Burcon Nutrascience Corporation

Good afternoon, ladies and gentlemen, and welcome to the Bercon NutraScience Corporation 2024 Investor Day Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded today, November 20, 2024. I would now like to turn the conference over to Kip Underwood, Chief Executive Officer. Please go ahead.

Thank you. Good morning, good afternoon, and good evening to our shareholders around the world. Thank you for your time today and for your investment and interest in Berkcon. Today is an exciting day for Berkcon. Over the past 18 months, we have cleared several milestones. We have validated our value propositions, validated their differentiation. We've received affirmation of the performance of our products from former customers, prospective customers, and industry peers. We have the technology. We have the demand. We have not been able to secure consistent, high-quality supply to the manufacturer of our products. This has been Berkhan's fundamental challenge since long before even I became CEO. Today, that changes. Today, we will cover our plans for a direct route to market, a potential to unlock tremendous value for Bercon and for our shareholders. As you all know, we are a publicly traded company, so our safe harbor statement. Our discussion topics today will include our retail market, as I mentioned, production and sales. We'll talk about an innovative capital structure and business operating model. And most importantly, maybe we'll talk about the investment opportunity for our shareholders, the opportunity to come along for us for the ride. I'm joined by Rob Peetz, our CFO, who will cover a few key pieces of our presentation today. And additionally, we will cover also a little update on Bercon, where we are today, and where we are going in the future. This is truly a transformative opportunity for burka mid-summer we hired a search firm to scout for additional capacity a potential new facility with the capability to produce our entire portfolio we quickly discovered a handful of viable sites and began thinking through funding options here a strategic buying group emerged led by one of our board members and the opportunity to leverage from our strategic buyer, our real estate financing approach, with a tried and true industry contract manufacturer business operating model. The combination of those gives us a unique opportunity to leverage our strategic partners' strength, for Bercon to have full control over the production and sale of our products, our technology, to accelerate our capital-light business model, and truly launch our entire portfolio, including our most exciting offering, sunflower protein. I mentioned an innovative business structure and a business approach. There are two aspects of this. First is, how do we fund the operation? So our strategic buying group, part of our alliance, will be responsible for the funding to acquire the production facility and to put in the capability and capacity needed to produce our portfolio. burkhan will then be the operator we will lease and operate the facility we will produce and sell our proteins several advantages of this approach again efficient use of capital as i've mentioned a direct route to market for our technology for our products the opportunity to scale and deliver better unit economics and assuming we hit our timelines the opportunity to be online with commercial production during the first half of 2025. Right now, with our alliance, with our partner, we are in late-stage discussion evaluating multiple sites, trying to determine which one has the best fit. Given where we are in these discussions, we believe the acquisition will close sometime during Q1 of 2025. As I mentioned, we announced a rights offering at the close of market today. I'll give you a few highlights now, and Rob will cover this in detail towards the end of the presentation. But again, we are seeking to raise up to $12 million. The offering is at a discount to the current market. The proceeds will be used to fund our operations at the new facility through to a cash flow positive state. So fund the operations, support our sales and marketing efforts, all things encompassing with operating facilities. We are doing the fundraise concurrent with our partners' efforts to acquire a facility. And this is critically important because as we land these things together, immediately the facility is acquired, then we are prepared to begin our efforts to produce and launch our proteins into the marketplace. A few things haven't changed. One is We are targeting an exciting market, the expanding protein, plant protein market. Our foundation is our revolutionary plant processing technology, proprietary platform with game changing protein ingredients. And as I mentioned, we are still driving a capital high margin business model with forecasted profitability in calendar of 2026. Let's talk about the market for a minute. As you can see by these headlines, at the consumer level, protein is hot. Protein is in demand. And in particular, plant protein is in demand, which is irrelevant to us. The headlines warp through industry groups, key brand owners seeking to deliver protein and or plant protein to their consumers. And they're doing that because their consumers are seeking protein in general, and consumers continue to seek plant proteins because they know they are both good for them, for their own health, as well as the health of our planet. This is why this market is fundamentally exciting, and it's why our differential technology is highly relevant. Our market opportunity, it is significant, right? Again, the opportunity we're discussing today will allow us to launch our entire portfolio. That'd be sunflower, pea, canola, soy, and hemp. Each of these proteins have unique strength. Each of these proteins have unique applicability in different types of food. Oftentimes, we'll have potential customers actually blend these proteins to end up with a better answer for their end consumers. What I want to highlight in particular really is sunflower protein. We believe, I in particular believe, that sunflower protein is our most disruptive technology. It has key attributes that food scientists, that food companies desire. First, it is white in color and very clean in flavor. Therefore, it gives a blank canvas to food technologies to create the foods that we all love and buy at the grocery store. Second, sunflower is the third largest oilseed crop in the world. What that means for us is a highly abundant, highly available raw material, critical to ongoing business success. And third, and maybe most importantly, from a halo perspective, from a positioning perspective, sunflower protein, it is protein from the sun. And I promise you brand owners around the world will be excited to position this to their end consumers. As many of you know, we have been in the market with our hemp and canola proteins. This is a look at our robust sales pipeline for hemp. There's a few key things to point out here. First is the applicability of canola across a variety of food applications, food types. That can be a ready-to-drink beverage. It can be a ready-to-mix or powdered beverage. It could be into plant-based foods or even into baked goods where our canola protein actually can deliver better results than traditional egg protein. It's not about a plant protein. It's just a better performing protein delivering cost and use to brand owners. This funnel right now is robust and in a place to deliver multimillion dollar growth for us in the future. On the right hand side, you see some quotes from our prospective customers. And these are the types of feedback you want to hear from food companies. You want to hear that it is easy to use. If you're a protein, you want to know that it has high protein quality. You want to know that it has great taste or the taste exceeds expectations. And you want to know that it has unique functional properties like foam stability, like creates a foam. This is the perfect feedback you want as potential customers receive our products, they test them in their labs, and give us the feedback that, wow, this product not only doesn't perform as expected, it actually exceeds my expectations. We are in a phased approach. So right now as Bercon, we are in phase one, the build phase. This is where we are building the capability to produce, launch, and sell our products. This is the focus for the next 18 to 24 months. Phase two is in that 12 to 36-month range. This is scale. How do we drive sales volume, drive production volume to get unit economies of scale, drive costs down, and validate unit economics? Once we get that piece, we move to the most exciting piece, which is phase three. Once Berkheim has proven our technology in the marketplace, proven customer demand, put ourselves on a strong financial footing, then we are in position to further leverage that technology through our licensing or technology sale approach for rapid scale around the world through partners. So very exciting, again, phase one today, phase three in the near future, exciting margin expansion when we get to phase three through the licensing and the sale of technology. With that, I will turn it over to Rob to talk through our financial expectations and the rights offering. Rob, please take it away.

