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Amended
Consolidated Financial Statements
 GLG LIFE TECH CORPORATION
  Three and nine months ended September 30, 2009 and 2008 

F-45

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

										
	 	 
	 	September 30, 2009 	 	December 31, 2008 	 
	 	 ASSETS
	 	 	 	 	 	 	 
	 	 Current Assets
	 	 	 	 	 	 	 
	 	 	 Cash and cash equivalents
	 	$	8,894,543	 	$	7,362,671	 
	 	 	 Short term investments (Note 5)
	 	 	—	 	 	365,785	 
	 	 	 Accounts receivable
	 	 	1,134,338	 	 	2,714,114	 
	 	 	 Interest receivable
	 	 	—	 	 	3,651	 
	 	 	 Taxes recoverable
	 	 	4,360,011	 	 	1,504,000	 
	 	 	 Inventory (Note 6)
	 	 	28,771,198	 	 	33,057,690	 
	 	 	 Prepaid expenses
	 	 	12,054,909	 	 	7,380,086	 
	 	 	 	 	 	 	 
	 	 
	 	 	55,214,999	 	 	52,387,997	 
	 	 Property, Plant, and Equipment (Note 7)
	 	 	89,340,484	 	 	83,366,043	 
	 	 Goodwill
	 	 	7,587,798	 	 	7,587,798	 
	 	 Restricted Cash (Note 8)
	 	 	10,000	 	 	100,710	 
	 	 Deferred Charges
	 	 	96,123	 	 	125,261	 
	 	 Intangible Assets (Note 9)
	 	 	29,805,172	 	 	30,793,314	 
	 	 	 	 	 	 	 
	 	 
	 	$	182,054,576	 	$	174,361,123	 
	 	 	 	 	 	 	 
	 	 LIABILITIES
	 	 	 	 	 	 	 
	 	 Current Liabilities
	 	 	 	 	 	 	 
	 	 	 Short term bank loans (Note 10)
	 	$	35,639,000	 	$	10,231,500	 
	 	 	 Accounts payable and accruals
	 	 	17,839,630	 	 	17,167,567	 
	 	 	 Interest payable
	 	 	81,085	 	 	1,063,729	 
	 	 	 Advances from customers (Note 11)
	 	 	3,296,271	 	 	24,492,000	 
	 	 	 Due to related party (Note 17c)
	 	 	6,754,860	 	 	—	 
	 	 	 Deferred Revenue
	 	 	—	 	 	1,995,000	 
	 	 	 	 	 	 	 
	 	 
	 	 	63,610,846	 	 	54,949,796	 
	 	 Non current bank loan (Note 10)
	 	 	9,420,000	 	 	—	 
	 	 Future income taxes
	 	 	2,343,024	 	 	2,414,642	 
	 	 	 	 	 	 	 
	 	 
	 	 	75,373,870	 	 	57,364,438	 
	 	 NON-CONTROLLING INTERESTS
	 	 	

47,376	 	 	

167,211	 
	 	 SHAREHOLDERS' EQUITY
	 	 	 	 	 	 	 
	 	 	 Share capital (Notes 13 and 14)
	 	 	95,388,996	 	 	93,355,149	 
	 	 	 Warrants (Note 13)
	 	 	—	 	 	11,477,908	 
	 	 	 Contributed surplus
	 	 	14,805,385	 	 	3,347,623	 
	 	 	 Accumulated other comprehensive income
	 	 	8,216,236	 	 	20,696,008	 
	 	 	 Deficit
	 	 	(11,777,287	)	 	(12,047,214	)
	 	 	 	 	 	 	 
	 	 
	 	 	106,633,330	 	 	116,829,474	 
	 	 	 	 	 	 	 
	 	 
	 	$	182,054,576	 	$	174,361,123	 
	 	 	 	 	 	 	 
	 	 Description of business and going concern (Note 1)
	 	 	 	 	 	 	 
	 	 Commitments (Note 18)
	 	 	 	 	 	 	 

				
	 	 (Signed) "Brian Palmieri"

Director
	 	(Signed) "Jinduo Zhang"

Director

See
Accompanying Notes to the Consolidated Financial Statements 

F-46

 
 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)    
    
    For the Periods Ended September 30, 2009 and
2008
  (In Canadian Dollars)
  (Unaudited)    
    

																
	 	 
	 	Three months ended

September 30 	 	Nine months ended

September 30 	 
	 	 
	 	2009 	 	2008 	 	2009 	 	2008 	 
	 	 REVENUE
	 	$	14,813,642	 	$	3,302,176	 	$	28,619,448	 	$	5,234,730	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	14,813,642	 	 	3,302,176	 	 	28,619,448	 	 	5,234,730	 
	 	 COST OF SALES
	 	 	

10,718,257	 	 	

2,470,654	 	 	

21,463,160	 	 	

3,842,766	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 GROSS PROFIT
	 	 	4,095,385	 	 	831,522	 	 	7,156,288	 	 	1,391,964	 
	 	 GENERAL AND ADMINISTRATIVE EXPENSES
	 	 	

2,935,419	 	 	

1,685,941	 	 	

8,171,127	 	 	

3,828,020	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 INCOME (LOSS) BEFORE THE UNDERNOTED
	 	 	1,159,966	 	 	(854,419	)	 	(1,014,839	)	 	(2,436,056	)
	 	 OTHER INCOME (EXPENSES)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Donation
	 	 	—	 	 	(1,075	)	 	—	 	 	(22,749	)
	 	 	 Interest expense
	 	 	(885,977	)	 	(353,159	)	 	(1,982,466	)	 	(1,686,795	)
	 	 	 Interest income
	 	 	42,492	 	 	236,961	 	 	77,280	 	 	636,705	 
	 	 	 Foreign exchange gain (loss)
	 	 	1,902,808	 	 	4,257	 	 	3,219,210	 	 	1,940	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	1,059,323	 	 	(113,016	)	 	1,314,024	 	 	(1,070,899	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 INCOME (LOSS) BEFORE INCOME TAXES AND NON-CONTROLLING INTERESTS
	 	 	

2,219,289	 	 	

(967,435	
)	 	

299,185	 	 	

(3,506,955	
)
	 	 INCOME TAXES EXPENSE
	 	 	

(861,891	
)	 	 —
	 	 	

(151,403	
)	 	 —
	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 INCOME (LOSS) BEFORE NON-CONTROLLING INTERESTS
	 	 	1,357,398	 	 	(967,435	)	 	147,782	 	 	(3,506,955	)
	 	 NON-CONTROLLING INTERESTS
	 	 	41,458	 	 	15,452	 	 	122,145	 	 	15,452	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS)
	 	 	1,398,856	 	 	(951,983	)	 	269,927	 	 	(3,491,503	)
	 	 DEFICIT, beginning of period
	 	 	(13,176,143	)	 	(3,980,192	)	 	(12,047,214	)	 	(1,440,672	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 DEFICIT, end of period
	 	 	(11,777,287	)	 	(4,932,175	)	 	(11,777,287	)	 	(4,932,175	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS) PER SHARE
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Basic
	 	$	0.02	 	$	(0.01	)	$	0.00	 	$	(0.05	)
	 	 	 Diluted
	 	 	0.02	 	 	(0.01	)	 	0.00	 	 	(0.05	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS)
	 	 	1,398,856	 	 	(951,983	)	 	269,927	 	 	(3,491,503	)
	 	 OTHER COMPREHENSIVE INCOME (LOSS)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Unrealized gains (losses) on translation of self-sustaining operations
	 	 	(7,378,537	)	 	2,766,692	 	 	(12,479,772	)	 	7,887,750	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 COMPREHENSIVE INCOME (LOSS)
	 	 	(5,979,681	)	 	1,814,709	 	 	(12,209,845	)	 	4,396,247	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 Weighted Average Number of Shares Outstanding
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Basic
	 	 	80,618,392	 	 	73,131,253	 	 	79,234,614	 	 	70,418,638	 
	 	 	 Diluted
	 	 	92,442,092	 	 	73,131,253	 	 	97,335,605	 	 	70,418,638	 
	 	 	 	 	 	 	 	 	 	 	 

See Accompanying Notes to the Consolidated Financial Statements 

F-47

 
 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENTS OF CASH FLOW    
    
    For the Periods Ended September 30, 2009
  (In Canadian Dollars)

(Unaudited)    
    

																	
	 	 
	 	Three months ended

September 30 	 	Nine months ended

September 30 	 
	 	 
	 	2009 	 	2008 	 	2009 	 	2008 	 
	 	 Cash provided by (used in)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Operating activities
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Net income (loss)
	 	$	1,398,856	 	$	(951,983	)	$	269,927	 	$	(3,491,503	)
	 	 	 Items not affecting cash:
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 Accretion on convertible debenture
	 	 	—	 	 	—	 	 	—	 	 	839,632	 
	 	 	 	 Stock-based compensation
	 	 	749,489	 	 	61,283	 	 	1,724,701	 	 	91,924	 
	 	 	 	 Amortization of property, plant and equipment & intangibles
	 	 	1,549,465	 	 	655,773	 	 	4,213,282	 	 	1,397,624	 
	 	 	 	 Foreign exchange gain
	 	 	(1,902,808	)	 	—	 	 	(3,219,210	)	 	—	 
	 	 	 	 Future income tax expense (recovery)
	 	 	598,958	 	 	—	 	 	(184,856	)	 	—	 
	 	 	 	 Non-controlling interests
	 	 	(41,458	)	 	15,452.00	 	 	(122,145	)	 	15,452	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	2,352,502	 	 	(219,475	)	 	2,681,699	 	 	(1,146,871	)
	 	 	 Changes in non-cash working capital (Note 15)
	 	 	(6,915,849	)	 	(7,667,525	)	 	(5,442,232	)	 	(8,049,600	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Cashflow used by operating activities
	 	 	(4,563,347	)	 	(7,887,000	)	 	(2,760,533	)	 	(9,196,471	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 Investing activities
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Decrease in short term investment
	 	 	333,664	 	 	—	 	 	349,075	 	 	—	 
	 	 	 Increase in loan receivable
	 	 	—	 	 	(77,399	)	 	—	 	 	(117,999	)
	 	 	 Decrease in restricted cash
	 	 	90,902	 	 	—	 	 	90,710	 	 	—	 
	 	 	 Purchase of property, plant and equipment
	 	 	(8,612,768	)	 	(18,625,895	)	 	(22,242,626	)	 	(32,163,549	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 Cash flow used by investing activities
	 	 	(8,188,202	)	 	(18,703,294	)	 	(21,802,841	)	 	(32,281,548	)
	 	 	 	 	 	 	 	 	 	 	 
	 	 Financing activities
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 Issuance of bank debt
	 	 	12,634,000	 	 	—	 	 	38,541,000	 	 	—	 
	 	 	 Issuance of common shares
	 	 	—	 	 	5,230,500	 	 	288,999	 	 	17,865,873	 
	 	 	 Advance from related parties
	 	 	4,789,414	 	 	—	 	 	7,106,014	 	 	(410,078	)
	 	 	 Repaid advance from a customer
	 	 	(13,019,202	)	 	(2,940,722	)	 	(18,862,472	)	 	(3,533,049	)
	 	 	 Increase in advance from a customer
	 	 	—	 	 	21,198,000	 	 	—	 	 	21,198,000	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 Cash flow from financing activities
	 	 	4,404,212	 	 	23,487,778	 	 	27,073,541	 	 	35,120,746	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 Effect of foreign exchange rate changes on cash and cash equivalents
	 	 	(1,149,281	)	 	3,018,677	 	 	(978,295	)	 	8,393,816	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 CHANGE IN CASH AND CASH EQUIVALENTS
	 	 	(9,496,618	)	 	(83,839	)	 	1,531,872	 	 	2,036,544	 
	 	 CASH AND CASH EQUIVALENTS, beginning of period
	 	 	

18,391,161	 	 	

30,373,963	 	 	

7,362,671	 	 	

28,253,580	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 CASH AND CASH EQUIVALENTS, end of period
	 	$	8,894,543	 	$	30,290,124	 	$	8,894,543	 	$	30,290,124	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 CASH FLOW SUPPLEMENTARY INFORMATION
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Interest paid
	 	$	885,977	 	$	469,105	 	$	1,982,466	 	$	1,069,848	 
	 	 Increase (Decrease) in accounts payable and accruals related to the purchase of property, plant and equipment
	 	 	(2,700,724	)	 	—	 	 	(1,283,898	)	 	—	 
	 	 Decrease (Increase) in prepaid expense related to the purchase of property, plant and equipment
	 	 	(4,339,067	)	 	—	 	 	(3,263,049	)	 	—

	 

See Accompanying Notes to the Consolidated Financial Statements 

F-48

 

 

 
  
  GLG LIFE TECH CORPORATION    
    
    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY    
    
    For the Period Ended September 30, 2009
  (In Canadian
Dollars)
  (Unaudited)    
    

																				
	 
	 	Share Capital 	 	Warrants 	 	Equity portion

of convertible

debenture 	 	Contributed

Surplus 	 	Accumulated

Other

Comprehensive

Income

("AOCI") 	 	Deficit 	 
	 Balance, December 31, 2007
	 	$	61,052,731	 	$	15,378,511	 	$	1,513,003	 	$	1,702,716	 	$	(1,307,926	)	$	(1,440,672	)
	 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	)	 	—	 	 	—	 	 	—	 
	 Issuance of restricted shares
	 	 	1,060,004	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 
	 Options granted
	 	 	—	 	 	—	 	 	—	 	 	260,571	 	 	—	 	 	—	 
	 Common shares issued
	 	 	3,368,750	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 
	 Change in foreign currency translation
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	22,003,934	 	 	—	 
	 Net loss
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(10,606,542	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, December 31, 2008
	 	$	93,355,149	 	$	11,477,908	 	$	—	 	$	3,347,623	 	$	20,696,008	 	$	(12,047,214	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Warrant expired
	 	 	—	 	 	(11,477,908	)	 	—	 	 	11,477,908	 	 	—	 	 	—	 
	 Options exercised
	 	 	581,178	 	 	—	 	 	—	 	 	(292,179	)	 	—	 	 	—	 
	 Stock based compensation
	 	 	1,452,669	 	 	—	 	 	—	 	 	272,033	 	 	—	 	 	—	 
	 Change in foreign currency translation
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(12,479,772	)	 	—	 
	 Net income
	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	269,927	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance, September 30, 2009
	 	$	95,388,996	 	$	—	 	$	—	 	$	14,805,385	 	$	8,216,236	 	$	(11,777,287	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

See
Accompanying Notes to the Consolidated Financial Statements 

F-49

 

 
  
  GLG LIFE TECH CORPORATION    
    
    NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS    
    

 1.     DESCRIPTION OF BUSINESS AND GOING CONCERN  

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. 

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 $11,777,287 and a working capital deficiency of $8,395,847 as at September 30, 2009. Accordingly, there is significant uncertainty about the Company's ability to
continue as a going concern. These 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 and such adjustments could be material. The Company's ability to continue as a going concern is still dependent upon the ability of the Company 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 meet its obligations under a supply agreement with a
Strategic Customer and its other commitments (notes 12 and 18). The outcome of these matters cannot be predicted with certainty at this time. 

Management
plans to secure the necessary financing through a combination of use and renewal of existing credit facilities, the issue of new equity or debt instruments and entering into joint venture
arrangements. There can be no assurance that these initiatives will be successful. 

 2.     SIGNIFICANT ACCOUNTING POLICIES  

The
accompanying unaudited interim consolidated financial statements include the accounts of the Company and all its significantly owned subsidiaries as stated in Note 2a to the 2008
annual consolidated financial statements of the Company, and the account of the Company's wholly owned subsidiary, Qingdao Runhao Rebiana High Tech Company Limited. 

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

The
unaudited interim consolidated financial statements for the Company are prepared using the accounting policies disclosed in Note 2 to the 2008 annual consolidated financial
statements of the Company, with the exception of the changes in accounting policies described below in Note 3 — Changes in Accounting Policies. 

In
accordance with Canadian generally accepted accounting principles ("GAAP"), these interim financial statements do not include all of the financial statement disclosures required for annual
financial statements and should be read in conjunction with the 2008 annual consolidated financial statements of the Company. In management's opinion, the financial statements reflect all adjustments
that are necessary for a fair presentation of the results for the interim periods presented. 

 3.     CHANGES IN ACCOUNTING POLICIES  

Effective
January 1, 2009, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, "Goodwill and Intangible Assets." This new standard
replaces section 3062, "Goodwill and Other Intangible Assets" and Section 3450, "Research and Development Costs," and focuses on the criteria for asset recognition in the
financial statements, including those internally developed. The adoption of this standard did not have an impact on the Company's consolidated financial position or results of operations. 

F-50

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 3.     CHANGES IN ACCOUNTING POLICIES (Continued) 

Effective
January 1, 2009, the Company adopted the Emerging Issues Committee ("EIC") Abstract EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities," issued by CICA. This standard requires the Company to consider its own credit risk as well as the credit risk of its counterparty when determining the fair value of financial assets and
liabilities, including derivative instruments. The adoption of this standard did not have an impact on the valuation of the Company's financial assets or liabilities. 

 4.     RECENT ACCOUNTING PRONOUNCEMENTS  

In
January 2009, the CICA issued the new 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 considerations and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition-related costs will be
expensed as incurred and that restructuring charges be expensed in periods after the acquisition date. The new standard applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period on or after January 1, 2011. Although the Company is considering the impact of adopting this pronouncement on the consolidated
financial statements, it will be limited to any future acquisitions beginning in fiscal 2011. 

In
January 2009, the CICA issued Section 1601, "Consolidated Financial Statements," which will replace CICA section 1600 of the same name. This guidance requires uniform
accounting policies to be consistent throughout all consolidated entities and the difference between reporting dates of a parent and a subsidiary to be no longer than three months. These are not
explicitly required under the current standard. Section 1601 is effective for the Company on January 1, 2011 with early adoption permitted. This standard will have no impact on
the Company. 

