Imperial Ginseng Products Ltd.
Suite 1601
650 West Georgia Street
Vancouver, British Columbia
Canada V6B 4N7
Tel.: (604) 689-8863
Fax: (604) 689-8892
November 19, 2002
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Attention: Document Control
Dear Sirs:
Re:
Imperial Ginseng Products Ltd. (the “Company”)
Attached is the Company’s Form 6-K with the financial statements for the Company for the quarter ended September 30, 2002 including supplementary information and management discussion as required by the British Columbia Securities Commission. A copy has been filed with the British Columbia Securities Commission, the TSX Venture Exchange, NASDAQ, and has been mailed to all shareholders who have requested it.
Please call should you have any questions.
Sincerely,
IMPERIAL GINSENG PRODUCTS LTD.
“Hilary Madore”
Hilary S.A. Madore, CMA
Vice President Finance
Attachments
cc:
Nasdaq Stock Market
Cover Sheet of Form 6-K
Securities and Exchange Commission
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of
September
,
2002
Imperial Ginseng Products Ltd.
Suite 1601 – 650 West Georgia St. Vancouver, British Columbia, V6B 4N7
[Indicate by check mark whether the registrant files of will file annual reports under cover Form 20-F or Form 40-F.]
Form 20-F
X
Form 40-F
[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]
Yes
X
No
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Imperial Ginseng Products Ltd.
(Registrant)
Date November 19, 2002
By
“James S. Chang”
James S. Chang
President and Director
Consolidated Financial Statements of
IMPERIAL GINSENG PRODUCTS LTD.
Three months ended September 30, 2002
(Unaudited - Prepared by Management)
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Balance Sheet
(expressed in Canadian dollars)
(Unaudited - Prepared by Management)
September 30, 2002 | June 30, 2002 | |
Assets | ||
Current Assets: | ||
Cash | $ 100,479 | $ 70,969 |
Accounts receivable | 65,153 | 36,136 |
Inventory | 957,964 | 610,800 |
Ginseng crop costs (schedule) | 2,900,000 | 2,800,000 |
Prepaid expenses | 178,480 | 122,794 |
4,202,076 | 3,640,699 | |
Ginseng crop costs (schedule) | 4,423,001 | 4,223,802 |
Capital assets | 1,855,497 | 1,912,819 |
Investment | 1 | 1 |
$ 10,480,575 | $ 9,777,321 | |
Liabilities and Shareholders’ Equity | ||
Current Liabilities: | ||
Bank indebtedness | $ 1,515,000 | $ 545,000 |
Accounts payable and accrued liabilities | 1,539,677 | 1,431,067 |
Current portion of obligations under capital leases | 103,683 | 104,941 |
Current portion of term debt | 893,950 | 1,078,894 |
4,052,310 | 3,159,902 | |
Royalty amount payable | 62,820 | 62,820 |
Obligations under capital leases | 466,764 | 483,104 |
Term debt | 338,934 | 654,132 |
Shareholders’ Equity: | ||
Share capital (note 3) | 50,320,011 | 49,665,787 |
Conversion option | 266,701 | 266,701 |
Deficit | (45,026,965) | (44,515,125) |
5,559,747 | 5,417,363 | |
$ 10,480,575 | $ 9,777,321 |
On Behalf of the Board
“James Chang”
“Hugh Cartwright”
James Chang, Director
Hugh Cartwright, Director
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Statement of Income (Loss)
(expressed in Canadian Dollars)
(Unaudited - Prepared by Management)
Three months ended September 30, | 2002 | 2001 |
Revenue: | ||
Ginseng root | $ 565,911 | $ 608,208 |
Consumer products | 195,602 | 266,797 |
761,513 | 875,005 | |
Cost of sales | 595,972 | 614,711 |
Gross profit | 165,541 | 260,294 |
Interest and other income | 277,919 | 4,573 |
443,460 | 264,867 | |
Expenses: | ||
Depreciation | 630 | 939 |
Interest expense | 8,621 | 39,633 |
Legal and audit | 5,217 | 6,845 |
Marketing | 20,620 | 24,475 |
Office supplies and services | 6,447 | 9,273 |
Other | 1,709 | 7,230 |
Rent | 11,290 | 11,136 |
Salaries | 116,164 | 131,182 |
Travel | 7,739 | 2,134 |
178,437 | 232,847 | |
Income before undernoted | 265,023 | 32,020 |
Gain on disposal of capital assets | 9,433 | 1,800 |
Income before taxes | 274,456 | 33,820 |
Income tax recovery (expense) | 11,961 | (5,754) |
Net Income | $ 286,417 | $ 28,066 |
Loss per share (note 2) | $ (0.05) | $ (0.30) |
Weighted average number of shares outstanding | 10,085,469 | 2,816,794 |
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Statements of Deficit
