Exhibit 4.3


 





 


	
  GLG
  Life Tech Corporation Management Discussion & Analysis

  	
  December 31

   

  2008

  
	
   

  	
   

  
	
  [Dated: March 31,
  2009]

  	
   

  
			



 

















 


Contents


 


	
  Management’s
  Discussion and Analysis

  	
  4

  
	
   

  	
   

  
	
  Forward-Looking
  Statements

  	
  5

  
	
   

  	
   

  
	
  Overview

  	
  6

  
	
   

  	
   

  
	
  2008
  Corporate Developments

  	
  7

  
	
   

  	
   

  
	
  Results

  	
  13

  
	
   

  	
   

  
	
  Results
  from Operations

  	
  14

  
	
   

  	
   

  
	
  Revenues

  	
  14

  
	
   

  	
   

  
	
  Cost of
  Sales

  	
  15

  
	
   

  	
   

  
	
  Gross
  Profit

  	
  17

  
	
   

  	
   

  
	
  General
  and Administration Expenses

  	
  18

  
	
   

  	
   

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

  	
  19

  
	
   

  	
   

  
	
  Stock
  Based Compensation Expense

  	
  20

  
	
   

  	
   

  
	
  G&A
  Depreciation and Amortization

  	
  20

  
	
   

  	
   

  
	
  Other
  Income (Expenses)

  	
  21

  
	
   

  	
   

  
	
  Foreign
  Exchange gains (losses)

  	
  22

  
	
   

  	
   

  
	
  Net
  (Loss)

  	
  23

  
	
   

  	
   

  
	
  Comprehensive
  Income

  	
  23

  
	
   

  	
   

  
	
  Restatement

  	
  24

  
	
   

  	
   

  
	
  NON-GAAP
  Financial Measures

  	
  26

  
	
   

  	
   

  
	
  EBITDA

  	
  26

  
	
   

  	
   

  
	
  Selected
  Annual Information (000`S)

  	
  28

  
	
   

  	
   

  
	
  Summary
  Quarterly Results

  	
  29

  
	
   

  	
   

  
	
  Quarterly
  Net (Loss) Income

  	
  30

  
	
   

  	
   

  
	
  Quarterly
  Basic and Diluted (Loss) Earnings per Share

  	
  30

  
	
   

  	
   

  
	
  2008
  Capital Expenditures

  	
  31

  
	
   

  	
   

  
	
  Key
  Capital Projects for 2008

  	
  32

  
	
   

  	
   

  
	
  Liquidity
  and capital resources

  	
  33

  
	
   

  	
   

  
	
  Convertible
  Debenture Financing

  	
  34

  
	
   

  	
   

  
	
  Advances
  from customers

  	
  35

  



 


2

















 


	
  China
  Lines of Credit and Short Term Loans

  	
  36

  
	
   

  	
   

  
	
  Contractual
  obligations

  	
  36

  
	
   

  	
   

  
	
  Capital
  Structure

  	
  38

  
	
   

  	
   

  
	
  Off-Balance
  Sheet Arrangements

  	
  38

  
	
   

  	
   

  
	
  Transactions
  with Related Parties

  	
  38

  
	
   

  	
   

  
	
  2009
  Outlook

  	
  40

  
	
   

  	
   

  
	
  Market
  and Operations 2009 Outlook

  	
  40

  
	
   

  	
   

  
	
  Revenue
  and EBITDA - 2009 Outlook

  	
  41

  
	
   

  	
   

  
	
  Capital
  Expenditures - 2009 Outlook

  	
  41

  
	
   

  	
   

  
	
  Critical
  Accounting Estimates and Assumptions

  	
  42

  
	
   

  	
   

  
	
  CHANGES
  IN ACCOUNTING POLICIES

  	
  42

  
	
   

  	
   

  
	
  Financial
  Instruments and Other Instruments

  	
  43

  
	
   

  	
   

  
	
  Fair
  Values

  	
  43

  
	
   

  	
   

  
	
  Credit
  Risks

  	
  44

  
	
   

  	
   

  
	
  Foreign
  Exchange Risk

  	
  45

  
	
   

  	
   

  
	
  Liquidity
  Risk

  	
  47

  
	
   

  	
   

  
	
  Interest
  Rate Risk

  	
  48

  
	
   

  	
   

  
	
  International
  Financial Reporting Standards (“IFRS”)

  	
  48

  
	
   

  	
   

  
	
  RECENT
  ACCOUNTING PRONOUNCEMENTS

  	
  49

  
	
   

  	
   

  
	
  Disclosure
  Controls and Internal Controls over Financial Reporting

  	
  51

  
	
   

  	
   

  
	
  Risks
  Related to our Business

  	
  53

  
	
   

  	
   

  
	
  Risks
  Associated with Doing Business in the People’s Republic of China

  	
  53

  
	
   

  	
   

  
	
  Additional Information

  	
  54

  



 


3

















 


Management’s Discussion and Analysis


 


This Management’s
Discussion and Analysis (“MD&A”) of GLG Life Tech Corporation is dated as
of March 31, 2009, which is the date of filing of this document.  It provides a review of the three and twelve
months ended December 31, 2008 relative to the comparable periods of
2007.  The three month period represents
the fourth quarter of our 2008 fiscal year.


 


This MD&A
relates to the consolidated financial condition and results of operations of
GLG Life Tech Corporation (“GLG” or the “Company”) together with its
subsidiaries in the People’s Republic of China (“China”). As used herein, the
word “Company” means, as the context requires, GLG and its subsidiaries. The
common shares of GLG are listed on the Toronto Stock Exchange (the “Exchange”)
under the symbol “GLG”. Except where otherwise indicated, all financial
information reflected herein is expressed in Canadian dollars and determined on
the basis of Canadian generally accepted accounting principles (“Canadian GAAP”).
This MD&A should be read in conjunction with the consolidated annual
financial statements of GLG for the year ended December 31, 2008, and
notes thereto. Additional information relating to GLG Life Tech Corporation
including its Annual Information Form can be found on GLG’s web site at
www.glglifetech.com or on the SEDAR web site for Canadian regulatory filings at
www.sedar.com.


 


The preparation
of the consolidated annual financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent liabilities at
the date of the consolidated annual financial statements and the reported
amounts of revenue and expenses during the reporting period. GLG bases its
estimates on historical experience, current trends and various other
assumptions that are believed to be reasonable under the circumstances. Actual
results could differ from those estimates. 
The consolidated annual financial statements of GLG for the year ended December 31,
2008 and the MD&A were reviewed by GLG’s Audit Committee and approved by
GLG’s Board of Directors.


 


Historical
results of operations and trends that may be inferred from the following
discussions and analysis may not necessarily indicate future results from
operations.


 


GLG has issued
guidance on and reports on certain non-GAAP measures that are used by
management to evaluate the Company’s performance. Because non-GAAP measures do
not have a standardized meaning, securities regulations require that non-GAAP
measures be clearly defined and qualified, and reconciled with their nearest
GAAP measure.  Where non-GAAP measures
are reported, GLG has provided the definition and reconciliation to their
nearest GAAP measure.


 


4

















 


Forward-Looking Statements


 


Certain
statements in this Management’s Discussion and Analysis (“MD&A) constitute “forward-looking
statements”.  Such forward-looking
statements include, without limitation, statements evaluating the market,
potential demand for stevia and general economic conditions and discussing
future-oriented costs and expenditures. 
Often, but not always, forward-looking statements can be identified by
the use of words such as “plans”, “expects” or “does not expect”, “is expected”,
“budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does
not anticipate”, or “believes” or variations of such words and phrases or words
and phrases that state or indicate that certain actions, events or results “may”,
“could”, “would”, “might” or “will” be taken, occur or be achieved.  While we have based these forward-looking
statements on our current expectations about future events, the statements are
not guarantees of our future performance and are subject to risks,
uncertainties, assumptions and other factors which could cause actual results
to differ materially from future results expressed or implied by such
forward-looking statements.  Such factors
include amongst others 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 misjudgements in the course of preparing
forward-looking statements.  Specific
reference is made to the risks described herein under the heading “Risk Related
to our Business” and “Risks Associated with Doing Business in the People’s
Republic of China” for a discussion of these and other sources of factors
underlying forward-looking statements and those additional risks set forth
under the heading “Risk Factors” in our Annual Information Form for the
financial year ended December 31, 2008. 
In light of these factors, the forward-looking events discussed in this
MD&A might not occur.  Further,
although the Company has attempted to identify factors that could cause actual
actions, events or results to differ materially from those described in
forward-looking statements, there may be other factors that cause actions,
events or results not to be as anticipated, estimated or intended.  We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information,
future events or otherwise.  As there can
be no assurance that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those anticipated
in such statements, readers should not place undue reliance on forward-looking
statements.  Financial outlook
information contained in this MD&A 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.


 


5

















 


Overview


 


GLG is a world
leader in the production of high quality stevia extract. Our vertically
integrated strategy includes stevia seed development, growth and refining
operations as well as final manufacturing of formulated product for
consumers.   Stevia is a natural, calorie
free sugar substitute, derived from the leaves of the stevia plant
scientifically known as Stevia Rebaudiana Bertoni.


 


Upon the
harvesting of the stevia leaf it is further processed by GLG for the commercial
sale of the resulting industrial powder to the food and beverages
Industry.  Cargill Incorporated (“Cargill”)
announced in May 2007 it will be producing the world’s first commercial
scale natural, zero-calorie high intensity sweetener, rebiana. GLG is a
strategic supplier to Cargill for high quality stevia extract for its rebiana
product.  The two companies have worked
in close partnership to develop a world-class supply chain including leaf
supply and extract manufacturing.


 


GLG is one of the
largest low cost/high quality producers of stevia extract in the world today.
By vertically integrating our operations, high quality stevia is produced
through each step of the growing and production process including the
development of seeds, growth of seedlings, planting, leaf harvesting,
extraction and refining.


 


GLG has its
primary extract manufacturing capabilities and agricultural assets located
throughout China.  GLG entered into the
stevia production business in December 2006 with the acquisition of 100% ownership
of Qingdao Runde Biotechnology Company, Ltd. (“Runde”).   This turnkey plant provided GLG with an
annual capacity for high grade stevia extract of 200 metric tons (MT).  The facility has been upgraded to 1000 MT
annual capacity of high grade stevia extract. 
The Company believes demand for stevia could increase significantly over
the coming years and has invested in the capacity needed for this projected
growth.     GLG has also established
three other subsidiaries in China.  Anhui
Bengbu HN Stevia High Tech Development Company Limited (“Bengbu”) was
established in November 2007 as a seed base and for R&D operations for
GLG in China.  The seed base that was
acquired from Agricultural High Tech Developments, Ltd. (“AHTD”) in December 2007
is part of the Bengbu subsidiary. 
Dongtai Runyang Stevia High Tech Company Limited (“Runyang”) — Runyang
was established in November 2007 for the purpose of processing stevia leaf
grown and harvested in the Dongtai region of China into stevia extract.  Its initial facilities were constructed
during 2008 and their initial operations were announced in January 2009.
Runyang is able to process 18,000 MT per year of stevia leaf at its processing
facility pursuant to the investment agreement with the Dongtai People’s Government
announced in August 2007.  Chuzhou
Runhai Stevia High Tech Company Limited (“Runhai”) — Runhai was established in September 2007
and for the purpose of processing stevia leaf grown and harvested in the
Mingguang region of China into stevia extract. 
Its initial facilities were constructed during 2008 and their initial
operations were announced in January 2009. 
Runhai is able to process 18,000 MT per year of stevia leaf at its
processing facility pursuant to the investment agreement with the Mingguang
People`s Government announced in August 2007.


 


6

















 


GLG Weider Sweet
Naturals Corporation (“GLG-Weider”) — GLG-Weider was established in September 2008
and is focused on the sales and distribution of high grade stevia extract to
the global food and beverage industry. 
GLG owns 55% of GLG-Weider and Weider Global Nutrition II LLC owns the
remaining 45%.  GLG-Weider was
incorporated under the laws of the Province of British Columbia.


 


GLG experiences a
competitive advantage due to patent-pending seedlings that have higher
Rebaudioside A (RA) content (the sweet component of the stevia leaf),
vertically integrated operations (R&D, seed base, and processing
facilities), proprietary processing technology and lower labour costs given the
location of its operations.


 


Stevia is a safe,
healthy alternative to artificial substitutes and sugar. It includes no
additional chemicals and provides a healthy, 100% natural solution for
consumers.  Indigenous to Paraguay,
stevia has been used to sweeten food and beverages for over 200 years.


 


GLG’s other
non-core business includes procurement revenues from its relationship with the
Chinese retail chain Yong He Tang Chain Stores Limited (YHT).  YHT is a retail health store offering vitamins,
minerals, nutraceuticals and other health products from around the world.  GLG announced in the third quarter of 2008
its intention to restructure this business relationship into a passive equity
investment in order to focus Management’s attention exclusively on the stevia
business.


 


2008 Corporate Developments


 


On May 2,
2008, the Company announced the commencement of production on a new 500 metric
ton secondary processing line located at its Runde subsidiary in Qingdao,
China.  The new line recrystallizes
intermediate stevia powder fed from primary processing lines at the plant into
finished high grade stevia product.  The
new line at Runde is expected to improve efficiency by not only freeing primary
lines from this task but by providing a reduction in current processing time
for this secondary phase. Energy efficiencies in the new machinery will also
reduce costs. In addition, the new production line has passed an extensive
quality and food safety audit and may be utilized immediately to meet existing
customer orders.  The Company provided a
further update on this facility on January 9, 2009 announcing that
modifications to the line using proprietary technology have now made it capable
of a direct output of 1000 MT of RA 80 or 500 MT of RA 97.


 


Strategic
Customer Arrangements


 


Effective January 1,
2007, the Company, through its subsidiary Runde, entered into a supply
agreement (the “Original Cargill Agreement”) with Cargill to provide high
quality stevia extract to Cargill’s specifications. The Original Cargill
Agreement was to automatically renew for further one year periods with the
price and minimum purchase commitment to be agreed by the parties within 60
days of each subsequent one year term.


 


In connection
with the Original Cargill Agreement, Cargill and Runde entered into a
$7,000,000 export prepayment agreement which has since been repaid and GLG
issued to Cargill certain share purchase


 


7

















 


warrants.  As of March 31, 2009, 5,085,839 share
purchase warrants have been exercised by Cargill and its affiliates.


