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
- - ----------------- ----------------------
June 30, 2002 000-33031
THE LINK GROUP, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1263981
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
Suite 950 - 789 West Pender Street, Vancouver, B.C. Canada V6C 1H2
--------------------------------------------------------------------
(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.
53,351,301 as of June 30, 2002
THE LINK GROUP, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
(Stated in US Dollars)
F-1
THE LINK GROUP, INC.
INTERIM BALANCE SHEETS
June 30, 2002 and December 31, 2001
(Unaudited)
(Stated in US Dollars)
(Unaudited) (Audited)
June 30, December 31,
ASSETS 2002 2001
------ ---- ----
Current
Cash $ 24,770 $ 247,813
Advances receivable 36,969 132,841
Accounts receivable 496,486 162,833
Inventory 363,101 300,488
Deposit and prepayment 32,061 35,616
Deferred tax 117,165 65,983
--------- ---------
1,070,552 945,574
Property and equipment 622,838 518,231
Other 484 -
--------- ---------
$ 1,693,874 $ 1,463,805
========= =========
LIABILITIES
Current
Accounts payable and accrued liabilities $ 157,967 $ 160,792
Loan payable 167,893 300,000
Deferred revenue 9,407 44,100
--------- ---------
335,267 504,892
Deferred tax 77,788 93,652
--------- ---------
413,055 598,544
--------- ---------
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 (deficit) (137,356) 143,077
--------- ---------
1,280,819 865,261
--------- ---------
$ 1,693,874 $ 1,463,805
========= =========
SEE ACCOMPANYING NOTES
F-2
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended June 30, 2002,
(Unaudited)
(Stated in US Dollars)
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Sales $ 257,485 $ 471,947 $ 659,645 $ 531,152
Cost of sales 293,335 145,561 537,326 163,066
----------- -------- --------- ---------
Gross income ( 35,850) 326,386 122,319 368,086
Other income 9,324 - 39,427 -
----------- -------- --------- ---------
( 26,526) 326,386 161,746 368,086
----------- -------- --------- ---------
Expenses
Amortization 66,294 23,931 123,936 39,734
Selling, general and administrative expenses 199,840 169,336 385,289 190,125
----------- -------- --------- ---------
266,134 193,267 509,225 229,859
----------- -------- --------- ---------
Income (loss) from operations before income taxes
( 292,660) 133,119 ( 347,479) 138,227
Provision (recovery) for future income taxes ( 83,557) - ( 67,046) 22,117
----------- -------- --------- ---------
Net income (loss) for the period $ ( 209,103) $ 133,119 $ ( 280,433) $ 116,110
=========== ======== ========= =========
Basic earnings (loss) per share $ ( -) $ 0.10 $ ( 0.01) $ 0.09
=========== ======== ========= =========
Weighted average number of common shares outstanding
53,351,301 1,351,300 47,835,328 1,351,300
=========== ======== ========= =========
SEE ACCOMPANYING NOTES
F-3
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 2002
(Unaudited)
(Stated in US Dollars)
Six months ended June 30,
2002 2001
---- ----
Operating Activities
Net income (loss) for the period $ ( 280,433) $ 116,110
Adjustment for non-cash items
Amortization 123,936 39,734
Provision for deferred income taxes ( 67,046) 22,117
Change in working capital items
Advances receivable 95,872 -
Accounts receivable ( 333,653) ( 335,448)
Inventory ( 62,613) -
Deposit and prepayment 3,555 -
Accounts payable and accrued liabilities ( 3,594) 8,039
Deferred revenue ( 34,693) -
--------- --------
Cash provided by operating activities ( 558,669) ( 149,448)
--------- --------
Investing Activities
Purchase of property and equipment ( 131,785) ( 476,803)
Acquisition of subsidiary - Note 4 2,572 -
Other ( 484) -
--------- --------
Cash used in investing activities ( 129,697) ( 476,803)
--------- --------
Financing Activities
Related party loans ( 134,977) 789,611
Proceeds from issuance of common stock 600,300 1,282
--------- --------
Cash from financing activities 465,323 790,893
--------- --------
Net increase (decrease) in cash and cash equivalents ( 223,043) 164,642
Cash and cash equivalents, beginning of the period 247,813 -
--------- --------
Cash and cash equivalents, end of the period $ 24,770 $ 164,642
========= ========
SEE ACCOMPANYING NOTES
.../Cont'd.
F-4
THE LINK GROUP, INC. Continued
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 2002,
(Unaudited)
(Stated in US Dollars)
Six months ended June 30,
2002 2001
---- ----
Supplementary disclosure of cash flow information Cash paid for:
Interest $ - $ -
========= ==========
Income taxes $ - $ -
========= ==========
SEE ACCOMPANYING NOTES
F-5
THE LINK GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
for the period from December 31, 2001 to June 30, 2002
(Unaudited)
(Stated in US Dollars)
Deficit
Accumulated
During the Retained
Common Stock Paid-in Development Earnings Contributed
Shares Amount Capital Stage (Deficit) 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 (14,928,899)(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 for subsidiary - Note 4 37,500,000 3,750 604,127 114,307 143,077 - 865,261
Acquisition of subsidiary - Note 4 - - - - - 95,691 95,691
Net lossfor the period - - - - ( 280,433) - ( 280,433)
---------- ----- --------- -------- ------- ------ ---------
Balance, June 30, 2002 53,351,301 $5,335 $1,317,149 $ - $( 137,356) $ 95,691 $ 1,280,819
========== ===== ========= ======== ======= ====== =========
SEE ACCOMPANYING NOTES
F-6
THE LINK GROUP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 adjustments 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 Company and its wholly-owned subsidiary,
ProtectServe Pacific Limited ("PSP"), a Hong Kong company and its
wholly-owned subsidiary Infotech-Networks & Cabling Ltd., a Hong
Kong company. During the three months ended June 30, 2002 the
Company incorporated a subsidiary in China. Comparative figures
presented are those of PSP (Note 4). All inter-company
transactions and balances have been eliminated.
