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, 1998
[ ] 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 ___ .
Commission File Number 0-22744
VIKING CAPITAL GROUP, INC.
(Name of small business issuer in its charter)
Utah 87-0442090
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) Number)
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 zero.
The aggregate market value of the voting common stock held by
non-affiliates, computed using the average bid and asked price at March 15,
1999, was approximately $15,570,234.
As of March 15, 1999, there were 28,825,481 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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PART I
Item 1. Description of Business........................................... 3
Item 2. Description of Properties......................................... 11
Item 3. Legal Proceedings................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............... 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..... 12
Item 6. Management's Discussion and Analysis.............................. 13
Item 7. Financial Statements.............................................. 15
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act............. 15
Item 10. Executive Compensation............................................ 17
Item 11. Security Ownership of Certain Beneficial Owners
and Management............................................... 19
Item 12. Certain Relationships and Related Transactions.................... 19
Item 13. Exhibits and Reports on Form 8-K.................................. 20
Signatures................................................................................... 21
Exhibit Index .............................................................................. 22
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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 over ten (10) market
makers spread across the USA, therein trading the stock coast to coast.
As of December 31, 1998 the Company's activities include: (1) development of
private and institutional investors for various acquisitions, specifically, the
purchase of insurance companies, (2) solicitation of various state and local
governmental authorities for an economic incentive package with value between
$20M to $30M to locate our Insurance Administration business in their state or
local area, (3) 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. The
Triple A Annuity Marketing, Inc. purchase was rescinded in 1998 according to the
terms of the agreement if certain conditions were not met within one year.
Relations with Triple A are favorable. During 1998 the Company concluded the
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negotiations of a Strategic Relationship with Transaction Information Systems,
Inc. (TIS) and IXNet both of New York. The agreement with TIS was signed in
early 1998 for the building of a technical robust architecture capable of
supporting the Company's long term strategic initiatives of creating an
interactive insurance, investment and retirement services web site. The IXNet
Joint Network Services Agreement was concluded in June 1998 to create a high
performance private ATM (asynchronous transfer mode) network on which Viking
will provide its services. This network has been named the Viking Capital
Financial Network.
The Company also announced in January 1999 a strategic alliance with Pearse EFT,
Inc. The agreement allows Viking to offer Pearse's remote banking software
application as a service on the Viking Capital Financial Network for banks
wishing to provide their customers with remote or virtual banking services.
The Company believes that, as a part of its strategic plan to offer
internet/private network based solutions to its corporate customers, making
available certain enabling technologies will enhance acceptance and use of its
network. The Company has chosen two such technologies currently.
First, a Memorandum of Understanding with Netnote International, LTD. was
announced in February 1999 which provides for 3 definitive agreements giving VSI
reseller rights to Netnote International's state-of-the-art E-commerce hardware
solutions and software products. Primarily, the technology involved is a
sub-notebook size device (about 2 lbs.) with touch screen, color display, and
keyboard. The WebNote(TM) is also equipped with smart card technology to provide
additional security which acts as a "web access key" providing a unique
identifier, perfect for transactions that need additional security like
financial transactions. The final agreements will open the door for VSI to offer
a wide range of network access tools to the Company's clients.
The second technology is a very affordable IP Video Conferencing technology from
MAXpc Technologies, Inc.. The agreement, announced in March 1999, gives the
company the right to sell the product via the Internet and to sell to the
financial services industry.
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.
Such proposed services are described more fully below. 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
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Company has not purchased an insurance company yet, it has started operations in
corporate relations services, via Viking Capital Financial Services, Inc.,
insurance marketing services, via Viking Insurance Services, Inc., data
processing services, via Viking Systems, Inc., administration services, via
Viking Administrators, Inc. and the purchase of NIAI Insurance Administrators,
Inc. There is no assurance that the Company can successfully continue to fund
the start-up of Viking Capital 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. Some of the risks that could cause actual results,
performance, or achievement, to differ materially from those described or
implied in forward-looking statements are general economic conditions,
competition, potential technology changes, changes in or the lack of anticipated
changes in the regulatory environment in various countries, the ability to
secure partnership, joint-venture, or strategic relationships with other
entities, the ability to raise additional capital to finance expansion, and the
risks inherent in new product and service introductions and the entry into new
geographic markets.
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. While, on December 23, 1998, the Company secured a private purchase
agreement for up to $2.5 million dollars (12,500,000 common restricted shares)
for working capital, no binding agreements, or agreements in principal, to raise
capital for the Company or invest in the Company for the purchase of insurance
companies existed as of December 31, 1998, and, therefore, there can be no
assurance that the Company will be successful in obtaining the financing
necessary to implement its full plan of operations.
Products and Services
The following services and proposed services described below are provided
through Viking Systems "Integrator" and distributed on the Viking Capital
Financial Network (VCFN) for the benefit of external customers, the wholly owned
subsidiaries of the Company, and the company's future acquired insurance
companies. The Company, via its subsidiaries, is structured to operate as a
business to business enterprise and intends to operate these businesses
worldwide.
IP Banker: Middleware that allows existing banks, S&L's and Credit Unions to
offer their depositors remote banking and remote bill pay. The service will also
provide a full service banking software package for those not yet in the
commercial banking business such as for Investment Banking firms. This Service
Product is called Virtual Banking. We propose that these systems will reside on
VCFN. Revenues will be generated from sales of the software, remote bill pay
package, APIs, training and their own Web Site. Viking Systems, Inc. charges a
fee for each depositor, per month to reside on our Network. The additional fee
for our network per depositor includes their network internet link and all it's
associated charges, installations costs and continuing maintenance, regardless
of bandwidth requirements. A minimum monthly fee and a minimum of three years
for this contract service will be required if hosted by Viking Systems(VS).
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IP Trader: This middleware allows existing Broker/Dealers to offer trading to
the VCFN users. VS offers the IP Trader as a link to such firms to the company's
depositors, policyholders, etc., of our Corporate Customers. We receive a
transaction fee on each order. We require a contract minimum of three years for
this service.
Benefits IP: This is a data processing system for Employee Benefit Plans of all
kinds. Once the Company acquires an insurance company we will also offer these
customers the ability to outsource part or all of their employee benefit plan
administration to Viking Administrators, Inc. (VAI). Thirdly, we will ultimately
offer customers the ability to purchase specially designed insurance products
manufactured at our own life company or those of other carriers via Viking
Insurance Services, Inc.(VISI). The Company bids on these accounts and they vary
in amounts depending on the size and locations of all of their operations as
well as the extent of their needs and desires for the latest technology. We
require a minimum of a three year contract for this data processing link.
