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Amended
Consolidated Financial Statements
 GLG LIFE TECH CORPORATION
  Years ended December 31, 2008 and 2007 








F-3








 



































 



 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED BALANCE SHEETS    
    
    (In Canadian Dollars)    
    



								
	 
	 	December 31, 2008 	 	December 31, 2007 	 
	 
	 	 
	 	Restated (Note 1(b))
	 
	 ASSETS
	 	 	 	 	 	 	 
	 Current Assets
	 	 	 	 	 	 	 
	 Cash and cash equivalents
	 	$	7,362,671	 	$	28,253,580	 
	 Short term investments (Note 5)
	 	 	365,785	 	 	—	 
	 Accounts receivable (Notes 6 and 26)
	 	 	2,714,114	 	 	3,939,045	 
	 Interest receivable (Notes 6 and 26)
	 	 	3,651	 	 	199,546	 
	 Loans receivable (Notes 6 and 26)
	 	 	—	 	 	1,719,633	 
	 Taxes recoverable (Note 7)
	 	 	1,504,000	 	 	1,061,450	 
	 Inventory (Note 8)
	 	 	33,057,690	 	 	8,863,190	 
	 Prepaid expenses (Note 9)
	 	 	7,380,086	 	 	67,679	 
	 	 	 	 	 	 
	 
	 	 	52,387,997	 	 	44,104,123	 
	 Property, Plant, and Equipment (Note 10)
	 	 	83,366,043	 	 	14,006,891	 
	 Goodwill
	 	 	7,587,798	 	 	7,587,798	 
	 Restricted Cash (Note 11)
	 	 	100,710	 	 	—	 
	 Loans Receivable (Notes 6 and 26)
	 	 	—	 	 	144,549	 
	 Deferred Charges
	 	 	125,261	 	 	—	 
	 Intangible Assets (Note 12)
	 	 	30,793,314	 	 	28,285,420	 
	 	 	 	 	 	 
	 
	 	$	174,361,123	 	$	94,128,781	 
	 	 	 	 	 	 
	 LIABILITIES
	 	 	 	 	 	 	 
	 Current Liabilities
	 	 	 	 	 	 	 
	 Short term loans (Note 13)
	 	$	10,231,500	 	$	—	 
	 Accounts payable and accruals (Note 14)
	 	 	17,167,567	 	 	1,246,330	 
	 Due to related parties (Note 24)
	 	 	—	 	 	410,078	 
	 Interest payable (Notes 15 and 18)
	 	 	1,063,729	 	 	395,568	 
	 Advances from a customer (Note 15)
	 	 	24,492,000	 	 	6,549,100	 
	 Deferred Revenue (Note 16)
	 	 	1,995,000	 	 	—	 
	 Convertible debenture (Note 18)
	 	 	—	 	 	4,742,282	 
	 	 	 	 	 	 
	 
	 	 	54,949,796	 	 	13,343,358	 
	 FUTURE INCOME TAXES, NET (Note 25)
	 	 	2,414,642	 	 	3,887,060	 
	 NON-CONTROLLING INTERESTS
	 	 	167,211	 	 	—	 
	 SHAREHOLDERS' EQUITY
	 	 	 	 	 	 	 
	 Share capital (Notes 19 and 20)
	 	 	93,355,149	 	 	61,052,731	 
	 Warrants (Note 19)
	 	 	11,477,908	 	 	15,378,511	 
	 Equity portion of convertible debenture (Note 18)
	 	 	—	 	 	1,513,003	 
	 Contributed surplus
	 	 	3,347,623	 	 	1,702,716	 
	 Accumulated other comprehensive income
	 	 	20,696,008	 	 	(1,307,926	)
	 Deficit (Note 21)
	 	 	(12,047,214	)	 	(1,440,672	)
	 	 	 	 	 	 
	 
	 	 	116,829,474	 	 	76,898,363	 
	 	 	 	 	 	 
	 
	 	$	174,361,123	 	$	94,128,781	 
	 	 	 	 	 	 






Description
of business, going concern and restatement (Note 1)

Commitments and Contingent Liability (Notes 29 and 30)

Subsequent events (Note 31) 


        APPROVED
ON BEHALF OF THE BOARD: 



			
	
 (Signed) "Brian Palmieri"

Director	
 	
(Signed) "Jinduo Zhang"

Director





See
Accompanying Notes to the Consolidated Financial Statements 


F-4







 
 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENTS OF OPERATIONS    
    
    For the Years Ended December 31, 2008 and 2007
  (In Canadian Dollars)

    



									
	 
	 	Year ended December 31 	 
	 
	 	2008 	 	2007 	 
	 
	 	 
	 	Restated (Note 1(b))
	 
	 REVENUE
	 	 	 	 	 	 	 
	 Sales
	 	$	9,891,318	 	$	8,192,865	 
	 Commissions
	 	 	—	 	 	964,185	 
	 	 	 	 	 	 
	 
	 	 	9,891,318	 	 	9,157,050	 
	 COST OF SALES
	 	 	7,560,490	 	 	6,499,954	 
	 	 	 	 	 	 
	 GROSS PROFIT
	 	 	2,330,828	 	 	2,657,096	 
	 GENERAL AND ADMINISTRATIVE EXPENSES
	 	 	7,217,189	 	 	1,607,129	 
	 	 	 	 	 	 
	 (LOSS) INCOME BEFORE THE UNDERNOTED
	 	 	(4,886,361	)	 	1,049,967	 
	 OTHER INCOME (EXPENSES)
	 	 	 	 	 	 	 
	 Donation
	 	 	(73,337	)	 	—	 
	 Interest on convertible debenture and advances (Notes 15 and 18)
	 	 	(2,009,638	)	 	(1,175,874	)
	 Provision on loans and receivables (Notes 6 and 26)
	 	 	(3,111,351	)	 	—	 
	 Interest income
	 	 	820,765	 	 	194,288	 
	 Realized foreign exchange loss
	 	 	(2,842,894	)	 	(308,812	)
	 	 	 	 	 	 
	 
	 	 	(7,216,455	)	 	(1,290,398	)
	 	 	 	 	 	 
	 LOSS BEFORE INCOME TAXES AND

NON-CONTROLLING INTERESTS
	 	 	(12,102,816	)	 	(240,431	)
	 INCOME TAXES RECOVERY (Note 25)
	 	 	1,428,000	 	 	609,861	 
	 	 	 	 	 	 
	 NET (LOSS) INCOME BEFORE NON-CONTROLLING INTERESTS
	 	 	(10,674,816	)	 	369,430	 
	 NON-CONTROLLING INTERESTS
	 	 	68,274	 	 	—	 
	 	 	 	 	 	 
	 NET (LOSS) INCOME
	 	 	(10,606,542	)	 	369,430	 
	 DEFICIT, beginning of year
	 	 	(1,440,672	)	 	(1,810,102	)
	 	 	 	 	 	 
	 DEFICIT, end of year
	 	 	(12,047,214	)	 	(1,440,672	)
	 	 	 	 	 	 
	 NET (LOSS) INCOME PER SHARE
	 	 	 	 	 	 	 
	 	 Basic
	 	$	(0.15	)	$	0.01	 
	 	 Diluted
	 	 	(0.15	)	 	0.00	 
	 	 	 	 	 	 
	 Weighted Average Number of Shares Outstanding
	 	 	 	 	 	 	 
	 	 Basic
	 	 	71,740,424	 	 	50,988,982	 
	 	 Diluted
	 	 	107,554,684	 	 	109,702,794	 
	 	 	 	 	 	 





See
Accompanying Notes to the Consolidated Financial Statements 


F-5








 








































 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENTS OF CASH FLOW    
    
    For the Years Ended December 31, 2008 and 2007
  (In Canadian Dollars)

    



									
	 
	 	2008 	 	2007 	 
	 
	 	 
	 	Restated (Note 1(b))
	 
	 Cash provided by (used in)
	 	 	 	 	 	 	 
	 Operating activities
	 	 	 	 	 	 	 
	 Net income (loss)
	 	$	(10,606,542	)	$	369,430	 
	 Items not affecting cash:
	 	 	 	 	 	 	 
	 	 Accretion on convertible debenture
	 	 	1,257,718	 	 	697,925	 
	 	 Stock-based compensation
	 	 	1,320,575	 	 	—	 
	 	 Amortization of property, plant and equipment & intangibles
	 	 	2,539,869	 	 	497,726	 
	 	 Provision on loan and receivables
	 	 	3,111,371	 	 	—	 
	 	 Foreign exchange loss
	 	 	2,841,737	 	 	254,324	 
	 	 Future income tax recovery
	 	 	(1,416,928	)	 	(609,861	)
	 	 Non-controlling interests
	 	 	(68,274	)	 	—	 
	 	 	 	 	 	 
	 
	 	 	(1,020,474	)	 	1,209,544	 
	 Changes in non-cash working capital items (Note 22)
	 	 	(18,744,065	)	 	(11,335,750	)
	 	 	 	 	 	 
	 Cashflow used by operating activities
	 	 	(19,764,539	)	 	(10,126,206	)
	 	 	 	 	 	 
	 Investing activities
	 	 	 	 	 	 	 
	 (Increase) Decrease in short term investment
	 	 	(299,849	)	 	20,000	 
	 Increase in loan receivable
	 	 	—	 	 	(155,843	)
	 Equity contribution by non-controlling interests
	 	 	253,007	 	 	—	 
	 Increase in restricted cash
	 	 	(100,710	)	 	—	 
	 Purchase of intangible assets
	 	 	—	 	 	(1	)
	 Purchase of property, plant and equipment
	 	 	(42,381,870	)	 	(6,478,389	)
	 	 	 	 	 	 
	 Cash flow used by investing activities
	 	 	(42,529,422	)	 	(6,614,233	)
	 	 	 	 	 	 
	 Financing activities
	 	 	 	 	 	 	 
	 Reduction in subscriptions receivable
	 	 	—	 	 	380,492	 
	 Increase in short term loan
	 	 	8,387,169	 	 	—	 
	 Issuance of common shares
	 	 	17,844,394	 	 	32,251,588	 
	 Share issuance costs
	 	 	(195,000	)	 	—	 
	 Issuance of warrants
	 	 	—	 	 	1,025,297	 
	 Repaid advance from a customer
	 	 	(7,122,367	)	 	—	 
	 Increase in advance from a customer
	 	 	20,191,680	 	 	6,549,100	 
	 Convertible debenture
	 	 	—	 	 	4,712,982	 
	 Advances from related parties
	 	 	(846,630	)	 	410,078	 
	 Convertible note payable
	 	 	—	 	 	(880,000	)
	 	 	 	 	 	 
	 Cash flow from financing activities
	 	 	38,259,246	 	 	44,449,537	 
	 	 	 	 	 	 
	 Effect of foreign exchange rate changes on cash and cash equivalents
	 	 	3,143,806	 	 	(377,603	)
	 	 	 	 	 	 
	 CHANGE IN CASH AND CASH EQUIVALENTS
	 	 	(20,890,909	)	 	27,331,495	 
	 CASH AND CASH EQUIVALENTS, beginning of period
	 	 	28,253,580	 	 	922,085	 
	 	 	 	 	 	 
	 CASH AND CASH EQUIVALENTS, end of period
	 	$	7,362,671	 	$	28,253,580	 
	 	 	 	 	 	 
	 CASH FLOW SUPPLEMENTARY INFORMATION
	 	 	 	 	 	 	 
	 Interest paid
	 	$	654,056	 	$	263,395	 
	 Income taxes received
	 	 	—	 	 	5,000	 
	 Increase in accounts payable and accruals related to the purchase of property, plant and equipment
	 	 	12,657,383	 	 	—

	 





See
Accompanying Notes to the Consolidated Financial Statements 


F-6








 



































 



 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)    
    
    For the Years Ended
December 31, 2008 and 2007
  (In Canadian Dollars)    
    



																							
	 
	 	Share Capital 	 	Warrants 	 	Equity portion

of convertible debenture 	 	Contributed

Surplus 	 	Accumulated

Other

Comprehensive

Income ("AOCI") 	 	Deficit 	 	Total

Comprehensive

Income (Loss) 	 
	 
