Document:

Exhibit 4.3

 

 

	
  GLG
  Life Tech Corporation Management Discussion & Analysis

  	
  December 31

   

  2008

  
	
   

  	
   

  
	
  [Dated: March 31,
  2009]

  	
   

  
			

 

 

Contents

 

	
  Management’s
  Discussion and Analysis

  	
  4

  
	
   

  	
   

  
	
  Forward-Looking
  Statements

  	
  5

  
	
   

  	
   

  
	
  Overview

  	
  6

  
	
   

  	
   

  
	
  2008
  Corporate Developments

  	
  7

  
	
   

  	
   

  
	
  Results

  	
  13

  
	
   

  	
   

  
	
  Results
  from Operations

  	
  14

  
	
   

  	
   

  
	
  Revenues

  	
  14

  
	
   

  	
   

  
	
  Cost of
  Sales

  	
  15

  
	
   

  	
   

  
	
  Gross
  Profit

  	
  17

  
	
   

  	
   

  
	
  General
  and Administration Expenses

  	
  18

  
	
   

  	
   

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

  	
  19

  
	
   

  	
   

  
	
  Stock
  Based Compensation Expense

  	
  20

  
	
   

  	
   

  
	
  G&A
  Depreciation and Amortization

  	
  20

  
	
   

  	
   

  
	
  Other
  Income (Expenses)

  	
  21

  
	
   

  	
   

  
	
  Foreign
  Exchange gains (losses)

  	
  22

  
	
   

  	
   

  
	
  Net
  (Loss)

  	
  23

  
	
   

  	
   

  
	
  Comprehensive
  Income

  	
  23

  
	
   

  	
   

  
	
  Restatement

  	
  24

  
	
   

  	
   

  
	
  NON-GAAP
  Financial Measures

  	
  26

  
	
   

  	
   

  
	
  EBITDA

  	
  26

  
	
   

  	
   

  
	
  Selected
  Annual Information (000`S)

  	
  28

  
	
   

  	
   

  
	
  Summary
  Quarterly Results

  	
  29

  
	
   

  	
   

  
	
  Quarterly
  Net (Loss) Income

  	
  30

  
	
   

  	
   

  
	
  Quarterly
  Basic and Diluted (Loss) Earnings per Share

  	
  30

  
	
   

  	
   

  
	
  2008
  Capital Expenditures

  	
  31

  
	
   

  	
   

  
	
  Key
  Capital Projects for 2008

  	
  32

  
	
   

  	
   

  
	
  Liquidity
  and capital resources

  	
  33

  
	
   

  	
   

  
	
  Convertible
  Debenture Financing

  	
  34

  
	
   

  	
   

  
	
  Advances
  from customers

  	
  35

  

 

2

 

	
  China
  Lines of Credit and Short Term Loans

  	
  36

  
	
   

  	
   

  
	
  Contractual
  obligations

  	
  36

  
	
   

  	
   

  
	
  Capital
  Structure

  	
  38

  
	
   

  	
   

  
	
  Off-Balance
  Sheet Arrangements

  	
  38

  
	
   

  	
   

  
	
  Transactions
  with Related Parties

  	
  38

  
	
   

  	
   

  
	
  2009
  Outlook

  	
  40

  
	
   

  	
   

  
	
  Market
  and Operations 2009 Outlook

  	
  40

  
	
   

  	
   

  
	
  Revenue
  and EBITDA - 2009 Outlook

  	
  41

  
	
   

  	
   

  
	
  Capital
  Expenditures - 2009 Outlook

  	
  41

  
	
   

  	
   

  
	
  Critical
  Accounting Estimates and Assumptions

  	
  42

  
	
   

  	
   

  
	
  CHANGES
  IN ACCOUNTING POLICIES

  	
  42

  
	
   

  	
   

  
	
  Financial
  Instruments and Other Instruments

  	
  43

  
	
   

  	
   

  
	
  Fair
  Values

  	
  43

  
	
   

  	
   

  
	
  Credit
  Risks

  	
  44

  
	
   

  	
   

  
	
  Foreign
  Exchange Risk

  	
  45

  
	
   

  	
   

  
	
  Liquidity
  Risk

  	
  47

  
	
   

  	
   

  
	
  Interest
  Rate Risk

  	
  48

  
	
   

  	
   

  
	
  International
  Financial Reporting Standards (“IFRS”)

  	
  48

  
	
   

  	
   

  
	
  RECENT
  ACCOUNTING PRONOUNCEMENTS

  	
  49

  
	
   

  	
   

  
	
  Disclosure
  Controls and Internal Controls over Financial Reporting

  	
  51

  
	
   

  	
   

  
	
  Risks
  Related to our Business

  	
  53

  
	
   

  	
   

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

  	
  53

  
	
   

  	
   

  
	
  Additional Information

  	
  54

  

 

3

 

Management’s Discussion and Analysis

 

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

 

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

 

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

 

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

 

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

 

4

 

Forward-Looking Statements

 

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

 

5

 

Overview

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

2008 Corporate Developments

 

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

 

Strategic
Customer Arrangements

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

New
Stevia Leaf Processing Facilities announced in January 2009

 

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

 

Venture
Established with Weider Global Nutrition

 

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

 

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

 

9

 

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

 

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

 

1.                        United
States

 

2.                        China

 

3.                        Japan

 

4.                        Korea

 

5.                        Australia

 

6.                        New
Zealand

 

7.                        The
Philippines

 

8.                        South
America (Brazil, Chile, Paraguay)

 

9.                        Turkey

 

10.                  Taiwan

 

11.                  Thailand

 

12.                  Vietnam

 

13.                  Indonesia

 

14.                  Russia

 

15.                  Algeria

 

16.                  Mexico

 

17.                  Canada

 

10

 

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

 

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

 

Regulatory
Approval of Stevia

 

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

 

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

 

Highlights
from Stevia leaf harvest in China

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

Results

 

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

 

	
  In
  thousands

  Canadian $,

  except per share

  amounts

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Revenue

  	
   

  	
  $

  	
  4,657

  	
   

  	
  $

  	
  3,727

  	
   

  	
  25

  	
  %

  	
  $

  	
  9,891

  	
   

  	
  $

  	
  9,157

  	
   

  	
  8

  	
  %

  
	
  Cost of Sales

  	
   

  	
  $

  	
  3,718

  	
   

  	
  $

  	
  2,830

  	
   

  	
  31

  	
  %

  	
  $

  	
  7,560

  	
   

  	
  $

  	
  6,500

  	
   

  	
  16

  	
  %

  
	
  % of Revenue

  	
   

  	
  80

  	
  %

  	
  76

  	
  %

  	
  (4

  	
  )%

  	
  76

  	
  %

  	
  71

  	
  %

  	
  (5

  	
  )%

  
	
  Gross Profit

  	
   

  	
  $

  	
  939

  	
   

  	
  $

  	
  896

  	
   

  	
  5

  	
  %

  	
  $

  	
  2,331

  	
   

  	
  $

  	
  2,657

  	
   

  	
  (12

  	
  )%

  
	
  % of Revenue

  	
   

  	
  20

  	
  %

  	
  24

  	
  %

  	
  (4

  	
  )%

  	
  24

  	
  %

  	
  29

  	
  %

  	
  (5

  	
  )%

  
	
  General and Administration Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  )%

  
	
  Income (loss) from Operations

  	
   

  	
  $

  	
  (2,450

  	
  )

  	
  $

  	
  331

  	
   

  	
  (840

  	
  )%

  	
  $

  	
  (4,886

  	
  )

  	
  $

  	
  1,050

  	
   

  	
  (565

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (53

  	
  )%

  	
  9

  	
  %

  	
  (62

  	
  )%

  	
  (49

  	
  )%

  	
  11

  	
  %

  	
  (61

  	
  )%

  
	
  Other Income (Expenses)

  	
   

  	
  $

  	
  (6,146

  	
  )

  	
  $

  	
  (485

  	
  )

  	
  (1168

  	
  )%

  	
  $

  	
  (7,216

  	
  )

  	
  $

  	
  (1,290

  	
  )

  	
  (459

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (132

  	
  )%

  	
  (13

  	
  )%

  	
  (119

  	
  )%

  	
  (73

  	
  )%

  	
  (14

  	
  )%

  	
  (59

  	
  )%

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

  	
   

  	
  $

  	
  (8,596

  	
  )

  	
  $

  	
  (154

  	
  )

  	
  (5499

  	
  )%

  	
  $

  	
  (12,103

  	
  )

  	
  $

  	
  (240

  	
  )

  	
  (4934

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (185

  	
  )%

  	
  (4

  	
  )%

  	
  (180

  	
  )%

  	
  (122

  	
  )%

  	
  (3

  	
  )%

  	
  (120

  	
  )%

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

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  $

  	
  456

  	
   

  	
  (1659

  	
  )%

  	
  $

  	
  (10,607

  	
  )

  	
  $

  	
  369

  	
   

  	
  (2971

  	
  )%

  
	
  Loss per share (Basic)

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  (1208

  	
  )%

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  (2141

  	
  )%

  
	
  Loss per share (Diluted)

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  (2484

  	
  )%

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  (4490

  	
  )%

  
	
  Total Comprehensive Income (loss)

  	
   

  	
  $

  	
  7,001

  	
   

  	
  $

  	
  117

  	
   

  	
  5893

  	
  %

  	
  $

  	
  11,397

  	
   

  	
  $

  	
  (1,067

  	
  )

  	
  1168

  	
  %

  
	
  % of Revenue

  	
   

  	
  150

  	
  %

  	
  3

  	
  %

  	
  147

  	
  %

  	
  115

  	
  %

  	
  (12

  	
  )%

  	
  127

  	
  %

  
	
  EBITDA (1)

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  451

  	
   

  	
  (117

  	
  )%

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  	
  (167

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (2

  	
  )%

  	
  12

  	
  %

  	
  (14

  	
  )%

  	
  (10

  	
  )%

  	
  17

  	
  %

  	
  (27

  	
  )%

  

 

13

 

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

 

Results from Operations

 

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

 

Revenues

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

Cost of Sales

 

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

 

The key
components of stevia cost of sales in include:

 

15

 

a. stevia leaf

 

b. salaries and wages of manufacturing labour

 

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

 

d. depreciation of the stevia extract processing
plants.

 

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

 

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

 

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

 

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

 

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

 

·                  salaries and
wages of manufacturing labour

 

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

 

·                  depreciation on
stevia extract processing plant.

 

·                  Interest on leaf
purchases

 

·                  Net VAT paid on
export sales

 

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

 

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

 

16

 

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

 

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

 

Gross Profit

 

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

 

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

 

17

 

General and Administration Expenses

 

	
  In
  thousands Canadian

  $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  General and Administration Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  %)

  
																		

 

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

 

	
  In
  thousands Canadian

  $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  SG&A

  	
   

  	
  $

  	
  1,940

  	
   

  	
  $

  	
  561

  	
   

  	
  245

  	
  %

  	
  $

  	
  5,121

  	
   

  	
  $

  	
  1,592

  	
   

  	
  222

  	
  %

  
	
  Stock based compensation

  	
   

  	
  $

  	
  1,229

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  
	
  G&A Amortization and Depreciation

  	
   

  	
  $

  	
  220

  	
   

  	
  $

  	
  4

  	
   

  	
  4300

  	
  %

  	
  $

  	
  775

  	
   

  	
  $

  	
  15

  	
   

  	
  5100

  	
  %

  
	
  Expenses

  	
   

  	
  $

  	
  3,389

  	
   

  	
  $

  	
  565

  	
   

  	
  500

  	
  %

  	
  $

  	
  7,217

  	
   

  	
  $

  	
  1,607

  	
   

  	
  349

  	
  %

  
	
  % of Revenue

  	
   

  	
  73

  	
  %

  	
  15

  	
  %

  	
  (58

  	
  )%

  	
  73

  	
  %

  	
  18

  	
  %

  	
  (55

  	
  )%

  

 

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

 

18

 

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

 

	
  In
  thousands

  Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  SG&A Expenses

  	
   

  	
  $

  	
  1,940

  	
   

  	
  $

  	
  561

  	
   

  	
  245

  	
  %

  	
  $

  	
  5,121

  	
   

  	
  $

  	
  1,592

  	
   

  	
  222

  	
  %

  
	
  % of Revenue

  	
   

  	
  42

  	
  %

  	
  15

  	
  %

  	
  (27

  	
  )%

  	
  52

  	
  %

  	
  17

  	
  %

  	
  (35

  	
  )%

  
																		

 

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

 

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

 

19

 

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

 

Stock Based Compensation Expense

 

	
  In
  thousands

  Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Stock based Compensation

  	
   

  	
  $

  	
  1,229

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  	
  100

  	
  %

  
	
  % of Revenue

  	
   

  	
  26

  	
  %

  	
  —

  	
   

  	
  (26

  	
  )%

  	
  13

  	
  %

  	
  —

  	
   

  	
  (13

  	
  )%

  
																		

 

Stock based
compensation was $1.3 million for 2008 compared with zero in 2007.  GLG had an amended stock compensation plan
approved by its shareholders at its annual general meeting in June 2008.  Under the amended plan, the number of common
shares available for issue is 10% of the issued and outstanding common
shares.  Prior to 2008, the Company did
not grant stock options since 2005.  
Grants made during 2008 were 1,474,480 compensation securities including
both options and restricted shares.  84%
of these grants have three year vesting and performance criteria requirements
to be fully earned by the recipients.    
The majority of the 2008 stock compensation expenses were recognized in
the fourth quarter 2008 since the full year’s performance against compensation
plan targets was not known until year-end.

