Mr. Simon Springett reports

GLG LIFE TECH CORPORATION REPORTS 2022 THIRD QUARTER FINANCIAL RESULTS

GLG Life Tech Corp. has released its financial results for the three and nine months ended Sept. 30, 2022. The complete set of financial statements and management discussion and analysis are available on SEDAR and on the company's website.

Financial summary

The company reported a 13-per-cent increase in revenues in the third quarter of 2022 at $2.4-million, compared with $2.1-million in revenue for the third quarter of 2021. The company's gross profit margin improved by five percentage points at 32 per cent for the third quarter of 2022, compared with 27 per cent for the third quarter of 2021.

For the nine months ended Sept. 30, 2022, the company reported revenues of $7.9-million, compared with $7.9-million for the comparable period in 2021. While revenues were even across the two nine-month periods, the company's gross profit margin improved by three percentage points to 31 per cent for the 2022 period, compared with 28 per cent for the 2021 period.

The company continues its efforts to closely manage its SG&A (selling, general and administrative) expenses, reducing its SG&A expenses by 16 per cent in the three months ended Sept. 30, 2022, versus the comparable period in 2021 ($800,000 versus $900,000), and reducing its SG&A expenses by 6 per cent in the nine months ended Sept. 30, 2022, versus the comparable period in 2021 ($2.5-million versus $2.6-million).

For the three months ended Sept. 30, 2022, the company had a net loss attributable to the company of $7.5-million, an increase in net loss of $600,000 over the comparable period in 2021 (net loss of $7.0-million). The company reported a net loss per share of 20 cents for the third quarter of 2022, compared with a net loss per share of 18 cents for the third quarter of 2021.

For the nine months ended Sept. 30, 2022, the company had a net loss attributable to the company of $17.2-million, an increase in net loss of $1.9-million over the comparable period in 2021 (net loss of $15.3-million). The company reported a net loss per share of 45 cents for the first nine months of 2022, compared with a net loss per share of 40 cents for the same period in 2021.

Corporate developments

Formation of joint venture

On April 25, 2022, the company announced the formation of a new joint venture through its Chinese subsidiary, Anhui Runhai Biotechnology Joint Stock Company Ltd. The joint venture, operating under the name Xinjiang Huanyu Technology Co. Ltd., brings together Xinjiang Luxiang Sugar Industry Co. Ltd., Xiao Gang HZ Health Industrial Park and Runhai in a vertically integrated endeavour to bring a suite of consumer natural sweetener products as well as expanded business-to-business stevia sales to the domestic China market.

Huanyu will bring together upstream agricultural resources in support of downstream production for both the B2B (business-to-business) and B2C (business-to-consumer) sectors, with specialization in and integration of harvesting to bulk manufacturing to production of a variety of end customer products. Luxiang, located in northwest China, where the soil, water and sunlight are optimal for growing high-quality stevia leaf and other agricultural products, will produce and provide the agricultural raw materials for the joint venturers. Runhai, with its 18 years of technical expertise in manufacturing stevia products, will use this premium stevia leaf for producing its high-purity stevia extracts and other specialized stevia products -- both in support of the joint venture as well as in support of GLG's international customers. Xiaogang, with its history of producing and selling high-quality low/zero-calorie sweetener consumer products, will use raw material inputs from both Luxiang and Runhai to produce its suite of healthful consumer products. Integrating agriculture with both B2B and B2C product manufacturing streams offers Huanyu a uniquely complementary advantage in China.

Under the terms of the agreement, Luxiang, a state-owned company, will be the majority stakeholder with a 51-per-cent share. Runhai will have a 26-per-cent share and Xiao Gang will have a 23-per-cent share. Luxiang will provide working capital for Huanyu's production needs as well as the production facilities. Runhai is providing key idle equipment from its facilities and specialized know-how in the production of stevia products leveraging a variety of steviol glycosides for sale to food and beverage companies across China. Xiao Gang has particular equipment and expertise in the natural products space that it will contribute for Huanyu's consumer products development, production and sales.

While Luxiang will be a major customer of Huanyu's, the joint venturers are planning on sales of their products to customers and companies throughout China, both off the shelf to consumers and to food and beverage companies looking for high-quality and innovative natural sweeteners for use in their own products.

