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Exhibit 99.2


Burcon NutraScience Corporation Consolidated Financial StatementsMarch 31, 2012 and 2011(Prepared in Canadian dollars)


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June 22, 2012 Independent Auditor’s Report To the Shareholders of Burcon NutraScience Corporation We have audited the accompanying consolidated financial statements of Burcon NutraScience Corporation and its subsidiary, which comprise the consolidated balance sheets as at March 31, 2012 and March 31, 2011 and the consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for the years ended March 31, 2012 and March 31, 2011, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.


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OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Burcon NutraScience Corporation and its subsidiary as at March 31, 2012 and March 31, 2011 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. (signed) PricewaterhouseCoopers LLPChartered AccountantsVancouver, British Columbia


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Burcon NutraScience CorporationConsolidated Balance SheetsAs at March 31, 2012 and 2011
 (Prepared in Canadian dollars) 2012

   

   

   2011$

   

   

   $AssetsCurrent assetsCash and cash equivalents

   

   3,856,929

   

   

   9,628,020Restricted cash

   

   361,600

   

   

   -Short-term investments

   

   2,301,961

   

   

   2,304,465Amounts receivable (note 9)

   

   37,027

   

   

   41,919Prepaid expenses

   

   117,991

   

   

   81,5706,675,508

   

   

   12,055,974Property and equipment(note 3)

   

   626,488

   

   

   732,977Deferred development costs- net of accumulated amortization of $nil (2011 - $nil) (note 4)

   

   1,969,172

   

   

   190,284Goodwill

   

   1,254,930

   

   

   1,254,93010,526,098

   

   

   14,234,165LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities (note 9)

   

   916,652

   

   

   1,328,920Deferred revenue

   

   222,656

   

   

   -1,139,308

   

   

   1,328,920Shareholders’ Equity(note 5)Capital stock (note 9)

   

   48,061,704

   

   

   47,158,758Contributed surplus

   

   4,009,595

   

   

   3,762,983Options

   

   10,209,388

   

   

   8,915,059Deficit

   

   (52,893,897

   )

   

   (46,931,555

   )9,386,790

   

   

   12,905,24510,526,098

   

   

   14,234,165
 Subsequent events(note 15) Approved by the Board of Directors on June 21, 2012 (signed) J. Douglas Gilpin

   Director

   (signed) Lorne Tyrrell

  Director
  The accompanying notes are an integral part of these consolidated financial statements.


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Burcon NutraScience CorporationConsolidated Statements of Operations and Comprehensive LossFor the years ended March 31, 2012 and 2011
 (Prepared in Canadian dollars) 2012

   

   

   2011$

   

   

   $ExpensesGeneral and administrative (notes 6 and 9)

   

   5,061,510

   

   

   6,055,351Research and development (note 7)

   

   1,040,085

   

   

   2,889,853Loss from operations

   

   (6,101,595

   )

   

   (8,945,204

   )Interest and other income(note 9)

   

   139,253

   

   

   138,730Loss and comprehensive loss for the year

   

   (5,962,342

   )

   

   (8,806,474

   )Basic and diluted loss per share(note 8)

   

   (0.20

   )

   

   (0.30

   )
  The accompanying notes are an integral part of these consolidated financial statements.


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Burcon NutraScience CorporationConsolidated Statements of Changes in EquityFor the years ended March 31, 2012 and 2011
 (Prepared in Canadian dollars) Number offully paidcommonshares(unlimitednumber ofcommonshares

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   Totalwithout par

   

   

   Capital

   

   

   Contributed

   

   

   

   

   

   

   

   

   

   

   

   Shareholders'value)

   

   

   stock

   

   

   surplus

   

   

   Options

   

   

   Warrants

   

   

   Deficit

   

   

   equity$

   

   

   $

   

   

   $

   

   

   $

   

   

   $

   

   

   $Balance - March 31, 2010

   

   29,056,080

   

   

   44,236,390

   

   

   3,762,983

   

   

   5,673,677

   

   

   171,972

   

   

   (38,125,081

   )

   

   15,719,941Net loss

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   (8,806,474

   )

   

   (8,806,474

   )Options exercised for cash

   

   638,000

   

   

   1,225,900

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   1,225,900Transferred from options on exercise of options

   

   -

   

   

   883,503

   

   

   -

   

   

   (883,503

   )

   

   -

   

   

   -

   

   

   -Options granted to employees

   

   -

   

   

   -

   

   

   -

   

   

   4,124,885

   

   

   -

   

   

   -

   

   

   4,124,885Warrants exercised

   

   111,477

   

   

   640,993

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   640,993Transferred from warrants on exercise of warrants

   

   -

   

   

   171,972

   

   

   -

   

   

   -

   

   

