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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1996
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-22744
VIKING CAPITAL GROUP, INC.
(Name of small business issuer in its charter)
Utah 87-0442090
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
Two Lincoln Centre, Suite 300, 5420 LBJ Freeway, Dallas, Texas 75240
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(Address of Principal Executive Offices) ( Zip Code)
Registrant's Telephone Number, Include Area Code: (972) 386-9996
Securities Registered Pursuant to section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or
for such shorter period that the registrant was required to file such reports);
and (2) has been subject to such filing requirements for the past ninety (90)
days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $273,925.
As of December 31, 1996, 13,946,095 shares of common stock of the
Registrant were outstanding. As of such date, the aggregate market value of the
common stock held by non-affiliates, computed using the average bid and asked
price at 12/31/96, was approximately $2,209,484.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated herein by reference in Item 10
Part III:
Adoption of an Employee Stock Option Plan as described and incorporated
into the Proxy Statement on the annual statement for fiscal year ended December
31, 1995.
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TABLE OF CONTENTS
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PART I
Item 1. Description of Business ............................................. 3
Item 2. Description of Properties ........................................... 7
Item 3. Legal Proceedings ................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders ................. 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ............ 7
Item 6. Management's Discussion and Analysis ................................ 9
Item 7. Financial Statements ................................................ 11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act ................... 11
Item 10. Executive Compensation .............................................. 13
Item 11. Security Ownership of Certain Beneficial Owners and Management ...... 15
Item 12. Certain Relationships and Related Transactions ...................... 16
Item 13. Exhibits and Reports on Form 8-K .................................... 17
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PART I
ITEM I. DESCRIPTION OF BUSINESS
BACKGROUND. Viking Capital Group, Inc. (the "Company") is a Utah
corporation formed on November 12, 1986. The Company was originally formed
under the name Silver Harvest, Inc. for the purpose of obtaining capital to
seek out, investigate and acquire interests in new products, properties or
businesses. In June of 1988, the Company received from subscribers in a public
offering subscriptions for the purchase of 2,500,000 shares of its common stock
for an aggregate of $75,000. The Company's public offering was conducted
pursuant to the registration requirements set forth in Section 61-1-10 of the
Utah Uniform Securities Act and in reliance upon the exemption from federal
registration requirements set forth in Rule 504 of Regulation D as promulgated
under the Securities Act of 1933, as amended. Pursuant to Rule 11.1 of the Utah
Securities Division, the proceeds from the Company's public offering were
placed in escrow pending the specific allocation of such proceeds and subject
to the subscribers' right to rescind their subscriptions upon determination of
the definitive use of proceeds.
In 1989, the Company entered into an agreement with Louis Sylvester
pursuant to which the Company agreed to issue 1,000,000 shares of common stock
to Mr. Sylvester in exchange for all rights to certain financial education
seminar and business concepts developed by Mr. Sylvester. Pursuant to such
agreement, the Company agreed to change its name to The Institute for Financial
Fitness and to operate as a financial consulting and education firm utilizing
certain concepts developed by Mr. Sylvester. The Utah Securities Division then
approved the release of the funds held in escrow to the Company.
The Company subsequently abandoned its financial consulting and
education activities and pursued and abandoned various other opportunities and
Mr. Sylvester returned the shares of common stock received from the Company for
cancellation. In February of 1990, the Company changed its name to Viking
Capital Group, Inc.. In November of 1991, the Company declared a 1 for 5
reverse stock split.
From 1990 through mid 1994 the Company laid the ground work to become
a insurance holding company and a fully reporting SEC public holding company
via the filing of the form 10 with the SEC. In mid 1994 the Company became a
fully reporting SEC Company and the effective first reporting period was as of
12/31/93. The next major activity was to enlist a market maker to establish
trading in the Company's common stock via the over the counter electronic
bulletin board. This was achieved on January 20, 1995. Subsequently, the
common stock of the Company has attracted seven (7) market makers spread
across the USA, therein trading the stock coast to coast. As of December 31,
1996 the Company's activities include: (1) development of private and
institutional investors for various acquisitions, specifically, the purchase
of insurance companies, (2) implementation of the plan described below to
become a provider of specialized administration and data processing services
for insurance companies and banks including the licensing of the Sun
Microsystems, Inc. "Sun Closed Caption Index Media Stream (IMS)" software
with Viking Systems, Inc.
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DESCRIPTION OF BUSINESS
PLAN OF OPERATION. The Company is a development stage company which has
developed a comprehensive multi-step plan to (1) become a provider of
specialized administrative and data processing services for insurance and
securities products offered by other companies and (2) acquire a base of
insurance managed assets under the Company's management. The Company's primary
objective is to provide quality fee based administration, data processing,
product development and management consulting services to businesses,
particularly banks and insurance companies, and to build its own insurance
managed assets via acquisitions and reinsurance purchases to a total of $1.5
billion of insurance managed assets. The Company's financial methodology is to
generate profits from its fee based services described above, equal to or in
excess of the cost of managing its own assets and policy holders. This
methodology is expected to allow the Company to achieve a higher margin of
profitability than its competitors and allow shareholder equity to grow as the
managed asset base grows. Management expects the Company's proposed services
will permit financial services companies, particularly small to medium sized
banks, merchant banks and insurance companies, to expand their sources of
revenues while minimizing costs. Implementation of the Company's plan of
operations is expected to be carried out through one or more strategic
acquisitions of, or combinations with, operating companies. While the Company
has not purchased an insurance company yet, it has started operations in
corporate relations services, via Viking Financial Services, Inc., insurance
marketing services, via Viking Insurance Services, Inc., data processing
services, via Viking Systems, Inc. (incorporated in 1996), administration
services, via Viking Administrators, Inc. (incorporated in 1996). There is no
assurance that the Company can successfully continue to fund the start-up of
Viking Financial Services, Inc., Viking Insurance Services, Inc., Viking
Systems, Inc., Viking Administrators, Inc. and other operations or that such
other operations can be integrated and carried out on a profitable basis.
While the Company presently has no known, specific source of funds to
implement its total plan of operations, the Company intends to pursue its plan
of operations through mergers, exchanges of stock for assets or stock, the
issuance of debt and/ or the private placement or public offering of stock for
cash. The Company believes that its status as a reporting company under the
Securities Exchange Act of 1934, the trading of its common stock on the over
the counter electronic bulletin board (symbol VGCP) and the stature and
industry contacts of Chairman, William J. Fossen, will make it more attractive
to potential merger or acquisition candidates and will enhance the Company's
ability to raise capital through the placement of its debt and/or equity
securities. No binding agreements, or agreements in principal, to raise capital
for the Company or invest in the Company existed as of December 31, 1996, and,
therefore, there can be no assurance that the Company will be successful in
obtaining the financing necessary to implement its plan of operations.
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CORPORATE RELATIONS SERVICES. (Viking Financial Services, Inc.) The
first phase of the Company's proposed plan of operation consists of the
initiation of its corporate relations services, Viking Financial Services,
Inc.. This subsidiary of the Company intends to help provide capitalization,
restructuring and public offerings for the Company and for client companies
that have significant potential and/or assets. These services will be provided
by the Company on a fee and percentage basis with limited liability arising on
behalf of the Company.
The Company intends to provide services through various
broker/dealers, nationwide. The Company intends to contract with broker/dealers
via Viking Financial Services, Inc., large enough to provide all types of
securities products and trading services (stocks, bonds, etc.). The Company
presently does not intend to have ownership in any broker/dealerships that it
does business with, but may so choose to in the future, if management deems it
is necessary to properly serve its client companies and banks.
The operations of Viking Financial Services, Inc. has been carried out
to date by non-salaried individuals. No gross income was generated during 1996
from the operation of Viking Financial Services, Inc..
INSURANCE MARKETING SERVICES COMPANY. (Viking Insurance Services,Inc.)
On May 6, 1995 the Company purchased for 450,000 common shares, the national
marketing operations of Viking Insurance Services, Inc. In 1996, Viking
Insurance Services, Inc. created a new product line on behalf of World
Travelers Association for health and other benefits for travelers visiting the
USA. Plans call for the "Viking Travel Plan", as it is referred to, to begin
marketing in Canada in the second quarter of 1997 and in a number of other
foreign countries over the next few years. Viking Insurance Services, Inc.
generated $74,955 of gross income via contract sales for future business in
1996.