In
January 2009, the CICA issued Section 1602, "Non-controlling Interests," which will replace CICA Section 1600, "Consolidated Financial Statements." Under this new
guidance, when there is a change in control the previously held interest is revalued at fair value. Currently a gain of control is accounted for using the purchase method and a loss of control is
accounted for as a sale resulting in a gain or loss in earnings. In addition, non-controlling interests ("NCI") can be in a deficit position because it is recorded at fair value.
Currently, NCI is recorded at the carrying amount and can only be in a deficit position if the NCI has an obligation to fund the losses. Section 1602 is effective for the Company on
January 1, 2011 with early adoption permitted. 

 5.     SHORT TERM INVESTMENTS  

At
September 30, 2009, the Company has no short term investments. At December 31, 2008, the Company had $365,785 (RMB 2,037,800) of 6-month term deposits with the Bank
of China, which bore interest rate of 3.78% per annum. 

 6.     INVENTORY  

For
the three and nine months ended September 30, 2009, the amount of inventories charged to cost of sales was $10,301,851 and $20,245,663, respectively (three months ended September 30,
2008 — $2,151,362, nine months ended September 30, 2008 — $3,734,728). There was no write-down of
inventories during the periods, nor any reversal of any write-down. For the nine months ended September 30, 2009, $602,449 of interest is capitalized as a cost of inventory. No
interest has been capitalized as a cost of inventory for the three months ended September 30, 2009 (three months and nine months ended September 30,
2008 — $113,035). 

F-51

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 6.     INVENTORY (Continued) 

									
	 	 
	 	September 30, 2009 	 	December 31, 2008 	 
	 	 Raw material
	 	$	1,925,866	 	$	22,920,668	 
	 	 Work in process
	 	 	24,994,160	 	 	8,905,270	 
	 	 Finished goods
	 	 	1,851,172	 	 	1,231,752	 
	 	 	 	 	 	 	 
	 	 
	 	$	28,771,198	 	$	33,057,690	 
	 	 	 	 	 	 	 

 7.     PROPERTY, PLANT AND EQUIPMENT  

																					
	 	 
	 	September 30, 2009 	 	December 31, 2008 	 
	 	 
	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 
	 	 Ion exchange resin equipment
	 	$	15,396,449	 	$	1,457,481	 	$	13,938,968	 	$	9,673,435	 	$	944,565	 	$	8,728,870	 
	 	 Manufacturing equipment and Biological assets
	 	 	32,252,536	 	 	2,467,742	 	 	29,784,794	 	 	7,951,867	 	 	730,566	 	 	7,221,301	 
	 	 Buildings
	 	 	33,282,269	 	 	983,923	 	 	32,298,345	 	 	2,809,244	 	 	112,508	 	 	2,696,736	 
	 	 Leasehold land use rights and Construction in progress
	 	 	12,416,556	 	 	27,616	 	 	12,388,940	 	 	64,238,039	 	 	—	 	 	64,238,039	 
	 	 Computer equipment and software
	 	 	758,822	 	 	68,056	 	 	690,767	 	 	377,080	 	 	15,556	 	 	361,524	 
	 	 Motor vehicles and Furniture and fixture
	 	 	285,459	 	 	46,788	 	 	238,670	 	 	142,843	 	 	23,270	 	 	119,573	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	$	94,392,088	 	$	5,051,605	 	$	89,340,484	 	$	85,192,508	 	$	1,826,465	 	$	83,366,043	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

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 charged to cost of sales for the three months and nine months ended September 30, 2009 were $942,139 and $1,946,308 (three months ended September 30,
2008 — $585,889, nine months ended September 30, 2008 — $733,575). 

$82,108
of interest was capitalized to property, plant and equipment during the three months and nine months periods ended September 30, 2009 (three months ended September 30,
2008 — nil, nine months ended September 30, 2008 — $169,912). Testing and preparation charges incurred in the two new
leaf processing facilities totaling $674,007 has been capitalized during the nine month period ended September 30, 2009 (three months and nine months ended
September 30, 2008 — nil). 

 8.     RESTRICTED CASH  

As
at September 30, 2009, the Company has $10,000 (December 31, 2008 — $100,710) in restricted cash invested in a guaranteed investment certificate,
that is required as collateral for the Company's credit cards issued to several employees. 

F-52

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 9.     INTANGIBLE ASSETS  

																					
	 	 
	 	September 30, 2009 	 	December 31, 2008 	 
	 	 
	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

Value 	 
	 	 Customer relationship
	 	$	15,416,254	 	$	581,165	 	$	14,835,089	 	$	15,416,254	 	$	208,230	 	$	15,208,024	 
	 	 Patents and acquired technologies
	 	 	16,243,752	 	 	1,273,669	 	 	14,970,083	 	 	16,243,752	 	 	658,462	 	 	15,585,290	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	$	31,660,006	 	$	1,854,834	 	$	29,805,172	 	$	31,660,006	 	$	866,692	 	$	30,793,314	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

For
the three and nine months ended September 30, 2009, $203,417 and $372,932 amortization of intangible assets was recorded to cost of sales (three months ended September 30,
2008 — $90,970, nine months ended September 30, 2008 — $96,806) and $205,070 and $615,210 was recorded to general and
administrative expenses, respectively (three months ended September 30, 2008 — $160,938, nine months ended September 30,
2008 — $482,813). 

 10.   BANK LOANS  

The
short-term bank loans are made up of the following: 

														
	 	Loan amount in C$ 	 	Loan amount

in RMB 	 	Maturity

Date 	 	Interest rate

per annum 	 	Lender 
	 	$	5,809,000	 	 	37,000,000	 	 	November 20, 2009	 	 	6.66%	 	Dongtai Rural Credit Union
	 	 	7,850,000	 	 	50,000,000	 	 	December 25, 2009	 	 	5.31%	 	Construction Bank of China
	 	 	4,710,000	 	 	30,000,000	 	 	March 31, 2010	 	 	5.31%	 	Construction Bank of China
	 	 	3,140,000	 	 	20,000,000	 	 	April 29, 2010	 	 	5.31%	 	Construction Bank of China
	 	 	9,420,000	 	 	60,000,000	 	 	June 15, 2010	 	 	5.31%	 	Agricultural Bank of China
	 	 	4,710,000	 	 	30,000,000	 	 	June 24, 2010	 	 	4.86%	 	Construction Bank of China
	 	 	 	 	 	 	 	 	 	 	 	 
	 	$	35,639,000	 	 	227,000,000	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 

The
non current bank loan is made up of the following: 

													
	 	Loan amount in C$

 
	 	Loan amount

in RMB 	 	Maturity

Date 	 	Interest rate

per annum 	 	Lender 
	 	 $9,420,000
	 	 	60,000,000	 	 	June 29, 2011	 	 	5.40%	 	Agricultural Bank of China

The
Company's subsidiaries have been pledged as collateral for the loans. Two pieces of land of two subsidiaries were also used as collateral for the above facilities. 

Unused
amount available to borrow under existing loan facilities was $20,410,000 as at September 30, 2009. 

 11.   ADVANCES FROM CUSTOMERS AND INTEREST PAYABLE  

The
$3,296,271 (US$3,074,306) advance from customer was related to a supply and prepayment agreement entered into by the Company in 2008 whereby the Strategic Customer financed $24,492,000
(US$20,000,000) for the purchase of stevia leaves for 2009 orders to 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 by October 15, 2009. Interest at LIBOR + 6% is charged per annum. The prepayment is collateralized by a
general security agreement over all assets of the 

F-53

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 11.   ADVANCES FROM CUSTOMERS AND INTEREST PAYABLE (Continued) 

Company.
There is a covenant that at any time during the period 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 September 30, 2009 was $3,296,271 (US$3,074,306)
(December 31, 2008 — $24,492,000 or US$20,000,000) and interest accrued was $844 (US$786) (three months and nine months ended September 30,
2008 — $408,742 or US$385,642). 

Subsequent
to September 30, 2009, the Company extended the repayment terms from October 15, 2009 to November 15, 2009 at interest rate of LIBOR + 7%
per annum. 

 12.   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 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 95% of revenue for the nine month period ended September 30, 2009 (nine months ended
September 30, 2008 — 66%). 

The
Company also received an advance from the Strategic Customer in fiscal 2008 as described in note 11. 

 13.   SHARE CAPITAL  

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, 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
	 	 	1,976,082	 	 	7,513,004	 
	 	 Shares issued for AHTD intangible
	 	 	4,375,000	 	 	3,368,750	 
	 	 	 	 	 	 	 
	 	 Balance at December 31, 2008
	 	 	78,519,662	 	$	93,355,149	 
	 	 Options exercised
	 	 	963,333	 	 	581,178	 
	 	 Shares cancelled
	 	 	(4	)	 	—	 
	 	 Issuance of restricted shares
	 	 	1,135,400	 	 	244,022	 
	 	 Stock based compensation on previously issued restricted shares
	 	 	—	 	 	1,208,647	 
	 	 	 	 	 	 	 
	 	 Balance at September 30, 2009
	 	 	80,618,391	 	$	95,388,996	 
	 	 	 	 	 	 	 

F-54

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 13.   SHARE CAPITAL (Continued) 

b)    Warrants  

All
the Company's share purchase warrants expired before September 30, 2009. A summary of the changes since December 31, 2007 is presented below: 

									
	 	 
	 	Number of

Warrants 	 	Amount 	 
	 	 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	 
	 	 Warrants expired
	 	 	(18,897,335	)	 	(11,477,908	)
	 	 	 	 	 	 	 
	 	 Balance at September 30, 2009
	 	 	—	 	 	—	 
	 	 	 	 	 	 	 

 14.   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 from the date of grant. 

The
fair value of the options granted in 2008 and 2009 has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 

									
	 	 
	 	2009 	 	2008 	 
	 	 Risk-free interest rate
	 	 	3.00%	 	 	3.00%	 
	 	 Dividend yield
	 	 	0%	 	 	0%	 
	 	 Volatility
	 	 	76%	 	 	141%	 
	 	 Expected option life
	 	 	5 years	 	 	5 years	 
	 	 Expected forfeiture per year
	 	 	5%	 	 	5%	 

F-55

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 14.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 

The
following is a summary of option transactions: 

									
	 	 
	 	Number of Shares 	 	Weighted Average

Exercise Price

Per Share 	 
	 	 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	 
	 	 Options granted
	 	 	364,600	 	 	2.15	 
	 	 Options exercised
	 	 	(963,333	)	 	0.30	 
	 	 	 	 	 	 	 
	 	 Balance, September 30, 2009
	 	 	4,945,133	 	$	0.57	 
	 	 	 	 	 	 	 

The
following table summarizes information about stock options outstanding at September 30, 2009: 

																		
	 	Exercise Prices

 
	 	Number Outstanding

at September 30,

2009 	 	Weighted Average

Remaining Contractual

Life (Years) 	 	Weighted Average

Exercise Price 	 	Number Exercisable

at September 30,

2009 	 	Weighted Average

Exercise Price 	 
	 	 $0.30
	 	 	4,396,667	 	 	0.72	 	$	0.30	 	 	4,396,667	 	$	0.30	 
	 	   0.80
	 	 	5,000	 	 	4.16	 	 	0.80	 	 	—	 	 	—	 
	 	   2.15
	 	 	364,600	 	 	5.00	 	 	2.15	 	 	—	 	 	—	 
	 	   4.00
	 	 	178,866	 	 	3.62	 	 	4.00	 	 	50,782	 	 	4.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	4,945,133	 	 	1.15	 	$	0.41	 	 	4,447,449	 	$	0.34	 
	 	 	 	 	 	 	 	 	 	 	 	 	 

$100,795
and $272,032 have been recorded as stock-based compensation expense on the consolidated statement of operations for the three month and nine month periods ended September 30, 2009,
respectively (three months ended September 30, 2008 — $18,322, nine months ended September 30,
2008 — $27,483). 

 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. 

1,135,400 restricted
shares were issued in 2009 with a fair value of $2,441,110 (September 30, 2008 — 1,179,614 restricted shares with a fair
value of $2,386,664). 

F-56

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 14.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 

Of
the total 2,426,014 restricted shares outstanding, 45,436 non-performance based restricted shares vested in the nine months period ended September 30, 2009. The
unvested restricted shares are as follows: 

							
	Numbers of

restricted shares 	 	Vesting

period

(years) 	 	Performance

based 
	 	120,000	 	 	1.15	 	No
	 	1,125,178	 	 	1.62	 	Yes
	 	56,000	 	 	0.75	 	No
	 	1,079,400	 	 	2.75	 	Yes
	 	 	 	 	 
	 	2,380,578	 	 	2.09	 	 
	 	 	 	 	 

$648,694
and $1,452,669 have been recorded as stock-based compensation expense on the consolidated statements of operations for the three and nine month periods ended September 30, 2009,
respectively (three months ended September 30, 2008 — $42,961, nine months ended September 30, 2008 — $64,441)
based on achieving certain performance conditions. 

 15.   CHANGES IN NON-CASH WORKING CAPITAL  

															
	 	 
	 	Three months ended

September 30 	 	Nine months ended

September 30 	 
	 	 
	 	2009 	 	2008 	 	2009 	 	2008 	 
	 	 Accounts receivable
	 	$	(533,734	)	$	988,644	 	$	1,314,562	 	$	2,405,083	 
	 	 Interest receivable
	 	 	—	 	 	137,948	 	 	3,651	 	 	(46,357	)
	 	 Loan receivable
	 	 	—	 	 	—	 	 	—	 	 	—	 
	 	 Taxes recoverable
	 	 	(179,085	)	 	(123,471	)	 	(3,318,338	)	 	325,583	 
	 	 Inventory
	 	 	1,518,808	 	 	(12,496,192	)	 	1,964,270	 	 	(13,697,184	)
	 	 Prepaid expenses
	 	 	(9,903,718	)	 	359,839	 	 	(6,061,632	)	 	(570,833	)
	 	 Deferred charges
	 	 	3,173	 	 	—	 	 	14,660	 	 	—	 
	 	 Accounts payable and accruals
	 	 	2,780,099	 	 	799,144	 	 	3,618,239	 	 	854,923	 
	 	 Interest payable
	 	 	63,608	 	 	16,813	 	 	(982,644	)	 	29,435	 
	 	 Deferred revenue
	 	 	(665,000	)	 	2,649,750	 	 	(1,995,000	)	 	2,649,750	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	$	(6,915,849	)	$	(7,667,525	)	$	(5,442,232	)	$	(8,049,600	)
	 	 	 	 	 	 	 	 	 	 	 

 16.   SEGMENTED INFORMATION  

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. 

											
	 	September 30, 2009

 
	 	Canada 	 	China 	 	Total 	 
	 	 Property, Plant, and Equipment
	 	$	4,087	 	$89,336,397	 	$	89,340,484	 
	 	 Revenue
	 	 	23,870,879	 	4,748,569	 	 	28,619,448	 

											
	 	September 30, 2008

 
	 	Canada 	 	China 	 	Total 	 
	 	 Property, Plant, and Equipment
	 	$	956	 	$45,455,378	 	$	45,456,334	 
	 	 Revenue
	 	 	—	 	5,234,730	 	 	5,234,730	 

F-57

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 17.   RELATED PARTY TRANSACTIONS  

During
the period, 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 $157,773 and $528,356 were expensed for the three month
and nine month periods ended September 30, 2009, respectively (three months ended September 30, 2008 — $135,963, nine months ended
September 30, 2008 — $396,297), of which $309,738 remained as an accounts payable as at September 30, 2009 (December 31,
2008 — $75,000).

	b)
	Pursuant
to a management services agreement, the Company recorded management expenses of $89,822 and $272,601 for the three month and nine month periods
ended September 30, 2009, respectively (three months ended September 30, 2008 — $89,309, nine months ended September 30,
2008 — $280,117) to a company controlled by senior executives for management services provided to the Company, of which $272,601 remained as an accounts payable
as at September 30, 2009 (December 31, 2008 — Nil)

	c)
	During
the period, the Company obtained the following unsecured short term loans from related parties: 

													
	 	Loan amount in C$

 
	 	Loan amount

in US$ 	 	Maturity

Date 	 	Interest rate

per annum 	 	Related

Party 
	 	$	214,440	 	$	200,000	 	 	January 14, 2010	 	8%	 	a director
	 	 	2,144,400	 	 	2,000,000	 	 	June 28, 2010	 	HSBC Bank Canada

US Dollar prime rate + 3%	 	a director and officer
	 	 	1,715,520	 	 	1,600,000	 	 	July 13, 2010	 	HSBC Bank Canada

US Dollar prime rate + 3%	 	a director and officer
	 	 	2,680,500	 	 	2,500,000	 	 	August 25, 2010	 	HSBC Bank Canada

US Dollar prime rate + 3%	 	a director and officer
	 	 	 	 	 	 	 	 	 	 	 
	 	$	6,754,860	 	$	6,300,000	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 

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

 18.   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 $157,000 (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 $124,030 (RMB 790,000) is paid every 10 years.

	c)
	The
Company entered into an office lease with one year term commencing on May 1, 2009. Commitments for 2009 and 2010 on the new lease are $19,743 and
$26,324, respectively. 

F-58

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 18.   COMMITMENTS (Continued) 

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

						
	 	 2009
	 	$	98,243	 
	 	 2010
	 	 	183,324	 
	 	 2011
	 	 	157,000	 
	 	 2012
	 	 	—	 
	 	 2013
	 	 	—	 
	 	 Thereafter
	 	 	248,060	 
	 	 	 	 	 
	 	 Total
	 	$	686,627	 
	 	 	 	 	 

	d)
	The
Company is committed to deliver US$ 25,200,000 of stevia extract which the US$ 20,000,000 advance from a Strategic Customer
(Note 11) will be applied against. The delivery period was contracted over the period from October 1, 2008 and extended to November 30, 2009 from September 30, 2009

	e)
	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
September 30, 2009, the Company has not made any investment in the region.

	f)
	In
May 2009, the Company signed an investment agreement with the Qingdao Export Process Zone to build a Stevia processing facility. The investment
agreement calls for the Company to invest US$30 million in registered capital within two years. This timetable for investment can be extended by an additional year if the Company makes the
request to the Government. The first phase of its facility construction is targeted to deliver a 1,000 metric ton rebiana facility by the end of 2009. As at September 30, 2009, the
Company has invested approximately US$ 13 million and has entered into US 6 million of construction commitments associated with the construction of the facility. 