(expressed in Canadian Dollars)
(Unaudited - Prepared by Management)
Three months ended September 30, | 2002 | 2001 |
Deficit, beginning of the period | $ (44,515,125) | $ (34,360,735) |
Net income | 286,417 | 28,066 |
Preferred share dividends | (687,036) | (743,103) |
Royalty amount | (111,221) | (126,302) |
Deficit, end of the period | $ (45,026,965) | $ (35,202,074) |
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Statement of Cash Flows
(expressed in Canadian dollars)
(Unaudited - Prepared by Management)
Three months ended September 30, | 2002 | 2001 |
Cash flows from operations: | ||
Net income | $ 286,417 | $ 28,066 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Cost of ginseng crops harvested | - | - |
Depreciation and amortization | 7,262 | (8,720) |
Write off of deferred debt issue costs | - | 4,868 |
Gain on disposal of capital assets | (9,433) | (1,800) |
Gain on settlement of term debt | (270,000) | - |
14,246 | 22,414 | |
Changes in non-cash working capital | ||
Increase in accounts receivable | (29,017) | (4,476) |
Decrease in inventory | 512,260 | 459,968 |
Ginseng crop costs, net of deferred depreciation and amortization of $78,321 (2001 – $150,260) | (1,084,132) | (1,190,982) |
Increase in prepaid expenses | (45,896) | (102,644) |
Decrease in accounts payable | (35,423) | (25,703) |
Royalty amount payable | - | (9,000) |
Cash used in operating activities | (667,962) | (850,423) |
Cash flows from financing activities: | ||
Drawings of short-term borrowings | 970,000 | 950,000 |
Reduction of capital lease obligations | (17,598) | (18,287) |
Reduction of term debt | (232,944) | (110,240) |
Cash provided by financing activities | 719,458 | 821,473 |
Investing: | ||
Purchase of capital assets, net of disposal proceeds | (21,986) | (50,100) |
Net increase (decrease) in cash | 29,510 | (79,050) |
Cash at beginning of period | 70,969 | 156,730 |
Cash at end of period | $ 100,479 | $ 77,680 |
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Statement of Cash Flows (Continued)
(expressed in Canadian dollars)
(Unaudited - Prepared by Management)
Three months ended September 30, | 2002 | 2001 |
Non-cash investing and financing activities not included in cash flows: | ||
Term debt converted to preferred shares | $ - | $ 160,000 |
Preferred shares converted to common shares | 631,935 | - |
Interest accrued on term debt converted to preferred shares | - | 38,583 |
Dividends and royalty accrued on preferred shares | 798,257 | 869,405 |
Preferred share issue costs accrued | 144,033 | 143,983 |
Bond discount on bonds converted transferred to preferred shares | - | 29,125 |
Supplemental cash flow information: | ||
Interest paid | $ 37,128 | $ 28,019 |
Income tax paid | - | 22,231 |
IMPERIAL GINSENG PRODUCTS LTD.
Consolidated Schedules of Ginseng Crop Costs
(expressed in Canadian dollars)
(Unaudited - Prepared by Management)
Three months ended September 30, | 2002 | 2001 |
Capital tax (recovery) expense | $ (26,067) | $ 15,252 |
Depreciation | 78,321 | 150,260 |
Direct labour | 570,963 | 513,782 |
Equipment rental | 6,971 | 25,892 |
Fertilizers | 110,475 | 171,860 |
Fuel | 29,201 | 20,719 |
Hardware, supplies and small tools | 16,921 | 13,714 |
Insurance | 14,276 | 13,101 |
Land rental | 191,663 | 167,808 |
Mulch | 107,102 | 182,839 |
Office supplies and services | 19,636 | 18,289 |
Rent | 4,920 | 15,555 |
Repairs and maintenance | 23,670 | 14,432 |
Telephone and utilities | 7,224 | 6,920 |
Travel and automobile | 7,177 | 10,819 |
1,162,453 | 1,341,242 | |
Balance, beginning of period | 7,023,802 | 12,121,780 |
8,186,255 | 13,463,022 | |
Less: Charged to cost of sales | - | - |
Less: Charged to inventory | (863,254) | (1,571,288) |
Net crop costs, end of period | $ 7,323,001 | $ 11,891,734 |
Comprised of: | ||
Current portion expected to be harvested and marketed within one year | $ 2,900,000 | $ 2,600,000 |
Balance expected to be harvested after one year | 4,423,001 | 9,291,734 |
$ 7,323,001 | $ 11,891,734 |
Notes to Consolidated Financial Statements
(expressed in Canadian dollars)
(Unaudited – Prepared by Management
Three months ended September 30, 2002
1.
