Mr. Simon Springett reports

GLG LIFE TECH CORPORATION REPORTS 2024 FIRST QUARTER FINANCIAL RESULTS

GLG Life Tech Corp. has released its financial results for the three months ended March 31, 2024. The company's financial statements and management's discussion and analysis are available on SEDAR+ and on the company's website.

Financial summary

The company reported revenue of $3.5-million in the first quarter of 2024, compared with $1.6-million in revenue for the first quarter of 2023. This 123-per-cent increase was attributable to an increase in international stevia revenue, deriving in part from a base effect from a temporary slowdown in orders from one of the company's largest customers in early 2023 and in part from success in the company's efforts to increase revenue.

The company continues its efforts to closely manage its SG&A (selling, general and administrative) expenses, reducing SG&A by $200,000 in the first quarter of 2024, compared with the first quarter of 2023.

For the three months ended March 31, 2024, the company had a net loss attributable to the company's shareholders from continuing operations of $4.4-million, an increase of $1.0-million over the comparable period in 2023 ($3.4-million). The company reported a net loss per share from continuing operations of 11 cents for the first quarter of 2024, compared with a net loss per share of nine cents for the first quarter of 2023.

Corporate developments

Subsidiary transfer agreement and special shareholders meeting

On Feb. 20, 2024, the company announced that it had signed an agreement, which, once fully approved, would result in the transfer of its Qingdao Runde Biotechnology Co. Ltd. (Runde) production facility to Fengyang Xiaogang Hongzhang Health Industrial Park Co. Ltd. (Xiaogang). This transfer, at the time contingent on necessary shareholder approval and still contingent on regulatory approval, would eliminate significant bank debt from GLG's balance sheet.

Under the terms of the agreement, for the sale price of one Chinese renminbi, 100 per cent of the equity in Runde, currently held by the company's subsidiary, Anhui Runhai Biotechnology Joint Stock Co. Ltd. (Runhai), will be transferred to Xiaogang. Xiaogang will thereafter own Runde's tangible assets and will have sole liability for Runde's bank debts. The company will retain its intellectual property rights, including its proprietary technology and know-how in agriculture and natural sweetener production.

Under supplemental agreements then expected to be signed by Runhai and Xiaogang in the coming weeks (and subsequently signed), Xiaogang will utilize Runde for the benefit of GLG and GLG's customers. Xiaogang will partner with Qingdao Honghongyuan Health Industry Technology Co. Ltd. (HHY), the operating entity previously formed to manage Runde's production operations, such that Runde's production continues unchanged under HHY's processes and management. Xiaogang, via HHY, will produce goods at Runde exclusively for GLG, except for domestic China sales. In this manner, GLG's customers will be able to rely on the same production expertise, processes and highest quality standards remaining in place after this asset transfer becomes fully effective.

The agreement concerning Runde provides that the equity transfer will only become effective upon completion of the company's regulatory obligations, including putting the agreement forth to the company's shareholders for a shareholder vote and additional securities-/exchange-related obligations. This agreement was put to shareholder vote at a special shareholders meeting and approved by the shareholders with over 99 per cent of votes cast in favour of the transaction on May 16, 2024. The company is working on securing any further necessary regulatory approvals.

The company continues to own and oversee its Runhai stevia and monk fruit manufacturing facility, located in Anhui province. The company currently centres its stevia and monk fruit production operations at the Runde facility and plans to continue doing so, via Xiaogang and HHY, after the transaction is made fully effective, with the ability to later augment Runde's operations with production operations at Runhai.

Delisting review

On April 3, 2024, the company announced that the Toronto Stock Exchange had commenced a delisting review, effective April 2, 2024. The TSX is providing the company a 120-day window in which to remedy several long-standing deficiencies, including the company's financial condition and/or operating results, and the company's share price and market capitalization.

At the time of the announcement, the company stated that it could not provide any assurance that it would be able to remedy the deficiencies identified by the TSX within the 120-day window or thereafter. Even if the company were successful in its debt restructuring plans, there is no guarantee that this would be sufficient to address the TSX's financial concerns. Further, even if those concerns were adequately addressed, there is no guarantee that the company's share price, trading activity or market capitalization would improve sufficiently to avoid continued TSX concern in those areas.