 19.   SUBSEQUENT EVENT  

On
October 9, 2009, the Company obtained a non secured short term loan of $536,100 (US$500,000) from an unrelated party maturing on October 7, 2010 at interest rate of 8%
per annum. 

On
October 21, 2009, the State Tax Bureau of Anhui Province in China informed the Company that its 100% owned subsidiary — Chuzhou Runhai Stevia High Tech
Company Limited — "Runhai" would receive an enterprise tax exemption on revenues generated for its RA 60 product by that subsidiary.
RA 60 products are recognized as primary outputs of Agricultural Products by the Ministry of Finance and State Administration of Taxation which are subject to preferential policies on
Enterprise Income tax. As RA 60 is the only product produced by Runhai, this exemption is expected to result in zero enterprise tax payable by Runhai. Runhai is currently subject to a
25% corporate tax rate. 

F-59

 

 

GLG LIFE TECH CORPORATION  

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)  

 20.   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 interest costs for routine inventories produced in large quantities on a repetitive basis for the nine months periods ended
September 30, 2009 and 2008. The Company also expensed such capitalized interest as costs of sales in the nine months period ended September 30, 2009. 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, and accordingly not allowed to
be recorded as costs of sales. As at September 30, 2009, these adjustments resulted a decrease in inventory of $220,634 (December 31,
2008 — $523,272), a decrease in cost of sales for the nine months ended September 30, 2009 of $905,086 (September 30,
2008 — nil) and an increase in interest expense for the nine months ended September 30, 2009 of $602,449 (September 30,
2008 — $353,159).

	(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. The difference in allocation among convertible loans, detachable warrants, and the
convertible loan's equity component between U.S. GAAP and Canadian GAAP resulted in an increase in warrants of $243,183, contributed surplus of $1,186,147 and a decrease in share capital
of $596,716.

	(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,
resulting a net increase of $3,929,979 in plant and equipment as at September 30, 2009 (December 31, 2008 — $3,654,274) and a decrease in interest
expense for the nine months ended September 30, 2009 of $424,565 (September 30, 2008 — $1,686,795).

	(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-60

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 20.   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  

																					
	 	 
	 	September 30, 2009 	 	December 31, 2008 	 
	 	 
	 	U.S.

GAAP 	 	Recon.

Items 	 	Canadian

GAAP 	 	U.S.

GAAP 	 	Recon.

Items 	 	Canadian

GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 CURRENT ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Cash and cash equivalents
	 	$	8,894,543	 	 	 	 	$	8,894,543	 	$	7,362,671	 	 	 	 	$	7,362,671	 
	 	 Investment
	 	 	—	 	 	 	 	 	—	 	 	365,785	 	 	 	 	 	365,785	 
	 	 Accounts receivable
	 	 	1,134,338	 	 	 	 	 	1,134,338	 	 	2,714,114	 	 	 	 	 	2,714,114	 
	 	 Interest receivable
	 	 	—	 	 	 	 	 	—	 	 	3,651	 	 	 	 	 	3,651	 
	 	 Taxes recoverable
	 	 	4,360,011	 	 	 	 	 	4,360,011	 	 	1,504,000	 	 	 	 	 	1,504,000	 
	 	 Inventories (a)
	 	 	28,550,564	 	 	(220,634	)	 	28,771,198	 	 	32,534,418	 	 	(523,272	)	 	33,057,690	 
	 	 Prepaid and deposits
	 	 	12,054,909	 	 	 	 	 	12,054,909	 	 	7,380,086	 	 	 	 	 	7,380,086	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	54,994,365	 	 	(220,634	)	 	55,214,999	 	 	51,864,725	 	 	(523,272	)	 	52,387,997	 
	 	 PLANT AND EQUIPMENT (d)
	 	 	93,270,463	 	 	3,929,979	 	 	89,340,484	 	 	87,020,317	 	 	3,654,274	 	 	83,366,043	 
	 	 GOODWILL
	 	 	7,587,798	 	 	 	 	 	7,587,798	 	 	7,587,798	 	 	 	 	 	7,587,798	 
	 	 RESTRICTED CASH
	 	 	10,000	 	 	 	 	 	10,000	 	 	100,710	 	 	 	 	 	100,710	 
	 	 DEFERRED CHARGES
	 	 	96,123	 	 	 	 	 	96,123	 	 	125,261	 	 	 	 	 	125,261	 
	 	 INTANGIBLE ASSETS
	 	 	29,805,172	 	 	 	 	 	29,805,172	 	 	30,793,314	 	 	 	 	 	30,793,314	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL ASSETS
	 	 $	185,763,921	 	 $	3,709,345	 	 $	182,054,576	 	 $	177,492,125	 	 $	3,131,002	 	 $	174,361,123	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 CURRENT LIABILITIES
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Short term bank loans
	 	 	35,639,000	 	 	 	 	 	35,639,000	 	 	10,231,500	 	 	 	 	 	10,231,500	 
	 	 Accounts payable
	 	 	17,839,630	 	 	 	 	 	17,839,630	 	 	17,167,567	 	 	 	 	 	17,167,567	 
	 	 Due to related parties
	 	 	6,754,860	 	 	 	 	 	6,754,860	 	 	—	 	 	 	 	 	—	 
	 	 Interest payable
	 	 	81,085	 	 	 	 	 	81,085	 	 	1,063,729	 	 	 	 	 	1,063,729	 
	 	 Advances to a customer
	 	 	3,296,271	 	 	 	 	 	3,296,271	 	 	24,492,000	 	 	 	 	 	24,492,000	 
	 	 Deferred revenue
	 	 	—	 	 	 	 	 	—	 	 	1,995,000	 	 	 	 	 	1,995,000	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	63,610,846	 	 	 	 	 	63,610,846	 	 	54,949,796	 	 	 	 	 	54,949,796	 
	 	 Non current bank loan
	 	 	9,420,000	 	 	 	 	 	9,420,000	 	 	—	 	 	 	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	73,030,846	 	 	 	 	 	73,030,846	 	 	54,949,796	 	 	 	 	 	54,949,796	 
	 	 FUTURE INCOME TAXES
	 	 	2,343,024	 	 	 	 	 	2,343,024	 	 	2,414,642	 	 	 	 	 	2,414,642	 
	 	 NONCONTROLLING INTERESTS (e)
	 	 	—	 	 	(47,376	)	 	47,376	 	 	—	 	 	(167,211	)	 	167,211	 
	 	 SHAREHOLDER'S EQUITY
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Share capital (b)
	 	 	94,792,280	 	 	(596,716	)	 	95,388,996	 	 	92,758,433	 	 	(596,716	)	 	93,355,149	 
	 	 Warrants (b)
	 	 	—	 	 	 	 	 	—	 	 	11,721,091	 	 	243,183	 	 	11,477,908	 
	 	 Contributed surplus (b)
	 	 	16,234,715	 	 	1,429,330	 	 	14,805,385	 	 	4,533,770	 	 	1,186,147	 	 	3,347,623	 
	 	 Accumulated other comprehensive income
	 	 	8,216,236	 	 	 	 	 	8,216,236	 	 	20,696,008	 	 	 	 	 	20,696,008	 
	 	 Deficit
	 	 	(8,900,556	)	 	2,876,731	 	 	(11,777,287	)	 	(9,748,826	)	 	2,298,388	 	 	(12,047,214	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	110,342,675	 	 	3,709,345	 	 	106,633,330	 	 	119,960,476	 	 	3,131,002	 	 	116,829,474	 
	 	 NONCONTROLLING INTERESTS (e)
	 	 	47,376	 	 	47,376	 	 	—	 	 	167,211	 	 	167,211	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL SHAREHOLDER'S EQUITY
	 	 	110,390,051	 	 	3,756,721	 	 	106,633,330	 	 	120,127,687	 	 	3,298,213	 	 	116,829,474	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 TOTAL LIABILITIES AND
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 SHAREHOLDERS EQUITY
	 	 $	185,763,921	 	 $	3,709,345	 	 $	182,054,576	 	 $	177,492,125	 	 $	3,131,002	 	 $	174,361,123	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

F-61

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

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

 Consolidated Statements of Income and Deficit  

																						
	 	 
	 	Nine months ended 	 
	 	 
	 	September 30, 2009 	 	September 30, 2008 	 
	 	 
	 	U.S.

GAAP 	 	Recon.

Items 	 	Canadian

GAAP 	 	U.S.

GAAP 	 	Recon.

Items 	 	Canadian

GAAP 	 
	 	 REVENUE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Sales
	 	$	28,619,448	 	 	 	 	$	28,619,448	 	$	5,234,730	 	 	 	 	$	5,234,730	 
	 	 Cost of Sales (a)
	 	 	20,558,074	 	 	(905,086	)	 	21,463,160	 	 	3,842,766	 	 	 	 	 	3,842,766	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 GROSS MARGIN
	 	 	8,061,374	 	 	905,086	 	 	7,156,288	 	 	1,391,964	 	 	 	 	 	1,391,964	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 GENERAL AND ADMINISTRATIVE EXPENSES (d)
	 	 	8,319,987	 	 	148,860	 	 	8,171,127	 	 	3,828,020	 	 	 	 	 	3,828,020	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS) BEFORE THE UNDERNOTED
	 	 	(258,612	)	 	756,227	 	 	(1,014,839	)	 	(2,436,056	)	 	 	 	 	(2,436,056	)
	 	 OTHER INCOME (EXPENSES)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Donations
	 	 	—	 	 	 	 	 	—	 	 	(22,749	)	 	 	 	 	(22,749	)
	 	 Interest expense
	 	 	(2,160,350	)	 	(177,884	)	 	(1,982,466	)	 	—	 	 	1,686,795	 	 	(1,686,795	)
	 	 Interest income
	 	 	77,280	 	 	 	 	 	77,280	 	 	636,705	 	 	 	 	 	636,705	 
	 	 Foreign exchange gain
	 	 	3,219,210	 	 	 	 	 	3,219,210	 	 	1,940	 	 	 	 	 	1,940	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS) BEFORE INCOME TAXES
	 	 	877,528	 	 	578,343	 	 	299,185	 	 	(1,820,160	)	 	1,686,795	 	 	(3,506,955	)
	 	 Income taxes expense
	 	 	(151,403	)	 	 	 	 	(151,403	)	 	—	 	 	 	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST
	 	 	726,125	 	 	578,343	 	 	147,782	 	 	(1,820,160	)	 	1,686,795	 	 	(3,506,955	)
	 	 NON-CONTROLLING INTERESTS (e)
	 	 	—	 	 	(122,145	)	 	122,145	 	 	—	 	 	(15,452	)	 	15,452	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS)
	 	$	726,125	 	$	456,198	 	$	269,927	 	$	(1,820,160	)	$	1,671,343	 	$	(3,491,503	)
	 	 Net loss attributable to non-controlling

interest (e)
	 	$	(122,145	)	$	(122,145	)	 	 	 	$	(15,452	)	$	(15,452	)	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 NET INCOME (LOSS) ATTRIBUTABLE TO GLG LIFE TECH CORPORATION
	 	$	848,270	 	$	578,343	 	$	269,927	 	$	(1,804,708	)	$	1,686,795	 	$	(3,491,503	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 INCOME (LOSS) PER SHARE — Basic
	 	 	0.01	 	 	 	 	 	0.00	 	 	(0.03	)	 	 	 	 	(0.05	)
	 	 INCOME (LOSS) PER SHARE — Diluted
	 	 	0.01	 	 	 	 	 	0.00	 	 	(0.03	)	 	 	 	 	(0.05	)
	 	 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	  — BASIC
	 	 	79,234,614	 	 	 	 	 	79,234,614	 	 	70,418,638	 	 	 	 	 	70,418,638	 
	 	 	  — DILUTED
	 	 	97,335,605	 	 	 	 	 	97,335,605	 	 	70,418,638	 	 	 	 	 	70,418,638	 

F-62

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

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

 Consolidated Statements of Cash Flow  

										
	 	 
	 	For the nine months ended September 30 	 
	 	 
	 	2009

U.S. GAAP 	 	2008

U.S. GAAP 	 
	 	 
	 	(In Canadian Dollars)
	 
	 	 Cash provided by (used in)
	 	 	 	 	 	 	 
	 	 Operating activities
	 	 	 	 	 	 	 
	 	 Net income (loss)
	 	$	726,125	 	$	(1,820,160	)
	 	 Items not affecting cash:
	 	 	 	 	 	 	 
	 	 	 Amortization of convertible debt discount
	 	 	—	 	 	(816,259	)
	 	 	 Stock-based compensation
	 	 	1,724,701	 	 	91,924	 
	 	 	 Amortization of property, plant and equipment & intangibles
	 	 	4,362,142	 	 	1,397,624	 
	 	 	 Foreign exchange loss
	 	 	(3,219,210	)	 	—	 
	 	 	 Future income tax recovery
	 	 	(184,856	)	 	—	 
	 	 	 	 	 	 	 
	 	 Changes in non-cash working capital
	 	 	(5,221,598	)	 	(8,049,600	)
	 	 	 	 	 	 	 
	 	 Cash flow used by operating activities
	 	 	(1,812,696	)	 	(9,196,471	)
	 	 	 	 	 	 	 
	 	 Investing activities
	 	 	 	 	 	 	 
	 	 Decrease in short term investment
	 	 	349,075	 	 	—	 
	 	 Increase in loan receivable
	 	 	—	 	 	(117,999	)
	 	 Decrease in restricted cash
	 	 	90,710	 	 	—	 
	 	 Purchase of property, plant and equipment
	 	 	(23,190,463	)	 	(32,163,549	)
	 	 	 	 	 	 	 
	 	 Cash flow used by investing activities
	 	 	(22,750,678	)	 	(32,281,548	)
	 	 	 	 	 	 	 
	 	 Financing activities
	 	 	 	 	 	 	 
	 	 Increase in short term loan
	 	 	38,541,000	 	 	—	 
	 	 Issuance of common shares
	 	 	288,999	 	 	17,865,873	 
	 	 Repaid advance from a customer
	 	 	(18,862,472	)	 	—	 
	 	 Increase in advance from a customer
	 	 	—	 	 	17,664,951	 
	 	 Advances from (to) related parties
	 	 	7,106,014	 	 	(410,078	)
	 	 	 	 	 	 	 
	 	 Cash flow from financing activities
	 	 	27,073,541	 	 	35,120,746	 
	 	 	 	 	 	 	 
	 	 Effect of foreign exchange rate changes on cash and cash equivalents
	 	 	(978,295	)	 	8,393,816	 
	 	 	 	 	 	 	 
	 	 CHANGE IN CASH AND CASH EQUIVALENTS
	 	 	1,531,872	 	 	2,036,544	 
	 	 CASH AND CASH EQUIVALENTS, beginning of period
	 	 	

7,362,671	 	 	

28,253,580	 
	 	 	 	 	 	 	 
	 	 CASH AND CASH EQUIVALENTS, end of period
	 	$	8,894,543	 	$	30,290,124	 
	 	 	 	 	 	 	 

F-63

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 20.   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, 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	 
	 	 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	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Warrants expired
	 	 	 	 	 	 	 	 	(11,721,091	)	 	11,721,091	 	 	 	 	 	 	 	 	 	 	 	—	 
	 	 Options exercised
	 	 	963,333	 	 	581,178	 	 	 	 	 	(292,179	)	 	 	 	 	 	 	 	 	 	 	288,999	 
	 	 Stock-based compensation
	 	 	1,135,400	 	 	1,452,669	 	 	 	 	 	272,033	 	 	 	 	 	 	 	 	 	 	 	1,724,702	 
	 	 Shares cancelled
	 	 	(4	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 
	 	 Change in foreign currency translation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(12,479,772	)	 	 	 	 	2,310	 	 	(12,477,462	)
	 	 Net (loss) income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	848,270	 	 	(122,145	)	 	726,125	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Balance, September 30, 2009
	 	 	80,618,391	 	$	94,792,280	 	 	—	 	$	16,234,715	 	$	8,216,236	 	$	(8,900,556	)	$	47,376	 	$	110,390,051	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

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

 Statement of Comprehensive Income  

									
	 	 
	 	Nine months period ended September 30, 	 
	 	 
	 	2009 	 	2008 	 
	 	 
	 	(in Canadian Dollars)
	 
	 	 Net income (loss) under U.S. GAAP
	 	$	726,125	 	$	(1,820,160	)
	 	 	 	 	 	 	 
	 	 Foreign currency translation adjustments
	 	 	(12,479,772	)	 	7,887,750	 
	 	 	 	 	 	 	 
	 	 Other comprehensive income
	 	 	(12,479,772	)	 	7,887,750	 
	 	 	 	 	 	 	 
	 	 Comprehensive (loss) earnings
	 	 	(11,753,647	)	 	6,067,590	 
	 	 Comprehensive loss attributable to non-controlling interest
	 	 	(122,145	)	 	(15,452	)
	 	 	 	 	 	 	 
	 	 Comprehensive earnings for the period attributable to GLG Life Tech Corp.
	 	$	(11,631,502	)	$	6,083,042	 
	 	 	 	 	 	 	 

The
calculation of basic earnings per share for the nine months period ended September 30, 2009 is based on the weighted average number of shares outstanding. Diluted earnings per share reflect
the dilutive effect of the exercise of options, warrants and reserved for issuance related to the AHTD acquisition. For the nine months period ended September 30, 2008, 5,538,866 share
options, 8,750,000 shares reserved for issuance related to the AHTD acquisition, and 20,641,764 warrants were excluded from the calculation of diluted net 

F-64

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

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

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 September 30, 2009 is
calculated as follows: 

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. The number
of shares for the diluted earnings per share was calculated as follows: 

										
	 	 
	 	September 30, 2009 	 	September 30, 2008 	 
	 	 Net income (loss) for the period attributable to GLG Life Tech Corporation
	 	$	848,270	 	$	(1,804,708	)
	 	 	 	 	 	 	 
	 	 Weighted average number of shares used in basic earnings per share
	 	 	79,234,614	 	 	70,418,638	 
	 	 Dilutive potential of the following:
	 	 	 	 	 	 	 
	 	 	 Employee/director share options
	 	 	5,161,036	 	 	—	 
	 	 	 Reserve for AHTD
	 	 	4,375,000	 	 	 	 
	 	 	 Warrants issued to private placement and customer
	 	 	8,564,955	 	 	—	 
	 	 	 	 	 	 	 
	 	 Diluted weighted average number of shares outstanding
	 	 	97,335,605	 	 	70,418,638	 
	 	 	 	 	 	 	 
	 	 Earnings per share:
	 	 	 	 	 	 	 
	 	 	 Basic
	 	$	0.01	 	$	(0.03	)
	 	 	 Diluted
	 	$	0.01	 	$	(0.03	)

 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. 

