GLG Life Tech Corporation Reports 2022 Annual & Fourth Quarter Financial Results

VANCOUVER, BC / ACCESSWIRE / April 3, 2023 / GLG Life Tech Corporation (TSX:GLG) ("GLG" or the "Company"), a global leader in the agricultural and commercial development of high-quality zero-calorie natural sweeteners, announces financial results for the three and twelve months ended December 31, 2022. The complete set of financial statements and management discussion and analysis are available on SEDAR and on the Company's website at www.glglifetech.com.

FINANCIAL SUMMARY

The Company reported revenues of $3.0 million in the fourth quarter of 2022, a slight increase compared with the fourth quarter of 2021. The Company reported a gross profit margin of 24% for the fourth quarter 2022, a 1 percentage point increase from the fourth quarter of 2021 (23%).

The Company reported revenues of $10.9 million for the year 2022, a slight increase compared to the year 2021 ($10.9 million). The Company reported a gross profit margin of 29% for the year 2022, a 2 percentage point increase from year 2021 (27%).

The Company continues to closely manage its SG&A expenses, resulting in reduced G&A expenses for both the three- and twelve-month periods ending December 31, 2022, relative to the comparable periods in 2021. G&A related expenses decreased by $0.3 million for the full year 2022 compared to 2021.

For the three months ended December 31, 2022, the Company had a net loss attributable to the Company of $15.8 million, an increase of $7.4 million over the comparable period in 2021 (net loss of $8.4 million). For the twelve months ended December 31, 2022, the Company had net loss attributable to the Company of $33.1 million, an increase of $9.3 million over the comparable period in 2021 (net loss of $23.7 million).

The Company reported a net loss per share of $0.41 for the fourth quarter 2022, a $0.19 increase relative to the fourth quarter 2021 (loss of $0.22 per share). The Company reported net loss per share of $0.86 for the year 2022, a $0.24 decrease relative to the year 2021 (net loss of $0.62 per share).

CORPORATE DEVELOPMENTS

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 fund 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 in recent quarters. 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 CAD $1 million 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 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 increasingly 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 continued efforts in 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 - i.e., 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. One of these options is a joint venture in China through the Company's Runhai subsidiary, which has the potential to significantly increase revenues and overhaul the Company's balance sheet. The Company is also exploring other opportunities to significantly reduce the Company's debt, grow revenues, and improve its financial position.

While the Company continues to face substantial risks, management remains optimistic about the future opportunities for the Company. 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.

Formation of Joint Venture

On April 25, 2022, the Company announced the formation of a new joint venture through its Chinese subsidiary, Anhui Runhai Biotechnology Joint Stock Company, Ltd. ("Runhai"). The joint venture, operating under the name Xinjiang Huanyu Technology Co., Ltd. ("Huanyu"), brings together Xinjiang Luxiang Sugar Industry Co. ("Luxiang"), Ltd., Xiao Gang HZ Health Industrial Park ("Xiao Gang"), and Runhai in a vertically integrated endeavor to bring a suite of consumer natural sweetener products as well as expanded business-to-business stevia sales to the domestic China market.

Huanyu will bring together upstream agricultural resources in support of downstream production for both the B2B and B2C sectors, with specialization in and integration of harvesting to bulk manufacturing to production of a variety of end customer products. Luxiang, located in Northwest China, where the soil, water, and sunlight are optimal for growing high-quality stevia leaf and other agricultural products, will produce and provide the agricultural raw materials for the joint venturers. Runhai, with its 18 years of technical expertise in manufacturing stevia products, will use this premium stevia leaf for producing its high-purity stevia extracts and other specialized stevia products - both in support of the joint venture as well as in support of GLG's international customers. Xiaogang, with its history of producing and selling high-quality low/zero-calorie sweetener consumer products, will use raw material inputs from both Luxiang and Runhai to produce its suite of healthful consumer products. Integrating agriculture with both B2B and B2C product manufacturing streams offers Huanyu a uniquely complementary advantage in China.

Under the terms of the agreement, Luxiang, a state-owned company, will be the majority stakeholder with a 51% share. Runhai will have a 26% share and Xiao Gang will have a 23% share. Luxiang will provide working capital for Huanyu's production needs as well as the production facilities. Runhai is providing key idle equipment from its facilities and specialized know-how in the production of stevia products leveraging a variety of steviol glycosides for sale to food and beverage companies across China. Xiao Gang has particular equipment and expertise in the natural products space that it will contribute for Huanyu's consumer products development, production, and sales.

While Luxiang will be a major customer of Huanyu's, the joint venturers are planning on sales of their products to customers and companies throughout China, both off the shelf to consumers and to food and beverage companies looking for high-quality and innovative natural sweeteners for use in their own products.