 

G&A Depreciation and Amortization

 

	
  In
  thousands

  Canadian $ 

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Depreciation & Amortization

  	
   

  	
  $

  	
  220

  	
   

  	
  $

  	
  5

  	
   

  	
  4300

  	
  %

  	
  $

  	
  775

  	
   

  	
  $

  	
  15

  	
   

  	
  5100

  	
  %

  
	
  % of Revenue

  	
   

  	
  5

  	
  %

  	
  0

  	
  %

  	
  (5

  	
  )%

  	
  8

  	
  %

  	
  0

  	
  %

  	
  (8

  	
  )%

  
																		

 

20

 

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

 

Other Income (Expenses)

 

	
  In
  thousands Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  Restated

  	
   

  	
  % Change

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  % Change

  	
   

  
	
  Other Income (Expenses)

  	
   

  	
  $

  	
  (6,146

  	
  )

  	
  $

  	
  (485

  	
  )

  	
  (1168

  	
  )%

  	
  $

  	
  (7,216

  	
  )

  	
  $

  	
  (1,290

  	
  )

  	
  (459

  	
  )%

  
	
  % of Revenue

  	
   

  	
  (132

  	
  )%

  	
  (13

  	
  )%

  	
  (119

  	
  )%

  	
  (73

  	
  )%

  	
  (14

  	
  )%

  	
  (59

  	
  )%

  
																		

 

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

 

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

 

21

 

Foreign Exchange gains (losses)

 

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

 

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

 

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

 

	
  Exchange
  rates

  Noon rate (as

  compared to the

  Canadian $)

  	
   

  	
  2006

  Dec 31

  	
   

  	
  2007

  Dec 31

  	
   

  	
  2008

  Mar 31

  	
   

  	
  2008

  Jun 30

  	
   

  	
  2008

  Sep 30

  	
   

  	
  2008

  Dec 31

  	
   

  
	
  U.S. Dollars

  	
   

  	
  0.8581

  	
   

  	
  1.0120

  	
   

  	
  0.9729

  	
   

  	
  0.9817

  	
   

  	
  0.9435

  	
   

  	
  0.8166

  	
   

  
	
  Chinese Yuan

  	
   

  	
  6.6845

  	
   

  	
  7.3910

  	
   

  	
  7.0572

  	
   

  	
  6.7295

  	
   

  	
  6.4599

  	
   

  	
  5.5710

  	
   

  

 

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

 

22

 

	
  Exchange rates

  	
   

  	
  2006

  Dec 31

  	
   

  	
  2007

  Dec 31

  	
   

  	
  2008

  Mar 31

  	
   

  	
  2008

  Jun 30

  	
   

  	
  2008

  Sep 30

  	
   

  	
  2008

  Dec 31

  	
   

  
	
  Chinese Yuan

  	
   

  	
  7.8175

  	
   

  	
  7.3141

  	
   

  	
  7.0222

  	
   

  	
  6.8718

  	
   

  	
  6.8469

  	
   

  	
  6.8223

  	
   

  

 

Net (Loss)

 

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

 

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

 

Comprehensive Income

 

	
  In thousands Canadian $

  	
   

  	
  Fourth

  quarter

  2008

  	
   

  	
  Fourth

  quarter

  2007

  	
   

  	
  %

  Change

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  %

  Change

  	
   

  
	
  Net Income (loss)

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  $

  	
  456

  	
   

  	
  (1659

  	
  )%

  	
  $

  	
  (10,607

  	
  )

  	
  $

  	
  369

  	
   

  	
  (2971

  	
  )%

  
	
  Other Comprehensive Income

  	
   

  	
  $

  	
  14,116

  	
   

  	
  $

  	
  (339

  	
  )

  	
  4270

  	
  %

  	
  $

  	
  22,003

  	
   

  	
  $

  	
  (1,437

  	
  )

  	
  1631

  	
  %

  
	
  Total Comprehensive Income

  	
   

  	
  $

  	
  7,001

  	
   

  	
  $

  	
  117

  	
   

  	
  5893

  	
  %

  	
  $

  	
  11,397

  	
   

  	
  $

  	
  (1,067

  	
  )

  	
  1169

  	
  %

  

 

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

 

23

 

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

 

Restatement

 

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

 

The following
tables present the impact of the restatement:

 

	
  Year ended December 31, 2007

  	
   

  	
  As Previously

  reported

  	
   

  	
  Restatement

  	
   

  	
  As Restated

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Balance Sheets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Property, Plant and Equipment

  	
   

  	
  $

  	
  13,389,207

  	
   

  	
  $

  	
  617,684

  	
   

  	
  $

  	
  14,006,891

  	
   

  
	
  Intangible assets

  	
   

  	
  $

  	
  23,788,499

  	
   

  	
  $

  	
  4,496,921

  	
   

  	
  $

  	
  28,285,420

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable & Accruals

  	
   

  	
  $

  	
  1,051,330

  	
   

  	
  $

  	
  195,000

  	
   

  	
  $

  	
  1,246,330

  	
   

  
	
  Convertible Debenture

  	
   

  	
  $

  	
  5,855,398

  	
   

  	
  $

  	
  (1,113,116

  	
  )

  	
  $

  	
  4,742,282

  	
   

  
	
  Future income taxes, net

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  3,887,060

  	
   

  	
  $

  	
  3,887,060

  	
   

  
	
  Shareholders’ Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share Capital

  	
   

  	
  $

  	
  61,247,731

  	
   

  	
  $

  	
  (195,000

  	
  )

  	
  $

  	
  61,052,731

  	
   

  
	
  Warrants

  	
   

  	
  $

  	
  14,353,214

  	
   

  	
  $

  	
  1,025,297

  	
   

  	
  $

  	
  15,378,511

  	
   

  
	
  Equity portion of convertible debenture

  	
   

  	
  $

  	
  189,817

  	
   

  	
  $

  	
  1,323,186

  	
   

  	
  $

  	
  1,513,003

  	
   

  
	
  Accumulated other comprehensive loss

  	
   

  	
  $

  	
  (1,562,250

  	
  )

  	
  $

  	
  254,324

  	
   

  	
  $

  	
  (1,307,926

  	
  )

  
	
  Deficit

  	
   

  	
  $

  	
  (1,178,526

  	
  )

  	
  $

  	
  (262,146

  	
  )

  	
  $

  	
  (1,440,672

  	
  )

  

 

24

 

	
  Year ended
  December 31, 2007

  	
   

  	
  As
  Previously

  reported

  	
   

  	
  Restatement

  	
   

  	
  As
  Restated

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Statement of
  Operations

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest on convertible debenture and advance

  	
   

  	
  $

  	
  (558,190

  	
  )

  	
  $

  	
  (617,684

  	
  )

  	
  $

  	
  (1,175,875

  	
  )

  
	
  Foreign exchange loss

  	
   

  	
  $

  	
  (54,488

  	
  )

  	
  $

  	
  (254,324

  	
  )

  	
  $

  	
  (308,812

  	
  )

  
	
  Income tax recovery

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  609,861

  	
   

  	
  $

  	
  609,861

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Income (Loss)

  	
   

  	
  $

  	
  631,576

  	
   

  	
  $

  	
  (262,146

  	
  )

  	
  $

  	
  369,430

  	
   

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

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Change in foreign currency translation

  	
   

  	
  $

  	
  (1,691,095

  	
  )

  	
  $

  	
  254,324

  	
   

  	
  $

  	
  (1,436,771

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Statements of Cash Flow

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash provided by (used in)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operations

  	
   

  	
  $

  	
  (10,582,927

  	
  )

  	
  $

  	
  456,721

  	
   

  	
  $

  	
  (10,126,206

  	
  )

  
	
  Financing

  	
   

  	
  $

  	
  44,926,258

  	
   

  	
  $

  	
  (456,721

  	
  )

  	
  $

  	
  44,469,537

  	
   

  

 

25

 

NON-GAAP Financial Measures

 

EBITDA

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

 

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

 

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

 

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

 

26

 

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

 

27

 

The following
table provides reconciliation to Canadian GAAP Net Income.

 

	
  In thousands Canadian

  	
   

  	
  Q4 08

  	
   

  	
  Q4 07

  Restated

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  
	
  Net Income (loss) before taxes and after minority interest

  	
   

  	
  $

  	
  (8,543

  	
  )

  	
  $

  	
  (154

  	
  )

  	
  $

  	
  (12,035

  	
  )

  	
  $

  	
  (240

  	
  )

  
	
  Add:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation and Amortization

  	
   

  	
  $

  	
  1,145

  	
   

  	
  $

  	
  120

  	
   

  	
  $

  	
  2,540

  	
   

  	
  $

  	
  498

  	
   

  
	
  Net Interest Expense (Income)

  	
   

  	
  $

  	
  139

  	
   

  	
  $

  	
  459

  	
   

  	
  $

  	
  1,189

  	
   

  	
  $

  	
  981

  	
   

  
	
  Foreign Currency losses

  	
   

  	
  $

  	
  2,842

  	
   

  	
  $

  	
  26

  	
   

  	
  $

  	
  2,842

  	
   

  	
  $

  	
  309

  	
   

  
	
  Provision on loans and receivables

  	
   

  	
  $

  	
  3,111

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  3,111

  	
   

  	
  $

  	
  —

  	
   

  
	
  Non-Cash Share Compensation Expense

  	
   

  	
  $

  	
  1,229

  	
   

  	
  —

  	
   

  	
  $

  	
  1,321

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EBITDA

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  451

  	
   

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  

 

Selected Annual Information (000`S)

 

	
  In thousands Canadian

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  	
  2006

  	
   

  
	
  Revenues

  	
   

  	
  $

  	
  9,891

  	
   

  	
  $

  	
  9,157

  	
   

  	
  $

  	
  1,410

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
  2,331

  	
   

  	
  $

  	
  2,657

  	
   

  	
  $

  	
  861

  	
   

  
	
  Net Income (loss)

  	
   

  	
  $

  	
  (10,606

  	
  )

  	
  $

  	
  369

  	
   

  	
  $

  	
  209

  	
   

  
	
  EBITDA (1)

  	
   

  	
  $

  	
  (1,032

  	
  )

  	
  $

  	
  1,548

  	
   

  	
  $

  	
  205

  	
   

  
	
  Earnings Per Share

  	
   

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  0.01

  	
   

  
	
  Diluted earnings per share

  	
   

  	
  $

  	
  (0.15

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  Total Assets

  	
   

  	
  $

  	
  174,361

  	
   

  	
  $

  	
  94,129

  	
   

  	
  $

  	
  21,363

  	
   

  
	
  Total Liabilities

  	
   

  	
  $

  	
  57,364

  	
   

  	
  $

  	
  17,230

  	
   

  	
  $

  	
  2,096

  	
   

  
	
  Total Shareholders’ Equity

  	
   

  	
  $

  	
  116,829

  	
   

  	
  $

  	
  76,898

  	
   

  	
  $

  	
  19,266

  	
   

  
	
  Employees

  	
   

  	
  808

  	
   

  	
  215

  	
   

  	
  71

  	
   

  

 

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

 

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

 

28

 

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

 

Summary Quarterly Results

 

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

 

	
  In
  thousands Canadian

  dollars, except per

  share amounts

  	
   

  	
  2008

  	
   

  	
  2007

  Restated

  	
   

  
	
   

  	
   

  	
  Q4

  	
   

  	
  Q3

  Restated

  	
   

  	
  Q2

  Restated

  	
   

  	
  Q1

  Restated

  	
   

  	
  Q4

  Restated

  	
   

  	
  Q3

  Restated

  	
   

  	
  Q2

  	
   

  	
  Q1

  	
   

  
	
  Revenue

  	
   

  	
  $

  	
  4,657

  	
   

  	
  $

  	
  3,302

  	
   

  	
  $

  	
  1,092

  	
   

  	
  $

  	
  841

  	
   

  	
  $

  	
  3,727

  	
   

  	
  $

  	
  2,258

  	
   

  	
  $

  	
  1,297

  	
   

  	
  $

  	
  1,874

  	
   

  
	
  Gross Profit

  	
   

  	
  $

  	
  939

  	
   

  	
  $

  	
  832

  	
   

  	
  $

  	
  293

  	
   

  	
  $

  	
  268

  	
   

  	
  $

  	
  896

  	
   

  	
  $

  	
  823

  	
   

  	
  $

  	
  472

  	
   

  	
  $

  	
  465

  	
   

  
	
  Gross Profit %

  	
   

  	
  20

  	
  %

  	
  25

  	
  %

  	
  27

  	
  %

  	
  32

  	
  %

  	
  24

  	
  %

  	
  36

  	
  %

  	
  36

  	
  %

  	
  25

  	
  %

  
	
  Net Income (Loss) Income

  	
   

  	
  $

  	
  (7,115

  	
  )

  	
  (986

  	
  )

  	
  $

  	
  (1,571

  	
  )

  	
  $

  	
  (934

  	
  )

  	
  $

  	
  456

  	
   

  	
  $

  	
  (468

  	
  )

  	
  $

  	
  96

  	
   

  	
  $

  	
  285

  	
   

  
	
  Basic (Loss) Per Share

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  Diluted (Loss) Per Share

  	
   

  	
  $

  	
  (0.10

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  (0.02

  	
  )

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  (0.01

  	
  )

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  EBITDA (3)

  	
   

  	
  $

  	
  (77

  	
  )

  	
  $

  	
  (199

  	
  )

  	
  $

  	
  (406

  	
  )

  	
  $

  	
  (350

  	
  )

  	
  $

  	
  451

  	
   

  	
  $

  	
  431

  	
   

  	
  $

  	
  286

  	
   

  	
  $

  	
  380

  	
   

  
	
   

  	
  (1)

  	
  Net Revenue restatement impact

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  (89

  	
  )

  	
  $

  	
  (148

  	
  )

  	
  $

  	
  (202

  	
  )

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
  (2)

  	
  Net Expense restatement impact

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  75

  	
   

  	
  $

  	
  538

  	
   

  	
  $

  	
  582

  	
   

  	
  $

  	
  (63

  	
  )

  	
  $

  	
  325

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  

 

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

 

29

 

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

 

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

 

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

 

Quarterly Net (Loss) Income

 

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

 

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

 

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

 

Quarterly Basic and Diluted (Loss) Earnings per Share

 

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

 

30

 

2008
Capital Expenditures

 

	
  In
  thousands Canadian

  	
   

  	
  Q4 08

  	
   

  	
  Q4 07

  	
   

  	
  % Change

  	
   

  	
  2008*

  	
   

  	
  2007

  	
   

  	
  % Change

  	
   

  
	
  Capital
  Expenditures

  	
   

  	
  $

  	
  25,796

  	
   

  	
  $

  	
  5,274

  	
   

  	
  389

  	
  %

  	
  $

  	
  57,790

  	
   

  	
  $

  	
  6,478

  	
   

  	
  792

  	
  %

  
																		

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

Key
Capital Projects for 2008

 

	
  GLG Subsidiary

  	
   

  	
  Capital Project

  	
   

  	
  Location

  	
   

  	
  Expected

  Completion

  Date

  	
   

  	
   

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

  	
   

  	
  1000 M T High Grade Stevia Upgrade.

  	
   

  	
  Qingdao, Shandong Province

  	
   

  	
  April, 2008

  	
   

  	
   

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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

  	
  18,000 MT Leaf Capacity Primary Processing Facility

  	
   

  	
  Dongtai, Jiangsu Province

  	
   

  	
  December, 2008

  	
   

  	
   

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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

  	
  18,000 MT Leaf Capacity Primary Processing Facility

  	
   

  	
  Mingguang, Anhui Province

  	
   

  	
  December, 2008

  	
   

  	
   

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

  

 

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

 

	
  Production
  Capacity

  	
   

  	
  2009 (current)

  	
   

  	
  Year end 2008

  	
   

  
	
  Leaf
  Processing

  	
   

  	
  41,000

  	
   

  	
  5,000

  	
   

  
	
  Intermediate
  Powder (RA 60)

  	
   

  	
  4,000

  	
   

  	
  500

  	
   

  
	
  High
  Grade Stevia (RA 80)

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  
	
  Rebiana
  (RA 97)

  	
   

  	
  500

  	
   

  	
  500

  	
   

  

 

32

 

Liquidity
and capital resources

 

	
  In thousands Canadian dollars

  	
   

  	
  2008

  	
   

  	
  2007 Restated

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  7,728

  	
   

  	
  $

  	
  28,253

  	
   

  
	
  Working
  Capital

  	
   

  	
  $

  	
  (2,562

  	
  )

  	
  $

  	
  29,842

  	
   

  
	
  Total
  Assets

  	
   

  	
  $

  	
  174,361

  	
   

  	
  $

  	
  94,129

  	
   

  
	
  Total
  Liabilities

  	
   

  	
  $

  	
  57,364

  	
   

  	
  $

  	
  17,230

  	
   

  
	
  Advances
  from Customers

  	
   

  	
  $

  	
  24,492

  	
   

  	
  $

  	
  6,549

  	
   

  
	
  Loans
  Payable (Current Portion)

  	
   

  	
  $

  	
  10,232

  	
   

  	
  $

  	
  6,000

  	
   

  
	
  Total
  Equity

  	
   

  	
  $

  	
  116,829

  	
   

  	
  $

  	
  76,898

  	
   

  

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

Convertible
Debenture Financing

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

Advances
from customers

 

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

 

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

 

35

 

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

 

China
Lines of Credit and Short Term Loans

 

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

 

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

 

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

 

Contractual
obligations

 

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

 

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

 

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

 

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

 

36

 

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

 

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

 

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

 

	
  In thousands

  of Canadian $

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  Thereafter,

  	
   

  	
  Total

  	
   

  
	
  Customer
  prepayment*

  	
   

  	
  $

  	
  24,492

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  24,492

  	
   

  
	
  Operating
  Leases

  	
   

  	
  $

  	
  257

  	
   

  	
  $

  	
  206

  	
   

  	
  $

  	
  180

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  284

  	
   

  	
  $

  	
  926

  	
   

  
	
  Total

  	
   

  	
  $

  	
  24,749

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  25,418

  	
   

  
																							

 

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

 

37

 

Capital
Structure

 

Outstanding
Share Data as at March 31, 2009

 

	
   

  	
   

  	
  Shares

  	
   

  
	
  Common
  Shares Issued March 31, 2009

  	
   

  	
  78,519,662

  	
   

  
	
  Reserved For Issuance

  
	
  Stock
  Options

  	
   

  	
  5,543,866

  	
   

  
	
  Warrants

  	
   

  	
  7,985,000

  	
   

  
	
  Reserved
  for Issuance - AHTD acquisition

  	
   

  	
  4,375,000

  	
   

  
	
  Reserved
  for Issuance – Other

  	
   

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total
  Reserved for Issuance

  	
   

  	
  18,153,866

  	
   

  
	
  Fully
  Diluted Shares March 31, 2009

  	
   

  	
  96,673,528

  	
   

  

 

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

 

Off-Balance
Sheet Arrangements

 

The Company had no off-balance sheet arrangements.

