An anonymous director reports

GLG LIFE TECH CORPORATION ANNOUNCES FINANCIAL RESULTS AND FILING OF AMENDED AND RESTATED RESULTS

GLG Life Tech Corp. has released financial results for the quarter ended March 31, 2013, and the year ended Dec. 31, 2012. The company is also filing restated and amended results for the period ended Sept. 30, 2012. Complete results are available on SEDAR and on the company's website.

The main reasons for the delays in filing, and the restated filing, were third party valuation reports that were required to support balance sheet amounts when transitioning from U.S. generally accepted accounting principles to international financial reporting standards. In particular, reports were required to test tangible and intangible asset impairment and to meet B.C. Securities Commission's information request as part of the company's continuous disclosure review.

The company is in the final stages of the continuous disclosure review with the B.C. Securities Commission and expects the current cease trade order to be lifted shortly now that the company has completed these updated filings.

Beginning Jan. 1, 2011, GLG was considered a U.S. Securities and Exchange Commission issuer under National Instrument 52-107, which allowed SEC issuers, defined by NI 52-107 as an issuer which has a class of securities registered under Section 12 of the Exchange Act of 1934 or which is required to file reports under Section 15 (d) of the Exchange Act, to file with Canadian securities regulators financial statements prepared in accordance with U.S. GAAP. As a result, the company prepared its financial statements in accordance with U.S. GAAP.

Subsequent to the company's deregistration under sections 12 (b) and 12 (g) of the Exchange Act, which became effective on or about Sept. 9, 2012, and Sept. 20, 2012, the company's obligation to file reports under Section 15 (d) of the Exchange Act was suspended, and the company no longer qualified as an SEC issuer under NI 52-107. Accordingly, the company was subsequently required to prepare financial statements in accordance with IFRS.

Amended and restated financial results for the period ended Sept. 30, 2012

The initial filing of financial results prepared under IFRS was for the nine-month period ended Sept. 30, 2012. These results are now being refiled to reflect a third party review associated with IFRS impairment testing and most notably include the additional writedown of $58.4-million in property, plant and equipment and $27.9-million in intangible assets recorded on the amended balance sheet dated Dec. 31, 2011, compared with the original balance sheet at the same date in the originally filed IFRS statements for the period ended Sept. 30, 2012. The net loss attributed to the company increased from $95.1-million to $176.9-million due to the increased impairment charges recognized in the restated financial statements. The net loss decreased to $23.0-million compared with $30.1-million as previously reported due to lower amortization charges for the nine months ended Sept. 30, 2012.

Fiscal year 2012 highlights

Stevia sales increased by 23 per cent year over year to $21.1-million. The company has refocused its sales efforts on its core stevia business and increased its quarterly sales in each quarter of the fiscal year 2012.

Net loss attributable to the company decreased by 81 per cent from $176.9-million in 2011 (restated to comply with IFRS) to $34.0-million in 2012. Net cash generated from operations improved by $34.1-million, from cash used of $32.3-million in 2011 to cash generated of $1.9-million in 2012.

Gross loss during the year was $5.2-million, which was impacted by low plant utilization and related capacity charges during the year of $7.5-million.

Selling, general and administration expenses were reduced by $33.3-million in the period ended Dec. 31, 2012, compared with the previous year.

Balance sheet improvements include reduction in inventory of $35.1-million, reduction of $10.6-million in short-term debt and a reduction of $7.4-million in accounts payable. Working capital deteriorated, from a deficit of $9.8-million in 2011 to a deficit of $33.8-million in 2012. The negative working capital has been driven by the total of $38.4-million of inventory impairment charges recognized since year-end 2011.

The company has worked closely with its banks to manage the existing short-term debt situation that weakens working capital. After the fiscal year-end, the company signed a loan refinancing agreement with Agricultural Bank of China and $32.6-million in short-term loans with Agricultural Bank of China. The loans have been refinanced with repayments over 36 months.

Results from 2012 operations

The following results from operations have been derived from and should be read in conjunction with the company's annual consolidated financial statements for the three- and 12-month periods ended Dec. 31, 2012, and 2011. The company has reclassified certain of the figures presented for comparative purposes to conform to the financial statement presentation adopted in the current period. Complete results are available on SEDAR and on the company's website.

