Dr. Luke Zhang reports

GLG LIFE TECH CORPORATION REPORTS 2020 THIRD QUARTER FINANCIAL RESULTS

GLG Life Tech Corp. has released financial results for the three and nine months ended Sept. 30, 2020. The complete set of financial statements and management's discussion and analysis is available on SEDAR and on the company's website.

Financial summary

The company reported revenues of $4.0-million in the third quarter of 2020, a $1.6-million improvement compared with the third quarter of 2019 ($2.4-million). Revenues for the first nine months of 2020 were $12.5-million, a $5.3-million improvement compared with the first nine months of 2019 ($7.2-million).

Gross profit margin dropped one percentage point in the third quarter of 2020 to 18 per cent, compared with third quarter of 2019 (19 per cent). For the first nine months of 2020, gross profit margin was up three percentage points at 22 per cent, compared with the first nine months of 2019 (19 per cent).

The company continues to closely manage its selling, general and administrative expenses, resulting in a $500,000 reduction in G&A expenses for the third quarter of 2020 ($700,000) relative to the third quarter of 2019 ($1.2-million). G&A expenses for the first nine months of 2020 were $3.5-million, a $1.5-million improvement compared with the first nine months of 2019 ($5.0-million).

For the three months ended Sept. 30, 2020, the company had net income attributable to the company's shareholders of $21.1-million, an increase of $25.0-million over the third quarter in 2019 (loss of $3.9-million). For the nine months ended Sept. 30, 2020, the company had net income attributable to the company's shareholders of $22.9-million, an increase of $34.4-million over the comparable period in 2019 (loss of $11.5-million). The increase in net income was primarily driven by the sale of an idle asset.

The company reported net income per share of 55 cents for the third quarter of 2020, compared with a net loss of 10 cents for the third quarter of 2019. For the first nine months of 2020, the company reported net income per share of 60 cents, compared with a net loss of 30 cents for the first nine months of 2019.

Corporate developments

Sale of idle production facility and reduction of debt

On Aug. 10, 2020, the company announced the sale of one of its two idle facilities, along with substantial reduction of the company's debt.

After extensive negotiations stretching over multiple years, the company has concluded the sale of its idle Runhao facility, located in Qingdao, China. Specifically, the company sold the buildings and land use rights to the buyer, while retaining the assets, liabilities and obligations of the company's subsidiary entity that previously held the buildings and land use rights. The company had not used the facility for several years, and its sale will not have any impact on the company's continuing operations.

The deal involved not only the company (as seller) and the buyer, but also the company's primary bank debtholder, China Cinda Assets Management Corp., Anhui branch. Under the terms of the deal, from the sale proceeds of 222 million renminbi (approximately $42.5-million), Cinda received just over 102 million renminbi. As a result of this payment, Cinda further agreed to waive an additional approximately 90 million renminbi in amounts owed to Cinda.

Thus, the company reduced its overall liability to Cinda from 570 million renminbi (as at March 31, 2020) to 387 million renminbi (as at July 31, 2020), which is a reduction of 193 million renminbi (approximately $37-million) or a 34-per-cent reduction in the company's obligations to Cinda. The carrying amounts of the Runhao buildings and land use rights were $10.4-million.

Pursuant to the sale and the Chinese government's conditions for approval for the deal, the company is required to use the remaining proceeds from the sale to satisfy the company's tax obligation for Runhao, settle debts owed to certain third parties tied to the construction of Runhao, repay debts to a related party that has been instrumental in facilitating the company's overall restructuring efforts and pay settlement fees for the transaction. The deal was concluded in late July, and the disposition of Runhao is recorded as effective within the third quarter of 2020.

This substantial reduction in debt significantly improves the company's balance sheet. Further, pursuant to a prior agreement with Cinda announced on Sept. 9, 2019, this debt reduction positions the company for further waivers of amounts owed to Cinda as future payments are made to Cinda. The company continues to work closely with Cinda regarding its obligations and its plans to resolve those obligations through payments, waivers and potentially a partial conversion of debt to equity in the company's main Chinese subsidiary, Runhai Anhui Biotechnology Joint Stock Company.

Changes to executive team

Mr. Finnsson, the company's chief financial officer since March of 2019, tendered his resignation for personal reasons, effective June 30, 2020. Management thanks Mr. Finnsson for his service. The company has appointed Edward Wang, the company's current controller, as acting chief financial officer.