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. 

F-65

 

GLG LIFE TECH CORPORATION 

 NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

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

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-66

QuickLinks

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

GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Periods Ended September 30, 2009 and 2008 (In Canadian Dollars) (Unaudited)

GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW For the Periods Ended September 30, 2009 (In Canadian Dollars) (Unaudited)

GLG LIFE TECH CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Period Ended September 30, 2009 (In Canadian Dollars) (Unaudited)

GLG LIFE TECH CORPORATION NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSExhibit 4.6

 

	
  GLG Life Tech Corporation Management’s Discussion & Analysis

  	
   

  
	
   

  	
   

  
	
  September 30  2009

  	
   

  
	
   

  	
   

  
	
  [Dated: October 30, 2009]

  	
   

  	
   

  
			

 

 

	
  Contents

  	
   

  
	
   

  	
   

  
	
  Management’s Discussion and
  Analysis

  	
  4

  
	
   

  	
   

  
	
  Forward-Looking Statements

  	
  5

  
	
   

  	
   

  
	
  Overview

  	
  6

  
	
   

  	
   

  
	
  2009
  Corporate Developments for the nine months ended September 30, 2009

  	
  7

  
	
   

  	
   

  
	
  Results

  	
  12

  
	
   

  	
   

  
	
  Results from Operations

  	
  13

  
	
   

  	
   

  
	
  Revenue

  	
  13

  
	
   

  	
   

  
	
  Cost of
  Sales

  	
  14

  
	
   

  	
   

  
	
  Gross Profit

  	
  16

  
	
   

  	
   

  
	
  General and Administration
  Expenses

  	
  16

  
	
   

  	
   

  
	
  Other Income (expenses)

  	
  18

  
	
   

  	
   

  
	
  Foreign
  Exchange gains (losses)

  	
  18

  
	
   

  	
   

  
	
  Net Income
  (loss)

  	
  20

  
	
   

  	
   

  
	
  Comprehensive Income

  	
  20

  
	
   

  	
   

  
	
  NON-GAAP Financial Measures

  	
  21

  
	
   

  	
   

  
	
  Earnings
  Before Interest Taxes and Depreciation (“EBITDA”)

  	
  21

  
	
   

  	
   

  
	
  Summary Quarterly Results

  	
  22

  
	
   

  	
   

  
	
  Quarterly
  Net Income (Loss)

  	
  22

  
	
   

  	
   

  
	
  Quarterly Basic
  and Diluted Earnings (loss) per Share

  	
  23

  
	
   

  	
   

  
	
  Capital Expenditures

  	
  24

  
	
   

  	
   

  
	
  Liquidity and capital resources

  	
  25

  
	
   

  	
   

  
	
  Financial
  Resources

  	
  27

  
	
   

  	
   

  
	
  Balance Sheet

  	
  28

  
	
   

  	
   

  
	
  Advances
  from customers and Interest Payable

  	
  28

  
	
   

  	
   

  
	
  China Lines
  of Credit and Short Term Loans

  	
  28

  
	
   

  	
   

  
	
  Contractual obligations

  	
  29

  
	
   

  	
   

  
	
  Capital Structure

  	
  31

  
	
   

  	
   

  
	
  Off-Balance Sheet Arrangements

  	
  31

  
	
   

  	
   

  
	
  Transactions with Related
  Parties

  	
  31

  

 

2

 

	
  2009 Outlook

  	
  33

  
	
   

  	
   

  
	
  Market and
  Operations 2009 Outlook

  	
  33

  
	
   

  	
   

  
	
  Revenue 2009
  Outlook

  	
  33

  
	
   

  	
   

  
	
  EBITDA 2009
  Outlook

  	
  34

  
	
   

  	
   

  
	
  Capital
  Expenditures - 2009 Outlook

  	
  34

  
	
   

  	
   

  
	
  Critical Accounting Estimates
  and Assumptions

  	
  35

  
	
   

  	
   

  
	
  CHANGES IN ACCOUNTING POLICIES

  	
  37

  
	
   

  	
   

  
	
  FINANCIAL AND OTHER INSTRUMENTS

  	
  37

  
	
   

  	
   

  
	
  RECENT ACCOUNTING PRONOUNCEMENTS

  	
  38

  
	
   

  	
   

  
	
  International Financial
  Reporting Standards (“IFRS”)

  	
  38

  
	
   

  	
   

  
	
  Disclosure Controls and Internal
  Controls over Financial Reporting

  	
  39

  
	
   

  	
   

  
	
  Risks Related to the Company’s
  Business

  	
  41

  
	
   

  	
   

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

  	
  41

  
	
   

  	
   

  
	
  Additional
  Information

  	
  42

  

 

3

 

Management’s
Discussion and Analysis

 

This Management’s Discussion and Analysis (“MD&A”)
of GLG Life Tech Corporation is dated as of October 30, 2009, which is the
date of filing of this document.  It
provides a review of the three and nine months ended September 30, 2009
relative to the comparable periods of 2008. 
The three month period represents the third quarter of the Company’s
2009 fiscal year.

 

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

 

The preparation of the consolidated interim
financial statements in conformity with Canadian GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
consolidated interim financial statements and the reported amounts of revenue
and expenses during the reporting period. GLG bases its estimates on historical
experience, current trends and various other assumptions that are believed to be
reasonable under the circumstances. Actual results could differ from those
estimates.  Historical results of
operations and trends that may be inferred from the following discussions and
analysis may not necessarily indicate future results from operations.

 

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

 

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

 

4

 

Forward-Looking
Statements

 

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

 

5

 

Overview

 

GLG Life Tech Corporation (“GLG” or the “Company”)
is a leading producer of high quality stevia extract.  Stevia extracts, such as Rebaudioside A (or
Reb A), are used as all natural, zero-calorie sweeteners in food and beverages.
The Company’s revenue is derived primarily through the sale of high-grade
stevia extract to the food and beverage industry. The Company conducts its
stevia development, refining, processing and manufacturing operations through
its five wholly-owned subsidiaries in China. 
The Company’s operations in China include three processing factories (a
fourth factory is under construction), stevia growing areas across eight
provinces, four research and development centers engaged in the development of
high-yielding stevia seedlings and over 400 greenhouses.  The Company’s processing facilities have a
combined annual throughput of 41,000 metric tons of stevia leaf.

 

The Company believes that significant
developments in recent years will contribute to the growth of the global market
for stevia extracts. On December 17, 2008, the United States Food and Drug
Administration (“FDA”) confirmed that it had no objection to generally
recognized as safe (“GRAS”) status for rebiana, a product comprised of stevia
extracts and sold by our largest customer, Cargill, Incorporated (“Cargill”).  Cargill is an international provider of food
and agricultural products and services, with 158,000 employees in 66
countries.  Cargill uses GLG’s high-grade
stevia extract to produce its natural, zero-calorie, rebiana-based sweetener
brand called TRUVIATM, which launched in July 2008.  Since the FDA issued its no objection letter
in December 2008, some of the largest global food and beverage companies
have launched a number of new products containing stevia.  For example, the Coca Cola Company’s Sprite®, Odwalla® and Vitaminwater brands have
all introduced natural, zero calorie brand extensions containing TRUVIATM
supplied by Cargill.

 

Under the Company’s Strategic Alliance
Agreement with Cargill, the Company provides at least 80% of Cargill’s global
stevia extract requirements for the first five years of the agreement, which
commenced on October 1, 2008.  The
Strategic Alliance Agreement also provides that the Company is Cargill’s
exclusive supplier of stevia from China. As of the date hereof, the Company has
received purchase orders from Cargill of U.S.$65.7 million in the aggregate
under the Strategic Alliance Agreement.

 

Factors Affecting the
Company’s Results of Operations

 

The Company’s operating results are primarily
affected by the following factors:

 

·      Relationship With Primary Customer.  The Company derives a
majority of its revenue from Cargill, its largest customer.  The Company currently has a Strategic
Alliance Agreement with Cargill pursuant to which it will provide at least 80%
of Cargill’s global stevia extract requirements for the five year period
beginning October 1, 2008.  For the
year ended December 31, 2008 and for the nine months ended September 30,
2009, this customer accounted for 77% and 95%, respectively, of the Company’s
revenue.  The Company’s ability to
maintain and enhance its relationship with this important customer, while
developing and enhancing its

 

6

 

relationships with other customers, is a
significant factor affecting the Company’s results of operations.

 

·      Consumer Demand.  The Company believes that consumer demand for
food and beverage products and tabletop sweeteners produced with stevia
extracts will continue to expand.  The
Company believes rebiana, which is extracted from stevia leaf, is positioned to
become a leading high-intensity sweetener because it has zero calories, is 100%
natural, is 200-300 times sweeter than sugar and does not have the perception
of potential health risks that may be associated with artificial sweeteners.
Additionally, the Company believes that consumer acceptance of stevia will
increase in connection with regulatory approval in the U.S. and elsewhere. The
Company’s results of operations will be affected by consumer acceptance of, and
demand for, rebiana-sweetened products and the Company’s ability to increase
its production capacity in order to meet any increased demand.

 

·      Price of Stevia Extract.  The Company believes that
it will be able to maintain a low cost of production of high-grade stevia
extract through process innovation and vertical integration (from seedling
development to high-grade stevia extract production).  By maintaining a low cost of production, the
Company believes it will be able to reduce the price it charges for high-grade
stevia extract, thereby strengthening the competitive position of high-grade
stevia extract relative to other high-intensity sweeteners and sugar.

 

·      Raw Material Supply and Prices; Cost of Sales.  The
price that the Company must pay for stevia leaf and the quality of such stevia
leaf affects the Company’s results of operations.  The cost and quality of stevia leaf available
is driven primarily by the rebaudioside A content contained in stevia leaf and
the quality of the stevia harvested during a particular growing period. The key
factors driving the Company’s cost of sales include the cost of stevia leaf
(which accounted for 71% of cost of sales for the year ended December 31,
2008), stevia leaf quality, salaries and wages of the Company’s manufacturing
labor, manufacturing overhead such as supplies, power and water used in the
production of the Company’s high-grade stevia extract, and depreciation of the
Company’s high-grade stevia extract processing plants.

 

Unfavorable changes in any of these general
conditions could negatively affect the Company’s ability to grow, source,
produce, process and sell stevia and otherwise materially and adversely affect
the Company’s results of operations.

 

2009
Corporate Developments for the nine months ended September 30, 2009

 

New Stevia Leaf Processing Facilities
announced in January 2009

 

On January 6, 2009, the Company
announced that it had commenced initial operations at its two new stevia
processing facilities in the cities of Mingguang (Anhui Province) and Dongtai
(Jiangsu Province),

 

7

 

China where the Company’s major stevia leaf
growing areas are located.  The
facilities each have a capacity of 18,000 MT of throughput per year and
increase the Company’s total raw leaf processing capacity from an existing
5,000 MT to 41,000 metric tons, an increase of 720%.  The Company’s capital expenditure on these
new facilities was      in 2008 and
     for the nine months ended September 30, 2009.

 

Production at these two new facilities ramped
up over the first quarter as they completed extensive food safety audits, which
were all completed by mid-March 2009. 
Subsequent to completion of the food safety audits, the processing of
intermediate grade stevia extract (RA 60) has progressed and the performance of
the new facilities and new technologies have exceeded management’s expectations
with respect the decreased cycle time to produce stevia extract and the
reduction in water required during the processing of stevia extract.  Extract production is now benefiting
significantly from the new stevia leaf processing facilities.

 

The addition of increased high grade stevia
capacity will allow the new leaf processing facilities to run at higher
capacity.  The first phase of the new
high grade stevia capacity is expected to be complete by year-end 2009 which is
expected to facilitate increased throughput of high grade stevia extract and
rebiana products.

 

GLG Direct Sales Team

 

Through the Company’s recently-established
U.S. subsidiary, GLG Life Tech U.S., Inc, the Company employs sales
professionals to manage and develop relationships with large customers and
potential customers in the food and beverage industry.  On October 14, 2009, the Company
announced the hiring of three new vice presidents to head up these
efforts.  These individuals bring in
excess of 60 years’ combined experience in the food and beverage industry,
involving experience with multinational food, beverage and sweetener companies
including the Dr. Pepper Snapple Group, PepsiCo, Monsanto, NutraSweet,
Kraft and Proctor & Gamble.

 

During the last two years, GLG’s
production capacity has been utilized primarily for delivering high quality
stevia products to its strategic partner, Cargill. With the addition of 1,000 metric tons of RA97 capacity expected in December 2009,  GLG is
currently in discussions with a number of large multinational companies for the
sale of its high grade stevia products, including rebiana.  The Company’s new sales and marketing
executives will focus on developing business with those companies.

 

The GLG-Weider Program (“Sweet Naturals”)

 

The Company has established a joint venture
for the sale, marketing and distribution of stevia products with Weider Global
Nutrition (“WGN”) called GLG-Weider Sweet Naturals Corporation (“Sweet Naturals”).  Sweet Naturals was established in September 2008
with the intention of focusing on the sale of consumer tabletop and dietary
supplement products.  The Company owns a
controlling interest

 

8

 

of 55% of the venture and Weider Global
Nutrition owns the remaining 45%. Dr. Luke Zhang, the Company’s Chairman,
is also the Chairman of Sweet Naturals.

 

Sweet Naturals combines the business
experience and network of WGN in the health and nutrition industry with GLG’s
manufacturing capabilities in the stevia industry, forming a sales team that is
able to deliver innovative high quality stevia products on a global basis.  The Sweet Naturals venture seeks to use WGN’s
relationships to reach prospects, garner interest and develop sales for the
Company’s stevia products.

 

Sweet Naturals announced on May 12, 2009
its supply contract with Zevia LLC in the United States which re-launched its
product line utilizing Sweet Naturals material. Zevia LLC is a leading beverage
company in the all natural food category that has achieved national
distribution in the United States including through major retailers such as
Whole Foods.

 

2009 Stevia leaf crop in China

 

The Company worked actively with the local
Chinese governments in its three exclusive growing areas during the first nine
months of 2009 to facilitate its 2009 stevia crop.  Key activities included preparation of
proprietary seedlings for the 2009 crop, the recruitment of farmers in
cooperation with local governments to grow stevia using GLG’s proprietary
seedlings, and the planting of seedlings for the 2009 stevia crop.

 

As GLG’s gross profit margin is significantly
influenced by the quality of the stevia leaf crop harvested in any given year,
GLG’s strategy to improve gross margin is to increase the amount of proprietary
GLG high Rebaudioside A seedlings into each year’s crop and follow quality
standards for crop purchase to minimize the amount of moisture and foreign
material in the leaf purchased.

 

GLG commenced its 2009 stevia leaf purchase
program late in July, 2009.   To date,
GLG has seen improvements in the quality of the leaf purchased in terms of
lower foreign material and moisture content compared to the harvest in 2008,
reflecting the success of its education program with local farmers on
acceptable foreign material and moisture content.  GLG has also been successful in increasing
the amount of proprietary leaf that it has purchased from contracted farmers
this year.  This year marks the first
harvest of its proprietary leaf of approximately 60% rebaudioside A
content.  GLG expects its leaf purchase
activities harvest to continue into the fourth quarter of 2009.

 

New Purchase Order from Cargill received during
the second quarter

 

On May 5, 2009, GLG announced that it
has received an initial order from Cargill valued at US$ 40.5 million for the
delivery of high grade stevia extract beginning October 2009. Further, GLG
has agreed to make additional product available to Cargill during the next 18
months for a possible increase in the order size.

 

9

 

New Subsidiary Established in Qingdao for new
rebiana facility

 

On January 14, 2009, the Company
announced plans to build a new 2,000 metric ton rebiana facility.  In May 2009, the Company entered into a
long term investment agreement with the Qingdao Export Refine Management
Committee for this new facility (the “Investment Agreement”).  In May 2009 the Company established a
new subsidiary called Qingdao Runhao Stevia High Tech Company Limited (“Runhao”)
for the purpose of processing intermediate stevia extract into rebiana and
other high grade stevia extract products. Runhao was incorporated in China and
is a 100% owned wholly-owned foreign enterprise under Chinese law.

 

Pursuant to the Investment Agreement, a total
area of 1,300 mu of land (approximately 214 acres) has been made available to
Runhao at a discount of approximately 80% from estimated market value. The local
government is responsible for making the land ready for use, the construction
of a four lane road to service the facility and for assisting Runhao to obtain
all necessary permits.  The investment
agreement calls for GLG to invest US$ 30 million in registered capital in
Runhao within two years of the subsidiary being established.  This timetable for investment can be extended
by an additional year upon a request by GLG to the relevant government
authority. The first phase of facility construction is targeted to deliver a
1,000 metric ton rebiana facility by the end of 2009.  The Company’ plans for this facility are to
develop within the next eighteen months a 2,000 metric ton rebiana facility.

 

During the three month period ended September 30,
2009, the Company completed the building phase of the Runhao facility, which
will have approximately one million square feet of space available for
processing lines.  The Runhao facility
has been constructed following food grade “Good Manufacturing Practice” (GMP)
standards and key components are being constructed following pharmaceutical
grade GMP standards.  The first line of
Phase One construction is on schedule to add an additional 1,000 metric tons of
RA97 capacity in December 2009, more than doubling the Company’s current
capabilities.  The facility’s, location
in close proximity to Qingdao enables easy access to ship, air, and rail for
product movement, increased capacity for secondary processing, and positions
the Company to further meet current and anticipated demand.