Thanks, Kev. As Berkson grows and evolves over the coming years, so too are expected profit margins. And as Kip just outlined, Bergkahn expects to evolve our strategy over the coming years from the build to the scale to the license and sell tech phases that we just outlined, but phase one to two to three. And as we sort of built those different phases, we are seeking to optimize operations and at each stage of our development to both produce excellent products and commercial qualities, establish market credibility with our customers on the quality and availability of our proteins. And we have over 80 potential customers who are interested in our isolates, and we really need to provide them with the product that they deserve and want. But our focus on the long-term strategy is on the high-margin licensing strategy, which Kip just spoke about, and that you can see in Phase 3, really adding to the gross margin in the outer years. So to support this financing structure, we've got three immediate steps within the next two months, which will provide the foundation for really explosive growth for BertCon. Step one, we just closed our next tranche of $1 million in financing from our existing long-term note facility, which will provide us with near-term cash to go through the next couple of steps. For step two, we're working with our strategic partners to identify, procure, and prepare a facility which can support the multi-stage growth that we're currently targeting over the next coming years. And finally, step three, we're undertaking the right soft ring, which was just announced today, to provide working capital and to support the sales and marketing efforts as well as new product launches over the coming years. This was just announced today. and it will be closing on February the 12th. In greater detail, so the step one has been completed and the step two is currently in progress. The rights offering itself, as we announced it was just today, we're targeting up to $12 million in proceeds. This offering represents one right for each share that we will provide to shareholders. and will provide Bercon with the capital that we require to achieve the strategic plan we presented today. Not only the operational ramp-up plan, but also the sales and marketing efforts that include the launch of several new proteins, but also the collaboration with partners and customers in order to have broad and deep revenue opportunities with these groups. We already have participation commitments from a significant number of board members, large existing and new shareholders, and management. This financing should provide the necessary capital to support the aggressive growth that Bercon has over the coming years, right through the cash flow positive position and then through to the future. You can see on the right there are some key offering highlights that were announced in the letter today and the target of $12 million and priced at $0.085 per share. for that right to offering. And closing on February the 12th of next year. And with that, I'll turn it back to Kevin.

