Common Shares of Burcon as at June 26, 2024. Great Intelligence Limited also holds warrants to purchase 2,777,358 Common Shares at $0.35 per share (see "General Development of the Business - Financings").
|
Name, Position
and Municipality
of Residence
|
Principal Occupation
During the Previous
Five Years
|
Period as a
Director of
the
Company
|
Common
Shares
Held
|
Options/
Warrants
Held
|
|
Peter H. Kappel,
Chairman of the Board and Director of Burcon,
British Columbia, Canada
|
Corporate Director; Interim Chief Executive Officer of Burcon from March 1, 2022 to November 7, 2022
|
Since January 28, 2016
|
1,452,206#
|
632,502 Options
200,000 Warrants
|
|
Debora S. Fang,
Director,
London,
United Kingdom
|
Independent advisor, F&F Advisory from 2018 to present; VP, M&A, Unilever from 2013 to 2018
|
Since July 6, 2020
|
162,795
|
240,000 Options
81,397 Warrants
|
|
Jeanne McCaherty,
Director,
Minnesota, United States of America
|
Chief Executive Officer, Guardian Energy Management from 2016 to present; President, Kae Partners, LLC (2015 to present); Executive in Residence, Agspring - Leaworth, KS Private Equity Firm (2015 to 2016); Vice President, Regional Director of Texturizing Business Unit, Cargill, Inc. (2008 to 2015); prior thereto held various other executive management positions at Cargill Inc.
|
Since July 8, 2021
|
157,940
|
260,000 Options
|
|
Alfred T. L. Lau,
Director,
British Columbia, Canada
|
Director, Chair and Member of Board Committees, WealthOne Bank of Canada ("WOBC") (2018 to present); Retired Partner, KPMG (1980 to 2017)
|
Since September 15, 2021
|
100,000
|
180,000 Options
50,000 Warrants
|
____________________________
# 84 of these Common Shares are held by Philip Kappel (son) and 446,495 of these Common Shares and 75,000 warrants are held by Stefanie Kappel (spouse) as at June 26, 2024.
|
Name, Position
and Municipality
of Residence
|
Principal Occupation
During the Previous
Five Years
|
Period as a
Director of
the
Company
|
Common
Shares
Held
|
Options/
Warrants
Held
|
|
Aaron T. Ratner,
Director,
Pennsylvania,
United States of America
|
Executive Director, Alternus Clean Energy (2024-Present), CEO, Clean Earth Acquisitions Corp (2021-2023), Co-Founder CC Risk Solutions (2022-Present), Co-Founder & Managing Partner, Vectr Carbon Partners (2022-Present), Operating Partner, Nexus PMG (2020-2022), President, Cross River Infrastructure Partners (2020-2021), Managing Director, Ultra Capital (2016-2020), Developer in Residence, Generate Capital (2014-2016), President, i2 Capital (2012-2014)
|
Since November 23, 2022
|
NIL
|
100,000 Options
|
|
John A. Vassallo
Director
Texas, United States of America
|
Founder and CEO of Mos RE, LLC (property acquisition & development); Founder and CEO of Global Restaurant Systems, LLC (restaurant acquisitions,
development & management); Controlling Interest in GuestBridge Inc (sold to OpenTable); CEO and Director of Bluer Duck, LLC (electric scooters).
|
Since September 20, 2023
|
8,270,056§§
|
100,000 Options
9,349,246 Warrants
|
____________________________
§§ 3,129,767 common shares and warrants to purchase 1,564,883 common shares at $0.27 per share are held by Nocrub, LLC, a company wholly-owned by Mr. Vassallo. Mr. Vassallo holds warrants to purchase 2,568,302 common shares at $0.35 per share and warrants to purchase 216,061 common shares at $0.27 per share. In addition, he also holds warrants to purchase 5,000,000 common shares at $0.27 per share pursuant to the Advisory and Consulting Agreement. See "Conflicts of Interest".
|
Name, Position
and Municipality
of Residence
|
Principal Occupation
During the Previous
Five Years
|
Period as a
Director of
the
Company
|
Common
Shares
Held
|
Options/
Warrants
Held
|
|
Kip Underwood
Chief Executive Officer, Missouri, United States of America
|
Chief Executive Officer of Burcon since November 2022; NAFTA Regional President, DuPont Nutrition and Health (2014-2017); Aptar Commercial Vice President (2017-2019); General Manager and VP of Sales, Benson Hill (2019-2022)
|
n/a
|
50,000
|
2,000,000 Options
25,000 Warrants
|
|
Jade Cheng,
Chief Financial Officer and Treasurer,
British Columbia, Canada
|
Chief Financial Officer since May 2001 and Treasurer since September 2000 of Burcon; Director and President of Burcon Group Limited (July 2007- March 2022); Director and President of Regent Park Realty Inc. (real estate brokerage company) (May 1998 - September 2021)
|
n/a
|
455,362
|
674,245 Options
|
|
Randy Willardsen, Senior Vice-President,
Process, California, United States of America
|
Senior Vice-President, Process of Burcon; President, Willardsen Consulting & Engineering, Inc. (agriculture and biotech industries consulting services)
|
n/a
|
830,016
|
604,306 Options
|
|
Dorothy Law, Senior Vice-President, Legal, Corporate Secretary,
British Columbia, Canada
|
Senior Vice-President, Legal of Burcon since September 2009; Corporate Secretary of Burcon since September 2000; Director, Secretary and Corporate Counsel of Burcon Group Limited until March 2022 (investment company)
|
From December 1998 to April 2010
|
587,004
|
686,245 Options
|
Name, Position
and Municipality
of Residence |
Principal Occupation
During the Previous
Five Years |
Period as a
Director of
the
Company |
Common
Shares
Held |
Options/
Warrants
Held |
Martin Schweizer,
Vice-President, Technical Development, Manitoba, Canada
|
Vice President, Technical Development of Burcon since September 2009 |
n/a |
185,165 |
634,245 Options |
| TOTAL SECURITIES |
|
|
38,897,530 |
6,808,231 Options
12,506,257 Warrants |
Committees
Burcon does not have an executive committee of its directors. Burcon has an audit committee, a corporate governance and nominating committee and a compensation committee. The members of the audit committee consist of Alfred Lau, Debora Fang, Peter Kappel and Lorne Tyrrell. During the fiscal year, Mr. Doug Gilpin was chair and a member of the audit committee until September 20, 2023. Mr. Aaron Ratner was also a member of the audit committee during fiscal year 2024 until February 1, 2024. The members of the corporate governance and nominating committee consist of Lorne Tyrrell, Jeanne McCaherty, Alfred Lau and John Vassallo. The members of the compensation committee consist of Debora Fang, Jeanne McCaherty, Aaron Ratner and John Vassallo. Mr. Doug Gilpin was a member of the compensation committee during fiscal year 2024 until September 20, 2023. Mr. Peter H. Kappel is an ex-officio member of each of the corporate governance and nominating committee and compensation committee. During fiscal year 2024, an ad hoc Merit special committee was formed to consider issues relating to Merit Foods. The members of this committee were comprised of Alan Chan, Jeanne McCaherty, Peter Kappel and John Vassallo.
Aggregate Ownership of Securities
As at June 26, 2024, directors and officers of Burcon as a group, beneficially own, directly or indirectly, 38,897,530 or 27.37% of the issued and outstanding Common Shares of the Company. As at June 26, 2024, directors and officers of Burcon and its subsidiaries hold options to acquire an additional 6,808,231 Common Shares. Directors and officers of Burcon also hold warrants to acquire a further 12,506,257 Common Shares.
Biographies of Directors and Officers
Directors
David Lorne John Tyrrell - Director
Dr. Lorne Tyrrell is a distinguished professor in the Department of Medical Microbiology and Immunology at the University of Alberta. Since 1986, he has focused his research on viral hepatitis. Supported by the Canadian Institute of Health Research and Glaxo Canada, Dr. Tyrrell's work on the development of antiviral therapy resulted in the licensing of the first oral antiviral agent to treat chronic hepatitis B infection - lamivudine - in 1998. Dr. Tyrrell holds more than 60 international patents for his studies on viral hepatitis and other viral diseases. Dr. Tyrrell was Dean of the Faculty of Medicine and Dentistry from 1994 - 2004 at the University of Alberta and was the Chair of the Board of Directors of the Gairdner Foundation from 2009 - 2019. The Canada Gairdner International Awards recognizes excellence in medical science research globally. Dr. Tyrrell has received numerous prestigious awards including the Gold Medal of the Canadian Liver Foundation (2000), the FNG Starr Award of the Canadian Medical Association (2004), the Principal Award of the Manning Awards Foundation (2005) and the Queen Elizabeth II Diamond Jubilee Medal (2012). Dr. Tyrrell was appointed Officer of the Order of Canada in 2002. In April 2010, Dr. Tyrrell was appointed as the founding director of the Li Ka Shing Institute of Virology at the University of Alberta. On April 28, 2011, Dr. Tyrrell was inducted to the Canadian Medical Hall of Fame. In 2015, he was awarded the Canada Council for the Arts Killam Prize in Health Sciences. In 2021, he was awarded the Henry G. Friesen International Prize in Health Research and the Hepatitis B Foundation's 2022 Blumberg Prize for his pioneering work on hepatitis B.
Alan Chan - Director
Mr. Chan is an executive director of ITC Properties Group Limited ("ITC Properties"). At ITC Properties, Mr. Chan is involved with the investment and development of commercial, hospitality and residential projects. In addition, he is the lead in developing new policies for green and sustainable practices throughout the group. Mr. Chan is the founder and managing partner of Vectr Ventures, a global VC firm with investments in early to growth stage companies across Climate, Fintech, Biotech, SaaS, Media, and Proptech. Prior to joining ITC Properties, Mr. Chan worked in the Investment Banking Division of Goldman Sachs Group focused on financial institutions in APAC. Mr. Chan is a graduate of Duke University majoring in Political Science - International Relations and minoring in Philosophy and Economics.
Peter H. Kappel - Chairman of the Board and Director
Mr. Kappel is a former investment banker who now manages a private investment portfolio. A former chartered accountant with KPMG in Vancouver and Frankfurt, he made the transition to investment banking with JP Morgan (New York/Frankfurt) after business school. He also served in senior roles at Nomura, Dresdner Kleinwort Wasserstein, Calyon and DVB Bank in London. In the latter three, he was the Managing Director in charge of their respective European Securitisation businesses. He holds an MBA from the Institut Européen d'Administration des Affaires ("INSEAD"), a Bachelor of Arts (Honours) degree in Economics from the University of Victoria and received his Chartered Accountant designation through the Institute of Chartered Accountants of British Columbia.
Debora Fang - Director
Ms. Debora Fang has over 20 years' experience in the Fast Moving Consumer Goods industry, across mergers and acquisitions, strategy, finance and marketing roles in Unilever (London, UK), Danone (Paris, France and Amsterdam, Netherlands), Kraft Foods (Sao Paulo, Brazil) and as a consultant for Bain & Company (Los Angeles, USA). While at Unilever as VP Mergers & Acquisitions, Ms. Fang was responsible for a range of acquisitions and disposals in the Foods, Ice cream and Tea categories, leading multidisciplinary teams and covering a global scope. She is now an independent advisor for Private Equity and strategic clients in the Foods and Beverage space as well as a private investor. Ms. Fang holds an MBA from the Kellogg Graduate School of Management at Northwestern University in Chicago, USA and a Bachelor of Arts in Business from the University of Sao Paulo, Brazil.
Jeanne McCaherty - Director
Ms. McCaherty is the Chief Executive Officer of Guardian Energy Management, an ethanol manufacturing company with production sites in Ohio, Minnesota, and North Dakota. These corn dry milling sites produce ethanol, DDGS (distiller's dried grains with solubles), and corn oil. Prior to joining Guardian in 2016, Ms. McCaherty spent a year consulting in Private Equity in the areas of specialty grains and value-added ingredients. The majority of Ms. McCaherty's career was in various global management roles in Cargill, Inc. The most recent Cargill role was as the Regional Director of the Global Texturizing Business Unit. This business sourced raw materials, manufactured, and sold specialty food ingredients to Food companies around the world. Ms. McCaherty's R&D career culminated in the position of VP/Global Director of Food R&D. This role included functional leadership for the Basic and Applied R&D, Applications and Sensory groups for Cargill's Global Food Ingredients businesses. Ms. McCaherty currently serves on the board of directors for the RFA (Renewable Fuels Association) and RPMG (Renewable Products Marketing Group).
Alfred T. L. Lau - Director
Mr. Lau is a Director of WealthOne Bank of Canada ("WOBC"), a Canadian Schedule I Bank. Prior to his current role, Mr. Lau was a partner of KPMG with over 35 years of experience at key locations around the world, including Beijing, Vancouver and London. He has held senior positions within KPMG including co-leader of the audit practice in Beijing and co-leader of the China Practice in Canada. He was the Audit Engagement Partner for a number of multi-national Fortune 500 companies and listed companies on the TSX. Mr. Lau has been an independent member of the WOBC Board of Directors since 2018 and is currently Chairman of the Audit Committee and a member of the Risk Committee. Moreover, Mr. Lau is a former director and Chairman of the Audit Committee of SUCCESS, one of the largest nonprofit organizations in Canada. He graduated from the University of British Columbia with a Bachelor of Commerce degree in 1980 and received his Chartered Accountant designation in 1982.
Aaron T. Ratner - Director
Mr. Ratner is an Executive Director with Alternus Clean Energy (Nasdaq: ALCE), as well as a Co-Founder of CC Risk Solutions, a climate insurance platform. He is also a Co-Founder and Managing Partner with Vectr Carbon Partners in Hong Kong, was an Operating Partner with Nexus PMG, a leading infrastructure advisory and project development company, from 2020-2022. He has over 20 years of domestic and international investment and advisory experience, including 8 years in Asia, focusing on project finance, venture capital, climate technology, energy, and agriculture. Mr. Ratner began his career as a foreign market entry strategist at WKI, a global strategic consulting firm based in Virginia, and then as an Analyst in the Internet Investment Banking Group at Merrill Lynch in Palo Alto, CA. In 2000, he moved to Hong Kong to work for Simon Murray & Company, a Pan-Asian multi-strategy investment and advisory firm. Thereafter, he held senior positions in various merchant banks and investment firms. Mr. Ratner attended the Stanford University Graduate School of Business and completed his undergraduate education at the University of Pennsylvania (Economics, Honors) and Jochi University, Tokyo.
John A. Vassallo - Director
Mr. Vassallo has over 30 years' experience in asset acquisition, development and management across several industries in multiple states. As Founder and CEO of Mos RE, LLC, Mr. Vassallo focuses on real estate development, land entitlements, redevelopment and strategic reuse of underutilized buildings by utilizing multi-source financing packages, including historic tax credits, tax incremental financing and state development programs. Mr. Vassallo headed multiple capital raises for a variety of developments and acquisitions. Mr. Vassallo also has experience in purchasing distressed debt for profitable returns. As Founder and CEO of Global Restaurant Systems, LLC, Mr. Vassallo established a multi-faceted management and consulting company providing inclusive restaurant development and operating services including accounting, human resources, real estate analysis and acquisition, legal, marketing, IT and administrative support to its clients.
Officers
Kip Underwood - Chief Executive Officer
Mr. Underwood began his career with the Solae Company and held progressively more senior positions until he transitioned from the Senior Sales Director for Europe, into the role of Vice President, Specialty Protein Business for DuPont Nutrition and Health. He held the position of NAFTA Regional President with DuPont Nutrition and Health from 2014 - 2017, where he was responsible for top line sales of $1.4 billion. In that role, he achieved above market growth every year in sectors including baking, dairy, beverage, meat and nutritional supplements. Mr. Underwood has extensive experience in leading business turnaround from multi-year sales decline to year-over-year growth. In his latest role at Benson Hill as General Manager and Vice President of Sales, Mr. Underwood led efforts to transform a start-up company to an established food ingredient business. He holds an MBA from Saint Louis University and a Bachelor of Science in Chemical Engineering from University of Missouri-Columbia.
Jade Cheng - Chief Financial Officer and Treasurer
Ms. Cheng is a senior financial executive with over 25 years of experience. She has been with Burcon since inception and is responsible for its financial management, reporting and compliance. Prior to joining Burcon, Ms. Cheng held senior financial positions with a TSX-listed real estate development and ownership company and was a manager in Coopers & Lybrand's (now PricewaterhouseCoopers LLP) audit and assurance practice. Ms. Cheng holds a B.A. (Economics) and M.B.A. from the University of British Columbia and is a member of the Chartered Professional Accountants of British Columbia.
Randy Willardsen - Senior Vice-President, Process
Mr. Willardsen has over 32 years of experience in the fields of membrane filtration and food, dairy and biotechnology processes. Mr. Willardsen was the founder of Separation Technology, Inc., a leading supplier of membrane-based purification equipment and related services to the food industry with particular emphasis on dairy and beverage applications. Mr. Willardsen was also co-founder of both Inprotech Corporation, a supplier of high quality whey proteins to the U.S. market, and BioPlex Nutrition, a nutritional supplement company focused on formulated protein supplements. With BioPlex, he served as technical director, and oversaw manufacturing of all products until the company was sold in 1999. Most recently, Mr. Willardsen founded Gallo Protein, a partnership with Joseph Gallo Farms to produce highly purified whey protein isolates. Mr. Willardsen has worked with Burcon since April of 2001, and holds a Masters degree in Food Science and Nutrition from the University of Minnesota.
Dorothy Law - Senior Vice-President, Legal and Corporate Secretary
Ms. Law was a director of Burcon from December 1998 to April 2010. Ms. Law joined the Burcon group of companies in August 1997 and acted as corporate counsel. Prior thereto, she was an associate at the law firm of Lang Michener LLP (now McMillan LLP), practising primarily in the areas of securities, corporate and commercial law. Ms. Law was called to the British Columbia Bar and admitted as a member of the Law Society of British Columbia in August 1996. Ms. Law holds a Bachelor of Laws degree and a Bachelor of Commerce degree from the University of British Columbia. Ms. Law was also admitted as a solicitor of the High Court of Hong Kong in May 1999.
Martin Schweizer - Vice President, Technical Development
Dr. Schweizer joined Burcon in May 2002 as a process-engineering specialist. He relocated from Nancy, France, where he earned his doctorate at the Institut National Polytechnique de Lorraine, with an emphasis on the enzymatic hydrolysis of rapeseed proteins. Prior to his Ph.D. work, Dr. Schweizer completed a chemical engineering degree (Dipl.-Ing) at the University of Karlsruhe, Germany, where he specialized in food process engineering and water technology. He has over 25 years of experience in research and development and his main expertise lies in the fractionation and purification of biochemical compounds using current state of the art technology such as membrane filtration, liquid chromatography and various extraction technologies, both aqueous and solvent based. Since January 2003, Dr. Schweizer has overseen Burcon's research and development efforts at its Winnipeg Technical Centre.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Other than as set out below, none of the directors or executive officers:
a) is, as at the date of the AIF, or was within 10 years before the date of the AIF, a director or chief executive officer or chief financial officer of any company (including Burcon) that:
i) was the subject of an order (as defined in National Instrument 51-102F2) that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; or
ii) was subject to an order that was issued after the director or executive officer ceased to be a director, chief executive officer, or chief financial officer, and which resulted from an event that occurred while that person was acting in the capacity as a director, chief executive officer, or chief financial officer.
Except as set out below, none of the directors, executive officers or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company,
a) is at the date hereof, or has been within 10 years before the date of this AIF, a director or executive officer of any company (including Burcon) that while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;
b) has, within the 10 years before this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder;
c) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
d) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Ms. Jeanne McCaherty and Mr. Peter Kappel acted as directors of Merit Foods from October 1, 2021 and February 2022, respectively and resigned on March 1, 2023. On March 1, 2023, PricewaterhouseCoopers Inc. was appointed by order by The Court of King's Bench (Manitoba) to be Receiver of all the assets, properties and undertakings of Merit and 11410083 Canada Ltd. See "General Development of the Business".
Conflicts of Interest
As of the date of this AIF, Mr. Alan Chan is the beneficial owner, and one of the directors of two shareholders of Burcon, Large Scale and Great Intelligence Limited, which together own approximately 25,643,932 common shares or 18.05% of the issued and outstanding common shares of Burcon.
In connection with the 2022 Large Scale Loan as described in "General Development of the Business", Large Scale is a wholly-owned subsidiary of Firewood Elite Limited, a wholly-owned company of Mr. Alan Chan, who in turn is an insider and related party of Burcon.
The purpose and business reason for the 2022 Large Scale Loan was to raise funds so that Burcon could continue to meet its working capital requirements and use the funds for the purposes described above. The 2022 Loan Agreement was approved by the independent directors of the board of directors of Burcon, with Mr. Alan Chan abstaining from participating in the vote on the 2022 Loan Agreement. In connection with the first tranche advanced under the 2022 Loan Agreement, Large Scale was paid a commitment fee of $50,000 in August 2022.
On March 6, 2024, the Company entered into a Strategic Advisory and Consulting Agreement (the "Advisory and Consulting Agreement") with Mr. John Vassallo, a director of the Company, pursuant to which the Mr. Vassallo will provide the Company, for a one year term that may be extended by mutual written agreement between the parties, with ongoing consulting services including, among other things, providing strategic and financial advice to the Company, meeting with potential investors and strategic partners of the Company and advising on strategic transactions of the Company (collectively, the "Consulting Services"). Given Mr. Vassallo's business experience, the board of directors of Burcon believed it would be in the Company's best interest to engage Mr. Vassallo as an advisor to the Company as Burcon transitions from a research and development company and implements its Burcon 2.0 strategy.
As compensation for the Consulting Services, the Company has agreed to pay Mr. Vassallo a fixed fee of 5,000,000 non-transferable common share purchase warrants (the "Compensation Warrants"), with each Compensation Warrant exercisable into one common share of the Company (each, a "Share") at a price of $0.27 per Share for a period of 27 months following the date of issue of the Compensation Warrants. On March 25, 2024, Burcon issued the Compensation Warrants to Mr. Vassallo upon receipt of conditional approval from the Toronto Stock Exchange ("TSX"). However, the Compensation Warrants may not be exercised by Mr. Vassallo unless and until such time as a majority of the Shareholders of the Company, on a disinterested basis, approve the Compensation Warrants at a duly called meeting of Shareholders (the "Disinterested Shareholder Approval"). If the Disinterested Shareholder Approval is not received, the Compensation Warrants shall expire after the date of the next duly called meeting of Shareholders of the Company. Burcon expects to seek Disinterested Shareholder Approval at a meeting of shareholders on or about September 18, 2024. If the Disinterested Shareholder Approval for the Compensation Warrants is not received, the Company will, in lieu of the Compensation Warrants and as per the terms of the Advisory and Consulting Agreement, pay the Director a cash amount of $450,000 as an alternative form of compensation for the Consulting Services (the "Cash Compensation"). Payment of the Cash Compensation will be subject to TSX approval.
Burcon had a Services Agreement with Merit Foods to provide technical, administrative and general management services, research and analytical services and sample production services based on rates set out in the Services Agreement. For the year ended March 31, 2024, Burcon charged $nil (2023 - $44,402) for services provided. See "Material Contracts".
TRANSFER AGENTS AND REGISTRARS
The Company's transfer agent and registrar for its Common Shares is Computershare Investors Services Inc. at its principal transfer offices in Vancouver, British Columbia and Toronto, Ontario. Following the de-listing of the Company's Common Shares from the Nasdaq Capital Market, Computershare Trust Company, N.A. continues to act as limited co-agent in the United States.
MATERIAL CONTRACTS
Burcon is a party to the following material contracts, copies of which are available on SEDAR at www.sedar.com:
Loan Agreement with Large Scale Investments Limited
On June 20, 2022, Burcon and Large Scale entered into a loan agreement (the "2022 Loan Agreement") pursuant to which Large Scale will provide Burcon with a secured loan (the "2022 Large Scale Loan") of up to $10 million (the "Loan Amount"). Firewood is wholly-owned by Mr. Alan Chan, a director of Burcon. Upon the satisfaction of certain conditions with respect to each tranche, the Loan Amount will be available in two tranches of $5 million each. The first tranche has been drawn and has a maturity date of July 1, 2025. The second tranche closed on December 17, 2023 and has a maturity of December 17, 2025. As of the date of this AIF, $1 million has been drawn under the second tranche. The Lender will be paid a commitment fee of 1% of the undrawn amount of the Loan Amount under each tranche on: (i) the closing date of such tranche and (ii) each annual anniversary of the closing date of such tranche. The drawn portion of the Loan Amount will bear interest at a rate of 8% per annum (the "Principal Balance"). Interest on the Principal Balance will accrue monthly, not in advance, and will be payable on the Maturity Date of the applicable tranche. On June 19, 2023, Burcon and Large Scale entered into a letter agreement to amend certain conditions to be satisfied by Burcon for the advance of the second tranche. On December 17, 2023, Burcon and Large Scale closed the second tranche.
Guarantees in connection with Agriculture and Agri-Food Canada loan to Merit Foods
On July 28, 2020, Her Majesty the Queen in Right of Canada as represented by the Minister of Agriculture and Agri-Food (the "Minister"), Merit Foods, Merit Foods' subsidiary, 11410083 Canada Ltd., Burcon Holdings and the Other Shareholders entered into the Repayable Contribution Agreement For The AgriInnovate Program (the "AIP Agreement") pursuant to which the Minister provided a $10 million 10-year interest free loan (the "AIP Loan") to Merit Foods and 11410083 Canada Ltd. (the "Recipients") for the purpose of facilitating the commercialization of a patent protected, world-leading plant protein extraction process for purposes of supporting the growth of the pea, pulses and canola industries. The interest free loan, repayable over 10 years, was approved under the Agriculture and Agri-Food Canada's AgriInnovate Program. Burcon Holdings and each of the Other Shareholders (each a "Guarantor" and together referred to as the "Guarantors") have provided guarantees to secure the obligations of the Recipients under the AIP Loan. Under the AIP Agreement, the Guarantors agreed to jointly and severally guarantee the performance of the obligations of the Recipients, including without limitation, the completion of the Project, administration of the AIP Agreement and the repayment of the funding provided by the Minister pursuant to the terms and conditions of AIP Agreement (the "Guarantee Obligations"). Burcon Holdings and the Other Shareholders entered into a Reciprocal Indemnity Agreement made as of July 23, 2020 (the "Indemnity Agreement") to set out the rights and obligations as between themselves in the event that any of them is called upon to make payment under any of the Guarantee Obligations in a manner that is disproportionate to their respective proportionate ownership interest in Merit Foods at the time the agreement was signed (referred to as their "Contributive Share").
Under the Indemnity Agreement, if any Guarantor (each, a "Paying Guarantor") is required to make payment under the Guarantee Obligations and any other Guarantor (each, a "Contributing Guarantor") has not made a corresponding payment equal to its Contributive Share, such Contributing Guarantor(s) shall pay the Paying Guarantor such amounts so that, after payment, all obligations and liabilities under the Guarantee Obligations will have been borne by the Guarantors in their respective Contributive Share.
Reciprocal Indemnity for Guarantees in connection with EDC and FCC financing of Merit Functional Foods Corporation
In October 2021, the shareholders of the Other Shareholders (the "EDC Guarantors") provided guarantees in the aggregate amount of $10 million (the "EDC Guarantee") to EDC in order for Merit Foods to meet certain credit requirements required by EDC under the loan agreements with EDC. Burcon Holdings and the EDC Guarantors entered into a reciprocal indemnity agreement (the "EDC Indemnity Agreement"). Under the EDC Indemnity Agreement, if any EDC Guarantor (each, a "EDC Paying Guarantor") is required to make payment under the EDC Guarantee and any other EDC Guarantor and Burcon Holdings (each, a "EDC Contributing Guarantor") has not made a corresponding payment equal to its Contributive Share, such EDC Contributing Guarantor(s) shall pay the EDC Paying Guarantor such amounts so that, after payment, all obligations and liabilities under the EDC Guarantee will have been borne by the EDC Guarantors in their respective Contributive Shares. Burcon Holdings' Contributive Share under the EDC Indemnity agreement was 44.44%. The obligations of Burcon Holdings and the EDC Guarantors would terminate upon the termination or release by EDC of the EDC Guarantors' obligations under the EDC Guarantee. Burcon's potential liability under the EDC Reciprocal Indemnity Agreement was approximately $4.44 million.
In October 2021, as a result of the Bunge October 2021 Investment (See "General Development of the Business"), the aggregate liability of the EDC Guarantors under the EDC Guarantee was reduced to $5.05 million, and Burcon's maximum liability under the EDC Indemnity Agreement was reduced to $2.24 million.
In January 2022, FCC agreed to provide Merit Foods with a further credit facility of $10 million. In connection with the amendment of the FCC and EDC loan agreements, the EDC Guarantors and Burcon Holdings entered into an amended and restated reciprocal indemnity agreement (the "Amended and Restated Indemnity Agreement") to reflect the reduction in the EDC Guarantee amount to $5.05 million.
In May 2022, Burcon Holdings, Bunge and the Other Shareholders advanced an aggregate $10 million loan ("May 2022 Shareholder Loan") to Merit Foods to address liquidity requirements of Merit Foods as it ramps up production and sales at its pea and canola protein production facility. Burcon Holdings' proportionate share of the May 2022 Shareholder Loan was $3.16 million. The May 2022 Shareholder Loan has a term of 15 years, will initially be non-interest-bearing and have terms similar to previously advanced shareholder loans. The May 2022 Shareholder Loan is subordinated to any indebtedness owed by Merit Foods to each of its financial lenders, whether secured or unsecured. As a result of the of May 2022 Shareholder Loan, EDC released the EDC Guarantors from the EDC Guarantee. Under the terms of the Amended and Restated Indemnity Agreement, the obligations of Burcon Holdings and the EDC Guarantors terminated upon the release by EDC of the EDC Guarantee.
Merit Functional Foods Corporation - Unanimous Shareholders Agreement
On May 23, 2019, Burcon's wholly-owned subsidiary, Burcon NutraScience Holdings Corp., entered into a shareholders agreement (the "Original Shareholders Agreement") with RBT Holdco Ltd. ("RBT Holdco") and 10039406 Manitoba Ltd. ("Crew Holdco") (RBT Holdco and Crew Holdco together referred to as the "Other Shareholders") to become shareholders of Merit Functional Foods Corporation (formerly Burcon Functional Foods Corporation) ("Merit Foods"). Initially, Burcon Holdings held 40%, RBT Holdco held 40% and Crew Holdco held 20% of the issued and outstanding common shares of Merit Foods. Ryan Bracken and Barry Tomiski each hold a 50% interest in RBT Holdco. Crew Holdco is wholly-owned by Shaun Crew. The business of Merit Foods is the commercial production, sales, marketing and distribution worldwide of Burcon's pea protein, pulse protein and canola protein products. Pursuant to the Shareholders Agreement, the parties agreed that on or before July 2, 2019, Burcon Holdings and the Other Shareholders would make a capital contribution to Merit Foods by way of shareholder loans and/or subscription of shares in the aggregate of $10,000,000. Burcon Holdings agreed to make a capital contribution of $4,000,000 to Merit Foods (less certain deductions for certain expenses), while RBT Holdco and Crew Holdco agreed to contribute $4,000,000 and $2,000,000, respectively (each an "Initial Capital Contribution"). In the event that any of Burcon Holdings, RBT Holdco or Crew Holdco failed to contribute its respective Initial Capital Contribution on or before July 2, 2019, then the Shareholders Agreement would automatically terminate.
Provided that the Shareholders Agreement had not been previously terminated, the parties agreed to make further contributions to Merit Foods on or before September 3, 2019 in the aggregate amount of $10,000,000. Burcon Holdings agreed to contribute a further $4,000,000 to Merit Foods, while RBT Holdco and Crew Holdco agreed to contribute $4,000,000 and $2,000,000, respectively (each an "Additional Capital Contribution"). In the event that any of Burcon Holdings, RBT Holdco or Crew Holdco failed to contribute its respective Additional Capital Contribution (a "Capital Deficiency"), any shareholder under the Shareholders Agreement that has contributed its full proportionate share of the Additional Capital Contribution may make a further capital contribution in the amount of the Capital Deficiency and the proportionate ownership of each shareholder will be adjusted accordingly. If Burcon Holdings only contributed its Initial Capital Contribution and not the Additional Capital Contribution while the remaining shareholders contribute their Initial Capital Contribution, Additional Capital Contribution and any Capital Deficiency, Burcon Holdings' ownership interest in Merit Foods would have been reduced to 20%.
On August 27, 2020, Burcon announced that Merit Foods received a $30 million investment (the "Investment") from a new equity partner, Bunge Limited. The Investment was completed by way of a subscription by Bunge for shares from treasury and the advancement of shareholder loans by Bunge. Concurrently with the Investment, Bunge purchased additional shares and debt from the Other Shareholders. As a result of the foregoing, Bunge initially owned a 25% equity interest in Merit Foods, Burcon owned a 33.33% equity interest in Merit Foods and the Other Shareholders owned, collectively, the remaining 41.67% equity interest in Merit Foods.
On August 27, 2020, Burcon Holdings entered into an amended and restated unanimous shareholders agreement (the "Amended and Restated Shareholders Agreement") with Bunge, the Other Shareholders, Tirem Holdings Limited Partnership and Burcon. Among other things, the Amended and Restated Shareholders Agreements sets out the respective rights and obligations of the shareholders of Merit Foods in respect of Merit Foods, the shares owned by the shareholders and the management and conduct of the business of Merit Foods, including matters requiring board of directors' approval or shareholder approval and the rights of the parties with respect to restrictions on transfers and transfers to third parties. On October 13, 2021, Bunge exercised its right to subscribe for additional common shares of Merit Foods for an aggregate subscription price of $4.95 million ("Bunge October 2021 Investment"). Following the Bunge October 2021 Investment, Bunge's ownership interest in Merit Foods increased to 28.91%. Burcon now owns a 31.6% equity interest in Merit Foods and the Other Shareholders now own, collectively, a 39.49% equity interest.
The Amended and Restated Shareholders Agreement amends and restates the Original Shareholders Agreement.
Under the Amended and Restated Shareholders Agreement, Bunge had the right to acquire the balance of the Merit Foods shares owned by the Other Shareholders through a call option (the "Call Option"). The Amended and Restated Shareholders Agreement set out the terms and conditions of the Call Option, including the circumstances under which the Call Option would vest and become exercisable. The principal intended trigger for the vesting of the Call Option was based on the completion, commissioning and demonstrated growth of Merit Foods' canola and pea protein production facility in Winnipeg, Manitoba. If and when Bunge exercised the Call Option to acquire the Merit Foods shares owned by the Other Shareholders, Burcon Holdings then had the right, but not the obligation, to sell all, but not less than all, of its interest in Merit Foods to Bunge at the equivalent valuation.
If Bunge exercised its Call Option to buy out the Other Shareholders, and thereby acquires majority ownership of Merit Foods, certain terms of the Amended and Restated Shareholders Agreement would come into effect, which changes were designed to align the interests of Bunge and Burcon. Such terms included, among other matters, that on the closing of the Call Option, Bunge would provide financing to Merit Foods on terms that are materially similar to those of Merit's existing third party financing arrangements. Merit Foods would use the proceeds from the financing to repay existing third party financing arrangements. Future financings would be provided to Merit Foods by Bunge from time to time, provided that the terms are no less favorable to Merit Foods than what could be obtained in a comparable arm's length transaction. Ultimately, Bunge did not exercise the Call Option. Bunge has agreed that, for so long as it is a direct or indirect shareholder of Merit Foods and for a period of eighteen (18) months after the date on which it ceases to be a direct or indirect shareholder of Merit Foods, it will not produce and sell pea and canola proteins exceeding certain specified purity thresholds set out in the Amended and Restated Shareholders Agreement.
Merit Functional Foods Corporation - License and Production Agreement
On May 23, 2019, Burcon and its wholly-owned subsidiary, Burcon NutraScience (MB) Corp. entered into entered into a license and production agreement with Merit Foods (the "Original Merit License Agreement"). Under the Merit License Agreement, Burcon granted an exclusive, royalty-bearing, worldwide license (the "Merit License") to Merit Foods to use and exploit Burcon's pea, pulse and canola protein technologies to make, have made, use and market and sell Burcon's pea, pulse and canola proteins (the "Merit Licensed Products").
Merit Foods agreed to develop, build and commission an initial production facility in the Province of Manitoba within a specified amount of time to manufacture the Merit Licensed Products (the "Flex Production Facility"). Merit Foods also agreed, within a time specified under the License Agreement, to provide written notice (the "Notice") to Burcon to advise whether it would or would not increase its annual production capacity of the Products to develop, build and commission a full commercial scale production facility ("Full-Commercial Production Facility"). The License Agreement provided Burcon with the right to convert the exclusive license to a non-exclusive license under certain conditions.
In consideration of the Merit License, Merit Foods would pay to Burcon running royalties based on the net revenue (as defined in the Merit License and Production Agreement) in relation to the sale of the Products which fall within the scope of the Burcon Technology. Once a sale in the Flex Production Facility occurred, Merit Foods would pay to Burcon royalties based on a percentage of net revenue from the sale of Products. If Merit Foods expanded production to the Full-Commercial Production Facility the royalty rate would be reduced to a lower percentage rate. The royalty rate may also be reduced if the exclusive license is converted to a non-exclusive license or if a certain Burcon patent does not grant within a specified time.
Burcon and Burcon-MB entered into an amended and restated license and production agreement (the "Amended and Restated License Agreement") on August 27, 2020. The Amended and Restated License Agreement amends and restates the Original Merit License Agreement.
Under the Amended and Restated License Agreement the parties have agreed among other things, that if Bunge exercises its Call Option to buyout the Other Shareholders under the Amended and Restated Shareholders Agreement, Merit Foods will have an option to convert (the "Conversion") the license granted under the Amended License Agreement into an exclusive, royalty-bearing, worldwide license to Merit Foods over Burcon's pea, pulse and canola protein technologies for $67.5 million, which represents an amount estimated to be the discounted future royalties that would otherwise be payable to Burcon over the life of the license agreement.
The Amended and Restated License Agreement modifies certain conditions under which Burcon may convert the exclusive license granted to Merit to a non-exclusive license. In one instance, if Merit Foods produces a certain amount of products that are not products licensed by Burcon, Burcon has the right to convert the exclusive license to a non-exclusive license. In such circumstance, Merit Foods may elect to retain exclusivity by paying royalties based on the net revenues derived from the sale of such other products. If the exclusive license is converted to a non-exclusive license, Burcon will be entitled to make, have made, use, market and sell Merit Licensed Products on a non-exclusive basis and to grant any such rights to any other person unless Merit Foods exercise the Conversion option. Merit Foods will grant to Burcon an irrevocable, non-exclusive, royalty bearing license, with a right to sublicense, to use certain intellectual property developed by Merit Foods ("Merit Foods Improvements") to make, have made, use, market or sell the Products worldwide. If the license is converted to a non-exclusive license and Burcon chooses to use the Merit Foods Improvements, the aggregate royalties payable by Burcon to Merit Foods in any year will not exceed the aggregate royalties payable by Merit Foods to Burcon in the same year.
As long as the Merit License is exclusive and until the Conversion, Burcon will be responsible for filing, prosecution and maintenance of Burcon patent rights in certain countries. Upon the Conversion, Merit Foods will assume all the responsibilities and costs relating to filing, prosecution and maintenance of Burcon patent rights. While the Merit License is exclusive, Merit Foods shall have the right to defend any action in which the validity of any Burcon patent right is raised in any jurisdiction. If Merit Foods does not exercise such right, Burcon shall have the right but not the obligation to assume such defence.
Subject to the early termination provisions contained in the Amended and Restated License Agreement and Merit Foods' Conversion option, the obligation to pay royalties under the Amended and Restated License Agreement will terminate on the later has a term of the greater of twenty years from July 2, 2019 and the last to expire of Burcon patents that are being used to produce products under the Amended and Restated License Agreement. Since July 2, 2019, Burcon has filed additional patent applications to seek important commercial protection for the Products. Merit Foods has elected to include these applications to the License and, if granted could lengthen the royalty term under the Amended and Restated License Agreement to at least the year 2043.
As of the date of this AIF, Burcon has exercised its option to convert the Merit License to a non-exclusive license. As noted above, Burcon will be entitled to make, have made, use, market and sell Merit Licensed Products on a non-exclusive basis and to grant any such rights to any other person.
Services Agreement with Merit Functional Foods Corporation
On May 23, 2019, Burcon, Burcon-MB and Merit Foods entered into a services agreement (the "Services Agreement") pursuant to which Burcon and Burcon-MB will provide certain services (the "Services") to Merit Foods in support of Merit Foods' business. The Services commenced on July 3, 2019 and the agreement had an initial term ending on June 30, 2022. Under the Services Agreement, Burcon and Burcon-MB provided general management/administrative/technical services, research and analytical services and sample production services. The Services were charged to Merit Foods based on rates set out in the Services Agreement.
INTERESTS OF EXPERTS
The Company's independent auditors are KPMG LLP, Chartered Professional Accountants, who have prepared an independent auditor's report dated June 26, 2024 in respect of the Company's consolidated financial statements as at March 31, 2024. KPMG LLP has advised that they are independent with respect to the Company within the meaning of the Chartered Professional Accountants of British Columbia Code of Professional Conduct.
AUDIT COMMITTEE AND DISCLOSURE UNDER
NATIONAL INSTRUMENT 52-110
Under National Instrument 52-110 ("NI 52-110"), Burcon is required to disclose in its AIF certain information concerning the composition of its audit committee and its auditor. The audit committee carries out the various responsibilities set forth in its charter, a copy of which is attached to this AIF as Schedule "A".
Composition of the Audit Committee
The audit committee of Burcon is comprised of Alfred Lau, Debora Fang, Lorne Tyrrell and Peter Kappel. Mr. Aaron Ratner also served as a member of the audit committee from September 20, 2023 to February 1, 2024. Mr. Lau is the chair of the audit committee. Mr. J. Douglas Gilpin was chair and a member of the audit committee until September 20, 2023, when he retired from Burcon's board of directors. All members of the audit committee are financially literate. Under NI 52-110, an individual is "financially literate" if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by Burcon's financial statements. The Board has determined that each audit committee member has past employment experience in finance or accounting, requisite professional certification in accounting, or comparable experience or background that results in his financial sophistication. Mr. Gilpin was an audit engagement partner in Advisory Services at KPMG LLP (chartered accountants) for 18 years until 1999. Mr. Lau was a partner of KPMG with over 35 years of experience at key locations around the world, including Beijing, Vancouver and London. He has held senior positions within KPMG including co-leader of the audit practice in Beijing and co-leader of the China Practice in Canada. He was the Audit Engagement Partner for a number of multi-national Fortune 500 companies and listed companies on the TSX. He graduated from the University of British Columbia with a Bachelor of Commerce degree in 1980 and received his Chartered Accountant designation in 1982. Dr. Tyrrell has served on the audit committee of the Institute of Health Economics (Alberta). He was also the Dean of the Faculty of Medicine and Dentistry of the University of Alberta from 1994 to 2004, during which time he was responsible for managing a budget of over $300 million. When Dr. Tyrrell retired from his position, the Faculty reported no debt or deficit. Ms. Fang gained her financial experience during her career in mergers and acquisitions and evaluating financials of potential targets, preparing assets for sale and negotiating complex business transactions. She also acted as chief financial officer of the R&D division during her time at Unilever. Mr. Ratner has 25 years of corporate finance and investment experience gained from positions held in public and private companies globally. Mr. Kappel holds a Bachelor of Arts (Honours) degree in Economics from the University of Victoria and received his Chartered Accountant designation through the Institute of Chartered Accountants of British Columbia. Mr. Kappel served as Audit Committee Chair on the board of partnerships in British Columbia for 7 years until August 2020. A member of the audit committee is "independent" if the member has no direct or indirect material relationship with Burcon, which could, in the view of Burcon's board of directors, reasonably interfere with the exercise of a member's independent judgement. The Board has determined that each of the audit committee members is independent, as that term is defined by NI-52-110
Audit Committee Oversight
During the most recently completed financial year, all recommendations of the audit committee with respect to financial reporting and to nomination or compensation of Burcon's external auditor were adopted by the board of directors.
Pre-Approval Policies and Procedures
The charter of the audit committee requires pre-approval of non-audit services provided by the external auditor of Burcon. The auditor was engaged to provide certain tax return review services during the years ended March 31, 2024 and 2023. These services were pre-approved by the audit committee.
External Auditor Service Fees
KPMG LLP was appointed as auditor of the Company effective November 23, 2022.
Fees billed by Burcon's external auditor for professional services relating to the last two fiscal years are outlined in the following table.
|
Nature of Services
|
Fees billed by auditor for
the fiscal year ended March
31, 2024
|
Fees billed by auditor for
the fiscal year ended March
31, 2023
|
|
Audit Fees1
|
$262,700
|
$245,765
|
|
Audit-Related Fees2
|
$18,500
|
$48,000
|
|
Tax Fees3
|
$10,170
|
$15,240
|
|
All Other Fees4
|
$nil
|
$nil
|
|
Total
|
$291,370
|
$309,005
|
Notes:
(1) "Audit Fees" include the aggregate fees billed by KPMG LLP ("KPMG") during fiscal year 2024 and fees billed by KPMG and PricewaterhouseCoopers LLP ("PwC") during fiscal year 2023. Included in fiscal year 2023's Audit Fees is $21,498 for the audit of the Company's internal controls for the year ended March 31, 2022.
(2) "Audit-Related Fees" include the aggregate fees billed for the respective fiscal year for assurance and related services by KPMG and PwC that are not reported under "Audit Fees". Fiscal 2024's fees related to accounting assistance provided by KPMG. Of the $48,000 incurred in fiscal year 2023, $25,000 related to the quarterly review by PwC of the first quarter of fiscal year 2023 and accounting assistance provided by KPMG for the third quarter of fiscal year 2023.
(3) "Tax Fees" include the aggregate fees billed for professional services rendered for tax compliance and tax advice by KPMG during fiscal 2024 and by KPMG and PwC during fiscal 2023.
(4) "All Other Fees" include the aggregate fees billed for the respective fiscal year for products and services provided by PwC, other than the services reported under "Audit Fees", "Audit-Related Fees" and "Tax Fees".
ADDITIONAL INFORMATION
Additional information relating to Burcon can be found on the Company's website at www.burcon.ca and the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.
Additional information, including directors' and officers' remuneration and indebtedness, principal holders of Burcon's securities and securities authorized for issuance under equity compensation plans, is contained in Burcon's Amended Management Proxy Circular dated August 2, 2023 for its most recent annual meeting of shareholders that involved the election of directors. Additional financial information is provided in Burcon's financial statements and MD&A for its most recently completed financial year ended March 31, 2024.
SCHEDULE "A"
AUDIT COMMITTEE CHARTER
BURCON NUTRASCIENCE CORPORATION
("Burcon" or the "Corporation")
AUDIT COMMITTEE CHARTER
Purpose
The purpose of the audit committee (the "Committee") is to oversee the accounting and financial reporting process of Burcon and the audits of its financial statements, and thereby assist the board of directors of Burcon (the "Board") in monitoring (1) the integrity of the financial statements of Burcon, (2) compliance by Burcon with legal, statutory and regulatory requirements related to financial reporting, (3) the appointment, compensation, retention and oversight of Burcon's external auditors, (4) the performance of Burcon's internal controls and financial reporting process; and (5) oversight of risk management.
Composition
1. There will be at least three members of the Committee.
2. All members of the Committee shall be independent directors in accordance with all applicable corporate and securities laws and stock exchange listing standards. The chairman of the Board shall be an ex-officio member of the Committee.
3. All members of the Committee must be financially literate, i.e. have the ability to read and understand a set of financial statements, including the Corporation's balance sheet, income statement, and cash flow statement, that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by Burcon's financial statements. At least one member shall be a financial expert as defined by applicable corporate and securities laws and stock exchange listing standards.
4. None of the members of the Committee may have participated in the preparation of the financial statements of the Corporation or any current subsidiary of the Corporation at any time during the past three years.
5. Any member may be removed or replaced at any time by the Board and will cease to be a member upon ceasing to be a director of the Corporation. The board may fill vacancies on the Committee by election from among its number. If and when a vacancy exists on the Committee, the remaining members may exercise all its powers so long as a quorum remains in office. Subject to the above, each member will hold office until the close of the next annual meeting of shareholders of the Corporation or until the member resigns or is replaced, whichever occurs first.
6. The Board may from time to time designate one of the members of the Committee to be the Chair of the Committee.
7. The members of the Committee shall be entitled to receive such remuneration for acting as members of the Committee as the Board may from time to time determine.
Duties of the Chair of the Committee
8. The Chair of the Committee will provide overall leadership to facilitate the effective functioning of the Committee, including:
a. overseeing the structure, composition, membership and activities delegated to the Committee;
b. chairing each meeting of the Committee and encouraging free and open discussion at meetings of the Committee;
c. scheduling and setting the agenda for Committee meetings with input from other Committee members, the Chair of the Board and management as appropriate;
d. facilitating the timely, accurate and proper flow of information to and from the Committee;
e. arranging for management, internal and, when applicable, external auditors or other advisors to attend and present at Committee meetings as appropriate;
f. arranging sufficient time during Committee meetings to fully discuss agenda items;
g. encouraging Committee members to ask questions and express viewpoints during meetings;
h. leading the Committee in its self-assessment process; and
i. taking all other reasonable steps to ensure that the responsibilities and duties of the Committee, as outlined in this Charter, are well understood by the members of the Committee and executed as effectively as possible.
9. Foster ethical and responsible decision making by the Committee and its individual members.
10. Encourage the Committee to meet in separate, regularly scheduled, non-management, in-camera sessions.
11. Following each meeting of the Committee, report in writing or orally to the Board on the activities, findings, action items and any recommendations of the Committee.
12. Carry out such other duties as may reasonably be requested by the Board.
Meetings
13. The Committee will hold at least four meetings annually and any other meetings as required to fulfill its responsibilities. Meetings may be called by the Committee Chair or a Committee member, the Chair of the Board, external auditors, Chief Financial Officer or the Chief Executive Officer.
14. The Secretary of the Corporation shall act as secretary for meetings of the Committee. The Secretary in conjunction with the Chair of the Committee shall draw up the agenda, which will be circulated, in advance to the members of the Committee with the materials for the meeting. The Secretary will be responsible for taking, keeping and distributing the Committee's meeting minutes.
15. Meetings will be chaired by the Chair of the Committee, or if the Chair is absent, by a member chosen by the Committee from among themselves.
16. A member or members of the Committee may participate in a meeting of the Committee by means of such telephonic, electronic or other communication facilities that would permit all persons participating in the meeting to communicate adequately with each other, and a member participating in such a meeting by any such means is deemed to be present at that meeting.
17. The Committee may conduct an in-camera session at the end of Committee meeting without management present.
18. All directors who are not members of the Committee will be given notice of every meeting of the Committee and will be allowed to attend as observers. The Committee may invite such officers and employees of the Corporation as it may see fit from time to time to attend meetings of the Committee and assist in the discussion and consideration of the duties of the Committee.
19. A majority of the members of the Committee constitutes a quorum.
20. All decisions made by the Committee may be made at a Committee meeting by a majority of the members present or evidenced in writing and signed by all Committee members, which will be fully effective as if it had been made or passed at a Committee meeting.
21. The minutes of all meetings of the Committee will be provided to the Board. The Chair of the Committee will provide a report, which may be oral or in writing, on the Committee's activities to the Board at the next regularly scheduled meeting of the Board following each Committee meeting.
Duties and Responsibilities
The Committee will be responsible for overseeing management to ensure the integrity, accuracy and reliability of the Corporation's financial information. The Committee will discharge this responsibility by:
22. Financial Reporting and Disclosure
a. reviewing and approving interim financial statements of Burcon and management's discussion and analysis related thereto, and all interim profit or loss press releases before they are publicly disclosed;
b. reviewing and recommending for Board approval annual financial statements of Burcon including notes to the financial statements and management's discussion and analysis related thereto and all annual profit or loss press releases; and
c. ensuring that adequate procedures are in place for the review of public disclosure of financial information extracted or derived from financial statements of Burcon, other than the public disclosure referred to in section 22 (a) and 22 (b), and periodically reviewing and updating such procedures.
23. Compliance and Whistleblower Complaints
a. ensuring compliance by Burcon with tax and financial reporting rules as issues arise;
b. establishing procedures for the receipt, retention and treatment of complaints received by Burcon regarding accounting, internal accounting controls, or auditing matters; and
c. establishing procedures for the confidential, anonymous submission by employees of Burcon of concerns regarding questionable accounting, internal accounting controls or auditing matters .
24. Internal Control
a. monitoring the system of internal accounting controls and ensuring that management establishes and maintains adequate and effective internal control systems and processes, including systems and processes that are designed to detect and prevent fraud; and
b. reviewing the results of management's annual testing of internal accounting controls over financial reporting, including disclosures.
25. Risk Management
a. reviewing with management major financial risks and exposures of Burcon and the steps management has taken to monitor and mitigate such risks and exposures; and
b. assessing risk areas and policies to manage risk.
26. External Auditors
a. reviewing and approving the annual audit scope and the annual audit plan proposed by the auditors;
b. overseeing the work of the external auditors of Burcon engaged for the purpose of preparing or issuing an audit report or related work;
c. reviewing carefully and acting on all internal control points communicated by the auditors in correspondence with management and the audit committee in accordance with the external auditors' communication standards;
d. ensuring that the external auditors of Burcon report directly to the Committee throughout the term of their appointment in accordance with the communication standards of the external auditors;
e. ensuring that the external auditors of Burcon provide a formal written statement delineating all relationships between the external auditor and Burcon, actively engaging in a dialogue with the external auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the external auditor and for taking, or recommending that the full board of directors of Burcon take, appropriate action to oversee the independence of the external auditor.
f. resolving disagreements between management and the external auditor regarding financial reporting and disclosures, including compliance with the audit engagement letter approved by the Committee;
g. pre-approving all non-audit services to be provided to Burcon or subsidiaries of Burcon by the external auditor of Burcon;
h. evaluating the performance of the external auditor and recommending to the Board the external auditor to be nominated for the purpose of preparing or issuing an auditor's report (or any related work), as well as determining the compensation to be paid to the external auditor; and
i. reviewing and approving the hiring policies of Burcon regarding partners, employees and former partners and employees of the present and former auditor of Burcon.
27. Seek information from the Corporation or independent advisors
The Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to its auditors and its legal advisors and to all books, records, facilities and personnel of Burcon. The Committee will have the authority to seek any information that it requires from any officer or employee of the Corporation. The Committee has the authority to retain and approve the fees and other retention terms of legal and other advisors ("Advisors"), as it deems necessary for the fulfillment of its responsibilities. The Corporation must provide for appropriate funding, as determined by the Committee, for payment of reasonable compensation to an Advisor retained by the Committee. Prior to appointing an Advisor, the Corporation will take into consideration the following factors:
a. the provision of other services to the Corporation by the person that employs the Advisor;
b. the amount of fees received by the Corporation by the person that employs the Advisor, as a percentage of the total revenue of the person that employs the Advisor;
c. the policies and procedures of the person that employs the Advisor that are designed to prevent conflicts of interest;
d. any business or personal relationship of the Advisor with a member of the Committee;
e. any stock of the Corporation owned by the Advisor; and
f. any business or personal relationship of the Advisor or person employing the Advisor with an executive officer of the Corporation.
28. Other
The Committee will
a. perform an annual review of this Committee charter, taking into account all legislative and regulatory requirements applicable to the Committee, with any recommended changes being forwarded to the Board for approval; and
b. perform a biennial evaluation of its performance, having regard to the issues reviewed during the preceding two years.
The Corporation will
a. provide appropriate funding, as determined by the Committee, for the compensation to the Corporation's external auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation and ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
29. Currency of the Committee Charter
This charter was last revised and approved by the Board on February 10, 2022.
Burcon NutraScience Corporation
Consolidated Financial Statements
March 31, 2024 and 2023
(in Canadian dollars)
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of Burcon NutraScience Corporation
Opinion
We have audited the consolidated financial statements of Burcon NutraScience Corporation (the Entity), which comprise:
• the consolidated statements of financial position as at March 31, 2024 and 2023
• the consolidated statements of operations and comprehensive loss for the years then ended
• the consolidated statements of changes in shareholders' equity for the years then ended
• the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of material accounting policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at March 31, 2024 and March 31, 2023, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
Burcon NutraScience Corporation
Page 2
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the financial statements, which indicates that for the year ended March 31, 2024, the Entity has incurred a net loss, generated negative cash flows from operating activities, and accumulated losses since inception.
As stated in Note 1 in the financial statements, these events or conditions, along with other matters as set forth in Note 1 in the financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Entity's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended March 31, 2024. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Except for the matter described in the "Material Uncertainty related to Going Concern" section of the auditor's report, we have determined that there are no other key audit matters to communicate in our auditor's report.
Other Information
Management is responsible for the other information. Other information comprises the information included in the Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report.
We have nothing to report in this regard.
Burcon NutraScience Corporation
Page 3
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Burcon NutraScience Corporation
Page 4
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor's report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor's report is Lyndon Fung.
Vancouver, Canada
June 26, 2024
BURCON NUTRASCIENCE CORPORATION
Consolidated Statements of Financial Position
As at March 31, 2024 and March 31, 2023 |
| (In Canadian dollars) |
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2024 |
|
|
2023 |
|
| ASSETS |
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
| Cash |
|
4,197,141 |
|
|
1,456,845 |
|
| Amounts receivable and other receivables (notes 4 and 5) |
|
591,726 |
|
|
332,118 |
|
| Inventory (note 6) |
|
68,319 |
|
|
- |
|
| Prepaid expenses |
|
330,033 |
|
|
75,902 |
|
| |
|
5,187,219 |
|
|
1,864,865 |
|
| Property and equipment, net of accumulated depreciation of $4,709,554 (2023 - $4,434,598) (note 7) |
|
1,096,273 |
|
|
983,924 |
|
| Deferred development costs, net of accumulated amortization of $948,379 (2023 - $526,878) (note 8) |
|
5,374,149 |
|
|
5,795,650 |
|
| Investment in and loans to Merit Functional Foods Corporation (note 5) |
|
- |
|
|
- |
|
| Goodwill (note 9) |
|
1,254,930 |
|
|
1,254,930 |
|
| |
|
|
|
|
|
|
| |
|
12,912,571 |
|
|
9,899,369 |
|
| |
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
843,449 |
|
|
590,936 |
|
| Current portion of lease liabilities (note 10) |
|
260,845 |
|
|
34,431 |
|
| Deferred government assistance (note 4) |
|
250,000 |
|
|
- |
|
| |
|
1,354,294 |
|
|
625,367 |
|
| |
|
|
|
|
|
|
| Secured loan (note 11) |
|
6,404,778 |
|
|
5,112,381 |
|
| Lease liabilities (note 10) |
|
- |
|
|
24,310 |
|
| |
|
|
|
|
|
|
| |
|
7,759,072 |
|
|
5,762,058 |
|
| |
|
|
|
|
|
|
| SHAREHOLDERS' EQUITY (note 12) |
|
|
|
|
|
|
| Capital stock |
|
122,069,825 |
|
|
114,566,577 |
|
| Contributed surplus |
|
17,283,934 |
|
|
16,763,830 |
|
| Options |
|
7,436,262 |
|
|
7,279,559 |
|
| Warrants |
|
237,201 |
|
|
- |
|
| Restricted share units |
|
172,776 |
|
|
127,651 |
|
| Deficit |
|
(142,046,499 |
) |
|
(134,600,306 |
) |
| |
|
|
|
|
|
|
| |
|
5,153,499 |
|
|
4,137,311 |
|
| |
|
|
|
|
|
|
| |
|
12,912,571 |
|
|
9,899,369 |
|
| |
|
|
|
|
|
|
| Going concern (note 1) |
|
|
|
|
|
|
| Subsequent events (notes 4 and 7) |
|
|
|
|
|
|
|
Approved by the Board of Directors
|
|
| |
|
|
"Alfred Lau"
|
"Debora Fang"
|
|
_________________________________
|
_________________________________
|
|
Director
|
Director
|
The accompanying notes are an integral part of these consolidated financial statements.
BURCON NUTRASCIENCE CORPORATION
Consolidated Statements of Operations and Comprehensive Loss
Years ended March 31, 2024 and 2023 |
| (In Canadian dollars) |
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| REVENUE |
|
|
|
|
|
|
| Royalty income (note 5) |
|
184,359 |
|
|
363,913 |
|
| |
|
|
|
|
|
|
| EXPENSES |
|
|
|
|
|
|
| Research and development (notes 4 and 13) |
|
3,578,757 |
|
|
4,125,149 |
|
| General and administrative (notes 4 and 14) |
|
3,624,577 |
|
|
3,764,034 |
|
| |
|
|
|
|
|
|
| |
|
7,203,334 |
|
|
7,889,183 |
|
| |
|
|
|
|
|
|
| LOSS FROM OPERATIONS |
|
(7,018,975 |
) |
|
(7,525,270 |
) |
| |
|
|
|
|
|
|
| INTEREST AND OTHER INCOME (notes 5 and 16) |
|
88,366 |
|
|
470,021 |
|
| |
|
|
|
|
|
|
| SHARE OF LOSS IN MERIT FUNCTIONAL FOODS CORPORATION (note 5) |
|
- |
|
|
(5,499,906 |
) |
| |
|
|
|
|
|
|
| WRITE-OFF OF INVESTMENT IN MERIT FUNCTIONAL FOODS CORPORATION (note 5) |
|
- |
|
|
(7,987,304 |
) |
| |
|
|
|
|
|
|
| WRITE-OFF OF LOANS TO MERIT FUNCTIONAL FOODS CORPORATION (note 5) |
|
- |
|
|
(4,358,630 |
) |
| |
|
|
|
|
|
|
| INTEREST AND OTHER EXPENSE (notes 10 and 11) |
|
(511,585 |
) |
|
(466,290 |
) |
| |
|
|
|
|
|
|
| FOREIGN EXCHANGE (LOSS) GAIN |
|
(3,999 |
) |
|
3,129 |
|
| |
|
|
|
|
|
|
| LOSS AND COMPREHENSIVE LOSS FOR THE YEAR |
|
(7,446,193 |
) |
|
(25,364,250 |
) |
| |
|
|
|
|
|
|
| BASIC AND DILUTED LOSS PER SHARE (note 15) |
|
(0.06 |
) |
|
(0.23 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
|
BURCON NUTRASCIENCE CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
Years ended March 31, 2024 and 2023
|
| (In Canadian dollars, except share amounts) |
| |
|
Number of
fully paid
common
shares |
|
|
Capital
stock
$ |
|
|
Contributed
surplus
$ |
|
|
Options
$ |
|
|
Warrants
$ |
|
|
Restricted
share units
$ |
|
|
Deficit
$ |
|
|
Total
shareholders'
equity
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2022 |
|
108,728,742 |
|
|
114,566,577 |
|
|
15,863,592 |
|
|
7,041,049 |
|
|
- |
|
|
12,078 |
|
|
(109,236,056 |
) |
|
28,247,240 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(25,364,250 |
) |
|
(25,364,250 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options expired |
|
- |
|
|
- |
|
|
564,164 |
|
|
(564,164 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options forfeited / cancelled |
|
- |
|
|
- |
|
|
336,074 |
|
|
(336,074 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restricted share unit redeemed |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(2,345 |
) |
|
- |
|
|
(2,345 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation expense |
|
- |
|
|
- |
|
|
- |
|
|
1,138,748 |
|
|
- |
|
|
117,918 |
|
|
- |
|
|
1,256,666 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2023 |
|
108,728,742 |
|
|
114,566,577 |
|
|
16,763,830 |
|
|
7,279,559 |
|
|
- |
|
|
127,651 |
|
|
(134,600,306 |
) |
|
4,137,311 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,446,193 |
) |
|
(7,446,193 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Private Placement |
|
33,179,247 |
|
|
7 7,545,253 |
|
|
- |
|
|
- |
|
|
232,327 |
|
|
- |
|
|
- |
|
|
7,777,580 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issue costs |
|
- |
|
|
(124,944 |
) |
|
- |
|
|
- |
|
|
(3,756 |
) |
|
- |
|
|
- |
|
|
(128,700 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options expired |
|
- |
|
|
- |
|
|
412,263 |
|
|
(412,263 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options forfeited / cancelled |
|
- |
|
|
- |
|
|
107,841 |
|
|
(107,841 |
) |
|
- |
|
|
|
|
|
- |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restricted share unit redeemed |
|
180,944 |
|
|
82,939 |
|
|
- |
|
|
- |
|
|
- |
|
|
(80,595 |
) |
|
- |
|
|
2,344 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation expense |
|
- |
|
|
- |
|
|
- |
|
|
676,807 |
|
|
8,630 |
|
|
125,720 |
|
|
- |
|
|
811,157 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2024 |
|
142,088,933 |
|
|
122,069,825 |
|
|
17,283,934 |
|
|
7,436,262 |
|
|
237,201 |
|
|
172,776 |
|
|
(142,046,499 |
) |
|
5,153,499 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BURCON NUTRASCIENCE CORPORATION
Consolidated Statements of Cash Flows
Years ended March 31, 2024 and 2023 |
| (In Canadian dollars) |
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
| Loss for the year |
|
(7,446,193 |
) |
|
(25,364,250 |
) |
| Items not affecting cash |
|
|
|
|
|
|
| Depreciation of property and equipment |
|
279,277 |
|
|
239,486 |
|
| Amortization of deferred development costs |
|
421,501 |
|
|
421,503 |
|
| Unrealized foreign exchange loss (gain) |
|
8,182 |
|
|
(10,487 |
) |
| Interest accretion |
|
- |
|
|
(335,641 |
) |
| Interest expense on secured loan |
|
342,397 |
|
|
202,031 |
|
| Interest expense on lease liabilities |
|
69,187 |
|
|
86,281 |
|
| Share of loss in Merit Functional Foods Corporation |
|
- |
|
|
5,499,906 |
|
| Write-off of investment in Merit Functional Foods Corporation |
|
- |
|
|
7,987,304 |
|
| Write-off of loans to Merit Functional Foods Corporation |
|
- |
|
|
4,358,630 |
|
| Stock-based compensation expense |
|
811,157 |
|
|
1,256,666 |
|
| |
|
(5,514,492 |
) |
|
(5,658,571 |
) |
| Changes in non-cash working capital items |
|
|
|
|
|
|
| Amounts receivable |
|
(196,041 |
) |
|
(131,776 |
) |
| Inventory |
|
(68,319 |
) |
|
- |
|
| Prepaid expenses |
|
(254,131 |
) |
|
215,719 |
|
| Accounts payable and accrued liabilities |
|
162,806 |
|
|
(322,178 |
) |
| Deferred government assistance |
|
250,000 |
|
|
- |
|
| |
|
(5,620,177 |
) |
|
(5,896,806 |
) |
| Interest income |
|
(87,623 |
) |
|
(32,434 |
) |
| Interest expense paid on lease liabilities |
|
(69,187 |
) |
|
(86,281 |
) |
| Net cash used in operating activities |
|
(5,776,987 |
) |
|
(6,015,521 |
) |
| |
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
| Interest income |
|
87,623 |
|
|
32,434 |
|
| Capital loan advances to Merit Functional Foods Corporation |
|
- |
|
|
(4,107,425 |
) |
| Acquisition of property and equipment |
|
(127,114 |
) |
|
(359,906 |
) |
| |
|
(39,491 |
) |
|
(4,434,897 |
) |
| |
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
| Issue of capital stock and warrants |
|
7,777,580 |
|
|
- |
|
| Issue costs |
|
(106,797 |
) |
|
- |
|
| Proceeds from Secured loan |
|
1,000,000 |
|
|
5,000,000 |
|
| Secured loan issue costs |
|
- |
|
|
(89,650 |
) |
| Reduction of lease liabilities |
|
(105,827 |
) |
|
(14,398 |
) |
| |
|
8,564,956 |
|
|
4,895,952 |
|
| |
|
|
|
|
|
|
| FOREIGN EXCHANGE (LOSS) GAIN ON CASH |
|
(8,182 |
) |
|
10,487 |
|
| INCREASE (DECREASE) IN CASH |
|
2,740,296 |
|
|
(5,543,979 |
) |
| CASH - BEGINNING OF YEAR |
|
1,456,845 |
|
|
7,000,824 |
|
| CASH - END OF YEAR |
|
4,197,141 |
|
|
1,456,845 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1. Going Concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes that Burcon NutraScience Corporation ("Burcon" or the "Company") will continue its operations and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations for the foreseeable future. In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.
The Company has incurred losses since its inception and as at March 31, 2024, had an accumulated deficit of $142.0 million (March 31, 2023 - $134.6 million). During the year ended March 31, 2024, the Company incurred a net loss of $7.4 million (2023 - $25.4 million) and had negative cash flow from operations of $5.8 million (2023 - $6.0 million).
The Company began commercial production of its hemp protein isolate in the year ended March 31, 2024, and subsequent to March 31, 2024, the Company generated revenue from the sale of the hemp protein isolate and from the provision of contract research services. The Company has not earned significant revenues from its technology licensing.
The Company's ability to continue as a going concern is dependent upon the Company's ability to successfully commercialize its technology and scale production and to raise additional capital to fund its planned commercialization activities and research and development activities. The Company has historically relied on equity and debt financings to fund its operations. While the Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities, there can be no assurance that additional financing may be available on acceptable terms, if at all. If Burcon is unable to raise additional funds when it needs them, it may be required to delay, reduce or eliminate some or all of its commercialization efforts or research and development programs. Therefore, these conditions result in material uncertainties that may cast significant doubt over the Company's ability to continue as a going concern.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities in the normal course. These consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities and adjustments to revenues and expenses that would be necessary if the Company was unable to continue as a going concern and such adjustments could be material.
2. Nature of operations
Burcon is headquartered in Vancouver, British Columbia, Canada.
Burcon is a plant protein technology company that has developed high purity and functional proteins for foods and beverages derived from pea, canola, soy, hemp, sunflower seeds, among other plant sources. The Company has an extensive portfolio of composition, application and process patents covering its technologies.
3. Material accounting policies
Basis of presentation
These consolidated financial statements are prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards").
These consolidated financial statements are recorded and presented in Canadian dollars, which is the Company's and its subsidiary's functional currency.
The Company has consistently applied the same accounting policies throughout all periods presented. The board of directors approved these consolidated financial statements on June 26, 2024.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated on consolidation. A subsidiary is an entity in which the Company has control, directly or indirectly. Under IFRS Accounting Standards 10, an investor controls an investee if and only if the investor has power over the investee, exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor's returns. The financial statements of subsidiaries are included in the consolidated financial statements on the date on which control commences until the date on which control ceases. When control over a subsidiary is lost, the assets and liabilities of the subsidiary are derecognized. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Details of the Company's subsidiary at March 31, 2024 are as follows:
|
|
Place of
|
Interest
|
|
|
|
incorporation
|
%
|
Principal activity
|
|
Burcon NutraScience (MB) Corp.
|
Manitoba, Canada
|
100
|
Research and development
|
On March 1, 2023, the Company derecognized the assets and liabilities of Burcon NutraScience Holdings Corp. ("Burcon Holdings") (see note 5).
Investment in Associates
An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy of the investee without the power to control or jointly control those policies.
Under the equity method of accounting, investments are recorded at historical cost as an asset and adjusted for dividends received, capital contributions, other transactions that result in changes in ownership interest held by the Company, and the Company's share of an associate's earnings or losses, which is recorded as a component of loss and comprehensive loss for the year. When the Company's share of losses of an associate exceeds the Company's interest in the associate, which includes any long-term interests that, in substance, form part of the Company's net investment in the associate, the Company discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.
Management considers whether there is any objective evidence of impairment as a result of one or more of the following events, which include (i) significant financial difficulty; (ii) breach of contract, such as a default or delinquency in payments; (iii) the Company granting to an associate a concession on that the Company would not otherwise consider; (iv) it becoming probable that the associate will enter bankruptcy or other financial reorganisation; or (v) the disappearance of an active market for the net investment because of financial difficulties of the associate to determine whether it is necessary to test the Company's investment in an associate for impairment. Objective evidence of impairment also includes information about changes with an adverse effect that has taken place in the technological, market, economic or legal environment and whether there has been a significant or prolonged decline in the fair value of an investment below cost. When such objective evidence of impairment exists, the carrying amount of the investment is tested for impairment by comparing the recoverable amount of the investment with its carrying amount. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.
Revenue recognition
The Company recognizes revenue when it transfers control over a product or service to a customer. The Company earns revenues from licensing agreements under which third parties are granted rights to use the Company's technologies. Royalty revenues are earned based on sales made by the licensee. The Company earns revenues from providing research and development and management services. Services revenues are recognized as services are performed.
Cash
Cash consists of cash balances at bank.
Inventory
Inventory is comprised of protein isolate and raw materials. Inventory is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. The cost of inventory is determined on a weighted average basis and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The reversal of previous write-downs to inventory is permitted when there is a subsequent increase to the value of inventory to the lower of cost and net realizable value.
Government assistance
Government assistance related to current expenses, including from Protein Industries Canada ("PIC"), is recognized in the consolidated statement of operations and comprehensive loss over the period in which the Company recognizes the expense for which the government assistance is intended to compensate. Government assistance related to property and equipment or inventory is recorded as a reduction of the cost of the respective asset.
The Company carries out research and development in Canada that is eligible for Scientific Research and Experimental Development ("SR&ED") Investment Tax Credits ("ITC") at both the federal and provincial level. The Company has recognized the refundable portion of ITC at the provincial level but has not recognized the benefits of ITC at the federal level because realization of these benefits is not probable at this time. The Company's determination of ITC involves uncertainty with respect to management's interpretation of complex tax regulations. The ITC claims are subject to review and acceptance by the Canada Revenue Agency prior to collection.
Goodwill
Goodwill represents the excess at the date of acquisition of the cost of the acquired business over the fair values attributed to the underlying net tangible assets and the identifiable intangible assets. Goodwill is not amortized. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
On at least an annual basis, or when circumstances indicate the carrying value of goodwill may not be recoverable, the Company subjects goodwill to an impairment test. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company's cash-generating units ("CGU") or group of CGUs that are expected to benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Impairment of long-lived assets
The Company assesses at each reporting date whether there are indicators of impairment of an asset or CGU. If any indication exists, or when annual goodwill impairment testing is performed, the Company estimates the recoverable amount for an individual asset or CGU, which is the higher of fair value less costs of disposal and its value in use. In assessing value in use, the estimated future cash flows to be derived from an asset or a CGU are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are considered or an appropriate valuation model is used. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognized in statements of operations and comprehensive loss.
A previously recognized impairment loss is reversed when there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited to its recoverable amount and cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Impairment losses relating to goodwill cannot be reversed in future periods. Impairment reversals are recognized in statements of operations and comprehensive loss.
Financial instruments
At initial recognition, the Company classifies its financial assets in one of the following categories: amortized cost, fair value through profit or loss ("FVTPL"), and fair value through other comprehensive income ("FVOCI").
Financial assets carried at amortized cost, which include loans and receivables, are initially recognized at the amount expected to be received, less a provision for the expected credit loss. Subsequently, financial assets carried at amortized cost are measured at amortized cost using the effective interest method less a provision for the expected credit loss. The Company classifies its cash, amounts receivable and other receivables, and loans to Merit Functional Foods Corporation ("Merit Foods") as financial assets carried at amortized cost.
Financial liabilities classified at amortized cost are initially recognized at fair value, less transaction costs and are subsequently carried at amortized cost using the effective interest method. The Company classifies its accounts payable and accrued liabilities and the secured loan as financial liabilities carried at amortized cost.
Financial assets and liabilities classified as FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of operations and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value are recognized in the period in which they arise.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Impairment losses are recognized in the consolidated statement of operations and comprehensive loss. The amortized cost is reduced by impairment losses. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the expected credit loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation and impairment losses.
The Company provides for depreciation at the following annual rates:
|
Equipment
|
20% diminishing balance method
|
|
Computer equipment
|
30% diminishing balance method
|
|
Leasehold improvements
|
Straight-line over lease term
|
|
Right-of-use assets - office lease
|
Straight-line over lease term
|
|
Right-of-use assets - equipment leases
|
20% diminishing balance method
|
Research and development costs
Research costs are expensed in the year incurred. Development costs are also expensed in the year incurred unless the related process is clearly defined and the costs attributable thereto can be reliably measured; the technical feasibility of the process has been established so that it will be available for use or sale; management has indicated its intention to produce and market, or use, the process; an ability to use or sell the process exists; the process will generate probable future economic benefits; and adequate resources exist, or are expected to be available, to complete the development and to use or sell the process. The Company begins amortization of development costs when the assets are put into use. The residual value and useful life are reviewed at each reporting date. Where an indicator of impairment exists the deferred development costs are subject to impairment testing as described in "Impairment of long-lived assets" above.
Income taxes
The Company uses the balance sheet liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Deferred income tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are recognized only to the extent they are considered probable to be realized.
Stock-based compensation
Stock-based compensation expense relates to stock options as well as equity settled restricted share units ("RSUs"). The compensation cost is measured at the fair value of the equity instrument granted at the date of grant and is expensed in statements of operations and comprehensive loss over the award's vesting period.
When stock options are exercised, capital stock is credited by the sum of the consideration paid and by the related portion previously recorded in options. Upon vesting of equity settled RSUs, the related amount recorded as RSUs is reclassified into capital stock. Additional information related to the stock option plan and the assumptions used in the Black-Scholes option pricing model are provided in notes 12(c) and (d).
Share-based payment arrangements, including stock-options and warrants, with non-employees in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payments transactions. The share-based payments are measured based on the fair value of the goods or services received if the fair value can be reliably measured. Otherwise, the share-based payments are measured based on the fair value of the share- based awards using the expected life, risk free interest rate, volatility, exercise price, and fair value of the underlying equity instrument at the time the goods or services are received.
Accounting estimates and judgements
The preparation of consolidated financial statements in accordance with IFRS Accounting Standards requires management to apply judgement in applying accounting policies. The judgements that have the most significant effect on the amounts recognized in the consolidated financial statements are outlined below. In addition, IFRS Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, the reported amount of revenue and expenses during the reporting period, and disclosures made in the accompanying notes to the consolidated financial statements.
Outlined below are the assumptions and other sources of estimation uncertainty as at March 31, 2024 that have a risk of resulting in material adjustments to the carrying amounts of assets and liabilities within the next year.
Areas of judgement
Judgement is used in situations when there is a choice and/or assessment required by management. The following are critical judgements apart from those involving estimations, which management has made in the process of applying the Company's accounting policies and that have a significant effect on the amounts recognized in the consolidated financial statements.
Going concern (note 1)
The determination as to the Company's ability to continue as a going concern is dependent on its ability to commercialize its technology,scale production and/or to secure debt and equity financing. Certain judgements were made when determining if and when the Company will successfully implement its commercialization efforts and to secure debt and equity financing.
Deconsolidation of Burcon Holdings
Judgement is required for the purposes of assessment of loss of control over Burcon Holdings. The facts and circumstances management considered included assessment over power, how relevant activities of Burcon Holdings are directed, linkage of power and return, including the Company's exposure to variability of returns from its involvement in Burcon Holdings. Refer to additional information provided in note 5.
Determination of CGUs (notes 7, 8 and 9)
For the purposes of assessing impairment of goodwill and long-lived assets, the Company must identify CGUs. Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a CGU is subject to management judgement. The composition of a CGU can directly impact the recoverability of non-financial assets included within the CGU. Management has determined that the Company has one CGU.
Assessment of indicators of impairment of long-lived assets including property and equipment, deferred development costs and goodwill (notes 7, 8 and 9)
Judgement is required in assessing whether there are indicators of impairment of long-lived assets. The Company tests property and equipment and deferred development costs for impairment whenever events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. The information management considered in its assessment of indicators of impairment included plant-based protein market information and the Company's market capitalization, and other internal sources of information.
Sources of estimation uncertainty
Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Company's financial results where a different estimate or assumption is used. The significant areas of estimation uncertainty are:
Expected credit loss
The Company recognizes an amount equal to the lifetime expected credit loss ("ECL") on amounts receivable and loans to Merit Foods for which there has been a significant increase in credit risk since initial recognition. See note 5 for further disclosures.
Useful lives of property and equipment and deferred development costs (notes 7 and 8)
Depreciation of property and equipment and amortization of deferred development costs are dependent upon estimates of useful lives and residual value which are determined through the use of assumptions. Estimates of residual value and useful lives are based on data and information from various sources including industry practice and historic experience. Although management believes the estimated useful lives of the Company's property and equipment and deferred development costs are reasonable, changes in estimates could occur that could affect the expected useful lives and salvage values of the property and equipment and intangible assets.
Goodwill impairment assessment (note 9)
The Company determines the recoverable amount of its CGU when performing its annual impairment test for goodwill. In determining the recoverable amount, the Company considers its market capitalization in determining the recoverable amount. The estimate of recoverable amount is based on management's best estimates of what an independent market participant would consider appropriate.
Share-based payments (note 12)
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. In estimating the fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of the Company's future share price, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in different outcomes.
Newly adopted accounting standards and amendments
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies
The Company adopted the amendments to IAS 1 - Presentation of Financial Statements and IFRS Practice Statement 2 - Making Materiality Judgements which were effective for annual reporting periods beginning on or after January 1, 2023. The amendments to IAS 1 require entities to disclose their material accounting policy information. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality. Under the amendments, an entity discloses material accounting policy information. Accounting policy information is 'material' if, when considered together with other information included in an entity's financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments have not had a material impact on the Company's disclosures of accounting policies or measurement, recognition or presentation of any items within these statements.
Accounting standard and amendments issued and not yet adopted
Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current
The amendment clarifies the classification requirements to determine if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing or recognition. The amendment is effective for annual reporting periods beginning on or after January 1, 2024 and is to be applied retrospectively, with earlier application permitted. The Company does not expect the new standard will have a significant impact on the consolidated financial statements.
4. Protein Industries Canada
Protein Industries Canada ("PIC") is an industry-led, not-for-profit organization committed to positioning Canada as a global source of high-quality plant protein ingredients.
During the year ended March 31, 2024, Burcon entered into a collaborative agreement with PIC for the commercialization of hempseed and sunflower seed protein.
During the year ended March 31, 2022, Burcon entered into a collaborative agreement with PIC for the development of protein ingredients from sunflower seeds. This project was completed on March 31, 2023.
During the year ended March 31, 2024, Burcon recorded PIC grants of $457,118 (2023 - $453,239) as government assistance against research and development expenses, general and administrative expenses, inventory and property and equipment, of which $457,118 is included in amounts receivable as at March 31, 2024 (March 31, 2023 - $169,648). On March 27, 2024, Burcon received an advance payment of $250,000 in respect of eligible expenses to be incurred in subsequent periods, all of which is recorded as deferred government assistance (March 31, 2023 - $nil).
Subsequent to March 31, 2024, Burcon received payment of $457,118 from PIC in respect of amounts outstanding at March 31, 2024.
5. Investment in and loans to Merit Functional Foods Corporation
Burcon has a 100% interest in Burcon Holdings, which was incorporated in 2019 to hold Burcon's interest in Merit Foods. Burcon Holdings' current ownership interest in Merit Foods is 31.6%.
Up to March 1, 2023 when Merit Foods was placed in receivership (see below), the business of Merit Foods was the production, sales, marketing and distribution of Burcon's pulse protein ingredients, including Peazazz® and Peazac® pea proteins and Burcon's canola proteins, Supertein®, Puratein® and Nutratein® (collectively the "Products").
Under the amended license and production agreement (the "Amended License Agreement'), Merit Foods had the exclusive rights over Burcon's pulse proteins and canola protein technologies across all geographic regions and all product uses. Burcon received running royalties on the net revenue (as defined in the Amended License Agreement) from the sales of the Products by Merit Foods. In order to retain its exclusive license, Merit Foods was required to meet certain commercialization obligations by certain deadlines under the Amended License Agreement, failing which Burcon could exercise its option to convert the Merit license to a non-exclusive license. Burcon has exercised its option to convert the license and therefore, Burcon will be entitled to make, have made, use, market and sell the Products on a non-exclusive basis and to grant any such rights to any other person.
On March 1, 2023, a court order (the "Order") was granted under the Business and Insolvency Act to appoint a receiver (the "Receiver") of all of the assets, undertakings and properties of Merit Foods. Pursuant to the Order, the Receiver was authorized to sell all of the assets, undertakings and properties of Merit Foods (the "Property"), including protein products that were produced under the Amended License Agreement, and set out in a sales process for the Property.
Burcon Holdings made loan advances (the "Merit Promissory Notes") in the aggregate of $17.1 million to Merit Foods, which were non-interest bearing, unsecured, subordinated to Merit Foods' other secured and unsecured debts, and had a term of 15 years. Notional interest was accruing on the loan receivable at 11% per annum, which was considered to be the market rate of interest. For the year ended March 31, 2024, Burcon recorded interest accretion of $nil (2023 - $335,641). Due to Merit Foods being placed in receivership on March 1, 2023, the loans to Merit Foods were considered to be credit-impaired. During the year ended March 31, 2024, Burcon recorded a write-off of its loan to Merit Foods of $nil (2023 - $4,358,630).
Merit Foods incurred cumulative operating losses and negative operating cash flows that adversely impacted its financial situation and liquidity position. During the year ended March 31, 2023, Merit Foods was placed into receivership and management concluded there was objective evidence of impairment related to its investment in Merit Foods. During the year ended March 31, 2024, Burcon recorded a write-off of its investment in Merit Foods of $nil (2023 - $7,987,304).
As of March 31, 2024 and 2023, the carrying value of the investment in and loans to Merit Foods comprised of:
| |
|
Investment in |
|
|
Capital |
|
|
Loans |
|
|
Total net |
|
| |
|
share capital |
|
|
contribution |
|
|
receivable |
|
|
investment |
|
| Net investment in Merit Foods, March 31, 2022 |
|
1 |
|
|
10,174,566 |
|
|
3,228,207 |
|
|
13,402,774 |
|
| Activities during the year ended March 31, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
| Share of loss in Merit Foods |
|
- |
|
|
(5,499,906 |
) |
|
- |
|
|
(5,499,906 |
) |
| Loan advances |
|
- |
|
|
3,312,643 |
|
|
794,782 |
|
|
4,107,425 |
|
| Write-off of investment |
|
(1 |
) |
|
(7,987,303 |
) |
|
- |
|
|
(7,987,304 |
) |
| Interest accretion |
|
- |
|
|
- |
|
|
335,641 |
|
|
335,641 |
|
| Write-off of loan receivable |
|
- |
|
|
- |
|
|
(4,358,630 |
) |
|
(4,358,630 |
) |
Net investment in Merit
Foods, March 31, 2023 and
March 31, 2024 |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
During the year ended March 31, 2024, Burcon recorded royalty income of $184,359 from the Receiver's sale of Products (2023 - $363,913 from Merit Foods' sales of Products) and recorded a loss allowance for royalty receivable from Merit Foods of $100,000 (2023 - $167,692) in interest and other expense. As at March 31, 2024, $nil was included in amounts receivable (2023 - $100,000).
Summary financial position and financial results for Merit Foods
| |
|
Year ended |
|
|
Year ended |
|
| |
|
March 31, 2024 |
|
|
March 31, 2023 |
|
| Total revenue |
|
N/A |
|
|
7,718,720 |
|
| Loss for the year |
|
N/A |
|
|
(17,404,766 |
) |
No additional financial information was available to Burcon subsequent to December 31, 2022 as a result of Merit Foods being placed into receivership on March 1, 2023. The above reported financial results for the year ended March 31, 2023 include only the nine month period ended December 31, 2022. There was no available information regarding Merit Foods financial position as at March 31, 2024 or 2023.
At the date that Merit Foods was placed into receivership, Merit Foods had total outstanding loan facilities of $95 million from a syndicate of lenders including Export Development Canada ("EDC"), Farm Credit Canada ("FCC"), and the Canadian Imperial Bank of Commerce ("CIBC"). All shareholders of Merit Foods pledged their shares in Merit Foods as security under the loan facilities from EDC and FCC. The Merit Promissory Notes were postponed, assigned and pledged to EDC and FCC. In addition, all shareholders of Merit Foods have provided guarantees for the indebtedness to EDC and FCC, which are joint and several. Burcon Holdings' guarantees provided to EDC and FCC are unlimited. Interest continues to accrue on the loans from EDC and FCC during the receivership process. Since the date Merit Foods was placed in receivership, Burcon Holdings has not received communication from EDC and FCC with respect to the EDC/FCC Guarantees.
Burcon Holdings and the other partners in Merit Foods provided guarantees in the aggregate amount of $1.25 million to CIBC (the "CIBC Guarantee"), of which Burcon Holdings' proportionate share as at March 31, 2023 was $416,625. On February 24, 2023, Burcon Holdings received a letter from CIBC for its guarantee amount of the CIBC Guarantee. During the year ended March 31, 2024, CIBC was repaid in full by the Receiver.
Merit Foods had also received additional debt financing of $10 million in the form of a 10-year interest-free loan from Agriculture and Agri-Food Canada (the "AIP Loan"). Burcon Holdings and the Partners provided a guarantee for the AIP Loan (the "AIP Guarantee"). The obligations of the AIP Guarantee are joint and several. However, Burcon Holdings and the Partners (the "AIP Guarantors") entered into a reciprocal indemnity agreement (the "Indemnity Agreement'). Under the Indemnity Agreement, if any AIP Guarantor (each, a "Paying Guarantor") is required to make payment under the AIP Guarantee and any other AIP Guarantor (each, a "Contributing Guarantor") has not made a corresponding payment equal to its share based on its shareholdings in Merit Foods ("Contributive Share"), such Contributing Guarantor(s) shall pay the Paying Guarantor such amounts so that, after payment, all obligations and liabilities under the AIP Guarantee will have been borne by the AIP Guarantors in their original respective shareholding percentage in Merit Foods. Since the date Merit Foods was placed in receivership, Burcon Holdings has not received any communication from AIP with respect to the AIP Guarantee.
As at March 31, 2024, Burcon Holdings' total exposure from principal amounts of guarantees provided to EDC, FCC, AIP and CIBC is up to $101.0 million (2023 - $99.4 million).
Deconsolidation of Burcon Holdings
Burcon Holdings' sole asset and activity were the investment in and loans to Merit Foods and therefore considered a single asset entity. Effective upon Merit Foods being placed in receivership on March 1, 2023, the remaining relevant activities of Burcon Holdings are considered to be winding up and termination procedures to minimize losses to the Company. However, due to the pledge and assignments agreements in place, as disclosed above, the winding up and termination procedures of Burcon Holdings would not provide any returns. Moreover, the Company does not have any obligations nor any expectation to fund Burcon Holdings, which limits the Company's exposure to losses. Further, the activities of Merit Foods are now primarily executed to ensure that the lenders will maximize the recovery of their investment, and the equity holders of Merit Foods have no prospect of returns due to the significant amount of debt liabilities. The Company is not able to use its power over Burcon Holdings to impact returns as it relates to Merit Foods and has no expectation that Burcon Holdings will generate new activities that will allow it to return to profitable operations. Accordingly, the Company determined that it had lost control of Burcon Holdings. There is no recourse to the Company of Burcon Holdings' obligations, including the guarantees Burcon Holdings provided to EDC, FCC, AIP and CIBC. Accordingly, on March 1, 2023, the Company derecognized the assets and liabilities of Burcon Holdings.
No gain or loss was recorded as a result of the deconsolidation of Burcon Holdings.
Due to the loss of control of Burcon Holdings, the Company's interest in this subsidiary is accounted for as a financial asset after deconsolidation with a fair value of $nil, because there is no expectation of recoverability of the asset, operations or earnings in the future.
6. Inventory
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Protein isolate |
|
52,350 |
|
|
- |
|
| Raw materials |
|
15,969 |
|
|
- |
|
| Balance - end of year |
|
68,319 |
|
|
- |
|
7. Property and equipment
| |
|
Equipment |
|
|
Right-of- |
|
|
Computer |
|
|
Leasehold |
|
|
Total |
|
| |
|
|
|
|
Use Assets |
|
|
Equipment |
|
|
Improvements |
|
|
|
|
| Cost at March 31, 2023 |
|
5,038,180 |
|
|
145,772 |
|
|
136,759 |
|
|
97,811 |
|
|
5,418,522 |
|
| Additions |
|
99,444 |
|
|
287,943 |
|
|
4,239 |
|
|
- |
|
|
391,626 |
|
| Disposal |
|
- |
|
|
(4,321 |
) |
|
- |
|
|
- |
|
|
(4,321 |
) |
| Cost at March 31, 2024 |
|
5,137,624 |
|
|
429,394 |
|
|
140,998 |
|
|
97,811 |
|
|
5,805,827 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2023 |
|
4,126,796 |
|
|
110,817 |
|
|
108,867 |
|
|
88,118 |
|
|
4,434,598 |
|
| Depreciation |
|
207,718 |
|
|
56,048 |
|
|
8,669 |
|
|
6,842 |
|
|
279,277 |
|
| Disposals |
|
- |
|
|
(4,321 |
) |
|
- |
|
|
- |
|
|
(4,321 |
) |
| Accumulated depreciation at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2024 |
|
4,334,514 |
|
|
162,544 |
|
|
117,536 |
|
|
94,960 |
|
|
4,709,554 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at March 31, 2024 |
|
803,110 |
|
|
266,850 |
|
|
23,462 |
|
|
2,851 |
|
|
1,096,273 |
|
| |
|
Equipment |
|
|
Right-of- |
|
|
Computer |
|
|
Leasehold |
|
|
Total |
|
| |
|
|
|
|
Use Assets |
|
|
Equipment |
|
|
Improvements |
|
|
|
|
| Cost at March 31, 2022 |
|
4,691,304 |
|
|
145,772 |
|
|
128,778 |
|
|
88,644 |
|
|
5,054,498 |
|
| Additions |
|
346,876 |
|
|
- |
|
|
7,981 |
|
|
9,167 |
|
|
364,024 |
|
| Cost at March 31, 2023 |
|
5,038,180 |
|
|
145,772 |
|
|
136,759 |
|
|
97,811 |
|
|
5,418,522 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2022 |
|
3,932,268 |
|
|
81,393 |
|
|
100,194 |
|
|
81,257 |
|
|
4,195,112 |
|
| Depreciation |
|
194,528 |
|
|
29,424 |
|
|
8,673 |
|
|
6,861 |
|
|
239,486 |
|
| Accumulated depreciation at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2023 |
|
4,126,796 |
|
|
110,817 |
|
|
108,867 |
|
|
88,118 |
|
|
4,434,598 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at March 31, 2023 |
|
911,384 |
|
|
34,955 |
|
|
27,892 |
|
|
9,693 |
|
|
983,924 |
|
The Company's Right-of-Use Assets as at March 31, 2024 are comprised of equipment with a net book value of $258,270 (2023 - $634) and office leases with a net book value of $8,580 (2023 - $34,321).
Subsequent to March 31, 2024, the Company purchased the leased equipment for a purchase price of $211,750.
8. Deferred development costs
On July 1, 2019, the Company commenced deferring development costs related to its pea and canola technologies. The Company ceased capitalization of costs and commenced amortization on January 1, 2023. Deferred development costs are amortized over the useful life of 15 years.
| Cost at March 31, 2023 and 2024 |
|
6,322,528 |
|
| |
|
|
|
| Accumulated amortization at March 31, 2023 |
|
526,878 |
|
| Amortization |
|
421,501 |
|
| Accumulated amortization at March 31, 2024 |
|
948,379 |
|
| |
|
|
|
| Net book value at March 31, 2024 |
|
5,374,149 |
|
| |
|
|
|
| Cost at March 31, 2022 and 2023 |
|
6,322,528 |
|
| |
|
|
|
| Accumulated amortization at March 31, 2022 |
|
105,375 |
|
| Amortization |
|
421,503 |
|
| Accumulated amortization at March 31, 2023 |
|
526,878 |
|
| |
|
|
|
| Net book value at March 31, 2023 |
|
5,795,650 |
|
Management did not identify any impairment indicators as at March 31, 2024.
9. Goodwill
At March 31, 2024, the Company had one CGU (2023 - one CGU) and the estimated recoverable amount of the Burcon CGU exceeded the carrying amount, and therefore no impairment charge has been recognized.
10. Leases
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Balance, beginning of year |
|
58,741 |
|
|
73,139 |
|
| Additions |
|
307,931 |
|
|
- |
|
| Interest expense |
|
69,187 |
|
|
86,281 |
|
| Principal and interest payments |
|
(175,014 |
) |
|
(100,679 |
) |
| Balance - end of year |
|
260,845 |
|
|
58,741 |
|
| |
|
|
|
|
|
|
| Current portion |
|
260,845 |
|
|
34,431 |
|
| Non-current portion |
|
- |
|
|
24,310 |
|
| Balance - end of year |
|
260,845 |
|
|
58,741 |
|
Burcon enters into lease agreements related to corporate office and plant equipment.
11. Secured loan
In June 2022, Burcon entered into a loan agreement with Large Scale Investments Limited ("Large Scale"), a wholly-owned subsidiary of Firewood Elite Limited ("Firewood"), for a secured loan (the "Secured Loan") of up to $10 million (the "Loan Amount"). Firewood, a related party of Burcon that has significant influence over the Company, is wholly-owned by Mr. Alan Chan, a director of the Company.
The Secured Loan is available to Burcon in two tranches of $5 million each upon satisfaction of certain conditions with respect to each tranche. The first tranche's closing date was June 22, 2022 and had an initial maturity date of July 1, 2024. On August 2, 2023, Burcon and Large Scale entered into a letter agreement to amend the first tranche maturity date to July 1, 2025. As the debt modification was not considered to be substantial, the revised carrying amount of the loan has been recalculated by discounting the revised estimated future cash flows at the original effective interest rate of 8.70%.
In June 2023, Burcon and Large Scale entered into a letter agreement to amend certain conditions to be satisfied by Burcon for the advance of the second tranche. The Company met these conditions and the second tranche closed on December 17, 2023, with a maturity date of December 17, 2025. The effective interest rate of the second tranche is 10.15%.
The drawn portion of the Loan Amount bears interest at 8% per annum payable on the Maturity Date of each tranche and is secured by all assets of Burcon. Burcon is to pay a commitment fee of 1% of the undrawn amount of the Loan Amount under each tranche on (i) the closing date of such tranche and (ii) each annual anniversary of the closing date of each tranche.
The Secured Loan is recognized net of transaction costs, inclusive of the commitment fee, and issuance costs are accreted over the term to maturity.
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Balance, beginning of year |
|
5,112,381 |
|
|
- |
|
| Draw downs |
|
1,000,000 |
|
|
5,000,000 |
|
| Debt issue costs |
|
(50,000 |
) |
|
(89,650 |
) |
| Interest expense accreted |
|
342,397 |
|
|
202,031 |
|
| Balance, end of year |
|
6,404,778 |
|
|
5,112,381 |
|
12. Shareholders' equity
a) Capital stock
Authorized
Unlimited number of common shares without par value
Holders of common shares are entitled to dividends as declared from time to time and are entitled to one vote per share at the general meeting of the Company.
Private placements
The Company completed a private placement of 12,880,829 units (the "2023 Units") in tranches from May 8, 2023 to May 16, 2023 at a price of $0.265 per 2023 Unit for aggregate gross proceeds to the Company of $3,413,420 and net proceeds of $3,358,237, after total issue costs of $55,183. Each 2023 Unit consisted of one common share of the Company and one common share purchase warrant ("2023 Warrant"). Each 2023 Warrant is exercisable to acquire one common share at an exercise price of $0.35 for a period of 36 months after the applicable closing date of each tranche. Gross proceeds of the private placement have been recorded at $3,181,093 and $232,327 to capital stock and warrants, respectively. As at March 31, 2024, 12,880,829 of the 2023 Warrants were outstanding.
On March 12, 2024, the Company completed a private placement of 20,298,418 units (the "2024 Units") at a price of $0.215 per 2024 Unit for aggregate gross proceeds to the Company of $4,364,160 and net proceeds of $4,290,643 after total issue costs of $73,517. Each 2024 Unit consisted of one common share of the Company and one-half share purchase warrant ("2024 Warrant"). Each whole 2024 Warrant is exercisable to acquire one common share at an exercise price of $0.27 up to March 12, 2026. Gross proceeds of the private placement have been recorded at $4,364,160 and $nil to capital stock and warrants, respectively. As at March 31, 2024, 10,149,208 of the 2024 Warrants were outstanding.
b) Contributed surplus
Contributed surplus comprises the value ascribed to expired warrants and options and forfeited vested options, previously categorized in either warrants or options, as applicable, within shareholders' equity.
c) Options
The Company has a stock option plan in which all directors, officers, employees and consultants of the Company and its subsidiaries are eligible to participate.
