GLG Life Tech Corporation Announces FY09 Q2 Results

GLG Life Tech Corporation ("GLG" or the "Company"), the vertically integrated leader in the agricultural and industrial development of high quality stevia extracts, announces financial results for the second quarter ended June 30, 2009. Revenue of $10.8 million was generated during the second quarter, an increase of 890% over revenues for the second quarter in 2008. Revenues for the second quarter of 2009 surpassed the revenue generated during the entire 2008 fiscal year. This was primarily due to increased capacity coming online at the Company's two newest processing facilities as well as increased shipments of high grade stevia extract. Earnings Before Interest Taxes and Depreciation (EBITDA) for the second quarter was $1.7 million, an increase of $2.1 million over negative $0.8 million in EBITDA for the comparable period in 2008.

Business Highlights

Second Quarter Revenue up 890%

Revenue for the second quarter 2009 was $10.8 million and is significantly increased over revenue for the comparable period in 2008 of $1.1 million. During the previous quarter, GLG completed testing, certification and auditing of its two new processing facilities and was able to ramp up production for the second quarter. The two new plants bring leaf processing capacity to 41,000 metric tons (MT) per annum, a 720% increase over 2008. Sales were directly attributable to higher demand for stevia extract products, new purchase orders as well as a delivery against current order backlog.

Cargill New Purchase Order

In May, GLG received a US$40.5 million purchase order from Cargill for use in its TRUVIA(TM) tabletop sweetener and for other products for which it acts as a supplier. GLG has also agreed to make additional product available to Cargill during the next 18 months for a possible increase in the order size. Delivery of the high grade stevia extract under this new purchase order will begin in October 2009.

Zevia, First Stevia-Sweetened Cola, Reformulated Using GLG Rebiana (RA97)

Zevia, an all natural soda, relaunched its entire brand line during the quarter utilizing the Company's rebiana Rebaudioside A 97% purity ("RA97" or "rebiana") stevia extract. The product is considered the first cola on the market to be sweetened with stevia and has garnered considerable consumer acceptance.

New 1,000 MT Rebiana RA97 Facility Under Construction

Construction began during the second quarter on a new rebiana refining facility in the city of Qingdao, China. The new facility is located in the Qingdao Export Processing Zone, one of several China central government approved and managed national export business development zones. Companies that have been selected to locate their facilities in these special export business development zones by the government have historically enjoyed strong government support including access to financing and assistance with custom clearance, export inspection and shipping. The first line of Phase One is expected to add an additional 1,000 metric tons of RA97 capacity in December 2009, more than doubling the Company's current RA97 capabilities. Demand for RA97 is expected to continually rise achieving generally recognized as safe (GRAS) status for use in food and beverages by the United States in December 2008 as well as the resulting food and beverage product launches that have been made. This new facility located in close proximity to Qingdao enables GLG easy access to ship, air and rail for product movement, increased capacity for secondary processing, and positions the Company to further meet current and anticipated demand.

Additional Credit Facilities Secured

GLG was granted an additional credit facility of RMB 250 million with the Agricultural Bank of China, which at current exchange rates will provide GLG approximately $42 million in capital. The facility provides additional financial support and underscores the government's support for the Company's operations and business developments.

2009 Stevia Leaf Harvest

The Company is prepared for the 2009 harvest and has contracted with an increased number of local farmers within its exclusive stevia growing areas to grow its proprietary seedlings. As a result the Company expects to see significant improvements in the quality of this year's leaf harvest with high Rebaudioside A yielding leaf and more yield per acreage. The Company believes its proprietary breed of leaf and its exclusive growing areas, provide it with a secure, high quality leaf supply enabling GLG to ensure raw leaf supply adequate to meet contracted and anticipated demand for the ensuing year's extract requirements.

Market Development: New Product Announcements

The Company's global sales and marketing division, GLG-Weider Sweet Naturals ("Sweet Naturals"), continues to see the market for stevia develop. Industry leaders Coca Cola and Pepsi both cited positive consumer acceptance and sales growth for their stevia sweetened products during each company's interim financial reporting. Wells' Dairy, through its Blue Bunny Ice Cream brand, has launched Sweet Freedom(R) Fudge Bars and Sweet Freedom(R) Raspberry and Orange Creme Bars. Management feels these developments continue to support a positive growth opportunity for stevia. The Sweet Naturals team continues to work with food and beverage companies and expects further new product announcements in the third and fourth quarter as companies emerge from formulation and testing phases. The Sweet Naturals group has secured a customer base of approximately 30 food and beverage companies to whom it is supplying high quality stevia extracts.