Thanks, Rob. Thank you for reviewing that detailed information. So when I first started, one of the things we did, we laid out some strategic imperatives for Berkon, and hopefully some of you have seen this before. These were based on both Berkon's experience and my experience in the food industry, right? And there were three imperatives. One is additional revenue streams, right? So we felt we have done that both through the contract research work we have done in our facility with launching a product. We have identified today's effort helps us. We certainly have interacted with customers and in markets. We had to understand, we understand what do customers want? What do they not want? What do they like? What do they not like? What will they pay for? So our efforts in launching canola and hemp, we've been able to gain a great understanding of what our potential customers' desires are. The third pillar, again, has been our challenge. We laid out an imperative influence over the manufacture of our products and our technology. We wanted to ensure that when our products reach our customer's store, it met, if not exceeded, their expectations. What we've learned is influence is not enough. And I can't reiterate enough how excited we are the path we're going on to now have control over the production and sale of our products to ensure, again, that when they meet our customers, arrive at our customer's door, they exceed their expectations. Once we complete the acquisition with our partner in the alliance of the facility, this all becomes about execution. We have the technology. We have the price. We have the demand. If we do our job and execute, profit will follow. What follows profit is tremendous shareholder value. I'll look into the future. Our roadmap is laid out here. So we would anticipate Q1 to be the launch of the balance of our portfolio, again, including Sunflower Protein. Q2, calendar Q2, will be really those recurring production trials, assuring we can make high quality product consistently. We would expect Q3 to be those first initial supply contract with customers, moving into Q4 where we begin the first pieces of recurring revenue. Tremendously excited to move, once we're successful in the acquisition, move into this execution phase for Bercon, producing and selling our technology. Hopefully, Those on the phone can share in the excitement of what today is all about. Again, a transformative opportunity, a truly innovative approach, both to fund this type of business activity and then downstream to operate. We have a robust sales funnel. We have customer demand. We have differentiated technology. This puts on us a path to really, for the first time, deal with Bercon's long-time fundamental challenge. How do we produce our products and bring them to market under our control? The rights offering that we announced today, we believe, gives our shareholders the opportunity to participate in this exciting future here for Berkcon. Again, we are seeking proceeds up to $12 million with timelines, key timelines, again, parallel path on the acquisition and the rights offering. So we expect the acquisition of each facility to close inside of 2025, and again, the rights offering closes in mid-February. With that, I want to thank you all for your time, for your interest, and look forward to receiving questions here today and the ongoing discussions about this exciting opportunity in front of us at SPRCA. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchdown phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Dave Storms from StoneGate. Your line is now open.

Good afternoon, Kev and Paul and team. How's it going? Hi, Dave. Good to hear from you. Thank you. Yeah, good to hear from you too. Just a couple questions here. My first one is around the production facility. Once that is acquired, how do you anticipate the logistics looking for rolling out the lines of production? Will this be a phased approach through the balance of 2025, or do you anticipate that once the necessary upgrades are made,

you'll be able to kind of turn on production like a light switch well certainly uh there's there's three phases to this right there so first we'll need to in any facility we'll need to provide uh upgrades to that facility to boost our entire portfolio right and we anticipate that will happen every 2025. uh the second thing we need to prove you know validate commercial scale production again that same time frame we do We do have plans to launch our entire portfolio. So very quickly out of the gate, we will produce initial commercial scale quantities required to drive the sales process. And then on a parallel path, then we will move forward with the fine tuning of the facility. So we expect to launch our entire portfolio within the first half of 2025 and have commercial scale capability validated for the entire portfolio as well.

Understood. That's very helpful. And then it might be too early for this question, but just looking forward, any further expansion that you would do, do you think it would be done in concert with a strategic partner again, or are there other avenues that you would consider for expansion, or is that just so far down on the timeline that you're not quite there yet?

Well, thanks, Dave, because we're surely excited about our futures. And we believe there is future opportunity, right, to expand internally. Again, for each of our technologies, once we get up to scale, we have a choice. Do we work with our partner to build? Do we partner with somebody else? Do we license the technology to drive future revenue? Or do we sell a technology? So we have that choice in the technology and tremendously excited to get to that phase three. Right now, our focus is on execution and and executing the plans that laid out today.

