Burcon NutraScience Corporation (BRCN) on Q2 2022 Results - Earnings Call Transcript
Operator: Good afternoon everyone and thank you for participating in today’s conference call to discuss Burcon NutraScience Corporation’s Fiscal 2022 Second Quarter Ended September 30, 2021. Joining us today are Johann Tergesen, President and CEO of Burcon and Jade Cheng, the Company’s Chief Financial Officer. Following their remarks we will open up the call for your questions. Then before we conclude today’s call, I will provide the Company’s Safe Harbor statement with important cautions regarding the Forward-Looking Statements made during this call. Now I would like to turn the call over to the President and CEO of Burcon, Mr. Johann Tergesen. Sir, please go ahead.
Johann Tergesen: Thank you, operator. Good afternoon, everyone. Thank you for joining us today Burcon’s fiscal 2022 second quarter, which ended September 30, included some notable milestones beginning with Burcon as well as for our joint venture company Merit Functional Foods. Focusing on Merit Functional Foods, we are encouraged by the steady progress achieved by Merit as they work to address the commission changes they have experience at they are new pea and canola protein ingredient, production facility and we are pleased with their recent production improvement. In today’s call I will address and discuss the commissioning challenges Merit have experienced and I look forward to also discussing Merit is extending sales funnel for their best-in-class pea and canola protein ingredients. As we previously disclosed earlier this year, Merit completed the construction of and the first end-to-end production runs in pea and canola protein ingredients at its new state-of-the-art protein production facility in Winnipeg. Since that time, and as is standard practice at any new food processing facility, Merit has been undergoing a commissioning process at its production plant, working through and resolving operational issues as they have arisen with the goal of optimizing production throughput and yield and ultimately to achieve the nameplate capacity as per the originally engineered design of the production plant, which I will talk a little bit more about later in this call. Just last quarter, Merit fulfilled first commercial sales orders for its best-in-class pea and canola protein ingredients and we are pleased to note that there are currently food and beverage products on store shelves today, which incorporate Merit is novelty and canola proteins. Before going into more details on Burcon’s and Merit is recent progress, I would first like to turn the call over to our Chief Financial Officer, Jade Cheng, who will take us through the financial details for the quarter. Then I will return to provide a business update for the quarter and discuss some of the opportunities that Burcon is currently pursuing. We will open the call to questions following our remarks. Jay, please go ahead.
Jade Cheng: Thanks Johann. Earlier today, our financial results for fiscal 2022 second quarter were issued in the news release and filed with SEDAR and EDGAR, as well as posted to the Investor Relations section of our website. Turning first to our income statement. During this quarter, we reported a net loss of $1.4 million, or $0.01 per basic and diluted share. This compares to a net income of $4.4 million or $0.04 per basic and diluted share in the same year-ago quarter. In the second quarter of fiscal 2021 Burcon recorded a 6.4 million gain or dilution of our investment in Merit is after Bungee’s investment in Merit. Merit continue to fulfill commercial sales orders this quarter and Burcon record a royalty revenues of $32,000 from Merit on the sales of pea and canola protein products. Merit recorded sales revenues of $1.6 million for the quarter ended September 30, 2021, which include sales of commodity and co-products in addition to pea and canola protein products. Burcon recorded $159,000 as a share of Merit is loss for the second quarter of fiscal 2022. Including the share of Merit loss is a recovery of $656,000 to correct for deferred tax adjustments related to the first quarter of fiscal 2022. After taking the adjustment into account Burcon share of Merit is loss is not significantly different from that in the same year-ago quarter. Merit is loss reflects the stage of development as it continued with his commissioning and optimization process at the Flex production facility. Both research and development expenditures increased by $109,000 in the second quarter, over the same year-ago quarter. The increase is due mainly to scientific staff additions and salary increases. During the quarter, we allocated $484,000 of R&D expenditures to defer development costs. Growth intellectual property expenses decreased by $161,000 in the second quarter over the same year-ago quarter. The decrease is due mostly to lower activity in the pea and canola patent portfolios. G&A expenses increased by $100,000 in the second quarter of fiscal 2022 as compared to the same quarter last year. The increase is due to increased salary costs from higher stock based compensation expense and staff additions, increases in investor relations and insurance cost offset by lower legal fees. As of September 30, 2021, our cash resources totaled $10.9 million as compared to $14 million at March 31, 2021. I would like to refer you to our complete financial statements and management’s discussion and analysis of our results that are available in the investor section of our website at burcon.ca as well as on sedar.com. Now, in terms of our patent portfolio, Burcon was granted three new patents during this quarter, covering up novel processes for the extraction and purification of soy and non-soy oil seed protein ingredients and high purity proteins produced there from. A patent portfolio now consists of 299 issued patents in various countries, including 73 in the U.S. and more than 210 active patent applications, including 35 additional U.S. patent applications. With that, I would like to turn the call back to our CEO and president Johann Tergesen. Johann.