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	 
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 
	 Balance, December 31, 2006
	 	$	19,179,824	 	$	—	 	$	—	 	$	1,767,651	 	$	128,815	 	$	(1,810,102	)	 	 	 
	 Options exercised
	 	 	132,935	 	 	—	 	 	—	 	 	(64,935	)	 	—	 	 	—	 	 	 	 
	 Shares issued for service
	 	 	300,000	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Private Placement
	 	 	28,564,972	 	 	3,318,616	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Shares issued for AHTD intangible
	 	 	12,875,000	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Convertible debenture
	 	 	—	 	 	1,140,565	 	 	1,513,003	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Warrants issued to a customer
	 	 	—	 	 	10,919,330	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Change in foreign currency translation
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(1,436,741	)	 	—	 	 	(1,436,741	)
	 Net income
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	369,430	 	 	369,430	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2007
	 	$	61,052,731	 	$	15,378,511	 	$	1,513,003	 	$	1,702,716	 	$	(1,307,926	)	$	(1,440,672	)	$	(1,067,311	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Warrant exercised by a customer
	 	 	20,235,133	 	 	(2,453,160	)	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Warrant expired
	 	 	—	 	 	(1,447,443	)	 	—	 	 	1,447,443	 	 	—	 	 	—	 	 	 	 
	 Options exercised
	 	 	125,527	 	 	—	 	 	—	 	 	(63,107	)	 	—	 	 	—	 	 	 	 
	 Convertible debenture converted into common shares
	 	 	7,513,004	 	 	—	 	 	(1,513,003	)	 	—	 	 	—	 	 	—	 	 	 	 
	 Issurance of restricted shares
	 	 	1,060,004	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Options granted
	 	 	—	 	 	—	 	 	—	 	 	260,571	 	 	—	 	 	—	 	 	 	 
	 Common shares issued
	 	 	3,368,750	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	 
	 Change in foreign currency translation
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	22,003,934	 	 	—	 	 	22,003,934	 
	 Net loss
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(10,606,542	)	 	(10,606,542	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2008
	 	$	93,355,149	 	$	11,477,908	 	$	—	 	$	3,347,623	 	$	20,696,008	 	$	(12,047,214	)	$	11,397,392	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






See Accompanying Notes to the Consolidated Financial Statements 


F-7








 








































 
  
  GLG LIFE TECH CORPORATION    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
    
    Years Ended December 31, 2008 and 2007    
    



 1.     DESCRIPTION OF BUSINESS, GOING CONCERN AND RESTATEMENT  



The
Company was incorporated under the Companies Act (British Columbia) on June 5, 1998. On March 14, 2007, the Company changed its name to GLG Life Tech Corporation ("GLG" or the
"Company"). The principal business of the Company is to manufacture and sell a refined form of stevia.  


	a)
	These
consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the
foreseeable future, and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has generated negative cash flows from
operations, is reliant on external sources of financing and has a cumulative deficit of $12,047,214 and a working capital deficiency of $2,561,799 as at December 31, 2008. The Company's ability
to continue as a going concern is still dependent upon the ability of the Company to continue to generate profitable operations in the future and to obtain the necessary financing to meet its
obligations and to repay its liabilities arising from normal business operations when they come due. The Company must also support its planned capital expansion for the next year. These circumstances
cast significant doubt on the Company's ability to continue as a going concern. 





Management
plans to secure the necessary financing through a combination of renewal of existing credit facilities, the exercise of existing equity instruments for the purchase of common shares, the
issue of new equity or debt instruments and entering into joint venture arrangements. Nevertheless, there is no assurance that these initiatives will be successful. These consolidated financial
statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Such
adjustments could be material.  



	b)
	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 portions 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
portions 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 (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 and (iv) a future income tax liability related to the customer relationship intangible (note 12) was not recognized in 2007 that resulted in an increase in intangible
assets of $4,496,921, future income tax liabilities of $3,887,060 and income tax recovery of $609,861. As a result of these adjustments, net income was reduced by $262,146. 



F-8







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 1.     DESCRIPTION OF BUSINESS, GOING CONCERN AND RESTATEMENT (Continued) 







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 and 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	)
	 	 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
	 	 	

631,576	 	 	

(262,146	
)	 	

369,430	 
	 	 Net income per share
	 	 	 	 	 	 	 	 	 	 
	 	 	 Basic
	 	$	0.01	 	 	—	 	 	0.01	 
	 	 	 Diluted
	 	 	0.01	 	 	(0.01	)	 	0.00	 
	 	 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
	 	 	 	 	 	 	 	 	 	 
	 	 Change in foreign currency translation
	 	$	(1,691,065	)	$	254,324	 	$	(1,436,741	)






 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  



a)    Principles of consolidation  



The
Company's consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), and are presented in Canadian dollars. 



These
consolidated financial statements include the accounts of the Company and all its significantly owned subsidiaries: Qingdao Runde Biotechnology Company Limited, Dongtai Runyang Stevia High Tech
Company Limited, Chuzhou Runhai Stevia High Tech Company Limited, Anhui Bengbu HN High Tech Development Company Limited, Agricultural High-Tech Developments Limited, and 55% owned
subsidiary, GLG Weider Sweet Naturals Corp. 


All
significant inter-company balances and transactions have been eliminated upon consolidation. 




F-9







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 



 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 






b)    Cash and cash equivalents  



Cash
and cash equivalents, which include term deposits and money market funds that are purchased three months or less from maturity, are presented net of outstanding items including cheques written
but not cleared by the bank as at the balance sheet date. 




c)     Short term investments  



The
Company's investments consist of term deposits, and are classified as held to maturity for accounting purposes and are carried on the balance sheets at amortized cost using the effective interest
method. Investments with maturities of greater than ninety days and less than one year are classified as short-term investments. 




d)    Inventory  



The
Company measures its inventory at the lower of cost or net realizable value ("NRV") with respect to raw materials, finished goods and work-in-progress. NRV for finished
goods and work-in-progress is generally considered to be the selling price in the ordinary course of business less the estimated costs of completion and estimated costs to make
the sale. 


The
Company calculates its inventory on a weighted average basis. Cost of purchase includes purchase price, applicable taxes and other costs related to the acquisition of raw materials. Cost of
conversion of inventories includes direct labour, direct production costs, indirect labour, capitalized interest and fixed production overhead including depreciation. 


The
Company evaluates its inventories at each period end to determine if a write-down or reversal of previously recorded write-downs in carrying value is required. The
write-down and/or reversal of write-down is recorded in cost of goods sold as recognized. A loss is recognized if the net realizable value is lower than the
carrying value. 




e)     Foreign currency translation  



All
of the Company's subsidiaries operate as self-sustaining foreign operations, and the respective accounts have been translated into Canadian dollars in accordance with the current rate
method. Assets and liabilities are translated at the exchange rates prevailing at the balance sheet dates, and revenue and expenses are translated on the basis of average exchange rates during the
periods. Exchange gains or losses arising from the translation of these accounts are included in the accumulated other comprehensive income, a component of shareholders' equity, until realized. 


Other
foreign currency transactions are translated using the temporal method. Exchange gains or losses are included in the consolidated statement of operations. 




F-10







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 






f)     Property, plant and equipment  



Property,
plant and equipment are recorded at cost less accumulated amortization. Amortization is calculated using the following annual rates: 




									
	 	 
	 	 
	 	 
	 
	 	 Ion exchange resin equipment
	 	 	15 years	 	 	straight-line method (with 10% residual value)	 
	 	 Buildings
	 	 	20 years	 	 	straight-line method (with 10% residual value)	 
	 	 Manufacturing equipment and biological assets
	 	 	10 years	 	 	straight-line method (with 10% residual value)	 
	 	 Motor vehicles, computer equipment and software, and furniture and fixtures
	 	 	5 years	 	 	straight-line method (with 10% residual value)	 







Beginning
January 1, 2008, the Company changed its depreciation rate for Ion exchange equipment from 20 years to 15 years. This is a change in estimate and has been applied
prospectively. 


Amortization
is not provided for construction in progress until the assets are ready for use. 




g)     Impairment of long-lived assets  



Long-lived
assets are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's policy is to record an
impairment loss when it is determined that the carrying amount of the assets exceeds the sum of the expected undiscounted future cash flows resulting from use of the asset and its eventual
disposition. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds its fair value and is recognized as an expense in the period of impairment.
Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. 




h)    Goodwill  



Goodwill
represents the cost of acquired businesses in excess of the fair value of net identifiable assets acquired and arose as a result of the acquisition of Qingdao Runde Biotechnology Ltd.
in fiscal 2006. Goodwill is tested for impairment at least annually or when indicated by events or changes in circumstances, by comparing the fair value of a particular reporting unit to its carrying
value. When the carrying value of a reporting unit exceeds its fair value, the fair value of the reporting unit's goodwill is compared with its carrying value to measure any impairment loss. The last
goodwill impairment test was performed on December 31, 2008. 




i)     Intangible assets  



Intangible
assets include customer relationships, patents and technology. Intangible assets are amortized over the estimated useful life of each asset unless the life is determined to be indefinite.
An intangible asset with an indefinite life is not amortized but will be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be
impaired. Customer relationships are amortized over a five-year period based on the ratio of actual sales to planned sales volume expected from the relationship. Patents and technology are
amortized on a straight-line basis over the expected useful life of 20 years. 




F-11







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 






j)     Income taxes  



Future
income taxes are recorded using the asset and liability method. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the
enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized
in income in the period that substantive enactment or enactment occurs. 




k)    Revenue recognition  



Revenue
from product sales is recognized when products are shipped to customers and ownership is transferred to customers, when the price is fixed or determinable and when the ultimate collection is
reasonably assured. Customer prepayments are recorded as advances from customers and revenue is not recognized until the shipment of goods occurs. 


Initial
fees and non-refundable payments received by the Company are deferred and amortized into operations on a straight-line basis over the period of the ongoing involvement
of the Company in the contract if no other objectively measureable performance criteria exists that indicates another method of recognition is more appropriate. 




l)     Loss per share  



The
Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on loss per share is recognized on the use
of the proceeds that could be obtained upon exercising of the options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market
price during the period. 




m)   Research and development costs  



Research
costs are expensed in the period in which they are incurred. Development costs are expensed in the period in which they are incurred unless such development costs meet the criteria under
Canadian GAAP for deferral and amortization. No development costs have been deferred to date. 




n)    Stock-based compensation  



The
Company grants stock options and restricted shares to employees, directors, and consultants pursuant to the Stock Option and Restricted Share Plan. The Company uses the Black-Scholes option
valuation model to calculate the fair value of stock options. 


For
stock options and restricted shares granted to directors, officers and employees, the fair value is estimated on the date of grant and is amortized to compensation expense on a
straight-line basis over the related vesting periods. For stock options and restricted shares granted to non-employees, the fair value is measured when performance is complete,
a performance commitment is made or the options are fully vested and non-forfeitable, whichever is earliest, and the expense is recognized over the period in which the goods or services
from the non-employees are received. 




F-12







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 




Compensation
expense is recorded based on the estimated fair value of options with a corresponding credit to contributed surplus. Any consideration received on the exercise of stock options is
credited to share capital. 


Option
pricing models require the input of highly subjective assumptions, including the expected price volatility, expected life of the option, and risk-free interest rate. The Company
estimates forfeitures at the grant date and revises the estimate as necessary if subsequent information indicates that actual forfeitures differ significantly from the original estimate. Changes in
these assumptions can materially affect the fair value estimate. 




o)    Use of estimates and measurement uncertainty  



The
preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant items subject to such estimates
and assumptions include revenue recognition, the carrying amount of plant and equipment, valuation allowances for receivables and inventories, the valuation of goodwill, intangible assets, warrants,
convertible debenture and stock based compensation. Actual results may differ from those estimates. 




p)    Capitalization of interest costs  



Interest
and accretion on long term debt associated with the construction of long term assets and interest on advances from a customer are capitalized into property, plant and equipment and inventory,
where the borrowing cost is attributable to the acquisition, construction or production of a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get
ready for its intended use or sale. 


Where
funds were borrowed specifically for obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization is determined as the product of the average accumulated costs and
average interest rate applicable to the borrowing. The interest cost of debt attributable to the construction of major new facilities is capitalized during the construction period until the facilities
are substantially complete. Interest costs of debt attributable to inventory is capitalized based on the cost of raw materials until the raw materials are transferred into
work-in-progress. Interest on funds borrowed that are not specific to obtaining a qualifying asset are expensed as incurred. 


Capitalized
interest cannot exceed the actual interest incurred. 




q)    Financial instruments  



The
Company classifies its financial instruments into one of the following categories: held-for-trading (assets and liabilities), assets
available-for-sale, loans and receivables, assets held-to-maturity and other financial liabilities. All financial instruments are measured at fair value
on initial recognition. Transaction costs are included in the initial carrying amount of financial instruments except for held-for-trading items in which case transaction costs
are expensed as incurred. Measurement in subsequent periods depends on the classification of the financial instrument. 