Universal IP: This is the Company's complete, A to Z life company system. We are
finalizing all systems in preparation for our first insurance company
acquisition and adding APIs for utilization with our Benefit IP systems.
Therein, with this product the Company is able to offer A to Z life insurance
company administration as well as just data processing service bureau. This is a
key service for new players in the insurance industry. We bid on each account
same as for Benefits IP. We require contracts for a minimum of seven to ten
years depending upon the extent of the customer's demands. Pricing is on a bid
basis though the Company does not seem to have any competitors as of this
writing.
Viking Systems Banker's Service Bureau: This service offers those banks too
small to host their own systems, to outsource their remote banking services to
our Banker's Service Bureau. We handle all systems operations, security,
technology updates and compliance updates for this customer at one central
location which is at our Server Farm at 80 Pine NY, NY with two back-up
identical systems. iXnet, our fiber optic backbone, simply installs a line of
the customers choice (speed)which then runs to our servers and systems. We
require a minimum of seven to ten years on this contract depending on services
required. Contracts are on a bid basis.
Viking Systems Insurance Service Bureau: This service is identical in its set up
as above for banks. This allows smaller insurance companies or those wishing to
provide insurance products of their own but not wishing to perform the back room
administration functions of their own insurance company. This bureau gives the
new player to insurance (such as banks and investment bankers) the ability to
instantly be in the business without having to set up the entire back room
operations of an insurance company. The Company will initially only offer life
company insurance operations. The Company is looking into Property and Casualty
(P&C) as it has had some request for that service also (We have a P&C software
operations in house now). Corporate customers, such as banks, will be able to
offer these products and services for their depositors via what will be named
Viking Capital Life Insurance Company (VCLIC) once Viking has purchased its own
insurance company. Some banks will want their own life company once the 1933
Glass-Steagall law has been revised. It is expected to pass this coming fall. We
require a minimum of seven to ten year contract. Pricing is on a bid basis.
The Company will charge a fee for each service which is determined by the number
of depositors, participants or policyholders. The Company will also receive a
transaction fee from vendors to whom the Company links to the Company's
Corporate Customers.
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The Company has had a demand for certain other unrelated products (as compared
to electronic services) in technology and consumer products. Therein, the
Company will make available two products in the technology area beginning in
early 1999 which are the WebNote and MAXpc video conferencing card. Customers
will be able to purchase these two products via our soon to be available
Technology E-Commerce Web Site. These two products were chosen because of our
original research into their use for enhancing our Corporate Customer Services
listed above. The Company needed an inexpensive and reliable Web connection for
its users that have many locations or a large sales force that they wish to link
together, such as an insurance company's sales force. The Company also needed an
inexpensive video conferencing solution that would allow its employee benefit
plan customers the ability to link their worldwide employees via video to their
human resource service center, saving them personnel at all of their locations.
The Company chose these two technologies to fulfill that ability. While our
focus is on our corporate customers, the general public will be able to purchase
these items as well.
The Company intends to buy insurance companies which is at the core of its
operations as well as having those purchased insurance companies serve as a
solid financial base underpinning of all of its Electronic Services and Products
operations. Each subsidiary first serves the parent company operations (about
20% of their resources as all operations will operate in a cookie cutter
fashion) and then offers their services and products to unrelated corporate
customers. The end result is traditional cost centers become profit centers and
the in house operations become very cost effective.
Corporate Relations Services (Viking Capital Financial Services, Inc.):
This subsidiary of the Company provides 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 for a
consulting fee which limits the liability arising on behalf of the Company.
This division intends to provide services to the parent Company's policyholders
and corporate clients through various broker dealers, nationwide. The Company
intends to contract with broker dealers through Viking Capital Financial
Services, Inc. These broker/dealers will be 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. VCFSI is currently focused
on capitalization of the Company.
Insurance Marketing Services Company (Viking Insurance Services, Inc.):
Marketing insurance plans call for the "Viking Travel Plan" to be offered
worldwide via the Internet. The plan is an emergency travel medical and
evacuation plan developed by VISI for World Travelers Association, Inc. (WTA,
Inc.). Plans call for the marketing of the Viking Travel Plan via an exclusive
marketing contract with WTA, Inc. and the marketing of life, health, and annuity
products with several life insurance companies. Viking Insurance Services, Inc.
will serve as the Company's marketing center, and will also serve as a "profit
center", providing marketing services to other insurance carriers.
This subsidiary will also, in conjunction with services from its sister
companies, offer E-Commerce products such as insurance products, the MAXpc video
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card and WebNote. Viking Insurance Services, Inc. is located at the same site as
the Company headquarters.
Data Processing Company (Viking Systems, Inc.):
On February 15, 1996, the Company formed and incorporated Viking Systems, Inc.
Viking Systems, Inc. serves as the Company's data processing center for all of
the Company's Management Information Systems (MIS) needs and also serve as a
"profit center", providing MIS services to outside client corporations.
VSI offers linkage to its data processing capabilities via the Viking Capital
Financial Network (VCFN) which will allow users to process employee benefit
plans (Benefits IP), Remote Banking (IP Bankers), process entire insurance
company operations (Universal IP) and link with existing securities firms (IP
Trader) via the Internet and allow all participants to access their account via
the Internet. Though VSI plans to offer these services to all types of Corporate
employee benefit plans nationwide, other insurance companies, banks and large
direct marketing organizations, VSI will concentrate initially on the existing
corporate customers of iXnet. This will allow those corporations to easily link
to the Viking Systems employee benefit plan data processing services, as they
are already on the system.
In January 1998 the Company formed a Strategic Relationship with Transaction
Information Systems, Inc. (TIS), a leading Internet provider of electronic
commerce solutions via the Internet. The Company will leverage the strategic
agreement to service insurance companies' products cost-effectively over the
Internet by reducing the cost of insurance buying and servicing. The robust,
technical, architecture jointly developed by Viking Systems, Inc. and TIS
integrates Java applets, a video and audio search engine and individualized
information channels that can drive relevant information to consumers about
their coverage. TIS will be contracted for all the Company's integration of
purchased insurance companies, books of business purchased and unrelated
customer insurance companies and Employee Benefit Plans. TIS will handle all
installations, all MIS personnel training, servicing of the systems and
technology advances. Viking Systems, Inc. is currently located at the same site
as the Company headquarters.