Johann Tergesen: Thanks Jade. As I mentioned at the beginning of today’s call, the second quarter included some notable advancements for both Burcon and its joint venture Merit Foods. During the quarter, our joint venture Merit Functional Foods which is currently commissioning its new state-of-the-art protein production facility, achieved numerous significant steps towards optimizing the facility where it is now producing under license from Burcon its best-in-class pea and canola protein ingredients. The commissioning process and the process of scaling up production capacity has required more effort and time than was anticipated. With that being said, production capability at Merit has been improving by the week and the engineers technicians and management of Merit are largely now just fine tuning the overall facility by individually fine tuning the numerous unit process operations that together form the overall production capability. A process not unlike how an orchestra conductor might direct the simultaneous performance of perhaps 100 professional musicians. Although now complete, many of the challenges that Merit had been experiencing in the implementation of Burcon’s technology at the Winnipeg facility are largely behind them now. We believe Merit is in the final leg of the commissioning process and we expect that soon, Merit will be able to routinely produce on a 24/7 schedule its pea and canola protein in order to fulfill ever larger existing and expected future customer orders. Were encouraged by Merit is recent production improvements for a second reason. Merit is pea and canola proteins are unique and as such this marks the first time these proteins have been produced at such a large commercial scale. So while the production team at Merit has been hard at work fine tuning the facility and the production process, so too has Merit is production applications experts and sales team been working diligently with the proteins produced at the facility and with numerous CPG companies seeking to incorporate Merit unique proteins into soon to be launched new or reformulated consumer products. During the commissioning period, Merit has had modest commercial production and as a result, sales of Merit is pea and canola protein ingredients to food and beverage manufacturers have been limited, albeit increasing quarter-over-quarter, but for all intents and purposes, Merit sales are just at the beginning now. During the majority of the second quarter, Merit was still working to resolve commissioning challenges and as a result, Merit only posted modest sales revenue for the quarter. Again, reflective of the minimal production, which was due to the ongoing plant commissioning challenges. Late in the second quarter by around mid-September, Merit successful commissioning efforts resulted in significantly improved production capability and Burcon expects Merit to now markedly increase their production and sales quarter-over-quarter from here. As Merit is production capabilities improve, we also anticipate that there will be more consumer food and beverage products using Merit is innovative pea and canola proteins being launched into the marketplace and enjoyed by consumers in the coming year. Near the end of September, I had the opportunity myself to tour Merit is new facility and have to say it really isn’t impressive complex. Its 94,000 square feet of modern bright light production areas, laboratories, packaging, warehousing and offices with seriously like gleaning floors, high tech processing equipment source from around the world, all of which is tied together with kilometers of stainless steel piping and wiring, incorporating hundreds of sensors and program logic controls, all of which is run from a central computer driven control room. It is equally impressive to be there in person just to observe the overall flow of the operation and the larger processing facility. Watching truckloads of peas or canola roll up to the plant and then seeing those inputs processed and converted to the products and byproduct fractions including starches, house oil, meals, and of course, the pea proteins and canola proteins, which are bagged palletized and then rolled out. By the way, Berg Construction, the general contractor responsible for overseeing the design and build out Merit is facility was recently recognized for their part in the successful completion of this first of its kind production plants. As Berg Construction was selected, as the winner of the 2021 Groundbreaker Award in Project Excellence for Merit is pea and canola processing plants. In conjunction with marriage team, Berg Construction was able to fast track the project and successfully complete now it is one of a kind protein facility within a record timeframe of 14-months and that was in a backdrop of the global pandemic. Awards aside, we are pleased and proud to see Burcon pea and canola protein extraction technologies now scaled up and implemented in Merit is impressive facility. Commissioning a dual process protein production facility such as Merit is not without challenges, and startup issues and due in large part to the uniqueness of the plant’s ability to flex between pea and canola protein production. Merit has experienced a longer than expected length and time to condition its facility. It may be helpful to provide some color on the commissioning challenges Merit has had to resolve the