Burcon NutraScience Corp (TSX:BU) said it has taken steps to re-assess its participation in Merit Functional Foods Corp, in which it holds a 31.6% stake, citing near-term concerns about Merit’s financial situation and viability.
In a letter to investors, Burcon CEO Kip Underwood told shareholders that after the company provided loans in the aggregate amount of $3 million to address Merit’s anticipated liquidity requirements as it continued to ramp up its production and sales in September 2022, Merit began a process to identify a new strategic investor for its business but to-date no funding has been received.
Noting Merit's significant progress in the past six months, Underwood said: “Unfortunately, the overall financial performance of the business has fallen short of expectations and led to the current cash flow concerns.”
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Underwood said that the company remains committed to the Merit business and firmly believes in its potential.
Based on this belief, he said Burcon has taken actions including engaging in discussion with the lenders of Merit to propose terms that maintain current business momentum and provide a path to profitability.
“Burcon is exploring interim financing for Merit while working on a more specific, longer-term funding solution,” he said.
“Burcon is prepared to fund ongoing operating expenses and debottlenecking capital with support from our largest Burcon shareholder to back the overall project.”
Underwood said if Burcon’s funding plans were successful the company had the chance to own its destiny.
“While there is risk in our current path, we believe this also presents Burcon with a significant opportunity,” he said. “We could have the opportunity to develop, produce, and market our innovative products.”
The process and negotiations with Merit’s existing lenders are expected to take several weeks, Underwood added.
The full shareholder letter can be found here.
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