The Company intends to utilize this Viking Systems' and Transaction Information
Systems' expertise, to write integration software packages for each of its
proposed acquisitions of insurance companies and for integrating the client
system into the Company's system, allowing each insurance company and client
companies the ability to easily outsource its needs for data processing and
administration of its insurance and securities products. The Company believes
that the application of these capabilities to the integration of data bases and
systems can produce significant improvements in efficiency and cost savings in
the Company's insurance company acquisitions and in numerous client industries,
particularly for holding companies in the insurance, banking and financial
services industries, where multiple entities, each having its own data
processing system, are brought together under a single data processing center
via outsourcing to the Company's subsidiary, Viking Systems, Inc.
Also key to the strategic plans of reducing costs are the capabilities derived
from software licensed from Sun Microsystems, Inc. for searching indexed video
for a particular word or phrase. The hardware and software capabilities of VSI
will allow policy holders and agents to access information about their benefits
plans, bank accounts, securities and/or insurance policy status via corporate
intra-nets and the Internet in video, audio, and data/text format. The
capabilities are very well suited for allowing an employer to supply legally
required and general information about benefit coverage to beneficiaries and
dependents of employee benefit plans.
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In June of 1998 the Company also formed a Strategic Joint Venture with IXNet of
NY. IXNet will provide the Company with all the transportation of its data
systems between Viking and the corporate customer for data processing and
administration contracts. This world wide telecommunication network (The Viking
Capital Financial Network-VCFN) will also allow Viking Systems the ability to
push such data out via the Internet, so that individual account holders can
access their own accounts via the Internet for their personal employee benefit
plan, banking, insurance and securities accounts.
Insurance Administration Services (Viking Administrators, Inc.)
On March 29, 1996, the Company formed and incorporated Viking Administrators,
Inc. Initially, Viking Administrators, Inc. is expected to offer its services
only to employee benefit plans and insurance companies, including those to be
acquired, and, ultimately, bank holding companies which wish to offer insurance
and securities products to their client base but do not wish to install their
own administration of such products. Contracts for administration on an
outsourcing basis are typically expected to be for periods of seven years or
more. The Company, through Viking Administrators, Inc., intends to offer a
comprehensive range of administrative services associated with the internal
operations of insurance companies, including accounting, billing, policy
issuance, policy servicing, compliance and financial reporting services. In
August of 1997, NIAI Insurance Administrators, Inc. was acquired by Viking
Capital Group, Inc. for stock. This administration company brings tested
administration software, an experienced administrator, and TPA licenses. NIAI
will concentrate its administration activities on group health insurance plans.
Purchase of the targeted life insurance company will facilitate licensing for
the administration companies in the state in which the insurance company is
licensed, therein, eliminating the need for any additional TPA licenses on a
state by state basis. Should the Company determine that its own purchased life
insurance company should serve as the licensed TPA, then VAI may be required to
become a holding subsidiary of such purchased life insurance company should the
regulators not allow VAI to accomplish such licensing via a contract with the
life company. The Company is currently making its final determination as to the
location of VAI. Several states are offering financial incentive packages to
locate VAI in their state.
Proposed Acquisition of an Insurance Company (to be named Viking Capital Life
Insurance Company):
The Company is proposing to purchase four to six life insurance companies
initially to reach its immediate goal of $1.5 billion in managed insurance
assets. Two such companies have been targeted for purchase immediately upon
completion of the acquisition financing. Once purchased, each life company will
be merged into the life company with the most licenses. The Company's own life
insurance company, in addition to facilitating uniform compliance with required
administrator license requirements, will 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. All purchased blocks or books of business will be integrated
into the Company's data processing and administration centers by Viking Systems,
Inc. and Transaction Information Systems, Inc., giving each purchase the
immediate benefit of economy of size. Further economy of size is achieved by the
unrelated third party insurance companies' outsourcing to the Company's
subsidiaries.
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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
insurance company operation is estimated at $6,600,000., for a shell insurance
company, and a minimum of $35,000,000., for existing operating insurance
companies, depending upon the assets accumulated in such a target insurance
company. Management looks for targets that have investment portfolios with poor
performance, but with high quality investments and high per policy general
administrative expenses, compared to the Company's ability to process data and
service the same policies.
The purchase of the targeted life insurance company will finalize the licensing
requirements for all activities planned. Thereafter, the Company will make six
insurance company acquisitions within eighteen (18) months of capitalization.
Each acquisition will average $250,000,000 of managed assets with approximately
$45,000,000 of premium income, therein, achieving the Company's immediate goal
of $1.5 billion in managed assets.
Proposed Additional Services:
The final phase of the Company's proposed plan of operations involves the
application of the Company's expected data processing, administration and
insurance expertise and capabilities to permit financial services companies,
particularly insurance related operations, to offer broad based financial
products on an efficient low cost basis. Such steps may involve the acquisition
and/or development of additional data processing and software development
companies and alliances with (and/or) the formation or acquisition of an
investment banking/securities broker/dealer firm(s). Based on various articles
published in recent years and discussions with industry participants, management
believes that there is a growing trend toward deregulation of the financial
services industry, and management anticipates that various participants in the
industry, particularly banks, will be permitted to expand the scope of products
and services offered, to include the sale of insurance and securities, among
other products. Management believes that the implementation of the first two
stages of its plan of operations and the establishment of, or strategic
alliances with a broker/dealer firm(s) will permit the Company to offer
insurance, securities and other financial products from broker/dealer firms to
or through its existing client base. Management believes that the Company's
ability to offer products from broker/dealer firms, along with its proposed
supporting data processing and its administrative expertise, will be
particularly attractive to small and medium sized banks which are trying to
retain payroll and other corporate accounts. As the banking industry continues
to expand into the sale of virtually all financial products, the use of the
Company's products and systems is expected to permit banks to tailor financial
products to their customers needs, thus enabling smaller banks to retain
accounts without incurring the cost of developing the requisite expertise and
systems internally. The Company, upon the purchase of the targeted life
insurance company and the completion of the installation of the API's to our
life systems with our robust technical architecture jointly developed by Viking
Systems, Inc. and Transaction Information Systems, Inc., called the VS
Integrator, and the IP Bankers and Benefits IP middleware which will all reside
at VSI's NY Server Farm and be distributed on VCFN, now allows the company to
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implement the remainder of its plan of operation. Subject to the receipt of the
necessary funding to carry out its plan of operations, the Company intends to
issue a private placement of its preferred stock, carry out the acquisition of
four to six insurance companies and to carry out the balance of its plan of
operation. The above will be expedited upon completion of the Company's
capitalization.