 

New Loan facility arranged in China

 

On June 25, 2009, GLG announced that the
Company has arranged an additional credit facility of RMB 250 million with the
Agricultural Bank of China.  At current
exchange rates, these credit lines will provide GLG approximately $39 million
in capital. The term of this credit facility varies from one to three years for
amounts drawn down and is open for use by all GLG Chinese subsidiaries as
needed. Interest rates are to be set on each draw down of the facility based on
the prevailing market rates.

 

10

 

Rebaudioside A Stevia Extract
Approved in France

 

In September, the Company announced the
approval in France of Rebaudioside A stevia extract for use in food and beverages.  The French Government’s approval was made
after a review of the safety of Rebaudioside A by the Agence Francaise de
Securite Sanitaire des Aliment (AFFSA) was first published in June 2009.
France’s approval is the first for a European Union market and allows the food
and beverage industry to sweeten products with rebiana, high purity
Rebaudioside A, for the next two years.

 

Letter of Intent signed with Government of
Paraguay

 

In the third quarter, the Company also
announced that it signed a non-binding Letter of Intent (“LOI”) with the
Paraguayan Export and Investment Promotion Agency  (“REDIEX”) to enter negotiations for the
development of stevia growth and production in Paraguay and to create a
mutually beneficial business relationship for economic development in the
country related to the growth and production of stevia.

 

The LOI is part of the Company’s global
strategy to diversify its stevia growth and production operations into
geographies outside of China. Objectives within the LOI include:

 

1.     To develop
agribusiness contracts with stevia farmers for the growth and harvest of GLG
patented stevia seed strains;

 

2.     To develop a
joint research and development program focusing on new and improved stevia
plant strains as well as the continual development of advanced cultivation
techniques for high Rebaudioside A (RA) yielding stevia plants; and

 

3.     To construct
a stevia processing facility for the purpose of producing stevia extract
products to be sold within the South American marketplace as well as for export
to other regions.

 

Each party has agreed to certain
responsibilities to further these objectives and has initiated action
immediately upon signing.

 

Enterprise Income Tax Exemption received from
Central China Government for key GLG Subsidiary

 

GLG was informed on October 21, 2009
by the State Tax Bureau of Anhui Province in China that its 100% owned
subsidiary — Chuzhou Runhai Stevia High Tech Company Limited (“Runhai”) — would
receive an enterprise income tax exemption for its RA 60 product generated by
that subsidiary.  RA 60 products are
recognized as primary outputs of Agricultural Products by the Ministry of
Finance and State Administration of Taxation, and are subject to preferential
policies under China’s Enterprise Income Tax. 
As RA 60 is the only product produced by Runhai, this exemption is
expected to result in zero enterprise income tax payable by Runhai.  Runhai would otherwise be subject to a 25%
corporate income tax rate in China.  The
Company has also filed for a similar exemption for its Dongtai subsidiary,
which also produces RA 60.

 

11

 

Results

 

The following results from operations have
been derived from and should be read in conjunction with the interim statements
for the period ended September 30, 2009 and the consolidated financial
statements of GLG for the years ended December 31, 2008 and 2007.   Certain prior year’s figures have been
reclassified to conform to the current financial statement presentation.

 

	
  In thousands

  Canadian $,

  except per share 

  amounts

  	
   

  	
  Third

  quarter

  2009

  	
   

  	
  Third

  quarter

  2008

  	
   

  	
  % Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  Revenue

  	
   

  	
  14,814

  	
   

  	
  3,302

  	
   

  	
  349

  	
  %

  	
  28,619

  	
   

  	
  5,235

  	
   

  	
  447

  	
  %

  
	
  Cost of Sales

  	
   

  	
  10,718

  	
   

  	
  2,471

  	
   

  	
  334

  	
  %

  	
  21,463

  	
   

  	
  3,843

  	
   

  	
  459

  	
  %

  
	
  % of Revenue

  	
   

  	
  72

  	
  %

  	
  75

  	
  %

  	
  (3

  	
  )%

  	
  75

  	
  %

  	
  73

  	
  %

  	
  2

  	
  %

  
	
  Gross Profit

  	
   

  	
  4,095

  	
   

  	
  832

  	
   

  	
  393

  	
  %

  	
  7,156

  	
   

  	
  1,392

  	
   

  	
  414

  	
  %

  
	
  % of Revenue

  	
   

  	
  28

  	
  %

  	
  25

  	
  %

  	
  3

  	
  %

  	
  25

  	
  %

  	
  27

  	
  %

  	
  (2

  	
  )%

  
	
  General and Administration Expenses

  	
   

  	
  2,935

  	
   

  	
  1,686

  	
   

  	
  74

  	
  %

  	
  8,171

  	
   

  	
  3,828

  	
   

  	
  113

  	
  %

  
	
  % of Revenue

  	
   

  	
  20

  	
  %

  	
  51

  	
  %

  	
  31

  	
  %

  	
  29

  	
  %

  	
  73

  	
  %

  	
  45

  	
  %

  
	
  Income (loss) from Operations

  	
   

  	
  1,160

  	
   

  	
  (854

  	
  )

  	
  236

  	
  %

  	
  (1,015

  	
  )

  	
  (2,436

  	
  )

  	
  58

  	
  %

  
	
  % of Revenue

  	
   

  	
  8

  	
  %

  	
  (26

  	
  )%

  	
  34

  	
  %

  	
  (4

  	
  )%

  	
  (47

  	
  )%

  	
  43

  	
  %

  
	
  Other Income (Expenses)

  	
   

  	
  1,059

  	
   

  	
  (113

  	
  )

  	
  1037

  	
  %

  	
  1,314

  	
   

  	
  (1,071

  	
  )

  	
  223

  	
  %

  
	
  % of Revenue

  	
   

  	
  7

  	
  %

  	
  (3

  	
  )%

  	
  11

  	
  %

  	
  5

  	
  %

  	
  (20

  	
  )%

  	
  25

  	
  %

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

  	
   

  	
  2,219

  	
   

  	
  (967

  	
  )

  	
  329

  	
  %

  	
  299

  	
   

  	
  (3,507

  	
  )

  	
  109

  	
  %

  
	
  % of Revenue

  	
   

  	
  15

  	
  %

  	
  (29

  	
  )%

  	
  44

  	
  %

  	
  1

  	
  %

  	
  (67

  	
  )%

  	
  68

  	
  %

  
	
  Net Income (loss)

  	
   

  	
  1,399

  	
   

  	
  (952

  	
  )

  	
  247

  	
  %

  	
  270

  	
   

  	
  (3,492

  	
  )

  	
  108

  	
  %

  
	
  Net Income (loss) per share (Basic)

  	
   

  	
  0.02

  	
   

  	
  (0.01

  	
  )

  	
  236

  	
  %

  	
  0.00

  	
   

  	
  (0.05

  	
  )

  	
  107

  	
  %

  
	
  Net Income (loss) per share (Diluted)

  	
   

  	
  0.02

  	
   

  	
  (0.01

  	
  )

  	
  210

  	
  %

  	
  0.00

  	
   

  	
  (0.05

  	
  )

  	
  107

  	
  %

  
	
  Depreciation and Amortization

  	
   

  	
  1,550

  	
   

  	
  656

  	
   

  	
  136

  	
  %

  	
  4,213

  	
   

  	
  1,398

  	
   

  	
  201

  	
  %

  
	
  % of Revenue

  	
   

  	
  10

  	
  %

  	
  20

  	
  %

  	
  (10

  	
  )%

  	
  15

  	
  %

  	
  27

  	
  %

  	
  (12

  	
  )%

  
	
  Total Comprehensive (Loss) income

  	
   

  	
  (5,980

  	
  )

  	
  1,815

  	
   

  	
  (429

  	
  )%

  	
  (12,210

  	
  )

  	
  4,396

  	
   

  	
  (378

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (40

  	
  )%

  	
  55

  	
  %

  	
  (95

  	
  )%

  	
  (43

  	
  )%

  	
  84

  	
  %

  	
  (127

  	
  )%

  

 

12

 

	
  In thousands

  Canadian $,

  except per share 

  amounts

  	
   

  	
  Third

  quarter

  2009

  	
   

  	
  Third

  quarter

  2008

  	
   

  	
  % Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  EBITDA (1)

  	
   

  	
  3,917

  	
   

  	
  (123

  	
  )

  	
  3285

  	
  %

  	
  5,951

  	
   

  	
  (954

  	
  )

  	
  724

  	
  %

  
	
  % of Revenue

  	
   

  	
  26

  	
  %

  	
  (4

  	
  )%

  	
  30

  	
  %

  	
  21

  	
  %

  	
  (18

  	
  )%

  	
  39

  	
  %

  

 

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

 

Results
from Operations

 

The following results should be read in
conjunction with the interim statements for the period ending September 30,
2009 and the consolidated financial statements of GLG for the years ended December 31,
2008 and 2007. Certain prior year’s figures have been reclassified to conform
to the current financial statement presentation.

 

Revenue

 

Revenue for the nine months ended September 30,
2009, which were derived entirely from stevia sales, was $ 28.6 million, an
increase of 447% over $5.2 million in revenue for the comparable period in
2008.  Revenue for the third quarter
ended September 30, 2009 was $14.8 million, an increase of 349% over $3.3
million in revenue for the third quarter in 2008.  The increase in stevia revenues was driven
by:

 

(1)          New
production capacity coming on line at GLG’s plants at Mingguang and Dongtai
during the first quarter of 2009 which materially improved the Company’s
production throughput of final product. (Leaf processing capacity increased
from 5,000 metric tons per year to 41,000 metric tons with the addition of
Mingguang and Dongtai facilities);

(2)          Higher
demand and purchase orders for the Company’s high grade stevia extract products
in 2009 versus 2008; and

(3)          Greater
shipments of higher value stevia extract against existing purchase orders than
in the comparable period.

 

Inventory decreased from $33.1 million as at December 31,
2008 to $28.8 million as at September 30, 2009.  The key drivers for the net changes in
inventory at the end of September were; (a) the decrease in raw
materials inventories to develop finished product to meet current customer orders;
(b) the increase in work in progress inventories to meet 2009 customer
order commitments;(c) the increase in by-product inventories available for
sale or further processing into final products; and (d) the increase in
finished product inventories to meet current 2009 customer orders.

 

13

 

Cost
of Sales

 

Cost of Sales for the nine months ended September 30,
2009 were $ 21.5 million, an increase of 459% over $3.8 million in cost of
sales for the comparable period in 2008. 
The increase in cost of sales year over year was driven by;

 

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

(2)          There
were also higher costs experienced at the start-up of these new
facilities.  The Company has seen
production costs at its new facilities consistently decline during the third
quarter relative to the start-up period during February and March 2009,
as production management improved its efficiencies. The higher production costs
seen at the initial start-up of the facilities flowed through the cost of goods
sold during the second quarter.

(3)          Larger
shipments of higher value stevia extract than in the comparable period against
existing purchase orders also increased the cost of sales for the 9 month and 3
month periods.

(4)          The
continued expensing of the interest capitalized into inventory associated with
a customer’s order that continued delivery during the third quarter.  This accounted for approximately 4% of cost
of sales for the third quarter.

 

The key components of stevia cost of sales in
include:

 

a. stevia leaf (71% of costs of sales for
fiscal 2008)

 

b. salaries and wages of manufacturing labour

 

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

 

d. depreciation of the stevia extract processing
plants.

 

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

 

a.               The
price paid for stevia leaf and the stevia leaf quality, which is impacted by
crop quality for a particular year/period. 
This is the most important factor that will impact the gross profit of
GLG’s stevia business;

 

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

 

c.               The
sale of by-products (also known as co-products).  There were a very small number of co-product
sales during the year due to the focus on production of high grade stevia.   Sales of 

 

14

 

by-products have historically increased the
overall gross profit of the stevia business. 
The GLG Weider venture will be focused on also selling other GLG product
lines during 2009 including co-products extract (mixture of steviol glycosides)
and highly pure STV extract.

 

d.              Other
factors which also impact stevia cost of sales to a lesser degree include:

 

·                                          salaries and wages of manufacturing labour;

 

·                                          capacity utilization;

 

·                                          water and power consumption;

 

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

 

·                                          depreciation on stevia extract processing plant;

 

·                                          interest on leaf purchases; and

 

·                                          net VAT paid on export sales.

 

GLG’s stevia business is affected by
seasonality.  The harvest of the stevia
leaves typically occurs starting at the end of the July and continues
through the fall of each year.  GLG’s
operations in China are also impacted by Chinese New Year celebrations during
the month of January or February each year, during which many
businesses close down operations for approximately two weeks.  GLG’s production year runs October 1
through September 30 each year.  Accordingly,
inventory levels are typically higher in the fourth quarter until raw material
is converted into finished products and shipped to customers.

 

Cost of Sales for the three months ended September 30,
2009 were $ 10.7 million, or 72% of revenue, an increase of 334% over $2.5
million, or 75% of revenue for the comparable period in 2008.

 

The main drivers for the decrease in cost of
sales as a percentage of revenue for the third quarter 2009 compared with the
third quarter of 2008 was due to the following factors:

 

1.               Use
of higher quality leaf during part of the third quarter from the new 2009
stevia leaf harvest (approximately last month of the quarter) which improved
extraction and processing yields.   The
higher quality stevia leaf benefit came from two areas:

 

a.               Use
of new proprietary leaf (second generation leaf strain) that contains
approximately 60% rebaudioside A relative to the second generation of leaf
harvested in 2009 which contained approximately 40-45% rebaudioside A.

b.              Improvements
in the quality of stevia leaf purchased by tighter procurement standards of
lower foreign material and moisture content.

 

Higher volume of high grade stevia extract
production during the quarter relative to the second quarter on 2009 and better
economies of scale experienced for labour and plant utilization.

 

15

 

Gross
Profit

 

Gross profit for the nine months period
ending September 30, 2009 was $7.2 million, an increase of 414% over $1.4
million in gross profit for the comparable period in 2008.  The absolute increase in gross profit can be
attributed to increased stevia sales. 
The gross profit margin for the 9 months ended September 30, 2009
was 25% compared to 27% gross profit margin achieved on sales for the comparable
period in 2008.   The gross profit margin
decline was driven by the same factors that increased cost of sales for the
three and nine month periods.

 

Gross profit for the three months ended September 30,
2009 was $4.1 million, an increase of 393% over $0.8 million in gross profit
for the third quarter of 2008.  The gross
profit margin for the three months ended September 30, 2009 was 28%
compared to 25% gross profit margin achieved on sales for the comparable period
in 2008. The increase in gross profit for the third quarter 2009 compared with
the third quarter of 2008 was attributable to the following factors:

 

1.               Use
of higher quality leaf during the final weeks of the third quarter from the new
2009 stevia leaf harvest, which improved extraction and processing yields.  The higher quality stevia leaf benefit came
from two areas:

 

·                  Use of new proprietary leaf (second generation leaf strain) that
contains approximately 60% rebaudioside A relative to the second generation of
leaf harvested in 2009 which contained approximately 40-45% rebaudioside A.

·                  Improvements in the quality of stevia leaf purchased by tighter
procurement standards of lower foreign material and moisture content.

 

2.               Higher
volume of high grade stevia extract production during the quarter relative to
the second quarter on 2009 and better economies of scale experienced for labour
and plant utilization.

 

General
and Administration Expenses

 

	
  In thousands 

  Canadian $

  	
   

  	
  Third

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  % Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  General and Administration Expenses

  	
   

  	
  2,935

  	
   

  	
  1,686

  	
   

  	
  74

  	
  %

  	
  8,171

  	
   

  	
  3,828

  	
   

  	
  113

  	
  %

  
	
  % of Revenue

  	
   

  	
  20

  	
  %

  	
  51

  	
  %

  	
  31

  	
  %

  	
  29

  	
  %

  	
  73

  	
  %

  	
  45

  	
  %

  

 

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

 

16

 

	
  In
  thousands Canadian $ 

  	
   

  	
  Third 

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  %

  Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  SG&A

  	
   

  	
  $

  	
  1,741

  	
   

  	
  $

  	
  1,430

  	
   

  	
  22

  	
  %

  	
  $

  	
  5,429

  	
   

  	
  $

  	
  3,181

  	
   

  	
  71

  	
  %

  
	
  Stock based compensation

  	
   

  	
  $

  	
  750

  	
   

  	
  $

  	
  61

  	
   

  	
  1129

  	
  %

  	
  $

  	
  1,725

  	
   

  	
  $

  	
  92

  	
   

  	
  1775

  	
  %

  
	
  G&A Amortization and Depreciation

  	
   

  	
  $

  	
  444

  	
   

  	
  $

  	
  195

  	
   

  	
  128

  	
  %

  	
  $

  	
  1,017

  	
   

  	
  $

  	
  555

  	
   

  	
  83

  	
  %

  
	
  Expenses

  	
   

  	
  $

  	
  2,935

  	
   

  	
  $

  	
  1,686

  	
   

  	
  74

  	
  %

  	
  $

  	
  8,171

  	
   

  	
  $

  	
  3,828

  	
   

  	
  113

  	
  %

  
	
  % of Revenue

  	
   

  	
  20

  	
  %

  	
  51

  	
  %

  	
  31

  	
  %

  	
  29

  	
  %

  	
  73

  	
  %

  	
  45

  	
  %

  

 

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

 

SG&A expenses for the nine months ended September 30,
2009 were $5.4 million, an increase of $2.2 million or 71% over the same period
for 2008 of $3.1 million.  The key
expense categories that increased were salaries, consulting fees, office and
travel which accounted for 86% of the period over period increase.  GLG’s employee count at the end of September 30,
2009 was 1,186, a 46% increase of 808 people over year end 2008.  Approximately 75% of employees work in the
production function of the Company.

 

SG&A expenses for the three months ended September 30,
2009 were $1.7 million which is an increase of $0.3 million or 22% over the
same period for 2008.  The key expense
categories that increased were salaries, consulting fees, office and travel
which accounted for 100% of the period over period increase.

 

SG&A expenses increased $0.03 million
comparing the third quarter of 2009 to the second quarter of 2009 and were
essentially flat relative to comparable expenses in the second quarter of 2009.

 

Stock based compensation was $0.8 million for
the third quarter of 2009 compared with $0.06 million in the third quarter of
2008.  GLG had an amended stock
compensation plan approved by its shareholders at its annual general meeting in
June 2008.  Under the amended plan,
the number of common shares available for issue is 10% of the issued and
outstanding common shares.  Prior to
2008, the Company did not grant stock options since 2005.   Grants made during 2008 were 1,474,480
compensation securities including both options and restricted shares.  84% of these grants have three year vesting
and performance criteria set by the Compensation Committee of the Board in
order to be fully earned by the recipients.  
An additional grant was made by the Board of Directors during the second
quarter of 2009.  This amounted to
1,500,000 compensation securities including both options and restricted
shares.  81% of these grants have three
year vesting and performance criteria requirements set by the Compensation
Committee of the Board in order to be fully earned by the recipients.

 

G&A related depreciation and amortization
expenses for the three months ended September 30, 2009 was $0.4 million,
an increase of 128% over $0.2 million for the comparable period in 2008.   The main driver for the increase in
amortization is related to the increase in intangible patent amortization
related to the acquisition of Agricultural High Tech Developments Limited.

 

17

 

Other
Income (expenses)

 

	
  In thousands 

  Canadian $ 

  	
   

  	
  Third

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  %

  Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  Other Income (expenses)

  	
   

  	
  $

  	
  1,059

  	
   

  	
  $

  	
  (113

  	
  )

  	
  1,037

  	
  %

  	
  $

  	
  1,314

  	
   

  	
  $

  	
  (1,071

  	
  )

  	
  223

  	
  %

  
	
  % of Revenue

  	
   

  	
  7

  	
  %

  	
  (3

  	
  )%

  	
  11

  	
  %

  	
  5

  	
  %

  	
  (20

  	
  )%

  	
  25

  	
  %

  
																		

 

Other income for the nine months ended September 30,
2009 was $1.3 million, a 223% increase compared to other income of ($1.1)
million for the comparable period in 2008. 
There were two items that contributed the majority to the other income
(expenses) for the nine months ended September 30, 2009; (1) foreign
exchanges gains on US dollar-denominated liabilities that GLG was holding
during the period ($3.2 million) and (2) interest expenses ($1.9
million).  Interest expenses of $1.9
million for the nine months period ending September 30, 2009 were mainly
related to (1) a US$ 20 million advances from a customer and (2) the
Company’s bank loans in China.  With
respect to the US$ 20 million facility and associated interest due on the
facility, it is expected to be repaid as GLG ships product to this customer
during 2009.

 

Other Income (expenses) for the three months
ended September 30, 2009 was $1.1 million, an increase of 1,037% over
other income (expenses) of $0.1 million for the comparable period in 2008 and
was impacted by the same items as described for the nine months period.

 

Foreign
Exchange gains (losses)

 

GLG reports in Canadian dollars but earns
most of its revenues in US dollars and incurs most of its expenses in Chinese
Yuan (“RMB”).  Impacts of the
appreciation of the Chinese Yuan against the Canadian dollar are shown
separately in Accumulated Other Comprehensive income (“AOCI”) on the Balance
Sheet.  As of September 30, 2009,
the exchange rate for RMB per Canadian dollar was 6.3694, an appreciation of
14.3% from the exchange rate on December 31, 2008 (5.5710).  The balance of the AOCI was $8.2 million on September 30,
2009 compared to balance of $20.7 million as at December 31, 2008.

 

The exchange rate fluctuations of the US
dollar and the Canadian dollar had a significant impact on foreign exchanges
losses reflected on the first nine months income statement in 2009. The table
below shows the change in the Canadian dollar relative to the US dollar from
year-end 2008 to September 30, 2009. 
During the first quarter of 2009 the Canadian dollar declined
approximately 3% relative to the US dollar. 
During the first quarter GLG recognized $0.7 million of foreign currency
losses attributed to the decline in the Canadian dollar relative to the US
dollar.   During the second quarter of
2009 the Canadian dollar appreciated 8.5% relative to the US dollar.  During the second quarter GLG recognized $2.0
million of foreign currency gains attributed to the increase in the Canadian
dollar relative to the US dollar.  

 

18

 

During the third quarter of 2009 the Canadian
dollar appreciated 8.4% relative to the US dollar.  During the third quarter GLG recognized $1.9
million of foreign currency gains attributed to the increase in the Canadian
dollar relative to the US dollar.  Since December 31,
2008, the Canadian dollar has appreciated 14.2% against the USD for the period
ended September 30, 2009.   The
depreciation of the US dollar relative to the Canadian dollar had an impact on
the third quarter and nine month revenue results as the majority of GLG’s
revenues for the period were based on US dollar contracts (see Outlook section
for additional discussion).  Since the
Chinese Yuan effectively remained flat to the US dollar, there was no
additional material profit and loss impacts on the expenses incurred during the
first nine months of 2009.

 

Impacts of the appreciation of the Chinese
Yuan against the Canadian dollar are shown separately under the Accumulated
Other Comprehensive Income account on the Balance Sheet.  The following table presents the exchange
rate movement for the Canadian dollar relative to the US dollar and RMB as
shown below.

 

	
  Exchange rates 

  Noon rate (as 

  compared to 

  the Canadian $)

  	
   

  	
  2006

  December 

  31

  	
   

  	
  2007

  December 

  31

  	
   

  	
  2008

  December 

  31

  	
   

  	
  2009

  March

  31

  	
   

  	
  2009

  June

  30

  	
   

  	
  2009

  September 

  30

  	
   

  
	
  U.S. Dollars

  	
   

  	
  0.8581

  	
   

  	
  1.0120

  	
   

  	
  0.8166

  	
   

  	
  0.7928

  	
   

  	
  0.8602

  	
   

  	
  0.9327

  	
   

  
	
  Chinese Yuan

  	
   

  	
  6.6845

  	
   

  	
  7.3910

  	
   

  	
  5.5710

  	
   

  	
  5.4230

  	
   

  	
  5.8754

  	
   

  	
  6.3694

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

The following table presents the exchange
rate movement for RMB relative to the US dollar as shown below.  The US dollar was essentially flat against
the RMB at the end third quarter of 2009 compared to December 31, 2008.

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exchange
  rates

  	
   

  	
  2006

  December 

  31

  	
   

  	
  2007

  December 

  31

  	
   

  	
  2008

  December

  31

  	
   

  	
  2009

  March

  31

  	
   

  	
  2009

  June

  30

  	
   

  	
  2009

  September 

  30

  	
   

  
	
  Chinese Yuan

  	
   

  	
  7.8175

  	
   

  	
  7.3141

  	
   

  	
  6.8223

  	
   

  	
  6.8456

  	
   

  	
  6.8448

  	
   

  	
  6.8376

  	
   

  

 

19

 

Net
Income (loss)

 

	
  In thousands 

  Canadian $ 

  	
   

  	
  Third 

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  % Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % Change

  	
   

  
	
  Net Income (loss)

  	
   

  	
  1,399

  	
   

  	
  (952

  	
  )

  	
  247

  	
  %

  	
  270

  	
   

  	
  (3,492

  	
  )

  	
  108

  	
  %

  

 

The basic
income per share was $0.02 for the three months ending September 30, 2009
compared with a loss per share of $0.01 for the comparable period in 2008.  Net Income improved to $1.4 million for the
three months period ending September 30, 2009 in comparison to the loss of 1.0
million for the third quarter 2008.  This
$2.5 million improvement was driven by (1) higher gross profit margin from
increased production at GLG’s new facilities in Mingguang and Dongtai ($3.3
million) and (2) foreign exchange gains driven by an appreciation of the
Canadian dollar relative to US dollar in the third quarter ($1.9 million) which
were offset by an increase in G&A expenses ($1.2 million), a net interest
expenses increase ($0.7 million) and a net increase in income taxes ($0.8
million) .   The nine months net income
for the period ending September 30, 2009 improved by $3.7 million compared to
the same period in 2008.  For the nine
months period the $3.7 million income improvement compared to the previous year
was driven by (1) higher revenues and gross profit margin from increased
production at its new facilities in Mingguang and Dongtai ($5.8 million) and
(2) foreign exchange gains driven by an appreciation of the Canadian dollar
relative to US dollar in the third quarter ($3.2 million) which were offset by
an increase in G&A expenses ($4.3 million) and a net interest expenses
increase ($0.9 million).

 

Comprehensive
Income

 

	
  In thousands
  Canadian $ 

  	
   

  	
  Third 

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  % 

  Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % 

  Change

  	
   

  
	
  Net Income (Loss)

  	
   

  	
  $

  	
  1,399

  	
   

  	
  $

  	
  (952

  	
  )

  	
  247

  	
  %

  	
  $

  	
  270

  	
   

  	
  $

  	
  (3,492

  	
  )

  	
  109

  	
  %

  
	
  Other Comprehensive (Loss)
  income

  	
   

  	
  $

  	
  (7,379

  	
  )

  	
  $

  	
  2,767

  	
   

  	
  (367

  	
  )%

  	
  $

  	
  (12,480

  	
  )

  	
  $

  	
  7,888

  	
   

  	
  (258

  	
  )%

  
	
  Total Comprehensive (Loss)
  income

  	
   

  	
  $

  	
  (5,980

  	
  )

  	
  $

  	
  1,815

  	
   

  	
  (429

  	
  )%

  	
  $

  	
  (12,210

  	
  )

  	
  $

  	
  4,396

  	
   

  	
  (378

  	
  )%

  

 

The Company recorded total comprehensive loss
of $12.2 million for the first nine months of 2009, comprising $0.3 million of
net income and $12.5 million of other comprehensive loss.  The Company recorded total comprehensive loss
of $6.0 million for the three months ended September 30, 2009, 

 

20

 

comprising $1.4 million of net income and
$7.4 million of other comprehensive loss. 
The other comprehensive loss was solely made up of the currency
translation adjustments recorded on the revaluation of the Company’s
investments in self-sustaining Chinese subsidiaries due to the strengthening of
the Canadian dollar against the Renminbi (RMB) during the third quarter.  This loss is held in accumulated other
comprehensive income (loss) until it is realized, at which time it is included
in net income.

 

NON-GAAP
Financial Measures

 

Earnings
Before Interest Taxes and Depreciation (“EBITDA”)

 

EBITDA for the quarter ended September 30,
2009 was $3.9 million, compared to negative $0.1 million in EBITDA for the
comparable period in 2008 and is 129% higher than EBITDA of $1.7 million for
the quarter ended June 30, 2009. 
The main drivers for the increase in EBITDA for the three months ended September 30,
2009 compared to the corresponding period 2008 is attributable to (1) higher
stevia revenue and gross profit for the third quarter 2009 as compared to the
third quarter of 2008, (2) reduction in one-time start up related costs
and (3) transfer of production staff costs from general and administrative
costs to production costs with the start-up of operations at the Company’s new
facilities in Mingguang and Dongtai.

 

EBITDA for the nine months ended September 30,
2009 was $6.0 million, an increase of 724% over negative $1.0 million in EBITDA
for the comparable period in 2008.

 

The following table provides reconciliation
to Canadian GAAP Net Income.

 

	
  In
  thousands Canadian $

  	
   

  	
  Third quarter

  2009

  	
   

  	
  Third quarter

  2008

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  
	
  Income (loss) before income taxes and non-controlling interests

  	
   

  	
  $

  	
  2,219

  	
   

  	
  $

  	
  (967

  	
  )

  	
  $

  	
  299

  	
   

  	
  $

  	
  (3,506

  	
  )

  
	
  Add:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non-Controlling Interest

  	
   

  	
  $

  	
  41

  	
   

  	
  $

  	
  15

  	
   

  	
  $

  	
  122

  	
   

  	
  $

  	
  15

  	
   

  
	
  Depreciation and Amortization

  	
   

  	
  $

  	
  1,549

  	
   

  	
  $

  	
  656

  	
   

  	
  $

  	
  4,213

  	
   

  	
  $

  	
  1,398

  	
   

  
	
  Net Interest Expense

  	
   

  	
  $

  	
  1,260

  	
   

  	
  $

  	
  112

  	
   

  	
  $

  	
  2,811

  	
   

  	
  $

  	
  1,048

  	
   

  
	
  Foreign Exchange gains

  	
   

  	
  $

  	
  (1,903

  	
  )

  	
  —

  	
   

  	
  $

  	
  (3,219

  	
  )

  	
  —

  	
   

  
	
  Non-Cash Share Compensation Expense

  	
   

  	
  $

  	
  750

  	
   

  	
  $

  	
  61

  	
   

  	
  $

  	
  1,725

  	
   

  	
  $

  	
  92

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EBITDA

  	
   

  	
  $

  	
  3,917

  	
   

  	
  $

  	
  (123

  	
  )

  	
  $

  	
  5,951

  	
   

  	
  $

  	
  (954

  	
  )

  
	
  % Revenue

  	
   

  	
  26

  	
  %

  	
  (4

  	
  )%

  	
  21

  	
  %

  	
  (18

  	
  )%

  

 

21

 

Summary
Quarterly Results

 

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

 

	
  In thousands Canadian

  dollars, except per 

  share amounts

  	
   

  	
  2009
  

  Q3

  	
   

  	
  2009
  

  Q2

  	
   

  	
  2009
  

  Q1

  	
   

  	
  2008
  

  Q4

  	
   

  	
  2008
  

  Q3

  	
   

  	
  2008
  

  Q2

  	
   

  	
  2008
  

  Q1

  	
   

  	
  2007
  

  Q4

  	
   

  
	
  Revenue

  	
   

  	
  $

  	
  14,814

  	
   

  	
  $

  	
  10,805

  	
   

  	
  $

  	
  3,001

  	
   

  	
  $

  	
  4,657

  	
   

  	
  $

  	
  3,302

  	
   

  	
  $

  	
  1,092

  	
   

  	
  $

  	
  841

  	
   

  	
  $

  	
  3,727

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
  4,095

  	
   

  	
  $

  	
  1,642

  	
   

  	
  $

  	
  1,419

  	
   

  	
  $

  	
  939

  	
   

  	
  $

  	
  832

  	
   

  	
  $

  	
  293

  	
   

  	
  $

  	
  268

  	
   

  	
  $

  	
  896

  	
   

  
	
  Gross Profit %

  	
   

  	
  28

  	
  %

  	
  15

  	
  %

  	
  47

  	
  %

  	
  20

  	
  %

  	
  25

  	
  %

  	
  27

  	
  %

  	
  32

  	
  %

  	
  24

  	
  %

  
	
  Net Income (Loss)

  	
   

  	
  $

  	
  1,399

  	
   

  	
  $

  	
  371

  	
   

  	
  $

  	
  (1,500

  	
  )

  	
  $

  	
  (7,115

  	
  )

  	
  (952

  	
  )

  	
  $

  	
  (1,606

  	
  )

  	
  $

  	
  (934

  	
  )

  	
  $

  	
  456

  	
   

  
	
  Basic Income (Loss) Per Share

  	
   

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.01

  	
   

  
	
  Diluted Income (Loss) Per Share

  	
   

  	
  $

  	
  0.02

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  
	
  EBITDA (1)

  	
   

  	
  $

  	
  3,917

  	
   

  	
  $

  	
  1,677

  	
   

  	
  $

  	
  270

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  (123

  	
  )

  	
  $

  	
  (481

  	
  )

  	
  $

  	
  (350

  	
  )

  	
  $

  	
  451

  	
   

  

 

(1)   EBITDA
is defined in the section Non-GAAP Financial Measures along with the details of
the calculation.  EBITDA does come
directly from the financial statements and its calculation is defined above.

 

Note: 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.

 

Quarterly
Net Income (Loss)

 

Net income for
the third quarter 2009 was $1.4 million, versus a loss of $1.0 million in the
third quarter of 2008 or a $2.5 million decrease in loss.  This $2.5 million improvement was driven by
(1) higher gross profit margin from increased production at GLG’s new
facilities in Mingguang and Dongtai ($3.3 million) and (2) foreign exchange
gains driven by an appreciation of the Canadian dollar relative to US dollar in
the third quarter ($1.9 million) which were offset by an increase in G&A
expenses ($1.2 million), a net interest expenses increase ($0.7 million) and a
net increase in income taxes ($0.8 million) .Net income for the second quarter
2009 was $0.4 million, versus a loss of $1.6 million in the second quarter of
2008 or a $2.0 million decrease in loss. 
The decreased loss was driven by an improvement in gross profit

 

22

 

margin in the
second quarter of 2009 by $1.3 million, and an increase in other income of $1.8
million, which was offset by an increase in SG&A of $1.2 million.

 

Net loss for
the first quarter 2009 was $1.5 million, compared to a loss of $7.1 million in
the fourth quarter of 2008 or a $5.6 million decrease in loss.  The decreased loss was attributable to an
improvement in gross profit margin in the first quarter of 2009 by $0.5
million, a decrease in stock based compensation expenses of $0.7 million,
decreased foreign exchange losses of $2.1 million, and a decrease in provisions
on loans of $3.1 million, and were offset by a decrease in income tax
recoveries of $0.7 million.

 

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

 

The net losses
for the third and fourth quarter 2007 were driven by the interest expense of
the convertible debenture.

 

Quarterly
Basic and Diluted Earnings (loss) per Share

 

The basic and diluted earnings per share were
$0.02 for the third quarter 2009 compared with $0.00 for the basic and diluted
earnings per share for the second quarter of 2009.  The improvement in earnings per share for the
third quarter compared to the second quarter of 2009 can be attributed to high
gross profit which was driven by higher revenues and higher other income
generated in the third quarter relative to the second quarter.

 

The basic earnings and diluted earnings per
share were $0.00 for the second quarter 2009 compared with ($0.02) for the
first quarter of 2009.  The improvement
in earnings per share for the second quarter compared to the first quarter of
2009 can be attributed to high gross profit which was driven by higher revenues
and higher other income generated in the third quarter relative to the first
quarter.

 

The basic loss per share and diluted loss per
share were ($0.02) for the first quarter 2009 compared with ($0.10) for the
fourth quarter of 2008.  The fourth
quarter loss per share was driven by increased stock based compensation,
unrealized foreign currency losses and a provision on amounts owed to the
Company by YHT.

