Document:

Exhibit
4.1

 

NOTICE TO
READER

 

This Notice accompanies, and should be read in
conjunction with, the Annual Information Form of GLG Life Tech Corporation
filed April 1, 2009 under SEDAR Project No. 01400712 which is being
refiled to correct the date of the Annual Information Form to April 1,
2009.

 

 

 

 

GLG LIFE TECH CORPORATION

 

Suite 536 World Trade Centre

999 Canada Place

Vancouver, BC V6C 3E2

 

 

(as of May 1, 2009)

Suite 519 World Trade Centre

999 Canada Place

Vancouver, BC V6C 3E2

 

 

Telephone: 604 641 1368

Facsimile: 604 641 1214

Website: www.glglifetech.com

 

 

ANNUAL INFORMATION FORM

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

 

 

APRIL 1, 2009

 

 

TABLE OF CONTENTS

 

	
  PRELIMINARY NOTES

  	
  1

  
	
  Currency
  and Exchange Rate

  	
  1

  
	
  Date
  of Information

  	
  1

  
	
  Forward-Looking
  Statements

  	
  2

  
	
  GLOSSARY OF TERMS

  	
  2

  
	
  CORPORATE STRUCTURE AND DEVELOPMENT OF THE
  BUSINESS

  	
  4

  
	
  Name
  and Corporate History

  	
  4

  
	
  Intercorporate
  Relationships

  	
  4

  
	
  Development
  of the Business

  	
  6

  
	
  INDUSTRY INFORMATION

  	
  9

  
	
  The
  Natural and Healthy Trend in the United States

  	
  9

  
	
  Market
  For Nutritive Sweeteners

  	
  10

  
	
  Market
  For Non-Nutritive Sweeteners

  	
  10

  
	
  Key
  Factors Driving the Non-Nutritive Sweetener and Dietary Supplement Markets

  	
  11

  
	
  Drivers
  for Future Growth of Stevia Global Market

  	
  11

  
	
  Production
  of Stevia

  	
  12

  
	
  Market
  for Stevia

  	
  12

  
	
  Regulatory
  Approval of Stevia

  	
  12

  
	
  BUSINESS OF THE COMPANY

  	
  13

  
	
  General

  	
  13

  
	
  Stevia
  Manufacturing

  	
  13

  
	
  Sale
  of Stevia and Stevia Products

  	
  16

  
	
  Business
  Objectives and Strategies

  	
  18

  
	
  Specialized
  Skill and Knowledge

  	
  18

  
	
  Competitive
  Conditions

  	
  18

  
	
  New
  Products

  	
  19

  
	
  Sources,
  Pricing and Availability of Raw Materials

  	
  19

  
	
  Intangible
  Properties

  	
  19

  
	
  Seasonal
  or Cyclical Business

  	
  20

  
	
  Economic
  Dependence

  	
  20

  
	
  Financial
  and Operational Effects of Environmental Protection

  	
  20

  
	
  Employees

  	
  20

  
	
  Foreign
  Operations

  	
  20

  
	
  RISK FACTORS

  	
  22

  
	
  Risks
  Relating to GLG Life Tech Corporation and its Business

  	
  22

  
	
  Industry
  Related Risks

  	
  25

  
	
  Risks
  Relating to the Company’s Operations in China

  	
  26

  
	
  DIVIDEND POLICY

  	
  29

  
	
  DESCRIPTION OF SHARE CAPITAL

  	
  29

  
	
  MARKET FOR SECURITIES

  	
  29

  
	
  ESCROWED SECURITIES

  	
  30

  
	
  DIRECTORS AND OFFICERS

  	
  30

  
	
  Directors
  and Officers

  	
  31

  
	
  Corporate
  Cease Trade Orders and Bankruptcies

  	
  33

  
	
  Penalties
  and Sanctions

  	
  33

  
	
  Individual
  Bankruptcies

  	
  33

  
	
  Conflicts
  of Interest

  	
  33

  
	
  CORPORATE GOVERNANCE

  	
  34

  
	
  LEGAL PROCEEDINGS AND REGULATORY ACTIONS

  	
  36

  
	
  INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL
  TRANSACTIONS

  	
  36

  
	
  AUDITORS, REGISTRAR AND TRANSFER AGENT

  	
  36

  
	
  INTEREST OF EXPERTS

  	
  37

  
	
  MATERIAL CONTRACTS

  	
  37

  
	
  ADDITIONAL INFORMATION

  	
  37

  
	
  APPENDIX A

  	
  38

  

 

 

PRELIMINARY
NOTES

Currency
and Exchange Rate

 

Except where otherwise indicated, all references
to currency in this Annual Information Form are to Canadian dollars.

 

The noon rate of exchange on March 30, 2009,
as quoted by the Bank of Canada for the conversion of one China Yuan Renminbi (“RMB”)
into Canadian dollars was Cdn$0.1842 (Cdn$0.1842 equals RMB 1)

 

The following tables set forth the high closing and
low closing exchange rates for one RMB expressed in Canadian dollars for the
years 2005 to 2008, the average of such exchange rates during such periods, and
the exchange rate at the end of such periods based upon the noon rate quoted by
the Bank of Canada.  Such rates are set
forth as Canadian dollars per one RMB.

 

	
  Year

  	
   

  	
  High

  	
   

  	
  Low

  	
   

  	
  Average

  	
   

  	
  End of
  Period

  	
   

  
	
  2008

  	
   

  	
  .1893

  	
   

  	
  .1361

  	
   

  	
  .1536

  	
   

  	
  .1795

  	
   

  
	
  2007

  	
   

  	
  .1530

  	
   

  	
  .1232

  	
   

  	
  .1412

  	
   

  	
  .1353

  	
   

  
	
  2006

  	
   

  	
  .1493

  	
   

  	
  .1369

  	
   

  	
  .1422

  	
   

  	
  .1493

  	
   

  
	
  2005

  	
   

  	
  .1535

  	
   

  	
  .1425

  	
   

  	
  .1479

  	
   

  	
  .1445

  	
   

  

 

The noon rate of exchange on March 30, 2009,
as quoted by the Bank of Canada for the conversion of one United States Dollar
(“US$” or “US dollar”) into Canadian dollars was Cdn$1.2590 (Cdn$1.2590 equals US$1)

 

The following tables set forth the high closing and
low closing exchange rates for one US dollar expressed in Canadian dollars for
the years 2005 to 2008, the average of such exchange rates during such periods,
and the exchange rate at the end of such periods based upon the noon rate
quoted by the Bank of Canada.  Such rates
are set forth as Canadian dollars per one US dollar.

 

	
  Year

  	
   

  	
  High

  	
   

  	
  Low

  	
   

  	
  Average

  	
   

  	
  End of
  Period

  	
   

  
	
  2008

  	
   

  	
  1.2969

  	
   

  	
  0.9719

  	
   

  	
  1.0660

  	
   

  	
  1.2246

  	
   

  
	
  2007

  	
   

  	
  1.1853

  	
   

  	
  0.9170

  	
   

  	
  1.0748

  	
   

  	
  0.9881

  	
   

  
	
  2006

  	
   

  	
  1.1726

  	
   

  	
  1.0990

  	
   

  	
  1.1341

  	
   

  	
  1.1653

  	
   

  
	
  2005

  	
   

  	
  1.2704

  	
   

  	
  1.1507

  	
   

  	
  1.2116

  	
   

  	
  1.1659

  	
   

  

 

Date
of Information

 

All information in this Annual Information Form is
as of April 1, 2009, unless otherwise indicated.

 

Important Information

 

This Annual Information Form includes, and
expressly identifies market and industry data that has been obtained from third
party sources, including industry publications, as well as industry data
prepared by management on the basis of its knowledge of and experience in these
markets.  Third party sources generally
state that the information contained therein has been obtained from sources
believed to be reliable, but there can be no assurance as to the accuracy or
completeness of included information. 
Although believed to be reliable, the Company has not independently
verified any of the data from third party sources.  In addition the Company has not independently
verified any of the industry data prepared by management of the Company.

 

 

Unless otherwise noted or unless the context otherwise
indicates, “GLG Life Tech”, “GLG” or the “Company” refers to GLG Life Tech
Corporation and its direct and indirect subsidiaries.

 

Forward-Looking
Statements

 

Certain statements in this Annual Information Form and
the information incorporated herein by reference 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 misjudgments in the course of preparing
forward-looking statements.  Specific
reference is made to the risks described herein under the heading “Risk Factors” and to the MD&A
incorporated by reference in this Annual Information Form for a discussion
of these and other sources of factors underlying forward-looking
statements.  In light of these factors,
the forward-looking events discussed in this Annual Information Form 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.

 

GLOSSARY OF TERMS

 

The following is a glossary of certain terms used in
this Annual Information Form:

 

	
  Term

  	
   

  	
  Definition

  
	
   

  	
   

  	
   

  
	
  AHTD

  	
   

  	
  The
  Company’s wholly owned subsidiary Agricultural High Tech Developments Limited

  
	
   

  	
   

  	
   

  
	
  Bengbu

  	
   

  	
  The
  Company’s wholly owned subsidiary Anhui Bengbu HN Stevia High Tech
  Development Company Limited

  
	
   

  	
   

  	
   

  
	
  Company

  	
   

  	
  GLG
  Life Tech Corporation

  
	
   

  	
   

  	
   

  
	
  FDA

  	
   

  	
  United
  Stated Food and Drug Administration

  
	
   

  	
   

  	
   

  
	
  GLG-Weider Sweet Naturals

  	
   

  	
  The
  Company’s 55% owned subsidiary GLG Weider Sweet Naturals Corporation

  
	
   

  	
   

  	
   

  
	
  GRAS or Generally Regarded as Safe

  	
   

  	
  An
  FDA designation that a chemical or substance added to food is considered safe
  by experts, and is therefore exempted from the usual Federal Food, Drug, and
  Cosmetic Act food additive tolerance requirements

  
	
   

  	
   

  	
   

  
	
  JECFA

  	
   

  	
  Joint
  Expert Committee on Food Additives

  
	
   

  	
   

  	
   

  
	
  MT or metric ton

  	
   

  	
  1000
  kilograms

  
	
   

  	
   

  	
   

  
	
  mu

  	
   

  	
  0.0666
  Hectares

  

 

2

 

	
  Term

  	
   

  	
  Definition

  
	
   

  	
   

  	
   

  
	
  RA

  	
   

  	
  Rebaudioside
  A, a glycoside that is extracted from stevia leaves for the purpose of its
  sweet taste

  
	
   

  	
   

  	
   

  
	
  Rebiana

  	
   

  	
  An
  all natural, zero calorie sweetener made with 97% Rebaudioside A from the
  leaves of the stevia plant

  
	
   

  	
   

  	
   

  
	
  Runde

  	
   

  	
  The
  Company’s wholly owned subsidiary Qingdao Runde Biotechnology Co., Ltd.

  
	
   

  	
   

  	
   

  
	
  Runhai

  	
   

  	
  The
  Company’s wholly owned subsidiary Chuzhou Runhai Stevia High Tech Company
  Limited

  
	
   

  	
   

  	
   

  
	
  Runyang

  	
   

  	
  The
  Company’s wholly owned subsidiary Dongtai Runyang Stevia High Tech Company
  Limited

  
	
   

  	
   

  	
   

  
	
  YHT

  	
   

  	
  Shandong
  Yong He Tang Health Products Chain Stores Limited

  

 

3

 

CORPORATE STRUCTURE AND DEVELOPMENT OF THE
BUSINESS

 

Name
and Corporate History

 

The Company was incorporated on June 5, 1998 as
Cheng Tai Panoramic Mirror Inc., under the Company Act
(British Columbia).  On January 25,
1999, the Company amended its memorandum to increase its authorized capital to
100,000,000 common shares (“Common Shares”) without par value.  On March 1, 1999, the Company amended
its articles to remove, in advance of the Company’s initial public offering of
Common Shares, restrictions on the issuance of securities and on share
transfers.  On June 18, 1999, the
Company changed its name to Panoramic Mirrors Inc. and amended its memorandum
accordingly.

 

On June 23, 2004, the Company filed a transition
application to effect its transition under the Business
Corporations Act (British Columbia) (the “BCA”) and on July 9,
2004, the Company filed a notice of alteration to reflect the removal of the
pre-existing company provisions and the adoption of new articles.

 

On June 16, 2005, the Company’s authorized share
structure was altered from 100,000,000 Common Shares to an unlimited number of
Common Shares and the Company changed its name to GLG Life Tech Limited and
amended its articles accordingly.

 

On March 14, 2007, the Company changed its name
to GLG Life Tech Corporation and amended its notice of articles accordingly,
and consolidated its issued share capital on the basis of three Common Shares
of GLG Life Tech Limited for every one Common Share of GLG Life Tech Corporation
(the “Share Consolidation”).

 

The Company’s registered and head office is located at
Suite 536 World Trade Centre, 999 Canada Place, Vancouver, British
Columbia, Canada V6C 3E2.  As of May 1,
2009, the Company’s registered and head office will be located at Suite 519
World Trade Centre, 999 Canada Place, Vancouver, British Columbia, Canada V6C
3E2

 

Intercorporate
Relationships

 

The organization chart on the following page sets
out GLG Life Tech’s subsidiaries, as of the date hereof:

 

4

 

 

5

 

Qingdao Runde Biotechnology Company Limited (“Runde”) —
Runde is a company incorporated in China and was acquired by GLG on December 18,
2006.  Its primary business is the
processing of stevia leaf into different grades of stevia extract for sale to
customers worldwide.  See “Development of the Business” and “Business of
the Company — Manufacturing of Stevia”.

 

Anhui Bengbu HN Stevia High Tech Development Company
Limited (“Bengbu”) — 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.  Bengbu
was incorporated in China and is a wholly-owned foreign enterprise under
Chinese law.  See “Development
of the Business” and “Business of the Company —
Manufacturing of Stevia”.

 

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 can process 18,000 metric tons per year of stevia leaf at its
processing facility pursuant to the investment agreement with the Dongtai
People’s Government announced in August 2007.  Runyang was incorporated in China and is a
wholly-owned foreign enterprise under Chinese law.  See “Development of the
Business” and “Business of the Company —
Sources, Pricing and Availability of Raw Materials”.

 

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 can process 18,000 metric tons per year
of stevia leaf at its processing facility pursuant to the investment agreement
with the Mingguang People’s Government announced in August 2007.  Runhai was incorporated in China and is a
wholly-owned foreign enterprise under Chinese law.  See “Development of the
Business” and “Business of the Company —
Sources, Pricing and Availability of Raw Materials”.

 

GLG Weider Sweet Naturals Corporation (“GLG-Weider
Sweet Naturals”) — GLG-Weider Sweet Naturals 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 Sweet Naturals and Weider Global Nutrition II
LLC owns the remaining 45%.  GLG-Weider
Sweet Naturals was incorporated under the laws of British Columbia. See “Development of the Business” and “Business of
the Company — Sale of Stevia and Stevia Products”.

 

Agricultural High Tech Developments Limited (“AHTD”) —
AHTD is a company incorporated in the Marshall Islands and was acquired by GLG
on December 27, 2007.  AHTD is a
seed base operation possessing high quality proprietary technology and
patent-pending stevia seeds which are currently used by Bengbu.

 

Development
of the Business

 

GLG’s business is focused on the manufacturing of
stevia in highly refined form for sale in bulk and in products formulated by
the Company for the global food and beverage industry.

 

Stevia Production and Development

 

On December 18, 2006 the Company acquired Qingdao
Runde Biotechnology Co., Ltd. (“Runde”). 
Runde was formed specifically for acquisition purposes; Runde was not an
ongoing business at the time of its purchase and did not have an operating
history.  The consideration payable by
the Company was 16,666,666 Common Shares and a convertible promissory note in
the amount of $880,000.  The promissory
note has now been paid in full in cash, without any exercise of the equity
conversion right.  At the time of the
acquisition, Runde held net tangible assets of approximately $8,800,000.  Upon completion of the acquisition, the
Company assigned its management team to Runde and operations commenced promptly
thereafter.