 


On May 1,
2008, the Company announced the signing of a strategic alliance and long-term
renewable supply agreement (the “Strategic Alliance Agreement”) with Cargill.
The Strategic Alliance Agreement replaced the Original Cargill Agreement as of October 1,
2008 and the parties made certain amendments to the Original Cargill Agreement
to cover the bridge period (May 1, 2008 — October 1, 2008) until the
Strategic Alliance Agreement was in full effect.


 


On July 17,
2008 GLG announced that GLG and Cargill had agreed to make certain revisions to
the Strategic Alliance Agreement.  The
principal terms of the amendments were agreed and effective as of July 17,
2008, and were reflected in definitive documentation signed on August 8,
2008.


 


The key terms of
the Strategic Alliance Agreement, as amended, include:


 


·      Annual minimum purchase and supply quantities
for both parties that define the minimum binding quantities over the term of
the agreement for both Cargill and GLG. Cargill will have a rolling twelve
month commitment. For the period October 1, 2008 to September 30,
2009, the twelve month commitment revenue to GLG is estimated at US$25 million.
For each of years two and three, once volume and price have been agreed,
Cargill will be required to either take the committed volume or pay the agreed
price.


 


·      GLG agreed to provide a minimum of 80% of
Cargill’s stevia extract global requirements for the first five years.


 


·      GLG will be Cargill’s exclusive Chinese
supplier of stevia extract for the term of the Strategic Alliance Agreement and
will also be Cargill’s agent in China for any additional stevia extract
sourcing opportunities that should arise.


 


·      GLG will take the lead role in arranging
working capital financing for GLG’s stevia leaf purchases each year beyond 2008
and Cargill may assist or participate but will not be required to do so.


 


·      Cargill has the right of first refusal to
purchase up to 93% of GLG’s production of RA extract.


 


·      Cargill agreed to pay a restructuring fee of
$2.5 million


 


·      New product opportunities from GLG will be
offered to Cargill on a right of first refusal basis.


 


·      Cargill has the ability to terminate in
certain circumstances, including during the first five years if Dr. Luke
Zhang, the Chairman and Chief Executive Officer of GLG, is no longer employed
by GLG.


 


·      Should Cargill wish to terminate the
agreement early, it may do so on three years notice..


 


GLG also
announced on July 17, 2008 that it entered into a loan facility
withCargill in the amount of US$20 million for the supply of Rebaudioside A
extract as part of the amendment to the Strategic Alliance Agreement.  As security for that financing, GLG has
provided Cargill with a general security


 


8

















 


agreement
securing all the assets of GLG, which includes provisions for accommodation of
other leaf financing lenders as well as term lenders for capital expenditure
and working capital purposes. The term of this financing is for fifteen months
due October 15, 2009 at a floating rate based on LIBOR + 6%.


 


New
Stevia Leaf Processing Facilities announced in January 2009


 


On January 6,
2009, the Company announced that it had commenced operations at its two new
stevia processing facilities in the cities of Mingguang (Anhui Province) and
Dongtai (Jiangsu Province), China where the Company’s major stevia leaf growing
areas are located.  The facilities each
have a capacity of 18,000 MT of throughput per year and increase the Company’s
total raw leaf processing capacity from an existing 5,000 MT to 41,000 metric
tons, an increase of 720%. The anticipated capacity of these lines was 10,000
MT of capacity at each location and the higher than planned capacity increases
can be attributed to the successful large scale testing of new and innovative
technology from the Company’s R&D team and also includes significant
reductions in both water usage and actual processing time.


 


Venture
Established with Weider Global Nutrition


 


On September 9,
2008 GLG announced that it had signed a definitive agreement to establish a
venture with Weider Global Nutrition of Salt Lake City, Utah, dedicated to the
sale of dietary and tabletop supplements containing various GLG stevia
products.  The key product offerings of
the venture are high quality stevia extract including RebpureTM, an
industrial powder with 97% pure Rebaudioside A. 
The venture was named GLG-Weider Sweet Naturals Corporation and combines
GLG’s intricate knowledge of stevia extraction and production of stevia
products with the marketing, sales and distribution capabilities of Weider
Global Nutrition. The venture was formed as a subsidiary and is 55% owned by
GLG.  This company will utilize the 70+
years of global business and network of the Weider group in the health and
nutrition industry as well as the solid manufacturing capabilities of GLG in
the stevia industry to form a capable sales team that will be able to deliver
innovative high quality stevia products on a global basis.  Further with the changes made to the GLG
Cargill Strategic Alliance and Supply Agreement in August, 2008, GLG has more
freedom to pursue sales of wholesale stevia extract to food and beverage
companies worldwide.  It is the intention
of the GLG-Weider venture to primarily focus on the sales of wholesale stevia
extract products to these companies.


 


 GLG’s rebsweet industrial powder is also going
to be used in dietary supplement products marketed by this venture. The initial
sale of GLG’s rebsweet formulated and granulated product was sold to Weider
Canada for use in their current distribution of their Stevia Sweet product
using GLG’s rebsweet formula. Stevia Sweet in Canada is currently found in
Wal-Mart, Safeway and Sobeys West.  The
new GLG — Weider team, in addition to developing its own products, will also
have existing Weider Global Nutrition (unique and proprietary) products that will
utilize GLG’s rebsweet and RebpureTM stevia. Some of these products that will soon
be upgraded to GLG’s rebsweet and RebpureTM products are the existing Sweete brands as
well as the Advanced Fruits and the various Quick2Sip Weider products. These
consumer products will continue to expand their sales on a global basis through
Weider’s global network of mainstream multi-national distributors and
retailers.


 


9

















 


GLG Weider Sweet
Naturals Corp (SN) has been marketing high grade stevia extract and rebiana
products globally since its inception September 2008.   Through its direct sales force, Sweet
Naturals has an active prospect base of several hundred small, medium and large
food and beverage companies.   SN is in
discussion with prospects at various stages of the sales process, for the sale
of high grade stevia (RA and STV), rebiana (RA 97), co-products, and granulated
and formulated bulk tabletop sweetener material.


 


Stevia, and
especially rebiana as a sweetener, is gathering considerable momentum and
generating significant interest in the global food and beverage market.  SN has seen increasing numbers of general
inquires and product requests not only in the US, but also across Asia and
South America where the sweetener is also approved for use as a food
ingredient. SN is currently actively marketing and selling in the following
countries:


 


1.                        United
States


 


2.                        China


 


3.                        Japan


 


4.                        Korea


 


5.                        Australia


 


6.                        New
Zealand


 


7.                        The
Philippines


 


8.                        South
America (Brazil, Chile, Paraguay)


 


9.                        Turkey


 


10.                  Taiwan


 


11.                  Thailand


 


12.                  Vietnam


 


13.                  Indonesia


 


14.                  Russia


 


15.                  Algeria


 


16.                  Mexico


 


17.                  Canada


 


10














 


SN’s sales cycle
follow a typical sales process beginning with initial contact with prospective
customers, followed by a request and fulfillment of a sample order of SN’s
products.  The prospective companies will
then test SN’s sample with a particular food or beverage application testing
various recipes and formulations in both existing and new products.  This testing phase of the process typically
takes from six to eighteen months to complete depending on the prospective
customer’s experience in working with stevia as a sweetener.  As a result of the length of the sales,
marketing and product development process, SN expects to see product launches
from their customer base starting the third quarter of 2009 with larger
purchase orders to follow.


 


SN has added a
number of customers in the first quarter of 2009 and expects to contract with a
growing number of its prospective customers over the next several quarters.


 


Regulatory
Approval of Stevia


 


The Company’s
strategic partner, Cargill, submitted an application to the United States Food
and Drug Administration (the “FDA”) for GRAS approval of rebiana in May of
2008.  Rebiana is an all natural, zero
calorie sweetener made with 97% Rebaudioside A from the leaves of the stevia
plant.  On December 17, 2008, the FDA
confirmed that it had no objection to the conclusion of an independent expert
panel which reviewed research of rebiana and concluded that it is generally
recognized as safe for use (GRAS) as a general purpose sweetener, including for
use in food and beverages. This will allow the use of rebiana as a food and
beverage ingredient in the United States.


 


In December 2008,
GLG declared self-affirmation of GRAS status (generally recognized as safe) for
its 97% pure Rebaudioside A material which is sold under the trade name RebpureTM and is also known generically as rebiana.  The results of an intensive characterization
study of this material showed it to meet the standards and purity of rebiana
and to have the same molecular structure of rebiana which received a letter of “no
objection” from the United States Food and Drug Administration on December 17,
2008.  The RebpureTM GRAS review, which began in 2008, included an
extensive review of current research including toxicological data demonstrating
the safety of the product.   GLG has
continued to gather the necessary documentation and prepare the notification
which is expected to be presented to the FDA in the second quarter.


 


Highlights
from Stevia leaf harvest in China


 


For the leaf
harvest for 2008, the harvest has been even later beginning in August and
the majority of purchases completed in October. In some areas in China GLG was
purchasing leaf late in the fourth quarter and into the first quarter of
2009.  A full production year’s supply of
raw material was purchased during the 2008 leaf purchase process as there is
currently only one stevia leaf harvest in China.  Gross margin is significantly influenced by
the quality of the stevia leaf crop harvested in any given year.  GLG’s strategy to improve gross margin is (1) increase
the amount of proprietary GLG high Rebaudioside A seedlings into each year’s
crop, (2) follow Quality standards for crop purchase to minimize the
amount of moisture and foreign material in the leaf purchased and (3) drive
economies of scale in its production facilities.


 


11

















 


During 2008, the
Company worked to develop its stevia seed, seedling and leaf growth business
through its Bengbu Seed Base operation (formally AHTD) wholly owned subsidiary.
The leaf purchased during the third and fourth quarters of 2008 is expected to
be reflected in the GLG financial results through the first nine months of
2009.


 


GLG benefited
from its exclusive growing areas in Mingguang and Dongtai during the stevia
harvest that took place from August through October 2008 through;


 


a.             Strong support from local Chinese
governments of GLG’s rights to purchase leaf in both Mingguang and Dongtai.


 


b.             GLG was given first right to
purchase leaf in these exclusive growing areas supported by Governments.


 


c.             GLG and the Chinese Government
introduced new quality measures based on official China national standards for
the stevia leaf purchase process of 2008. The standards included the
requirement for farmers to meet certain quality standards in the raw leaf crop
or to face downward price adjustments if quality offered to GLG did not meet
Chinese national standard.


 


d.             Farmers were given the choice to
sell any unaccepted or rejected lower quality leaf to other competitors.


 


e.             GLG successfully increased the
quality of the stevia leaf it purchased in 2008 from that purchased during the
2007 harvest.


 


f.              Pricing for leaf was higher than
GLG expected, however, GLG managed to purchase stevia leaf more competitively
than those competitors who bought leaf with no quality standards in place.  This focus on quality plus GLG’s other
manufacturing cost advantages are expected to allow GLG to maintain a
competitive cost position versus other China extract providers and other
worldwide competitors.


 


g.             GLG was satisfied with the progress
made in educating the farmers on stevia leaf quality and from the support of
the local China Governments to ensure there is a growing high quality stevia
leaf supply in the future.


 


12

















 


Results


 


The following
results have been derived from and should be read in conjunction with the
consolidated financial statements of GLG for the years ended December 31,
2008 and 2007.


 


	
  In
  thousands

  Canadian $,

  except per share

  amounts

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Revenue

  	
   

  	
  $

  	
  4,657

  	
   

  	
  $

  	
  3,727

  	
   

  	
  25

  	
  %

  	
  $

  	
  9,891

  	
   

  	
  $

  	
  9,157

  	
   

  	
  8

  	
  %

  
	
  Cost of Sales

  	
   

  	
  $

  	
  3,718

  	
   

  	
  $

  	
  2,830

  	
   

  	
  31

  	
  %

  	
  $

  	
  7,560

  	
   

  	
  $

  	
  6,500

  	
   

  	
  16

  	
  %

  
	
  % of Revenue

  	
   

  	
  80

  	
  %

  	
  76

  	
  %

  	
  (4

  	
  )%

  	
  76

  	
  %

  	
  71

  	
  %

  	
  (5

  	
  )%

  
	
  Gross Profit

  	
   

  	
  $

  	
  939

  	
   

  	
  $

  	
  896

  	
   

  	
  5

  	
  %

  	
  $

  	
  2,331

  	
   

  	
  $

  	
  2,657

  	
   

  	
  (12

  	
  )%

  
	
  % of Revenue

  	
   

  	
  20

  	
  %

  	
  24

  	
  %

  	
  (4

  	
  )%

  	
  24

  	
  %

  	
  29

  	
  %

  	
  (5

  	
  )%

  
	
  General and Administration Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  )%

  
	
  Income (loss) from Operations

  	
   

  	
  $

  	
  (2,450

  	
  )

  	
  $

  	
  331

  	
   

  	
  (840

  	
  )%

  	
  $

  	
  (4,886

  	
  )

  	
  $

  	
  1,050

  	
   

  	
  (565

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (53

  	
  )%

  	
  9

  	
  %

  	
  (62

  	
  )%

  	
  (49

  	
  )%

  	
  11

  	
  %

  	
  (61

  	
  )%

  
	
  Other Income (Expenses)

  	
   

  	
  $

  	
  (6,146

  	
  )

  	
  $

  	
  (485

  	
  )

  	
  (1168

  	
  )%

  	
  $

  	
  (7,216

  	
  )

  	
  $

  	
  (1,290

  	
  )

  	
  (459

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (132

  	
  )%

  	
  (13

  	
  )%

  	
  (119

  	
  )%

  	
  (73

  	
  )%

  	
  (14

  	
  )%

  	
  (59

  	
  )%

  
	
  Net (Loss) before Income Taxes and Non-Controlling
  Interests

  	
   

  	
  $

  	
  (8,596

  	
  )

  	
  $

  	
  (154

  	
  )

  	
  (5499

  	
  )%

  	
  $

  	
  (12,103

  	
  )

  	
  $

  	
  (240

  	
  )

  	
  (4934

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (185

  	
  )%

  	
  (4

  	
  )%

  	
  (180

  	
  )%

  	
  (122

  	
  )%

  	
  (3

  	
  )%

  	
  (120

  	
  )%

  
	
  Net Income (Loss) after Income Taxes and Non-Controlling
  Interests

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  $

  	
  456

  	
   

  	
  (1659

  	
  )%

  	
  $

  	
  (10,607

  	
  )

  	
  $

  	
  369

  	
   

  	
  (2971

  	
  )%

  
	
  Loss per share (Basic)

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  (1208

  	
  )%

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  (2141

  	
  )%

  
	
  Loss per share (Diluted)

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  (2484

  	
  )%

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  (4490

  	
  )%

  
	
  Total Comprehensive Income (loss)

  	
   

  	
  $

  	
  7,001

  	
   

  	
  $

  	
  117

  	
   

  	
  5893

  	
  %

  	
  $

  	
  11,397

  	
   

  	
  $

  	
  (1,067

  	
  )

  	
  1168

  	
  %

  
	
  % of Revenue

  	
   

  	
  150

  	
  %

  	
  3

  	
  %

  	
  147

  	
  %

  	
  115

  	
  %

  	
  (12

  	
  )%

  	
  127

  	
  %

  
	
  EBITDA (1)

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  451

  	
   

  	
  (117

  	
  )%

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  	
  (167

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (2

  	
  )%

  	
  12

  	
  %

  	
  (14

  	
  )%

  	
  (10

  	
  )%

  	
  17

  	
  %

  	
  (27

  	
  )%

  



 


13

















 






(1)          EBITDA
is defined in the section Non-GAAP Financial Measures along with the details of
the calculation.


