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, 1997
[ ]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
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation)
Two Lincoln Centre, Suite 300, 5420 LBJ Freeway, Dallas, Texas 75240
(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
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 $124,527.
The aggregate market value of the voting common stock held by
non-affiliates, computed using the average bid and asked price at 03/25/98, was
approximately $8,681,803.
As of March 25, 1998, there were approximately 22,731,404 shares of Common
Stock (Class A) and 100,000 shares of Class B Common Stock of the issuer
outstanding.
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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Page
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.................. 8
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..................................... 12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act..................... 12
Item 10. Executive Compensation.................................................... 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management....................................................... 16
Item 12. Certain Relationships and Related Transactions............................ 17
Item 13. Exhibits and Reports on Form 8-K.......................................... 17
Signatures........................................................................................... 18
Exhibit Index ...................................................................................... 19
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PART I
ITEM 1. 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. when the present management became involved. In November of
1991, the Company declared a 1 for 5 reverse stock split.
From 1990 through mid 1994 the Company concentrated only on laying 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, 1997 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. The Company, in pursuing these plans, purchased
NIAI Insurance Administrators, Inc. and Triple A Annuity Marketing, Inc. in 1997
and concluded the negotiations of a Strategic Joint Venture with Transaction
Information Systems, Inc. (TIS). The agreement was signed in early 1998 with TIS
for the building of a technical robust architecture capable of supporting the
Company's long term strategic initiatives of creating an interactive enterprise
insurance and retirement services website.
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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 proposed to be purchased insurance
company 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 insurance companies, banks and
investment banks, 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)
and the purchase of NIAI Insurance Administrators, Inc. and Triple A Annuity
Marketing, Inc. 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
purchased 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, 1997, 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 1997 from
the operation of Viking Financial Services, Inc..
Insurance Marketing Services Company. (Viking Insurance Services, Inc.
/Triple A Annuity Marketing, Inc ) On May 6, 1995 the Company purchased for
450,000 common shares, the national marketing operations of Viking Insurance
Services, Inc. The Company purchased Triple A Annuity Marketing, Inc.(Triple A)
in September of 1997. Triple A has over 3,000 General Agents and writes
approximately $15 to $25 million of annualized life insurance premiums per year
for several unrelated insurance companies. Triple A has a rescission clause that
allows the seller to rescind the purchase in September of 1998 should the
Company's common stock not trade at $3.00 per share.
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. Total gross
revenues of $124,527 were attributable to VSI generated in 1997 from various
equipment sales over rides and recognition of $50,000 revenue from a software
licensing agreement. Viking Capital Group, Inc. announced in January 1998 a
Strategic Joint Venture with Transaction Information Systems, Inc. (TIS) as an
integral step in the strategic plan of placing Viking Capital Group, Inc. via
Viking System, Inc. at the forefront of utilizing the information superhighway
for agent and policy holder services. This capability which is to be derived
from TIS's building VSI a Robust Technical Architecture that integrates VSI's
systems with the Internet, allows interactive access by all the Company's
subsidiaries, future policyholders, employee benefit plan participants and VSI's
future data processing client insurance companies. As of 12/31/97 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./NIAI Insurance
Services, 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 but
not limited to accounting, billing, policy issuance, policy servicing,
compliance and financial reporting services. In August of 1997 the Company
purchased for stock NIAI Insurance Administrators, Inc. as part of its plan to
provide insurance administration. NIAI's pick software system will be integrated
with the systems created by Transaction Information Systems, Inc. (TIS) as part
of the Strategic Joint Venture with TIS. NIAI specializes in Group and
Individual Health Insurance Administration. As of December 31, 1997, 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.
and NIAI Administrators, Inc.
Proposed Acquisition of Insurance Company. The Company is proposing to
purchase a life and/or property and casualty insurance company. The purchase of
its own 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 a Travel Plan through an unrelated insurance
company and initiate its direct to policyholder sales via the internet. The
purchase of a life insurance company, in addition to facilitating uniform
compliance with required Viking Administrators, Inc. and NIAI Insurance
Administrators, Inc. 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
and 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 $7,700,000 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 proposed services.
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Employees. At December 31, 1997, the Company had 11 employees. The
Company's relations with its employees are favorable.
Year 2000. The software of the Company is year 2000 compliant. The Company
continues to evaluate the effect of the year 2000 issue with respect to the
Company's outside service providers and advisors.
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. Approximately 5,000 square feet are subleased to an independent third
party pursuant to a written lease agreement providing for monthly lease payments
of $7,968 through 6/30/98. Either party may cancel the sublease with 60 days
notice to the other party. Neither party intends to give such notice at the time
of this report. The Company has not as of this date herein, determined its full
space requirements for the months subsequent to 6/30/98. 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
During the fourth quarter, the Company's shareholders were solicited via
proxy pursuant to regulation 14A, to vote on the election of the board of
directors at an annual meeting of the shareholders dated December 16, 1997. Vote
tabulations are listed below and the persons designated constitute the entire
board as of the date of this report.
For Against Abstain
William J. Fossen 11,306,287 13,381 1,636
Mary M. Pohlmeier 11,311,012 8,655 1,637
Robin M. Sandifer 11,306,286 8,655 6,363
Matthew W. Fossen 11,300,286 20,882 136
Richard W. Pryor 11,307,786 8,656 4,862
Total shares entitled to vote: 18,342,691
Shares represented by proxy: 11,321,304
Shares not voted: 7,021,387
Broker non-votes: 0
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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 and trades on the OTC market currently. The Company's
trading symbol is "VGCP". The volume in the trading averages approximately
23,000 shares a day. As of 12/31/97 the stock was quoted at $1.19 ask and $1.13
bid. There is a total of approximately 21,555,161 common shares outstanding of
which approximately 6,386,167 are free trading shares as of 12/31/97.
At December 31, 1997 the Company had 100,000 shares of Class B common stock
authorized and outstanding. All 100,000 shares were 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.
The following table sets forth the approximate low and high bid prices for each
quarter of the last two years for shares traded in the over the counter market.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Bid Bid Bid Bid
QTR Low High QTR Low High
1Q96 $0.3125 $0.75 1Q97 $0.0625 $0.25
2Q96 $0.4375 $1.125 2Q97 $0.15625 $0.8125
3Q96 $0.34375 $1.000 3Q97 $0.240 $0.46
4Q96 $0.625 $0.4375 4Q97 $0.1875 $1.625
At December 31, 1997, the Company had outstanding options of 11,805,291 of
which 7,731,408 are currently exercisable for the purchase of common stock.
Of the 21,555,161 shares of common stock outstanding at December 31, 1997,
approximately 15,168,994 shares are "restricted stock" as defined by Rule 144.
At December 31, 1997, approximately 6,131,160 shares of the restricted common
stock were eligible for resale pursuant to Rule 144.
Prior to December 31, 1997, the Company had outstanding certain note
agreements. All these 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. At 12/31/97 all these
note holders had converted or were repaid. Total conversion and purchase rights
were 230,182 common restricted shares. 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 authorized but unissued common shares.
