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Burcon NutraScience Corp
Symbol BU
Shares Issued 108,728,742
Close 2022-08-15 C$ 0.85
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Burcon NutraScience loses $3.99-million in fiscal Q1

2022-08-15 17:19 ET - News Release

Mr. Peter Kappel reports

BURCON REPORTS FISCAL 2023 FIRST QUARTER RESULTS

Burcon NutraScience Corp. has released its results for the fiscal first quarter ended June 30, 2022.

Operational highlights for the first quarter ended June 30, 2022:

During the quarter, Burcon:

  • Recorded a 17-per-cent quarter-over-quarter increase in royalty revenues from its licensee, Merit Functional Foods Corp.;
  • Provided a $3.16-million loan to Merit, as part of a $10-million financing contributed by shareholders in proportion to its Merit shareholding;
  • Advanced the due diligence process with a number of potential partners on opportunities to commercialize Burcon's innovative plant-based protein technologies through one or more joint ventures and/or collaboration agreements;
  • Announced the execution of a $10-million loan agreement with its largest shareholder;
  • Received notification of nine patent grants and allowances covering the company's novel process for the extraction and purification of protein ingredients from agricultural crops such as pulse, soy and other oilseeds. The company's IP (intellectual property) portfolio now consists of 330 issued patents in various countries, with 72 in the United States, as well as more than 178 active patent applications, including 25 in the U.S.

During the quarter Burcon's 31.6-per-cent investee, Merit Foods:

  • Further fine-tuned and optimized its production process to improve production throughput and yield of its pea and canola protein ingredients;
  • Increased production and sales of its best-in-class pea and canola protein ingredients;
  • Achieved Safe Work Certification;
  • Achieved the highest score of AA awarded for food safety in two consecutive years with the British Retail Consortium (BRCGS) Global Food Safety Certification, a leading global quality and food safety program;
  • Expanded its sales pipeline through an aggressive sales outreach program as a plant-based protein ingredient solutions provider.

Subsequent to the quarter-end, Merit:

  • Launched Peazazz C, a pea protein ingredient developed by Burcon;
  • Announced the development of a solution to replace methylcellulose in meat alternatives, using Merit-branded proteins.

Management commentary

Burcon's fiscal 2023 first quarter saw its joint venture, Merit continued to ramp up its production and sales of its pea and canola protein ingredients. Merit underwent continuous process improvements which included modifications, fine-tuning and optimization to increase its production throughput and yield for its dual protein process.

During the quarter, Merit optimized a new process for the production of a uniquely different pea protein ingredient, Peazazz C, which was launched subsequent to quarter-end. The company expects that Peazazz C, with its exceptional solubility and smooth, grit-free texture, has the potential to win market share in the ready-to-drink sector, one of the largest plant-based categories.

Following on strong momentum from previous quarter, Burcon further advanced the due diligence process with potential partners on additional plant-based protein opportunities. During the quarter, the company's potential partners completed due diligence items that included process, product and overall technology evaluation. Its team in Winnipeg has been working diligently to support all aspects of the partnership discussions and due diligence process. The company is encouraged by the pace with which all parties are moving forward and are motivated to work toward reaching a partnership agreement to bring to market Burcon's innovative plant-based protein technologies.

Amidst a market downturn and Burcon's share price weakness, the company's share price fell below $1.00 (U.S.) for 30 consecutive days. On April 6, 2022, Burcon announced it had received a letter from Nasdaq regarding minimum bid price deficiency. The company has a compliance period of 180 calendar days, or until Sept. 28, 2022, to regain compliance with Nasdaq's minimum bid price requirement. To regain compliance, the company's common shares must have a closing bid price of at least $1.00 (U.S.) for a minimum of 10 consecutive business days. In the event the company does not regain compliance by Sept. 28, 2022, the company may be eligible for additional time to regain compliance.

Burcon was pleased to have announced that it has entered into a $10-million loan agreement with its largest shareholder. The loan is available in two $5-million tranches, first of which is now available to Burcon with a maturity date of July 1, 2024. If both tranches are fully drawn, the non-dilutive financing is expected to provide Burcon with the cash resources sufficient to meet its financing requirements to February, 2024. Separately during the quarter, Burcon provided Merit a $3.16-million shareholder loan, as part of a $10-million cash call, which was fulfilled by all of Merit's shareholders in their proportionate shareholding.