last few quarters. I won’t go into detail as these are issues that have largely been resolved. But based on conversations I have recently had with some long-term investors, I feel it can help for many of you who are listening to understand the general nature of some of the issues that were encountered. Some of those issues included for example, well what was perhaps the single most resource consuming challenge and that has been challenges with some of the highly specialized processing equipment installed at the plant. Either not performing to the equipment suppliers originally promised specifications or in some cases where the equipment has malfunctions and required frequent and significant maintenance, significant both in terms of downtime and expense. It is important to note that much of this equipment comes from suppliers in the U.S. or the European Union, which given the ongoing global pandemic and transportation logistics has made response times long and has caused further delay and hardship for Merit. And that segues into what likely announced for the second biggest challenge to the timeliness of the commissioning process, which is general supply chain issues that have been apparently arisen also as part of or maybe you could say in large part due to the COVID pandemic. Supply chain issues have impacted the commissioning process in a number of ways, but just one example is delays in sourcing items as straightforward as stainless steel piping for use in fabricating piping changes or when Merit is working to implement layout modifications, et cetera. Another challenge which Merit has had to deal with, have been the difficulty of not being able to have many expert engineers and/or equipment specialists in person at Merit facility to assist in the commissioning process. Travel restrictions and quarantine requirements, unfortunately frequently met that Merit can only obtain remote assistance for setting up and our troubleshooting equipment for example, all this to say that Merit has certainly experienced a challenging commissioning process, which has limited their ability to produce products and fulfill orders. We remain confident however, that Merit is on track to meet optimization targets and will transition to being fully operational in the near future. Moving to Merit sales pipeline, we are encouraged by the interesting shown for Merit is proteins from food and beverage companies. Merit is working with literally hundreds of CPG companies on a broad array of product opportunities to incorporate Merit is highest purity pea and canola protein into their plant based food and beverage products. Merit is sales funnel is both robust and growing with CPG companies at every stage of the ingredients procurement process. Merit is protein sales increased by 76% during the quarter as compared to the previous quarter, when Merit first began fulfilling commercial sales orders for its best-in-class team pea and canola protein ingredients. As explained, Merit is production during the testing process has been limited though, and as such Merit is sales have also been limited. Despite the modest royalty revenues earned for this quarter, we are confident Merit is on track to significantly ramp up production and protein sales. Merit has hundreds of CPG companies at various stages in the product development and procurement lifecycle, which typically starts at benchtop analyses and applications testing and moves to professional taste testing panels, and then consumer trials. And often only after many months of development work in some cases right into 24-months or longer, opportunities can finally reach the approval process and eventually progress to an ongoing sales contract. There are number of potential customers who have already completed the product development cycle and have a finalized product formulations, who are either under contract or are now in discussions of Merit and expected to finalize sales contracts in the near future. Merit is sales pipeline and sales funnel are more mature and established than might be assumed, given that Merit was first founded as a joint venture only a little over two years ago in May 2019. As a background, it is useful to understand that Merit effectively acquired or perhaps you could say inherited many of the customer relationships Burcon had been nurturing for years. Burcon had been working with and providing its canola and pea protein samples to a number of major and super major CPG companies for years before we formed the Merit Functional Foods joint venture. For example, we announced the collaboration agreement with Nestle in January 2020. So you can assume therefore that Burcon must have been working with Nestle for a long time before that announcement and well before Merit was even formed. In short, Merit has a developed and robust sales funnel of customers with whom it is currently working. And that includes companies from around the globe, including certain notable North American and European brands that are both in and developing need alternative and dairy alternative food and beverage products. Merit is also working with customers developing lifestyle nutrition products. Ready to mix powdered beverage applications is one example and a significant market opportunity for Merit is protein and one where the customers can adopt new protein ingredients relatively quickly. The robust sales funnel and strong