   (171,972

   )

   

   -

   

   

   -Balance - March 31, 2011

   

   29,805,557

   

   

   47,158,758

   

   

   3,762,983

   

   

   8,915,059

   

   

   -

   

   

   (46,931,555

   )

   

   12,905,245Net loss

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   (5,962,342

   )

   

   (5,962,342

   )Options exercised for cash

   

   187,517

   

   

   544,324

   

   

   -

   

   

   -

   

   

   -

   

   

   -

   

   

   544,324Transferred from options on exercise of options

   

   -

   

   

   358,622

   

   

   -

   

   

   (358,622

   )

   

   -

   

   

   -

   

   

   -Options granted to employees

   

   -

   

   

   -

   

   

   -

   

   

   1,899,563

   

   

   -

   

   

   -

   

   

   1,899,563Options vested but not exercised

   

   -

   

   

   -

   

   

   246,612

   

   

   (246,612

   )

   

   -

   

   

   -

   

   

   -Balance - March 31, 2012

   

   29,993,074

   

   

   48,061,704

   

   

   4,009,595

   

   

   10,209,388

   

   

   -

   

   

   (52,893,897

   )

   

   9,386,790
  The accompanying notes are an integral part of these consolidated financial statements.


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Burcon NutraScience CorporationConsolidated Statements of Cash FlowsFor the years ended March 31, 2012 and 2011
 (Prepared in Canadian dollars)  2012

   

   

   2011$

   

   

   $Cash flows from operating activitiesLoss for the year

   

   (5,962,342

   )

   

   (8,806,474

   )Items not affecting cashAmortization of property and equipment

   

   101,148

   

   

   178,050Gain on disposal of property and equipment

   

   (3,359

   )

   

   -Stock-based compensation expense

   

   1,716,062

   

   

   4,091,119(4,148,491

   )

   

   (4,537,305

   )Changes in non-cash working capital itemsAmounts receivable

   

   4,892

   

   

   (16,867

   )Prepaid expenses

   

   (36,421

   )

   

   (3,634

   )Accounts payable and accrued liabilities

   

   (412,268

   )

   

   927,741Deferred revenue

   

   222,656

   

   

   -(4,369,632

   )

   

   (3,630,065

   )Cash flows from investing activitiesDecrease in short-term investments

   

   2,504

   

   

   15,907Increase in restricted cash

   

   (361,600

   )

   

   -Acquisition of property and equipment

   

   (78,546

   )

   

   (180,608

   )Development costs deferred

   

   (1,511,886

   )

   

   (105,852

   )Proceeds from disposal of property and equipment

   

   3,745

   

   

   -(1,945,783

   )

   

   (270,553

   )Cash flows from financing activitiesIssue of capital stock

   

   544,324

   

   

   1,866,893Decrease in cash and cash equivalents

   

   (5,771,091

   )

   

   (2,033,725

   )Cash and cash equivalents - Beginning of year

   

   9,628,020

   

   

   11,661,745Cash and cash equivalents - End of year

   

   3,856,929

   

   

   9,628,020Cash and cash equivalents consist ofCash

   

   3,856,929

   

   

   531,516Cash equivalents

   

   -

   

   

   9,096,5043,856,929

   

   

   9,628,020Supplemental disclosure of non-cash investing activitiesStock-based compensation charged to deferred development costs

   

   183,501

   

   

   65,397Amortization of property and equipment charged to deferred development costs

   

   83,501

   

   

   19,036
  The accompanying notes are an integral part of these consolidated financial statements.


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  1

   Nature of operations
  Burcon NutraScience Corporation (Burcon or the Company) is incorporated in the Yukon Territory, Canada and its common shares are listed and publicly traded on the Toronto Stock Exchange and the NASDAQ Stock Exchange. The registered address of Burcon is Suite 200, Financial Plaza, 204 Lambert Street, Whitehorse, Yukon and the address of its principal office is 1946 West Broadway, Vancouver, British Columbia. Burcon and its subsidiary are research and development companies that are developing plant protein extraction and purification technology in the field of functional, renewable plant proteins. The Company and its subsidiary are developing CLARISOYTM, a soy protein isolate; Puratein® and SuperteinTM and NutrateinTM, three canola protein isolates; and PEAZAZZTM, a pea protein isolate. a)