Additionally, the company previously announced that its president, Paul Block, and the company agreed that Mr. Block would step down as president with an effective date of June 25, 2020. Mr. Block remained a director of the company but opted to not run for re-election at the company's coming annual general and special meeting.

Dr. Luke Zhang, chairman and chief executive officer, in addition to his focus on overseeing the company's Chinese subsidiaries and efforts to restructure the company's debt, is continuing to manage the company's North American team to increase sales, manage costs and improve the company's financial performance.

"I would like to thank Paul for his years of service on our board of directors and for his contributions to our management team over the last 18 months. I wish Paul well in his future endeavours," said Dr. Zhang.

Issuance and revocation of management cease trade order

Due to a previously announced delay in filing of the company's year-end 2019 financial statements and related documents, such delay arising from the impact of COVID-19 on the company's ability to timely complete the filing, on May 15, 2020, the company announced that it had applied for and been issued a management cease trade order (MCTO) by the relevant securities commissions. Shortly after completing the filing, the MCTO was revoked on June 8, 2020.

Company outlook

One of the most critical items that management has focused on and continues to focus on is the development and implementation of plans to stem the losses that the company has suffered in recent years and to ameliorate the company's financial position. As a result of those sustained losses, the company lacks the cash necessary to fully finance the business operations and its strategic product initiatives. The company is managing its cash flows carefully to mitigate risk of insolvency. Management has been successful in improving the company's cash outlook in recent quarters. Nevertheless, without an infusion of cash in the months ahead, the company may not be able to realize its strategic plans and could eventually cease to be a going concern.

To address that cash need, management has negotiated a $1-million revolving loan facility with a related party for working capital purposes in 2020. Management has also realized the sale of one of its two idle assets: the sale of the Runhao facility resulted in significant debt reduction and better positions the company to be able to access additional lines of working capital. Management is also evaluating options for its idle Runyang primary processing facility in Jiangsu province to further address its cash needs and balance sheet.

Another factor contributing to the company's financial situation is the competitive price pressure in the stevia market over the last year that has reduced mainstream Reb A products (such as Reb A 80 and Reb A 97) to the lowest price levels in years. While these products have historically formed the core of the company's product sales, the margins on sales of these products have grown increasingly slim. To address this, the company is taking a three-pronged approach.

First, the company has taken decisive steps to reduce its SG&A costs, as well as its production costs. Both its North American operations and Chinese operations have significantly reduced SG&A costs. For the last several years, the company's production capacity has been far greater than its projected order levels as the company had sought rapid increases in orders for Reb A products. The company's goal is now to rightsize its Chinese operations -- that is, to optimize its staffing and production planning to meet the company's projected production requirements while retaining the ability to accommodate growth in future order volumes. Management expects that this will enable the company to sell its goods at more competitive and/or more profitable prices to secure additional order volumes and/or retain additional margin.

Second, the company is increasing its focus on specialty stevia products, relative to its Reb A products. These specialty products are more differentiated than Reb A products, and can bring more revenue opportunities and more meaningful margin contributions to the company's bottom line.

Third, the company is exploring options to enter the cannabidiol market, where it could leverage its production expertise and equipment toward an investment that would jump-start its ability to quickly begin producing high-quality low-cost CBD products. The company has also entered into a distributorship agreement with East West Pharma Group for the distribution of its high-quality cannabidiol products and continues to explore other complementary opportunities in the cannabis extract market.

While the company continues to face substantial risks and 2020 remains a pivotal year for the company, management remains optimistic about the future opportunities for the company. With the first idle asset sale now closed, rightsizing efforts progressing well, the optimization of production efficiencies, costs and planning, and the company's refocused product strategies, management is proceeding down the best available path to increased financial stability and profitability.

2020 annual general meeting voting results

The company held its annual general meeting virtually on July 28, 2020. The shareholders voted in all nominated directors, with favourable votes for each exceeding 99 per cent. Dr. Zhang continues as chairman of the board and chief executive officer, and Brian Palmieri continues as vice-chairman of the board.

Selected financials

As noted herein, the complete set of financial statements and management's discussion and analysis for the three and nine months ended Sept. 30, 2020, is available on SEDAR and on the company's website.