Revenue

Revenue for the three months ended Dec. 31, 2012, which was derived from stevia sales and the sale of consumer beverage products, was $8.3-million, an increase of 1,650 per cent compared with $500,000 in revenue for the same period last year. For the three months ended Dec. 31, 2012, the total sales of $8.3-million are composed of stevia sales of $8.2-million ($200,000 in 2011) and consumer product sales of $100,000 ($300,000 in 2011).

Revenue for the 12 months ended Dec. 31, 2012, was $21.7-million compared with $24.8-million for the same period in 2011, a decrease of 13 per cent compared with revenue for the same period last year. The total revenue was composed of $21.1-million for stevia sales ($17.1-million in 2011) and $600,000 ($7.7-million in 2011) for consumer products sales.

As at Dec. 31, 2012, 100 per cent of the company's sales are in foreign currencies and translated into Canadian dollars for financial reporting purposes.

Stevia business

Stevia sales of $8.2-million for the three months ended Dec. 31, 2012, are net of intersegment sales to AN0C. Stevia sales for the fourth quarter 2012 were up by 2,620 per cent compared with the fourth quarter in 2011, which was driven by higher demand for the company's products during the fourth quarter from its customers.

Stevia sales of $21.1-million, for the 12 months ended Dec. 31, 2012, are net of intersegment sales to AN0C. Stevia sales for the 12 months ended Dec. 31, 2012, were up by 23 per cent over $17.1-million sales in the comparable period in 2011.

There are a number of factors that have led to the increase in stevia sales during the 12 months ended Dec. 31, 2012, over the 12 months ended Dec. 31, 2011:

• The company increased the number of distributors and customers purchasing its products both in China and internationally.
• New markets that approved stevia's use such as Europe and Canada increased demand for the company's products.
• The company was no longer restricted from providing product directly to multinational customers under its supply agreement with Cargill starting in the fourth quarter of 2011, which allowed it to target and win some of these customers in 2012.
• The company's formulation services from AN0C Stevia Solutions provided value-added services to existing and new customers, which also increased revenues.
• The company significantly decreased its product pricing in the fourth quarter of 2011 to react to increased competition in the marketplace. Pricing was reduced between 30 to 50 per cent at the end of 2011 and was in effect for all of 2012.
• The company's price decreases during 2012 attracted additional Asian-based customers and sales in 2012 for lower-purity stevia extracts.

AN0C consumer products business

The company's consumer products business, AN0C, had sales of $100,000 in the fourth quarter of 2012 compared with $300,000 during the comparable period for 2011. Fourth quarter 2012 sales primarily consisted of the sale of raw materials, and only a minor amount of AN0C consumer products was sold in the fourth quarter.

Consumer product revenue for the 12 months ended Dec. 31, 2012, was $600,000 compared with $7.7-million for the same period in 2011, a decrease of 93 per cent compared with revenue for the same period last year. The company had limited financial resources for marketing and promotion available during the 12 months ended Dec. 31, 2012, and the result of a lower advertising and marketing promotions spend is reflected in the lower sales in the period. The company had limited its products offering to the following product SKUs during the 12 months ended Dec. 31, 2012: ready-to-drink green and jasmine tea (zero calorie); zero-calorie Tabletop products; zero-calorie flavoured vitamin-enriched waters (three flavours); and reduced calorie functional health drinks sweetened with stevia.

Cost of sales

Cost of sales for the three months ended Dec. 31, 2012, was $9.9-million compared with $3.2-million in cost of sales for the same period last year. Cost of sales as a percentage of revenues was 120 per cent compared with 677 per cent in the fourth quarter of 2011. This was composed of $9.5-million for the stevia business and $400,000 for the consumer products business.

Cost of sales for the 12 months ended Dec. 31, 2012, was $26.9-million compared with $26.4-million for the same period in 2011. This was composed of $26.1-million for the stevia business and $800,000 for the consumer products business.

Stevia business

For the three months ended Dec. 31, 2012, the cost of sales related to the stevia business was $9.5-million compared with $2.9-million in cost of sales for the same period last year ($6.6-million increase or 128 per cent), which are due to higher stevia sales in the fourth quarter of 2012 compared with the same period in 2011.