Financial
assets and liabilities "held-for-trading" are subsequently measured at fair value with changes in fair value recognized in operations. Financial assets
"available-for-sale" are subsequently measured 




F-13







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 



 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 







at
fair value with changes in fair value recognized in other comprehensive income. Financial assets "held-to-maturity", "loans and receivables", and "other financial
liabilities" are subsequently amortized using the effective interest rate method. 


Financial
instruments that are derivative contracts are considered "held-for-trading" unless they are designed as a hedge. Cash and cash equivalents, and short term investments
are classified as "held-for-trading" and are measured at carrying value which approximates fair value due to the short-term nature of these instruments. Accounts
receivable and certain other assets that are financial instruments are classified as "loans and receivables". Short term bank loans, accounts payable, interest payable, advance from a customer, and
convertible debenture are classified as "other financial liabilities". The Company currently does not have any hedges. 





 3.     CHANGES IN ACCOUNTING POLICIES  



 Accounting policies implemented effective January 1, 2008  


In
October 2006, the CICA issued Hanbook 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 27. 


In
October 2006, the CICA issued Handbook Section 3862 "Financial Instruments — Disclosure" and Section 3863 "Financial
Instruments — Presentation" have replaced Section 3861 "Financial Instruments — Disclosure and Presentation". These
new sections incorporate many of the disclosure requirements of Section 3861, but place an increased emphasis on disclosure about risk, including both qualitative and quantitative information
about the risk exposures arising from financial instruments. Additional disclosure has been provided in Note 26. 


In
May 2007, the CICA issued Handbook Section 3031, "Inventories". The standard introduces changes to the measurement and disclosure of inventory and is consistent with International
Financial Reporting Standards. The Company adopted the measurement provisions of the standard effective January 1, 2008. The adoption of this standard did not have an impact on this Company's
consolidated financial statements. Additional disclosure has been provided in Note 8. 




 4.     RECENT ACCOUNTING PRONOUNCEMENTS  



In
2008, the CICA issued Handbook Section 3064, "Goodwill and Intangible Assets" which replaces Section 3062, "Goodwill and Intangible Assets", and Section 3450,
"Research and Development Costs", and 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", which requires that all assets and liabilities of an acquired business be recorded at fair value at
acquisition. Obligations for contingent consideration 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 



F-14







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 4.     RECENT ACCOUNTING PRONOUNCEMENTS (Continued) 






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




 5.     SHORT TERM INVESTMENTS  



At
December 31, 2008, the Company has $365,785 (RMB 2,037,800) (2007 — nil) of 6-month term deposits with the Bank of China, which bear
interest at a rate of 3.78% per annum. 




 6.     ACCOUNTS RECEIVABLE, INTEREST RECEIVABLE, AND LOANS RECEIVABLE  



										
	 	 
	 	2008 	 	2007 	 
	 	 Accounts receivable
	 	$	3,336,143	 	$	3,939,045	 
	 	 	 less allowance of doubtful accounts
	 	 	(622,029	)	 	—	 
	 	 	 	 	 	 	 
	 	 
	 	 	2,714,114	 	 	3,939,045	 
	 	 	 	 	 	 	 
	 	 Interest receivable
	 	 	202,971	 	 	199,546	 
	 	 	 less allowance of doubtful accounts
	 	 	(199,320	)	 	—	 
	 	 	 	 	 	 	 
	 	 
	 	 	3,651	 	 	199,546	 
	 	 	 	 	 	 	 
	 	 Loans receivable
	 	 	2,290,002	 	 	1,864,182	 
	 	 	 less allowance of doubtful accounts
	 	 	(2,290,002	)	 	—	 
	 	 	 	 	 	 	 
	 	 
	 	 	—	 	 	1,864,182	 
	 	 	 current portion
	 	 	 	 	 	(1,719,633	)
	 	 	 	 	 	 	 
	 	 
	 	 	—	 	 	144,549	 
	 	 	 	 	 	 	 






Since
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 YHT's 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, 2008, the Company's accounts receivable and interest receivable included $622,029 and $199,320, 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 



F-15







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 6.     ACCOUNTS RECEIVABLE, INTEREST RECEIVABLE, AND LOANS RECEIVABLE (Continued) 






Company
will convert all amounts owing from YHT into an equity investment. As part of this agreement, the Company has agreed to extend the due date of the loans to June 2009. 


As
the Heads of Agreement is non-binding and due to the uncertainty associated with the collectability of amounts owed by YHT including entering into a definitive binding agreement, the
Company has recorded an allowance of $3,111,351 against the loans, interest and accounts receivable. The allowance has been recorded as part of other expenses in the consolidated statement
of operations. 




 7.     TAXES RECOVERABLE  



The
taxes are value-added taxes paid on purchases in China and GST paid in Canada. These taxes are recoverable from the respective authorities upon filing of the prescribed returns. 




 8.     INVENTORY  



For
the year ended December 31, 2008, the amount of inventories recognized as expense was $7,560,490 (2007 — $6,499,954). There was no
write-down of inventories recognized as an expense, nor any reversal of any write-down. Interest capitalized as a cost of inventory was $523,272 for the year ended
December 31, 2008 (2007 — nil). 



									
	 	 
	 	2008 	 	2007 	 
	 	 Raw material
	 	$	22,920,668	 	$	8,329,402	 
	 	 Work in process
	 	 	8,905,270	 	 	95,101	 
	 	 Finished goods
	 	 	1,231,752	 	 	438,687	 
	 	 	 	 	 	 	 
	 	 
	 	$	33,057,690	 	$	8,863,190	 
	 	 	 	 	 	 	 






 9.     PREPAID EXPENSES  



									
	 	 
	 	2008 	 	2007 	 
	 	 Prepayment for raw material
	 	$	4,037,362	 	$	—	 
	 	 Prepayment for construction and equipment
	 	 	2,751,191	 	 	—	 
	 	 Insurance
	 	 	65,644	 	 	—	 
	 	 Prepaid design engineering
	 	 	—	 	 	29,630	 
	 	 Rent
	 	 	—	 	 	26,169	 
	 	 Other
	 	 	525,889	 	 	11,880	 
	 	 	 	 	 	 	 
	 	 
	 	$	7,380,086	 	$	67,679	 
	 	 	 	 	 	 	 






Of
the $4,037,362 of raw material prepayment, $1,346,250 was a raw material deposit paid to a related company. The transaction was not completed and the balance was fully refunded to the Company
subsequent to the year end. 



F-16







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 10.   PROPERTY, PLANT AND EQUIPMENT — Restated (Note 1(b))  



																					
	 	 
	 	2008 	 	2007 Restated (Note 1(b)) 	 
	 	 
	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 
	 	 Ion exchange resin equipment
	 	$	9,673,435	 	$	944,565	 	$	8,728,870	 	$	7,291,452	 	$	278,141	 	$	7,013,311	 
	 	 Manufacturing equipment

and Biological assets
	 	 	7,951,867	 	 	730,566	 	 	7,221,301	 	 	2,512,696	 	 	175,288	 	 	2,337,408	 
	 	 Buildings
	 	 	2,809,244	 	 	112,508	 	 	2,696,736	 	 	1,143,505	 	 	39,651	 	 	1,103,854	 
	 	 Leasehold land use rights and

Construction in progress
	 	 	64,238,039	 	 	—	 	 	64,238,039	 	 	3,448,855	 	 	—	 	 	3,448,855	 
	 	 Computer equipment and software
	 	 	377,080	 	 	15,556	 	 	361,524	 	 	28,129	 	 	22,196	 	 	5,933	 
	 	 Motor vehicles and

Furniture and fixture
	 	 	142,843	 	 	23,270	 	 	119,573	 	 	102,404	 	 	4,874	 	 	97,530	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	$	85,192,508	 	$	1,826,465	 	$	83,366,043	 	$	14,527,041	 	$	520,150	 	$	14,006,891	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






Construction
in progress is the cost related to the construction of two new leaf processing facilities at its subsidiaries Runhai in Mingguang and Runyang in Dongtai, China. 


The
leasehold represents land use rights for a term of 50 years. Under the People's Republic of China ("PRC") law, land use rights can be revoked and the tenants can be forced to vacate at any
time when re-development of the land is in the public interest. 


The
total amortization charge to the Cost of Sales for the year was $953,995 (2007 — $476,727). 



Interest
capitalized during the year was $537,430 (2007 — $879,405). 


Property,
plant and equipment have been pledged as general collateral for the line of credit facilities available to the Chinese subsidiaries (Note 26d) 




 11.   RESTRICTED CASH  



The
Company is required to hold a guaranteed investment certificate with a bank as collateral for the 



Company's
credit cards issued to several employees. 




 12.   INTANGIBLE ASSETS — Restated (Note 1(b))  



																					
	 	 
	 	2008 	 	2007 Restated (Note 1(b)) 	 
	 	 
	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 
	 	 Customer relationship
	 	$	15,416,254	 	$	208,230	 	$	15,208,024	 	$	15,416,254	 	$	5,836	 	$	15,410,418	 
	 	 Intangible from AHTD acquisition
	 	 	16,243,752	 	 	658,462	 	 	15,585,290	 	 	12,875,002	 	 	—	 	 	12,875,002	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	$	31,660,006	 	$	866,692	 	$	30,793,314	 	$	28,291,256	 	$	5,836	 	$	28,285,420	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





F-17







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 12.   INTANGIBLE ASSETS — Restated (Note 1(b)) (Continued) 



a)    Customer relationship  



In
conjunction with signing the five year supply agreement with Cargill Incorporated ("Strategic Customer"), the Company issued share purchase warrants in July 2007. Since the Company expected
to obtain future economic benefits from the relationship an intangible was recorded as the fair value of consideration given to enter into the contract. 



The
first warrant allowed the Strategic Customer to purchase 14,365,642 common shares of the Company at an exercise price of $3.50 per share. A second warrant allowed the Strategic Customer to
purchase 5,223,943 common shares at an exercise price of $4.44 per share. 


The
warrants were valued at $10,919,330 using the Black-Scholes Option Pricing Model, with the following assumptions: 




				
	 	 Risk-free interest rate:
	 	4%
	 	 Dividend yield:
	 	0%
	 	 Volatility:
	 	45%
	 	 Expected time to maturity:
	 	various from 7 months to 21 months depending on the lives of the warrants.







The
customer relationship is amortized over a five-year period based on the ratio of actual sales to planned sales volume expected to be generated under the contract. 




b)    Intangible from AHTD acquisition  



On
December 27, 2007, the Company acquired all issued and outstanding shares of Agricultural High-Tech Developments Limited (AHTD), a company incorporated under the laws of the
Marshall Islands. AHTD owns patents relating to new stevia seedling and breeding technology. One patent has been registered with the Chinese government and another one is pending. 


The
purchase price consists of 12,500,000 common shares of the Company. 3,750,000 common shares valued at $3.43 per share were issued on December 27, 2007 and
4,375,000 valued at $0.77 were issued on November 27, 2008. The balance of the 4,375,000 common shares will be issued based on the stevia seedling providing a certain amount of
production in 2009. The value of the common shares issued is based on the value of the Company's common shares on the date the production targets are achieved and the Company is committed to
the issuance. 


The
intangible assets are estimated to have a useful life of 20 years and are amortized over that period, subject to an annual impairment review. 





 13.   SHORT TERM LOANS  



In
2008, the Company obtained two loans to finance its expansion. A loan of $6,641,500 (RMB 37,000,000), which 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 Company's subsidiaries which has a carrying value of $33,854,428. 



A
loan of $3,590,000 (RMB 20,000,000), which 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. 



F-18







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 14.   ACCOUNTS PAYABLE AND ACCRUALS — Restated (Note 1(b))  



									
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

(Note 1(b))
	 
	 	 Raw material
	 	$	2,687,714	 	$	92,077	 
	 	 Construction and equipment
	 	 	12,720,270	 	 	62,887	 
	 	 Consulting fees
	 	 	75,000	 	 	210,000	 
	 	 Trade payable
	 	 	1,323,217	 	 	609,265	 
	 	 Other
	 	 	361,366	 	 	272,101	 
	 	 	 	 	 	 	 
	 	 
	 	$	17,167,567	 	$	1,246,330	 
	 	 	 	 	 	 	 






Consulting
fees payable of $75,000 (2007 — $210,000) resulted from consulting services provided by the Company's management (Note 24). 




 15.   ADVANCES FROM A CUSTOMER AND INTEREST PAYABLE  



In
2007, the Company signed a five year supply agreement and a prepayment agreement for 2007 and 2008 orders whereby the Strategic Customer financed up to US$7,000,000 for the purchase of stevia
leaves, which was further processed into the stevia extract to be shipped to the customer. The principal balance of the advance as of December 31, 2007 was $6,549,100. 