 

Transactions
with Related Parties

 

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

 

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

 

38

 

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

 

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

 

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

 

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

 

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

 

39

 

2009
Outlook

 

Market
and Operations 2009 Outlook

 

The Company expects the market for its stevia products to be
significantly stronger in 2009 compared to the demand seen in 2008.  This expectation is driven by the new markets
that opened up for stevia when it was approved as a food ingredient rather than
just as a dietary supplement late in 2008. 
The major market that has opened up for high purity Rebaudioside A stevia
extract products is the US.  There were
several important product launches in the US at the end of 2008 and the first
quarter of 2009.  GLG’s alliance partner
Cargill successfully launched a tabletop sweetener (TRUVIATM) in July 2008
using rebiana. The Coca-Cola Company has launched Sprite Green, Odwalla juices
and Vitaminwater10 using rebiana late in the fourth quarter of 2008 and during
the first quarter of 2009.  PepsiCo has
also launched a series of beverages sweetened with high purity Rebaudioside A.  The Company expects numerous new product
launches in 2009 based on the feedback received from customers and new
prospects.  The current economic
recession has the potential to impact the Company’s financial results
negatively if food and beverage companies reduce or delay their plans to launch
new stevia based products.

 

GLG’s key operational objectives for 2009 are:

 

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

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

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

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

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

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

 

GLG’s outlook for 2009 is:

 

	
   

  	
   

  	
  2009 Estimate

  	
   

  	
  2008 Actual

  	
   

  
	
  Revenue

  	
   

  	
  $50 to $60 million

  	
   

  	
  $9.9 million

  	
   

  
	
  EBITDA

  	
   

  	
  $8 to 12 million

  	
   

  	
  ($1.0) million

  	
   

  
	
  Capital
  Expenditures (Capex)

  	
   

  	
  $17 to $40 million

  	
   

  	
  $57.8 million

  	
   

  

 

40

 

Revenue and EBITDA -
2009 Outlook

 

GLG’s stevia operations are expected to account for 100% of revenue
growth in 2009.  This growth will be
based on delivery against existing customer orders for 2009 as well as expected
new orders for the 2009/2010 delivery period. 
2009 Revenue is expected to be significantly weighted towards the second
half of 2009.    This expectation is
driven by the following:

 

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

 

b) There was limited production and shipments in the first quarter due
to plant commissioning activities and the customary plant shut down in February for
Chinese New Year celebrations.

 

c) The new facilities underwent food safety audits which were completed
mid-March following which the new production facilities at Dongtai and
Mingguang are ramping up their production levels and commencing customer
shipments. (see also capital expenditures section).

 

d) New customer contracts are expected to be closed during 2009 with
delivery starting in the third and fourth quarters of 2009 to meet the remaining
$ 12.5 million (US$10 million) in revenue expected to be delivered during 2009
to meet the lower end of revenue guidance.

 

e) We expect to generate positive EBITDA starting in the second quarter
of 2009 based on sufficient revenue being generated to cover cash related
operating expenses.

 

Capital Expenditures -
2009 Outlook

 

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

 

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

 

41

 

Critical Accounting
Estimates and Assumptions

 

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

 

CHANGES IN ACCOUNTING
POLICIES

 

Accounting policies implemented effective January 1, 2008

 

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

 

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

 

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

 

42

 

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

 

Financial Instruments
and Other Instruments

 

Fair Values

 

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

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Held-for-trading

  	
   

  	
  $

  	
  7,829,166

  	
   

  	
  $

  	
  28,253,580

  	
   

  
	
  Loans and
  receivable

  	
   

  	
  $

  	
  2,717,765

  	
   

  	
  $

  	
  6,919,674

  	
   

  
	
  Other
  financial liabilities

  	
   

  	
  $

  	
  52,954,796

  	
   

  	
  $

  	
  13,343,358

  	
   

  

 

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

 

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

 

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

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Interest
  income from held-for-trading

  	
   

  	
  $

  	
  820,765

  	
   

  	
  $

  	
  78,498

  	
   

  
	
  Interest
  income from loans and receivables

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  115,789

  	
   

  
	
  Interest
  income from other financial liabilities

  	
   

  	
  $

  	
  (2,009,638

  	
  )

  	
  $

  	
  (1,175,873

  	
  )

  

 

43

 

Credit Risks

 

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

 

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

 

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

 

	
   

  	
   

  	
  0-30 days

  	
   

  	
  31-90 days

  	
   

  	
  over 90 days

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dollar
  Amount

  	
   

  	
  $

  	
  2,021,232

  	
   

  	
  $

  	
  0

  	
   

  	
  $

  	
  692,882

  	
   

  	
  $

  	
  2,714,114

  	
   

  
	
  % Total
  accounts receivable

  	
   

  	
  74

  	
  %

  	
  0

  	
  %

  	
  26

  	
  %

  	
  100

  	
  %

  
														

 

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

 

Reconciliation of changes in allowance for doubtful accounts:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Balance
  Beginning of year

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Increase
  in allowance for doubtful accounts

  	
   

  	
   

  	
   

  	
   

  	
   

  
								

 

44

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  622,029

  	
   

  	
  $

  	
  —

  	
   

  
	
  Interest
  receivable

  	
   

  	
  $

  	
  199,320

  	
   

  	
  $

  	
  —

  	
   

  
	
  Loan
  receivable

  	
   

  	
  $

  	
  2,290,002

  	
   

  	
  $

  	
  —

  	
   

  
	
  Balance –
  End of year

  	
   

  	
  $

  	
  3,111,351

  	
   

  	
  $

  	
  —

  	
   

  

 

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

 

Foreign Exchange Risk

 

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

 

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

 

45

 

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

 

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

 

At December 31, 2008:

 

	
  Expressed
  in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Financial
  assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  (5,023

  	
  )

  	
  $

  	
  (64,753

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (69,786

  	
  )

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  (26,227

  	
  )

  	
  $

  	
  (622

  	
  )

  	
  —

  	
   

  	
  $

  	
  (26,849

  	
  )

  
	
  Loans
  receivable

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Financial
  liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Short
  term bank loan

  	
   

  	
  —

  	
   

  	
  $

  	
  101,302

  	
   

  	
  —

  	
   

  	
  $

  	
  101,302

  	
   

  
	
  Accounts
  payable

  	
   

  	
  $

  	
  291

  	
   

  	
  $

  	
  166,882

  	
   

  	
  —

  	
   

  	
  $

  	
  167,173

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  242,495

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  242,495

  	
   

  
	
  Net
  unrealized foreign exchange gain

  	
   

  	
  $

  	
  211,536

  	
   

  	
  $

  	
  202,808

  	
   

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  414,334

  	
   

  

 

At December 31, 2007:

 

	
  Expressed
  in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Financial
  assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and
  cash equivalents

  	
   

  	
  $

  	
  (170,237

  	
  )

  	
  $

  	
  (90,031

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (260,278

  	
  )

  
	
  Accounts
  receivable

  	
   

  	
  $

  	
  (31,042

  	
  )

  	
  $

  	
  (1,793

  	
  )

  	
  —

  	
   

  	
  $

  	
  (32,835

  	
  )

  
	
  Loans
  receivable

  	
   

  	
  $

  	
  (18,295

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  (18,295

  	
  )

  
	
  Financial
  liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts
  payable

  	
   

  	
  —

  	
   

  	
  $

  	
  5,351

  	
   

  	
  —

  	
   

  	
  $

  	
  5,351

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  64,816

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  $

  	
  64,816

  	
   

  
														

 

46

 

	
  Expressed in Canadian dollars

  	
   

  	
  Net change in

  US$ balance

  	
   

  	
  Net change

  in RMB

  balance

  	
   

  	
  Net change in

  HK$ balance

  	
   

  	
  Total net change

  in foreign

  currency

  balances

  	
   

  
	
  Net
  unrealized foreign exchange gain

  	
   

  	
  $

  	
  (154,758

  	
  )

  	
  $

  	
  (86,474

  	
  )

  	
  $

  	
  (10

  	
  )

  	
  $

  	
  (241,242

  	
  )

  
														

 

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

 

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

 

Liquidity Risk

 

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

 

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

 

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

 

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

 

47

 

	
  Financial
  Liabilities

  	
   

  	
  0 to 12 months

  	
   

  	
  12 to 24 months

  	
   

  	
  After 24 months

  	
   

  
	
  Accounts
  Payable and accrued liabilities

  	
   

  	
  $

  	
  17,167,567

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Bank Debt

  	
   

  	
  $

  	
  10,231,500

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Interest
  payable

  	
   

  	
  $

  	
  1,063,729

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Advance
  from a customer

  	
   

  	
  $

  	
  24,492,000

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Obligation
  under leases

  	
   

  	
  $

  	
  256,788

  	
   

  	
  $

  	
  205,824

  	
   

  	
  $

  	
  463,110

  	
   

  
	
  Total

  	
   

  	
  $

  	
  53,211,584

  	
   

  	
  $

  	
  205,824

  	
   

  	
  $

  	
  463,110

  	
   

  

 

Interest Rate Risk

 

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

 

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

 

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

 

International Financial
Reporting Standards (“IFRS”)

 

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

 

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

 

48

 

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

 

RECENT ACCOUNTING
PRONOUNCEMENTS

 

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

 

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

 

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

 

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

 

49

 

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

 

50

 

Disclosure Controls and
Internal Controls over Financial Reporting

 

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

 

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

 

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

 

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

 

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

 

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

 

51

 

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

 

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

 

52

 

Risks Related to our
Business

 

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

 

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

 

·                  Intellectual Property
Infringement

·                  Product Liability Costs

·                  Manufacturing Risk

·                  Customer Concentration Risk

·                  Competition

·                  Government Regulations

·                  Consumer Perception of
Products

·                  Changing Consumer
Preferences

·                  Market Acceptance

·                  Dependence on Key Personnel

·                  Volatility of Share Prices

 

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

 

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

 

·                  Government Involvement

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

 

53

 

·                  The Chinese Legal and
Accounting System

·                  Currency Controls

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

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

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

·                  Jurisdictional and
Enforcement Issues

·                  Political System in the
People’s Republic of China

 

Additional Information

 

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

 

54Exhibit 4.4

 

 

GLG
LIFE TECH CORPORATION

 

NOTICE OF ANNUAL GENERAL
MEETING

 

NOTICE IS
HEREBY GIVEN that the annual general meeting (the “Meeting”) of
shareholders of GLG Life Tech Corporation (the “Corporation”) will be held at
the Pan Pacific Vancouver, Oceanview
Suite 4, Canada Place, Vancouver, British Columbia,  V6C 3B5 at 9:00 a.m. (Pacific time) on Thursday,  June 25, 2009 for the
following purposes:

 

1.                                       To receive the
report of the directors of the Corporation;

 

2.                                       To receive the
audited financial statements of the Corporation for the financial year ended December 31,
2008 and accompanying report of the auditor;

 

3.                                       To appoint PricewaterhouseCoopers
LLP, Chartered Accountants, as the auditor of the Corporation for the ensuing
year and to authorize the directors to fix the auditor’s remuneration;

 

4.                                       To set the
number of directors of the Corporation at seven;

 

5.                                       To elect the
directors of the Corporation for the ensuing year; and

 

6.                                       To transact
such other business as may properly come before the Meeting.

 

Accompanying this Notice of Meeting are: (1) an
Information Circular; (2) a form of proxy and notes thereto; and (3) a
reply card for use by shareholders who wish to receive annual and/or interim
financial statements of the Corporation.

 

If you are a registered shareholder of the Corporation
and unable to attend the Meeting in person, please complete, date and sign the
accompanying form of proxy and deposit it with Computershare Investor Services
Inc., at its Toronto office, 9th Floor, 100
University Avenue, Toronto, Ontario M5J 2Y1 by 9:00 a.m. (Pacific time) on Tuesday June 23, 2009 or at least 48 hours (excluding
Saturdays, Sundays and holidays) before the time that the Meeting is to be
reconvened after any adjournment of the Meeting.

 

If you are a non-registered shareholder of
the Corporation and received this Notice of Meeting and accompanying materials
through a broker, a financial institution, a participant, a trustee or
administrator of a self-administered retirement savings plan, retirement income
fund, education savings plan or other similar self-administered savings or
investment plan registered under the Income
Tax Act (Canada), or a nominee of any of the foregoing that holds
your security on your behalf (the “Intermediary”), please complete and return
the materials in accordance with the instructions provided to you by your
Intermediary.

 

DATED at Vancouver, British Columbia May 26, 2009.

 

	
  GLG LIFE TECH CORPORATION

  	
   

  
	
   

  	
   

  
	
  “Brian Meadows”

  	
   

  
	
  Brian Meadows

  	
   

  
	
  Chief Financial Officer

  	
   

  

 

 

GLG LIFE
TECH CORPORATION

 

MANAGEMENT
PROXY CIRCULAR

AS AT AND
DATED MAY 26, 2009

 

FOR

THE
ANNUAL GENERAL MEETING OF SHAREHOLDERS

TO BE
HELD ON THURSDAY, JUNE 25, 2009

 

SOLICITATION
OF PROXIES

 

This Management Proxy Circular is furnished
in connection with the solicitation of proxies being made by the management of
GLG Life Tech Corporation (the “Corporation”) for use at the Annual General
Meeting of the Corporation’s shareholders (the “Shareholders”) to be held on June 25,
2009 (the “Meeting”) at the time and place and for the purposes set forth in
the accompanying Notice of Meeting. While it
is expected that the solicitation will be made primarily by mail, proxies may
be solicited personally or by telephone by directors, officers and employees of
the Corporation.

