SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
- ----------------- ----------------------
March 31, 2002 000-33031
THE LINK GROUP, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1263981
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(State of incorporation) (I.R.S. Employer
Identification No.)
Suite 950 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 689-4407
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
53,351,300 as of March 31, 2002
THE LINK GROUP, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
(Stated in US Dollars)
THE LINK GROUP, INC.
INTERIM BALANCE SHEETS
March 31, 2002 and December 31, 2001
(Unaudited)
(Stated in US Dollars)
(Unaudited) (Audited)
March 31, December 31,
ASSETS 2002 2001
------ ---- ----
Current
Cash $ 126,117 $ 247,813
Advances receivable 145,125 132,841
Accounts receivable 666,952 162,833
Inventory of purchased materials 348,036 300,488
Deposit and prepayment 38,628 35,616
Deferred tax 41,403 65,983
----------------- -----------------
1,366,261 945,574
Property and equipment 557,347 518,231
----------------- -----------------
$ 1,923,608 $ 1,463,805
================= =================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 161,177 $ 160,792
Loan payable 22,246 300,000
Deferred revenue 8,824 44,100
----------------- -----------------
192,247 504,892
Deferred tax 85,583 93,652
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277,830 598,544
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STOCKHOLDERS' EQUITY
Common stock,
Authorized:
200,000,000, par value $0.001 each
Issued:
53,351,301 shares (December 31, 2001: 5,405,200) 1,322,484 722,184
Contributed surplus 95,691 -
Retained earnings 227,603 143,077
----------------- -----------------
1,645,778 865,261
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$ 1,923,608 $ 1,463,805
================= =================
SEE ACCOMPANYING NOTES
F-1
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 2002,
(Unaudited)
(Stated in US Dollars)
Three months ended March 31,
2002 2001
---- ----
Sales $ 563,686 $ 59,203
Cost of sales 222,829 17,505
--------------- ---------------
Gross 340,857 41,698
Other income 30,103 2
--------------- ---------------
370,960 41,700
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Expenses
Amortization 57,642 15,803
Selling, general and administrative expenses 212,281 20,789
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269,923 36,592
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Income from operations before income taxes 101,037 5,108
Provision for future income taxes 16,511 -
--------------- ---------------
Net income for the period $ 84,526 $ 5,108
=============== ===============
Basic earnings per share $ 0.00 $ 0.00
=============== ===============
Weighted average number of common shares outstanding 42,319,356 1,351,300
=============== ===============
SEE ACCOMPANYING NOTES
F-2
THE LINK GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
for the period from February 28, 1993 to March 31, 2002
(Unaudited)
(Stated in US Dollars)
Deficit
Accumulated
During the
Common Stock Paid-in Development Retained Contributed
-------------------------
Shares Amount Capital Stage Earnings Surplus Totals
------ ------ ------- ----- -------- ------- ------
Balance, December 31, 2001 5,405,200 $ 540 $ 113,767 $ (114,307) $ - $ - $ -
Issuance of common stock for cash
- at $0.1035 14,500,000 1,450 148,625 - - - 150,075
Reverse split 1 for 4 (14,928,900) (1,493) 1,493 - - - -
Issuance of common stock for cash
- at $0.0414 10,875,000 1,088 449,137 - - - 450,225
Issuance of stock to acquire subsidiary 37,500,000 3,750 604,127 114,307 143,077 - 865,261
Acquisition of subsidiary - - - - - 95,691 95,691
Net income for the period - - - - 84,526 - 84,526
---------- ------- ---------- ------------ --------- --------- -----------
Balance, March 31, 2002 53,351,300 $ 5,335 $1,317,149 $ - $ 227,603 $ 95,691 $ 1,645,718
========== ======= ========== ============ ========= ========= ===========
SEE ACCOMPANYING NOTES
F-3
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2002,
(Unaudited)
(Stated in US Dollars)
Three months ended March 31,
2002 2001
---- ----
Operating Activities
Net income for the period $ 84,526 $ 5,108
Adjustment for non-cash items
Amortization 57,642 15,803
Common stock issued for management fees - -
Common stock issued for inventory - -
Provision for deferred income taxes 16,511 -
Change in working capital items
Advances receivable ( 12,284) ( 4,534)
Accounts receivable ( 504,119) ( 15,504)
Inventory ( 47,548) ( 5,548)
Deposit and prepayment ( 3,012) -
Accounts payable and accrued liabilities ( 384) 238
Deferred revenue ( 35,276) -
---------------- ----------------
Cash provided by operating activities ( 443,944) ( 4,437)