The
prepayment was repaid by way of the sale of stevia extracts to the Strategic Customer. Interest at LIBOR + 3.25% was charged per annum, payable on a quarterly basis until
September 15, 2008, original maturity date of the balance, and LIBOR + 10.5% from September 16, 2008 to November 30, 2008 when the advance was repaid in full. 


In
July 2008, the Company entered into another supply and prepayment agreement whereby the Strategic Customer financed $24,492,000 (US$20,000,000) for the purchase of stevia leaves for 2009
orders, which shall be further processed into the stevia extract to be shipped to the Strategic Customer. The prepayment and accrued interest will be repaid by way of the sale of stevia extracts to
the Strategic Customer. Interest at LIBOR + 6% is charged per annum. The prepayment is collateralized by a general security agreement over all assets of the Company. There is a covenant
that at any time during the advance remains outstanding, the Company cannot incur more than US$80 million of indebtedness for plant expenditure or additional leaf financing beyond the US
$20 million associated with this prepayment. The principal balance of the advance as
of December 31, 2008 was $24,492,000 (US$20,000,000) and interest accrued for the year was $1,063,729 (US$868,634). 




 16.   DEFERRED REVENUE  



In
July 2008, an upfront non-refundable fee of US$2,500,000 was received as part of a supply agreement with the Strategic Customer that requires a minimum quantity of stevia to be
delivered by the Company over a one year period. This payment was deferred and is being recognized as revenue over a one year period from October 1, 2008 to September 30, 2009. The
balance of the deferred revenue was $1,995,000 as at December 31, 2008 (2007 — nil). 




 17.   ECONOMIC DEPENDENCE  



In
2007, the Company entered into a five year renewable supply agreement with the Strategic Customer to supply the Strategic Customer with stevia product and replaced that agreement with a
10-year strategic 



F-19







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 17.   ECONOMIC DEPENDENCE (Continued) 



alliance
agreement with the Strategic Customer in May 2008. The agreement outlines annual minimum purchase and supply quantities over the term of the agreement. For each of years two and three,
once volume and price have been agreed, The Strategic Customer will be required to either take the committed volume or pay the agreed price. 



The
supply agreement with the Strategic Customer accounts for 77% of revenue for the year ended December 31, 2008 (2007 — 23%). 


The
Company also received an advance from the Strategic Customer in fiscal 2008 as described in note 15. 




 18.   CONVERTIBLE DEBENTURE — Restated (Note 1(b))  



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 at the option of the holder 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 (Note 19b). 


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
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 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 (Note 1b). 


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. 


At
December 31, 2007 the convertible debenture had a carrying value of $4,742,282 and on June 30, 2008 the convertible debenture was converted into 1,976,082 common shares of
the Company. 



F-20







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 19.   SHARE CAPITAL — Restated (Note 1(b))  



a)    Capital Stock  


         Authorized  



Unlimited
number of common shares with no par value 




        Common shares  



The
holders of common shares are entitled to one vote per share 




										
	 	 
	 	Number of

Shares 	 	Amount 	 
	 	 Balance at December 31, 2006,
	 	 	49,857,394	 	$	19,179,824	 
	 	 	 reflecting the effect of the March 14, 2007 (3:1) stock consolidation.
	 	 	 	 	 	 	 
	 	 Options exercised
	 	 	226,666	 	 	132,935	 
	 	 Shares issued for service
	 	 	250,000	 	 	300,000	 
	 	 Private Placement
	 	 	11,500,000	 	 	28,564,972	 
	 	 Shares issued for AHTD intangible (Note 12)
	 	 	3,750,000	 	 	12,875,000	 
	 	 	 	 	 	 	 
	 	 Balance at December 31, 2007
	 	 	65,584,060	 	$	61,052,731	 
	 	 Warrants exercised
	 	 	5,085,839	 	 	20,235,133	 
	 	 Options exercised
	 	 	208,067	 	 	125,527	 
	 	 Issuance of restricted shares
	 	 	1,290,614	 	 	1,060,004	 
	 	 Convertible debenture converted into common shares (Note 18)
	 	 	1,976,082	 	 	7,513,004	 
	 	 Shares issued for AHTD intangible (Note 12)
	 	 	4,375,000	 	 	3,368,750	 
	 	 	 	 	 	 	 
	 	 Balance at December 31, 2008
	 	 	78,519,662	 	$	93,355,149	 
	 	 	 	 	 	 	 






To
finance the Company's plant and operations expansion, the Company raised gross proceeds of $34.5 million through a private placement in December 2007. The private placement consisted
of 11,500,000 common shares at $3.00 per share and one half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at an
exercise price of $4.50 per common share for a period of 18 months from the closing of the private placement. The Company valued the warrants at $2,504,987 using the following assumptions: 



						
	 	 Risk-free interest rate
	 	 	10%	 
	 	 Dividend yield
	 	 	0%	 
	 	 Volatility
	 	 	42%	 
	 	 Expected time to maturity
	 	 	18 months	 






The
Company paid a cash commission equal to six percent of the gross proceeds of this private placement. The broker was also granted a number of compensation warrants equal to six percent of the total
number of units sold pursuant to the offering, valued at $150,299. Each compensation warrant entitles the holder thereof to acquire one unit at an exercise price of $3.00 per unit on the same terms
and conditions of the offering, for a period of 18 months from the closing of the offering. The Company also granted another broker 690,000 warrants valued at $663,330 as compensation
for the private placement. Including other related share issuance costs, the Company charged a total of $3,279,742 against share capital. 



F-21







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 19.   SHARE CAPITAL — Restated (Note 1(b)) (Continued) 



b)    Warrants — Restated (Note 1(b))  



A
summary of the Company's share purchase warrants at December 31, 2008 and the changes since December 31, 2006 is presented below: 




									
	 	 
	 	Number of

Warrants 	 	Amount 	 
	 	 Balance at December 31, 2006,
	 	 	—	 	$	—	 
	 	 Private Placement
	 	 	6,785,000	 	 	3,318,616	 
	 	 Warrants issued to a customer
	 	 	19,589,585	 	 	10,919,330	 
	 	 Warrants issued with convertible debenture
	 	 	1,200,000	 	 	1,140,565	 
	 	 	 	 	 	 	 
	 	 Balance at December 31, 2007
	 	 	27,574,585	 	$	15,378,511	 
	 	 Warrants exercised by a customer
	 	 	(5,085,839	)	 	(2,453,160	)
	 	 Warrants expired
	 	 	(3,591,411	)	 	(1,447,443	)
	 	 	 	 	 	 	 
	 	 Balance at December 31, 2008
	 	 	18,897,335	 	$	11,477,908	 
	 	 	 	 	 	 	 







The
following table summarizes information about the warrants outstanding at December 31, 2008: 




									
	 	Expiry date



 
	 	Weighted average

exercise prices 	 	Number outstanding at

December 31, 2008 	 
	 	 March 31, 2009
	 	$	3.95	 	 	10,912,335	 
	 	 June 11, 2009
	 	 	4.35	 	 	6,785,000	 
	 	 June 22, 2009
	 	 	3.18	 	 	1,200,000	 
	 	 	 	 	 	 	 
	 	 
	 	$	4.04	 	 	18,897,335	 
	 	 	 	 	 	 	 







Subsequent
to December 31, 2008, 10,912,335 of warrants granted to the Strategic Customer expired unexercised (Note 31). 





 20.   STOCK OPTIONS AND RESTRICTED SHARES  



The
Company is subject to the policies of the Toronto Stock Exchange ("TSX"), under which it is authorized to grant options to officers, directors, employees and consultants enabling them to purchase
common stock of the Company. The Company has one stock option and restricted shares plan ("Plan") which was amended and effective as of May 16, 2008. The Plan is administered by the Board of
Directors, which determines individual eligibility under the Plan. 


 Stock options  


Under
the Plan, options granted are non-assignable and the number of common shares available for issue is a maximum of 10% of the issued and outstanding common shares of the Company
inclusive of any restricted shares granted under the Plan. The maximum term of an option is 5 years after the date of grant. 



F-22







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 



 20.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 



The
fair value of the options granted in 2008 has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 



						
	 	 Risk-free interest rate
	 	 	3%	 
	 	 Dividend yield
	 	 	0%	 
	 	 Volatility
	 	 	141%	 
	 	 Expected option life
	 	 	5 years	 
	 	 Expected forfeitures per year
	 	 	5%	 






The
following is a summary of option transactions: 



									
	 	 
	 	Number of Shares 	 	Weighted Average

Exercise Price Per Share 	 
	 	 Balance, December 31, 2006
	 	 	5,828,067	 	$	0.30	 
	 	 Options exercised
	 	 	(226,667	)	 	0.30	 
	 	 Options forfeited
	 	 	(33,333	)	 	0.30	 
	 	 	 	 	 	 	 
	 	 Balance, December 31, 2007
	 	 	5,568,067	 	$	0.30	 
	 	 Options granted
	 	 	183,866	 	 	3.91	 
	 	 Options exercised
	 	 	(208,067	)	 	0.30	 
	 	 	 	 	 	 	 
	 	 Balance, December 31, 2008
	 	 	5,543,866	 	$	0.42	 
	 	 	 	 	 	 	 






The
following table summarizes information about stock options outstanding at December 31, 2008: 



																		
	 	Exercise

Prices



 
	 	Number Outstanding

at December 31,

2008 	 	Weighted Average

Remaining Contractual

Life (Years) 	 	Weighted Average

Exercise Price 	 	Number Exercisable

at December 31,

2008 	 	Weighted Average

Exercise Price 	 
	 	 $0.30
	 	 	5,360,000	 	 	1.72	 	$	0.30	 	 	5,360,000	 	$	0.30	 
	 	   0.80
	 	 	5,000	 	 	4.91	 	 	0.80	 	 	—	 	 	—	 
	 	   4.00
	 	 	178,866	 	 	4.62	 	 	4.00	 	 	—	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	5,543,866	 	 	1.81	 	$	0.42	 	 	5,360,000	 	$	0.30	 
	 	 	 	 	 	 	 	 	 	 	 	 	 






$260,571
has been recorded as stock-based compensation expense on the consolidated statement of operations for the year ended December 31, 2008
(2007 — nil). 


 Restricted shares  


Under
the Plan, restricted shares granted are non-assignable and the number of common shares available for issue is a maximum of 10% of the issued and outstanding common shares in the
Company inclusive of any stock options granted under the Plan. Holders of restricted shares are entitled to voting rights and dividends. The maximum vesting period for restricted shares is
5 years from the date of grant. Restricted shares issued to certain employees have certain performance criteria, which are based on production and financial targets. 


During
the year ended December 31, 2008, 1,290,614 (2007 — nil) restricted shares were issued with a fair value of $4,682,000. 



F-23







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 20.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 



The
vesting periods for restricted stock are as follows: 



							
	Numbers of

restricted shares 	 	Vesting

period

(years) 	 	Performance

based 
	 	45,436	 	 	—	 	No
	 	120,000	 	 	1.90	 	Yes
	 	1,125,178	 	 	2.37	 	Yes
	 	 	 	 	 
	 	1,290,614	 	 	2.24	 	 
	 	 	 	 	 






$1,060,005
has been recorded as stock-based compensation expense on the consolidated statements of operations for the year ended December 31, 2008
(2007 — nil) based on achieving certain performance conditions. 




 21.   RESERVE FOR EMPLOYEE BENEFITS  



The
laws in China require all wholly owned foreign entities to set aside 10% of retained earnings as a general reserve fund for employee benefits until such a fund has reached 50% of the Company's
registered capital. The amount of the Company's reserve is $298,438 for the year ended December 31, 2008 (2007 — $139,474). 




 22.   CHANGES IN NON-CASH WORKING CAPITAL — Restated (Note 1(b))  



									
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated (note 1(b))
	 
	 	 Accounts receivable
	 	$	1,534,415	 	$	(3,463,150	)
	 	 Interest receivable
	 	 	(2,772	)	 	(102,309	)
	 	 Taxes recoverable
	 	 	(84,099	)	 	(1,037,760	)
	 	 Inventory
	 	 	(14,410,203	)	 	(8,718,071	)
	 	 Prepaid expenses
	 	 	(6,016,902	)	 	1,560,515	 
	 	 Deferred charges
	 	 	(102,682	)	 	—	 
	 	 Accounts payable
	 	 	(1,659,795	)	 	29,455	 
	 	 Interest payable
	 	 	2,973	 	 	395,570	 
	 	 Deferred revenue
	 	 	1,995,000	 	 	—	 
	 	 	 	 	 	 	 
	 	 
	 	$	(18,744,065	)	$	(11,335,750	)
	 	 	 	 	 	 	 






 23.   SEGMENTED INFORMATION — Restated (Note 1(b))  



The
Company operates in one reportable operating segment, being the manufacturing and selling of a refined form of stevia and has operations in Canada and China. 