 

All costs of this solicitation will be borne by the
Corporation.

 

PROXY
INSTRUCTIONS

 

Shareholders who cannot attend the Meeting in person
may vote by proxy if a registered Shareholder, or provide voting instructions
as provided herein if a non-registered Shareholder, either by mail, by phone or
over the internet.  Proxies and/or voting
instructions must be received by Computershare Investor Services Inc., the
Corporation’s transfer agent, (the “Transfer Agent”) no later than 9:00 am
(Vancouver time) on June 23, 2009 at its Toronto office, 9th Floor,
100 University Avenue, Toronto, Ontario M5J 2Y1.

 

A proxy returned to the Transfer Agent will not be
valid unless dated and signed by the Shareholder or by the Shareholder’s
attorney duly authorized in writing or, if the Shareholder is a corporation or
association, the form of Proxy must be executed by an officer or by an attorney
duly authorized in writing.  If the form
of Proxy is executed by an attorney for an individual Shareholder or by an
officer or attorney of a Shareholder that is a corporation or association, the
instrument so empowering the officer or attorney, as the case may be, or a
notarial copy thereof, must accompany the form of Proxy.  If not dated, the Proxy will be deemed to
have been dated the date that it is mailed to Shareholders.

 

The securities represented by Proxy will be voted or
withheld from voting in accordance with the instructions of the Shareholder on
any ballot that may be called for and, if the Shareholder specifies a choice
with respect to any matter to be acted upon, the securities will be voted
accordingly.  The form of Proxy confers
discretionary authority upon the named proxyholder with respect to matters
identified in the accompanying Notice of Meeting.  If a choice with respect to such matters is
not specified, it is intended that the person designated by management in the
form of Proxy will vote the securities represented by the Proxy in favour of each matter identified in the proxy and for the nominees of management for directors and auditor.

 

The Proxy confers discretionary authority upon the
named proxyholder with respect to amendments to or variations in matters
identified in the accompanying Notice of Meeting and other matters which may
properly come before the Meeting.  As at
the date of this Management Proxy Circular, management is not aware of any
amendments, variations, or other matters. 
If such should occur, the persons designated by management will vote
thereon in accordance with their best judgment, exercising discretionary
authority.

 

 

APPOINTMENT OF PROXYHOLDER

 

A Shareholder has the right to designate a
person (who need not be a Shareholder of the Corporation), other than Brian
Palmieri or Brian Meadows, both directors and/or officers of the Corporation
and the Management designees, to attend and act for the Shareholder at the
Meeting.  If you are returning your Proxy
to the Transfer Agent, such right may be exercised by inserting in the blank
space provided in the enclosed form of Proxy the name of the person to be
designated or by completing another proper form of Proxy and delivering it to
the Transfer Agent as provided above, or by phone or over the internet.  If you are using the internet, you may
designate another proxyholder by following the instructions on the
website.  It is not possible to appoint
an alternate proxyholder by phone. If you appoint a proxyholder, other than the
Management designees, that proxyholder must attend and vote at the Meeting for
your vote to be counted.

 

REVOCATION
OF PROXIES

 

In addition to revocation in any manner permitted by
law, you may revoke your Proxy by an instrument in writing signed by you as
registered Shareholder or by your attorney duly authorized in writing.  If you are a representative of a registered
Shareholder that is a corporation or association, the instrument in writing
must be executed by an officer or by an attorney duly authorized in writing,
and deposited with the Corporation’s registered office, Suite 519, World
Trade Centre, 999 Canada Place, Vancouver, British Columbia, V6C 3E1 at any
time up to and including the last business day preceding the day of the Meeting
or any adjournment thereof, or, as to any matter in respect of which a vote
shall not already have been cast pursuant to such Proxy, with the Chairman of
the Meeting on the day of the Meeting, or at any adjournment thereof, and upon
either of such deposits the Proxy is revoked. 
In addition, Shareholders can also change their vote by phone or via the
internet.

 

Only registered Shareholders have the right to revoke
a Proxy.  Non-registered Shareholders
that wish to change their voting instructions must, in sufficient time in
advance of the Meeting, contact the Transfer Agent or their intermediary to
arrange to change their voting instructions.

 

SPECIAL
INSTRUCTIONS FOR VOTING BY NON-REGISTERED SHAREHOLDERS

 

Only registered Shareholders or duly
appointed proxyholders are permitted to vote at the Meeting.  Some Shareholders of the Corporation are “non-registered”
Shareholders because the common shares of the Corporation (“Common Shares”)
they own are not registered in their names but are instead registered in the
name of the brokerage firm, bank or trust company through which they purchased
the Common Shares.  More particularly, a person is not a
registered Shareholder in respect of Common Shares which are held on behalf of
that person (the “Non-Registered Shareholder”) but which are registered in the
name of an intermediary (the “Intermediary”) that the Non-Registered
Shareholder deals with in respect of the Common Shares.  Intermediaries include, among others, banks,
trust companies, securities dealers or brokers and trustees or administrators
of self-administered RRSP’s, RRIF’s, RESP’s and similar plans; or in the name
of a clearing agency (such as The Canadian Depository of Securities Limited) of
which the Intermediary is a participant.

 

There are two kinds of Non-Registered Shareholders -
those who object to their name being made known to the Corporation (called OBOs
for “Objecting Beneficial Owners”) and those who do not object to the
Corporation knowing who they are (called NOBOs for “Non-Objecting Beneficial
Owners”).

 

The Corporation takes advantage of certain provisions
of National Instrument 54-101 — Communications with
Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”),
which permit the Corporation to directly deliver proxy-related materials to
NOBOs who have not waived the right to receive them.  As a result, NOBOs can expect to receive a
scannable voting instruction form (a “VIF”), together with the meeting
materials from the Transfer Agent.  These
VIFs are to be completed and returned to the Transfer Agent in accordance with
the instructions.  The Transfer Agent is
required to follow the voting instructions properly received from NOBOs.  The Transfer Agent will tabulate the results
of the VIFs received from NOBOs and will provide appropriate instructions at
the Meeting with respect to the Common Shares represented by the VIFs they
receive.

 

In accordance with the requirements of NI 54-101, the
Corporation has distributed copies of the meeting materials to the
Intermediaries for onward distribution to OBOs. 
Intermediaries are required to forward the meeting materials to OBOs
unless, in the case of certain proxy-related materials, the OBO has waived the
right to receive them.  Very 

 

2

 

often, Intermediaries will use service companies to
forward the meeting materials to OBOs. 
With those meeting materials, Intermediaries or their service companies
should provide OBOs with a “request for voting instruction form” which, when
properly completed and signed by such OBO and returned to the Intermediary or
its service company, will constitute voting instructions which the Intermediary
must follow.  The purpose of this
procedure is to permit OBOs to direct the voting of the Common Shares that they
beneficially own.

 

These proxy related materials are being sent to both
registered Shareholders and Non-Registered Shareholders.  If you are a Non-Registered Shareholder, and
the Corporation has sent these proxy related materials directly to you, your
name and address and information about your holdings of Common Shares have been
obtained in accordance with applicable securities requirements from the
Intermediary on your behalf.

 

By choosing to send these materials to you directly,
the Corporation (and not the intermediary holding on your behalf) has assumed
responsibility for (i) delivering these materials to you, and (ii) executing
your proper voting instructions.  Please
return your voting instructions as specified in the request for voting
instructions.

 

INTEREST
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

 

Other than as disclosed elsewhere in this Management
Proxy Circular, none of the directors or executive officers of the Corporation,
no proposed nominee for election as a director of the Corporation, none of the
persons who have been directors or executive officers of the Corporation since
the commencement of the Corporation’s last completed financial year and no
associate or affiliate of any of the foregoing persons has any material
interest, direct or indirect, by way of beneficial ownership of securities or
otherwise, in any matter to be acted upon at the Meeting.

 

VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF

 

The authorized share capital of the Corporation
consists of an unlimited number of Common Shares without par value.  As at the date of this Management Proxy
Circular, 78,519,662 Common Shares without par value were issued and
outstanding, each such Common Share carrying the right to one (1) vote at
the Meeting.  May 26, 2009 has been
fixed by the directors of the Corporation as the record date for the purpose of
determining those Shareholders entitled to receive notice of and to vote at the
Meeting.

 

To the knowledge of the directors and executive
officers of the Corporation, no person or company beneficially owns, or
controls or directs, directly or indirectly, voting securities carrying 10% or
more of the voting rights attached to any class of voting securities of the
Corporation other than:

 

	
  Name and Place of
  Residence of Shareholder

  	
   

  	
  Number of Common 

  Shares

  	
   

  	
  Percentage of Issued and
  

  Outstanding Common

  	
   

  
	
  HZ
  Health Management Company Limited Marshall Islands

  	
   

  	
  9,212,952

  	
   

  	
  11.7

  	
  %

  
	
  Skyland International
  Investment Management Ltd.

  Peoples Republic of China

  	
   

  	
  12,994,221

  	
   

  	
  16.5

  	
  %

  
	
  Pacific
  Marketing Consultants Ltd.

  	
   

  	
  8,125,000

  	
   

  	
  10.3

  	
  %

  

 

BUSINESS
OF THE MEETING

 

FINANCIAL STATEMENTS

 

The financial statements for the fiscal year ended December 31,
2008 are available on the Corporation’s website at www.glglifetech.com as well
as on www.sedar.com.

 

3

 

APPOINTMENT AND REMUNERATION OF AUDITORS

 

Shareholders will be asked to vote for the appointment of
PricewaterhouseCoopers LLP, Chartered Accountants, as the auditors of the
Corporation to hold office until the next annual meeting of Shareholders and to
authorize the Directors to fix the auditor’s remuneration.

 

PricewaterhouseCoopers LLP, Chartered Accountants was
appointed as the auditors of the Corporation effective December 3, 2008,
replacing the Corporation’s former auditor, Lo Porter Hetu, Certified General
Accountants.  The Corporation’s
determination to change auditors was not a result of any “Reportable Event” as
such term is defined in National Instrument 51-102 (“NI 51-102”).

 

Enclosed with this Management Proxy Circular is a copy
of the Reporting Package (as defined in NI 51-102) that has been filed with the
requisite securities regulatory authorities. 
The Reporting Package is attached hereto as Schedule “B” and forms a
part of this Management Proxy Circular. 
The Reporting Package consists of: (i) Notice of Change of Auditor;
(ii) Letter from Lo Porter Hetu, Certified General Accountants; and (iii) Letter
from PricewaterhouseCoopers LLP, Chartered Accountants.

 

ELECTION OF DIRECTORS

 

The number of directors for the Corporation is set by
ordinary resolution of the Shareholders of the Corporation. Management of the
Corporation is seeking Shareholder approval of an ordinary resolution
determining the number of directors of the Corporation at seven (7) for
the ensuing year.

 

The persons below are management’s nominees to the
Board. Each director elected will hold office until the next annual general
meeting or until his or her successor is duly elected or appointed unless his
or her office is earlier vacated in accordance with the Articles of the
Corporation or unless he or she becomes disqualified to act as a director. All
proposed nominees are currently directors of the Corporation and their term of
office will expire at the Meeting unless re-elected.

 

Nominees
For Election As A Director

 

	
  Name and Municipality of 

  Residence

  	
   

  	
  Number of
  Securities Held

  	
   

  	
  Principal
  Occupations

  	
   

  	
  Director
  Since

  
	
  Mr. David
  Beasley(1) (2)(3)(4)

  Society Hill, South
  Carolina

  United States

  	
   

  	
  20,000 Common
  Shares

  53,333 Options

  	
   

  	
  Consultant for
  Public Square Strategies Inc.

  	
   

  	
  June 21,
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. He
  Fangzhen(1)(3)(4)

  Jinan, Shangdong
  Province

  China

  	
   

  	
  5,436 Options

  	
   

  	
  Retired Chief
  Engineer

  	
   

  	
  May 7, 2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Madame Sophia
  Leung(1)(2)(3)(4)

  Vancouver, British
  Columbia Canada

  	
   

  	
  263,434 Common
  Shares

  20,000 Options

  	
   

  	
  Consultant for
  Canada Vision Enterprise Group Inc.

  	
   

  	
  February 2,
  2007

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. Brian
  Palmieri

  Cody, Wyoming

  United States 

  	
   

  	
  4,124,611 Common
  Shares

  982,674 Options

  	
   

  	
  President, Vice
  Chairman and Director of GLG Life Tech Corporation

  	
   

  	
  June 21,
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Madame Liu Yingchun(1)(2)(3)(4)

  Heze, Shangdong
  Province

  China

  	
   

  	
  34,340 Common Shares

  	
   

  	
  Corporate Director

  	
   

  	
  June 17, 2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. Jinduo Zhang

  Burnaby, British Columbia

  Canada 

  	
   

  	
  5,436 Common Shares

  1,022,103 Options

  	
   

  	
  Retired Professor

  	
   

  	
  June 21, 2005

  

 

4

 

	
  Name and Municipality of 

  Residence

  	
   

  	
  Number of
  Securities Held

  	
   

  	
  Principal
  Occupations

  	
   

  	
  Director
  Since

  
	
  Dr. Luke
  Zhang

  Heze, Shangdong Province

  China   

  	
   

  	
  4,417,684 Common
  Shares

  1,114,306
  Restricted Shares

  996,667 Options

  	
   

  	
  Chairman, Chief
  Executive Officer and Director of GLG Life Tech Corporation

  	
   

  	
  June 21, 2005

  

 

Notes:

(1)               Independent Director.

(2)               Member of the Audit Committee.

(3)               Member of Compensation Committee.

(4)               Member of Corporate Governance and
Nominating Committee.

 

The following is a brief description of the background
of the directors of the Corporation.

 

Directors and Officers

 

Mr. David Beasley (Director)

 

Mr. Beasley resides in Society Hill,
South Carolina and was appointed as a director of the Corporation on June 21,
2005.  From 1999 to 2000, he worked as a
consultant for Bingham Consulting Group, LLC, of Boston, Massachusetts, a
consulting business that advises large national and international companies on
public issues.  For the past four years, Mr. Beasley,
through his company Public Square Strategies, Inc., has continued to
provide consulting services to various companies on public issues, his main
client being Merrill Lynch & Co., Inc.  Mr. Beasley was Governor of South
Carolina from 1995 to 1999 and sat in the South Carolina House of
Representatives from 1979 to 1992.  Mr. Beasley
is an independent director.

 

Mr. He Fangzhen (Director)

 

Mr. Fangzhen is a specialist in manufacturing and
production. With over 40 years of experience, his rich expertise as a chief
engineer lies in optimizing manufacturing plant and personnel, particularly in
China. His specialties include planning, operational structure, maintenance,
safety, quality control and risk management as well as the assignment, training
and supervision of production and technology personnel. Mr. Fangzhen
graduated from Taiyuan Polytech University in China.