   CLARISOYTM
  On March 4, 2011, Burcon signed a license and production agreement (Soy Agreement) with Archer Daniels Midland Company (ADM) to license its CLARISOYTM technology to ADM on an exclusive basis to produce, market and sell CLARISOYTM soy protein worldwide. The terms of the Soy Agreement include: (a) the license to ADM of all intellectual property, including know-how and trade secrets, concerning the manufacture and use of CLARISOYTM, (b) payments to Burcon on a quarterly basis that began upon certain approval by the Environment Protection Agency and continue until the first bona fide arm’s length sale of Soy Products manufactured in the Semi-works Production facility, (c) the engineering and design of an initial commercial CLARISOYTM production plant to be completed by ADM and (d) a royalty structure that incorporates financial incentives for ADM to expand sales globally. ADM will make royalty payments to Burcon on the sales of CLARISOYTM under the 20-year Soy Agreement. Maintaining the CLARISOYTM soy protein patent portfolio during the term of the Soy Agreement is the responsibility of Burcon. b)

   Puratein®, SuperteinTM and NutrateinTM
  Burcon had a license and development agreement (Canola Agreement) with ADM to commercialize Burcon's canola protein ingredients, including Puratein® and SuperteinTM. On March 1, 2011, Burcon and ADM amended the Canola Agreement to provide a one-year extension to March 1, 2012 to facilitate continued research. In connection with the U.S. regulatory recognition process, Burcon agreed to reimburse ADM its share of the costs being US$360,000 (CA$368,620). During the first quarter of fiscal 2012, the funds were deposited in US dollars into an interest-bearing escrow account held in trust for Burcon and ADM. Unless Burcon and ADM agreed to any further extensions or amendments, the funds held in the escrow account, including any accrued interest, would be released to ADM, and upon receipt, all intellectual property, reports, studies or other materials prepared by ADM, Burcon or by a third party in connection with the U.S. regulatory recognition process would be deemed to be owned solely by Burcon and ADM would have no further rights with respect thereto. The Canola Agreement terminated on March 1, 2012 and the funds held in the escrow account were released to ADM in April 2012. Given the termination of the Canola Agreement, Burcon is free to choose alternative paths for the commercialization of its technology for the production of its canola proteins. (1)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  c)

   PEAZAZZTM
  Burcon has developed a novel pea protein isolate that it has branded PEAZAZZTM. Until April 2012, Burcon held exclusive negotiations with a potential partner to commercialized PEAZAZZTM and the associated protein extraction technology. On April 23, 2012, Burcon announced that although discussions with this potential partner are ongoing, the exclusivity period had lapsed. Therefore, Burcon is free to consider additional routes-to-market for its PEAZAZZTM pea protein. 2

   Significant accounting policies
 Basis of presentation These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC). The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (GAAP) as set out in the Handbook of the Canadian Institute of Chartered Accountants (CICA Handbook). In 2010, the CICA Handbook was revised to incorporate IFRS, and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011 with early adoption permitted. The Company adopted IFRS with a transition date as of April 1, 2009. The Company has consistently applied the same accounting policies throughout all periods presented. The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of March 31, 2012. The board of directors approved these financial statements on June 21, 2012. Principles of consolidation These consolidated financial statements include the accounts of the Company and its subsidiary, Burcon NutraScience (MB) Corp. A subsidiary is an entity in which the Company has control, directly or indirectly, where control is defined as the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. All material intercompany transactions and balances have been eliminated on consolidation. Details of the Company’s subsidiary at March 31, 2012 are as follows: Place of

   InterestName

   incorporation

   %

   Principal activityBurcon NutraScience (MB) Corp.