Huanyu anticipates production commencing in 2023. In the meantime, it plans to access up to 500 million renminbi from government funding available to support agricultural initiatives. This funding, if received, will help the joint venturers to finance their operation. Furthermore, in Runhai's case, this funding can be used to substantially, if not entirely, resolve long-standing debt issues, as the joint venturers have as a collective goal to clear Runhai of its debts. This will put Runhai, and consequently the company, on much more solid financial footing. Dr. Zhang, the company's chairman and chief executive officer, commented: "Our new joint venture offers new and greater opportunities for GLG to access the domestic markets in China as well as to improve our company's balance sheet. We are excited to partner with Luxiang Sugar and Xiaogang Health, both ambitious companies excited to bring healthful products to our Chinese populace."

Runhai will continue producing products for GLG's international customers through its active production facilities located in Qingdao and Anhui provinces. Serving GLG's customers with high-quality products remains a central focus for Runhai and for GLG; the joint venture opportunity is entirely additive to the company's business plans.

2022 AGM voting results

The company held its annual general meeting on June 17, 2022. The shareholders voted in all nominated directors, with favourable votes for each exceeding 99 per cent. Dr. Luke Zhang continues as chairman of the board and chief executive officer and Brian Palmieri continues as vice-chairman of the board. Dr. Hong Zhao Guang opted not to run for election this year and is therefore no longer a director.

Company outlook

In recent quarters, 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 continues to manage its cash flows carefully to mitigate risk of insolvency. As a result of these efforts, management has been successful in improving the company's cash flows 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 negotiated a $1-million revolving loan facility with a related party for working capital purposes in 2020. In 2020, management 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 also continues to explore options for the sale or repurposing of its idle Runyang primary processing facility in Jiangsu province to further address its cash needs and balance sheet.

Another factor that continues to contribute to the company's financial situation is the competitive price pressure in the stevia market over the last two years that has reduced mainstream Reb A products (such as Reb A 80 and Reb A 97) to the lowest price levels in years, although pricing has begun to rise (reflecting the increased cost of raw materials in the most recent harvest). Monk fruit prices have also become increasingly competitive in the marketplace. To maintain margins at sustainable levels, the company has focused on improving its production efficiencies, continues to strive for a mix of products that is weighted more heavily on higher-margin, specialty products and has focused more on higher-margin direct sales.

The company's focus on maintaining positive cash flow led the company to take decisive steps in 2021 and continued efforts in 2022 to reduce its SG&A (selling, general and administrative) 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 it had sought rapid increases in orders for Reb A products. The company's aim continues to be to right-size its Chinese operations -- in example, 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 -- and management made significant progress in this area and continues striving to optimize staffing and production plans. As a result, this has enabled the company to sell its goods at more competitive and/or more profitable prices although the competitive price pressures remain strong.

The company continues to explore options to significantly improve its balance sheet and cash flows, whether through restructuring of debt or other opportunities for infusions of cash to address the debt load. One of these options is taking shape, as the company entered into a joint venture in China through its Runhai subsidiary, which has the potential to significantly increase revenues and overhaul the company's balance sheet. The company also continues to explore options that may be complementary to the natural sweetener market, where it could leverage its production expertise and equipment toward an investment that may help grow the company's revenues and improve its financial position.

While the company continues to face substantial risks, management remains optimistic about the future opportunities for the company. Having closed the idle asset sale in 2020 and having successfully implemented right-sizing efforts to manage costs, having entered into the joint venture, and continuing to optimize production efficiencies, costs and planning, management is proceeding down the best available path to increased financial stability and improved profitability.

Selected financials

As noted herein, the complete set of financial statements and management discussion and analysis for the three and nine months ended Sept. 30, 2022, are available on SEDAR and on the company's website.

Results from operations

The results from operations, as shown in the attached table, have been derived from and should be read in conjunction with the company's annual consolidated financial statements for 2021 and the condensed interim consolidated financial statements for the nine-month period ended Sept. 30, 2022.

Revenue

Revenue for the three months ended Sept. 30, 2022, was $2.4-million compared with $2.1-million in revenue for the same period last year. Sales increased by 13 per cent or $300,000 for the period ending Sept. 30, 2022, compared with the prior period. This 13-per-cent increase in sales is attributable to an increase in international stevia sales, which was partly offset by a decrease in monk fruit sales and domestic China stevia sales. International sales continue to predominate, making up 100 per cent of the company's revenues in the third quarter of 2022 (95 per cent in third quarter of 2021).