												
	 	December 31, 2008



 
	 	Canada 	 	China 	 	Total 	 
	 	 Property, Plant, and Equipment
	 	$	875	 	$	83,365,168	 	$	83,366,043	 
	 	 Revenue
	 	 	894,001	 	 	8,997,317	 	 	9,891,318	 





F-24








 




































 

GLG LIFE TECH CORPORATION  


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  


 Years Ended December 31, 2008 and 2007  


 23.   SEGMENTED INFORMATION — Restated (Note 1(b)) (Continued)  



												
	 	December 31, 2007



 
	 	Canada 	 	China 	 	Total 	 
	 	 
	 	 
	 	Restated (Note 1(b))
	 	 
	 
	 	 Property, Plant, and Equipment
	 	$	9,479	 	$	13,997,412	 	$	14,006,891	 
	 	 Revenue
	 	 	964,185	 	 	8,192,865	 	 	9,157,050	 






 24.   RELATED PARTY TRANSACTIONS  



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).



	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)
	In
2007, the Company borrowed $410,078 (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 measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 



F-25








 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 



 25.   INCOME TAXES — Restated (Note 1(b))  



	a)
	Future tax assets and liabilities







									
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

(Note 1(b))
	 
	 	 Non-capital loss carry-forwards
	 	$	1,584,773	 	$	611,606	 
	 	 Inventory
	 	 	(157,056	)	 	—	 
	 	 Net capital loss carry-forwards
	 	 	571,460	 	 	—	 
	 	 Deferred revenue
	 	 	598,500	 	 	—	 
	 	 Intangible assets
	 	 	(4,278,898	)	 	(4,496,920	)
	 	 Property, plant and equipment
	 	 	(343,458	)	 	(231,189	)
	 	 Cumulated eligible capital
	 	 	220,945	 	 	229,443	 
	 	 	 	 	 	 	 
	 	 
	 	 	(1,803,734	)	 	(3,887,060	)
	 	 Less valuation allowance
	 	 	(610,908	)	 	—	 
	 	 	 	 	 	 	 
	 	 Future income tax liability
	 	$	(2,414,642	)	$	(3,887,060	)
	 	 	 	 	 	 	 






	b)
	Effective tax rate





Income
tax expense (recovery) differs from the amount that would be computed by applying the combined federal and provincial statutory income tax rates of 31%
(2007 — 34.12%) to income before income taxes. The reasons for the differences are as follows: 






										
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

(Note 1(b))
	 
	 	 Tax recovery at statutory rates
	 	$	(3,751,873	)	$	(82,035	)
	 	 Increase (decrease) resulting from:
	 	 	 	 	 	 	 
	 	 	 Permanent and other differences
	 	 	1,597,370	 	 	554,839	 
	 	 	 Change in tax rates
	 	 	326,508	 	 	141,780	 
	 	 	 Foreign tax rate differences
	 	 	(316,994	)	 	(527,413	)
	 	 	 Expiry of prior year losses
	 	 	106,081	 	 	305,088	 
	 	 	 Change in valuation allowance
	 	 	610,908	 	 	(1,002,120	)
	 	 	 	 	 	 	 
	 	 
	 	$	(1,428,000	)	$	(609,861	)
	 	 	 	 	 	 	 





F-26







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 25.   INCOME TAXES — Restated (Note 1(b)) (Continued) 



	c)
	Canadian and China income taxes







											
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

(Note 1(b))
	 
	 	 Provision for income taxes
	 	 	 	 	 	 	 
	 	 	 Current tax provision
	 	 	 	 	 	 	 
	 	 	 	 Canadian
	 	$	—	 	$	—	 
	 	 	 	 China
	 	 	—	 	 	—	 
	 	 	 	 	 	 	 
	 	 	 	 	—	 	 	—	 
	 	 	 Future tax recovery
	 	 	 	 	 	 	 
	 	 	 	 Canadian
	 	 	(1,164,597	)	 	(609,861	)
	 	 	 	 China
	 	 	(263,403	)	 	—	 
	 	 	 	 	 	 	 
	 	 
	 	$	(1,428,000	)	$	(609,861	)
	 	 	 	 	 	 	 






	d)
	Losses carryforward





The
Company has non-capital losses carried forward of approximately $5,577,934, which are available to reduce income of future years in Canada and China and which expire as follows: 






						
	 	 2009
	 	$	312,482	 
	 	 2013
	 	 	1,479,653	 
	 	 2014
	 	 	24,502	 
	 	 2015
	 	 	146,386	 
	 	 2027
	 	 	881,565	 
	 	 2028
	 	 	2,733,346	 
	 	 	 	 	 
	 	 Total
	 	$	5,577,934	 
	 	 	 	 	 







The
Company's Canadian parent and subsidiary are subject to Canadian income taxes while the subsidiaries in China are subject to Chinese income taxes. One of the Chinese subsidiaries is fully exempted
from
Chinese income taxes for the first two profitable years and will be taxed at half of the 33% statutory rate in China for the following three years. The first two years of full exemption on taxable
income expired by end of 2008. 





 26.   FINANCIAL INSTRUMENTS  



	a)
	Categories
of financial assets and liabilities 





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 




F-27







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 26.   FINANCIAL INSTRUMENTS (Continued) 




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 receivables
	 	 	2,717,765	 	 	6,002,773	 
	 	 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 described in note 1. 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, they are short term in nature and are secured by certain assets of
the Company. 


Interest
income, other gains and losses from "held-for-trading," "loans and 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	 	$	78,499	 
	 	 Interest income from loans and receivables
	 	 	—	 	 	115,789	 
	 	 Interest expense from other financial liabilities
	 	 	(2,009,638	)	 	(1,175,873	)






	b)
	Credit risk





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
monitors the credit quality of the financial institutions it deals with on a ongoing basis. 


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	 
	 	 % of 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 circumstances 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 




F-28







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 26.   FINANCIAL INSTRUMENTS (Continued) 




accounts
receivable, interest receivable, and loan receivable from YHT, the collection of which are considered doubtful (Note 6). 


Reconciliation
of changes in allowance for doubtful accounts: 






										
	 	 
	 	2008 	 	2007 	 
	 	 Balance — Beginning of year
	 	$	—	 	$	—	 
	 	 Increase in allowance for doubtful accounts
	 	 	 	 	 	 	 
	 	 	 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 believes that it does not require
collateral to support the carrying value of 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 other than accounts, interest and loan receivable balances due from YHT. To mitigate credit risk the Company also
requests deposits from customers in certain circumstances.  



	c)
	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 a change in foreign exchange rates. The Company conducts its business
primarily in U.S. dollars, RMB, Canadian dollars and Hong Kong dollars. The Company is exposed to currency risk as the functional currency of its subsidiaries is other than Canadian dollars. 


The
majority of the Company's assets are held in subsidiaries whose functional currency is the 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. 



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 at the balance sheet date. 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 




F-29







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 26.   FINANCIAL INSTRUMENTS (Continued) 




Canadian
dollar would have an effect on 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 on net loss of approximately $242,786 (2007 — 52,710). 


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).  



	d)
	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 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 totaling $44,875,000 (RMB 250 million). The
credit lines mature on July 27, 2009 and bear interest at a 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 on terms acceptable to the Company. The Company's cash is invested in business accounts with different financial institutions is available on demand for the Company's programs, and is not
invested in any asset backed commercial paper. 


The
following table provides due date information for the Company's significant financial liabilities: 






												
	 	Financial Liabilities



 
	 	0 to 12 months 	 	12 to 24 months 	 	After 24 months 	 
	 	 Accounts payable and accruals
	 	$	17,167,567	 	$	—	 	$	—	 
	 	 Short term loan
	 	 	10,231,500	 	 	—	 	 	—	 
	 	 Interest payable
	 	 	1,063,729	 	 	—	 	 	—	 
	 	 Advance from a customer
	 	 	24,492,000	 	 	—	 	 	—	 
	 	 Obligation under leases
	 	 	256,788	 	 	205,824	 	 	463,110	 
	 	 	 	 	 	 	 	 	 
	 	 
	 	$	53,211,584	 	$	205,824	 	$	463,110	 
	 	 	 	 	 	 	 	 	 





F-30







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 26.   FINANCIAL INSTRUMENTS (Continued) 



	e)
	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 a $112,059 effect
(2007 — $29,883) on net loss. 





 27.   CAPITAL DISCLOSURE  



The
Company's objectives when managing capital are to provide returns for shareholders, and comply with any externally imposed capital requirements while safeguarding the Company's ability to continue
as a going concern. The Company considers convertible debentures and items included in shareholders' equity to be capital. 



The
Company manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company's assets. In order to maintain or adjust the
capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. In this respect, the Company
monitors its debt to equity ratio. 


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 (Note 21). The reserve funds are established for covering corporate obligations in the event of business liquidation. The reserve funds are recorded as part of 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. 




 28.   COMPARATIVE FIGURES  



Certain
prior year's figures have been reclassified to conform to the current financial statement presentation. 




 29.   COMMITMENTS  



	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. 



F-31







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 29.   COMMITMENTS (Continued) 








The
minimum operating lease payments related to the above are summarized as follow: 






						
	 	 2009
	 	$	256,788	 
	 	 2010
	 	 	205,824	 
	 	 2011
	 	 	179,500	 
	 	 2012
	 	 	—	 
	 	 2013
	 	 	—	 
	 	 Thereafter
	 	 	283,610	 
	 	 	 	 	 
	 	 Total
	 	$	925,722	 
	 	 	 	 	 






	d)
	The
Company is committed to deliver $US 25,200,000 of stevia extract of which the $US 20,000,000 advance from a Strategic Customer
(Note 15) will be applied against. The delivery period is contracted over the period from October 1, 2008 to September 30, 2009.



	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. 




 30.   CONTINGENT LIABILITY  



On
May 27, 2008, Northern Securities ("Northern") filed a claim with the B.C. Supreme Court over additional consideration claimed owed by the Company with respect to the Sponsorship Agreement
dated January 24, 2007. The Company has filed its defense and has also filed a counter claim against Northern. There is no certainty over the outcome of this lawsuit. The Company is confident
in its position that additional amounts are not due; however, should the issue be resolved in Northern's favour, the Company would be required to pay $38,664 in cash and to issue
250,000 additional shares to Northern. As part of the December 2007 private placement described in note 19, the Company paid initial sponsorship fees of $10,000 and issued
250,000 shares at a fair value $1.20 per share. 




 31.   SUBSEQUENT EVENTS  



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


On
March 31, 2009, 10,912,335 warrants issued to a customer as a sales incentive remained unexercised and expired. 



F-32







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES  



US
GAAP accounting principles used in the preparation of these consolidated financial statements conform in all material respects to Canadian GAAP, except as set out below. 


	a)
	The
Company capitalized $523,272 in interest costs for the year ended December 31, 2008 (2007 — nil). In
accordance with U.S. GAAP ACS 835-20-15-6 interest costs are not capitalized for routine inventories produced in large quantities on a repetitive
basis. These costs were reclassified from inventory to interest expense for the period ended December 31, 2008.



	b)
	In
accordance with Canadian GAAP, proceeds from the issuance of convertible loans and detachable warrants are allocated to long term convertible term loans
and shareholders' equity, resulting in a debt discount that was amortized to interest expense over the term of the loans. In accordance with U.S. GAAP ASC
470-20-25-2 through 25-3 and ASC 470-20-30-1 through 30-2, the proceeds from the issuance of convertible
loans and detachable warrants are allocated to the warrants and convertible debt on a relative fair value basis. On issuance in fiscal 2007, $1,383,748 was allocated to the value of the detachable
warrants and classified as equity and $4,616,252 was allocated to the value of the convertible debt and classified as a liability. The discount on the convertible debt was amortized over a
1 year ended June 30, 2008, being the contractual life of the instrument, as interest expense. 