 

On July 1, 2007, the Company entered into a
letter agreement with Agricultural High Tech Developments Limited (“AHTD”) to purchase all of the issued
and outstanding shares of AHTD, a seed base operation possessing high quality
proprietary technology and patent-pending stevia seeds.  The acquisition of AHTD was closed on December 27,
2007.  A total of 12,500,000 Common
Shares of the Company have been allotted to pay the purchase price for AHTD, of
which 3,750,000 Common Shares were issued to AHTD upon the closing of the
transaction.  A further 4,375,000 Common
Shares were issued on December 27, 2008 upon AHTD providing seedlings for
planting 30,000 

 

6

 

mu of stevia yielding in excess of 5,000 metric tons
of leaf.  The remaining 4,375,000 Common
Shares may be issued upon AHTD providing seedlings for planting 60,000 mu of
stevia yielding 8,000 metric tons of leaf in 2009.

 

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.

 

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, currently the two largest
stevia leaf processing centres in the world, each have a capacity of 18,000
metric tones of throughput per year and increase the Company’s total raw leaf
processing capacity from an existing 5,000 metric tons to 41,000 metric tons,
an increase of 720%. The anticipated capacity of these lines was 20,000 metric
tons (10,000 metric tons of capacity at each location) and the higher than
planned capacity increases can be attributed to conservative planning
assumptions and the successful large scale testing of new and innovative
technology from the Company’s R&D team, which was not factored into the
original capacity expectations.  The
improvements also include significant reductions in both water usage and actual
processing time.

 

Strategic Customer Arrangements

 

Effective January 1, 2007, the Company, through
its subsidiary Runde, entered into a supply agreement (the “Original Cargill
Agreement”) with Cargill Incorporated (“Cargill”), of Wayzata, Minnesota 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 warrants
of which a total of 5,085,039 share purchase warrants were ultimately 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, the Company 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 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.

 

7

 

·              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 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 the entering into of a loan
facility with Cargill 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 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%.

 

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. See “Industry Information —
Regulatory Approval of Stevia”.

 

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.

 

Other Financings

 

On June 22, 2007 the Company issued $6,000,000
principal amount of 12% convertible debentures and 1,200,000 share purchase
warrants by way of a private placement for gross proceeds of $6 million.  The debentures were due on June 30, 2008
and were converted into common shares with the first third of the principle
convertible at the price of $2.80 per Common Share, the second third at the
price of $3.05 per Common Share and the final third at the price of $3.30 per
Common Share.  The warrants expire June 22,
2009 and are exercisable for one Common Share at a price of $3.05 for the first
600,000 warrants and $3.30 for the second 600,000 warrants.

 

On December 11, 2007, the Company completed the
private placement of 11,500,000 units (the “Units”) of the Company at a price
of $3.00 per Unit, for gross proceeds of $34,500,000.  Each Unit consisted of one Common Share in
the capital of the Company and one-half of one common share purchase warrant.  Each whole warrant 

 

8

 

entitled the holder to purchase one Common Share of
the Company at an exercise price of $4.50 per Common Share until June 11,
2009.

 

On the completion of this private placement, the
Company’s Common Shares became listed on the Toronto Stock Exchange (“TSX”)
under the symbol “GLG”.  Concurrently
with the listing on the TSX, the Company delisted from the CNQ.

 

GLG Weider Venture

 

On September 9, 2008, the Company announced that
it has signed a definitive agreement to establish a business with Weider Global
Nutrition (“WGN”) of Salt Lake City, Utah, targeting the sale of GLG’s stevia
extract products to food and beverage companies as well as dietary supplements
and tabletop products containing various GLG stevia products.  The Company and WGN established GLG Weider
Sweet Naturals Corp. (“GLG-Weider Sweet Naturals”) and the key product
offerings of the venture will be high quality stevia extract including Rebpure,
an industrial powder with 97% pure Rebaudioside A.  According to the agreement with Weider, GLG
will own a controlling interest of 55 percent of GLG-Weider Sweet Naturals and
WGN 45 percent, with GLG holding three positions on the board and WGN two. Dr. Luke
Zhang is the Chairman of GLG-Weider Sweet Naturals.  See “Business of the Company —
Sale of Stevia and Stevia Products”.

 

This company will utilize the 70+ years of global
business experience, the 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. This new division is
currently reported as part of the stevia business segment for financial
reporting purposes.

 

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.  GLG-Weider
Sweet Naturals, 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 rebpure stevia. 
Some of these products that will soon be upgraded to GLG’s rebsweet and
rebpure 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.

 

Exit of business relating to distribution of health
products through YHT

 

The Company was previously engaged in the distribution
of stevia and other nutritional health products produced or sourced by or on
behalf of the Company through more than 1,400 YHT locations.  However, on September 8, 2008, the
Company negotiated and signed a Heads of Agreement with YHT to restructure its
existing business relationship from direct operational involvement in YHT’s
business to a relationship of passive investor in YHT.  The course of action was seen by management
as the best strategy to create value for its shareholders and to maintain focus
on furthering the stevia business opportunity. 
The Heads of Agreement would result in the Company converting all
amounts it is owed under the existing YHT arrangements into a passive equity
investment in YHT.  The Company expects
that definitive documentation relating to these changes will be executed by YHT
and the Company during the Company’s 2009 fiscal year.

 

Significant Acquisitions

 

The Company has not completed any significant
acquisitions during the fiscal year ended December 31, 2008.

 

INDUSTRY
INFORMATION

 

The
Natural and Healthy Trend in the United States

 

The growth of the natural and healthy food industry is
being propelled by several macro trends, which include attention to health and the
benefits of good diet, medical epidemics such as obesity and a recent emphasis
on preventative health care.  In the
United States, healthy and natural foods continue to grow in popularity,
suggesting a change from the mass-produced and highly processed foods that
historically comprised a typical American diet. 

 

9

 

More recently, natural products, such as those based
on herbs, beverages sourced from fungi, organic foods and products based on
homeopathy have all gained significant popularity in the United States.

 

Market
For Nutritive Sweeteners

 

Sugar

 

Sugar is a traditional nutritive sweetener.  Sugar is generally considered a necessity and
governments in most countries subsidize the farming of sugar cane or sugar beet
and the related refinery costs.  In
Europe and the U.S. subsidies for producing either sugar cane or sugar beet
typically range from 70% to 80%.  This
amounts to approximately US$3 billion annually in the United States alone.  As sugar subsidies in many countries are
being reconsidered, stevia could present a major alternative to sugar if the
production and quality of stevia leaves can be ensured.

 

Market
For Non-Nutritive Sweeteners

 

Whereas nutritive sweeteners provide a sweet taste and
a source of energy, non-nutritive sweeteners are sweet but provide no
energy.  Recent studies report that
nutritive sweeteners have caused an increase in chronic diseases (e.g. obesity,
cardiovascular disease, diabetes, dental cavities and behavioral disorders)
and, as a result, many consumers want the taste of sweetness but without the
aforementioned consequences.  The food
industry has responded to this demand by producing a number of energy-reduced
or non-nutritive sweeteners.

 

The market value for the global artificial sweetener
market is estimated at $US5.7 billion for 2008. 
The breakdown by geographic market is estimated as 39% in the United
States, 23% in Europe, 21% in Asia Pacific, 13% in Latin America and 4% for the
rest of the World.  According to a July 2007
report entitled “Artificial Sweeteners — A Global Strategic
Business Report” by Global Industry Analysts Inc., Aspartame holds
56% market share of the US artificial sweetener market with Sucralose estimated
at 23%, acesulfame potassium estimated at 20% and saccharin estimated to hold
1% share in the US.  However, this study
also indicated that consumers are concerned about the side-effects of
artificial sweeteners and the Company sees this as a competitive advantage for
a natural product such as stevia.

 

Some non-nutritive sweeteners available on the market
today are discussed below.

 

Saccharin

 

Sweet N’ Low is an example of a saccharin based
sweetener which has received GRAS status by the FDA.  Saccharin has been used by the food industry
for many decades.  Since it leaves a
bitter aftertaste, the makers of saccharin began combining saccharin with
cyclamate.  In the 1980’s it was proven
that saccharin combined with cyclamate caused cancer in lab rats, and the use
of cyclamate in saccharin was banned. 
For the last 20 years, saccharin has often been subject to questions as
to whether it is carcinogenic to human beings. 
Though saccharin is still widely used, it carries a label that warns
consumers of its potential risks.

 

Aspartame

 

Aspartame is another well-known non-nutritive
sweetener, sold under trade names such as Equal and NutriSweet.  Aspartame is widely used in diet
beverages.  It is made of the same basic
elements as saccharin but its main ingredient differs from manufacturer to
manufacturer.  In 1981, the FDA approved
aspartame as a sweetener for a number of uses (e.g. tabletop sweetener, cold
breakfast cereal, gelatines and puddings, chewing gum and carbonated
beverages).  In the 10 years following,
demand for aspartame in the United States doubled and its use continues to be
widespread.  Although soft drinks account
for more than 70% of aspartame consumption, this sweetener is also added to a
number of foods, personal care products and pharmaceuticals.  Aspartame is available in liquid, granular,
encapsulated and powder forms.  The
encapsulated form has made aspartame more heat resistant which makes it ideal
for some bakery products.  However,
aspartame has come under fire in recent years as it has been linked to brain
tumors and other serious health disorders.

 

Sucralose

 

First discovered in 1976, sucralose is most recognized
under its trade name Splenda.  In 1998,
the FDA approved the 

 

10

 

use of sucralose in a number of food and beverages as
a food additive and later as a general purpose sweetener.  Sucralose is made by chemically altering the
sugar molecule, substituting three chlorine atoms for three hydrogen-oxygen
groups.  Often mixed with dextrose,
sucralose is generally stable under heat. 
The sweetener has proven popular among consumers, taking significant
market share from competitors such as Equal. 
However, concerns have been raised among consumers over its chemical
composition, as chlorinated molecules are used as the base of many pesticides.

 

Stevia

 

Stevia is a plant indigenous to the rain forests of
Paraguay and Brazil and has been used as a sweetener for over 600 years.  In recent years, it has been grown
commercially in Brazil, Paraguay, Uruguay, Central America, the United States,
Israel, Thailand and China.  Its leaves
contain several compounds called glycosides, which taste sweet but do not
contain calories.  The two major
glycosides in stevia are Stevioside and Rebaudioside A.  The glycosides in the stevia leaf are 30
times sweeter than sugar and refined stevia extracts are 200-300 times sweeter
than sugar.

 

Natural and non-caloric, stevia extract also has a
zero glycemic index, meaning it does not adversely affect blood sugar levels
and retard insulin release.  These
properties make it an alternative sweetener suitable for diabetics.

 

On December 17, 2008, the FDA confirmed that it
had no objection to the conclusion of independent expert panels which reviewed
rebiana, a product produced by the Company’s strategic partner Cargill, and
rebaudioside A (Reb A) at the purity level produced by Whole Earth Sweetener
Company, in each case concluding that the product was 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 and Reb A as food and
beverage ingredients in the United States. 
See “— Regulatory Approval of Stevia”.

 

The major market that has opened up for high purity
stevia products is the United States. 
There were several important product launches in the United States
during 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 Vitaminwater 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.  These product launches are encouraging as
they were made within weeks of letters of no objection being received by the
FDA on December 17, 2008.

 

Key
Factors Driving the Non-Nutritive Sweetener and Dietary Supplement Markets

 

At the turn of the century, a significant portion of
the world’s population suffers from obesity. 
Approximately 500 million people suffer from obesity and 1 billion are
considered overweight.  According to the
US National Center for Health, obesity rates in the United States alone have
risen to over 50% of the population and obesity prevalence among children has
quadrupled over the last 30 years.  In
China, numbers are also rising and more than 70 million people are now obese,
accounting for 5.4% of China’s total population.  The Company expects that the issue of obesity
will create a growing demand for sugar-free products.

 

Studies found that a number of diseases are closely
associated with obesity, including certain types of cancer, diabetes, coronary
artery disease, stroke, hypertension, cardiomyopathy, non-alcoholic
steatohepatitis, osteoarthritis, reproductive problems, sleep apnea, and
gallbladder disease.  In the United
States there are approximately 15 million adults that are diabetic.  Among them, 90 to 95% are U.S. diabetes
mellitus type II, the type associated with obesity.  As a result, the demand for non-nutritive
sweeteners and dietary supplements has grown in recent years.  Changes in food consumption patterns which
lean toward healthier and more balanced eating habits have also contributed to
the growth in demand for dietary supplements and natural non-nutritive
sweeteners.

 

Drivers
for Future Growth of Stevia Global Market

 

The following factors are expected to facilitate the
growth of the stevia market over the next few years.

 

1.             FDA approval — On December 17,
2008, the FDA confirmed that it had no objection to the conclusion of
independent expert panels which reviewed rebiana, a product produced by the
Company’s strategic partner Cargill, and rebaudioside A (Reb A) at the purity
level produced by Whole Earth Sweetener Company, in each case concluding that
the product was generally recognized as safe for use (GRAS) as a general 

 

11

 

purpose sweetener, including for use in food and
beverages. This will allow the use of rebiana and Reb A as food and beverage
ingredients in the United States. See “— Regulatory Approval of
Stevia”.

 

2.             Sugar in most
countries is a subsidized commodity.  In
Europe and the U.S. subsidies for producing either sugar cane or sugar beet
typically range from 70% to 80%.  This
amounts to approximately US$3 billion annually in the U.S. alone.  As sugar subsidies in many countries are
being reconsidered, stevia could present a major alternative to sugar if the
production and quality of stevia leaves can be ensured.

 

3.             Global trend towards
healthy living, the reduction of sugar consumption by consumers worldwide, an
increase in the number of diabetics and persons with juvenile diabetes and the
adverse medical effects found in Aspartame and Saccharin.

 

Production
of Stevia

 

The Company estimates that China accounts for
approximately 80% of the worldwide production of stevia leaves and preliminary
grade extract.  Within China, there are
approximately ten to twelve companies with stevia refining and extraction capabilities.  Low quality grade extract is considered a
basic feedstock or crude extract with a bitter aftertaste.  Higher levels of RA decrease this bitter
aftertaste which is caused by the presence of impurities.

 

Outside of China, there are a small number of
additional stevia refiners in countries such as Japan, Korea and Malaysia who
are capable of producing pleasant tasting stevia products utilizing higher
grades of stevia extract.

 

Market
for Stevia

 

Stevia consumption has increased since Japan began importing
stevia in 1970.  Stevia now accounts for
a significant share of the total sweetener market in Japan, and has been used
by millions of Japanese for over 30 years. 
Japan consumes over 1,000 metric tons of stevia extract every year.  Major multinational food companies use stevia
extract to sweeten their products for sale in Japan and certain other countries
where it has been approved.  Several
other countries including China, Korea, Brazil and other South American nations
are also using stevia.

 

The Company expects the demand for stevia to increase
due to the recent GRAS designation of rebiana and Reb A in the United States
which will permit the use of these stevia products as general purpose
sweeteners in the United States, including for use in food and beverages. See “—
Regulatory  Approval of
Stevia”.

 

Regulatory
Approval of Stevia

 

2008 was an important year for stevia in the United
States.  In May of 2008, Cargill
published studies in the peer-reviewed scientific journal Food and
Chemical Toxicology that established the safety of rebiana, an all
natural, zero calorie sweetener made with 97% Rebaudioside A from the leaves of
the stevia plant.  On May 15, 2008
Cargill submitted an application to the FDA for GRAS approval of rebiana. These
studies were submitted to the FDA among a host of other scientific data that
included years of in-depth study and clinical trials that supported the use of
rebiana as a safe and healthy food ingredient. 
On December 17, 2008, the FDA confirmed that it had no objection to
the conclusion of an independent expert panel which reviewed research on
rebiana and concluded that it is generally recognized as safe (GRAS) for use as
a general purpose sweetener, including for use in food and beverages.