---------------- ----------------
Investing Activities
Purchase of property and equipment - ( 474,077)
Acquisition of Infotech 2,572 -
---------------- ----------------
2,572 ( 474,077)
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Financing Activities
Related party loans ( 280,624) 522,792
Proceeds from issuance of common stock 600,300 1,282
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Cash from financing activities 319,676 524,074
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Net increase in cash and cash equivalents ( 121,696) 45,560
Cash, beginning 247,813 -
---------------- ----------------
Cash, end $ 126,771 $ 45,560
================ ================
SEE ACCOMPANYING NOTES
F-4
THE LINK GROUP, INC. Continued
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2002,
(Unaudited)
(Stated in US Dollars)
Three months ended March 31,
2002 2001
---- ----
Supplementary disclosure of cash flow information
Cash paid for:
Interest $ - $ -
================ ================
Income taxes $ - $ -
================ ================
SEE ACCOMPANYING NOTES
F-5
THE LINK GROUP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
(Stated in US Dollars)
Note 1 Interim Reporting
While the information presented in the accompanying interim
financial statement is unaudited, it includes all adjustments
which are, in the opinion of management necessary to present
fairly the financial position, result of operations and cash flows
for the interim period presented. All adjustment are of a normal
recurring nature. It is suggested that these financial statements
be read in conjunction with the Company's December 31, 2001
financial statements.
Note 2 Nature of Operations
--------------------
The Company is engaged in the business of developing and marketing
computer hardware and web-based surveillance monitoring and
control systems. The Company's product is based on proprietary
software, the use of which is subject to a license agreement.
All operations are carried on outside of the United States.
Note 3 Summary of Significant Accounting Policies
------------------------------------------
The financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the
United States of America. Because a precise determination of many
assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates, which have been made using careful
judgement. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below:
Consolidation
-------------
These interim consolidated financial statement include the
accounts of the Compay and its wholly-owned subsidiary,
ProtectServe Pacific Limited, a Hong Kong company and its
wholly-owned subsidiary Infotech-Networks & Cabling Ltd., a Hong
Kong company. All inter-company transactions and balances have
been eliminated.
Cash and Cash Equivalents
-------------------------
The Company considers all cash and other highly liquid investments
with initial maturities of three months or less to be cash
equivalents.
F-6
The Link Group, Inc.
Notes to the Interim Consolidated Financial Statements
March 31, 2002 and December 31, 2001
(Stated in US Dollars) - Page 2
Note 3 Summary of Significant Accounting Policies - (cont'd)
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Basic Earnings Per Share
------------------------
The Company reports basic loss per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per
Share". Basic earnings per share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding for the period less shares subject to repurchase.
Revenue Recognition
-------------------
Revenue is recognized when it is probable that the economic
benefits will flow to the Company and when the revenue can be
measured reliably, on the following basis:
(i) revenue from the sale of product is recognized using the
completed contract method. Completion generally coincides
with the time of shipment. Amounts invoiced at year end for
contracts which have not yet been completed are not recogniz-
ed in revenue but are recorded as deferred revenue.
ii) commission income is recognized when the relevant services
are rendered; and
iii) interest income is recognized on an accrual basis.
Impairment of Long-lived Assets
-------------------------------
The Company reports the impairment of long-lived assets and
certain identifiable intangibles in accordance with Statement of
Financial Accounting Standards No. 121. "Accounting for the
Impairment of Long-lived Assets for Long-lived Assets to be
Disposed Of". Certain long-lived assets and identifiable
intangibles held by the Company are reviewed for impairment
whenever assets or changes in circumstances indicate the carrying
amount of an assets my not be recoverable. Accordingly, an
impairment loss is recognized in the period it is determined.