   Manitoba, Canada

   100

   Research and development
  (2)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Revenue recognition The Company recognizes revenue when the amount of revenue can be reliably measured, and it is probable that future economic benefits will flow to the Company. The Company may earn revenues from licensing agreements under which third parties are granted rights to use the Company’s technologies. If the substantive rights to the technologies are retained by the Company, or the Company has remaining performance obligations under the licensing agreements, and as such not all of the risks and rewards have been transferred to the licensee, the Company recognizes amounts received or receivable as royalties when earned on an accrual basis. At the point when all of the risks and rewards associated with the use of the technologies have, in substance, been relinquished under the licensing agreements, the Company recognizes the fair value of future payments expected to be received as proceeds from the sale of the technologies in the statement of operations. Upfront payments and similar non-refundable payments received under these agreements are initially recognized as deferred revenue. Subsequently, if the Company recognizes royalty revenue, the amounts deferred are recognized as revenue on a straight-line basis over the estimated period royalties are expected to be earned commencing in the period royalties are first recognized as revenue. Otherwise, the deferred amounts are recognized as sale proceeds at the date of sale of the technologies. License agreements may consist of multiple elements and provide for varying consideration terms, such as upfront payments and milestone or similar payments. Revenue arrangements with multiple elements are reviewed in order to determine whether the multiple elements can be divided into separate units of accounting. If separable, the consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Otherwise, the applicable revenue recognition criteria are applied to the revenue arrangement as a single unit. Business combinations The Company accounts for business combinations using the acquisition method of accounting. The cost of an acquisition is measured as the cash paid and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. All acquired identifiable assets, liabilities and contingent liabilities are recognized at fair value at the acquisition date. Any excess of the cost of an acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognized as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the acquired entity, the difference is recognized directly in the statement of comprehensive loss. Acquisition-related costs are expensed as incurred. (3)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Accounting estimates The preparation of consolidated financial statements in accordance with IFRS requires management to apply judgment when making estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amount of expenses during the reporting period, and disclosures made in the accompanying notes to the financial statements. Actual results may differ from those estimates. The significant areas where management’s judgment is applied is in determining the fair value of stock-based compensation (see note 5 for assumptions used by management). Management’s judgment is also applied in the determination of whether all criteria for deferring development costs are met, the determination of the point at which amortization of development costs commences, and the expense allocation to deferred development costs. Cash and cash equivalents Cash and cash equivalents consist of cash on deposit with banks and highly liquid short-term interest bearing securities with maturities at the date of purchase of three months or less. Short-term investments Short-term investments comprise highly liquid short-term interest bearing securities with maturities at their purchase dates of greater than three months but not more than one year. Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. At initial recognition, the Company classifies its financial instruments in one of the following categories: fair value through profit and loss, held-to-maturity investments, loans and receivables, available-for-sale investments or other financial liabilities. A financial asset or liability is classified as fair value through profit and loss if acquired principally for the purpose of selling or repurchasing in the short term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the statement of operations. Gains and losses arising from changes in fair value are presented in the statement of operations within other gains and losses in the period in which they arise. (4)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Held-to-maturity investments and loans and receivables are initially recognized at the amount expected to be received, less, when material, a discount to reduce the amount to fair value. Subsequently, held-to-maturity investments and loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment. The Company classifies its cash and cash equivalents and short-term investments as loans and receivables. Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive loss. Other financial liabilities are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, other financial liabilities are measured at amortized cost using the effective interest method. At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss, as follows: Financial assets carried at amortized cost: The impairment loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Available-for-sale financial assets: The impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the statement of operations. This amount represents the cumulative loss in accumulated other comprehensive loss that is reclassified to net loss. Impairment losses on available-for-sale equity instruments are not reversed. The Company has no derivative instruments. Property and equipment Property and equipment are recorded at cost less accumulated amortization. The Company provides for amortization using the declining balance method at the following annual rates: Equipment

   20%Computer equipment

   30%
 (5)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Impairment of long-lived assets The Company tests property and equipment for impairment whenever events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Intangible assets that are not being amortized are tested annually for impairment and also if the Company identifies indicators of impairment. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating units). The evaluation is based on the higher of the asset’s fair value less costs to sell and its value in use, which is the present value of future cash flows expected to be derived from the asset in its current state. An impairment loss is recognized in the period it is determined to the extent that the carrying value exceeds the higher of fair value less costs to sell and value in use of the asset or group of assets. Research and development costs Research costs are expensed in the period incurred. Development costs are also expensed in the period incurred unless the related process is clearly defined and the costs attributable thereto can be reliably measured; the technical feasibility of the process has been established so that it will be available for use or sale; management has indicated its intention to produce and market, or use, the process; an ability to use or sell the process exists; the process will generate probable future economic benefits; and adequate resources exist, or are expected to be available, to complete the development and to use or sell the process. On March 4, 2011, concurrent with signing the Soy Agreement, the Company commenced deferring development costs related to CLARISOYTM. The deferred development costs will be amortized on a straight-line basis over their estimated useful lives commencing on the date the Company starts earning royalties. Goodwill Goodwill represents the excess at the date of acquisition of the cost of the acquired business over the fair values attributed to the underlying net tangible assets and the identifiable intangible assets. Goodwill is not amortized. On at least an annual basis, or when circumstances indicate the carrying value of goodwill may not be recoverable, the Company subjects goodwill to an impairment test. For impairment testing purposes, the carrying value of goodwill is allocated to the group of assets that realize the benefits of the acquisition. The impairment assessment is performed by comparing the carrying value of the group of assets, including the allocated carrying value of goodwill, to the higher of its fair value less costs to sell and its value in use, which is the present value of future cash flows expected to be derived from the group of assets in their current state. If the carrying amount of the group of assets exceeds the recoverable amount, an impairment loss is charged to operations in the period such impairment is identified, allocated first to reducing the carrying amount of the goodwill allocated to the group, and then to the other assets of the group. (6)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Income taxes The Company uses the balance sheet liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Deferred income tax assets and liabilities are recognized in the current period for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Deferred income tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets are recognized to the extent they are considered probable to be realized. Government assistance The Company carries out research and development in Canada that is eligible for Scientific Research and Experimental Development (SR&ED) Investment Tax Credits (ITC) at both the federal and provincial level. The Company has not recognized the benefits of ITCs because realization of these benefits is not probable at this time. The Company’s determination of ITCs involves uncertainty with respect to management’s interpretation of complex tax regulations. The ITC claims are subject to review and acceptance by the Canada Revenue Agency prior to collection. Stock-based compensation The Company accounts for stock-based compensation granted to employees using the fair value method calculated using the Black-Scholes option pricing model. Stock-based compensation granted to non-employees is measured at the fair value of the goods and services received unless the fair value cannot be measured reliably, in which case the amount is measured using the fair value of the options granted. For options granted to employees and those providing similar services, including officers and directors, the compensation cost is measured at fair value at the date of grant and is expensed to operations over the award’s vesting period. When stock options are exercised, capital stock is credited by the sum of the consideration paid and by the related portion previously recorded in options. Additional information related to the stock option plan and the assumptions used in the Black-Scholes option pricing model is provided in note 5. Provisions Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The Company has recognized no provisions in these consolidated financial statements. (7)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Earnings (loss) per share Basic earnings (loss) per share is computed by dividing the net earnings (loss) for the period available to common shareholders by the weighted average number of common shares outstanding during the period. The Company applies the treasury stock method to calculate diluted earnings (loss) per share. Diluted earnings (loss) per share excludes all dilutive potential common shares if their effect is anti-dilutive. Foreign currency translation (i)