interest is a testament to Merit is unique plant based protein offering. The two most recent Merit related protein industry Canada announcements, outline co-development projects that cover dairy alternatives, meat alternatives, including plant based value, as well as lifestyle nutrition products. Further evidencing the broad applicability and appeal of Merit is unique plant based proteins. Given the implied magnitude of demand from even just the top prospects in Merit is sales pipeline, demand can easily exceed the potential production capacity of Phase 1 of Merit is production facility. In short Merit can find that it has to address the question of the Phase 2 expansion in the relatively near future. Merit is pea and canola proteins offer unparalleled purity and exceptionally clean a neutral taste compared to what is currently available on the market, providing Merit with a competitive advantage, which we and Merit expect will drive that sales growth. Merit is production improvements this quarter together with its solid sales pipeline supports the outlook for Merit as a premier plant-based protein supplier in the growing alternative proteins market. As we recently announced, Merit is now fine tuning the implementation of Burcon’s technology and as such, we expect that will soon be transitioning to full production of best-in-class peak and canola proteins. Switching back to Burcon, this quarter we advanced our discussions, planning and negotiations with a number of third-parties towards potential partnership opportunities where we believe we can quickly and bring Burcon’s plant-based protein technologies to market. Discussions included potential new joint ventures and production facilities to commercially produce Burcon’s novel protein ingredients. As mentioned on previous investor calls, a potential development as part of the partnership structures include Burcon’s plant for new expanded Innovation Center, where it would serve as a very small scale commercial production plants to produce and sell directly to the market Burcon’s novel protein ingredients. We continue to work with a third-party engineering firm to identify, select and design and new innovation center in Winnipeg, Manitoba. There are a few locations that could be suitable for our new facility. However, we will continue to investigate and shortlist possible sites in conjunction with our partnership discussions. We are comfortable with the progress we have made in terms of our program discussions. We understand how valuable our technologies are and we will work for a partnership that makes the most sense to Burcon and its shareholders. The goal of the joint venture partnership is to capitalize on the growing trend towards plant based eating by rapidly bringing to market new and innovative protein ingredients that provide superior taste, function and nutrition to food and beverage applications. Just this past year alone, good food Institute and plant based foods association reported that plant based food sales grew by 27% through seven billion in market value. Also earlier this year, Boston Consulting Group published report on the growth in alternative proteins and projected it will grow year-over-year at a compound rate of 14% to reach $290 billion by the year 2035. Clearly, this trend is not going away, and Burcon is in excellent position with its patent portfolio knowhow to capitalize on this massive shift in consumer eating habits. During the quarter, we are also pleased to announce that Peter Kappel has been appointed as Chairman of Burke on board, and we were similarly pleased to announce the addition of Jeanne McCaherty and Alfred Lau to Burcon’s Board of Directors. Our current eight member board of directors is an exceptional group of individuals who collectively bring a wealth of experience and insight to Burcon’s business opportunities and who are engaged and committed Burcon on success. We look forward to the continued guidance and support from our board, as Burcon transitions to a revenue generating company and pursues additional strategic partnerships. We are encouraged by the accomplishments of Merit is operations team during this past quarter. Merit made significant advancements in its commissioning process and is now poised to ramp up production and sales. Merit sales funnel continues to grow and as we noted, Merit is now working with hundreds of CPG companies bringing forward a variety of meat alternative, dairy alternatives and lifestyle nutrition products where Merit is highest purity non-GMO pea and canola protein ingredients excel. Burcon continues to work towards securing new partnerships and collaborations as a means to monetize Burcon’s alternative plant based protein technology. We look forward to updating everyone again on our next call. And now with that, I would like to open the call up to questions. Operator, can you please provide the appropriate instructions?
Operator: Our first question is from Doug Cooper with Beacon Securities. Please go ahead.
Doug Cooper: Hi good afternoon Johann. I guess my first question is just can you clarify the press release you put out I guess a couple of days ago. Burcon JV, Merit for facility commercials - commercially ready? Does that jive with what you are saying, you said it would be sort of shortly. A press release from the other day seem to imply that it is fully commissioned and ready to go, is that not the case?
