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
- - ----------------- ----------------------
September 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 September 30, 2002
THE LINK GROUP, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
(Stated in US Dollars)
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC.
INTERIM BALANCE SHEETS
September 30, 2002 and December 31, 2001
(Unaudited)
(Stated in US Dollars)
(Unaudited) (Audited)
September 30, December 31,
ASSETS 2002 2001
------ ---- ----
Current
Cash $ 40,653 $ 247,813
Advances receivable - 132,841
Accounts receivable - trade 91,584 162,833
- other - Note 8 76,920 -
Inventory 162,571 300,488
Deposit and prepayment 19,078 35,616
Deferred tax 174,901 65,983
--------- ---------
565,707 945,574
Property and equipment 475,662 518,231
Other 484 -
--------- ---------
$ 1,041,853 $ 1,463,805
--------- ---------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 98,709 $ 160,792
Loan payable - 300,000
Deferred revenue - 44,100
--------- ---------
98,709 504,892
Deferred tax 69,392 93,652
--------- ---------
168,101 598,544
--------- ---------
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
Retained earnings (deficit) ( 448,732) 143,077
--------- ---------
873,752 865,261
--------- ---------
$ 1,041,853 $ 1,463,805
========= =========
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended September 30, 2002 and 2001
(Unaudited)
(Stated in US Dollars)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Sales $ 90,530 $ 344,855 $ 387,051 $ 876,007
Cost of sales 51,217 114,414 200,138 277,480
---------- --------- ---------- ---------
Gross income 39,313 230,441 186,913 598,527
Other income 318 142 318 142
---------- --------- ---------- ---------
39,631 230,583 187,231 598,669
---------- --------- ---------- ---------
Expenses
Amortization 60,099 70,400 174,273 110,134
Selling, general and administrative expenses 96,211 40,636 346,794 230,761
---------- --------- ---------- ---------
156,310 111,036 521,067 340,895
---------- --------- ---------- ---------
Income (loss) from continuing operations ( 116,679) 119,547 ( 333,836) 257,744
Loss from discontinued operations ( 260,829) - ( 391,151) -
---------- --------- ---------- ---------
Income (loss) before income taxes ( 377,508) 119,547 ( 724,987) 257,744
Recovery of future income taxes - - 133,178 -
---------- --------- ---------- ---------
Net income (loss) for the period $ ( 377,508) $ 119,547 $ ( 591,809) $ 257,744
========== ========= ========== =========
Basic earnings (loss) per share from continuing
operations $ ( 0.002) $ 0.09 $ ( 0.007) $ 0.19
========== ========= ========== =========
Basic earnings (loss) per share from discontinued
operations $ ( 0.005) $ - $ ( 0.008) $ -
========== ========= ========== =========
Basic and diluted earnings (loss) per share $ ( 0.007) $ 0.09 $ ( 0.015) $ 0.19
========== ========= ========== =========
Weighted average number of common shares outstanding
51,351,301 1,351,300 49,714,395 1,351,300
========== ========= ========== =========
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2002 and 2001
(Unaudited)
(Stated in US Dollars)
Nine months ended
September 30,
2002 2001
---- ----
Operating Activities
Net income (loss) for the period from continuing operations $ ( 200,658) $ 257,774
Adjustment for non-cash items
Amortization 174,273 110,134
Provision for future income taxes ( 133,178) -
Change in working capital items
Advances receivable 132,841 -
Accounts receivable ( 5,671) ( 275,694)
Inventory 137,917 ( 215,646)
Deposit and prepayment 16,538 ( 27,135)
Accounts payable and accrued liabilities ( 62,083) 7,362
Deferred revenue ( 44,100) -
--------- -----------
Cash from (used in) operating activities 15,879 ( 143,205)
--------- -----------
Investing Activities
Purchase of property and equipment ( 131,704) ( 530,392)
Other ( 484) -
--------- -----------
Cash used in investing activities ( 132,188) ( 530,392)
--------- -----------
Financing Activities
Related party loans (repayments) ( 300,000) 452,356
Proceeds from issuance of common stock 600,300 722,155
--------- -----------
Cash from financing activities 300,300 1,174,511
--------- -----------
Net increase (decrease) in cash and cash equivalents from continuing
operations 183,991 500,914
Cash flow used in discontinued operations ( 391,151) -
--------- -----------
Increase (decrease) in cash and cash equivalents during the period ( 207,160) 500,914
Cash and cash equivalents, beginning of the period 247,813 -
--------- -----------
Cash and cash equivalents, end of the period $ 40,653 $ 500,914
========= ===========
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC. Continued
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2002 and 2001
(Unaudited)
(Stated in US Dollars)
Nine months ended
September 30,
2002 2001
---- ----
Supplementary disclosure of cash flow information Cash paid for:
Interest $ - $ -
============= ==============
Income taxes $ - $ -
============= ==============
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
for the period from December 31, 2001 to September 30, 2002
(Unaudited)
(Stated in US Dollars)
Deficit
Accumulated
During the Retained
Common Stock Paid-in Development Earnings
Shares Amount Capital Stage (Deficit) 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
Net loss for the period - - - - ( 591,809) ( 591,809)
---------- ------- ---------- ---------- -------------- ---------
Balance, September 30, 2002 53,351,301 $5,335 $1,317,149 $ - $ ( 448,732) $873,752
========== ======= ========== ========== ============== =========
SEE ACCOMPANYING NOTES
THE LINK GROUP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 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. During
the six months ended September 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.