As at March 31, 2024, an additional 4,518,962 (2023 - 3,711,071) options may be granted in future years under this plan. Unless otherwise determined by the board of directors, the options have a term of up to 10 years from the date of grant. The vesting terms are determined at the discretion of the board of directors at the time of grant. All grants are recognized using graded vesting, with each vesting tranche being valued separately, and the fair value of each tranche recognized over its respective vesting period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
2024 |
|
|
|
|
|
2023 |
|
| |
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
| |
|
Number of |
|
|
average |
|
|
Number of |
|
|
average |
|
| |
|
options |
|
|
exercise price |
|
|
options |
|
|
exercise price |
|
| |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding - Beginning of year |
|
7,161,803 |
|
|
1.88 |
|
|
5,324,481 |
|
|
2.36 |
|
| Granted |
|
2,901,000 |
|
|
0.19 |
|
|
2,320,000 |
|
|
1.02 |
|
| Forfeited/cancelled |
|
(85,198 |
) |
|
2.21 |
|
|
(266,178 |
) |
|
2.11 |
|
| Expired |
|
(287,674 |
) |
|
2.48 |
|
|
(216,500 |
) |
|
4.16 |
|
| Outstanding - End of year |
|
9,689,931 |
|
|
1.35 |
|
|
7,161,803 |
|
|
1.88 |
|
The following table summarizes information about stock options outstanding and exercisable at March 31, 2024:
| |
|
Options outstanding |
|
|
|
|
|
Options exercisable |
|
| |
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
Weighted |
|
| Range of |
|
|
|
|
average |
|
|
average |
|
|
|
|
|
average |
|
| exercise |
|
Number |
|
|
remaining |
|
|
exercise |
|
|
Number |
|
|
exercise |
|
| prices |
|
outstanding |
|
|
life |
|
|
price |
|
|
exercisable |
|
|
price |
|
| $ |
|
|
|
|
(years) |
|
|
$ |
|
|
|
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.13 - 0.70 |
|
4,874,334 |
|
|
5.26 |
|
|
0.27 |
|
|
2,047,991 |
|
|
0.30 |
|
| 1.00 - 3.00 |
|
3,791,597 |
|
|
4.94 |
|
|
2.00 |
|
|
2,692,252 |
|
|
2.06 |
|
| 4.01 - 4.89 |
|
1,024,000 |
|
|
4.03 |
|
|
4.08 |
|
|
997,666 |
|
|
4.06 |
|
| |
|
9,689,931 |
|
|
5.00 |
|
|
1.35 |
|
|
5,737,909 |
|
|
1.78 |
|
The following table summarizes information about stock options outstanding and exercisable at March 31, 2023:
| |
|
Options outstanding |
|
|
Options exercisable |
|
| |
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
Weighted |
|
| Range of |
|
|
|
|
average |
|
|
average |
|
|
|
|
|
average |
|
| exercise |
|
Number |
|
|
remaining |
|
|
exercise |
|
|
Number |
|
|
exercise |
|
| prices |
|
outstanding |
|
|
life |
|
|
price |
|
|
exercisable |
|
|
price |
|
| $ |
|
|
|
|
(years) |
|
|
$ |
|
|
|
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.23 - 0.69 |
|
1,993,334 |
|
|
6.17 |
|
|
0.39 |
|
|
1,080,334 |
|
|
0.38 |
|
| 1.00 - 3.00 |
|
4,127,803 |
|
|
5.55 |
|
|
2.04 |
|
|
2,821,793 |
|
|
2.16 |
|
| 4.01 - 4.89 |
|
1,040,666 |
|
|
5.07 |
|
|
4.09 |
|
|
773,987 |
|
|
4.05 |
|
| |
|
7,161,803 |
|
|
5.65 |
|
|
1.88 |
|
|
4,676,114 |
|
|
2.06 |
|
The fair value of each option is estimated as at the date of grant using the Black-Scholes option pricing model and the following weighted average assumptions:
|
|
2024
|
2023
|
| |
|
|
|
Exercise price
|
$0.13 - $0.70
|
$0.39 - $3.00
|
|
Share price
|
$0.13 - $0.22
|
$0.39 - $0.41
|
|
Dividend yield
|
0.0%
|
0.0%
|
|
Expected volatility
|
87.6%
|
85.5%
|
|
Risk-free interest rate
|
4.0%
|
3.6%
|
|
Expected forfeitures
|
6.0%
|
6.8%
|
|
Expected average option term (years)
|
4.6
|
5.8
|
The expected volatility and expected forfeitures are based on historical volatility and forfeitures. The risk-free rate of return is the yield on a zero-coupon Canadian treasury bill of a term consistent with the expected average option term. The expected average option term is the average expected period to exercise, based on the historical activity patterns for each individually vesting tranche.
The weighted average fair value of the options granted during the year ended March 31, 2024 was $0.09 (2023 - $0.25) per option.
Included in research and development expenses is $270,832 (2023 - $584,925) (note 13) and in general and administrative expenses (salaries and benefits) is $405,975 (2023 - $553,823) (note 14) of options stock-based compensation.
d) Restricted Share Units ("RSU") Plan
The Company has a RSU plan in which all directors, officers, employees and consultants of the Company and its subsidiaries are eligible to participate. Each RSU is intended to be redeemable for one common share of the Company but, at the election of the Company, may be redeemed for cash in the amount equal to the market value of the Company's shares on vesting date, or a common share acquired by the Company on a public exchange. The RSUs must be redeemed no later than December 31st of the third year after the date of grant. The vesting terms are determined at the discretion of the board of directors at the time of grant. The fair value of the grants is determined on the date of grant and is recognized using graded vesting, with each vesting tranche being valued separately, and the fair value of each tranche recognized over its respective vesting period.
| (number of RSUs) |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Outstanding - beginning of year |
|
409,181 |
|
|
118,000 |
|
| Granted |
|
112,000 |
|
|
307,181 |
|
| Redeemed |
|
(179,100 |
) |
|
(1,844 |
) |
| Forfeited / cancelled |
|
(1,081 |
) |
|
(14,156 |
) |
| Outstanding - end of year |
|
341,000 |
|
|
409,181 |
|
RSUs are measured at fair value based on the closing price of our common shares for the day preceding the date of the grant. The weighted average fair value of RSUs granted during the year ended March 31, 2024 was $0.13 (2023 - $0.43) per RSU.
Included in research and development expenses (salaries and benefits) is $95,862 (2023 - $84,882) (note 13) and in general and administrative expenses (salaries and benefits) is $29,858 (2023 - $33,036) (note 14) of RSU stock-based compensation.
e) Warrants
Refer to Note 12 (a) for warrants issued in connection with private placements.
On March 25, 2024, the Company entered into a one-year consulting agreement with a director of the Company for the provision of financial and strategic advisory services. As compensation for the services, the Company issued 5,000,000 warrants ("Consultant Warrants"). Each Consultant Warrant is exercisable to acquire one common share at an exercise price of $0.27 up to June 25, 2026. Vesting of the Consultant Warrants are subject to shareholder approval, which will be sought at the Company's annual general meeting expected to be held in September 2024. If shareholder approval is not obtained, the Warrants will expire and the Company will pay a cash fee of $450,000. The Consultant Warrants are measured at a fair value of $0.09 per Consultant Warrant, which was determined from the fair value of the services to be received.
The fair value of the Consultant Warrants is amortized on a straight-line basis over the contracted term. Included in general and administrative expenses (professional fees) is $8,630 (2023 - $nil) (note 14) of stock-based compensation from the Consultant Warrants.
13. Research and development
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Salaries and benefits (note 12) |
|
1,918,967 |
|
|
2,243,802 |
|
| Intellectual property |
|
598,722 |
|
|
1,011,254 |
|
| Amortization of deferred development costs |
|
421,501 |
|
|
421,503 |
|
| Laboratory operation |
|
360,568 |
|
|
390,328 |
|
| Analyses and testing |
|
337,644 |
|
|
103,071 |
|
| Depreciation of property and equipment |
|
251,631 |
|
|
208,746 |
|
| Rent |
|
117,544 |
|
|
178,645 |
|
| Travel and meals |
|
26,028 |
|
|
15,901 |
|
| |
|
4,032,605 |
|
|
4,573,250 |
|
| Government assistance (notes 4 and 18) |
|
(453,848 |
) |
|
(448,101 |
) |
| Research and development expenses |
|
3,578,757 |
|
|
4,125,149 |
|
14. General and administrative
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Salaries and benefits (note 12) |
|
2,070,890 |
|
|
2,205,624 |
|
| Professional fees |
|
993,562 |
|
|
613,489 |
|
| Office supplies and services |
|
254,648 |
|
|
415,209 |
|
| Travel and meals |
|
125,367 |
|
|
94,762 |
|
| Investor relations |
|
114,128 |
|
|
350,566 |
|
| Depreciation |
|
30,051 |
|
|
30,741 |
|
| Transfer agent and filing fees |
|
27,838 |
|
|
48,443 |
|
| Other |
|
12,199 |
|
|
4,469 |
|
| Financing expense |
|
- |
|
|
731 |
|
| |
|
3,628,683 |
|
|
3,764,034 |
|
| Government assistance (note 4) |
|
(4,106 |
) |
|
- |
|
| General and administrative expenses |
|
3,624,577 |
|
|
3,764,034 |
|
15. Basic and diluted loss per share
The following table sets forth the computation of basic and diluted loss per share:
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Loss for the year, being loss attributable to common shareholders - basic and diluted |
|
(7,446,193 |
) |
|
(25,364,250 |
) |
| |
|
|
|
|
|
|
| |
|
Shares |
|
|
Shares |
|
| |
|
|
|
|
|
|
| Weighted average common shares - basic and diluted |
|
121,398,318 |
|
|
108,728,742 |
|
| |
|
|
|
|
|
|
| Basic and diluted loss per share |
|
(0.06 |
) |
|
(0.23 |
) |
For the years ended March 31, 2024 and 2023, the Company excluded all potential common share equivalents from the diluted loss per share calculation as they were anti-dilutive.
16. Related party transactions
Burcon had a services agreement (the "Services Agreement") with Merit Foods to provide technical, administrative and general management services, research and analytical services and sample production services based on rates set out in the Services Agreement. For the year ended March 31, 2024, included in interest and other income are $nil (2023 - $44,402) for services provided by Burcon to Merit Foods.
Merit Foods also provided certain consulting services to Burcon. For the year ended March 31, 2024, included in professional fees are $nil (2023 - $19,145) for services provided by Merit Foods to Burcon.
In connection with the private placement that closed in March 2024 (note 12 (a)), certain directors, officers and employees of the Company subscribed to 4,461,194 of the 2024 Units for a gross purchase price of $959,157.
Refer to note 11 for disclosure of loan agreement with a related party. Refer to note 12(e) for disclosure of warrants issued to a related party.
17. Key management compensation
Key management personnel ("KMP") are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. KMP includes the Company's CEO, CFO and directors. Remuneration of KMP comprises:
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Short-term benefits |
|
979,803 |
|
|
729,168 |
|
| Option-based awards |
|
270,507 |
|
|
301,345 |
|
| |
|
1,250,310 |
|
|
1,030,513 |
|
Short-term benefits comprise salaries, director fees and employment benefits.
Option-based awards represent the cost of the group of KMP's participation in the incentive stock option plan. The costs are measured by the fair value of instruments granted, accounted for in accordance with IFRS Accounting Standards 2, Share-based Payment. For details of these plans refer to note 12 (c) to these consolidated financial statements.
18. Income taxes
The recovery of income taxes differs from the amount obtained by applying the statutory Canadian federal and provincial income tax rates to loss for the years as follows:
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Recovery of income taxes based on the combined statutory income tax rate of 27.0% (2023 - 27.0%) |
|
(2,010,000 |
) |
|
(6,848,000 |
) |
| Changes in unrecognized deferred tax assets |
|
1,706,000 |
|
|
1,692,000 |
|
| Deconsolidation of Burcon Holdings |
|
- |
|
|
4,619,000 |
|
| Non-deductible items and tax adjustments |
|
304,000 |
|
|
537,000 |
|
| Recovery of income taxes |
|
- |
|
|
- |
|
As at March 31, 2024 the Company has non-capital losses of approximately $81,012,000 (2023 - $75,771,000) available to reduce taxable income in future years. These losses expire between 2026 and 2044.
In addition, the Company has SR&ED expenditures of approximately $16,434,000 available to carry forward indefinitely. ITCs of $4,613,000 may be used to offset deferred income taxes otherwise payable and expiring between 2024 and 2044. For the year ended March 31, 2024, included as an offset in research and development expenses is $77,800 (2023 - $57,400) of refundable ITCs, of which $77,800 is included in amounts receivable at March 31, 2024 (2023 - $43,262).
The tax effects of temporary differences that give rise to deferred income tax assets are as follows:
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Deferred income tax assets (liability) |
|
|
|
|
|
|
| SR&ED expenditures |
|
4,425,000 |
|
|
4,247,000 |
|
| Losses from operations carried forward |
|
21,872,000 |
|
|
20,457,000 |
|
| Deferred development costs |
|
(1,233,000 |
) |
|
(1,347,000 |
) |
| Financing costs |
|
49,000 |
|
|
106,000 |
|
| Property and equipment |
|
428,000 |
|
|
363,000 |
|
| Right-of-Use assets/liability |
|
(2,000 |
) |
|
7,000 |
|
| Unrecognized deferred income tax assets |
|
25,539,000 |
|
|
23,833,000 |
|
Management believes the realization of income tax benefits related to these losses and other potential deferred income tax assets is uncertain at this time and cannot be viewed as probable. Accordingly, the Company has not recognized these deferred income tax assets.
19. Financial instruments Credit risk
Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss being incurred by the Company. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, amounts receivable, and loans receivable.
The Company's cash may comprise interest-bearing savings instruments with Canadian chartered banks. The Company limits its exposure to credit loss by placing its cash with two Canadian chartered banks.
The carrying amounts of financial assets represent the maximum credit exposure.
The Company's exposure to credit risk is influenced mainly by the individual characteristics of its customers. The Company's loans receivable from Merit Foods are considered credit-impaired following Merit Foods being placed in receivership on March 1, 2023, resulting in impairment of amounts receivable attributable to Merit Foods and loans to Merit Foods.
The remaining amounts receivable consist of PIC reimbursements. These are government-funded expenses based on contracts and carry minimal credit risk.
Expected credit loss on financial assets recognized in statements of operations and comprehensive loss were as follows:
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Expected credit loss on amounts receivable arising from contracts with customers |
|
100,000 |
|
|
178,000 |
|
| Expected credit losses on loans receivable |
|
- |
|
|
4,358,630 |
|
| |
|
100,000 |
|
|
4,536,630 |
|
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows of a financial instrument will fluctuate because of changes in market interest rates. All of the Company's financial instruments are non-interest bearing except for cash that earn interest at variable market rates and the secured loan at a fixed rate. The Company is not subject to interest rate risk on its secured loan with Large Scale as the loan is on a fixed rate basis. Burcon's cash is held at two Canadian chartered banks to maximize interest and to diversify risk. For the year ended March 31, 2024, the weighted average interest rate earned on the Company's cash was 4.33% per annum (2023 - 2.49% per annum). The impact of a 1% strengthening or weakening of interest rates on the Company's cash at March 31, 2024 is estimated to be a $39,000 (2023 - $15,000) increase or decrease in interest income per year.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company manages liquidity risk through the management of its capital structure (note 20). It also manages liquidity risk by monitoring actual and forecasted cash flows taking into account current and planned operations.
The contractual cash flows of Secured Loan include accrued interest expense payable.
| |
|
Carrying |
|
|
Contractual |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| March 31, 2024 |
|
amount |
|
|
cash flows |
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
843,449 |
|
|
843,449 |
|
|
843,449 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
260,845 |
|
|
273,093 |
|
|
273,093 |
|
|
- |
|
|
- |
|
| Secured Loan |
|
6,404,778 |
|
|
6,573,370 |
|
|
- |
|
|
6,573,370 |
|
|
- |
|
| |
|
7,509,072 |
|
|
7,689,912 |
|
|
1,116,542 |
|
|
6,573,370 |
|
|
- |
|
| |
|
Carrying |
|
|
Contractual |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| March 31, 2023 |
|
amount |
|
|
cash flows |
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
590,936 |
|
|
590,936 |
|
|
590,936 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
58,741 |
|
|
129,469 |
|
|
97,881 |
|
|
31,588 |
|
|
- |
|
| Secured Loan |
|
5,112,381 |
|
|
5,154,959 |
|
|
- |
|
|
5,154,959 |
|
|
- |
|
| |
|
5,762,058 |
|
|
5,875,364 |
|
|
688,817 |
|
|
5,186,547 |
|
|
- |
|
Fair value
The fair value of the Company's short-term financial assets and financial liabilities, including cash, amounts receivable, accounts payable and accrued liabilities approximates their carrying values due to the short-term maturities of these financial instruments.
The fair value of the investment in Burcon Holdings is a level 3 fair value and was estimated based on expectation of recoverability of the asset, operations or earnings in the future (refer to note 5).
The carrying values and fair values of financial instruments, by class, are as follows as at March 31, 2024 and 2023:
| |
|
At fair value |
|
|
Financial |
|
|
Financial |
|
|
Fair value |
|
| |
|
through profit |
|
|
assets at |
|
|
liabilities at |
|
|
|
|
| |
|
or loss |
|
|
amortized |
|
|
amortized |
|
|
|
|
| As at March 31, 2024 |
|
|
|
|
cost |
|
|
cost |
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
4,197,141 |
|
|
- |
|
|
4,197,141 |
|
| Amounts receivable |
|
- |
|
|
465,330 |
|
|
- |
|
|
465,330 |
|
| Investment in Burcon Holdings (note 5) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| |
|
- |
|
|
4,662,471 |
|
|
- |
|
|
4, 662,471 |
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
843,449 |
|
|
843,449 |
|
| Secured loan |
|
- |
|
|
- |
|
|
6,404,778 |
|
|
6,404,778 |
|
| |
|
- |
|
|
- |
|
|
7,248,227 |
|
|
7,248,227 |
|
| |
|
At fair value |
|
|
Financial |
|
|
Financial |
|
|
Fair value |
|
| |
|
through profit |
|
|
assets at |
|
|
liabilities |
|
|
|
|
| |
|
or loss |
|
|
amortized |
|
|
at |
|
|
|
|
| |
|
|
|
|
cost |
|
|
amortized |
|
|
|
|
| At as March 31, 2023 |
|
|
|
|
|
|
|
cost |
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
1,456,845 |
|
|
- |
|
|
1,456,845 |
|
| Amounts receivable |
|
- |
|
|
332,118 |
|
|
- |
|
|
332,118 |
|
| Investment in Burcon Holdings (note 5) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| |
|
- |
|
|
1,788,963 |
|
|
- |
|
|
1,788,963 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
590,936 |
|
|
590,936 |
|
| Secured loan |
|
- |
|
|
- |
|
|
5,112,381 |
|
|
5,112,381 |
|
| |
|
- |
|
|
- |
|
|
5,703,317 |
|
|
5,703,317 |
|
Currency risk
The Company has not hedged its exposure to currency fluctuations. As at March 31, 2024 and 2023, the Company is exposed to currency risk through the following assets and liabilities denominated in U.S. dollars:
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2024 |
|
|
2023 |
|
| U.S. Dollars |
|
|
|
|
|
|
| Cash |
|
1,563,470 |
|
|
101,127 |
|
| Accounts payable and accrued liabilities |
|
(60,568 |
) |
|
(24,402 |
) |
| Net exposure |
|
1,502,902 |
|
|
76,725 |
|
| Canadian dollar equivalent |
|
2,036,432 |
|
|
103,833 |
|
Based on the above net exposure at March 31, 2024, a 10% appreciation or depreciation of the U.S. dollar against the Canadian dollar would have resulted in a decrease/increase of approximately $204,000 (2023 - $8,000) in the Company's loss from operations.
20. Capital disclosures
The Company considers its capital to be its shareholders' equity.
The Company manages its capital structure to have sufficient resources available to meet day-to-day operating requirements, continue as a going concern and fund its research and development program. The Company is dependent on non-operating sources of cash, primarily from issuing equity and debt, to fund its operations and research development programs. The Company monitors its capital and the expected cash flows required to achieve its business objectives to determine its future financing needs. It seeks additional capital when deemed appropriate, but there is no assurance that it will be able to secure the necessary capital when required.
The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the years ended March 31, 2024 and March 31, 2023.
21. Segment information
The Company operates in a single reportable operating segment and geographic location involving the development of plant-based proteins. All non-current assets are located in and all revenues are generated in Canada.
(All amounts following are expressed in Canadian dollars unless otherwise indicated.)
This Management's Discussion and Analysis ("MD&A") has been prepared as at June 26, 2024 to provide a meaningful understanding of Burcon NutraScience Corporation's ("Burcon" or the "Company") operations, performance, and financial condition for the year ended March 31, 2024. The following information should be read in conjunction with the Company's audited consolidated financial statements and related notes, which have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). We have prepared this MD&A with reference to National Instrument 51-102 "Continuous Disclosure Obligation" or the Canadian Securities Administrators. Additional information relating to Burcon, including the Company's Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This MD&A contains certain "forward-looking statements" and "forward-looking information" as defined under applicable Canadian and U.S. securities laws (collectively, "forward-looking statements"), which may include, but are not limited to, statements with respect to possible events, conditions, acquisitions, or results of operations that are based on assumptions about future conditions and courses of action and include future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection, and also include, but are not limited to, statements with respect to the future financial and operating performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. When used in this MD&A the words "estimate", "budget", "project", "believe", "anticipate", "intend", "expect", "plan", "projects", "predict", "may", "should", "will", or the negatives of these words or other variations thereof and comparable terminology or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved are intended to identify forward-looking statements. The forward-looking statements pertain to, among other things:
- continued development of the Company's products and business;
- the Company's growth strategy;
- The Company's strategies for commercialization of its products;
- production costs and pricing of its plant proteins;
- marketing strategies for the Company's plant proteins;
- development of commercial applications for its plant proteins;
- ability to produce proteins and protein isolates in commercial quantities with sufficient grade and quality at cost-effective prices;
- ability to produce proteins and protein isolates at a cost level which will make them competitive with animal proteins;
- construction, commissioning and operation of production facilities;
- future protection of intellectual property and improvements to existing processes and products;
- input and other costs; and
- liquidity and working capital.
The forward-looking statements are based on a number of key expectations and assumptions made by management of the Company, including, but not limited to:
- the Company's ability to identify a suitable joint venture partner for its protein extraction and purification strategies;
- the Company's ability to execute its strategic and business strategies;
- the Company's and its potential partners' ability to construct, commission and operate its production facility;
- the Company's ability to contract with partner manufacturers to produce its plant proteins;
- the Company's or its potential licensing partners' ability to generate new sales;
- the Company's or its potential licensing partners' ability to produce, deliver and sell the expected product volumes at the expected prices;
- the Company's ability to obtain required regulatory approvals;
- the Company's ability to control costs;
- the Company's ability to obtain and maintain intellectual property rights and trade secret protection;
- market acceptance and demand for the Company's or its potential licensing partners' products;
- the successful execution of the Company's business plan;
- achievement of current timetables for product development programs and sales;
- the availability and cost of labour and supplies;
- the availability of additional capital; and
- general economic and financial market conditions.
Although the Company believes that the factors and assumptions used to develop the forward-looking statements are reasonable, undue reliance should not be placed on such forward-looking statements. The forward-looking statements reflect the Company's current views with respect to future events based on currently available information and are inherently subject to risks and uncertainties. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this MD&A, including, but not limited to:
- the condition of the global economy;
- market acceptance of the Company's products;
- availability of input materials;
- changes in input materials and product pricing;
- changes in the Company's customers' requirements, the competitive environment and related market conditions;
- delays in the construction, commissioning and operation of production facilities;
- product development delays;
- changes in the availability or price of labour and supplies;
- the Company's ability to attract and retain business partners, suppliers, employees and customers;
- changing food or feed ingredient industry regulations;
- the Company's access to funding and its ability to provide the capital required for product development, operations and marketing efforts, and working capital requirements; and
- the Company's ability to protect its intellectual property;
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in assumptions or the occurrence of anticipated or unanticipated events, except as required by law.
The Company qualifies all the forward-looking statements contained in this MD&A by the foregoing cautionary statements.
GOING CONCERN
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes that Burcon NutraScience Corporation ("Burcon" or the "Company") will continue its operations and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations for the foreseeable future. In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.
The Company has incurred losses since its inception and as at March 31, 2024, had an accumulated deficit of $142.0 million (March 31, 2023 - $134.6 million). During the year ended March 31, 2024, the Company incurred a net loss of $7.4 million (2023 - $25.4 million) and had negative cash flow from operations of $5.8 million (2023 - $6.0 million).
The Company began commercial production of its hemp protein isolate in the year ended March 31, 2024, and subsequent to March 31, 2024, the Company generated revenue from the sale of the hemp protein isolate and from the provision of contract research services. The Company has not earned significant revenues from its technology licensing.
The Company's ability to continue as a going concern is dependent upon the Company's ability to successfully commercialize its technology and scale production and to raise additional capital to fund its planned commercialization activities and research and development activities. The Company has historically relied on equity and debt financings to fund its operations. While the Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities, there can be no assurance that additional financing may be available on acceptable terms, if at all. If Burcon is unable to raise additional funds when it needs them, it may be required to delay, reduce or eliminate some or all of its commercialization efforts or research and development programs. Therefore, these conditions result in material uncertainties that may cast significant doubt over the Company's ability to continue as a going concern.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities in the normal course. These consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities and adjustments to revenues and expenses that would be necessary if the Company was unable to continue as a going concern and such adjustments could be material.
OVERVIEW OF THE COMPANY AND ITS BUSINESS
Burcon is a global technology leader in the development of plant-based proteins, having developed an extensive portfolio of composition, application, and process patents covering novel plant-based proteins derived from pea, canola, soy, hemp, sunflower seed and more. Our environmentally friendly and sustainable technologies have been developed at our own research facility led by our team of highly specialized scientists and engineers. Our patent portfolio currently consists of 129 issued patents worldwide, including 61 issued U.S. patents, and in excess of 80 additional patent applications, 13 of which are U.S. patent applications.
MERIT FUNCTIONAL FOODS CORPORATION
Burcon has a 100% interest in Burcon NutraScience Holdings Corporation ("Burcon Holdings"), which was incorporated in 2019 to hold Burcon's interest in Merit Functional Foods Corporation ("Merit Foods"). Burcon Holdings' current ownership interest in Merit Foods is 31.6%.
Up to March 1, 2023 when Merit Foods was placed in receivership (see below), the business of Merit Foods was the production, sales, marketing and distribution of Burcon's pulse protein ingredients, including Peazazz® and Peazac® pea proteins and Burcon's canola proteins, Supertein®, Puratein® and Nutratein® (collectively the "Products").
Under the amended license and production agreement (the "Amended License Agreement'), Merit Foods had the exclusive rights over Burcon's pulse proteins and canola protein technologies across all geographic regions and all product uses. Burcon received running royalties on the net revenue (as defined in the Amended License Agreement) from the sales of the Products by Merit Foods. In order to retain its exclusive license, Merit Foods was required to meet certain commercialization obligations by certain deadlines under the Amended License Agreement, failing which Burcon could exercise its option to convert the Merit license to a non-exclusive license. Burcon has exercised its option to convert the license and therefore, Burcon will be entitled to make, have made, use, market and sell the Products on a non-exclusive basis and to grant any such rights to any other person.
On March 1, 2023, a court order (the "Order") was granted under the Business and Insolvency Act to appoint a receiver (the "Receiver") of all of the assets, undertakings and properties of Merit Foods. Pursuant to the Order, the Receiver was authorized to sell all of the assets, undertakings and properties of Merit Foods (the "Property"), including protein products that were produced under the Amended License Agreement, and set out in a sales process for the Property.
Burcon Holdings made loan advances (the "Merit Promissory Notes") in the aggregate of $17.1 million to Merit Foods, which were non-interest bearing, unsecured, subordinated to Merit Foods' other secured and unsecured debts, and had a term of 15 years. Notional interest was accruing on the loan receivable at 11% per annum, which was considered to be the market rate of interest. For the year ended March 31, 2024, Burcon recorded interest accretion of $nil (2023 - $335,641). Due to Merit Foods being placed in receivership on March 1, 2023, the loans to Merit Foods were considered to be credit-impaired. During the year ended March 31, 2024, Burcon recorded a write-off of its loan to Merit Foods of $nil (2023 - $4,358,630).
Merit Foods incurred cumulative operating losses and negative operating cash flows that adversely impacted its financial situation and liquidity position. During the year ended March 31, 2023, Merit Foods was placed into receivership and management concluded there was objective evidence of impairment related to its investment in Merit Foods. During the year ended March 31, 2024, Burcon recorded a write-off of its investment in Merit Foods of $nil (2023 - $7,987,304).
As of March 31, 2024 and 2023, the carrying value of the investment in and loans to Merit Foods comprised of:
|
|
Investment in
share capital
|
|
|
Capital
contribution
|
|
|
Loans
receivable
|
|
|
Total net
investment
|
|
| Net investment in Merit Foods, March 31, 2022 |
|
1 |
|
|
10,174,566 |
|
|
3,228,207 |
|
|
13,402,774 |
|
| Activities during the year ended March 31, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
| Share of loss in Merit Foods |
|
- |
|
|
(5,499,906 |
) |
|
- |
|
|
(5,499,906 |
) |
| Loan advances |
|
- |
|
|
3,312,643 |
|
|
794,782 |
|
|
4,107,425 |
|
| Write-off of investment |
|
(1 |
) |
|
(7,987,303 |
) |
|
- |
|
|
(7,987,304 |
) |
| Interest accretion |
|
- |
|
|
- |
|
|
335,641 |
|
|
335,641 |
|
| Write-off of loan receivable |
|
- |
|
|
- |
|
|
(4,358,630 |
) |
|
(4,358,630 |
) |
| Net investment in Merit Foods, March 31, 2023 and March 31, 2024 |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
During the year ended March 31, 2024, Burcon recorded royalty income of $184,359 from the Receiver's sale of Products (2023 - $363,913 from Merit Foods' sales of Products) and recorded a loss allowance for royalty receivable from Merit Foods of $100,000 (2023 - $167,692) in interest and other expense. At March 31, 2024, $nil was included in amounts receivable (2023 - $100,000).
Summary financial position and financial results for Merit Foods
| |
|
Year ended
March 31, 2024 |
|
|
Year ended
March 31, 2023 |
|
| |
|
$ |
|
|
$ |
|
| Total revenue |
|
N/A |
|
|
7,718,720 |
|
| Loss for the year |
|
N/A |
|
|
(17,404,766 |
) |
No additional financial information was available to Burcon subsequent to December 31, 2022 as a result of Merit Foods being placed into receivership on March 1, 2023. The above reported financial results for the year ended March 31, 2023 include only the nine month period ended December 31, 2022. There was no available information regarding Merit Foods financial position as at March 31, 2024 or 2023.
At the date that Merit Foods was placed into receivership, Merit Foods had a total outstanding loan facilities of $95 million from a syndicate of lenders including Export Development Canada ("EDC"), Farm Credit Canada ("FCC"), and the Canadian Imperial Bank of Commerce ("CIBC"). All shareholders of Merit Foods pledged their shares in Merit Foods as security under the loan facilities from EDC and FCC. The Merit Promissory Notes were postponed, assigned and pledged to EDC and FCC. In addition, all shareholders of Merit Foods have provided guarantees for the indebtedness to EDC and FCC, which are joint and several. Burcon Holdings' guarantees provided to EDC and FCC are unlimited. Interest continues to accrue on the loans from EDC and FCC during the receivership process. Since the date Merit Foods was placed in receivership, Burcon Holdings has not received communication from EDC and FCC with respect to the EDC/FCC Guarantees.
In April 2020, Burcon Holdings and the other partners in Merit Foods provided guarantees in the aggregate amount of $1.25 million to CIBC (the "CIBC Guarantee"), of which Burcon Holdings' proportionate share as at March 31, 2024 was $416,625. On February 24, 2023, Burcon Holdings received a letter from CIBC for its guarantee amount of the CIBC Guarantee. During the year ended March 31, 2024, CIBC was repaid in full by the Receiver.
Merit Foods had also received additional debt financing of $10 million in the form of a 10-year interest-free loan from Agriculture and Agri-Food Canada (the "AIP Loan"). Burcon Holdings and the Partners provided a guarantee for the AIP Loan (the "AIP Guarantee"). The obligations of the AIP Guarantee are joint and several. However, Burcon Holdings and the Partners (the "AIP Guarantors") entered into a reciprocal indemnity agreement (the "Indemnity Agreement'). Under the Indemnity Agreement, if any AIP Guarantor (each, a "Paying Guarantor") is required to make payment under the AIP Guarantee and any other AIP Guarantor (each, a "Contributing Guarantor") has not made a corresponding payment equal to its share based on its shareholdings in Merit Foods ("Contributive Share"), such Contributing Guarantor(s) shall pay the Paying Guarantor such amounts so that, after payment, all obligations and liabilities under the AIP Guarantee will have been borne by the AIP Guarantors in their original respective shareholding percentage in Merit Foods. Since the date Merit Foods was placed in receivership, Burcon Holdings has not received any communication from AIP with respect to the AIP Guarantee.
As at March 31, 2024, Burcon Holdings' total exposure from principal amounts of guarantees provided to EDC, FCC, AIP and CIBC is up to $101.0 million (2023 - $99.4 million).
Deconsolidation of Burcon Holdings
Burcon Holdings' sole asset and activity were the investment in and loans to Merit Foods and therefore considered a single asset entity. Effective upon Merit Foods being placed in receivership on March 1, 2023, the remaining relevant activities of Burcon Holdings are considered to be winding up and termination procedures to minimize losses to the Company. However, due to the pledge and assignments agreements in place, as disclosed above, the winding up and termination procedures of Burcon Holdings would not provide any returns. Moreover, the Company does not have any obligations nor any expectation to fund Burcon Holdings, which limits the Company's exposure to losses. Further, the activities of Merit Foods are now primarily executed to ensure that the lenders will maximize the recovery of their investment, and the equity holders of Merit Foods have no prospect of returns due to the significant amount of debt liabilities. The Company is not able to use its power over Burcon Holdings to impact returns as it relates to Merit Foods and has no expectation that Burcon Holdings will generate new activities that will allow it to return to profitable operations. Accordingly, the Company determined that it had lost control of Burcon Holdings. There is no recourse to the Company of Burcon Holdings' obligations, including the guarantees Burcon Holdings provided to EDC, FCC, AIP and CIBC. Accordingly, on March 1, 2023, the Company derecognized the assets and liabilities of Burcon Holdings.
No gain or loss was recorded as a result of the deconsolidation of Burcon Holdings.
Due to the loss of control of Burcon Holdings, the Company's interest in this subsidiary is accounted for as a financial asset after deconsolidation with a fair value of $nil, because there is no expectation of recoverability of the asset, operations or earnings in the future.
WINNIPEG TECHNICAL CENTRE ("WTC")
During the year ended March 31, 2024, the WTC focused primarily on further development of its novel processes, including sunflower protein and hemp protein isolates.
In May 2023, Burcon announced that it has successfully completed end-to-end validation trials of its novel sunflower protein processes that were developed during fiscal 2023, using commercial-scale equipment at the WTC. Burcon has validated that its sunflower protein process is ready for commercial scale up. During fiscal 2024, Burcon entered into a number of material transfer agreements with potential customers and has received positive feedback. Burcon continues to explore potential opportunities to commercialize its sunflower protein process.
Also in May 2023, Burcon announced that it will be expanding its protein development and innovation business by offering pilot plant processing and scale-up validation as a service for third parties. Burcon's WTC comprises 10,000 square feet of lab and pilot-scale production area utilizing state-of-the-art commercial processing equipment for start-to-finish product development. Manufacturers looking to upcycle by-products, develop end-to-end processes or to validate and scale-up a process can leverage the Company's infrastructure and food processing expertise. As of the date of this MD&A, Burcon has completed contract research services for an industry peer and continues to engage in discussions with other parties to provide contract services.
STRATEGIC PARTNERSHIPS AND COLLABORATIONS
Burcon continued with its discussions and negotiations with potential partners on additional plant-based protein opportunities. As part of Burcon's strategy to get closer to customers and end markets and to have greater control over the manufacture of Burcon's proteins, the Company is evaluating and pursuing multiple routes-to-market. Concurrent with partnership discussions, Burcon is exploring additional routes-to-market with the goal of reducing time required to achieve commercial production and sales.
HEMPSEED PROTEIN ISOLATE AND COLLABORATION
In July 2023, Burcon announced that it has partnered with HPS Food and Ingredients Inc. ("HPS"), a global leader in hempseed-based food ingredients, to explore the commercialization of Burcon's hempseed protein isolate. Burcon's novel hempseed protein isolate contains 95% protein, has a neutral flavour profile, exhibits an off-white colour, and disperse well when mixed in solution. These functional attributes are expected to enable the hempseed protein isolate to formulate well in various applications, including beverages, snacks, bars, baked goods, plant-based dairy and meat alternatives. In addition, Burcon's hempseed protein isolate technology uses hempseed grown and processed in North America, which is known for its minimal environmental footprint, its role in promoting soil health and regenerative agriculture.
The goal of the collaboration is to capitalize on the hempseed protein market trend and deliver plant-based protein solutions to customers worldwide. Through this partnership, Burcon and HPS aim to leverage their combined expertise to accelerate market adoption of Burcon's hempseed protein isolate ("Hemp Product").
After completion of certain market development work and due diligence, Burcon and HPS launched the novel Hemp Product at the Institute of Food Technologies 2023 Annual Meeting and Exposition held in Chicago, IL in July 2023. Thereafter, Burcon and HPS further showcased the Hemp Product at various tradeshows, including Natural Products Expo East in Philadelphia, PA, SupplySide West in Las Vegas, NV, Natural Products Expo West in Anaheim, CA and SupplySide East in Secaucus, NJ.
Burcon and HPS have received extensive positive feedback and requests for product samples from potential customers. Burcon and HPS have been working with the potential customers in providing samples, comprehensive product data including nutritional information, specifications and application concept sheets and collaborating to develop consumer food applications.
In December 2023, Burcon announced that it had entered into a production agreement with its partner manufacturer to bring the Hemp Product to market. Burcon combined its proprietary equipment with existing infrastructure and manufacturing capabilities of its contract partner to commercially produce the Hemp Products.
In March 2024, Burcon announced that it has successfully completed end-to-end validation trials and the start of commercial-scale production for the world's first high purity 95% Hemp Product. In May 2024, Burcon achieved its first commercial sale of its 95% Hemp Product.
CANOLA PROTEIN LAUNCH
During fiscal 2024, Burcon received interest from potential customers for its canola proteins. Subsequent to March 31, 2024, the Company announced the launch of its high-purity, nutritionally complete canola protein, derived from non-GMO, Canadian-grown canola seeds. With over 90% protein purity, a neutral flavour, high solubility across a broad pH range and other functionality attributes, this protein is expected to allow food ingredient companies to create a wide range of innovative, nutritious, sustainable and great-tasting food and beverage products. The Company expects to begin commercial production and sales in the latter half of fiscal 2025.
OTCQB LISTING
On May 8, 2024, Burcon's common shares began trading in the US on the OTCQB Venture Market, under the symbol "BRCNF".
PRIVATE PLACEMENTS
Burcon completed a private placement of 12,880,829 units (the "2023 Units") from May 8, 2023 to May 16, 2023 at a price of $0.265 per 2023 Unit for gross proceeds of $3,413,420 and net proceeds of $3,358,237, after issue costs of $55,183.
Each 2023 Unit consisted of one common share and one share purchase warrant ("2023 Warrant"). Each 2023 Warrant is exercisable at $0.35 for one common share for a period of 36 months from the applicable closing date of each tranche. As at March 31, 2024 and the date of this MD&A, 12,880,829 of the 2023 Warrants were outstanding.
Gross proceeds of the May 2023 private placement have been recorded at $3,181,093 and $232,327 to capital stock and warrants, respectively.
On March 12, 2024, Burcon completed a private placement of 20,298,418 units (the "2024 Units") at a price of $0.215 per 2024 Unit for gross proceeds of $4,364,160 and net proceeds of $4,290,643, after issue costs of $73,517.
Each 2024 Unit consisted of one common share and one-half share purchase warrant ("2024 Warrant"). Each whole 2024 Warrant is exercisable at $0.27 to acquire one common share up to March 12, 2026. As at March 31, 2024 and the date of this MD&A, 10,149,208 2024 of the 2024 Warrants were outstanding.
Gross proceeds of the March 2024 private placement have been recorded at $4,364,160 and $nil to capital stock and warrants, respectively.
The Company is using the proceeds from the May 2023 and March 2024 private placements to accelerate its commercial plans to meet customer demand for its protein products, accelerate launch plans for its protein products, fund activities associated with the production and sale of its hemp proteins, fund activities associated with efforts to identify a strategic partner for the commercialization of Burcon's other proteins, including sunflower, further develop Burcon's protein extraction and purification technologies and pursue new related products, fund Burcon's patent activities, and to fund general working capital.
PROTEIN INDUSTRIES CANADA
Protein Industries Canada ("PIC") is an industry-led, not-for-profit organization committed to positioning Canada as a global source of high-quality plant protein ingredients. It is one of Canada's five innovation superclusters, which are government-initiated efforts to boost Canada's job market, GDP, research and innovations.
In March 2024, Burcon announced it has entered into a collaborative agreement with PIC for the scale-up and commercialization of hempseed and sunflower seed protein. In collaboration with HPS and Puratos Canada, a manufacturer and supplier of bakery ingredients, Burcon will lead the commercialization efforts for its high purity hempseed and sunflower seed protein ingredients.
In March 2022, Burcon entered into a collaborative agreement with PIC for the development of high-quality protein ingredients from sunflower seeds. Burcon partnered with Pristine Gourmet, a processor of 100% pure Canadian non-GMO cold pressed virgin oils, to develop Burcon's novel process for the production of sunflower protein ingredients. Premium sunflower protein isolate that contains greater than 90% protein purity, with exceptional taste and functionality, has the potential of setting a new benchmark in the growing plant-based ingredients market. The project's objective was to fine-tune and scale up an economical extraction and isolation process from the by-product (pressed cake) of sunflower oil production. This project was completed on March 31, 2023.
During the year ended March 31, 2024, Burcon recorded PIC grants of $457,118 (2023 - $453,239) as government assistance against research and development expenses, general and administrative expenses, inventory and property and equipment, of which $457,118 is included in amounts receivable as at March 31, 2024 (March 31, 2023 - $169,648). On March 27, 2024, Burcon received an advance payment of $250,000 in respect of eligible expenses to be incurred in subsequent periods, all of which was included in deferred government assistance as at March 31, 2024 (March 31, 2023 - $nil).
Subsequent to March 31, 2024, Burcon received payment of $457,118 from PIC in respect of amounts outstanding at March 31, 2024.
SECURED LOAN
In June 2022, Burcon entered into a loan agreement with Large Scale Investments Limited ("Large Scale"), a wholly owned subsidiary of Firewood Elite Limited ("Firewood"), for a secured loan (the "Secured Loan") of up to $10 million (the "Loan Amount"). Firewood, a related party of Burcon that has significant influence over the Company, is wholly owned by Mr. Alan Chan, a director of the Company.
The Secured Loan is available to Burcon in two tranches of $5 million each upon satisfaction of certain conditions with respect to each tranche. The first tranche's closing date was June 22, 2022 and had an initial maturity date of July 1, 2024. On August 2, 2023, Burcon and Large Scale entered into a letter agreement to amend the first tranche maturity date to July 1, 2025. As the debt modification was not considered to be substantial, the revised carrying amount of the loan has been recalculated by discounting the revised estimated future cash flows at the original effective interest rate of 9.12%.
In June 2023, Burcon and Large Scale entered into a letter agreement to amend certain conditions to be satisfied by Burcon for the advance of the second tranche. The Company met these conditions and the second tranche closed on December 17, 2023, with a maturity date of December 17, 2025. The effective interest rate of the second tranche is 10.15%.
The drawn portion of the Loan Amount bears interest at 8% per annum payable on the Maturity Date of each tranche and is secured by all assets of Burcon. Burcon is to pay a commitment fee of 1% of the undrawn amount of the Loan Amount under each tranche on (i) the closing date of such tranche and (ii) each annual anniversary of the closing date of each tranche.
The Secured Loan is recognized net of transaction costs, inclusive of the commitment fee, and issuance costs are accreted over the term to maturity.
Years ended March 31 (in thousands of dollars)
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Balance, beginning of year |
|
5,112 |
|
|
- |
|
| Drawdowns |
|
1,000 |
|
|
5,000 |
|
| Debt issue costs |
|
(50 |
) |
|
(90 |
) |
| Interest expense accreted |
|
343 |
|
|
202 |
|
| Balance, end of year |
|
6,405 |
|
|
5,112 |
|
DIRECTOR APPOINTMENT
Mr. John Vassallo was elected to Burcon's Board of Directors at the annual general meeting held on September 20, 2023. Mr. Vassallo has over 30 years' experience in asset acquisition, development and management across several industries in multiple U.S. states. As founder and CEO of Mos RE, LLC, Mr. Vassallo focuses on real estate development, land entitlements, redevelopment and strategic reuse of underutilized buildings by utilizing multi-source financing packages. Mr. Vassallo is also founder and CEO of Global Restaurant Systems, LLC, a multi-faceted management and consulting company providing inclusive restaurant development and operating services.
INTELLECTUAL PROPERTY
Burcon's patent strategy is to seek protection for new technologies as well as further protecting current technologies. Over the years, Burcon has filed patent applications in various countries over its inventions. Burcon's patent applications can be grouped into three categories:
- Applications to protect additional novel protein extraction and purification technologies;
- Applications to protect the uses of Puratein®, Supertein®, Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® and Peazac® pea proteins, and other plant proteins including sunflower and hemp proteins, for example, as functional food and beverage ingredients; and
- Applications to protect the "signature characteristics" of Puratein®, Supertein®, Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® and Peazac® pea proteins, and other plant proteins, including sunflower and hemp proteins.
As part of Burcon's regular review of its patent portfolio, Burcon focuses its efforts on the maintenance and prosecution of patents that are essential to achieving its strategic efforts. Accordingly, Burcon may defer or cease its maintenance payments on certain non-core patents and patent applications which it deems to be non-essential or redundant for the purposes of achieving its strategic objectives.
Burcon currently holds 61 U.S. issued patents relating to canola protein, soy protein, pulse (including pea) protein, flax protein and protein from other oilseeds including sunflower and hemp. In addition, Burcon has a further 13 patent applications currently filed with USPTO.
As of the date of this MD&A, Burcon's patents and patent applications cover over 49 distinct inventions. Burcon has also filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. Together with patents issued in other countries, Burcon now holds a total of 129 issued patents covering inventions that include the 61 granted U.S. patents. Currently, Burcon has over 80 additional patent applications that are being reviewed by the respective patent offices in various countries.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") MATTERS
Burcon's extraction processes use no harsh chemicals and emit no noxious odours or significant waste products. Biodegradable, natural and/or recyclable input materials, end-products and by-products are used and, therefore, are expected to present no significant environmental risk. As such, Burcon does not foresee any financial and operational effects of environmental protection or requirements on the capital expenditures, earnings and the competitive position of Burcon in the foreseeable future.
As part of Burcon's sustainability initiatives to reduce the environmental impact of food and agriculture through its plant-based protein technologies, management is actively investigating sustainability disclosure frameworks to which Burcon may utilize to identify and quantify its carbon footprint of its technologies and ongoing research and development. Identifying the sustainability issues pertinent to Burcon's operations and technologies is the first step in the process of reducing environmental emissions.
In June 2023, The International Sustainability Standards Board (ISSB) released standards which set out requirements for sustainability (IFRS S1) and climate-related (IFRS S2) financial disclosures (ISSB Standards). The Canadian Sustainability Standards Board (CSSB) then published, in March 2024, two draft standards (CSDS 1 and CSDS2), which are almost identical to the ISSB Standards for comment and could be finalized by the end of 2024. In addition, the Canadian Securities Administrators (CSA) intend to modify the proposed National Instrument 51-107 taking into account the CSSB standards and expects to implement mandatory sustainability reporting for issuers soon. Reporting requirements will generally require governance disclosure, strategy disclosure, risk management disclosure and metrics and targets disclosure.
Based on Burcon's preliminary materiality assessment of its operations, Burcon has identified the following top five sustainability issues it believes are the most material to its business and stakeholders:
1. Greenhouse gas emissions
2. Energy management
3. Water and wastewater management
4. Product quality and safety
5. Employee health and safety
Burcon is in a unique position where it conducts research and development on a small pilot scale to develop technologies for the global commercialization of its novel protein ingredients. As such, Burcon does not believe it is exposed to environmental and climate-related issues on the same scale as major agricultural and ingredient processors. Nevertheless, Burcon believes it may be in the best interests of Burcon, its stakeholders and investors for the Company to identify and provide transparency around its sustainability initiatives to address the ESG issues most relevant to the Company.
With a goal to assess Burcon's carbon footprint, Burcon intends to further explore methods of data collection, where the Company can begin to quantify the top five environmental impacts listed above associated with all the stages of technology development - from conception to commercialization. To meet mandatory reporting requirements once implemented, Burcon expects that it may be required to engage a consultant with expertise on ESG matters to assist Burcon with this process. Burcon believes that a comprehensive ESG review and preparation of a report may require at least 12 months or more to complete.
SUMMARY OF OPERATING RESULTS
Years ended March 31 (in thousands of dollars, except share and per-share amounts)
| |
|
2024 |
|
|
2023 |
|
| Royalty income |
|
184 |
|
|
364 |
|
| Loss for the year |
|
(7,446 |
) |
|
(25,364 |
) |
| Basic and diluted loss per share |
|
(0.06 |
) |
|
(0.23 |
) |
| Total assets |
|
12,913 |
|
|
9,899 |
|
| Total long-term liabilities |
|
6,405 |
|
|
5,137 |
|
| Weighted average shares outstanding (thousands) |
|
121,398 |
|
|
108,729 |
|
RESULTS OF OPERATIONS
As at March 31, 2024, Burcon has not yet generated any significant revenues from its technology. For the year ended March 31, 2024, the Company recorded a loss of $7,446,193 (2023 - $25,364,250) or $0.06 per share (2023 - $0.23). Loss from operations for the year ended March 31, 2024 was $7,018,975 (2023 - $7,525,270). The significantly lower loss for fiscal 2024 over fiscal 2023 is due to the write-off of $12.3 million for the investment in and loans to Merit Foods and share of loss of $5.5 million in Merit Foods in fiscal 2023, as discussed on page 5 of this MD&A.
The following provides a comparative analysis of significant changes in major expenditures items.
Research and development expenses
Components of research and development ("R&D") expenditures for years ended March 31 (in thousands of dollars)
| |
|
2024 |
|
|
2023 |
|
| Salaries and benefits |
|
1,919 |
|
|
2,244 |
|
| Intellectual property |
|
599 |
|
|
1,011 |
|
| Amortization of deferred development costs |
|
421 |
|
|
421 |
|
| Laboratory operation |
|
361 |
|
|
390 |
|
| Analyses and testing |
|
338 |
|
|
103 |
|
| Depreciation of property and equipment |
|
252 |
|
|
209 |
|
| Rent |
|
117 |
|
|
179 |
|
| Travel and meals |
|
26 |
|
|
16 |
|
| |
|
4,033 |
|
|
4,573 |
|
| Government assistance |
|
(454 |
) |
|
(448 |
) |
| Research and development expenses |
|
3,579 |
|
|
4,125 |
|
Salaries and benefits
Included in salaries and benefits is stock-based compensation of $367,000 (2023 - $670,000). The lower stock-based compensation expense incurred during fiscal 2024 is due to lower fair values of options granted during this year, which is partially offset by a higher number of options being granted during this year. The lower stock-based compensation drove the lower salaries and benefits for the year ended March 31, 2024.
Intellectual property
Intellectual property expenses decreased $412,000 from $1,011,000 for the year ended March 31, 2023 to $599,000 for the year ended March 31, 2024. During fiscal 2024, Burcon conducted a strategic review of its patent portfolio to eliminate patents that have limited commercial value. Burcon focused its intellectual property spend on patents that are essential to its strategic objective and ceased maintenance payments on non-core patents and patent applications. The process resulted in a significant reduction in patent expenses during fiscal 2024.
Burcon's patent strategy is to seek protection for new technologies as well as further protecting current technologies. Over the years, Burcon believes it has developed a dynamic and extensive patent portfolio and has filed patent applications in various countries over its inventions.
Analyses and testing
Analyses and testing costs increased from $103,000 for the year ended March 31, 2023 to $338,000 for the year ended March 31, 2024. As noted above, Burcon began commercial validation trials for its hempseed protein isolate in Q4 2024, which drove the increase in analyses and testing costs.
General and administrative expenses
Components of general and administrative ("G&A") expenditures for years ended March 31 (in thousands of dollars)
| |
|
2024 |
|
|
2023 |
|
| Salaries and benefits |
|
2,071 |
|
|
2,206 |
|
| Professional fees |
|
994 |
|
|
613 |
|
| Office supplies and services |
|
255 |
|
|
415 |
|
| Travel and meals |
|
125 |
|
|
95 |
|
| Investor relations |
|
114 |
|
|
351 |
|
| Depreciation |
|
30 |
|
|
31 |
|
| Transfer agent and filing fees |
|
28 |
|
|
48 |
|
| Other |
|
12 |
|
|
4 |
|
| Financing expense |
|
- |
|
|
1 |
|
| |
|
3,629 |
|
|
3,764 |
|
| Government assistance |
|
(4 |
) |
|
- |
|
| General and administrative expenses |
|
3,625 |
|
|
3,764 |
|
Salaries and benefits
Included in salaries and benefits for the year ended March 31, 2024 is stock-based compensation expense of $436,000 (2023 - $587,000). The lower stock-based compensation expense incurred during fiscal 2024 is due to lower fair values of options granted during this year, which is partially offset by a higher number of options being granted during this year. The lower stock-based compensation drove the lower salaries and benefits for the year ended March 31, 2024.
Professional fees
Professional fees increased during fiscal 2024 by $381,000 over fiscal 2023. The increase is mainly attributed to $519,000 increase in consultants hired in respect of business development and in developing the Burcon 2.0 strategy. This was partially offset by $104,000 of lower legal fees in respect of Merit Foods and US listing matters incurred in fiscal 2023 as Burcon delisted from Nasdaq in fiscal 2023.
Investor relations
Investor relations expenses decreased by $237,000 in fiscal 2024 over fiscal 2023. The decrease is mainly attributed to the Nasdaq delisting that occurred in fiscal 2023. The Company incurred no Nasdaq annual fees in fiscal 2024 as compared to $77,000 in fiscal 2023. The Company also incurred lower US investor outreach costs of $92,000 as a result of the Nasdaq delisting.
LIQUIDITY AND FINANCIAL POSITION
At March 31, 2024, the Company had cash of $4.2 million. The Company also has access to $4.0 million of undrawn capacity on Tranche 2 of the Secured Loan.
Net cash used in operations during the year ended March 31, 2024 was $5,777,000, as compared to $6,015,000 last year. Net cash used in operations in fiscal 2024 decreased by $238,000 due to lower R&D and G&A expenses and lower investment in working capital in fiscal 2024 relative to fiscal 2023. These decreases were partially offset by a $180,000 decrease in royalty revenue in fiscal 2024 over fiscal 2023.
At March 31, 2024, Burcon had working capital of $3.8 million (March 31, 2023 - $1.2 million). As at March 31, 2024, Burcon had a commitment for contract manufacturing totaling $70,000. Subsequent to March 31, 2024, Burcon further committed to $500,000 of contract manufacturing. Subsequent to March 31, 2024, Burcon committed to the purchase of capital equipment that it was leasing as at March 31, 2024, with a committed purchase price of $212,000. Burcon expects to incur $715,000 in patent expenditures for fiscal 2025, which is an increase over actual expenditures incurred in fiscal 2024 of $576,000. Burcon expects an increase in patent expenditures as a result of four patent applications related to key technologies for hemp and sunflower protein isolate production moving to the national phase of the application process.
During the year ended March 31, 2024, the Company began commercial production of its hemp protein isolate. Subsequent to March 31, 2024, the Company and HPS announced it has achieved first commercial sale of their hemp protein isolate. Also subsequent to March 31, 2024, Burcon announced it has successfully completed its first contract research services. The Company has not earned significant revenues from its technology licensing.
The Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities. There can be no assurance that additional financing may be available on acceptable terms, if at all.
FINANCIAL INSTRUMENTS
The Company's financial instruments are cash, amounts receivable, accounts payable and accrued liabilities and Secured Loan.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss being incurred by the Company. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, amounts receivable, and loans receivable.
The Company's cash may comprise interest-bearing savings instruments with Canadian chartered banks. The Company limits its exposure to credit loss by placing its cash with two Canadian chartered banks.
The carrying amounts of financial assets represent the maximum credit exposure.
The Company's exposure to credit risk is influenced mainly by the individual characteristics of its customers. The Company's loans receivable from Merit Foods are considered credit-impaired following Merit Foods being placed in receivership on March 1, 2023, resulting in impairment of amounts receivables attributable to Merit Foods and loans to Merit Foods.
The remaining amounts receivable consist of PIC reimbursements. These are government-funded or government-related expenses based on contracts and carry minimal credit risk.
Expected credit loss on financial assets recognized in statements of operations and comprehensive loss were as follows:
(thousands of Canadian dollars)
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Expected credit loss on accounts receivable arising from contracts with customers |
|
100 |
|
|
178 |
|
| Expected credit losses on loans receivable |
|
- |
|
|
4,359 |
|
| |
|
100 |
|
|
4,537 |
|
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows of a financial instrument will fluctuate because of changes in market interest rates. All of the Company's financial instruments are non-interest bearing except for cash that earns interest at variable market rates and the secured loan at a fixed rate. The Company is not subject to interest rate risk on its secured loan with Large Scale as the loan is on a fixed rate basis. Burcon's cash is held at two Canadian chartered banks to maximize interest and to diversify risk. For the year ended March 31, 2024, the weighted average interest rate earned on the Company's cash was 4.33% per annum (2023 - 2.49% per annum). The impact of a 1% strengthening or weakening of interest rates on the Company's cash at March 31, 2024 is estimated to be a $39,000 (2023 - $15,000) increase or decrease in interest income per year.
Liquidity risk
The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by monitoring actual and forecasted cash flows taking into account current and planned operations.
(in thousands of dollars)
| March 31, 2024 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| Accounts payable and accrued liabilities |
|
843 |
|
|
843 |
|
|
843 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
261 |
|
|
273 |
|
|
273 |
|
|
- |
|
|
- |
|
| Secured Loan |
|
6,405 |
|
|
6,573 |
|
|
- |
|
|
6,573 |
|
|
- |
|
| |
|
7,509 |
|
|
7,689 |
|
|
1,116 |
|
|
6,573 |
|
|
- |
|
| March 31, 2023 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| Accounts payable and accrued liabilities |
|
591 |
|
|
591 |
|
|
591 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
59 |
|
|
129 |
|
|
98 |
|
|
31 |
|
|
- |
|
| Secured Loan |
|
5,112 |
|
|
5,155 |
|
|
- |
|
|
5,155 |
|
|
- |
|
| |
|
5,762 |
|
|
5,875 |
|
|
689 |
|
|
5,186 |
|
|
- |
|
The contractual cash flows of Secured Loan include accrued interest expense payable.
Fair value
The fair value of the Company's short-term financial assets and financial liabilities, including cash, amounts receivable, accounts payable and accrued liabilities approximates their carrying values due to the short-term maturities of these financial instruments.
The fair value of the investment in Burcon Holdings is a level 3 fair value and was estimated based on expectation of recoverability of the asset, operations or earnings in the future.
The carrying values and fair values of financial instruments, by class, are as follows as at March 31, 2024 and 2023:
(in thousands of dollars)
| As at March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At fair
value
through
profit or
loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities
at
amortized
cost |
|
|
Fair value |
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
4,197 |
|
|
- |
|
|
4,197 |
|
| Amounts receivable |
|
- |
|
|
465 |
|
|
- |
|
|
465 |
|
| Investment in Burcon Holdings |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Total |
|
- |
|
|
4,662 |
|
|
- |
|
|
4,662 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
843 |
|
|
843 |
|
| Secured Loan |
|
- |
|
|
- |
|
|
6,405 |
|
|
6,405 |
|
| Total |
|
- |
|
|
- |
|
|
7,248 |
|
|
7,248 |
|
| As at March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At fair
value
through
profit or
loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities
at
amortized
cost |
|
|
Fair value |
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
1,457 |
|
|
- |
|
|
1,457 |
|
| Amounts receivable |
|
- |
|
|
332 |
|
|
- |
|
|
332 |
|
| Investment in Burcon Holdings |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Total |
|
- |
|
|
1,789 |
|
|
- |
|
|
1,789 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
591 |
|
|
591 |
|
| Secured Loan |
|
- |
|
|
- |
|
|
5,112 |
|
|
5,112 |
|
| Total |
|
- |
|
|
- |
|
|
5,703 |
|
|
5,703 |
|
Currency risk
The Company has not hedged certain of its liabilities from currency fluctuations. As at March 31, 2024 and March 31, 2023 the Company is exposed to currency risk through the following assets and liabilities denominated in U.S. dollars:
| |
|
March 31, 2024 |
|
|
March 31, 2023 |
|
| U.S. Dollars (in thousands) |
|
|
|
|
|
|
| Cash |
|
1,563 |
|
|
101 |
|
| Accounts payable and accrued liabilities |
|
(61 |
) |
|
(24 |
) |
| Net exposure |
|
1,502 |
|
|
77 |
|
| |
|
|
|
|
|
|
| Canadian dollar equivalents (in thousands) |
|
2,036 |
|
|
104 |
|
Based on the above net exposure at March 31, 2024, a 10% appreciation or depreciation of the U.S. dollar against the Canadian dollar would have resulted in a decrease/increase of approximately $204,000 (March 31, 2023 - $8,000) in the Company's loss from operations.
OUTSTANDING SHARE DATA
As at March 31, 2024, Burcon had 142,088,933 common shares outstanding, 28,030,037 share purchase warrants outstanding that are exercisable at a weighted average exercise price of $0.31 per share, 9,689,931 stock options outstanding exercisable at a weighted average exercise price of $1.35 per share, and 341,000 restricted share units outstanding. As at the date of this MD&A, Burcon has 142,098,096 common shares outstanding, 9,597,899 stock options outstanding exercisable at a weighted average price of 1.34 per share, 28,030,037 share purchase warrants outstanding that are exercisable at a weighted average exercise price of $0.31 per share, and 323,000 restricted share units outstanding.
QUARTERLY FINANCIAL DATA
(Derived from unaudited interim financial statements. All figures in thousands of dollars, except per-share amounts)
| |
|
Three months ended |
|
| |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
|
September 30,
2023 |
|
|
June 30,
2023 |
|
| Revenue |
|
- |
|
|
- |
|
|
184 |
|
|
- |
|
| Interest and other income |
|
18 |
|
|
14 |
|
|
29 |
|
|
27 |
|
| Total comprehensive loss for the period |
|
(2,069 |
) |
|
(2,031 |
) |
|
(1,434 |
) |
|
(1,912 |
) |
| Basic and diluted loss per share |
|
(0.02 |
) |
|
(0.02 |
) |
|
(0.01 |
) |
|
(0.02 |
) |
| |
|
Three months ended |
|
| |
|
March 31,
2023
|
|
|
December 31,
2022 |
|
|
September 30,
2022 |
|
|
June 30,
2022 |
|
| Revenue |
|
- |
|
|
161 |
|
|
112 |
|
|
91 |
|
| Interest and other income |
|
54 |
|
|
131 |
|
|
131 |
|
|
109 |
|
| Management fee income |
|
- |
|
|
19 |
|
|
18 |
|
|
7 |
|
| Impairment on investment in Merit Foods |
|
- |
|
|
(7,987 |
) |
|
- |
|
|
- |
|
| Impairment loss on loans to Merit Foods |
|
- |
|
|
(4,334 |
) |
|
(7 |
) |
|
(18 |
) |
| Total comprehensive loss for the period |
|
(1,831 |
) |
|
(16,303 |
) |
|
(3,234 |
) |
|
(3,996 |
) |
| Basic and diluted loss per share |
|
(0.02 |
) |
|
(0.15 |
) |
|
(0.03 |
) |
|
(0.04 |
) |
Fiscal 2024 fourth quarter loss increased by $238,000 over the same quarter in fiscal 2023. The increase is due mainly to increased general and administrative costs of $184,000 driven by higher professional fees for consultants in respect of strategy and business development and a $100,000 increase in loss allowance for royalty receivable. These increases were partially offset by lower research and development costs of $86,000 driven by a higher amount of government assistance.
RELATED PARTY TRANSACTIONS
Burcon had a services agreement (the "Services Agreement") with Merit Foods to provide technical, administrative and general management services, research and analytical services and sample production services based on rates set out in the Services Agreement. For the year ended March 31, 2024, included in interest and other income are $nil (2023 - $44,402) for services provided by Burcon to Merit Foods.
Merit Foods also provided certain consulting services to Burcon. For the year ended March 31, 2024, included in professional fees are $nil (2023 - $19,145) for services provided by Merit Foods to Burcon.
On March 25, 2024, the Company entered into a one-year consulting agreement with a director of the Company for the provision of financial and strategic advisory services. As compensation for the services, the Company issued of 5,000,000 warrants ("Consultant Warrants"). Each Consultant Warrant is exercisable to acquire one common share at an exercise price of $0.27 up to June 25, 2026. Vesting of the Consultant Warrants are subject to shareholder approval, which will be sought at the Company's annual general meeting expected to be held in September 2024. If shareholder approval is not obtained, the Consultant Warrants will expire and the Company will pay a cash fee of $450,000. The Consultant Warrants are measured at a fair value of $0.09 per Consultant Warrant, which was determined from the fair value of the services to be received.
During the year ended March 31, 2024, Burcon made drawdowns totaling $1.0 million from the second tranche of the Secured Loan (2023 - $5.0 million from the first tranche of the Secured Loan). Burcon incurred a commitment fee of $50,000 to Large Scale on closing of the second tranche of the Secured Loan (2023 - $50,000 on closing of the first tranche of the Secured Loan) and recorded $342,397 (2023 - $202,031) of interest expense related to the Secured Loan.
In connection with the private placement that closed in March 2024, certain directors, officers and employees of the Company subscribed to 4,461,194 of the 2024 Units for a gross purchase price of $959,157.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in accordance with IFRS Accounting Standards, as issued by the International Accounting Standards Board ("IFRS Accounting Standards"), requires management to apply judgement in applying accounting policies. The judgements that have the most significant effect on the amounts recognized in the consolidated financial statements are outlined below. In addition, IFRS Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, the reported amount of revenue and expenses during the reporting period, and disclosures made in the notes to the consolidated financial statements. Outlined below are the assumptions and other sources of estimation uncertainty as at March 31, 2024 that have a risk of resulting in material adjustments to the carrying amounts of assets and liabilities within the next year.
Areas of judgement
Judgement is used in situations when there is a choice and/or assessment required by management. The following are critical judgements apart from those involving estimations, that management has made in the process of applying the Company's accounting policies and that have a significant effect on the amounts recognized in the consolidated financial statements.
Going concern
The determination as to the Company's ability to continue as a going concern is dependent on its ability to commercialize its technology, scale production and/or to secure debt and equity financing. Certain judgements were made when determining if and when the Company will successfully implement its commercialization efforts and to secure debt and equity financing.
Deconsolidation of Burcon Holdings
Judgement is required for the purposes of assessment of loss of control over Burcon Holdings. The facts and circumstances management considered included assessment over power, how relevant activities of Burcon Holdings are directed, linkage of power and return, including the Company's exposure to variability of returns from its involvement in Burcon Holdings.
Determination of Cash-Generating Units ("CGUs")
For the purposes of assessing impairment of goodwill and long-lived assets, the Company must identify CGUs. Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a CGU is subject to management judgement. The composition of a CGU can directly impact the recoverability of non-financial assets included within the CGU. Management has determined that the Company has one CGU.
Assessment of indicators of impairment of long-lived assets including property and equipment, deferred development costs and intangible assets
Judgement is required in assessing whether there are indicators of impairment of long-lived assets. The Company tests property and equipment and deferred development costs for impairment whenever events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. The information management considered in its assessment of indicators of impairment included plant-based protein market information and the Company's market capitalization, and other internal sources of information.
Sources of estimation uncertainty
Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Company's financial results where a different estimate or assumption is used. The significant areas of estimation uncertainty are:
Expected credit loss
The Company recognizes an amount equal to the lifetime expected credit loss ("ECL") on amounts receivables and loans to Merit Foods for which there has been a significant increase in credit risk since initial recognition.
Useful lives of property and equipment and deferred development costs
Depreciation of property and equipment and amortization of deferred development costs are dependent upon estimates of useful lives and residual value which are determined through the use of assumptions. Estimates of residual value and useful lives are based on data and information from various sources including industry practice and historic experience. Although management believes the estimated useful lives of the Company's property and equipment and deferred development costs are reasonable, changes in estimates could occur, affecting the expected useful lives and salvage values of the property and equipment and intangible assets.
Goodwill impairment assessment
The Company determines the recoverable amount of its CGU when performing its annual impairment test for goodwill. In determining the recoverable amount, the Company considers its market capitalization in determining the recoverable amount. The estimate of recoverable amount is based on management's best estimates of what an independent market participant would consider appropriate.
Share-based payments
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. In estimating the fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of the Company's future share price, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in different outcomes.
NEWLY ADOPTED ACCOUNTING STANDARDS AND AMENDMENTS
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies
The Company adopted the amendments to IAS 1 - Presentation of Financial Statements and IFRS Practice Statement 2 - Making Materiality Judgements which were effective for annual reporting periods beginning on or after January 1, 2023. The amendments to IAS 1 require entities to disclose their material accounting policy information. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality. Under the amendments, an entity discloses material accounting policy information. Accounting policy information is 'material' if, when considered together with other information included in an entity's financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments have not had a material impact on the Company's disclosures of accounting policies or measurement, recognition or presentation of any items within these statements.
ACCOUNTING STANDARDS AND AMENDMENTS ISSUED BUT NOT YET ADOPTED
Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current
The amendment clarifies the classification requirements to determine if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing or recognition. The amendment is effective for annual reporting periods beginning on or after January 1, 2024 and is to be applied retrospectively, with earlier application permitted. The Company does not expect the new standard will have a significant impact on the consolidated financial statements.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer and Chief Financial Officer, as well as other executives, have designed disclosure control and procedures ("DC&P"), or have caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company has been made known to them. The officers have evaluated the effectiveness and design of its DC&P as at March 31, 2024 and have determined these controls to be effective.
These officers are also responsible for designing and maintaining internal controls over financial reporting ("ICFR") or have caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of the Company's ICFR. They have evaluated and determined these internal controls and procedures over financial reporting as at March 31, 2024 and concluded they are effective.
There have been no significant changes in the DC&P and ICFR that occurred during the year ended March 31, 2024 that could have materially affected, or are reasonably likely to materially affect, such controls.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties that can significantly affect its financial condition and future operations. Key risks factors are outlined below. In addition, a detailed explanation of the risk factors which we face is provided in our AIF for the year ended March 31, 2024 under the section titled "Risk Factors", which is incorporated by reference herein. The AIF is available at www.sedar.com.
Patents and proprietary rights - Burcon's success will depend, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of others or having others infringe on its rights. Burcon has filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. As at the date of this MD&A, Burcon has been granted a total of 129 patents in various countries covering a number of key processes and uses of Burcon's soy, pea, canola and flax protein products as functional food and beverage ingredients. Of those patents, 61 have been granted in the United States. Although Burcon expends significant resources and efforts to patent its discoveries and innovations, there can be no assurance that our patent applications will result in the issuance of patents, or any patents issued to Burcon will provide it with adequate protection or any competitive advantages, or that such patents will not be successfully challenged by third parties. Burcon cannot be assured that competitors will not independently develop products similar to the Company's products or manufacture products designed to circumvent the exclusive patent rights granted to the Company. Further, Burcon may need to incur significant expenditures in prosecuting claims against others whom it believes are infringing on its rights and by defending claims of intellectual property infringement brought by its competitors and others.
Development and commercialization - Since inception, Burcon has conducted research and development on a number of plant proteins, including soy, pea, canola, hemp, sunflower and others.
Although Merit Foods completed construction of and commissioned a production facility to commercialize Burcon's pea and canola proteins, it had not begun to generate significant revenues from the sale of the Products to March 1, 2023 when it was placed in receivership. As of the date of this MD&A, the sale process is ongoing. Subsequent to March 31, 2024, Burcon announced that it intends to launch and produce canola proteins at its contract manufacturing facility in fiscal 2025. However, it will take time for significant revenues to be generated from the sale of the proteins. Depending on the outcome of Merit Foods' sale process, Burcon may need to find alternative pathways to produce Burcon's pea proteins. No assurance can be given that Burcon will be able to find a solution to manufacture its pea proteins.
While Burcon launched and began commercial production of its hemp protein at its partner manufacturer facility, Burcon does not have an exclusive contract with this partner manufacturer and there is a risk that our partner may not be able to provide sufficient production capabilities to meet Burcon's needs.
Although Burcon is in various discussions with potential partners to commercialize its sunflower and soy proteins, there can be no assurance that a suitable partner will be found.
The long-term success of the Company's soy, pea, canola, hemp and sunflower proteins as well as pea protein / canola protein blends hinges upon market acceptance by food and feed ingredient manufacturers and suppliers in numerous product applications. There is no assurance that Burcon's products will meet industry standards, obtain market acceptance and within a reasonable time frame. In addition, Burcon faces pricing risks for its products as it must price its proteins at a premium to market in order to achieve its business objectives.
As at the date of this MD&A, other than hemp, none of Burcon's other potential products are commercially available as a food ingredient. The rising popularity of plant proteins has resulted in significant growth with increased participation by competitors entering the market to produce plant proteins. Many competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing, and human resources than Burcon. These competitors may succeed in developing products earlier than Burcon, obtaining regulatory approvals for such products more rapidly than Burcon or in development of products that are more effective than those proposed to be developed by Burcon.
History of operating losses and financing requirements - Burcon has accumulated net losses of approximately $142.0 million from its date of incorporation through March 31, 2024. Burcon has reported insignificant royalty revenues from Merit Foods. While Burcon launched and began commercial production of its hemp protein during the year ended March 31, 2024, and executed its first commercial sale in May 2024, it will take time for significant revenues to be generated from the sale of these proteins. Although Burcon has launched its plant processing and scale-up validation services in May 2023, it is not expected to generate significant revenues for Burcon in the short-term. Burcon expects its accumulated losses to increase as it continues to commercialize its products, its research and development and its product application trials. Burcon expects to continue to incur substantial losses for the foreseeable future. Burcon cannot predict if it will ever achieve profitability and, if it does, it may not be able to sustain or increase its profitability. The commercial success of any of Burcon's products will depend on whether they receive public and industry acceptance as a food ingredient and dietary supplement, and whether they may be sold at competitive prices or are able to obtain sufficient royalty revenue from licensing, which adequately exceeds Burcon's business costs.
Developing Burcon's products and conducting product application trials is capital intensive. Since acquiring its subsidiary in October 1999, Burcon has raised gross proceeds of $125.0 million from the sale or issuance of equity securities and convertible debentures. As at March 31, 2024, Burcon had $4.2 million in cash. Burcon estimates its cash resources are sufficient to fund the current level of operations through March 2025. Burcon may need to raise additional capital on acceptable terms in order for the Company to meet its business objectives and fund its operations.
OUTLOOK
For fiscal 2025, Burcon's main objectives will be to fully commercialize its hemp proteins by increasing production and sales, to identify and develop clear routes to market for its other protein products and to further develop its pipeline of plant-based protein technologies to include other novel renewable plant sources. Burcon will focus on partner development for the commercialization of its sunflower proteins while evaluating licensing strategies or other alternatives for its pea, canola and soy protein isolate technologies. Burcon's activities will include:
-
Working with its partner manufacturer to secure its production volume for hemp proteins;
-
Working with HPS to market and sell Burcon's hemp proteins to generate revenues;
-
identifying and securing a strategic partner(s) with the goal of commercializing its protein technologies including sunflower, soy, canola and pea protein technology;
-
advancing Burcon's pipeline of plant-based protein technologies by conducting research to develop and refine its extraction and purification processes for novel protein products;
-
filing patent applications to protect intellectual property arising from research and development of new protein technologies;
- secure and perform further contract research projects at WTC's in order to continue engaging the marketplace and enhance Burcon's leadership position in plant protein technologies;
-
continue to refine its protein extraction and purification technologies, develop new technologies and related products;
-
further strengthen and expand its core intellectual property portfolio;
-
explore opportunities for acquiring or licensing into Burcon, novel technologies that will complement or enhance Burcon's intellectual property portfolio and business initiatives; and
-
pursue product development agreements with major food, beverage, and nutritional product companies to develop improved or novel applications for Burcon's other specialty proteins into their products.
Burcon NutraScience Corporation
Condensed Consolidated Interim Financial Statements
Three and six months ended September 30, 2024 and 2023
(Unaudited)
(In Canadian dollars)
BURCON NUTRASCIENCE CORPORATION
Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
As at September 30, 2024 and March 31, 2024
(In Canadian dollars)
| |
|
September 30,
2024 |
|
|
March 31,
2024 |
|
| ASSETS |
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
| Cash |
|
1,036,992 |
|
|
4,197,141 |
|
| Amounts receivable and other receivables (note 4) |
|
322,878 |
|
|
591,726 |
|
| Inventory (note 5) |
|
197,295 |
|
|
68,319 |
|
| Prepaid expenses and deposits |
|
484,905 |
|
|
330,033 |
|
| |
|
2,042,070 |
|
|
5,187,219 |
|
| |
|
|
|
|
|
|
| Property and equipment, net of accumulated depreciation of $4,853,088 (March 31, 2024 - $4,709,554) |
|
1,105,314 |
|
|
1,096,273 |
|
| Deferred development costs, net of accumulated amortization of $1,159,130 (March 31, 2024 - $948,379) |
|
5,163,398 |
|
|
5,374,149 |
|
| Goodwill |
|
1,254,930 |
|
|
1,254,930 |
|
| |
|
|
|
|
|
|
| |
|
9,565,712 |
|
|
12,912,571 |
|
| |
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
897,646 |
|
|
843,449 |
|
| Current portion of lease liabilities |
|
23,397 |
|
|
260,845 |
|
| Deferred revenue and government assistance |
|
214,015 |
|
|
250,000 |
|
| Current portion of secured loan (note 6) |
|
5,674,677 |
|
|
- |
|
| |
|
6,809,735 |
|
|
1,354,294 |
|
| |
|
|
|
|
|
|
| Secured loan (note 6) |
|
1,022,093 |
|
|
6,404,778 |
|
| Lease liabilities |
|
78,223 |
|
|
- |
|
| |
|
|
|
|
|
|
| |
|
7,910,051 |
|
|
7,759,072 |
|
| |
|
|
|
|
|
|
| SHAREHOLDERS' EQUITY (note 7) |
|
|
|
|
|
|
| Capital stock |
|
122,221,548 |
|
|
122,069,825 |
|
| Contributed surplus |
|
17,430,480 |
|
|
17,283,934 |
|
| Options |
|
7,420,965 |
|
|
7,436,262 |
|
| Warrants |
|
670,371 |
|
|
237,201 |
|
| Restricted share units |
|
183,054 |
|
|
172,776 |
|
| Deficit |
|
(146,270,757 |
) |
|
(142,046,499 |
) |
| |
|
1,655,661 |
|
|
5,153,499 |
|
| |
|
|
|
|
|
|
| |
|
9,565,712 |
|
|
12,912,571 |
|
| |
|
|
|
|
|
|
| Going concern (note 1) |
|
|
|
|
|
|
| Subsequent events (note 6) |
|
|
|
|
|
|
Approved by the Audit Committee of the Board of Directors
| “Alfred Lau” |
|
“Peter Kappel” |
| Director |
|
Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
BURCON NUTRASCIENCE CORPORATION
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss
(Unaudited)
For the three and six months ended September 30, 2024 and 2023
(In Canadian dollars)
| |
|
Three months ended
September 30 |
|
|
Six months ended
September 30 |
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
|
40,458 |
|
|
184,359 |
|
|
277,075 |
|
|
184,359 |
|
| Cost of sales (note 8) |
|
159,952 |
|
|
- |
|
|
372,246 |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| GROSS MARGIN |
|
(119,494 |
) |
|
184,359 |
|
|
(95,171 |
) |
|
184,359 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Research and development (note 9) |
|
1,150,201 |
|
|
909,422 |
|
|
1,833,868 |
|
|
1,849,863 |
|
| General and administrative (note 10) |
|
934,480 |
|
|
803,157 |
|
|
2,038,188 |
|
|
1,635,646 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LOSS FROM OPERATIONS |
|
(2,204,175 |
) |
|
(1,528,220 |
) |
|
(3,967,227 |
) |
|
(3,301,150 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and other income |
|
14,486 |
|
|
220,294 |
|
|
43,903 |
|
|
247,673 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and other expense (note 6) |
|
(150,928 |
) |
|
(149,859 |
) |
|
(305,995 |
) |
|
(280,833 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange (loss) gain |
|
(14,370 |
) |
|
24,166 |
|
|
5,061 |
|
|
(11,392 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD |
|
(2,354,987 |
) |
|
(1,433,619 |
) |
|
(4,224,258 |
) |
|
(3,345,702 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| BASIC AND DILUTED LOSS PER SHARE (note 11) |
|
(0.02 |
) |
|
(0.01 |
) |
|
(0.03 |
) |
|
(0.03 |
) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
BURCON NUTRASCIENCE CORPORATION
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(Unaudited)
For the six months ended September 30, 2024 and 2023
(In Canadian dollars, except share amounts)
| |
|
Number of
fully paid
common
shares |
|
|
Capital
stock
|
|
|
Contributed
surplus
|
|
|
Options
|
|
|
Warrants
|
|
|
Restricted
share units
|
|
|
Deficit
|
|
|
Total
shareholders'
equity |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2023 |
|
108,728,742 |
|
|
114,566,577 |
|
|
16,763,830 |
|
|
7,279,559 |
|
|
- |
|
|
127,651 |
|
|
(134,600,306 |
) |
|
4,137,311 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and comprehensive loss
for the period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(3,345,702 |
) |
|
(3,345,702 |
) |
| Private placement |
|
12,880,829 |
|
|
3,181,093 |
|
|
- |
|
|
- |
|
|
232,327 |
|
|
- |
|
|
- |
|
|
3,413,420 |
|
| Issue costs |
|
- |
|
|
(51,428 |
) |
|
- |
|
|
- |
|
|
(3,755 |
) |
|
- |
|
|
- |
|
|
(55,183 |
) |
| Options forfeited |
|
- |
|
|
- |
|
|
107,841 |
|
|
(107,841 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Restricted share units redeemed |
|
61,900 |
|
|
29,370 |
|
|
- |
|
|
- |
|
|
- |
|
|
(27,025 |
) |
|
- |
|
|
2,345 |
|
| Stock-based compensation |
|
- |
|
|
- |
|
|
- |
|
|
327,012 |
|
|
- |
|
|
80,552 |
|
|
- |
|
|
407,564 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - September 30, 2023 |
|
121,671,471 |
|
|
117,725,612 |
|
|
16,871,671 |
|
|
7,498,730 |
|
|
228,572 |
|
|
181,178 |
|
|
(137,946,008 |
) |
|
4,559,755 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2024 |
|
142,088,933 |
|
|
122,069,825 |
|
|
17,283,934 |
|
|
7,436,262 |
|
|
237,201 |
|
|
172,776 |
|
|
(142,046,499 |
) |
|
5,153,499 |
|
| Loss and comprehensive loss for the period |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(4,224,258 |
) |
|
(4,224,258 |
) |
| Issue Costs |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(8,200 |
) |
|
- |
|
|
- |
|
|
(8,200 |
) |
| Options exercised |
|
530,000 |
|
|
143,847 |
|
|
- |
|
|
(29,897 |
) |
|
- |
|
|
- |
|
|
- |
|
|
113,950 |
|
| Options forfeited |
|
- |
|
|
- |
|
|
146,546 |
|
|
(146,546 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Restricted share units redeemed |
|
9,163 |
|
|
7,876 |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,876 |
) |
|
- |
|
|
- |
|
| Warrants vested |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
216,370 |
|
|
- |
|
|
- |
|
|
216,370 |
|
| Stock-based compensation |
|
- |
|
|
- |
|
|
- |
|
|
161,146 |
|
|
225,000 |
|
|
18,154 |
|
|
- |
|
|
404,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - September 30, 2024 |
|
142,628,096 |
|
|
122,221,548 |
|
|
17,430,480 |
|
|
7,420,965 |
|
|
670,371 |
|
|
183,054 |
|
|
(146,270,757 |
) |
|
1,655,661 |
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
BURCON NUTRASCIENCE CORPORATION
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
For the six months ended September 30, 2024 and 2023
(In Canadian dollars)
|
|
2024
|
|
|
2023
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
| Loss for the period |
|
(4,224,258 |
) |
|
(3,345,702 |
) |
| Items not affecting cash |
|
|
|
|
|
|
| Depreciation of property and equipment |
|
143,534 |
|
|
114,251 |
|
| Amortization of deferred development costs |
|
210,751 |
|
|
210,751 |
|
| Unrealized foreign exchange (gain) loss |
|
(7,085 |
) |
|
1,047 |
|
| Interest expense on secured loan |
|
291,992 |
|
|
245,427 |
|
| Interest expense on lease liabilities |
|
14,018 |
|
|
35,406 |
|
| Stock-based compensation expense |
|
404,300 |
|
|
407,564 |
|
| |
|
(3,166,748 |
) |
|
(2,331,256 |
) |
| Changes in non-cash working capital items |
|
|
|
|
|
|
| Amounts receivable and other receivables |
|
205,281 |
|
|
157,224 |
|
| Inventory |
|
(128,976 |
) |
|
- |
|
| Prepaid expenses and deposits |
|
61,498 |
|
|
(127,534 |
) |
| Accounts payable and accrued liabilities |
|
84,260 |
|
|
(10,715 |
) |
| Deferred revenue and government assistance |
|
(35,985 |
) |
|
- |
|
| |
|
(2,980,670 |
) |
|
(2,312,281 |
) |
| Interest income |
|
(43,903 |
) |
|
(247,139 |
) |
| Interest expense paid on lease liabilities |
|
(14,018 |
) |
|
(35,406 |
) |
| Net cash used in operating activities |
|
(3,038,591 |
) |
|
(2,594,826 |
) |
| |
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
| Interest income |
|
43,903 |
|
|
56,013 |
|
| Acquisition of property and equipment |
|
(202,015 |
) |
|
(45,216 |
) |
| |
|
(158,112 |
) |
|
10,797 |
|
| |
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
| Issue of capital stock and warrants |
|
- |
|
|
3,413,420 |
|
| Issue costs |
|
(30,103 |
) |
|
(44,905 |
) |
| Options exercised |
|
113,950 |
|
|
- |
|
| Reduction of lease liabilities |
|
(54,378 |
) |
|
(12,594 |
) |
| |
|
29,469 |
|
|
3,355,921 |
|
| |
|
|
|
|
|
|
| FOREIGN EXCHANGE GAIN (LOSS) ON CASH |
|
7,085 |
|
|
(1,047 |
) |
| (DECREASE) INCREASE IN CASH |
|
(3,160,149 |
) |
|
770,845 |
|
| CASH - BEGINNING OF PERIOD |
|
4,197,141 |
|
|
1,456,845 |
|
| CASH - END OF PERIOD |
|
1,036,992 |
|
|
2,227,690 |
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1. Going concern
These condensed consolidated interim financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes that Burcon NutraScience Corporation ("Burcon" or the "Company") will continue its operations and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations for the foreseeable future. In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.
The Company has incurred losses since its inception and as at September 30, 2024, had an accumulated deficit of $146.3 million (March 31, 2024 - $142.0 million) and negative working capital (current liabilities in excess of current assets) of $4.8 million. During the six months ended September 30, 2024, the Company incurred a net loss of $4.2 million (2023 - $3.3 million) and had negative cash flow from operations of $3.0 million (2023 - $2.6 million).
The Company began commercial production of its hemp protein isolate in the year ended March 31, 2024, and in the six months ended September 30, 2024, the Company began commercial production of its canola protein isolate. During the six months ended September 30, 2024, the Company generated revenue from the sale of protein isolate and from the provision of contract research services. The Company has not earned significant revenues from its technologies.
Subsequent to September 30, 2024, the Company extended the maturity date of tranche 1 of the secured loan to July 1, 2026 and requested a draw of $1.0 million on tranche 2 of the secured loan (refer to Note 6). These actions remedied the negative working capital balance as at September 30, 2024. The Company has a further $3.0 million of undrawn capacity on tranche 2 of the secured loan.
The Company's ability to continue as a going concern is dependent upon the Company's ability to successfully commercialize its technologies, scale production and raise additional capital to fund its planned commercialization and research and development activities. The Company has historically relied on equity and debt financing to fund its operations. The Company's current working capital and revenues are not expected to provide the Company with adequate funding to its short-term obligations for the next 12 months and to successfully commercialize its technologies and scale production. While the Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities, there can be no assurance that additional financing may be available on acceptable terms, if at all. If Burcon is unable to raise additional funds when it needs them, it may be required to delay, reduce or eliminate some or all of its commercialization efforts or research and development programs. Therefore, these conditions result in material uncertainties that cast significant doubt over the Company's ability to continue as a going concern.
These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities in the normal course. These condensed consolidated interim financial statements do not reflect adjustments to the carrying values of assets and liabilities that would be necessary if the Company was unable to continue as a going concern and such adjustments could be material.
2. Nature of operations
Burcon is headquartered in Vancouver, British Columbia, Canada.
Burcon is a plant protein technology company that has developed high purity and functional proteins for foods and beverages derived from pea, canola, soy, hemp, and sunflower seeds, among other plant sources. The Company has an extensive portfolio of composition, application and process patents covering its technologies.
3. Material accounting policies
Basis of presentation
These condensed consolidated interim financial statements are prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards") applicable to the preparation of interim financial statements, including International Accounting Standards ("IAS") 34, Interim Financial Reporting. Except as described below, the accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Company's most recent annual consolidated financial statements.
These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and, as such, should be read in conjunction with the Company's consolidated annual financial statements for the year ended March 31, 2024.
The condensed consolidated interim financial statements were approved and authorized for issue by the Audit Committee of the Board of Directors on November 13, 2024.
Principles of consolidation
These condensed consolidated interim financial statements include the accounts of the Company and its subsidiary. All material intercompany transactions and balances have been eliminated on consolidation.
Details of the Company's subsidiary as at September 30, 2024 is as follows:
| |
Place of
incorporation |
Interest
% |
Principal activity |
| |
|
|
|
| Burcon NutraScience (MB) Corp. |
Manitoba, Canada |
100 |
Research and development |
Revenue recognition
The Company has multiple revenue streams and revenue is recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services:
- Revenue from the sale of protein isolate is recorded at the point of sale, when the customer assumes control of the products as defined in the terms of agreement with the customer.
- Revenue associated with contract research services are recognized when the services are rendered.
- Revenue earned from licensing agreements that grant third parties rights to use the Company's technologies are earned based on sales made by the licensee.
Newly adopted accounting standards and amendments
Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current
The amendment clarifies the classification requirements to determine if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing or recognition. The amendment was adopted on April 1, 2024 with retrospective application and the adoption did not have a significant impact on the consolidated financial statements.
4. Protein Industries Canada
Protein Industries Canada ("PIC") is an industry-led, not-for-profit organization committed to positioning Canada as a global source of high-quality plant protein ingredients.
During the year ended March 31, 2024, Burcon entered into a collaborative agreement with PIC for the commercialization of hempseed and sunflower seed protein.
During the three and six months ended September 30, 2024, Burcon recorded PIC grants of $217,915 and $557,747, respectively, (2023 - $nil and $nil) as government assistance against research and development expenses, general and administrative expenses, inventory, and property and equipment, of which $nil is included in amounts receivable (March 31, 2024 - $457,118). As at September 30, 2024, Burcon had received $187,166 in advance payments in respect of eligible expenses to be incurred in subsequent periods, which is recognized as deferred revenue and government assistance (March 31, 2024 - $250,000).
5. Inventory
| |
|
September
30, 2024 |
|
|
March 31,
2024 |
|
| |
|
|
|
|
|
|
| Protein isolate |
|
85,075 |
|
|
52,350 |
|
| Raw materials |
|
112,220 |
|
|
15,969 |
|
| Balance - end of period |
|
197,295 |
|
|
68,319 |
|
6. Secured Loan
As at September 30, 2024, the principal amount outstanding from the first tranche of the Secured Loan is $5.0 million (March 31, 2024 - $5.0 million) and from the second tranche of the Secured Loan is $1.0 million (March 31, 2024 - $1.0 million). Refer to Note 14 for discussion of the related party nature of the Secured Loan.
| |
|
Six months
ended
September
30, 2024 |
|
|
Year ended
March 31,
2024 |
|
| |
|
|
|
|
|
|
| Balance, beginning of period |
|
6,404,778 |
|
|
5,112,381 |
|
| Draw downs |
|
- |
|
|
1,000,000 |
|
| Debt issue costs |
|
- |
|
|
(50,000 |
) |
| Interest expense accreted |
|
291,992 |
|
|
342,397 |
|
| Balance, end of period |
|
6,696,770 |
|
|
6,404,778 |
|
| |
|
|
|
|
|
|
| Current portion of Secured Loan |
|
5,674,677 |
|
|
- |
|
| Long term portion of Secured Loan |
|
1,022,093 |
|
|
6,404,778 |
|
| |
|
6,696,770 |
|
|
6,404,778 |
|
Subsequent to September 30, 2024, Burcon entered into a letter agreement to amend the first tranche maturity date to July 1, 2026.
Subsequent to September 30, 2024, Burcon requested a draw down of $1.0 million on the second tranche of the Secured Loan.
7. Shareholders' equity
(a) Options
The Company has a stock option plan in which all directors, officers, employees and consultants of the Company and its subsidiaries are eligible to participate.
As at September 30, 2024, an additional 5,111,910 (March 31, 2024 - 4,518,962) options may be granted in future years under this plan.
| |
|
Six months ended September 30, 2024 |
|
| |
|
|
|
|
|
|
| |
|
Number of options
|
|
|
Weighted average
exercise price
$ |
|
| |
|
|
|
|
|
|
| Outstanding - Beginning of period |
|
9,689,931 |
|
|
1.35 |
|
| Granted |
|
110,000 |
|
|
0.22 |
|
| Exercised |
|
(530,000 |
) |
|
0.22 |
|
| Forfeited / cancelled |
|
(119,031 |
) |
|
1.93 |
|
| Outstanding - End of period |
|
9,150,900 |
|
|
1.40 |
|
The following table summarizes information about stock options outstanding and exercisable at September 30, 2024:
| |
|
Options Outstanding |
|
|
Options exercisable |
|
Range of exercise
prices |
|
Number
outstanding |
|
|
Weighted
average
remaining
contractual
life |
|
|
Weighted
average
exercise
price |
|
|
Number
exercisable |
|
|
Weighted
average
exercise
price |
|
| $ |
|
|
|
|
(years) |
|
|
$ |
|
|
|
|
|
$ |
|
| 0.13 - 0.70 |
|
4,412,334 |
|
|
5.3 |
|
|
0.28 |
|
|
2,138,992 |
|
|
0.30 |
|
| 1.00 - 3.00 |
|
3,747,566 |
|
|
4.4 |
|
|
2.01 |
|
|
2,655,223 |
|
|
2.06 |
|
| 4.01 - 4.89 |
|
991,000 |
|
|
3.5 |
|
|
4.08 |
|
|
991,000 |
|
|
4.08 |
|
| |
|
9,150,900 |
|
|
4.8 |
|
|
1.40 |
|
|
5,785,215 |
|
|
1.75 |
|
The fair value of each option is estimated as at the date of grant or other measurement date using the Black-Scholes option pricing model and the following weighted average assumptions:
| |
Six months ended
September 30, 2024 |
| |
|
| Exercise price |
$0.22 - $0.23 |
| Share price |
$0.22 - $0.23 |
| Dividend yield |
0.0% |
| Expected volatility |
79.8% |
| Risk-free interest rate |
3.5% |
| Expected forfeitures |
5.5% |
| Expected average option term (years) |
5.3 |
The weighted average fair value of the options granted during the six months ended September 30, 2024 was $0.14 per option.
For the three and six months ended September 30, 2024, included in research and development expenses (salaries and benefits) are $22,700 and $42,833 respectively (2023 - $71,015 and $150,261) (note 9), of stock-based compensation and included in general and administrative expenses (salaries and benefits and professional fees) are $54,753 and $118,313, respectively (2023 - $86,798 and $176,751) (note 10), of stock-based compensation.
(b) Restricted Share Unit ("RSU") Plan
The Company has an RSU plan in which all directors, officers, employees and consultants of the Company and its subsidiaries are eligible to participate.
| (number of RSUs) |
|
Six months ended
September 30, 2024 |
|
| |
|
|
|
| Outstanding - beginning of period |
|
341,000 |
|
| Granted |
|
- |
|
| Redeemed |
|
(9,163 |
) |
| Forfeited / cancelled |
|
(8,837 |
) |
| Outstanding - end of period |
|
323,000 |
|
RSUs are measured at fair value based on the closing price of our common shares for the day preceding the date of the grant.
For the three and six months ended September 30, 2024, included in research and development expenses are $7,305 and $14,305, respectively (2023 - $25,008 and $62,302) (note 9), and in general and administrative expenses (salaries and benefits) are $2,544 and $3,850, respectively (2023 - $8,044 and $18,250) (note 10), of RSU stock-based compensation.
(c) Warrants
For the three and six months ended September 30, 2024, included in general and administrative expenses (professional fees) is $112,500 and $225,000, respectively (2023 - $nil and $nil) (note 10), of stock-based compensation from warrants issued to a related party (refer to note 14).
On September 18, 2024, the warrants vested (refer to note 14). The unamortized value of the warrants of $216,370 of warrants was recognized against prepaid expenses, which is a non-cash transaction.
8. Cost of Sales
| |
|
Three months ended
September 30 |
|
|
Six months ended
September 30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of product |
|
147,601 |
|
|
- |
|
|
336,921 |
|
|
- |
|
| Salaries and benefits |
|
12,024 |
|
|
- |
|
|
31,663 |
|
|
- |
|
| Laboratory operation |
|
327 |
|
|
- |
|
|
3,662 |
|
|
- |
|
| Cost of sales |
|
159,952 |
|
|
- |
|
|
372,246 |
|
|
- |
|
For the three and six months ended September 30, 2024, included in the cost of product is a writedown of inventory to the net realizable value of $102,195 and $102,195, respectively (2023 - $nil and $nil).
9. Research and development
| |
|
Three months ended
September 30 |
|
|
Six months ended
September 30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and benefits |
|
393,941 |
|
|
461,577 |
|
|
804,448 |
|
|
964,338 |
|
| Intellectual property |
|
293,207 |
|
|
141,326 |
|
|
385,549 |
|
|
304,641 |
|
| Amortization of deferred development costs |
|
105,376 |
|
|
105,375 |
|
|
210,751 |
|
|
210,751 |
|
| Laboratory operation |
|
74,948 |
|
|
98,545 |
|
|
161,027 |
|
|
176,294 |
|
| Depreciation of property and equipment |
|
69,586 |
|
|
50,783 |
|
|
123,218 |
|
|
99,103 |
|
| Rent |
|
30,087 |
|
|
29,155 |
|
|
60,088 |
|
|
58,021 |
|
| Analyses and testing |
|
315,009 |
|
|
22,661 |
|
|
360,882 |
|
|
36,715 |
|
| |
|
1,282,154 |
|
|
909,422 |
|
|
2,105,963 |
|
|
1,849,863 |
|
| Government assistance |
|
(131,953 |
) |
|
- |
|
|
(272,095 |
) |
|
- |
|
| Research and development expenses |
|
1,150,201 |
|
|
909,422 |
|
|
1,833,868 |
|
|
1,849,863 |
|
10. General and administrative
| |
|
Three months ended
September 30, |
|
|
Six months ended
September 30, |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and benefits |
|
353,477 |
|
|
427,855 |
|
|
759,701 |
|
|
964,563 |
|
| Professional fees (Note 7 (c)) |
|
316,708 |
|
|
194,061 |
|
|
694,208 |
|
|
360,427 |
|
| Office supplies and services |
|
75,284 |
|
|
57,433 |
|
|
145,704 |
|
|
118,983 |
|
| Travel and meals |
|
18,671 |
|
|
54,795 |
|
|
57,343 |
|
|
81,931 |
|
| Investor relations |
|
128,389 |
|
|
56,399 |
|
|
314,657 |
|
|
70,120 |
|
| Transfer agent and filing fees |
|
4,335 |
|
|
3,457 |
|
|
20,525 |
|
|
21,299 |
|
| Other |
|
43,077 |
|
|
9,157 |
|
|
52,420 |
|
|
18,323 |
|
| |
|
939,941 |
|
|
803,157 |
|
|
2,044,558 |
|
|
1,635,646 |
|
| Government assistance |
|
(5,461 |
) |
|
- |
|
|
(6,370 |
) |
|
- |
|
| General and administrative expenses |
|
934,480 |
|
|
803,157 |
|
|
2,038,188 |
|
|
1,635,646 |
|
11. Basic and diluted loss per share
The following table sets forth the computation of basic and diluted loss per share:
| |
|
Three months ended
September 30 |
|
|
Six months ended
September 30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024
$ |
|
|
2023
$ |
|
|
2024
$ |
|
|
2023
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss for the period, being loss attributable to common shareholders - basic and diluted |
|
(2,354,987 |
) |
|
(1,433,619 |
) |
|
(4,224,258 |
) |
|
(3,345,702 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares - basic and diluted |
|
142,167,226 |
|
|
121,669,869 |
|
|
142,129,494 |
|
|
118,846,730 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted loss per share |
|
(0.02 |
) |
|
(0.01 |
) |
|
(0.03 |
) |
|
(0.03 |
) |
For the three and six months ended September 30, 2024 and 2023, the Company excluded all potential common share equivalents from the diluted loss per share calculation as they were anti-dilutive.