 

In May 2008, the Whole Earth Sweetener Company
submitted a notification and supporting scientific data to the FDA
demonstrating that its stevia product, Reb A, is generally recognized as safe
for use in beverages, foods and tabletop sweeteners.  Whole Earth Sweetener Company assembled a
panel of internationally recognized experts to review all available safety
information on Reb A. The panel confirmed that Reb A is safe to use as a
tabletop sweetener and as an ingredient in beverages and foods. In preparing
its notification to the FDA, Whole Earth Sweetener Company followed procedures
that require the same quantity and quality of scientific evidence as is
required to obtain approval of a substance as a food additive.  On December 17, 2008, the FDA confirmed
that it had no objection to the conclusion of an independent expert panel which
reviewed research on Reb A and concluded that it is generally recognized as
safe (GRAS) for use as a general purpose sweetener, including for use in food
and beverages.

 

In June of 2008 the Joint Expert Committee on
Food Additives (the “JECFA”), administered jointly by the World Health
Organization and the Food and Agricultural Organization of the United Nations,
raised the acceptable daily 

 

12

 

intake level for stevia. After over a decade of study,
JECFA published approval of stevia stating that “95 percent steviol glycosides
are safe for human use in the range of four milligrams per kilogram of body
weight per day”. This doubled the average daily intake level previously set by
JECFA from earlier studies. These findings added to the previous releases of
the JECFA in 2006 which established that “stevioside and rebaudioside A are not
genotoxic in vitro or in vivo”.

 

In July of 2008, the Australian and New Zealand
food and safety regulatory body FSANZ also approved stevia for use in food and
beverages as an ingredient. The approval was based on research and data
published by JECFA as well as 10-year studies conducted by the Plant Science
Group at Central Queensland University and Australian Stevia Mills. The
petition and subsequent approval of stevia are part of a movement towards the
development of healthier products in the food and beverage industry which are
driven by both consumer and regulatory demand.

 

In addition to governments in Australia and New
Zealand, announcements have been made for the allowance of stevia to be sold in
Switzerland.  Europe has traditionally
been the strictest regulatory community for stevia but interest from industry
players in the European region remains strong as the developments and studies
published by JECFA are followed.

 

BUSINESS
OF THE COMPANY

 

General

 

The Company’s business is primarily focused on the
production of high quality stevia extract for sale in bulk and in products formulated
by the Company for the global food and beverage industry.

 

The Company has also been engaged in the distribution
of stevia and other nutritional health products produced or sourced by or on
behalf of the Company through more than 1,400 YHT locations.  However, on September 8, 2008, the
Company negotiated and signed a Heads of Agreement with YHT to restructure its
existing business relationship from direct operational involvement in YHT’s
business to a relationship of passive investor in YHT. The course of action was
seen by management as the best strategy to create value for its shareholders
and to maintain focus on furthering the stevia business opportunity.  The Company will convert all amounts it is
owed under the existing YHT arrangements into a passive equity investment in
YHT.  The Company expects that definitive
documentation relating to these changes will be executed by YHT and the Company
during the Company’s 2009 fiscal year.

 

Stevia
Manufacturing

 

GLG specializes in research and development of stevia
seeds and seedlings, stevia growing, stevia refining, and the production of
high grade stevia.  Stevia is extracted
and processed from the herbal plant stevia rebaudiana; a leafy plant and a
natural sweetener that has been grown for several hundred years, primarily in
South America.  It was used by early
European settlers to sweeten tea and during the past three decades has been
commercially produced and sold throughout many countries around the world.  For nearly 30 years, Japan and Korea have
been the primary consumers of stevia with colas, candies, and even toothpaste
utilizing the natural substance in product formulas.

 

There are many components that may be extracted from
stevia but Rebaudioside A (“RA”) is the preferred glycoside that is extracted
because of its sweet taste.  Stevia is
most commonly identified by the RA rating method which measures the level of
Rebaudioside A reached once the leaves are refined.  A higher RA rating means the extract is more
pure and thus tastes sweeter than a lower RA rating.  The lower grades of stevia (RA 24 and RA 40)
have a noticeable aftertaste.  Other
components such as Rebaudioside C offer a bitter taste and are generally removed
as an impurity.  Many current stevia
manufacturers in China are only able to produce grades up to RA 60.  However, during the past several years, GLG’s
management has developed proprietary technology to separate and purify RA from
stevia and GLG’s facilities use proprietary technology that have the capability
to produce large amounts of pure, single component products in excess of RA 97.

 

The Company’s vertically integrated business model
manages the production of stevia from development of high quality seedlings,
through to cultivation through to the production of high grade stevia.

 

The Company follows good manufacture processes and has
extensively employed practices that stress food safety through the design of
its facilities through to the manufacturing processes and procedures that it
follows on a daily 

 

13

 

basis. 
Furthermore, the Company undergoes regular third party audits and
reviews to confirm its policies, practices and facilities are meeting required
standards.

 

The Company’s stevia production generally follows the
following process:

 

1.             the leaves are dried,
crushed and extracted with water, followed by precipitation and filtration of
the extract;

 

2.             the resin is washed
with methanol or ethanol to release the glycosides;

 

3.             the glycosides are
then concentrated by with an adsorption resin, followed by drying to yield a
stevia primary extract (approximately 60 per cent pure Rebaudioside A pure
extract);

 

4.             the primary extract
is dissolved in a water-ethanol solvent mixture and further processed by
filtration, crystallization, and centrifugation steps; and

 

5.             the resulting
preparation of crystals is rinsed with ethanol and vacuum-dried to yield the
final rebaudioside A product.

 

Primary extraction (step 4) is performed currently at
all three of GLG’s facilities (Runde, Runyang and Runhai) while secondary
extraction (step 5) is currently undertaken only at the Runde facility.

 

Agriculture

 

The Company, through its Bengbu subsidiary, owns a seed base operation
possessing high quality proprietary technology and patent-pending seeds.  The work of Bengbu provides the Company with
the following benefits:

 

(a)           research and
development of high RA producing stevia seeds and seedlings;

 

(b)           capacity to breed high
RA producing stevia plants;

 

(c)           commercial plants
development;

 

(d)           commercial plot
testing;

 

(e)           propagation of high RA
producing plants;

 

(f)            exclusive growth of
high RA producing plants; and

 

(g)           harvest of high RA
producing leaf.

 

Through its seed base operation, the Company will
control and continue the development of breeding programs designed to produce
improved strains of stevia that will result in higher leaf yield of RA
content.  These seeds will become the
seedlings that GLG will use in its exclusive growing areas of Mingguang and
Dongtai.

 

The Company has introduced a new stevia leaf strain,
Huinong 1, to be used in the Company’s 2009 stevia crop. The new strain is a
unique and highly durable breed possessing high levels of Rebaudioside A.  The Company anticipates increased cost
efficiencies through the use of the naturally propagated new strain by
significantly increasing RA yield per ton of raw leaf.

 

GLG has also developed six new high yielding RA stevia
seed strains whose RA content has been verified by an independent laboratory to
reach an average in excess of 70%.  These
new seed strains were developed at Bengbu’s facilities. Management believes
that an important result of this research is the ability to directly plant
seeds in the fields thus reducing the labour and time that was previously
required to propagate and plant seedlings through winter greenhouses.  GLG expects that the value of these high RA
content seeds as well as the innovation in the Company’s agricultural processes
will provide a competitive advantage as it continually improves product quality
and cost efficiencies.

 

14

 

Growing Areas and Primary
Extraction Facilities

 

The Company’s subsidiaries have special sourcing
agreements in place in the Mingguang and Dongtai regions of China pursuant to
which these governments will allow the Company to purchase stevia leaf that is
being grown exclusively for GLG.

 

The agricultural regions around Mingguang is one of
the largest stevia growing areas in China and provides farmers a ready outlet
for products which previously had to be shipped to processing facilities more
than 500 kilometres away.

 

Pursuant to an investment agreement with the Mingguang
People’s Government, the Company has the exclusive right to the stevia grown
within the Mingguang agricultural region, as well as the exclusive right to
build stevia processing facilities for the next ten years, subject to GLG
meeting certain obligations related to establishing its stevia business in
Mingguang.  To date GLG has:

 

(a)           established a 100%
wholly owned foreign entity, Chuzhou Runhai Stevia High Tech Company, Ltd. (“Runhai”)
as its operating subsidiary in this region;

 

(b)           received a business
license for Runhai for 50 years allowing it to set-up stevia processing
facilities to process the stevia leaf exclusively grown for GLG in the
Mingguang region of China;

 

(c)           received all
significant licenses and certificates to establish its business (foreign
exchange account authorization, tax certificate, organization certificate and a
certificate of Approval for Establishment of Enterprises with Foreign
Investment in the People’s Republic of China);

 

(d)           prepaid RMB 3,622,940
for the 50-year lease of 88.13 mu of land granted to Runhai.  The land use license will be provided to
Runhai once a portion of the capital build is completed in 2008 as per
Government practice in China; and

 

(e)           Constructed an 18,000
metric ton raw stevia leaf processing facility which commenced operations in January 2009.

 

See “— Sources,
Pricing and Availability of Raw Materials”.

 

The agricultural region around Dongtai is the largest
stevia growing area in China and provides farmers a ready outlet for products
which previously had to be shipped to processing facilities more than 500
kilometres away.

 

Pursuant to an investment agreement with the Dongtai
People’s Government, the Company has the exclusive right to the stevia grown
within the Dongtai agricultural region, as well as the exclusive right to build
stevia processing facilities for the next ten years, subject to GLG meeting certain
obligations related to establishing its stevia business in Dongtai.  To date GLG has:

 

(a)           established a 100%
wholly owned foreign entity, Dongtai Runyang Stevia High Tech Company, Ltd. (“Runyang”)
as its operating subsidiary in this region;

 

(b)           received a business
license for Runyang for 50 years allowing it to set up stevia processing
facilities to process the stevia leaf exclusively grown for GLG in the Dongtai
region of China;

 

(c)           received all
significant licenses and certificates to establish its business (foreign
exchange account authorization, tax certificate, organization certificate and a
certificate of Approval for Establishment of Enterprises with Foreign
Investment in the People’s Republic of China.);

 

(d)           prepaid RMB 4,159,860
for the 50-year lease of 270 mu of land granted to Runyang.  The land use license will be provided to
Runyang once a portion of the capital build is completed in 2008 as per
Government practice in China; and

 

(e)           constructed an 18,000
metric ton raw stevia leaf processing facility which commenced operations in January 2009.

 

15

 

See “— Sources,
Pricing and Availability of Raw Materials”.

 

In April 2008, GLG signed a 20-year agreement
with the government of Juancheng County in the western Shandong Province of
China, which gave it 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 Juancheng County government will also organize, and
the Company will contract with, the farmers in the region to grow high quality
stevia leaf exclusively for sale to GLG for the same 20-year period. GLG has
agreed to provide sufficient high quality seedlings to enable farmers to expand
their fields to 50,000 mu (approximately 8,300 acres) in 2009.

 

The agreement calls for the growth of 20,000 mu (approximately
3,300 acres) in 2008; 50,000 mu (approximately 8,300 acres) in 2009; 100,000 mu
(approximately 16,600 acres) in 2010; 200,000 mu (approximately 33,300 acres)
in 2011 and 300,000 mu (approximately 50,000 acres) in 2012. Pursuant to this
agreement, the Company’s exclusive stevia growing areas will increase by
approximately 30% in 2009.

 

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. 
See “— Sources, Pricing and Availability of Raw
Materials”.

 

Secondary Extraction and Refining
of Stevia

 

The Company, through its wholly owned subsidiary
Runde, owns a state of the art manufacturing facility and certain proprietary
technology for producing high quality stevia extract. Runde has current
production capacity of 1,000 metric tons of high grade stevia (RA 80% purity)
or 500 metric tons of rebiana (RA 97% purity). 
Runde also has an additional 5,000 metric ton raw leaf processing capacity
through other production lines at its Qingdao facility.

 

Runde currently leases the land on which its
manufacturing plant is situated under a five year renewable arm’s length lease
agreement with Qingdao Skyland Biotechnology Co., Limited, but has an agreement
to purchase the land once Runde feels that it would be financially advantageous
to do so. The land is located in Qingdao City, Shandong Province, China.  The annual lease payment is RMB 500,000.

 

Sale
of Stevia and Stevia Products

 

The Company is engaged in the sale of stevia extract
to the global food and beverage industry.

 

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 signed by the parties in 2007 and on July 17,
2008 the Company announced that it 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 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 arise.

 

16

 

·                                          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.

 

In addition, GLG and Cargill have entered into a loan
facility 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 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%.

 

The Company also plans to develop and sell specialized
branded stevia products through retail, wholesale and e-commerce sites through
its venture with Weider Global Nutrition II LLC.  It is the intention of the GLG-Weider Sweet
Naturals venture to primarily focus on the sales of wholesale stevia extract
products.

 

This company will utilize the 70+ years of global
business experience, the 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. This new division is
currently reported as part of the stevia business segment for financial
reporting purposes.

 

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.  GLG-Weider
Sweet Naturals, 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 rebpure stevia. Some of these products that will
soon be upgraded to GLG’s rebsweet and rebpure 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.

 

According to the agreement with Weider, GLG will own a
controlling interest of 55 percent of the venture and WGN 45 percent, with GLG holding
three positions on the board and WGN two. Dr. Luke Zhang is the Chairman
of GLG-Weider Sweet Naturals.

 

Distribution of stevia and other nutritional and
health products

 

The Company has also been engaged in the distribution
of stevia and other nutritional health products produced or sourced by or on
behalf of the Company through more than 1,400 YHT locations.  However, on September 8, 2008, the
Company negotiated and signed a Heads of Agreement with YHT to restructure its
existing business relationship from direct operational involvement in YHT’s
business to a relationship of passive investor in YHT. The course of action was
seen by management as the best strategy to create value for its shareholders
and to maintain focus on furthering the stevia business opportunity.  The Company will convert all amounts it is
owed under the existing YHT arrangements into a passive equity investment in
YHT.  The Company expects that definitive
documentation relating to these changes will be executed by YHT and the Company
during the Company’s 2009 fiscal year.

 

17

 

Business
Objectives and Strategies

 

GLG’s mission is to become the world’s leading
producer of high grade stevia by securing stevia leaf supply, establishing leaf
refining facilities in key locations, and providing a consistent supply of high
quality stevia in bulk and consumer grades while increasing profitability,
shareholder value and employee and customer satisfaction.

 

Its key business objectives are:

 

1.                                       to
jointly develop the rebiana supply chain with Cargill as their leading
strategic supplier of stevia extract;

 

2.                                       to
maintain low cost production of high grade stevia extract through process
innovation and vertical integration (from seedling development to high grade
stevia production);

 

3.                                       to
continue to pursue research and development that will further improve the
quality and yield of stevia seedlings;

 

4.                                       to
continue to develop its seedbase to ensure a growing percentage of stevia leaf
comes from its high quality stevia seedlings;

 

5.                                       to
develop the capacity needed to meet its customers forecasted demand increase
over the next one to three years;

 

6.                                       to
work effectively with governments in China to develop key stevia growing areas
to increase the annual harvest of high quality stevia leaf over the next one to
three years; and

 

7.                                       to
develop the GLG-Weider Sweet Naturals venture into a profitable growth
opportunity.

 

In addition to the foregoing, the Company is focused
on being an environmentally conscious corporate citizen in China.

 

Specialized
Skill and Knowledge

 

The production of high grade stevia by the Company’s
subsidiaries, Runde, Runhai and Runyang, requires specialized skill and
technical know-how; the Company currently employs a technically advanced and
diversified management team and technical staff.  In addition to proprietary technology
licensed from third parties, GLG has developed and owns proprietary
manufacturing technology to produce high quality stevia with extremely high RA
readings that meet and/or exceed the quality requirements used in its customers’
products.  GLG has not yet patented this
proprietary manufacturing technology though the Company may elect to do so at
some point in the future.  Currently, the
Company relies upon confidentiality agreements that have been entered into
between the Company and its personnel who have access to the proprietary
information.