   Functional and presentation currency
  Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which is the Company’s and its subsidiary’s functional currency. (ii)

   Transactions and balances
  Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the statement of operations. Future accounting changes Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or IFRIC. The following standards and interpretations are issued but not yet effective: IFRS 7 - Financial instruments - disclosuresAmended to require additional disclosures in respect of risk exposures arising from transferred financial assets. Effective for annual periods beginning on or after July 1, 2011.IFRS 9 - Financial instruments - classification and measurementThe first part of a new standard on classification and measurement of financial assets and financial liabilities that will replace IAS 39, Financial Instruments - Recognition and Measurement. IFRS 9 has two measurement categories of financial assets: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise, it is measured at fair value through profit or loss. Financial liabilities are measured either at fair value through profit and loss or amortized cost. IFRS 9 was updated in October 2010 to include guidance on financial liabilities and derecognition of financial instruments. Effective for years beginning on or after January 1, 2015. (8)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) New standards addressing scope of reporting entityIFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27,Consolidated and Separate Financial Statements, and SIC-12, Consolidation - Special Purpose Entities. IFRS 10 changes the definition of control over IFRS so that the same criteria are applied to all entities to determine control.IFRS 11, Joint Arrangements, replaces IAS 31, Interests in Joint Ventures. IFRS 11 reduces the types of joint arrangements to two: joint ventures and joint operations. IFRS 11 requires the use of equity accounting for interests in joint ventures, eliminating the existing policy choice of proportionate consolidation for jointly controlled entities under IAS 31. Entities that participate in joint operations will follow accounting much like that for jointly controlled assets and jointly controlled operations under IAS 31.IFRS 12, Disclosure of Interests in Other Entities, sets out the disclosure requirements for entities reporting under IFRS 10 and IFRS 11, and replaces the disclosure requirements currently found in IAS 28,Investments in Associates.These standards are all effective for years beginning on or after January 1, 2013.IFRS 13 - Fair value measurement and disclosure requirementsProvides a single source of guidance on how to measure fair value where its use is already required or permitted by other IFRS and enhances disclosure requirements for information about fair value measurements. Effective for years beginning on or after January 1, 2013. The Company is currently assessing the impact of these standards and the expected dates of adoption. (9)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  3

   Property and equipment
  ComputerEquipment

   

   

   equipment

   

   

   Total$

   

   

   $

   

   

   $Cost at March 31, 2011

   

   3,135,746

   

   

   53,445

   

   

   3,189,191Current period additions

   

   69,676

   

   

   8,870

   

   

   78,546Current period disposals

   

   (5,000

   )

   

   -

   

   

   (5,000

   )Cost at March 31, 2012

   

   3,200,422

   

   

   62,315

   

   

   3,262,737Accumulated amortization at March 31, 2011

   

   2,416,236

   

   

   39,978

   

   

   2,456,214Current period retirements

   

   (4,613

   )

   

   -

   

   

   (4,613

   )Current period amortization

   

   178,939

   

   

   5,709

   

   

   184,648Accumulated amortization at March 31, 2012

   

   2,590,562

   

   

   45,687

   

   

   2,636,249Net book value at March 31, 2012

   

   609,860

   

   

   16,628

   

   

   626,488ComputerEquipment

   

   

   equipment

   

   

   Total$

   

   

   $

   

   