The company also confirmed that it has been in contact with the TSX Venture Exchange regarding an application for a listing on the TSX-V to maintain trading continuity in the event that the company is delisted from the TSX. While the company has been in discussions for a listing on the TSX-V, there is no guarantee that such a listing application will be successful or that another market for the company's securities will be available if the company is delisted from the TSX.

Delay in filing financials and cease trade order

As a result of the company's failure to file its 2023 financials (consisting of annual financial statements, its management's discussion and analysis relating to its annual financial statements, and its annual information form, and chief executive officer and chief financial officer certifications, all in respect of its year ended Dec. 31, 2023) by March 31, 2024, the British Columbia Securities Commission (BCSC) issued a failure-to-file cease trade order (FFCTO). The failure to file timely resulted from the late-coming court orders regarding Runyang's bankruptcy proceedings, and the additional financial and audit work necessitated by those orders.

Final disposition of Runyang operations

In the course of the bankruptcy proceedings concerning Runyang, the Chinese court ultimately declared Runyang bankrupt, having liquidated all of its assets. In the fourth quarter of 2023, with Runyang's obligations thereby terminated, the company realized a significant reduction in its liabilities, substantially outweighing the book value of the liquidated assets.

2024 annual general meeting (AGM) voting results

The company held its annual general meeting on June 28, 2024. The shareholders voted in all four 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. Liu Yingchun and Simon Springett continue as directors of the company.

Company outlook

In recent quarters, management has placed, and continues to place, particular focus on mitigating the losses that the company has suffered over the last several 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 previously 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. In 2023, the company also realized significant debt reduction through the bankruptcy liquidation of its other long-idled asset, Runyang.

A factor that continues to contribute to the company's financial situation is the competitive price pressure in the stevia market over the last few years, which 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 become highly competitive in the marketplace. To maintain margins at sustainable levels, the company focused on improving production efficiencies and 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, 2022 and 2023 to reduce its SG&A costs, as well as its production costs. Both its North American operations and Chinese operations significantly reduced SG&A costs. For many years, the company's production capacity had been far greater than its projected order levels, as it had then sought rapid increases in orders for Reb A products. The company's aim has since been 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. These efforts have enabled the company to sell its goods at more competitive and/or more profitable prices, although the competitive price pressures remain strong.

Revenue trends have been and remain encouraging, as management's efforts to increase sales have brought increased revenues in the last two quarters (Q1 2024 and Q4 2023) relative to the several prior quarters. While the remainder of the year is impossible to predict with any reasonable certainty, management currently expects 2024 full-year revenues to meaningfully exceed full-year 2023 revenues. This revenue growth is important to the company's goals of maintaining positive cash flow and positive EBITDA (earnings before interest, taxes, depreciation and amortization).

Against this backdrop of sales growth, the company faces significant regulatory hurdles. It is currently cease traded, as a result of its delay in filing its 2023 full-year financials (since filed, on June 28, 2024), pursuant to a BCSC order (FFCTO). As a result of that filing delay, the company was also delayed in filing its interim first quarter financials for 2024 (filed today). Further, the company is under a delisting review initiated by the TSX, on the basis of the company's share price and market capitalization remaining lower than the TSX's requirements, as well as the company's sustained losses over the years and negative working capital situation.

As has been previously announced by the company, the financial filing delays resulted from late-coming court orders in China related to proceedings concerning the Runyang; the court proceedings resulted in the disposal of the Runyang business, including elimination of significant debts previously carried by the company, such debt elimination far greater than the carried value of the disposed assets. With today's filing of the company's first quarter 2024 financials, management has brought the company current in its financial reporting requirements. Further, management expects to timely file its second quarter 2024 financial reporting on or before the prescribed deadline of Aug. 14, 2024. Accordingly, management is seeking to have the FFCTO rescinded, but it cannot at present provide a timeline or any measure of certainty in having the FFCTO rescinded in the near future.