DATA PROCESSING COMPANY. (Viking Systems, Inc.) The Company formed and
incorporated Viking Systems, Inc. on February 15, 1996. Viking Systems, Inc.
will serve as the Company's data processing center for all the Company's
Management Information Systems (MIS) needs and will also serve as a "profit
center", providing MIS services to outside client corporations. Viking Systems,
Inc. has completed two tasks for the Federal Government during the last half of
1996 which generated a gross income of $198,970. Viking Systems, Inc. announced
on October 10, 1996 a streaming, digital video indexing capability as an
integral step in the strategic plan of placing Viking Capital Group, Inc. at
the forefront of utilizing the information superhighway for agent and policy
holder services. This capability, derived from software licensed from Sun
Microsystems, Inc. (Mountain View, SUNW), allows searching indexed video for a
particular word or phrase, much like searching for text in an electronic
document. As of 12/31/96 the Company or Viking Systems, Inc. had no new
commitments or agreements with the Federal Government or any other outside
corporate client.
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ADMINISTRATION SERVICES. (Viking Administrators, Inc.) The Company,
through Viking Administrators, Inc. (incorporated during 1996), intends to offer
a comprehensive range of administrative services associated with the internal
operations of insurance companies, including accounting, billing, policy
issuance, policy servicing, compliance and financial reporting services. As of
December 31, 1996, the Company had not entered into any negotiations,
commitments or agreements to provide administration services. There can be no
assurances that the Company can successfully contract and/or fund the
operations of Viking Administrators, Inc.
PROPOSED ACQUISITION OF INSURANCE COMPANY. The Company is proposing to
purchase a life and/or Property and Casualty (P&C) insurance company. The
purchase of its own P&C insurance company will allow the Company the choice of
issuing its own master policy to the World Travelers Association, therein
increasing its gross profits as compared to issuing the Travel Plan through a
unrelated insurance company. The purchase of a life insurance company, in
addition to facilitating uniform compliance with required administrator license
requirements, is expected to serve as a warehouse or structure within which the
Company intends to acquire insurance policies with a goal of accumulating a
managed asset base of $1.5 billion. The Company intends to acquire blocks of
insurance utilizing three methods: (1) reinsuring a portion of the Company's
client insurance companies' insurance sales for whom the Company is performing
data processing and administration services; (2) purchasing blocks of business
(a block or book of business is generally described as a number of insurance
policies of the same type or plan), including the required accumulated
reserves, typically comprised of securities, some mortgages and real estate,
referred to as "managed assets"; and (3) purchasing entire insurance companies
so as to take over all of the desired blocks of business in the targeted
insurance company.
Management presently has identified several targets that are available.
These targets may or may not be available upon the Company's completion of its
capitalization. However, management believes that appropriate companies are
readily available. The anticipated cost of acquiring and capitalizing an
operation is estimated at $3,000,000 to $7,200,000. for a shell insurance
company and from $15,000,000 and up for existing operating insurance companies,
depending upon the assets accumulated in such a target insurance company.
Management looks for targets that have under performing investment portfolios,
but with high quality investments and high per policy general administrative
expenses compared to the Company's service costs. There can be no assurances
that the Company can successfully contract and/or fund the purchase of an
insurance company.
MARKET AND COMPETITION. The Company is presently aware of no other
company providing or planning to provide services of the nature and scope
proposed to be offered by the Company in the medium to small insurance company
market. However, as the trend toward "outsourcing" continues to grow as a means
of controlling costs and maximizing profitability, management expects that
other companies will attempt to duplicate the Company's services.
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EMPLOYEES. At December 31, 1996, the Company had 12 full time
employees. The Company's relations with its employees are favorable.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices are located in 15,189 square feet of
office space at Two Lincoln Centre, 5420 LBJ Freeway, Suite 300, Dallas, Texas
75240 at the rate of $21,518 per month for a period of sixty (60) months
through 6/31/2001. 6,000 square feet are subleased to two independent third
parties pursuant to a written lease agreement providing for monthly lease
payments of $5,000. and $1,800 for a period of twelve (12) months through
6/31/97. Both subleases have requested to continue their lease for an
additional year. The Company has not as of this date herein, determined its
full space requirements for the months subsequent to 6/31/97. The Company's
present facilities are believed to be adequate to support its present holding
company and data processing operations for the remainder of the lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any threatened, pending or ongoing
litigation to the best knowledge of management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
through the solicitation of proxies, or otherwise, during the fourth quarter of
the Company's fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET. The Company's common stock began trading in the over the
counter (OTC) market January 20, 1995. The Company's trading symbol is "VGCP".
The volume in the trading averages approximately 20,000 a day. As of 12/31/96
the stock was quoted at $0.31 ask and $0.25 bid. There is a total of
approximately 13,946,095 common shares outstanding of which 4,156,941 are free
trading shares as of 12/31/96.
At December 31, 1996 the Company had 100,000 shares of Class B common
stock authorized and outstanding. All 100,000 shares where issued to William J.
Fossen, Chairman, President and CEO of the Company. The Class B common shares
can choose to elect two thirds (2/3) of the board of directors.
At December 31, 1996, the Company had outstanding options of 9,719,252
of which
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4,841,851 where exercisable to purchase common stock.
Of the 13,946,095 shares of common stock outstanding at December 31,
1996, 9,635,779 shares are "restricted stock" as defined by Rule 144. At
December 31, 1996, approximately 5,624,108 shares of the restricted common
stock were eligible for resale pursuant to Rule 144.
At December 31, 1996, the Company had certain note agreements in the
amount of $11,500 which were convertible to 3,833 shares of common restricted
stock [at $2.00 per share through July 1, 1995 and increasing $.50 per share
every twelve months thereafter, to a maximum of $3.00 per share], the shares
are required to be registered for resale (registration rights) when and if the
Company ever filed for any registration of any of its common shares. All note
holders were offered a one time opportunity to convert their notes and purchase
a like amount of additional common shares by October 1, 1995 for a conversion
price of $1.10 per share. All but $14,000 note holders had converted as of
12/31/95 for a total conversion and purchase rights of 230,182 common
restricted shares. Subsequent to 12/31/95, $2500. plus all interest had been
repaid to a single note holder leaving a balance of $11,500 in the above
mentioned notes as of 12/31/96. Note holders that converted to common stock
received one A warrant and one B warrant for each dollar that they convert.
Each A warrant is exercisable at $3.00 per share when the trading bid price of
the common stock reaches a $4.00 average over five consecutive trading days.
Each B warrant is exercisable at $6.00 per share when the trading bid price of
the common stock is a $6.00 average over five consecutive trading days. Each
such warrant expires upon the ninetieth day after the market trading bid price
has reached the designated price as outlined above.
As of 12/31/96 the Company had $51,000 convertible notes outstanding that had
the option to converted to 170,000 common restricted shares; $106,720
convertible notes outstanding that had the option to convert to 213,440 common
restricted shares; $15,560 convertible notes outstanding that had the option to
convert to 20,747 common restricted shares. All convertible notes if converted,
carried an option of a like amount at the same price as the conversion price.
All notes are due in 1997 and all options if the notes are converted, are for a
period of one year.
The Company had no ongoing or proposed public offerings of its common equity at
12/31/96.
HOLDERS
At December 31, 1996, there were approximately 1012 holders of record
of the common stock of the Company.
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DIVIDENDS
The Company has paid no cash dividends to any common equity holders to
date and does not expect to pay any dividends in the foreseeable future.
Payment of dividends on the Company's common stock is subject to the payment of
all accumulated dividends payable to the holders of the Company's outstanding
preferred stock. The Company had no preferred stock outstanding as of 12/31/96.
Other than the foregoing, there are no restrictions, nor are there likely to be
in the future, that limit the ability of the Company to pay dividends on its
common stock.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's operations for the four years ended December 31, 1994
have consisted of efforts to develop its existing plan to become a provider of
specialized administration and data processing services for the insurance and
financial services industries as described elsewhere herein and efforts to
attract capital in order to implement the Company's plan of operations. In
addition, during this period the Company has become a fully reporting SEC
company and publicly traded with market makers offering the Company's common
stock across the USA. The Company became a fully reporting SEC Company in 1994
and its common stock began trading on the over the counter electronic bulletin
board January 20, 1995. The Company has received no significant revenues
through 1995, and revenues of $273,925 in 1996, and has generated substantial
losses.
The Company's plan of operation is described in full in Item 1.
Business, above. The Company's plan of operations has been implemented in
multiple phases with the implementation of each phase being subject to the
receipt of various levels of funding. It is management's belief that such
phases have been accomplished as it pertains to preparing the Company for the
acquisition of its first insurance company. Complete implementation of the
Company's plan of operations is anticipated to require approximately $4,500,000
of funding. The Company is seeking to secure $3,000,000 in the form of a equity
sale of the Company's convertible preferred stock and $1,500,000 in computer
equipment leases. The amount of computer equipment leases will be dictated by
the requirement of potential government contracts for the completion of
integrated systems and/or the requirements of future insurance company
acquisitions. Further sales of the Company's preferred stock will also be
required to raise additional capital for the purchase of insurance company
assets to meet the Company's goal of $1.5 billion of managed insurance assets.
