Mr. Simon Springett reports

GLG LIFE TECH CORPORATION REPORTS 2023 SECOND QUARTER FINANCIAL RESULTS

GLG Life Tech Corp. has released its financial results for the three and six months ended June 30, 2023. The complete set of financial statements and management's discussion and analysis (MD&A) are available on SEDAR and on the company's website.

Financial summary

The company reported revenues of $2.0-million in the second quarter of 2023, compared with $2.8-million in revenue for the second quarter of 2022. The company's gross profit margin was unchanged at 32 per cent for the second quarters of both 2022 and 2023.

The company reported revenues of $3.6-million for the six months ended June 30, 2023, compared with $5.5-million for the same period last year. The company's gross profit margin decreased by two percentage points to 29 per cent for the period, compared with 31 per cent for the same period last year.

The company continues its efforts to closely manage its SG&A (selling, general and administrative) expenses, lowering these expenses in both the three- and six-month periods in 2023, compared with the respective prior periods in 2022.

For the three months ended June 30, 2023, the company had a net loss attributable to the company's shareholders of $2.7-million, a decrease of $2.8-million or 51 per cent over the comparable period in 2022 ($5.5-million). The company reported a net loss per share of seven cents for the second quarter of 2023, compared with a net loss per share of 14 cents for the second quarter of 2022.

For the six months ended June 30, 2023, the company had a net loss attributable to the company's shareholders of $9.1-million, a decrease of $600,000 or 6 per cent over the comparable period in 2022 ($9.7-million). The company reported a net loss per share of 24 cents for the first six months of 2023, compared with a net loss per share of 25 cents for the same period in 2022.

Corporate developments

2023 AGM (annual general meeting) voting results

The company held its annual and special general meeting on June 16, 2023. 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.

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. 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 $1-million (Canadian) revolving loan facilities with a third party for working capital purposes. 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/or 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 highly 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 2022 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 it had sought rapid increases in orders for Reb A products. The company's aim continues to be to right-size its Chinese operations -- 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. 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 above, the complete set of financial statements and MD&A for the three and six months ended June 30, 2023, are available on SEDAR and on the company's website.

Results from operations

The results from operations in the attached table have been derived from and should be read in conjunction with the company's annual consolidated financial statements for 2022 and the condensed interim consolidated financial statements for the six-month period ended June 30, 2023.

Revenue

Revenue for the three months ended June 30, 2023, was $2.0-million, compared with $2.8-million in revenue for the same period last year. Sales decreased by 28 per cent or $800,000 for the period ending June 30, 2023, compared with the prior period. The decrease in sales is primarily attributable to decreases in stevia sales both domestically in China and internationally, and to a lesser degree a decrease in monk fruit sales. International sales continue to predominate, making up over 99 per cent of the company's revenues in the second quarter of 2023 (91 per cent in second quarter of 2022).

Revenue for the six months ended June 30, 2023, was $3.6-million, compared with $5.5-million in revenue for the same period last year. Sales decreased by 35 per cent or $2.0-million for the six months ending June 30, 2023, compared with the prior period. The sales decrease of $2.0-million was driven primarily by a decrease in international stevia and monk fruit sales, with an additional decrease in domestic (China) stevia sales contributing to the overall decrease. The decrease in stevia sales was driven in part by a temporary slowdown in orders in the first quarter from one of the company's largest customers and the reduction in monk fruit sales and other stevia revenues was driven by increasingly competitive market pricing for these products. International sales made up over 99 per cent of the company's revenues in the first six months of 2023 (90 per cent in the first six months of 2022).

Cost of sales

For the quarter ended June 30, 2023, the cost of sales was $1.4-million, compared with $1.9-million in cost of sales for the same period last year ($500,000 or 28-per-cent decrease). Cost of sales as a percentage of revenues was 68 per cent for the second quarters in both 2022 and 2023.

For the six months ended June 30, 2023, the cost of sales was $2.5-million, compared with $3.8-million for the same period last year ($1.3-million or 34-per-cent decrease). Cost of sales as a percentage of revenues was 71 per cent for the first six months of 2023, compared with 69 per cent in the comparable period in 2022, an increase of two percentage points. The increase in cost of sales as a percentage of revenue for the six months ended June 30, 2023, compared with the prior comparable period, is primarily attributable to an increase in idle capacity charges.

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 six months of 2023 and capacity charges of $400,000 were charged to cost of sales (representing 16 per cent of cost of sales), compared with $400,000 charged to cost of sales in the same period of 2022 (representing 9 per cent of cost of sales).

Gross profit (loss)

Gross profit for the three months ended June 30, 2023, was $600,000, compared with a gross profit of $900,000 for the comparable period in 2022. The gross profit margin was 32 per cent in the second quarters of both 2022 and 2023.

Gross profit for the six months ended June 30, 2023, was $1.0-million, compared with a gross profit of $1.7-million for the comparable period in 2022. The gross profit margin was 29 per cent in the first six months of 2023, compared with 31 per cent for the same period in 2022, a decrease of two percentage points. This two-percentage-point decrease in gross profit margin for the first six months of 2023, relative to the comparable period in 2022, is primarily attributable to an increase in idle capacity charges.

Selling, general and administration (SG&A) expenses

SG&A expenses include sales, marketing, general and administration (G&A) costs, 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 June 30, 2023, were $800,000, a decrease of nil compared with $900,000 in the same period in 2022. G&A-related depreciation and amortization expenses for the three months ended June 30, 2023, were $200,000, compared with $200,000 for the same quarter of 2022.

G&A expenses for the six months ended June 30, 2023, were $1.7-million, a decrease of nil compared with $1.7-million in the same period in 2022. G&A-related depreciation and amortization expenses for the six months ended June 30, 2023, were $400,000, compared with $400,000 for the same period in 2022.

Net loss attributable to the company

For the three months ended June 30, 2023, the company had a net loss attributable to the company of $2.7-million, a decrease in net loss of $2.8-million over the comparable period in 2022 (net loss of $5.5-million). The $2.8-million decrease in net loss attributable to the company was driven by a decrease in other expenses ($3.0-million), which was offset by an increase in loss from operations ($200,000).

For the six months ended June 30, 2023, the company had a net loss attributable to the company of $9.1-million, a decrease in net loss of $600,000 over the comparable period in 2022 (net loss of $9.7-million). The $600,000 decrease in net loss attributable to the company was driven by a decrease in other expenses ($1.2-million), which was offset by an increase in loss from operations ($600,000).

Quarterly basic and diluted loss per share

The basic and diluted net loss per share from operations was seven cents for the three months ended June 30, 2023, compared with a basic and diluted net loss per share of 14 cents for the comparable period in 2022.

The basic and diluted net loss per share from operations was 24 cents for the six months ended June 30, 2023, compared with a basic and diluted net loss per share of 25 cents for the comparable period in 2022.

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 company's 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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