F-7
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.
Note 3 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Basic Earnings Per Share
The Company reports basic earnings 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 period end for
contracts, which have not yet been completed, are not
recognized 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
F-8
Leasehold improvements are written off on a straight-line basis
over the term of the lease.
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 Combinations
a) By an agreement dated January 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 $0.001
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 falls 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 on a
reverse transaction basis with PSP being identified as the acquirer. For
accounting purposes January 1, 2002 has been used as the effective date of
acquisition. As at the acquisition date, The Link Group, Inc. had no
identifiable assets or liabilities. Comparative figures presented are those of
the acquirer, PSP.
F-9
Note 4 Business Combinations - (cont'd)
---------------------
a) Cont'd.
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.
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 $ 95,691
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 carry forwards 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 $ 117,165
Deferred tax liability
Property and equipment costs deducted for tax
purposes in excess of amortization provided ( 77,788)
Net deferred tax asset $ 39,377
F-10
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 June 30, 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,
June 30, 2002 2001
------------------------------------------------- ------------------
Accumulated
Cost Amortization Net Net
---- ------------ ---
Computer and office
equipment $ 237,931 $ 48,667 $ 89,264 $ 114,514
Computer software 594,858 230,655 364,203 330,461
Motor vehicles 28,903 7,394 21,509 18,369
Leasehold improvements 63,160 15,298 47,862 54,887
-------- ------- ------- -------
$ 924,852 $ 302,014 $ 622,838 $ 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-11
Note 9 Prior Adjustments
During the three months ended June 30, 2002 the Company amended
certain transactions related to the operations of its wholly-owned
subsidiary Infotech-Networks & Cabling Ltd. ("Infotech") for the
three months ended March 31, 2002. As a result, consolidated
operations as previously reported for the three months ended March
31, 2002 have been amended to reflect a loss of $71,330 compared
to net income of $84,526. The change was a result of a decrease in
sales of $161,526; a decrease in cost of sales of $21,162; and a
decrease in general and administrative expenses of $26,832. As a
result current assets at March 31, 2002 were decreased by $142,421
and current liabilities were increased by $13,434.
Note 10 Subsequent Event
By a letter of intent dated August 5, 2002 the Company intends to
sell all its interest in Infotech for HK$14,850,000, to be paid by
cash of HK$1,200,000 and 7,000,000 shares of the Company which are
owned by the purchaser.
F-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 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 six
months in 2002, sales of the company's proprietary Genius Eye product amounted
to $659,645 compared to $531,152 in the same six months in 2001. This revenue
was generated from clients based both out of Hong Kong and mainland China.
Cost of sales were $537,326 or 81.5%of revenue in the first six months in 2002.
In the same period in 2001, cost of sales were $163,066 or 30.7% of revenue The
selling, general and administrative expenses for the Company were $385,289 in
the first six months in 2002 compared to $190,125 in 2001. The net loss for the
period in 2002 was ($280,433) and for 2001 the net income was $116,110. A
significant portion of the loss is atributable to the a subsidiary
operation Infotech.
By a letter of intent dated August 5, 2002 we intend to sell all its interest in
Infotech for HK$15,442,800 to be paid by cash of HK$1,200,000 and retirement of
8,300,000 the company shares which are owned by the purchaser. This transaction
is subject to the approval of the Board of Directors.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2002 COMPARED TO
THE SAME PERIOD IN 2001.
For the quarter in 2002, sales of the company's proprietary Genius Eye product
amounted to $257,485 compared to $471,947 in the quarter in 2001. This revenue
was generated from clients based both out of Hong Kong and mainland China. Cost
of sales were $293,335 in the quarter in 2002. In the same period in 2001, cost
of sales were $145,561. The selling, general and administrative expenses for the
company were $199,840 in the quarter in 2002 compared to $169,336 in the same
quarter in 2001. The net loss from the period in 2002 was ($209,103) and for the
period in 2001 the net income was $133,119.
LIQUIDITY AND CAPITAL RESOURCES
We had $24,770 cash on hand at June 30, 2002 and $533,455 in receivables due
within one year and payables of only $325,860. 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
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 24, 2002, at an Annual Meeting of Shareholders, the
shareholders approved the folloing matters:
1. Elected Board of five (5) directors to hold office until the next annual
meeting of stockholders or until their respective successors have been elected
and qualified: Justin Kwei, Ernest Cheung, Maurice Tsakok, Wilson Yim and Simon
Wong
2. Ratified the designation of Amisano Hanson as independent accountants for
the period ending December 31, 2001:
3. Approved the adoption of the Stock Option and Award Plan of The Link Group,
Inc
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 August 12, 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: August 19, 2002 /s/ Maurice Tsakok
-----------------------------
Maurice Tsakok, Director