 

Competitive
Conditions

 

In the high quality stevia production sector, the
Company currently enjoys several competitive advantages.  Approximately 80% of the world’s stevia leaf
is currently grown in China where the Company’s manufacturing operations are
located.  While there are two companies
in Japan, one company in Korea and one company in Malaysia that are capable of
producing high-grade stevia extract, the manufacturing costs to produce high
quality stevia in these countries are estimated to be significantly higher than
the cost of producing the same product within China.

 

This price difference combined with the current
tonnage processed at GLG’s facilities put GLG at a competitive advantage.  Through arrangements it has negotiated, GLG
expects to control a large percentage of the high quality stevia seeds in China
and also has relationships with the government for the growth and harvest of
stevia leaf for GLG’s exclusive purchase. 
Additionally, GLG uses proprietary processes and technology and has a
strong multi-national management team.

 

There are major global players that are expected to
enter the market as demand for stevia grows but the Company believes that it
will take competitors several years to reach GLG’s current stage of
development.  As an example, the 

 

18

 

seedling development process takes several years and is
only the first phase of the vertically integrated process for developing a high
quality finished product.  Therefore,
anyone who is not currently involved in the development of high quality seeds
and seedlings, similar to the technologically developed seeds and seedlings
that GLG uses, or does not have the ability to grow and harvest the stevia
leaves economically, will encounter significant barriers to entry within the
marketplace.

 

New
Products

 

The Company is currently working on new products for
its consumer products division.  These
products will utilize stevia based formulations and will include such products
as tabletop sweeteners and dietary supplements. 
These products will be developed for several markets including but not
limited to Japan, Korea, China, the United States and Canada in 2009.

 

Sources,
Pricing and Availability of Raw Materials

 

In recent years, the purchase of stevia leaf has been
a major process involving many buyers in the fields negotiating with thousands
of farmers.  This method to acquire the
required thousands of metric tons of leaf is costly, involved a bidding process
which resulted in higher prices and, in many cases, a poorer and lower RA
yielding leaf.  GLG’s strategy to improve
the quality of the leaf purchased and to ensure a fair price to all parties is
based on the development of its own high quality seed base that will only be
offered to farmers in its exclusive growing areas.

 

The Company has entered into agreements with the
Dongtai People’s Government, the Mingguang People’s which have given it
exclusive rights to purchase high quality stevia leaf and build and operate a
stevia processing factories in these regions. 
These agreements will play an important role in local government plans
to help local farmers improve their quality of life while at the same time
providing quality leaf to GLG.  The plans
call to increase stevia growing areas with pre-agreed prices and leaf quality
to be guaranteed to farmers who will grow stevia in place of lower value
crops.  This is a win/win arrangement
since farmers can make approximately two to three times the amount of profit
growing stevia rather than crops such as wheat.

 

The ability to exercise control over all aspects of
the raw material from the development of the high RA yielding seed, plants,
planting, harvesting to the final extraction process is expected to result in a
consistent reserve of high quality stevia leaf at a fair price.  GLG also employs a recognized quality
standard in China for the purchase of agricultural products.  The 2008 stevia harvest was the first year
the Company employed these standards during the stevia leaf purchase
process.  The result was an improvement
of quality of leaf purchased in 2008 in terms of moisture and foreign material
relative to the previous year’s leaf purchase. 
The Company believes that it will take approximately 2 to 3 years to
train the local farmers to adapt to this quality standard in China and is
committed to implementing it.

 

In April 2008, GLG signed a 20-year agreement
with the government of Juancheng County in the western Shandong Province of
China, which gave it 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 Juancheng County government will also organize, and
the Company will contract with, the farmers in the region to grow high quality
stevia leaf exclusively for sale to GLG for the same 20-year period. GLG has
agreed to provide sufficient high quality seedlings to enable farmers to expand
their fields to 50,000 mu (approximately 8,300 acres) in 2009.

 

The agreement calls for the growth of 20,000 mu
(approximately 3,300 acres) in 2008; 50,000 mu (approximately 8,300 acres) in
2009; 100,000 mu (approximately 16,600 acres) in 2010; 200,000 mu
(approximately 33,300 acres) in 2011 and 300,000 mu (approximately 50,000
acres) in 2012. Pursuant to this agreement, the Company’s exclusive stevia
growing areas will increase by approximately 30% in 2009.

 

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.

 

Intangible
Properties

 

The Company’s ability to compete effectively is
dependent upon the proprietary nature of the designs, processes, technologies
and materials owned by, used by or licensed to the Company or its
subsidiaries.  The Company has certain
intellectual property related to stevia includes proprietary process technology
for the manufacture of high 

 

19

 

grade stevia which is not covered by patents or other
intellectual property protection but instead through confidentiality agreements
with key personal who are privy to this information. See “Risk Factors”.

 

The Company has the exclusive right to the name GLG
and to Professor Hong Zhao Guang’s name and image in connection with the
Company’s health and nutritional products distribution business.  The Company has also filed trademark
applications with respect to certain product names including Rebpure, Rebsweete
and Anysweet and certain related designs.

 

The Company has also applied for patents on six new
high yielding RA stevia seed strains whose RA content has been verified by an
independent laboratory to reach an average in excess of 70%.

 

In addition, the Company has applied for a patent
relating to the waste water treatment system at its facilities in Dongtai and
Mingguang and its subsidiary, Runde, owns certain proprietary technology used
in its manufacturing processes.  Further,
the Company’s subsidiary AHTD is the assignee of the rights to certain
proprietary technology and processes, collectively called New Single Stevia
Seedling Improved Breeding Technology and the Systemic Breeding Methodology of
New Stevia Seedlings.

 

The Company expects that it will continue to file
patent and trademark applications on an ongoing basis to protect its
intellectual property.

 

Seasonal
or Cyclical Business

 

The stevia manufacturing business is seasonal only to
the extent that the leaf for the next year needs to be purchased, or funds for
the purchase of stevia leaf confirmed available, in June of a given year
with harvest taking place during late July and August.  The processing operations can therefore slow
down significantly before a new harvest is completed during the months of July and
August each year.  This situation is
currently extremely competitive but the Company has taken steps to conduct its
own stevia seed, growth and harvesting operations to allow the Company’s
growing demands for raw product to be met. See “— Sources,
Pricing and Availability of Raw Materials”.

 

There are no seasonality influences on the Company’s
retail business with YHT and Weider, excluding sales increases during the
holiday season.

 

Economic
Dependence

 

The Company has a significant economic relationship
with its strategic partner Cargill.  If
Cargill were to terminate the relationship with the Company, there could be a
material negative impact on the Company’s operations, financial results, and
current business and/or future prospects. See “Risk Factors
— Customer Concentration Risk”.

 

Financial
and Operational Effects of Environmental Protection

 

The Company carefully adheres to environmental
requirements and the cost of such adherence is factored into the manufacturing
costs.  The Company does not foresee any
increases in compliance that cannot be offset with an increase in the sale
price which will allow existing margins to continue.

 

There are no environmental protection requirements
affecting the other segments of the Company’s business.

 

Employees

 

As at December 31, 2008, the Company employed 808
people.

 

As at the date of this Annual Information Form, the
Company did not have any employees in its distribution business.  The distribution business is a procurement
activity and independent contractors are used.

 

Foreign
Operations

 

The Company conducts business internationally and in
particular in China where the Company’s production of stevia is centred.  International operations are subject to a
number of special risks, including currency exchange rate fluctuations, trade
barriers, exchange controls, national and regional labour strikes, political
risks and risks of increases in duties, taxes and governmental royalties, as well
as changes in laws and policies governing operations 

 

20

 

of foreign based companies, including subsidiaries of
the Company.  See “Risk Factors
— Risks Relating to the Company’s Operations in China”.

 

21

 

RISK
FACTORS

 

This section describes the material risks affecting
the Company’s business, financial condition, operating results and
prospects.  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
addition to the other information set forth elsewhere in this Annual
Information Form, prospective investors should carefully review the following
risk factors:

 

Risks
Relating to GLG Life Tech Corporation and its Business

 

Customer Concentration Risk

 

In 2007, the Company entered into a five year renewable
supply agreement with Cargill to supply Cargill with stevia product.  However, that agreement was replaced with a
10-year Strategic Alliance Agreement with Cargill in May 2008 as further
amended in August 2008.  It is
expected that a significant portion of the Company’s future revenues over the
next five years will be derived from the Strategic Alliance Agreement.  If Cargill were to terminate their
relationship with the Company, there may be a material adverse effect on the
Company’s business operations and financial condition.

 

Key Employees

 

The loss of any of the Company’s or its subsidiaries’
current executives, employees, or advisors, and in particular, Dr. Zhang,
or the failure to attract, integrate, motivate, and retain additional key
employees could have a material adverse effect on the Company’s business.  To the knowledge of the Company, none of its
key employees has plans to retire or resign in the near future.  The Company does not have “key person”
insurance on the lives of any of its management team.  In the future, if the Company grows and
operations are expanded, it may not be able to attract the additional personnel
it requires.

 

Market Acceptance

 

The Company has established limited brand recognition
in Canada, the United States and other international jurisdictions.  The Company cannot be sure that it will
successfully complete the development and introduction of new products or
product enhancements or that any new products developed will achieve acceptance
in the marketplace.  It may also fail to
develop and deploy new products and product enhancements on a timely
basis.  There can be no assurance that
the Company will be able to expand its distribution capabilities in the future
or that any such expansion will be successful. 
Furthermore, there can be no assurance that any expansion will not have
a material adverse effect on the operating results of the Company, particularly
while it is implementing such expansion and the costs associated with any
expansion.

 

Reliance Upon Proprietary Technology

 

The Company’s ability to compete effectively is
dependent upon the proprietary nature of the designs, processes, technologies
and materials owned by, used by or licensed to the Company or its
subsidiaries.  The Company’s intellectual
property related to stevia includes proprietary process technology for the
manufacture of high grade stevia which is not covered by patents or other
intellectual property protection.  All
key personnel who are privy to proprietary information have entered into
confidentiality agreements with the Company or one of its subsidiaries;
however, there is no certainty that these arrangements will be sufficient to
safeguard the technology.

 

In relation to the intellectual property used by or
licensed to the Company and its subsidiaries, there can be no assurance that
the Company will continue to be able to use the intellectual property on terms
that are acceptable to it, or at all.  If
the Company is unable to agree to terms to use this technology in the future or
is unable to obtain the right to use other similar technology, there may be a
material adverse effect on the Company’s business operations and financial
condition.

 

22

 

Manufacturing Risk

 

The Company currently must position itself to acquire
stevia leaf so that the capabilities of its production facilities can be
maximized.  Stevia leaf shortage could
result in loss of sales if the Company is not able to secure funding to grow
the stevia business in light of projected industrial demands.

 

If the Company and its subsidiaries are ever unable to
produce the required commercial quantities of bulk substance or finished
product on a timely basis and at commercially reasonable prices, and are unable
to find one or more replacement manufacturers with the necessary expertise,
regulatory approvals and facilities capable of production at a substantially
equivalent cost, in substantially equivalent volumes and quality, and on a
timely basis, the Company will likely be unable to meet customer demand and
this may have a material adverse effect on the Company’s business operations
and financial condition.

 

In addition, Runde leases the facility where it
operates and the property was seized by the Shandong Heze Intermediate People’s
Court on July 4, 2007 in connection with litigation relating to the
property owner.  However, the litigation
has had no impact on the Company’s operations.

 

Financing Risks

 

The Company has sufficient financial resources to
conduct its current operations but does not presently have sufficient financial
resources to implement its business plan beyond the current year.  Additional financing will be required by the
Company in order to meet its planned goals and expectations and to further
expand its operations, defray unexpected costs of business and provide
additional operating capital.  The
Company’s development will therefore depend upon its ability to obtain
financing through private placement financing, public financing or other
means.  There can be no assurance that
the Company will be able to obtain adequate financing in the future in the
amounts, at the price, and at the times necessary to meet its planned
forecasts.

 

Consumer Perception of Products

 

Even if products distributed by the Company conform to
international safety and quality standards, sales could be adversely affected
if consumers in the Company’s target markets lose confidence in the safety,
efficacy, and quality of nutritional supplement products.  Adverse publicity about nutritional
supplements or any food products that the Company sells may discourage
consumers from buying products distributed by the Company.  The Company may not be able to overcome
negative publicity within a reasonable period of time.  The Company intends to continue to consult its
scientific advisors in order to select high quality products for distribution,
which should minimize the potential for such negative publicity to some extent.

 

Volatility of Share Prices

 

The Common Share trading price is subject to change
because of numerous factors beyond the control of the Company, including
reports of new information, changes in financial situation, the sale of Common
Shares in the market, the Company’s failure to achieve financial results in
line with the expectations of analysts, or announcements by the Company or any
of its competitors concerning results. 
There is no guarantee that the market price of the Common Shares will be
protected from any such fluctuations in the future.

 

Trademark Protection

 

Currently, the Company is in the process of applying
for trademark protection for its own branded stevia products and has filed nine
trademark applications in the North American market; five for use in Canada and
four for use in the United States. In addition, the Company has filed for the
protection of its logo mark and its corporate name “GLG Life Tech” in both the
United States and Canada.  All
applications are in various stages of approval.

 

The Company or its subsidiaries may not always be able
to successfully protect or enforce their proprietary properties against
competitors, which may materially adversely affect the business of the Company
and its subsidiaries.

 

In addition, others may claim that the Company’s or
its subsidiaries’ products are infringing their intellectual property
rights.  If the Company or its
subsidiaries are found to have infringed upon the intellectual property rights
of another party, licenses for such intellectual property may not be available
on favourable terms or at all.  If 

 

23

 

someone claims that the technology or products of the
Company or its subsidiaries infringe their intellectual property rights, any
resulting litigation could be costly and time consuming and would divert the
attention of management and key personnel from other business issues.  The complexity of the technology involved and
the uncertainty of intellectual property litigation increase these risks.  The Company or its subsidiaries also may be
subject to significant damages or injunctions preventing it from selling or
using some aspect of its products in the event of a successful claim of patent
or other intellectual property infringement. 
Any of these adverse consequences could have a material adverse effect
on the Company’s business operations and financial condition.

 

Company Not Party to Certain Material Documents

 

On August 16, 2007, American GLG Group, a private
company of which the Company’s director Dr. Luke Zhang is the principal
shareholder, signed preliminary investment agreements with two government
authorities, the Mingguang People’s Government and the Dongtai People’s
Government of China.  American GLG Group
was used to expedite the signing of the preliminary investment agreements with
the two government authorities and American GLG Group has since assigned these
agreements to the Company.  Based on the
conduct of these governments since entering into these agreements, the Company
believes that there is no reason that the government will not recognize the
assignment of these contracts from American GLG Group to the Company.  However, the Company cannot guarantee that
this will be the case.  If the Company is
not able to acquire these rights from American GLG Group it would have a
material adverse effect on the Company’s business operations and financial
condition.

 

In addition, the Company’s subsidiary AHTD is the
assignee of two patent pending stevia seedlings on which the Company is
reliant, however, the patent has not been registered in AHTD’s name.  While the Company believes that AHTD would be
recognized as the holder of the rights to these patent pending stevia
seedlings, there can be no assurance that this will be the case and if the
Company is not able to acquire these rights it could have a material adverse
effect on the Company’s business operations and financial condition.

 

Changing Consumer Preferences

 

Consumer preferences evolve over time and the success
of the Company’s products depends on its ability to identify the tastes and
nutritional needs of its customers and to offer products that appeal to their
preferences.  The Company introduces new
products and improved products from time to time and may incur significant
development and marketing costs.  If the
Company’s products fail to meet consumer preferences, then the Company’s
strategy to grow sales and profits with new products will be less successful.