Second Quarter 2009 Financial Results Highlights

The following results from operations has been derived from and should be read in conjunction with the unaudited consolidated financial statements of GLG for the period ending June 30, 2009, and its annual consolidated financial statements for previous years. Certain prior year's figures have been reclassified to conform to the current financial statement presentation.

Revenues

Revenues for the six months ended June 30, 2009 were $13.8 million, an increase of 614% over $1.9 million in revenue for the comparable period in 2008 which were derived entirely from stevia sales. Revenue for the second quarter ended June 30, 2009 was $10.8 million, an increase of 890% over $1.1 million in revenue for the second quarter in 2008. The increase in stevia revenues year over year and for the quarter was driven by:

(1) new production capacity coming on line at GLG's plants at Mingguang and Dongtai during the first quarter which materially improved the Company's production throughput of final product. (Leaf processing capacity increased from 5,000 metric tons per year to 41,000 metric tons with the addition of the Mingguang and Dongtai facilities);

(2) higher demand and purchase orders for the Company's high grade stevia extract products in 2009 versus 2008. (2009 deliverable order backlog stood at $40.5 million as at March 31, 2009);

(3) larger shipments of higher value stevia extract than in the comparable period against existing purchase orders; and

(4) generation of $0.8 million in seedling sales during the second quarter.

Cost of Goods Sold

Cost of Sales for the six months ended June 30, 2009 was $10.7 million, an increase of 683% over $1.4 million in cost of sales for the comparable period in 2008. The increase in cost of sales year over year and for the quarter was driven by:

(1) new production capacity coming on line at the Company's plants at Mingguang and Dongtai during the first quarter which materially improved production throughput of final product. (Leaf processing capacity increased from 5,000 metric tons per year to 41,000 metric tons with the addition of the Mingguang and Dongtai facilities). During the quarter the Company was not operating at full capacity at these facilities and there are resulting higher fixed costs charged against cost of sales which has decreased gross profit margin;

(2) higher costs experienced at the start-up of these new facilities. The Company has seen production costs at its new facilities consistently decline during the second quarter from its start-up time during February and March in the first quarter as production management improves its efficiencies. The higher production costs seen at the initial start-up of the facilities did flow through the cost of goods sold during the second quarter;

(3) higher shipments of higher value stevia extract than in the comparable period against existing purchase orders driving the increase in cost of sales for the six month and three month periods; and

(4) the commencement of amortization of the interest capitalized into inventory associated with a customer's order that started delivery during the second quarter. This accounted for approximately 5% of cost of sales for the second quarter.

Gross Profit

Gross profit for the six month period ending June 30, 2009 was $3.1 million, an increase of 446% over $0.6 million in gross profit for the comparable period in 2008. The absolute increase in gross profit can be attributed to increased stevia sales in 2009 as compared to 2008. The gross profit margin for the six months ended June 30, 2009 was 22% compared to 29% gross profit margin achieved on sales for the comparable period in 2008. The gross profit margin decline was driven by the same factors as described under cost of sales for the three and six month periods.

Gross profit for the second quarter ending June 30, 2009 was $1.6 million, an increase of 461% over $0.3 million in gross profit for the second quarter of 2008. The main driver for the increase in gross profit for the second quarter 2009 compared with the second quarter of 2008 was a higher volume of high grade stevia extract sales.

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

Sales, General, and Administration (SG&A) Expenses

SG&A expenses for the six months ended June 30, 2009 were $3.7 million, an increase of $1.9 million or 109% over the same period for 2008 of $1.8 million. The key expense categories that increased were salaries, consulting fees, office and travel, which accounted for 78% of the year over year increase. GLG's employee count at the end of June 30, 2009 was 1,185, a 46% increase of 808 people over year end 2008. Approximately 75% of employees work in the production function of the Company.