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
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average over five consecutive trading days. Each B warrant is exercisable at
$5.00 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 12/31/97 the Company had notes outstanding that were convertible to common
restricted shares as follows: $10,000 of convertible notes that had the option
to be converted to 40,000 shares; $154,366 convertible notes that had the option
to convert to 514,553 shares; $45,000 notes outstanding that had the option to
convert to 128,571 shares; $20,000 notes outstanding that had the option to
convert to 40,000 shares; $8,154 notes outstanding that had the option to
convert to 10,872 shares. All except $5,000 of these notes, if converted, carry
an additional option to purchase the same number of common restricted shares
which the holder was originally entitled to convert. The option price is the
same as the conversion price except $107,000 convertible note with a conversion
rate of $0.30 and option rate of $0.50 per share. All notes are due in 1998 and
all options, if the notes are converted, are for a period of one year.
Subsequent to December 31, 1997, notes of $128,664 were converted to 351,765 of
common shares.
Holders
At December 31, 1997, there were approximately 1,100 holders of record of
the common stock of the Company.
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 holders of the Company's outstanding preferred
stock, if any. The Company had no preferred stock outstanding as of 12/31/97.
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, revenues of $273,925 in 1996, and revenues of $124,527 in 1997 and has
generated substantial losses in all years.
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
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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 $272,200,000 of funding in
four phases. In phase I the Company is seeking to secure $2,500,000 in the form
of a equity sale of the Company's common stock for the instigation of its data
processing business for its own operations and its future client insurance
companies, $7,700,000 in phase II in the form of a loan for the purchase of a
shell life insurance company, $12,000,000 in phase III in the form of a equity
sale of common stock for the repayment of the $7,700,000 loan and working
capital and in phase IV, $250,000,000 in the form of a equity offering of its
common stock for the repayment of the line of credit from the purchase of the
first two asset based life insurance companies equaling $500,000,000 in assets
and the purchase of four more asset based life insurance companies equaling
$1,000,000,000 in assets for the completion of its goal of achieving
$1,500,000,000 in managed insurance assets. There can be no assurance that such
funding will be obtained or that the proposed plan of operation will be
completed.
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., (VAI) a wholly owned subsidiary of the
registrant, was incorporated March 27, 1996 in the state of Texas. NIAI
Insurance Administrators, Inc. (NIAI), was purchased as a wholly owned
subsidiary of the Registrant August 14, 1997 and Triple A Annuity Marketing,
Inc., (Triple A) was purchased by the Registrant as a wholly owned
unconsolidated subsidiary of the Registrant, September 11, 1997 (See Item I.
Business - Corporate Relations Services, Viking Insurance Services, Inc., Triple
A Annuity Marketing, Inc., Viking Systems, Inc., NIAI Administrators, Inc. and
Viking Administrators, Inc. above). VFSI began limited operations on May 1, 1996
and had no revenue during 1997. VISI filed and contracted for insurance
marketing products with other insurance companies in 1996 and generated no
revenue in 1997. VSI completed a Joint Venture Marketing Agreement with Tienmark
Technology, Inc. of Taipei, Taiwan on 12-13-97. The contract allows VSI to
market Tienmark arranged electronic products for sale in the US and VSI arranged
electronic products for sale in Taiwan. Viking Systems, Inc. continues towards
the completion of its own technical robust architecture via Transaction
Information Systems, Inc. and the integration of a purchase of a leading life
software system which together will place all systems on a Corporate Intranet
and the Internet. Revenues attributable to VSI for 1997 were $124,527. None of
the other subsidiaries have generated any revenue except for Triple A Annuity
Marketing, Inc. which is an unconsolidated subsidiary that is being accounted
for under the equity method.
During 1997, the Company purchased NIAI Insurance Administrators, Inc. for
200,000 common shares and Triple A Annuity Marketing, Inc. for 500,000 common
shares. NIAI has not been operational pending the Company purchasing its own
insurance company. Triple A has over 3,000 General Agents and writes
approximately $15,000,000 to $25,000,000 of life insurance premium per year for
unrelated life insurance companies. Triple A has a rescission clause that allows
the seller to rescind the purchase in September of 1998 should the Company's
common stock not trade at $3.00 per share. This leaves the last phase of the
strategic plans for the infrastructure build up of the Company, which is to
purchase an insurance company. The Company plans to sign a strategic alliance
with a broker/dealer and prepare for a public and/or private offering of
approximately $2,500,000 and $12,000,000 of the Company's common stock. The cost
of implementing such steps is estimated to be $150,000. If the Company is
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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 $7,700,000. 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 $250,000,000. The estimated completion cost for equipment and
software of the DP center (VSI) is $500,000 and $1,200,000 respectively. The
estimated start-up cost of an administration center is $150,000. There can be no
assurance that such funding will be obtained or that the proposed plan of
operation will be completed.
At December 31, 1997, the Company had cash on hand of $123,454, total
current assets of $293,164 including cash, and liabilities totaling $889,020.
Subsequent to 12/31/97 the Company had received additional cash via exercised
common restricted stock options of $164,729, private promissory note placement
of $53,500, and collection of accounts receivable of $59,074. Also subsequent to
12/31/97, $128,664 of $237,520 promissory notes outstanding as of 12/31/97
converted to common stock. 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 $14,500,000 to
fund the acquisition of a shell insurance company, purchase of a life software
system, purchase of computer equipment, completion of its technical architecture
systems middle-ware 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 12/31/97. 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 1998, 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.
ITEM 7. FINANCIAL STATEMENTS
The "F series" pages follow page 18 and begin with "F-1"
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Independent Auditor's Report...................................................................................F-3
Consolidated Balance Sheets as of December 31, 1997, and 1996..................................................F-4
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and
for the period from inception (November 12, 1986) to December 31, 1997...................................F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
and 1996 and for the period from inception (November 12, 1986) to December 31,1997 ....................F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996,
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
and for the period from inception (November 12, 1986) to December 31, 1997.....................................F-13
Notes to Consolidated Financial Statements ....................................................................F-16
</TABLE>
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 P.C.'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
--- -------
William J. Fossen 59 Chairman of the Board, President and CEO
Matthew W. Fossen 32 Director, CFO, Secretary, Treasurer
Mary M. Pohlmeier 49 Director
Robin M. Sandifer 60 Director
Richard W. Pryor 65 Director, Executive VP- Technology
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 is one family relationship among the Directors and Officers. Matthew
W. Fossen is the son of William J. Fossen.
The following is a biographical summary of the business experience of the
directors and executive officers of the Company including dates of service as
directors:
William J. Fossen has served as Chairman, CEO & President of the parent
Company since 1989 has extensive executive experience in all facets of Life
Insurance Company operations, and public holding company operations and holds a
BS degree in Education from Valley City State University. Fossen founded his own
Financial Services Company in North Dakota which grew to seven offices and Sixty
Six full time brokers selling securities. After selling his own firm, Fossen
joined Life Investors Insurance Company where he served as a Vice President in
various executive roles for thirteen years. During this period Mr. Fossen was
responsible for opening the licensing of various states and their subsequent
sales operations. Fossen initiated the first open ended Real Estate Investment
Trust which was followed by a second Real Estate Investment Trust. These trusts
12
<PAGE>
grew to over $425 million of managed trust real estate. For several years Mr.
Fossen was responsible for Iowa sales operations (the core sales operation)
where he doubled the premium in one year. Life Investors built its managed asset
base primarily by purchasing other insurance companies of which Mr. Fossen
played various active roles in their purchase and post acquisition structure and
operations. Life Investors grew to a $10.5 Billion of insurance in force company
with $1.2 Billion of managed assets and was then sold for $36 per share at which
time Mr. Fossen left the Company and sold his $2.75 per share holdings. Fossen
formed his own family company, National Investors Holding Corporation, in 1983
which has owned various operations including a small life insurance company. The
company is now inactive. Fossen took over Viking Capital in 1989 and began its
full management in 1994.