 

Product Liability — Certain Uninsured Risks

 

As a manufacturer and distributor of products designed
for human consumption, the Company is subject to product liability claims if
the use of its products is alleged to have resulted in injury.  For example, the Company may be subject to
various product liability claims, including, among others, allegations that its
products include inadequate instructions for use or inadequate warnings
concerning possible side effects and interactions with other substances.  In addition, although the Company and the
Company’s manufacturers maintain quality controls and procedures with respect
to products that the Company sells, these products could contain contaminated
substances.  The Company currently has
not obtained indemnities from its raw material and product suppliers.  The Company carries liability insurance to
cover product recalls and worldwide product liabilities through its GLG Weider
Sweet Naturals Corp subsidiary and is in the process of obtaining product
liability insurance for GLG.  Such
insurance, however, may not be available in the future at a reasonable cost, on
favourable terms, or at all, and may not be adequate to cover liabilities.

 

Conflicts of Interest

 

There are potential conflicts of interest to which the
directors and officers of GLG will be subject with respect to the operations of
GLG.  Certain of the directors and
officers of GLG also serve as directors and officers of other companies.  Situations may arise where the directors and
officers will be engaged in direct competition with GLG.  Any conflicts of interest will be subject to and
governed by the law applicable to directors and officers conflicts of interest,
including the procedures prescribed by the Business Corporations Act
(British Columbia).

 

If a conflict of interest arises at a meeting of the
Board of Directors of GLG, any director in a conflict will disclose his
interest and abstain from voting on such matters.

 

24

 

Industry
Related Risks

 

Excess Capacity

 

The Company and other stevia producers have developed
a large manufacturing capacity in expectation of a large demand for stevia
products and the Company expects that demand for stevia will increase
significantly in the future, particularly in light of the fact that certain
stevia products have received GRAS approval in the United States.  However, there can be no assurance that this
will be the case and if demand for stevia does not increase, the stevia market
may be subject to significant excess capacity.

 

Competition

 

The Company’s major competitors for its core stevia
business are existing stevia producers in Japan, Korea, China and
Malaysia.  These competitors may have
significantly greater financial, technical and marketing resources, and may
have a more established customer base. 
There is no assurance that the Company will be able to compete
successfully against its competitors or that such competition will not have a
material adverse effect on the Company’s business operations or financial
condition.

 

The Company’s major competitors for its non-core
businesses are international companies, which produce health products, as well
as nutritional and dietary supplements. 
Some of these competitors have significantly greater financial,
technical and marketing resources.  Many
of the Company’s competitors have a more established customer base and greater
brand recognition.  There is no assurance
that the Company will be able to compete successfully against its competitors
or that such competition will not have a material adverse effect on the Company’s
business operations or financial condition.

 

Regulatory Environment

 

While stevia and/or stevia products have been approved
for use in food and beverages in certain countries, including the United
States, there are a number of major regions, including the European Union where
stevia has not been approved for use.  Global
demand for stevia and stevia products may be limited if stevia is not approved
for use in these regions.

 

In addition, health care products, dietary supplements
and nutritional supplements are subject to various government regulations.  The processing, formulation, manufacturing,
packaging, labeling, advertising and distribution of the Company’s products are
subject to regulation by one or more federal agencies, and various agencies of
the states and localities in which the Company’s products are sold.  These government regulatory agencies may
attempt to regulate any of the Company’s products that fall within their
jurisdiction.  Such regulatory agencies
may not accept the evidence of safety for any new ingredients that the Company
may want to market, may determine that a particular product or product
ingredient presents an unacceptable health risk, may determine that a
particular statement of nutritional support that the Company wants to use is an
unacceptable drug claim or an unauthorized version of a food “health claim,”
may determine that a particular product is an unapproved new drug, or may
determine that particular claims are not adequately supported by available
scientific evidence.  Such a
determination would prevent the Company from marketing particular products or
using certain statements of nutritional support on the Company’s products.

 

The Company also may be unable to disseminate
third-party literature in connection with the Company’s products if the
third-party literature fails to satisfy certain requirements.  In addition, a government regulatory agency
could require the Company to remove a particular product from the market.  Any future recall or removal would result in
additional costs to the Company, including lost revenues from any products that
the Company is required to remove from the market, any of which could be
material.  Any such product recalls or
removals could lead to liability, substantial costs and reduced growth
prospects.

 

Although the regulation of dietary supplements is less
restrictive than the regulation of drugs, dietary supplements may not continue
to be subject to less restrictive regulation. 
If any of the Company’s products contain plants, herbs or other
substances not recognized as safe by a government regulatory agency, the
Company may not be able to market or sell such products in that
jurisdiction.  Any such prohibition could
materially adversely affect the Company’s results of operations and financial
condition.  Further, if more stringent
statutes are enacted for dietary supplements, or if more stringent regulations
are promulgated, the Company may not be able to comply with such statutes or
regulations without incurring substantial expense, or at all.

 

25

 

Government regulatory agencies may also adopt more
stringent rules regarding the manufacturing of dietary supplements, which
may apply to the products that the Company or its subsidiaries
manufacture.  In the future, such
regulations may require dietary supplements to be prepared, packaged and held
in compliance with strict rules, and may require quality control provisions
similar to those in the Good Manufacturing Practice regulations for drugs.  The Company may not be able to comply with
such new rules without incurring additional expenses.

 

The Company is not able to predict the nature of
future laws, regulations, repeals or interpretations or to predict the effect
additional governmental regulation, when and if it occurs, would have on its
business in the future.  Such
developments could, however, require reformulation of certain products to meet
new standards, recalls or discontinuance of certain products not able to be
reformulated, additional record-keeping requirements, increased documentation
of the properties of certain products, additional or different labeling,
additional scientific substantiation, or other new requirements.  Any such developments could have a material
adverse effect on the Company’s business operations and financial condition.

 

Safety, Efficacy and Quality of Products

 

Even if products to be distributed by the Company
conform to international safety and quality standards, sales could be adversely
affected if consumers in target markets lose confidence in the safety,
efficacy, and quality of stevia or in the Company’s nutritional supplement
products.  Adverse publicity about stevia
or the nutritional supplements or any food products that the Company sells may
discourage consumers from buying products distributed by it.

 

There is no sure way to override negative publicity in
short periods of time.  However, the
Company intends to access the expertise of its scientific advisors in order to
select a high quality line of products that should lessen any problem of such
negative publicity.

 

Natural Disasters

 

The Company’s raw material supply, by nature, is
subject to a high degree of exposure to the risks of natural disasters and
adverse weather conditions such as droughts, floods, earthquakes, hailstorms,
windstorms, pests, and diseases.  Should
a natural disaster occur in the Company’s exclusive growing areas this could
have a material adverse effect on the Company’s business operations and
financial condition.

 

Risks
Relating to the Company’s Operations in China

 

General

 

The Company carries on business internationally, and
in particular, in China.  Foreign
operations are subject to a number of special risks, including currency
exchange rate fluctuations, trade barriers, exchange controls, national and
regional labour strikes, political risks and risks of increases in duties,
taxes and governmental royalties, as well as changes in laws and policies
governing operations of foreign based companies, including subsidiaries of the
Company.  In addition, earnings of
subsidiaries and intercompany payments are subject to foreign income tax rules that
reduce the cash flow of the Company.

 

Government Involvement

 

The economy of the People’s Republic of China differs
from the economies of most developed countries in many respects, including the
extent of government involvement.  The
economy of the People’s Republic of China has been transitioning from a planned
economy to a more market-oriented economy. 
Although in recent years the Chinese government has implemented measures
emphasizing the utilization of market forces for economic reform, the reduction
of state ownership of productive assets and the establishment of sound
corporate governance in business enterprises, a substantial portion of
productive assets in the People’s Republic of China are still owned by the
Chinese government.  In addition, the
Chinese government continues to play a significant role in regulating
industrial development.  It also
exercises significant control over China’s economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. 
Economic control measures may be adjusted or modified without warning
and may be applied differently from industry to industry.  Economic controls and reforms are often
adopted on an experimental basis and are subject to reversal or revocation with
little or no warning.  Because these
economic reform measures may be inconsistent or ineffectual, there are no
assurances that:

 

26

 

·              the Company will be able to capitalize on
economic reforms;

 

·              stevia production will remain a priority
for Chinese governments;

 

·              the Chinese government will continue its
pursuit of economic reform policies;

 

·              the economic policies, even if pursued,
will be successful;

 

·              economic policies will not be
significantly altered from time to time; and

 

·                                          business
operations in the People’s Republic of China will not become subject to the
risk of nationalization.

 

Any negative impact from economic reform policies or
nationalization could result in a total investment loss in the Common Shares.

 

To date, reforms to the People’s Republic of China’s
economic system have not adversely impacted the Company’s operations and are
not expected to adversely impact operations in the foreseeable future.  There can be no assurance, however, that the
reforms to the People’s Republic of China’s economic system will continue or
that the Company will not be adversely affected by changes in the People’s
Republic of China’s political, economic, and social conditions and by changes
in policies of the Chinese government, such as changes in laws and regulations,
measures which may be introduced to control inflation, changes in the rate or
method of taxation, imposition of additional restrictions on currency
conversion and remittance abroad, and reduction in tariff protection and other
import restrictions.

 

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

 

The Chinese legal system is based on written
statutes.  Prior court decisions may be
cited for reference but are not binding on subsequent cases and have limited
precedential value.  Since 1979, the
Chinese legislative bodies have promulgated laws and regulations dealing with
such economic matters as foreign investment, corporate organization and
governance, commerce, taxation and trade. 
However, because these laws and regulations are relatively new, and
because of the limited volume of published decisions and their non-binding
nature, the interpretation and enforcement of these laws and regulations
involve uncertainties.  Additionally,
Chinese laws are generally drafted in such a way as to allow interpretation to
accord with changing policy demands and are implemented differently from region
to region.  The Chinese legal system has
inherent uncertainties that can seriously limit the legal protections to
shareholders in Chinese companies.

 

The Company’s subsidiaries are subject to corporate
laws in the People’s Republic of China. 
Additionally, as a food manufacturing company, the Company and its
subsidiaries are subject to the laws and regulations governing food and health
products in the People’s Republic of China. 
Changes in existing laws or new interpretations of such laws may have a
significant impact on the Company’s methods and costs of doing business.  For example, new legislative proposals for
product pricing, approval criteria and manufacturing requirements may be
proposed and adopted.  Such new
legislation or regulatory requirements may have a material adverse effect on
the Company’s business or financial condition. 
In addition, the Company will be subject to varying degrees of
regulation and licensing by governmental agencies in the People’s Republic of
China.  There can be no assurance that
the future regulatory, judicial and legislative changes will not have a
material adverse effect on the Company’s subsidiaries, that regulators or third
parties will not raise material issues with regard to its subsidiaries or its
compliance or non-compliance with applicable laws or regulations or that any
changes in applicable laws or regulations will not have a material adverse
effect on the Company’s business and financial condition.

 

The Chinese Legal and Accounting System

 

The legal system in the People’s Republic of China
differs from Canadian law.  The Foreign
Invested Enterprise laws provide certain protections from government
interference.  In addition, these laws
guarantee the full enjoyment of the benefits of corporate articles and
contracts to Foreign Invested Enterprise participants.  These laws, however, do impose standards
concerning corporate formation and governance. 
Similarly, the accounting laws of the People’s Republic of China mandate
accounting practices that are not entirely consistent with Canadian Generally
Accepted Accounting Principles.  The
Chinese accounting laws require that an annual “statutory audit” be performed
in accordance with the People’s Republic of China accounting standards and that
the books of account of Foreign 

 

27

 

Invested Enterprises be maintained in accordance with
Chinese accounting laws.  Article 14
of the People’s Republic of China Wholly Foreign-Owned Enterprise Law requires
a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and
statements to designated financial and tax authorities, at the risk of business
license revocation.  There is no
guarantee that the Company and its subsidiaries will be able to continue to
comply with the legal and accounting systems in China without incurring
additional expense, if at all, which would have a material adverse affect on
the Company’s business operations and financial condition.

 

The enforcement of substantive rights in China differs
from Canadian procedures.  Foreign
Invested Enterprises and Wholly Foreign-Owned Enterprises are Chinese
registered companies which enjoy the same status as other Chinese registered
companies in business-to-business dispute resolution.  Although, as a practical matter, the Chinese
legal infrastructure should not present any significant impediment to the
operation of Foreign Invested Enterprises, there is no guarantee that the
Company or its subsidiaries will be able to enforce their rights in the same
manner and to the same extent as in Canada.

 

In addition, intellectual property rights in China are
still developing, and there are uncertainties involved in their protection and
the enforcement of such protection. The Company’s failure to adequately protect
its intellectual property could lead to the loss of a competitive advantage
that could not likely be compensated by a damages award.

 

Currency Controls

 

The Company’s subsidiaries may incur significant expenses
in Chinese Yuan Renminbi (“RMB”), which currently is not a freely convertible
currency.  Since 1994, the conversion of
RMB into foreign currencies has been based on rates set by the Chinese
government and has generally been stable. 
Any devaluation of the RMB, however, may materially and adversely affect
the value of, and any dividends payable on, shares of Chinese companies.  Chinese companies are generally allowed to
pay dividends to their shareholders in foreign currency with a minimum of
oversight, subject to foreign currency purchase rules.  However, there is no guarantee that future
government controls over foreign currency would not result in the inability of
the Company’s subsidiaries to pay dividends to the Company.

 

Additional Compliance Costs in the People’s
Republic of China

 

The Company’s facilities and products are subject to
laws and regulations in the People’s Republic of China relating to the
processing, packaging, storage, distribution, advertising, labeling, quality,
and safety of food products.  The failure
by the Company and its subsidiaries to comply with applicable laws and
regulations could subject it to administrative penalties, injunctive relief and
civil remedies, including fines, injunctions and recalls of its products.  It is possible that changes to such laws,
more rigorous enforcement of such laws or the Company’s current or past
practices could have a material adverse effect on the Company’s business,
operating results and financial condition. 
Further, additional environmental, health or safety issues relating to
matters that are not currently known to management may result in unanticipated
liabilities and expenditures.

 

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

 

The People’s Republic of China has historically not
had the same standard of Canadian management and financial reporting concepts
and practices, as well as modern banking, computer and other control
systems.  The Company’s subsidiaries may
have difficulty in hiring and retaining a sufficient number of qualified
employees to work in the People’s Republic of China.  As a result of these factors, it may
experience difficulty in establishing management, legal and financial controls,
collecting financial data, preparing financial statements, books of account and
corporate records and instituting business practices that meet Canadian
standards.

 

Capital Outflow Policies in the People’s Republic
of China

 

The People’s Republic of China has adopted currency and
capital transfer regulations.  These
regulations may require that the Company comply with complex regulations for
the movement of capital.  In order to
comply with these regulations the Company may have to revise or change its
banking structure or that of its subsidiaries. 
Although the Company believes that it is currently in compliance with
these regulations, should these regulations or the interpretation of them by
courts or regulatory agencies change it may not be able to remit all income
earned and proceeds received in connection with its operations to Canada.

 

28

 

Jurisdictional and Enforcement Issues

 

Because many of the directors and executive officers
of the Company’s subsidiaries are Chinese citizens and reside in China, it may
be difficult, if not impossible, to acquire jurisdiction over these persons in
the event a lawsuit is initiated against the Company, its subsidiaries, or its
officers and directors by a shareholder or group of shareholders in
Canada.  Furthermore, because the
majority of its assets are located in the People’s Republic of China it would
also be very difficult to access those assets to satisfy an award entered
against the Company in a Canadian court.

 

Political System in the People’s Republic of China

 

Foreign companies conducting operations in the People’s
Republic of China face significant political, economic and legal risks.  The political system in the People’s Republic
of China, including a strong bureaucracy, may hinder Canadian investment.  Another obstacle to foreign investment is
corruption.  There is no assurance that
the Company will be able to obtain recourse, if desired, through the People’s
Republic of China’s less developed judicial systems.

 

Growth Fluctuations

 

Rapid economic growth in some countries such as China
has led to periodic cycles of high inflation causing the governments of such
countries to implement austerity measures to control inflation.  Such austerity programs may affect the rate
of economic growth.