 

Madame Sophia Leung (Director)

 

Madame Leung resides in Vancouver, British Columbia
and was appointed as a director of the Corporation on February 2,
2007.  Madame Leung has served in
political positions on a national level, including as special advisor in
international trade to Canada’s prime minister from 2004-2006, parliamentary
secretary for National Revenue of Canada from 2000-2004 and Member of
Parliament of Canada 1997—2004.  Madame
Leung is an independent director.

 

Mr. Brian Palmieri (Director and
President)

 

Mr. Palmieri resides in Cody, Wyoming and was
appointed as the chief executive officer, treasurer and a director of the
Corporation on June 21, 2005. During the past five years Mr. Palmieri’s
time has been divided between the following businesses in which he is a
principal:

 

(a)                                  American Tool and Die Inc.,
the principal business of which is metals manufacturing and of which he is
president;

 

(b)                                 Lee Livingston Outfitters, the
principal business of which is outfitting; and

 

5

 

(c)                                  Palco International Inc. and
AAFAB International Inc., the principal business of both being international
trading and consulting and of which he serves as president.

 

For the last four years Mr. Palmieri’s principal
occupation has been as Chief Executive Officer of the Corporation. On May 15,
2008, Mr. Palmieri relinquished his role as Chief Executive Officer of the
Corporation and was named the Corporation’s President and Vice-Chairman.  Mr. Palmieri is a non-independent
director.

 

Madame Liu Yingchun (Director)

 

Madame Yingchun graduated from Shandong Economical
College and has over 20 years of experience in finance and accounting. She has
worked for several major banks and insurance companies in China including China
Bank and the Industrial and Commercial Bank of China. She is a certified
economist and financial analyst. Mrs. Liu was previously division head for
accounting, loans and trust and is skilled in corporate financing and
accounting. She also has experience in internal control and investment
management.

 

Mr. Jinduo Zhang (Director)

 

Mr. Jinduo Zhang is a retired professor, resides
in Burnaby, British Columbia and was appointed as a director of the Corporation
on June 21, 2005.  Professor Zhang
was, before his retirement, a physics professor at Shandong Heze
University.  He was also involved with
the financial management of the university and in the family jewelry and
pharmacy business.  In 1986, he retired
from his professorship in China and moved to the United States and then
Canada.  Since retirement, Professor
Zhang has been active in the development and expansion of his family business
functioning as an advisor and financial consultant for various projects.  Professor Zhang is a non-independent
director.

 

Dr. Luke Zhang (Director, Chief
Executive Officer and Chairman)

 

Dr. Zhang is a Canadian citizen and currently
resides in China.  He was appointed
president of the Corporation on September 6, 2007 and as the chairman and
a director of the Corporation on June 21, 2005.  Dr. Zhang received his PhD in Pharmacology from Vanderbilt University
and has worked in international business for over 20 years.  He is a
non-independent director. On May 15, 2008, Dr. Zhang relinquished his
role as President of the Corporation and was named the Corporation’s Chief
Executive Officer.

 

Corporate Cease Trade Orders and
Bankruptcies

 

During the ten years preceding the date of this
Management Proxy Circular, no proposed director of the Corporation has, to the
knowledge of the Corporation, been:

 

(a)                                  a director, chief executive officer or chief financial officer of
any company that:

 

(i)                                     was the subject of a cease trade or similar order or an order that
denied such company access to any exemption under securities legislation that
was in effect for a period of more than thirty consecutive days (an “Order”)
while the proposed director was acting in the capacity as director, chief
executive officer or chief financial officer; or

 

(ii)                                  was subject to such an Order that was issued after the proposed
director ceased to be a director, chief executive officer or chief financial
officer in the company that is the subject of the Order and which resulted from
an event that occurred while that person was acting in the capacity as
director, chief executive officer or chief financial officer; or

 

6

 

(b)                                 a director or executive officer of any company that, while that
person was acting in that capacity, or within a year of that person ceasing to
act in that capacity, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold the assets of that company.

 

Penalties and Sanctions

 

None of the proposed directors of the Corporation have
been the subject of any penalties or sanctions imposed by a court or securities
regulatory authority relating to trading in securities, the promotion,
formation or management of a publicly traded company or involving theft or
fraud.

 

Individual Bankruptcies

 

None of the proposed directors of the
Corporation has, within the ten years prior to the date of this Management
Proxy Circular, been declared bankrupt or made a voluntary assignment in
bankruptcy, made a proposal under any legislation relating to bankruptcy or
proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of that individual.

 

STATEMENT OF
EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

The Compensation Committee is responsible for
reviewing and approving corporate goals and objectives relevant to an executive
officer’s compensation, evaluating the executive officer’s performance in light
of those goals and objectives and making recommendations with respect to the
executive officer’s compensation, based on this evaluation.

 

In assessing the compensation of the Corporation’s
executive officers, the Compensation Committee has regard to: (i) current
base compensation and contractual obligations, (ii) past performance, (iii) objectives
and anticipated workload for the year ahead, (iv) reasonable submissions
from the executive officers, (v) market and industry practice and trends,
and (vi) such other matters as are appropriate in the circumstances.

 

The key components comprising executive officer
compensation are base salary (fixed component) and participation in the
Corporation’s Stock Option and Restricted Share Plan (variable component).  The Corporation has traditionally placed an
emphasis on the variable component of executive compensationa which reflects
the philosophical preference of the Corporation to compensate its executive officers
based primarily upon the performance of the Corporation and in certain
instances, the Corporation has made receipt of the compensation awards
contingent upon the achievement of corporate objectives, see “— Incentive Plan
Awards”.

 

Executive officers’ compensation is designed in a
manner to recognize and reward executive officers based upon individual and
corporate performance, to be competitive with the compensation arrangements and
programs established by other public companies with which the Corporation
compares itself, and to be consistent with the executive officers’ respective
contributions to the overall benefit of the Corporation.  At the end of each year, the Compensation
Committee also reviews actual performance against corporate objectives.

 

In establishing compensation objectives for executive
officers, the Compensation Committee seeks to:

 

(a)                                  motivate executives to achieve corporate performance objectives and
reward them when such objectives are met;

 

(b)                                 recruit and subsequently retain highly qualified executive officers
by offering overall compensation which is competitive with that offered for
comparable positions in similar companies; and

 

7

 

(c)                                  align the interest of executive officers with the long-term
interests of shareholders through participation in the Corporation’s Stock
Option and Restricted Share Plan.

 

Performance of Common Shares

 

On December 11, 2007, the Corporation’s
Common Shares began trading on the TSX under the symbol “GLG”.  Prior to that time, the Corporation’s Common
Shares were trading on the Canadian Trading and Quotation System (“CNQ”).

 

Assuming an initial investment of $100, the following
graph illustrates the cumulative total Shareholder return on the Corporation’s
Common Shares relative to the cumulative total return on the S&P/TSX
Composite Index from June 28, 2005, being the date the Corporation’s
Common Shares commenced trading on the CNQ through to December 31, 2008
when the Corporation’s Common Shares were trading on the TSX (assuming
reinvestment of dividends).

 

CUMULATIVE VALUE OF $100 INVESTMENT

ASSUMING REINVESTMENT OF DIVIDENDS

 

 

	
   

  	
   

  	
  June 28, 2005

  	
   

  	
  Dec. 31, 2005

  	
   

  	
  Dec. 31, 2006

  	
   

  	
  Dec. 31, 2007

  	
   

  	
  Dec. 31, 2008

  	
   

  
	
  GLG Life Tech

  	
   

  	
  $

  	
  100.00

  	
   

  	
  $

  	
  293.75

  	
   

  	
  $

  	
  250.00

  	
   

  	
  $

  	
  1,031.25

  	
   

  	
  $

  	
  385.00

  	
   

  
	
  S&P/TSX
  Composite

  	
   

  	
  $

  	
  100.00

  	
   

  	
  $

  	
  113.29

  	
   

  	
  $

  	
  132.84

  	
   

  	
  $

  	
  145.91

  	
   

  	
  $

  	
  97.75

  	
   

  

 

Management believes that shareholder return and
executive compensation trends are not directly relational at this time due to
the position of the Corporation in terms of its corporate development, stock
market conditions as at December 31, 2008 and the fact that, prior to the
2008 fiscal year, the Corporation had not granted variable compensation to its
officers and directors since June 2005.

 

8

 

Summary
Compensation Table

 

The following table provides a summary of compensation
paid, directly or indirectly, to the following persons (collectively, the “Named
Executive Officers” or “NEOs”):

 

(a)                                  our Chief Executive Officer (“CEO”),

 

(b)                                 our Chief Financial Officer (“CFO”),

 

(c)                                  our most highly compensated executive officers, other than the CEO
and CFO, who were serving as executive officers or acting in a similar capacity
and whose total compensation, individually, was in excess of $150,000 as at the
end of the most recently completed financial year; and

 

(d)                                 each individual for whom disclosure would have been provided under (c) but
for the fact that the individual was neither serving as an executive officer of
the Corporation, nor acting in a similar capacity, at the end of the most
recently completed financial year.

 

	
  Name and Principal

  Position 

  	
   

  	
  Year

  	
   

  	
  Salary

  ($)

  	
   

  	
  Share-

  based 

  awards

  ($){4)

  	
   

  	
  Option-

  based 

  awards

  ($){4)

  	
   

  	
  Non-equity
  incentive plan

  compensation ($)

  	
   

  	
  Pension 

  value ($)

  	
   

  	
  All
  other compensation

  ($)

  	
   

  	
  Total

  compensation

  ($)

  	
   

  
	
   

  	
  Annual 

  incentive 

  plans

  	
   

  	
  Long-term
  

  incentive 

  plans

  	
   

  	
   

  
	
  Brian Meadows{1)  

  Chief Financial
  Officer and Corporate Secretary

  	
   

  	
  2008

  	
   

  	
  157,000

  	
   

  	
  117,744

  	
   

  	
  121,114

  	
   

  	
  41,250

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  12,000

  	
   

  	
  437,108

  	
   

  
	
   

  	
  2007

  	
   

  	
  27,500

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  3,000

  	
   

  	
  30,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Brian Palmieri{2)

  	
   

  	
  2008

  	
   

  	
  Nil

  	
   

  	
  21,744

  	
   

  	
  68,951

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  120,000

  	
  {5)

  	
  210,695

  	
   

  
	
  President and Director

  	
   

  	
  2007

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  70,000

  	
  {5)

  	
  70,000

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  70,000

  	
  {5)

  	
  70,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dr. Luke Zhang(3)

  Chairman, Chief Executive Officer and Director

  	
   

  	
  2008

  	
   

  	
  Nil

  	
   

  	
  4,457,224

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  300,000

  	
  {6)

  	
  4,757,224

  	
   

  
	
   

  	
  2007

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  130,000

  	
  {6)

  	
  130,000

  	
   

  
	
   

  	
  2006

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  130,000

  	
  {6)

  	
  130,000

  	
   

  

 

Notes:

	
  (1)

  	
   

  	
  Mr. Meadows was
  appointed as the Chief Financial Officer on October 9, 2007 and
  Corporate Secretary on May 19, 2009.

  
	
  (2)

  	
   

  	
  On May 15, 2008,
  Brian Palmieri relinquished his role as Chief Executive Officer of the
  Corporation and was named President and Vice-Chairman of the Corporation.

  
	
  (3)

  	
   

  	
  Dr. Zhang did not
  serve in the capacity of a Named Executive Officer before August 29,
  2007. On May 15, 2008, Dr. Zhang relinquished his role as President
  of the Corporation and was named Chief Executive Officer of the Corporation,
  in addition to his role as Chairman.

  
	
  (4)

  	
   

  	
  Grant date fair values
  for 2008 were determined using Black-Scholes method to determine grant date
  fair value using the following assumptions:

  
	
   

  	
   

  	
  Risk Free Interest Rate:

  	
  3%

  	
  Expected Volatility:

  	
  140%

  
	
   

  	
   

  	
  Expected Dividend
  Yield:

  	
  0%

  	
  Expected Life:

  	
  5 years

  
	
  (5)

  	
   

  	
  Amounts represent
  consulting fees paid to a corporation controlled by Mr. Palmieri for his
  executive services to GLG.

  
	
  (6)

  	
   

  	
  Amounts represent
  consulting fees paid to a corporation controlled by Dr. Zhang for his
  executive services to GLG.

  

 

9

 

Employment
Contracts, Termination and Change of Control Benefits

 

Each of the
current Named Executive Officers has a formal employment agreement with the
Corporation, the material terms of which are set forth below.

 

Mr. Brian Palmieri:  On July 1,
2005, PALCO International Inc. (“PALCO”) entered into a contract with the
Corporation, as amended on July 1, 2008 and further amended on April 24,
2009, pursuant to which it was agreed that Mr. Palmieri would provide his
services to the Corporation and be responsible for the total oversight and day
to day operations of the Corporation. Mr. Palmieri is providing his
services on a “contract” basis and there is no fixed term to this agreement.
The current amended contact for Mr. Palmieri includes a minimum of US$165,000
per year (the “PALCO Minimum Amount”). All past due payments owing to PALCO
shall either be paid in one sum or rolled into a long term five year note
payable to PALCO at an accrued interest rate of prime plus two percent
calculated monthly. For the purpose of the foregoing calculation, “prime” means
the prime rate published in the Wall Street Journal on the first day of the
beginning month of a quarter.

 

In the event of the termination of the
contract, other than for cause (in which case no severance is payable), the
Corporation shall pay to PALCO the sum of all payments due plus an amount equal
to three times the PALCO Minimum Amount (US$495,000).

 

In the event that the Corporation is acquired,
or is the non-surviving party of a merger, or sells all or substantially all of
its assets, the contract will not terminate and the Corporation will use its
best efforts to ensure that the transferee or surviving entity is bound by the
contract. If the new company wishes to terminate the contract, it will pay either
PALCO ten times the PALCO Minimum Amount (US$1,650,000) or the parties may
otherwise agree on a mutually acceptable cash settlement.

 

Dr. Luke Zhang:  On July 1,
2005, Dr. Zhang entered into an employment contract with the Corporation,
as amended, as amended on July 1, 2008 and further amended on April 24,
2009, to act as its head of operations in China. Dr. Zhang is providing
his services on a “contract” basis and there is no fixed term to this
agreement. The current amended contact for Dr. Zhang includes a minimum of
US$300,000 per year (the “Zhang Minimum Amount”).  All past due payments owing to Dr. Zhang
shall either be paid in one sum or rolled into a long term five year note
payable to Dr. Zhang at an accrued interest rate of prime plus two percent
calculated monthly. For the purpose of the foregoing calculation, “prime” means
the prime rate published in the Wall Street Journal on the first day of the
beginning month of a quarter.

 

In the event of the termination of the
contract, other than for cause (in which case no severance is payable), the
Corporation shall pay to Dr. Zhang the sum of all payments due plus an
amount equal to three times the Zhang Minimum Amount (US$900,000).

 

In the event that the Corporation is acquired,
or is the non-surviving party of a merger, or sells all or substantially all of
its assets, the contract will not terminate and the Corporation will use its
best efforts to ensure that the transferee or surviving entity is bound by the
contract. If the new company wishes to terminate the contract, it will either
pay Dr. Zhang three times the Zhang Minimum Amount ($390,000) or the
parties may otherwise agree on a mutually acceptable cash settlement.