Viking Financial Services, Inc. (VFSI), a wholly owned subsidiary of
the Registrant, was incorporated June 10, 1994, in the state of Texas, Viking
Insurance Services, Inc. (VISI) was purchased as a wholly owned subsidiary of
the Registrant on May 6, 1995, Viking Systems, Inc. (VSI), a wholly owned
subsidiary of the Registrant, was incorporated February 7, 1996 in the state of
Texas and Viking Administrators, Inc., a wholly owned subsidiary of the
registrant, was incorporated March 27, 1996 in the state of Texas. (See Item I.
Business - Corporate Relations Services, Viking Insurance Services, Inc.,
Viking Systems, Inc. and Viking Administrators, Inc. above). VFSI began limited
operations on May 1, 1996 and had no revenue during 1996.
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VISI filed and contracted for insurance marketing products with other insurance
companies and generated $74,955 of revenue in 1996. VSI completed on 10-10-96
the licensing of the Sun software for the operations of Sun Microsystems,
Inc.'s "Sun Closed Caption Index Media Stream" software. Viking Systems, Inc.
continues towards the completion of its own in house development of index media
software and other applications for use on the Viking corporate intranet and
the Internet. VSI had revenue for 1996 of $198,970.
During 1996, the Company also incorporated an insurance administration
company called Viking Administrators, Inc. . This leaves the last phase of the
strategic plans of the Company, which are to purchase insurance companies. The
Company also has contracted with a national continuing education firm for
insurance and securities agents and plans to sign a strategic alliance with a
broker/dealer and prepare for a public and/or private offering of approximately
$3,000,000 and $15,000,000 of the Company's preferred stock. The cost of
implementing such steps is estimated to be $150,000. If the Company is
successful in securing such funding and carrying out such steps, the Company
expects to utilize the proceeds of the proposed public and/or private offering
and other available funding to implement the remaining phase of the Company's
plan of operations of acquiring and capitalization of the first insurance
company at an estimated cost of $3,000,000. The estimated cost to acquire
further insurance assets via the purchase of insurance companies and/or
individual books of insurance business to reach the Company's goal of $1.5
Billion, is $150,000,000. The estimated completion cost for equipment and
software of the DP center (VSI) is $1,500,000 and $500,000 respectively. The
estimated start-up cost of an administration center is $200,000.
At December 31, 1996, the Company had cash on hand of approximately
$9,920 and had liabilities totaling approximately $810,525. Subsequent to
12/31/96 the Company had raised additional funds via private loans of
approximately $240,000 and receivables of $99,703. The Company anticipates that
the funds on hand will only sustain current operations for approximately the
first six months and are not sufficient to implement any of the Company's plan
of operations. Accordingly, in order to sustain operations past such period
and to implement the Company's plan of operations, the Company must secure
funds from other sources.
The Company will continue to negotiate for funding of up to
$15,000,000 to fund acquisition of an insurance company and provide additional
working capital for subsidiaries. The Company has not received any commitments
from any private or institutional lender or investor or from any other source
to provide funding to the Company as of 12/31/96. Accordingly, while the
Company believes that it can successfully conduct a private placement of debt
and/or equity, continue to capitalize its subsidiaries, establish broker/dealer
alliances and conduct a public offering before the end of 1997, with
implementation of the remaining phase of the Company's plan of operations to
follow shortly thereafter, there is no assurance that the Company can
successfully complete a private placement of debt and/or equity or a public
offering or that it can successfully implement any of its plan of operations.
Failure to successfully complete a private placement and/or public offering of
debt and/or equity, or securing funding from other sources, would materially
adversely affect the timing and ability of implementation of the Company's plan
of operations. If the Company is successful in implementing its plan of
operations, the Company will be required to lease, acquire or construct
significant additional facilities and equipment and hire substantial additional
employees to carry out such operations.
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ITEM 7. FINANCIAL STATEMENTS
The "F series" pages follow page 18 and begin with "F-1"
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Independent Auditor's Reports........................................................F-3
Consolidated Balance Sheets as of December 31, 1995, and 1996.........................F-4
Consolidated Statements of Operations for the years ended December 31, 1995,
1996 and for the period from inception (November 12, 1986) to December 31, 1996.......F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, and 1996 and for the period from inception (November 12, 1986) to
December 31, 1996 ....................................................................F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996,
and for the period from inception (November 12, 1986) to December 31, 1996............F-12
Notes to Consolidated Financial Statements............................................F-15
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's financial statements are audited by King Griffin &
Adamson, P.C., Dallas, Texas. King Griffin & Adamson, P.C. also audited the
Company's financial statements for the prior year. King Griffin & Adamson's
name was changed from King Burns & Company, P.C. effective March 1, 1997
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
INFORMATION REGARDING PRESENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's current directors and executive officers:
Age Title
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William J. Fossen 58 Chairman of the Board, President and CEO
Tommy L. Walker 62 Director, Vice Chairman
Mary M. Pohlmeier 48 Director
Walter E. Muller 47 Director
Officers and directors are elected on an annual basis. The terms for
each director will expire at the next annual meeting of shareholders or at such
time as a successor is duly elected. Officers serve at the discretion of the
Board of Directors.
There are no family relationships among any of the directors or
officers of the Company.
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The following is a biographical summary of the business experience of
the directors and executive officers of the Company:
WILLIAM J. FOSSEN has served as Chairman of the Board and President of
Viking Capital Group, Inc. since November 1989. Since March of 1982, Mr. Fossen
has served as Chairman of the Board, Chief Executive Officer and President of
National Investors Holding Corporation and its subsidiaries, a company engaged
primarily in the marketing of life and medical insurance and annuities. In
November of 1988, the operating insurance subsidiary of National Investors
Holding became insolvent and was liquidated and since such date the company has
been inactive. Mr. Fossen continues to serve as an officer and director of
National Investors Holding Corporation. Since 1969, Mr. Fossen has been engaged
in various facets of the insurance industry, including sales, asset management,
data processing and administration.
TOMMY L. WALKER has served as a Director and Vice Chairman of the
Company since October of 1991. Since July of 1989 Mr. Walker has conducted his
own investment and financial consulting firm . From May of 1985 to June of
1989, Mr. Walker served as Vice President of Sales for First Winthrop
Corporation/Winthrop Securities Company, Inc. Previously, Mr. Walker served in
various managerial, consulting and entrepreneurial positions, including serving
as founder and Executive Vice President and a Director of National Sharedata
Corporation, a bank data processing firm.
MARY M. POHLMEIER has served as a Director of the Company since
October of 1991. Since June of 1987, Ms. Pohlmeier has been employed by
Frito-lay, Inc. in research and development and is presently a Technical
Project Manager and Principal Scientist where her responsibilities include the
identification and execution of strategies and designed testing for the
introduction of new products, coordination of functional support groups and
supervision of professional and technical staff on various projects.
WALTER E. MULLER has served as a Director of the Company since
December of 1994. Mr. Muller is currently serving as a Director at the Texas
Society of Certified Public Accountants. He has served the Dallas chapter of
the Texas Society of Certified Public Accountants as their secretary, vice
president, director, committee member and chairman. Mr. Muller, with his own
accounting firm, Muller and Company, P.C., is an experienced business owner,
responsible for origination and management of various types of business.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Not Applicable
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ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning cash and
non-cash compensation paid or accrued by the Company and its subsidiaries to or
on behalf of the Company's Chief Executive Officer during the four years ended
December 31, 1996. No other executive officer of the Company received, or had
accrued on his or her behalf, total compensation exceeding $100,000 during such
periods.
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Annual Compensation
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Fiscal Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Fossen (1) 1996 $89,400 (4) $ -0- $ -0- $ -0-
President and Chief (2) 1995 $55,438 (4) $ -0- $ -0- $ -0-
Executive Officer (3) 1994 $63,275 (4) $ -0- $ -0- $ -0-
</TABLE>
(1) The aggregate remuneration to William Fossen during 1996 consisted of
$89,400 in cash.
(2) The aggregate remuneration to William Fossen during 1995 consisted of
$55,438 in cash.
(3) The aggregate remuneration to William Fossen during 1994 consisted of
$63,275 in cash.
(4) The amounts above exclude accrued salaries not paid of approximately
$231,500.
OPTION/SAR GRANTS TABLE
THE FOLLOWING TABLE SETS FORTH THE OPTIONS AND/OR STOCK APPRECIATION
RIGHTS (SARS) MADE DURING THE LAST COMPLETED FISCAL YEAR TO EACH OF THE NAMED
EXECUTIVE OFFICERS.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realized
Value at
Assumed Annual Alternative
Rates of Stock Price to (f) and (g):
Price Appreciation Grant Date
Individual Grants for Option Term Value.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (f)
Number of % of
Securities Options/
Underlying SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5%($) 10%($) Value $
- --------------------------------------------------------------------------------------------------------
</TABLE>
William J. Fossen None granted in 1996.