Huanyu plans to access up to 500M RMB from government funding available to support agricultural initiatives. This funding, if received, will help the joint venturers to fund their operation. Furthermore, in Runhai's case, this funding can be used to substantially, if not entirely, resolve long-standing debt issues, as the joint venturers have as a collective goal to clear Runhai of its debts. This will put Runhai, and consequently the Company, on much more solid financial footing. Dr. Zhang, the Company's Chairman and CEO, commented "Our new joint venture offers new and greater opportunities for GLG to access the domestic markets in China as well as to improve our company's balance sheet. We are excited to partner with Luxiang Sugar and Xiaogang Health, both ambitious companies excited to bring healthful products to our Chinese populace."

Originally, Huanyu anticipated production commencing in 2023. However, the COVID situation in China, exacerbated by lengthy lockdowns, has resulted in delays to the joint venture's plans and production may not commence in 2023. As the situation stabilizes and improves in China, the joint venturers continue to work towards obtaining the government funding and working towards the commencement of production.

Runhai will continue producing products for GLG's international customers through its active production facilities located in Qingdao and Anhui provinces. Serving GLG's customers with high-quality products remains a central focus for Runhai and for GLG; the joint venture opportunity is entirely additive to the Company's business plans.

2022 AGM Voting Results

The Company held its Annual General Meeting on June 17, 2022. The shareholders voted in all nominated directors, with favorable votes for each exceeding 99%. Dr. Luke Zhang continues as Chairman of the Board and Chief Executive Officer and Brian Palmieri continues as Vice Chairman of the Board. Dr. Hong Zhao Guang opted not to run for election this year and is therefore no longer a director.

SELECTED FINANCIALS

As noted above, the complete set of financial statements and management discussion and analysis for the year ended December 31, 2022, are available on SEDAR and on the Company's website at www.glglifetech.com.

Results from Operations

The following results from operations have been derived from and should be read in conjunction with the Company's annual consolidated financial statements for 2022 and 2021.

Revenue

Revenue for the three months ended December 31, 2022, was $3.0 million compared to $3.0 million in revenue for the same period last year. Sales increased by 1% for the three months ending December 31, 2022, compared to the prior period in 2021. The sales increase of 1% was driven by increases in international stevia and monk fruit sales, which were offset by a decrease in China domestic stevia sales. International sales continue to predominate, making up over 99% of the Company's revenues (versus 97% in fourth quarter 2021).

Revenue for the twelve months ended December 31, 2022, was $10.9 million compared to $10.9 million in revenue for the same period last year. While overall sales were essentially flat for the twelve months ended December 31, 2022, compared to the prior period, international stevia sales and China domestic stevia sales both increased and were offset by a decrease in monk fruit sales. International sales made up 95% of full-year 2022 revenues (versus 97% for the same period in 2021).

Cost of Sales

For the quarter ended December 31, 2022, the cost of sales was $2.3 million compared to $2.3 million in cost of sales for the same period last year. Cost of sales as a percentage of revenues was 76% for the fourth quarter 2022, compared to 77% for the comparable period, a decrease of 1 percentage point. The decrease in cost of sales as a percentage of revenue for the three months ended December 31, 2022, compared to the prior comparable period, is primarily attributable to improved production costs.

For the twelve months ended December 31, 2022, the cost of sales was $7.7 million compared to $8.0 million for the same period last year (a decrease of $0.3 million or 3%). Cost of sales as a percentage of revenues was 71% for the twelve months ended December 31, 2022, compared to 73% in the comparable period in 2021, an improvement of 2 percentage points. The improvement in cost of sales as a percentage of revenue for the full year ended December 31, 2022, compared to the prior comparable period, is primarily attributable to a higher ratio of stevia sales over monk fruit sales.

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 twelve months ended December 31, 2022, and capacity charges of $1.1 million were charged to cost of sales (representing 14% of cost of sales) compared to $1.2 million charged to cost of sales in the same period of 2021 (representing 15% of cost of sales).

Gross Profit

Gross profit for the three months ended December 31, 2022, was $0.7 million, compared to a gross profit of $0.7 million for the comparable period in 2021. The gross profit margin was 24% in the fourth quarter of 2022 compared to 23% for the same period in 2021, an increase of 1 percentage point. This 1 percentage point increase in gross profit margin for the fourth quarter of 2022, relative to the comparable period in 2021, is primarily attributable to a loss recorded in the fourth quarter of 2021 for the Company's tabletop sweetener products.

Gross profit for the twelve months ended December 31, 2022, was $3.2 million, compared to a gross profit of $2.9 million for the comparable period in 2021. The gross profit margin was 29% for the twelve months ended December 31, 2022, compared to 27% for the same period in 2021, an increase of 2 percentage points. This 2 percentage point increase in gross profit margin for the year 2022, relative to the year 2021, is primarily attributable to a higher ratio of stevia sales over monk fruit sales.

Selling, General, and Administration Expenses

Selling, General and Administration ("SG&A") expenses include sales, marketing, general and administration costs ("G&A") and depreciation and amortization expenses on G&A fixed assets. A breakdown of SG&A expenses into these components is presented below: