GLG Life Tech reports Q3 earnings

GLG Life Tech reports Q3 earnings

Has the vertically integrated stevia company recovered from recent setbacks?

GLG Life Tech Corporation (TSX: GLG) (“GLG”, the “Company”, “we” and “our”), a vertically integrated leader in the agricultural and commercial development of high quality stevia and all natural and zero calorie food and beverage products, announces financial results for the quarter ended September 30, 2012.

Our revenues were $5.8 million for the three months ended September 30, 2012 and were up 232 percent compared to $1.7 million for the three months ended September 30, 2011 driven by increased stevia product sales. Our revenues were $13.4 million for the nine months ended September 30, 2012, down 45 percent compared to $24.4 million for the nine months ended September 30, 2011 due to lower consumer product sales of our AN0C brand.

The gross loss during the period was significantly impacted by capacity and other fixed charges that were added to the cost of goods sold (approximately $1.7 million), and material sales of two products below list price (approximately $1.6 million).

General and Administrative Expenses have been significantly reduced by $7.2 million from $10.8 million in the third quarter of 2011 to $3.6 million for the third quarter of 2012.

We had a net loss attributable to the Company of $15.1 million for the three months ended September 30, 2012 or a $9.5 million improvement compared to a net loss of $24.6 million reported for the three months ended September 30, 2011. The loss for the third quarter includes an additional inventory writedown of $5.2 million related to the two products sold in the quarter below list price. We had a net loss attributable to the Company of $29.6 million for the nine months ended September 30, 2012 or a $13.3 million improvement compared to a net loss of $42.9 million for the comparable period in 2011.

EBITDA for the quarter ended September 30, 2012 was negative $3.5 million or a $5.3 million improvement compared to negative $8.8 million for the same period in 2011. EBITDA for the nine months ended September 30, 2012 was negative $9.1 million or a $7.7 million improvement compared to negative $16.8 million for the nine months ended September 30, 2011. The main drivers for the improvement in EBITDA are lower SG&A expenses in both the consumer products (AN0C) segment and stevia segment, which were offset by lower gross margin compared to the same period in 2011. The Company has been focused on reducing its cash burn rate in 2012 as it grows its stevia revenue base from the levels achieved in the second half of 2011.

Cash used by operating activities was $5.2 million in the nine month period ended September 30, 2012 compared to $29.9 million used in the same period of 2011 or a $24.7 million improvement. This decrease in cash used by operating activities can be attributed to an improvement in cash flow used in operations ($10.1 million) and an improvement in cash generated from non-cash working capital ($14.6 million) in the current period compared to the same period in 2011.

The Company has reduced inventories from their peak balance of $96.1 million at September 30, 2011 to $44.8 million as at September 30, 2012 or a reduction of 53 percent through a combination of sales and writedowns. This reduction is an important achievement in order to work through the legacy inventory cost on its balance sheet as the Company moves to its new lower cost structure that it has achieved with its H3 and H4 proprietary stevia leaf varieties.

The Company has made progress during the 9 months ended September 30, 2012 in reducing its short term banks loans by $5.5 million as well as decreasing its accounts payable of $4.6 million compared to these balances as at December 31, 2011. The Company continues to negotiate with its China Banks for the renewal of its short term loans.

Business highlights

Sales and Market Factors

• Stevia sales of $5.7 million in the third quarter combined with $6.7 million of stevia sales in the second quarter of 2012 totaling $12.4 million demonstrate the solid progress that the Company has made in rebuilding its stevia sales after reporting stevia sales of $1.7 million in the prior three quarters (July 2011 through March 2012).

• We continue to diversify our customer base, with 20 agents and distributors and 2 major flavor houses distributing our products. We have a number of new direct customers, including internationally recognized companies in the tabletop sweetener, food, beverage and pharmaceutical sectors. Q3 sales also reflect a successful expansion of the Company’s customer base in Asia.

• A recent Food Navigator article (October 24, 2012) has confirmed that issues such as sustainability and corporate social responsibility are leading to food and beverage companies increasingly seeking out companies that directly control their supply chain. They believe that the inevitable outcome will be industry consolidation towards credible suppliers. We believe that our “Seed to Shelf” vertical integration results in the transparency and traceability of our supply chain that food and beverages companies are looking for.

Financial reporting standards change from US GAAP to IFRS
The Accounting Standards Board of the Canadian Institute of Chartered Accountants requires all publicly accountable enterprises to report under International Financial Reporting Standards (IFRS) for the years beginning on or after January 1, 2011. However, National Instrument 52-107 (“NI 52-107”) allows SEC issuers to file with Canadian securities regulators financial statements prepared in accordance with US GAAP. Beginning January 1, 2011, GLG was considered an “SEC issuer” under NI 52-107 and, as a result, the Company prepared its financial statements in accordance with US GAAP.

The Company’s deregistration under Sections 12(b) and 12(g) of the United States Exchange Act of 1934, as amended (the “Exchange Act”), became effective on or about September 9, 2012, and September 20, 2012, respectively.

In addition, as of September 2012, the Company’s obligation to file reports under Section 15(d) of the Exchange Act was suspended.

Since the Company no longer technically qualifies as an SEC Issuer under NI 52-107, it is now required to prepare financial statements in accordance with IFRS as of September 30, 2012. Therefore, the Company’s September 30, 2012 interim financial statements must be filed using IFRS as required by sec. 3.2 of NI 52-107.

Consistent with past practice, the Company has prepared its financial statements for the period ended September 30, 2012 in accordance with US GAAP. However, the Company is working diligently to complete the transition process from US GAAP to IFRS and prepare restated financial statements in accordance with IFRS for the period ended September 30, 2012. The Company plans to file such restated financial statements prepared in accordance with IFRS as soon as possible.

Regulatory update
The Company filed its 2011 Annual Financial Statements and associated documents as well as the interim Q1 and Q2 2012 filings on August 14, 2012. In September 2012, the BCSC commenced a Continuous Disclosure Review of the Company’s year-end 2011 filings, first quarter 2012 and second quarter filings.

The Company received its first letter under this review on September 5, 2012. The review is ongoing.

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