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.
Employees. At December 31, 1998, the Company had 8 employees and
approximately 1,400 employees available who are employees of its strategic
partners, TIS, ixNet and Pearse EFT. The Company's relations with its employees
and strategic partners are favorable.
Year 2000. The Company has completed a survey of internal
administrative office equipment and software for Year 2000 issues. Additionally,
the software developed by the Company is year 2000 compliant. The Company plans
to continue to evaluate the Year 2000 readiness of its consultants, vendors and
suppliers and develop contigency plans where necessary. Based on current
information, the Company believes that the cost of compliance with the Year 2000
will not be material to the Company's financial condition or operations, and
will not significantly affect the Company's ability to deliver its products and
services; however, given the uncertain consequences of Year 2000 issues outside
the scope or control of the Company, there can be no assurance that any one or
more such Year 2000 consequences would not have a material adverse effect on the
Company.
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 base rate of $21,518 per month for a period of sixty (60) months
through 6/31/2001. Approximately 6,000 square feet are subleased to independent
third parties pursuant to written lease agreements providing for monthly lease
payments of $8,900 plus/minus adjustments. 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's present facilities are believed
to be adequate to support its present holding company operations for the
remainder of the lease. Upon purchase of its planned insurance company
acquisitions, the Company has determined that it will require approximately
300,000 additional square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any significant threatened, pending or
ongoing litigation to the best knowledge of management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1998.
11
<PAGE>
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 22,254 shares a day. As of 12/31/98 the stock was quoted at
$0.6875 ask and $0.5781 bid. There is a total of approximately 25,831,806 common
shares outstanding of which approximately 8,535,556 are free trading shares as
of 12/31/98.
At December 31, 1998 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 elect a majority 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
1Q97 $0.0625 $0.25 1Q98 $0.4375 $1.28125
2Q97 $0.15625 $0.8125 2Q98 $0.375 $0.5
3Q97 $0.240 $0.46 3Q98 $0.125 $0.5
4Q97 $0.1875 $1.625 4Q98 $0.11 $1.09375
At December 31, 1998, the Company had outstanding options of
approximately 9,222,461 of which approximately 6,618,213 are currently
exercisable for the purchase of common restricted stock.
Of the 25,831,806 shares of common stock outstanding at December 31,
1998, approximately 17,821,875 shares are "restricted stock" as defined by Rule
144. At December 31, 1998, approximately 11,460,295 shares of the restricted
common stock were eligible for resale pursuant to Rule 144.
Prior to December 31, 1998, 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 12/31/98 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 converted. Each A warrant is exercisable at
$3.00 per share when the trading bid price of the common stock reaches a $4.00
average over five consecutive trading days. Each B warrant is exercisable at
12
<PAGE>
$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 December 31, 1998, the Company had $46,148 of convertible promissory notes
outstanding that had the option to convert to 230,740 common restricted shares;
$125,000 convertible promissory notes outstanding that had the option to convert
to 500,000 common restricted shares; $15,000 convertible promissory notes
outstanding that had the option to convert to 50,000 common restricted shares;
$16,370 convertible notes outstanding that had the option to convert to 46,771
common restricted shares; $101,622 convertible notes outstanding that had the
option to convert to 203,244 common restricted shares. If converted, $62,322 of
these promissory notes 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. An additional $192,000 carry an option to purchase
one-half of the 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 $15,000 convertible notes payable with a
conversion rate of $0.30 per share and an option rate of $0.50 per share and
$110,000 convertible notes payable with a conversion rate of $0.25 per share and
an option rate of $0.50 per share. All of these notes are due in 1999 and all
options, if the notes are converted, are for a period of one year.
Holders
At December 31, 1998, there were approximately 1,128 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 12/31/98.
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 no
revenue in 1998 and has generated substantial losses in all years.
13
<PAGE>
The Company's plan of operation is described in full in Item 1.
Business, above. The Company's plan of operations has been implemented in
multiple phases with the implementation of each phase being subject to the
receipt of various levels of funding. It is management's belief that such phases
have been accomplished as it pertains to preparing the Company for the
acquisition of its first insurance company. Complete implementation of the
Company's plan of operations is anticipated to require funding in three phases.
In phase I, the Company secured, on December 23, 1998, a purchase agreement for
the private purchase of up to $2,500,000 (12,500,000 common restricted shares)
for working capital. In Phase II, the Company is currently being solicited by
various state and local government authorities with economic incentive packages
in the range of $20 million to $30 million dollars in grants or other incentives
to place the Company's administrative business in their state or local area. The
Company expects that this administrative business will employ between 1,200 and
1,450 people. Phase III is in the form of an equity sale of the Company's
preferred stock for the purpose of acquiring four to six life insurance
companies to reach the Company's immediate goal of $1.5 billion 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.
The Company will continue to negotiate for funding of up to $250,000,000 for the
purchase of four to six insurance companies, purchase of a life software system,
purchase of computer equipment, completion of additional functionality to its
technical architecture middleware, and provide working capital and continue to
pursue grants and other incentives from state and local authorities for an
economic incentive package of between $20 - $30 million. While the Company has
secured, on December 23, 1998, a private purchase agreement for up to $2.5
million (12,500,000 common restricted shares) over a period of months, 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
for the purchase of insurance companies as of 12/31/98. 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/or conduct a public offering before the end of 1999, 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.
At December 31, 1998, the Company had cash on hand of $47,506, total current
assets of $106,394 including cash, and liabilities totaling $851,175 excluding
accrued officer's salary of $634,963. Subsequent to 12/31/98 the Company had
received additional cash via private sale of common stock of $678,069. Also
subsequent to 12/31/98, $68,716 of $304,140 promissory notes outstanding as of
12/31/98 converted to common stock. The Company anticipates that the funds on
hand will not sustain current operations beyond 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.
14
<PAGE>
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS
The "F series" pages follow page 18 and begin with "F-1"
Page
----
<S> <C> <C>
Independent Auditor's
Report..................................................................................................F-3
Consolidated Balance Sheets as of December 31, 1998, and 1997...........................................F-4
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and
for the period from inception (November 12, 1986) to December 31, 1998.................................F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998,
and 1997 and for the period from inception (November 12, 1986) to December 31, 1998....................F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997,
and for the period from inception (November 12, 1986) to December 31, 1998.............................F-11
Notes to Consolidated Financial Statements .............................................................F-14
</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.