Understood. Turn into the sales funnel. Is there any way you can kind of characterize the breakout between early stage and late stage? I know on the slides you said there was about 15 clients indicating interest. Just kind of what you're seeing there and maybe how you're seeing that sales cycle change as you introduce new proteins.

Sure. So, What I can say about, let's just take Canola. So we have 80 prospective customers that are actively working with commercial scale productions of Canola, right? So they are allocating their time, their own time, money, and effort to evaluate Canola to see how it can perform in their individual projects. And we call that a qualified project, right? When we know a customer is allocating their time, money, and effort to evaluate the performance in their shop. So that's where that funnel sits. Now, what will be better for us in the future as we launch new products, right, is now that we've established a sales funnel process, we've established the approach, we've established the discipline, it's like anything. When you do something the second, third, and fourth time, you're better at it, you're more efficient. And we've developed relationships because sometimes a customer that might have a need for canola protein, that same customer probably has a need for a sunflower or maybe a pea protein. seeing our learnings from Hampton Canola to drive faster adoption for our newer approaches into the future.

That's very helpful. Thank you. Last one for me. You spent some time talking about Sunflower and the three key attributes that are expected to really hopefully make that a home run for you guys. Anything you can tell us about the timeline and maybe current steps to get Sunflower more ramped up?

Sure, so Sunfire will be one of the first ones we will launch. It will take a little bit longer than our other proteins for it to get adoption because it is brand new, right? So we would expect sales of, you know, canola or pea protein probably to happen faster because those are more known products in the marketplace. Stun will take a little longer as people understand and then appreciate its differentiation. But once they do, we expect significant ramp up for that, you know, kind of late year two into year three.

Understood. Thank you for taking my questions. Congrats on the quarter and good luck as you work to wrap up accounting 24.

Thanks, Dave. Appreciate it.

As a reminder, if you have a question, please press star one on your telephone keypad. Your next question comes from the line of Daniel Charabani from FART Investments. Your line is now open.

Hey Kip, it's Danny Charbani from Montreal. Thank you so much for the update. It sounds exciting. I just would like to just maybe get a bit of clarification from you regarding the balance sheet. So I was just a bit concerned when the cash balance fell almost only since March from $4.2 to $1 million. And I'm wondering if that's going to be a big issue. And second of all, with all the progress that we're making, I'm wondering why the sales went from almost $180,000 to $40,000. My question is, do you feel that we needed this drastic change of getting the strategic alliance to basically improve the situation? And last, just because my mind is stuck on it, since you were so close with Merit, wouldn't Merit probably be a good target for your strategic alliance partner? And these are my questions.

Thank you, Dan. Let me deal with these in succession. So relative to the balance sheet, right? So there's a couple of pieces of the puzzle here. So one, we do still have access to our tranche two loans. So there's $3 million remaining on that that we can pull. And we have access to that to bridge us into this fundraise completion. What I will also say is that what is not reflected yet in our plans is that we will, as we move from R&D to more production and sales, we will be executing some pretty significant cost savings efforts that will extend our runway. And then again, the other piece of the puzzle is in our Ford Outlook, we don't count the sales yet in that Outlook, right? So when we combine access to tranche to cost-cutting measures future revenue, we feel our balance sheet is very strong and then on completion of this race fully funds us well into cash flow positive. So we feel pretty good about that. You mentioned kind of significant change. We don't, we see our strategy as fundamentally the same, right? So we are still with our partner, being the one to have the capital to purchase and equip the facility, we are still executing, then the facility is not on our balance sheet, right, in the future. So we are still fundamentally executing our capital light model. The difference in the critical difference in our critical learning is that we are executing the production ourselves. We are there ensuring that the production is at a cost and a quality that allows us to meet our customers' needs. So really, It's an acceleration of our strategy with one fundamental change of who controls production. And lastly, you mentioned Merit, right? So the Merit facility is still for sale, right? We remain in ongoing contact with them, and we're always open and trying to look and see if we can put a deal together that would be right for Bercon and right for our strategic buying group that we're in alliance with.

I see. Okay, so it's kind of sit and play. That's what you're saying.

Yes.

Okay. Thank you. Thank you so much for the clarification.

As a reminder, if you have a question, please press star 1 on your telephone keypad. There are no further questions at this time. I will now turn the call over to Paul Lam. Please continue.

Hi. We have a few questions from the webcast, and I'm going to start with the first question comes from Christian, too. You had a production facility with Merit, and that didn't work. Why is this different?