 

Lack of Liquidity

 

Investments in China and some other countries in which
the Company’s subsidiary intend to operate must be viewed as long term
investments and often require time to develop into a profitable venture.  The currency of such countries is not always
readily convertible or freely traded in the international money markets.  Certain restrictions on the repatriation of
capital and profits may apply.

 

DIVIDEND
POLICY

 

No dividends have been declared or paid on the Common
Shares since incorporation, and it is not anticipated that any dividends will
be declared or paid on the Common Shares in the immediate or foreseeable
future.  Any decision to pay dividends on
the Common Shares will be made by the Board of Directors of GLG Life Tech on
the basis of earnings, financial requirements and other conditions existing at
such future time.

 

DESCRIPTION
OF SHARE CAPITAL

 

The Company is authorized to issue an unlimited number
of Common Shares, of which 78,519,662 Common Shares were issued and outstanding
as at the date of this Annual Information Form.

 

The holders of Common Shares are entitled to dividends
as and when declared by the Board of Directors of the Company, to one vote per
Common Share at meetings of shareholders and, upon liquidation, to receive such
assets of the Company as are distributable to holders of Common Shares.  The Common Shares are not subject to any
future call or assessment and there are no pre-emptive, conversion or
redemption rights attached to such Common Shares.

 

The Company has also issued warrants, the particulars
of which are disclosed under the heading “Corporate
Structure — Development of the Business”.  See also the Company’s Financial Statements
and Management’s Discussion and Analysis.

 

MARKET FOR
SECURITIES

 

As of the date hereof, GLG Life Tech’s Common Shares
are listed and posted for trading on the TSX under the symbol “GLG”.  The following sets out the price range and
volumes traded or quoted on the TSX on a monthly basis for each month of 2008:

 

29

 

	
  Month

  	
   

  	
  High

  	
   

  	
  Low

  	
   

  	
  Close

  	
   

  	
  Volume

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 2008

  	
   

  	
  $

  	
  1.99

  	
   

  	
  $

  	
  0.91

  	
   

  	
  $

  	
  1.80

  	
   

  	
  2,309,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  November 2008

  	
   

  	
  $

  	
  1.10

  	
   

  	
  $

  	
  0.75

  	
   

  	
  $

  	
  1.00

  	
   

  	
  774,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  October 2008

  	
   

  	
  $

  	
  1.60

  	
   

  	
  $

  	
  1.00

  	
   

  	
  $

  	
  1.10

  	
   

  	
  166,900

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 2008

  	
   

  	
  $

  	
  2.07

  	
   

  	
  $

  	
  1.30

  	
   

  	
  $

  	
  1.60

  	
   

  	
  287,600

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  August 2008

  	
   

  	
  $

  	
  2.49

  	
   

  	
  $

  	
  1.50

  	
   

  	
  $

  	
  2.05

  	
   

  	
  180,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  July 2008

  	
   

  	
  $

  	
  3.50

  	
   

  	
  $

  	
  1.50

  	
   

  	
  $

  	
  1.76

  	
   

  	
  558,800

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  June 2008

  	
   

  	
  $

  	
  3.60

  	
   

  	
  $

  	
  3.15

  	
   

  	
  $

  	
  3.50

  	
   

  	
  322,300

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  May 2008

  	
   

  	
  $

  	
  4.89

  	
   

  	
  $

  	
  3.10

  	
   

  	
  $

  	
  3.69

  	
   

  	
  1,827,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  April 2008

  	
   

  	
  $

  	
  3.20

  	
   

  	
  $

  	
  2.90

  	
   

  	
  $

  	
  3.05

  	
   

  	
  761,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  March 2008

  	
   

  	
  $

  	
  3.47

  	
   

  	
  $

  	
  2.70

  	
   

  	
  $

  	
  3.10

  	
   

  	
  393,100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  February 2008

  	
   

  	
  $

  	
  4.50

  	
   

  	
  $

  	
  3.05

  	
   

  	
  $

  	
  3.38

  	
   

  	
  173,006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  January 2008

  	
   

  	
  $

  	
  5.05

  	
   

  	
  $

  	
  3.95

  	
   

  	
  $

  	
  4.95

  	
   

  	
  185,310

  	
   

  

 

ESCROWED
SECURITIES

 

To the knowledge of the Company, none of the Company’s
securities are subject to escrow.

 

DIRECTORS
AND OFFICERS

 

The directors are elected by the shareholders at each
annual general meeting and typically hold office until the next annual general
meeting at which time they may be re-elected or replaced.  Casual vacancies on the Board are filled by
the remaining directors and the persons filling those vacancies hold office
until the next annual general meeting at which time they may be re-elected or
replaced.  The officers are appointed by
the Board and hold office at the pleasure of the Board.

 

Collectively, as at the date of this Annual
Information Form, the directors and executive officers of GLG Life Tech, as a
group, own 10,234,463 Common Shares, representing approximately 13.0% (10.6% on
a fully diluted basis) of the issued and outstanding Common Shares.

 

The following table sets forth the names and
municipalities of residence of all the directors and executive officers of the
Company, as well as the positions and offices held by such persons and their
principal occupations.

 

	
  Name and Municipality of

  Residence

  	
   

  	
  Position
  with GLG Life Tech

  	
   

  	
  Principal
  Occupations for 

  the past 5 years

  	
   

  	
  Director
  Since

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  Society Hill, South Carolina

  United States

  	
   

  	
  Director

  	
   

  	
  Consultant
  for Public Square Strategies Inc.

  	
   

  	
  June 21,
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  David
  Bishop

  Atlanta, Georgia,

  United States

  	
   

  	
  Executive
  Vice President — International Affairs

  	
   

  	
  Executive
  Vice President — International Affairs of GLG

  	
   

  	
  N/A

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  He
  Fangzhen (1)(4)

  Jinan, Shangdong Province,

  China

  	
   

  	
  Director

  	
   

  	
  Retired
  Chief Engineer

  	
   

  	
  May 7,
  2008

  

 

30

 

	
  Name and Municipality of

  Residence

  	
   

  	
  Position
  with GLG Life Tech

  	
   

  	
  Principal
  Occupations for 

  the past 5 years

  	
   

  	
  Director
  Since

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  Vancouver, British Columbia

  Canada

  	
   

  	
  Director

  	
   

  	
  Honorary
  President, Shenzhen Chamber of International Investment and Financing for the
  term 2006 to 2008

  	
   

  	
  February 2,
  2007

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Brian
  Meadows

  Tsawwassen, British Columbia,

  Canada

  	
   

  	
  Chief
  Financial Officer

  	
   

  	
  Chief
  Financial Officer of GLG Life Tech Corporation

  	
   

  	
  N/A

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Brian
  Palmieri

  Cody, Wyoming

  United States

  	
   

  	
  President,
  Vice Chairman and Director

  	
   

  	
  President,
  Vice Chairman and Director of GLG Life Tech Corporation

  	
   

  	
  June 21,
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  Heze, Shangdong Province

  China

  	
   

  	
  Director

  	
   

  	
  Credit
  Director, Heze Industrial and Commercial Bank (1997 — 2000)

  	
   

  	
  June 17,
  2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jinduo
  Zhang

  Burnaby, British Columbia

  Canada

  	
   

  	
  Director

  	
   

  	
  Retired
  Professor

  	
   

  	
  June 21,
  2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dr. Luke
  Zhang

  Heze, Shangdong
  Province

  China

  	
   

  	
  Chief
  Executive Officer, Chairman and Director

  	
   

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

  	
   

  	
  June 21,
  2005

  

 

(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 and executive officers of GLG Life Tech Corporation.

 

Directors
and Officers

 

David Beasley (Director)

 

Mr. Beasley resides in Society Hill, South
Carolina and was appointed as a director of the Company 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.

 

David Bishop (Executive
Vice President, International Affairs)

 

Mr. Bishop  resides in
Atlanta, Georgia and was appointed as the Company’s chief operating officer on February 2,
2007.  Mr. Bishop has more than 25
years’ experience in a variety of personnel, educational, organizational and
management responsibilities.  For
approximately 15 years, he lived and worked as an expatriate in a cross
cultural/cross linguistic environment with a variety of project related duties.
 Mr. Bishop is also chairman of the
Company’s subsidiary, Runde and has been a director of Maple Leaf Reforestation, Inc.
(TSX-MPE Canada) since September 2006. 
On May 15, 2008, Mr. Bishop relinquished his role as Chief
Operating Officer of the Company and was named the Company’s Executive Vice
President, International Affairs.  The
Company has not appointed a 

 

31

 

new Chief Operating Officer and these responsibilities
are fulfilled by a number of people under the supervision of Dr. Luke
Zhang.

 

Sophia Leung (Director)

 

Madame Leung resides in Vancouver, British Columbia
and was appointed as a director of the Company 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.

 

Brian Meadows (Chief
Financial Officer)

 

Mr. Meadows  resides in
Tsawwassen, British Columbia and was appointed as the Company’s chief financial
officer on October 9, 2007.  Mr. Meadows
has 20 years’ experience in the telecommunications industry in both North America
and Europe.  He has held senior financial
and business development roles in several start-up companies in Europe earlier
in his career (1996-2001) as well as having worked with large public companies
in Canada in both financial and operational roles.  Mr. Meadows holds both the Certified
Financial Analyst (CFA) designation as well as the Certified Management
Accountant (CMA) designation.  He
obtained his international MBA from the University of Glasgow in 1995 and a Bachelor
of Business Administration from Wilfrid Laurier University in 1987.

 

Brian Palmieri (Director
and President)

 

Mr. Palmieri resides in Cody, Wyoming and was
appointed as the Chief Executive Officer and a Director of the Company 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

 

(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 Company.  On May 15, 2008, Mr. Palmieri
relinquished his role as Chief Executive Officer of the Company and was named
the Company’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. 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.

 

32

 

Jinduo Zhang (Director)

 

Mr. Jinduo Zhang is a retired professor, resides
in Burnaby, British Columbia and was appointed as a director of the Company 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 Company on September 6, 2007 and as the chairman and a
director of the Company 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 Company and was
named the Company’s Chief Executive Officer.

 

Corporate
Cease Trade Orders and Bankruptcies

 

None of the directors or executive officers of the
Company are, or within the ten years prior to the date of this Annual
Information Form, have been a director or officer of any other company that,
while such person was acting in that capacity or after they ceased to act in
respect of an event that occurred while they were acting in such capacity, was
the subject of a cease trade or similar order, or an order that denied the
company access to any statutory exemptions under the Canadian securities
legislation, for a period of more than 30 consecutive days, or was declared
bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or was subject to or instituted any proceedings, arrangements 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 directors or executive officers of the
Company, or shareholders hodling a sufficient number of securities to affect
materially the control of the Company, 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 directors or executive officers of the
Company, or shareholders hodling a sufficient number of securities to affect
materially the control of the Company has, within the ten years prior to the
date of this Annual Information Form, 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.

 

Conflicts
of Interest

 

There are potential conflicts of interest to which the
directors and officers of GLG will be subject with respect to the operations of
GLG.  Certain of the directors and
officers of GLG also serve as directors and officers of other companies.  Situations may arise where the directors and
officers will be engaged in direct competition with GLG.  Any conflicts of interest will be subject to
and governed by the law applicable to directors and officers conflicts of
interest, including the procedures prescribed by the Business
Corporations Act (British Columbia).

 

If a conflict of interest arises at a meeting of the
Board of Directors of GLG, any director in a conflict will disclose his
interest and abstain from voting on such matter.  See “Risk Factors — Conflicts
of Interest”.

 

33

 

CORPORATE
GOVERNANCE

 

The Board of Directors of the Company is responsible
for the supervision of the management of the Company’s business and
affairs.  The Board of Directors is
currently composed of seven directors, four of whom the Company considers to be
independent as set out below.  The Board
of Directors considers a member to be independent if he has no direct or
indirect material relationship with the Company which, in the view of the Board
of Directors, would reasonably be perceived to materially interfere with the
exercise of the director’s independent judgment.  The Board’s current composition is as
follows:

 

David Beasley — independent

 

Sophia Leung — independent

 

He Fangzhen — independent

 

Liu Yingchun - independent

 

Brian Palmieri — non-independent

 

Jinduo Zhang — non-independent

 

Dr. Luke Zhang — non-independent

 

Brian Palmieri and Dr. Luke Zhang are executive
officers and significant shareholders of the Company, hence they are not
considered to be independent of management. 
Jinduo Zhang is deemed to be non-independent by virtue of his family
relationship with Dr. Luke Zhang.

 

Board Committees

 

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

 

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 Company’s
business objectives and attract and retain key executives. The Committee also
reviews and makes recommendations to the Company’s Board of Directors regarding
the Company’s incentive compensation equity-based plans. The members of the
Compensation Committee are Mr. David Beasley, Madame Sophia Leung and
Madame Liu Yingchun, all independent directors. None of the members of the
Compensation Committee are officers or employees or were former officers or
employees of the Company or any of its subsidiaries, had or has any
relationship that requires disclosure hereunder in respect of indebtedness owed
to the Company or any interest in material transactions involving the Company.

 

The Compensation Committee has a published mandate
which is posted on the Company’s website, www.glglifetech.com.

 

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
Company and its relationship with senior management. The Committee’s role
includes developing and monitoring the effectiveness of the Company’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 Company’s investor relations and public relations 

 

34

 

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.

 

The Corporate Governance and Nominating Committee has
a published mandate which is posted on the Company’s website,
www.glglifetech.com.

 

Audit Committee

 

The Audit Committee has adopted a Charter that sets
out its responsibilities.  The Audit
Committee Charter, as approved by the Board of Directors, is attached as
Appendix A to this Annual Information Form. 
The Audit Committee is currently composed of the following directors:
David Beasley, Madame Sophia Leung and Madame Liu Yingchun.

 

Education and Experience of Members of the Audit
Committee

 

The
Audit Committee reports to the Board of Directors, and is responsible for
assisting in the Board of Directors’ oversight of the reliability and integrity
of the accounting principles and practices, financial statements, other
financial reporting, and disclosure practices followed by management of the
Company and its subsidiaries.

 

All
members of the Audit Committee members are independent.

 

All of the members of the Audit Committee is
financially literate based on their experience as a chief executive, financial
officer or officers and directors of public and/or private organizations.

 

Pre-Approval Policies and Procedures of Non-Audit
Services

 

The Audit Committee’s Charter sets out
responsibilities regarding the provision of non-audit services by the Company’s
external auditors.  As a matter of practice
the Audit Committee, and or the audit committee chairman acting on behalf of
the Audit Committee, will generally pre-approve all audit and permitted
non-audit services to be performed by the external auditors and identifies and
reviews the types of non-audit services or mandates that it considers to be
incompatible with the principles underlying the independence of the external
auditors.  However, during the Company’s
financial year ended December 31, 2008, the Company relied upon the de minimus exemption under section 2.4 of National
Instrument 52-110 — Audit Committees, in relation
to $6,718 of non-audit related fees paid to its former auditor.

 

Change of External Auditor

 

The Company changed its auditor in the fourth quarter
of 2008. PricewaterhouseCoopers LLP has been engaged as the Company’s new
auditor, replacing Lo Porter Hetu Certified General Accountants. The
termination of Lo Porter Hetu Certified General Accountants and the appointment
of PricewaterhouseCoopers LLP were approved by the Audit Committee and there
were no reportable events in connection with this change in auditor.

 

External Auditor Service Fees

 

The aggregate fees for professional services rendered
by the Company’s auditors for the years ended December 31, 2007 and December 31,
2008 as follows:

 

35

 

	
  Fiscal years ended
  December 31

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Audit
  Fees (for audit of the Company’s annual financial statements for the
  respective year and assistance with the Company’s quarterly financial
  statements)

  	
   

  	
  $

  	
  143,390 

  	
  (2)

  	
  $

  	
  120,000 

  	
  (1)

  
	
  Audit-Related
  Fees (1)

  	
   

  	
  $

  	
  8,000 

  	
  (1)

  	
  $

  	
  903 

  	
  (1)

  
	
  Total Audit and Audit-Related Fees

  	
   

  	
  $

  	
  151,390

  	
   

  	
  $

  	
  120,903

  	
   

  
	
  Tax
  Fees (for preparation of tax returns)

  	
   

  	
  $

  	
  3,000 

  	
  (1)

  	
  $

  	
  2,000 

  	
  (1)

  
	
  All
  Other Fees

  	
   

  	
  $

  	
  6,718 

  	
  (1)

  	
  —

  	
   

  
	
  Total Fees

  	
   

  	
  $

  	
  161,108

  	
   

  	
  $

  	
  122,903

  	
   

  

 

(1)               This represents fees paid to Lo Porter
Hetu.