SG&A expenses for the three months ended June 30, 2009 were $1.7 million, which is an increase of $0.6 million or 56% over the same period for 2008. The key expense categories that increased were salaries, consulting fees, office and travel, which accounted for 95% of the year over year increase.

SG&A expenses decreased $0.3 million comparing the second quarter of 2009 to the first quarter of 2009 which was within the expected range as discussed in the first quarter 2009 Management's Discussion and Analysis ("MD&A"). The cost reductions resulted from the transfer of production employee costs from SG&A expenses to production costs as the new facilities were fully operational during the second quarter as well as a reduction in one time start-up costs associated with the new facilities.

Stock Based Compensation Expense

Stock based compensation was $0.5 million for the second quarter of 2009 compared with $0.03 million in the second quarter of 2008. GLG had an amended stock compensation plan approved by its shareholders at its annual general meeting in June 2008. Under the amended plan, the number of common shares available for issue is 10% of the issued and outstanding common shares. Prior to 2008, the Company had not granted stock options since 2005. Grants made during 2008 were 1,474,480 compensation securities including both options and restricted shares. 84% of these grants have three year vesting and performance criteria set by the Compensation Committee of the Board in order to be fully earned by the recipients. The majority of the second quarter 2009 stock compensation expenses were associated with the grants from 2008. An additional grant was made by the Board of Directors during the second quarter of 2009. This amounted to 1,500,000 compensation securities including both options and restricted shares. 81% of these grants have three year vesting and performance criteria requirements set by the Compensation Committee of the Board of Directors in order to be fully earned by the recipients.

G&A related depreciation and amortization expenses for the three months ended June 30, 2009 was $0.3 million, an increase of 64% over $0.2 million for the comparable period in 2008. The main driver for the increase in amortization is related to the increase in intangible patent amortization related to the acquisition of Agricultural High Tech Developments Limited.

Other income for the six months ended June 30, 2009 was $0.3 million, a 127% increase compared to other expenses of $1.0 million for the comparable period in 2008. There were two items that contributed the majority to the other income (expenses) for the six months ended June 30, 2009; (1) unrealized foreign exchanges gains on US dollar denominated liabilities that GLG was holding during the period of $1.3 million and (2) interest expenses ($1.1 million). Interest expenses of $1.1 million for the six month period ending June 30, 2009 were generated by (1) interest expenses associated with the US$20 million advances from a customer and (2) interest on the bank loans in China. With respect to the US$20 million facilities and associated interest due on the facility, it is expected to be repaid as GLG ships product to this customer during 2009.

Other income (expenses) for the second quarter 2009 was $1.2 million, an increase of 297% over the second quarter 2008 ($0.6 million) and was impacted by the same items as described for the six months period.

The net income for the three months ending June 30, 2009 was $0.4 million, in comparison with a net loss of $1.6 million for the comparable period in 2008. The basic income per share was $0.00 for the three months ending June 30, 2009 compared with a loss per share of $0.01 for the comparable period in 2008. Net Income improved for the three month period ending June 30, 2009 relative to the first quarter 2009 by (1) higher revenues and gross margin driven by production from the Company's new facilities in Mingguang and Dongtai being reflected in the second quarter (2) a reduction in SG&A expenses driven by a reduction in one-time costs associated with the start up of the new facilities in China (3) unrealized foreign exchange gains driven by an appreciation of the Canadian dollar relative to US dollar in the second quarter. The six month net loss per share for the period ending June 30, 2009 was also driven by the same factors compared to the same period for 2008.

EBITDA

EBITDA for the quarter ended June 30, 2009 was $1.7 million, an increase of 449% over negative $0.5 million in EBITDA for the comparable period in 2008. The main drivers for the increase in EBITDA for the three months ended June 30, 2009 compared to 2008 is attributable to (1) higher stevia revenue and gross profit for the second quarter 2009 as compared to the second quarter of 2008, (2) reduction in one-time start up related costs and (3) transfer of production staff costs from general and administrative costs to production costs with the start-up of operations at its new facilities in Mingguang and Dongtai.

EBITDA for the six months ended June 30, 2009 was $2.0 million, an increase of 345% over negative $0.8 million in EBITDA for the comparable period in 2008.