President and Chief
Executive Officer
13
<PAGE> 14
Compensation of Directors
The Directors of the Company are not paid any fee for their services
in such capacity on a regular plan. During 1996, former Director Peter Plunkett
was awarded a 5 year option expiring on 05/29/01 for 181,875 shares at $1.00
per share for past services. During 1996, former Director Louis Sylvester was
awarded a 5 year option expiring on 5/29/01 for 50,000 shares at $1.00 per
share for past services. Both Directors listed here resigned during 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has no employment contracts with any of its present
executive officers and has no plans or arrangements with respect to payments
resulting from the resignation, retirement or any other termination of a named
executive officer's employment or from a change-in-control of the Company.
The Company does have past due salaries accumulating to Mr. Fossen of
approximately $231,500.
COMPENSATION PURSUANT TO PLANS
The Company has adopted Viking Capital Group, Inc. 1996 Stock Option
Plan which was approved by the shareholders at the last annual meeting. Such
plan is incorporated by reference as described at Item 13.
(This area intentionally left blank.)
14
<PAGE> 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
DECEMBER 31, 1996
The following table sets forth the names of the persons who own stock
of the Company of 5% or more, of record or beneficially, and all officers and
directors of the Company and all officers and directors as a group.
Common Shares and Percentages Owned
-----------------------------------------
Fully
Name Shares Owned Percent (1) Diluted (7)
- ---- ------------ ---------- -----------
National Investors 900,000(2) 5.4% 3.8%
Holding Corp.
William J. Fossen 2,940,000(3) 17.6% 12.4%
Tommy L. Walker 2,200,000(4) 13.2% 9.3%
Mary M. Pohlmeier 1,261,661(5) 7.6% 5.3%
Walter E. Muller 207,500(6) 1.2% 0.9%
All Officers, Directors
and Beneficial owners
as a Group 7,509,161 45.0%
Fully Diluted 7,509,161 31.7%
(1) Based on 13,946,095 shares outstanding at December 31, 1996 plus
2,755,000 shares represented by options that are exercisable within 60
days of this report as follows: William J. Fossen, 1,040,000 shares;
Tommy L. Walker, 1,000,000 shares; Mary M. Pohlmeier, 515,000 shares;
Walter E. Muller, 200,000 shares.
(2) William J. Fossen is President and 56% owner of National Investors
Holding Corporation (NIHC). All NIHC shares have been pledged to First
City Bank, Texas, Farmers Branch, Texas.
(3) Includes 1,000,000 shares which may be acquired by Mr. Fossen upon the
exercising of options at $1.00 per share. Also includes a convertible
note of $20,000 which may be converted to common shares at a $1.00 per
share. Upon conversion, an option to purchase an additional 20,000
shares at $1.00 is awarded. Excludes 1,100,500 shares held by Mr.
Fossen's adult children to which Mr. Fossen disclaims beneficial
ownership.
(4) Includes 1,000,000 shares which may be acquired by Mr. Walker upon
the exercising of options at $1.00 per share.
(5) Includes 515,000 shares which may be acquired by Ms. Pohlmeier upon the
exercising of options of 180,000 shares exercisable at $1.00 per share
and 335,000 shares exercisable at $1.10 per share.
(6) Includes 200,000 shares which may be acquired by Mr. Muller upon the
exercising of options at $1.10 per share.
(7) At 12/31/96 the Company had outstanding options for 9,719,252 shares
of which 4,841,851 were exercisable at 12/31/96. Fully diluted shares
outstanding at 12/31/96 are 23,665,347.
15
<PAGE> 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 Ms. Mary Pohlmeier was paid $60,000 and 150,000 shares in
full payment and cancellation of her consulting agreement.
During 1995 and 1996, no other transaction or series of similar
transactions involving persons named in Item 11 above or any of their immediate
family occurred which would have involved an amount in excess of $60,000.
(This area intentionally left blank.)
16
<PAGE> 17
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
(") EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Articles of Incorporation of Viking Capital Group, Inc. as amended*
3.2 Bylaws of Viking Capital Group, Inc. as amended*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Preferred Stock Certificate*
10.1 1996 Stock Option Plan of the Registrant filed on Form 14A in 1996.**
21.1 List of Subsidiaries
27.1 Financial Data Schedule
* Incorporated by reference pursuant to Exchange Act Rule 12b-23 to the
Registrant's Form 10-SB (File No. 0-22744) effective December 27, 1993.
** Incorporated by reference pursuant to Exchange Act Rule 12b-23 to the
Registrant's Form 14A (File No. 0-22744) for 1996.
(b) The Registrant has filed the following 8-K reports during 1996:
(i) Form 8-K, dated January 17, 1996, to report the signing
of a billing service contract with Trans National
Communications, Inc. of Boston, Massachusetts.
(ii) Form 8-K, dated March 8, 1996, to report the changing
of lead auditor from David J. Quick, CPA to King Burns
& Griffin, P.C.
(iii) Form 8-K, dated October 10, 1996, to report the
contracting of a software licensing from Sun
Microsystems, Inc. to Viking Systems, Inc.
(This area intentionally left blank.)
17
<PAGE> 18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIKING CAPITAL GROUP, INC.
By: /s/ WILLIAM J. FOSSEN
------------------------------------
William J. Fossen
President
Dated: March 31, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ WILLIAM J. FOSSEN
- --------------------------- President, Chairman of the Board
William J. Fossen and Chief Executive Officer March 31, 1997
(Principal Executive Officer)
/s/ TOMMY L. WALKER
- ---------------------------
Tommy L. Walker Director March 31, 1997
/s/ MARY M. POHLMEIER
- ---------------------------
Mary M. Pohlmeier Director March 31, 1997
/s/ WALTER E. MULLER
- ---------------------------
Walter E. Muller Director March 31, 1997
</TABLE>
18
<PAGE> 19
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
DECEMBER 31, 1996 AND 1995
F-1
<PAGE> 20
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity (Deficit) F-7
Consolidated Statements of Cash Flows F-12
Notes to Consolidated Financial Statements F-15
F-2
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Viking Capital Group, Inc.