In
accordance with U.S. GAAP ASC 470-20-25-4 through 25-7, it was determined that the convertible debt contained a beneficial conversion feature
("BCF") and $2,102,434 was allocated to the BCF and classified as equity. The BCF was amortized over a 1 year period ended June 30, 2008, being the contractual life and earliest
redemption date of the instrument, as interest expense.  



	c)
	In
accordance with Canadian GAAP, a subtotal is included in cash flows from operating activities. Under US GAAP, no such subtotal would be disclosed.



	d)
	In
accordance with U.S. GAAP under ACS 835-20, interest costs, including interest and accretion on convertible instrument, are capitalized
as part of the historical cost of acquiring certain qualifying assets, which require a period of time to prepare for their intended use. Capitalization is not required under Canadian GAAP. As a
result, $3,654,274 was capitalized as at December 31, 2008 and $616,351 as at December 31, 2007.



	e)
	In
accordance with U.S. GAAP under ACS 810-10, Noncontrolling Interests in Consolidated Financial Statements, which establishes
requirements for ownership interests in subsidiaries held by parties other than the Company to be clearly identified, presented, and disclosed in the consolidated statement of financial position
within equity, but separate from the parent's equity. All changes in the parent's ownership interests are required to be accounted for consistently as equity transactions and any non controlling
equity investments in unconsolidated subsidiaries must be measured initially at fair value. This guidance is effective for fiscal years beginning after December 15, 2008. The Company has
retrospectively applied the presentation to prior year resulting in a change in the financial statement presentation of its non-controlling interests. 



F-33












 




































 

GLG LIFE TECH CORPORATION  


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  


 Years Ended December 31, 2008 and 2007  


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)  



The
reconciliation of the consolidated balance sheets and consolidated statements of operations, cash flows, comprehensive income and equity are presented below: 


 Consolidated Balance Sheets  





																					
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US

GAAP 	 	Recon.

Items 	 	2008

Canadian

GAAP 	 	2007

US

GAAP 	 	Recon.

Items 	 	2007

Canadian

GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 CURRENT ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Cash and cash equivalents
	 	$	7,362,671	 	 	 	 	$	7,362,671	 	$	28,253,580	 	 	 	 	$	28,253,580	 
	 	 Short term investments
	 	 	365,785	 	 	 	 	 	365,785	 	 	—	 	 	 	 	 	—	 
	 	 Accounts receivable
	 	 	2,714,114	 	 	 	 	 	2,714,114	 	 	3,939,045	 	 	 	 	 	3,939,045	 
	 	 Interest receivable
	 	 	3,651	 	 	 	 	 	3,651	 	 	199,546	 	 	 	 	 	199,546	 
	 	 Loans receivable
	 	 	—	 	 	 	 	 	—	 	 	1,719,633	 	 	 	 	 	1,719,633	 
	 	 Taxes recoverable
	 	 	1,504,000	 	 	 	 	 	1,504,000	 	 	1,061,450	 	 	 	 	 	1,061,450	 
	 	 Inventories(a)
	 	 	32,534,418	 	 	(523,272	)	 	33,057,690	 	 	8,863,190	 	 	 	 	 	8,863,190	 
	 	 Prepaid and deposits
	 	 	7,380,086	 	 	 	 	 	7,380,086	 	 	67,679	 	 	 	 	 	67,679	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	51,864,725	 	 	(523,272	)	 	52,387,997	 	 	44,104,123	 	 	 	 	 	44,104,123	 
	 	 PLANT AND EQUIPMENT(d)
	 	 	87,020,317	 	 	3,654,274	 	 	83,366,043	 	 	14,623,242	 	 	616,351	 	 	14,006,891	 
	 	 GOODWILL
	 	 	7,587,798	 	 	 	 	 	7,587,798	 	 	7,587,798	 	 	 	 	 	7,587,798	 
	 	 RESTRICTED CASH
	 	 	100,710	 	 	 	 	 	100,710	 	 	—	 	 	 	 	 	—	 
	 	 LOANS RECEIVABLE
	 	 	—	 	 	 	 	 	—	 	 	144,549	 	 	 	 	 	144,549	 
	 	 DEFERRED CHARGES
	 	 	125,261	 	 	 	 	 	125,261	 	 	—	 	 	 	 	 	—	 
	 	 INTANGIBLE ASSETS
	 	 	30,793,314	 	 	 	 	 	30,793,314	 	 	28,285,420	 	 	 	 	 	28,285,420	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL ASSETS
	 	$	177,492,125	 	$	3,131,002	 	$	174,361,123	 	$	94,745,132	 	$	616,351	 	$	94,128,781	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 CURRENT LIABILITIES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Short term loans
	 	 	10,231,500	 	 	 	 	 	10,231,500	 	 	—	 	 	 	 	 	—	 
	 	 Accounts payable
	 	 	17,167,567	 	 	 	 	 	17,167,567	 	 	1,246,330	 	 	 	 	 	1,246,330	 
	 	 Due to related parties
	 	 	—	 	 	 	 	 	—	 	 	410,078	 	 	 	 	 	410,078	 
	 	 Interest payable
	 	 	1,063,729	 	 	 	 	 	1,063,729	 	 	395,568	 	 	 	 	 	395,568	 
	 	 Advances from a customer
	 	 	24,492,000	 	 	 	 	 	24,492,000	 	 	6,549,100	 	 	 	 	 	6,549,100	 
	 	 Deferred Revenue
	 	 	1,995,000	 	 	 	 	 	1,995,000	 	 	—	 	 	 	 	 	—	 
	 	 Convertible debenture(b)
	 	 	—	 	 	 	 	 	—	 	 	4,237,269	 	 	(505,013	)	 	4,742,282	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	54,949,796	 	 	—	 	 	54,949,796	 	 	12,838,345	 	 	(505,013	)	 	13,343,358	 
	 	 FUTURE INCOME TAXES
	 	 	2,414,642	 	 	 	 	 	2,414,642	 	 	3,887,060	 	 	 	 	 	3,887,060	 
	 	 NONCONTROLLING INTERESTS(e)
	 	 	—	 	 	(167,211	)	 	167,211	 	 	 	 	 	 	 	 	 	 
	 	 SHAREHOLDER'S EQUITY
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Share Capital(b)
	 	 	92,758,433	 	 	(596,716	)	 	93,355,149	 	 	61,052,731	 	 	 	 	 	61,052,731	 
	 	 Warrants(b)
	 	 	11,721,091	 	 	243,183	 	 	11,477,908	 	 	15,621,694	 	 	243,183	 	 	15,378,511	 
	 	 Equity portion of convertible debenture(b)
	 	 	—	 	 	 	 	 	—	 	 	—	 	 	(1,513,003	)	 	1,513,003	 
	 	 Contributed surplus(b)
	 	 	4,533,770	 	 	1,186,147	 	 	3,347,623	 	 	3,805,150	 	 	2,102,434	 	 	1,702,716	 
	 	 Accumulated other comprehensive income
	 	 	20,696,008	 	 	 	 	 	20,696,008	 	 	(1,307,926	)	 	 	 	 	(1,307,926	)
	 	 Deficit
	 	 	(9,748,826	)	 	2,298,388	 	 	(12,047,214	)	 	(1,151,922	)	 	288,750	 	 	(1,440,672	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	119,960,476	 	 	3,131,002	 	 	116,829,474	 	 	78,019,727	 	 	1,121,364	 	 	76,898,363	 
	 	 NONCONTROLLING INTERESTS(e)
	 	 	167,211	 	 	167,211	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL SHAREHOLDER'S EQUITY
	 	 	120,127,687	 	 	3,298,213	 	 	116,829,474	 	 	78,019,727	 	 	1,121,364	 	 	76,898,363	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
	 	
$	

177,492,125	 	
$	

3,131,002	 	
$	

174,361,123	 	
$	

94,745,132	 	
$	

616,351	 	
$	

94,128,781	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





F-34







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) 



 Consolidated Statements of Income and Deficit  





																					
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US

GAAP 	 	Recon.

Items 	 	2008

Canadian

GAAP 	 	2007

US

GAAP 	 	Recon.

Items 	 	2007

Canadian

GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 REVENUE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Sales
	 	$	9,891,318	 	 	 	 	$	9,891,318	 	$	9,157,050	 	 	 	 	$	9,157,050	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Cost of Sales
	 	 	7,560,490	 	 	 	 	 	7,560,490	 	 	6,499,954	 	 	 	 	 	6,499,954	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 GROSS MARGIN
	 	 	2,330,828	 	 	 	 	 	2,330,828	 	 	2,657,096	 	 	 	 	 	2,657,096	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 GENERAL AND ADMINISTRATIVE EXPENSES
	 	 	7,217,189	 	 	 	 	 	7,217,189	 	 	1,607,129	 	 	—	 	 	1,607,129	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 (LOSS) INCOME BEFORE THE UNDERNOTED
	 	 	(4,886,361	)	 	 	 	 	(4,886,361	)	 	1,049,967	 	 	 	 	 	1,049,967	 
	 	 OTHER INCOME (EXPENSES)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Donations
	 	 	(73,337	)	 	 	 	 	(73,337	)	 	—	 	 	 	 	 	—	 
	 	 Interest on debenture and advance (b) & (d)
	 	 	—	 	 	2,009,638	 	 	(2,009,638	)	 	(887,124	)	 	288,750	 	 	(1,175,874	)
	 	 Provision on loans receivable
	 	 	(3,111,351	)	 	 	 	 	(3,111,351	)	 	—	 	 	 	 	 	—	 
	 	 Interest income
	 	 	820,765	 	 	 	 	 	820,765	 	 	194,288	 	 	 	 	 	194,288	 
	 	 Realized foreign exchange loss
	 	 	(2,842,894	)	 	 	 	 	(2,842,894	)	 	(308,812	)	 	 	 	 	(308,812	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET (LOSS) INCOME BEFORE INCOME TAXES
	 	 	(10,093,178	)	 	2,009,638	 	 	(12,102,816	)	 	48,319	 	 	288,750	 	 	(240,431	)
	 	 Income taxes recovery
	 	 	1,428,000	 	 	 	 	 	1,428,000	 	 	609,861	 	 	 	 	 	609,861	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST
	 	 	(8,665,178	)	 	2,009,638	 	 	(10,674,816	)	 	658,180	 	 	288,750	 	 	369,430	 
	 	 NON-CONTROLLING INTERESTS(e)
	 	 	—	 	 	(68,274	)	 	68,274	 	 	—	 	 	 	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET (LOSS) INCOME
	 	 	(8,665,178	)	 	1,941,364	 	 	(10,606,542	)	 	658,180	 	 	 	 	 	369,430	 
	 	 Net loss attributable to non-controlling interests(e)
	 	 	(68,274	)	 	(68,274	)	 	 	 	 	—	 	 	 	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET (LOSS) INCOME ATTRIBUTABLE TO GLG LIFE TECH CORPORATION
	 	$	(8,596,904	)	$	2,009,638	 	$	(10,606,542	)	$	658,180	 	 	 	 	$	369,430	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 (LOSS) INCOME PER SHARE — Basic
	 	 	(0.12	)	 	 	 	 	(0.15	)	 	0.01	 	 	 	 	 	0.01	 
	 	 (LOSS) INCOME PER SHARE — Diluted
	 	 	(0.12	)	 	 	 	 	(0.15	)	 	0.01	 	 	 	 	 	0.00	 





F-35







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) 



 Consolidated Statements of Cash Flow  





										
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

US GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 Cash provided by (used in)
	 	 	 	 	 	 	 
	 	 Operating activities
	 	 	 	 	 	 	 
	 	 Net (loss) income
	 	$	(8,665,178	)	$	658,180	 
	 	 Items not affecting cash:
	 	 	 	 	 	 	 
	 	 	 Amortization of convertible debt discount
	 	 	—	 	 	641,398	 
	 	 	 Stock-based compensation
	 	 	693,524	 	 	—	 
	 	 	 Amortization of property, plant and equipment & intangibles
	 	 	2,539,869	 	 	497,728	 
	 	 	 Provision on loan and receivables
	 	 	3,111,371	 	 	—	 
	 	 	 Foreign exchange loss
	 	 	2,841,737	 	 	254,324	 
	 	 	 Future income tax recovery
	 	 	(1,428,000	)	 	—	 
	 	 	 	 	 	 	 
	 	 Changes in non-cash working capital
	 	 	(16,893,312	)	 	(12,084,647	)
	 	 	 	 	 	 	 
	 	 Cashflow used by operating activities
	 	 	(17,799,989	)	 	(10,033,017	)
	 	 	 	 	 	 	 
	 	 Investing activities
	 	 	 	 	 	 	 
	 	 (Increase) Decrease in short term investment
	 	 	(299,849	)	 	20,000	 
	 	 Decrease in loan receivable
	 	 	—	 	 	(155,843	)
	 	 Equity contribution by non-controlling interests
	 	 	253,007	 	 	—	 
	 	 Increase in restricted cash
	 	 	(100,710	)	 	—	 
	 	 Purchase of intangible assets
	 	 	—	 	 	(1	)
	 	 Purchase of property, plant and equipment
	 	 	(44,346,420	)	 	(7,858,596	)
	 	 	 	 	 	 	 