Revenue for the nine months ended Sept. 30, 2022, was $7.9-million compared with $7.9-million in revenue for the same period last year. International and domestic stevia sales increased in the first nine months of 2022, with those increases offset by a decrease in monk fruit sales, resulting in revenues holding even between the two year-over-year periods. International sales made up 93 per cent of the company's revenues in the first nine months of 2022 (96 per cent in the first nine months of 2021).

Cost of sales

For the quarter ended Sept. 30, 2022, the cost of sales was $1.6-million compared with $1.5-million in cost of sales for the same period last year ($100,000 or 4 per cent increase). Cost of sales as a percentage of revenues was 68 per cent for the third quarter 2021, compared with 73 per cent for the third quarter 2022, an improvement of five percentage points.

For the nine months ended Sept. 30, 2022, the cost of sales was $5.4-million compared with $5.7-million for the same period last year ($200,000 or 4 per cent decrease). Cost of sales as a percentage of revenues was 69 per cent for the first nine months of 2022, compared with 72 per cent in the comparable period in 2021, an improvement of three percentage points.

The improvements in cost of sales as a percentage of revenue for both the three-month and nine-month periods in 2022, relative to the respective comparable periods in 2021, are primarily attributable to a continued focus on production efficiency and cost management.

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 2022, and capacity charges of $500,000 were charged to cost of sales (representing 9 per cent of cost of sales) compared with $700,000 charged to cost of sales in the same period of 2021 (representing 11 per cent of cost of sales).

Gross profit (loss)

Gross profit for the three months ended Sept. 30, 2022, was $800,000, compared with a gross profit of $600,000 for the comparable period in 2021. The gross profit margin was 32 per cent in the third quarter 2022 compared with 27 per cent in the third quarter 2021, an improvement of five percentage points.

Gross profit for the nine months ended Sept. 30, 2022, was $2.5-million, compared with a gross profit of $2.2-million for the comparable period in 2021. The gross profit margin was 31 per cent in the first nine months of 2022 compared with 28 per cent for the same period in 2021, an improvement of three percentage points.

The improvements in gross profit margins for both the three-month and nine-month periods in 2022, relative to the respective comparable periods in 2021, are primarily attributable to a continued focus on production efficiency and cost management.

Selling, general and administration expenses

Selling, general and administration (SG&A) expenses include sales, marketing, general and administration costs (G&A), stock-based compensation, and depreciation and amortization expenses on G&A fixed assets. A breakdown of SG&A expenses into these components is presented in the attached table.

G&A expenses for the three months ended Sept. 30, 2022, were $800,000, a decrease of $100,000 compared with $900,000 in the same period in 2021.

G&A expenses for the nine months ended Sept. 30, 2022, were $2.5-million, a decrease of $100,000 compared with $2.6-million in the same period in 2021.

For the three months ended Sept. 30, 2022, the company had a net loss attributable to the company of $7.5-million, an increase in net loss of $600,000 over the comparable period in 2021 (net loss of $7.0-million). The $600,000 increase in net loss attributable to the company was driven by increases in (1) interest expenses ($600,000) and (2) foreign exchange loss ($400,000), which were offset by (3) a decrease in loss from operations ($400,000).

For the nine months ended Sept. 30, 2022, the company had a net loss attributable to the company of $17.2-million, an increase in net loss of $1.9-million over the comparable period in 2021 (net loss of $15.3-million). The $1.9-million increase in net loss attributable to the company was driven by increases in (1) interest expenses ($2.2-million) and (2) foreign exchange loss ($600,000), which were offset by (3) a decrease in loss from operations ($700,000) and (4) an increase in inventory recovery ($200,000).

Quarterly basic and diluted loss per share

The basic and diluted net loss per share from operations was 20 cents for the three months ended Sept. 30, 2022, compared with a basic and diluted net loss per share of 18 cents for the comparable period in 2021.

The basic and diluted net loss per share from operations was 45 cents for the nine months ended Sept. 30, 2022, compared with a basic and diluted net loss per share of 40 cents for the comparable period in 2021.

Additional information

Additional information relating to the company, including the company's 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 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 (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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