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 60 Chairman of the Board, President and CEO
Matthew W. Fossen 33 Director, CFO, Secretary, Treasurer
Mary M. Pohlmeier 50 Director
Robin M. Sandifer 61 Director
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:
15
<PAGE>
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
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.
Compliance With Section 16(a) Of The Exchange Act
Not Applicable
16
<PAGE>
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, 1998. 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>
Annual Compensation
Fiscal ------------------- Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- -------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Fossen (1) 1998 $28,308 (5) $ -0- $ -0- $ -0-
President and Chief (2) 1997 $29,536 (5) $ -0- $ -0- $ 37,150 (5)
Executive Officer (3) 1996 $89,400 (5) $ -0- $ -0- $ -0-
(4) 1995 $55,438 (5) $ -0- $ -0- $ -0-
(1) The aggregate remuneration to William Fossen during 1998 consisted of $28,308 in cash.
(2) The aggregate remuneration to William Fossen during 1997 consisted of $29,536 in cash.
(3) The aggregate remuneration to William Fossen during 1996 consisted of $89,400 in cash.
(4) The aggregate remuneration to William Fossen during 1995 consisted of $55,438 in cash.
(5) The amounts above exclude accrued salaries at December 31, 1998 not paid of approximately $571,963.
(5) A one time non service related payment during 1997 consisting of 185,750 shares valued at $37,150.
</TABLE>
Option/SAR Grants Table
The following table sets forth the options and/or stock appreciation
rights (SARs) made during the last completed fiscal year to each of the named
executive officers.
<TABLE>
Option/SAR Grants in Last Fiscal Year
Potential Realized Value at
Assumed Annual Alternative
Rates of Stock Price to f) and (g):
Appreciation Grant Date
Individual Grants for Option Term Value
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (f)
Number of % of
Securities Options/
Underlying SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5% $) 10%($) Value $
- ---------------------------------------------------------------------------------------------------------
</TABLE>
William J. Fossen
President and Chief None granted in 1998
Executive Officer
17
<PAGE>
Compensation of Directors
The Directors of the Company are not paid any fee for their services in
such capacity on a regular plan. No fees were paid to any directors during 1998
for services in that capacity.
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. William J. Fossen and
Matthew W. Fossen of approximately $571,963 and $63,000 respectively.
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.
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
December 31, 1998
----------------------
The following table sets forth the names of the persons who own stock
of the Company of 5% or more, of record or beneficially, and all officers and
directors of the Company and all officers and directors as a group.
Common Shares and Percentages Owned
-----------------------------------------------------------------------
Fully
Name Shares Owned Percent(1) Diluted(6)
National Investors 900,000 (2) 3.3% 2.6%
Holding Corp.
William J. Fossen 3,085,750 (3) 11.3% 8.8%
Mary M. Pohlmeier 1,291,353 (4) 4.7% 3.7%
Matthew W. Fossen 851,627 (5) 3.1% 2.4%
Robin M. Sandifer 441,987 1.6% 1.3%
All Officers, Directors
and Beneficial owners
as a Group 6,570,717 24.1%
Fully Diluted 6,570,717 18.7%
(1) Based on 25,831,806 shares outstanding at December 31, 1998 plus 1,435,000
shares represented by options that are exercisable within 60 days of this
report as follows: William J. Fossen, 1,000,000 shares; Mary M. Pohlmeier,
335,000 shares, Matthew W. Fossen 100,000 shares.
(2) William J. Fossen is President and 56% owner of National Investors Holding
Corporation (NIHC). All NIHC shares have been pledged to First City Bank,
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 1,450,127 shares held by
Mr. Fossen's adult children to which Mr. Fossen disclaims beneficial
ownership.
(4) Includes 335,000 shares which may be acquired by Ms. Pohlmeier upon the
exercising of options at $0.75 per share.
(5) Includes 100,000 shares which may be acquired by Mr. Fossen upon the
exercising of options at $1.00 per share.
(6) At 12/31/98 the Company had outstanding options for 9,222,461 shares of
which 6,618,213 were exercisable at 12/31/98. Fully diluted shares
outstanding at 12/31/98 are 35,054,267.
(7) All ownership is direct unless indicated otherwise.
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. During 1998, Mr.
Fossen was paid salary of $35,863 in cash. Unpaid wages were accrued for Mr.
Fossen in the amount of $63,000. Matthew W. Fossen is the son of William J.
Fossen.
19
<PAGE>
During 1997 and 1998, 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) No reports on form 8K were filed during the fourth quarter of 1998.
20
<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 31,1999
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.