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated
amortization. Cost represents the purchase price of the asset and
other costs incurred to bring the asset into its existing use.
Amortization is provided to write-off the cost of property and
equipment on the straight-line basis over their estimated useful
lives as follows:
Computer and office equipment Five years
Computer software Three years
Motor vehicles Five years
Leasehold improvements are written off on a straight-line basis
over the term of the lease.
F-7
The Link Group, Inc.
Notes to the Interim Consolidated Financial Statements
March 31, 2002 and December 31, 2001
(Stated in US Dollars) - Page 3
Note 3 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Inventories
-----------
Inventories are stated at the lower of cost and net realizable
value. Cost is calculated using the first-in, first-out method.
Net realizable value is the price at which inventories can be sold
in the normal course of business after allowing for the costs of
realization.
Foreign Currency Translation
----------------------------
The functional currency of the Company is Hong Kong dollars, which
has been translated into US dollars, the reporting currency, in
accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation". Assets and liabilities are
translated at the exchange rate at the balance sheet date and
revenue and expenses are translated at the exchange rate at the
date those elements are recognized. Any translation adjustments
resulting are not included in determining net income but are
included in other comprehensive income. The exchange rate in
effect at the balance sheet date, and the average for the year was
7.8HK$ for 1US$ and accordingly no translation adjustments
resulted.
Income Taxes
------------
The company uses the liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes".
Note 4 Business Considerations
-----------------------
a) By an agreement dated Januayr 21, 2002, the Company agreed to
purchase all the issued and outstanding shares of ProtectServe
Pacific Limited ("PSP") from three individuals through
issuance of 37,500,000 (post-reverse one for four split)
common shares. The Company has the right to buy back its
shares at $0.0001 per share from these individuals if PSP's
after-tax profit is less than Hong Kong HK$9,000,000 for the
twelve months ended December 31, 2002. The buy back formula is
for every HK$333,333 that PSP fall short of the HK$9,000,000
after tax profit, the Company can buy back 1,000,000
(post-reverse one for four split) common shares from these
individuals.
The acquisition of PSP has been accounted for using the
purchase method with PSP being identified as the acquirer. As
at the acquisition date, The Link Group, Inc. had no
identifiable assets or liabilities. Comparative figures
presented are those of the acquirer, PSP.
Protectserve Pacific Limited (the "Company") was incorporated
in Hong Kong on September 25, 2000 with the name Global
Surveillance Communications Limited. On January 15, 2001, the
Company changed its name to Protectserve Pacific Limited and
commenced operations effective February 1, 2001.
F-8
The Link Group, Inc.
Notes to the Interim Consolidated Financial Statements
March 31, 2002 and December 31, 2001
(Stated in US Dollars) - Page 4
Note 4 Business Considerations - (cont'd)
-----------------------
b) Prior to the acquisition as noted above, PSP acquired all the
issued and outstanding shares of Infotech-Networks & Cabling
Ltd, a Hong Kong Company for no consideration. The acquisition
has been accounted for using the purchase method as follows:
Net Assets Acquired
Cash $ 2,572
Capital assets, at fair value 96,758
----------
99,330
Less: liabilities ( 3,639)
----------
95,691
Consideration -
----------
Excess value recorded as contributed surplus $ 895,691
==========
Note 5 Deferred Tax
-------------
The Financial Accounting Standards Board issued Statement Number
109 in Accounting for Income Taxes ("FAS 109") which is effective
for fiscal years beginning after December 15, 1992. FAS 109
requires the use of the asset and liability method of accounting
of income taxes. Under the assets and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statements carrying amounts of existing assets and
liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
Deferred tax assets
Net operating loss carry forward $ 41,403
Deferred tax liability
Property and equipment costs deducted for tax
purposes in excess of amortization provided ( 85,583)
-----------
Net deferred tax liability $ ( 44,180)
===========
F-9
The Link Group, Inc.