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 sales of product to independent resellers is recognized when
the goods are shipped.
ii. revenue from the sale of product direct to end users is recognized using
the completed contract method when installation of the system is complete.
Amounts invoiced for sales, which are not yet complete, are recorded as
deferred revenue.
iii. commission income is recognized when the relevant services are rendered;
and
iv. 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. 144. "Accounting for the
Impairment or Disposal of Long-lived Assets. Certain long-lived
assets and 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.
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 - Note 10
---------------------
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.
Note 4 Business Combinations - Note 10 - (cont'd)
---------------------
a) Cont'd.
PSP was incorporated in Hong Kong on September 25, 2000 with
the name Global Surveillance Communications Limited
("Global"). On January 15, 2001, Global 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 4,500,000 shares allocated to the
vendor from the shares issued in the above noted PSP
acquisition. Effective July 1, 2002 the Company disposed of
its interest as disclosed in Note 8.
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 $ 174,901
Deferred tax liability
Property and equipment costs deducted for tax
purposes in excess of amortization provided ( 69,392)
---------
Net deferred tax asset $ 105,509
=========
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain. As
at September 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,
September 30, 2002 2001
------------------------------------------------- ------------------
Accumulated
Cost Amortization Net Net
---- ------------ ---
Computer and office
equipment $ 150,790 $ 47,158 $ 103,632 $ 114,514
Computer software 596,995 279,502 317,493 330,461
Motor vehicles 22,493 7,872 14,621 18,369
Leasehold improvements 59,874 19,958 39,916 54,887
-------- -------- -------- -------
$ 830,152 $ 354,490 $ 475,662 $ 518,231
======== ======== ======== =======
Note 7 Commitments
The Company entered into an operating lease for its premises for
three years, expiring December 31, 2004. A portion of the lease
was surrendered effective August 1, 2002. The amended annual lease
payments required are $33,560 (HK$261,768) 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.
Note 8 Discontinued Operations
Effective July 1, 2001, the Company sold all of its interest in a
wholly-owned subsidiary, Infotech Networks & Cabling Ltd.
("Infotech"), a Hong Kong company (See Note 4(b)) for $153,840
(HK$1,200,000) cash and 8,300,000 shares of the Company held by
the purchaser. Cash of HK$600,000 was received and the balance of
HK$600,000 (US$76,920) is due on or before December 31, 2002.
Subsequent to September 30, 2002, the Company canceled the shares.
As a result of the sale, the results of operations for the
Infotech have been reported separately in the consolidated
statement of loss. Summarized financial information for Infotech
is as follows:
Nine months
Ended
September 30,
2002
----
Revenues $ 402,551
Expenses 532,873
-----------
Net loss from discontinued operations ( 130,322)
Loss on sale ( 260,829)
-----------
Loss from discontinued operations $ ( 391,151)
-----------
Cash flow information
Net cash used in operating activities $ ( 391,151)
Net cash used in investing activities -
Net cash provided by financing activities -
-----------
Net cash used in discontinued operations $ ( 391,151)
===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 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. In the third quarter we
sold all our interest in Infotech for HK$15,442,800 paid for by cash of
HK$1,200,000 and retirement of 8,300,000 the company shares which are owned by
the purchaser. This set of financial statements has reported the Infotech
figures as "Loss from discontinued operations" of $391,151 in the Statement of
Operations. A breakdown of Infotech's operations for the nine months is
described in Note 8.
For the first nine months in 2002, sales of the company's proprietary Genius Eye
product amounted to $387,051 compared to $876,007 in the same nine months in
2001. This revenue was generated from clients based both out of Hong Kong and
Mainland China. The decline in business is the result of a significant slowdown
in Hong Kong. While management had devoted major efforts and investments in
China; although we are optimistic, it has yet to yield any significant business.
Cost of sales was $200,138 or 51.7% of revenue in the first nine months in 2002.
In the same period in 2001, cost of sales were $277,480 or 31.7% of revenue The
selling, general and administrative expenses for the Company were $346,794 in
the first nine months in 2002 compared to $230,761 in 2001. The net loss for the
period in 2002 was $591,809 and for 2001 the net income was $257,744. A
significant portion of the loss is attributable to discontinued operations.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 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 $90,530 compared to $344,855 in the quarter in 2001. This revenue
was generated from clients based both out of Hong Kong and Mainland China. Cost
of sales was $51,217 in the quarter in 2002. In the same period in 2001, cost of
sales was $114,414. The selling, general and administrative expenses for the
company were $96,211 in the quarter in 2002 compared to $40,636 in the same
quarter in 2001. The net loss from the period in 2002 was $377,508 and for the
period in 2001 the net income was $119,547.
LIQUIDITY AND CAPITAL RESOURCES
We had $40,653 cash on hand at September 30, 2002 and $168,504 in receivables
due within one year and payables of only $98,709. 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 September 5, 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: November 14, 2002 /s/Justin Kwei
-----------------------------
Justin Kwei, Cheif Executive Officer