   $Cost at March 31, 2010

   

   2,956,962

   

   

   51,621

   

   

   3,008,583Current period additions

   

   178,784

   

   

   1,824

   

   

   180,608Cost at March 31, 2011

   

   3,135,746

   

   

   53,445

   

   

   3,189,191Accumulated depreciation at March 31, 2010

   

   2,224,530

   

   

   34,598

   

   

   2,259,128Current period amortization

   

   191,706

   

   

   5,380

   

   

   197,086Accumulated amortization at March 31, 2011

   

   2,416,236

   

   

   39,978

   

   

   2,456,214Net book value at March 31, 2011

   

   719,510

   

   

   13,467

   

   

   732,977
 (10)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  4

   Deferred development costs
  $Cost at March 31, 2011
      
      190,284Current period additions
      
      1,778,888Cost at March 31, 2012
      
      1,969,172Amortization and impairment at March 31, 2011
      
      -Current period amortization
      
      -Amortization and impairment at March 31, 2012
      
      -Net book value at March 31, 2012
      
      1,969,172Cost at March 31, 2010
      
      -Current period additions
      
      190,284Cost at March 31, 2011
      
      190,284Amortization and impairment at March 31, 2010
      
      -Current period amortization
      
      -Amortization and impairment at March 31, 2011
      
      -Net book value at March 31, 2011
      
      190,284
  5

   Shareholders’ equity
  a)

   Capital stock
  Authorized Unlimited number of common shares without par value b)

   Contributed surplus
  Contributed surplus comprises the value ascribed to expired warrants and options and forfeited vested options, previously categorized in either warrants or options, as applicable, within shareholders’ equity. (11)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  c)

   Options
  The Company has a stock option plan in which all directors, officers, employees and consultants of the Company and its subsidiary are eligible to participate. At March 31, 2012, 1,995,854 (2011 - 2,040,871) options to purchase common stock are outstanding from the stock option plan. These options, when vested under the terms of the plan, are exercisable at prices ranging between $2.80 and $9.60 per common share. At the annual general meeting held on September 1, 2011, the shareholders of the Company approved to amend the stock option plan from a “fixed” plan to a “rolling” plan, under which it would permit the issuance of that number of options up to a maximum of 10% of the issued and outstanding common shares. An additional 1,003,453 (2011 - 41,045) options may be granted in future years under this plan. Unless otherwise determined by the board of directors, the options have a term of 10 years from the date of grant. The vesting terms are determined at the discretion of the board of directors at the time of grant. During the years ended March 31, 2012 and 2011, the estimated weighted average vesting period of the outstanding options was 18 months (2011 - 20 months). The remaining outstanding vesting period at March 31, 2012 was approximately 13 months (2011 - 25 months). All grants are recognized using graded vesting, with each vesting tranche being valued separately, and the fair value of each tranche recognized over its respective vesting period. 2012

   

   

   

   

   

   

   2011Weighted

   

   

   

   

   

   

   Weightedaverage

   

   

   

   

   

   

   averageNumber of

   

   

   exercise

   

   

   

   Number of

   

   

   exerciseoptions

   

   

   price

   

   

   

   options

   

   

   price$

   

   

   

   

   

   

   $Outstanding - Beginning of year

   

   2,040,871

   

   

   6.94

   

   

   

   2,548,871

   

   

   5.59Granted

   

   200,000

   

   

   7.42

   

   

   

   130,000

   

   

   8.81Exercised

   

   (187,517

   )

   

   2.90

   

   

   

   (638,000

   )

   

   1.92Forfeited/expired

   

   (57,500

   )

   

   8.47

   

   

   

   -

   

   

   -Outstanding - End of year

   

   1,995,854

   

   

   7.32

   

   

   

   2,040,871

   

   

   6.94
 (12)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) The following table summarizes information about stock options outstanding and exercisable at March 31, 2012: Options outstanding

   

   

   

   Options exercisableWeightedNumber

   

   

   average

   

   

   Weighted

   

   

   

   Number

   

   

   Weightedoutstanding

   

   

   remaining

   

   

   average

   

   

   

   exercisable

   

   

   averageRange of

   

   

   at March 31,

   

   

   contractual

   

   

   exercise

   

   

   

   at March 31,

   

   

   exerciseexercise prices

   

   

   2012

   

   

   life

   

   

   price

   

   

   

   2012

   

   

   price$

   

   

   

   

   

   (years)

   

   

   $

   

   

   

   

   

   

   $2.80 to 3.30

   

   

   378,354

   

   

   0.45

   

   

   3.30

   

   

   

   378,354

   

   

   3.305.67 to 6.78

   

   

   527,500

   

   

   3.22

   

   

   5.97

   

   

   

   527,500

   

   

   5.978.05 to 9.60

   

