Mr. Simon Springett reports

GLG LIFE TECH CORPORATION REPORTS 2023 THIRD QUARTER FINANCIAL RESULTS

GLG Life Tech Corp. has released its financial results for the three and nine months ended Sept. 30, 2023. 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 revenues of $2.4-million in the third quarter of 2023, compared with $2.4-million in revenue for the third quarter of 2022. The company's gross profit margin improved to 33 per cent for the third quarter of 2023, compared with 32 per cent for the third quarter of 2022.

The company reported revenues of $6.0-million for the nine months ended Sept. 30, 2023, compared with $7.9-million for the same period last year. The company's gross profit margin was unchanged at 31 per cent for the nine-month period in both 2023 and 2022.

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

For the three months ended Sept. 30, 2023, the company had a net loss attributable to the company's shareholders of $7.5-million, a change of nil versus the comparable period in 2022. The company reported a net loss per share of 20 cents for the third quarter of 2023, compared with a net loss per share of 20 cents for the third quarter of 2022.

For the nine months ended Sept. 30, 2023, the company had a net loss attributable to the company's shareholders of $16.6-million, a decrease of $600,000 over the comparable period in 2022 ($17.2-million). The company reported a net loss per share of 44 cents for the first nine months of 2023, compared with a net loss per share of 45 cents for the same period in 2022.

Corporate developments

2023 AGM 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.

Incorporation of, and affiliation with, Honghongyuan

Qingdao Honghongyuan Health Industry Technology Co. Ltd. (HHY) was incorporated in Qingdao, Shangdong province, China, in 2023. The company, through its subsidiary, Qingdao Runde Biotechnology Company Ltd. (Runde), signed a five-year lease agreement commencing Aug. 1, 2023, and running through July 31, 2028, to lease, for an annual fee, the use of Runde's production facilities to HHY. In return, HHY is is licensed to use the company's patents and know-how to produce products at the Runde facility for the benefit of the company, for further sale and export to the company's international customers. The company will assist HHY in obtaining funding for the company's orders. The agreement does not involve the disposition of any assets.

While HHY is owned by a third party, production by HHY for the company leverages principally a) the existing production staff at Runde, and/or staff migrated from Runde to HHY, and b) the existing production know-how, including adherence to specific customer requirements and established protocols. From a customer perspective, practically, the change in production responsibilities is nominal. From a corporate perspective, the change brings certain tax benefits while effectively retaining control over production of the company's goods.

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 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. Monk fruit prices have also reached their lowest levels in years. 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 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 rightsize 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. This has included adding additional production capabilities at its Runde facility, enabling the company to realize greater efficiencies with more consolidated production at the Runde facility. As a result of these efforts, the company has been able to sell its goods at more competitive prices while protecting its financial position.

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 rightsizing efforts to manage costs and continuing to optimize production efficiencies, costs and planning, management is proceeding down the best available path to increased financial stability and improved profitability. Further, while the company's revenues in the first nine months of this year were impacted by a temporary abatement in orders from one of its largest customers, this abatement has since lapsed and order flow has resumed to preabatement levels and is expected to surpass these levels moving into the fourth quarter and beyond.

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, 2023, are available on SEDAR+ and on the company's website.

Results from operations

The results in the attached table from operations 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 nine-month period ended Sept. 30, 2023.

Revenue

Revenue for the three months ended Sept. 30, 2023, increased by 1 per cent to $2.4-million compared with the same period last year. Sales were essentially even, comparing the two periods, across both international stevia and monk fruit revenues. International sales continue to predominate, making up over 99 per cent of the company's revenues in the third quarter of 2023 (100 per cent in third quarter of 2022).

Revenue for the nine months ended Sept. 30, 2023, was $6.0-million compared with $7.9-million in revenue for the same period last year. Sales decreased by 25 per cent or $1.9-million for the nine months ending Sept. 30, 2023, compared with the prior period. The sales decrease of $1.9-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 nine months of 2023 (93 per cent in the first nine months of 2022).

Cost of sales

For the quarter ended Sept. 30, 2023, the cost of sales decreased by 1 per cent to $1.6-million, compared with the cost of sales for the same period last year. Cost of sales improved by one percentage point to 67 per cent for the third quarter of 2023, compared with 68 per cent for the third quarter of 2022.

For the nine months ended Sept. 30, 2023, the cost of sales was $4.1-million compared with $5.4-million for the same period last year ($1.3-million or 24-per-cent decrease). Cost of sales as a percentage of revenues was 69 per cent for the first nine months of both 2023 and 2022.

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 2023, and capacity charges of $600,000 were charged to cost of sales (representing 14 per cent of cost of sales) compared with $500,000 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 Sept. 30, 2023, increased by 3 per cent to $800,000, compared with $800,000 in gross profit for the same period last year. The gross profit margin increased by one percentage point to 33 per cent for the third quarter of 2023, compared with 32 per cent in the third quarter of 2022.

Gross profit for the nine months ended Sept. 30, 2023, was $1.8-million, compared with a gross profit of $2.4-million for the comparable period in 2022. The gross profit margin was 31 per cent in the first nine months for both 2023 and 2022.

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, 2023, were $800,000, a decrease of nil compared with $800,000 in the same period in 2022. G&A-related depreciation and amortization expenses for the three months ended Sept. 30, 2023, were $200,000 compared with $200,000 for the same quarter of 2022.

G&A expenses for the nine months ended Sept. 30, 2023, were $2.4-million, a decrease of 1 per cent compared with $2.5-million in the same period in 2022. G&A-related depreciation and amortization expenses for the nine months ended Sept. 30, 2023, were $600,000 compared with $600,000 for the same period in 2022.

For the three months ended Sept. 30, 2023, the company had a net loss attributable to the company of $7.5-million, an increase in net loss of nil over the comparable period in 2022. The nil change in net loss resulted from (1) a decrease in loss from operations ($100,000) offset by (2) an increase in other expenses ($100,000).

For the nine months ended Sept. 30, 2023, the company had a net loss attributable to the company of $16.6-million, a decrease in net loss of $600,000 over the comparable period in 2022 (net loss of $17.2-million). The $600,000 decrease in net loss attributable to the company was driven by (1) a decrease in other expenses ($1.0-million), which was offset by (2) an increase in loss from operations ($500,000).

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, 2023, compared with a basic and diluted net loss per share of 20 cents for the comparable period in 2022.

The basic and diluted net loss per share from operations was 44 cents for the nine months ended Sept. 30, 2023, compared with a basic and diluted net loss per share of 45 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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