 


Results from Operations


 


The following
results from operations has been derived from and should be read in conjunction
with the consolidated annual financial statements of GLG for the year ended December 31,
2008, and its annual consolidated financial statements for previous years.
Certain 2007 comparative figures have been restated.  Certain 2007 and 2006 comparative figures
have been reclassified to conform to the presentation of the consolidated
annual financial statements.


 


Revenues


 


Revenues for the
year ended December 31, 2008 were $ 9.9 million, an, increase of 8% over
$9.2 million in revenue for 2007.   In
2008 GLG’s revenues were derived entirely from stevia sales.  In 2007 GLG’s stevia revenues were $8.2
million representing a 21% increase. The increase in stevia revenues year over
year was driven by higher demand for the Company’s high grade stevia extract
products, and higher shipments of higher value stevia extract than in the
comparable period.  Revenues for the full
year landed close to the low end of the Companies revised guidance estimate of
$10 to $12 million for the full year as announced on November 15, 2008.  The original 2008 guidance estimate of $16 to
18 million was adjusted to $10-$12 million as a result of the delay in the
expected start up of the Company’s new leaf processing facilities in Mingguang
and Dongtai, China. The commencement of these new operations was previously
expected to occur at the beginning of the fourth quarter 2008. Based on the
delays experienced, these facilities did not commence operations until early in
January 2009, a delay of approximately three months. The Company
subsequently announced the commencement of production of these two facilities
on January 6, 2009.  The chief cause
of the three-month delay in construction schedule was directly attributable to
earthquake relief efforts. GLG’s construction contractors were ordered by the
Chinese Government to assist in reconstruction efforts in the earthquake
affected areas in China and therefore cannot meet the original Mingguang and
Dongtai construction schedules.   The
impact of the earthquake on GLG supply contracts for the construction of the
new facilities is a force majeure event. GLG and suppliers have worked to
manage this impact on the construction schedule and minimize it to only a
three-month delay.  The other issue
impacting the reduction in revenue outlook for 2008 was the impact of the
Olympics on power supply to GLG’s Qingdao facility during the third quarter.


 


The increase in
revenues in 2008 did not result in an increase in accounts receivable as A/R
reduced from $3.9 million to $ 2.7 million as at December 31, 2007 and
2008, respectively.


 


Inventory
increased from $8.9 million as at December 31, 2007 to $33.0 million as at
December 31, 2008.  The key drivers
for the increased inventory levels were; (a) the purchase of new stevia
leaf during 


 


14

















 


the third and
fourth quarters to meet 2009 orders (b) the increase in work in progress
inventories to meet customer 2009 order commitments and (c) by-product
inventories available for sale or further processing into final products.   The Company expects to have its highest
level of inventories at year-end due to agriculture cycles that result in a
harvest of stevia leaf in the third and fourth quarters.  Stevia leaf can be stored under proper
conditions for approximately two years before it must be utilized.  Refined products can be stored under proper
conditions for approximately four to five years before it must be utilized.


 


Since its
inception as a public company in 2005, the Company has been engaged in the
distribution of stevia and other nutritional health products produced or
sourced by or on behalf of the Company in China through Shandong Yong He Tang
Health Products Chain Stores Limited (“YHT”). 
The Company extended loans to YHT in 2005 and 2006 to support the growth
of their marketing efforts. The loans are not secured and were valued at
$2,290,002 (US$1,870,000) at December 31, 2008.  As at December 31, 2007, the Company’s
accounts receivable and interest receivable included $199,320 and $622,029,
respectively, owing from YHT.


 


During 2008, the
Company reduced its involvement with YHT and on September 8, 2008 entered
into a Heads of Agreement with YHT. In accordance with the Heads of Agreement,
which is non-binding, the Company will convert all amounts owing from YHT into
a passive equity investment.  As part of
this agreement, the Company has extended the due date of the loans to June 2009.  The Company believes that these changes will
allow GLG to focus exclusively on the development of its stevia business.


 


As the Heads of
Agreement is non-binding and due to the uncertainty associated with the
collectability of amounts owed by YHT and entering into a definitive binding
agreement, the Company has recorded an allowance of $3,111,350 against the
loans, interest and accounts receivable. The allowance has been recorded as
part of other expenses in the consolidated statement of operations.  The Company has also not recognized any
revenue from its contract with YHT in 2008 and as a result, procurement
revenues in 2008 were $nil versus 2007 revenues of $1.0 million.


 


Revenue for the
fourth quarter ended December 31, 2008 was $4.7 million, an increase of
25% over $3.7 million in revenue for the fourth quarter in 2007.  Stevia revenue was $4.7 million for the
fourth quarter in 2008, a 39% increase compared to $3.3 million in the fourth
quarter 2007 driven by the same reasons as described earlier in this section
for the 12 month period revenues.


 


Cost of Sales


 


Cost of Sales
were $7.6 million for 2008 in comparison to $6.5 million for 2007 or 16%
increase year over year.  The increase in
2008 cost of sales can be directly attributed to the higher sales volume of
stevia business in 2008 relative to 2007. 
Stevia sales increased 21% in 2008 against an increase in cost of sales
increase of 16% for 2008.


 


The key
components of stevia cost of sales in include:


 


15

















 


a. stevia leaf


 


b. salaries and wages of manufacturing labour


 


c. manufacturing overhead used in the production of
stevia extract, including supplies, power and water.


 


d. depreciation of the stevia extract processing
plants.


 


The key factors
that impact stevia cost of sales and gross profit percentages in each period
include:


 


a. The price paid
for stevia leaf and the stevia leaf quality, which is impacted by crop quality
for a particular year/period.  This is
the most important factor that will impact the gross profit of GLG’s stevia
business.  Stevia leaf purchased during
the 2007 stevia harvest and used during the 2008 fiscal year was generally of
poorer quality than previously experienced by the GLG management team.   Leaf costs accounted for approximately 71%
of the cost of goods sold for the fiscal year 2008.


 


b. The price per
kilogram for which the extract is sold.


 


c. The sale of by-products
(also known as co-products).  There were
a very small number of co-product sales during the year due to the focus on
production of high grade stevia.   Sales
of by-products have historically increased the overall gross profit of the
stevia business.  The GLG Weider venture
will be focused on also selling other GLG product lines during 2009 including
co-products extract (mixture of steviol glycosides) and highly pure STV
extract.


 


d. Other factors
which also impact stevia cost of sales to a lesser degree during 2008 include
plant capacity utilization*, wages rates, water and power consumption used in
the process.


 


·                  salaries and
wages of manufacturing labour


 


·                  manufacturing
overhead used in the production of stevia extract, including supplies, power
and water.


 


·                  depreciation on
stevia extract processing plant.


 


·                  Interest on leaf
purchases


 


·                  Net VAT paid on
export sales


 






* note
depreciation will play a more important factor in the 2009 fiscal period as GLG
has increased its capacity significantly at the start of the year and is not
expected to reach a high capacity utilization for the most of 2009.


 


GLG’s stevia
business is affected by seasonality.  The
harvest of the stevia leaves typically occurs starting at the end of the second
quarter (ending June 30) through the fall of each year.  This period has historically been a slow time
for stevia manufacturers and shipments typically decrease over this period
before the harvest is complete and delivery of the new stevia leaf takes
place.  This phenomenon did not 


 


16

















 


impact GLG during
2008 as it still had sufficient leaf to process during the third and fourth
quarters of 2008.  GLG’s operations in
China are also impacted by Chinese New Year celebrations during the month of January or
February each year where many businesses close down operations for
approximately two weeks.  GLG’s
production year runs October 1 through September 30 each year.  Therefore inventory levels are typically
higher in the fourth quarter until raw material is converted into finished
products and shipped to customers.


 


GLG’s production
management saw a generally poorer quality stevia leaf crop collected in 2007
than seen in previous years which was processed mainly during the 2008 fiscal
year. The poorer quality leaf has had a significant impact on gross profit
during 2008.


 


Gross Profit


 


Gross profit for
the year ending December 31, 2008 was $2.3 million, a decrease of 12% over
$2.7 million in gross profit for 2007. 
Gross profit reflects both margins from GLG stevia operations as well
margin from procurement revenues related to YHT chain stores business in
2007.  The reduction in gross profit can
be attributed to there being no YHT related revenue in 2008 as compared to 2007
where revenue from the procurement business segment contributed a gross profit
of $0.8 million.  Gross profit from the
stevia business segment was $2.3 million in 2008 an increase of 27% relative to
the gross profit for stevia of $1.8 million in 2007.    The increase in stevia gross profit was
driven by increased stevia sales in 2008 as compared to 2007.  The gross profit margin on stevia sales for
2008 was 24% compared to 22.4% gross profit margin achieved on stevia sales in
2007.


 


Gross profit for
the fourth quarter ending December 31, 2008 was $0.9 million, an increase
of 5% over $0.89 million in gross profit for Q4 2007.  Gross profit reflects both margins from GLG
stevia operations as well as margin from procurement revenues related to the YHT
chain store business in 2007.  The main
driver for the increase in gross profit for the fourth quarter 2008 compared
with the fourth quarter of 2007 was higher stevia sales.  Gross profit for the fourth quarter 2008 for
stevia revenue grew 61% over gross profit generated on stevia revenue for the
same period in 2007.


 


17

















 


General and Administration Expenses


 


	
  In
  thousands Canadian

  $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  General and Administration Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  %)

  
																		



 


General and
administration (“G&A”) expenses include sales, general and administration
costs (“SG&A”), stock based compensation and depreciation and amortization
expenses on G&A fixed assets.  A
breakdown of G&A expenses into these three components is presented below:


 


	
  In
  thousands Canadian

  $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  SG&A

  	
   

  	
  $

  	
  1,940

  	
   

  	
  $

  	
  561

  	
   

  	
  245

  	
  %

  	
  $

  	
  5,121

  	
   

  	
  $

  	
  1,592

  	
   

  	
  222

  	
  %

  
	
  Stock based compensation

  	
   

  	
  $

  	
  1,229

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  
	
  G&A Amortization and Depreciation

  	
   

  	
  $

  	
  220

  	
   

  	
  $

  	
  4

  	
   

  	
  4300

  	
  %

  	
  $

  	
  775

  	
   

  	
  $

  	
  15

  	
   

  	
  5100

  	
  %

  
	
  Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  )%

  



 


Each of these
expense categories is discussed in further detail in the next three sections.


 


18

















 


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


 


	
  In
  thousands

  Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  SG&A Expenses

  	
   

  	
  $

  	
  1,940

  	
   

  	
  $

  	
  561

  	
   

  	
  245

  	
  %

  	
  $

  	
  5,121

  	
   

  	
  $

  	
  1,592

  	
   

  	
  222

  	
  %

  
	
  % of Revenue

  	
   

  	
  42

  	
  %

  	
  15

  	
  %

  	
  (27

  	
  )%

  	
  52

  	
  %

  	
  17

  	
  %

  	
  (35

  	
  )%

  
																		



 


SG&A expenses
for the twelve months ended December 31, 2008 were $5.1 million   and increase of $3.5 million  or 222% over the same period for 2007 ($1.6
million).  The key expense categories
that increased were professional fees, salaries, consulting fees, office,
travel and rental accounted for 89% of the year over year increase.  GLG’s employee count at year end 2008 was
808, a 276% increase of 591 people over 2007. 
The majority of the headcount are based in China and work in
production.  GLG had an extensive
recruiting and training program to hire these employees in advance of the new
facilities at Mingguang and Dongtai coming in operation.  As a result the salary costs associated with
the production employees are reflected in the SG&A expenses rather than
production costs during 2008.  As the new
facilities begin production in 2009, a large proportion of these costs will be
reflected in cost of sales or inventory.  
Approximately 38% or $0.8 million of the salaries, office and rental
expenses during 2008 were either one-time in nature, pre-production expense
related or salary related costs of production staff at the new subsidiaries
(Total of these three SG&A categories was $ 2.2 million).  There were additional start-up related
expenses in China and Canada in the office, rental and business tax and
licenses associated with the initial set-up of the new facilities in China as
well as the new GLG-Weider venture established to handle sales and distribution
of stevia extract products.  GLG’s
professional fees, legal and audit costs increased by $0.5 million over
2007.  The increase related to legal fees
associated with GLG TSX listing as well as material commercial agreements
reached during 2008.  Higher Audit fees
were driven primarily from GLG’s increased operation over 2007.  Consulting fees are paid to companies
representing GLG’s key executives and China based executives 242% increase in
2008) and a management fee paid to Weider for the provision of sales and
administrative services to the GLG Weider Sweet Naturals Corporation.  Office expenses include one-time amounts
associated with the start-up in China including pre-production expenses (461%
increase in 2008).  Travel expenses were
increased in 2008 to support the international sales efforts of GLG Management
(93% increase in 2008).


 


The SG&A
increase for the fourth quarter 2008 over the fourth quarter 2007 was $1.4
million or a 246% increase.  Salaries,
consulting fees and office expenses accounted for 82% of this increase over the
fourth quarter in 2007.The SG&A increase for the fourth quarter 2008 over
the third quarter 2008 was $0.5 million or a 32% increase.  This increase was driven primarily by
increases in start-up related costs of the new facilities in China including
office set-up and pre-production expenses associated with Plant testing as well
as expenses associated with GLG Weider Sweet Naturals Venture.  GLG has increased its 


 


19

















 


employee base to
808 as of December 31, 2008 from the end of the third quarter 2008 levels of
543, reflecting a 49% increase. A large proportion of the employee additions
have been in advance of the start-up of the production needs of the new
Greenfield facilities.  As a result,
certain salary and salary related costs for new production employees that
appear in the fourth quarter SG&A costs will move to direct production
costs once these new facilities are up and running.   Salary costs were up $0.3 million and office
costs we up $0.2 million over the third quarter 2008 as GLG prepared for the new
facilities coming into operation.  The
cost increases for the fourth quarter are both 1) one-time related development
costs for the Company related to the start-up of its new plants in China and
its GLG-Weider venture and 2) ongoing operating costs related to the hiring of
additional staff in China for the new production line and new Greenfield
plants.