Signature Title Date
- --------- ----- ----
/s/ William J. Fossen President, Chairman of the Board
- ---------------------- and Chief Executive Officer March 31, 1999
William J. Fossen (Principal Executive Officer)
/s/ Matthew W. Fossen Director ,CFO, Secretary, Treasurer March 31, 1999
- ----------------------
Matthew W. Fossen
/s/ Mary M. Pohlmeier Director March 31, 1999
- ----------------------
Mary M. Pohlmeier
/s/ Robin M. Sandifer Director March 31, 1999
-----------------
Robin M. Sandifer
21
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
DECEMBER 31, 1998 AND 1997
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, 1998 and 1997 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, 1998 and 1997 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, 1998, the Company's
current liabilities exceeded its current assets by $1,353,591 and its total
liabilities exceeded its total assets by $555,866. 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 26, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 47,506 $ 123,454
Accounts receivable 5,193 65,372
Notes receivable, and accrued interest, net of
allowance of $115,160 and $59,160
in 1998 and 1997, respectively 53,695 104,338
--------- ---------
Total current assets 106,394 293,164
--------- ---------
PROPERTY AND EQUIPMENT
Computer equipment 110,419 107,631
Furniture and office equipment 43,120 18,120
Software 633,479 9,900
Accumulated depreciation and amortization (78,069) (41,924)
--------- ---------
Net property and equipment 708,949 93,727
--------- ---------
INVESTMENT IN SUBSIDIARY -- 34,800
OTHER ASSETS 114,929 86,377
--------- ---------
TOTAL ASSETS $ 930,272 $ 508,068
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
December 31,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 299,818 $ 214,000
Notes payable - related party 4,322 23,520
Current obligations under capital leases 39,940 27,324
Accounts payable 452,003 121,955
Accounts payable - related party -- 6,700
Accrued officer's salary 634,963 401,963
Other accrued expenses 18,830 18,809
Interest payable 7,607 15,404
Interest payable - related party 2,502 1,211
----------- -----------
Total current liabilities 1,459,985 830,886
LONG-TERM DEBT
Obligations under capital leases, less current portion 26,153 58,134
----------- -----------
Total liabilities 1,486,138 889,020
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes C, F, I and O)
STOCKHOLDERS' DEFICIT
Preferred stock $1.00 par value; 50,000,000 shares authorized;
no shares issued and outstanding -- --
Series A Preferred Stock $1.00 par value; 2,500,000 shares
authorized, no shares issued and outstanding -- --
Common stock $0.001 par value; 150,000,000 shares authorized;
26,357,431 and 21,555,161 issued at December 31, 1998 and
1997, respectively 26,357 21,555
Common stock Class B $0.001 par value; 100,000 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 7,170,190 5,447,351
Deficit accumulated in the development stage (7,082,244) (5,541,630)
----------- -----------
114,403 (72,624)
Less treasury stock, 525,625 and 25,625 shares at
December 31, 1998 and 1997, respectively, at cost (41,206) (6,406)
Less stock issued for notes receivable (629,063) (301,922)
----------- -----------
Total stockholders' deficit (555,866) (380,952)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 930,272 $ 508,068
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1997 and period
from November 12, 1986 (inception) to December 31, 1998
Years Ended Period from
December 31, November 12, 1986 to
1998 1997 December 31, 1998
------------ ------------- --------------------
<S> <C> <C> <C>
REVENUE $ -- $ 124,527 $ 441,382
------------ ------------ ------------
COST OF REVENUE -- 68,119 68,119
------------ ------------ ------------
GROSS PROFIT -- 56,408 373,263
------------ ------------ ------------
COSTS AND EXPENSES
Advertising -- 625 22,091
Bad debt expense 62,298 -- 90,712
Bank charges 929 944 3,534
Commissions on revenue -- -- 31,346
Consulting 493,074 405,542 1,613,640
Consulting-related party -- 70,317 837,763
Depreciation and amortization 36,145 30,089 80,069
Equipment lease 7,722 6,404 18,288
Insurance and employee health care 2,102 10,349 23,223
Miscellaneous 1,847 1,048 7,325
Miscellaneous-related party -- -- 2,883
Office expense 19,480 42,495 138,010
Office expense-related party -- -- 500
Professional fees 55,601 72,268 601,970
Professional fees-related party -- -- 34,491
Other services 69,819 -- 69,819
Other services - related party -- 75,000 75,000
Provision for doubtful notes receivable -- -- 25,000
Rent 169,593 186,880 568,140
Repairs and maintenance 750 -- 750
Salaries and contract labor 443,769 529,979 2,078,274
Payroll taxes 11,540 37,431 119,371
Taxes, licenses and fees 23,445 77,778 158,661
Taxes, licenses and fees - related party -- 65,195 65,195
Penalties and fines 1,007 -- 1,007
Telephone 37,365 32,174 129,626
Travel and entertainment 80,392 55,669 405,324
Vehicle expense -- -- 10,022
------------ ------------ ------------
Total costs and expenses 1,516,878 1,700,187 7,212,034
------------ ------------ ------------
Loss from operations (1,516,878) (1,643,779) (6,838,771)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 19,055 12,065 47,081
Interest expense (40,574) (106,970) (204,423)
Interest expense-related party (2,217) (8,182) (17,649)
Other -- -- (37,260)
------------ ------------ ------------
Total other income (expense) (23,736) (103,087) (212,251)
------------ ------------ ------------
Loss before income taxes (1,540,614) (1,746,866) (7,051,022)
Income tax provision -- (32)
------------ ------------ ------------
NET LOSS $ (1,540,614) $ (1,746,866) $ (7,051,054)
============ ============ ============
Loss per common share:
Basic and diluted loss per common share $ 0.07 $ 0.11
============ ============
Weighted average common shares outstanding
(Basic and diluted) 23,507,668 15,748,430
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated 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, 1998
Class B Additional
Preferred Stock Common Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
---------- ---------- ------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance at November 12, 1986
(date of inception) - $ -- -- $ -- - $ -- $ --
Issuance of 1,000,000 shares of
common stock at $.0075 per share - -- 200,000 200 - -- 7,300
Expenses of stock issuance - -- -- -- - -- (200)
Net loss - -- -- -- - -- --
- --------- ---------- ---------- - -------- ----------
Balance at December 31, 1986 - -- 200,000 200 - -- 7,100
Net loss - -- -- -- - -- --
- --------- ---------- ---------- - -------- ----------
Balance at December 31, 1987 - -- 200,000 200 - -- 7,100
Issuance of 2,500,000 shares of
common stock at $.03 per share - -- 500,000 500 - -- 74,500
Expenses of stock issuance - -- -- -- - -- (6,095)
Net income - -- -- -- - -- --
- --------- ---------- ---------- - -------- ----------