Johann Tergesen: Thanks for the question Doug. And by the way, a lot of people have asked that question. So it is definitely a good one to start with. So really, fundamentally, the explanation goes like this is that Merit put out a news release saying that their facility is commercially ready and condition complete. And from our perspective, we believe that our shareholders view commissioned as being a point in time when the plant is at its nameplate capacity and although Merit has made great strides and we are really excited with the advancements that have been made recently in production improvements, et cetera. We were not at nameplate capacity. So really, Burcon was just clarifying that although we are equally excited along with Merit guys. You know at their release, you can read it very positively, they are excited. They are excited about the improvements that they have made and the fact that they can commercially produce large volumes of product for their customers right now. But as I said, we needed to clarify from where we viewed our shareholder bases understanding commissioned to be.
Doug Cooper: So just setting any expectations for 2022, calendar 2022. Is this something we should expect them to access calendar 2022, I would suspect to fully utilize and how long will it realistically take them to get there in your opinion?
Johann Tergesen: Yes, another great question. So the interesting thing is that I think well, I will say is that, as we said, on the call already, expect me to ramp sales from here, there really has been very minimal sales to-date, but there is huge interest. We know that the product of the protein products that they are able to produce are the highest purity and they are and they are what people want. So we expect sales to there will be sales in the quarter that we are in right now. I will be probably, again, somewhat modest because of the fact that we are already halfway through the quarter and Merit is just announcing potentially being there. And then building in Q1, Q2 and going forward in terms of 2022. I would say that by Q3 of 2022, calendar 2022. Merit should be, I would expect, at full, let’s call it revenue and production. But I would also add that it may seem funny considering the challenge that they have had with commissioning the fact that we are at the starting point of sales. But I would not be surprised if you see some discussion about an expansion between now and then. Because as they ramp, we recognize that the plant does have a limited production capacity is the plant is big in Burcon’s perspective in our world, considering where we have come from. But really, in the larger scheme of things, for companies, the size of I would say Bungee or any of the major ag business companies in the world. And that is - I do - it is an ingredient supplier in that industry. It is still very small, one of Burcon key board members likes to refer to it as a demonstration plant.
Doug Cooper: Can you give some idea that you said, you mentioned, there is products out there that have, for lack of a better word Merit inside. Can you give an idea or what segment of the market are they in sort of fake dairy or fake meat or?
Johann Tergesen: Yes, I don’t like the word fake. I prefer Gary alternative. Yes, there are. So what comes to mind right now is there are some excellent dairy alternative products, some non-dairy ice cream available in the U.S. that is incorporating Merit is canola protein, which is doubly exciting for us for the reason that we keep saying over and over again, which is Merit is the only company in the world commercially capable of producing food grade Merit protein. And the opportunity and potential for canola protein on a long-term basis is massive, it is absolutely huge. I would argue that Merit could be the second largest plant based protein company in the world. Second only to IFS, it is the current leader that has the former soy protein business. Giving time - on the strength of both canola and pea but specifically canola.
Doug Cooper: My final question is, can you comment on Merit balance sheet, I’m assuming they are going to be cash flow, negative a little bit here further. Can we expect - is there going to be any need for capital call from his partners, such as yourself?
Johann Tergesen: No, that is actually not a great question. And in the financial statements that we just issued today, we noted that Merit did need cash and raised $5 million, which actually came from Bungee to Bungee’s special pre emptive right, which was disclosed in the agreement. And as a result, Burcon on is now at 31.6% ownership of Merit. And Bunge I think is now just shy of 29% and with that that five million, my expectation is that Merit will lever that with additional debt financing and Bunge actually has this special pre emptive rights, which they negotiated in the entrance to Merit. That was actually a very smart strategy and Bunge’s part. Bunge is obviously a super capable agribusiness company. By the way, if we look at their share price, we will see they are trading. And so when they originally invested, they basically said, hey if Merit finds itself needing additional capital before the time when Merit has gotten to a cash flow breakeven or cash flow positive, then we have a special right to invest. And so they actually sighted that right, but it is my expectation, as I said that the next additional funding will come from debt funding. And I would expect that we will make an - I’m anticipating we will make an announcement on that shortly. And if Merit attains that additional debt funding, I think that will be sufficient funding to carry us through to be cash flow positive. It is possible that they might still need additional equity on top of that but I would guess that that would be a question that would come more like about next April or May.
