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;
fund the investment by Burcon in Merit Foods and Burcon's obligations under the Amended and Restated Shareholders' Agreement;
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:
Canola Protein | FAO/WHO 1989 mg/g protein (2-5 years old) | FAO/WHO/UNU 2002 mg/g protein (3-10 years old) |
Puratein® | 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:
working with its partner manufacturer to secure production capacity to meet expected demand for hemp and canola proteins;
working with HPS Ingredients to market and sell Burcon's hemp proteins to generate revenues
identifying and securing a strategic partner(s) with the goal of commercializing its plant 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;
file patent applications to protect intellectual property arising from research and development of new protein technologies;
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;
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.
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:
applications to protect additional novel protein extraction and purification technologies;
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
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
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;
use of soy protein products in acidic beverages and other products;
protection covering the composition and signature characteristics of Burcon's CLARISOY® soy protein;
alternative processes for producing soy protein products;
Canola
technologies for improving the quality of input meal prior to the purification and extraction process, to result in better protein;
process improvements to produce canola protein isolate efficiently and to obtain higher yields of canola protein isolate;
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;
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;
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;
protection covering the process for producing Nutratein® canola protein;
processes to improve the final colour profile of Puratein® canola protein and Supertein® canola protein;
applications for the uses of canola protein as a functional food and beverage ingredient;
the use of canola protein as a flavour enhancer in a food product;
alternative processes for producing canola protein isolates;
Pea and other Pulses
characteristics of pulse (including pea) protein product prepared by key pulse protein purification procedure;
alternative pulse (including pea) protein product having signature characteristics, including properties in low pH solution;
characteristics of alternative pulse (including pea) protein product geared towards neutral or near neutral pH food applications and food composition comprising this protein product;
protection covering the processes for producing pulse (including pea) protein products having reduced astringency in low pH solutions and signature characteristics of such products;
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:
traditional propagating practices which have been used for food production within the Union before 15 May 1997; or
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:
pay substantial damages;
cease the development, manufacture, use or sale of product candidates or products that infringe upon the intellectual property of others;
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:
they receive public and industry acceptance as a food ingredient and dietary supplement; and
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.