(2)               This represents fees paid to
PricewaterhouseCoopers.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

The Company is
currently working through a contract issue with Northern Securities Inc. (“Northern”)
over $38,664 in cash and 250,000 Common Shares of GLG that Northern is claiming
it is owed by the Company in connection with the parties sponsorship agreement
dated January 24, 2007 (the “Sponsorship Agreement”).  The issue centres on the performance of
Northern under the Sponsorship Agreement and the resulting payment for services
rendered.  On May 27, 2008, Northern
filed its statement of claim in the B.C. Supreme Court.  The Company has filed its defence and has
also filed a counter claim against Northern Securities.  There is no certainty over the outcome of
this lawsuit.  The Company is confident
in its position taken with respect to not paying Northern any additional fees
due to failure of Northern to perform against the contract.  However, should the issue be resolved in
Northern’s favour, the Company would be required to pay $38,664 in cash and to
issue 250,000 Common Shares to Northern. 
Total contingent consideration would amount to $846,164.  The Company has already paid to Northern an
initial sponsorship fee of $10,000 and issued to Northern 250,000 Common Shares
at a price of $1.20 per Common Share for total consideration of $310,000 as is
reflected in Shareholder’s Equity in 2007 under share issue costs.

 

The Company’s subsidiary, Runde, manufactures stevia
products at its facility in the Shandong province.  Runde leases the manufacturing facility and
the property was seized by the Shandong Heze Intermediate People’s Court on July 4,
2007 in connection with litigation relating to the property owner.  The litigation has had no impact on the
Company’s operations to date and the Company expects it will not be impacted in
the future by this matter.

 

On June 12, 2008, as a result of a continuous
disclosure review conducted by the British Columbia Securities Commission (the “BCSC”),
the Company was placed on the BCSC’s “issuer’s in default” list.  As a result of the continuous disclosure
review, the Company filed the amended and restated Interim Financial Statements
and the MD&As for the year ended December 31, 2007 and for the period
ended March 31, 2008.  In addition,
after discussion with BCSC, the Company decided to also file a Business
Acquisition Report in respect to its acquisition of AHTD.  The amended and restated financial
statements, MD&As and BAR report are available at www.sedar.com.

 

INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL
TRANSACTIONS

 

Other than as disclosed herein, the Company is not
aware of any material interest, direct or indirect, of (i) any shareholder
that is a direct or indirect beneficial owner of, or who exercises control or
direction over, more than 10% of the voting rights attached to the Common
Shares, (ii) any of our directors or executive officers or our
subsidiaries’ directors or executive officers, or (iii) any associate or
affiliate of any of the foregoing, in any transaction which has been entered
into within the three most recently completed financial years or during the
current financial year, that has materially affected or will materially affect
the Company.

 

AUDITORS, REGISTRAR AND TRANSFER AGENT

 

Auditors

 

The Company’s auditors are PricewaterhouseCoopers at
their offices at 250 Howe Street, Suite 700, Vancouver, BC V6C 3S7

 

36

 

Transfer Agent and Registrar

 

The Company’s transfer agent and registrar is
Computershare Trust Company of Canada at its principal offices at 510 Burrard
Street, Second Floor, Vancouver, British Columbia V6C 3B9.

 

INTEREST OF EXPERTS

 

The Company’s auditors PricewaterhouseCoopers, have
prepared the auditors’ report attached to the Financial Statements. The Company
has been advised by its auditors that they do not, directly or indirectly, hold
any of the Company’s securities or have any interest in the Company’s property.

 

MATERIAL
CONTRACTS

 

Except for contracts entered into in the ordinary
course of business or as otherwise disclosed herein, there are no other
material contracts entered into within the most recently completed financial
year or before the most recently completed financial year that are still in
effect.

 

The material contracts disclosed herein are:

 

(1)           Strategic
Alliance Agreement dated April 30, 2008 between the Company and Cargill;
and

 

(2)           the
amendment to the Strategic Alliance Agreement dated August 8, 2008.

 

See “Business of the Company —
Sale of Stevia and Stevia Products”.

 

ADDITIONAL INFORMATION

 

Additional information, including directors’ and
officers’ remuneration and indebtedness, principal holders of the Company’s
securities, options to purchase securities and interests of insiders in
material transactions, where applicable, is contained in the most recent
Management Proxy Circular dated May 16, 2008 for the Company’s annual
general meeting of shareholders that involves the election of directors held on
June 17, 2008.  Additional financial
information is provided in the Financial Statements.  A copy of these documents may be obtained
upon request from the Chief Financial Officer or may be obtained from SEDAR at
www.sedar.com under the company name, GLG Life Tech Corporation.

 

37

 

APPENDIX A

 

AUDIT COMMITTEE CHARTER

 

GLG LIFE TECH CORPORATION

(THE “COMPANY”)

 

The Audit Committee (the “Committee”) is a committee
of the board of directors (the “Board”) of the Company.  The role of the 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.  This includes helping directors meet their
responsibilities, facilitating better communication between directors and the
external auditor, enhancing the independence of the external auditor,
increasing the credibility and objectivity of financial reports and
strengthening the role of the directors by facilitating in-depth discussions
among directors, management and the external auditor.  Management is responsible for establishing
and maintaining those controls, procedures and processes and the Committee is
appointed by the Board to review and monitor them.  The Company’s external auditor is ultimately
accountable to the Board and the Committee as representatives of the Company’s
shareholders.

 

Duties
and Responsibilities

 

External Auditor

 

·                                          To recommend to the Board, for shareholder approval,
an external auditor to examine the Company’s accounts, controls and financial
statements on the basis that the external auditor is accountable to the Board
and the Committee as representatives of the shareholders of the Company.

 

·                                          To oversee the work of the external auditor engaged
for the purpose of preparing or issuing an auditor’s report or performing other
audit, review or attest services for the Company, including the resolution of
disagreements between management and the external auditor regarding financial
reporting.

 

·                                          To evaluate the audit services provided by the
external auditor, pre-approve all audit fees and recommend to the Board, if
necessary, the replacement of the external auditor.

 

·                                          To pre-approve any non-audit services to be provided
to the Company by the external auditor and the fees for those services.

 

·                                          To obtain and review, at least annually, a written
report by the external auditor setting out the auditor’s internal
quality-control procedures, any material issues raised by the auditor’s
internal quality-control reviews and the steps taken to resolve those issues.

 

·                                          To review and approve the Company’s hiring policies
regarding partners, employees and former partners and employees of the present
and former external auditor of the Company. 
 The Committee has adopted the
following guidelines regarding the hiring of any partner, employee, reviewing
tax professional or other person providing audit assurance to the external
auditor of the Company on any aspect of its certification of the Company’s
financial statements:

 

(a)                                  No
member of the audit team that is auditing a business of the Company can be
hired into that business or into a position to which that business reports for
a period of three years after the audit;

 

(b)                                 No
former partner or employee of the external auditor may be made an officer of
the Company or any of its subsidiaries for three years following the end of the
individual’s association with the external auditor;

 

(c)                                  The
CFO must approve all office hires from the external auditor; and

 

38

 

(d)                                 The
CFO must report annually to the Committee on any hires within these guidelines
during the preceding year.

 

·                                          To ensure that the head audit partner
assigned by the external auditor to the Company, as well as the audit partner
charged with reviewing the audit of the Company, are changed at least every
five years.

 

·                                          To review, at least annually, the
relationships between the Company and the external auditor in order to
establish the independence of the external auditor.

 

Financial Information and
Reporting

 

·                                          To review the Company’s annual audited financial
statements with the CEO and CFO and then the full Board.

 

·                                          To review the interim financial statements with the
CEO and CFO.

 

·                                          To review and discuss with management and the external
auditor, as appropriate:

 

(a)                                  The
annual audited financial statements and the interim financial statements,
including the accompanying management discussion and analysis; and,

 

(b)                                 Earnings
guidance and other releases containing information taken from the Company’s
financial statements prior to their release.

 

·                                          To review the quality and not just the acceptability
of the Company’s financial reporting and accounting standards and principles
and any proposed material changes to them or their application.

 

·                                          To review with the CFO any earnings guidance to be
issued by the Company and any news release containing financial information
taken from the Company’s financial statements prior to the release of the
financial statements to the public.  In
addition, the CFO must review with the Committee the substance of any presentations
to analysts or rating agencies that contain a change in strategy or outlook.

 

Oversight

 

·                                          To review the internal audit staff functions,
including:

 

(a)                                  The
purpose, authority and organizational reporting lines;

 

(b)                                 The
annual audit plan, budget and staffing; and

 

(c)                                  The
appointment and compensation of the controller, if any.

 

·                                          To review, with the CFO and others, as appropriate,
the Company’s internal system of audit controls and the results of internal
audits.

 

·                                          To review and monitor the Company’s major financial
risks and risk management policies and the steps taken by management to mitigate
those risks.

 

·                                          To meet at least annually with management (including
the CFO), the internal audit staff, and the external auditor in separate
executive sessions and review issues and matters of concern respecting audits
and financial reporting.

 

·                                          In connection with its review of the annual audited
financial statements and interim financial statements, the Committee will also
review the process for the CEO and CFO certifications (if required by law or 

 

39

 

regulation) with respect to the financial statements and the Company’s
disclosure and internal controls, including any material deficiencies or
changes in those controls.

 

Membership

 

·                                          The Committee shall consist solely of three or more
members of the Board, each of
whom the Board has determined has no material relationship with the Company and
is otherwise “unrelated” or “independent” as required under applicable
securities rules or applicable stock exchange rules.

 

·                                          Any member may be removed from office or replaced at
any time by the Board and shall cease to be a member upon ceasing to be a
director.  Each member of the Committee
shall hold office until the close of the next annual meeting of shareholders of
the Company or until the member ceases to be a director, resigns or is
replaced, whichever first occurs.

 

·                                          The members of the Committee shall be entitled to
receive such remuneration for acting as members of the Committee as the Board
may from time to time determine.

 

·                                          All members of the Committee must be “financially
literate” (i.e., have the ability to read and understand a set of financial
statements such as a balance sheet, an income statement and a cash flow
statement).

 

Procedures

 

·                                          The Board shall appoint one of the directors elected
to the Committee as the Chair of the Committee (the “Chair”).  In the absence of the appointed Chair from
any meeting of the Committee, the members shall elect a Chair from those in
attendance to act as Chair of the meeting.

 

·                                          The Chair will appoint a secretary (the “Secretary”)
who will keep minutes of all meetings. 
The Secretary does not have to be a member of the Committee or a
director and can be changed by simple notice from the Chair.

 

·                                          No business may be transacted by the Committee except
at a meeting of its members at which a quorum of the Committee is present or by
resolution in writing signed by all the members of the Committee.  A majority of the members of the Committee
shall constitute a quorum, provided that if the number of members of the
Committee is an even number, one-half of the number of members plus one shall
constitute a quorum.

 

·                                          The Committee will meet as many times as is necessary
to carry out its responsibilities.   Any
member of the Committee or the external auditor may call meetings.

 

·                                          The time and place of the meetings of the Committee,
the calling of meetings and the procedure in all respects of such meetings
shall be determined by the Committee, unless otherwise provided for in the
bylaws of the Company or otherwise determined by resolution of the Board.

 

·                                          The Committee shall have the resources and authority
necessary to discharge its duties and responsibilities, including the authority
to select, retain, terminate, and approve the fees and other retention terms
(including termination) of special counsel, advisors or other experts or
consultants, as it deems appropriate.

 

·                                          The Committee shall have access to any and all books
and records of the Company necessary for the execution of the Committee’s
obligations and shall discuss with the CEO or the CFO such records and other
matters considered appropriate.

 

·                                          The Committee has the authority to communicate
directly with the internal and external auditors.

 

40

 

Reports

 

·                                          The Committee shall produce the following reports and
provide them to the Board:

 

(a)                                  An
annual performance evaluation of the Committee, which evaluation must compare
the performance of the Committee with the requirements of this Charter.  The performance evaluation should also
recommend to the Board any improvements to this Charter deemed necessary or
desirable by the Committee.  The
performance evaluation by the Committee shall be conducted in such manner as
the Committee deems appropriate.  The
report to the Board may take the form of an oral report by the Chair or any
other member of the Committee designated by the Committee to make this report;
and

 

(b)                                 A
summary of the actions taken at each Committee meeting, which shall be
presented to the Board at the next Board meeting.

 

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

F-3

 

 

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

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

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

Commitments and Contingent Liability (Notes 29 and 30)

Subsequent events (Note 31) 

        APPROVED
ON BEHALF OF THE BOARD: 

			
	
 (Signed) "Brian Palmieri"

Director	
 	
(Signed) "Jinduo Zhang"

Director

See
Accompanying Notes to the Consolidated Financial Statements 

F-4

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

    

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

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

See
Accompanying Notes to the Consolidated Financial Statements 

F-5

 

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

    

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

	 

See
Accompanying Notes to the Consolidated Financial Statements 

F-6

 

 

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

																							
	 
	 	Share Capital 	 	Warrants 	 	Equity portion

of convertible debenture 	 	Contributed

Surplus 	 	Accumulated

Other

Comprehensive

Income ("AOCI") 	 	Deficit 	 	Total

Comprehensive

Income (Loss) 	 
	 
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	 
	 	Restated

(Note 1(b))
	 	Restated

(Note 1(b))
	 	Restated

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

See Accompanying Notes to the Consolidated Financial Statements 

F-7

 

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

 1.     DESCRIPTION OF BUSINESS, GOING CONCERN AND RESTATEMENT  

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

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

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

	b)
	The
Company has restated its financial statements as at and for the year ended December 31, 2007 as follows: (i) In 2007 the proceeds of the
convertible debenture were allocated between the liability portion of the convertible debenture, equity portions of the convertible debenture and warrants using the residual value method. The Company
has restated its comparative financial statements to allocate the proceeds of the convertible debenture using the relative fair value of the liability portion of the convertible debenture, equity
portions of the convertible debenture and warrants. Years prior to 2007 were not affected by these changes. This change resulted in an adjustment to interest expense on the convertible debenture and
advances of $617,684, convertible debenture of $1,113,116, equity portion of convertible debenture of $1,323,186, warrants of $1,025,297, property, plant, and equipment of $617,684, and resulted in a
decrease of net income for 2007 of $617,684 (ii) In 2007 unrealized foreign exchange gains and losses of $254,324 were recorded in other comprehensive loss and have been reclassified into
unrealized foreign exchange loss (iii) accruals related to equity issuances of $195,000 were not recorded and have been adjusted as an increase in accounts payable and accruals and a reduction
in share capital and (iv) a future income tax liability related to the customer relationship intangible (note 12) was not recognized in 2007 that resulted in an increase in intangible
assets of $4,496,921, future income tax liabilities of $3,887,060 and income tax recovery of $609,861. As a result of these adjustments, net income was reduced by $262,146. 