Capital expenditures were $3.2 million for the second quarter of 2009 in comparison to $10.2 million in the second quarter of 2008. The second quarter capital expenditures were primarily incurred for the new rebiana facility that is currently under construction. Completion of this facility is expected in December 2009 and the initial construction cost of the first 1,000 RA 97 metric ton line is expected to be approximately $12 million.

GLG's capital expenditures for the six months ended June 30, 2009 were $12.6 million in comparison to $13.5 million for the same period in 2008. The majority of these capital expenditures was incurred in the first quarter of 2009 and was driven by the completion of the leaf processing facility builds at the Mingguang and Dongtai subsidiaries (approximately $8 million). Capital expenditures incurred during the second quarter of the fiscal year were primarily incurred in the set-up and construction of the Company's new rebiana facility (approximately $3 million).

The following table presents the current and projected capacity levels for GLG's facilities as of the date of the MD&A compared to year-end 2008.

Cash and cash equivalents increased by $11.0 million during the first six months of 2009. Working capital (unadjusted for foreign exchange impacts) decreased by $13.5 million from the year-end 2008 position. The working capital decrease can be attributed to a net increase in short term liabilities during the first six months of $19.8 million compared to the net increase in current assets of $6.2 million during the same period. The increase in current liabilities during the first six months of 2009 was driven by a number of factors. Short term loans increased during the six month period by $25 million and shareholder loans increased by $2.3 million, an increase of accounts payable of $2 million which were offset by a decline in advances due to customers of $7.2 million, a decrease in interest payable of $1.0 million and a decrease in deferred revenue of $1.3 million. The factors that increased the current assets by $6.2 million include the net increase in cash of $11 million and taxes receivable of $3 million which were offset by a reduction in inventory of $1.7 million, a reduction in prepaid expenses of $4 million and a reduction in accounts receivable by $2 million.

The working capital decrease can be attributed to a net increase in short term loans for the first six months of $25 million. The short term loan increase of $25 million was used to fund $12.6 million in capital expenditures (including a net increase in accounts payable related to capital expenditures of $1.4 million), $1 million cash flow used to fund operations over the six month period and the net increase in cash of $11 million.

Cash used by operating activities was $1.0 million in the first six months of 2009 compared to $1.5 million used in the comparable period of 2008. The biggest uses for non-cash working capital (adjusted for foreign currency impacts) in the six month period were driven by asset construction and inventory production that increased the refundable value added tax accounts in China ($3.2 million), a decrease in interest payable ($1.0 million), and a decrease in deferred revenue ($1.3 million) which were offset by a reduction in accounts receivable ($1.9 million), prepaid expenses ($1.6 million) and an increase in accounts payable ($0.6 million).

Cash used by investing activities was $10.1 million in the first six months of 2009 compared to $13.4 million in the same period in 2008. The majority of the cash outflow was to finance the remainder of the construction in Dongtai and Mingguang for the new stevia leaf processing plants in the first three months of 2009.

Cash generated by financing activities was $22.9 million in the first six months of 2009 compared to $11.6 million in the same period in 2008. The key item that generated the increase in cash generated by financing activities during the six months came from a net increase in short term bank loans in China of $26.1 million which was offset by the repayment of advances from customers of $5.8 million.

Market and Operations 2009 Outlook

The Company expects the demand for its stevia products to be significantly stronger in 2009 compared to 2008. This expectation is driven by the new markets that opened up for stevia when RA97 was approved as a food ingredient in the US rather than just as a dietary supplement late in 2008. There were several important product launches in the US at the end of 2008 and in the first quarter of 2009. GLG's alliance partner Cargill launched a tabletop sweetener (TRUVIA(TM)) in July 2008 using rebiana. The Coca-Cola Company has launched Sprite Green, Odwalla juices and Vitaminwater10 using rebiana late in the fourth quarter of 2008 and during the first quarter of 2009. PepsiCo has also launched a series of beverages sweetened with high purity Rebaudioside A. The Company expects additional new product launches later in 2009 based on the feedback received from customers and prospects.