   

   1,090,000

   

   

   7.92

   

   

   9.38

   

   

   

   1,073,333

   

   

   9.391,995,854

   

   

   

   

   

   

   

   

   

   1,979,187
  The fair value of each option is estimated as at the date of grant or other measurement date using the Black-Scholes option pricing model and the following weighted average assumptions: 2012

   2011Dividend yield

   0.0%

   0.0%Expected volatility

   63.6%

   75.1%Risk-free interest rate

   1.8%

   3.5%Expected forfeitures

   11.1%

   11.4%Expected average option term (years)

   8.4

   8.4
  The expected volatility and expected forfeitures are based on historical volatility and forfeitures. The risk-free rate of return is the yield on a zero-coupon Canadian treasury bill of a term consistent with the expected average option term. The expected average option term is the average expected period to exercise, based on the historical activity patterns for each individually vesting tranche. The weighted average fair value of the options granted during the year ended March 31, 2012 was $4.97 (2011 - $6.72) per option. Included in research and development expenses is $111,587 (2011 - $1,051,561) (note 7) of stock-based compensation and included in general and administrative expenses is $1,604,475 (2011 - $3,039,558) (note 6) of a combination of stock-based compensation and costs settled by way of stock options. Included in deferred development costs is $183,501 (2011 - $65,397) of stock-based compensation. (13)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  d)

   Warrants
  During the year ended March 31, 2011, 111,477 agents' warrants issued in connection with the Company's 2009 public offering were exercised. No warrants were outstanding as at March 31, 2012 and 2011. 6

   General and administrative
  2012

   

   

   2011$

   

   

   $Salaries and benefits (note 5)

   

   2,742,248

   

   

   3,518,819Professional fees

   

   1,465,413

   

   

   1,716,424Investor relations

   

   344,859

   

   

   389,945Travel and meals

   

   128,506

   

   

   84,693NASDAQ filing fees

   

   127,654

   

   

   -Office supplies and services

   

   124,956

   

   

   103,075Other

   

   85,922

   

   

   73,165Management fees (note 9)

   

   37,940

   

   

   165,563Amortization

   

   4,012

   

   

   3,6675,061,510

   

   

   6,055,351
  7

   Research and development
  2012

   

   

   2011$

   

   

   $Salaries and benefits (note 5)

   

   608,289

   

   

   1,897,935Laboratory operation

   

   238,804

   

   

   318,605Amortization

   

   97,136

   

   

   174,383Analyses and testing

   

   50,108

   

   

   53,553Rent

   

   42,262

   

   

   73,612Travel and meals

   

   3,486

   

   

   16,085Toxicology trials

   

   -

   

   

   355,6801,040,085

   

   

   2,889,853
 (14)


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Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars)  8

   Basic and diluted loss per share
  The following table sets forth the computation of basic and diluted loss per share: 2012

   

   

   2011$

   

   

   $Loss for the year, being loss attributable to common shareholders - basic and diluted

   

   5,962,342

   

   

   8,806,474Shares

   

   

   SharesWeighted average common shares - basic and diluted

   

   29,961,431

   

   

   29,545,189Basic and diluted loss per share

   

   (0.20

   )

   

   (0.30

   )
  For the years ended March 31, 2012 and 2011, the Company excluded all potential common share equivalents from the diluted loss per share calculation as they were anti-dilutive. 9

   Related party transactions
  The Company engaged a company that is controlled by an entity that has significant influence over Burcon for the following related party transactions: Included in general and administrative expenses for the year ended March 31, 2012 is $56,587 (2011 - $40,777) for office space rental, services, and equipment rental. For the year ended March 31, 2012, included in management fees is $37,940 (2011 - $165,563) for services provided. At March 31, 2012, $2,113 (2011 - $935) of this amount is included in accounts payable and accrued liabilities. For the year ended March 31, 2012, included in interest and other income is $18,951 (2011 - $2,093) for management services provided. At March 31, 2012, $2,396 (2011 - $2,093), of this amount is included in amounts receivable. 10

   Key management compensation
  Remuneration of directors and key management personnel comprises: 2012

   

   

   2011$

   

   

   $Short-term benefits

   

   503,965

   

   

   304,568Option-based awards

   

   1,321,287

   

   

   1,930,9871,825,252

   

   

   2,235,555
  Short-term benefits comprise salaries, fees and benefits. (15)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Option-based awards represent the cost to the group of senior management and directors’ participation in the incentive stock option plan, as measured by the fair value of instruments granted accounted for in accordance with IFRS 2, Share-based Payment. For details of these plans refer to note 5 to the financial statements. 11

   Income taxes
  The recovery of income taxes differs from the amount obtained by applying the statutory Canadian federal and provincial income tax rates to loss for the year as follows: 2012
      