Doug Cooper: Can you comment a little bit Bunge investment have a similar valuation from their initial investment or is it -…
Johann Tergesen: No, they got a special preemptive right where they actually get it at a lower valuation. If you can picture the negotiation very straightforward, Bunge was basically saying. If we have to put further money in, then that is an indication that that maybe we have paid a premium on the initial money. So now it was actually at a lower amounts and it is disclosed in the financial statements. You can read it there, they have put $5 million in.
Doug Cooper: Great. That is it for me thanks Johann.
Johann Tergesen: Sure thanks Doug.
Operator: Our next question is from Tania Gonsalves with Canaccord Genuity. Please go ahead.
Tania Gonsalves: Hi Johann. Just a couple of me here. So I know you are kind of limited in what you can say about Merit. But if you could stratify the pipeline that you talked about a little bit more, how many of what proportion of those deals in the pipeline, do you think are kind of smaller, quicker closed deals, what proportion are the large deals that may take up to 24-months to kind of diligence and close?
Johann Tergesen: Thanks, Tanya. Again, it is a good question and unfortunately, my answer is going to be yes, most of that information, I couldn’t disclose. But what I can say is this is that there are absolutely very significant deals that Merit is working towards. And I obviously can’t name names of companies, but I can tell you that there is North American companies and European companies, there is products and dairy alternatives and meat alternatives, everything that you would expect. And then yes, the biggest opportunities are the ones where the companies whose Merit is dealing with have the most stringent procurement processes and take the most disciplined attitude towards the negotiating and contract process. So it is expected to take time, but what I laid out just a moment ago in terms of expectations on sales growth, it was actually taking all that into account. Merit has some existing customers, but definitely customers that they are working with that are in an ability are in a position to make much quicker decisions. For example, if you look at things like lifestyle nutrition products, which are ready to mix and products like that. It is easier for them to make a reformulation than it is if you are talking about one of the largest food and beverage companies in the world. And they have a product that might maybe even a billion dollar brand products, in which case, it is a much more calculated process that they go through. On the other hand, the very lengthy procurement process is a double edged sword because once you get established into a company like that. Then you are the expectation of very long-term recurring revenue, that you will be the ingredient supplier to them forever until there is some reason why there is some other ingredients that would potentially replace these, so there is both aspects. And Merit, I think, has an excellent team in terms of the sales of specialty protein ingredients like this requires, also innovation scientists behind them. And Merit has an excellent team there as well, if you look on their website the team, it is like Jeff Casper, et cetera. And, so they are working through that process with, as I mentioned earlier, literally hundreds of companies. But a small, couple handfuls of companies who they are dealing with the expectation on what those companies would order in the first year alone would actually see the production capacity of Merit even at total nameplate capacity. So that is why I can say that, even though they are still working through the sales process, many of these companies, they can and are already looking forward and thinking about production capacity expansion, and how they would accomplish stage two and how it might be a little bit different than what we originally envisaged just in terms of what we have learned in the process of commissioning Phase 1.
Tania Gonsalves: Excellent color and you kind of letting to my next question. Now that the facility is kind of at a scale where they are happy with it, and we are able to put out that press release that it is fully commissioned. Are they looking to build up a sales team anymore?
Johann Tergesen: So I will leave, I’m going to leave that to Merit. But I will say amongst other things, there are other opportunities for Merit to sell products. Including I apologize for mentioning name so many times. But Bunge of course, also would have significant potential to sell the product to be a distributor of the product. And I know that Merit also has been working with and talking to some other companies that could be distributors. So yes there is definitely ways that they can expand up their sales capability. But again, I will leave it for Merit to maybe make some statements about that.
Tania Gonsalves: Okay. And then just lastly, here to Merit reported revenue of 1.6 million. Your royalties that were significantly lower than this, obviously, and my guess is that calculate based on kind of a single-digit assumed royalty rate. You get to a lower revenue numbers, so Merit. So I’m wondering what portion of that 1.6 million did not generate any royalty income for you and what kind of products is selling. Is it just the commodity based products that are generating royalties for you?