Cost of sales for the three months ended Dec. 31, 2012, for stevia as a percentage of revenues was 116 per cent compared with 1,626 per cent in the same period last year. Cost of sales as a percentage of revenue declined in 2012 (116 per cent) compared with the same period in 2011 (1,626 per cent) as the depreciation charges as a percentage of costs of sales have reduced in 2012 in the fourth quarter of 2012 compared with in the same period of 2011 due to the impairment charges against property, plant and equipment realized at the end of 2011. Capacity charges of $2.1-million in cost of sales compared with those charges incurred in 2011 of $2.1-million. Capacity charges would ordinarily flow to inventory during periods of normal capacity operations and therefore were the major factor in driving cost of sales higher than the actual revenue generated in the fourth quarter.

Cost of sales for the 12 months ended Dec. 31, 2012, for stevia as a percentage of revenues was 124 per cent compared with 116 per cent in the same period last year. For the 12 months ended Dec. 31, 2012, the cost of sales related to the stevia business was $26.1-million compared with $19.9-million in cost of sales for the same period last year ($6.2-million increase or 31 per cent). The 31-per-cent increase is primarily due to the higher volume of extract sold compared with the previous year. Stevia revenues were up 23 per cent year over year as stated previously. There were lower fixed capacity charges in cost of sales in 2012 ($4.4-million) compared with those capacity charges incurred in 2011 ($7.5-million). Although lower in the 12 months ended Dec. 31, 2012, these capacity charges would ordinarily flow to inventory during periods of normal capacity operations and therefore were the major factor in driving the cost of sales higher than the actual revenue generated in the 12 months ended Dec. 31, 2012.

AN0C consumer products business

For the three months ended Dec. 31, 2012, cost of sales related to the consumer products business was $400,000 and includes costs associated with bottling the beverage products, supplies and ingredients used to manufacture the beverages, and shipping the products to the different distribution channels. The majority of the cost of goods sold in the fourth quarter related to the sale of raw material inventory.

For the 12 months ended Dec. 31, 2012, cost of sales related to the consumer products business was $800,000 compared with $6.5-million for the year ended in 2011 reflecting lower sales of AN0C products in 2012.

Gross profit (loss)

Gross loss for the three months ended Dec. 31, 2012, was $1.7-million compared with a $2.7-million gross loss for the comparable period in 2011. The gross profit margin for the three-month period ended Dec. 31, 2012, for the company as a whole was negative 20 per cent compared with negative 578 per cent for the three months ended Dec. 31, 2011. The main contributors to the negative gross profit were: (1) the high fixed non-cash charges driven by lower utilization of stevia facilities in the quarter that would ordinarily flow to inventory during periods of higher plant utilization and (2) price decreases during the year for lower-purity products that resulted in gross loss on the sale of those products. The gross loss as a percentage of revenue did improve in the fourth quarter of 2012 due to significantly higher revenues in 2012 compared with the revenues generated in the fourth quarter 2011. These fixed-capacity charges ordinarily would flow to inventory; however, only one of GLG's manufacturing facilities was operating during the quarter. Capacity charges of $2.1-million in the fourth quarter 2012 cost of sales compare with capacity charges of $2.1-million in 2011. Capacity charges would ordinarily flow to inventory during periods of normal capacity operations and therefore were the major factor in driving cost of sales higher than the actual revenue generated in the fourth quarter. The impairment losses realized at the end of 2011 did reduce the amount of depreciation that flowed through cost of sales and through the capacity and other fixed charges during the fourth quarter 2012 compared with those charges realized in the cost of sales in the comparable period in 2011.

Gross loss for the 12 months ended Dec. 31, 2012, was $5.3-million compared with a gross loss of $1.6-million for the comparable period in 2011. The gross profit margin for the 12-month period ended Dec. 31, 2012, for the company as a whole was negative 24 per cent compared with negative 6 per cent for the comparable period in 2011. The main contributors to the negative gross profit were: (1) the high fixed non-cash charges driven by lower utilization of stevia facilities in the quarter that would ordinarily flow to inventory during periods of higher plant utilization and (2) price decreases during the year for lower-purity products that resulted in gross loss on the sale of those products. These fixed-capacity charges ordinarily would flow to inventory; however, only two of GLG's manufacturing facilities were operating during 2012. These capacity and other fixed charges were $4.4-million in 2012 compared with $6.5-million in capacity charges in 2011. Additionally, some lower-purity products were sold below cost in the third and fourth quarters, which also resulted in further inventory writedowns during the year and accounted for the remaining negative gross loss for the 12 months ended Dec. 31, 2012. The impairment losses realized at the end of 2011 did reduce the amount of depreciation that flowed through cost of sales and through the capacity and other fixed charges during the 12 months ended 2012 compared with those charges realized in the cost of sales in the comparable period in 2011.