Results from operations

The attached results from operations have been derived from and should be read in conjunction with the company's annual consolidated financial statements for 2019 and the condensed interim consolidated financial statements for the nine-month period ended Sept. 30, 2020.

                                          FINANCIAL HIGHLIGHTS
                             (in thousands of dollars, except per-share amounts)

                                                                       Three months ended       Nine months ended
                                                                             Sept. 30,               Sept. 30,
                                                                         2020        2019        2020        2019

Revenue                                                                $3,966      $2,373     $12,507      $7,222
Cost of sales                                                          (3,239)     (1,928)     (9,793)     (5,850)
Gross profit (loss)                                                       727         444       2,713       1,372
Expenses                                                               (1,468)     (1,727)     (5,298)     (6,999)
(Loss) from operations                                                   (742)     (1,283)     (2,586)     (5,627)
Other income (expenses)                                                18,056      (3,499)     25,850      (9,357)
Net income (loss) before income taxes                                  17,314      (4,782)     23,264     (14,984)
Net income (loss)                                                      17,314      (4,782)     23,264     (14,984)
Net income (loss) attributable to non-controlling interest (NCI)       (3,827)       (924)        363      (3,477)
Net income (loss) attributable to GLG                                  21,141      (3,858)     22,901     (11,507)
Net income (loss) per share (LPS, basic and diluted)                     0.55       (0.10)       0.60       (0.30)
Other comprehensive income (loss)                                       9,154       1,754       6,349       5,302
Comprehensive net income (loss)                                        26,468      (3,028)     29,613      (9,682)
Comprehensive income (loss) attributable to NCI                        (2,995)       (342)        382      (1,740)
Comprehensive income (loss) attributable to GLG                        29,463      (2,686)     29,231      (7,942)

Revenue

Revenue for the three months ended Sept. 30, 2020, was $4.0-million compared with $2.4-million in revenue for the same period last year. Sales increased by 67 per cent or $1.6-million for the period ended Sept. 30, 2020, compared with the prior period. The sales increase of $1.6-million was driven primarily by roughly equivalent increases in each of international stevia sales and international monk fruit sales. Chinese domestic stevia sales were down between the two periods although international sales continue to predominate, making up 97 per cent of the company's revenues (versus 85 per cent in third quarter 2019).

Revenue for the nine months ended Sept. 30, 2020, was $12.5-million compared with $7.2-million in revenue for the same period last year. Sales increased by 73 per cent or $5.3-million for the nine months ended Sept. 30, 2020, compared with the prior period. The sales increase of $5.3-million was driven primarily by the increase in both international stevia and international monk fruit sales. Offsetting these increases, Chinese domestic sales were down for the 2020 period versus the 2019 period, but the impact was relatively small as international sales made up 96 per cent of nine-month 2020 revenues (versus 86 per cent for the same period in 2019).

Cost of sales

For the quarter ended Sept. 30, 2020, the cost of sales was $3.2-million compared with $1.9-million in cost of sales for the same period last year ($1.3-million or 68-per-cent increase). Cost of sales as a percentage of revenues was 82 per cent for the third quarter 2020, compared with 81 per cent for the comparable period, an increase of one percentage point. The increase in cost of sales as a percentage of revenue for the three months ended Sept. 30, 2020, compared with the prior comparable period, is primarily attributable to: (1) a greater percentage of overall sales coming from lower-margin monk fruit products, which was partly offset by: (2) improved production efficiency driven by the higher sales volume.

For the nine months ended Sept. 30, 2020, the cost of sales was $9.8-million compared with $5.9-million for the same period last year (an increase of $3.9-million or 67 per cent). Cost of sales as a percentage of revenues was 78 per cent for the first nine months of 2020, compared with 81 per cent in the comparable period in 2019, an improvement of three percentage points. The improvement in cost of sales as a percentage of revenue for the nine months ended Sept. 30, 2020, compared with the prior comparable period, is attributable to: (1) a change in mix of products sold, with a greater percentage of stevia sales coming from higher-margin stevia products, which was offset by: (2) a greater percentage of overall sales coming from lower-margin monk fruit products.