Interim Unaudited Financial Statements
These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements and should be read in conjunction with the financial statements for the year ended June 30, 2002.
2.
Net loss per share
Net loss per share is calculated by dividing net loss available to common shareholders which includes preferred share dividends and royalty amount by the weighted average number of shares outstanding. Fully diluted loss per share has not been presented as outstanding stock options, warrants, and debt and preferred share conversions are anti-dilutive.
3.
Capital stock
Authorized share capital:
100,000,000 Common Shares without par value
100,000,000 Class “A” Preferred shares with a par value of $1 each
100,000,000 Class “B” Preferred shares with a par value of $5 each
Issued and outstanding:
September 30, 2002 | June 30, 2002 | |
Common shares (a) | $ 22,541,042 | $ 21,909,107 |
Class “A” Preferred shares (b) | 19,661,400 | 20,437,368 |
Unpaid dividends and royalties (c) | 8,117,569 | 7,319,312 |
$ 50,320,011 | $ 49,665,787 |
(a)
Common Shares issued:
Number of shares | Amount | |
Balance, June 30, 2000 | 2,092,587 | $ 19,519,865 |
Preferred share conversions | 57,569 | 65,200 |
Bond conversions – principal and interest | 666,638 | 185,986 |
Conversion option attributable to bonds converted | - | 72,867 |
Balance, June 30, 2001 | 2,816,794 | 19,843,918 |
Preferred share conversions | 4,332,121 | 2,012,689 |
Settlement of debt | 154,412 | 52,500 |
Balance, June 30, 2002 | 7,303,327 | 21,909,107 |
Preferred share conversions | 5,062,853 | 631,935 |
Balance, September 30, 2002 | 12,366,180 | $ 22,541,042 |
On August 13, 2002, Qwest Bancorp Ltd., a company related by directors in common, converted 402,212 Class “A” Preferred Shares into 3,656,473 common shares of the Company at a price of $0.11 per share.
Also on August 13, 2002, a director of the Company converted 134,071 Class “A” Preferred Shares into 1,218,827 common shares of the Company at a price of $0.11 per share.
On July 2, 2002, a preferred shareholder converted 95,652 Class “A” Preferred Shares into 187,553 common shares at a price of $0.51 per share.
(b)
Preferred Shares issued:
Number of shares | Amount | |
Balance, June 30, 2000 | 17,098,330 | $ 15,370,708 |
Original principal amount of bonds converted | 4,810,500 | 4,810,500 |
Unamortized bond discount of bonds converted | - | (163,879) |
Conversion option attributable to bonds converted | - | 997,171 |
Accrued interest on bonds converted | 902,570 | 902,570 |
Total carrying value of bonds converted to preferred shares in 2001 | 5,713,070 | 6,546,362 |
Preferred share issue costs | - | (465,044) |
Preferred shares issued in settlement of debt | 952,000 | 952,000 |
Preferred shares retracted | (12,500) | (12,500) |
Preferred shares converted to common shares | (65,200) | (65,200) |
Balance, June 30, 2001 | 23,685,700 | 22,326,326 |
Original principal amount of bonds converted | 160,000 | 160,000 |
Unamortized bond discount of bonds converted | - | (10,000) |
Conversion option attributable to bonds converted | - | 29,148 |
Accrued interest on bonds converted | 38,583 | 38,583 |
Total carrying value of bonds converted to preferred shares | 198,583 | 217,731 |
Preferred share issue costs | - | (630,283) |
Preferred shares issued in settlement of debt | 536,283 | 536,283 |
Preferred shares converted to common shares | (2,012,689) | (2,012,689) |
Balance, June 30, 2002 | 22,407,877 | 20,437,368 |
Preferred share issue costs | - | (144,033) |
Preferred shares converted to common shares | (631,935) | (631,935) |
Balance, September 30, 2002 | 21,775,942 | $ 19,661,400 |
Notes to Consolidated Financial Statements
(expressed in Canadian dollars)
(Unaudited – Prepared by Management
Three months ended September 30, 2002
(c)
Unpaid dividends and royalties:
Amount | |
Balance, June 30, 2000 | $ 1,446,808 |
Cumulative dividends on preferred shares | 2,207,439 |
Cumulative royalties on Royalty Participation Units | 325,894 |
Balance, June 30, 2001 | 3,980,141 |
Cumulative dividends on preferred shares | 2,863,271 |
Cumulative royalties on Royalty Participation Units | 475,900 |
Balance, June 30, 2002 | 7,319,312 |
Cumulative dividends on preferred shares | 687,036 |
Cumulative royalties on Royalty Participation Units | 111,221 |
Balance, September 30, 2002 | $ 8,117,569 |
4.