Thank you, Christian. Again, I think the difference goes, even when there was a production facility with Merit, somebody else was fundamentally responsible for the day-to-day production, the quality, and the delivery of that product to their customers. What we've learned is that doesn't work. Other parties don't understand our technology like we do. They don't understand how to produce. They don't have the go-to-market experience that I personally have and will bring to the organization through other individuals. The key difference is we are going to do this. We are responsible for production of a high quality, efficient product. We are responsible for delivering that product to meet our customer's needs. And we're responsible to meet, exceed their needs so they buy from us again and again. And Chris, so the biggest change here really is that we are able to both do two things at the same time. Maintain our capital life strategy for efficient use of our capital and also have direct control of the production of sale of our products again to ensure our products meet, if not exceed, our customers' expectations. Thanks, Christian.

Next question comes from a private investor. Actually, two questions. The first one is, what are the protected costs to acquire and retrofit a plant?

We're not prepared to go through the actual costs. What I can say is, One thing that's different about our approach is how we're doing this. What we are looking to is existing facilities that we can buy much cheaper than trying to go build something your own and facilities that then we can retrofit relatively quickly to meet our needs. When you go into an existing facility that maybe doesn't meet someone else's needs but meets our needs, it allows us to buy it right, which is critical in the business, It allows us to get to market quickly, which speed matters. So we won't get into the actual cost, but in our fundamental approach, we're buying right and we're delivering speed to market with minimal upgrades or change to the facility to go from its current state to the production of our portfolio.

Okay, thank you. The second question from the same investor. Can you discuss the board member's level of comfort in the technology and in making this investment?

Yes, I think the most important piece is actions speak louder than words, right? So the board member leading this group as part of our alliance is confident enough both in the market opportunity, our technology, and our ability to execute that they are very comfortable putting up the capital to actually buy and retrospect the facility. So in the adage of actions speak louder than words, I looked at what they're doing and how they're doing with their pocketbook, that speaks to their confidence both in the technology and equally important, our ability to execute, to produce and sell products to customers.

Okay, thank you. Next question comes from Paul Brunette. Is this a solution for current shareholders?

Paul, thanks for the question. And this is really key, I think. The dilution aspect was one of the reasons we chose a rights offering as the fundraising vehicle. So every shareholder has the opportunity to maintain their existing percent ownership by taking up their rights. And it was very important to our leadership and to our board that we use this fundraising ability to give every shareholder the opportunity to participate in this, to maintain their existing ownership as we move forward. And we hope all do. We're excited about the future. And again, it's really important for us so that everybody has that opportunity.

Okay, thank you. Next question comes from Manfred Lee. Will the subscription rights be traded at the exchange? I'm sorry, Paul, you broke up. Could you repeat that question, please? The next question comes from Manfred Lee. Will the subscription rights be traded at the exchange?

Yes, the rights will be traded, and the details on that are in the press release. But, yes, the rights will be traded on the TransLock Exchange.

Okay. Next question comes from Harry . Are the new partners owning Bercon shares? If yes, by what percentage?

So, the members, there's two pieces that I believe, right? So, one, yes. the individual, the board member leading the buying group is a significant shareholder of BRCA. And maybe it gives me a chance to speak to a related point in that in order to, in this process, in order to ensure that shareholders' best interests are taken into account, we have also formed a committee of independent board members, right? And they will be governing in the shareholder voice to be sure. As we move through this process, we're transparent and that the shareholder's best interests are always in the forefront of any action that we take.

Okay, thank you. Last question, I think. This comes from Robert Hodgkinson. Will there be availability for oversubscription of the rights or participation in the oversubscription of the rights? And then I believe his other question. So this is probably the only outstanding one. So just a question regarding the oversubscription of rights.

So, yes, Robert, each shareholder has the opportunity to oversubscribe, right, as part of the process. And then if all rights are not taken up at the end, then there's the opportunity for that over-subscription to be fulfilled. So absolutely. And we do have – we believe we have lots of interest moving forward, and we expect that – would be surprised if any of our shareholders did take that route. There's a lot of excitement here about this, and we're excited to move forward. Thank you, Rob.

Okay, that's all the time we have for questions. Kip, I'm going to pass it back over to you for closing remarks.

Thanks, Paul, and again, just thanks to all of our investors here on the call. Again, first, for your time and for your investment and confidence in us. I sincerely hope that you're feeling the excitement, that you're feeling this new day for VirCon, and that you will all come along on the ride with us and take advantage of what we believe is just a tremendous opportunity. So thank you all, and have a great day. Cheers.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.