 


Stock Based Compensation Expense


 


	
  In
  thousands

  Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Stock based Compensation

  	
   

  	
  $

  	
  1,229

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  
	
  % of Revenue

  	
   

  	
  26

  	
  %

  	
  —

  	
   

  	
  (26

  	
  )%

  	
  13

  	
  %

  	
  —

  	
   

  	
  (13

  	
  )%

  
																		



 


Stock based
compensation was $1.3 million for 2008 compared with zero in 2007.  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 did
not grant 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 requirements
to be fully earned by the recipients.    
The majority of the 2008 stock compensation expenses were recognized in
the fourth quarter 2008 since the full year’s performance against compensation
plan targets was not known until year-end.


 


G&A Depreciation and Amortization


 


	
  In
  thousands

  Canadian $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Depreciation & Amortization

  	
   

  	
  $

  	
  220

  	
   

  	
  $

  	
  5

  	
   

  	
  4300

  	
  %

  	
  $

  	
  775

  	
   

  	
  $

  	
  15

  	
   

  	
  5100

  	
  %

  
	
  % of Revenue

  	
   

  	
  5

  	
  %

  	
  0

  	
  %

  	
  (5

  	
  )%

  	
  8

  	
  %

  	
  0

  	
  %

  	
  (8

  	
  )%

  
																		



 


20














 


G&A related
depreciation and amortization expenses for the twelve months ended 2008 was
$0.8 million, an increase of 5100% over $0.01 million for the year ended
2007.   The main driver for the increase
in amortization is related to the intangible patent amortization at the
beginning of 2008 from the acquisition of Agricultural High Tech Developments
Limited.   The increase in amortization
expense for the fourth quarter was
impacted by the same reason as explained for the 12 months ended December 31,
2008.


 


Other Income (Expenses)


 


	
  In
  thousands Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Other Income (Expenses)

  	
   

  	
  $

  	
  (6,146

  	
  )

  	
  $

  	
  (485

  	
  )

  	
  (1168

  	
  )%

  	
  $

  	
  (7,216

  	
  )

  	
  $

  	
  (1,290

  	
  )

  	
  (459

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (132

  	
  )%

  	
  (13

  	
  )%

  	
  (119

  	
  )%

  	
  (73

  	
  )%

  	
  (14

  	
  )%

  	
  (59

  	
  )%

  
																		



 


Other expense for
the twelve months ended December 31, 2008 was $7.2 million, a 459%
increase compared to other expenses of $1.3 million for the comparable period
in 2007.  There were two items that
contributed 82% to the other expense for 2008; (1) unrealized foreign
exchanges losses on $US denominated liabilities that GLG was holding at
year-end ($2.8 million) and (2) the provision that GLG has taken on the
amounts due from YHT ($3.1 million). 
Both of these items are non-cash expenses.  With respect to the US dollar denominated
liability, GLG has a customer order denominated in $US matched against this
liability so the real foreign exchange risk has been managed.   Interest expenses of $2.0 million for the
2008 twelve month period were generated by (1)  the convertible debenture,
(2) interest on the US$7 million advances from  customer, and (3) the US$ 20 million
advances from a customer..  The US $7
million customer prepayment was paid off as of November 30, 2008.  As GLG ships
product to this customer in 2009, the US$ 20 million customer prepayment
balance and interest expense will also decrease.


 


Other Income
(expenses) for the fourth quarter 2008 was $6.1 million an increase of 1168%
over the fourth quarter 2007 other expense of $0.5 million and was impacted by
the same items as described for the twelve months period.


 


21

















 


Foreign Exchange gains (losses)


 


GLG reports in
Canadian dollars but earns most of its revenues in US dollars and incurs most
of its expenses in Chinese Yuan (“RMB”). 
Impacts of the appreciation of the Chinese Yuan against the Canadian
dollar are shown separately under the Cumulative Translation Adjustment (“CTA”)
account on the Balance Sheet.  The RMB
rate used to translate RMB denominated balance sheet accounts on December 31,
2007 was 7.39 RMB per Canadian dollar. 
As of December 31, 2008, the exchange for RMB per Canadian dollar
was 5.571, or an appreciation of 24.62% from the exchange rate on December 31,
2007.  The balance of the CTA account was
$22,003,934 on December 31, 2008 compared to balance of ($1,436,741) as at
December 31, 2007.


 


The exchange rate
fluctuations of the US dollar and the Canadian dollar had a significant impact
on unrealized foreign exchanges losses reflected on the income statement in
2008. The table below shows the change in the Canadian dollar relative to the
US dollar from year-end 2007 to year-end 2008. 
During the fourth quarter of 2008 the Canadian dollar declined 13.4%
relative to the US dollar.  During the
fourth quarter GLG recognized $2.8 million of unrealized foreign currency
losses attributed to the decline in the Canadian dollar relative to the US
dollar.


 


Impacts of the
appreciation of the Chinese Yuan against the Canadian dollar are shown
separately under the Cumulative Translation Adjustment account on the Balance
Sheet.  The following table presents the
exchange rate movement for the Canadian dollar relative to the US dollar and
Renminbi as shown below.  The Canadian
dollar depreciated against the US dollar by 19.3% from the fourth quarter 2007
to the fourth quarter 2008.  The Canadian
dollar depreciated against the Renminbi by 24.6% from the fourth quarter 2007
to the fourth quarter 2008.   For the
year ending December 31, 2008, the weakening of the Canadian dollar was
mitigated through early investment of Canadian dollars into Renminbi during the
first quarter of 2008 and the establishment of Renminbi denominated loans in
China during the third and fourth quarters thereby minimizing the cost impact
of GLG’s capital expenditure program where all costs were based on the
Renminbi.  The appreciation of the US
dollar relative to the Canadian dollar had an impact on the 2008 revenue
results as 95.6% of GLG’s revenues for the period were based on US dollar
contracts.


 


	
  Exchange
  rates

  Noon rate (as

  compared to the

  Canadian $)

  	
   

  	
  2006

  Dec 31

  	
   

  	
  2007

  Dec 31

  	
   

  	
  2008

  Mar 31

  	
   

  	
  2008

  Jun 30

  	
   

  	
  2008

  Sep 30

  	
   

  	
  2008

  Dec 31

  	
   

  
	
  U.S. Dollars

  	
   

  	
  0.8581

  	
   

  	
  1.0120

  	
   

  	
  0.9729

  	
   

  	
  0.9817

  	
   

  	
  0.9435

  	
   

  	
  0.8166

  	
   

  
	
  Chinese Yuan

  	
   

  	
  6.6845

  	
   

  	
  7.3910

  	
   

  	
  7.0572

  	
   

  	
  6.7295

  	
   

  	
  6.4599

  	
   

  	
  5.5710

  	
   

  



 


The following
table presents the exchange rate movement for the Renminbi relative to the US
dollar as shown below.  The US dollar
depreciated by 6.7% against the Renminbi during 2008.


 


22

















 


	
  Exchange rates

  	
   

  	
  2006

  Dec 31

  	
   

  	
  2007

  Dec 31

  	
   

  	
  2008

  Mar 31

  	
   

  	
  2008

  Jun 30

  	
   

  	
  2008

  Sep 30

  	
   

  	
  2008

  Dec 31

  	
   

  
	
  Chinese Yuan

  	
   

  	
  7.8175

  	
   

  	
  7.3141

  	
   

  	
  7.0222

  	
   

  	
  6.8718

  	
   

  	
  6.8469

  	
   

  	
  6.8223

  	
   

  



 


Net (Loss)


 


The net loss for the twelve months ending December
31, 2008 was $10.6 million, in comparison with a net income of $0.4 million for
2007.  The basic loss per share (EPS) was
$0.15 for the twelve months ending December 31, 2008 compared with a earnings
per share of $0.01 for 2007.  Earnings
were impacted by larger expenses driven by seven categories, (1) higher
corporate operating expenses associated with the Company’s move to the TSX in
December 2007, (2) start-up expenses in China associated with the two new
Greenfield production facilities (3) expenses related to the development of the
new venture, “GLG-Weider Sweet Naturals” in advance of material revenues
commencing, (4)a delay in the commencement of operations of its new leaf
processing facilities until 2009 and (5) Stock based compensation,  (6) unrealized foreign exchange losses driven
by decline in Canadian dollar relative to US dollar in the fourth quarter and
(7) a 100% provision made on the amounts due to the Company from YHT due to the
uncertainty of collection of these amounts.


 


The net loss for the fourth quarter 2008 was
$7.1 million, a decrease of 1659% over the $0.5 million net income for the
fourth quarter of 2007 and was driven by the same factors as explained above
for the Net (Loss) for the year ending December 31, 2008.


 


Comprehensive Income


 


	
  In thousands Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  	
   

  	
  %

  Change

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  %

  Change

  	
   

  
	
  Net Income (loss)

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  $

  	
  456

  	
   

  	
  (1659

  	
  )%

  	
  $

  	
  (10,607

  	
  )

  	
  $

  	
  369

  	
   

  	
  (2971

  	
  )%

  
	
  Other Comprehensive Income

  	
   

  	
  $

  	
  14,116

  	
   

  	
  $

  	
  (339

  	
  )

  	
  4270

  	
  %

  	
  $

  	
  22,003

  	
   

  	
  $

  	
  (1,437

  	
  )

  	
  1631

  	
  %

  
	
  Total Comprehensive Income

  	
   

  	
  $

  	
  7,001

  	
   

  	
  $

  	
  117

  	
   

  	
  5893

  	
  %

  	
  $

  	
  11,397

  	
   

  	
  $

  	
  (1,067

  	
  )

  	
  1169

  	
  %

  



 


The Company
recorded total comprehensive income of $7.0 million for the fourth quarter of
2008, comprising $7.1 million of net loss and $ 14.1 million of other comprehensive income.  For the twelve months ended December 31,
2008, the Company recorded $11.4 million of total comprehensive income, comprising
$10.6 million of net loss and $22.0 million of other comprehensive income.  The other comprehensive income was solely
made up of the currency translation adjustments recorded on the revaluation of
the Company’s investments in self-sustaining Chinese subsidiaries due to the 


 


23

















 


strengthening of
the RMB.  This gain is held in
accumulated other comprehensive income until it is realized, at which time it
is included in operation.


 


Restatement


 


The Company has
restated its financial statements as at and for the year ended December 31,
2007 as follows: (i) In 2007 the proceeds of the convertible debenture
were allocated between the liability portion of the convertible debenture,
equity portion of the convertible debenture and warrants using the residual
value method.  The Company has restated
its comparative financial statements to allocate the proceeds of the
convertible debenture using the relative fair value of the liability portion of
the convertible debenture, equity portion of the convertible debenture and
warrants. Years prior to 2007 were not affected by these changes. This change
resulted in an adjustment to interest expense on the convertible debenture and
advances of $617,684, convertible debenture of $1,113,116, equity portion of
convertible debenture of $1,323,186, warrants of $1,025,297, property, plant,
and equipment of $617,684, and resulted in a decrease of net income for 2007 of
$617,684. (ii) In 2007 unrealized foreign exchange gains and losses of
$254,324 were recorded in other comprehensive loss and have been reclassified
into unrealized foreign exchange loss and (iii) accruals related to equity
issuances of $195,000 were not recorded and have been adjusted as an increase
in accounts payable and accruals and a reduction in share capital.


 


The following
tables present the impact of the restatement:


 


	
  Year ended December 31, 2007

  	
   

  	
  As Previously

  reported

  	
   

  	
  Restatement

  	
   

  	
  As Restated

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Balance Sheets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Property, Plant and Equipment

  	
   

  	
  $

  	
  13,389,207

  	
   

  	
  $

  	
  617,684

  	
   

  	
  $

  	
  14,006,891

  	
   

  
	
  Intangible assets

  	
   

  	
  $

  	
  23,788,499

  	
   

  	
  $

  	
  4,496,921

  	
   

  	
  $

  	
  28,285,420

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable & Accruals

  	
   

  	
  $

  	
  1,051,330

  	
   

  	
  $

  	
  195,000

  	
   

  	
  $

  	
  1,246,330

  	
   

  
	
  Convertible Debenture

  	
   

  	
  $

  	
  5,855,398

  	
   

  	
  $

  	
  (1,113,116

  	
  )

  	
  $

  	
  4,742,282

  	
   

  
	
  Future income taxes, net

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  3,887,060

  	
   

  	
  $

  	
  3,887,060

  	
   

  
	
  Shareholders’ Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share Capital

  	
   

  	
  $

  	
  61,247,731

  	
   

  	
  $

  	
  (195,000

  	
  )

  	
  $

  	
  61,052,731

  	
   

  
	
  Warrants

  	
   

  	
  $

  	
  14,353,214

  	
   

  	
  $

  	
  1,025,297

  	
   

  	
  $

  	
  15,378,511

  	
   

  
	
  Equity portion of convertible debenture

  	
   

  	
  $

  	
  189,817

  	
   

  	
  $

  	
  1,323,186

  	
   

  	
  $

  	
  1,513,003

  	
   

  
	
  Accumulated other comprehensive loss

  	
   

  	
  $

  	
  (1,562,250

  	
  )

  	
  $

  	
  254,324

  	
   

  	
  $

  	
  (1,307,926

  	
  )

  
	
  Deficit

  	
   

  	
  $

  	
  (1,178,526

  	
  )

  	
  $

  	
  (262,146

  	
  )

  	
  $

  	
  (1,440,672

  	
  )

  



 


24

















 


	
  Year ended
  December 31, 2007

  	
   

  	
  As
  Previously

  reported

  	
   

  	
  Restatement

  	
   

  	
  As
  Restated

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Statement of
  Operations

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest on convertible debenture and advance

  	
   

  	
  $

  	
  (558,190

  	
  )

  	
  $

  	
  (617,684

  	
  )

  	
  $

  	
  (1,175,875

  	
  )

  
	
  Foreign exchange loss

  	
   

  	
  $

  	
  (54,488

  	
  )

  	
  $

  	
  (254,324

  	
  )

  	
  $

  	
  (308,812

  	
  )