Related party transactions
During the period ended September 30, 2002, the following transactions with related parties occurred:
(a)
The Company has paid $61,500 (2001 - $61,500) to a management company with directors in common for office and administrative services.
(b)
The Company has recorded as payable $111,221 (2001 - $136,539) to a management company with directors in common for preferred share distribution services and annual asset management services for its preferred shares.
(c)
The Company has paid $16,785 (2001 - $18,246) to companies controlled by a director of the Company for marketing and selling services related to the sale of the Company’s ginseng root.
(d)
See also Note 3(c) for Preferred Share conversions by related parties.
IMPERIAL GINSENG PRODUCTS LTD.
Supplementary Information
Three months ended September 30, 2002
1.
Analysis of expenses and deferred costs:
(a)
Deferred costs:
See Consolidated Schedules of Ginseng Crop Costs incorporated into Schedule A.
(a)
Cost of sales:
Ginseng root | $ 476,366 |
Drying and processing costs | 38,164 |
Consumer products | 81,442 |
$ 595,972 |
2.
Related party transactions:
See Consolidated Financial Statements – Note 4 incorporated into Schedule A.
3.
Summary of securities issued and options granted during the period:
(a)
Securities issued during the period:
Date | Type of Issue | Number | Price | Total Cash Proceeds | Comm-ission Paid | Agent’s Warrants Issued |
July 2/02 | Common Shares | 187,553 | $0.51 | Preferred share conversion | Nil | Nil |
Aug. 13/02 | Common Shares | 3,656,473 | $0.11 | Preferred share conversion | Nil | Nil |
Aug. 13/02 | Common Shares | 1,218,827 | $0.11 | Preferred share conversion | Nil | Nil |
(b)
Options granted during the period:
There were no options granted during the period.
4.
Summary of securities as at September 30, 2002:
(a)
Authorized share capital:
100,000,000 Common Shares without par value
100,000,000 Class “A” Preferred Shares with a par value of $1 each
100,000,000 Class “B” Preferred Shares with a par value of $5 each
(b)
Shares issued and outstanding at September 30, 2002:
Issued and outstanding: | # of shares | Amount |
Common shares | 12,366,180 | $ 22,541,042 |
Class “A” Preferred Shares | 21,775,942 | 19,661,400 |
Unpaid dividends and royalties | 8,117,569 | |
$ 50,320,011 |
See also Consolidated Financial Statements – Note 3 incorporated into Schedule A.
(c)
Summary of options, warrants and convertible securities outstanding at September 30, 2002:
Options | Number of Shares | Exercise Price | Expiry |
Incentive stock options | 84,300 | $3.00 | November 4, 2002 |
Warrants | Number of Warrants | Exercise Price | Expiry |
Issued in respect of Convertible Bonds 1998: | 15,449 | $1.64 | October, 2002 |
34,092 | $1.30 | December, 2002 | |
18,395 | $1.56 | December, 2002 | |
Issued in respect of Preferred Shares: | 75,392 | $1.64 | October, 2002 |
72,075 | $1.86 | December, 2002 | |
70,456 | $1.30 | December, 2002 | |
285,859 |
Convertible Securities | Amount | Conversion Price | # of Common Shares |
1998 Bonds | 349,000 | $1.81 – $3.64 | 117,838 |
Class “A” Preferred Shares | 21,775,942 | $0.45 - $3.25 | 17,956,378 |
(d)
Shares in escrow or subject to a pooling agreement:
There were no shares in escrow or subject to a pooling agreement.
(e)
List of directors and officers:
Stephen P. McCoach | Director and Co-Chairman |
Hugh R. Cartwright | Director and Co-Chairman |
James S. Chang | Director and President |
Joseph A. Rogers | Director |
Maurice Levesque | Director |
Dr. Aik Ping Eng | Director |
Robert Geier | Vice President, Ontario Operations |
Hilary Madore | Vice President, Finance |
IMPERIAL GINSENG PRODUCTS LTD.