12. Key management compensation
Key management personnel ("KMP") are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. KMP includes the Company's CEO, CFO and directors. Remuneration of KMP comprises:
| |
|
Six months ended September 30, |
|
| |
|
2024 |
|
|
2023 |
|
| |
|
|
|
|
|
|
| Short-term benefits |
|
432,282 |
|
|
441,401 |
|
| Option-based awards |
|
64,461 |
|
|
104,415 |
|
| |
|
496,743 |
|
|
545,816 |
|
Short-term benefits comprise salaries, professional fees, director fees and employment benefits.
13. Financial instruments
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficult in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by monitoring actual and forecasted cash flows taking into account current and planned operations.
The contractual cash flows of Secured Loan include accrued interest expense payable.
| September 30, 2024 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
897,646 |
|
|
897,646 |
|
|
897,646 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
101,620 |
|
|
122,534 |
|
|
32,655 |
|
|
33,277 |
|
|
56,602 |
|
| Secured loan |
|
6,696,770 |
|
|
6,814,027 |
|
|
5,756,164 |
|
|
1,057,863 |
|
|
- |
|
| |
|
7,696,036 |
|
|
7,834,207 |
|
|
6,686,465 |
|
|
1,091,140 |
|
|
56,602 |
|
| March 31, 2024 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
843,449 |
|
|
843,449 |
|
|
843,449 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
260,845 |
|
|
273,093 |
|
|
273,093 |
|
|
- |
|
|
- |
|
| Secured loan |
|
6,404,778 |
|
|
6,573,370 |
|
|
- |
|
|
6,573,370 |
|
|
- |
|
| |
|
7,509,072 |
|
|
7,689,912 |
|
|
1,116,542 |
|
|
6,573,370 |
|
|
- |
|
Fair value
The fair value of the Company's short-term financial assets and financial liabilities, including cash, amounts receivable, accounts payable and accrued liabilities approximates their carrying values due to the short-term maturities of these financial instruments.
The carrying values and fair values of financial instruments, by class, are as follows:
| As at September 30, 2024 |
|
At fair value
through profit
or loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities at
amortized cost |
|
|
Fair value |
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
1,036,992 |
|
|
- |
|
|
1,036,992 |
|
| Amounts receivable |
|
- |
|
|
197,165 |
|
|
- |
|
|
197,165 |
|
| |
|
- |
|
|
1,234,157 |
|
|
- |
|
|
1,234,157 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
897,646 |
|
|
897,646 |
|
| Secured loan |
|
- |
|
|
- |
|
|
6,696,770 |
|
|
6,696,770 |
|
| |
|
|
|
|
|
|
|
7,594,416 |
|
|
7,594,416 |
|
| As at March 31, 2024 |
|
At fair value
through profit
or loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities at
amortized cost |
|
|
Fair value |
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
4,197,141 |
|
|
- |
|
|
4,197,141 |
|
| Amounts receivable |
|
- |
|
|
465,330 |
|
|
- |
|
|
465,330 |
|
| |
|
- |
|
|
4,662,471 |
|
|
- |
|
|
4,662,471 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
843,449 |
|
|
843,449 |
|
| Secured loan |
|
- |
|
|
- |
|
|
6,404,778 |
|
|
6,404,778 |
|
| |
|
- |
|
|
- |
|
|
7,248,227 |
|
|
7,248,227 |
|
14. Related party transactions
In June 2022, Burcon entered into a loan agreement with Large Scale Investments Limited, a wholly-owned subsidiary of Firewood Elite Limited ("Firewood"), for a secured loan of up to $10 million that would be made available to Burcon in two tranches of $5 million. Firewood, a related party of Burcon that has significant influence over the Company, is wholly-owned by Mr. Alan Chan, a director of the Company. Refer to Note 6.
In March 2024, the Company entered into a one-year consulting agreement with a director of the Company for the provision of financial and strategic advisory services. As compensation of the services, the Company issued 5,000,000 warrants ("Consultant Warrants") which are exercisable to acquire one common share at an exercise price of $0.27 up to June 25, 2026. Vesting of the Consultant Warrants are subject to shareholder approval, which was obtained at the Company's annual general meeting held on September 18, 2024. Refer to Note 7 (c).
15. Segment information
The Company operates in a single reportable operating segment and geographic location involving the development of plant-based proteins. All non-current assets are located in Canada.
All revenues were generated in Canada.
(All amounts following are expressed in Canadian dollars unless otherwise indicated.)
This Management's Discussion and Analysis ("MD&A") has been prepared as at November 14, 2024 to provide a meaningful understanding of Burcon NutraScience Corporation's ("Burcon" or the "Company") operations, performance, and financial condition for the three and six months ended September 30, 2024. The following information should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements and related notes for the periods ended September 30, 2024 and 2023, which are prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"), as well as the audited consolidated annual financial statements for the year ended March 31, 2024. We have prepared this MD&A with reference to National Instrument 51-102 "Continuous Disclosure Obligations" of the Canadian Securities Administrators. Additional information relating to Burcon, including the Company's Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This MD&A contains certain "forward-looking statements" and "forward-looking information" as defined under applicable Canadian and U.S. securities laws (collectively, "forward-looking statements"), which may include, but are not limited to, statements with respect to possible events, conditions, acquisitions, or results of operations that are based on assumptions about future conditions and courses of action and include future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection, and also include, but are not limited to, statements with respect to the future financial and operating performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. When used in this MD&A the words "estimate", "budget", "project", "believe", "anticipate", "intend", "expect", "plan", "projects", "predict", "may", "should", "will", or the negatives of these words or other variations thereof and comparable terminology or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved are intended to identify forward-looking statements. The forward-looking statements pertain to, among other things:
- continued development of the Company's products and business;
- the Company's growth strategy;
- the Company's strategies for commercialization of its products;
- production costs and pricing of its plant proteins;
- marketing strategies for Company's plant proteins;
- development of commercial applications for its plant proteins;
- ability to produce proteins and protein isolates in commercial quantities with sufficient grade and quality at cost-effective prices;
- ability to produce proteins and protein isolates at a cost level which will make them competitive with animal proteins;
- construction, commissioning and operation of production facilities;
- future protection of intellectual property and improvements to existing processes and products;
- input and other costs; and
- liquidity and working capital.
The forward-looking statements are based on a number of key expectations and assumptions made by management of the Company, including, but not limited to:
- the Company's ability to identify a suitable joint venture partner for its protein extraction and purification strategies;
- the Company's ability to execute its strategic and business strategies;
- the Company's and its potential partners' ability to construct, acquire, commission and operate its production facility;
- the Company's ability to contract with partner manufacturers to produce its plant proteins;
- the Company's or its licensing partners' ability to generate new sales;
- the Company's or its potential licensing partners' ability to produce, deliver and sell the expected product volumes at the expected prices;
- the Company's ability to obtain required regulatory approvals;
- the Company's ability to control costs;
- the Company's ability to obtain and maintain intellectual property rights and trade secret protection;
- market acceptance and demand for the Company's or its licensing partners' products;
- the successful execution of the Company's business plan;
- achievement of current timetables for product development programs and sales;
- the availability and cost of labour and supplies;
- the availability of additional capital; and
- general economic and financial market conditions.
Although the Company believes that the factors and assumptions used to develop the forward-looking statements are reasonable, undue reliance should not be placed on such forward-looking statements. The forward-looking statements reflect the Company's current views with respect to future events based on currently available information and are inherently subject to risks and uncertainties. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this MD&A, including, but not limited to:
- the condition of the global economy;
- market acceptance of the Company's products;
- availability of input materials;
- changes in input materials and product pricing;
- changes in the Company's customers' requirements, the competitive environment and related market conditions;
- delays in the construction, commissioning and operation of production facilities;
- product development delays;
- changes in the availability or price of labour and supplies;
- the Company's ability to attract and retain business partners, suppliers, employees and customers;
- changing food or feed ingredient industry regulations;
- the Company's access to funding and its ability to provide the capital required for product development, operations and marketing efforts, and working capital requirements; and
- the Company's ability to protect its intellectual property;
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Although the Company has attempted to identify important factors that could cause actual results to differ materially from forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated, described or intended. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect changes in assumptions or the occurrence of anticipated or unanticipated events, except as required by law.
The Company qualifies all the forward-looking statements contained in this MD&A by the foregoing cautionary statements.
GOING CONCERN
These condensed consolidated interim financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes that Burcon will continue its operations and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations for the foreseeable future. In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.
The Company has incurred losses since its inception and as at September 30, 2024, had an accumulated deficit of $146.3 million (March 31, 2024 - $142.0 million) and negative working capital (current liabilities in excess of current assets) of $4.8 million.. During the six months ended September 30, 2024, the Company incurred a net loss of $4.2 million (2023 - $3.3 million) and had negative cash flow from operations of $3.0 million (2023 - $2.6 million).
The Company began commercial production of its hemp protein isolate in the year ended March 31, 2024, and in the six months ended September 30, 2024, the Company began commercial production of its canola protein isolate. During the six months ended September 30, 2024, the Company generated revenue from the sale of protein isolate and from the provision of contract research services. The Company has not earned significant revenues from its technologies.
Subsequent to September 30, 2024, the Company extended the maturity date of tranche 1 of the secured loan to July 1, 2026 and requested a draw of $1.0 million on tranche 2 of the secured loan (refer to page 8). These actions remedied the negative working capital balance as at September 30, 2024. The Company has a further $3.0 million of undrawn capacity on tranche 2 of the secured loan.
The Company's ability to continue as a going concern is dependent upon the Company's ability to successfully commercialize its technologies, scale production and raise additional capital to fund its planned commercialization and research and development activities. The Company has historically relied on equity and debt financing to fund its operations. The Company's current working capital and revenues are not expected to provide the Company with adequate funding to its short-term obligations for the next 12 months and to successfully commercialize its technologies and scale production. While the Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities, there can be no assurance that additional financing may be available on acceptable terms, if at all. If Burcon is unable to raise additional funds when it needs them, it may be required to delay, reduce or eliminate some or all of its commercialization efforts or research and development programs. Therefore, these conditions result in material uncertainties that cast significant doubt over the Company's ability to continue as a going concern.
These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to meet its commitments, realize its assets and discharge its liabilities in the normal course. These condensed consolidated interim financial statements do not reflect adjustments to the carrying values of assets and liabilities that would be necessary if the Company was unable to continue as a going concern and such adjustments could be material.
OVERVIEW OF THE COMPANY AND ITS BUSINESS
Burcon is a global technology leader in the development of plant-based proteins, having developed an extensive portfolio of composition, application, and process patents covering novel plant-based proteins derived from pea, canola, soy, hemp, sunflower seed and more. Our environmentally friendly and sustainable technologies have been developed at our own research facility led by our team of highly specialized scientists and engineers. Our patent portfolio currently consists of 113 issued patents worldwide, including 60 issued U.S. patents, and 85 additional patent applications, 13 of which are U.S. patent applications.
WINNIPEG TECHNICAL CENTRE (the "WTC")
During the six months ended September 30, 2024, the WTC focused on further development of its novel processes, including sunflower protein, hemp protein and canola protein isolates.
In May 2023, Burcon announced that it has successfully completed end-to-end validation trials of its novel sunflower protein process that was developed during fiscal 2023, using commercial-scale equipment at the WTC. Burcon has validated that its sunflower protein process is ready for commercial scale-up. During fiscal 2024 and in the six months ended September 30, 2024, Burcon entered into a number of material transfer agreements with potential customers and has received positive feedback. Burcon continues to explore potential opportunities to commercialize its sunflower protein process.
In May 2023, Burcon announced that it will be expanding its protein development and innovation business by offering pilot plant processing and scale-up validation as a service for third parties. Burcon's WTC comprises 10,000 square feet of lab and pilot-scale production area utilizing state-of-the-art commercial processing equipment for start-to-finish product development. Manufacturers looking to upcycle by-products, develop end-to-end processes or to validate and scale-up a process can leverage the Company's infrastructure and food processing expertise. During the six months ended September 30, 2024, Burcon has undertaken multiple contract research services agreements and continues to engage in discussions with existing and prospective customers to provide contract services.
STRATEGIC PARTNERSHIPS AND COLLABORATIONS
Burcon continued with its discussions and negotiations with potential partners on additional plant-based protein opportunities. As part of Burcon's strategy to get closer to customers and end markets and to have greater control over the manufacture of Burcon's proteins, the Company is evaluating and pursuing multiple routes-to-market. Concurrent with partnership discussions, Burcon is exploring additional routes-to-market with the goal of reducing the time required to achieve commercial production and sales.
HEMPSEED PROTEIN ISOLATE AND COLLABORATION
In July 2023, Burcon announced that it has partnered with HPS Food and Ingredients Inc. ("HPS"), a global leader in hempseed-based food ingredients, to explore the commercialization of Burcon's hempseed protein isolate. Burcon's novel hempseed protein isolate contains 95% protein, has a neutral flavour profile, exhibits an off-white colour, and disperse well when mixed in solution. These functional attributes are expected to enable the hempseed protein isolate to formulate well in various applications including beverages, snacks, bars, baked goods, plant-based dairy and meat alternatives. In addition, Burcon's hempseed protein isolate technology uses hempseed grown and processed in North America, which is known for its minimal environmental footprint, its role in promoting soil health, and regenerative agriculture.
This goal of this collaboration is to capitalize on the hempseed protein market trend and deliver plant-based protein solutions to customers worldwide. Through this partnership, Burcon and HPS aim to leverage their combined expertise to accelerate market adoption of Burcon's hempseed protein isolate ("Hemp Product").
After completion of certain market development work and due diligence, Burcon and HPS launched the novel Hemp Product at the Institute of Foods Technologies 2023 Annual Meeting and Exposition held in Chicago, IL in July 2023. Thereafter, Burcon and HPS are continuing to showcase the Hemp Product at various tradeshows, including Natural Products Expo East in Philadelphia, PA, SupplySide West in Las Vegas, NV, Natural Products Expo West in Anaheim, CA and SupplySide East in Secaucus, NJ.
Burcon and HPS have received extensive positive feedback and requests for product samples from potential customers. Burcon and HPS have been working with potential customers in providing samples, comprehensive product data including nutritional information, specifications and application concept sheets and collaborating to develop consumer food applications.
In December 2023, Burcon announced that it had entered into a production agreement with its partner manufacturer to bring the Hemp Product to market. Burcon combined its proprietary equipment with existing infrastructure and manufacturing capabilities of its contract partner to commercially produce the Hemp Products.
In March 2024, Burcon announced that it had successfully completed end-to-end validation trials and the start of commercial-scale production for the world's first high purity 95% hemp protein isolate. During the six months ended September 30, 2024, Burcon achieved its first commercial sale of the Hemp Product.
CANOLA PROTEIN LAUNCH
In May 2024, Burcon announced the launch of its high-purity, nutritionally complete canola protein, derived from non-GMO, Canadian-grown canola seeds. With over 90% protein purity, a neutral flavour, high solubility across a broad pH range, and other functionality attributes, this protein is expected to allow food ingredient companies to create a wide range of innovative, nutritious, sustainable and great-tasting food and beverage products.
In the six months ended September 30, 2024, the Company began commercial production of its canola protein and completed its first sales. The Company expects sales of the canola protein to ramp through the latter half of fiscal 2025.
CFO APPOINTMENT
On July 1, 2024, Mr. Robert Peets, a seasoned strategy and finance executive, was appointed Chief Financial Officer ("CFO") of the Company. He acts in a fractional capacity and succeeds Ms. Jade Cheng, who stepped down as CFO effective June 30, 2024 for a personal hiatus and to pursue new opportunities. Mr. Peets brings a wealth of experience with a distinguished career spanning over 30 years in financial management, strategic planning, and capital markets. Mr. Peets currently holds the role of fractional CFO for multiple technology companies, leading their development in corporate and financial strategies. He was formerly a Partner at TELUS Ventures, where he was part of the team which managed a $400 million investment portfolio and personally executed over 50 equity and debt transactions in venture-backed companies.
OTCQB LISTING
On May 8, 2024, Burcon's common shares began trading in the US on the OTCQB Venture Market, under the symbol "BRCNF".
PRIVATE PLACEMENT
In the year ended March 31, 2024, the Company completed two private placements and raised aggregate gross proceeds of $7.8 million and net proceeds of $7.6 million after issue costs of $0.2 million.
The Company is using the proceeds from the May 2023 and March 2024 private placements to accelerate its commercial plans to meet customer demand for its protein products, accelerate launch plans for its protein products, fund activities associated with the production and sale of its hemp proteins, fund activities associated with efforts to identify a strategic partner for the commercialization of Burcon's other proteins, including sunflower, further develop Burcon's protein extraction and purification technologies and pursue new related products, fund Burcon's patent activities, and to fund general working capital.
PROTEIN INDUSTRIES CANADA
Protein Industries Canada ("PIC") is an industry-led, not-for-profit organization committed to positioning Canada as a global source of high-quality plant protein ingredients. It is one of Canada's five innovation superclusters, which are government-initiated efforts to significantly boost Canada's job market, GDP, research and innovations.
In March 2024, Burcon announced that it had entered into a collaborative agreement with PIC for the scale-up and commercialization of hempseed and sunflower seed protein. In collaboration with HPS and Puratos Canada, a manufacturer and supplier of bakery ingredients, Burcon will lead the commercialization efforts for its high purity hempseed and sunflower seed protein ingredients.
During the three and six months ended September 30, 2024, Burcon recorded PIC grants of $217,915 and $557,747, respectively, (2023 - $nil and $nil) as government assistance against research and development expenses, general and administrative expenses, inventory, and property and equipment, of which $nil is included in amounts receivable (March 31, 2024 - $457,118). As at September 30, 2024 Burcon had received $187,166 in advance payments in respect of eligible expenses to be incurred in subsequent periods, which is recognized as deferred revenue and government assistance (March 31, 2024 - $250,000).
SECURED LOAN
As at September 30, 2024, the principal amount outstanding from the first tranche of the Secured Loan is $5.0 million (March 31, 2024 - $5.0 million) and from the second tranche of the Secured Loan is $1.0 million (March 31, 2024 - $1.0 million). Refer to page 14 for discussion of the related party nature of the Secured Loan.
| |
|
Six months ended
September 30,
2024 |
|
|
Year ended
March 31,
2024 |
|
| |
|
|
|
|
|
|
| Balance, beginning of period |
|
6,404,778 |
|
|
5,112,381 |
|
| Draw downs |
|
- |
|
|
1,000,000 |
|
| Debt issue costs |
|
- |
|
|
(50,000 |
) |
| Interest expense accreted |
|
291,992 |
|
|
342,397 |
|
| Balance, end of period |
|
6,696,770 |
|
|
6,404,778 |
|
Subsequent to September 30, 2024, Burcon entered into a letter agreement to amend the first tranche maturity date to July 1, 2026.=
Subsequent to September 30, 2024, Burcon requested a draw of $1.0 million on the second tranche of the Secured Loan.
INTELLECTUAL PROPERTY
Burcon's patent strategy is to seek protection for new technologies as well as further protecting current technologies. Over the years, Burcon has filed patent applications in various countries over its inventions. Burcon's patent applications can be grouped into three categories:
- Applications to protect additional novel protein extraction and purification technologies;
- Applications to protect the uses of Puratein®, Supertein®, Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® and Peazac® pea proteins, and other plant proteins including sunflower and hemp proteins, for example, as functional food and beverage ingredients; and
- Applications to protect the "signature characteristics" of Puratein®, Supertein®, Nutratein® canola proteins, CLARISOY® soy protein, Peazazz® and Peazac® pea proteins, and other plant proteins, including sunflower and hemp proteins.
As part of Burcon's regular review of its patent portfolio, Burcon focuses its efforts on the maintenance and prosecution of patents that are essential to achieving its strategic efforts. Accordingly, Burcon may defer or cease its maintenance payments on certain non-core patents and patent applications which it deems to be non-essential or redundant for the purposes of achieving its strategic objectives.
Burcon currently holds 60 U.S. issued patents relating to canola protein, soy protein, pulse (including pea) protein, flax protein and protein from other oilseeds including sunflower and hemp. In addition, Burcon has a further 13 patent applications currently filed with the U.S. Patent and Trademark Office.
As of the date of this MD&A, Burcon's patents and patent applications cover 50 distinct inventions. Burcon has also filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. Together with patents issued in other countries, Burcon now holds a total of 113 issued patents covering inventions that include the 60 granted U.S. patents. Currently, Burcon has 85 additional patent applications that are being reviewed by the respective patent offices in various countries.
In the six months ended September 30, 2024, Three Burcon inventions entered the national phase and filed applications for protection in various countries worldwide.
RESULTS OF OPERATIONS
As at September 30, 2024, Burcon has not yet generated significant revenues from its technologies. For the three and six months ended September 30, 2024, the Company recorded a loss of $2,354,987 ($0.02 per share) and $4,224,258 ($0.03 per share), respectively, as compared to $1,433,619 ($0.01 per share) and $3,345,702 ($0.03 per share) in the same periods last year.
For the three and six months ended September 30, 2024, Burcon recorded revenues of $40,458 and $277,075, respectively, (2023 - $nil and $nil) from sales of Products and the provision of contract research services. For the three and six months ended September 30, 2024, Burcon recorded royalty revenues of $nil and $nil, respectively, ($2023 - $184,359 and $184,359).
The following provides a comparative analysis of significant changes in major expenditures items.
Research and development expenses
Components of research and development ("R&D") expenditures are as follows:
(in thousands of dollars)
| |
|
Three months ended September 30, |
|
|
Six months ended September 30, |
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Salaries and benefits |
|
394 |
|
|
462 |
|
|
804 |
|
|
964 |
|
| Intellectual property |
|
293 |
|
|
141 |
|
|
386 |
|
|
305 |
|
| Amortization of deferred development costs |
|
105 |
|
|
105 |
|
|
211 |
|
|
211 |
|
| Laboratory operation |
|
75 |
|
|
99 |
|
|
161 |
|
|
176 |
|
| Amortization of property and equipment |
|
70 |
|
|
51 |
|
|
123 |
|
|
99 |
|
| Rent |
|
30 |
|
|
29 |
|
|
60 |
|
|
58 |
|
| Analyses and testing |
|
315 |
|
|
22 |
|
|
360 |
|
|
37 |
|
| Gross research and development expenses |
|
1,282 |
|
|
909 |
|
|
2,105 |
|
|
1,850 |
|
| Government assistance |
|
(132 |
) |
|
- |
|
|
(272 |
) |
|
- |
|
| Net research and development expenses |
|
1,150 |
|
|
909 |
|
|
1,833 |
|
|
1,850 |
|
Salaries and benefits
Gross salaries for the three and six months ended September 30, 2024 decreased by $68,000 and $160,000, respectively, over the same periods in the prior year. The decrease is driven by lower stock-based compensation expense, due to a lower number of RSU grants as well as a lower fair value of option grants.
Intellectual Property
Intellectual property ("IP") comprises mainly patent fees and disbursements for the prosecution and maintenance of Burcon's patent portfolio. Burcon's patent strategy is to seek protection for new technologies as well as further protecting current technologies. Over the years, Burcon believes it has developed a dynamic and extensive patent portfolio and has filed patent applications in various countries over its inventions.
In the three and six months ended September 30, 2024, IP increased by $152,000 and $81,000, respectively, in comparison to the same periods in the prior year. The increase is driven by the Company having three inventions entering the national phase of the patent application process, which also increased the Company's number of pending patent applications. These increases were partially offset by Burcon's continued efforts to focus its IP spend on patents that are essential to its strategy objective and cease maintenance payments on non-core patents and patent applications.
Analyses and testing
Analyses and testing for the three and six months ended September 30, 2024 increased by $293,000 and $323,000, respectively, over the same periods in the prior year. The increase is driven by the launch of commercial production of commercial protein isolate and the necessary analyses and testing costs incurred to support a successful commercialization effort.
Government assistance
Government assistance for the three and six months ended September 30, 2024 increased by $132,000 and $272,000, respectively, over the same periods in the prior year when no government assistance was received. In the prior year comparable periods, there was no active government funding project. As detailed on page 7, the Company has an active project with PIC that provides government assistance for the scale-up and commercialization of hempseed and sunflower seed protein isolates.
General and administrative expenses
Components of general and administrative ("G&A") expenditures are as follows:
(in thousands of dollars)
| |
|
Three months ended September 30, |
|
|
Six months ended September 30, |
|
| |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Salaries and benefits |
|
353 |
|
|
428 |
|
|
760 |
|
|
965 |
|
| Professional fees |
|
317 |
|
|
194 |
|
|
694 |
|
|
360 |
|
| Office supplies and services |
|
75 |
|
|
58 |
|
|
146 |
|
|
119 |
|
| Travel and meals |
|
19 |
|
|
55 |
|
|
57 |
|
|
82 |
|
| Transfer agent and filing fees |
|
4 |
|
|
3 |
|
|
20 |
|
|
21 |
|
| Investor relations |
|
128 |
|
|
56 |
|
|
315 |
|
|
70 |
|
| Other |
|
43 |
|
|
9 |
|
|
52 |
|
|
18 |
|
| Gross general and administrative expenses |
|
939 |
|
|
803 |
|
|
2,044 |
|
|
1,635 |
|
| Government assistance |
|
(5 |
) |
|
- |
|
|
(6 |
) |
|
- |
|
| Net general and administrative expenses |
|
934 |
|
|
803 |
|
|
2,038 |
|
|
1,635 |
|
Salaries and benefits
For the three and six months ended September 30, 2024, salaries and benefits decreased $75,000 and $205,000, respectively, over the same year-ago quarter. The lower expense is due mainly to lower stock-based compensation and a staff changes, partially offset by higher director fees from the suspension of fee payment during this prior year quarter.
Professional fees
For the three and six months ended September 30, 2024, professional fees increased $123,000 and $334,000, respectively, over the same year-ago periods. The increase is primarily driven by a $225,000 increase in stock-based compensation in respect of warrants issued in exchange for the provision of financial and strategic advisory services (refer to Related Party Transactions on page 14). The remaining increase is attributed to an increase in consultants hired in respect of business development as the Company launched the production and sales processes for the hemp and canola proteins.
Investor relations
For the three and six months ended September 30, 2024, investor relations expenses increased by $72,000 and $245,000 over the same periods last year. The increase is due the engagement of investor relations firms to increase the Company's investor outreach.
LIQUIDITY AND FINANCIAL POSITION
At September 30, 2024, the Company had cash and cash equivalents of $1.0 million (March 31, 2024 - $4.2 million) and access to $4.0 million (March 31, 2024 - $4.0 million) of undrawn capacity on tranche 2 of the Secured Loan. Subsequent to September 30, 2024, the Company requested a draw of $1.0 million on Tranche 2 of the Secured Loan and has a remaining $3.0 million of undrawn capacity on this tranche.
The net cash used in operations during the six months ended September 30, 2024 was $3.0 million as compared to $2.6 million in the same period last year. The increase in net cash used in operations of $444,000 is primarily driven by increased R&D expenditures as a result of launching commercial production of the hemp and canola protein isolates and the pursuit of additional patents. The increase is further driven by increased G&A expenditures as the Company relaunched its investor relations outreach. These increases are partially offset by the receipt of government funding in the three and six months ended September 30, 2024 of $217,915 and $557,747, respectively, (2023 - $nil and $nil).
At September 30, 2024, Burcon had negative working capital of $4.8 million (March 31, 2024 - positive working capital of $3.8 million). The negative working capital is driven by tranche 1 of the Secured Loan becoming current (refer to page 14 for further detail on this related party transaction) and cash used in operations over the six month period. Subsequent to September 30, 2024, the Company extended the maturity date of tranche 1 to July 1, 2026, remediating the working capital deficiency.
As at September 30, 2024, Burcon had commitments for contract manufacturing totaling $1,080,000 of which the Company has paid deposits of $122,500. Subsequent to September 30, 2024, the counterparty agreed to waive $770,000 of the contract manufacturing commitments, subject to certain conditions to be fulfilled by December 6, 2024. The Company has not committed to significant capital expenditures. Burcon expects to incur an additional $385,000 in patent expenditures for the balance of fiscal 2025.
In the prior year, the Company began commercial production of its hemp protein isolate and during the six months ended September 30, 2024, the Company began commercial production of its canola protein isolate and completed its first sales of hemp and canola protein isolates. During the six months ended September 30, 2024, Burcon has successfully completed multiple contract research services agreements and continues to engage in discussions with these customers and other parties to provide contract services.
The Company is considering various financing options for its short-term and long-term liquidity requirements to maintain its operations and fund its commercialization and research and development activities. There can be no assurance that additional financing may be available on acceptable terms, if at all.
FINANCIAL INSTRUMENTS
The Company's financial instruments are cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities and Secured Loan.
Liquidity risk
The Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by monitoring actual and forecasted cash flows taking into account current and planned operations.
(in thousands of dollars)
| September 30, 2024 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
898 |
|
|
898 |
|
|
898 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
102 |
|
|
123 |
|
|
33 |
|
|
33 |
|
|
57 |
|
| Secured Loan |
|
6,697 |
|
|
6,814 |
|
|
5,756 |
|
|
1,058 |
|
|
- |
|
| |
|
7,697 |
|
|
7,835 |
|
|
6,687 |
|
|
1,091 |
|
|
57 |
|
| March 31, 2024 |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
1 year |
|
|
2 years |
|
|
3-5 years |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
843 |
|
|
843 |
|
|
843 |
|
|
- |
|
|
- |
|
| Lease liabilities |
|
261 |
|
|
273 |
|
|
273 |
|
|
- |
|
|
- |
|
| Secured Loan |
|
6,405 |
|
|
6,573 |
|
|
- |
|
|
6,573 |
|
|
- |
|
| |
|
7,509 |
|
|
7,689 |
|
|
1,116 |
|
|
6,573 |
|
|
- |
|
The contractual cash flows of Secured Loan include accrued interest expense payable.
Fair value
The fair value of the Company's short-term financial assets and financial liabilities, including cash, amounts receivable, accounts payable and accrued liabilities approximates their carrying values due to the short-term maturities of these financial instruments.
The carrying values and fair values of financial instruments, by class, are as:
(in thousands of dollars)
| September 30, 2024 |
|
At fair
value
through
profit or
loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities
at
amortized
cost |
|
|
Fair value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
1,037 |
|
|
- |
|
|
1,037 |
|
| Amounts receivable |
|
- |
|
|
197 |
|
|
- |
|
|
197 |
|
| |
|
- |
|
|
1,234 |
|
|
- |
|
|
1,234 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
898 |
|
|
898 |
|
| Secured loan |
|
- |
|
|
- |
|
|
6,697 |
|
|
6,697 |
|
| |
|
- |
|
|
- |
|
|
7,595 |
|
|
7,595 |
|
| March 31, 2024 |
|
At fair
value
through
profit or
loss |
|
|
Financial
assets at
amortized
cost |
|
|
Financial
liabilities
at
amortized
cost |
|
|
Fair value |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
- |
|
|
4,197 |
|
|
- |
|
|
4,197 |
|
| Amounts receivable |
|
- |
|
|
465 |
|
|
- |
|
|
465 |
|
| |
|
- |
|
|
4,662 |
|
|
- |
|
|
4,662 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
|
- |
|
|
- |
|
|
843 |
|
|
843 |
|
| Secured loan |
|
- |
|
|
- |
|
|
6,405 |
|
|
6,405 |
|
| |
|
- |
|
|
- |
|
|
7,248 |
|
|
7,248 |
|
OUTSTANDING SHARE DATA
As at September 30, 2024, Burcon had 142,628,096 common shares outstanding, 9,150,900 stock options outstanding exercisable at a weighted average exercise price of $1.40 per share, 28,030,037 share purchase warrants outstanding that are exercisable at a weighted average price of $0.31 per share, and 323,000 restricted share units outstanding.
As at the date of this MD&A, Burcon had 142,628,096 common shares outstanding, 28,030,037 share purchase warrants that are exercisable at a weighted average exercise price of $0.31 per share, 8,845,056 stock options outstanding exercisable at a weighted average exercise price of $1.38 per share, and 323,000 restricted share units outstanding.
QUARTERLY FINANCIAL DATA
(Derived from unaudited interim financial statements. All figures in thousands of dollars, except per-share amounts)
| |
|
Three months ended |
|
| |
|
September 30,
2024 |
|
|
June 30,
2024 |
|
|
March 31,
2024 |
|
|
December 31,
2023 |
|
| Revenue |
|
40 |
|
|
237 |
|
|
- |
|
|
- |
|
| Interest and other income |
|
14 |
|
|
29 |
|
|
18 |
|
|
14 |
|
| Total comprehensive loss for the period |
|
(2,355 |
) |
|
(1,869 |
) |
|
(2,069 |
) |
|
(2,031 |
) |
| Basic and diluted loss per share |
|
(0.02 |
) |
|
(0.01 |
) |
|
(0.02 |
) |
|
(0.02 |
) |
| |
|
Three months ended |
|
| |
|
September 30,
2023 |
|
|
June 30,
2023 |
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
| Revenue |
|
184 |
|
|
- |
|
|
- |
|
|
161 |
|
| Interest and other income |
|
29 |
|
|
27 |
|
|
54 |
|
|
131 |
|
| Management fee income |
|
- |
|
|
- |
|
|
- |
|
|
19 |
|
| Impairment on investment in Merit Foods |
|
- |
|
|
- |
|
|
- |
|
|
(7,987 |
) |
| Impairment loss on loans to Merit Foods |
|
- |
|
|
- |
|
|
- |
|
|
(4,334 |
) |
| Total comprehensive loss for the period |
|
(1,434 |
) |
|
(1,912 |
) |
|
(1,831 |
) |
|
(16,303 |
) |
| Basic and diluted loss per share |
|
(0.01 |
) |
|
(0.02 |
) |
|
(0.02 |
) |
|
(0.15 |
) |
Fiscal 2025 first quarter loss increased by $921,000 over the same quarter in fiscal 2024. The increased loss is primarily driven by higher research and development spend, increased general and administrative expenditures, and lower revenue. These increases were partially offset by increased government funding received in the current quarter compared to the comparable year ago quarter.
RELATED PARTY TRANSACTIONS
In June 2022, Burcon entered into a loan agreement with Large Scale Investments Limited, a wholly-owned subsidiary of Firewood Elite Limited ("Firewood"), for a secured loan of up to $10 million that would be made available to Burcon in two tranches of $5 million. Firewood, a related party of Burcon that has significant influence over the Company, is wholly-owned by Mr. Alan Chan, a director of the Company. During the three and six months ended September 30, 2024, the Company recorded interest expense of $148,423 and $291,993, respectively, (2023 - $133,195 and $245,427) on the Secured Loan.
In March 2024, the Company entered into a one-year consulting agreement with a director of the Company for the provision of financial and strategic advisory services. As compensation of the services, the Company issued 5,000,000 warrants ("Consultant Warrants") which are exercisable to acquire one common share at an exercise price of $0.27 up to June 25, 2026. Vesting of the Consultant Warrants are subject to shareholder approval, which was obtained at the Company's annual general meeting held on September 18, 2024. During the three and six months ended September 30, 2024, the Company recorded $112,500 and $225,000, respectively, (2023 - $nil and $nil) in stock-based compensation from the Consultant Warrants within general and administrative expenses (professional fees).
CRITICAL ACCOUNTING ESTIMATES
The preparation of condensed consolidated interim financial statements in accordance with IFRS Accounting Standards requires management to apply judgment in applying accounting policies. The judgments that have the most significant effect on the amounts recognized in the consolidated financial statements are outlined below. In addition, IFRS Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements, the reported amount of revenue and expenses during the reporting period, and disclosures made in the accompanying notes to the condensed consolidated interim financial statements. Outlined below are the assumptions and other sources of estimation uncertainty as at September 30, 2024 that have a risk of resulting in material adjustments to the carrying amounts of assets and liabilities within the next year.
Areas of judgement
Judgment is used in situations when there is a choice and/or assessment required by management. The following are critical judgments apart from those involving estimations, that management has made in the process of applying the Company's accounting policies and that have a significant effect on the amounts recognized in the consolidated financial statements.
Going concern
The determination as to the Company's ability to continue as a going concern is dependent on its ability to commercialize its technology, scale production, and/or to secure debt and equity financing. Certain judgements were made when determining if and when the Company will successfully implement its commercialization efforts and to secure debt and equity financing.
Determination of Cash-Generating Units ("CGUs")
For the purposes of assessing impairment of goodwill and long-lived assets, the Company must identify CGUs. Assets and liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a CGU is subject to management judgment. The composition of a CGU can directly impact the recoverability of non-financial assets included within the CGU. Management has determined that the Company has one CGU.
Assessment of indicators of impairment of long-lived assets including property and equipment, deferred development costs, and goodwill
Judgment is required in assessing whether there are indicators of impairment of long-lived assets. The Company tests property and equipment and development costs for impairment whenever events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Management considers both internal and external information to determine whether there is an indicator of impairment and, accordingly, whether impairment testing is required.
Sources of estimation uncertainty
Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Company's financial results where a different estimate or assumption is used. The significant areas of estimation uncertainty are:
Expected credit loss
The Company recognizes an amount equal to the lifetime expected credit loss ("ECL") on amounts receivables and loans to Merit Foods for which there has been a significant increase in credit risk since initial recognition.
Useful lives of property and equipment and deferred development costs
Depreciation of property and equipment and amortization of deferred development costs are dependent upon estimates of useful lives and residual value which are determined through the use of assumptions. Estimates of residual value and useful lives are based on data and information from various sources including industry practice and historic experience. Although management believes the estimated useful lives of the Company's property and equipment and deferred development costs are reasonable, changes in estimates could occur, affecting the expected useful lives and salvage values of the property and equipment and intangible assets.
Goodwill impairment assessment
The Company determines the recoverable amount of its CGU when performing its annual impairment test for goodwill. In determining the recoverable amount, the Company considers its market capitalization in determining the recoverable amount. The estimate of recoverable amount is based on management's best estimates of what an independent market participant would consider appropriate.
Share-based payments
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. In estimating the fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of the Company's future share price, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in different outcomes.
NEWLY ADOPTED ACCOUNTING STANDARDS AND AMENDMENTS
Amendments to IAS 1 - Classification of Liabilities as Current or Non-Current
The amendment clarifies the classification requirements to determine if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing or recognition. The amendment was adopted on April 1, 2024 with retrospective application and the adoption did not have a significant impact on the consolidated financial statements.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer and Chief Financial Officer, as well as other executives, have designed disclosure control and procedures ("DC&P"), or have caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company has been made known to them. The officers have evaluated the effectiveness and design of its DC&P as at September 30, 2024 and have determined these controls to be effective. These officers are also responsible for designing and maintaining internal controls over financial reporting ("ICFR") or have caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of the Company's ICFR. They have evaluated and determined these internal controls and procedures over financial reporting as at September 30, 2024 and concluded they are effective.
During the six months ended September 30, 2024, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties that can significantly affect its financial condition and future operations. Key risks are outlined below. In addition, a detailed explanation of the risk factors which we face is provided in our AIF for the year ended March 31, 2024 under the section titled "Risk Factors", which is incorporated by reference herein. The AIF is available at www.sedar.com.
Patents and proprietary rights - Burcon's success will depend, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of others or having others infringe on its rights. Burcon has filed applications for most of its inventions internationally under the Patent Cooperation Treaty of the World Intellectual Property Organization. As at the date of this MD&A, Burcon has been granted a total of 113 patents in various countries covering a number of key processes and uses of Burcon's soy, pea, canola and flax protein products as functional food and beverage ingredients. Of those patents, 60 have been granted in the United States. Although Burcon expends significant resources and efforts to patent its discoveries and innovations, there can be no assurance that our patent applications will result in the issuance of patents, or any patents issued to Burcon will provide it with adequate protection or any competitive advantages, or that such patents will not be successfully challenged by third parties. Burcon cannot be assured that competitors will not independently develop products similar to the Company's products or manufacture products designed to circumvent the exclusive patent rights granted to the Company. Further, Burcon may need to incur significant expenditures in prosecuting claims against others whom it believes are infringing on its rights and by defending claims of intellectual property infringement brought by its competitors and others.
Development and commercialization - Since inception, Burcon has conducted research and development on a number of plant proteins, including soy, pea, canola, hemp, sunflower and others.
Although Merit Foods completed construction of and commissioned a production facility to commercialize Burcon's pea and canola proteins, it had not begun to generate significant revenues from the sale of the Products to March 1, 2023 when it was placed in receivership. As of the date of this MD&A, the sale process is ongoing. In July 2024, the Company completed its first commercial production of canola proteins and generated revenues from the sale of canola protein isolate in the six months ended September 30, 2024. It will take time for significant revenues to be generated from the sale of the proteins. Depending on the outcome of Merit Foods' sale process, Burcon may need to find alternative pathways to produce Burcon's pea proteins. No assurance can be given that Burcon will be able to find a solution to manufacture its pea proteins.
While Burcon launched and began commercial production of its hemp and canola proteins at its partner manufacturer facility, Burcon does not have an exclusive contract with this partner manufacturer and there is a risk that our partner may not be able to provide sufficient production capabilities to meet Burcon's needs.
Although Burcon is in various discussions with potential partners to commercialize its sunflower and soy proteins, there can be no assurance that a suitable partner will be found.
The long-term success of the Company's soy, pea, canola, hemp and sunflower proteins as well as pea protein / canola protein blends hinges upon market acceptance by food and feed ingredient manufacturers and suppliers in numerous product applications. There is no assurance that Burcon's products will meet industry standards, obtain market acceptance and within a reasonable time frame. In addition, Burcon faces pricing risks for its products as it must price its proteins at a premium to market in order to achieve its business objectives.
As at the date of this MD&A, other than hemp and canola, none of Burcon's other potential products are commercially available as a food ingredient. The rising popularity of plant proteins has resulted in significant growth with increased participation by competitors entering the market to produce plant proteins. Many competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing, and human resources than Burcon. These competitors may succeed in developing products earlier than Burcon, obtaining regulatory approvals for such products more rapidly than Burcon or in development of products that are more effective than those proposed to be developed by Burcon.
History of operating losses and financing requirements - Burcon has accumulated net losses of approximately $146.3 million from its date of incorporation through September 30, 2024. Burcon has reported insignificant royalty revenues from Merit Foods and from commercial sales of its hemp and canola protein isolates. It will take time for significant revenues to be generated from the sale of these proteins. Although Burcon has launched its plant processing and scale-up validation services in May 2023 and completed multiple service contracts as of the date of this MD&A, it is not expected to generate significant revenues for Burcon in the short-term. Burcon expects its accumulated losses to increase as it continues to commercialize its products, its research and development and its product application trials. Burcon expects to continue to incur substantial losses for the foreseeable future. Burcon cannot predict if it will ever achieve profitability and, if it does, it may not be able to sustain or increase its profitability. The commercial success of any of Burcon's products will depend on whether they receive public and industry acceptance as a food ingredient and dietary supplement, and whether they may be sold at competitive prices or are able to obtain sufficient royalty revenue from licensing, which adequately exceeds Burcon's business costs.
Developing Burcon's products and conducting product application trials is capital intensive. Since acquiring its subsidiary in October 1999, Burcon has raised gross proceeds of $125.0 million from the sale or issuance of equity securities and convertible debentures. As at September 30, 2024, Burcon had $1.0 million in cash and negative working capital of $4.8 million. Subsequent to September 30, 2024, Burcon extended the maturity date of tranche 1 of the Secured Loan and requested a draw of $1.0 million under tranche 2 of the Secured Loan, remediating the working capital deficiency. Burcon will need to raise additional capital on acceptable terms in order for the Company to meet its business objectives and fund its operations.
OUTLOOK
For the balance of fiscal 2025, Burcon's main objectives will be to fully commercialize its hemp and canola proteins by increasing production and sales, to identify and develop clear routes to market for its other protein products and to further develop its pipeline of plant-based protein technologies to include other novel renewable plant sources. Burcon will focus on partner development for the commercialization of its sunflower proteins while evaluating licensing strategies or other alternatives for its pea and soy protein isolate technologies. Burcon's activities will include:
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working with its partner manufacturer to secure its production volume for hemp and canola proteins;
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working with HPS to market and sell Burcon's hemp proteins to generate revenues;
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identifying and securing a strategic partner(s) with the goal of commercializing its protein technologies including sunflower, soy, and pea protein technologies;
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advancing Burcon's pipeline of plant-based protein technologies by conducting research to develop and refine its extraction and purification processes for novel protein products;
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filing patent applications to protect intellectual property arising from research and development of new protein technologies;
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secure and perform further contract research projects at WTC's in order to continue engaging the marketplace and enhance Burcon's leadership position in plant protein technologies;
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continue to refine its protein extraction and purification technologies, develop new technologies and related products;
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further strengthen and expand its core intellectual property portfolio;
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explore opportunities for acquiring or licensing into Burcon, novel technologies that will complement or enhance Burcon's intellectual property portfolio and business initiatives; and
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pursue product development agreements with major food, beverage, and nutritional product companies to develop improved or novel applications for Burcon's other specialty proteins into their products.
BURCON NUTRASCIENCE CORPORATION
Notice of Annual General and Special Meeting of Shareholders
to be held on September 18, 2024
Management Proxy Circular
TABLE OF CONTENTS
BURCON NUTRASCIENCE CORPORATION
Suite 490 - 999 West Broadway
Vancouver, British Columbia V5Z 1K5
Telephone: (604) 733-0896
LETTER TO SHAREHOLDERS
August 1, 2024
Dear Fellow Shareholders,
Fiscal 2024 was a transformative year for Burcon. We are pleased to have made significant strides along each of our three strategic imperatives: to identify alternative revenue sources; to get closer to customers; and to have significant influence over the manufacturing process of Burcon's proteins. Through the evaluation of market data and internal estimates, we validated the opportunity to capture a meaningful share of the billions of dollars in potential sales to be generated in the global ingredient market for high purity proteins. We remain convinced that Burcon's proteins taste and perform better than anything else on the market today. Speed to market and agility are now critical to our overall success.
Over the past year, we achieved many critical milestones, including,
- a route to market by establishing a capital-light production supply-chain,
- established our own direct to customer pipeline,
- multiple commercial scale production runs validating commercial scale capability,
- our first direct commercial sales of hemp protein,
- launch of our canola protein, a product addressing specific customer requirements, and
- raising the funds to execute our business plan.
These achievements enable us to confidently pursue our next phase of growth - to produce and sell. Generating revenue will be our top priority in the coming year. We will leverage what we have built to ramp up the production of hemp and canola proteins to meet the strong market demand for Burcon's proteins. We expect to expand the customer funnel for both our hemp and canola proteins, while simultaneously commercializing Burcon's portfolio of other protein technologies.
During the 2024 fiscal year, we were successful in raising funds through a blend of equity financings, debt and non-dilutive government funding. We value the trust that shareholders and new investors have placed in us and are dedicated to growing Burcon into the company it has always aspired to be. Our achievements to-date would not have been possible without your support.
Lorne Tyrrell, one of Burcon's longest serving directors will not be standing to return at this year's AGM. Lorne witnessed significant changes at Burcon over the years, making considerable contributions along the way. We are grateful for his counsel throughout his years of service and will miss it going forward.
On behalf of the Board of Directors, I would like to express our sincere gratitude to Jade Cheng, our former Chief Financial Officer, for her considerable contributions to Burcon. Having been with Burcon since its inception, Jade helped navigate through many years of financial and corporate management. We can't thank her enough and wish her all the best.
In closing, I would like to sincerely thank my fellow shareholders for their continued support, trust, and belief in our company. I would also like to thank the Burcon team for their unwavering dedication and commitment to our vision. We look forward to announcing additional achievements over the coming year.
Yours truly,
"Peter H. Kappel"
Peter H. Kappel
Chair of the Board of Directors
BURCON NUTRASCIENCE CORPORATION
Suite 490 - 999 West Broadway
Vancouver, British Columbia V5Z 1K5
Telephone: (604) 733-0896
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Burcon NutraScience Corporation (the "Corporation" or "Burcon") is conducting a virtual only Annual General and Special Meeting (the "Meeting") on September 18, 2024, at 10:00 a.m. (Vancouver time). Registered Shareholders and duly appointed proxyholders (as defined in this Management Proxy Circular) can attend the Meeting online at https://meetnow.global/MFNPD5P to participate, vote, or submit questions during the Meeting's live webcast. The Meeting will be conducted for the following purposes:
a) to receive the report of the directors;
b) to receive the audited consolidated financial statements of the Corporation for the fiscal year ended March 31, 2024, together with the report of the auditors thereon;
c) to elect directors for the ensuing year;
d) to appoint auditors and to authorize the directors to fix their remuneration;
e) to consider, and, if thought advisable, to pass an ordinary resolution to approve the issuance of certain compensation warrants to John A. Vassallo as more particularly set out on page 14 of the attached management proxy circular (the "Management Proxy Circular");
f) to consider, and, if thought advisable, to pass an ordinary resolution to approve the consolidation of all of the issued and outstanding common shares of the Corporation on the basis of a consolidation ratio to be selected by the directors of the Corporation of up to twenty (20) pre- consolidation common shares for one (1) post-consolidation common share, as more particularly set out on page 16 of the Management Proxy Circular;
g) to transact such other business as may properly come before the Meeting or any adjournment of the Meeting; and
h) to consider any amendment to or variation of any matter identified in this Notice.
Our Management Proxy Circular and form of proxy accompany this Notice. The Management Proxy Circular contains details of matters to be considered at the Meeting.
If you are unable to attend the Meeting and wish to ensure that your shares will be voted at the Meeting, you must complete, date, execute and deliver the accompanying form of proxy by fax at 1-866-249-7775 (within North America) or (416) 263-9524 (outside North America), by hand or by mail to Computershare Investor Services Inc. at Proxy Dept., 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1, in accordance with the instructions set out in the form of proxy and in the Management Proxy Circular.
If you plan to attend the Meeting online you must follow the instructions set out in the form of proxy and in the Management Proxy Circular to ensure that your shares will be voted at the Meeting.
DATED at Vancouver, British Columbia on August 1, 2024.
BY ORDER OF THE BOARD OF DIRECTORS
"Kip Underwood"
Kip Underwood
Chief Executive Officer
BURCON NUTRASCIENCE CORPORATION
Suite 490 - 999 West Broadway
Vancouver, British Columbia V5Z 1K5
Telephone: (604) 733-0896
MANAGEMENT PROXY CIRCULAR
as at August 1, 2024
The board of directors (the "Board") of Burcon NutraScience Corporation (the "Corporation") is delivering this management proxy circular (the "Management Proxy Circular") to you in connection with the solicitation of proxies for use at the annual general and special meeting of its shareholders (the "Meeting") to be held on September 18, 2024 at the time and place and for the purposes set forth in the accompanying Notice of Meeting. In this Management Proxy Circular, unless the context otherwise requires, all references to "Burcon NutraScience Corporation", "Burcon", "we", "us" and "our" refer to Burcon NutraScience Corporation.
GENERAL PROXY INFORMATION
Who Can Vote
Burcon is authorized to issue an unlimited number of common shares ("Common Shares") without nominal or par value. As of August 1, 2024, we had outstanding 142,098,096 Common Shares. Persons who on August 1, 2024 are recorded on our share register as holders of our Common Shares can vote at the Meeting. Each Common Share has the right to one vote.
To the knowledge of our directors and officers, as of August 1, 2024, the only person or corporation who beneficially owns, directly or indirectly, or exercises control or direction over, Common Shares carrying 10% or more of the voting rights attached to all outstanding Common Shares of Burcon is:
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Number of Shares Held
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Percentage of Voting Shares
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Firewood Elite Limited ("Firewood") (a British Virgin Islands Company)
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25,643,932*
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18.05%
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Note:
* 17,584,458 of these shares are held by Large Scale Investments Limited and 8,059,474 of these shares are held by Great Intelligence Limited, both of which are British Virgin Islands companies and direct wholly-owned subsidiaries of Firewood. Firewood is wholly-owned by Mr. Alan Chan, a director of the Corporation.
Obtaining a Paper Copy of Management Proxy Circular and Financial Statements
In lieu of mailing the Notice of Meeting, Management Proxy Circular and our audited financial statements and management's discussion and analysis for the year ended March 31, 2024, the Corporation is using notice-and-access to provide an electronic copy of these documents to registered shareholders and beneficial shareholders of the Corporation's Common Shares by posting them on www.burcon.ca and on the Corporation's profile on www.SEDAR.com.
If you wish to obtain a paper copy of these documents or for more information regarding notice-and-access, you may call us toll free at 1-888-408-7960 from Canada or the United States, or 604-733-0896 (press 2) if you are calling from another country. You must call to request a paper copy by August 28, 2024 in order to receive a paper copy prior to the deadline for submission of your voting instructions or form of proxy. If your request is received on or after the date of the Meeting, then the documents will be sent to you within ten calendar days of your request. Burcon will provide a paper copy of the documents to any registered or beneficial shareholder upon request for a period of one year following the date of the filing of this Management Proxy Circular on www.SEDAR.com.
If you are a registered shareholder and have standing instructions to receive paper copies of these documents and would like to revoke them, you may call us toll free at 1-888-408-7960 from Canada or the United States, or 604-733-0896 (press 2) if you are calling from another country.
Registered & Non-Registered Shareholders
Registered Shareholder: You are a Registered Shareholder if your name appears on a share certificate or a Direct Registration System statement confirming your holdings. If you are a Registered Shareholder, you have received a "Form of Proxy" for this Meeting.
Non-Registered Shareholder: You are a Non-Registered Shareholder if your shares are held through an intermediary (broker, trustee or other financial institution). If you are a Non-Registered Shareholder, you have received a "Voting Instruction Form" for this Meeting. Please make sure to follow instructions on your Voting Instruction Form to be able to attend and vote at this Meeting.
Attending the Virtual Only Meeting
Shareholders and duly appointed proxyholders can attend the Meeting online by going to https://meetnow.global/MFNPD5P .
- Registered Shareholders and duly appointed proxyholders can participate in the Meeting by clicking "Shareholder" and entering a Control Number or an Invite Code before the start of the Meeting.
- Registered Shareholders: the 15-digit control number is located on the Form of Proxy or in the email notification you received.
- Duly appointed proxyholders: Computershare Investor Services Inc. ("Computershare") will provide the proxyholder with an Invite Code by email after the voting deadline has passed.
- Attending and voting at the Meeting will only be available for Registered Shareholders and duly appointed proxyholders.
- Non-Registered Shareholders who have not appointed themselves as proxyholders to participate and vote at the Meeting may login as a guest, by clicking on "Guest" and complete the online form; however, they will not be able to vote or submit questions.
Shareholders who wish to appoint a third-party proxyholder to represent them at the virtual meeting must submit their Form of Proxy or Voting Instruction Form (as applicable) prior to registering their proxyholder. Registering the proxyholder is an additional step once a Shareholder has submitted their Form of Proxy or Voting Instruction Form. Failure to register a duly appointed proxyholder will result in the proxyholder not receiving an Invite Code to participate in the meeting.
To register a proxyholder, Shareholders MUST visit https://www.computershare.com/burcon by September 16, 2024, 10 a.m. (Vancouver Time) and provide Computershare with their proxyholder's contact information, so that Computershare may provide the proxyholder with an Invite Code by email.
In order to participate online, Shareholders must have a valid 15-digit control number and proxyholders must have received an email from Computershare containing an Invite Code.
The virtual meeting platform is fully supported across most commonly used web browsers (note: Internet Explorer is not a supported browser). We encourage you to access the Meeting prior to the start time. It is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences.
Participating in the Meeting
The Meeting will only be hosted online by way of a live webcast. Shareholders will not be able to attend the Meeting in person. A summary of the information Shareholders will need to attend the virtual meeting is provided below.
- Registered Shareholders and appointed proxyholders: Only those who have a 15-digit control number, along with duly appointed proxyholders who were assigned an Invite Code by Computershare (see details under the heading "Appointment of Proxies"), will be able to vote and submit questions during the meeting. To do so, please go to https://meetnow.global/MFNPD5P prior to the start of the Meeting to login. Click on "Shareholder" and enter your 15-digit control number or click on "Invitation" and enter your Invite Code.
- United States Beneficial Shareholders: To attend and vote at the virtual meeting, you must first obtain a valid Legal Proxy from your broker, bank or other agent and then register in advance to attend the Meeting. Follow the instructions from your broker or bank included with the Proxy materials or contact your broker or bank to request a Legal Form of Proxy. After first obtaining a valid Legal Proxy from your broker, bank or other agent, you must submit a copy of your Legal Proxy to Computershare in order to register to attend the meeting. Requests for registration should be sent:
By mail to: COMPUTERSHARE
100 UNIVERSITY AVENUE 8TH FLOOR
TORONTO, ON M5J 2Y1
By email at: USLegalProxy@computershare.com
Requests for registration must be labeled as "Legal Proxy" and be received no later than September 16, 2024, 10 a.m. (Vancouver Time). You will receive a confirmation of your registration by email after we receive your registration materials. You may attend the Meeting and vote your shares at https://meetnow.global/MFNPD5P during the Meeting. Please note that you are required to register your appointment at https://www.computershare.com/burcon.
How You Can Vote
If you are a Registered Shareholder you may vote your Common Shares either by attending the online Meeting or, if you do not plan to attend the Meeting, by completing the accompanying Form of Proxy and following the delivery instructions contained in it and this Management Proxy Circular.
If you are a Non-registered shareholder, you must follow the instructions on the Voting Instruction Form, which is similar to a form of proxy, but is provided to you by your stock broker or financial intermediary. If you do not follow the special procedures described by your broker or financial intermediary, you will not be entitled to vote. If you are unsure as to how to follow these procedures, please contact your stockbroker.
A Registered Shareholder (or a Non-Registered Shareholder) who has appointed themselves or appointed a third-party proxyholder to represent them at the Meeting, will appear on a list of proxyholders prepared by Computershare, who is appointed to review and tabulate proxies for this meeting. To be able to vote their shares at the Meeting, each Registered Shareholder or proxyholder will be required to enter their control number or Invite Code provided by Computershare at https://meetnow.global/MFNPD5P prior to the start of the Meeting.
In order to vote, Non-Registered Shareholders who appoint themselves as a proxyholder MUST register with Computershare at https://www.computershare.com/burcon AFTER submitting their Voting Instruction Form in order to receive an Invite Code (see details under the heading "Appointment of Proxies" for details).
Distribution of Meeting Materials to Beneficial Shareholders
The Corporation has distributed copies of the notice-and-access notice and Voting Instruction Form to the depositories and intermediaries for onward distribution to beneficial shareholders. In addition, the notice-and-access notice and Voting Instruction Form may have been sent directly by the Corporation or its agent, rather than through an intermediary, to non-objecting beneficial owners under National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer ("NI 54-101"). Beneficial shareholders who have previously provided standing instructions will receive a paper copy of the Notice of Meeting, Management Proxy Circular, financial statements and related management discussion and analysis. If you are a non-objecting beneficial shareholder and the Corporation or its agent has sent these materials directly to you, your name and address and information about your holdings and securities have been obtained in accordance with the requirements of NI 54-101 from the intermediary holding on your behalf. All costs of deliveries to beneficial shareholders will be borne by Burcon.
Solicitation of Proxies
The solicitation of proxies will be primarily by mail, but proxies may be solicited personally or by telephone by directors, officers and regular employees of Burcon. All costs of this solicitation will be borne by Burcon.
Appointment of Proxies
The individuals named in the accompanying Form of Proxy and Voting Instruction Form are the Chief Executive Officer of Burcon and the Senior Vice President, Legal and Corporate Secretary of Burcon. Shareholders who wish to appoint a third-party proxyholder to represent them at the Meeting must submit their Form of Proxy or Voting Instruction Form (as applicable) prior to registering their proxyholder. Registering the proxyholder is an additional step once a Shareholder has submitted their Form of Proxy/Voting Instruction Form. Failure to register a duly appointed proxyholder will result in the proxyholder not receiving an Invite Code to participate in the Meeting.
To register a proxyholder, Shareholders MUST visit https://www.computershare.com/burcon by September 16, 2024, 10:00 a.m. (Vancouver Time) and provide Computershare with their proxyholder's contact information, so that Computershare may provide the proxyholder with an Invite Code via email.
Without an Invite Code, proxyholders will not be able to attend and vote at the Meeting.
Revocation of Proxies
Registered Shareholders
A proxy will not be valid unless the completed, signed and dated Form of Proxy is delivered to Computershare Investor Services Inc. by fax at 1-866-249-7775 (within North America) or (416) 263-9524 (outside North America), by mail or by hand at its office at Proxy Dept., 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1, or via the internet at www.investorvote.com not less than 48 hours (exclusive of non-business days) before the Meeting or any adjournment thereof at which the proxy is to be used.
A Registered Shareholder may revoke a proxy by
(a) providing a written notice of revocation to Computershare Investor Services Inc. by fax at 1-866-249-7775 (within North America) or (416) 263-9524 (outside North America), by mail or by hand at its office at Proxy Dept., 100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 at any time up to and including the last business day that precedes the day of the Meeting or, if the Meeting is adjourned, that precedes the reconvening thereof,
(b) providing a written notice of revocation to Burcon at its head office which is located at Suite 490 - 999 West Broadway, Vancouver, British Columbia, V5Z 1K5 at any time up to and including the last business day that precedes the day of the Meeting or, if the Meeting is adjourned, that precedes the reconvening thereof,
(c) providing a written notice of revocation to the Chairman of the Meeting on the day of the Meeting and before any vote in respect of which the proxy to be used is taken that you are revoking your proxy and voting online at the Meeting, or
(d) any other manner provided by law.
Your revocation of a proxy will not affect a matter on which any vote has already been taken. If a Registered Shareholder who has submitted a Form of Proxy attends the Meeting via webcast and has accepted the terms and conditions when entering the Meeting online, any votes cast online by such shareholder on a ballot will be counted and the votes previously submitted will be disregarded.
Non-registered Shareholders
If you are a Non-registered Shareholder and wish to revoke your Voting Instruction Form, you should contact your stock broker or financial intermediary directly.
Exercise of Discretion
The nominees named in the accompanying Form of Proxy/Voting Instruction Form will vote or withhold from voting the Common Shares represented by the proxy in accordance with your instructions on any ballot that may be called for and if you specify a choice with respect to any matter to be acted upon, the Common Shares will be voted accordingly. The proxy grants the nominees the discretion to vote on
(a) each matter or group of matters identified in the proxy where you do not specify how you want to vote, except for the election of directors and the appointment of auditors,
(b) any amendment to or variation of any matter identified in the proxy, and
(c) any other matter that properly comes before the Meeting.
If on a particular matter to be voted on, you do not specify in your proxy the manner in which you want to vote, your Common Shares will be voted as recommended by management.
As of the date of this Management Proxy Circular, we know of no amendment, variation or other matter that may come before the Meeting, but if any amendment, variation or other matter properly comes before the Meeting each proxyholder named in the proxy can vote in accordance with their discretion.
Votes Necessary to Pass Resolutions
Burcon's articles provide that a quorum for the transaction of business at any shareholders' meeting is shareholders present in person or by proxy representing in the aggregate, at least 5% of the outstanding Common Shares entitled to vote at the Meeting, irrespective of the number of persons actually present at the Meeting. A simple majority of affirmative votes cast at the Meeting is required to pass the resolutions other than the election of directors and appointment of auditor. If there are more nominees for election as directors or appointment as Burcon's auditor than there are vacancies to fill, those nominees receiving the greatest number of votes will be elected or appointed, as the case may be, until all such vacancies have been filled. If the number of nominees for election or appointment is equal to the number of vacancies to be filled all such nominees will be declared elected or appointed by acclamation.
Majority Voting for Directors
The Board has adopted a majority voting policy for the election of directors. Pursuant to this policy, any nominee proposed for election as a director in an uncontested election who receives, from the shares voted at the meeting in person or by proxy, a greater number of shares withheld than shares voted in favour of his or her election, must promptly tender his or her resignation to the board of directors of the Corporation. The Board will promptly accept the resignation unless it is determined that there are extraordinary circumstances relating to the composition of the board or the voting results that should delay the acceptance of the resignation or justify rejecting it. The Board will make its decision and reasons available to the public within 90 days of the annual meeting.
MATTERS TO BE ACTED UPON AT THE MEETING
Election of Directors
Burcon's articles provide that the Board is to be comprised of a minimum of three directors. The number of directors is fixed by the Board, and has been fixed at eight for the ensuing year. The term of office of each of the present directors expires at the conclusion of the Meeting. The persons named below will be presented for election at the Meeting as management's nominees and the persons named in the accompanying form of proxy intend to vote for the election of these nominees. Management does not contemplate that any of these nominees will be unable to serve as a director; however, if for any reason any proposed nominee does not stand for election or is unable to serve as such, proxies in favour of management's designees will be voted for another nominee in its discretion unless the shareholder has specified in his proxy that his or her Common Shares are to be withheld from voting on the election of directors. Each director elected will hold office until the conclusion of the next annual general meeting of shareholders of Burcon or until his or her successor is elected or appointed, unless his or her office is earlier vacated in accordance with our articles or with the provisions of the Business Corporations Act (British Columbia).
The following table sets out the names of the nominees for election as directors, the province/state and/or country in which each is ordinarily resident, all offices of Burcon now held by each of them, their principal occupations, the period of time for which each has been a director of Burcon, and the number of Common Shares of Burcon beneficially owned by each, directly or indirectly, or over which control or direction is exercised, as at August 1, 2024. A biography of each director, which includes a five year history of employment, follows under "Biographies of Directors".
Name, Position and
Country of
Residence(1) |
Principal Occupation During the
Previous Five Years(1) |
Period as a
Director of the
Corporation |
Common
Shares Held(1) |
Alan Chan,
Director,
Hong Kong, China |
Executive Director of ITC Properties Group Ltd. (property development and investment) since March 2010; Founder and Managing Partner or Vectr Ventures (Global VC Firm) since 2013 |
Since April 20, 2010 |
25,643,932(2) |
Peter H. Kappel
Chairman of the Board and Director,
British Columbia, Canada
|
Corporate Director; Interim Chief Executive Officer of Burcon from March 1, 2022 to November 7, 2022 |
Since January 28, 2016 |
1,452,206(3) |
Debora S. Fang
Director,
London, United Kingdom |
Independent advisor, F&F Advisory from 2018 to present; VP, M&A, Unilever from 2013 to 2018
|
Since July 6, 2020 |
162,795(4) |
Jeanne McCaherty
Director,
Minnesota, United States of America
|
Chief Executive Officer, Guardian Energy Management from 2016 to present; President, Kae Partners, LLC (2015 to present); Executive in Residence, Agspring -Leaworth, KS Private Equity Firm (2015 to 2016); Vice President, Regional Director of Texturizing Business Unit, Cargill, Inc. (2008 to 2015); prior thereto held various other executive management positions at Cargill Inc. |
Since July 8, 2021 |
157,940 |
Name, Position and
Country of
Residence(1) |
Principal Occupation During the
Previous Five Years(1) |
Period as a
Director of the
Corporation |
Common
Shares Held(1) |
Alfred T. L. Lau,
Director,
British Columbia, Canada |
Director, Chair and Member of Board Committees, WealthOne Bank of Canada ("WOBC") (2018 to present); Retired Partner, KPMG (1980 to 2017)
|
Since September 15, 2021 |
100,000(5) |
Aaron T. Ratner
Director,
Pennsylvania, United States of America
|
Executive Director, Alternus Clean Energy (2024-Present), CEO, Clean Earth Acquisitions Corp (2021-2023), Co-Founder CC Risk Solutions (2022-Present), Co-Founder & Managing Partner, Vectr Carbon Partners (2022-Present), Operating Partner, Nexus PMG (2020-2022), President, Cross River Infrastructure Partners (2020-2021), Managing Director, Ultra Capital (2016-2020), Developer in Residence, Generate Capital (2014-2016), President, i2 Capital (2012-2014)
|
Since November 23, 2022 |
NIL |
John A. Vassallo
Director
Texas, United States of America
|
Founder and CEO of Mos RE,
LLC (property acquisition &
development) Founder and CEO
of Global Restaurant Systems,
LLC (restaurant acquisitions,
development & management).
Controlling Interest in
GuestBridge Inc (sold to
OpenTable); CEO and Director of
Bluer Duck, LLC (electric
scooters).
|
Since September 20, 2023 |
8,270,056(6) |
James Peter Pekar
Nominee
Wisconsin, United States of America |
Retired businessman, prior thereto, President, from 1994 to 2021, of First Choice Ingredients, a dairy based enzyme-modified reaction company.
|
N/A |
3,129,767(7) |
(1) The information as to province or state, country of residence, principal occupation, and Common Shares beneficially owned has been furnished by the respective nominees.
(2) Alan Chan's wholly-owned company, Firewood Elite Limited, holds through its wholly-owned subsidiaries Large Scale Investments Limited and Great Intelligence Limited, 25,643,932 Common Shares, representing 18.05% of the outstanding Common Shares. Great Intelligence also holds warrants to purchase 2,777,358 Common Shares at $0.35 per share.
(3) 84 of these Common Shares are held by Philip Kappel (son) and 446,495 of these Common Shares are held by Stefanie Kappel (spouse). Mr. Kappel and Stefanie Kappel also hold warrants to purchase 125,000 and 75,000 Common Shares, respectively, at $0.27 per share.
(4) Ms. Fang also hold warrants to purchase 81,397 Common Shares at $0.27 per share.
(5) Mr. Lau also hold warrants to purchase 50,000 Common Shares at $0.27 per share.
(6) 3,129,767 of these Common Shares are held by Nocrub, LLC, a company wholly-owned by Mr. Vassallo. Mr. Vassallo also holds warrants to purchase 2,568,302 Common Shares at $0.35 per share and 5,216,061 Common Shares at $0.27 per share, while Nocrub, LLC holds warrants to purchase 1,564,883 Common Shares at $0.27 per share.
(7) The Common Shares are held by the James P. Pekar Family Endowment Trust, which also holds warrants to purchase 1,564,884 Common Shares at $0.27 per share.
Biographies of Directors
Alan Chan - Director
Mr. Chan is an executive director of ITC Properties Group Limited ("ITC Properties"). At ITC Properties, Mr. Chan is involved with the investment and development of commercial, hospitality and residential projects. In addition, he is the lead in developing new policies for green and sustainable practices throughout the group. Mr. Chan is the founder and managing partner of Vectr Ventures, a global VC firm with investments in early to growth stage companies across Climate, Fintech, Biotech, SaaS, Media, and Proptech. Prior to joining ITC Properties, Mr. Chan worked in the Investment Banking Division of Goldman Sachs Group focused on financial institutions in APAC. Mr. Chan is a graduate of Duke University majoring in Political Science - International Relations and minoring in Philosophy and Economics.
Peter H. Kappel - Chairman of the Board and Director
Mr. Kappel is a former investment banker who now manages a private investment portfolio. A former chartered accountant with KPMG in Vancouver and Frankfurt, he made the transition to investment banking with JP Morgan (New York/Frankfurt) after business school. He also served in senior roles at Nomura, Dresdner Kleinwort Wasserstein, Calyon and DVB Bank in London. In the latter three, he was the Managing Director in charge of their respective European Securitisation businesses. He holds an MBA from the Institut Européen d'Administration des Affaires ("INSEAD"), a Bachelor of Arts (Honours) degree in Economics from the University of Victoria and received his Chartered Accountant designation through the Institute of Chartered Accountants of British Columbia.
Debora S. Fang - Director
Ms. Debora Fang has over 20 years' experience in the Fast Moving Consumer Goods industry, across mergers and acquisitions, strategy, finance and marketing roles in Unilever (London, UK), Danone (Paris, France and Amsterdam, Netherlands), Kraft Foods (Sao Paulo, Brazil) and as a consultant for Bain & Company (Los Angeles, USA). While at Unilever as VP Mergers & Acquisitions, Ms. Fang was responsible for a range of acquisitions and disposals in the Foods, Ice cream and Tea categories, leading multidisciplinary teams and covering a global scope. She is now an independent advisor for Private Equity and strategic clients in the Foods and Beverage space as well as a private investor. Ms. Fang holds an MBA from the Kellogg Graduate School of Management at Northwestern University in Chicago, USA and a Bachelor of Arts in Business from the University of Sao Paulo, Brazil.
Jeanne McCaherty - Director
Ms. McCaherty is the Chief Executive Officer of Guardian Energy Management, an ethanol manufacturing company with production sites in Ohio, Minnesota, and North Dakota. These corn dry milling sites produce ethanol, DDGS (distiller's dried grains with solubles), and corn oil. Prior to joining Guardian in 2016, Ms. McCaherty spent a year consulting in Private Equity in the areas of specialty grains and value-added ingredients. The majority of Ms. McCaherty's career was in various global management roles in Cargill, Inc. The most recent Cargill role was as the Regional Director of the Global Texturizing Business Unit. This business sourced raw materials, manufactured, and sold specialty food ingredients to Food companies around the world. Ms. McCaherty's R&D career culminated in the position of VP/Global Director of Food R&D. This role included functional leadership for the Basic and Applied R&D, Applications and Sensory groups for Cargill's Global Food Ingredients businesses. Ms. McCaherty currently serves on the board of directors for the RFA (Renewable Fuels Association) and the RPMG (Renewable Products Marketing Group).
Alfred T. L. Lau - Director
Mr. Lau is a Director of WealthOne Bank of Canada ("WOBC"), a Canadian Schedule I Bank. Prior to his current role, Mr. Lau was a partner of KPMG with over 35 years of experience at key locations around the world, including Beijing, Vancouver and London. He has held senior positions within KPMG including co-leader of the audit practice in Beijing and co-leader of the China Practice in Canada. He was the Audit Engagement Partner for a number of multi-national Fortune 500 companies and listed companies on the TSX. Mr. Lau has been an independent member of the WOBC Board of Directors since 2018 and is currently Chairman of the Audit Committee and a member of the Risk Committee. Moreover, Mr. Lau is a former director and Chairman of the Audit Committee of SUCCESS, one of the largest nonprofit organizations in Canada. He graduated from the University of British Columbia with a Bachelor of Commerce degree in 1980 and received his Chartered Accountant designation in 1982.
Aaron T. Ratner - Director
Mr. Ratner is an Executive Director with Alternus Clean Energy (Nasdaq: ALCE), as well as Co-Founder of CC Risk Solutions, a climate insurance platform. He is also a Co-Founder and Managing Partner with Vectr Carbon Partners in Hong Kong, was an Operating Partner with Nexus PMG, a leading infrastructure advisory and project development company, from 2020-2022. He has over 20 years of domestic and international investment and advisory experience, including 8 years in Asia, focusing on project finance, venture capital, climate technology, energy, and agriculture. Mr. Ratner began his career as a foreign market entry strategist at WKI, a global strategic consulting firm based in Virginia, and then as an Analyst in the Internet Investment Banking Group at Merrill Lynch in Palo Alto, CA. In 2000, he moved to Hong Kong to work for Simon Murray & Company, a Pan-Asian multi-strategy investment and advisory firm. Thereafter, he held senior positions in various merchant banks and investment firms. Mr. Ratner attended the Stanford University Graduate School of Business and completed his undergraduate education at the University of Pennsylvania (Economics, Honors) and Jochi University, Tokyo.
John A. Vassallo - Director
Mr. Vassallo has over 30 years' experience in asset acquisition, development and management across several industries in multiple states. As Founder and CEO of Mos RE, LLC, Mr. Vassallo focuses on real estate development, land entitlements, redevelopment and strategic reuse of underutilized buildings by utilizing multi-source financing packages, including historic tax credits, tax incremental financing and state development programs. Mr. Vassallo headed multiple capital raises for a variety of developments and acquisitions. Mr. Vassallo also has experience in purchasing distressed debt for profitable returns. As Founder and CEO of Global Restaurant Systems, LLC, Mr. Vassallo established a multi-faceted management and consulting company providing inclusive restaurant development and operating services including accounting, human resources, real estate analysis and acquisition, legal, marketing, IT and administrative support to its clients.
James Peter Pekar - Nominee
Mr. Pekar has over 30 years' of experience in the dairy and food industry. Born and raised in Wisconsin, United States, Mr. Pekar received a full athletic scholarship to attend the University of Iowa to play football. His football career spanned from 1978 to 1987, from playing with the Iowa Hawkeyes to the LA Express and San Antonio Gunslingers, two USFL football teams. In 1994, Mr. Pekar started a dairy based enzyme-modified reaction company, named First Choice Ingredients, which specialized in reaction, fermentation and distillation technologies. First Choice became world renowned for developing dairy based flavor systems and dairy notes using cultures and enzymes in the fermentation process. Started in the basement of his first home, Mr. Pekar grew First Choice from one employee to over 150 employees and three plants (which included 150,000+ square feet of office and manufacturing space) and operated the business successfully for 27 years. In 2021, Mr. Pekar sold First Choice to international powerhouse DSM for US$460 million.
Board Committees
Burcon does not have an executive committee of its directors. Burcon has an audit committee, a corporate governance and nominating committee and a compensation committee. Membership on the committees is set out in the following table.
| Director |
Audit
Committee |
Compensation
Committee |
Corporate
Governance and
Nominating
Committee |
| Debora S. Fang |
√ |
√ |
|
| Peter H. Kappel |
√ |
√ |
√ |
| Alfred T. L. Lau |
√ |
|
√ |
| Jeanne McCaherty |
|
√ |
√ |
| Aaron T. Ratner |
√ |
√ |
|
| D. Lorne Tyrrell |
√ |
|
√ |
| John A. Vassallo |
|
√ |
√ |
Mr. Alan Chan is not a member of any committees of the board of directors. Mr. Peter Kappel is member of the audit committee and an ex-officio member of the compensation committee and corporate governance and nominating committee. Mr. J. Douglas Gilpin was a member of the audit committee and the compensation committee until September 20, 2023, when he retired from Burcon's board of directors. Mr. Aaron Ratner was a member of the audit committee from September 30, 2023 to February 1, 2024.
During fiscal year 2024, an ad hoc Merit special committee was formed to consider issues relating to Merit Functional Foods Corporation. The members of this committee were Alan Chan, Jeanne McCaherty, Peter Kappel and John Vassallo.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Other than as set out below, none of the persons nominated for election as a director:
(a) is, as at the date of this Management Proxy Circular, or has been within 10 years before the date of this Management Proxy Circular, a director or chief executive officer or chief financial officer of any company (including Burcon) that:
(a) was subject to an order that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or
(b) was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer, or chief financial officer, and which resulted from an event that occurred while that person was acting in the capacity as a director, chief executive officer, or chief financial officer;
(b) is at the date hereof, or has been within 10 years before the date of this Management Proxy Circular, a director or executive officer of any company (including Burcon) that while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;
(c) has, within the 10 years before this Management Proxy Circular become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director;
(d) has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
(e) has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Ms. Jeanne McCaherty and Mr. Peter Kappel acted as directors of Merit Functional Foods Corporation ("Merit") from October 1, 2021 and February 2022, respectively and resigned on March 1, 2023. Through its subsidiary, Burcon NutraScience Holdings Corp., Burcon holds a 31.6% interest in Merit. On March 1, 2023, PricewaterhouseCoopers Inc. was appointed by order by The Court of King's Bench (Manitoba) to be Receiver of all the assets, properties and undertakings of Merit and Merit's wholly-owned subsidiary, 11410083 Canada Ltd.
Appointment of Auditor
KPMG LLP, Chartered Professional Accountants ("KPMG") of 777 Dunsmuir Street, 11th Floor, Vancouver, BC, V7Y 1K3 will be nominated at the Meeting for re-appointment as auditor of Burcon at a remuneration to be fixed by the directors. KPMG has been Burcon's auditor since November 23, 2022.
Approval of Warrants Issued to John A. Vassallo
On March 6, 2024, Burcon entered into a Strategic Advisory and Consulting Agreement (the "Advisory and Consulting Agreement") with Mr. John Vassallo, a director of Burcon, pursuant to which the Mr. Vassallo will provide Burcon with ongoing consulting services including, among other things, providing strategic and financial advice to Burcon, meeting with potential investors and strategic partners of Burcon and advising on strategic transactions of Burcon, all beyond the scope of Mr. Vassallo's usual duties as a director (collectively, the "Consulting Services"). The Advisory and Consulting Agreement has a one year term that may be extended by mutual written agreement between the parties. Given Mr. Vassallo's business experience, the board of directors of Burcon believed it would be in the Corporation's best interest to engage Mr. Vassallo as an advisor to the Corporation as Burcon transitions from a research and development company and implements its Burcon 2.0 strategy with the view of producing and selling products to generate revenues.
In order to appropriately compensate Mr. Vassallo for the Consulting Services, and in order to align Mr. Vassallo's interests with the interests of Burcon's shareholders, Burcon agreed to pay Mr. Vassallo a fixed fee of 5,000,000 non-transferable common share purchase warrants (the "Compensation Warrants"), with each Compensation Warrant exercisable into one Common Share at a price of $0.27 per Common Share for a period of 27 months following the date of issue of the Compensation Warrants.
On March 25, 2024, Burcon issued the Compensation Warrants to Mr. Vassallo upon receipt of conditional approval from the Toronto Stock Exchange ("TSX"). As the grant of Compensation Warrants to Mr. Vassall is considered a form of security based compensation arrangement pursuant to the policies of the TSX, the Compensation Warrants were granted to Mr. Vassallo subject to shareholder approval. Accordingly, the Compensation Warrants may not be exercised by Mr. Vassallo unless and until such time as a simple majority of the shareholders of the Corporation, on a disinterested basis, approve the Compensation Warrants at a duly called meeting of Shareholders (the "Disinterested Shareholder Approval").
Other than the requirement to receive Disinterested Shareholder Approval, the Compensation Warrants have no other vesting provisions and will become immediately exercisable if Disinterested Shareholder Approval is received. The exercise price of the Compensation Warrants was determined by the Board (excluding Mr. Vassallo) in negotiations with Mr. Vassallo. The exercise price of the Compensation Warrants represents a 43% premium to the five-day volume weighted average trading price of the Corporation's Common Shares between February 28, 2024 and March 5, 2024 of $0.19, being the five trading days prior to the date of Advisory and Consulting Agreement. The Compensation Warrants represent 3.52% of the Corporation's issued and outstanding Common Shares as of the date hereof.
If the Disinterested Shareholder Approval is not received, the Compensation Warrants shall expire after the Meeting and the Corporation will, in lieu of the Compensation Warrants and as per the terms of the Advisory and Consulting Agreement, pay Mr. Vassallo a cash amount of $450,000 as an alternative form of compensation for the Consulting Services (the "Cash Compensation"). Payment of the Cash Compensation will be subject to TSX approval.
At the Meeting, shareholders are being asked to consider, and if deemed appropriate, to approve the ordinary resolution set forth below (the "Warrant Grant Resolution"), with the votes attached to Common Shares held by John A. Vassallo and his respective affiliates and associates being excluded from such vote. Management unanimously recommends Shareholders vote FOR the Warrant Grant Resolution.
"BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1. The issuance of 5,000,000 non-transferable common share purchase warrants (the "Compensation Warrants") to John A. Vassallo pursuant to the Strategic Advisory and Consulting Agreement dated March 6, 2024 (the "Advisory and Consulting Agreement") as compensation for the Consulting Services (as defined in the Advisory and Consulting Agreement), being a security-based compensation arrangement for the purposes of the TSX rules, be and is hereby authorized, ratified and approved.
2. Any one director or officer is authorized and directed on behalf of the Corporation to perform all such acts, deeds and things and execute, under seal of the Corporation if applicable, all such documents, instruments, certificates and other writings as may be necessary or desirable to give effect to this resolution."
In order for the Warrant Grant Resolution to be passed, it requires the positive approval of a simple majority (greater than 50%) of the votes cast thereon at the Meeting, with the 8,270,056 votes attached to the Common Shares held by John A. Vassallo and his respective affiliates and associates, representing 5.82% of the outstanding Common Shares as of the date hereof, being excluded from such vote. The directors of the Corporation believe the passing of the foregoing ordinary resolution is in the best interests of the Corporation and recommend that shareholders of the Corporation vote in favour of the resolution. The persons named as proxies in the enclosed Proxy intend to cast the votes represented by proxy in favour of the foregoing resolution unless the holder of Common Shares who has given such proxy has directed that the votes be otherwise cast.
Share Consolidation
At the Meeting, Shareholders will be asked to consider, and, if deemed appropriate, to approve an ordinary resolution set forth below (the "Consolidation Resolution"), authorizing the Board, at its description, to effect a consolidation of all of the issued and outstanding Common Shares on the basis of a consolidation ratio, to be determined by the Board, of up to twenty (20) pre-consolidation Common Shares for one (1) post-consolidation Common Share (the "Share Consolidation"), provided that effective date shall be before September 18, 2026 (the "Effective Time").
The Board believes it is in the best interests of the Corporation and its Shareholders to provide the Board with the ability to complete the Share Consolidation, should it determine to do so, in its sole discretion. The Board believes that a Share Consolidation could lead to increased interest by a wider audience of potential investors and result in less volatility resulting in a more efficient market for the Common Shares. The Board also regularly evaluates other opportunities to increase the Corporation's access to capital markets and a potential Share Consolidation could allow the Corporation to access other exchanges that have minimum listing requirements.
Approval of the Consolidation Resolution does not necessarily mean that the Board will implement a Share Consolidation. Although Shareholder approval for a Share Consolidation is being sought at the Meeting, a Share Consolidation would only become effective at a future date to be determined by the Board, in its sole discretion, prior to the Effective Time, if and when it is considered to be in the best interest of the Corporation to implement a Share Consolidation. The Board may determine not to implement a Share Consolidation at any time after the Meeting without further action on the part of or notice to the Shareholders.
Effects of the Share Consolidation
If the Share Consolidation is implemented, its principal effect will be to proportionately decrease the number of issued and outstanding Common Shares by a factor equal to the consolidation ratio of up to twenty (20) pre-consolidation Common Shares for one (1) post-consolidation Common Shares. The Share Consolidation would result in each Shareholder owning fewer Common Shares than they owned immediately before the Share Consolidation, and convertible rights to acquire Common Shares would become exercisable to purchase a fewer number of Common Shares at an exercise price per share increased by a factor equal to the consolidation ratio selected.
For illustrative purposes only, the following table sets out, based on the number of issued and outstanding Common Shares as of the date hereof, without giving effect to the cancellation of fractional Common Shares, following the implementation of a Share Consolidation at various consolidation ratios:
|
Consolidation Ratio
|
Common Shares
Outstanding
|
|
No Consolidation
|
142,098,096
|
|
2 Pre-Consolidation Common Shares for 1 Post-Consolidation Common Share
|
71,049,048
|
|
5 Pre-Consolidation Common Shares for 1 Post-Consolidation Common Share
|
28,419,619
|
|
10 Pre-Consolidation Common Shares for 1 Post-Consolidation Common Share
|
14,209,810
|
|
20 Pre-Consolidation Common Shares for 1 Post-Consolidation Common Share
|
7,104,905
|
The Corporation does not expect the Share Consolidation itself to have any economic effect on holders of Common Shares or securities convertible into or exercisable to acquire Common Shares, except to the extent the Share Consolidation will result in fractional Common Shares. Fractional Common Shares will be rounded up or down to the nearest whole number, with any fractional share interest of 0.50 or higher being rounded up to one whole Common Share, and any fractional share interest of less than 0.50 being cancelled.
If a proposed Share Consolidation is approved by the Shareholders and all relevant regulatory authorities, and a Share Consolidation is ultimately implemented by the Board before the Effective Time, following the announcement by the Corporation of the effective date of the Share Consolidation, Registered Shareholders will be sent a letter of transmittal by the Corporation's transfer agent, Computershare Investor Services Inc., containing instructions on how to exchange their share certificates representing pre-consolidation Common Shares for new share certificates representing post-consolidation Common Shares or, alternatively, a Direct Registration System ("DRS") Advice/Statement representing the number of post-consolidation Common Shares they hold following the Share Consolidation. The DRS is an electronic registration system which allows Shareholders to hold Shares in their name in book-based form, as evidenced by a DRS Advice/Statement rather than a physical share certificate. Non-Registered Shareholders holding their Common Shares through a broker, trustee or other financial institution should note that such broker, trustee or other financial institution may have different procedures for processing the Share Consolidation than those that will be put in place by the Corporation for the Registered Shareholders. If you hold your Common Shares with such a broker, trustee or other financial institution and if you have any questions in this regard, you are encouraged to contact your nominee.
Until surrendered to the transfer agent, each share certificate representing old pre-consolidation Common Shares will be deemed for all purposes to represent the number of new post-consolidation Common Shares to which the Registered Shareholder is entitled as a result of a Share Consolidation. Until Registered Shareholders have returned their properly completed and duly executed letter of transmittal and surrendered their old share certificate(s) for exchange, Registered Shareholders will not be entitled to receive any distributions, if any, that may be declared and payable to holders of record following a Share Consolidation.
Any Registered Shareholder whose old certificate(s) have been lost, destroyed or stolen will be entitled to a replacement share certificate only after complying with the requirements that the Corporation and the transfer agent customarily apply in connection with lost, stolen or destroyed certificates. The method chosen for delivery of share certificates and letters of transmittal to the Corporation's transfer agent is the responsibility of the Registered Shareholder and neither the transfer agent nor the Corporation will have any liability in respect of share certificates and/or letters of transmittal which are not actually received by the transfer agent.
REGISTERED SHAREHOLDERS SHOULD NEITHER DESTROY NOR SUBMIT ANY SHARE CERTIFICATE UNTIL HAVING RECEIVED A LETTER OF TRANSMITTAL.
Holders of Corporation options, warrants, or other convertible units will be contacted directly if a proposed Share Consolidation is completed with respect to the procedures required to update their securities, if any.
Following the completion of a Share Consolidation, the Common Shares would continue to be listed on the TSX under the symbol "BU". Pre-consolidation voting rights and other rights of the Shareholders will not be affected by the Share Consolidation, other than as a result of the disposition of fractional Common Shares.
TSX Approval
Assuming Shareholder approval is received at the Meeting, and assuming that the Board determines to proceed with a Share Consolidation, the Share Consolidation will be subject to acceptance by the TSX, and confirmation that, on a post Share Consolidation basis, the Corporation would meet all of the TSX's continued listing requirements. If the TSX does not accept the Share Consolidation, the Corporation will not proceed with the Share Consolidation.
Rists Associated with the Share Consolidation
Reducing the number of issued and outstanding Common Shares through the Share Consolidation is intended, absent other factors, to increase the per-Common Share market price of the Common Shares by a factor approximately equal to the consolidation ratio. However, the market price of the Common Shares will also be affected by the Corporation's financial and operational results, its financial position, including its liquidity and capital resources, industry conditions, the market's perception of the Corporation's business and other factors, which are unrelated to the number of Common Shares outstanding. There is no assurance that the anticipated market price immediately following the implementation of the Share Consolidation will be realized or, if realized, will be sustained or will increase. There is a risk that the total market capitalization of the Common Shares (the market price of the Common Shares multiplied by the number of Common Shares outstanding) after the implementation of the Share Consolidation may be lower than the total market capitalization of the Common Shares prior to the implementation of the Share Consolidation.
Having regard to these other factors, there can be no assurance that the market price of the Common Shares will increase following the implementation of a Share Consolidation.
If a Share Consolidation is implemented and the market price of the Common Shares (adjusted to reflect the ratio of the Share Consolidation) declines, the percentage decline as an absolute number and as a percentage of the Corporation's overall market capitalization may be greater than would have occurred if the Share Consolidation had not been implemented. Both the total market capitalization of a company and the adjusted market price of such company's shares following a consolidation or reverse split may be lower than they were before the consolidation or reverse split took effect. The reduced number of Common Shares that would be outstanding after the Share Consolidation is implemented could adversely affect the liquidity of the Common Shares.
Approval of the Share Consolidation
For the reasons outlined above, the Board believes that obtaining shareholder approval at the Meeting to implement the Share Consolidation is in the best interests of the Corporation and the Shareholders. Accordingly, management unanimously recommends that Shareholders vote FOR the Consolidation Resolution set out below.
"BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
1. The authorized share structure of the Corporation may be altered by consolidating all of the issued and outstanding common shares of the Corporation at a ratio to be selected by the Corporation's board of directors (the "Board"), in its absolute discretion, provided that the consolidation shall be no greater than twenty (20) pre-consolidation common shares for every one (1) post-consolidation common share (the "Share Consolidation").
2. The date of completion of the Share Consolidation shall be determined at the discretion of the Board, provided that such date shall be before September 18, 2026.
3. Any fractional common shares resulting from the consolidation of the common shares be converted to whole common shares pursuant to the provisions of Section 83 of the Business Corporation Act (British Columbia).
4. The Board be and it is hereby authorized to revoke, without further approval of the shareholders, this ordinary resolution at any time prior to the completion thereof, notwithstanding the approval by the shareholders of same, if determined, in the Board's sole discretion to be in the best interest of the Corporation.
5. Any one director or officer is authorized and directed on behalf of the Corporation to perform all such acts, deeds and things and execute, under seal of the Corporation if applicable, all such documents, instruments, certificates and other writings as may be necessary or desirable to give effect to this resolution."
In order for the Consolidation Resolution to be passed, it requires the positive approval of a simple majority (greater than 50%) of the votes cast thereon at the Meeting. If the Corporation obtains shareholder approval, the Consolidation Resolution would be valid until the Effective Time. The directors of the Corporation believe the passing of the foregoing ordinary resolution is in the best interests of the Corporation and recommend that shareholders of the Corporation vote in favour of the resolution. The persons named as proxies in the enclosed Proxy intend to cast the votes represented by proxy in favour of the foregoing resolution unless the holder of Common Shares who has given such proxy has directed that the votes be otherwise cast.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
|
EQUITY COMPENSATION PLAN INFORMATION AS AT MARCH 31, 2024
|
|
Plan Category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation plans
[excluding securities
reflected in column (a)]
(c)
|
|
Equity compensation plans approved by Securityholders:
|
|
|
|
|
(1) Amended and Restated 2001 Share Option Plan
|
9,689,931
|
$1.35
|
4,518,962
|
|
(2) Restricted Share Unit Plan
|
341,000
|
N/A
|
562,935
|
|
Equity compensation plans not approved by Securityholders
|
Nil
|
N/A
|
Nil
|
The numbers in the above chart are as at March 31, 2024. As at the date of this Management Proxy Circular, a total of 9,685,900 stock options are issued and outstanding under the Amended and Restated Plan (as defined below) representing approximately 6.82% of our issued and outstanding capital. Of the total options outstanding, 6,821,024 options are granted to insiders representing approximately 4.73% of our outstanding capital. Currently, 4,523,909 options are available for grant under the Amended and Restated Plan representing approximately 3.18% of the issued and outstanding Common Shares as of the date hereof. As of the date of this Management Proxy Circular, a total of 323,000 restricted share units are outstanding and 571,772 units are available for grant under the Restricted Share Unit Plan.
Burn Rate of the Amended and Restated Plan and Restricted Share Unit Plan
The chart below sets out the burn rate of the Amended and Restated Plan for the three most recently completed fiscal years ended March 31, 2024, March 31, 2023 and March 31, 2022. The annual burn rate is expressed as a percentage by dividing the number options granted under the Amended and Restated Plan during the applicable fiscal year by the weighted average number of common shares outstanding for the applicable fiscal year.
|
Fiscal Year
|
Number of Stock Options
Granted
|
Weighted Average Number of
Common Shares
|
Stock Option Burn
Rate
|
|
2024
|
2,901,000
|
121,398,318
|
2.39%
|
|
2023
|
2,320,000
|
108,728,742
|
2.13%
|
|
2022
|
1,245,000
|
108,588,454
|
1.15%
|
The chart below sets out the burn rate of the Restricted Share Unit Plan for the most recently completed fiscal year ended March 31, 2024, March 31, 2023 and March 31, 2022. The annual burn rate is expressed as a percentage by dividing the number units granted under the Restricted Share Unit Plan during the fiscal year by the weighted average number of common shares outstanding for the fiscal year.
|
Fiscal Year
|
Number of Restricted Share
Units Granted
|
Weighted Average Number of
Common Shares
|
Restricted Share
Unit Burn Rate
|
|
2024
|
112,000
|
121,398,318
|
0.09%
|
|
2023
|
307,181
|
108,728,742
|
0.28%
|
|
2022
|
121,000
|
108,558,454
|
0.11%
|
Description of Amended and Restated 2001 Share Option Plan
At Burcon's annual and special meeting held on September 19, 2001, the shareholders of Burcon approved the terms of the 2001 Share Option Plan (the "Plan") under which directors, officers, employees, management company employees and consultants ("Service Providers") of Burcon may be granted options to acquire Common Shares of Burcon. The principal purpose of the Plan is to encourage equity participation in Burcon by its Service Providers so that they have an interest in preserving and maximizing shareholder value in the longer term while enabling Burcon to attract and retain individuals with experience and ability and reward individuals for current and expected future performance. The Plan had a fixed number of options that could be granted to Service Providers. The Plan was amended in 2003, 2004, 2007 and 2009 to increase the number of Common Shares issuable under the Plan. At Burcon's annual meeting on September 1, 2011, the shareholders of Burcon approved the amendment to the Plan to convert it from a fixed plan to a rolling plan (the "Amended and Restated Plan"). A rolling plan has a plan maximum expressed as a percentage of the total number of common shares outstanding on a non-diluted basis and all exercised, cancelled, expired or terminated options become available for future grant. The Amended and Restated Plan permits the issuance of that number of options up to a maximum of 10% of the issued and outstanding Common Shares of Burcon from time to time. As of the date hereof, Burcon has 142,098,096 Common Shares outstanding of which 10% is 14,209,809.
During the year ended March 31, 2013, the Board amended the Amended and Restated Plan to provide optionees with an alternative method to exercise stock options. An optionee may elect to exercise an option using the cashless method, whereby the optionee receives the number of shares the value of which is equal to the amount by which the fair market value of the Common Shares exceeds the option exercise price. The fair market value is determined by the weighted average trading price of the Common Shares during the five trading days preceding the date of exercise.
The TSX requires that rolling plans, such as the Amended and Restated Plan, be approved by a majority of directors and by shareholders every three years. Since inception, the Amended and Restated Plan was re-approved by directors and shareholders every three years as follows:
|
Re-approval Every 3 Years
|
By Directors
|
By Shareholders
|
|
First 3-year Anniversary
|
July 24, 2014
|
September 10, 2014
|
|
Second 3-year Anniversary
|
July 18, 2017
|
September 7, 2017
|
|
Third 3-year Anniversary
|
July 23, 2020
|
September 7, 2020
|
|
Fourth 3-year Anniversary
|
July 24, 2023
|
September 20, 2023
|
The next three-year anniversary on which the Amended and Restated Plan must be approved by Shareholders is September 20, 2026.
The principal terms of the Amended and Restated Plan are summarized as follows:
• The aggregate number of optioned shares that may be granted under the Amended and Restated Plan, shall not exceed 10% of the Common Shares then issued and outstanding on a non-diluted basis. Any increase in the issued and outstanding Common Shares will result in an increase in the number optioned shares available under the Amended and Restated Plan and any exercise, conversion, redemption, expiry, termination, cancellation or surrender of options granted will make additional optioned shares available under the Amended and Restated Plan;
• The Board is responsible for the general administration of the Amended and Restated Plan and the proper execution of its provisions and its interpretation;
• The Amended and Restated Plan contains limitations on option issuances. The limitations are unless disinterested shareholder approval is obtained: (a) insiders cannot be granted awards under the Amended and Restated Plan or any other security based compensation plan to purchase more than 10% of the listed Common Shares within any 12 month period; and (b) the aggregate number of outstanding awards granted to insiders under the Amended and Restated Plan or any other security based compensation plan may not exceed 10% of the listed Common Shares at any time;
• Other than in the case of an optionee's death, where options become exercisable by the deceased optionee's lawful personal representatives, heirs or executors, all options granted under the Amended and Restated Plan continue to be non-assignable and non-transferable, however, the Amended and Restated Plan allows for a transfer to a Service Provider's registered retirement savings plan, registered retired income fund or tax-free savings account, or the equivalent thereof, established by or for the benefit of the optionee;
• A Service Provider who is no longer employed by Burcon, except in the case of death, retirement or the participant becoming totally disabled, has up to the lesser of 30 days after ceasing to be a Service Provider, and the expiration of the term applicable to such option, to exercise their options;
• In the case of an optionee's death, any vested option held on the date of death is exercisable by the optionee's lawful personal representatives, heirs or executors until the earlier of one year from death and the expiration of the option's term, while in the case where a Service Provider has retired, become totally disabled or died after ceasing to be a Service Provider, outstanding options whether vested or unvested can be exercised by the optionee, or if the optionee has died by their personal representatives, until the earlier of the option's expiry date and 90 days after the date of retiring, becoming totally disabled or death after ceasing to be a Service Provider;
• The exercise price of the options will be set by the Board at the time the options are allocated but cannot be less than the price per Burcon's common share traded on the TSX as at the closing on the last trading day before the date that the options are granted;
• The Board at their discretion has the power to determine the time, or times when options will be granted, vest and be exercisable, to determine when it is appropriate to accelerate when options otherwise subject to vesting may be exercised and provide a cashless exercise feature to an option or the Amended and Restated Plan, provided that the Board will not have the right to (i) reduce the exercise price of any option or cancel any option and replace such option with a lower exercise price under such replacement option without shareholder approval or unless otherwise permitted under the Amended and Restated Plan; or (ii) affect in a manner that is adverse or prejudicial to, or that impairs, the benefits and rights of any Service Provider under any option previously granted under the Amended and Restated Plan except with the consent of the Service Provider or otherwise permitted under the Amended and Restated Plan or for the purposes of complying with the requirements of the TSX or a regulatory authority to which the Corporation is subject;
• The term of an option will not exceed 10 years from the date of grant, however, if the expiry date of any vested option falls during or within nine business days of a black-out period or other trading restriction imposed by Burcon, then the option's expiry date shall be automatically extended for ten business days following the date of the relevant black-out period or other trading restriction being lifted, terminated or removed;
• The Board has the ability to: (a) with shareholder approval by ordinary resolution make any amendment to any option commitment, option or the Amended or Restated Plan; and (b) without shareholder approval make any amendments: (i) of a clerical nature, (ii) to reflect regulatory requirements, (iii) to vesting provisions, (iv) to expiration dates as long as there is no extension past the original date of expiration, and (v) providing for a cashless exercise feature; and
• The Amended and Restated Plan allows Burcon to satisfy its withholding obligations from any amount payable to a Service Provider that is an optionee as is required by law to be withheld or deducted upon an option exercise.