Stevia business

The gross loss of $1.3-million for the stevia business for the fourth quarter of 2012 decreased by $1.4-million compared with the fourth quarter gross loss of $2.7-million in 2011. Gross profit was negative in the fourth quarter 2012 for the reasons described earlier.

For the 12 months ended Dec. 31, 2012, the gross loss on revenue was $5.0-million compared with a gross loss of $2.8-million in 2011. Gross profit was negative in the full year ended Dec. 31, 2012, for the reasons described earlier.

AN0C consumer products business

The gross loss in the fourth quarter of 2012 of $300,000 was driven by the sale of raw material inventory at a loss from the original purchase price compared with the fourth quarter gross loss of $20,000 in 2011. Gross margin on AN0C consumer products before shipping costs averaged 24 per cent during the quarter.

For the 12 months ended Dec. 31, 2012, the gross loss on revenue was $300,000 compared with a gross profit of $1.2-million in 2011. Gross margin on AN0C consumer products before shipping costs averaged 8 per cent.

Selling, general and administration expenses

G&A for the stevia business for the three months ended Dec. 31, 2012, was $2.5-million compared with $2.9-million in the same period in 2011. Management has taken steps to pro-actively reduce its G&A costs going forward as it works to rebuild its sales order book. At the end of December, the total number of employees in GLG's China stevia subsidiaries was 437, which is down from the 657 employees at the end of December, 2011.

G&A for the consumer products business was $400,000 for the three-month period ended Dec. 31, 2012, compared with $3.5-million for the same period last year or a 90-per-cent decrease from the prior year. A total of 14 per cent of these costs were related to advertising and marketing expenditures made in the quarter, which were down from $1.8-million from the fourth quarter of 2011. At the end of December, the total number of employees in GLG's AN0C China subsidiaries was 24, which is down from the 357 employees at the end of December, 2011.

The company has reviewed its accounts receivables and has concluded that there is no impairment required in 2012 compared with an impairment provision made in 2011 for $6.4-million on previous stevia sales. This improvement reflects tighter credit and collection practices employed by the company in 2012.

Stock-based compensation was $100,000 for the three months ended Dec. 31, 2012, compared with $300,000 in the same quarter of 2011. The number of common shares available for issue under the stock compensation plan is a maximum of 10 per cent of the issued and outstanding common shares. During the quarter, compensation from vesting stock-based compensation awards was recognized, due to previously granted options, new grants and restricted shares.

General-and-administration-related depreciation and amortization expenses for the three months ended Dec. 31, 2012, were $100,000, which is a decrease of $1.5-million over the $1.6-million at Dec. 31, 2011. The main reason for the $1.5-million reduction is due to the prior year's impairment charges to the company's tangible and intangible assets.

G&A for the stevia business for the 12 months ended Dec. 31, 2012, was $7.8-million compared with $9.9-million in the same period in 2011. Overall stevia general and administration costs were down by approximately 17 per cent in the 12 months ended 2012 over comparable costs in 2011. Management has taken steps pro-actively to reduce its G&A costs going forward as it works to rebuild its sales order book. At the end of December, the total number of employees in GLG's China stevia subsidiaries was 437, which is down from the 657 employees at the end of December, 2011.

G&A for the consumer beverage business was $2.3-million for the 12-month period ended Dec. 31, 2012, compared with $22.9-million for the prior period or a 90-per-cent decrease from the prior year. A total of 35 per cent of these costs were related to advertising and marketing expenditures made during the year, down from $15.1-million from the comparable period in 2011. At the end of December, the total number of employees in GLG's AN0C China subsidiaries was 24, which is down from the 357 employees at the end of December, 2011.

Stock-based compensation was $1.5-million for the 12 months ended Dec. 31, 2012, compared with $2.7-million in the same period in 2011. The decrease is due to no new grants being made during 2012. The number of common shares available for issue under the stock compensation plan is 10 per cent of the issued and outstanding common shares. During the period, compensation from vesting stock-based compensation awards was recognized, due to previously granted options and restricted shares.

General-and-administration-related depreciation and amortization expenses for the 12 months ended Dec. 31, 2012, were $600,000 compared with the $3.6-million at Dec. 31, 2011. The $3.0-million reduction is due to the prior year's impairment charges to the company's tangible and intangible assets.