Capacity charges charged to the cost of sales ordinarily would flow to inventory and are a significant component of the cost of sales. Only two of GLG's manufacturing facilities were operating during the first nine months of 2020, and capacity charges of $1.4-million were charged to cost of sales (representing 14 per cent of cost of sales) compared with $800,000 charged to cost of sales in the same period of 2019 (representing 14 per cent of cost of sales).

Gross profit (loss)

Gross profit for the three months ended Sept. 30, 2020, was $700,000, compared with a gross profit of $400,000 for the comparable period in 2019. The gross profit margin was 18 per cent in the third quarter of 2020 compared with 19 per cent for the same period in 2019, a decrease of one percentage point. This one-percentage-point decrease in gross profit margin for the third quarter of 2020, relative to the comparable period in 2019, is primarily attributable to: (1) a greater percentage of overall sales coming from lower-margin monk fruit products, which was partly offset by: (2) improved production efficiency driven by the higher sales volume.

Gross profit for the nine months ended Sept. 30, 2020, was $2.7-million, compared with a gross profit of $1.4-million for the comparable period in 2019. The gross profit margin was 22 per cent in the first nine months of 2020 compared with 19 per cent for the same period in 2019, an increase of three percentage points. This three-percentage-point increase in gross profit margin for the first nine months of 2020, relative to the comparable period in 2019, is attributable to: (1) a change in mix of products sold, with a greater percentage of stevia sales coming from higher-margin stevia products, which was offset by: (2) a greater percentage of overall sales coming from lower-margin monk fruit products.

Selling, general and administration expenses

Selling, general and administration expenses include sales, marketing, general and administration costs, stock-based compensation, and depreciation and amortization expenses on G&A fixed assets.

G&A expenses for the three months ended Sept. 30, 2020, were $700,000, a decrease of $500,000 compared with $1.2-million in the same period in 2019. The $500,000 decrease in G&A expenses was driven primarily by reductions in salary ($400,000).

G&A expenses for the nine months ended Sept. 30, 2020, were $3.5-million, a decrease of $1.6-million compared with $5.0-million in the same period in 2019. The $1.6-million decrease in G&A expenses was driven primarily by reductions in salaries and wages, business taxes and licences, research and development, professional fees, and travel.

Net income (loss) attributable to the company

For the three months ended Sept. 30, 2020, the company had net income attributable to the company of $21.1-million, an increase of $25.0-million over the comparable period in 2019 (loss of $3.9-million). The $25.0-million increase in net income attributable to the company was driven by: (1) an increase in other income ($21.6-million) attributable primarily to disposal of the company's Runhao subsidiary; (2) an increase in net loss attributable to non-controlling interests ($2.9-million); and (3) a decrease in net loss from operations ($500,000).

For the nine months ended Sept. 30, 2020, the company had net income attributable to the company of $22.9-million, an increase of $34.4-million over the comparable period in 2019 (loss of $11.5-million). The $34.4-million increase in net income attributable to the company was driven by: (1) an increase in other income ($35.2-million) attributable primarily to disposal of the company's Runhao subsidiary; and (2) a decrease in net loss from operations ($3.0-million), which were offset by: (3) an increase in net income attributable to non-controlling interests ($3.8-million).

Quarterly basic and diluted loss per share

The basic and diluted net income per share from operations was 55 cents for the three months ended Sept. 30, 2020, compared with a basic and diluted net loss of 10 cents for the comparable period in 2019.

The basic and diluted net income per share from operations was 60 cents for the nine months ended Sept. 30, 2020, compared with a basic and diluted net loss of 30 cents for the comparable period in 2019.

Additional information

Additional information relating to the company, including the annual information form, is available on SEDAR. Additional information relating to the company is also available on the company's website.

About GLG Life Tech Corp.

GLG Life Tech is a global leader in the supply of high-purity zero-calorie natural sweeteners, including stevia and monk fruit extracts, used in food and beverages. GLG's vertically integrated operations, which incorporate the fairness to farmers program and emphasize sustainability throughout, cover each step in the stevia and monk fruit supply chains, including non-GMO (non-genetically modified organism) seed and seedling breeding, natural propagation, growth and harvest, proprietary extraction and refining, and marketing and distribution of the finished products. Additionally, to further meet the varied needs of the food and beverage industry, GLG, through its Naturals+ product line, supplies a host of complementary ingredients reliably sourced through its supplier network in China.

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