We have audited the accompanying consolidated balance sheet of Viking Capital
Group, Inc. and subsidiaries (a development stage enterprise), as of December
31, 1996 and 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
statements of operations, stockholders' equity (deficit) and accumulated
deficit, and cash flows of Viking Capital Group, Inc. and subsidiaries for the
period from November 12, 1986 (inception) to December 31, 1994. Those
statements were audited by other auditors whose reports have been furnished to
us and our opinion insofar as it relates to the cumulative amounts included for
Viking Capital Group, Inc. and subsidiaries is based solely on the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Viking Capital
Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As described in Note B, the accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
Company has experienced recurring losses and has not generated any significant
revenue since its inception. Additionally, at December 31, 1996, the Company's
current liabilities exceeded its current assets by $551,264 and its total
liabilities exceeded its total assets by $492,524. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Unless the Company obtains additional financing, it will not be able to meet
its obligations as they come due and it will be unable to execute its long-term
business plan. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
March 18, 1997
F-3
<PAGE> 22
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash $ 9,920 $ 77,023
Accounts receivable 99,703 --
Notes receivable, net of allowance of $33,000
and $12,000 in 1996 and 1995, respectively 59,250 5,000
Notes receivable - related party, net of allowance of
$26,160 and $13,000 in 1996 and 1995, respectively 6,612 13,160
Accrued interest receivable 6,623 1,580
Accrued interest receivable - related party 588 479
Prepaid expense -- 14,500
Other -- 454
--------- ---------
Total current assets 182,696 112,196
--------- ---------
OFFICE FURNITURE AND EQUIPMENT 115,373 16,015
Accumulated depreciation and amortization (11,835) (10,485)
--------- ---------
Net office furniture and equipment 103,538 5,530
--------- ---------
OTHER ASSETS 31,767 15,100
--------- ---------
TOTAL ASSETS $ 318,001 $ 132,826
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 23
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 272,720 $ 177,000
Notes payable - related party 62,060 10,000
Current obligations under capital leases 20,688 --
Accounts payable 55,496 76,447
Accruals payable-related party 6,700 --
Accrued payroll and payroll taxes 304,342 150,765
Other accrued expenses 4,405 10,673
Dividends payable-preferred stock -- 300
Interest payable 5,108 5,527
Interest payable - related party 2,441 --
----------- -----------
Total current liabilities 733,960 430,712
LONG-TERM DEBT
Notes payable
Obligations under capital lease, less current portion 76,565 14,000
----------- -----------
Total liabilities 810,525 444,712
----------- -----------
STOCKHOLDERS= DEFICIT
Preferred stock $1.00 Par Value; 50,000,000 shares authorized; 10,000
shares issued and outstanding as of December 31, 1995 -- 10,000
Series A Preferred Stock $10 Par Value; 2,500,000 shares
authorized, no shares issued and outstanding -- --
Common stock $0.001 par value; 150,000,000 shares authorized;
13,971,720 and 12,352,770 issued as of
December 31, 1996 and 1995, respectively 13,971 12,352
Common stock Class B $0.001 par value; 100,000 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 3,294,575 2,479,870
Deficit accumulated in the development stage (3,794,764) (2,814,208)
----------- -----------
(486,118) (311,886)
Less treasury stock, 25,625 shares at cost (6,406) --
----------- -----------
Total stockholders' deficit (492,524) (311,886)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 318,001 $ 132,826
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 24
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995 and period
from November 12, 1986 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Period from
Years Ended November 12, 1986
December 31, to December 31,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $ 273,925 $ 38,852 $ 316,855
------------ ------------ ------------
COSTS AND EXPENSES
Advertising 12,923 925 21,466
Bad debt expense 28,414 -- 28,414
Bank charges -- 396 1,661
Commissions on revenue -- 31,346 31,346
Consulting 89,096 389,064 715,024
Consulting-related party -- 262,847 767,446
Depreciation and amortization 1,350 1,865 13,835
Equipment lease 3,625 -- 4,162
Insurance and employee health care -- 1,291 10,772
Miscellaneous -- -- 4,430
Miscellaneous-related party -- -- 2,883
Office expense 34,476 15,297 66,066
Office expense-related party -- -- 500
Professional fees 57,331 358,028 474,101
Professional fees-related party -- 26,041 34,491
Provision for doubtful notes receivable -- 25,000 25,000
Rent 125,902 26,130 211,667
Salaries and contract labor 671,874 242,495 1,104,526
Payroll taxes 38,157 14,022 70,400
Taxes, licenses and fees 22,223 10,792 67,407
Telephone 25,772 8,527 60,087
Travel and entertainment 120,554 58,505 269,263
Vehicle expense -- 12 10,022
------------ ------------ ------------
Total costs and expenses 1,231,697 1,472,583 3,994,969
------------ ------------ ------------
Loss from operations (957,772) (1,433,731) (3,678,114)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 7,294 781 15,961
Interest expense (28,746) (16,358) (56,879)
Interest expense-related party -- -- (7,250)
Other (1,332) (645) (37,260)
------------ ------------ ------------
Total other income (expense) (22,784) (16,222) (85,428)
------------ ------------ ------------
Loss before income taxes (980,556) (1,449,953) (3,763,542)
Income tax provision -- -- (32)
------------ ------------ ------------
NET LOSS $ (980,556) $ (1,449,953) $ (3,763,574)
============ ============ ============
Loss per common share:
Loss per common share $0.07 $0.13
Loss per common share
assuming full dilution $0.07 $0.13
Weighed average common shares outstanding 13,353,520 10,962,033
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 25
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from November 12, 1986 (inception) to
December 31, 1996
<TABLE>
<CAPTION>
Class B Additional
Preferred Stock Common Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 12,
1986 (date of inception) -- $ -- -- $ -- -- $ -- $ --
Issuance of 1,000,000 shares
of common stock at $.0075
per share -- -- 200,000 200 -- -- 7,300
Expenses of stock issuance -- -- -- -- -- -- (200)
Net loss -- -- -- -- -- -- --
---- ---------- --------- ---------- ---- ---------- ----------
Balance at December 31, 1986 -- -- 200,000 200 -- -- 7,100
Net loss -- -- -- -- -- -- --
---- ---------- -------- ---------- ---- ---------- ----------
Balance at December 31, 1987 -- -- 200,000 200 -- -- 7,100
Issuance of 2,500,000
shares of common stock
at $.03 per share -- -- 500,000 500 -- -- 74,500
Expenses of stock issuance -- -- -- -- -- -- (6,095)
Net income -- -- -- -- -- -- --
---- ---------- -------- ---------- ---- ---------- ----------
Balance at December 31, 1988 -- -- 700,000 700 -- -- 75,505
Issuance of 14,000,000 shares
of common stock at $.001 for
coal production -- -- 2,800,000 2,800 -- -- 11,200
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
------------ --------
<S> <C> <C>
Balance at November 12,
1986 (date of inception) $ -- $ --
Issuance of 1,000,000 shares
of common stock at $.0075
per share -- 7,500
Expenses of stock issuance -- (200)
Net loss (124) (124)
---------- -------
Balance at December 31, 1986 (124) 7,176
Net loss (274) (274)
---------- -------
Balance at December 31, 1987 (398) 6,902
Issuance of 2,500,000
shares of common stock
at $.03 per share -- 75,000
Expenses of stock issuance -- (6,095)
Net income 522 522
---------- -------
Balance at December 31, 1988 124 76,329
Issuance of 14,000,000 shares
of common stock at $.001 for
coal production -- 14,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 26
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
Period from November 12, 1986 (inception) to
December 31, 1996
<TABLE>
<CAPTION>
Class B Additional
Preferred Stock Common Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses of stock issuance -- $ -- -- $ -- -- $ -- $ (5,421)
Net loss -- -- -- -- -- -- --
------- ---------- ---------- ---------- ------- ---------- ----------
Balance at December 31, 1989 -- -- 3,500,000 3,500 -- -- 81,284
Rescind issuance of
common stock for coal
production contract -- -- (2,800,000) (2,800) -- -- (11,200)
Issuance of common stock:
60,000 shares for cash -- -- 60,000 60 -- -- 14,940
265,000 shares for assets -- -- 265,000 265 -- -- 39,735
40,000 shares for services -- -- 40,000 40 -- -- 160
Net loss -- -- -- -- -- -- --
------- ---------- ---------- ---------- ------- ---------- ----------
Balance at December 31, 1990 -- -- 1,065,000 1,065 -- -- 124,919
Issuance of common stock:
For cash -- -- 400 -- -- -- 500
For services -- -- 5,561,019 5,561 -- -- 22,242
Net loss -- -- -- -- -- -- --
------- ---------- ---------- ---------- ------- ---------- ----------
Balance of December 31, 1991 -- -- 6,626,419 6,626 -- -- 147,661
Issuance of common stock
for services -- -- 210,000 210 -- -- --
Issuance of Preferred stock
at $1.00 110,000 110,000 -- -- -- -- --
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
------------ ---------
<S> <C> <C>
Expenses of stock issuance $ -- $ (5,421)
Net loss (32,780) (32,780)
---------- ----------
Balance at December 31, 1989 (32,656) 52,128
Rescind issuance of
common stock for coal
production contract -- (14,000)
Issuance of common stock:
60,000 shares for cash -- 15,000
265,000 shares for assets -- 40,000
40,000 shares for services -- 200
Net loss (42,023) (42,023)
---------- ----------
Balance at December 31, 1990 (74,679) 51,305
Issuance of common stock:
For cash -- 500
For services -- 27,803
Net loss (93,047) (93,047)
---------- ----------
Balance of December 31, 1991 (167,726) (13,439)
Issuance of common stock
for services -- 210
Issuance of Preferred stock
at $1.00 -- 110,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 27
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
Period from November 12, 1986 (inception) to
December 31, 1996
<TABLE>
<CAPTION>
Class B Additional
Preferred Stock Common Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss -- $ -- -- $ -- -- $ -- $ --
Cumulative preferred stock
dividends -- -- -- -- -- -- --