Regarding the TSX's delisting review, the company is nearing the end of that review period (which extends through Aug. 1, 2024), which could give rise to a delisting 30 days after the end of the review period. While the company has been successful in improving its working capital situation, management cannot presently foresee a likelihood of the company's share price and market capitalization gaining sufficiently to meet the TSX's requirements in the required time frame. In the event of a delisting from the TSX, which management understands could happen as soon as Aug. 31, 2024, management is pursuing its options to maintain trading continuity. While the company has previously announced that it is applying for a listing on the TSX-V, there is no guarantee that such a listing application will be successful or that another market for the company's securities will be available if the company is delisted from the TSX.

Although the regulatory hurdles are substantial, management continues to have a positive outlook on the company's revenue growth in at least the near term. As management works to have the company's stock trading again, management continues to focus on that revenue growth, as well as on maintaining and improving margins and increase cash flows. Management also continues to work on the company's negative working capital situation, and, in particular, on options to restructure or otherwise resolve some or all of the remainder of the company's long-standing bank debt.

Selected financials

As noted above, the financial statements and MD&A for the three months ended March 31, 2024, are available on SEDAR+ and on the company's website.

Results from operations

The results from operations provided in this news release have been derived from and should be read in conjunction with the company's annual consolidated financial statements for 2023 and the condensed interim consolidated financial statements for the three-month period ended March 31, 2024.

Revenue

Revenue for the three months ended March 31, 2024, increased by 123 per cent to $3.5-million, a $1.9-million increase compared with $1.6-million for the same period in 2023. This 123-per-cent increase was attributable to an increase in international stevia revenues, deriving in part from a base effect from a temporary slowdown in orders from one of the company's largest customers in early 2023; this inventory-related order slowdown eased and ceased in the second and third quarters of 2023. International monk fruit sales decreased in the first quarter of 2024, relative to the comparable period in 2023, but the decrease was slight relative to the increase in international stevia revenues. The company's revenues consisted wholly of international sales in the first quarters of both 2024 and 2023.

Cost of sales

For the three months ended March 31, 2024, the cost of sales increased to $2.9-million, compared with a cost of sales of $1.3-million for the same period last year (an increase in cost of sales of 129 per cent). Cost of sales as a percentage of revenues was 83 per cent for the first quarter, a two-percentage-point increase compared with the first quarter of 2023 (81 per cent). This two-percentage-point increase in cost of sales as a percentage of revenues is driven in part by higher costs of raw materials in the first quarter of 2024 relative to the first quarter of 2023 for much of the company's product portfolio, with product pricing often constrained either contractually or by the competitive marketplace. This two-percentage-point increase would have been larger, but for the reclassification effects for 2023 discontinued operations effectively increasing the cost of sales for continuing operations in the first quarter of 2023.

Gross profit (loss)

Gross profit for the three months ended March 31, 2024, increased by 99 per cent to $600,000, compared with $300,000 in gross profit for the same period last year. This 99-per-cent increase in gross profit was driven by the increase in revenues for the first quarter of 2024 compared with the first quarter of 2023. The gross profit margin was 17 per cent for the first quarter of 2024, compared with 19 per cent in the first quarter of 2023, for the same reasons as described above for the year-over-year comparison of cost of sales as a percentage of revenues.

Selling, general and administration expenses

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

G&A expenses for the three months ended March 31, 2024, decreased by $100,000 to $500,000, compared with $600,000 in the same period in 2023. The $100,000 decrease in G&A expenses for the first quarter of 2024 was driven by a reduction in salaries and wages, with other contributions to the decrease from professional fees, rental expenses, and business taxes and licences. G&A-related depreciation and amortization expenses for the three months ended March 31, 2024, were nil, compared with $100,000 for the first quarter of 2023.

Net loss attributable to the company

For the three months ended March 31, 2024, the company had net loss attributable to the company from continuing operations of $4.4-million, an increase of $1.0-million over the comparable period in 2023. This $1.0-million increase is attributable to an increase in other expenses ($1.5-million), which was offset by an increase in gross profit (300,000) and a decrease in SG&A expenses ($200,000).

Quarterly basic and diluted loss per share

The basic and diluted loss per share from continuing operations was 11 cents for the three months ended March 31, 2024, compared with a basic and diluted net loss per share from continuing operations of nine cents for the comparable period in 2023.

Additional information

Additional information relating to the company, including its 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 its 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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