Johann Tergesen: Yes. It is basically a combination of, some of the byproducts, like the starches and oils and things that they sell - some of the things they even sell off for animal feed. But in addition to that, it could have been Merit selling some of the peas that they had previously contracted. It could essentially be some commodities that they were trading.
Tania Gonsalves: Okay. That is all for me. Thank you Johann.
Johann Tergesen: Thanks Tania.
Operator: Our next question is from (Ph) a private investor. Please go ahead.
Unidentified Analyst: Hi guys. Thanks for taking the questions and congrats on the recent news and progress. Most of my questions have been answered, but two questions relating to supply and demand. On the supply side, there was some commentary on your February call, I think which is Q3 with respect to capacity for the Phase 1, and at that time you were generally disclosing that it was in excess of the original plan 20,000 tons. This summer there was a Merit executive on an industry webcast who would shared that the commercial plans Phase 1 capacities 30,000 tons. Can you confirm that that is the existing capacity for Phase 1?
Johann Tergesen: Thanks, Chris. So what I would say is that when we very first formed the joint venture Merit Functional Foods, we and the team at Merit, Ryan and Barry, were very vocal very public about the capacity of the plant. At the time, we were saying, 20,000 metric tons of field peas piece, is what we were saying was the proxy for the size of the plant. And, but subsequent to that, the team at Merit and management in Merit has said, hey, listen guys, it doesn’t serve us to announce to the world what the capacity of the plant is, et cetera. It doesn’t help us, we are really just providing information to our competitors and it is not in our best interest. I know, even setting that aside though, Burcon did make a statement in I believe it was May of 2020, where we said that on the completing of the syndicated loan that came from expert Development Canada Farm, Credit Canada, that we talked about expansion, that that actually allowed for expansion. Specifically, what that actually did was allowed for expansion of canola protein production. And so what I can say is this is that Merit has actually taken steps, including even recent steps to expand their capability by modifying equipment or we are in the process of swapping in and out some equipment. So I won’t speak to exactly what the expected stated capacity is. But I can say that it is a moving target, where Merit has every intention of selling as much protein as they can, that their production capability will be focused, more often than not on actually being able to produce products most efficiently meaning the most economically and at the best quality and the most consistent quality. So I know that the some of the investors world, they would love to hear specific numbers and be able to therefore do DCF analyses, but we can’t disclose that. We will only disclose what Merit is said. I do know that reference that you are referring to where I can argue a lot, I want to - with Dan Craft or someone who discloses a 30,000 tons. All I can say as is that Merit has built the facility, but they built with expansion in mind when I was cleaning the facility in September, and as I said earlier, it really is a beautiful facility. One of the things that they showed me while I was there was here is the hole in the floor between the second in the first floor and the crane that is already been installed for lifting in additional equipment for expanding capacity at the right time and so, they will make as much of it as they can. But I will also Chris, I will also say again, what I said which is that, a member of our board, Jeanne McCaherty actually comes from cargo and comes from this world. She not jokingly refers to Merit is, existing facilities, a demonstration plant, and a great value that Merit can bring right now is just lining up the facility as they have it, and selling that product, because it is entirely possible that maybe a future expansion won’t even be at that location. Maybe, like, as you know, as we said publicly, there is a structure in place whereby Bunge has the potential to buyout our partners, Ryan, (Ph) and Sean, maybe the future plant, we will be talking about be built in Australia or something. It is all of those are good permutations. What I can say, and I think the most important thing to understand is Merit is producing product better, great product that has huge potential, and we look forward to in the coming quarters to being able to disclose what Merit accomplices in terms of ramp and sales et cetera.
Unidentified Analyst: And then on the demand side, you’ve talked about it most of the call, which is going in the right direction, which is nice to hear. But to be a little bit more specific, if possible. It was disclosed that were reported that Merit had roughly 240 MBAs earlier this year. Can you comment if the number of that of the number of overall MBAs is has risen or declined since and maybe give any metrics around that if possible?
Johann Tergesen: So I mean, again, it is not, I liked it when Mark said that publicly, because then it is something I can say, publicly. I can say that it has risen substantially and significantly from that, I think, is what I can safely. There is a ton of interest as a ton of interesting company. And you know, some of them are, are the biggest food and beverage company in the world and some of them are smaller companies. They are all good. They are all great opportunities on a longer term basis. Because, as I said, I have said a few times, you know Merit’s goal is to sell lots of protein and all of the potential customers are great customers.