Notes to the Interim Consolidated Financial Statements
March 31, 2002 and December 31, 2001
(Stated in US Dollars) - Page 5
Note 5 Deferred Tax - (cont'd)
------------
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain. As
at March 31, 2002, management believes it is more likely than not
that the net deferred tax asset will be realized in the subsequent
year and accordingly no valuation allowance is required.
Note 6 Property and Equipment
----------------------
December 31,
March 31, 2002 2001
------------------------------------------------- ------------------
Accumulated
Cost Amortization Net Net
---- ------------ ---
Computer and office
equipment $ 230,642 $ 36,937 $ 193,705 $ 114,514
Computer software 475,864 185,051 290,813 330,461
Motor vehicles 28,903 5,949 22,954 18,369
Leasehold improvements 59,877 9,979 49,898 54,887
------------- ------------- ------------- -------------
$ 795,286 $ 237,916 $ 557,370 $ 518,231
============= ============= ============= =============
Note 7 Loan Payable
-------------
The loan is unsecured, non-interest bearing and has no fixed
repayment terms.
Note 8 Commitments
-----------
The Company has entered into an operating lease for its premises
for three years, expiring December 31, 2004. The annual lease
payments required are $86,900 (HK$677,732) plus operating costs
for an aggregate amount payable of $260,700 (HK$2,033,460) plus
operating costs.
The Company has entered into a licensing agreement for exclusive
use in Pacific Asia of certain proprietary software related to its
products. A license fee of $100 per copy is payable, with a
minimum commitment to purchase 5000 copies over three years ending
December 31, 2003. The Company can obtain unlimited use of the
software by purchasing more than 5000 units before the three-year
period or by paying $500,000 less license fees paid to date. Upon
the purchase of 5,000 units, the Company will own the proprietary
software.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2002 COMPARED
TO THE SAME PERIOD IN 2001.
We (referred in this report as the Link Group Inc. and/or its subsidiaries) have
presented our quarterly consolidated financial statements and you should read
them in conjunction with our consolidated financial statements and related notes
in our 10KSB annual report for 2001. We completed the acquisition of
Protectserve Pacific, Ltd. in the first quarter of 2002. For the first three
months in 2002, sales of the company's proprietary Genius Eye product amounted
to $563,686 compared to $59,203 in the same three months in 2001. This revenue
was generated from clients based both out of Hong Kong and mainland China. The
Genius Eye line of surveillance systems has been rapidly gaining market
acceptance and we expect mainland China's contribution to grow rapidly in the
short to medium term. Please visit www.protectserve.com.hk or www.geniuseye.com
for a detail description of our products. Cost of sales were $222,829 or 39.5%
of revenue in the first three months in 2002. In the same period in 2001, cost
of sales were $17,505 or 29.6% of revenue The selling, general and
administrative expenses for the company were $212,281 in the first three months
in 2002 compared to $20,789 in 2001. The net income from the period in 2002 was
$84,526 and for 2001 the net income was $5,108.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $126,117 cash on hand at March 31, 2002 and $812,077 in
receivables due within one year and payables of only $192,247. These amounts are
deemed sufficient by us for continued operations at the current level this year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
The Company issued 14,500,000 shares (pre-reverse split) for $150,075 in
January 2002.
In February 2002 the Company implemented a reverse split of 1 for 4 shares
effective February 28, 2002. The Company subsequently issued 10,875,000 for
$450,225 in cash. In March of 2002, the Company completed the acquisition of
ProtectServe Pacific Limited, a Hong Kong corporation in exchange for
37,500,000 shares of common stock.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following reports on Form 8-K were made for the period for which this
report is filed.
8-K filed January 25, 2002
8-K filed February 6, 2002
8-K filed February 8, 2002
8-K filed February 15, 2002
8-K filed February 20, 2002
8-K filed February 21, 2002
8-K/A filed February 28, 2002
8-K/A filed March 8, 2002
8-K filed March 26, 2002
THE LINK GROUP, INC.
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.
THE LINK GROUP, INC.
Date: May 14, 2002 /s/ Justin Kwei
-----------------------------
Justin Kwei, President