The Company's key operational objectives for 2009 include:

1. Commence operation of new facilities to increase production capacity and revenues (Completed)
2. Prepare necessary GLG proprietary seedlings to meet expected demand from customers for Q4 2009 and 2010 (Completed).
3. Organize stevia growers in partnership with local governments in China to meet expected 2009 stevia demand (Completed).
4. Generate additional sales growth from GLG-Weider Sweet Naturals venture
5. Complete a new rebiana production facility (Phase One - 1,000 Metric Tons) by year-end 2009
6. Continue R&D program for high RA yielding seeds and seedlings

Revenue and EBITDA - 2009 Outlook

GLG's stevia operations are expected to account for 100% of revenue growth in 2009. This growth will be based on delivery against existing customer orders for 2009 as well as expected new orders for the 2009/2010 delivery period. 2009 revenue is expected to be significantly weighted towards the second half of 2009. This expectation is driven by the following:

a) the Company has approximately US$29 million under contract for delivery in 2009 as of June 30, 2009. This would equate to $33.3 million using an average exchange rate assumption of $1.15 per US$ for the balance of 2009 (Exchange rate forecast Source: RBC FINANCIAL MARKETS MONTHLY, July 9, 2009);

b) there was limited production and shipments in the first quarter due to plant commissioning activities and the customary plant shut down in February for Chinese New Year celebrations;

c) the new facilities underwent food safety audits which were completed mid-March following which the new production facilities at Dongtai and Mingguang are ramping up their production levels and commencing customer shipments; and

d) new customer contracts are expected to be closed during 2009 with delivery starting in the third and fourth quarters of 2009 to meet the remaining $2.9 million (US$2.5 million) in revenue expected to be delivered during 2009 to meet the lower end of revenue guidance.

e) GLG expects to generate the majority of 2009 projected EBITDA starting in the second quarter of 2009 based on sufficient revenue being generated to cover cash related operating expenses.

Capital Expenditures - 2009 Outlook

Capital expenditures are anticipated to be approximately $20 to $25 million and include amounts required to complete the Mingguang and Dongtai facilities during the first quarter of 2009, as well as the first 1,000 MT line of Phase One of the new rebiana facility (Phase One equals 2,000 metric tons rebiana capacity). The Company expects to fund these capital expenditures through its existing banking arrangements in China.

About GLG Life Tech Corporation

GLG Life Tech Corporation is a global leader in the supply of high purity stevia, an all natural, zero-calorie sweetener used in food and beverages. The Company's operations cover each step in the stevia supply chain including non-GMO stevia seed breeding, natural propagation, stevia leaf growth and harvest, proprietary extraction and refining, marketing and distribution of finished product. GLG advanced technology and extraction technique make it one of the world's leading producers of high purity stevia extracts, including rebiana made with 97% Rebaudioside A. Rebiana recently received GRAS status in the United States for use in food and beverages. The Company has operations in Canada as well as agricultural and processing facilities in China in the provinces of Anhui, Jiangsu, Shandong and Heilongjiang. China is responsible for an estimated 85% of the world's current stevia production. GLG stevia processing capabilities include 41,000 metric tons of raw stevia leaf and 1,000 metric tons of high grade stevia extract. The Company holds a strategic partnership and preferred supplier agreement with Cargill, Incorporated to supply 80% of its global stevia extract demand and 100% of any stevia sourced from China. In addition, the Company's global sales and marketing arm, GLG-Weider Sweet Naturals, works with companies around the world to bring stevia extract supply solutions for food, beverage, pharmaceutical and nutraceutical applications.

Forward-looking statements: Certain statements in this press release constitute "forward-looking statements". Such forward-looking statements include, without limitation, statements evaluating the market for stevia, statements predicting the Company's future financial performance, the Company's production capacity, demand for stevia and the Company's stevia based products and general economic conditions. Forward-looking statements involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include operational risks, the effects of general economic conditions, changing foreign exchange rates and actions by government authorities, uncertainties associated with legal proceedings and negotiations, industry supply levels, competitive pricing pressures and other risks and uncertainties disclosed under the heading "Risk Factors" in our Annual Information Form in respect of our year-ended December 31, 2008 and the risk factors in our Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2008 and for the interim period ending June 30, 2009, all of which are available on SEDAR at www.sedar.com. The Company's forward-looking statements reflect the beliefs, opinions and projections on the date the statements are made. The Company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law. Financial outlook information contained in this press release about prospective results of operations, capital expenditures or financial position is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information as of the date hereof. Such financial outlook information should not be used for purposes other than those for which it is disclosed herein.

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