Matthew W. Fossen has served as a director and officer since November 1997.
Mr. Fossen has experience in the life and health insurance industry and
financial reporting systems. His insurance experience includes home office
operations such as new policy development, agent licensing and contracting and
premium accounting in addition to field sales experience. His financial
reporting systems experience was gained at Texas Instruments from 1991 to 1996.
At Texas Instruments he developed specialized reporting systems for special
needs ranging from inventory analysis to multiple country sales while living in
TI locations around the world including Tokyo, Nice, Dallas, and Austin. Fossen
holds a BBA from The University of Texas, Austin and an MBA from The University
of North Texas where he was named outstanding MBA candidate in finance, in
addition to receiving the Financial Executive Institute award.
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.
Robin M. Sandifer has served as a director of the Company since 1997. Mr.
Sandifer holds a degree in Economics. Mr. Sandifer has had a successful career
in the food sales and distribution industry where he has been responsible for up
to $250 million in annual sales with operations in eleven processing plants. He
has been the successful owner and CEO of Tex American Food Marketing, Inc. since
1982.
Richard W. Pryor has served as a director since 1997. Mr. Pryor has
experience in the development of integrated data networks for private enterprise
as well as the U.S. government and governments around the world. In 1982, Pryor
retired from the U.S. Airforce after being conferred the rank of Major General
by the U.S. Congress. At the time of his retirement, he was the director of the
Defense Communications System, the worldwide communications satellite and data
network for the Army, Navy and Air Force. His organization employed 17,000
people with an annual budget of $2 billion. His Air Force career was spent
flying planes such as the B-57(Canberra), in addition to communications,
research and development, and program management. After retirement, Pryor was
recruited by ITT Corporation to become the president and general manager of its
flagship company, ITT World Communications (World Com). The company employed
2,000 and generated $250 million in annual revenue, generating more than $40
million in after tax income. Pryor was the chief architect of a successful plan
to migrate the company's flagging telex business to private network
implementation for banks and other volume users such as American Airlines and
SABRE. He orchestrated the purchase and operated the largest electronic mail
company (at the time), ITT Dialcom.
13
<PAGE>
Pryor also served as successful president and general manager of Christian
Rovsing, an ITT acquisition purchased from bankruptcy. Pryor took this company
out of bankruptcy and the entity was sold in the following year after announcing
nearly $100 million in new contracts. Mr. Pryor was then recruited by EDS in
1986 to serve as executive vice president, EDS Communications Corporation. Since
1986 Mr. Pryor has been involved as an executive in several communications
related companies including International Mobile Machines Corporation, Ultranav
Corporation, and Prism Video Inc. In September 1995 Mr. Pryor also joined Value
Added Communications as president and CEO. The company had over $40 million in
debt, negative cash flow, and minimal assets. Thirty days after joining Value
Added Communications, Mr. Pryor placed the company into Chapter 11. Once a buyer
committed to purchase VAC, Mr. Pryor resigned. The company was successfully sold
by the Trustee and emerged from bankruptcy in 1996.
Except as noted above, during the past five years, none of the Company's
executive officers or directors have been convicted in a criminal proceeding
(other than traffic violations and other minor offenses) or been parties to any
bankruptcy, insolvency or similar proceedings, individually, or as an executive
officer or general partner of a business in bankruptcy, insolvency or similar
proceedings.
Compliance With Section 16(a) Of The Exchange Act
Not Applicable
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, William J. Fossen, during the four
years ended December 31, 1997. Matthew W. Fossen, the son of William J. Fossen,
became an Officer and Director of the Company during the fourth quarter of 1997
and received 150,000 common restricted shares valued at $30,000 upon joining the
Board of Directors. He received additional remuneration from the Company prior
to becoming an employee. Please see Related Transactions Item 12 Part III for
details. No other executive officer of the Company received, or had accrued on
his or her behalf, total compensation exceeding $100,000 during such periods.
<TABLE>
<S> <C> <C>
Annual Compensation
-------------------
Fiscal Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- -------- ---------- ------ ------------ ------------
William J. Fossen (1) 1997 $29,536(5) $ -0- $ -0- $ 37,150 (6)
President and Chief (2) 1996 $89,400(5) $ -0- $ -0- $ -0-
Executive Officer (3) 1995 $55,438(5) $ -0- $ -0- $ -0-
(4) 1994 $63,275(5)
(1) The aggregate remuneration to William Fossen during 1997 consisted of $29,536 in cash
(2) The aggregate remuneration to William Fossen during 1996 consisted of $89,400 in cash.
(3) The aggregate remuneration to William Fossen during 1995 consisted of $55,438 in cash.
(4) The aggregate remuneration to William Fossen during 1994 consisted of $63,275 in cash.
(5) The amounts above exclude accrued salaries at December 31, 1997 not
paid of approximately $401,963. (6) A one time non service related payment
during 1997 consisting of 185,750 shares valued at $37,150.
(6) A one time non service related payment during a997 consisting of 185,750 shares valued at $37,150.
</TABLE>
14
<PAGE>
Option/SAR Grants Table
The following table sets forth the options and/or stock appreciation rights
(SARs) made during the last completed fiscal year to each of the named executive
officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<S> <C> <C>
Potential Realized Value at
Assumed Annual Alternative
Rates of Stock Price to (f) and (g):
Appreciation Grant Date
Individual Grants for Option Term Value
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Number of % of
Securities Options/
Underlying SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5% ($) 10%($) Value $
- ----------------------------------------------------------------------------------------------------------
</TABLE>
William J. Fossen
President and Chief None granted in 1997
Executive Officer
Compensation of Directors
The Directors of the Company are not paid any fee for their services in
such capacity on a regular plan. During 1997, Rob Sandifer, Richard W. Pryor and
Matthew Fossen each received 150,000 shares upon joining the Board of Directors.
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 $401,963.
Compensation Pursuant to Plans
The Company has adopted Viking Capital Group, Inc. 1996 Stock Option Plan
(Plan) which was approved by the shareholders at the 1995 annual meeting. Such
Plan is incorporated by reference as described at Item 13.
15
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
----------------------
December 31, 1997
-----------------
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.
<TABLE>
<S> <C> <C>
Common Shares and Percentages Owned
---------------------------------------------------------------------------------------------------
Fully
Name Shares Owned Percent (1) Diluted (8)
National Investors 900,000 (2) 3.8% 2.5%
Holding Corp.
William J. Fossen 3,085,750 (3) 13.0% 8.7%
Tommy L. Walker 2,200,000 (4) 9.2% 6.2%
Mary M. Pohlmeier 1,096,353 (5) 4.6% 3.1%
Matthew W. Fossen 851,627 (6) 3.6% 2.4%
Richard W. Pryor 150,000 (7) 0.6% 0.4%
Robin M. Sandifer 305,410 1.3% 0.9%
All Officers, Directors
and Beneficial owners
as a Group 8,589,140 36.1%
Fully Diluted 8,589,140 24.2%
</TABLE>
(1) Based on 21,555,161 shares outstanding at December 31, 1997 plus 2,238,496
shares represented by options that are exercisable within 60 days of this
report as follows: William J. Fossen, 1,000,000 shares; Tommy L. Walker,
1,000,000 shares; Mary M. Pohlmeier, 238,496 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,
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. Excludes 1,300,127 shares held by
Mr. Fossen's adult children to which Mr. Fossen disclaims benefical
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 238,496 shares which may be acquired by Ms. Pohlmeier upon the
exercising of options of 58,496 shares exercisable at $0.50 per share and
180,000 shares exercisable at $1.00 per share.