Description of Restricted Share Unit Plan
At Burcon's annual and special meeting held on September 15, 2021, the shareholders of Burcon approved the terms of the restricted share unit plan (the "Restricted Share Unit Plan") under which directors, officers, employees, management company employees and consultants of Burcon may be granted restricted share units redeemable for Common Shares of Burcon. The Restricted Share Unit Plan was approved by the Board on July 20, 2021 (the "Effective Date"). The purposes of the Restricted Share Unit Plan are to (i) promote a greater alignment of interests between directors, executive officers, employees and consultants of the Corporation and its affiliates and shareholders; (ii) assist the Corporation and its affiliates to attract and retain individuals with experience and ability to serve as directors, executive officers, key employees and consultants; and (iii) allow the certain eligible persons to participate in the long-term success of the Corporation. As of the date hereof, 323,000 restricted share units are outstanding.
The principal terms of the Restricted Share Unit Plan are summarized as follows:
• Under the Restricted Share Unit Plan, the Corporation may grant restricted share units to directors, executive officers, employees and consultants of the Corporation and its affiliates (each an "Eligible Person").
• The Board, or a committee designated by the Board from time to time, is responsible for the general administration of the Restricted Share Unit Plan and the proper execution of its provisions and its interpretation. The Board has the power to determine the time, or times when restricted share units will be granted, will vest and be redeemed, and to determine when it is appropriate to accelerate restricted share units;
• The aggregate number of Common Shares which may be issuable upon the redemption of all restricted share units under the Restricted Share Unit Plan shall not exceed 1,084,879, which represents 1% of the issued and outstanding Common Shares of the Corporation as at the Effective Date. If a restricted share unit expires, is forfeited or is cancelled for any reason, the Common Share(s) subject to that restricted share unit shall again be available for grant under the Restricted Share Unit Plan, subject to any required prior approval of the TSX;
• The Restricted Share Unit Plan also contains the following limitations on grants of restricted share units (unless disinterested shareholder approval is obtained) to insiders: (a) the aggregate number of Common Shares issuable to insiders and their associates at any time pursuant to the redemption of restricted share units, including Common Shares issuable under any other security based compensation plan, shall not exceed 10% of the Common Shares; and (b) the aggregate number of Common Shares that may be issued to insiders and their associates within any 12-month period pursuant to the redemption of restricted share units shall not exceed 10% of the Common Shares;
• The Restricted Share Unit Plan does not provide for a maximum number of restricted share units which may be issued to an individual pursuant to the Restricted Share Unit Plan (expressed as a percentage or otherwise);
• Other than in the case of an optionee's death, where restricted share units become redeemable by the deceased Eligible Person's legal personal representatives, all restricted share units granted under the Restricted Share Unit Plan are non-assignable and non-transferable;
• An Eligible Person who resigns before the vesting date of their restricted share units shall forfeit all rights, title and interest in the restricted share units for which the vesting date is on or after the earlier of: (i) the date of delivery of the notice of resignation; and (ii) the effective date of the resignation;
• If an Eligible Person's employment is terminated for reasons other than resignation, retirement or permanent disability, cause or death (each as determined in accordance with the Restricted Share Unit Plan) before the vesting date of such Eligible Person's restricted share units, any unvested restricted share units shall vest pro-rata based on the number of completed months of service since the grant date to the termination date of such Eligible Person. Such vested restricted share units will be payable in Common Shares or cash based on the market value of the Common Shares at the termination date of such Eligible Person;
• In the case of an Eligible Person's death, any unvested restricted share units held by such Eligible Person shall vest on the Eligible Person's termination date and the Corporation will redeem all such vested restricted share units and the Common Shares issuable upon such redemption will be issued to the legal representatives of the estate of such Eligible Person;
• In the case of an Eligible Person's employment ceasing as a result of retirement or permanent disability, any unvested restricted share units held by such Eligible Person shall, at the discretion of the Board, either: (i) continue to vest according to the vesting schedule set out in the applicable restricted share unit grant agreement; or (ii) vest pro-rata based on the number of completed months of service since the grant date to the termination date of such Eligible Person. Such vested restricted share units will be payable in Common Shares or cash based on the market value of the Common Shares at the applicable vesting date;
• The grant of restricted share units under the Restricted Share Unit Plan in any calendar year shall either: (i) be awarded solely in respect of performance of such Eligible Person in the same calendar year as that including the grant date; or (ii) in respect of performance of such Eligible Person for the preceding year (such applicable year of performance by such Eligible Person shall be referred to as the "Service Year");
• On the redemption date for each vested restricted share unit, the Corporation shall redeem all such vested restricted units by issuing to the applicable Eligible Person(s), Common Shares from the Corporation's treasury in respect of the restricted share units or, at the election of the Corporation, either: (i) cash in the amount equal to the market value of the Common Shares on the vesting date, being the closing price of the Common Shares on the trading day prior to such date on the TSX; or (ii) a Common Share acquired by the Corporation through a broker on a public exchange;
• All Common Shares to be issued to, or amounts payable to, or in respect of, an Eligible Person in respect of a restricted share unit shall be issued and/or paid not later than the last day of the third calendar year following the end of the Service Year in respect of which the restricted share unit was granted;
• The Board has the ability to: (a) with shareholder approval by ordinary resolution, make amendments to: (i) increase the number of Common Shares, or the percentage of the issued and outstanding Common Shares, issuable pursuant to the Restricted Share Unit Plan, (ii) extend the redemption date of any restricted share unit granted under the Restricted Share Unit Plan, (iii) materially modify the eligibility requirements for participation, (iv) amend the limitations on the maximum number of Common Shares reserved or issued to insiders, (v) amend the provisions dealing with transfer restrictions, or (vi) amend the amendment provisions of the Restricted Share Unit Plan; and (b) without shareholder approval, make any amendments: (i) of a clerical nature, (ii) to reflect regulatory requirements, (iii) to vesting provisions, (iv) any amendment respecting the administration of the Restricted Share Unit Plan, and (v) any other amendment that does not require the approval of shareholders of the Corporation set out in the Restricted Share Unit Plan;
• In the event of a Change of Control (as defined in the Restricted Share Unit Plan), all unvested restricted share units then outstanding will, as applicable, be substituted by or replaced with awards of the surviving corporation (or any affiliate thereof) or the potential successor (or any affiliate thereto) (the "continuing entity") on the same terms and conditions as the original restricted share units, subject to appropriate adjustments that do not diminish the value of the original restricted share units; provided that, despite anything else to the contrary set out in the Restricted Share Unit Plan, in the event of a potential Change of Control, the Board will have the power, in its sole discretion, to modify the terms of the Restricted Share Unit Plan and/or the restricted share units to assist the Eligible Persons in tendering to a takeover bid or other transaction leading to a Change of Control;
• If the redemption date of a vested restricted share unit falls on or within nine business days of a black-out period or other trading restriction imposed by Burcon, then the redemption date of such vested restricted share unit shall be automatically extended to the tenth business day following the date of the relevant black-out period or other trading restriction being lifted, terminated or removed.
• The Restricted Share Unit Plan allows Burcon to satisfy its withholding obligations from any amount payable to an Eligible Person as is required by law to be withheld or deducted upon the redemption of a restricted share unit;
• An Eligible Person's account will be credited with additional restricted share units to account for dividends on the Common Shares on each dividend payment date in respect of which ordinary course cash dividends are paid on the Common Shares. The number of additional restricted share units credited is determined by dividing: (a) the amount obtained by multiplying the amount of the dividend declared and paid per Common Share by the number of restricted share units recorded in the Eligible Person's restricted share account on the date for the payment of such dividend, by (b) the market value of a Common Share as at the dividend payment date; and
• The Restricted Share Unit Plan provides for certain additional provisions in relation to U.S. Eligible Persons (as defined in the Restricted Share Unit Plan) for the effective administration of the plan in compliance with certain U.S. requirements.
CORPORATE GOVERNANCE DISCLOSURE
Under National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") Burcon is required to disclose its corporate governance practices in its Management Proxy Circular. National Policy 58-201 - Corporate Governance Guidelines ("NP 58-201") sets out corporate governance guidelines for public companies. The Board and management of Burcon believe that good corporate governance practices are integral to the overall success of the Corporation and to protect shareholders' interests. Over the years, Burcon has continued to develop its corporate governance policies to be in line with the guidelines set out in NP 58-201. During the fiscal year 2021, Burcon engaged Hugessen Consulting Inc. ("Hugessen"), a third-party consultant, to review the Corporation's corporate governance practices to ensure that the policies and procedures implemented by the Corporation are in line with good industry practices. Hugessen concluded in its report dated August 24, 2020 (the "Hugessen Report") that the overall governance approach taken by Burcon is appropriate for the Corporation's size and stage of development and did not identify any material deficiencies in Burcon's written governance policies. Hugessen's findings are discussed in further detail below.
Board of Directors
Burcon's Board currently consists of eight directors. The size of the Board and its composition are reviewed annually by the corporate governance and nominating committee. The Board believes that its composition reflects a good mix of individuals with varying backgrounds and experience in the fields of business, finance, science and the food industry and will be conducive to facilitate a diversity of perspectives in the overall management of the Corporation. Of the eight nominees proposed for election at the Meeting, six of the directors are considered independent within the meaning of the term "independent" set out in NI 58-101. The independent directors currently on the Board are Debora Fang, Peter Kappel, Alfred Lau, Jeanne McCaherty, Aaron T. Ratner and D. Lorne Tyrrell. Alan Chan, through his wholly-owned company, Firewood Elite Limited ("Firewood") owns, directly or indirectly, approximately 18.05% of Burcon's issued and outstanding Common Shares. In addition, Large Scale Investments Limited, a company wholly-owned by Firewood, has entered into the Loan Agreement with the Corporation. See "Interest of Informed Persons in Material Transactions". Mr. John A. Vassallo was an independent director until he entered into the Advisory and Consulting Agreement dated March 6, 2024, pursuant to which he has received the Compensation Warrants. See "Approval of Warrants Issued to John A. Vassallo". If elected, James Pekar will be an independent director. Dr. D. Lorne Tyrrell will not stand for re-election at the Meeting.
For the Meeting, the Board has set the number of directors at eight. If the eight nominees proposed for election at the Meeting are all elected, the Board will consist of a majority of independent directors. During the preceding year, independent directors actively participated in board meetings and had direct communication with management on key business issues to ensure independent supervision over management. The Hugessen Report noted that Burcon has strong director independence levels for a company with a large shareholder with board representation.
Directorships
The following table sets out the relationships of Burcon's directors with other reporting issuers.
|
Director
|
Reporting Issuer or the Equivalent in a Jurisdiction or a Foreign Jurisdiction
|
|
Alan Chan
|
Executive Director, ITC Properties Group Limited
|
|
Aaron Ratner
|
Director, Alternus Clean Energy
|
Independent Director Meetings
During the fiscal year, the independent directors of the Board held an in-camera session at the end of each regularly scheduled Board meeting if they deemed such session to be necessary. Eight in-camera sessions were held following Board meetings during the fiscal year. Non-independent directors were invited to attend such sessions where appropriate. Given that the committees of the Board, other than the Merit Special Committee, were comprised solely of independent directors until Mr. Vassallo became non-independent on March 6, 2024, the Board believes that committee meetings also provide another suitable forum for independent directors to have open and candid discussions among them about various issues. Committee members have the discretion to conduct in-camera sessions at the end of committee meeting. The audit committee held four in-camera sessions during the fiscal year while the compensation committee and the corporate governance and nominating committee held three in-camera sessions at the end of the committee's meetings during the fiscal year.
Chairman
Mr. Peter H. Kappel is the Chairman of the Board. The Chairman facilitates discussions among all directors during meetings and acts as liaison between the Board and management in between Board meetings. He also communicates with management regularly and receives input from directors of the Board to set the agenda for Board meetings. The Hugessen Report noted that one of Burcon's key corporate governance strengths is having three standing board committees that are entirely independent as well as having a chairman independent of the chief executive officer.
Summary of Attendance of Directors
The table below sets out the attendance by the directors at meetings during the fiscal year ended March 31, 2024. Certain directors were a member on the board of directors or a committee for only a portion of the fiscal year. For each director, the numerator sets out the number of meetings attended by such director and the denominator sets out the number of meetings such director could have attended.
|
Director
|
Board of
Directors
|
Audit
Committee
|
Compensation
Committee
|
Corporate
Governance and
Nominating
Committee
|
|
|
11 meetings(5)
|
5 meetings
|
4 meetings
|
4 meetings
|
|
Alan Chan
|
9/11
|
N/A
|
N/A
|
N/A
|
|
David Lorne John Tyrrell
|
11/11
|
5/5
|
N/A
|
4/4
|
|
J. Douglas Gilpin(1)
|
4/4
|
3/3
|
2/2
|
N/A
|
|
Peter H. Kappel
|
11/11
|
5/5
|
4/4
|
4/4
|
|
Debora Fang(2)
|
8/11
|
2/2
|
4/4
|
2/2
|
|
Jeanne McCaherty
|
7/11
|
N/A
|
4/4
|
2/4
|
|
Alfred Lau
|
11/11
|
5/5
|
N/A
|
4/4
|
|
Aaron T. Ratner(3)
|
7/11
|
3/4
|
3/4
|
N/A
|
|
John A. Vassallo(4)
|
7/7
|
N/A
|
2/2
|
2/2
|
(1) Mr. Gilpin's directorship ended on September 20, 2023.
(2) Ms. Fang became a member of the audit committee on September 20, 2023. Ms. Fang was a member of the corporate governance and nominating committee until September 20, 2023.
(3) Mr. Ratner resigned from the audit committee effective February 1, 2023.
(4) Mr. Vassallo joined the board of directors on September 20, 2023 and became a member of the compensation committee and the corporate governance and nominating committee on September 20, 2023.
(5) In addition to the 11 board meetings, directors also held two strategic planning sessions during the fiscal year.
Board Mandate and Ethical Business Conduct
The Board is responsible for the stewardship of the Corporation and for the supervision of the management of the business and affairs of the Corporation. The Board actively participates in assessing significant decisions proposed by management. On April 14, 2010, the Board adopted a written mandate defining its responsibilities. As part of its overall corporate governance policy review during the fiscal year, the Board approved, on February 23, 2021, an updated form of its written mandate, a copy of which is attached to this Management Proxy Circular as Schedule "A".
Since October 2005, the Board has adopted a Code of Business Ethics and Conduct (the "Code"), a copy of which is attached to this Management Proxy Circular as Schedule "B". The Code was amended in February 2011, August 2011, September 2012 and February 23, 2021. All directors, officers and employees of Burcon and its subsidiary, Burcon NutraScience (MB) Corp. are required to confirm, on an annual basis, that they have reviewed the Code and agreed to abide by it. The audit committee has the authority to monitor compliance with the Code and report any non-compliance to the Board at quarterly intervals. The audit committee has established procedures to allow directors, officers and employees to report breaches of the Code or any illegal or unethical behaviour anonymously to the chair of the audit committee. No waivers or implicit waivers from a provision of the Code have been granted to any directors, officers or employees since its inception. Shareholders may obtain a copy of the Code by written request to Burcon at Suite 490 - 999 West Broadway, Vancouver, British Columbia, V5Z 1K5, Attn.: Corporate Secretary.
In December 2011, the Board implemented a whistleblower reporting program. Under the program, Burcon established a confidential and anonymous procedure for reporting claims of unethical and illegal behaviour or concerns regarding questionable accounting and audit matters. On an annual basis, all employees are reminded about the whistleblower reporting program and procedures on how to make a report. Burcon engaged a third party to receive the reports and direct them to the chair of the audit committee of the Board. The whistleblower reporting program is tested by management every quarter and reviewed by the members of the audit committee. To date, no reports of unethical or illegal behaviour or concerns have been received by the Corporation under this program.
The Board has implemented procedures to ensure that directors and officers exercise independent judgement in considering transactions and agreements in respect of which a director or executive officer has a material interest. Directors and officers are required to declare any conflicts of interests annually in a director and officer questionnaire. As well, a director is required to declare his or her interest and abstain from voting on any transactions or agreements at a board meeting convened by directors to consider and approve such matters.
Burcon believes that directors are provided with a good forum to openly discuss issues at Board and committee meetings. The Chairman regularly solicits input from all directors present at meetings and encourages participation and discussion on matters being considered. Through such dialogue, the Corporation believes that the Board is able to promote a culture of ethical business conduct.
Position Descriptions
In February 2013, the Board adopted written position descriptions for the Chairman of the Board and the chair of each committee. The Board believes that having position descriptions in place will further assist the respective chairs in fulfilling their duties. As part of the review conducted by Hugessen, the written position descriptions for the Chairman and each committee chair were updated.
Mr. Peter Kappel was appointed as Interim Chief Executive Officer on March 1, 2022 and acted in such capacity until November 7, 2022. After his resignation as Interim Chief Executive Officer, Mr. Kappel resumed his role as Chairman of the Board. Mr. Kappel joined the Board in January 2016. Since then, he has served as a member of all the committees of the Board and was appointed as Chairman in September 2021. Mr. Kappel has also provided support to management during the recent fiscal years to complete various significant transactions. On November 7, 2022, Mr. Kip Underwood was appointed as Burcon's Chief Executive Officer. His employment terms are summarized in the section "Employment and Consulting Contracts with Named Executive Officers". Mr. Underwood is charged with fulfilling the Corporation's objectives.
Orientation and Continuing Education
New directors of Burcon are provided with orientation materials containing information on Burcon's business, technology, financial information and the roles and responsibilities of directors. Directors are also updated on new developments in the business by management presentations at Board meetings and through regular management reports in between Board meetings. Finally, directors are regularly informed about changes in legal or regulatory requirements applicable to the Corporation.
Each committee of the Board has, with the input of committee members, developed and implemented a charter. The charter is reviewed by the applicable committee on an annual basis. Committee members are guided by its charter when fulfilling their roles. Committee members are also updated by management on legal or regulatory requirements specific to the committee's area of focus. The Corporation's auditors and outside consultants also provide committee members with updates on emerging accounting, auditing, compensation and regulatory developments.
Nomination of Directors and Compensation
Burcon has a corporate governance and nominating committee comprised of Lorne Tyrrell, Alfred Lau, Jeanne McCaherty and John Vassallo. Mr. Kappel is an ex-officio member of the committee. Mr. Kappel, Dr. Tyrrell, Mr. Lau and Ms. McCaherty are independent. During the fiscal year, Mr. Vassallo was an independent member of the corporate governance and nominating committee until he was engaged as a consultant. See "Approval of Warrants to John A. Vassallo". Dr. Tyrrell is chair of the corporate governance and nominating committee. As part of the Hugessen review, the corporate governance and nominating committee adopted a revised written charter on February 23, 2021 to assist committee members in fulfilling their roles. The charter was further amended on February 10, 2022. The duties and responsibilities of the corporate governance and nominating committee include:
- overseeing all matters relating to the governance of the Corporation and for reporting and making recommendations to the Board regarding such matters;
- reviewing the remuneration and other benefits of the Corporation's directors proposed by the compensation committee and, if thought advisable, recommend the same to the Board for approval;
- recommending Board nominees by seeking out and recommending to the board of directors the nominees for appointment, election or re-election;
- overseeing the orientation program for new directors and committee members and programs for providing continuing education for directors; and
- as required, reviewing and approving succession plans for directors of the Corporation.
All members of the Board are encouraged to recommend individuals they believe are suitable to serve on the Board of the Corporation. When reviewing the suitability of prospective director nominees for Burcon's Board, the corporate governance and nominating committee will review the candidate's education, background and any business experience that may be relevant for Burcon. The corporate governance and nominating committee has developed a director skills matrix to assist the committee in evaluating: the competencies and skills that the Board considers to be necessary for the Board, as a whole, should possess; the competencies and skills that the Board considers each existing director should possess; and the competencies and skills each new nominee will bring to the Board of Burcon.
Burcon believes that the Board is currently comprised of a strong group of individuals with a wealth of experience in various facets of business across many industries. During the last three fiscal years, the corporate governance and nominating committee reviewed and recommended a number of new candidates to the Board in a continuing effort to broaden the Board's skills base and to encourage board renewal. In July 2021, Ms. Jeanne McCaherty, an executive with experience in industrial manufacturing and technical leadership experience in the food industry was appointed. During fiscal year 2022, Mr. Alfred Lau also joined the Board and provides valuable financial experience and contributions to the Corporation. After careful consideration of the skills matrix, the corporate governance and nominating committee recommended the nomination of Mr. Aaron Ratner to the Board during fiscal year 2022. Mr. Ratner's experience in finance and focus on climate technologies and sustainability will be beneficial to the Corporation's Board composition going forward. After careful review by the corporate governance and nominating committee, Mr. John Vassallo was nominated as a director during fiscal year 2023 and elected as a director at Burcon's last annual general meeting of shareholders. Mr. Vassallo possesses over 30 years of business experience across various industries and his skills are expected to beneficial to the Corporation going forward. After serving almost 15 years on the Board, Dr. D. Lorne Tyrrell has decided to retire from the Board and will not stand for re-election at the Meeting. Over the years, Dr. Tyrrell has provided invaluable contributions to the Board and the Corporation. After considering the director skills matrix and the Corporation's stage of development, the corporate governance and nominating committee identified the need to further add a director with expertise in the food industry to the Board. Mr. James Pekar was proposed as a nominee for election at the Meeting after careful review by the committee. If elected, the Board expects to draw on Mr. Pekar's experience in the food industry and business acumen to guide the Corporation as it transitions from a research and development company to executing Burcon's 2.0 strategy.
Compensation Committee
Burcon has a compensation committee comprised of Debora Fang, Jeanne McCaherty, Aaron Ratner and John Vassallo. Mr. Kappel is an ex-officio member of the compensation committee. All of the directors of the compensation committee are independent except Mr. Vassallo. See "Approval of Warrants to John A. Vassallo". Ms. Fang is the chair of the compensation committee. As part of the Hugessen review of the Corporation's corporate governance practices, the compensation committee adopted a revised written charter on April 14, 2021 to assist committee members in fulfilling their roles. The charter was further amended in February 2022. The duties and responsibilities of the compensation committee include:
- developing the Corporation's pay philosophy and determine remuneration and other benefits of the Corporation's executive officers and consultants and performance bonuses and long-term incentives for the Corporation's employees;
- determining remuneration and other benefits of the Corporation's directors and submit proposals to the corporate governance and nominating committee for further review; and
- reviewing and approving succession plans for executive officers of the Corporation, and as deemed necessary by the Committee, any other officers or employees of the Corporation.
For more information on the Compensation Committee, refer to the section "Statement of Executive Compensation".
Assessment
The Board meets at least once per quarter to assess the developments of Burcon's business and management recommendations. The Corporation achieved a number of corporate objectives during the fiscal year and held 11 Board meetings. In addition to the Board meetings, the Board also held two strategic planning sessions. These meetings were beneficial to both the Board members and management and facilitated healthy discussions in the strategic planning process and execution of key decisions of the Corporation during the fiscal year. The Board has a formal self-assessment process in place and an assessment is conducted every two years, with the most recent assessment performed during the fiscal year 2022. The results of the self-assessments were reviewed by the Board and each of the board committees and reported to the Board. As at the date hereof, the 2024 assessment process has been initiated and is underway.
Director Term Limits and Gender Diversity
In 2014, NI 58-101 was amended to require TSX-listed companies to disclose their practices relating to representation of women on boards of directors and in executive officer positions and on mechanisms of board renewal. The corporate governance committee at the time reviewed these amendments but did not view that the Board needed to develop policies regarding gender diversity or board renewal given the stage of development of Burcon at the time. The Board accepted this recommendation. The Board believes that at this stage, the Board is adequately populated with directors possessing varying skills and experience that are sufficient to competently manage the affairs of the Corporation. Therefore, the Board does not believe in limiting the skills available to the Corporation by imposing a term limit for the directors. The Board believes that it will be appropriate to review this practice when the Corporation evolves into the revenue-generating phase. This approach is supported by Hugessen. Although the Board does not have a formal policy on director term limits, the Board continues to review its composition annually to assess the need to further add to its skills base. Based on this process, the Board successfully welcomed four new directors to the Board during the last three fiscal years and has nominated a new candidate for election at the Meeting. See the section "Nomination of Directors and Compensation" above.
Although the Corporation does not have a written policy with regard to gender diversity, the Board believes that female participation currently on the Board and at the senior management level is suitable for the size and complexity of issues facing Burcon. Currently, two of eight of the directors on the Board are female, representing 25% of the members. As of the date hereof, one of five senior officers of the Corporation is female, representing 20% of senior management. The Corporation does not have a target regarding women on the board or in executive positions. The Board believes that the current composition of female directors and senior management positions is suitable in light of recent guidance from proxy advisory firms such as Glass Lewis & Co and Institutional Shareholder Services.
Objectives for the year ending March 31, 2025
The Board believes that its current corporate governance policies and procedures are suitable for Burcon given the current stage of the Corporations business. Hugessen's Report also supports this determination. Going forward, Burcon will continue to assess its corporate governance practices and will endeavour to further make improvements as the Board deems necessary.
AUDIT COMMITTEE AND DISCLOSURE UNDER
NATIONAL INSTRUMENT 52-110
Under National Instrument 52-110 ("NI 52-110"), Burcon is required to disclose in its Management Proxy Circular certain information concerning the composition of its audit committee and its auditor. The required disclosure can be found on pages 76-78 of Burcon's Annual Information Form ("AIF") dated June 26, 2024. The audit committee charter is set out in Schedule "A" of the AIF. A copy of the AIF can be found on the SEDAR website at www.sedar.com. Shareholders may obtain a copy of the AIF by written request to Burcon at Suite 490 - 999 West Broadway, Vancouver British Columbia, V5Z 1K5, Attn: Corporate Secretary.
STATEMENT OF EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Committee
Burcon has a compensation committee (the "Compensation Committee") comprised of the following directors: Debora S. Fang, Jeanne McCaherty, Aaron T. Ratner and John A. Vassallo. Mr. Kappel is an ex-officio member of the Compensation Committee. Ms. Fang is the chair of the Compensation Committee. See "Corporate Governance Disclosure". All of the directors on the Compensation Committee are independent except Mr. Vassallo. See "Approval of Warrants to John A. Vassallo". The Board believes that the members of the Compensation Committee are sufficiently skilled to perform their duties.
The Board believes that Burcon's Compensation Committee members possess the educational and practical experience to enable the committee to make decisions on the suitability of the Corporation's compensation policies and practices, including experience in the following areas:
- General management skills in working with senior executives and developing performance management processes
- Evaluating, hiring and placing senior executives
- Knowledge of compensation and incentive programs
- Knowledge of share equity compensation plans and the risks associated with using this type of compensation
- Working with succession planning tools and processes
- Assessing risks associated with compensation plans
The purpose of the Compensation Committee is to carry out the Board's overall responsibility to review and approve the Corporation's employee and management compensation policies and practices, incentive compensation plans (cash and equity-based short and long term incentive plans) and the amount and form of compensation of the executive officers of the Corporation. The Compensation Committee is also responsible for determining remuneration and other benefits of the Corporation's directors and submit proposals to the corporate governance and nominating committee for further review.
The Compensation Committee's charter provides the Compensation Committee with the authority to retain, and approve the fees and other retention terms of, compensation, legal and other advisors, as it deems necessary for the fulfillment of its responsibilities. The Corporation must provide for appropriate funding, as determined by the committee, for payment of reasonable compensation to an advisor retained by the committee.
Compensation Program Review in 2021
During fiscal year 2021, the Compensation Committee determined that it would be in the best interests of Burcon to initiate a review of the compensation structure of the Corporation given that the last formal review took place during fiscal year 2012. On April 1, 2021, the Compensation Committee engaged Hugessen Consulting Inc. ("Hugessen") of Toronto, Ontario to conduct a review of the Corporation's executive and director compensation structure. The executives forming part of the benchmarking review included Johann Tergesen, Jade Cheng, Randy Willardsen, Dorothy Law and Martin Schweizer. All the directors of the Corporation as of April 1, 2021 were included in the review.
The objective of the review was to assess the effectiveness of Burcon's current compensation structures, with the focus of ensuring that Burcon's compensation philosophy and the interests of Burcon's stakeholders are aligned. Burcon's three key stakeholders include:
|
Stakeholder
|
Interest
|
|
Burcon's current employees
|
Burcon's compensation structure should be fair and competitive when compared to other companies in the market to support employee retention and motivation.
|
|
Burcon's current and prospective investors
|
Burcon's compensation structure should be suitable for its size, stage of development and comparable to peers in the market.
|
|
Burcon's prospective employees
|
As Burcon grows, its compensation structure should support the Corporation's ability to attract well-qualified talent in the market.
|
Hugessen's work plan included the development of an appropriate pay peer group, which reflects Burcon's unique characteristics, including but not limited to size, industry, technology-driven business, commercial structure, complexity, and pre-revenue stage; assessing market competitive pay levels for both senior executives and directors, considering Burcon's lean management team, and scope of certain roles; and reviewing the incentive design practices across peers, and the development of suggested alternatives for incentive pay (i.e. annual cash bonus and long term equity) that are appropriate for Burcon's age and stage of development, and including high level considerations of corporate and individual tax, retention and motivation, and inclusion of single vs multi-year key performance indicators into the performance framework.
Upon completion of its benchmarking review, Hugessen made the following conclusions:
-
Burcon's executive pay levels are competitive when compared to the comparable peer group
-
Burcon's director pay programs are generally in line with peer practices
-
Certain recommendations for changes were proposed for future consideration by the Compensation Committee as the Corporation grows and transitions to a revenue generating company
|
Components of Executive Compensation
The Corporation's compensation program is comprised of a combination of base salary, incentive stock options, restricted share units and bonuses.
Given the Corporation's stage of development and cash position over the years, the Board had deferred the implementation of a formal bonus component into the compensation program and has approved bonuses on an ad hoc basis. The Board believes that the two elements of base salary and incentive stock options as compensation have been appropriate to compensate the Corporation's executives in light of the Corporation's stage of development. During fiscal year 2022, the Board implemented the restricted share unit plan. The Board reviews these elements individually and comprehensively to ensure alignment with the Corporation's strategic goals and objectives and the Corporation's overall compensation objectives. Performance reviews of executive officers and employees of the Corporation and its subsidiaries are conducted annually by their supervisor. The CEO's performance review is conducted by the Compensation Committee. In the process of developing the components, the Board has, through the Compensation Committee, considered the implications of risks associated with its compensation policies. The Board believes that the risks are mitigated to a certain degree given the approach it has taken in the past on executive compensation. With respect to the salary component of the executive compensation, the Board has strived to be competitive in order to attract, retain and motivate executives. Options granted to employees under the incentive stock option plan generally do not vest immediately upon grant but vest over a three-year period. Although the restricted share unit plan was approved by shareholders and implemented during fiscal year 2022, the Compensation Committee recommended to the Board that initially, restricted share units be granted to non-executive employees and that this form of compensation be used to complement the option component of the equity compensation package. The Board agreed with this approach. Restricted share units do not vest immediately upon grant but vest over a three-year period and will be redeemed by the Corporation on the third anniversary from the date of grant. The Board believes that using a vesting schedule encourages employee loyalty, aligns employee and company interests and reduces certain risks that may be associated with granting stock options or restricted share units that vest immediately upon grant. Notwithstanding the foregoing, the Board approved the grant of restricted share units to an officer during fiscal year 2023. See "Components of Executive Compensation - Restricted Share Units" below.
The Corporation does not have a specific policy with respect to NEOs (as defined below) and directors purchasing financial instruments designed to hedge or offset a decrease in market value of equity securities of the Corporation.
Base Salary
For the purposes of this Statement of Executive Compensation, Kip Underwood, Chief Executive Officer, Jade Cheng, Former Chief Financial Officer, Randy Willardsen, Senior Vice President, Process, Dorothy Law, Senior Vice President, Legal and Corporate Secretary and Martin Schweizer, Vice President, Technical Development are the "Named Executive Officers" ("NEO") of Burcon. Mr. Robert Peets was appointed as Chief Financial Officer of Burcon on July 1, 2024 and did not receive any compensation during fiscal year 2024.
The primary element of the Corporation's compensation program is base salary. The Corporation's view is that a competitive base salary is a necessary element for attracting and retaining qualified executive officers.
Mr. Kip Underwood was appointed as the Corporation's Chief Executive Officer on November 7, 2022. During the year ended March 31, 2011, the Committee negotiated with each of Ms. Cheng and Ms. Law to determine their salaries. Following the negotiations, formal employment agreements were entered into with Ms. Cheng and Ms. Law in March 2011. Mr. Willardsen is a consultant of Burcon and has a consulting agreement with Burcon (entered into in 2007 as amended). Mr. Willardsen was paid a monthly fee until July 2019, when his consulting agreement was amended to provide for payment on an hourly basis. In February 2022, Mr. Willardsen's compensation reverted back to a monthly fee. Dr. Martin Schweizer has been employed by Burcon's wholly-owned subsidiary, Burcon NutraScience (MB) Corp. since March 2002 and is paid an annual salary. His employment agreement was amended in March 2022. See "Employment and Consulting Contracts with Named Executive Officers".
The amount payable to an NEO as base salary is determined primarily by the number of years of experience of the NEO, as well as negotiations with the NEO, and recommendations of the Compensation Committee based on its view of general market conditions. Mr. Underwood's base salary was determined based on his level of experience and to ensure competitiveness with market salaries of individuals acting in a similar capacity for companies similar in size to the Corporation. During fiscal 2021, on the recommendation of the Compensation Committee, the Board approved the adjustment in the salaries of Ms. Cheng, Ms. Law and Dr. Schweizer with the objective ensuring that the Corporation's salaries are competitive with market peers. Hugessen's report noted that although the salaries of NEOs are generally at or below median levels when compared with the comparable peer group due to the lack of regular annual cash bonus, Burcon's annual equity incentive grants bring the total compensation of NEOs in line with the total compensation in the comparable peer group. Hugessen recommended that the Corporation consider implementing a discretionary annual cash bonus program in the future.
Incentive Stock Options
The second element of the Corporation's compensation program is incentive stock options. At the Corporation' annual and special meeting held on September 19, 2001, the shareholders approved the terms of the Plan under which directors, officers, employees and consultants of the Corporation may be granted options to acquire Common Shares of the Corporation. The Plan was amended in 2003, 2004, 2007 and 2009 to, among other amendments, increase the number of Common Shares issuable under the Plan. In 2011, the Corporation's shareholders approved an amendment to the Plan to convert it from a fixed plan to a rolling plan. The Amended and Restated Plan was further amended during the year ended March 31, 2013 to provide for a cashless exercise method. For further details on the Amended and Restated Plan see "Securities Authorized for Issuance Under Equity Compensation Plans".
The options granted to executive officers and other employees are granted by the Board, based on the recommendations of the Compensation Committee. The Board reviews the Compensation Committee's recommendations regarding grants of options based on contributions and performance during the year. In determining option grants, the Board also takes into account previous grants to the grantees and attempts to compensate for any deficiencies in the cash component in the NEO's salary vis-a-vis competitive market rates. Hugessen supports Burcon's reliance on stock options as an appropriate long term incentive vehicle over the near term.
Restricted Share Units
In its report, Hugessen recommended the implementation of a restricted share unit plan to support increased retention of employees and provide a balance point against the volatility of stock options. The Compensation Committee carefully considered the recommendations of Hugessen and determined that it would be in the best interests of the Corporation to strengthen its equity compensation structure by adopting a restricted share unit plan. Historically, Burcon's share price has experienced some volatility, resulting in incentive stock options being out-of-money during a significant part of the lifespan of the outstanding stock option. In order to incentivize current and future employees, the Compensation Committee believe that restricted share units are an appropriate alternative form of equity compensation because employees who receive restricted share units have the potential of receiving some value in the future.
In September 2021, shareholders of the Corporation approved the restricted share unit plan. During its first year of implementation, the Compensation Committee recommended that the Board grant restricted share units solely to non-executive employees of the Corporation and that this form of compensation be used to complement the option component of the equity compensation package. During the last quarter of fiscal year 2023, the Corporation took certain measures to conserve cash, including reducing the work week of employees at its Winnipeg Technical Centre by 1 day per week. After review and recommendation from the Compensation Committee, the Board approved grants of restricted share units to employees at the Winnipeg Technical Centre for the purposes of compensating them for some of the wages lost as a result of the reduced work week. An officer of the Corporation received restricted share units in connection with this grant. The Compensation Committee will review this component of the compensation program annually and make the appropriate recommendations for future grants in accordance with the Corporation's compensation philosophy and policies to the Board for approval.
Recommendations of Hugessen Consulting Inc.
Overall, Hugessen noted that Burcon's executive compensation plan is generally competitive with the comparable peer group but provided certain recommendations for the Compensation Committee's consideration in the future as the Corporation continues to grow and transition into a revenue generating company, including:
-
performing an executive and director pay benchmarking review every two to three years; and
-
developing a more formal regular short-term incentive program using a balanced scorecard once it has been revenue positive for a few years and there is framework to identify and set expectations for key performance indicators with respect to the achievement of financial, operational and strategic objectives.
The plant-based food industry continues to grow. This growth is expected to lead to an increased demand for skilled employees with scientific and technical experience in the food space. As the Corporation grows, Burcon recognizes that its compensation program must remain competitive in order to retain its existing employees and attract new employees in the future. In the coming fiscal year, the Compensation Committee will continue to review the Corporation's compensation program to ensure that it continues to be appropriate for the Corporation's size and future growth.
Performance Graph
The following graph shows the total cumulative return over five years for a shareholder of Burcon on an investment of $100 compared to the S&P/TSX composite index.
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
2024
|
|
Burcon NutraScience
|
100.00
|
248.65
|
1264.86
|
321.62
|
72.97
|
79.73
|
|
S&P/TSX Composite
|
100.00
|
83.09
|
116.14
|
135.95
|
124.83
|
137.67
|
From 2019 to 2020, Burcon's share price improved by 149%, while the S&P/TSX composite dropped by 17%. Burcon's share price continued its upward trajectory and outperformed by gaining 409% in 2021 while the S&P/TSX composite index increased by 40%. In 2022, Burcon's share price experienced a reversal and decreased by 75%, while the S&P/TSX composite gained 17%. In 2023, Burcon's share price continued to experience selling pressure and dropped by 77% compared to a 8% drop by the S&P/TSX composite index. In 2024, Burcon's share price recovered and gained by 9%, while the S&P/TSX composite index gained by 10%.
The trend shown in the above graph does not necessarily correspond to the Corporation's compensation to its Named Executive Officers for the period ended March 31, 2024 or for any prior fiscal periods. The trading price of the Corporation's Common Shares is subject to fluctuation based on several factors, many of which are outside the control of Burcon. These include market perception of the Corporation's ability to achieve business goals, trading volume in the Corporation's Common Shares, changes in general conditions in the economy and the financial markets or other general developments in the animal or plant protein industry that affect the Corporation or its competitors. In determining compensation, the Board strives to be competitive in order to attract, retain and motivate executives, provide incentives for executives and key employees to work towards achieving business goals and objectives as well as to ensure that the interests of management of Burcon and Burcon's shareholders are aligned.
Compensation of Executive Officers
Summary Compensation Table
Kip Underwood, Chief Executive Officer, Jade Cheng, Former Chief Financial Officer, Randy Willardsen, Senior Vice President, Process, Dorothy Law, Senior Vice President Legal and Corporate Secretary and Martin Schweizer, Vice President, Technical Development are the "Named Executive Officers" of Burcon for the purposes of the following disclosure, which is required for all reporting issuers, as set out in securities legislation. The following table provides a summary of the total compensation paid to the Named Executive Officers during Burcon's three most recently completed fiscal years ended March 31, 2024, March 31, 2023 and March 31, 2022.
|
SUMMARY COMPENSATION TABLE
|
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Share-
based
awards
($)
|
Option-
based
awards
($)
|
Non-equity incentive
plan compensation
($)
|
Pension
value
($)
|
All
other
compen
-sation
($)
|
Total
compen-
sation
($)
|
|
|
|
|
|
|
Annual
incentive
plans
|
Long
term
incentive
plans
|
|
|
|
|
Kip Underwood, Chief Executive Officer
|
2024
2023
2022
|
468,028
164,861
N/A
|
Nil
Nil
N/A
|
79,724(1)
261,830(1)
N/A
|
134,225
Nil
N/A
|
Nil
Nil
N/A
|
Nil
Nil
N/A
|
Nil
Nil
N/A
|
681,977
426,691
N/A
|
|
SUMMARY COMPENSATION TABLE
|
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Share-
based
awards
($)
|
Option-
based
awards
($)
|
Non-equity incentive
plan compensation
($)
|
Pension
value
($)
|
All
other
compen
-sation
($)
|
Total
compen-
sation
($)
|
|
|
|
|
|
|
Annual
incentive
plans
|
Long
term
incentive
plans
|
|
|
|
Jade Cheng(2)
Former Chief Financial Officer |
2024
2023
2022 |
210,125
205,000
200,000 |
Nil
Nil
Nil |
15,338(1)
22,230(1)
69,057(1) |
35,000
35,000
Nil
|
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
260,463
262,230
269,057 |
Randy Willardsen
SVP, Process |
2024
2023
2022 |
194,220
190,524
226,638 |
Nil
Nil
Nil |
7,924(1)
22,230(1)
69,057(1) |
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
202,144
212,754
295,695 |
Dorothy Law
SVP, Legal and Corporate Secretary |
2024
2023
2022 |
214,901
181,705
177,273 |
Nil
Nil
Nil |
14,938(1)
22,230(1)
69,057(1) |
27,955
27,273
50,000 |
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
257,794
231,208
296,330 |
Martin Schweizer
VP, Technical Development |
2024
2023
2022 |
185,844
185,281
178,500 |
3,307
Nil
Nil |
7,924(1)
22,230(1)
69,057(1) |
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
Nil
Nil
Nil |
197,075
207,511
247,557 |
(1) In determining the fair value of the option awards for NEOs, the Black-Scholes option pricing model was used and was calculated in accordance with IFRS 2, Share-based payment, with the following assumptions:
|
Assumptions
|
2024
|
2023
|
2022
|
|
Risk-free interest rate:
|
3.83%
|
3.61%
|
1.80%
|
|
Dividend rate:
|
0%
|
0%
|
0%
|
|
Expected forfeitures:
|
6.13%
|
6.76%
|
6.47%
|
|
Expected volatility in the market price of shares:
|
86.99%
|
85.42%
|
84.24%
|
|
Expected life:
|
5.2 years
|
5.6 years
|
5.0 years
|
|
Fair value per option:
|
$0.11
|
$0.23
|
$0.86
|
(2) Ms. Jade Cheng resigned from the Corporation effective June 30, 2024. Mr. Robert Peets was appointed as the Corporation's chief financial officer on July 1, 2024.
Outstanding Option-Based and Share-Based Awards
The following table sets forth, for each Named Executive Officer, all of the option-based and share-based grants and awards outstanding on March 31, 2024.
|
|
Option-based Awards
|
Share Based Awards
|
|
Name
|
Number of
securities
underlying
unexercised
options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
mm/dd/yyyy
|
Value of
unexercised
in-the-
money
options(1)
($)
|
Number of
shares or
units of
shares that
have not
vested
(#)
|
Market or
payout value
of share-
based
awards that
have not
vested
($)(1)
|
Market or
payout value
of vested
share-based
awards not
paid out or
distributed
($)
|
|
Kip Underwood
Chief Executive Officer
|
300,000 |
0.40 |
11/07/2028(2) |
0 |
Nil |
Nil |
Nil |
| 200,000 |
1.00 |
11/07/2032(3) |
0 |
|
|
|
| 200,000 |
1.50 |
11/07/2032(3) |
0 |
|
|
|
| 200,000 |
2.00 |
11/07/2032(3) |
0 |
|
|
|
| 300,000 |
3.00 |
11/07/2032(3) |
0 |
|
|
|
|
300,000
|
0.185 |
07/24/2029(4) |
33,000 |
|
|
|
| 200,000 |
0.70 |
07/24/2033(3) |
0 |
|
|
|
| 300,000 |
0.125 |
11/09/2029(5) |
51,000 |
|
|
|
|
Jade Cheng
Former Chief Financial Officer
|
53,761 |
2.86 |
11/10/2024(6) |
0 |
Nil |
Nil |
Nil |
| 43,398 |
2.33 |
11/12/2025(7) |
0 |
|
|
|
| 39,086 |
2.66 |
12/15/2026(8) |
0 |
|
|
|
| 24,000 |
0.69 |
1/3/2028(9) |
0 |
|
|
|
| 54,000 |
0.23 |
2/19/2029(10) |
3,510 |
|
|
|
| 70,000 |
1.88 |
1/27/2030(11) |
0 |
|
|
|
| 80,000 |
4.01 |
1/19/2027(12) |
0 |
|
|
|
| 80,000 |
1.29 |
2/10/2028(13) |
0 |
|
|
|
| 80,000 |
0.39 |
11/09/2028(14) |
0 |
|
|
|
| 100,000 |
0.125 |
11/09/2029(15) |
17,000 |
|
|
|
| 50,000 |
0.22 |
03/13/2030(16) |
3,750 |
|
|
|
|
Randy Willardsen
SVP, Process
|
67,201 |
2.86 |
11/10/2024(6) |
0 |
Nil |
Nil |
Nil |
| 54,247 |
2.33 |
11/12/2025(7) |
0 |
|
|
|
| 48,858 |
2.66 |
12/15/2026(8) |
0 |
|
|
|
| 44,000 |
0.23 |
2/19/2029(10) |
2,860 |
|
|
|
| 50,000 |
1.88 |
1/27/2030(11) |
0 |
|
|
|
| 80,000 |
4.01 |
1/19/2027(12) |
0 |
|
|
|
| 80,000 |
1.29 |
2/10/2028(13) |
0 |
|
|
|
| 80,000 |
0.39 |
11/09/2028(14) |
0 |
|
|
|
| 100,000 |
0.125 |
11/09/2029(15) |
17,000 |
|
|
|
|
Dorothy Law
SVP, Legal and Corporate Secretary
|
53,761 |
2.86 |
11/10/2024(6) |
0 |
Nil |
Nil |
Nil |
| 43,398 |
2.33 |
11/12/2025(7) |
0 |
|
|
|
| 39,086 |
2.66 |
12/15/2026(8) |
0 |
|
|
|
| 36,000 |
0.69 |
1/3/2028(9) |
0 |
|
|
|
| 54,000 |
0.23 |
2/19/2029(10) |
3,510 |
|
|
|
| 70,000 |
1.88 |
1/27/2030(11) |
0 |
|
|
|
| 80,000 |
4.01 |
1/19/2027(12) |
0 |
|
|
|
| 80,000 |
1.29 |
2/10/2028(13) |
0 |
|
|
|
| 80,000 |
0.39 |
11/09/2028(14) |
0 |
|
|
|
| 100,000 |
0.125 |
11/09/2029(15) |
17,000 |
|
|
|
| 50,000 |
0.22 |
03/13/2030(17) |
3,750 |
|
|
|
|
|
Option-based Awards
|
Share Based Awards
|
|
Name
|
Number of
securities
underlying
unexercised
options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
mm/dd/yyyy
|
Value of
unexercised
in-the-
money
options(1)
($)
|
Number of
shares or
units of
shares that
have not
vested
(#)
|
Market or
payout value
of share-
based
awards that
have not
vested
($)(1)
|
Market or
payout value
of vested
share-based
awards not
paid out or
distributed
($)
|
|
Martin Schweizer
VP, Technical Development
|
53,761 |
2.86 |
11/10/2024(6) |
0 |
|
|
|
| 43,398 |
2.33 |
11/12/2025(7) |
0 |
|
|
|
| 39,086 |
2.66 |
12/15/2026(8) |
0 |
|
|
|
| 36,000 |
0.69 |
1/3/2028(9) |
0 |
|
|
|
| 72,000 |
0.23 |
2/19/2029(10) |
4,680 |
|
|
|
| 50,000 |
1.88 |
1/27/2030(11) |
0 |
|
|
|
| 80,000 |
4.01 |
1/19/2027(12) |
0 |
|
|
|
| 80,000 |
1.29 |
2/10/2028(13) |
0 |
|
|
|
| 80,000 |
0.39 |
11/09/2028(14) |
0 |
|
|
|
| 100,000 |
0.125 |
11/09/2029(15) |
17,000 |
|
|
|
(1) Based on Burcon's closing price on March 29, 2024 of $0.295 per share on the TSX (there was no trading on March 31, 2024).
(2) These options vested as to 1/3 on November 7, 2023 and will vest as to 1/3 on each of November 7, 2024 and November 7, 2025.
(3) These options vest as to 1/3 on each of the 1st, 2nd and 3rd anniversary of the date on which the closing trading price of Burcon common shares listed on the TSX is at or above the exercise price of the applicable options.
(4) These options vest as to 1/3 on each of July 24, 2024, July 24, 2025 and July 24, 2026.
(5) These options vest as to 1/3 on each of November 9, 2024, November 9, 2025 and November 9, 2026.
(6) These options vested as to 1/3 on each of November 10, 2015, November 10, 2016 and November 10, 2017.
(7) These options vested as to 1/3 on each of November 12, 2016, November 12, 2017 and November 12, 2018.