  
	
  Income tax recovery

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  609,861

  	
   

  	
  $

  	
  609,861

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Income (Loss)

  	
   

  	
  $

  	
  631,576

  	
   

  	
  $

  	
  (262,146

  	
  )

  	
  $

  	
  369,430

  	
   

  
	
  Consolidated Statement of Changes
  in Shareholder’s Equity & Comprehensive Income (Loss)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Change in foreign currency translation

  	
   

  	
  $

  	
  (1,691,095

  	
  )

  	
  $

  	
  254,324

  	
   

  	
  $

  	
  (1,436,771

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Statements of Cash Flow

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash provided by (used in)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operations

  	
   

  	
  $

  	
  (10,582,927

  	
  )

  	
  $

  	
  456,721

  	
   

  	
  $

  	
  (10,126,206

  	
  )

  
	
  Financing

  	
   

  	
  $

  	
  44,926,258

  	
   

  	
  $

  	
  (456,721

  	
  )

  	
  $

  	
  44,469,537

  	
   

  



 


25

















 


NON-GAAP Financial Measures


 


EBITDA


EBITDA for the year ended December 31, 2008
was ($1.0 million), a decrease of 167% over $1.5 million in EBITDA for the year
ended 2007.  The main drivers for the
decrease in EBITDA for the twelve months ended December 31, 2008 compared to
2007 is attributable to (1) lower gross profit of 24% generated in 2008
relative to 29% generated in 2007 (2) higher corporate operating expenses
associated with the Company’s move to the TSX in December 2007, (3) start-up
expenses in China associated with the two new Greenfield production facilities
(4) start-up expenses related to the development of the new venture,
“GLG-Weider Sweet Naturals” in advance of material revenues commencing, and (5)
a delay in the commencement of operations of its new leaf processing facilities
until 2009.  The delay in start-up of its
Mingguang and Dongtai leaf processing facilities until January 2009 caused the
Company to revise its revenue guidance downwards from 16-18 Million to 10-12
million in the third quarter which directly impacted the original expected 2008
EBITDA performance.  This delay was the
direct result of GLG’s suppliers redirecting their resources to assist in the
earthquake relief efforts in China in 2008. 
The higher operating expenses of the Company were driven by the start-up
of its two new Greenfield processing facility subsidiaries in China located in
the cities of Mingguang and Dongtai and the start-up of its new GLG-Weider
Sweet Naturals venture in advance of material revenues commencing. GLG has also
incurred higher operating public company and corporate governance costs in 2008
associated with its TSX listing and corporate development projects undertaken
for the twelve months ended December 31, 2008.


 


The revised
EBITDA guidance issued in November 2008 was ($0.2) million on revenues of
$10 million.  The actual EBITDA was ($1.0
million) or a variance of ($0.8) million. 
The contributors to the negative performance to revised EBITDA guidance
were:


 


(1)   Management’s decision not to accrue any revenue from its
Procurement business in 2008 given the uncertainty surrounding the collection
of the 2007 amounts owed (Impact on consolidated gross margin on 2008 EBITDA
performance: $0.4 million)


 


(2)   lower gross profit margin (excluding depreciation) in the fourth
quarter than expected in the November outlook on stevia revenues (Impact
on 2008 EBITDA performance: $0.2 million)


 


26

















 


(3)   higher SG&A incurred in the fourth quarter than expected in
the November outlook with the actual start-up of the Mingguang and Dongtai
facilities being delayed until the first quarter of 2009 (Impact on 2008 EBITDA
performance: $0.2 million)


 


27

















 


The following
table provides reconciliation to Canadian GAAP Net Income.


 


	
  In thousands Canadian

  	
   

  	
  Q4 08

  	
   

  	
  Q4 07

  Restated

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  
	
  Net Income (loss) before taxes and after minority interest

  	
   

  	
  $

  	
  (8,543

  	
  )

  	
  $

  	
  (154

  	
  )

  	
  $

  	
  (12,035

  	
  )

  	
  $

  	
  (240

  	
  )

  
	
  Add:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation and Amortization

  	
   

  	
  $

  	
  1,145

  	
   

  	
  $

  	
  120

  	
   

  	
  $

  	
  2,540

  	
   

  	
  $

  	
  498

  	
   

  
	
  Net Interest Expense (Income)

  	
   

  	
  $

  	
  139

  	
   

  	
  $

  	
  459

  	
   

  	
  $

  	
  1,189

  	
   

  	
  $

  	
  981

  	
   

  
	
  Foreign Currency losses

  	
   

  	
  $

  	
  2,842

  	
   

  	
  $

  	
  26

  	
   

  	
  $

  	
  2,842

  	
   

  	
  $

  	
  309

  	
   

  
	
  Provision on loans and receivables

  	
   

  	
  $

  	
  3,111

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  3,111

  	
   

  	
  $

  	
  —

  	
   

  
	
  Non-Cash Share Compensation Expense

  	
   

  	
  $

  	
  1,229

  	
   

  	
  —

  	
   

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EBITDA

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  451

  	
   

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  



 


Selected Annual Information (000`S)


 


	
  In thousands Canadian

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  2006

  	
   

  
	
  Revenues

  	
   

  	
  $

  	
  9,891

  	
   

  	
  $

  	
  9,157

  	
   

  	
  $

  	
  1,410

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
  2,331

  	
   

  	
  $

  	
  2,657

  	
   

  	
  $

  	
  861

  	
   

  
	
  Net Income (loss)

  	
   

  	
  $

  	
  (10,606

  	
  )

  	
  $

  	
  369

  	
   

  	
  $

  	
  209

  	
   

  
	
  EBITDA (1)

  	
   

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  	
  $

  	
  205

  	
   

  
	
  Earnings Per Share

  	
   

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  0.01

  	
   

  
	
  Diluted earnings per share

  	
   

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  Total Assets

  	
   

  	
  $

  	
  174,361

  	
   

  	
  $

  	
  94,129

  	
   

  	
  $

  	
  21,363

  	
   

  
	
  Total Liabilities

  	
   

  	
  $

  	
  57,364

  	
   

  	
  $

  	
  17,230

  	
   

  	
  $

  	
  2,096

  	
   

  
	
  Total Shareholders’ Equity

  	
   

  	
  $

  	
  116,829

  	
   

  	
  $

  	
  76,898

  	
   

  	
  $

  	
  19,266

  	
   

  
	
  Employees

  	
   

  	
  808

  	
   

  	
  215

  	
   

  	
  71

  	
   

  



 






(1)   EBITDA is defined in the section Non-GAAP Financial Measures along
with the details of the calculation.


 


GLG’s business
focus has changed significantly since its inception in June 2005 with the
acquisition of Runde in December 2006. 
This acquisition provided GLG’s first production facilities to
participate in the stevia extracting and refining industry.  GLG’s revenue mix changed significantly in
2007 with the change in business strategy to focus on the stevia industry
opportunity rather than its initial focus on sales of health products through
the YHT chain store channel, interests in sports nutrition, research,
preventative health software, and medical clinics.  Revenues in 2007 from its stevia extract
business accounted for 89% of annual revenues. 
Revenues in 2008 from the stevia extract business accounted for
100%.   The other major change in
direction of GLG’s business occurred in 2007 when it signed a renewable 5 year
agreement with its major customer.  This
agreement formed the basis upon which GLG began to expand its production
capacity starting in 2007 with the Runde high grade stevia 


 


28

















 


production line
project.  Further important trends have
been the continued progress with regulatory bodies in various countries who
have now endorsed or approved stevia as a food ingredient such as the US and
Australia and New Zealand.  Progress is
also being made in Europe with Switzerland and France taking the lead in
approval for stevia.  Regulatory approval
of stevia as a food ingredient beyond its historical place as a dietary
supplement in some of these key markets has the potential to develop the size
of the stevia market.  Within the context
of a growing global market for stevia as an all natural zero calories sweetener
and contacted and forecast demand from its customers, GLG focused on further
expanding its plant capacity in 2008.  As
a result during 2008, the Company focused on developing the company’s
production capacity and employee base to significantly increase its production
capacity and stevia agricultural base. 
This strategy was the key drive that drove a net loss in 2008 compared
to 2007 and 2006.


 


Summary Quarterly Results


 


The selected
consolidated information below has been gathered from GLG’s quarterly
consolidated financial statements for the previous eight quarterly periods:


 


	
  In
  thousands Canadian

  dollars, except per

  share amounts

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  
	
   

  	
   

  	
  Q4

  	
   

  	
  Q3

  Restated

  	
   

  	
  Q2

  Restated

  	
   

  	
  Q1

  Restated

  	
   

  	
  Q4

  Restated

  	
   

  	
  Q3

  Restated

  	
   

  	
  Q2

  	
   

  	
  Q1

  	
   

  
	
  Revenue

  	
   

  	
  $

  	
  4,657

  	
   

  	
  $

  	
  3,302

  	
   

  	
  $

  	
  1,092

  	
   

  	
  $

  	
  841

  	
   

  	
  $

  	
  3,727

  	
   

  	
  $

  	
  2,258

  	
   

  	
  $

  	
  1,297

  	
   

  	
  $

  	
  1,874

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
  939

  	
   

  	
  $

  	
  832

  	
   

  	
  $

  	
  293

  	
   

  	
  $

  	
  268

  	
   

  	
  $

  	
  896

  	
   

  	
  $

  	
  823

  	
   

  	
  $

  	
  472

  	
   

  	
  $

  	
  465

  	
   

  
	
  Gross Profit %

  	
   

  	
  20

  	
  %

  	
  25

  	
  %

  	
  27

  	
  %

  	
  32

  	
  %

  	
  24

  	
  %

  	
  36

  	
  %

  	
  36

  	
  %

  	
  25

  	
  %

  
	
  Net Income (Loss) Income

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  (986

  	
  )

  	
  $

  	
  (1,571

  	
  )

  	
  $

  	
  (934

  	
  )

  	
  $

  	
  456

  	
   

  	
  $

  	
  (468

  	
  )

  	
  $

  	
  96

  	
   

  	
  $

  	
  285

  	
   

  
	
  Basic (Loss) Per Share

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  Diluted (Loss) Per Share

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  EBITDA (3)

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  (199

  	
  )

  	
  $

  	
  (406

  	
  )

  	
  $

  	
  (350

  	
  )

  	
  $

  	
  451

  	
   

  	
  $

  	
  431

  	
   

  	
  $

  	
  286

  	
   

  	
  $

  	
  380

  	
   

  
	
   

  	
  (1)

  	
  Net Revenue restatement impact

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  (89

  	
  )

  	
  $

  	
  (148

  	
  )

  	
  $

  	
  (202

  	
  )

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
  (2)

  	
  Net Expense restatement impact

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  75

  	
   

  	
  $

  	
  538

  	
   

  	
  $

  	
  582

  	
   

  	
  $

  	
  (63

  	
  )

  	
  $

  	
  325

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  



 






(1) & (2) There were some key prior period
adjustments made to 2007 as well as Management’s decision not to accrue any
procurement revenue in 2008 as discussed in the “Revenues Section” 


 


29

















 


earlier that require quarterly results to be
restated.  The net restatement impacts on
revenue and expenses are included in the quarterly results above.


 


(3) EBITDA is defined in the section Non-GAAP
Financial Measures along with the details of the calculation.


 


Note: The Company
operates in one reportable operating segment, being the manufacturing and
selling of a refined form of stevia and as a result this section also provides
the segmented results.


 


Quarterly Net (Loss) Income


 


Net loss for the fourth quarter 2008 was $7.1
million, versus a loss of $1.0 million in the third quarter of 2008 or a $6.1
million increase in loss.  The increased
loss was driven by increased stock based compensation expenses of $1.2 million,
increased SG&A expenses of $0.5 million, an unrealized foreign currency
losses of $2.8 million and a $3.1 million provision made on the amounts due GLG
from YHT which were partially offset by a higher gross profit of $ 0.1 million
from stevia sales for the fourth quarter and an income tax recovery of $1.4
million.


 


The net losses for the first through third
quarter in 2008 were driven by the Company’s strategy to expand the scale of
its stevia business in 2008 to meet increased customer demand and industry
growth.  The Company invested in new
facilities and expanded its staff during 2008 which contributed to the majority
of the losses for the quarters.


 


The Net Losses for the third and fourth
quarter 2007 were driven by the restated costs of the convertible debenture.


 


Quarterly Basic and Diluted (Loss) Earnings per Share


 


The basic (loss)
per share (LPS) and diluted loss per share (DLPS) were ($0.12) for the fourth
quarter 2008 compared with ($0.01) for the third quarter of 2008.  Compared to the third quarter of 2008, the
loss per share was increased by stock based compensation in the fourth quarter
of 2008, unrealized foreign currency losses and a provision on amounts owed to
the Company by YHT.


 


30














 


2008
Capital Expenditures


 


	
  In
  thousands Canadian

  	
   

  	
  Q4 08

  	
   

  	
  Q4 07

  	
   

  	
  % Change

  	
   

  	
  2008*

  	
   

  	
  2007

  	
   

  	
  % Change

  	
   

  
	
  Capital
  Expenditures

  	
   

  	
  $

  	
  25,796

  	
   

  	
  $

  	
  5,274

  	
   

  	
  389

  	
  %

  	
  $

  	
  57,790

  	
   

  	
  $

  	
  6,478

  	
   

  	
  792

  	
  %

  
																		



 






·                  Capital
expenditures equals $42.4 million from cash flow statement (Cash Flow used by
investing activities) + $12.7 million accounts payable related to the purchase
of plant, property and equipment (PP&E) + $2.7 million classified as
prepaid expenses on year-end balance sheet related to 2008 PP&E
expenditures)


 


The Company has been focused on expanding its production capacity
during 2008 to meet the expected and contracted requirements of its customers
and to address the growth of the stevia market that has resulted from the
opening of additional markets during 2008 including the US and Australia and
New Zealand.  Stevia was approved by the
Australian and New Zealand governments in October 2008.  Also in 2008, the FDA issued two letters of
no objection to two companies who self-affirmed a highly purified form of
stevia as Generally Recognized as Safe (GRAS) in December 2008.  GLG increased the capacity at its Runde
facility in Qingdao in the Shandong province of China as well as focused on the
completion of two new leaf processing plants in the Anhui and Jiangsu provinces
in China in 2008.


 


GLG’s capital expenditures were $25.8 million for the fourth quarter of
2008 in comparison to $5.3 million in Q4 2007.  
Fourth quarter 2008 capital expenditures were driven by the Greenfield
leaf processing facility builds at the Runhai (Mingguang) and Runyang (Dongtai)
subsidiaries.