(6) Excludes 400,000 shares which may be acquired by Mr. Fossen upon the
exercising of options at $1.00 per share.
(7) Excludes 400,000 shares which may be acquired by Mr. Pryor upon the
exercising of options at $1.00 per share.
(8) At 12/31/97 the Company had outstanding options for 11,805,291 shares of
which 7,731,408 were exercisable at 12/31/97. Fully diluted shares
outstanding at 12/31/97 are 35,598,948.
16
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, Matthew W. Fossen was paid $40,317 cash and 150,000 common
restricted shares valued at $30,000 for consulting services, and received 47,460
common restricted shares valued at $9,444.54 for a one time non-compensatory
remuneration before becoming an Officer and Director of the registrant. Mr.
Fossen received 150,000 common restricted shares valued at $30,000 upon joining
the Board of Directors in the fourth quarter of 1997. As an employee, Mr. Fossen
was granted a five year option for 400,000 common restricted shares exercisable
at the rate of 100,000 shares per year at $1.00 per share. Matthew W. Fossen is
the son of William J. Fossen.
During 1996 and 1997, 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Stock for Stock agreement - Plan of Reorganization
Triple A Annuity Marketing, Inc. ***
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.
*** Incorporated by reference pursuant to Exchange Act Rule 12b-23 to the
Registrant's Form 8K Exhibit 2.2 (File No. 0-22744) dated 9/4/97 and filed
on 9/19/97 and Form 8K/A filed on November 18, 1997.
(b) The Registrant filed an 8K/A report on November 18, 1997 as required by
Item 7 of Form 8K promulgated by the Commission under the Securities and
Exchange Act of 1934, as amended (the "Act") to provide the financial
statements required on the Form 8K filed on 9/9/97 relating to stock for
stock agreement - plan of reorganization for Triple A Annuity Marketing,
Inc.
17
<PAGE>
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 30,1998
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>
<S> <C>
Signature Title Date
- --------- ----- ----
_/s/ William J. Fossen President, Chairman of the Board
- ---------------------------- and Chief Executive Officer
William J. Fossen (Principal Executive Officer) March 30, 1998
/s/ Matthew W. Fossen
- ----------------------------
Matthew W. Fossen Director ,CFO, Secretary, Treasurer March 30, 1998
/s/ Mary M. Pohlmeier
- ----------------------------
Mary M. Pohlmeier Director March 30, 1998
/s/ Robin M. Sandifer
- ----------------------------
Robin M. Sandifer Director March 30, 1998
/s/ Richard W. Pryor
- ----------------------------
Richard W. Pryor Director, Exec.VP-Technology March 30, 1998
</TABLE>
18
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
DECEMBER 31, 1997 AND 1996
F-1
<PAGE>
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-11
Notes to Consolidated Financial Statements F-14
F-2
<PAGE>
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 sheets of Viking Capital
Group, Inc. and subsidiaries (a development stage enterprise), as of December
31, 1997 and 1996 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 audits provide 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, 1997 and 1996 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 C, 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, 1997, the Company's
current liabilities exceeded its current assets by $537,722 and its total
liabilities exceeded its total assets by $380,952. 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.
/s/ King Griffin & Adamson P.C.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
March 9, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<S> <C>
ASSETS
December 31,
1997 1996
--------- ---------
CURRENT ASSETS
Cash $ 123,454 $ 9,920
Accounts receivable 65,372 99,703
Notes receivable, net of allowance of $59,160 in 1997
and $33,000 in 1996 85,062 59,250
Notes receivable - related party, net of allowance of
$26,160 in 1996 -- 6,612
Accrued interest receivable 19,276 6,623
Accrued interest receivable - related party -- 588
--------- ---------
Total current assets 293,164 182,696
--------- ---------
PROPERTY AND EQUIPMENT
Computer equipment 107,631 97,253
Furniture and office equipment 18,120 18,120
Software 9,900 --
Accumulated depreciation and amortization (41,924) (11,835)
--------- ---------
Net property and equipment 93,727 103,538
--------- ---------
INVESTMENT IN SUBSIDIARY 34,800 --
OTHER ASSETS 86,377 31,767
--------- ---------
TOTAL ASSETS $ 508,068 $ 318,001
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
December 31,
-------------
1997 1996
----------- -----------
CURRENT LIABILITIES
Notes payable $ 214,000 $ 272,720
Notes payable - related party 23,520 62,060
Current obligations under capital leases 27,324 20,688
Accounts payable 121,955 55,496
Accounts payable-related party 6,700 6,700
Accrued officer's salary 401,963 283,164
Other accrued expenses 18,809 25,583
Interest payable 15,404 5,108
Interest payable - related party 1,211 2,441
----------- -----------
Total current liabilities 830,886 733,960
LONG-TERM DEBT
Obligations under capital leases, less current portion 58,134 76,565
----------- -----------
Total liabilities 889,020 810,525
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes C, D, F, I, J, K and L)
STOCKHOLDERS' DEFICIT
Preferred stock $1.00 Par Value; 50,000,000 shares authorized;
no shares issued and outstanding - -
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;
21,555,161 and 13,971,720 issued at
December 31, 1997 and 1996, respectively 21,555 13,971
Common stock Class B $0.001 par value; 100,000 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 5,447,351 3,294,575
Deficit accumulated in the development stage (5,541,630) (3,794,764)
----------- ----------
(72,624) (486,118)
Less treasury stock, 25,625 shares at cost (6,406) (6,406)
Less stock issued for notes receivable (301,922) -
----------- -----------
Total stockholders' deficit (380,952) (492,524)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 508,068 $ 318,001
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997 and 1996 and period
from November 12, 1986 (inception) to December 31, 1997
<TABLE>
<S> <C>
Years Ended Period from
December 31, November 12, 1986
(inception) to
1997 1996 December 31, 1997
------------ -------------- -----------------
REVENUE $ 124,527 $ 273,925 $ 441,382
------------ -------------- -----------
COST OF REVENUE 68,119 - 68,119
------------ ------------- -----------
GROSS PROFIT 56,408 273,925 373,263
------------ -------------- ------------
COSTS AND EXPENSES
Advertising 625 12,923 22,091
Bad debt expense - 28,414 28,414
Bank charges 944 - 2,605
Commissions on revenue - - 31,346
Consulting 405,542 89,096 1,120,566
Consulting-related party 70,317 - 837,763
Depreciation and amortization 30,089 1,350 43,924
Equipment lease 6,404 3,625 10,566
Insurance and employee health care 10,349 - 21,121
Miscellaneous 1,048 - 5,478
Miscellaneous-related party - - 2,883
Office expense 42,495 34,476 108,561
Office expense-related party - - 500
Professional fees 72,268 57,331 546,369
Professional fees-related party - - 34,491
Other services - related party 75,000 - 75,000
Provision for doubtful notes receivable - - 25,000
Rent 186,880 125,902 398,547
Salaries and contract labor 529,979 671,874 1,634,505