------- ---------- --------- ---------- ---- ---------- ----------
Balance at December 31, 1992 110,000 110,000 6,836,419 6,836 -- -- 147,661
Issuance of common stock:
For services -- -- 2,192,506 2,193 -- -- 217,058
For cash -- -- 202,500 202 -- -- 209,798
To convert notes payable and
accrued interest payable -- -- 75,706 76 -- -- 126,337
Net loss -- -- -- -- -- -- --
Cumulative preferred stock
dividends -- -- -- -- -- -- --
------- ---------- --------- ---------- ---- ---------- ----------
Balance at December 31, 1993 110,000 110,000 9,307,131 9,307 -- -- 700,854
Issuance of common stock:
For services -- -- 463,500 464 -- -- 45,887
For cash -- -- 210,319 210 -- -- 215,640
To convert preferred stock
and accrued dividends (90,000) (90,000) 57,561 58 -- -- 115,063
Net loss -- -- -- -- -- -- --
Cumulative preferred stock
dividends -- -- -- -- -- -- --
------- ---------- --------- ---------- ---- ---------- ----------
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
------------ ----------
<S> <C> <C>
Net loss $ (137,754) $ (137,754)
Cumulative preferred stock
dividends (8,400) (8,400)
---------- ----------
Balance at December 31, 1992 (313,880) (49,383)
Issuance of common stock:
For services -- 219,251
For cash -- 210,000
To convert notes payable and
accrued interest payable -- 126,413
Net loss (519,112) (519,112)
Cumulative preferred stock
dividends (13,200) (13,200)
---------- ----------
Balance at December 31, 1993 (846,192) (26,031)
Issuance of common stock:
For services -- 46,351
For cash -- 215,850
To convert preferred stock
and accrued dividends -- 25,121
Net loss (508,473) (508,473)
Cumulative preferred stock
dividends (8,390) (8,390)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<PAGE> 28
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
Period from November 12, 1986 (inception) to
December 31, 1996
<TABLE>
<CAPTION>
Class B Additional
Preferred Stock Common Stock Common Stock Paid-In
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 20,000 $ 20,000 10,038,511 $ 10,039 -- $ -- $ 1,077,444
Issuance of common stock:
For services -- -- 931,701 932 -- -- 639,429
For cash -- -- 615,345 615 -- -- 504,685
Conversion of preferred stock
and accrued dividends (10,000) (10,000) 5,217 5 -- -- 10,429
Conversion of notes payable -- -- 150,000 150 -- -- 74,850
Acquisition of VISI -- -- 454,545 454 -- -- --
Conversion of notes payable and
accrued interest -- -- 157,451 157 -- -- 173,033
Issuance of Class B common stock
.001 par for services -- -- -- -- 100,000 100 --
Net loss -- -- -- -- -- -- --
Cumulative preferred
stock dividends -- -- -- -- -- -- --
----------- ----------- ---------- ----------- ----------- --------- -----------
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
--------------- ----------
<S> <C> <C>
Balance at December 31, 1994 $(1,363,055) $ (255,572)
Issuance of common stock:
For services -- 640,361
For cash -- 505,300
Conversion of preferred stock
and accrued dividends -- 434
Conversion of notes payable -- 75,000
Acquisition of VISI -- 454
Conversion of notes payable and
accrued interest -- 173,190
Issuance of Class B common stock
.001 par for services -- 100
Net loss (1,449,953) (1,449,953)
Cumulative preferred
stock dividends (1,200) (1,200)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 29
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
Period from November 12, 1986 (inception) to
December 31, 1996
<TABLE>
<CAPTION>
Class B
Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 10,000 $ 10,000 12,352,770 $ 12,352 100,000 $ 100
Issuance of common stock:
For services -- -- 659,500 660 -- --
For cash -- -- 833,300 833 -- --
Retirement of:
Preferred stock (10,000) (10,000) -- -- -- --
Common stock -- -- (2,500) (3) -- --
Conversion of notes payable
and accrued interest -- -- 128,650 129 -- --
Treasury stock acquired -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ------------- ---------- -------------- -------- --------------
Balance at December 31, 1996 -- $ -- 13,971,720 $ 13,971 100,000 $ 100
=========== ============= ========== ============= ======= =============
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Development Treasury
Capital Stage Stock Total
------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 2,479,870 $ (2,814,208) $ -- $ (311,886)
Issuance of common stock:
For services 65,290 -- -- 65,950
For cash 690,810 -- -- 691,643
Retirement of:
Preferred stock (1,319) -- -- (11,319)
Common stock (5,597) -- -- (5,600)
Conversion of notes payable
and accrued interest 65,521 -- -- 65,650
Treasury stock acquired -- -- (6,406) (6,406)
Net loss -- (980,556) -- (980,556)
------------- ------------- ------------ -----------
Balance at December 31, 1996 $ 3,294,575 $ (3,794,764) (6,406) $ (492,524)
============= ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 30
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
and Period from November 12, 1986 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Period from
Years Ended November 12,
December 31, 1986 to
1996 1995 December 31, 1996
----------- ----------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (980,556) $(1,449,953) $(3,763,574)
Non cash charges included in operations
Depreciation and amortization 1,350 1,865 13,835
Common stock issued for services 55,950 476,458 641,221
Common stock issued for
services-related party 10,000 163,906 358,908
Common stock issued for services and
accrued expenses -- 434 30,434
Common stock issued for interest payable 3,000 10,690 20,102
Class B common stock issued for services -- 100 100
Note payable issued for services-related party -- -- 3,200
Provision for doubtful notes receivable 27,754 25,000 52,754
Loss on assets -- -- 15,000
Advances to stockholder expensed to consulting -- -- 57,706
Changes in assets and liabilities
(Increase) in accounts receivable (99,703) -- (99,703)
Decrease in prepaid expense 14,500 (14,500) --
(Increase) in interest receivable (5,043) (1,313) (6,623)
Decrease in interest receivable-related party (109) 830 (588)
Other 454 131 585
(Increase) in deposits (31,667) (100) (31,767)
Increase (decrease) in accounts payable (20,951) 29,772 48,595
Increase in accounts payable-related party 6,700 6,901 28,601
Increase (decrease) in accrued expenses (6,687) 15,522 12,647
Increase in accrued
expenses-related party 2,441 (30) 2,441
Increase in accrued payroll and payroll taxes 153,577 56,725 302,552
----------- ----------- -----------
Net Cash Used For Operating Activities (868,990) (677,562) (2,313,574)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs -- -- (50)
Purchase of office furniture and equipment (2,105) (3,468) (21,414)
Loans made (76,142) -- (76,142)
Loans made to shareholder -- (12,000) (17,000)
Loans made to related parties (1,000) (28,160) (95,366)
Long-term loan -- (15,000) (15,000)
Loan repayments 5,000 -- 5,000
Loan repayments-related parties -- 7,529 10,500
Deposit on coal production contract -- -- (15,000)
----------- ----------- -----------
Net Cash Used For Investing Activities (74,247) (51,099) (224,472)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 31
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1996 and 1995
and Period from November 12, 1986 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Period from
Years Ended November 12,
December 31, 1986 to
1996 1995 December 31, 1996
----------- ------------ -----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Stock sale expenses $ -- $ -- $ (11,716)
Proceeds from notes payable 334,580 408,709 989,159
Proceeds from notes payable-related parties 105,560 1,700 229,827
Repayments of notes payable (189,330) (71,210) (261,202)
Repayments of notes payable-related parties (55,000) (52,249) (121,742)
Proceeds from preferred stock sale -- -- 20,000
Retirement of preferred stock (11,319) -- (11,319)
Dividends converted to preferred stock -- (434) (434)
Proceeds from sale of common stock 691,643 505,300 1,720,793
Preferred dividends paid -- (1,200) (5,400)
----------- ----------- -----------
Net Cash Provided From Financing Activities 876,134 790,616 2,547,966
----------- ----------- -----------
Increase (decrease) In Cash (67,103) 61,955 9,920
Cash At Beginning Of Period 77,023 15,068 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 9,920 $ 77,023 $ 9,920
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash Flow Information:
Interest paid $ 22,679 $ 705 $ 26,247
Interest paid-related party $ 4,070 $ 1,800 $ 8,395
Income taxes paid -- -- $ 32
Non-Cash Investing Activities:
Common stock issued for:
Acquisition of VISI -- $ 434 $ 434
Oil lease -- -- $ 40,000
Non-Cash Financing Activities:
Preferred stock issued for:
Note payable-related party -- -- $ 60,000
Accrued interest-related party -- -- $ 4,500
Accrued expenses-related party -- -- $ 25,500
Common stock issued for:
Services $ 55,950 $ 466,458 $ 503,008
Services-related party $ 10,000 $ 163,906 $ 358,908
Repayment of notes payable-related party $ 10,000 $ 75,000 $ 85,000
Repayment of notes payable $ 62,650 $ 162,500 $ 225,150
Payment of interest $ 3,000 $ 10,690 $ 20,103
Payment of accounts payable- -- -- $ 15,000
Conversion of preferred stock -- $ 10,000 $ 100,000
Payment of preferred stock dividend -- $ 434 $ 25,556
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 32
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED Years Ended December 31, 1996
and 1995
and Period from November 12, 1986 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Period from
Years Ended November 12,
December 31, 1986 to
1996 1995 December 31, 1996
------- ---- -----------------
<S> <C> <C> <C>
Note payable issued for services-related party -- -- $ 3,200
Assignment of oil lease in payment of note payable -- -- $40,000
Common stock acquired for conversion of
note receivable $ 6,406 -- $ 6,406
Common stock canceled for conversion of
note receivable $ 5,600 -- $ 5,600
Additions to equipment under capital leases $97,253 -- $97,253
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 33
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND
Viking Capital Group, Inc. ("Company") is currently in the development stage as
it has generated no significant revenue. The Company is currently working to
secure capital necessary to execute its business plan to provide insurance
administrative services, corporate relations services and to purchase insurance
managed assets via the acquisition of insurance company books of business and
entire insurance companies.