Unidentified Analyst: Okay. Thanks again.
Johann Tergesen: Yes, thanks Chris.
Operator: I will now pass the call over to Paul Lam, who have a couple questions from the webcast viewers.
Paul Lam: Hi Johann, we have couple of question from the webcast partnership with Nestle still a viable avenue for profit?
Johann Tergesen: So yes. so as we have disclosed already that the collaborative work that Burcon specifically did with Nestle was successful and essentially has been migrated or graduated to where they are one of the companies that is in that sales funnel with Merit and working towards what we expect will be a very significant product and hopefully a very long and ongoing relationship between Merit in there. Paul do you mind reading who the questions are coming from I think - obviously in system what we have been do.
Paul Lam: Okay. And the next question comes from (Ph) is the existing brick and mortar marriage facility capable of accommodating production expansion, or are we looking for newly built facility?
Johann Tergesen: I know, the existing facility absolutely wasn’t built specifically with the intention of expansion. In fact the facility has built and already paid for the building is effectively twice as large as it needs to be for the processing capacity that has been installed. So the expectation is that the first expansion, what has been referred to as Phase 2 would be effectively a doubling largely by going into the existing facility. There would be a required addition to the building to accommodate a second radar tower, but for all intents and purposes, and that infrastructure that is been put into the building or internet site includes the amount of power that they would need, even for the Phase 3 extensions, which would be adding another building on the same site is already there in place and paid or similarly in terms of the water that is brought to the location, the sewer, and access and connection to the city, when it is a way for treatment. It is all been already built in place in contemplation of expanding through to Phase 2 and Phase 3. And so yes, no, absolutely, it is built and designed to be able to be expanded at a point in future when Merit makes that decision.
Paul Lam: Okay. Thank you for clarifying that. Our next question comes from . He asked can you provide an indication of the approximate quantity or value of backlogged due to the indicated delay in commissioning at the Merit plant? And I think I think this person is referring to the backlog of the sales pipeline.
Johann Tergesen: Yep. Understood. And unfortunately, the short answer is no. Burcon certainly cannot and is really not intending to get into details of Merit sales to that extent. Again, as I said, on a couple previous calls, Merit is a private company, Burcon is a joint venture partner in a private company. And so we can really only provide information on backward looking so we can report their sales as they happen by quarter, but we have no projections or any other specific detail other than what Merit has provided us in terms of their financial statements on a quarterly basis.
Paul Lam: Okay, thank you. And I think that is it for webcast questions. Operator, back to you.
Operator: Thank you. As there are no further questions. This concludes the question-and-answer session. I would like to thank you for participating and hand the call back over to Mr. Tergesen. Mr. Tergesen, please proceed.
Johann Tergesen: Thanks Operator. I would like to thank the continued support of our staff, partners and shareholders and we look forward to speaking with you on the next call. Thank you very much. Operator.
Operator: Thank you. Before we conclude today’s call, I would like to take a moment to read the Company’s Safe Harbor statement. This call contains Forward-Looking Statements for forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian Securities legislation. Forward-looking statements or forward-looking information involves risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements or forward-looking information can be identified by words such as anticipate, intent, plan, goal, project, estimate, expect, believe, future, likely, may, should, could, will and similar references to future periods. All statements other than statements of historical fact included in during this call are forward-looking statements. There can be no assurance that such statements we will provide will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements or information. Important factors that could cause actual results to differ materially from Burcon’s plans and expectations include the actual results of business negotiations, marketing activities, adverse general economic, market or business conditions, regulatory changes and other risks and factors detailed herein and from time to time in the filings made by Burcon with securities regulators and stock exchanges, including in the section entitled Risk Factors in Burcon’s annual information form filed with the Canadian Securities Administrators on www.sedar.com. Any forward-looking statement or information only speaks as of the date on which it was made and, except as may be required by applicable securities laws, Burcon disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Although Burcon believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance, and accordingly, investors should not rely on such statements. Finally, I would like to remind everyone that this call is being recorded and the webcast will be available for replay on the Company’s website starting late this evening. Thank you, ladies and gentlemen for joining us today for our presentation. You may now disconnect.