Payroll taxes 37,431 38,157 107,831
Taxes, licenses and fees 77,778 22,223 145,185
Taxes, licenses and fees - related party 65,195 - 65,195
Telephone 32,174 25,772 92,261
Travel and entertainment 55,669 120,554 324,932
Vehicle expense - - 10,022
----------- ---------- -----------
Total costs and expenses 1,700,187 1,231,697 5,695,156
----------- ---------- -----------
Loss from operations (1,643,779) (957,772) (5,321,893)
----------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest income 12,065 7,294 28,026
Interest expense (106,970) (28,746) (163,849)
Interest expense-related party (8,182) - (15,432)
Other - (1,332) (37,260)
----------- ---------- -----------
Total other income (expense) (103,087) (22,784) (188,515)
----------- ---------- -----------
Loss before income taxes (1,746,866) (980,556) (5,510,408)
Income tax provision - - (32)
----------- ---------- -----------
NET LOSS $ 1,746,866) $ (980,556) $(5,510,440)
=========== ========== ===========
Loss per common share:
Basic and diluted loss per common share $0.11 $0.07
==== ====
Weighed average common shares outstanding
(Basic and diluted) $ 15,748,430 13,353,520
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period From November 12, 1986 (inception) to December 31, 1997
<S> <C> <C> <C> <C> <C>
Deficit Notes
Accumulated Receivable
Class B Additional During the Issued
Preferred Stock Common Stock Common Stock Paid-in Development Treasury for
Shares Amount Shares Amount Shares Amount Capital Stage Stock Stock Total
------ -------- ------- --------- ------- ------- --------- ----------- ------ --------- -------
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 -- -- -- 7,500
Expenses of stock issuance -- -- -- -- -- -- (200) -- -- -- (200)
Net loss -- -- -- -- -- -- -- (124) -- -- (124)
------ ------ ------- -------- ------- ------- -------- --------- ------- -------- -------
Balance at December 31, 1986 -- -- 200,000 200 -- -- 7,100 (124) -- -- 7,176
Net loss -- -- -- -- -- -- -- (274) -- -- (274)
------ ------ ------- -------- ------- ------- -------- --------- ------ -------- -------
Balance at December 31, 1987 -- -- 200,000 200 -- -- 7,100 (398) -- -- 6,902
Issuance of 2,500,000 shares
of common stock at $.03 per
share -- -- 500,000 500 -- -- 74,500 -- -- -- 75,000
Expenses of stock issuance -- -- -- -- -- -- (6,095) -- -- -- (6,095)
Net income -- -- -- -- -- -- -- 522 -- -- 522
------- ------- -------- ------- ------ ------- -------- ---------- ------ -------- -------
Balance at December 31,
1988 -- -- 700,000 700 -- -- 75,505 124 -- -- 76,329
Issuance of 14,000,000 shares
of common stock at $.001/share
for coal production contract -- -- 2,800,000 2,800 -- -- 11,200 -- -- -- 14,000
Expenses of stock issuance -- -- -- -- -- -- (5,421) -- -- -- (5,421)
Net loss -- -- -- -- -- -- -- (32,780) -- -- (32,780)
-------- ------- --------- -------- ------ ------- -------- ---------- ------ -------- ------
Balance at December 31,
1989 -- -- 3,500,000 3,500 -- -- 81,284 (32,656) -- -- 52,128
Rescind issuance of
common stock for coal
production contract -- -- (2,800,000) (2,800) -- -- (11,200) -- -- -- (14,000)
</TABLE>
The accompanying notes are an integral part of these finanacial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period From November 12, 1986 (inception) to December 31, 1997
<S> <C> <C> <C> <C>
Deficit
Accumu-
lated Notes
Class B Additional During the Receivable
Preferred Stock Common Stock Common Stock Paid-in Development Treasury Issued for
Shares Amount Shares Amount Shares Amount Capital Stage Stock Stock Total
------------------ ------ ------- ----- ------ -------- ------------ -------- -------- -------
Issuance of common stock:
60,000 shares for cash - $ - 60,000 $ 60 - $ - $14,940 $ - $ - $ - $ 15,000
265,000 shares for assets - - 265,000 265 - - 39,735 - - - 40,000
40,000 shares for services - - 40,000 40 - - 160 - - 200
Net loss - - - - - - - (42,023) - - (42,023)
---------------- ------- -------- ---- ------- ------- -------- ----- ------- --------
Balance at December 31, 1990 - - 1,065,000 1,065 - - 124,919 (74,679) - - 51,305
Issuance of common stock:
For cash - - 400 - - - 500 - - - 500
For services - - 5,561,019 5,561 - - 22,242 - - - 27,803
Net loss - - - - - - - (93,047) - - (93,047)
---------------- --------- -------- ---- ------- ------- ------- ----- ------- -------
Balance of December 31, 1991 - - 6,626,419 6,626 - - 147,661 (167,726) - - (13,439)
Issuance of common stock for
services - - 210,000 210 - - - - - - 210
Issuance of preferred stock
at $1.00 110,000 110,000 - - - - - - - - 110,000
Net loss - - - - - - - (137,754) - - (137,754)
Cumulative preferred stock
dividends - - - - - - - (8,400) - - (8,400)
-------- ------- --------- -------- ---- ------- ------- --------- ------ ------ -------
Balance at December 31, 1992 110,000 110,000 6,836,419 6,836 - - 147,661 (313,880) - - (49,383)
Issuance of common stock:
For services - - 2,192,506 2,193 - - 217,058 - - - 219,251
For cash - - 202,500 202 - - 209,798 - - - 210,000
To convert notes payable and
accrued interest payable - - 75,706 76 - - 126,337 - - - 126,413
Net loss - - - - - - - (519,112) - - (519,112)
Cumulative preferred stock
dividends - - - - - - - (13,200) - - (13,200)
--------- ------- -------- ------- ---- ------- ------- --------- ------ ----- ------
Balance at December 31, 1993 110,000 110,000 9,307,131 9,307 - - 700,854 (846,192) - - (26,031)
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period From November 12, 1986 (inception) to December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Notes
Deficit Receiv-
Accumulated able
Class B Additional During the Issued
Preferred Stock Common Stock Common Stock Paid-in Development Treasury for
Shares Amount Shares Amount Shares Amount Capital Stage Stock Stock Total
-------- ---------- -------- -------- ------- ------- ------- ----------- ------- ----- ------
Issuance of common stock:
For services - $ - 463,500 $ 464 - $ - $ 45,887 $ - $ - - $ 46,351
For cash - - 210,319 210 - - 215,640 - - - 215,850
To convert preferred stock
and accrued dividends (90,000) (90,000) 57,561 58 - - 115,063 - - - 25,121
Net loss - - - - - - - (508,473) - - (508,473)
Cumulative preferred stock - - - - - - - (8,390) - - (8,390)
dividends
------- -------- ------- ------- ------ ------ --------- ----------- ---- ---- -------
Balance at December 31, 1994 20,000 20,000 10,038,511 10,039 - - 1,077,444 (1,363,055) - - (255,572)
Issuance of common stock:
For services - - 931,701 932 - - 639,429 - - - 640,361
For cash - - 615,345 615 - - 504,685 - - - 505,300
Conversion of preferred stock
and accrued dividends (10,000) (10,000) 5,217 5 - - 10,429 - - - 434
Conversion of notes payable - - 150,000 150 - - 74,850 - - - 75,000
Acquisition of VISI - - 454,545 454 - - - - - - 454
Conversion of notes payable
and accrued interest - - 157,451 157 - - 73,033 - - - 173,190
Issuance of Class B common
stock at $.001 par for services - - - - 100,000 100 - - - - 100
Net loss - - - - - - - (1,449,953) - -(1,449,953)
Cumulative preferred stock - - - - - - - (1,200) - - (1,200)
dividends ------- ------- ---------- ------- ------- ---- -------- --------- ---- ---- --------
Balance at December 31, 1995 10,000 10,000 12,352,770 12,352 100,000 100 2,479,870 (2,814,208) - - (311,886)
Issuance of common stock:
For services - - 659,500 660 - - 65,290 - - - 65,950
For cash - - 833,300 833 - - 690,810 - - - 691,643
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period From November 12, 1986 (inception) to December 31, 1997
<S> <C> <C> <C> <C> <C>
Deficit
Accumu- Notes
lated Receiv-
During the able
Class B Additional Develop- Issued
Preferred Stock Common Stock Common Stock Paid-in ment Treasury for
Shares Amount Shares Amount Shares Amount Capital Stage Stock Stock Total
-------- -------- ------- ------ ------ ------ ------- ------- ------ ----- --------
Retirement of:
Preferred stock $(10,000)$(10,000) - $ - - $ - $ (1,319) $ - $ - $ - $(11,319)
Common stock - - (2500) (3) - - (5,597) - - - (5,600)
Conversion of notes
payable and accrued
interest - - 128,650 129 - - 65,521 - - - 65,650
Treasury stock acquired - - - - - - - - 6,406) - (6,406)
Net loss - - - - - - - (980,556) - - (980,556)
------ ------- ---------- ------ ------- ---- ---------- --------- ------ ------ --------
Balance at December 31,
1996 - - 13,971,720 13,971 100,000 100 3,294,575 (3,794,764) (6,406) - (492,524)
Issuance of common stock:
For services - - 1,743,773 1,745 - - 403,671 - - - 405,416
For cash - - 1,182,137 1,182 - - 523,445 - - - 524,627
For notes receivable - - 752,744 753 - - 301,169 - - (301,922) -
Fees other - - 725,339 725 - - 137,089 - - - 137,814
Acquisitions - - 700,000 700 - - 44,100 - - - 44,800
Expense reimbursement - - 60,274 60 - - 11,995 - - - 12,055
Conversion of notes payable
and accrued interest - - 2,419,174 2,419 - - 731,307 - - - 733,726
Net loss - - - - - - - (1,746,866) - - (1,746,866)
------ ------- ---------- ------- ------- ---- ---------- ---------- ------- -------- ---------
Balance at
December 31, 1997 - - 21,555,161 $21,555 $100,000 $100 $5,447,351 $(5,541,630) $(6,406) $(301,922) $(380,952)
====== ======= =========== ======= ======== ==== ========== =========== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
and Period from November 12, 1986 (inception) to December 31, 1997
<S> <C> <C>
Period from
Years Ended November 12,
December 31, 1986 to
1997 1996 December 31,1997
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,746,866) $ (980,556) $(5,510,440)
Non cash charges included in operations
Depreciation and amortization 30,089 1,350 43,924
Common stock issued for services 405,416 55,950 1,046,637
Common stock issued for
services-related party -- 10,000 358,908
Common stock issued for services and
accrued expenses -- -- 30,434
Common stock issued for fees and other costs 137,814 -- 137,814
Common stock issued for expense reimbursement 12,055 -- 12,055
Common stock issued for interest payable 81,759 3,000 101,861
Class B common stock issued for services -- -- 100
Note payable issued for services-related party -- -- 3,200
Note payable issued for interest expense 3,660 -- 3,660
Provision for doubtful notes receivable -- 27,754 52,754
Loss on assets -- -- 15,000
Advances to stockholder expensed to consulting -- -- 57,706
Changes in assets and liabilities
(Increase) decrease in accounts receivable 34,331 (99,703) (65,372)
Decrease in prepaid expense- 14,500 --
(Increase) in interest receivable (12,653) (5,043) (19,276)
(Increase) in interest receivable-related party 588 (109) --
(Increase) decrease in other assets (54,610) 454 (54,025)
(Increase) in deposits -- (31,667) (31,767)
Increase (decrease) in accounts payable 66,459 (20,951) 115,054
Increase in accounts payable-related party -- 6,700 28,601
Increase (decrease) in accrued payroll
and payroll taxes 112,025 153,577 414,577
Increase (decrease) in accrued expenses 9,971 (6,687) 22,618
Increase in accrued
expenses-related party 2,430 2,441 4,871
----------- ----------- -----------
Net Cash Used For Operating Activities (917,532) (868,990) (3,231,106)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs -- -- (50)
Purchase of office furniture and equipment -- (2,105) (21,414)
Loans made (21,200) (76,142) (97,342)
Loans made to shareholder -- -- (17,000)
Loans made to related parties -- (1,000) (95,366)
Long-term loan -- -- (15,000)
Loan repayments -- 5,000 5,000
Loan repayments-related parties -- -- 10,500
Deposit on coal production contract -- -- (15,000)
----------- ----------- -----------
Net Cash Used For Investing Activities (21,200) (74,247) (245,672)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
Years Ended December 31, 1997 and 1996
and Period from November 12, 1986 (inception) to December 31, 1997
<S> <C>
Period from
Years Ended November 12,
December 31, 1986 to
1997 1996 December 31, 1997
----------- ----------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock sale expenses $ -- $ -- $ (11,716)
Proceeds from notes payable 649,500 334,580 1,638,659
Proceeds from notes payable-related parties 67,400 105,560 297,227
Repayments of notes payable (99,488) (189,330) (360,690)
Repayments of notes payable-related parties (67,600) (55,000) (189,342)
Repayments of capital lease obligations (22,173) -- (22,173)
Proceeds from preferred stock sale -- -- 20,000
Retirement of preferred stock -- (11,319) (11,319)
Dividends converted to preferred stock -- -- (434)
Proceeds from sale of common stock 524,627 691,643 2,245,420
Preferred dividends paid -- -- (5,400)
----------- ----------- -----------
Net Cash Provided From Financing Activities 1,052,266 876,134 3,600,232
----------- ----------- -----------
Increase (decrease) In Cash 113,534 (67,103) 123,454
Cash At Beginning Of Period 9,920 77,023 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 123,454 $ 9,920 $ 123,454
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash Flow Information:
Interest paid $ 19,742 $ 22,679 $ 45,989
Interest paid-related party 925 4,070 9,320
Income taxes paid -- -- 32
Non-Cash Investing Activities:
Repayment of N/R - Non cash method 2,000 -- 2,000
Common stock issued for:
Acquisition of VISI -- -- 434
Acquisition of NIAI 10,000 -- 10,000
Acquisition of AAA 34,800 -- 34,800
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 300,416 55,950 803,424
Services-related party 105,000 10,000 463,908
Fees and other costs 72,767 -- 72,767
Fees and other costs - related party 65,047 -- 65,047
Expense reimbursement 12,055 -- 12,055
Repayment of notes payable 624,967 62,650 850,117
Repayment of notes payable-related party 27,000 10,000 112,000
Payment of interest 78,662 3,000 98,765
Payment of interest - related party 3,097 -- 3,097
</TABLE>
- Continued -
F-12
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years Ended December 31, 1997 and 1996
and Period from November 12, 1986 (inception) to December 31, 1997
<S> <C>
Period from
Years Ended November 12,
December 31, 1986 to
1997 1996 December 31, 1997
----------- ----------- -----------------
Payment of accounts payable$ $ -- $ -- 15,000
Conversion of preferred stock -- -- 100,000
Payment of preferred stock dividend -- -- 25,556
Notes receivable 301,922 -- 301,922
Note payable issued for:
Services-related party -- -- 3,200
Payment of interest - related party 3,660 -- 3,660
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 10,378 97,253 107,631
</TABLE>
F-13
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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. During 1997, the Company acquired Triple A Annuity
Marketing, Inc. ("Triple A") and NIAI Issuance Administrators, Inc. ("NIAI").