Other expenses for the three months ended Dec. 31, 2012, were $7.0-million, a $123.1-million or 95-per-cent decrease compared with $130.1-million for the same period in 2011. Other expense decreases are driven by lower asset impairment losses of $5.4-million recognized during the fourth quarter of 2012 compared with the $128.3-million of impairment charges recognized for the same period in 2011. Interest expense increased by $500,000 in the three months ended Dec. 31, 2012, compared with Dec. 31, 2011, due to higher average interest rate paid on outstanding loans during the quarter. Foreign exchange loss for the three months ended Dec. 31, 2012, decreased by $600,000 to $300,000 gain from $300,000 loss for the same period in 2011.

Other expenses for the 12 months ended Dec. 31, 2012, were $17.3-million, a $116.8-million decrease compared with $134.1-million for the same period in 2011. Other expenses are driven by asset impairment losses of $128.3-million recognized during the year (see section in management's discussion and analysis asset impairment charges) and interest expenses of $6.9-million. Interest expense increased by $1.4-million in the 12 months ended Dec. 31, 2012, compared with Dec. 31, 2011, due to the higher average interest rate paid on loans. Foreign exchange losses decreased by $400,000 to a $200,000 gain in 2012 compared with a foreign exchange loss of $200,000 for the same period in 2011.

For the three months ended Dec. 31, 2012, the company had a net loss attributable to the company of $11.5-million compared with a net loss attributable to the company of $146.2-million for the same period in 2011. The decrease of $134.7-million loss was driven by: (1) an increase in gross profit of $1.1-million, (2) a decrease in G&A expenses of $11.3-million, and (3) a decrease in other income and expenses of $123.1-million. These items were offset by a decrease in loss attributable to non-controlling interests of $700,000 and an increase in income tax expense of $100,000.

For the 12 months ended Dec. 31, 2012, the company had a net loss attributable to the company of $33.8-million and a reduction of $143.1-million in losses compared with the $176.9-million loss for the comparable period in 2011. The decrease in net loss was driven by: (1) by a decrease in G&A expenses of $33.4-million (2) a decrease in other income and expenses of $116.7-million, and (3) a decrease in income expense of $400,000. These items were offset by a decrease in gross profit of $3.7-million and a decrease in the loss attributable to non-controlling interests of $3.9-million.

The company recorded total comprehensive loss of $11.1-million for the three months ended Dec. 31, 2012, comprising $11.5-million of net loss attributable to the company and $400,000 of other comprehensive income. The company recorded a total comprehensive loss of $147.0-million for the three months ended Dec. 31, 2011, composed of $146.2-million in net loss and $900,000 in other comprehensive loss.

The company recorded total comprehensive loss of $37.0-million for the 12 months ended Dec. 31, 2012, comprising $34.0-million of net loss attributable to the company and $3.0-million of other comprehensive loss. The company recorded a total comprehensive loss of $168.3-million for the 12 months ended Dec. 31, 2011, composed of $176.9-million in net loss and $8.6-million in other comprehensive income.

The company's other comprehensive income (loss) is solely made up of the currency translation adjustments recorded on the revaluation of the company's investments in the company's Chinese and Hong Kong subsidiaries. The other comprehensive income (loss) is held in accumulated other comprehensive income until it is realized (that is, the subsidiaries are sold), at which time it is included in net income (loss).

The company has a working capital deficit of $33.9-million as of Dec. 31, 2012, compared with a working capital deficit of $9.8-million for the comparable period in 2011. The negative working capital has been driven by the total of $38.4-million of inventory impairment charges that it has recognized since year-end 2011. The company has pursued the following actions to manage this situation during 2012. The company has paid down short-term loans by $9.8-million and refinanced this debt with longer-term debt with its chairman of $8.5-million. The company has also reduced accounts payable by $7.4-million and negotiated with its creditors on extended payment terms. The company has also worked closely with its commercial bankers to manage the existing short-term debt situation. On April 18, 2013, the company has signed a loan refinancing agreement with Agricultural Bank of China. The agreement details the repayment of all existing short-term loans totalling $32,567,575 (203,928,387 renminbi) with Agriculture Bank as of Dec. 31, 2012. The company will repay $6,108,799 (38,251,465 renminbi) during the year ended Dec. 31, 2013, $12,776,083 (80 million renminbi) during the year ended Dec. 31, 2014, and $13,682,693 (85,676,922 renminbi) during the year ended Dec. 31, 2015. The company has made the first scheduled payment of $1,317,768 (8,251,465 renminbi) as of March 31, 2013, and this agreement improves the negative working capital situation going forward. The company has also focused on reducing operating expenditures during 2012. For example, general and administration costs excluding amortization and stock-based compensation expenses have been reduced by $30.3-million during 2012 compared with the same period in 2011. The company has also optimized production at two plants during 2012 to minimize additional investment in inventories and has focused on converting existing inventories into cash. The inventory account has been reduced by $35.1-million for the 12 months ended 2012. The company has also focused on improvements to accounts receivable collections and credit management.