Management Discussion and Analysis
Three months ended September 30, 2002
Imperial Ginseng Products Ltd. ("the Company") is incorporated under the Company Act of British Columbia. The Company cultivates, processes, and markets North American Ginseng and Consumer Products in North America and Asia.
Operations and Financial Condition
For the three-month period ended September 30, 2002, the Company reports revenues of $761,513 and net income of $286,417 or $0.05 loss per share. This compares to revenues of $875,005 and a net income of $28,066 or $0.30 loss per share for the same period in the prior year.
Interest and other income includes $270,000 recorded for the gain on settlement of term bonds at less than face value. This settlement was made primarily due to the Company’s planting suspension decision in British Columbia, which significantly affected certain term debt secured by the assets of the Company’s British Columbia farm. As part of the Company’s strategic decision to discontinue planting in British Columbia, the Company settled certain debt secured by the assets of the Company’s British Columbia farm.
Interest expense for the three-month period ended September 30, 2002 is $31,012 less than the same period in the prior year due mainly to the reversal of interest accrued in prior periods for bonds settled.
Income tax recovery for the three-month period ended September 30, 2002 is due to the reversal of tax accruals for the year ended June 30, 2002, which had been over-estimated.
During the first quarter of fiscal 2003, the Company commenced its planting and harvesting activities. The Company estimates that it will plant approximately 123 acres of ginseng at its Ontario farm and harvest a total of 139 acres between its British Columbia and Ontario farms.
At September 30, 2002, the Company had total assets of $10,480,575 as compared with $9,777,321 at June 30, 2002. This increase is primarily due to the investment into ginseng crop costs for on-going maintenance of the crops and the planting expenditures for new seeding.
Working capital decreased from $480,797 at June 30, 2002 to $149,766 at September 30, 2002 and the current ratio decreased from 1.15 at June 30, 2002 to 1.04 at September 30, 2002.
Financing Activities
During the period the Company determined that it was required to continue to suspend payment of dividends on its Class “A” Preferred Shares and interest on all its previously issued convertible bonds. As at September 30, 2002 cumulative unpaid dividends and interest in arrears are $6,771,970 and $525,045, respectively.
During the three-month period ended September 30, 2002, the Company negotiated and settled $493,000 of term debt, and realised a gain on settlement of the term debt of $270,000.
Line of Credit
Canadian Imperial Ginseng Farms Ltd. and Canadian Imperial Ginseng Ontario Ltd. each has available with a Canadian chartered bank a $1,250,000 line of credit, subject to certain margining calculations, which bears interest at price plus 1 ¼% per annum and is secured by a charge over all inventory and crops. At September 30, 2002, $1,515,000 was draw on this facility.
Related Party Transactions and Balances
Preferred Share Conversion:
On August 13, 2002, Qwest Bancorp Ltd., a company related by directors in common, converted 402,212 Class “A” Preferred Shares into 3,656,473 common shares of the Company at a price of $0.11 per share.
Also on August 13, 2002, a director of the Company converted 134,071 Class “A” Preferred Shares into 1,218,827 common shares of the Company at a price of $0.11 per share.
Management Company:
During 1999, a management company with directors in common was requested to consult with and advise to the Company with respect to restructuring its long-term debt obligations. As a result, the management company was engaged to structure, package, market and administer the conversion of long-term debt obligations to convertible Class “A” Preferred Shares. The management company is compensated for such services by a one-time service charge of 6% of the face value of Convertible Bonds or Preferred Shares issued either by way of long-term debt converted to Preferred Shares or through the issue of Preferred Shares by way of private placements and an annual asset management service charge of 2.5%. For the three month period ended September 30, 2002, the Company was charged and accrued $nil and $136,380, respectively for these services.
In addition, the management company provides administrative and office services and the Company was charged $46,125, $4,920, and $10,455 for salaries, rent, and office services, respectively.
Marketing Agreements:
The Company has ginseng marketing agreements with companies controlled by a director of the Company (the “Marketing Companies”). Pursuant to these agreements, the Marketing Companies market the Company’s ginseng crops on a best effort basis in return for a fee. The Marketing Companies render all marketing and selling services and pay all expenses related to the sale of the Company’s ginseng root. For the three-month period ended September 30, 2002, the Company paid $16,785 for these services.
Investor Relations
The Company currently has no agreements in place for which investor services are provided.