 

Mr. Brian Meadows: 
Effective October 9, 2007, Mr. Brian Meadows assumed the role
of Chief Financial Officer of the Corporation for a five year term pursuant to
an employment agreement as amended on June 23, 2008.  His annual base salary pursuant to the
amended agreement is $180,000. The objectives that the annual incentive bonus
will be paid upon will be mutually agreed annually by Mr. Meadows and the
Corporation. Mr. Meadows is also entitled to a motor vehicle allowance of
$1,000 per month. In the event of his termination, other than for cause (in
which case no severance is payable), he is entitled to receive 26 weeks of
gross fixed annual remuneration on such termination on the condition that he
executes a comprehensive release of any claims against the Corporation. In
these circumstances, any stock options received by Mr. Meadows under the
Corporation’s Stock Option and Restricted Share Plan will deem to be vested. He
may be required to serve the notice period on an active or passive basis at the
discretion of the Corporation.  Mr. Meadows
was appointed Corporate Secretary of the Corporation on May 19, 2009

 

10

 

Incentive
Plan Awards

 

The Corporation’s 2008 incentive stock option and
restricted share plan (the “Stock Option and Restricted Share Plan”) provided
for the granting of up to a maximum of 10% of the issued and outstanding common
shares.  For further particulars of the
Stock Option and Restricted Share Plan, see section “Securities Authorized for
Issuance under Equity Compensation Plans” on page 14 of this Management
Proxy Circular.

 

Outstanding share-based awards and option-based awards
for NEOs are set out in the following table:

 

	
   

  	
   

  	
  Option-based Awards

  	
   

  	
  Share-based Awards

  	
   

  
	
  Name

  	
   

  	
  Number of 

  Securities 

  underlying 

  unexercised 

  options

  (#)

  	
   

  	
  Option 

  exercise price

  ($)

  	
   

  	
  Option 

  expiration 

  date

  	
   

  	
  Value of 

  unexercised 

  in-the-money 

  options 

  ($)(2)

  	
   

  	
  Number of 

  shares or 

  units of 

  shares that 

  have not 

  vested 

  (#)

  	
   

  	
  Market or 

  payout value 

  of share-

  based awards 

  that have not 

  vested 

  ($)(3)

  	
   

  
	
  Brian Meadows

  	
   

  	
  33,973

  	
  (1)

  	
  4.00

  	
   

  	
  May 16, 2013

  	
   

  	
  Nil

  	
   

  	
  125,436

  	
   

  	
  232,057

  	
   

  
	
  Brian Palmieri

  	
   

  	
  19,341

  	
  (1)

  	
  4.00

  	
   

  	
  May 16, 2013

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
  996,667

  	
   

  	
  0.30

  	
   

  	
  June 20, 2010

  	
   

  	
  1,544,834

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dr. Luke Zhang

  	
   

  	
  996,667

  	
   

  	
  0.30

  	
   

  	
  June 20, 2010

  	
   

  	
  1,544,834

  	
   

  	
  1,114,306

  	
  (1)

  	
  2,061,466

  	
   

  

 

Notes:

(1)          These awards are subject to the achievement of certain
performance targets established by the Compensation Committee.  These performance targets include targets for
Revenue, Earnings before Interest tax and depreciation (EBITDA), Earnings per
Share, Major Customer Contract additions and Performance against Major Customer
Contracts.   Awards vest over three years
subject to the achievement of specific performance targets over the three
years.  The key performance targets of
the Corporation were achieved in 2008 and therefore one third of these
performance awards were earned by these executives for payout at the end of the
three year vesting period.

(2)          The in-the-money value is equal to the number of
options multiplied by the difference between the exercise price of the options
and the closing trading price on the TSX on December 31, 2008 of $1.85.

(3)          Restricted shares have no exercise price.  The market value of the unvested restricted
shares is equal to the number of unvested restricted shares multiplied by the
closing trading price on the TSX on December 31, 2008 of $1.85.

 

The following table discloses incentive plan awards —
value vested or earned for each NEO for the most recently completed financial
year:

 

	
  Name

  	
   

  	
  Option-based awards — 

  Value vested during the year

  ($)

  	
   

  	
  Share-based awards —
  Value 

  vested during the year 

  ($)

  	
   

  	
  Non-equity incentive
  plan 

  compensation — Value earned 

  during the year 

  ($)

  	
   

  
	
  Brian Meadows

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  41,250

  	
   

  
	
  Brian Palmieri

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
  Dr. Luke Zhang

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  

 

Option based and share based awards to GLG Executive
are based on either meeting established performance targets by the Compensation
Committee and/or through multi-year vesting requirements designed to align
compensation of GLG Executive management with the interests of the Corporation’s
shareholders.

 

Pension Plan Benefits

 

The Corporation does not have a retirement plan.

 

11

 

Director
Compensation

 

We have no standard arrangement pursuant to which
directors are compensated for their services in their capacity as directors
except for the granting, from time to time, of incentive stock options and/or
restricted shares in accordance with the Corporation’s Stock Option and
Restricted Share Plan and the policies of the Toronto Stock Exchange.  No cash compensation was paid to any director
of the Corporation for the director’s services as a director during the
financial year ended December 31, 2008.

 

Director compensation
table:

 

	
  Name(1)

  	
   

  	
  Fees 

  earned

  ($)

  	
   

  	
  Share-based 

  awards 

  ($)(2)

  	
   

  	
  Option-

  based 

  awards

  ($)(2)

  	
   

  	
  Non-equity 

  incentive 

  plan 

  compensation

  ($)

  	
   

  	
  Pension 

  value

  ($)

  	
   

  	
  All other 

  compensation

  ($)

  	
   

  	
  Total

  ($)

  	
   

  
	
  Mr. David Beasley
  Independent Director

  	
   

  	
  Nil

  	
   

  	
  80,000

  	
   

  	
  71,300

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  151,300

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. He Fangzhen
  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  19,379

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  19,379

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mrs. Sophia Leung
  Independent Director

  	
   

  	
  Nil

  	
   

  	
  80,000

  	
   

  	
  71,300

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  151,300

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mrs. Liu Yingchun
  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. Jinduo Zhang
  Non-Independent Director

  	
   

  	
  Nil

  	
   

  	
  21,744

  	
   

  	
  19,379

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  41,123

  	
   

  

 

Notes:

	
  (1)

  	
   

  	
  Compensation for Board
  members Dr. Zhang and Mr. Palmieri has been reflected in the
  Summary Compensation Table for Named Executive Officers.

  
	
  (2)

  	
   

  	
  Grant date fair values
  for 2008 were determined using Black-Scholes method to determine grant date
  fair value using the following assumptions:

  
	
   

  	
   

  	
  Risk Free Interest
  Rate:

  	
  3%

  	
  Expected Volatility:

  	
  140%

  
	
   

  	
   

  	
  Expected Dividend
  Yield:

  	
  0%

  	
  Expected Life:

  	
  5 years

  

 

Outstanding share-based awards and
option-based awards for the Corporation’s directors are disclosed in the
following table:

 

	
   

  	
   

  	
  Option-based Awards

  	
   

  	
  Share-based Awards

  	
   

  
	
  Name

  	
   

  	
  Number of 

  Securities 

  underlying 

  unexercised 

  options 

  (#)

  	
   

  	
  Option 

  exercise 

  price ($)

  	
   

  	
  Option 

  expiration 

  date

  	
   

  	
  Value of 

  unexercised 

  in-the-money 

  options 

  ($)(1)

  	
   

  	
  Number of 

  shares or 

  units of 

  shares that 

  have not 

  vested 

  (#)

  	
   

  	
  Market or 

  payout value 

  of share-

  based awards 

  that have not 

  vested 

  ($)(2)

  	
   

  
	
  Mr. David
  Beasley

  	
   

  	
  20,000

  	
   

  	
  4.00

  	
   

  	
  05/16/13

  	
   

  	
  Nil

  	
   

  	
  20,000

  	
   

  	
  37,000

  	
   

  
	
  Independent
  Director

  	
   

  	
  33,333

  	
   

  	
  0.30

  	
   

  	
  06/20/10

  	
   

  	
  51,666

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. He
  Fangzhen

  	
   

  	
  5,436

  	
   

  	
  4.00

  	
   

  	
  05/16/13

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
  Independent
  Director

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ms. Sophia
  Leung

  	
   

  	
  20,000

  	
   

  	
  4.00

  	
   

  	
  05/16/13

  	
   

  	
  Nil

  	
   

  	
  20,000

  	
   

  	
  37,000

  	
   

  
	
  Independent
  Director

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ms. Liu
  Yingchun

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
  Independent
  Director

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. Jinduo
  Zhang

  	
   

  	
  5,436

  	
   

  	
  4.00

  	
   

  	
  05/16/13

  	
   

  	
  Nil

  	
   

  	
  5,436

  	
   

  	
  10,057

  	
   

  
	
  Non-Independent Director

  	
   

  	
  1,016,667

  	
   

  	
  0.30

  	
   

  	
  06/20/10

  	
   

  	
  1,575,834

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

12

 

Notes:

(1) 
The in-the-money value is equal to the number of options multiplied by the
difference between the exercise price of the options and the closing trading
price on the TSX on December 31, 2008 of $1.85.

(2) 
Restricted shares have no exercise price. 
The market value of the unvested restricted shares is equal to the
number of unvested restricted shares multiplied by the closing trading price on
the TSX on December 31, 2008 of $1.85.

 

The following table discloses incentive plan awards —
value vested or earned during the year:

 

	
  Name

  	
   

  	
  Option-based awards – 

  Value vested during the 

  year

  ($)

  	
   

  	
  Share-based awards – 

  Value vested during the 

  year 

  ($)

  	
   

  	
  Non-equity incentive plan 

  compensation — Value 

  earned during the year 

  ($)

  	
   

  
	
  Mr. David Beasley 

  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. He Fangzhen 

  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Madame Sophia Leung
  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mrs. Liu Yingchun 

  Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mr. Jinduo Zhang 

  Non-Independent Director

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  

 

 

Proportion
of Common Shares Held by Directors and Executive Officers

 

Collectively, as of the date hereof, the
directors and executive officers of the Corporation, as a group, own 10,113,947
Common Shares, representing approximately 12.9% (10.5% on a fully diluted
basis) of the issued and outstanding Common Shares.

 

Indemnification of Directors or Officers

 

There was no indemnification payable this financial
year to directors or officers of the Corporation.

 

Directors’ and Officers’
Insurance

 

The Corporation maintains liability insurance for its
directors and officers in the aggregate amount of $10 million, subject to a
$50,000 deductible loss payable by the Corporation.  The current annual premium of $42,000 is paid
by the Corporation.

 

Key Management Insurance

 

The Corporation does not maintain key management
insurance.

 

13

 

SECURITIES AUTHORIZED FOR
ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

As of the financial year ended December 31,
2008, the Corporation’s Stock Option and Restricted Share Plan was the only
equity compensation plan under which securities were authorized for
issuance.  The following table sets forth
information with respect to the Corporation’s Stock Option and Restricted Share
Plan as at the financial year ended December 31, 2008.

 

 

	
  Plan Category

  	
   

  	
  Number of Securities to 

  be issued upon exercise 

  of outstanding options, 

  warrants and rights

  (a)

  	
   

  	
  Weighted average 

  exercise price of 

  outstanding options, 

  warrants and rights(1)

  (b)

  	
   

  	
  Number of securities 

  remaining available for 

  future issuance under 

  equity compensation 

  plans excluding securities 

  reflected in column (a)

  (c)

  	
   

  
	
  Equity
  compensation plans approved by securityholders

  	
   

  	
  6,834,480

  	
   

  	
  $

  	
  1.04

  	
   

  	
  1,017,486

  	
   

  
	
  Equity
  compensation plans not approved by securityholders

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  	
  Nil

  	
   

  
	
  Total

  	
   

  	
  6,834,480

  	
   

  	
  $

  	
  1.04

  	
   

  	
  1,017,486

  	
   

  

 

Note:

(1)          These figures include the weighted average exercise
price of Options and the weighted average issue price of Restricted Shares.

 

Stock Option and Restricted Share Plan

 

Effective May 16, 2008, the Board of Directors
and Shareholders of the Corporation approved the Corporation’s Stock Option and Restricted Share Plan in order
to provide incentive compensation to directors, officers, employees and
consultants of the Corporation.

 

The Stock Option and Restricted Share Plan
reserves a maximum of 10% of the issued and outstanding Common Shares of the
Corporation for issue pursuant to options (“Options”) and restricted shares
(“Restricted Shares”).  As a result,
should the Corporation issue additional Common Shares in the future, the number
of Common Shares issuable under the Stock Option and Restricted Share Plan will
increase accordingly. The Stock Option and Restricted Share Plan is considered
as an “evergreen” plan since the Common Shares covered by the Options and
Restricted Shares shall be available for subsequent grants at such time as the
Options have been exercised or the Restricted Shares have become
unrestricted.  As of the date hereof, an
aggregate of 6,834,480 Options and Restricted Shares have been awarded and
remain outstanding under the Stock Option and Restricted Share Plan
representing 8.7% of the Corporation’s issued and outstanding Common
Shares.  As of the date hereof, 1,017,486
Options and Restricted Shares will be available for grant representing 1.3% of
the Corporation’s issued and outstanding Common Shares.

 

The purpose of the Stock Option and Restricted Share Plan is to attract, retain and motivate directors, officers, employees
and consultants of the Corporation and the preferred approach of the
Corporation is to compensate such individuals based primarily upon the
performance of the Corporation.

 

The exercise price of options (“Options”) is
determined by the Board in its sole discretion and shall not be less than the
closing price of the Common Shares on The Toronto Stock Exchange (“TSX”) on the
day preceding the award date, less any discount permitted by the TSX.  The Stock Option and Restricted Share Plan does not
contemplate that the Corporation will provide financial assistance to any
optionee in connection with the exercise of options.

 

14

 

The vesting schedule in respect of the Options will be
a variable vesting schedule set at the discretion of the Compensation Committee
of the Corporation’s Board of Directors. 
Options granted
under the Stock Option and Restricted Share Plan may be exercised as soon as they have
vested.

 

In the event that the Corporation subdivides,
consolidates, or reclassifies the Corporation’s outstanding Common Shares, or
makes another capital adjustment, the number of Common Shares receivable upon
the exercise of Options will be increased or reduced proportionately.

 

Each restricted share (“Restricted Share”) granted
under the Stock Option and
Restricted Share Plan will become an unrestricted
Common Share, without payment of additional consideration, at the end of a
restricted period (the “Restricted Period”). The Restricted Period will be
determined by the Compensation Committee, provided however that in the event
the Compensation Committee does not set out such a period, the Restricted
Period will commence on the grant date and continue until the third anniversary
of such grant date. The Compensation Committee retains the right with respect
to any one or more participants to accelerate the time at which Restricted
Shares will become unrestricted.

 

Holders of Restricted Shares will have, in respect of
their Restricted Shares, all rights as a shareholder of the Corporation,
including the right to vote and the right to receive dividends in respect of
the Restricted Shares and for all purposes will be treated as shareholders of
the Corporation, but for the fact that the Restricted Shares may be cancelled
or terminated in certain circumstances prior to the expiry of the Restricted
Period.