Balance sheet

In comparison with Dec. 31, 2011, total assets decreased by $44.3-million as at Dec. 31, 2012, primarily due to a decrease in current assets of $40.7-million and a decrease in capital assets of $3.6-million. The decrease in the current assets was mainly driven by the following:

• Decrease of $35.1-million in inventory;
• Decrease in taxes recoverable of $2.9-million, which can be attributed to refundable VAT taxes on the increase in inventory;
• Decrease in prepaid expenses of $3.0-million;
• Decrease in cash and cash equivalents of $900,000.

These were offset by:

• Increase of $1.3-million accounts receivable;
• The decrease in property, plant and equipment of $3.6-million in the fixed assets due to amortization of these assets;
• Current liabilities down by $16.7-million as at Dec. 31, 2012, in comparison with Dec. 31, 2011, driven by a net decrease in short-term loans of $10.7-million and a decrease in accounts payable and deferred revenue of $7.5-million, offset by an increase of interest payable of $1.5-million;
• Long-term liabilities up by $8.7-million due to the increase of related-party loans;
• Shareholders' equity decreased by $36.3-million due to: (a) an increase from stock-based compensation of $1.5-million; (b) the decrease in accumulated other comprehensive income of $2.9-million, (c) an increase in deficit of $33.8-million and (d) a decrease in non-controlling interests of $1.0-million.

First quarter 2013 highlights

Stevia sales increased by 263 per cent to $3.2-million in the period ended March 31, 2013, compared with the same period last year.

Net loss attributable to the company decreased by 4 per cent from $3.9-million in the same period in 2012 to $3.7-million in 2013. Net cash used by operating activities improved slightly, at $100,000 compared with $200,000 in the corresponding period in 2012.

Gross loss during the period was $400,000, which was impacted by low plant utilization and related capacity charges during the year of $500,000.

Selling, general and administration expenses were reduced by $1.0-million in the period ended March 31, 2013, compared with the previous year.

Results from operations

The results from operations have been derived from and should be read in conjunction with the company's annual consolidated financial statements for 2012 and the condensed interim consolidated financial statements for the three-month period ended March 31, 2013.

                          FINANCIAL HIGHLIGHTS
          (in thousands Canadian $, except per-share amounts)
          
                                                     Three months ended March 31,
                                                                 2013       2012

Revenue                                                        $3,243       $892
Cost of sales                                                  $3,681       $974
Gross profit (loss)                                             ($438)      ($82)
Expenses                                                       $1,742     $2,734
(Loss) from operations                                        ($2,180)   ($2,816)
Other expenses                                                ($1,543)   ($1,136)
Net (loss) before income taxes and non-controlling interests  ($3,723)     $3,952
Net (loss) after income taxes and non-controlling interests   ($3,693)   ($3,855)
(Loss) per share (basic and diluted)                           ($0.11)    ($0.12)
Total comprehensive (loss)                                    ($2,412)   ($6,079)

Revenue

Revenue for the three months ended March 31, 2013, which was derived from stevia sales and the sale of consumer beverage products, was $3.2-million, an increase of 263 per cent compared with $900,000 in revenue for the same period last year. The total revenue was composed of $3.2-million for stevia sales and nil for consumer products sales.

Stevia business

Stevia sales of $3.2-million for the three months ended March 31, 2013, were up by 292 per cent compared with the stevia sales of $800,000 in the prior period. This 292-per-cent increase in sales comparing the first quarter in 2013 with the first quarter in 2012 was driven by higher volumes of products sold compared with the prior year. Pricing on its high-purity stevia extracts was flat compared with the pricing for the same period in 2012. Pricing for low-purity stevia extracts was lower in the first quarter 2013 compared with the same period in 2012. Price reductions on lower-purity products were lower in the range of 20 to 57 per cent for the first quarter 2013 compared with the first quarter of 2012.