 

23

 

Capital
Expenditures

 

	
  In thousands 

  Canadian

  	
   

  	
  Third 

  quarter

  2009

  	
   

  	
  Third 

  quarter

  2008

  	
   

  	
  % 

  Change

  	
   

  	
  Nine

  months

  2009

  	
   

  	
  Nine

  months

  2008

  	
   

  	
  % 

  Change

  	
   

  
	
  Capital Expenditures

  	
   

  	
  $

  	
  10,252

  	
   

  	
  $

  	
  18,626

  	
   

  	
  (45

  	
  )%

  	
  $

  	
  24,222

  	
   

  	
  $

  	
  32,164

  	
   

  	
  (25

  	
  )%

  
																		

 

Capital expenditures for the three months
ended September 30 2009 were $10.3 million, which was comprised of $8.6
million from of cash used by investing activities, a $2.7 million reduction in
accounts payable related to the purchase of plant, property and equipment (“PP&E”),
and $4.4 million increase in  prepaid
expenses increase from the quarter end balance sheet.

 

GLG’s capital expenditures of $10.3 million
for the third quarter of 2009 reflected a decrease of 45% in comparison to
$18.6 million in the third quarter of 2008.  
The third quarter capital expenditures were primarily incurred for the
Company’s new rebiana facility in Qingdao that is currently under
construction.  The completion date for
this facility is expected in December 2009.

 

Capital expenditures for the nine months
ended September 30 2009 were $24.2 million, which was comprised of $22.2
million of cash flow used by investing activities, less a decrease of $1.3
million in accounts payable decrease related to the purchase of PP&E, and
an increase of $3.3 million in prepaid expenses.

 

GLG’s capital expenditures for the nine
months ended September 30, 2009 of $24.2 million reflected a decrease of
25% in comparison to $32.2 million for the comparable period in 2008.  Approximately one third of these capital
expenditures were incurred in the first quarter of 2009, driven by the
completion of the leaf processing facilities by the Runhai (Mingguang) and
Runyang (Dongtai) subsidiaries (approximately $8 million).   The remaining two thirds of capital
expenditures incurred during the first nine months of the fiscal year were
incurred in the set-up and construction of the Company’s new rebiana facility
in Qingdao (approximately $16.2 million).

 

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

 

	
  Production Capacity 

  (Metric Tons)

  	
   

  	
  Year end 2008

  	
   

  	
  Current

  	
   

  	
  Expected Capacity

  Year-end 2009

  	
   

  
	
  Leaf Processing

  	
   

  	
  5,000

  	
   

  	
  41,000

  	
   

  	
  41,000

  	
   

  
	
  Intermediate Powder (RA 60)

  	
   

  	
  500

  	
   

  	
  4,000

  	
   

  	
  4,000

  	
   

  
	
  High Grade Stevia (RA 80)

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  	
  3,000

  	
   

  
	
  Rebiana (RA 97)

  	
   

  	
  500

  	
   

  	
  500

  	
   

  	
  1,500

  	
   

  

 

24

 

Liquidity
and capital resources

 

	
  In thousands Canadian 

  dollars

  	
   

  	
  September 

  30, 2009

  	
   

  	
  June 30,

  2009

  	
   

  	
  March 31,

  2009

  	
   

  	
  December 31,

  2008

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  $

  	
  8,895

  	
   

  	
  $

  	
  18,391

  	
   

  	
  $

  	
  8,618

  	
   

  	
  $

  	
  7,363

  	
   

  
	
  Working Capital

  	
   

  	
  $

  	
  (8,396

  	
  )

  	
  $

  	
  (16,093

  	
  )

  	
  $

  	
  (13,460

  	
  )

  	
  $

  	
  (2,562

  	
  )

  
	
  Total Assets

  	
   

  	
  $

  	
  182,055

  	
   

  	
  $

  	
  188,368

  	
   

  	
  $

  	
  188,282

  	
   

  	
  $

  	
  174,361

  	
   

  
	
  Total Liabilities

  	
   

  	
  $

  	
  75,374

  	
   

  	
  $

  	
  74,416

  	
   

  	
  $

  	
  69,456

  	
   

  	
  $

  	
  57,364

  	
   

  
	
  Advances from Customers

  	
   

  	
  $

  	
  3,296

  	
   

  	
  $

  	
  17,332

  	
   

  	
  $

  	
  25,540

  	
   

  	
  $

  	
  24,492

  	
   

  
	
  Loans Payable (< 1year)

  	
   

  	
  $

  	
  42,394

  	
   

  	
  $

  	
  35,231

  	
   

  	
  $

  	
  17,149

  	
   

  	
  $

  	
  10,232

  	
   

  
	
  Loans Payable (> 1 year)

  	
   

  	
  $

  	
  9,420

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total Equity

  	
   

  	
  $

  	
  106,633

  	
   

  	
  $

  	
  111,864

  	
   

  	
  $

  	
  118,698

  	
   

  	
  $

  	
  116,829

  	
   

  

 

Cash and cash equivalents as at September 30,
2009 decreased by $9.5 million compared to the end of the second quarter in
2009.  Working capital increased by $7.7
million for the third quarter compared to the end of the second quarter in
2009.  The working capital increase can
be attributed to a net decrease in current liabilities during the third quarter
of $11.2 million compared to the net decrease in current assets of $3.5 million
during the same period.  The decrease in
current liabilities during the third quarter was driven by a number of
factors.  Loans from related parties
increased by $4.4 million during the third quarter and which were offset by a
decline in advances due to customers of $14.0 million and a reduction of
accounts payable and accruals of $1.4 million. 
The factors that decreased the current assets by $3.5 million include
the decrease in cash of $9.5 million, a decrease in short term investments of
$0.4 million, a decrease in inventory of $3.4 million and a reduction in taxes
recoverable of $0.2 million which were offset by an increase in prepaid
expenses of $9.5 million and an increase in accounts receivable by $0.5
million.

 

Cash generated by operating activities before changes in non-cash
working capital items was $2.4 million
in the three months ending September 30, 2009 compared to $0.2 million
used in the comparable period of 2008 reflecting the higher cash generated by
operations as shipments of stevia increased significantly over the comparable
period in 2008. Non-cash working capital items used $6.9 million of cash.   The biggest use of non-cash working capital
(adjusted for foreign currency impacts) in the quarter were driven by an
increases prepaid expenses of $9.9 million, approximately 50%  of which were associated with constructions
and equipment costs for the new rebiana facility and approximately 50% of which
were associated with stevia leaf purchases.

 

25

 

The main items that offset the reduction in
non-cash working capital during the quarter was an inventory reduction of $1.5
million driven by increased sales during the quarter and an increase in
accounts payable of $2.7 million.

 

Cash used by investing activities was $8.2 million
during the third quarter of 2009, compared to $18.7 million in the same period in 2008.  These capital expenditures were for GLG’s new
rebiana facility in Qingdao.

 

Cash generated by financing activities was $4.4 million
in the third quarter of 2009 compared to $23.5 million in the same period in 2008.  The key item that generated the increase in
cash generated by financing activities during the third quarter came from a net
increase in short term bank loans in China of $12.6 million as well as a $4.8
million shareholder loan; offset by the repayment of advances from customers of
$13.0 million.

 

Cash generated by operating activities before
changes in non-cash working capital items was $2.7 million in the first nine months of 2009,
compared to $1.1 million
used in the comparable period of 2008. This increase in cash generated by
operating activities can be attributed to the higher cash generated by
operations, as shipments of stevia increased significantly over the comparable
period in 2008.  Non-cash working capital
items used $5.4 million of cash.  The
biggest uses for non-cash working capital (adjusted for foreign currency
impacts) in the nine month period were driven by asset construction and
inventory production that increased the refundable value added tax accounts in
China ($3.3 million), an increase in prepaid expenses ($6.0 million), a
decrease in interest payable ($1.0 million), and a decrease in deferred revenue
($2.0 million); offset by a reduction in accounts receivable ($1.3 million), a
decrease in inventory ($1.9 million) and an increase in accounts payable ($3.6
million).  The $1 million reduction in
Interest payable is more of a one-time item as it reflects the fact that
interest on the US$ 20 million customer advance had been accruing from mid-July 2008
to the third quarter of 2009 when shipments starting to made which reduced this
balance.

 

Cash used by investing activities was $21.8 million
in the first nine months of 2009, compared to $32.3 million in the same period in 2008.  GLG’s capital expenditures for the nine
months ended September 30, 2009 of $24.2 million reflected a decrease of
25% in comparison to $32.1 million for the comparable period in 2008.  Approximately one third of these capital
expenditures were incurred in the first quarter of 2009 driven by the
completion of the leaf processing facilities by the Runhai (Mingguang) and
Runyang (Dongtai) subsidiaries (approximately $8 million).   The remaining two thirds of capital
expenditures incurred during the first nine months of the fiscal year were
incurred in the set-up and construction of the Company’s new rebiana facility
(approximately $16.2 million).

 

Cash generated by financing activities was $27.1 million
in the first nine months of 2009 compared to $35.1 million in the same period in 2008.  The key items that generated the increase in
cash generated by financing activities during the nine months came from a net
increase in bank loans in China (short term and long term) of $38.5 million and
shareholder loans of $7.1 million; offset by the repayment of advances from
customers of $18.9 million.

 

26

 

Financial
Resources

 

Cash and cash equivalents increased by $1.5
million during the first nine months of 2009. 
Working capital (unadjusted for foreign exchange impacts) decreased by
$5.8 million from the year-end 2008 position.  
The working capital decrease can be attributed to a net increase in
short term liabilities during the first nine months of $8.6 million compared to
the net increase in current assets of $2.8 million during the same period.  The increase in current liabilities during
the first nine months of 2009 was driven by a number of factors.  Short term loans increased during the nine
month period by a $25 million and loans from related parties increased by $6.7
million which were offset by a decline in advances due to customers of $21.2
million, a decrease in interest payable of $1.0 million and a decrease in
deferred revenue of $2.0 million.  The
factors that increased the current assets by $2.8 million include the net
increase in cash of $1.5 million, an increase in prepaid expenses of $4.7
million and taxes receivable of $2.9 million which were offset by a reduction
in inventory of $4.3 million, and a reduction in accounts receivable of $1.6
million.

 

The Company’s working capital and working
capital requirements fluctuate from quarter to quarter depending on, among
other factors, the annual stevia harvest in China (third and fourth quarter
each year), the production output along with the amount of sales conducted during
the period.  The value of raw material in
inventory is the highest in the fourth quarter due to the fact that the Company
purchases leaf during the third and fourth quarter for the entire production
year which runs October through September each year.  The Company’s principal working capital needs
include accounts receivable, taxes receivable, inventory, prepaid expenses, and
other current assets, and accounts payable and interest payable.

 

The Company’s capital expenditure estimate
for 2009 is $28 million to $30 million (see 2009 Outlook section for further
details) of which $24 million has already been incurred.  The Company plans to finance these investment
needs with cash on hand and credit available from its existing credit
facilities in China.

 

As at September 30, 2009 the Company has
at its disposal bank credit facilities of approximately $39 million of which
$18.8 million are drawn.  The Company
also had $8.9 million of cash and cash equivalents as at September 30,
2009.   Over the course of the remainder
of fiscal 2009, $13.6 million in short term loans in China will mature and the
Company expects it will be able to renew these loan facilities for another year
when they come due.  The Company
successfully renewed one loan (RMB 30 million) during the third quarter which
came due on September 30, 2009 and has been renewed until March 31,
2010.

 

27

 

Balance
Sheet

 

In comparison to December 31, 2008, the
total assets increased by $7.7 million which was split by an increase in
current assets of $2.8 million and an increase in fixed and other long term
assets of $4.9 million.  The increased in
fixed assets reflects the increased investments made during the first nine months
of fiscal 2009 in completion of the Mingguang and Dongtai stevia extract
facilities and the investment in the rebiana facility being constructed in
Qingdao.  With respect to the plant
property values on the balance sheet, the strengthening of the Canadian Dollar
versus the RMB resulted in the conversion of the balance sheets of foreign
subsidiaries at lower rates, thus decreasing the Canadian dollar value of
balance sheet items.

 

In comparison to December 31, 2008, the
current liabilities increased by a $8.7 million driven by the net increase in
short term loans ($32 million) and an increase in accounts payable ($0.7
million) which were offset by a decrease in advances to customers ($21
million), a decrease in interest payable ($1 million) and a decrease in
deferred revenue ($2.0 million).  Shareholders’
equity decreased by $10.2 million which was driven by the decline in the
accumulated other comprehensive income account of $12.5 million.   With respect to the decline in the other
comprehensive income account, the strengthening of the Canadian Dollar versus
the RMB resulted in the conversion of the balance sheets of foreign
subsidiaries at lower rates.

 

Advances
from customers and Interest Payable

 

In July 2008, the Company negotiated a
new customer prepayment for the amount of US$20 million (CDN$24.5 million)
during the third quarter of 2008 for the delivery of high grade stevia extract
for the period October 1, 2008 through September 30, 2009.  The US$20 million was received in July 2008
and this prepayment bears an interest cost of LIBOR plus 6% during the term of
this prepayment financing.  The Company
will deliver product against this obligation over the period October 1,
2008 through September 30, 2009.  
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 September 30,
2009 was $3.3 million (US$3.1) (December 31, 2008 - $24,492,000 or
US$20,000,000) and interest accrued was $844 (US$ 786) (September 30, 2008
— $408,742).

 

China
Lines of Credit and Short Term Loans

 

During 2008 and 2009, the Company obtained
seven loans to finance its expansion.

 

28

 

A loan of $5.8 million (RMB 37 million),
which was obtained from Dongtai Rural Credit Union, bears interest of 6.66% per
annum and matures on November 20, 2009.

 

A loan of $7.9 million (RMB 50 million), which
was obtained from Construction Bank of China, bears interest of 5.31% per annum
and matures on December 25, 2009.

 

A loan of $4.7 million (RMB 30 million),
which was obtained from Construction Bank of China, bears interest of 5.31% per
annum and matures on March 31, 2010.

 

A loan of $3.1 million (RMB 20 million),
which was obtained from Construction Bank of China, bears interest of 5.31% per
annum and matures on April 29, 2010.

 

A loan of $9.4 million (RMB 60 million),
which was obtained from Agriculture Bank of China, bears interest of 5.31% per
annum and matures on June 15, 2010.

 

A loan of $4.7 million (RMB 30 million),
which was obtained from Construction Bank of China, bears interest of 5.31% per
annum and matures on June 24, 2010.

 

A loan of $9.4 (RMB 60 million) which was
obtained from Agricultural Bank of China, bears interest of 5.40% per annum and
matures on June 29, 2011.

 

All the loans are secured by the Company’s
subsidiaries with a total carrying value of $125,776,898.  Two pieces of land of two subsidiaries were
also used as collateral for the above facilities.

 

Contractual
obligations

 

a)             The
Company has two 5 year operating leases with respect to land and production
equipment at the Qingdao factory in China. 
The leases expire in 2011, and the annual minimum lease payments are
approximately $157,000 (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 $124,030 (RMB 790,000) is paid every 10 years.

 

c)             The
Company entered into an office lease with one year term commencing on May 1,
2009.

 

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

 

e)             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 

 

29

 

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 September 30, 2009, the Company
has not made any investment in the region.

 

f)             In
May 2009, the Company signed an investment agreement with the Qingdao
Export Process Zone to build a Stevia processing facility.  The investment agreement calls for the
Company to invest US$30 million in registered capital within two years.  This timetable for investment can be extended
by an additional year if the Company makes the request to the Government.    The first phase of its facility
construction is targeted to deliver a 1,000 metric ton rebiana facility by the
end of 2009.  The investment agreement
states that a total area of 1,300 mu of land will be made available to Runhao
and was discounted by approximately 80% from the market values.  The first phase of the development will
occupy 370 mu of land.   The Government
is responsible to make the land ready for use, the construction of a four lane
road to service the facility and to assist Runhao obtain all necessary permits.  The investment agreement calls for GLG to
invest US$ 30 million in registered capital in Runhao within two years of the
subsidiary being established.  This
timetable for investment can be extended by an additional year if GLG makes the
request to the Government.    The first
phase of its facility construction is targeted to deliver a 2,000 metric ton
rebiana facility with the first 1,000 metric ton rebiana line due by the end of
2009.  As at September 30, 2009, the
Company has invested approximately US$ 13 million and has entered into US$ 6
million of construction commitments associated with the construction of the
facility.

 

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

 

	
  In thousands 

  of Canadian $ 

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  Thereafter,

  	
   

  	
  Total

  	
   

  
	
  Customer prepayment

  	
   

  	
  $

  	
  3,296

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  3,296

  	
   

  
	
  Operating Leases

  	
   

  	
  $

  	
  98

  	
   

  	
  $

  	
  183

  	
   

  	
  $

  	
  157

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  248

  	
   

  	
  $

  	
  686

  	
   

  
	
  Capital expenditure commitments

  	
   

  	
  $

  	
  6,433

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  6,433

  	
   

  
	
  Investment Agreement Commitments

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  27,300

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  27,300

  	
   

  
	
  Total

  	
   

  	
  $

  	
  9,827

  	
   

  	
  $

  	
  183

  	
   

  	
  $

  	
  27,457

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  248

  	
   

  	
  $

  	
  37,715

  	
   

  

 

30

 

Capital
Structure

 

Outstanding Share Data as at October 30, 2009

 

	
   

  	
   

  	
  Shares

  	
   

  
	
  Common Shares Issued October 30, 2009

  	
   

  	
  80,618,391

  	
   

  
	
  Reserved For Issuance

  	
   

  
	
  Stock Options

  	
   

  	
  4,945,133

  	
   

  
	
  Reserved for Issuance — Other

  	
   

  	
  250,000

  	
   

  
	
  Reserved for Issuance - AHTD acquisition

  	
   

  	
  4,375,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Reserved for Issuance

  	
   

  	
  9,570,133

  	
   

  
	
  Fully Diluted Shares October 30, 2009

  	
   

  	
  90,188,524

  	
   

  

 

China laws
require all wholly foreign-owned enterprises to set aside 10% of retained
earnings as a general reserve fund for employee benefits every year until such
a fund has reached 50% of the Company’s registered capital. The reserve funds
are established for covering corporate obligations in the event of business
liquidation.  The reserve funds are
recorded as part of retained earnings (deficit).  The reserve funds are available for the
Company to use but are not available for distribution to shareholders other
than in liquidation and may limit repatriation of invested capital. The total
reserve of the Company at September 30, 2009 is $0.5 million (December 31, 2008
- $0.3 million).  This reserve fund
applies to all of GLG’s China based subsidiaries.  Pursuant to Chinese regulations, the Company
is required to make appropriations to reserve funds, based on after tax net
income determined in accordance with generally accepted accounting principles
of China.