(8) These options vested as to 1/3 on each of December 15, 2017, December 15, 2018 and December 15, 2019.
(9) These options vested as to 1/3 on each of January 3, 2019, January 3, 2020 and January 3, 2021.
(10) These options vested as to 1/3 on each of February 19, 2020, February 19, 2021 and February 19, 2022.
(11) These options vested as to 1/3 on each of January 27, 2021, January 27, 2022 and January 27, 2023.
(12) These options vested as to 1/3 on each of January 19, 2022, January 19, 2023 and January 2024.
(13) These options vested as to 1/3 on each of February 10, 2023 and February 10, 2024, respectively and will vest as to 1/3 on February 10, 2025.
(14) These options vested as to 1/3 on November 9, 2023 and will vest as to 1/3 on each of November 9, 2024 and November 9, 2025, respectively.
(15) These options vest as to 1/3 on each of November 9, 2024, November 9, 2025 and November 9, 2026, respectively.
(16) These options all vested on March 13, 2024.
(17) These options will all vest on March 13, 2025.
Value Vested or Earned during Fiscal Year Ended March 31, 2024
The following table sets forth, for each Named Executive Officer, the value vested for all outstanding option-based and share-based awards and the value earned for all non-equity incentive plan compensation during the twelve-month period ended March 31, 2024.
|
Name
|
Option-based awards -
Value vested during the
year(1)
($)
|
Share-based awards -
Value vested during the
year
($)
|
Non-equity incentive
plan compensation -
Value earned during the
year
($)
|
|
Kip Underwood
|
0(2)
|
Nil
|
Nil
|
|
Peter H. Kappel
|
0(2)
|
Nil
|
Nil
|
|
Jade Cheng
|
0(2)
|
Nil
|
Nil
|
|
Randy Willardsen
|
0(2)
|
Nil
|
Nil
|
|
Dorothy Law
|
0(2)
|
Nil
|
Nil
|
|
Martin Schweizer
|
0(2)
|
3,307(3)
|
Nil
|
(1) See the "Outstanding Option Based and Share Based Awards" table for NEOs (above) for more information on the options and share based awards awarded to NEOs.
(2) Based on the following closing prices of Burcon on the TSX:
|
November 7, 2023
|
$0.125
|
|
November 9, 2023
|
$0.13
|
|
January 19, 2024
|
$0.185
|
|
February 9, 2024 (no trading on February 10, 2024)
|
$0.205
|
|
March 13, 2024
|
$0.21
|
(3) Mr. Schweizer's restricted share units were redeemed during fiscal year 2024. 6,890 Common Shares were redeemed on each of July 10, 2023 and November 30, 2023, respectively, and 6,891 Common Shares were redeemed on January 31, 2024. The amount disclosed in the above table is based on the following closing prices of Burcon on each of the redemption dates:
|
June 30, 2023
|
$0.17
|
|
November 30, 2023
|
$0.12
|
|
January 31, 2024
|
$0.19
|
Employment and Consulting Contracts with Named Executive Officers
Burcon has entered into employment agreements with the following Named Executive Officers below:
Kip Underwood
Mr. Underwood was appointed as Chief Executive Officer of the Corporation on November 7, 2022. Under the terms of Mr. Underwood's employment agreement, Mr. Underwood is entitled to an annual base salary, and, at the discretion of Corporation, participation in the Corporation's incentive program, including, but not limited to, any bonus, share option, share purchase, share bonus or financial assistance program or plan and participation in the benefits plan available to senior staff from time to time.
Total compensation paid to Mr. Underwood during fiscal 2024 and 2023 is disclosed in the Summary Compensation Table. Mr. Underwood was paid a bonus of US$100,000 during fiscal 2024 for his accomplishments up to and during the fiscal year.
Mr. Underwood's employment agreement has an indefinite term and may be terminated by Mr. Underwood at any time by providing 90 days' notice in writing to the Corporation. In the event that the Corporation wishes to terminate Mr. Underwood's employment without cause, Mr. Underwood is entitled to payment of salary and any amounts owing to him under any applicable incentive program earned up to and including the last day of employment and (a) notice of termination or salary in lieu thereof equal to 6 months' salary; and (b) Mr. Underwood shall be deemed to be a "Service Provider" as that term is defined in the Corporation's share option plan for up to two months after the last day of his employment and he will be permitted to exercise any options he may hold during that time period. Mr. Underwood's employment agreement does not contain provisions to provide for a severance payment in the event of a change of control.
Mr. Underwood's employment agreement contains provisions with respect to non-competition and non-solicitation during the term of the employment agreement and for a period of 12 months following the termination of his employment for any reason.
Jade Cheng
Ms. Cheng entered into an employment agreement with the Corporation on March 1, 2011. Prior thereto, Ms. Cheng had been providing her services as the Corporation's Chief Financial Officer pursuant to the management services agreement between the Corporation and Burcon Group Limited. Under the terms of Ms. Cheng's employment agreement, Ms. Cheng was entitled to an annual base salary, and, at the discretion of the Corporation, participation in the Corporation's incentive program, including, but not limited to, any bonus, share option, share purchase, share bonus or financial assistance program or plan and participation in the benefits plan available to senior staff from time to time.
Total compensation paid to Ms. Cheng during fiscal 2024, 2023 and 2022 is disclosed in the Summary Compensation Table. During fiscal year 2023, Ms. Cheng was paid a bonus of $35,000, to compensate her for her contributions to Burcon's achievement of various corporate objectives during fiscal years 2022 and 2023. Ms. Cheng was paid a bonus of $35,000 during fiscal year 2024 to compensate her for achievements that year.
Ms. Cheng resigned as chief financial officer of the Corporation effective June 30, 2024. Mr. Robert Peets was appointed as chief financial officer of Burcon effective July 1, 2024.
Ms. Cheng's employment agreement had an indefinite term and may be terminated by Ms. Cheng at any time by providing two months' notice in writing to the Corporation. In the event that the Corporation terminated Ms. Cheng's employment without cause, Ms. Cheng was entitled to payment of salary and any amounts owing to her under any applicable incentive program earned up to and including the last day of employment and (a) notice of termination or salary in lieu thereof equal to 18 months' salary, plus one month of additional salary for each year of continuous employment with the Corporation from the effective date of her employment agreement up to a maximum of 24 months (the "Notice Period"), (b) continuation of coverage of British Columbia medical services plan and extended health and dental coverage where such continuation of coverage is permitted by the terms of the benefits plan during the Notice Period or until Ms. Cheng obtains alternative employment, whichever is earlier; and (c) where the terms of the Corporation's applicable share option plan permits an optionee to do so, Ms. Cheng shall be deemed to be a "Service Provider" as that term is defined in the Corporation's share option plan until the last day of the Notice Period and she will be permitted to exercise any options she may hold during that time period.
Ms. Cheng's employment agreement contains provisions with respect to non-competition and non-solicitation during the term of the employment agreement and for a period of 12 months following the termination of her employment for any reason.
In the event of a change of control, Ms. Cheng may have elected to terminate her employment agreement. If she does so, then the Corporation would pay a severance payment of salary equal to 18 months plus one additional month salary per year of continuous service with the Corporation from the effective date of the employment agreement up to a maximum of 24 month's salary. Pursuant to the Corporation's Amended and Restated 2001 Share Option Plan, a change of control is an "Accelerated Vesting Event". If an Accelerated Vesting Event occurred and TSX approval was obtained, Ms. Cheng would be entitled to exercise each option held by her at any time on or before the expiry date of such option, provided that the Accelerated Vesting Event must have occurred on or before the last day on which Ms. Cheng worked for Burcon.
Randy Willardsen
Mr. Randy Willardsen is a consultant of Burcon. The following is a summary of the terms of his consulting contract with the Corporation.
Mr. Willardsen was initially engaged as a consultant of Burcon in April 1999 to evaluate the commercial viability of the canola protein extraction and purification process (the "Process") of B.M.W. Canola Inc. ("BMW"). Burcon acquired BMW in October 1999 and changed BMW's name to Burcon NutraScience (MB) Corp. ("Burcon-MB"). By an agreement dated November 30, 2001, Burcon engaged Mr. Willardsen as a consultant to assist with the commercialization of the Process. He was appointed as Senior Vice President, Process of the Corporation on November 30, 2001. Mr. Willardsen and the Corporation entered into a new Management Consulting Agreement (the "Consulting Agreement") on December 19, 2007, which was amended on December 15, 2008, May 4, 2011 and July 31, 2019.
The Consulting Agreement had an initial term of 18 months, but automatically renews for successive one-year periods unless either the Consultant or the Corporation terminates the Consulting Agreement 30 days prior to the end of the term. After the formation of Merit Functional Foods Corporation ("Merit Foods") by Burcon and the other shareholders of Merit Foods, Burcon and Merit Foods entered into a services agreement pursuant to which Burcon and Burcon-MB will provide services to Merit Foods in connection with the commercialization efforts of Merit Foods of Burcon's pea and canola protein technologies. As a result, Mr. Willardsen increased the time he spent performing the services. In order to compensate Mr. Willardsen for the increased amount of time spent, Burcon and Mr. Willardsen entered into an amendment to the Consulting Agreement dated July 31, 2019, pursuant to which he would paid at a rate of US$100 per hour rather than a monthly fee. Effective February 1, 2022, Burcon and Mr. Willardsen agreed to revert his compensation back to a monthly fee of US$12,000. Total compensation paid to Mr. Willardsen during fiscal 2024, 2023 and 2022 is disclosed in the Summary Compensation Table
The Consulting Agreement may be terminated by either party to the agreement with written notice to the other party of not less than 30 days. The Consulting Agreement does not provide for payment in the event of a change of control.
Dorothy K.T. Law
Ms. Law entered into an employment agreement with the Corporation on March 1, 2011. Prior thereto, Ms. Law had been providing her services as the Corporation's Senior Vice President, Legal and Corporate Secretary pursuant to the management services agreement between the Corporation and Burcon Group Limited. The terms of Ms. Law's employment agreement are similar to those of Ms. Cheng's agreement. Under the terms of Ms. Law's employment agreement, Ms. Law is entitled to an annual base salary, and, at the discretion of the Corporation, participation in the Corporation's incentive program, including, but not limited to, any bonus, share option, share purchase, share bonus or financial assistance program or plan and participation in the benefits plan available to senior staff from time to time.
Total compensation paid to Ms. Law during fiscal 2023, 2022 and 2021 is disclosed in the Summary Compensation Table. During fiscal years 2022 and 2023, Ms. Law was employed on a part-time basis. Ms. Law was paid a bonus of $50,000 to compensate her for her contributions to Burcon's achievement of various corporate objectives during fiscal year 2022 and for working on a full-time basis during the period. Ms. Law was also paid $27,273 and $27,955 for working on a full-time basis during fiscal years 2023 and 2024. Ms. Law's employment reverted to full-time during fiscal year 2024.
Ms. Law's employment agreement has an indefinite term and may be terminated by Ms. Law at any time by providing two months' notice in writing to the Corporation. In the event that the Corporation terminates Ms. Law's employment without cause, Ms. Law is entitled to payment of salary and any amounts owing to her under any applicable incentive program earned up to and including the last day of employment and (a) notice of termination or salary in lieu thereof equal to 18 months' salary, plus one month of additional salary for each year of continuous employment with the Corporation from the effective date of her employment agreement up to a maximum of 24 months (the "Notice Period"), (b) continuation of coverage of British Columbia medical services plan and extended health and dental coverage where such continuation of coverage is permitted by the terms of the benefits plan during the Notice Period or until Ms. Law obtains alternative employment, whichever is earlier; and (c) where the terms of the Corporation's applicable share option plan permits an optionee to do so, Ms. Law shall be deemed to be a "Service Provider" as that term is defined in the Corporation's share option plan until the last day of the Notice Period and she will be permitted to exercise any options she may hold during that time period.
Ms. Law's employment agreement contains provisions with respect to non-competition and non-solicitation during the term of the employment agreement and for a period of 12 months following the termination of her employment for any reason.
In the event of a change of control, Ms. Law may elect to terminate her employment agreement. If she does so, then the Corporation will pay a severance payment of salary equal to 18 months plus one additional month salary per year of continuous service with the Corporation from the effective date of the employment agreement up to a maximum of 24 month's salary. Pursuant to the Corporation's Amended and Restated 2001 Share Option Plan, a change of control is an "Accelerated Vesting Event". If an Accelerated Vesting Event occurs and TSX approval is obtained, Ms. Law will be entitled to exercise each option held by her at any time on or before the expiry date of such option, provided that the Accelerated Vesting Event must have occurred on or before the last day on which Ms. Law worked for Burcon.
Martin Schweizer
Dr. Schweizer entered into an employment agreement with Burcon-MB on March 21, 2002 and commenced his employment in May 2002 as a process engineering specialist. Since January 2003, Dr. Schweizer has overseen Burcon's research and development efforts at its Winnipeg Technical Centre. Dr. Schweizer was appointed as the Corporation's Vice President, Technical Development in September 2009. Total compensation paid to Dr. Schweizer during fiscal 2024, 2023 and 2022 is disclosed in the Summary Compensation Table. On March 3, 2022, Burcon-MB and Dr. Schweizer entered into an amended and restated employment agreement.
Dr. Schweizer's employment agreement has an indefinite term and may be terminated by Dr. Schweizer at any time by providing 60 days' notice in writing to the Corporation. In the event that Burcon-MB terminates Dr. Schweizer's employment without cause, Dr. Schweizer is entitled to notice of twelve (12) months or payment in lieu of notice or a combination of notice and payment under the employment agreement. Burcon-MB will continue Mr. Schweizer's coverage for extended health and dental plan coverage, where such continuation of coverage is permitted by the terms of the benefits plans during the notice period or until he obtains alternative employment, whichever is earlier; and where the terms of the Corporation's applicable share option plan(s) permit an optionee to do so, Mr. Schweizer shall be deemed to be a "Service Provider" as that term is defined in the Corporation's share option plan for up to two months of the notice period and Mr. Schweizer will be permitted to exercise any options he holds during that time period.
Dr. Schweizer's employment agreement contains provisions with respect to non-competition and non-solicitation during the term of the employment agreement and for a period of 12 months following the termination of his employment for any reason. Dr. Schweizer's employment agreement does not provide for payment in the event of a change of control.
Estimated Termination Payments
The table below reflects amounts payable to the Named Executive Officers, assuming their employment was terminated on March 31, 2024 either without cause or upon change of control of the Corporation.
|
Name
|
Termination Other
than for Cause ($)
|
Continued Benefits
($)
|
Termination Upon Change of Control
($)
|
|
Kip Underwood
|
160,000(1)
|
Nil
|
Nil
|
|
Jade Cheng(2)
|
420,250
|
9,159
|
420,250
|
|
Randy Willardsen
|
12,000(1)
|
N/A
|
Nil
|
|
Dorothy Law
|
429,802
|
9,159
|
429,802
|
|
Martin Schweizer
|
185,844
|
4,080
|
185,844
|
(1) The amounts payable to Mr. Underwood and Mr. Willardsen are in US dollars.
(2) Ms. Cheng resigned from the Corporation effective June 30, 2024. Mr. Robert Peets was appointed as the Corporation's chief financial officer on July 1, 2024.
Compensation of Directors
Burcon's compensation program for its directors comprises of an annual retainer fee, a fee for meeting attendance and incentive stock options. Each non-management director of Burcon is paid an annual retainer of $7,500 ("Annual Retainer") and $750 for attendance at each committee or Board meeting. The non-management director Annual Retainer and per meeting fee has remained the same since 2004. For the financial year ended March 31, 2024, Burcon paid $45,000 in Annual Retainer fees and an aggregate of $81,750 to directors for attendance at committee and Board meetings during the year. In an effort to conserve cash, the board of directors suspended the Annual Retainer fees and fees for attendance at committee and Board meetings from January 1, 2023 to June 30, 2023.
There were no management directors on the Board during fiscal year 2024. During the year ended March 31, 2024, the non-management directors of Burcon included Alan Chan, J. Douglas Gilpin, Peter Kappel, David Lorne John Tyrrell, Debora S. Fang, Jeanne McCaherty, Alfred Lau, Aaron T. Ratner and John Vassallo. Mr. Gilpin's directorship ended on September 20, 2023.
Incentive stock options to directors are granted by the Board, based on the recommendations of the Compensation Committee. The Board reviews the Compensation Committee's recommendations regarding grants of option prior to approval. Upon grant, director incentive stock options vest immediately, unless otherwise determined by the Board. Ms. Fang, Mr. Lau and Dr. Tyrrell received additional options for the year ended March 31, 2024 for their service as chair of a committee of the Board. Mr. Peter Kappel also received additional options for the year ended March 31, 2024 for his service as Interim Chief Executive Officer and as chairman of the Board. Directors were not granted any restricted share units during the fiscal year.
In its benchmarking review, Hugessen noted that the design of Burcon's director pay program is generally in line with peer practices and saw no need to amend the pay levels or design in the near term. Hugessen recommended that as the Corporation's cash flow position strengthens in the future, the Board may consider adjusting the pay mix to more evenly weighting between cash and equity and the potential of moving from director stock options to deferred share units.
Director Compensation Table
During the most recently completed fiscal year ended March 31, 2024, each non-management director of Burcon received total compensation for services provided to Burcon in his or her capacity as director as follows:
|
Name(1)
|
Fees
earned(2)(3)
($)
|
Share-
based
awards
($)
|
Option-
based
awards
($)
|
Non-equity
incentive plan
compensation
($)
|
Pension
value
($)
|
All other
compen-
sation
($)
|
Total
compen-
sation
($)
|
|
Alan Chan
|
13,875
|
Nil
|
4,374(5)
|
Nil
|
Nil
|
Nil
|
18,249
|
|
J. Douglas Gilpin
|
3,375
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
3,375
|
|
Name(1)
|
Fees
earned(2)(3)
($)
|
Share-
based
awards
($)
|
Option-
based
awards
($)
|
Non-equity
incentive plan
compensation
($)
|
Pension
value
($)
|
All other
compen-
sation
($)
|
Total
compen-
sation
($)
|
|
David Lorne John Tyrrell
|
15,375
|
Nil
|
5,249(5)
|
Nil
|
Nil
|
Nil
|
20,624
|
|
Peter H. Kappel
|
22,125
|
Nil
|
17,496
|
Nil
|
Nil
|
Nil
|
39,621
|
|
Debora S. Fang
|
13,125
|
Nil
|
5,249(5)
|
Nil
|
Nil
|
Nil
|
18,374
|
|
Jeanne McCaherty
|
15,375
|
Nil
|
4,374(5)
|
Nil
|
Nil
|
Nil
|
19,749
|
|
Alfred Lau
|
15,375
|
Nil
|
5,249(5)
|
Nil
|
Nil
|
Nil
|
20,624
|
|
Aaron T. Ratner
|
13,125
|
Nil
|
4,374(5)
|
Nil
|
Nil
|
Nil
|
17,499
|
|
John A. Vassallo
|
15,000
|
Nil
|
8,748(5)
|
Nil
|
Nil
|
Nil
|
23,748
|
(1) Each non-management director is paid a fee of $750 per meeting for attendance at each Board or committee meeting. Director fees were suspended from January 1, 2023 to June 30, 2023 due to the Corporation's efforts to cash conservation.
(3) Each non-management director is paid an annual retainer of $7,500. Retainer fees were suspended from January 1, 2023 to June 2023 due to cash conservation. See "Director Compensation".
(4) Mr. Gilpin's directorship ended on September 20, 2023. Mr. Vassallo was elected as director on September 20, 2023.
(5) In determining the fair value of the option awards, the Black-Scholes option pricing model was used and was calculated in accordance with IFRS 2, Share-based payment, with the following assumptions:
|
Assumptions (weighted average)
|
2024
|
|
Risk-free interest rate:
|
3.90%
|
|
Dividend rate:
|
0%
|
|
Expected forfeitures:
|
6.05%
|
|
Expected volatility in the market price of shares:
|
86.81%
|
|
Expected life:
|
5.0 years
|
|
Fair value per option:
|
$0.09
|
Outstanding Option-Based and Share-Based Awards
The following table sets forth, for each non-management director, all of the option-based and share-based grants and awards outstanding on March 31, 2024.
|
|
Option-based Awards
|
Share Based Awards
|
|
Name
|
Number of
|
Option
|
Option
|
Value of
|
Number of
|
Market or
|
|
|
securities
|
Exercise
|
Expiration Date
|
unexercised
|
shares or
|
payout
|
|
|
underlying
|
Price
|
mm/dd/yyyy
|
in-the-
|
units of
|
value of
|
|
|
unexercised
|
($)
|
|
money
|
shares that
|
share-based
|
|
|
options
|
|
|
options(1)
|
have not
|
awards that
|
|
|
(#)
|
|
|
($)
|
vested
|
have not
|
|
|
|
|
|
|
(#)
|
vested
|
|
|
|
|
|
|
|
($)
|
|
Alan Chan
|
20,000
|
2.86
|
11/10/2024(3)
|
0
|
N/A
|
N/A
|
|
|
24,462
|
2.33
|
11/12/2025(4)
|
0
|
|
|
|
|
21,382
|
2.66
|
12/15/2026(5)
|
0
|
|
|
|
|
20,000
|
0.69
|
1/3/2028(6)
|
0
|
|
|
|
|
30,000
|
0.23
|
2/19/2029(7)
|
1,950
|
|
|
|
|
30,000
|
1.88
|
1/27/2030(8)
|
0
|
|
|
|
|
40,000
|
4.01
|
1/19/2027(9)
|
0
|
|
|
|
|
40,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
40,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
50,000
|
0.125
|
11/09/2029(12)
|
8,500
|
|
|
|
J. Douglas
|
20,000
|
2.86
|
11/10/2024(3)
|
0
|
N/A
|
N/A
|
|
Gilpin(2)
|
24,462
|
2.33
|
11/12/2025(4)
|
0
|
|
|
|
|
21,382
|
2.66
|
12/15/2026(5)
|
0
|
|
|
|
|
20,000
|
0.69
|
1/3/2028(6)
|
0
|
|
|
|
|
30,000
|
0.23
|
2/19/2029(7)
|
1,950
|
|
|
|
|
40,000
|
1.88
|
1/27/2030(8)
|
0
|
|
|
|
|
50,000
|
4.01
|
1/19/2027(9)
|
0
|
|
|
|
|
50,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
50,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
David Lorne
|
20,000
|
2.86
|
11/10/2024(3)
|
0
|
N/A
|
N/A
|
|
John Tyrrell
|
24,462
|
2.33
|
11/12/2025(4)
|
0
|
|
|
|
|
21,382
|
2.66
|
12/15/2026(5)
|
0
|
|
|
|
|
50,000
|
1.88
|
1/27/2030(8)
|
0
|
|
|
|
|
85,000
|
4.01
|
1/19/2027(9)
|
0
|
|
|
|
|
60,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
60,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
60,000
|
0.125
|
11/09/2029(12)
|
10,200
|
|
|
|
Peter H.
|
41,120
|
2.76
|
2/22/2026(13)
|
0
|
Nil
|
Nil
|
|
Kappel
|
21,382
|
2.66
|
12/15/2026(5)
|
0
|
|
|
|
|
70,000
|
1.88
|
1/27/2030(8)
|
0
|
|
|
|
|
100,000
|
4.01
|
1/19/2027(9)
|
0
|
|
|
|
|
100,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
100,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
200,000
|
0.125
|
11/09/2029(12)
|
34,000
|
|
|
|
Debora S.
|
50,000
|
2.47
|
8/31/2030(14)
|
0
|
N/A
|
N/A
|
|
Fang
|
40,000
|
4.01
|
1/19/2027(9)
|
0
|
|
|
|
|
40,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
50,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
60,000
|
0.125
|
11/09/2029(12)
|
10,200
|
|
|
|
|
Option-based Awards
|
Share Based Awards
|
|
Name
|
Number of
|
Option
|
Option
|
Value of
|
Number of
|
Market or
|
|
|
securities
|
Exercise
|
Expiration Date
|
unexercised
|
shares or
|
payout
|
|
|
underlying
|
Price
|
mm/dd/yyyy
|
in-the-
|
units of
|
value of
|
|
|
unexercised
|
($)
|
|
money
|
shares that
|
share-based
|
|
|
options
|
|
|
options(1)
|
have not
|
awards that
|
|
|
(#)
|
|
|
($)
|
vested
|
have not
|
|
|
|
|
|
|
(#)
|
vested
|
|
|
|
|
|
|
|
($)
|
|
Jeanne
|
50,000
|
2.99
|
7/20/2027(15)
|
0
|
N/A
|
N/A
|
|
McCaherty
|
80,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
80,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
50,000
|
0.125
|
11/09/2029(12)
|
8,500
|
|
|
|
Alfred Lau
|
50,000
|
1.90
|
11/10/2027(16)
|
0
|
N/A
|
N/A
|
|
|
30,000
|
1.29
|
2/10/2028(10)
|
0
|
|
|
|
|
40,000
|
0.39
|
11/09/2028(11)
|
0
|
|
|
|
|
60,000
|
0.125
|
11/09/2029(12)
|
10,200
|
|
|
|
Aaron T.
|
50,000
|
0.39
|
11/29/2028(17)
|
0
|
N/A
|
N/A
|
|
Ratner
|
50,000
|
0.125
|
11/09/2029(12)
|
8,500
|
|
|
|
John A.
|
100,000
|
0.125
|
11/09/2029(12)
|
17,000
|
N/A
|
N/A
|
|
Vassallo
|
|
|
|
|
|
|
(1) Based on Burcon's March 31, 2024 closing price of $0.295 per share on the TSX.
(2) Mr. J. Douglas Gilpin was a director until September 20, 2023. Mr. Gilpin and the Corporation have entered into a consulting agreement pursuant to which Mr. Gilpin acts as advisor to Mr. Alfred Lau, the chair of the audit committee, who succeeded Mr. Gilpin after Mr. Gilpin's directorship ended. Mr. Gilpin is compensated based on an hourly rate. As well, Mr. Gilpin and the Corporation agreed that the stock options granted to Mr. Gilpin forms a part of the compensation for his services. The consulting agreement has a one year term and expires September 20, 2024.
(3) These options all vested on November 10, 2014.
(4) These options all vested on November 12, 2015.
(5) These options all vested on December 15, 2016.
(6) These options all vested on January 3, 2018.
(7) These options all vested on February 19, 2019.
(8) These options all vested on January 27, 2020.
(9) These options all vested on January 19, 2021.
(10) These options all vested on February 10, 2022.
(11) These options all vested on November 9, 2022.
(12) These options all vested on November 9, 2023.
(13) These options all vested on February 22, 2016.
(14) These options all vested on August 31, 2020.
(15) These options all vested on July 20, 2021.
(16) These options all vested on November 10, 2021.
(17) These options all vested on November 29, 2022.
Value Vested or Earned during Fiscal Year Ended March 31, 2024
The following table sets forth, for each non-management director, the value vested for all outstanding option-based and share-based awards and the value earned for all non-equity incentive plan compensation during the twelve-month period ended March 31, 2024.
|
Name(1)
|
Option-based awards -
Value vested during the
year(1)
($)
|
Share-based awards -
Value vested during the
year
($)
|
Non-equity incentive plan
compensation - Value
earned during the year
($)
|
|
Alan Chan
|
250(3)
|
N/A
|
N/A
|
|
J. Douglas Gilpin(2)
|
N/A
|
N/A
|
N/A
|
|
David Lorne John Tyrrell
|
300(3)
|
N/A
|
N/A
|
|
Peter H. Kappel
|
1,000
|
N/A
|
N/A
|
|
Debora S. Fang
|
300(3)
|
N/A
|
N/A
|
|
Jeanne McCaherty
|
250(3)
|
N/A
|
N/A
|
|
Alfred Lau
|
300(3)
|
N/A
|
N/A
|
|
Aaron T. Ratner
|
250(3)
|
N/A
|
N/A
|
|
John A. Vassallo
|
500(3)
|
N/A
|
N/A
|
(1) See the "Outstanding Option-Based and Share-Based Awards" table for directors (above) for more information on the options awarded to directors.
(2) See note (2) in the "Outstanding Option-Based and Share-Based Awards" table for directors (above). No options were granted to Mr. Gilpin during the fiscal year.
(3) Based on Burcon's November 9, 2023 closing price of $0.13 per share on the TSX.
Executive Compensation-Related Fees
Hugessen Consulting Inc. of Toronto, Ontario was engaged on April 1, 2021 to assist the Compensation Committee to conduct a review of the compensation structure for Corporation's directors or officers. No fees were billed by any consultant or advisors for services related to determining compensation for the Corporation's directors and executive officers and employees for the years ended March 31, 2024 and March 31, 2023.
ADDITIONAL INFORMATION
Indebtedness of Directors and Executive Officers
None of the directors or executive officers of Burcon or any subsidiary thereof, or any associate or affiliate of any of them, is or has been indebted to Burcon or its subsidiaries, or to another entity where any indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by Burcon or any of its subsidiaries.
Interest of Certain Persons in Matters to be Acted Upon
Other than as set forth in this Management Proxy Circular, no person who has been a director or executive officer of Burcon at any time since the beginning of the last fiscal year, nor any individual proposed to be a director or officer of Burcon, nor any associate or affiliate of any of the foregoing, has any material interest, directly or indirectly, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting, other than the election of directors.
Interest of Informed Persons in Material Transactions
Through his wholly-owned company, Firewood Elite Limited ("Firewood"), Mr. Alan Chan, a director of Burcon, owns directly or indirectly, approximately 18.05% of the issued and outstanding Common Shares of Burcon. Firewood's wholly-owned subsidiary, Large Scale Investments Limited ("Large Scale") entered into a loan agreement (the "Loan Agreement") pursuant to which Large Scale will provide Burcon with a secured loan of up to $10 million (the "Loan Amount"). Upon the satisfaction of certain conditions with respect to each tranche, the Loan Amount will be available in two tranches of $5 million each. The first tranche closed on June 22, 2024 and originally had a maturity date of July 1, 2024. On August 2, 2023, the Burcon and Large Scale entered into a letter agreement to extend the maturity date to July 1, 2025. The second tranche closed on December 17, 2023 and will have a maturity date of December 17, 2025 (each of July 1, 2025 and December 17, 2025 referred to as the "Maturity Date").
Large Scale will be paid a commitment fee of 1% of the undrawn amount of the Loan Amount under each tranche on: (i) the closing date of such tranche and (ii) each annual anniversary of the closing date of such tranche. The drawn portion of the Loan Amount will bear interest at a rate of 8% per annum (the "Principal Balance"). Interest on the Principal Balance will accrue monthly, not in advance, and will be payable on the Maturity Date of the applicable tranche. As of the date of hereof, a total of $6 million has been drawn under the 2022 Large Scale Loan. In connection with the first tranche, Large Scale was paid a commitment fee of $50,000 in August 2022 and an additional $50,000 is payable to Large Scale as a commitment fee for the closing of the second tranche. Mr. Chan is a director of Large Scale. For further information on the Loan Agreement, refer to pages 6 and 67-69 of Burcon's Annual Information Form ("AIF") dated June 26, 2024. A copy of the AIF can be found on the SEDAR website at www.sedar.com. Shareholders may obtain a copy of the AIF by written request to Burcon at Suite 490 - 999 West Broadway, Vancouver British Columbia, V5Z 1K5, Attn: Corporate Secretary.
To the knowledge of Burcon's management, no other insider or nominee for election as a director of Burcon, or any associate or affiliate of any such persons, had any interest in any material transaction during the year ended March 31, 2024, or has any interest in any proposed transaction that has materially affected or would materially affect Burcon or any of its subsidiaries.
Requesting Documentation
Additional information relating to Burcon can be found on the SEDAR website at www.SEDAR.com. Shareholders may obtain copies of Burcon's financial statements and management's discussion and analysis ("MD&A") by written request to Burcon at Suite 490 - 999 West Broadway, Vancouver British Columbia, V5Z 1K5, Attn.: Corporate Secretary. Financial information is provided in Burcon's comparative financial statements and MD&A for its most recently completed financial year.
DIRECTORS' APPROVAL
The contents of this Management Proxy Circular and its distribution to shareholders have been approved by the Board of Burcon.
DATED at Vancouver, British Columbia, as of the 1st day of August, 2024.
BY ORDER OF THE BOARD OF DIRECTORS
"Kip Underwood"
Kip Underwood
Chief Executive Officer
Schedule "A"
BOARD OF DIRECTORS' MANDATE
BURCON NUTRASCIENCE CORPORATION
BOARD OF DIRECTORS' MANDATE
PURPOSE
1. The board of directors (the "Board") of Burcon NutraScience Corporation (the "Corporation") is responsible for the overall stewardship of the Corporation and for managing and supervising the management of the Corporation. The Board shall at all times act in the best interests of the Corporation.
RESPONSIBILTIES
2. The Board discharges its responsibilities for supervising the management of the business and affairs of the Corporation by delegating the day-to-day management of the Corporation to senior officers. In discharging its responsibility, the Board should, among other things:
(a) to the extent feasible, satisfy itself as to the integrity of the chief executive officer (the "CEO") and other executive officers and that the CEO and other executive officers create a culture of integrity throughout the organization, including approving and monitoring compliance with the Corporation's Code of Ethics and Conduct;
(b) adopt a strategic planning process and approve, on at least an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the Corporation's business;
(c) ensure that the business of the Corporation is conducted in compliance with applicable laws and regulations;
(d) require management to develop and maintain a strategy to communicate effectively with its security holders, investment analysts and the public generally and to accommodate and address feedback from security holders;
(e) through the Corporation's Audit Committee, oversee the accounting and financial reporting process of the Corporation and the audits of its financial statements, identify the principal risks of the Corporation's business, and ensure the implementation of appropriate systems to manage these risks and require management to maintain internal control and management information systems and monitor these systems;
(f) through the Corporation's Compensation Committee, review and approve the Corporation's employee and management compensation policies and practices, incentive compensation plans (cash and equity-based short and long term incentive plans), the amount and form of compensation of the executive officers of the Corporation and plan for senior management succession, including the appointment, training and monitoring of senior management's performance; and
(g) through the Corporation's Corporate Governance and Nominating Committee, develop the Corporation's approach to corporate governance, including developing a set of corporate governance principles and guidelines that are applicable to the Corporation, monitor the governance of the board of directors and board committees, review and approve the amount and form of compensation to the directors of the Corporation, all director nominations to the Board and succession plans for directors of the Corporation.
ORGANIZATION OF THE BOARD
3. The organization of the Board shall comply with applicable corporate and securities laws.
4. Appointments to the Board will be reviewed on an annual basis.
5. The Board will report to the shareholders of the Corporation.
6. The Board may:
(a) appoint one or more committees of the Board, however designated, and delegate to any such committee any of the powers of the Board, except those which are not permitted under applicable corporate and securities laws;
(b) appoint a Chairman of the Board and prescribe his or her powers and duties;
(c) appoint a Chief Executive Officer and prescribe his or her powers and duties;
(d) appoint such senior officers of the Corporation and prescribe their powers and duties as may be recommended by the Chief Executive Officer from time to time.
MEETINGS, MEETING PREPARATION AND ATTENDANCE
7. The Board will meet as required, but at least once per quarter.
8. The independent directors will meet as required, without the non-independent directors and members of management, but at least once per quarter.
9. In connection with each meeting of the Board and each meeting of a committee of the Board of which a director is a member, each director will:
(a) review the materials provided to the directors in connection with the meeting and be prepared for the meeting; and
(b) attend each meeting, in person, by telephone conference or other electronic means, to the extent practicable.
MANAGEMENT OF BOARD AFFAIRS
10. The Board will:
(a) develop a process for the orientation and education of new members of the Board;
(b) support continuing education opportunities for all members of the Board;
(c) assess the participation, contributions and effectiveness of the Chairman and individual board members on a biennial basis;
(d) monitor the effectiveness of the Board and its committees and the actions of the Board as viewed by the individual directors and management;
(e) establish the committees of the Board it deems necessary to assist it in the fulfillment of its mandate; and
(f) disclose on an annual basis, the mandate, composition of the Board and its committees.
CURRENCY OF THE MANDATE
This mandate was last revised and approved by the Board on February 23, 2021.
Schedule "B"
CODE OF BUSINESS ETHICS AND CONDUCT
BURCON NUTRASCIENCE CORPORATION
CODE OF BUSINESS ETHICS AND CONDUCT
1. Purpose and Application
Burcon NutraScience Corporation (the "Corporation") is committed to maintaining high standards of integrity and accountability in conducting its business while at the same time seeking to grow its business and value. This code of business ethics and conduct (the "Code") provides a framework of guidelines and principles to govern and encourage ethical and professional behaviour in conducting our business.
This Code applies to all directors, officers and employees of the Corporation and its subsidiaries ("representatives"). The guidelines set out in this Code may be further supplemented by specific corporate, divisional or departmental policies. As with all guidelines or principles, you are expected to use your own judgement and discretion, having regard to these standards, to determine the best course of action for any specific situation. If you are unsure about a particular situation or course of action, please speak to the legal department of the Corporation.
The Code sets forth
such standards as are reasonably designed to deter wrongdoing and to promote: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in the reports and documents that the Corporation files with, or submits to, securities regulatory authorities and in other public communications made by the Corporation; compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and accountability for adherence to the Code.
2. Conflicts of Interest
It is our policy to ensure the Corporation's best interests are paramount in all of our dealings with customers, suppliers, contractors, competitors, existing and potential business partners and other representatives and are conducted in a manner that avoids any actual or potential conflicts of interest.
In general, a conflict of interest exists where a representative's personal interests interfere with his or her ability to act in the best interests of the Corporation. Conflicts of interests may exist in any situation where your ability to act objectively, or in the best interests of the Corporation, are influenced. These include the receipt of improper personal benefits by you or your family and friends as a result of your position with the Corporation. Improper personal benefits could be in the form of bribes, kickbacks or other advantages for the purposes of influencing a business decision.
Full and timely disclosure of any actual or potential conflict of interest is very strongly encouraged. Proper disclosure provides an opportunity to obtain advice from the appropriate level of management and to resolve actual or potential conflicts of interests in a timely and effective manner. Employees should promptly disclose to their supervisor any material transaction or relationship that reasonably could be expected to give rise to a potential or actual conflict of interest. Directors and officers shall disclose any potential conflicts of interest in writing to the board of directors for review in accordance with applicable law.
3. Protection and Use of the Corporation's Assets and Opportunities
All representatives are responsible for protecting the Corporation's assets from improper use including fraud, theft and misappropriation. It is the Corporation's policy to protect its assets and promote their efficient use for legitimate business purposes. This requires proper documentation (which is timely, accurate and complete) and appropriate use of discretion. Corporation assets should not be wasted through carelessness or neglect nor appropriated for improper personal use. Proper discretion and restraint should always govern the personal use of the Corporation's assets.
4. Corporate Opportunities
The benefit of any business venture, opportunity or potential opportunity resulting from your employment with the Corporation should not be appropriated for any improper personal advantage. As employees, officers and directors, a duty is owed to the Corporation to advance its legitimate interests when the opportunity to do so arises.
5. Confidentiality of Corporate Information
Information is a key asset of the Corporation. It is our policy to ensure that the Corporation's proprietary and confidential information, including information that has been entrusted to the Corporation by others, is adequately safeguarded. All confidential information, including information about the Corporation's business, suppliers, intellectual property, opportunities, products, customers, assets and competitors, should be duly protected from advertent or inadvertent disclosure. Confidential information should be marked or identified as being confidential whenever practicable and should be disclosed only when properly authorized or required by law or stock exchange requirements.
6. Safe and Respectful Environment
It is important to the Corporation that representatives are able to carry out their responsibilities of their position in a safe and respectful environment free of discrimination, harassment or bullying. Representatives should comply with policies of the Corporation dealing with anti-discrimination and anti-harassment in the workplace.
7. Fair Dealing with Other People and Organizations
All business dealings undertaken on behalf of the Corporation should be conducted in a manner that preserves our integrity and reputation. It is the Corporation's policy to seek to avoid misrepresentations of material facts, manipulation, concealment, abuse of confidential information or any other illegal practices in dealing with the Corporation's security holders, customers, suppliers, competitors and employees. Representatives communicating on behalf of the Corporation using electronic means should comply with all existing policies including the Corporation's IT Policy which includes, guidelines and restrictions on the use of social media by representatives when representing the Corporation.
8. Complying with the Law
The Corporation strives to ensure that its business is conducted in all material respects in accordance with all applicable laws, stock exchange rules and securities regulations. This includes compliance with applicable antitrust/competition, privacy, labour, human rights, environmental and securities laws in all material respects.
Specifically, it is also our policy to seek to comply with all applicable securities laws and regulations to ensure that material information that is not generally available to the public ("inside information") is disclosed in accordance with law. This includes implementation of policies and procedures, as set out in our Insider Trading Policy, to protect against the improper use or disclosure of inside information, including the improper trading of securities while in possession of inside information.
Applicable securities laws require the Corporation to disclose certain information in various reports and documents that the Corporation must file or submit to securities regulatory authorities. In addition, from time to time, the Corporation makes other public communications, such as issuing press releases. The Corporation has a responsibility to provide full, fair, accurate, timely and understandable disclosure in reports and documents filed with or submitted to securities regulatory authorities and in other public communications.
9. Reporting of Illegal or Unethical Behaviour
The Corporation strives to foster a business environment that promotes integrity and deters unethical or illegal behaviour. It is our responsibility to monitor and to ensure compliance with the guidelines set out in this Code, including compliance in all material respects, with all applicable financial reporting and accounting requirements applicable to the Corporation. Concerns or complaints in this regard may be reported by anonymous submission to the Chair of the Audit Committee of the Board of Directors in connection with unethical or illegal behaviour, including questionable accounting, internal accounting controls or auditing matters involving the Corporation. Representatives should follow the Corporation's Whistleblower Policy and the procedures contained in the policy for all reports.
10. Compliance
It is the role of the Board of Directors to monitor compliance with the Code. Disciplinary measures may be taken against any representative who authorizes, directs, approves or participates in any violation of a provision of this Code. These measures will depend upon the circumstances of the violation and may range from formal sanction or reprimand to dismissal from employment. Consideration will be given to whether or not a violation was intentional, as well as to the level of good faith shown by a representative in reporting the violation or in cooperating with any resulting investigation or corrective action. In addition, persons who violate the law during the course of their employment are subject to criminal and civil penalties, as well as payment of civil damages to the Corporation or third parties. A Director or officer who violates this Code may be asked to resign or may not be nominated for re-election.
The terms of this Code are not intended to give rise to civil liability on the part of the Corporation, its directors or officers, shareholders, security holders, customers, suppliers, competitors, employees or other persons, or to any other liability whatsoever.
11. Currency of Code
This Code of Business Ethics and Conduct was approved by the Board of Directors on October 26, 2005 and amended on February 24, 2011, August 30, 2011, September 12, 2012 and February 23, 2021. The Board of Directors may amend the Code from time to time.
I acknowledge that I have read and understand the Code of Business Conduct and Ethics of Burcon NutraScience Corporation and agree to conduct myself in accordance with the Code.
Name: ____________________________________
Signature: ____________________________________
Date: ____________________________________
KPMG LLP
Chartered Professional Accountants
PO Box 10426
777 Dunsmuir Street
Vancouver BC V7Y 1K3
Telephone (604) 691-3000
Fax (604) 691-3031
www.kpmg.ca
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Burcon NutraScience Corporation
We, KPMG LLP, consent to the use of our report dated June 26, 2024, on the consolidated financial statements of Burcon NutraScience Corporation, which comprise the consolidated statements of financial position as at March 31, 2024 and March 31, 2023, the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the years in the two-year period ended March 31, 2024, and the related notes, which is included in Form F-7 dated November 20, 2024 of the Burcon NutraScience Corporation.
/s/ KPMG LLP
November 20, 2024
Vancouver, Canada
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global
organization of independent member firms affiliated with KPMG International Limited, a private
English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
News Release
Burcon Announces Rights Offering
Vancouver, British Columbia, November 20, 2024 - Burcon NutraScience Corporation ("Burcon" or the "Company") (TSX: BU) (OTCQB: BRCNF), a global technology leader in the development of plant-based proteins for foods and beverages, is pleased to announce that it will be offering rights (the "Rights Offering") to holders of its common shares ("Common Shares") of record at the close of business on November 27, 2024 (the "Record Date") in eligible jurisdictions. Pursuant to the Rights Offering, each holder of Common Shares will receive one transferable right (a "Right") for each Common Share held. Each Right will entitle a holder to purchase one Common Share at a price of $0.085 (the "Subscription Price"). The Subscription Price is equal to approximately a 39% discount to the volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (the "TSX") for the 5-day period ending on November 19, 2024. The Company will host a virtual investor presentation today, November 20, 2024 at 5:00pm Eastern time to discuss the Rights Offering and other Company updates.
Virtual Investor Presentation Details
A link to the webcast of the conference call is available on Burcon's website under "Presentations" or directly here. The webcast will also be archived for future playback.
A live Q&A session will follow the formal presentation. Attendees wishing to have a question addressed at the event can submit them in advance to plam@burcon.ca.
Investors interested in participating in the live call can dial in using the details below:
Date: Wednesday November 20, 2024
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in (North America): 1-800-717-1738
Dial-in (toll/international): 1-646-307-1865
Conference ID: 64804
Further Information Regarding the Rights Offering
The estimated net proceeds of the Rights Offering, assuming full exercise of the Rights and after deducting expenses, will be approximately $11.9 million.
A maximum of 142,628,096 Common Shares will be issued pursuant to the Rights Offering, representing 100% of the currently issued and outstanding Common Shares. The Rights Offering will be conducted in Canada and the United States, where permitted, and in those jurisdictions where Burcon may lawfully offer the Rights. No fractional Common Shares will be issued.
The Rights Offering will include an additional subscription privilege under which holders of Rights who fully exercise their Rights will be entitled to subscribe pro rata for additional Common Shares, if available, that were not otherwise subscribed for in the Rights Offering.
A Rights Offering notice (the "Notice"), together with a direct registration system advice representing the Rights and a rights subscription form will be mailed to registered holders of Common Shares as of the Record Date. Full details of the Rights Offering, including information regarding the distributions of the Rights and the procedures to be followed, are included in the Rights Offering circular, which will be filed today, together with the Notice, under Burcon's profile on SEDAR+ at www.sedarplus.ca.
Rights Subscription and Trading Details
To subscribe for Common Shares, a completed Rights certificate, together with payment in full of the Subscription Price for each Common Share subscribed for, must be received by the subscription agent for the Rights Offering, Computershare Investor Services Inc., prior to the expiry of the Rights at 5:00 p.m. (Eastern time) on February 12, 2025. Shareholders who own their Common Shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary.
The Rights and the Common Shares issuable upon exercise of the Rights will be listed on the TSX. The Rights will be listed for trading on the TSX beginning on November 27, 2024 under the symbol "BU.RT". Trading in the Rights on the TSX will cease at 12:00 p.m. (Eastern time) on February 12, 2025.
Insider Participation
To the knowledge of Burcon, after reasonable inquiry, all directors, senior officers and persons controlling over 10% of the Common Shares of the Company (collectively, the "Insider Group"), as at the date hereof, intend to exercise all or a significant portion of the Rights they are issued in connection with the Rights Offering . As at the date hereof, the Insider Group owns or exercises control or direction over, directly or indirectly, 40,568,881 Common Shares, representing approximately 28.44% of the issued and outstanding Common Shares. Assuming the full take-up their basic subscription privileges, these insiders would own an aggregate of 81,137,762 Common Shares following the Rights Offering.
Use of Proceeds
The estimated net proceeds of the Rights Offering will be used primarily to provide sufficient funds for ongoing operational costs. In addition, and as part of Burcon's capital light business strategy, the Company has begun to explore options to expand its production capacity. Burcon plans to use part of the net proceeds from the Rights Offering to conduct due diligence on and potentially negotiate for an opportunity to expand its production capacity by acquiring the rights to access a production facility. Such opportunity, if determined to be beneficial to Burcon and successfully negotiated, is anticipated to represent a commercial lease of a production facility.
The Company is also registering the offer and sale of the shares issuable on exercise of the Rights on a Form F-7 registration statement under the U.S. Securities Act of 1933, as amended. Shareholders in the United States should review the Form F-7 which will be filed with the United States Securities and Exchange Commission and when filed, can be found at www.sec.gov and may also be obtained by contacting the Corporate Secretary by email at dlaw@burcon.ca.
The completion of the Rights Offering is not subject to Burcon receiving any minimum amount of subscriptions.
This press release does not constitute an offer to sell or the solicitation of an offer to buy any of the securities described herein. There shall be no offer or sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification of such securities under the laws of any such jurisdiction.
About Burcon NutraScience Corporation
Burcon is a global technology leader in the development of plant-based proteins for foods and beverages. Our proteins exhibit superior functionality, taste and nutrition, making them ideal ingredients for food formulators. With over two decades of experience, Burcon has amassed an extensive patent portfolio covering its novel plant-based proteins derived from pea, canola, soy, hemp and sunflower seeds, among other plant sources. Burcon is committed to delivering next-generation, best-in-class protein solutions, positioning itself as a key player in the rapidly expanding plant-based market. Supporting the growing trend towards a plant-based diet, Burcon offers sustainable protein ingredients that we believe are better for you and better for the planet. For more information, visit www.burcon.ca.
Forward-Looking Information Cautionary Statement
The TSX has not reviewed and does not accept responsibility for the adequacy of the content of the information contained herein. This press release contains forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements or forward-looking information involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements or forward-looking information can be identified by words such as "anticipate," "aim", "intend," "plan," "goal," "project," "estimate," "expect," "believe," "future," "likely," "may," "should," "could," "will" and similar references to future periods. All statements included in this release, other than statements of historical fact, are forward-looking statements. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements or information. Important factors that could cause actual results to differ materially from Burcon's plans and expectations include the implementation of our business model and growth strategies; trends and competition in our industry our future business development, financial condition and results of operations and our ability to obtain financing cost-effectively; potential changes of government regulations; and other risks and factors detailed herein and from time to time in the filings made by Burcon with securities regulators and stock exchanges, including in the section entitled "Risk Factors" in Burcon's annual information form for the year ended March 31, 2024 and its other public filings with Canadian securities regulators on SEDAR+ at www.sedarplus.ca. This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements or information. Any forward-looking statement or information speaks only as of the date on which it was made, and, except as may be required by applicable securities laws, Burcon disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Although Burcon believes the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance, and, accordingly, investors should not rely on such statements.
Industry and Investor Contact
Paul Lam
Director, Investor Relations and Communications
Burcon NutraScience Corporation
Tel (604) 733-0896, Toll-free (888) 408-7960
plam@burcon.ca www.burcon.ca
Media Contact:
Steve Campbell, APR
President
Campbell & Company Public Relations
Tel (604) 888-5267
TECH@CCOM-PR.COM
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