AN0C consumer products business

The company's consumer products business had sales of nil in the first quarter of 2013 compared with $100,000 in the comparative period. This represents a 100-per-cent decrease compared with the sales in the previous period. The company continues to have limited financial resources for marketing and promotion of its AN0C products, and this is reflected in the lower sales in the period. There were only intercompany sales for the current period of $100,000, which were eliminated for the consolidated results.

Cost of sales

Cost of sales for the three months ended March 31, 2013, was $3.7-million compared with $1.0-million for the same period last year or an increase of 278 per cent. Cost of sales as a percentage of revenues was 114 per cent compared with 109 per cent in the prior period, an increase of five percentage points. This was composed of $3.7-million for the stevia business and nil for the consumer products business. The costs of sales for the stevia business was up over the previous period due to higher volumes of products sold in the current period, and cost of sales was also significantly impacted by the capacity charges to the cost of goods sold in the current period. These charges ordinarily would flow to inventory; however, only one of GLG's manufacturing facilities was operating during the first quarter, and capacity and other fixed charges of approximately $500,000 were included in the cost of sales.

Stevia business

For the three months ended March 31, 2013, the cost of sales related to the stevia business was $3.7-million compared with $900,000 in cost of sales for the same period last year ($2.8-million or 311-per-cent increase). Cost of sales for stevia as a percentage of revenues was 114 per cent compared with 110 per cent in the prior period, an increase of four percentage points. The cost of goods sold for the stevia business was higher in the current period over the previous period due to higher volumes of stevia product sold compared with the prior period. Cost of goods sold exceeds revenues generated due to the capacity charges to the cost of goods sold that would ordinarily flow to inventory. Only one of GLG's manufacturing facilities was operating during the first quarter, and capacity charges of $500,000 were charged to cost of sales compared with $300,000 charged to cost of sales in 2012.

AN0C consumer products business

For the three months ended March 31, 2013, cost of sales related to the consumer products business was nil compared with $100,000 for the prior period. AN0C consumer product costs of goods sold include costs associated with bottling the beverage products, supplies and ingredients used to manufacture the beverages, and shipping the products to the different distribution channels.

The key factors that impact consumer product cost of sales and gross profit percentages in each period include:

• The price paid for OEM manufacturing and bottling;
• Material costs (bottles, caps and labels);
• Ingredient costs;
• Shipping costs.

Gross profit (loss)

Gross loss for the three months ended March 31, 2013, was $400,000, an increase of 434 per cent over $100,000 in gross loss for the comparable period in 2012. The gross profit margin for the three-month period ended March 31, 2013, for the company as a whole was a negative 14 per cent compared with a negative 9 per cent for the three months ended March 31, 2012, or a decrease of five percentage points from the previous year. On a disaggregated basis, stevia products had a gross margin of negative 14 per cent, and the consumer products had a gross loss of 0 per cent. The gross margin in stevia products was significantly impacted by the capacity and other fixed charges to the cost of goods sold. These capacity charges ordinarily would flow to inventory; however, only one of GLG's manufacturing facilities was operating during the quarter, and capacity charges of approximately $500,000 were incurred.

Stevia business

Gross profit for the first quarter 2013 was negative 14 per cent compared with negative 10 per cent for the previous period.

AN0C consumer products business

For the AN0C consumer products business, the gross profit was nil or 0 per cent of revenues for the first quarter of 2013 compared with nil or 5 per cent of revenues for the comparable period.

Selling, general and administration expenses

G&A for the stevia business for the three months ended March 31, 2013, was $1.3-million compared with $1.7-million in the same period in 2012 or a $400,000 decrease year over year. The majority of the decrease was due to lower staff levels in the current period compared with the prior period.

G&A for the consumer beverage business was $100,000 for the three-month period ended March 31, 2013, compared with $500,000 for the prior period.

Stock-based compensation was $200,000 for the three months ended March 31, 2013, compared with $500,000 in the same quarter of 2012. The number of common shares available for issue under the stock compensation plan is 10 per cent of the issued and outstanding common shares. During the quarter, compensation from vesting stock-based compensation awards was recognized, due to previously granted options and restricted shares.