 

Off-Balance
Sheet Arrangements

 

The Company had no off-balance sheet
arrangements.

 

Transactions
with Related Parties

 

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

 

a)             Pursuant
to consulting agreements between the Company and officers of the Company,
consulting fees of $157,773 and $528,356 were expensed for the three months and
nine months periods ended September 30, 2009, respectively (three months
ended September 30, 2008 - $135,963, nine months ended September 30,
2008 - $396,297).  Of which $309,738
remained as an accounts payable as at September 30, 2009 (December 31,
2008 - $75,000).

 

31

 

b)            Pursuant
to a management services agreement, the Company recorded management expenses of
$89,822 and $272,601 for the three months and nine months periods ended September 30,
2009, respectively (three months ended September 30, 2008 - $89,309, nine
months ended September 30, 2008 – $280,117) to a company controlled by
senior executives for management services provided to the Company, of which
$272,601 remained as an accounts payable as at September 30, 2009 (December 31,
2008 – Nil)

 

c)             During
the period, the Company obtained the following unsecured short term loans from
related parties:

 

	
  Loan amount in

  C$

  	
   

  	
  Loan amount in

  US$

  	
   

  	
  Maturity Date

  	
   

  	
  Interest rate per annum

  	
   

  	
  Related Party

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
  214,440

  	
   

  	
  200,000

  	
   

  	
  January 14, 2010

  	
   

  	
  8%

  	
   

  	
  a director 

  	
   

  
	
  2,144,400

  	
   

  	
  2,000,000

  	
   

  	
  June 28, 2010

  	
   

  	
  HSBC Bank Canada US Dollar prime rate + 3%

  	
   

  	
  a director and officer

  	
   

  
	
  1,715,520

  	
   

  	
  1,600,000

  	
   

  	
  July 13, 2010

  	
   

  	
  HSBC Bank Canada US Dollar prime rate + 3%

  	
   

  	
  a director and officer

  	
   

  
	
  2,680,500

  	
   

  	
  2,500,000

  	
   

  	
  August 25, 2010

  	
   

  	
  HSBC Bank Canada US Dollar prime rate + 3%

  	
   

  	
  a director and officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
  6,754,860

  	
   

  	
  $

  	
  6,300,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
												

 

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

 

32

 

2009
Outlook

 

Market
and Operations 2009 Outlook

 

GLG’s key operational objectives for 2009
are:

 

1.               Commence
operation of new facilities to increase production capacity and revenues (Completed)

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

3.               Organize
stevia growers in partnership with local governments in China to meet expected
2009 stevia demand (Completed).

4.               Generate
additional sales growth from GLG’s direct sales force and the GLG Weider
venture.

5.               Complete
a new rebiana production facility (Phase One — 1,000 Metric Tons) by year-end
2009

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

 

Revenue
2009 Outlook

 

The 14% appreciation of the Canadian dollar
against the US dollar seen to date in 2009 has impacted GLG revenue performance
throughout 2009 and it is further expected to impact revenues in the fourth
quarter of 2009.  The original outlook of
CAD $50-60 million was based on a $0.80 US dollar to Canadian dollar exchange
rate forecast.  This outlook forecast for
revenue expected to be generated in the third and fourth quarter was further
updated to a $0.86 US dollar to Canadian dollar exchange rate.  An analysis of the Canadian dollar against
the US dollar shows the following actual (source RBC: Finance Monthly, October 2,
2009)

 

	
  Q1 exchange rate

  	
   

  	
  $

  	
  0.79

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Q2 exchange rate

  	
   

  	
  $

  	
  0.86

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Q3 exchange rate

  	
   

  	
  $

  	
  0.93

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Q4 forecast exchange rate

  	
   

  	
  $

  	
  0.92

  	
   

  

 

Since the Company expected its 2009 revenue
to be significantly weighted to the third and fourth quarter of 2009, the
appreciation of the Canadian dollar against the US dollar has had a material
impact of the third quarter revenues and is forecast to have a further impact
on fourth quarter revenues based on the latest RBC exchange rate forecast.

 

The original US dollar forecast sales used in
the Company’s outlook were USD 40-48 million. 
The Company still expects the US dollar sales outlook to be achievable
in 2009, however due to the Canadian dollar’s appreciation against the US
dollar during 2009; the Company is revising its Canadian dollar sales 

 

33

 

outlook to CAD 44 to 53 million from CAD
50-60 million.  The average exchange
assumption for the 2009 sales outlook is $0.90 USD per CAD from the original
exchange rate assumption of $0.80 USD per CAD.

 

EBITDA
2009 Outlook

 

The Company maintains its EBITDA guidance in
the $8 million to $12 million range based on better than expected EBITDA margin
achieved in the third quarter of 2009. 
EBITDA margin in the third quarter was expected to be in the 16 to 20%
EBITDA margin on revenues.  The actual
EBITDA margin during the third quarter of 2009 was 26%.

 

The EBITDA margin outlook has therefore been
increased from the previous guidance of

 

Previous Guidance:  16 to 20% EBITDA margin on
full year revenues

 

Updated Guidance:  18 to 22% EBITDA margin on
full year revenues

 

Capital
Expenditures - 2009 Outlook

 

The Company is increasing its guidance for
capital expenditures from the second quarter by $5 million.  Capital expenditures are anticipated to be
$28 million to $30 million.  The increase
can be attributed to the increase in scope of the first phase of construction
for the new rebiana facility.  The
Company is constructing a facility that will be large enough to accommodate not
only the first 1,000 metric ton rebiana line, but also two additional 1000
rebiana lines for lower cost future expansion. 
The building constructed will have one million square feet of space and
has been constructed on 62 acres of land. 
An additional 65 acres has been reserved for future expansion.  The new rebiana facility has been constructed
following food grade “Good Manufacturing Practice” (GMP) standards and key
components are being constructed following pharmaceutical grade GMP
standards.  The Company expects to fund
the balance of these capital expenditures through its existing banking
arrangements in China.

 

GLG’s outlook for 2009 is:

 

	
   

  	
   

  	
  2009 Estimate

  	
   

  	
  2008 Actual

  	
   

  
	
  Revenue

  	
   

  	
  $44 to $53 million

  	
   

  	
  $9.9 million

  	
   

  
	
  EBITDA

  	
   

  	
  $8 to $12 million

  	
   

  	
  $(1.0 million)

  	
   

  
	
  Capital Expenditures (Capex)

  	
   

  	
  $28 to $30 million

  	
   

  	
  $57.8 million

  	
   

  

 

34

 

Critical
Accounting Estimates and Assumptions

 

The preparation of financial statements in
conformity with generally accepted accounting principles requires the
appropriate application of certain accounting policies, many of which require
us to make estimates and assumptions about future events and their impact on
amounts reported in our financial statements, including the statement of
operations, balance sheet, cash flow and related notes. Since future events and
their impact cannot be determined with certainty, the actual results will
inevitably differ from our estimates. Such differences could be material to the
financial statements.

 

We believe that our application of accounting
policies, and the estimates inherently required therein, are reasonable. These
accounting policies and estimates are periodically re-evaluated, and
adjustments are made when facts and circumstances dictate a change.
Historically, we have found our application of accounting policies to be
appropriate, and actual results have not differed materially from those
determined using necessary estimates.

 

Our accounting policies are more fully
described in the notes to our financial statements. In reading our financial
statements, you should be aware of the factors and trends that our management
believes are important in understanding our financial performance.

 

Inventory policy

 

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.

 

Provisions for excess, obsolete or slow
moving inventory are recorded after periodic evaluation of historical sales,
current economic trends, forecasted sales, estimated product lifecycles and
estimated inventory levels. The accounting estimate related to valuation of
inventories is considered a critical accounting estimate because it is
susceptible to changes from period-to-period due to purchasing practices,
accuracy of sales and production forecasts, introduction of new products,
product lifecycles, product support, exchange rates, sales prices new
competitive entrants and foreign regulations governing food safety. If actual
results differ the Company’s estimates, a reduction to the carrying value of
inventory may be required resulting in 
an increase in inventory write-offs and a decrease to gross margins.

 

Stock based compensation

 

The accounting estimate related to
stock-based compensation is considered a critical accounting estimate because
estimates are made in calculating compensation expense including expected
option lives, forfeiture rates and expected volatility. The fair market value
of our common stock on the date of each option grant was determined based on
the closing price of common stock on the grant date.

 

35

 

Expected option lives are estimated using
vesting terms and contractual lives. Expected forfeiture rates and volatility
are calculated using historical information. Actual option lives and forfeiture
rates may be different from estimates and may result in potential future
adjustments which would impact the amount of stock-based compensation expense
recorded in a particular period.

 

Income taxes

 

In accordance with CICA recommendations, the
Company recognizes future income tax assets when it is more likely than not
that the future income tax assets will be realized. This assumption is based on
management’s best estimate of future circumstances and events. If these
estimates and assumptions are changed in the future, the value of the future
income tax assets could be reduced or increased, resulting in an income tax
expense or recovery. The Company re-evaluates its future income tax assets on a
regular basis.

 

Recognition and impairment of goodwill and
intangibles

 

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.

 

Property, plant and equipment and long-lived
assets

 

Costs and interest relating to property,
plant and equipment in the course of construction are capitalized until
facilities are substantially complete. 
When the facilities are in production, these costs and interest will be
amortized over the useful life of the asset.

 

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.

 

The Company evaluates the recoverability of
long-lived assets and asset groups whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. When such a situation
occurs, the estimated undiscounted future cash flows anticipated to be
generated during the remaining life of the asset or asset group are compared to
its net carrying value. When the net carrying amount of the asset or asset
group is less than the undiscounted future cash flows, an impairment loss is
recognized to the extent by which the carrying amount of long lived assets or
asset group exceeds its fair value.

 

Management’s estimates of product prices,
foreign exchange, production levels and operating costs are subject to risk and
uncertainties that may affect the determination of the recoverability of the
long-lived asset groups. It is possible that material changes could occur that
may adversely affect management’s estimates.

 

36

 

CHANGES
IN ACCOUNTING POLICIES

 

Effective January 1, 2009, the Company
adopted Canadian Institute of Chartered Accountants

 

(“CICA”) Handbook section 3064, “Goodwill and
Intangible Assets.” This new standard replaces section 3062, “Goodwill and
Other Intangible Assets” and section 3450, “Research and Development Costs,”
and focuses on the criteria for asset recognition in the financial statements,
including those internally developed. The adoption of this standard did not
have an impact on the Company’s consolidated financial position or results of
operations.

 

Effective January 1, 2009, the Company
adopted the Emerging Issues Committee (“EIC”) Abstract EIC-173, “Credit Risk
and the Fair Value of Financial Assets and Financial Liabilities,” issued by
CICA. This standard requires the Company to consider its own credit risk as
well as the credit risk of its counterparty when determining the fair value of
financial assets and liabilities, including derivative instruments. The
adoption of this standard did not have an impact on the valuation of the
Company’s financial assets or liabilities.

 

FINANCIAL
AND OTHER INSTRUMENTS

 

As at September 30, 2009, the Company
was not party to any derivative or other similar instruments.

 

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 and accouts receivable.   The Company has a high concentration of
credit risk as the accounts receivable was owed by fewer than ten
customers.  Credit risk with respect to
accounts receivable is concentrated as one customer accounted for 39% of total
trade accounts receivable (December 31, 2008 — 71%).  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. 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.  Based on historic default rates, the Company
believes that there are minimal requirements for an allowance for doubtful
accounts against its accounts receivable. 
To mitigate credit risk the Company also requests deposits from
customers in certain circumstances.

 

The Company purchases majority of its raw
materials, and incurs expenses at prices denominated in RMB. Sales to United
States customers are denominated in US dollars. As a result, the Company is
exposed to the financial risk related to the fluctuations of foreign currency
exchange rates.  To manage the foreign
exchange risk, the Company obtains loans in RMB and US dollars to offset the
foreign exchange rate impacts from its daily operation.

 

37

 

RECENT
ACCOUNTING PRONOUNCEMENTS

 

In January 2009, the CICA issued the new
handbook Section 1582, “Business Combinations,” which requires that all
assets and liabilities of an acquired business to be recorded at fair value at
acquisition. Obligations for contingent considerations and contingencies will
also be recorded at fair value at the acquisition date. The standard also
states that acquisition-related costs will be expensed as incurred and that
restructuring charges will be expensed in periods after the acquisition date.
The new standard applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period on or after January 1, 2011. Although the Company is considering
the impact of adopting this pronouncement on the consolidated financial statements,
it will be limited to any future acquisitions beginning in fiscal 2011.

 

In January 2009, the CICA issued section
1601, “Consolidated Financial Statements,” which will replace CICA section 1600
of the same name. This guidance requires uniform accounting policies to be
consistent throughout all consolidated entities and the difference between
reporting dates of a parent and a subsidiary to be no longer than three months.
These are not explicitly required under the current standard. Section 1601
is effective for the Company on January 1, 2011 with early adoption
permitted. This standard will have no impact to the Company.

 

In January 2009, the CICA issued section
1602, “Non-controlling Interests,” which will replace CICA section 1600, “Consolidated
Financial Statements.” Under this new guidance, when there is a change in
control the previously held interest is revalued at fair value. Currently a
gain of control is accounted for using the purchase method and a loss of
control is accounted for as a sale resulting in a gain or loss in earnings. In
addition, non-controlling interests (“NCI”) can be in a deficit position
because it is recorded at fair value. Currently, NCI is recorded at the
carrying amount and can only be in a deficit position if the NCI has an
obligation to fund the losses. Section 1602 is effective for the Company
on January 1, 2011 with early adoption permitted.

 

International
Financial Reporting Standards (“IFRS”)

 

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

 

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

 

38

 

second quarter of 2008. This process involves
the establishment of a working group to manage the IFRS transition process, the
allocation of internal resources, the engagement of external expert
consultants, assessing the impact of the conversion on the consolidated
financial statements and disclosure, considering the impact of conversion on
the Company’s information technology systems, internal controls over financial
the readiness of the Company’s staff, Board of Directors and auditors.  The project consists of four phases:
awareness raising; assessment; design; and implementation. With the assistance
of an external expert advisor, the Company has completed the awareness-raising
phase and have performed a high level diagnostic review.  The Company has identified the most
significant differences applicable. Canadian GAAP and IFRS differ in the
following areas: stock based payments, revenue recognition, property and
equipment, capitalization of interests, provisions, reporting currency,
presentation and additional disclosure requirements under IFRS. Additional
differences might be identified in the future as changes to IFRS standards are
released.

 

The Company has initiated the design phase,
which involves establishing issue-specific work teams to focus on generating
options and making recommendations in identified areas. Initial training
programs have been provided to relevant employees since 2008.  The Company will follow the key events
timeline proposed by the Accounting Standards Board (“AcSB”) to obtain training
and thorough knowledge of IFRS, finalise assessment of accounting policies with
reference to IFRS and plan for convergence to be ready for the 2011 changeover.

 

Disclosure
Controls and Internal Controls over Financial Reporting

 

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

 

The Company’s management, under the direction
and supervision of the Chief Executive Officer and Chief Financial Officer, are
also responsible for establishing and maintaining internal control over
financial reporting. These controls are designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Canadian GAAP.
There have been no changes in the Company’s internal control over financial
reporting for the quarter ended September 30, 2009 that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.

 

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

 

39

 

Policy.  A Disclosure Committee has been
established to oversee the Corporate Disclosures.  The Policy has been
communicated to management and being implemented accordingly.

 

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

 

The Company’s management, under the direction
and supervision of the Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the Company’s internal control over financial
reporting as at September 30, 2009, and has concluded, based on its
evaluation, that certain controls within its ICFR were not effective for the
quarter ended September 30, 2009.

 

The Company did not have sufficient
accounting documentation, policies, procedures or segregation of duties for
certain transaction cycles. 
Specifically, the Company did not have a significant number of staff in
China that possesses an understanding of Canadian public capital market
requirements and Canadian GAAP. 
Furthermore, effective controls over accounting for income taxes and the
application of Canadian GAAP to certain complex transactions was not effective.

 

The Company began addressing these issues in
2008, when the Company hired additional financial staff at the Company’s head
office to oversee the financial reporting and consulted with tax advisors on
various tax issues.  The Company is
seeing progress through these two initiatives which the Company believes will
strengthen its controls over financial reporting.  The Company continues to determine other
appropriate remediation plans, such as reviewing the organizational structure
of the accounting group to strengthen its resources to reflect the Company’s
growth and the Company is executing a formal documented evaluation process to
evaluate compliance of internal control over financial reporting for purposes
of National Instrument 52-109.  This
evaluation process will be completed in 2009. 
In July 2009, the Company hired an experienced accountant in China
with knowledge of Chinese GAAP and internal control over financial reporting to
help address some of the issue related to having limited personnel in China who
have public company reporting experience.

 

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

 

40

 

Risks
Related to the Company’s Business

 

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

 

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

 

·                  Intellectual Property Infringement

·                  Product Liability Costs

·                  Manufacturing Risk

·                  Inventory Risk

·                  Customer Concentration Risk

·                  Competition

·                  Government Regulations

·                  Consumer Perception of Products

·                  Changing Consumer Preferences

·                  Market Acceptance

·                  Dependence on Key Personnel

·                  Volatility of Share Prices

 

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

 

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

 

·                  Government Involvement

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

·                  The Chinese Legal and Accounting System

 

41

 

·                  Currency Controls

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

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

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

·                  Jurisdictional and Enforcement Issues

·                  Political System in the People’s Republic of China

 

Additional
Information

 

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

 

42

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