 

All Options and Restricted Shares will terminate on
the earlier of the expiry of their term and 30 days following the termination
of a participant’s employment, engagement or position.  Upon the death of a participant, the legal
representatives of such participant may exercise the Options held by such
participant not later than 12 months following the date of death of the
participant, in the case of director or employee, and not later than one month
following the date of death of the participant in the case of a consultant.  Upon the death of a participant, each
Restricted Share shall be cancelled if the Restricted Period does not expire
within 12 months following the date of death of the participant, in the case of
director or employee, and within one month following the date of death of the
participant in the case of a consultant.

 

Options and Restricted Shares may not be assigned or
transferred with the exception of an assignment made to a personal
representative of a deceased participant or to a personal representative where
the participant is, for any reason, unable to manage his or her affairs and
such ersonal representative is entitled by law to act for the participant.

 

Subject to the Stock Option and Restricted
Share Plan reserving a maximum of 10% of the issued and outstanding Common
Shares of the Corporation for issue, the Stock Option and Restricted Share Plan
does not provide for a maximum number of shares which
may be issued to an individual pursuant to the plan and any other share
compensation arrangement (expressed as a percentage or otherwise).  However, the Corporation is restricted from issuing more
than 10% of issued and outstanding Common Shares in any
one year period, or at any time, to insiders of the Corporation unless the
Corporation obtains disinterested shareholder approval pursuant to the policies
of the TSX.

 

The Board of Directors will be specifically authorized
to amend the terms of the Stock Option and Restricted Share Plan, and the terms
of any Options or Restricted Shares granted under the Stock Option and
Restricted Share Plan, without obtaining shareholder approval, to:

 

(i)                                     amend the termination and
cancellation provisions of the Options and the Restricted Shares;

 

(ii)                                  accelerate the vesting period
of any Options or the Restricted Period of any Restricted Shares; or

 

(iii)                               make other amendments of a
housekeeping nature or to comply with the requirements of any regulatory
authority.

 

Notwithstanding the foregoing, no
amendments to:

 

15

 

(i)                                     increase the number of Common
Shares reserved for issuance under the Stock Option and Restricted Share
Plan;

 

(ii)                                  add any form of financial
assistance;

 

(iii)                               amend a financial assistance
provision which is more favourable to participants; or

 

(iv)                              change the manner of
determining the Exercise Price of the Options,

 

shall be made without obtaining approval of the
applicable security holder and of the Corporation’s shareholders in accordance
with the requirements of the TSX.

 

A copy of the Stock Option and Restricted Share Plan can be obtained by contacting the Secretary of the Corporation in
writing at Suite 519, World Trade Centre, 999 Canada Place, Vancouver,
British Columbia, V6C 3E1.

 

INDEBTEDNESS
OF DIRECTORS AND EXECUTIVE OFFICERS

 

None of the directors or executive officers of the
Corporation has been indebted to the Corporation or its subsidiaries during the
financial year ended December 31, 2008.

 

REPORT ON CORPORATE GOVERNANCE

 

The following provides information with
respect to the Corporation’s compliance with the corporate governance
requirements (the “Corporate Governance Guidelines”) of the Canadian Securities
Administrators set forth in National Instrument 58-101 and Form 58-101F1.

 

Board of Directors

 

The Corporation’s Board is currently composed of seven
directors, a majority of whom are independent of management under the Corporate
Governance Guidelines and free of any interest and any business or other
relationship, other than arising from their shareholdings that could interfere
with their ability to act with a view to the best interests of the Corporation.

 

	
  Director

  	
   

  	
  Independence

  
	
  Mr. David
  Beasley

  	
   

  	
  Independent

  
	
  Madame Sophia
  Leung

  	
   

  	
  Independent

  
	
  Mr. He
  Fangzhen

  	
   

  	
  Independent

  
	
  Madame Liu
  Yingchun

  	
   

  	
  Independent

  
	
  Mr. Brian
  Palmieri

  	
   

  	
  Non-Independent
  (due to position as President of the Corporation)

  
	
  Mr. Jinduo
  Zhang

  	
   

  	
  Non-Independent
  (due to familial relationship with Dr. Luke Zhang)

  
	
  Dr. Luke
  Zhang

  	
   

  	
  Non-Independent
  (due to position as Chief Executive Officer of the Corporation)

  

 

The independent status of each individual director is
reviewed annually by the Board.  The
Board considers a director to be independent if he has no direct or indirect
material relationship with the Corporation which, in the view of the Board of
Directors could reasonably be perceived to materially interfere with the
exercise of the director’s independent judgment.

 

The chair of the Board, Dr. Luke Zhang, is not an
independent director, however, the Board believes that it has strong,
experienced independent directors who openly and candidly voice their opinions
at meetings. The Board believes that this structure facilitates the functioning
of the Board independently of the Corporation’s management and has therefore
not appointed an independent lead director. The independent directors are able
to exercise their responsibilities for independent oversight of management
through their majority control of the Board and through 

 

16

 

the committees established by the Board which include
the Audit Committee,the Compensation Committee and the Nomination and Corporate
Governance Committee which are composed entirely of independent directors.

 

Meetings of independent directors are not regularly
scheduled but communication among this group occurs on an ongoing basis as
needs arise from regularly scheduled meetings of the Board.  However, the Corporate Governance and
Nominating Committee of the Board intends to review whether having formal
meetings of the independent would be beneficial to the Corporation.

 

The following table summarizes directors’ attendance
at Board meetings during the year ended December 31, 2008:

 

	
  Director

  	
   

  	
  Regularly Scheduled

  Board Meetings Attended (in person or via telephone)

  
	
  Mr. David Beasley

  	
   

  	
  5 of 5

  
	
  Madame Sophia Leung

  	
   

  	
  5 of 5

  
	
  Mr. He Fangzhen{1)

  	
   

  	
  1 of 3

  
	
  Madame Liu Yingchun{2)

  	
   

  	
  2 of 3

  
	
  Mr. Brian Palmieri

  	
   

  	
  5 of 5

  
	
  Mr. Jinduo Zhang

  	
   

  	
  5 of 5

  
	
  Dr. Luke Zhang

  	
   

  	
  5 of 5

  

 

Notes:

(1) 
Became a director on May 7, 2008.

(2)          Became a director on June 17, 2008.

 

Board
Mandate

 

The Board has adopted a written charter, a
copy of which is attached as Schedule “A” hereto.

 

Board members and management will participate in an
annual strategic planning review process. Any revisions to the plan will be
approved by the Board.  Implementation of
the strategic plan will be the responsibility of management. The Board will
systematically review opportunities by weighing them against the business risks
and actively managing these risks. The Board will provide leadership but will
not become involved in day-to-day matters. 
Management will report to the Board on a regular basis on the
Corporation’s progress in achieving these strategic objectives.

 

Board Assessments

 

The Board, its Committees and its
individual directors have not been regularly assessed with respect to their
effectiveness and contribution but intend to commence these assessments in the
current fiscal year.

 

Position Descriptions

 

The Board of Directors has adopted written charters
for the three Board Committees. Brief summaries of the role of the three Board
Committees may be found elsewhere in this document.

 

Orientation and Continuing
Education

 

The Board has an informal process for the orientation
of new Board members regarding the role of the Board, its Committees and
directors, and the nature of operation of the Corporation.  New directors meet with executive management
and incumbent directors and are provided with written materials to aid in their
familiarization with the Corporation.

 

Directors are made aware of their responsibility to
keep themselves up to date with best director and corporate governance
practices and are encouraged and funded to attend seminars that will increase
their own and the Board’s effectiveness.

 

17

 

Ethical
Business Conduct

 

The Board of Directors has adopted a Code
of Conduct and Business Ethics which sets out guidelines and expectations
regarding conduct on the part of directors, officers and employees of the
Corporation.  The Code is available on
the Corporation’s website at www.glglifetech.com.

 

The Corporation has a Corporate Disclosure Policy,
available on the Corporation’s website at www.glglifetech.com, which provides
additional measures to ensure ethical business conduct, such as policies and
requirements regarding insider trading and trading blackout periods.

 

The Board also requires conflicts of interest to be
disclosed to the Corporation’s Corporate Governance and Nominating
Committee.  In the event that conflicts
of interest arise, a director who has such a conflict is required to disclose
the conflict and to abstain from voting for or against the approval of the
matter.  In addition, in considering
transactions and agreements in respect of which a director has a material
interest, the Board will require that the interested person absent themselves
from portions of Board or Committee meetings so as to allow independent
discussion of points in issue and the exercise of independent judgment.

 

Nomination of Directors

 

With advice and input from the Corporate Governance
and Nominating Committee, the Board, in identifying new candidates for Board
nomination, will:

 

(a)                                  consider what competencies and
skills the Board, as a whole, should possess;

 

(b)                                 assess what competencies and
skills each existing director possesses; and

 

(c)                                  consider the appropriate size
of the Board, with a view to facilitating effective decision making.

 

The nomination of directors is undertaken by the
Corporate Governance and Nominating Committee, which is composed entirely of
independent directors.  The Committee
reviews the composition of the Board annually, assesses the effectiveness of
the Board annually, identifies new candidates for nomination as directors to
the Board and makes recommendations to the Board for nominees for election as
directors.  In that regard, the Corporate
Governance and Nominating Committee considers the competencies and skills each
new nominee would bring to the Corporation and whether or not each new nominee
can devote sufficient time and resources to his or her duties as a Board
member.  The Corporation has no
obligation or contract with any third party providing it with the right to
nominate a director.

 

Board Committees

 

The Corporation has three Board Committees, being the
Audit Committee, the Compensation Committee and the Corporate Governance and
Nominating Committee.

 

Audit
Committee

 

The Audit Committee assists the Board of
Directors in fulfilling its responsibilities for oversight of financial and
accounting matters.  In addition to
recommending the auditors to be nominated and reviewing the compensation of the
auditors, the Committee is responsible for overseeing the work of the auditors
and pre-approving non-audit services. 
The Committee also reviews the Corporation’s annual and interim
financial statements and news releases containing information taken from the
Corporation’s financial statements prior to their release.  The Committee is responsible for reviewing
the acceptability and quality of the Corporation’s financial reporting and
accounting standards and principles and any proposed material changes to them
or their application.

 

The members of the Audit Committee are Mr. David
Beasley, Madame Sophia Leung and Madame Liu Yingchun, all independent
directors.

 

18

 

The Audit Committee has a published charter which is
attached to the Corporation’s Annual Information Form, filed with Canadian
Securities Regulators, and posted on the Corporation’s website,
www.glglifetech.com.

 

Compensation
Committee

 

The Compensation Committee was established on March 18,
2008 and assists the Board of Directors in fulfilling its oversight
responsibilities relating to compensation. 
The Committee’s role includes establishing a remuneration and benefits
plan for directors, executives and other key employees and reviewing the
adequacy and form of compensation of directors and senior management.  The Committee oversees the development and
implementation of compensation programs in order to support the Corporation’s
business objectives and attract and retain key executives.  The Committee also reviews and makes
recommendations to the Corporation’s Board of Directors regarding the
Corporation’s incentive compensation equity-based plans.

 

The members of the Compensation Committee are Mr. David
Beasley, Madame Sophia Leung, Madame Liu Yingchun, and Mr. He Fangzhen,
all independent directors.  None of the
members of the Compensation Committee are officers or employees or were former
officers or employees of the Corporation or any of its subsidiaries, had or has
any relationship that requires disclosure hereunder in respect of indebtedness
owed to the Corporation or any interest in material transactions involving the
Corporation.  None of the Corporation’s
executive officers have served on the compensation committee, or in the absence
of such committee, the entire board of directors, of another issuer whose
executive officer is a member of the compensation committee or board of
directors.

 

Corporate Governance &
Nominating Committee

 

The Corporate Governance and Nominating Committee was
established on March 18, 2008 and assists the Board of Directors in
fulfilling its oversight responsibilities relating to the governance of the
Corporation and its relationship with senior management.  The Committee’s role includes developing and
monitoring the effectiveness of the Corporation’s system of corporate
governance, assessing the effectiveness of individual directors, the Board of
Directors, and various Board Committees, and is responsible for appropriate
corporate governance and proper delineation of the roles, duties and
responsibilities of management, the Board of Directors and its Committees.  The Committee is responsible for recommending
to the Board a set of corporate governance principles and reviewing these
principles at least once a year.  The
Committee oversees the Corporation’s investor relations and public relations
activities.  In addition, the Committee
is responsible for identifying and recommending candidates qualified to become
directors and board committee members and to ensure that an effective Chief
Executive Officer succession plan is in place.

 

The members of the Corporate Governance and Nominating
Committee are Mr. David Beasley, Madame Sophia Leung, Madame Liu Yingchun
and Mr. He Fangzhen, all independent directors.

 

INTEREST
OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

No informed person or proposed director and no
associate or affiliate of the foregoing has had a material interest, direct or
indirect, in any transaction in which the Corporation has participated within
the three year period prior to the date of this Management Proxy Circular, or
will have any material interest in any proposed transaction, which has
materially affected or will materially affect the Corporation.

 

MANAGEMENT
CONTRACTS

 

Except as otherwise disclosed herein, management
functions of the Corporation are not, to any substantial degree, performed by a
person or persons other than the directors or senior officers of the
Corporation.

 

19

 

ADDITIONAL INFORMATION

 

Additional information relating to the
Corporation is available at www.sedar.com under the name “GLG Life Tech
Corporation”. Copies of the Corporation’s financial statements and MD&A can
be obtained by contacting the Corporate Secretary of the Corporation in writing
at Suite 519, World Trade Centre, 999 Canada Place, Vancouver, British
Columbia, V6C 3E1. Copies of such documents will be provided to Shareholders
free of charge.

 

OTHER
MATTERS

 

Management knows of no other matters to come before
the Meeting of Shareholders, other than those referred to in the Notice of
Meeting.  However, if any other matters
which are not know to Management shall properly come before said Meeting, the Form of
Proxy given pursuant to the solicitation by Management will be voted on such
matters in accordance with the best judgment of the persons voting the proxy.

 

20

 

SCHEDULE
“A”

 

MANDATE
OF THE BOARD OF DIRECTORS

 

OF

 

GLG
LIFE TECH CORPORATION

 

21

 

GLG LIFE TECH
CORPORATION 

(the “Company”)

1.                             ROLE AND RESPONSIBILITIES

 

1.1                           The Board of Directors (the “Board”) is
responsible for the stewardship of the Company. 
This requires the Board to oversee the conduct of the business and
supervise management, which is responsible for the day-to-day conduct of the
business.

 

1.2                           The Board is responsible for the adoption
of a strategic planning process and the approval and review, at least annually
in an all-day in person strategy session to review the Company’s strategic
business plan proposed by management, including a statement of the vision,
mission and values, and to adopt such a plan with such changes as the Board
deems appropriate.  The plan and
discussion which takes into account, among other things, the opportunities and
risks of the business must be presented to the Board no later than 4 months
prior to the fiscal year end as to provide enough time for management to
resubmit and review the plan and incorporate a budget that takes into account
the strategic objectives of the Company.

 

1.3                           The Board shall review and measure
corporate performance against strategic plans, senior management objectives,
financial plans and quarterly budgets.