 


GLG’s capital expenditures were $57.8 million for 2008 in comparison to
$6.5 million in 2007.  This result is
within the Company’s revised guidance issued on November 15, 2008 of
$55-60 million.


 


The table below highlights a list of key capital projects that GLG
worked on during 2008.  The Mingguang and
Dongtai primary extract processing facilities were announced as commencing
initial production on January 6, 2009. 
Management expects production to ramp-up over the first quarter before
the Company will significantly benefit from the new leaf processing capacity
and reduce its year-end order backlog. 
This is due to three factors a) traditional impact of Chinese New Year
holiday where GLG’s facilities are shut down for approximately 2 weeks b)
expected ramp-up time and experience associated with new facilities and c) each
new facility underwent a food safety audit. 
These audits were conducted starting in January and all facilities
were certified ready to deliver product in mid-March 2008.


 


Management expects additional capital expenditures in 2009 to complete
the administrative building at Dongtai as well as making final holdback
payments on the plant completed in 2008. 
These amounts are within the low end of the capital expenditure guidance
for 2009.


 


31

















 


Key
Capital Projects for 2008


 


	
  GLG Subsidiary

  	
   

  	
  Capital Project

  	
   

  	
  Location

  	
   

  	
  Expected

  Completion

  Date

  	
   

  	
   

  
	
  Qingdao Runde Biotechnology Co., Ltd. (“Runde”)

  	
   

  	
  1000 M T High Grade Stevia Upgrade.

  	
   

  	
  Qingdao, Shandong Province

  	
   

  	
  April, 2008

  	
   

  	
   

  
	
  Status of Project:  Original 500 MT high grade stevia line
  completed and operational as of May 2, 2008.  Further upgrades made to line during 2008
  and it is now capable of processing 1,000 MT of RA 80 or 500 MT of RA 97
  product as announced on January 14, 2009.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dongtai Runyang Stevia High Tech Co. Ltd.
  (“Runyang”)

  	
   

  	
  18,000 MT Leaf Capacity Primary Processing Facility

  	
   

  	
  Dongtai, Jiangsu Province

  	
   

  	
  December, 2008

  	
   

  	
   

  
	
  Status of Project:  Production facilities operational as of January 6,
  2009.  Administration building still
  under construction and expected to be completed in 2009.  Production facilities originally estimated
  to process 10,000 MT of stevia leaf. 
  Actual tested capacity upgraded to 18,000 MT of stevia leaf after
  results of testing was assessed.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chuzhou Runhai Stevia High Tech Co., Ltd. (“Runhai”)

  	
   

  	
  18,000 MT Leaf Capacity Primary Processing Facility

  	
   

  	
  Mingguang, Anhui Province

  	
   

  	
  December, 2008

  	
   

  	
   

  
	
  Status of Project:  Production facilities operational as of January 6,
  2009.   Production facilities
  originally estimated to process 10,000 MT of stevia leaf.  Actual tested capacity upgraded to 18,000
  MT of stevia leaf after results of testing was assessed.

  



 


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


 


	
  Production
  Capacity

  	
   

  	
  2009 (current)

  	
   

  	
  Year end 2008

  	
   

  
	
  Leaf
  Processing

  	
   

  	
  41,000

  	
   

  	
  5,000

  	
   

  
	
  Intermediate
  Powder (RA 60)

  	
   

  	
  4,000

  	
   

  	
  500

  	
   

  
	
  High
  Grade Stevia (RA 80)

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  
	
  Rebiana
  (RA 97)

  	
   

  	
  500

  	
   

  	
  500

  	
   

  



 


32

















 


Liquidity
and capital resources


 


	
  In thousands Canadian dollars

  	
   

  	
  2008

  	
   

  	
  2007 Restated

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  7,728

  	
   

  	
  $

  	
  28,253

  	
   

  
	
  Working
  Capital

  	
   

  	
  $

  	
  (2,562

  	
  )

  	
  $

  	
  29,842

  	
   

  
	
  Total
  Assets

  	
   

  	
  $

  	
  174,361

  	
   

  	
  $

  	
  94,129

  	
   

  
	
  Total
  Liabilities

  	
   

  	
  $

  	
  57,364

  	
   

  	
  $

  	
  17,230

  	
   

  
	
  Advances
  from Customers

  	
   

  	
  $

  	
  24,492

  	
   

  	
  $

  	
  6,549

  	
   

  
	
  Loans
  Payable (Current Portion)

  	
   

  	
  $

  	
  10,232

  	
   

  	
  $

  	
  6,000

  	
   

  
	
  Total
  Equity

  	
   

  	
  $

  	
  116,829

  	
   

  	
  $

  	
  76,898

  	
   

  



 


Cash and cash equivalents decreased by $20.9 million from the balance
of December 31, 2007.  Working capital
decreased by $32.4 million from the year-end 2007 position.  The working capital decrease can be attributed
to a net decrease in cash for the year of $21 million used to fund P&E
expenditures and a net increase in accounts payable related to PP&E
expenditures of $12.7 million.  Total
liabilities include the Advances from Customer in the amount of $24.5 million
that was used to fund the purchase of stevia leaf in 2008 required for their
2008/09 order. The increase in total equity since December 31, 2007 reflects
the exercise of $12.5 million in warrants on January 30, 2008, the exercise of
208,067 stock options in the second quarter, the conversion of the $6 million
convertible debenture at the end of the second quarter and an additional $5
million of warrants exercised in August 2008.


 


Cash used by operating activities was $10.2 million in the fourth
quarter and $19.8 million for the twelve months ended December 31, 2008,
compared to $7.9 million used in the fourth quarter of 2007 and 10.1 million
used during 2007. The biggest use for non-cash working capital in the quarter
and for fiscal 2008 was the purchase of raw materials for GLG’s upcoming 2009
stevia production year and prepayments to suppliers for equipment for its new
facilities in Mingguang and Dongtai. 
Stevia leaf purchases occurs each year in the third and fourth quarters
and the leaf purchases are used during GLG’s production year which runs October
through September of each year.


 


Cash used by investing activities was $10.6 million in the fourth
quarter and $42.5 million for the twelve months ended December 31, 2008,
compared to $5.3 million and $6.6 million in the same periods in 2007.  The majority of the cash outflow was to
finance the construction in progress in Dongtai and Mingguang for the new
Greenfield stevia leaf processing plants.


 


Cash generated by financing activities was $10.6 million in the fourth
quarter and $38.3 million for the twelve months ended December 31, 2008,
compared to $32.2 million and $44.4 million in the same periods in 2007.  The key item that generated the increase in
cash generated by financing activities during the quarter came from a net
increase in short term bank loans of $8.4 million from two banks in China that
the Company has established credit facilities with in 2008.


 


33

















 


The Company’s working capital and working capital requirements
fluctuate from quarter to quarter depending on, among other factors, the annual
stevia harvest in China (third and fourth quarter each year), the production
output along with the amount of sales conducted during the period.  The value of raw material in inventory is the
highest in the fourth quarter due to the fact that the Company purchases leaf
during the third and fourth quarter for the entire production year which runs October through
September each year.  Customer
prepayments at fiscal year-end are also near their peak value as customer
delivery would naturally commence during the fourth quarter through to September the
following year.  The Company’s principal
working capital needs include accounts receivable, taxes receivable, inventory,
prepaid expenses, and other current assets, and accounts payable and interest
payable.


 


The Company’s preliminary capital expenditure estimate for 2009 is $17
million to $40 million (see 2009 Outlook section for further details).  The Company plans to finance these investment
needs with cash on hand, cash from operations and credit available from banks
in China. The financing currently arranged in China is expected to provide
funding for the low end of the 2009 capital expenditure estimate ($17 million).
The Company also believes that it has the ability to access additional debt or
equity financing that would be required to finance the higher range of the 2009
capital expenditures. However, if such debt facilities or equity financing is
not available on terms that are acceptable to the Company, the Company may be
required to curtail its intended initiatives and transactions, which may result
in incurring certain costs associated therewith.


 


Convertible
Debenture Financing


 


On June 22, 2007, the Company issued a convertible debenture and
share purchase warrants for total gross proceeds of $6,000,000.  The convertible debenture was due on June 30,
2008 and bore interest at a rate of 12% per annum, payable semi annually in
arrears beginning on December 31, 2007. 
The convertible debenture was convertible into common shares with the
first third of the principal convertible at a conversion price of $2.80 per
common share, the second third of the principal convertible at $3.05 per common
share and the remaining third at $3.30 per common share.


 


The convertible debenture was issued with warrants to purchase up to
1,200,000 common shares of the Company. 
The warrants expire on June 22, 2009 and are each exercisable for
one common share at $3.05 for the first 600,000 common shares and $3.30 for the
second 600,000 common shares.


 


The convertible debenture was convertible, at the option of the holder,
at any time prior to maturity.  Since
redemption could be made either by cash or by common shares, the convertible
debenture was classified as a compound financial instrument for accounting
purposes.


 


The Company allocated the gross proceeds received of $6,000,000 from
the issuance of the convertible debenture and warrants on a relative fair value
basis as follows:  $3,346,432 to the
convertible debenture, $1,513,003 to the equity component of the convertible debenture,
and $1,140,566 to the warrants.  The fair
value of the convertible debenture was determined based on the future payments
of principal and interest for a debt instrument of comparable maturity and
credit quality but excluding any 


 


34

















 


conversion option by the holder. 
The convertible debentures carry an effective interest rate of 18%. The
warrants were valued using the Black-Scholes option pricing model using a
risk-free interest rate of 4.06%, an expected life of 2 years and a volatility
of 85%.  The fair value of the equity
component of the convertible debentures was valued using the Black-Scholes
option pricing model using a risk-free interest rate of 4.67%, an expected life
of 1 year and a volatility of 85%.  A
change in the method of allocating the gross proceeds of the convertible
debenture between the liability portion of the convertible debenture, equity
portion of the convertible debenture and warrants resulted in a restatement.


 


Over the term of the convertible debenture, the fair value of the
convertible debenture was accreted to its face value.  During the year ended December 31, 2008,
the Company recorded accretion of $1,257,718 (2007 - $1,395,850) related to the
convertible debenture as a charge to accretion expense and capitalized interest
with a corresponding credit to the liability component of the convertible
debenture based on a straight line method which approximates the effective
interest method.  Half of the interest
was capitalized in accordance with the Company’s accounting policies until the
underlying assets were put in operation and half of the interest was expensed
in the consolidated statements of operations.


 


On June 30, 2008 the convertible debenture was converted into
1,976,082 common shares of the Company.


 


Advances
from customers


 


In July 2007, the Company signed a five year supply agreement and
a prepayment agreement for the 2007-2008 order with one of the Company’s
customers whereby the customer would finance up to US$7. million for the
purchase of stevia leaves, which would be further processed into stevia extract
to be shipped to the customer. The prepayment is to be repaid upon the sale of
stevia extracts to that customer, which commenced on September 1, 2007 and
lasted through September 15, 2008. 
Interest at Libor + 3.25% was charged per annum, payable on a quarterly
basis. During the third quarter, GLG negotiated an extension of this prepayment
balance to November 30, 2008 where GLG had to either ship sufficient goods
by November 30, 2008 to this customer or repay the balance on that
date.    As of November 30, 2008,
this prepayment had been fully repaid.


 


The Company also negotiated a new customer prepayment for the amount of
US$20 million (CDN$24.5 million) during the third quarter for the delivery of
high grade stevia extract for the period October 1, 2008 through September 30,
2009.  The US$20 million was received in July 2008
and this prepayment bears an interest cost of LIBOR plus 6% during the term of
this prepayment financing.  The Company
will deliver product against this obligation over the period October 1,
2008 through September 30, 2009. 
Interest on this balance will accrue and also be repaid through the
value of the products shipped by GLG to this customer, thereby reducing direct
cash outlays on interest costs as was the case with the first customer
prepayment of US$7 million.  The Company
expects to deliver product against this obligation over the period October 1,
2008 through September 30, 2009. There is a covenant that at any time 


 


35

















 


during which the advance remains outstanding, the Company cannot incur
more than US$80 million of indebtedness for plant expenditures or additional leaf
financing beyond the US $20 million associated with this prepayment.   The balance of this prepayment was US$20 million
(CDN$24.5 million) as at December 31, 2008.  The company invoices this customer in US
dollars so it manages currency risk on this balance through matching of this
liability with revenues in the same currency.


 


China
Lines of Credit and Short Term Loans


 


In 2008, the Company obtained two loans to finance its expansion.  A loan of $6,641,500 (RMB 37,000,000) was
obtained from Dongtai Rural Credit Union, bears interest of 6.66% per annum and
matures on November 20, 2009.  The
loan is secured by the property, plant and equipment of one of the subsidiaries
which has a carrying value of $33,854,428.


 


A loan of $3,590,000 (RMB 20,000,000) was obtained from Construction
Bank of China, bears interest of 5.31% per annum and matures on December 25,
2009.  The loan is secured by one of the
Company’s subsidiaries which has a carrying value of $34,262,497.


 


On January 13, 2009, the Company drew an additional $5,385,000
(RMB 30,000,000) from the Construction Bank of China, bearing interest at a
rate at 5.31% per annum. This loan matures on December 25, 2009 and
secured by the one of the Company’s subsidiaries.


 


Contractual
obligations


 


a)            The Company has two
5 year operating leases with respect to land and production equipment at the
Qingdao factory in China.  The leases
expire in 2011, and the annual minimum lease payments are approximately
$179,500 (RMB 1,000,000).


 


b)            The Company entered
into a 30-year agreement with the Dongtai City Municipal Government, located in
the Jiangsu Province of China, for approximately 50 acres of land for its seed
base operation.  Rent of approximately
$141,805 (RMB 790,000) is paid every 10 years.


 


c)            The Company’s
existing office lease will expire on April 30, 2009 with the balance of
commitment of $24,720.  The Company
entered into a new office lease with one year term commencing on May 1,
2009.  Commitments for 2009 and 2010 on
the new lease are $52,648 and $26,324, respectively.


 


d)            Associated with the
$24,492,000 (US$20,000,000) advance from a customer (note 15), the Company
entered into a supply agreement with the customer.  The Company is committed to deliver a certain
amount of stevia extracts to the customer for the period from October 1,
2008 to September 30, 2009.