None of these companies have provided any significant level of services to date
other than Triple A which is accounted for under the equity method as discussed
further in Note B. The Company has generated no significant revenues through
1997.
Consolidation
The accompanying consolidated financial statements include the assets,
liabilities and operating activities of the Company's wholly-owned subsidiaries
other than for Triple A which is accounted for using the equity method. All
material inter-company transactions are eliminated in consolidation.
Cash and Cash Equivalent
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property 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.
The gross amount and accumulated amortization for assets held under capital
leases amounted to $107,631 and $28,689, respectively at December 31, 1997 and
$97,253 and $0, respectively at December 31, 1996.
F-14
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND - Continued
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.
Loss per Common Share
- ---------------------
The Company adopted SFAS No. 128, "Earnings Per Share", in 1997, which requires
the disclosure of basic and diluted net loss per share. Basic net loss per share
is computed by dividing net loss plus preferred dividends paid and accrued
during the year (where applicable) by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by
dividing net loss plus preferred dividends paid and accrued during the year
(where applicable) by the weighted average number of common shares and common
stock equivalents. Common stock equivalents were excluded from the computation
as such inclusion would have 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 software
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.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Company's fiscal year ended December 31,
1998, with earlier application permitted. The effect of adoption of these
statements in 1998, if any, will be limited to the form and content of the
Company's disclosures and will not impact the Company's results of operations or
financial position.
F-15
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE B - BUSINESS COMBINATIONS
During the year ended December 31, 1997, the Company acquired two additional
companies: Triple A and NIAI. Pursuant to the Reorganization Agreement dated
August 8, 1997, the Company acquired all of the outstanding stock of NIAI in
exchange for 200,000 shares of its common stock. The NIAI acquisition was
accounted for as a pooling of interests. The Company's consolidated financial
statements give retroactive effect to the acquisition of NIAI for all periods
presented therein. NIAI had no activity during all periods presented, resulting
in no effect to revenue, net loss, or net loss per share.
Pursuant to the Reorganization Agreement dated September 4, 1997, the Company
acquired all of the outstanding stock of Triple A in exchange for 500,000 shares
of its common stock. Due to certain contingent provisions in the agreement, the
transaction was accounted for as the purchase of an unconsolidated subsidiary
under the equity method as it is unclear whether or not control of the
subsidiary will be permanent. The investment was recorded at the net book value
which approximates fair market value of Triple A on the date of acquisition.
Current assets, non-current assets, current liabilities, non-current
liabilities, revenue and net loss as of and for the period from the date of
reorganization (September 4, 1997) to December 31, 1997 for Triple A were
$57,054, $30,389, $78,747, $9,251, $53,684 and $(655), respectively.
NOTE C - GOING CONCERN
The consolidated financial statements have been prepared on the assumption that
the Company will continue as a going concern. The Company sustained a net
operating loss of $1,746,866 during the year ended December 31, 1997 and has
accumulated losses of $5,510,440 since its inception, November 12, 1986. Cash
used by operating activities for the same periods aggregated $917,532 and
$3,231,106, respectively. Current liabilities at December 31, 1997 of $830,886
exceed current assets of $293,164. Total liabilities at December 31, 1997 of
$889,020 exceed total assets of $508,068. 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 consolidated 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.
NOTE D - NOTES PAYABLE
The Company entered into or renewed various notes totaling $883,620 during 1997
all of which matured or were converted to common stock during 1997 or will
mature in 1998. The notes maturing in 1998 bear interest ranging from 12% to 15%
and are secured by the assets of the Company. Interest payments are due
semi-annually. Included in the $883,620 is $4,400 borrowed from the President of
the Company and $199,720 from other related parties.
During 1997 and 1996, notes payable totaling $650,732 and $62,650, respectively
and related accrued interest of $81,759 and $3,000 were converted to 2,419,174
and 56,000 common shares, respectively. As of December 31, 1997, the Company had
$10,000 of convertible notes outstanding that had the option to convert to
40,000 common restricted shares; $154,366 convertible notes outstanding that had
the option to convert to 514,553 common restricted shares; $45,000 convertible
notes outstanding that had the option to convert to 128,571
F-16
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE D - NOTES PAYABLE - Continued
common restricted shares; $20,000 convertible notes outstanding that had the
option to convert to 40,000 common restricted shares; $8,154 convertible notes
outstanding that had the option to convert to 10,872 common restricted shares.
All except $5,000 of these notes, if converted, carry an additional option to
purchase the same number of common shares which the holder was originally
entitled to receive if the notes were converted to equity. The option price is
the same as the conversion rate except for $107,000 convertible notes payable
with a conversion rate of $0.30 per share and an option rate of $0.50 per share.
All of these notes are due in 1998 and all options, if the notes are converted,
are for a period of one year.
NOTE E - INCOME TAXES
Deferred tax assets and liabilities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<S> <C> <C>
1997 1996
------------ ------------
Current deferred tax asset $ 136,667 $ 96,276
Current deferred tax liability (136,667) (96,276)
Valuation allowance for current deferred tax asset - -
----------- -----------
Net current deferred tax asset $ - $ -
=========== ===========
Non-current deferred tax asset 1,657,564 1,103,820
Non-current deferred tax liability - -
Valuation allowance for non-current deferred tax asset (1,657,564) (1,103,820)
----------- -----------
Net non-current deferred tax asset $ - $ -
=========== ===========
</TABLE>
The current and non-current deferred tax assets result from the tax benefit of
the net operating losses. The current deferred tax liability results from the
accrual of officers salary for financial reporting purposes not deducted for
federal income tax reporting purposes until paid.
The Company has operating loss carryforwards totaling approximately $5,276,000,
subject to limitations under Sec.382 of the Internal Revenue Code, that are
available to offset its future income tax liability. The net operating loss
carryforwards expire as follows:
Year 2004 $ 32,000
Year 2005 42,000
Year 2006 93,000
Year 2007 138,000
Year 2008 297,000
Year 2009 503,000
Year 2010 1,443,000
Year 2011 981,000
Year 2012 1,747,000
---------
$5,276,000
==========
As further described in Note C, realization of the benefit of these net
operating loss carryforwards appears uncertain, accordingly, a valuation
allowance of $1,657,564 has been recorded in 1997 against the deferred tax asset
resulting from the recurring deferred tax benefit. The valuation allowance
increased by $553,744 and $333,000 during the years ended December 31, 1997 and
1996, respectively.