	 	 Cash flow used by investing activities
	 	 	(44,493,972	)	 	(7,994,440	)
	 	 	 	 	 	 	 
	 	 Financing activities
	 	 	 	 	 	 	 
	 	 Reduction in subscriptions receivable
	 	 	—	 	 	380,492	 
	 	 Increase in short term loan
	 	 	8,387,169	 	 	—	 
	 	 Issuance of common shares
	 	 	17,844,394	 	 	32,251,588	 
	 	 Shares issuance costs
	 	 	(195,000	)	 	 	 
	 	 Issuance of warrants
	 	 	—	 	 	1,025,297	 
	 	 Repaid advance from a customer
	 	 	(7,122,367	)	 	—	 
	 	 Increase in advance from a customer
	 	 	20,191,680	 	 	6,549,100	 
	 	 Convertible debenture
	 	 	—	 	 	6,000,000	 
	 	 Advances from related parties
	 	 	(846,630	)	 	410,078	 
	 	 Convertible note payable
	 	 	—	 	 	(880,000	)
	 	 	 	 	 	 	 
	 	 Cash flow from financing activities
	 	 	38,259,246	 	 	45,736,555	 
	 	 	 	 	 	 	 
	 	 Effect of foreign exchange rate changes on cash and cash equivalents
	 	 	3,143,806	 	 	(377,603	)
	 	 	 	 	 	 	 
	 	 CHANGE IN CASH AND CASH EQUIVALENTS
	 	 	(20,890,909	)	 	27,331,495	 
	 	 CASH AND CASH EQUIVALENTS, beginning of period
	 	 	28,253,580	 	 	922,085	 
	 	 	 	 	 	 	 
	 	 CASH AND CASH EQUIVALENTS, end of period
	 	$	7,362,671	 	$	28,253,580	 
	 	 	 	 	 	 	 





F-36







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) 



 Consolidated Statements of Shareholders' Equity under U.S. GAAP  





																											
	 	 
	 	*Common Shares 	 	 
	 	 
	 	Accumulated

Other

Comprehensive

Income 	 	 
	 	 
	 	 
	 
	 	 
	 	 
	 	Contributed

Surplus 	 	 
	 	Non

Controlling

Interest 	 	 
	 
	 	 
	 	Number 	 	Amount 	 	Warrants 	 	Deficit 	 	Total 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 Balance, December 31, 2006
	 	 	49,857,394	 	$	19,179,824	 	$	—	 	$	1,767,651	 	$	128,815	 	$	(1,810,102	)	$	—	 	$	19,266,188	 
	 	 Options exercised
	 	 	226,666	 	 	132,935	 	 	 	 	 	(64,935	)	 	 	 	 	 	 	 	 	 	 	68,000	 
	 	 Shares issued for service
	 	 	250,000	 	 	300,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	300,000	 
	 	 Private placement for cash
	 	 	11,500,000	 	 	28,564,972	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	28,564,972	 
	 	 Warrants issued pursuant to private placement
	 	 	 	 	 	 	 	 	3,318,616	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,318,616	 
	 	 Shares issued for AHTD acquisition
	 	 	3,750,000	 	 	12,875,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12,875,000	 
	 	 Warrants issued to customer
	 	 	 	 	 	 	 	 	10,919,330	 	 	 	 	 	 	 	 	 	 	 	 	 	 	10,919,330	 
	 	 Discount of convertible debenture(b)
	 	 	 	 	 	 	 	 	1,383,748	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,383,748	 
	 	 Beneficial conversion feature of convertible debenture
	 	 	 	 	 	 	 	 	 	 	 	2,102,434	 	 	 	 	 	 	 	 	 	 	 	2,102,434	 
	 	 Change in foreign currency translation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1,436,741	)	 	 	 	 	 	 	 	(1,436,741	)
	 	 Net income attributable to GLG Life Tech Corporation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	658,180	 	 	 	 	 	658,180	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Balance, December 31, 2007
	 	 	65,584,060	 	$	61,052,731	 	$	15,621,694	 	$	3,805,150	 	$	(1,307,926	)	$	(1,151,922	)	$	0	 	$	78,019,727	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Warrants exercised
	 	 	5,085,839	 	 	20,235,133	 	 	(2,453,160	)	 	 	 	 	 	 	 	 	 	 	 	 	 	17,781,973	 
	 	 Options exercised
	 	 	208,067	 	 	125,527	 	 	 	 	 	(63,107	)	 	 	 	 	 	 	 	 	 	 	62,420	 
	 	 Convertible debenture redeemed for shares
	 	 	1,976,082	 	 	6,916,288	 	 	(1,447,443	)	 	531,155	 	 	 	 	 	 	 	 	 	 	 	6,000,000	 
	 	 Stock issued for cash
	 	 	1,290,614	 	 	1,060,004	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,060,004	 
	 	 Stock-based compensation
	 	 	 	 	 	 	 	 	 	 	 	260,572	 	 	 	 	 	 	 	 	 	 	 	260,572	 
	 	 Shares issued for AHTD acquisition
	 	 	4,375,000	 	 	3,368,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,368,750	 
	 	 Change in foreign currency translation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	22,003,934	 	 	 	 	 	 	 	 	22,003,934	 
	 	 Non-controlling interest contributions
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	235,485	 	 	235,485	 
	 	 Net (loss) income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,596,904	)	 	(68,274	)	 	(8,665,178	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Balance, December 31, 2008
	 	 	78,519,662	 	$	92,758,433	 	$	11,721,091	 	$	4,533,770	 	$	20,696,008	 	$	(9,748,826	)	$	167,211	 	$	120,127,687	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





F-37







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) 



As
a result of the above adjustments, the components of other comprehensive income under U.S. GAAP are as follows: 


 Statement of Comprehensive Income  





									
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008 	 	2007 	 
	 	 
	 	(in Canadian Dollars)
	 
	 	 Net (loss) income under U.S. GAAP
	 	$	(8,665,178	)	$	658,180	 
	 	 Foreign currency translation adjustments
	 	 	22,003,934	 	 	(1,436,741	)
	 	 	 	 	 	 	 
	 	 Other comprehensive income
	 	 	22,003,934	 	 	(1,436,741	)
	 	 	 	 	 	 	 
	 	 Comprehensive earnings (loss)
	 	 	13,338,756	 	 	(778,561	)
	 	 Comprehensive loss attributable to non-controlling interest
	 	 	(68,274	)	 	—	 
	 	 	 	 	 	 	 
	 	 Comprehensive earnings for the period attributable to GLG Life Tech Corp.
	 	$	13,407,030	 	$	(778,561	)
	 	 	 	 	 	 	 






The
calculation of basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share reflect the dilutive effect of the exercise of options. For the
year ended December 31, 2008, 5,543,866 stock options and 30,270,394 warrants and for private placement were excluded from the calculation of diluted net income (loss) per common
share, as the effect of including them would have been anti-dilutive. The number of shares for the diluted earnings per share as at December 31, 2007 was calculated
as follows: 



										
	 	 
	 	31-Dec-08 	 	31-Dec-07 	 
	 	 Net income for the period attributable to GLG Life Tech Corporation
	 	$	(8,596,904	)	$	658,180	 
	 	 	 	 	 	 	 
	 	 Weighted average number of shares used in basic earnings per share
	 	 	71,740,424	 	 	50,988,982	 
	 	 Dilutive potential of the following:
	 	 	 	 	 	 	 
	 	 	 Employee/director share options
	 	 	—	 	 	5,698,067	 
	 	 	 Warrants issued to customer and for private placement
	 	 	—	 	 	53,015,745	 
	 	 	 	 	 	 	 
	 	 Diluted weighted average number of shares outstanding
	 	 	71,740,424	 	 	109,702,794	 
	 	 	 	 	 	 	 
	 	 Earnings per share:
	 	 	 	 	 	 	 
	 	 	 Basic
	 	$	(0.12	)	$	0.01	 
	 	 	 Diluted
	 	$	(0.12	)	$	0.01	 
	 	 	 	 	 	 	 






 New Accounting Pronouncements  


In
December 2007, the FASB issued ACS 805 (revised 2007), Business Combinations, which provides revised guidance on how acquirers recognize and measure the consideration transferred,
identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. This standard also expands required disclosures surrounding the nature and
financial effects of business combinations. The standard became effective for the Company January 1, 2009, but did not have a significant impact on the Company's consolidated financial
statements. 



F-38







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 32.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) 



In
February 2008, the FASB issued Staff ACS 820-10-55-23A, Effective Date of FASB Statement No. 157 which delayed the effective date of ACS 820 to
fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities that are recognized or disclosed in the financial statements at fair value on a nonrecurring basis
only. The adoption of this paragraph did not have a significant impact on the Company's consolidated financial statements. 


In
March 2008, the FASB issued amendments to ACS 815-10-50 that expand the quarterly and annual disclosure requirements in about an entity's derivative
instruments and hedging activities. This section is effective for fiscal years beginning after November 15, 2008 and its adoption did not have an impact on the Company's financial position,
results of operations or cash flows as the pronouncement addresses disclosure requirements only. 


In
October 2008, the FASB issued ACS 820-10-35-15A, 55A and 55B, Determining Fair Value of a Financial Asset in a Market That Is Not Active, which clarified
the application of ACS 820 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. These paragraphs
were effective upon issuance, including prior periods for which financial statements had not been issued and its adoption did not have an impact on the Company's financial position, results of
operations or cash flows. 


In
May 2009, the FASB issued ACS 855-10-50, Subsequent Events, which requires entities to disclose the date through which they have evaluated subsequent events and
whether the date corresponds with the release of their financial statements. This subsection is effective for interim and annual periods ending after June 15, 2009. 


In
June 2009, the FASB amended ACS 860, Transfers and Servicing, which prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial
assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor's continuing involvement in transferred financial assets. Specifically, among other
aspects, this standard amended ACS 860 by removing the concept of a qualifying special-purpose entity and removes the exception from applying the Variable Interest subsections of subtopic ACS
810-10 to variable interest entities that are qualifying special-purpose entities. It also modifies the financial components approach used in ACS 860. This standard is effective for
transfer of financial assets occurring on or after January 1, 2010. The Company will
consider this standard when evaluating future transactions to which it would apply. Historically, the Company has not had any material transfers of financial assets. 



In
June 2009, the FASB made amendments to the Variable Interest subsections of subtopic ACS 810-10 which require an enterprise to determine whether its variable interest or
interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct
the activities of a variable interest entity that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be
significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The amendments also require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The amendments are effective for all variable interest entities and relationships with variable
interest entities existing as of January 1, 2010. The Company will consider this standard when evaluating future transactions to which it would apply and it did not impact any existing
relationships that the Company has. 



F-39







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT  



 Condensed Balance Sheets  





									
	 	 
	 	As at December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

US GAAP 	 
	 	 
	 	(in Canadian Dollars)
	 
	 	 CURRENT ASSETS
	 	 	 	 	 	 	 
	 	 Cash and cash equivalents
	 	$	758,901	 	$	19,159,437	 
	 	 Accounts receivable
	 	 	195,936	 	 	621,889	 
	 	 Interest receivable
	 	 	25	 	 	199,546	 
	 	 Loans receivable
	 	 	—	 	 	1,719,633	 
	 	 Taxes recoverable
	 	 	20,060	 	 	20,221	 
	 	 Due from subsidiaries
	 	 	1,156,963	 	 	—	 
	 	 Prepaid and deposits
	 	 	23,503	 	 	11,880	 
	 	 	 	 	 	 	 
	 	 
	 	 	2,155,388	 	 	21,732,606	 
	 	 PLANT AND EQUIPMENT
	 	 	5,009,013	 	 	1,505,234	 
	 	 RESTRICTED CASH
	 	 	100,710	 	 	—	 
	 	 INVESTMENT IN SUBSIDIARIES, reported on equity method
	 	 	128,065,426	 	 	48,834,910	 
	 	 LOANS RECEIVABLE
	 	 	—	 	 	144,549	 
	 	 INTANGIBLE ASSETS
	 	 	15,208,025	 	 	15,410,418	 
	 	 	 	 	 	 	 
	 	 TOTAL ASSETS
	 	$	150,538,562	 	$	87,627,717	 
	 	 	 	 	 	 	 
	 	 LIABILITIES
	 	 	 	 	 	 	 
	 	 CURRENT LIABILITIES
	 	 	 	 	 	 	 
	 	 Accounts payable and accrued liabilities
	 	$	304,897	 	$	477,100	 
	 	 Due to related parties
	 	 	—	 	 	410,078	 
	 	 Interest payable
	 	 	1,063,729	 	 	395,568	 
	 	 Advances from a customer
	 	 	24,492,000	 	 	—	 
	 	 Deferred revenue
	 	 	1,995,000	 	 	—	 
	 	 Convertible debenture
	 	 	—	 	 	4,237,269	 
	 	 	 	 	 	 	 