 


36

















 


e)            In August 2007,
the Company signed a 10-year agreement with the government of Mingguang City in
the Anhui Province of China, which gave the Company exclusive rights to build
and operate a stevia processing factory as well as exclusive right to purchase
high quality stevia leaf grown in that region. 
The agreement requires the Company to make a total investment in the
Mingguang City of US$ 30 million over the course of the 10-year agreement to
retain its exclusive rights.  As of December 31,
2008, the Company has invested approximately US$ 25 million.


 


f)             In April 2008,
the Company signed a 20-year agreement with the government of Juancheng County
in the Shandong Province of China, which gave the Company exclusive rights to
build and operate a stevia processing factory as well as the exclusive right to
purchase high quality stevia leaf grown in that region.  The agreement requires the Company to make a
total investment in the Juancheng region of $US 60 million over the course of
the 20-year agreement to retain its exclusive rights.  As of December 31, 2008, the Company has
not made any investment in the region.


 


A summary of the Company’s 
contractual obligations with defined payment dates is presented below.


 


	
  In thousands

  of Canadian $

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  Thereafter,

  	
   

  	
  Total

  	
   

  
	
  Customer
  prepayment*

  	
   

  	
  $

  	
  24,492

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  24,492

  	
   

  
	
  Operating
  Leases

  	
   

  	
  $

  	
  257

  	
   

  	
  $

  	
  206

  	
   

  	
  $

  	
  180

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  284

  	
   

  	
  $

  	
  926

  	
   

  
	
  Total

  	
   

  	
  $

  	
  24,749

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  25,418

  	
   

  
																							



 






* This amount is expected to revolve each year and
will renew in June of a fiscal year to finance the next leaf harvest
payments to farmers.


 


37

















 


Capital
Structure


 


Outstanding
Share Data as at March 31, 2009


 


	
   

  	
   

  	
  Shares

  	
   

  
	
  Common
  Shares Issued March 31, 2009

  	
   

  	
  78,519,662

  	
   

  
	
  Reserved For Issuance

  
	
  Stock
  Options

  	
   

  	
  5,543,866

  	
   

  
	
  Warrants

  	
   

  	
  7,985,000

  	
   

  
	
  Reserved
  for Issuance - AHTD acquisition

  	
   

  	
  4,375,000

  	
   

  
	
  Reserved
  for Issuance – Other

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total
  Reserved for Issuance

  	
   

  	
  18,153,866

  	
   

  
	
  Fully
  Diluted Shares March 31, 2009

  	
   

  	
  96,673,528

  	
   

  



 


China laws require all wholly owned foreign entities to set aside 10%
of retained earnings as a general reserve fund for employee benefits every year
until such a fund has reached 50% of the Company’s registered capital. The
reserve funds are established for covering corporate obligations in the event
of business liquidation.  The reserve
funds are recorded as part of retained earnings (deficit).  The reserve funds are available for the
Company to use but are not available for distribution to shareholders other
than in liquidation and may limit repatriation of invested capital. The total
reserve of the Company at December 31, 2008 is $0.3 million (December 31,
2007 - $0.1 million).  This reserve fund
applies to all of GLG’s China based subsidiaries.  Pursuant to Chinese regulations, the Company
is required to make appropriations to reserve funds, based on after tax net
income determined in accordance with generally accepted accounting principles
of China.


 


Off-Balance
Sheet Arrangements


 


The Company had no off-balance sheet arrangements.


 


Transactions
with Related Parties


 


During the year, the Company entered into the following transactions with
related parties:


 


a)             Pursuant to
consulting agreements between the Company and officers of the Company,
consulting fees of $476,098 were expensed for the year ended December 31,
2008 (2007 - $294,681) of which $75,000 remained as an accounts payable as at December 31,
2008 (2007 - $210,000).


 


38

















 


b)            Pursuant to a
management services agreement, the Company recorded management expenses of
$365,475 (2007 — nil) to a company controlled by senior executives for
management services provided to the Company.


 


c)            The Company entered
into a 5-year facility rental agreement expiring on December 31, 2011 with
a company that two officers have ownership interest in.  The Company recorded rental expense of
$76,800 (RMB 500,000) (2007 — $70,600 or RMB 500,000).  The commitment for the remaining three years
is $230,400 (RMB 1,500,000).  As at December 31,
2008, $76,000 (RMB500,000) (2007 - nil) remained as an account payable.


 


d)            The Company sold
$119,409 of goods to a company that two officers have ownership interest in
(2007 - $484,698).


 


e)            In 2007, the Company
borrowed $406,580 (US$400,000) to pay for the initial capitalization of one of
the subsidiaries from a company of which two of the Company’s directors and
officers are shareholders.  The amount
was fully repaid in January 2008.


 


These transactions were in the normal course of operations and were
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.


 


39

















 


2009
Outlook


 


Market
and Operations 2009 Outlook


 


The Company expects the market for its stevia products to be
significantly stronger in 2009 compared to the demand seen in 2008.  This expectation is driven by the new markets
that opened up for stevia when it was approved as a food ingredient rather than
just as a dietary supplement late in 2008. 
The major market that has opened up for high purity Rebaudioside A stevia
extract products is the US.  There were
several important product launches in the US at the end of 2008 and the first
quarter of 2009.  GLG’s alliance partner
Cargill successfully launched a tabletop sweetener (TRUVIATM) 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 numerous new product
launches in 2009 based on the feedback received from customers and new
prospects.  The current economic
recession has the potential to impact the Company’s financial results
negatively if food and beverage companies reduce or delay their plans to launch
new stevia based products.


 


GLG’s key operational objectives for 2009 are:


 


1.              Commence
operation of new facilities to increase production capacity and revenues
(ramp-up of new facilities to be completed by the end of Q1)


2.              Prepare necessary
GLG proprietary seedlings to meet expected demand from customers for Q4 2009
and 2010.


3.              Organize stevia
growers in partnership with local governments in China (to be completed by Q1)
to meet expected 2009 stevia demand.


4.              Generate
additional sales growth from its GLG Weider venture.


5.              Complete a new
2,000 MT rebiana production facility


6.              Continue R&D
program for high RA yielding seeds and seedlings.


 


GLG’s outlook for 2009 is:


 


	
   

  	
   

  	
  2009 Estimate

  	
   

  	
  2008 Actual

  	
   

  
	
  Revenue

  	
   

  	
  $50 to $60 million

  	
   

  	
  $9.9 million

  	
   

  
	
  EBITDA

  	
   

  	
  $8 to 12 million

  	
   

  	
  ($1.0) million

  	
   

  
	
  Capital
  Expenditures (Capex)

  	
   

  	
  $17 to $40 million

  	
   

  	
  $57.8 million

  	
   

  



 


40














 


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$30 million under contract for
delivery in 2009 as of the date of the MD&A. This would equate to CDN$37.5
million using an average exchange rate assumption of $1.25 per $US for 2009
(Source: RBC Economic and Financial Outlook March 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. (see also capital expenditures section).


 


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
$ 12.5 million (US$10 million) in revenue expected to be delivered during 2009
to meet the lower end of revenue guidance.


 


e) We expect to generate positive 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 the approximately $17 million
to $20 million and include amounts required to complete the Mingguang and
Dongtai facilities, as well as the new 2,000 MT rebiana facility.  The Company expects to able to fund these
capital expenditures through its existing and new banking arrangements in
China.


 


A further $20 million in capital expenditures may be incurred to expand
the Mingguang and Dongtai processing facilities in order to add additional leaf
processing capacity during 2009.  These
capacity upgrades would be initiated by growth in the stevia market and
customer contract requirements.


 


41

















 


Critical Accounting
Estimates and Assumptions


 


The preparation of consolidated financial statements that conform with
Canadian generally accepted accounting principles (GAAP) requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
Consolidated Financial Statements and the reported amounts of revenue and
expenses during the reporting period. The Company calculates its estimates
using detailed financial models that are based on historical experience,
current trends and other assumptions that are believed to be reasonable under
the circumstances.  Actual results could
differ from those estimates. In our judgment, the accounting policies and
estimates detailed in Note 1 of the Notes to the Consolidated Financial
Statements for the year ended December 31, 2008 do not require us to make
assumptions about matters that are highly uncertain and accordingly none of the
estimates is considered a “critical accounting estimate” as defined in Form 51-102F1.


 


CHANGES IN ACCOUNTING
POLICIES


 


Accounting policies implemented effective January 1, 2008


 


Section 1400 “General Standards of Financial Presentation”
requires management to assess and disclose the ability of the Company to
continue as a going concern.  Additional
disclosure has been provided in Note 1 of the consolidated financial
statements.


 


Section 1535 “Capital Disclosures” requires disclosure regarding
what the Company defines as capital and its objectives, policy and processes
for managing capital.  In addition,
disclosures are to include whether companies have complied with externally
imposed capital requirements and, if not, the consequences of such
non-compliance.  Additional disclosure
has been provided in Note 31 of the consolidated financial statements.


 


Section 3031 “Inventories” which replaces Section 3030
“Inventories”, establishes standards for measurement and disclosure of
inventories.  Under the new section,
inventories are required to be measured at the “lower of cost and net
realizable value”, which is different from the existing guidance of the “lower
of cost and market”.  The new section
contains guidance on the determination of cost and also requires the reversal
of any write-downs previously recognized. 
Certain minimum disclosures are required, including the accounting
policies used, carry amounts, amounts recognized as an expense, write-downs,
and the amount of any reversal of any write-downs recognized as a reduction in
expenses.  The adoption of this standard
does not have an impact on this Company’s consolidated financial 


 


42

















 


statements.  Additional
disclosure has been provided in Note 10 of the consolidated financial
statements.


 


Financial Instruments
and Other Instruments


 


Fair Values


 


Financial instruments are classified into one of the following five
categories:  held-for-trading,
held-to-maturity investments, loans and receivables, available-for-sale
financial assets, and other financial liabilities.  The carrying value of the Company’s financial
instruments is classified into the following categories:


 


	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Held-for-trading

  	
   

  	
  $

  	
  7,829,166

  	
   

  	
  $

  	
  28,253,580

  	
   

  
	
  Loans and
  receivable

  	
   

  	
  $

  	
  2,717,765

  	
   

  	
  $

  	
  6,919,674

  	
   

  
	
  Other
  financial liabilities

  	
   

  	
  $

  	
  52,954,796

  	
   

  	
  $

  	
  13,343,358

  	
   

  



 


The carrying value of the financial assets, less provision for
impairment if applicable, approximates the fair value because of the short-term
nature of these instruments.  The fair
values of the Company’s financial liabilities, including accounts payables and
accruals, customer advances and interest payable were below carrying values as
at December 31, 2008 due to the liquidity and going concern issues of the
Company.  The fair value of the Company’s
short-term loans which bear a fixed interest rate approximate their fair values
since they were drawn in November and December 2008, their short term
nature and security they have over certain assets of the Company.


 


Interest income, and other gains and losses from “held-for-trading” and
“loans and receivables” financial assets are recognized in other income
(expense). Interest expense and gains and losses from loans, receivables and
other financial liabilities are recognized in other income (expense).


 


The following table summarizes interest income and expense under the
effective interest method:


 


	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Interest
  income from held-for-trading

  	
   

  	
  $

  	
  820,765

  	
   

  	
  $

  	
  78,498

  	
   

  
	
  Interest
  income from loans and receivables

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  115,789

  	
   

  
	
  Interest
  income from other financial liabilities

  	
   

  	
  $

  	
  (2,009,638

  	
  )

  	
  $

  	
  (1,175,873

  	
  )

  



 


43

















 


Credit Risks


 


Credit risk is the risk of loss associated with the counterparty’s
inability to fulfill its payment obligations. 
The Company’s primary credit risk is on its cash and cash equivalents,
restricted cash, accounts receivable, and loan receivable.


 


The Company limits its exposure to credit risk by placing its cash and
cash equivalents and restricted cash with various financial institutions.  Given the current economic environment, the
Company is constantly monitoring the credit quality of the financial
institutions it deals with, and will adjust accordingly when required.


 


Credit risk with respect to accounts receivable is concentrated as one
customer accounted for 71% of total trade accounts receivable.  The following table provides information
regarding the aging of financial assets that are past due but which are not
impaired.


 


	
   

  	
   

  	
  0-30 days

  	
   

  	
  31-90 days

  	
   

  	
  over 90 days

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dollar
  Amount

  	
   

  	
  $

  	
  2,021,232

  	
   

  	
  $

  	
  0

  	
   

  	
  $

  	
  692,882

  	
   

  	
  $

  	
  2,714,114

  	
   

  
	
  % Total
  accounts receivable

  	
   

  	
  74

  	
  %

  	
  0

  	
  %

  	
  26

  	
  %

  	
  100

  	
  %

  
														



 


The company reviews financial assets, including past due accounts, on
an ongoing basis with the objective of identifying potential events or
circumstance which could delay or prevent the collection of funds on a timely
basis. As at December 31, 2008, the company has a provision of $3,111,351
against accounts receivable, interest receivable, and loan receivable from YHT,
the collection of which are considered doubtful.


 


Reconciliation of changes in allowance for doubtful accounts:


 


	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Balance
  Beginning of year

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Increase
  in allowance for doubtful accounts

  	
   

  	
   

  	
   

  	
   

  	
   

  
								



 


44

















 


	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  622,029

  	
   

  	
  $

  	
  —

  	
   

  
	
  Interest
  receivable

  	
   

  	
  $

  	
  199,320

  	
   

  	
  $

  	
  —

  	
   

  
	
  Loan
  receivable

  	
   

  	
  $

  	
  2,290,002

  	
   

  	
  $

  	
  —

  	
   

  
	
  Balance –
  End of year

  	
   

  	
  $

  	
  3,111,351

  	
   

  	
  $

  	
  —

  	
   

  



 


The Company has a high concentration of credit risk as the accounts
receivable and loan receivable were owed by fewer than five customers. However,
the Company is in the opinion that it does not require collateral to support
these financial instruments.  The
carrying amount of financial assets represents the maximum credit exposure.
Based on historic default rates, the Company believes that there are minimal
requirements for an allowance for doubtful accounts. As well, deposits by
certain customers are often made which also helps to mitigate the risk if there
is any.


 


Foreign Exchange Risk


 


Foreign exchange risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of change in foreign
exchange rates.  The Company conducts its
business primarily in U.S. dollars, RMB, and Canadian dollars and Hong Kong dollars.  The Company is exposed to currency risk as
the functional currency of its subsidiaries is denominated in foreign
currencies other than Canadian dollars.