 

1.4                           The Board is responsible for the
identification of the principal risks of the Company’s business and overseeing
the implementation of appropriate systems to manage these risks.

 

1.5                           The Board is responsible for succession
planning, including appointing, training and monitoring senior management and,
in particular, the CEO.

 

1.6                           The Board is responsible for satisfying
itself as to the integrity of the CEO and other senior officers and that the
CEO and the other senior officers create a culture of integrity throughout the
Company.

 

1.7                           The Board is responsible for the Company’s
communication policies, which:

 

(a)           address how the Company interacts with
analysts, investors, other key stakeholders and the public,

 

(b)           contain measures for the Company to comply
with its continuous and timely disclosure obligations and to avoid selective
disclosure, and

 

(c)           are reviewed at least annually.

 

1.8                           The Board is responsible for the integrity
of the Company’s internal control and management information systems.

 

1.9                           The Board is responsible for acting in
accordance with all applicable laws, the Company’s bylaws and the Company’s
Director, Officer and Employee Code of Business Conduct and Ethics.

 

1.10                         The Board and each individual director is responsible
for acting in accordance with the obligations imposed by the Business Corporations Act (British Columbia). In exercising
their powers and discharging their duties, each director shall:

 

(a)           act honestly and in good faith with a view
to the best interests of the Company;

 

(b)           exercise the care, diligence and skill that
a reasonably prudent person would exercise in comparable circumstances;

 

 

(c)           exercise independent judgement regardless
of the existence of relationships or interests which could interfere with the
exercise of independent judgement; and

 

(d)           (i)            disclose to the Company, in writing or by
having it entered in the minutes of meetings of directors, the nature and
extent of any interest that the director has in a material contract or material
transaction, whether made or proposed, with the Company if the director is a
party to the contract or transaction, is a director or officer, or an
individual acting in a similar capacity, of a party to the contract or
transaction, or, has a material interest in a party to the contract or
transaction; and

 

(ii)           such director shall refrain from voting on
any resolution to approve such contract or transaction unless it relates to the
directors’ remuneration in that capacity, is for the directors’ indemnity or
insurance or is a contract or transaction with an affiliate.

 

(e)           Demonstrate a willingness to listen as well
as to communicate their opinions, openly and in a respectful manner.

 

1.11                         The Board has the authority to appoint a managing
director or to establish committees and appoint directors to act as managing
director or to be members of these committees. 
The Board may not delegate to such managing director or committees the
power to:

 

(a)           submit to the shareholders any question or
matter requiring the approval of the shareholders;

 

(b)           fill a vacancy among the directors or in
the office of auditor, or appoint additional directors;

 

(c)           issue securities, except as authorized by
the directors;

 

(d)           issue shares of a series, except as
authorized by the directors;

 

(e)           declare dividends;

 

(f)            purchase, redeem or otherwise acquire
shares issued by the Company;

 

(g)           pay a commission to any person in
consideration of his purchasing or agreeing to purchase shares of the Company
from the Company or from any other person, or procuring or agreeing to procure
purchasers for any such shares;

 

(h)           approve a management proxy circular,
take-over bid circular or directors’ circular;

 

(i)            approve financial statements to be put
before an annual meeting of shareholders; and

 

(j)            adopt, amend or repeal bylaws.

 

1.12                         The matters to be delegated to committees of the Board
and the constitution of such committees are to be assessed annually or more
frequently, as circumstances require. 
From time to time the Board may create an ad hoc committee to examine
specific issues on behalf of the Board. 
The following are the current committees of the Board:

 

(a)           the Audit Committee, consisting of not less
than three directors, each of whom must be an “unrelated or “independent”
director under applicable securities laws and applicable stock exchange
rules.  The role of the Audit Committee
is to provide oversight of the Company’s financial management and of the design
and implementation of an effective system of internal financial controls as
well as to review and report to the Board on the integrity of the financial
statements of the Company, its subsidiaries and associated companies.

 

2

 

(b)           the Corporate Governance and Nominating
Committee, consisting of not less than three directors, each of whom must be an
“unrelated or “independent” director under applicable securities laws and
applicable stock exchange rules.  The
role of the Corporate Governance and Nominating Committee is to:

 

(i)            develop and monitor the effectiveness of
the Company’s system of corporate governance;

 

(ii)           establish procedures for the identification
of new nominees to the Board and lead the candidate selection process;

 

(iii)          develop and implement orientation
procedures for new directors;

 

(iv)          assess the effectiveness of directors, the
Board and the various committees of the Board;

 

(v)           ensure appropriate corporate governance and
the proper delineation of the roles, duties and responsibilities of management,
the Board, and its committees; and

 

(vi)          assist the Board in setting the objectives
for the CEO and evaluating CEO performance.

 

(c)           the Compensation Committee, consisting of
not less than three directors, each of whom must be an “unrelated or “independent”
director under applicable securities laws and applicable stock exchange
rules.  The role of the Compensation
Committee is to:

 

(i)            establish a remuneration and benefits plan
for directors, senior management and other key employees;

 

(ii)           review the adequacy and form of
compensation of directors and senior management;

 

(iii)          establish a plan of succession;

 

(iv)          undertake the performance evaluation of the
CEO in consultation with the Chair of the Board, if not the CEO; and

 

(v)           make recommendations to the Board.

 

2.                             COMPOSITION

 

2.1                           From time to time the Board or an
appropriate committee of the Board shall review the size of the Board to ensure
that the size facilitates effective decision-making.

 

2.2                           The Board shall be composed of a majority
of directors who qualify as “unrelated” or “independent” directors under
applicable securities laws and applicable stock exchange rules.  The determination of whether an individual
director is unrelated or independent is the responsibility of the Board.

 

2.3                           If at any time the Company has a
significant shareholder, meaning a shareholder with the ability to exercise a
majority of the votes for the election of the Board, the Board will include a
number of directors who do not have interests in or relationships with either
the Company or the significant shareholder and who fairly reflects the
investment in the Company by shareholders other than the significant
shareholder.

 

2.4                           The Board should, as a whole, have the
following competencies and skills:

 

(a)           knowledge of the Company’s industry;

 

(b)           knowledge of current corporate governance
guidelines;

 

3

 

(c)           financial and accounting expertise.

 

3.                             PROCEDURES TO ENSURE EFFECTIVE OPERATION

 

3.1                           The Board recognizes the importance of
having procedures in place to ensure the effective and independent operation of
the Board.

 

3.2                           If the Chair of the Board is not a member
of management, the Chair shall be responsible for overseeing that the Board
discharges its responsibilities.  If the
Chair is a member of management, responsibility for overseeing that the Board
discharges its responsibility shall be assigned to a non-management director.

 

3.3                           The Board has complete access to the
Company’s management.  The Board shall
require timely and accurate reporting from management and shall regularly review
the quality of management’s reports.

 

3.4                           An individual director may engage an
external adviser at the expense of the Company in appropriate
circumstances.  Such engagement is
subject to the approval of the Corporate Governance and Nominating Committee.

 

3.5                           The Board shall provide an orientation and
education program for new recruits to the Board as well as continuing education
on topics relevant to all directors.

 

3.6                           The Board shall institute procedures for
receiving shareholder feedback.

 

3.7                           The Board requires management to run the
day-to-day operations of the Company, including internal controls and
disclosure controls and procedures.

 

3.8                           The non-management directors shall meet at
least twice yearly without any member of management being present.

 

3.9                           The Board sets appropriate limits on
management’s authority.  Accordingly, the
following decisions require the approval of the Board:

 

(a)           the approval of the annual and quarterly
(unless delegated to the Audit Committee) financial statements;

 

(b)           the approval of the annual budget;

 

(c)           any equity or debt financing, other than
debt incurred in the ordinary course of business such as trade payables;

 

(d)           entering into any license, strategic
alliance, partnership or other agreement outside the ordinary course of
business;

 

(e)           the acquisition and assignment of material
assets (including intellectual property and fixed assets) outside of the
ordinary course of business;

 

(f)            the commencement, termination or material
amendment to any human clinical trial;

 

(g)           the creation of subsidiaries;

 

(h)           the creation of new Company bank accounts;

 

(i)            payment of dividends;

 

(j)            proxy solicitation material;

 

4

 

(k)           projected issuances of securities from
treasury by the Company as well as any projected redemption of such securities;

 

(l)            any material change to the business of the
Company;

 

(m)          the appointment of members on any committee
of the Board;

 

(n)           capital expenditures in excess of
CAD$50,000 outside of the annual budget;

 

(o)           entering into any professional engagements
where the fee is likely to exceed CAD$50,000 outside of the annual budget.

 

(p)           entering into any arrangements with banks
or other financial institutions relative to borrowing (either on a term or revolving
basis) of amounts in excess of CAD$100,000 outside the annual budget;

 

(q)           entering into any guarantee or other
arrangement such that the Company is contingently bound financially or
otherwise in excess of CAD$50,000 other than product guarantees outside the
annual budget;

 

(r)            the appointment or discharge of any senior
officer of the Company;

 

(s)           entering into employment contracts with any
senior officers;

 

(t)            initiating or defending any law suits or
other legal actions; and

 

3.10                         The Board, together with the CEO and with the
assistance of the Corporate Governance and Nominating Committee, shall develop
position descriptions for the CEO.  The
Board, together with the CEO, shall also approve or develop the corporate
objectives that the CEO is responsible for meeting and the Board shall assess
the CEO against these objectives.

 

5

 

SCHEDULE
“B”

 

REPORTING
PACKAGE

 

 

	
  

  	
  TSX.GLG

  

 

	
  British Columbia Securities Commission 

  PO Box 10142, Pacific Centre

  701
  West Georgia Street

  Vancouver,
  BC V7Y 1L2

  	
  Alberta Securities Commission

  4th Floor, 300 – 5th Avenue SW

  Calgary,
  AB T2P 3C4

  
	
   

  	
   

  
	
  Ontario
  Securities Commission

  20
  Queen Street West, 19th Floor, Box 55

  Toronto,
  ON M5H 3S8

  	
  Toronto Stock Exchange

  The
  Exchange Tower

  130
  King Street West, 3rd
  Floor 

  Toronto, ON M5X 1J2

  
	
   

  	
   

  
	
  Lo Porter Hetu

  223-14
  Street N.W.

  Calgary,
  Alberta T2N 1Z6

  	
  PricewaterhouseCoopers
  LLP 

  250
  Howe Street, Suite 700 

  Vancouver,
  British Columbia 

  Canada
  VC 3S7

  

 

Notice of Change of Auditor Pursuant to National Instrument 51-102

 

GLG
Life Tech Corporation (the “Company”) wishes
to advise that the Company’s auditor, Lo
Porter Hetu, Certified General Accountants, has resigned effective December 3, 2008 at the request of the
Company. The Board of Directors of the Company resolved in a meeting held on December 3,
2008 that PricewaterhouseCoopers LLP be appointed as successor
auditor to fill the vacancy in the position of auditor of the Company.

 

The
resignation of Lo Porter Hetu and the appointment
of PricewaterhouseCoopers LLP, have been considered and approved by the Company’s
Audit Committee and Board of Directors. The Company’s Audit Committee and Board of Directors have
reviewed the documents relating to the change of auditor.

 

There
have been no reservations contained in the audit reports of Lo Porter Hetu for the two most
recently completed fiscal years and any subsequent period. There are no
reportable events between the Company
and Lo Porter Hetu, and there have been no qualified opinions or
denials of opinion of Lo Porter Hetu.

 

Dated
at Vancouver, British Columbia, effective this 3rd day of December, 2008.

 

GLG
LIFE TECH CORPORATION

 

	
  /s/
  Brian Meadows

  	
   

  
	
  Brian
  Meadows

  	
   

  
	
  Chief
  Financial Officer

  	
   

  

 

	
   

  	
   

  
	
   

   

  Independent member firm of

  Porter
  Hétu International

  Professional
  Services Group

  	
   

   

   

   

  December 3,
  2008

   

  British
  Columbia Securities Commission  

  PO
  Box 10142, Pacific Centre

  701
  West Georgia Street

  Vancouver,
  BC V7Y 1L2

  
	
   

  	
   

  
	
  Professional  Strength

  Personal
  Service

  Practical
  Solutions

  	
  Ontario
  Securities Commission

  20
  Queen Street West, 19th Floor, Box 55  

  Toronto,
  ON M5H 3S8

  
	
   

  	
   

  
	
   

  	
  Alberta
  Securities Commission  

  4th Floor, 300 – 5th Avenue SW  

  Calgary,
  AB T2P 3C4

   

  Toronto
  Stock Exchange  

  The
  Exchange Tower

  130
  King Street West, 3rd Floor  

  Toronto,
  ON M5X 1J2

  
	
   

  	
   

  
	
   

  	
  Dear
  Sirs:

  
	
   

  	
   

  
	
   

  	
  RE:
  

  	
  NOTICE
  OF CHANGE OF AUDITORS  

  GLG Life Tech Corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  With
  respect to the above noted Notice of Change of Auditors and pursuant to
  National  Instrument 51-102, we have read the Notice of Change of Auditors for
  GLG Life Tech  Corporation and, based on our knowledge of
  the information at this date, we agree with  its contents
  as it pertains to Lo Porter Hetu, Certified General Accountants.

  
	
   

  	
   

  
	
   

  	
  Yours
  truly,

  
	
  Partners
  

  Tenny
  S. Lo, MA, FCGA, CFP, CA*

  Elizabeth
  A. Thompson, FCGA*

  Richard
  J. Black, CGA*

  Alex
  Cheung, CGA, CPA*

  *Professional
  Corporation

  	
   

  
	
  

  
	
   

  
	
  Lo
  Porter Hetu

  
	
   

  
	
   

  	
  cc:

  	
  The
  Board of Directors

  GLG Life Tech Corporation

  
	
   

  	
   

  	
   

  
	
  Tel:
  (403) 283-1088 

  Fax:
  (403) 283-1044  

  E-mail:
  lph@loporterhetu.com 

  Website:
  www.porterhetu.com

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  223 - 14 Street
  N.W.

  Calgary,
  Alberta

  Canada

  T2N
  1Z6

  	
   

  	
   

  

 

 

 

PricewaterhouseCoopers LLP

 

PricewaterhouseCoopers
Place  250 Howe Street, Suite 700  Vancouver, British Columbia  Canada V6C 3S7

Telephone
+1 604 806 7000  

Facsimile
+1 604 806 7806

 

December 3,
2008

 

British
Columbia Securities Commission  

PO
Box 10142, Pacific Centre

701
West Georgia Street

Vancouver,
BC V7Y 1L2

 

Alberta
Securities Commission  

4th Floor, 300 – 5th Avenue SW  

Calgary,
AB T2P 3C4

 

Ontario
Securities Commission

20
Queen Street West, 19th Floor, Box 55

Toronto,
ON M5H 3S8

 

We
have read the statements made by GLG Life Tech Corporation in the Change of
Auditor  Notice dated December 3, 2008, which we understand will be filed
pursuant to Section 4.11 of  the National Instrument
51-102.

 

We
agree with the statements in the Change of Auditor Notice dated December 3,
2008.  

 

Kind
regards,

 

 

Chartered
Accountants

 

“Procewaterhousecoopers” refers to
PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as
the context requires, the PricewaterhouseCoopers global network or other member
firms of the network, each of which is a separate and independent legal entity.

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