History
Viking Capital Group, Inc. was incorporated November 12, 1986, as a Utah
business corporation under the name of Silver Harvest, Inc. to transact any
business authorized under the general corporation law of Utah. On November 23,
1989, the Company amended its Articles of Incorporation to change its name to
The Institute For Financial Fitness, Inc. and on February 21, 1990 the Company
amended its Articles of Incorporation to change its name to Viking Capital
Group, Inc. with all the same provisions of the original articles to remain in
full force. During June, 1994, the Company formed a wholly-owned subsidiary,
Viking Financial Services, Inc., a Texas corporation, to provide corporate
relations services. During 1995, the Company issued 454,545 common shares in
exchange for 100 percent of the common stock of Viking Insurance Services, Inc.
("VISI") to provide insurance related services. During 1996, the Company
incorporated two additional wholly owned subsidiaries, Viking Systems, Inc. and
Viking Administrators, Inc. None of these companies have provided any
significant level of services to date. The Company has generated no significant
revenues through 1996. (During the fourth quarter 1996, the Company generated
$224,295 in revenues.)
Consolidation
The accompanying consolidated financial statements include the assets,
liabilities and operating activities of the Company's wholly-owned
subsidiaries. All material intercompany transactions are eliminated in
consolidation.
Office Furniture and Equipment
Office furniture and equipment are stated at cost. Equipment under capital
leases are stated at the present value of minimum lease payments at the
inception of the lease. The Company provides for depreciation of its office
furniture and equipment using the straight line method over the estimated
useful life of the depreciable assets ranging from five to seven years.
Equipment held under capital leases are amortized straight line over the
shorter of the lease term or the estimated useful life of the asset ranging
from three to five years. Amortization of assets held under capital leases is
included with depreciation expense. Maintenance and repairs are expensed as
incurred. Replacements and betterments are capitalized.
At December 31, 1996, the gross amount and accumulated amortization for assets
held under capital leases amounted to $97,253 and $0, respectively.
Income Taxes
The Company utilizes the asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
F-15
<PAGE> 34
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND - Continued
Loss per Common Share
Loss per common share was calculated by dividing the Company's net loss plus
preferred dividends paid and accrued during the year (where applicable) by the
weighted average common shares outstanding. Common stock equivalents were
excluded from the calculation as such inclusion would have had an anti-dilutive
effect.
Software Development
During 1996, the Company was engaged in developing certain software
capabilities relating to potential products and services. All costs incurred to
date have been expensed.
Revenue Recognition and Government Contract
During 1996, the Company earned approximately $198,000 under a fixed price
Federal contract for the analysis and video proof of concept demonstration.
Contract revenue has been recorded as earned based on contract completion. At
December 31, 1996, the accounts receivable balance of $99,703 represents unpaid
billings relating to this contract, which were collected subsequent to December
31, 1996.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing its financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
NOTE B - GOING CONCERN
The financial statements have been prepared on the assumption that the Company
will continue as a going concern. The financial statements do not include any
adjustments to reflect the possible effects on the recoverability and
classification of assets or classification of liabilities which may result from
the inability of the Company to continue as a going concern. The Company
sustained a net operating loss of approximately $980,556 during the year ended
December 31, 1996 and has accumulated losses of $3,794,764 since its inception,
November 12, 1986. Cash used by operating activities for the same periods
aggregated $868,990 and $2,313,574, respectively. Current liabilities at
December 31, 1996 of $733,960 exceed current assets of $182,696. Total
liabilities at December 31, 1996 of $810,525 exceed total assets of $318,001.
The Company's continued existence depends upon the success of management's
efforts to raise additional capital necessary to meet the Company's obligations
as they come due and to obtain sufficient capital to execute its business plan.
There can be no degree of assurance given that the Company will be successful
in completing additional financing transactions.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or liabilities which
may result from the inability of the Company to continue as a going concern.
F-16
<PAGE> 35
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE C - NOTES PAYABLE
The Company entered into various notes during 1996 all of which mature during
1997, totaling $440,140. The notes bear interest between 12% and 15% and are
secured by the assets of the Company. Interest payments are due semi-annually.
Included in the $440,140 is $25,000 borrowed from the President of the Company
and $80,560 from other related parties. The Company borrowed $72,650 during
1995 which was converted into 125,650 common shares during 1996 and $75,000
during 1995 which was converted into 150,000 common shares during 1995.
During 1996 and 1995, notes payable totaling $62,650 and $162,500, respectively
and related accrued interest of $3,000 and $10,690 were converted to 56,000 and
157,451 common shares, respectively. As of December 31, 1996, the Company had
$51,000 of convertible notes outstanding that had the option to convert to
170,000 common restricted shares; $106,720 convertible notes outstanding that
had the option to convert to 213,440 common restricted shares; $15,560
convertible notes outstanding that had the option to convert to 20,747 common
restricted shares; $85,000 convertible notes outstanding that had the option to
convert to 85,000 common restricted shares. All of these notes, if converted,
carry an additional option to purchase the same number of common shares which
the holder was originally entitled to convert to, such shares to be purchased
at the same share price used in the conversion. All of these notes are due in
1997 and all options, if the notes are converted, are for a period of one year.
A note holder with a note balance of $11,500 may convert the outstanding
balance of the note to the Company's common stock at a conversion price of
$3.00 per common share on or before July 1, 1997. If the note holder converts
his note to common stock, he will receive one (1) A Warrant (which is for one
common share) and one (1) B Warrant (which is for one common share) for each
dollar of the note converted. The A Warrants may be exercised at $3.00 per
share and the B Warrants may be exercised at $5.00 per share. The Warrants may
only be exercised once the Company's common stock has achieved an average
closing bid price of $4.00 per share and $6.00 per share over five consecutive
business days, respectively. Once the Company's common stock has reached the
required trading price, the warrants must be exercised within ninety (90) days.
NOTE D - INCOME TAXES
The Company has operating loss carryforwards totaling $3,529,695, subject to
limitations under Section 382 of the Internal Revenue Code, that are available
to offset its future income tax liability. The net operating loss carryforwards
expire as follows:
<TABLE>
<S> <C>
Year 2004 $ 32,780
Year 2005 42,043
Year 2006 93,047
Year 2007 137,754
Year 2008 297,236
Year 2009 503,473
Year 2010 1,442,806
Year 2011 980,556
----------
$3,529,695
==========
</TABLE>
F-17
<PAGE> 36
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE D - INCOME TAXES - Continued
As further described in Note B, realization of the benefit of these net
operating loss carryforwards appears uncertain,
accordingly, a valuation allowance of $1,200,000 has been recorded in 1996
against the deferred tax asset resulting from the net operating loss
carryforward. The valuation allowance increased by $333,000 during the year
ended December 31, 1996.
There are no other significant temporary differences for financial and income
tax reporting purposes at December 31, 1996 or 1995.
NOTE E - LEASE COMMITMENTS
During 1996, the Company entered into operating lease agreements for office
space and computer equipment. The office lease expires in 2001. The Company
leases computer equipment under capital leases and long-term non-cancelable
operating leases. Total rental expense was $129,527 in 1996, net of $30,000 of
rental income receivable under a sub-lease of part of the office space. Future
minimum lease payments under non-cancelable operating leases and capital leases
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- ---------
<S> <C> <C>
1997 $ 267,504 $ 34,032
1998 267,504 34,032
1999 265,280 34,032
2000 258,216 14,760
2001 and thereafter 129,108 14,760
---------- --------
Total 1,187,612 131,616
Less lease income from sub-lease (40,800)
----------
$1,146,812
==========
Less amount representing interest (34,363)
-------
Present value of net minimum lease payments
including current maturities of $20,688 $ 97,253
--------
</TABLE>
NOTE F - COMMON STOCK
In 1995, the Company amended its Articles of Incorporation to authorize the
issuance of 100,000 shares of Class B Common Stock with a par value of $.001.
All 100,000 shares were issued in 1995 to the President of the Company for
services provided. The Class B shares shall only hold the right to elect a
simple majority of the Company's Board of Directors, effectively functioning as
an "anti-takeover" provision against any unwelcome acquisition or merger
attempts for or with the Company.
NOTE G - PREFERRED STOCK
The Company amended its Articles of Incorporation on October 17, 1991 to
authorize the issuance of twenty million (20,000,000) shares of preferred stock
with a par value of one dollar ($1.00). A second amendment in 1995 increased
the authorized shares to 50,000,000. The Board of Directors has the discretion
to attach any dividend rate and/or conversion privilege at the time of
issuance.