F-17
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE F - 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 $186,880 and $125,902 in 1997 and
1996, net of $96,095 and $30,000 of rental income in 1997 and 1996 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, 1997
are as follows:
Operating Capital
Leases Leases
1998 $ 267,504 $ 38,366
1999 265,280 38,366
2000 258,216 15,700
2001 129,108 14,760
----------- ----------
Total 920,108 107,192
Less lease income from sub-lease (43,200)
-----------
$ 876,908
===========
Less amount representing interest (21,734)
Present value of net minimum lease payments ----------
including current maturities of $27,324 $ 85,458
==========
NOTE G - 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 H - 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.
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.
F-18
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE H - PREFERRED STOCK - Continued
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, 1997, no Series A preferred stock
had been issued.
NOTE I - 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 terms set out in the option agreement, not to
exceed ten years. At December 31, 1997 and 1996, there were a total of 3,637,685
and 1,982,685 options outstanding under the Plan, respectively. 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, 1997 and 1996 there was a
total of 11,805,291 and 9,719,252 options (including compensatory and
non-compensatory) outstanding, respectively. All options granted by the Company
related to restricted stock under rules promulgated by the Securities and
Exchange Commission.
A summary of changes in the Company's compensatory options follows:
<TABLE>
<S> <C> <C>
Employee Stock Plan Other Compensatory Combined Total
-------------------------- --------------------- --------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
----------- -------- ---------- -------- -----------
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
Granted 1,655,000 $ 1.00 335,000 $ 0.44 1,990,000
Exercised - (335,000) $ 0.44 (335,000)
Forfeited - (1,196,871) $ 1.00 (1,196,871)
----------- ----------- -----------
Outstanding at 12/31/97 3,637,685 4,598,076 8,330,761
=========== =========== ===========
</TABLE>
The fair value of options issued during 1997 and 1996 was $847,817 and
$2,895,793, respectively.
The following table summarizes information about options outstanding at December
31, 1997 under the Employee Stock Plan:
F-19
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
<S> <C> <C>
NOTE I - STOCK OPTIONS - Continued
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
- --------------- ----------- ------------------ -------------- ------------ -------------------
$1.00 3,637,685 4 Years $1.00 2,030,960 $1.00
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1997:
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
- --------------- ----------- ---------------- -------------- ------------ -----------------
$1.00-$1.10 4,598,076 1.8 Years $1.03 2,872,475 $1.03
</TABLE>
A summary of changes in the Company's non-compensatory options follows:
Non-Compensatory Weighted Average
Options Exercise Price
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
Granted 3,301,759 0.55
Exercised (574,987) 0.39
Forfeited (1,098,862) 1.00
------------
Outstanding at 12/31/97 3,569,530 $1.31
============
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB25"), in accounting for its compensatory options. The options
granted in 1997 and 1996 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:
Years ended December 31,
------------------------
1997 1996
---- ----
Net Loss As reported $1,746,866 $ 980,556
Pro forma $2,594,683 $3,876,349
F-20
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE I - STOCK OPTIONS - Continued
Years ended December 31,
------------------------
1997 1996
---- -----
Loss per share As reported (Basic
and diluted) $0.11 $0.07
Pro forma $0.16 $0.29
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
grants in 1997; dividend yield at 0%, expected volatility at 249%, risk free
interest rates ranging from 5.1% to 6.0% over a 1-5 year period, and an expected
life of 1-5 years. The following assumptions were used for grants in 1996;
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 J - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996, the Company issued an
aggregate of 1,743,773 and 659,500 common shares in exchange for services,
respectively. Of these shares, 600,000 and 100,000 shares were issued to
officers and directors as a group during 1997 and 1996, respectively. Such
transactions have been recorded at values of $.10 to $.65 in 1997 and $.10 to
$1.00 in 1996 per share which was 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 1997 and 1996 aggregated $70,317 and $10,000, respectively.
During the year ended December 31, 1997, the Company issued an aggregate of
725,339 common shares as payments for fees and other charges. Of these shares,
349,743 were issued to officers and directors as a group. Such transactions have
been recorded at a value of $.10 to $.20 per share which was the fair market
value of the fees and other costs incurred by the Company in exchange for the
shares.
As further described in Note D, the Company entered into short term note
agreements with the President of the Company and other related parties.
NOTE K - CONCENTRATIONS OF CREDIT RISK
The Company's notes receivables and accounts receivable are subject to potential
credit risk. Some notes receivable are collaterallized against shares held in
the Company; all other notes receivable are uncollateralized. Accounts
receivable at December 31, 1997, substantially all of which was collected
subsequent to year end, relates to one customer. 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. Included in
other assets is a receivable of $50,000 which is collateralized by the Company's
common stock (see Note N).
F-21
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
NOTE K - CONCENTRATIONS OF CREDIT RISK - Continued
The Company is at risk to the extent that cash held at banks exceeds the Federal
Deposit Insurance Corporation insured amounts. Cash in excess of these limits
amounted to approximately $79,000 at December 31, 1997. The Company minimizes
risk by placing its cash with high credit quality financial institutions.
NOTE L - EMPLOYEE BENEFIT PLAN
On April 18, 1995, the Company registered an Employee Benefit Plan (APlan@)
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, 1997
and 1996, 560,000 and 619,500 shares, respectively, have been issued under the
terms of the Plan.
NOTE M - 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 N - SOFTWARE LICENSING AGREEMENT
On July 21, 1997, the Company entered into an agreement for the licensing of
certain proprietary software to a Company shareholder. Total consideration
received under the agreement totals $400,000 which is to be paid out over a
period of ten years plus interest at seven percent. The Company holds as
collateral 250,000 shares of Viking Capital Group, Inc. common stock. The
Company has recorded the sale and related receivable based upon the value of the
underlying collateral totaling $50,000. The receivable is included in other
assets in the accompanying balance sheet. All other revenues will be recognized
when received.
NOTE O - SUBSEQUENT EVENTS
For the period from December 31, 1997 through the date of this report, the
Company issued 1,144,824 common shares. 351,765 shares were issued in
conjunction with the conversion of $128,664 notes payable. The Company also
received $239,073 for the issuance of 579,959 shares in connection with
exercised options and 213,100 shares were issued for services. The Company also
granted 644,885 options to acquire common shares. All the options expire within
one year from the date of grant.
F-22
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
21.1 List of Subsidiaries
27.1 Financial Data Schedule
19
<PAGE>
EX-21
Subsidiaries of the Registrant
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
NIAI Insurance Administrators, Inc. California
Triple A Annuity Marketing, Inc. Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF THE COMPANY AS OF DECEMBER 31, 1997 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 123,454
<SECURITIES> 0
<RECEIVABLES> 228,870
<ALLOWANCES> 59,160
<INVENTORY> 0
<CURRENT-ASSETS> 293,164
<PP&E> 135,651
<DEPRECIATION> 41,924
<TOTAL-ASSETS> 508,068
<CURRENT-LIABILITIES> 830,886
<BONDS> 58,134
0
0
<COMMON> 21,655
<OTHER-SE> (402,607)
<TOTAL-LIABILITY-AND-EQUITY> 508,068
<SALES> 124,527
<TOTAL-REVENUES> 136,592
<CGS> 68,119
<TOTAL-COSTS> 1,700,187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (115,152)
<INCOME-PRETAX> (1,746,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,746,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,746,866)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