F-8

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

The
following tables present the impact of the restatement: 

													
	 	Year ended December 31, 2007

 
	 	As previously reported 	 	Restatement 	 	As restated 	 
	 	 CONSOLIDATED BALANCE SHEETS
	 	 	 	 	 	 	 	 	 	 
	 	 Assets
	 	 	 	 	 	 	 	 	 	 
	 	 	 Property, Plant, and Equipment
	 	$	13,389,207	 	$	617,684	 	$	14,006,891	 
	 	 	 Intangible assets
	 	 	23,788,499	 	 	4,496,921	 	 	28,285,420	 
	 	 Liabilities
	 	 	 	 	 	 	 	 	 	 
	 	 	 Accounts payable and accruals
	 	$	1,051,330	 	$	195,000	 	$	1,246,330	 
	 	 	 Convertible debenture
	 	 	5,855,398	 	 	(1,113,116	)	 	4,742,282	 
	 	 	 Future income taxes, net
	 	 	—	 	 	3,887,060	 	 	3,887,060	 
	 	 Shareholders' equity
	 	 	 	 	 	 	 	 	 	 
	 	 	 Share capital
	 	$	61,247,731	 	$	(195,000	)	$	61,052,731	 
	 	 	 Warrants
	 	 	14,353,214	 	 	1,025,297	 	 	15,378,511	 
	 	 	 Equity portion of convertible debenture
	 	 	189,817	 	 	1,323,186	 	 	1,513,003	 
	 	 	 Accumulated other comprehensive loss
	 	 	(1,562,250	)	 	254,324	 	 	(1,307,926	)
	 	 	 Deficit
	 	 	(1,178,526	)	 	(262,146	)	 	(1,440,672	)
	 	 CONSOLIDATED STATEMENT OF OPERATIONS
	 	 	 	 	 	 	 	 	 	 
	 	 Other expense
	 	 	 	 	 	 	 	 	 	 
	 	 	 Interest on convertible debenture and advance
	 	$	(558,190	)	$	(617,684	)	$	(1,175,875	)
	 	 	 Foreign exchange loss
	 	 	(54,488	)	 	(254,324	)	 	(308,812	)
	 	 	 Income tax recovery
	 	 	—	 	 	609,861	 	 	609,861	 
	 	 Net income
	 	 	

631,576	 	 	

(262,146	
)	 	

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

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

a)    Principles of consolidation  

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

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

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

F-9

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

b)    Cash and cash equivalents  

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

c)     Short term investments  

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

d)    Inventory  

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

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

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

e)     Foreign currency translation  

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

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

F-10

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

f)     Property, plant and equipment  

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

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

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

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

g)     Impairment of long-lived assets  

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

h)    Goodwill  

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

i)     Intangible assets  

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

F-11

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

j)     Income taxes  

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

k)    Revenue recognition  

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

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

l)     Loss per share  

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

m)   Research and development costs  

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

n)    Stock-based compensation  

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

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

F-12

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

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

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

o)    Use of estimates and measurement uncertainty  

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

p)    Capitalization of interest costs  

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

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

Capitalized
interest cannot exceed the actual interest incurred. 

q)    Financial instruments  

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

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

F-13

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

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

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

 3.     CHANGES IN ACCOUNTING POLICIES  

 Accounting policies implemented effective January 1, 2008  

In
October 2006, the CICA issued Hanbook Section 1535 "Capital Disclosures" requires disclosure regarding what the Company defines as capital and its objectives, policy and processes for
managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements and, if not, the consequences of such non-compliance.
Additional disclosure has been provided in Note 27. 

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

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

 4.     RECENT ACCOUNTING PRONOUNCEMENTS  

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

In
January 2009, the CICA issued Handbook Section 1582, "Business Combinations", which requires that all assets and liabilities of an acquired business be recorded at fair value at
acquisition. Obligations for contingent consideration and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition-related costs will be
expensed as incurred and that restructuring charges will be expensed in the periods after the acquisition date. The Section applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual 

F-14

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 4.     RECENT ACCOUNTING PRONOUNCEMENTS (Continued) 

reporting
period on or after January 1, 2011. The Company is currently assessing the impact of the new standard on its financial statements. 

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

In
January 2009, the CICA issued EIC Abstract 173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The EIC requires the Company to take into account the
Company's own credit risk
and the credit risk of the counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments. The Company is currently assessing the impact of
the new standard on its financial statements. 

 5.     SHORT TERM INVESTMENTS  

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

 6.     ACCOUNTS RECEIVABLE, INTEREST RECEIVABLE, AND LOANS RECEIVABLE  

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

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

During
2008, the Company reduced its involvement with YHT and on September 8, 2008 entered into a Heads of Agreement with YHT. In accordance with the Heads of Agreement, which is
non-binding, the 

F-15

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

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

 7.     TAXES RECOVERABLE  

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

 8.     INVENTORY  

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

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

 9.     PREPAID EXPENSES  

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

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

F-16

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

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

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

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

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

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

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

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

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

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

 11.   RESTRICTED CASH  

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

Company's
credit cards issued to several employees. 

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

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

Amortization 	 	Net Book

Value 	 	Cost 	 	Accumulated

Amortization 	 	Net Book

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

F-17

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

a)    Customer relationship  

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

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

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

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

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

b)    Intangible from AHTD acquisition  

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

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

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

 13.   SHORT TERM LOANS  

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

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

F-18

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

									
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

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

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

 15.   ADVANCES FROM A CUSTOMER AND INTEREST PAYABLE  

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

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

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

 16.   DEFERRED REVENUE  

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

 17.   ECONOMIC DEPENDENCE  

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

F-19

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 17.   ECONOMIC DEPENDENCE (Continued) 

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

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

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

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

On
June 22, 2007, the Company issued a convertible debenture and share purchase warrants for total gross proceeds of $6,000,000. The convertible debenture was due on June 30, 2008 and
bore interest at a rate of 12% per annum, payable semi-annually in arrears beginning on December 31, 2007. The convertible debenture was convertible at the option of the holder into
common shares with the first third of the principal convertible at a conversion price of $2.80 per common share, the second third of the principal convertible at $3.05 per common share and the
remaining third at $3.30 per common share (Note 19b). 

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

The
Company allocated the gross proceeds received of $6,000,000 from the issuance of the convertible debenture and warrants on a relative fair value basis as follows: $3,346,432 to the convertible
debenture, $1,513,003 to the equity component of the convertible debenture, and $1,140,566 to the warrants. The fair value of the convertible debenture was determined based on the future payments of
principal and interest for a debt instrument of comparable maturity and credit quality but excluding any conversion option by the holder. The convertible debentures carry an effective interest rate of
18%. The warrants were valued using the Black-Scholes option pricing model using a risk-free interest rate of 4.06%, an expected life of 2 years and a volatility of 85%. The fair
value of the equity component of the convertible debentures was valued using the Black-Scholes option pricing model using a risk-free interest rate of 4.67%, an expected life of
1 year and a volatility of 85%. A change in the method of allocating the gross proceeds of the convertible debenture between the liability portion of the convertible debenture, equity portion
of the convertible debenture and warrants resulted in a restatement (Note 1b). 

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

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

F-20

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

a)    Capital Stock  

         Authorized  

Unlimited
number of common shares with no par value 

        Common shares  

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

										
	 	 
	 	Number of

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

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

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

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

F-21

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

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

									
	 	 
	 	Number of

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

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

									
	 	Expiry date

 
	 	Weighted average

exercise prices 	 	Number outstanding at

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

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

 20.   STOCK OPTIONS AND RESTRICTED SHARES  

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

 Stock options  

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

F-22

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 20.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 

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

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

The
following is a summary of option transactions: 

									
	 	 
	 	Number of Shares 	 	Weighted Average

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

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

																		
	 	Exercise

Prices

 
	 	Number Outstanding

at December 31,

2008 	 	Weighted Average

Remaining Contractual

Life (Years) 	 	Weighted Average

Exercise Price 	 	Number Exercisable

at December 31,

2008 	 	Weighted Average

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

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

 Restricted shares  

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

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

F-23

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 20.   STOCK OPTIONS AND RESTRICTED SHARES (Continued) 

The
vesting periods for restricted stock are as follows: 

							
	Numbers of

restricted shares 	 	Vesting

period

(years) 	 	Performance

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

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

 21.   RESERVE FOR EMPLOYEE BENEFITS  

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

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

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

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

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

												
	 	December 31, 2008

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

F-24

 

 

GLG LIFE TECH CORPORATION  

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  

 Years Ended December 31, 2008 and 2007  

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

												
	 	December 31, 2007

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

 24.   RELATED PARTY TRANSACTIONS  

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

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

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

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

	d)
	In
2007, the Company borrowed $410,078 (US$400,000) to pay for the initial capitalization of one of the subsidiaries from a company of which two of the
Company's directors and officers are shareholders. The amount was fully repaid in January 2008. 

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

F-25

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

	a)
	Future tax assets and liabilities

									
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

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

	b)
	Effective tax rate

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

										
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

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

F-26

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

	c)
	Canadian and China income taxes

											
	 	 
	 	2008 	 	2007 	 
	 	 
	 	 
	 	Restated

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

	d)
	Losses carryforward

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

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

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

 26.   FINANCIAL INSTRUMENTS  

	a)
	Categories
of financial assets and liabilities 

Financial
instruments are classified into one of the following five categories: held-for-trading, held-to-maturity investments, loans and receivables,
available-for-sale financial assets, and other 

F-27

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 26.   FINANCIAL INSTRUMENTS (Continued) 

financial
liabilities. The carrying value of the Company's financial instruments is classified into the following categories: 

									
	 	 
	 	2008 	 	2007 	 
	 	 Held-for-trading
	 	$	7,829,166	 	$	28,253,580	 
	 	 Loans and receivables
	 	 	2,717,765	 	 	6,002,773	 
	 	 Other financial liabilities
	 	 	52,954,796	 	 	13,343,358	 

The
carrying value of the financial assets, less provision for impairment if applicable, approximates the fair value because of the short-term nature of these instruments. The fair values
of the Company's financial liabilities, including accounts payables and accruals, customer advances and interest payable were
below carrying values as at December 31, 2008 due to the liquidity and going concern issues of the Company described in note 1. The fair value of the Company's short-term
loans which bear a fixed interest rate approximate their fair values since they were drawn in November and December 2008, they are short term in nature and are secured by certain assets of
the Company. 

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

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

									
	 	 
	 	2008 	 	2007 	 
	 	 Interest income from held-for-trading
	 	$	820,765	 	$	78,499	 
	 	 Interest income from loans and receivables
	 	 	—	 	 	115,789	 
	 	 Interest expense from other financial liabilities
	 	 	(2,009,638	)	 	(1,175,873	)

	b)
	Credit risk

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

The
Company limits its exposure to credit risk by placing its cash and cash equivalents and restricted cash with various financial institutions. Given the current economic environment, the Company
monitors the credit quality of the financial institutions it deals with on a ongoing basis. 

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

															
	 	 
	 	0-30 days 	 	31-90 days 	 	over 90 days 	 	Total 	 
	 	 Dollar Amount
	 	 	2,021,232	 	$	0	 	$	692,882	 	$	2,714,114	 
	 	 % of total accounts receivable
	 	 	74%	 	 	0%	 	 	26%	 	 	100%	 

The
Company reviews financial assets, including past due accounts, on an ongoing basis with the objective of identifying potential events or circumstances which could delay or prevent the collection
of funds on a timely basis. As at December 31, 2008, the Company has a provision of $3,111,351 against 

F-28

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 26.   FINANCIAL INSTRUMENTS (Continued) 

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

Reconciliation
of changes in allowance for doubtful accounts: 

										
	 	 
	 	2008 	 	2007 	 
	 	 Balance — Beginning of year
	 	$	—	 	$	—	 
	 	 Increase in allowance for doubtful accounts
	 	 	 	 	 	 	 
	 	 	 Accounts receivable
	 	 	622,029	 	 	—	 
	 	 	 Interest receivable
	 	 	199,320	 	 	—	 
	 	 	 Loan receivable
	 	 	2,290,002	 	 	—	 
	 	 	 	 	 	 	 
	 	 Balance — End of year
	 	$	3,111,351	 	$	—	 
	 	 	 	 	 	 	 

The
Company has a high concentration of credit risk as the accounts receivable and loan receivable were owed by fewer than five customers. However, the Company believes that it does not require
collateral to support the carrying value of these financial instruments. The carrying amount of financial assets represents the maximum credit exposure. Based on historic default rates, the Company
believes that there are minimal requirements for an allowance for doubtful accounts other than accounts, interest and loan receivable balances due from YHT. To mitigate credit risk the Company also
requests deposits from customers in certain circumstances.  

	c)
	Foreign exchange risk

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

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

All
of the Company's operations are considered self-sustaining operations. The assets and liabilities of the self-sustaining operations are translated at exchange rates
prevailing at the balance sheet date. Unrealized gains and losses resulting from translating self-sustaining operations are accumulated and reported as a currency translation adjustment in
accumulated other comprehensive income. As of December 31, 2008, assuming that all other variables remain constant, an increase of 1% in the 

F-29

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 26.   FINANCIAL INSTRUMENTS (Continued) 

Canadian
dollar would have an effect on other comprehensive income of approximately $171,548 (2007 — 188,532). 

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

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

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

	d)
	Liquidity Risk

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

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

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

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

												
	 	Financial Liabilities

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

F-30

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 26.   FINANCIAL INSTRUMENTS (Continued) 

	e)
	Interest rate risk

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

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

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

 27.   CAPITAL DISCLOSURE  

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

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

Pursuant
to Chinese regulations, the Company is required to make appropriations to reserve funds, based on after tax net income determined in accordance with generally accepted accounting principles
of China (Note 21). The reserve funds are established for covering corporate obligations in the event of business liquidation. The reserve funds are recorded as part of deficit. The reserve
funds are available for the Company to use but are not available for distribution to shareholders other than in liquidation and may limit repatriation of invested capital. 

 28.   COMPARATIVE FIGURES  

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

 29.   COMMITMENTS  

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

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

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

F-31

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 29.   COMMITMENTS (Continued) 

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

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

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

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

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

 30.   CONTINGENT LIABILITY  

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

 31.   SUBSEQUENT EVENTS  

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

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

F-32

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

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

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

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

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

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

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

F-33

 

 

GLG LIFE TECH CORPORATION  

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  

 Years Ended December 31, 2008 and 2007  

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

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

 Consolidated Balance Sheets  

																					
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US

GAAP 	 	Recon.

Items 	 	2008

Canadian

GAAP 	 	2007

US

GAAP 	 	Recon.

Items 	 	2007

Canadian

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

177,492,125	 	
$	

3,131,002	 	
$	

174,361,123	 	
$	

94,745,132	 	
$	

616,351	 	
$	

94,128,781	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

F-34

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

 Consolidated Statements of Income and Deficit  

																					
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US

GAAP 	 	Recon.

Items 	 	2008

Canadian

GAAP 	 	2007

US

GAAP 	 	Recon.

Items 	 	2007

Canadian

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

F-35

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

 Consolidated Statements of Cash Flow  

										
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

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

F-36

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

																											
	 	 
	 	*Common Shares 	 	 
	 	 
	 	Accumulated

Other

Comprehensive

Income 	 	 
	 	 
	 	 
	 
	 	 
	 	 
	 	Contributed

Surplus 	 	 
	 	Non

Controlling

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

F-37

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

 Statement of Comprehensive Income  

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

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

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

 New Accounting Pronouncements  

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

F-38

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

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

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

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

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

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

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

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

F-39

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT  

 Condensed Balance Sheets  

									
	 	 
	 	As at December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

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

F-40

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 

 Condensed Statements of Operations and Comprehensive Income (Loss)  

										
	 	 
	 	Year ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

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

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

F-41

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 

 Condensed Consolidated Statements of Shareholders' Equity  

																								
	 	 
	 	*Common Shares 	 	 
	 	 
	 	Accumulated

Other

Comprehensive

Income 	 	 
	 	 
	 
	 	 
	 	 
	 	Contributed

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

F-42

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 

 Condensed Consolidated Statements of Cash Flow  

										
	 	 
	 	For the Year Ended December 31 	 
	 	 
	 	2008

US GAAP 	 	2007

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

F-43

 

GLG LIFE TECH CORPORATION 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

 Years Ended December 31, 2008 and 2007 

 33.   CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) 

 Investments in Subsidiaries  

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

 Income Taxes  

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

F-44

QuickLinks

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

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

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

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

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

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