      
      2011$
      
      
      $Recovery of income taxes based on the combined statutory income tax rate of 27.67% (2011 – 29.1%)
      
      (1,650,000
      )
      
      (2,454,000
      )Deferred income tax assets not recognized
      
      1,082,000
      
      
      1,250,000Adjustment to deferred income tax assets for changes in tax rates
      
      51,000
      
      
      122,000Non-deductible items and tax adjustments
      
      517,000
      
      
      1,082,000Recovery of income taxes
      
      -
      
      
      -
  The decrease in the combined statutory income tax rates for 2012 from 2011 is due to a decrease in the provincial substantively enacted tax rates for BC and Manitoba. As at March 31, 2012, the Company has non-capital losses of approximately $24,868,000 (2011 - $19,213,000) available to reduce taxable income in future years. These losses expire as follows: $2014

   

   1,672,0002015

   

   1,943,0002026

   

   1,502,0002027

   

   1,814,0002028

   

   2,093,0002029

   

   2,432,0002030

   

   3,498,0002031

   

   4,358,0002032

   

   5,556,00024,868,000
  In addition, the Company has SR&ED expenditures of approximately $10,325,000 available to carry forward indefinitely. ITCs of $4,238,000 may be used to offset deferred income taxes otherwise payable and expire between 2014 and 2032. (16)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) The tax effects of temporary differences that give rise to deferred income tax assets are as follows: 2012

   

   

   2011$

   

   

   $Deferred income tax assets (liability)SR&ED expenditures

   

   2,644,000

   

   

   2,554,000Losses from operations carried forward

   

   6,573,000

   

   

   5,050,000Deferred development costs

   

   (437,000

   )

   

   -Financing costs

   

   154,000

   

   

   230,000Property and equipment

   

   98,000

   

   

   116,000Unrecognized deferred income tax assets

   

   9,032,000

   

   

   7,950,000
  Management believes the realization of income tax benefits related to these losses and other potential deferred income tax assets is uncertain at this time and cannot be viewed as probable. Accordingly, the Company has not recognized these deferred income tax assets. 12

   Financial instruments
  Credit risk The financial instruments that potentially expose the Company to a concentration of credit risk are cash and cash equivalents, restricted cash, amounts receivable and short-term investments. The Company’s cash equivalents comprise banker’s acceptances, term deposits and other interest-bearing savings instruments with Canadian chartered banks. The Company limits its exposure to credit loss by placing its cash and cash equivalents and short-term investments with various Canadian chartered banks. Interest rate risk All of the Company’s financial instruments are non-interest bearing except for cash and cash equivalents that earn interest at variable market rates and short-term investments that earn interest at a fixed interest rate. Burcon’s cash and cash equivalents and short-term investments are held at various Canadian chartered banks to maximize interest and to diversify risk. For the year ended March 31, 2012, the weighted average interest rate on the interest earned on the Company’s cash and cash equivalents was 1.23% (2011 – 1.01%) and the weighted average interest rate earned on the short-term investments was 1.22% (2011 - 1.47%) per annum. The impact of a 1% strengthening or weakening of interest rate on the Company’s cash and cash equivalents at March 31, 2012 is estimated to be a $39,000 increase or decrease in interest income per year. (17)


---

Burcon NutraScience CorporationNotes to Consolidated Financial StatementsMarch 31, 2012 and 2011
 (Prepared in Canadian dollars) Liquidity risk The Company manages liquidity risk through the management of its capital structure (note 13). It also manages liquidity risk by monitoring actual and forecasted cash flows taking into account current and planned operations. The Company’s estimated minimum contractual undiscounted cash flow requirements for its financial liabilities at March 31, 2012 was $916,652, all of which is within the next 12 months. 13

   Capital disclosures
  The Company considers its capital to be its shareholders’ equity. The Company manages its capital structure to have sufficient resources available to meet day-to-day operating requirements, continue as a going concern and fund its research development program. The Company is dependent on non-operating sources of cash, primarily from issuing equity, to fund its operations and research development programs. The Company monitors its capital and the expected cash flows required to achieve its business objectives to determine its future financing needs. It seeks additional equity capital when deemed appropriate, but there is no assurance that it will be able to secure the necessary capital when required. The Company is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year ended March 31, 2012. 14

   Commitments
  The Company is committed to make payments under certain operating leases for office space and office equipment. Operating lease costs expensed during the year were $100,511 (2011 - $114,389). The future payments required under operating leases are as follows: $2013

   

   60,0432014

   

   86,091146,134
  15

   Subsequent events
  Subsequent to March 31, 2012, employees exercised stock options resulting in 7,934 common shares at a weighted average exercise price of $3.15 per share were issued. (18)