 


The majority of the Company’s assets are held in subsidiaries whose
functional currency is RMB.  The RMB is
not a freely convertible currency.  Many
foreign currency exchange transactions involving RMB, including foreign
exchange transactions under the Company’s capital account, are subject to
foreign exchange controls and require the approval of the PRC State
Administration of Foreign Exchange. Developments relating to the PRC’s economy
and actions taken by the PRC government could cause future foreign exchange
rates to vary significantly from current or historical rates. The Company
cannot predict nor give any assurance of its future stability. Future
fluctuations in exchange rates may adversely affect the value, translated or
converted into Canadian dollars of the Company’s net assets and net profits.
The Company cannot give any assurance that any future movements in the exchange
rates of RMB against the Canadian dollar and other foreign currencies will not
adversely affect its results of operations, financial condition and cash
flows.  The Company does not use
derivative instruments to reduce its exposure to foreign currency risk.


 


45

















 


All of the Company’s operations are considered self-sustaining
operations. The assets and liabilities of the self-sustaining operations are
translated at exchange rates prevailing during the year. Unrealized gains and
losses resulting from translating self-sustaining operations are accumulated
and reported as a currency translation adjustment in accumulated other
comprehensive income. As of December 31, 2008, assuming that all other
variables remain constant, an increase of 1% in the Canadian dollar would have
an effect of other comprehensive income of approximately $171,548 (2007 –
188,532).


 


The Company’s Canadian operations are primarily exposed to exchange
rate changes between the U.S. dollar and the Canadian dollar. The Company’s
primary U.S. dollar exposure in Canada relates to the revaluation into Canadian
dollars of its U.S. dollar denominated working capital and customer advances.
As of December 31, 2008, assuming that all other variables remain constant,
an increase of 1% in the Canadian dollar would have an effect of net loss of
approximately $242,786 (2007 – 52,710)


 


At December 31, 2008:


 


	
  Expressed
  in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Financial
  assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  (5,023

  	
  )

  	
  $

  	
  (64,753

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (69,786

  	
  )

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  (26,227

  	
  )

  	
  $

  	
  (622

  	
  )

  	
  —

  	
   

  	
  $

  	
  (26,849

  	
  )

  
	
  Loans
  receivable

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Financial
  liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Short
  term bank loan

  	
   

  	
  —

  	
   

  	
  $

  	
  101,302

  	
   

  	
  —

  	
   

  	
  $

  	
  101,302

  	
   

  
	
  Accounts
  payable

  	
   

  	
  $

  	
  291

  	
   

  	
  $

  	
  166,882

  	
   

  	
  —

  	
   

  	
  $

  	
  167,173

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  242,495

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  242,495

  	
   

  
	
  Net
  unrealized foreign exchange gain

  	
   

  	
  $

  	
  211,536

  	
   

  	
  $

  	
  202,808

  	
   

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  414,334

  	
   

  



 


At December 31, 2007:


 


	
  Expressed
  in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Financial
  assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  (170,237

  	
  )

  	
  $

  	
  (90,031

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (260,278

  	
  )

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  (31,042

  	
  )

  	
  $

  	
  (1,793

  	
  )

  	
  —

  	
   

  	
  $

  	
  (32,835

  	
  )

  
	
  Loans
  receivable

  	
   

  	
  $

  	
  (18,295

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  (18,295

  	
  )

  
	
  Financial
  liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts
  payable

  	
   

  	
  —

  	
   

  	
  $

  	
  5,351

  	
   

  	
  —

  	
   

  	
  $

  	
  5,351

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  64,816

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  64,816

  	
   

  
														



 


46

















 


	
  Expressed in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Net
  unrealized foreign exchange gain

  	
   

  	
  $

  	
  (154,758

  	
  )

  	
  $

  	
  (86,474

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (241,242

  	
  )

  
														



 


Of the $7,829,166 cash and cash equivalents, short term investments and
restricted cash as of December 31, 2008, $507,892 is denominated in US
Dollars (USD$414,283), $780,130 is denominated in Canadian Dollars, $1,055 in
Hong Kong Dollars (HKD$6,679) and $6,540,089 is denominated in Chinese Yuan
(RMB 36,435,035).


 


Of the $28,253,580 cash and cash equivalents as of December 31,
2007, $17,193,965 is denominated in US Dollars (USD$17,401,037), $1,965,476 is
denominated in Canadian Dollars, $968 in Hong Kong Dollars (HKD$7,636) and
$9,093,171 is denominated in Chinese Yuan (RMB 67,207,475).


 


Liquidity Risk


 


Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. All financial liabilities as at December 31,
2008 have contractual maturities of less than 12 months.  It is the Company’s intention to meet these
obligations through the collection of accounts receivable, receipts from future
sales, current cash and cash equivalents, short-term investments, available
lines of credit in China of and possible issuance of new equity or debt
instruments.


 


On July 29, 2008 the Company arranged secured credit lines in
China with Dongtai Rural Credit Union and the Agricultural Bank of China
totalling $44,875,000 (RMB 250 million). 
The credit lines mature on July 27, 2009 and bear and interest rate
based on the benchmark one-year lending rate with discounts applied.  As at December 31, 2008, the Company has
drawn $6,641,500 (RMB 37,000,000) against these lines.


 


The Company is dependent on obtaining regular financings in order to
continue its expansion programs. Despite previous success in acquiring these
financings, there is no guarantee of obtaining future financings. The Company’s
cash is invested in business accounts with different financial institutions and
which is available on demand for the Company’s programs, and is not invested in
any asset backed commercial paper.


 


The following table provides the due date information for the company’s
significant financial liabilities:


 


47














 


	
  Financial
  Liabilities

  	
   

  	
  0 to 12 months

  	
   

  	
  12 to 24 months

  	
   

  	
  After 24 months

  	
   

  
	
  Accounts
  Payable and accrued liabilities

  	
   

  	
  $

  	
  17,167,567

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Bank Debt

  	
   

  	
  $

  	
  10,231,500

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Interest
  payable

  	
   

  	
  $

  	
  1,063,729

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  24,492,000

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Obligation
  under leases

  	
   

  	
  $

  	
  256,788

  	
   

  	
  $

  	
  205,824

  	
   

  	
  $

  	
  463,110

  	
   

  
	
  Total

  	
   

  	
  $

  	
  53,211,584

  	
   

  	
  $

  	
  205,824

  	
   

  	
  $

  	
  463,110

  	
   

  



 


Interest Rate Risk


 


Interest rate risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in market interest
rates.


 


The Company is exposed to interest rate risk on its cash and cash
equivalents, restricted cash and customer advances at December 31, 2008.
The interest rates on these financial instruments fluctuate based on the bank
prime rate and LIBOR.


 


As at December 31, 2008, with other variables unchanged, a
100-basis point change in the LIBOR rate would have an $112,059 effect (2007 —
$29,883) on net loss.


 


International Financial
Reporting Standards (“IFRS”)


 


On February 13, 2008,
the CICA Accounting Standard Board confirmed that the use of International
Financial Reporting Standards (“IFRS”) will be required, for fiscal years
beginning on or after January 1, 2011, for publicly accountable
profit-oriented enterprises. After that date, IFRS will replace Canadian GAAP
for those enterprises. Changing from current Canadian GAAP to IFRS will be a
significant undertaking that may materially affect the Company’s reported
financial position and results of operations.


 


While IFRS uses a conceptual framework similar to Canadian GAAP, there
are significant differences on recognition, measurement and disclosures. We
commenced our IFRS conversion project in the second 


 


48

















 


quarter of 2008. The project consists of four phases: awareness
raising; assessment; design; and implementation. With the assistance of an
external expert advisor, we have completed the awareness-raising phase and have
begun a high level review of the major differences between Canadian GAAP and
IFRS (the assessment phase). It is expected that this work will be completed
during 2009. Subsequently, we will initiate the design phase, which will
involve establishing issue-specific work teams to focus on generating options
and making recommendations in identified areas. Initial training programs have
been provided to relevant employees in 2008. 
The Company will follow the key events timeline proposed by the
Accounting Standards Board (“AcSB”) to obtain training and thorough knowledge
of IFRS, finalise assessment of accounting policies with reference to IFRS and
plan for convergence to be ready for the 2011 changeover.


 


RECENT ACCOUNTING
PRONOUNCEMENTS


 


In 2008, the CICA issued Handbook Section 3064, “Goodwill and
Intangible Assets” (“CICA 3064”).  CICA
3064, which replaces Section 3062, “Goodwill and Intangible Assets”, and Section 3450,
“Research and Development Costs”, establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets. This new standard
is effective for the Company’s interim and annual consolidated financial
statements commencing January 1, 2009. The Company is currently assessing
the impact of the new standard on its financial statements.


 


In January 2009, the CICA issued Handbook Section 1582,
“Business Combinations” (“CICA 1582”), CICA 1582 requires that all assets and
liabilities of an acquired business will be recorded at fair value at
acquisition. Obligations for contingent considerations and contingencies will
also be recorded at fair value at the acquisition date. The standard also
states that acquisition-related costs will be expensed as incurred and that
restructuring charges will be expensed in the periods after the acquisition
date. The Section applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period on or after January 1, 2011. The Company is currently assessing the
impact of the new standard on its financial statements.


 


In January 2009, the CICA issued Handbook Section 1601,
“Consolidations” (“CICA 1601”), and Section 1602, “Non-controlling
Interests” (“CICA 1602”). CICA 1601 establishes standards for the preparation
of consolidated financial statements. CICA 1602 establishes standards for
accounting for a non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination. These standards
apply to interim and annual consolidated financial statements relating to
fiscal years beginning on or after January 1, 2011. The Company is
currently assessing the impact of the new standard on its financial statements.


 


In January 2009, the CICA issued EIC Abstract 173, “Credit Risk
and the Fair Value of Financial Assets and Financial Liabilities”. The EIC
requires the Company to take into account the Company’s own credit risk and the
credit risk of the counterparty in determining the fair value of financial
assets and financial 


 


49

















 


liabilities, including derivative instruments. The Company is currently
assessing the impact of the new standard on its financial statements.


 


50

















 


Disclosure Controls and
Internal Controls over Financial Reporting


 


The Company’s disclosure controls and procedures were designed to
provide reasonable assurance that material information relating to the Company,
including its consolidated subsidiaries, is made known to management in a
timely manner so that information required to be disclosed by the Company under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in applicable securities legislation.


 


The Company’s management, under the direction and supervision of the
Chief Executive Officer and Chief Financial Officer, are also responsible for
establishing and maintaining internal control over financial reporting. These
controls are designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP. There have been no changes in the
Company’s internal control over financial reporting for the year ended December 31,
2008 that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.


 


The Company’s disclosure controls and procedures were designed to
provide reasonable assurance that material information relating to the Company,
including its consolidated subsidiaries, is made known to management in a
timely manner so that information required to be disclosed by the Company under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in applicable securities legislation.  In March 2008,
the Company has adopted a Corporate Disclosure Policy.  A Disclosure
Committee has been established to oversight the Corporate Disclosures. 
The Policy has been communicated to management and being implemented
accordingly.


 


The Company’s management, under the direction and supervision of the
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures and has
concluded, based on its evaluation, that the disclosure controls and procedures
were effective.


 


The Company’s management, under the direction and supervision of the
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s internal control over financial reporting as at December 31,
2008, and has concluded, based on its evaluation, that certain controls within
its ICFR were not effective for the year ended December 31, 2008.


 


The Company did not have sufficient accounting documentation, policy,
procedures or segregation of duties for certain transaction cycles.  Specifically, the Company does not have a
significant number of staff in China that possess an understanding of Canadian
public capital market requirements and Canadian GAAP.  Furthermore, effective controls over
accounting for income taxes and the application of Canadian GAAP to certain
complex transactions was not effective. 
These material weaknesses contributed to the restatement of the each of
the Company’s consolidated financial statements for the year ended December 31,
2007 and the first three quarterly consolidated financial statements for the
year ended December 31, 2008.


 


51

















 


To address the above issues, during 2008, the Company hired additional
financial staff at the head office to oversee the financial reporting and
consulted with tax advisors on various tax issues.  The Company continuous to determine other
appropriate remediation plans, such as reviewing the organizational structure
of the accounting group to strengthen its resources to reflect the Company’s
growth and the Company is executing its formal documented evaluation process to
evaluate compliance of internal control over financial reporting for purposes
of National Instrument 52-109.  This evaluation process will be completed
in 2009.


 


It should be noted that while the officers of the Company have
certified the Company’s Annual Filings, they do not expect that the disclosure
controls and procedures or internal controls over financial reporting will
prevent all errors and fraud.  A control system, no matter how well
conceived or implemented, can only provide reasonable, not absolute, assurance
that the objectives of the control system are met.


 


52

















 


Risks Related to our
Business


 


This section describes the material risks affecting the Company’s
business, financial condition, operating results and prospects.  A prospective investor should carefully
consider the risk factors set out below and consult with his, hers or its
investment and professional advisors before making an investment decision.  There may be other risks and uncertainties
that are not known to the Company or that the Company currently believes are
not material, but which also may have a material adverse effect on the
Company’s business, financial condition, operating results or prospects.  In that case, the trading price of the common
shares could decline substantially, and investors may lose all or part of the
value of the common shares held by them.


 


There are a number of risk factors that could materially affect the
business of GLG, which include but are not limited to the risk factors set out
below.  The Company has been structured
to minimize these risks as best possible.  
More details about the following risk factors can be found in the
Company’s Annual Information Form filed on SEDAR at www.sedar.com..


 


·                  Intellectual Property
Infringement


·                  Product Liability Costs


·                  Manufacturing Risk


·                  Customer Concentration Risk


·                  Competition


·                  Government Regulations


·                  Consumer Perception of
Products


·                  Changing Consumer
Preferences


·                  Market Acceptance


·                  Dependence on Key Personnel


·                  Volatility of Share Prices


 


Risks Associated with
Doing Business in the People’s Republic of China


 


The Company faces the following additional risk factors that are unique
to it doing business in China.  More
details about the following risk factors can be found in the Company’s Annual
Information Form.


 


·                  Government Involvement


·                  Changes in the Laws and
Regulations in the People’s Republic of China


 


53

















 


·                  The Chinese Legal and
Accounting System


·                  Currency Controls


·                  Additional Compliance Costs
in the People’s Republic of China


·                  Difficulties Establishing Adequate
Management, Legal and Financial Controls in the People’s Republic of China


·                  Capital Outflow Policies in
the People’s Republic of China


·                  Jurisdictional and
Enforcement Issues


·                  Political System in the
People’s Republic of China


 


Additional Information


 


Additional information relating to the Company is available on its
website (www.glglifetech.com), in its Annual Information Form available on
SEDAR (www.sedar.com).


 


54