	 	 
	 	 	27,855,626	 	 	5,520,015	 
	 	 FUTURE INCOME TAXES
	 	 	2,722,460	 	 	4,087,975	 
	 	 	 	 	 	 	 
	 	 TOTAL LIABILITIES
	 	 	30,578,086	 	 	9,607,990	 
	 	 SHAREHOLDERS' EQUITY
	 	 	 	 	 	 	 
	 	 Share capital
	 	 	92,758,433	 	 	61,052,731	 
	 	 Warrants
	 	 	11,721,091	 	 	15,621,694	 
	 	 Contributed surplus
	 	 	4,533,770	 	 	3,805,150	 
	 	 Accumulated other comprehensive income
	 	 	20,696,008	 	 	(1,307,926	)
	 	 Deficit
	 	 	(9,748,826	)	 	(1,151,922	)
	 	 	 	 	 	 	 
	 	 TOTAL SHAREHOLDERS' EQUITY
	 	 	119,960,476	 	 	78,019,727	 
	 	 	 	 	 	 	 
	 	 TOTAL LIABILITIES AND
	 	 	 	 	 	 	 
	 	 SHAREHOLDERS' EQUITY
	 	$	150,538,562	 	$	87,627,717	 
	 	 	 	 	 	 	 





F-40







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 



 Condensed Statements of Operations and Comprehensive Income (Loss)  





										
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

US GAAP 	 
	 	 
	 	Stated in Canadian Dollars
	 
	 	 REVENUE
	 	 	 	 	 	 	 
	 	 Sales
	 	$	857,490	 	$	964,185	 
	 	 	 	 	 	 	 
	 	 Cost of Sales
	 	 	213,623	 	 	144,449	 
	 	 	 	 	 	 	 
	 	 GROSS MARGIN
	 	 	643,867	 	 	819,736	 
	 	 	 	 	 	 	 
	 	 GENERAL AND ADMINISTRATIVE EXPENSES
	 	 	4,791,541	 	 	1,181,891	 
	 	 	 	 	 	 	 
	 	 NET LOSS FROM OPERATIONS
	 	 	(4,147,674	)	 	(362,155	)
	 	 OTHER INCOME (EXPENSE)
	 	 	 	 	 	 	 
	 	 Interest on convertible debenture and advance
	 	 	—	 	 	(887,124	)
	 	 Provision on loans receivable
	 	 	(3,111,351	)	 	—	 
	 	 Interest income
	 	 	118,952	 	 	154,818	 
	 	 Realized foreign exchange loss
	 	 	(2,937,265	)	 	—	 
	 	 	 	 	 	 	 
	 	 NET LOSS BEFORE INCOME TAXES AND EQUITY IN EARNINGS
	 	 	(10,077,338	)	 	(1,094,461	)
	 	 Income taxes recovery
	 	 	1,164,597	 	 	408,946	 
	 	 	 	 	 	 	 
	 	 NET LOSS BEFORE EQUITY IN EARNINGS
	 	 	(8,912,741	)	 	(685,515	)
	 	 Equity in earnings of subsidiaries
	 	 	315,837	 	 	1,343,695	 
	 	 	 	 	 	 	 
	 	 NET (LOSS) INCOME FOR THE YEAR
	 	 	(8,596,904	)	 	658,180	 
	 	 	 	 	 	 	 
	 	 OTHER COMPREHENSIVE INCOME (LOSS)
	 	 	 	 	 	 	 
	 	 Foreign currency translation
	 	 	22,003,934	 	 	(1,436,741	)
	 	 	 	 	 	 	 
	 	 TOTAL COMPREHENSIVE INCOME (LOSS)
	 	$	13,407,030	 	$	(778,561	)
	 	 	 	 	 	 	 
	 	 (LOSS) INCOME PER SHARE — Basic
	 	 	(0.12	)	 	0.01	 
	 	 (LOSS) INCOME PER SHARE — Diluted
	 	 	(0.12	)	 	0.01	 
	 	 WEIGHTED AVERAGE NUMBER OF

COMMON SHARES OUTSTANDING
	 	 	 	 	 	 	 
	 	 	 — BASIC
	 	 	71,740,424	 	 	50,988,982	 
	 	 	 — DILUTED
	 	 	107,554,684	 	 	109,702,794	 





F-41







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 



 Condensed Consolidated Statements of Shareholders' Equity  





																								
	 	 
	 	*Common Shares 	 	 
	 	 
	 	Accumulated

Other

Comprehensive

Income 	 	 
	 	 
	 
	 	 
	 	 
	 	Contributed

Surplus 	 	 
	 	 
	 
	 	 
	 	Number 	 	Amount 	 	Warrants 	 	Deficit 	 	Total 	 
	 	 
	 	(Stated in Canadian Dollars)
	 
	 	 Balance, December 31, 2006
	 	 	49,857,394	 	$	19,179,824	 	$	—	 	$	1,767,651	 	$	128,815	 	$	(1,810,102	)	$	19,266,188	 
	 	 Options exercised
	 	 	226,666	 	 	132,935	 	 	 	 	 	(64,935	)	 	 	 	 	 	 	 	68,000	 
	 	 Shares issued for service
	 	 	250,000	 	 	300,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	300,000	 
	 	 Private placement for cash
	 	 	11,500,000	 	 	28,564,972	 	 	 	 	 	 	 	 	 	 	 	 	 	 	28,564,972	 
	 	 Warrants issued pursuant to private placement
	 	 	 	 	 	 	 	 	3,318,616	 	 	 	 	 	 	 	 	 	 	 	3,318,616	 
	 	 Shares issued for AHTD acquisition
	 	 	3,750,000	 	 	12,875,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12,875,000	 
	 	 Warrants issued to customer
	 	 	 	 	 	 	 	 	10,919,330	 	 	 	 	 	 	 	 	 	 	 	10,919,330	 
	 	 Discount of convertible debenture
	 	 	 	 	 	 	 	 	1,383,748	 	 	 	 	 	 	 	 	 	 	 	1,383,748	 
	 	 Beneficial conversion feature of convertible debenture
	 	 	 	 	 	 	 	 	 	 	 	2,102,434	 	 	 	 	 	 	 	 	2,102,434	 
	 	 Change in foreign currency translation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1,436,741	)	 	 	 	 	(1,436,741	)
	 	 Net income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	658,180	 	 	658,180	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Balance, December 31, 2007
	 	 	65,584,060	 	$	61,052,731	 	$	15,621,694	 	$	3,805,150	 	$	(1,307,926	)	$	(1,151,922	)	$	78,019,727	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Warrants exercised
	 	 	5,085,839	 	 	20,235,133	 	 	(2,453,160	)	 	 	 	 	 	 	 	 	 	 	17,781,973	 
	 	 Options exercised
	 	 	208,067	 	 	125,527	 	 	 	 	 	(63,107	)	 	 	 	 	 	 	 	62,420	 
	 	 Convertible debenture redeemed for shares
	 	 	1,976,082	 	 	6,916,288	 	 	(1,447,443	)	 	531,155	 	 	 	 	 	 	 	 	6,000,000	 
	 	 Stock issued for cash
	 	 	1,290,614	 	 	1,060,004	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,060,004	 
	 	 Stock-based compensation
	 	 	 	 	 	 	 	 	 	 	 	260,572	 	 	 	 	 	 	 	 	260,572	 
	 	 Shares issued for AHTD acquisition
	 	 	4,375,000	 	 	3,368,750	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,368,750	 
	 	 Change in foreign currency translation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	22,003,934	 	 	 	 	 	22,003,934	 
	 	 Net loss
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,596,904	)	 	(8,596,904	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Balance, December 31, 2008
	 	 	78,519,662	 	$	92,758,433	 	$	11,721,091	 	$	4,533,770	 	$	20,696,008	 	$	(9,748,826	)	$	119,960,476	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





F-42







 


GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 



 Condensed Consolidated Statements of Cash Flow  





										
	 	 
	 	For the Year Ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

US GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 Cash provided by (used in)
	 	 	 	 	 	 	 
	 	 Operating activities
	 	 	 	 	 	 	 
	 	 Net loss
	 	$	(8,596,904	)	$	658,180	 
	 	 Items not affecting cash:
	 	 	 	 	 	 	 
	 	 	 Equity in earnings of subsidiaries
	 	 	(315,837	)	 	(1,343,695	)
	 	 	 Amortization of convertible debt discount
	 	 	—	 	 	641,398	 
	 	 	 Stock-based compensation
	 	 	1,320,575	 	 	—	 
	 	 	 Amortization of property, plant and equipment & intangibles
	 	 	731,152	 	 	11,407	 
	 	 	 Provision on loan and receivables
	 	 	3,111,351	 	 	—	 
	 	 	 Foreign exchange loss
	 	 	2,937,265	 	 	—	 
	 	 	 Future income tax recovery
	 	 	(1,164,597	)	 	408,946	 
	 	 	 	 	 	 	 
	 	 Changes in non-cash working capital
	 	 	1,109,970	 	 	263,516	 
	 	 	 	 	 	 	 
	 	 Cash flow used by operating activities
	 	 	(867,025	)	 	639,752	 
	 	 	 	 	 	 	 
	 	 Investing activities
	 	 	 	 	 	 	 
	 	 Decrease in short term investment
	 	 	—	 	 	20,000	 
	 	 Increase in loan receivable
	 	 	—	 	 	(155,843	)
	 	 Increase in restricted cash
	 	 	(100,710	)	 	—	 
	 	 Purchase of intangible assets
	 	 	—	 	 	(1	)
	 	 Purchase of property, plant and equipment
	 	 	(3,503,779	)	 	(1,488,618	)
	 	 Investments in subsidiaries
	 	 	(54,503,374	)	 	(19,864,082	)
	 	 	 	 	 	 	 
	 	 Cash flow used by investing activities
	 	 	(58,107,863	)	 	(21,488,544	)
	 	 	 	 	 	 	 
	 	 Financing activities
	 	 	 	 	 	 	 
	 	 Reduction in subscriptions receivable
	 	 	—	 	 	380,492	 
	 	 Increase in short term loan
	 	 	—	 	 	—	 
	 	 Issuance of common shares
	 	 	17,844,394	 	 	32,251,588	 
	 	 Share issuance costs
	 	 	(195,000	)	 	 	 
	 	 Issuance of warrants
	 	 	—	 	 	1,025,297	 
	 	 Repaid advance from a customer
	 	 	—	 	 	—	 
	 	 Advance from a customer
	 	 	24,492,000	 	 	—	 
	 	 Convertible debenture
	 	 	—	 	 	6,000,000	 
	 	 Advances from related parties
	 	 	(410,078	)	 	410,078	 
	 	 Due from subsidiaries
	 	 	(1,156,963	)	 	—	 
	 	 Convertible note payable
	 	 	—	 	 	(880,000	)
	 	 	 	 	 	 	 
	 	 Cash flow from financing activities
	 	 	40,574,353	 	 	39,187,455	 
	 	 	 	 	 	 	 
	 	 CHANGE IN CASH AND CASH EQUIVALENTS
	 	 	(18,400,536	)	 	18,338,663	 
	 	 CASH AND CASH EQUIVALENTS, beginning of year
	 	 	19,159,437	 	 	820,774	 
	 	 	 	 	 	 	 
	 	 CASH AND CASH EQUIVALENTS, end of year
	 	$	758,901	 	$	19,159,437	 
	 	 	 	 	 	 	 





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GLG LIFE TECH CORPORATION 


 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 


 Years Ended December 31, 2008 and 2007 


 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 



 Investments in Subsidiaries  


GLG
and its subsidiaries are included in the consolidated financial statements where the inter-company balances and transactions are eliminated upon consolidation. For the purpose of GLG's stand-alone
financial statements, its investments in subsidiaries are reported using the equity method of accounting. GLG's share of income and losses from its subsidiaries is reported as earnings from
subsidiaries in the accompanying condensed financial information of parent company. 


 Income Taxes  


GLG
is incorporated in the Province of British Columbia, in Canada and is subject to Canadian federal and provincial income taxes. 



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QuickLinks


GLG LIFE TECH CORPORATION CONSOLIDATED BALANCE SHEETS (In Canadian Dollars)

GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2008 and 2007 (In Canadian Dollars)


GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW For the Years Ended December 31, 2008 and 2007 (In Canadian Dollars)


GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31, 2008 and 2007 (In Canadian Dollars)


GLG LIFE TECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2008 and 2007