F-18
<PAGE> 37
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE G - PREFERRED STOCK - Continued
The Company issued one hundred ten thousand (110,000) shares in 1992 with a
cumulative twelve percent (12%) annual dividend rate and the holder had a
conversion privilege of one (1) common share per two (2) preferred shares of
stock. The Company had the right to redeem the preferred stock at 115% of the
par value. During November, 1994, a Director of the Company, who held 90,000 of
the above referenced preferred shares elected to convert the preferred stock
and accrued dividends to 57,561 shares of common stock at the conversion price
of $2.00 per common share. During 1995, an additional 10,000 of the above
referenced preferred shares and accrued dividends were converted to 5,217
shares of common stock at the conversion price of $2.00 per common share.
During 1996, the remaining 10,000 shares were redeemed for cash.
Effective October 14, 1996, the Board of Directors authorized the issuance of
2,500,000 shares of new Series A preferred stock, with a par value of $10 per
share. These shares are non-voting cumulative, callable preferred stock
convertible to common stock eighteen months after issuance at a rate equal to
one half the market value of the common stock. The new preferred stock will
carry a coupon rate of 10%. As of December 31, 1996, no Series A preferred
stock had been issued.
NOTE H - STOCK OPTIONS
Effective July, 1996, the Board of Directors approved a qualified employee
stock option plan for the Company (the "Plan"). Under the Plan, the Company may
grant options for up to five million shares of common stock. The exercise price
of each option may not be less than the fair market value of common stock at
the date of grant, without approval of the Board of Directors. Options are
exercisable according to the term set out in the option agreement, not to
exceed ten years. At December 31, 1996, there were a total of 1,982,685 options
outstanding under the Plan. In addition, the Company has issued stock options
outside of the Plan to employees, directors and others as compensation for
services provided to the Company as well as options which are non-compensatory
in nature. At December 31, 1996 and 1995 there was a total of 9,719,252 and
6,632,722 options (including compensatory and non-compensatory) outstanding,
respectively.
A summary of changes in the Company's compensatory options follows:
<TABLE>
<CAPTION>
Employee Stock Plan Other Compensatory Combined Total
------------------- ---------------------- --------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
--------- ----- ---------- ----- ---------
<S> <C> <C> <C> <C> <C>
Outstanding at 12/31/94 - 3,405,000 $1.02 3,405,000
--------- ---------
Granted - 2,176,346 $1.03 2,176,346
Exercised - - - -
Forfeited - (555,000) $1.00 (555,000)
--------- ---------- ----------
Outstanding at 12/31/95 - 5,026,346 $1.03 5,026,346
Granted 1,982,685 $1.00 1,623,746 $1.00 3,606,431
Exercised - - - -
Forfeited - (855,145) $1.00 (855,145)
--------- ---------- ----------
Outstanding at 12/31/96 1,982,685 5,794,947 7,777,632
========= ========== ==========
</TABLE>
The fair value of options issued during 1996 and 1995 was $2,895,793 and
$1,304,796, respectively.
F-19
<PAGE> 38
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE H - STOCK OPTIONS - Continued
The following table summarizes information about options outstanding at
December 31, 1996 under the Employee Stock Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ---------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$1.00 1,982,685 4.55 $1.00 467,743 $1.00
</TABLE>
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ---------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$1.00-$1.10 5,794,947 2.44 $1.05 3,274,121 $1.00
</TABLE>
A summary of changes in the Company's non-compensatory options follows:
<TABLE>
<CAPTION>
Non-Compensatory Weighted Average
Options Exercise Price
---------------- ----------------
<S> <C> <C>
Outstanding at 12/31/94 550,145 $1.03
---------
Granted 1,356,376 $2.66
Exercised --
Forfeited (300,145) $1.00
---------
Outstanding at 12/31/95 1,606,376 $2.40
Granted 670,680 $0.95
Exercised --
Forfeited (335,436) $1.00
----------
Outstanding at 12/31/96 1,941,620 $2.15
==========
</TABLE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB25"), in accounting for its compensatory options. The options
granted in 1996 and 1995 have exercise prices which approximate fair value and
accordingly, no compensation cost has been recognized for its compensatory
stock options in the consolidated financial statements. Had compensation cost
for the Company's stock options been determined consistent with FASB statement
No. 123, "Accounting for Stock Based Compensation", the Company's net loss and
net loss per share would have been increased to the pro forma amounts indicated
below:
F-20
<PAGE> 39
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE H - STOCK OPTIONS - Continued
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995
------- -------
<S> <C> <C> <C>
Net Loss As reported $ 980,556 1,449,953
Pro forma $3,876,349 2,754,749
Loss per share As reported $0.07 0.13
Pro forma $0.29 0.25
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in both 1996 and 1995; dividend yield of 0%, expected volatility of
334%, risk free interest rates ranging from 5.8% to 6.7% over a 1-5 year
period, and an expected life of 1-5 years.
The model is based on historical stock prices and volatility which due to the
low volume of transactions may not be representative of future price
variations. The assumptions have also used information relating to free-trading
shares, when in fact the options granted are for restricted shares.
NOTE I - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Company issued an
aggregate of 659,500 and 931,701 common shares in exchange for services,
respectively. Of these shares, 100,000 and 341,701 shares were issued to
officers and directors as a group during 1996 and 1995, respectively. During
1995, the Company issued 500 shares to the Viking Capital Group Inc.'s
President's son. Such transactions have been recorded at a value of ten cents
$.10 to $1.00 per share which was estimated as the fair market value of the
services rendered to the Company in exchange for the shares.
Total consulting fees paid to related parties in the form of cash or stock
during 1996 and 1995 aggregated $10,000 and $262,847, respectively.
Professional fees paid to related parties in the form of cash or stock during
1995 aggregated $26,041.
As further described in Note C, the Company entered into short term note
agreements with the President of the Company and other related parties.
NOTE J - CONCENTRATIONS OF CREDIT RISK
The Company's notes receivables are subject to potential credit risk. Some
notes receivable are collateralized against shares held in the Company; all
other notes receivable are uncollateralized. The Company has provided an
allowance for doubtful receivables which reflects its estimates of
uncollectible amounts. The maximum exposure assuming non performance by the
debtors is the amount shown on the balance sheet at the date of
non-performance.
NOTE K - EMPLOYEE BENEFIT PLAN
On April 18, 1995, the Company registered an Employee Benefit Plan ("Plan")
under regulation S-8 that reserved 1,000,000 shares of common stock for
issuance under the Plan. These shares can be issued by approval of a three
person Employee Benefit Committee. During 1996, the Company registered an
additional 1,000,000 common shares through a Form S-8. During years ended
December 31, 1996 and 1995, 619,500 and 450,000 shares had been issued under
the terms of the Plan.
F-21
<PAGE> 40
VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of
all financial assets and liabilities for which it is practicable to estimate.
Cash, accounts receivable, notes receivable, accounts payable, notes payable
and other liabilities are carried at amounts that reasonably approximate their
fair values.
NOTE M - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
A significant fourth quarter adjustment amounting to $173,000 (net of income
taxes of $0) was recorded in the 1996 consolidated financial statements. The
adjustment corrects previously recorded compensation expense in connection with
the issuance of common shares. The Company intends to re-file the applicable
quarterly financial statements.
NOTE N - SUBSEQUENT EVENTS
For the period from December 31, 1996 through the date of this report, the
Company issued 275,691 shares at $0.50 as part of a conversion of notes
payable. The Company also issued 133,358 options to acquire common shares, at
$0.50 per share. All the options expire within one year from the date of grant.
F-22
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
21.1 List of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Viking Capital Group, Inc. and Subsidiaries
List of subsidiaries of the registrant
The following are current subsidiaries of Registrant.
Subsidiary and Name Under Which Business is Done Where Organized
- ------------------------------------------------ ---------------
Viking Financial Services, Inc. Texas
Viking Insurance Services, Inc. Texas
Viking Systems, Inc. Texas
Viking Administrators, Inc. Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF THE COMPANY AS OF DECEMBER 31, 1996 INCLUDED IN THE 10KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10KSB.
</LEGEND>
<CIK> 0000886093
<NAME> VIKING CAPITAL GROUP, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,920
<SECURITIES> 0
<RECEIVABLES> 231,936
<ALLOWANCES> (59,160)
<INVENTORY> 0
<CURRENT-ASSETS> 182,696
<PP&E> 147,140
<DEPRECIATION> (11,835)
<TOTAL-ASSETS> 318,001
<CURRENT-LIABILITIES> 733,960
<BONDS> 76,565
0
0
<COMMON> 14,071
<OTHER-SE> (506,595)
<TOTAL-LIABILITY-AND-EQUITY> 318,001
<SALES> 0
<TOTAL-REVENUES> 273,925
<CGS> 0
<TOTAL-COSTS> 170,000
<OTHER-EXPENSES> 1,061,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,784)
<INCOME-PRETAX> (980,556)
<INCOME-TAX> 0
<INCOME-CONTINUING> (980,556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (980,556)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