The company continues to strengthen its intellectual property portfolio by adding nine issued patents and allowances covering the company's unique and proprietary process for pulse, soy and other oilseed protein production. Through careful cost-benefit analysis of its IP portfolio, Burcon has been reorganizing its patent portfolios, filing high-value patent applications while abandoning those that provide minimal monetization value to Burcon and its commercialization efforts. The company's IP portfolio now consists of 330 issued patents, of which 72 are U.S. patent grants.

Peter H. Kappel, chairman of Burcon's board of directors, continued to serve as interim CEO while the company works closely with an executive search firm specializing in the food and agribusiness sectors, to recruit a new chief executive officer. The recruitment process is continuing with Burcon's board interviewing a number of high-calibre food industry professionals.

Financial results (in Canadian dollars)

Burcon recorded Merit royalty revenues of $91,000, as compared with its first royalty revenue of $18,000 from Merit during the first quarter of fiscal 2022. The nominal royalty amount recorded to date reflects Merit's continuing ramp-up of its sales and production during the quarter.

Net loss totalled $4.0-million or four cents per basic and diluted share for the current quarter, as compared with $3.2-million or three cents per basic and diluted share in same period last year. The higher loss this year, as compared with last year's, includes a reduction of $718,000 of pea and canola costs that were capitalized in the first quarter of fiscal 2022, and an increase of $256,000 for our share of Merit's loss.

Burcon recorded $2.0-million as its share of loss in Merit Foods for the quarter, as compared with $1.7-million in fiscal 2022. During the first quarter of fiscal 2023, Merit recorded total sales of $2.3-million, including sales of co-products in addition to pea and canola protein sales. Merit recorded a loss of $6.3-million for the quarter ended June 30, 2022, as compared with $5.2-million in same year-ago quarter. Merit Foods' loss reflects its stage of development as it continued to ramp up its production and sales. During the quarter, Merit's shareholders advanced an aggregate of $10-million to Merit to address its liquidity requirements, with Burcon's share being $3.16-million.

Gross research and development and intellectual property expenses did not change significantly during this quarter as compared with the same year-ago quarter.

General and administrative expenses totalled $911,000, as compared with $1,013,000 in the same year-ago quarter. The decrease of $102,000 is due mainly to the Nasdaq entry fee paid during the first quarter of last year.

At June 30, 2022, cash balances totalled $1.6-million compared with $7.0-million at March 31, 2022. During this quarter, Burcon entered into a secured loan agreement with its major shareholder of up to $10-million, that would be made available to Burcon in two $5-million tranches, with the first tranche currently available to Burcon. If fully drawn, management believes it has sufficient resources to finance its expected level of operations and working capital requirements to February, 2024.

Conference call details

Burcon will hold an investor conference call and webcast on Monday, Aug. 15, 2022, at 5 p.m. ET.

A link to the webcast of the conference call is available on Burcon's website under presentations. The webcast will also be archived for future playback.

Investors interested in participating in the live call can dial in using the details herein:

Date:  Monday, Aug. 15, 2022

Time:  5 p.m. Eastern Time (2 p.m. Pacific Time)

Toll-free dial-in (North America):  1-855-327-6837

Dial-in (toll/international):  1-631-891-4304

Conference ID:  10019805

About Burcon NutraScience Corp.

Burcon is a global technology leader in the development of plant-based proteins for foods and beverages. With over two decades of experience formulating high-purity proteins that have superior functionality, taste and nutrition, Burcon has amassed an extensive patent portfolio covering its novel plant-based proteins derived from pea, canola, soy, hemp, sunflower seed, among other plant sources. In 2019, Merit Functional Foods Corp. was established between Burcon and three veteran food industry executives. Merit Functional Foods has since built and commissioned a state-of-the-art protein production facility in Manitoba, Canada, that is producing, under licence from Burcon, best-in-class pea and canola proteins for the food and beverage industries.

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