General-and-administration-related depreciation and amortization expenses for the three months ended March 31, 2013, were $100,000 compared with the $100,000 for the prior period.

Other expenses for the three months ended March 31, 2013, was $1.5-million, a $400,000 increase compared with $1.1-million for the same period in 2012. Other expenses were up during the first quarter due to increased interest expense on the company's short- and long-term loans.

For the three months ended March 31, 2013, the company had a net loss attributable to the company of $3.7-million, a decrease of $200,000 over the comparable period in 2012 ($3.9-million loss). The decrease in net loss was driven by: (1) a decrease in gross profit of $400,000, (2) an increase in other income/expenses of $400,000 and (3) a decrease in loss attributable to non-controlling interests of $100,000. These items were offset by a decrease in G&A expenses of $1.0-million.

The company recorded total comprehensive loss of $2.4-million for the three months ended March 31, 2013, comprising $3.7-million of net loss attributable to the company and $1.3-million of other comprehensive income. The company recorded a total comprehensive loss of $6.1-million for the three months ended March 31, 2012, comprising $3.9-million of net loss attributable to the company and $2.2-million of other comprehensive loss.

The company continues to progress with the following measures to manage cash flow of the company: paying down short-term loans and refinancing with longer-term debt with its chairman, reducing accounts payable and negotiating with creditors extended payment terms, working closely with the banks to manage loans, and reducing operating expenditures including general and administrative expenses and production-related expenses.

Financial resources

Cash and cash equivalents decreased by $1.7-million during the three months ended March 31, 2013, from Dec. 31, 2012. Working capital decreased by $3.5-million from the year-end 2012 position to negative $37.3-million. The working capital decrease can be attributed to a reduction in cash, accounts receivable, inventory and tax receivables balances ($6.3-million reduction) and an increase in interest payable ($700,000) offset by reductions in short-term loans and accounts payable balances ($3.5-million reduction).

The company's working capital and working capital requirements fluctuate from quarter to quarter depending on, among other factors, the annual stevia harvest in China (third and fourth quarter each year) and the production output, along with the amount of sales conducted during the period. The value of raw material in inventory has historically been the highest in the fourth quarter due to the fact that the company purchases leaf during the third and fourth quarter for the entire production year, which runs October through September each year. The company's principal working capital needs include accounts receivable, taxes receivable, inventory, prepaid expenses, other current assets, accounts payable and interest payable.

Balance sheet

In comparison with Dec. 31, 2012, the total assets decreased by $4.6-million as at March 31, 2013, which was split by a decrease in current assets of $6.3-million and an increase in fixed-term assets of $1.8-million. The decrease in the current assets was mainly driven by the following:

• Decrease of $1.7-million in inventory;
• Decrease in cash and cash equivalents of $1.7-million;
• Decrease in taxes recoverable by $400,000;
• Decrease in accounts receivable of $2.4-million, mainly accounted for by two customers which made payments on account of $1.7-million and $300,000, respectively.

The increase in the fixed-term assets of $1.8-million was due to the appreciation of the renminbi against the Canadian dollar, which exceeded the amortization for the period.

Current liabilities decreased by $2.8-million as at March 31, 2013, in comparison with Dec. 31, 2012, driven by a net decrease in short-term loans of $100,000 and a decrease in accounts payable of $3.5-million offset by an increase in interest payable of $700,000.

Long-term liabilities increased by $500,000 due to the accrued interest on the related-party loans during the period.

The company has been working on improving its working capital deficiency situation, which was driven by the impairments to inventory and accounts receivable over the years 2011 and 2012. (These inventory impairments totalled $36.1-million as of Dec. 31, 2012.) The company has been able to raise a three-year loan with its chairman and chief executive officer to assist in the financing of the company as it recovered from its stevia sales from the third and fourth quarter 2011 sales levels. This longer-term liability has helped to address the current working capital deficiency. The company has also successfully refinanced a portion of its short-term notes into longer-term loans as of April 18, 2013, which will improve its negative working capital.

Shareholders' equity decreased by $2.3-million due to an increase in deficit of $3.7-million and a decrease in non-controlling interests of $100,000, which were offset by an increase in accumulated other comprehensive income of $1.3-million and an increase in common stock of $300,000 from the vesting of warrants, restricted shares and stock options.

We seek Safe Harbor.