Balance at December 31, 1988 - -- 700,000 700 - -- 75,505
Issuance of 14,000,000 shares of common
stock at $.001 per share for
coal production contract - -- 2,800,000 2,800 - -- 11,200
Expenses of stock issuance - -- -- -- - -- (5,421)
Net loss - -- -- -- - -- --
- --------- ---------- ---------- - -------- ----------
Balance at December 31, 1989 - -- 3,500,000 3,500 - -- 81,284
Rescind issuance of common stock for
coal production contract - -- (2,800,000) (2,800) - -- (11,200)
Deficit
Accumulated Notes
During the Receivable
Development Treasury Issued for
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 -- -- -- 7,500
Expenses of stock issuance -- -- -- (200)
Net loss (124) -- -- (124)
---------- ------- -------- ----------
Balance at December 31, 1986 (124) -- -- 7,176
Net loss (274) -- -- (274)
---------- ------- -------- ----------
Balance at December 31, 1987 (398) -- -- 6,902
Issuance of 2,500,000 shares of
common stock at $.03 per share -- -- -- 75,000
Expenses of stock issuance -- -- -- (6,095)
Net income 522 -- -- 522
---------- ------- -------- ----------
Balance at December 31, 1988 124 -- -- 76,329
Issuance of 14,000,000 shares of common
stock at $.001 per share for
coal production contract -- -- -- 14,000
Expenses of stock issuance -- -- -- (5,421)
Net loss (32,780) -- -- (32,780)
---------- ------- -------- ----------
Balance at December 31, 1989 (32,656) -- -- 52,128
Rescind issuance of common stock for
coal production contract -- -- -- (14,000)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
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, 1998
Class B Additional
Preferred Stock Common Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
---------- ---------- ------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock:
60,000 shares for cash -- $ -- 60,000 $ 60 - $ -- $ 14,940
265,000 shares for assets -- -- 265,000 265 - -- 39,735
40,000 shares for services -- -- 40,000 40 - -- 160
Net loss -- -- -- -- - -- --
--------- --------- --------- --------- ---- ------ ---------
Balance at December 31, 1990 -- -- 1,065,000 1,065 - -- 124,919
Issuance of common stock:
For cash -- -- 400 -- - -- 500
For services -- -- 5,561,019 5,561 - -- 22,242
Net loss -- -- -- -- - -- --
--------- --------- --------- --------- ---- ------ ---------
Balance at December 31, 1991 -- -- 6,626,419 6,626 - -- 147,661
Issuance of common stock for services -- -- 210,000 210 - -- --
Issuance of preferred stock at $1.00 110,000 110,000 -- -- - -- --
Net loss -- -- -- -- - -- --
Cumulative preferred stock dividends -- -- -- -- - -- --
--------- --------- --------- --------- ---- ------ ---------
Balance at December 31, 1992 110,000 110,000 6,836,419 6,836 - -- 147,661
Issuance of common stock:
For services -- -- 2,192,506 2,193 - -- 217,058
For cash -- -- 202,500 202 - -- 209,798
To convert notes payable and
accrued interest payable -- -- 75,706 76 - -- 126,337
Net loss -- -- -- -- - -- --
Cumulative preferred stock dividends -- -- -- -- - -- --
--------- --------- --------- --------- ---- ------ ---------
Balance at December 31, 1993 110,000 110,000 9,307,131 9,307 - -- 700,854
Deficit
Accumulated Notes
During the Receivable
Development Treasury Issued for
Stage Stock Stock Total
------------ --------- ----------- -----------
Issuance of common stock:
60,000 shares for cash $ -- $ -- $ -- $ 15,000
265,000 shares for assets -- -- -- 40,000
40,000 shares for services -- -- -- 200
Net loss (42,023) -- -- (42,023)
--------- ------ ------- ---------
Balance at December 31, 1990 (74,679) -- -- 51,305
Issuance of common stock:
For cash -- -- -- 500
For services -- -- -- 27,803
Net loss (93,047) -- -- (93,047)
--------- ------ ------- ---------
Balance at December 31, 1991 (167,726) -- -- (13,439)
Issuance of common stock for services -- -- -- 210
Issuance of preferred stock at $1.00 -- -- -- 110,000
Net loss (137,754) -- -- (137,754)
Cumulative preferred stock dividends (8,400) -- -- (8,400)
--------- ------ ------- ---------
Balance at December 31, 1992 (313,880) -- -- (49,383)
Issuance of common stock:
For services -- -- -- 219,251
For cash -- -- -- 210,000
To convert notes payable and
accrued interest payable -- -- -- 126,413
Net loss (519,112) -- -- (519,112)
Cumulative preferred stock dividends (13,200) -- -- (13,200)
--------- ------ ------- ---------
Balance at December 31, 1993 (846,192) -- -- (26,031)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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, 1998
Class B
Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
---------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
For services -- $ -- 463,500 $ 464 -- $ --
For cash -- -- 210,319 210 -- --
To convert preferred stock and
accrued dividends (90,000) (90,000) 57,561 58 -- --
Net loss -- -- -- -- -- --
Cumulative preferred stock dividends -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 20,000 20,000 10,038,511 10,039 -- --
Issuance of common stock:
For services -- -- 931,701 932 -- --
For cash -- -- 615,345 615 -- --
Conversion of preferred stock and
accrued dividends (10,000) (10,000) 5,217 5 -- --
Conversion of notes payable -- -- 150,000 150 -- --
Acquisition of VISI -- -- 454,545 454 -- --
Conversion of notes payable and
accrued interest -- -- 157,451 157 -- --
Issuance of Class B common stock
.001 par for services -- -- -- -- 100,000 100
Net loss -- -- -- -- -- --
Cumulative preferred stock dividends -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 10,000 10,000 12,352,770 12,352 100,000 100
Issuance of common stock:
For services -- -- 659,500 660 -- --
For cash -- -- 833,300 833 -- --
Retirement of:
Preferred stock (10,000) (10,000) -- -- -- --
Common stock -- -- (2,500) (3) -- --
Deficit
Accumulated Notes
Additional During the Receivable
Paid-in Development Treasury Issued for
Capital Stage Stock Stock Total
------------ ------------ --------- ----------- -----------
Issuance of common stock:
For services $ 45,887 $ -- $ -- $ -- $ 46,351
For cash 215,640 -- -- -- 215,850
To convert preferred stock and
accrued dividends 115,063 -- -- -- 25,121
Net loss -- (508,473) -- -- (508,473)
Cumulative preferred stock dividends -- (8,390) -- -- (8,390)
----------- ----------- -------- -------- ----------
Balance at December 31, 1994 1,077,444 (1,363,055) -- -- (255,572)
Issuance of common stock:
For services 639,429 -- -- -- 640,361
For cash 504,685 -- -- -- 505,300
Conversion of preferred stock and
accrued dividends 10,429 -- -- -- 434
Conversion of notes payable 74,850 -- -- -- 75,000
Acquisition of VISI -- -- -- -- 454
Conversion of notes payable and
accrued interest 173,033 -- -- -- 173,190
Issuance of Class B common stock
.001 par for services -- -- -- -- 100
Net loss -- (1,449,953) -- -- (1,449,953)
Cumulative preferred stock dividends -- (1,200) -- -- (1,200)
----------- ----------- --------- -------- ----------
Balance at December 31, 1995 2,479,870 (2,814,208) -- -- (311,886)
Issuance of common stock:
For services 65,290 -- -- -- 65,950
For cash 690,810 -- -- -- 691,643
Retirement of:
Preferred stock (1,319) -- -- -- (11,319)
Common stock (5,597) -- -- -- (5,600)
</TABLE>
The accompanying notes are an integral part of these consolidated 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, 1998
Class B Additional
Preferred Stock Common Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
---------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Conversion of notes payable and
accrued interest -- -- 128,650 $ 129 -- $ -- $ 65,521
Treasury stock acquired -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 13,971,720 13,971 100,000 100 3,294,575
Issuance of common stock:
For services -- -- 1,743,773 1,745 -- -- 403,671
For cash -- -- 1,182,137 1,182 -- -- 523,445
For notes receivable -- -- 752,744 753 -- -- 301,169
Fees other -- -- 725,339 725 -- -- 137,089
Acquisitions -- -- 700,000 700 -- -- 44,100
Expense reimbursement -- -- 60,274 60 -- -- 11,995
Conversion of notes payable and
accrued interest -- -- 2,419,174 2,419 -- -- 731,307
Net loss -- -- -- -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 -- -- 21,555,161 21,555 100,000 100 5,447,351
Issuance of common stock:
For services -- -- 1,109,250 1,109 -- -- 426,493
For cash -- -- 1,914,040 1,914 -- -- 638,910
For notes receivable -- -- 797,480 798 -- -- 326,343
Fees other -- -- 62,500 62 -- -- 24,938
Expense reimbursement -- -- 18,280 19 -- -- 4,552
Conversion of notes payable
and accrued interest -- -- 900,720 900 -- -- 301,603
Triple A recision -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 -- $ -- 26,357,431 $ 26,357 100,000 $ 100 $ 7,170,190
========== ========== =========== =========== =========== =========== ===========
Deficit
Accumulated Notes
During the Receivable
Development Treasury Issued for
Stage Stock Stock Total
------------ ---------- ----------- -----------
Conversion of notes payable an $ -- $ -- $ -- $ 65,650
accrued interest
-- (6,406) -- (6,406)
Treasury stock acquired
(980,556) -- -- (980,556)
Net loss ----------- ----------- ----------- -----------
(3,794,764) (6,406) -- (492,524)
Balance at December 31, 1996
Issuance of common stock: -- -- -- 405,416
For services -- -- -- 524,627
For cash -- -- (301,922) --
For notes receivable -- -- -- 137,814
Fees other -- -- -- 44,800
Acquisitions -- -- -- 12,055
Expense reimbursement
Conversion of notes payable an -- -- -- 733,726
accrued interest
(1,746,866) -- -- (1,746,866)
Net loss ----------- ----------- ----------- -----------
(5,541,630) (6,406) (301,922) (380,952)
Balance at December 31, 1997
Issuance of common stock: -- -- -- 427,602
For services -- -- -- 640,824
For cash -- -- (327,141) --
For notes receivable -- -- -- 25,000
Fees other -- -- -- 4,571
Expense reimbursement
Conversion of notes payable -- -- -- 302,503
and accrued interest
-- (34,800) -- (34,800)
Triple A recision
(1,540,614) -- -- (1,540,614)
Net loss ----------- ----------- ----------- -----------
$(7,082,244) $ (41,206) $ (629,063) $ (555,866)
Balance at December 31, 1998 =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
and period from November 12, 1986 (inception) to December 31, 1998
Period from
Years Ended November 12,
December 31, 1986 to
1998 1997 December 31,1998
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,540,614) $(1,746,866) $(7,051,054)
Non cash charges included in operations
Allowance for doubtful accounts 56,000 -- 56,000
Depreciation and amortization 36,145 30,089 80,069
Common stock issued for services 427,602 405,416 1,474,239
Common stock issued for services - related party -- -- 359,008
Common stock issued for services and
accrued expenses -- -- 30,434
Common stock issued for fees and other costs 25,000 137,814 162,814
Common stock issued for expense reimbursement 4,571 12,055 16,626
Common stock issued for interest payable 25,203 81,759 127,064
Note payable issued for services - related party -- -- 3,200
Note payable issued for interest expense -- 3,660 3,660
Provision for doubtful notes receivable -- -- 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 60,384 34,331 (4,988)
(Increase) in interest receivable (17,157) (12,653) (36,373)
(Increase) decrease in interest receivable -
related party -- 588 (60)
(Increase) decrease in other assets (28,552) (54,610) (82,577)
(Increase) in deposits -- -- (31,767)
Increase (decrease) in accounts payable 330,048 66,459 445,102
Increase (decrease) in accounts payable -
related party (6,700) -- 21,901
Increase (decrease) in interest payable (2,111) -- (2,111)
Increase (decrease) in accrued payroll
and payroll taxes 218,596 112,025 633,173
Increase (decrease) in accrued expenses 14,425 9,971 37,043
Increase in accrued expenses - related party -- 2,430 4,871
----------- ----------- -----------
Net Cash Used For Operating Activities (397,160) (917,532) (3,628,266)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs -- -- (50)
Purchase of fixed assets including payments
for software development (651,367) -- (672,781)
Loans made 10,800 (21,200) (101,542)
Loans made to shareholder -- -- (17,000)
Loans made to related parties -- -- (95,366)
Loan repayments (3,600) -- 1,400
Loan repayments-related parties -- -- 10,500
Deposit on coal production contract -- -- (15,000)
----------- ----------- -----------
Net Cash Used For Investing Activities (644,167) (21,200) (889,839)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated 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, 1998 and 1997
and period from November 12, 1986 (inception) to December 31, 1998
Period from
Years Ended November 12,
December 31, 1986 to
1998 1997 December 31, 1998
----------- ----------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Stock sale expenses $ -- $ -- $ (11,716)
Proceeds from notes payable 378,418 649,500 2,017,077
Proceeds from notes payable - related parties 13,667 67,400 310,894
Repayments of notes payable (22,800) (99,488) (383,490)
Repayments of notes payable - related parties (25,365) (67,600) (214,707)
Repayments of capital lease obligations (19,365) (22,173) (41,538)
Proceeds from preferred stock sale -- -- 20,000
Retirement of preferred stock -- -- (11,319)
Dividends converted to preferred stock -- -- (434)
Proceeds from sale of common stock 640,824 524,627 2,886,244
Preferred dividends paid -- -- (5,400)
----------- ----------- -----------
Net Cash Provided From Financing Activities 965,379 1,052,266 4,565,611
----------- ----------- -----------
Increase (decrease) In Cash (75,948) 113,534 47,506
Cash At Beginning Of Period 123,454 9,920 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 47,506 $ 123,454 $ 47,506
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash Flow Information:
Interest paid $ 36,829 $ 19,742 $ 82,818
Interest paid - related party 927 925 10,247
Income taxes paid -- -- 32
Non-Cash Investing Activities:
Repayment of note receivable - non cash method 19,000 2,000 21,000
Common stock issued for:
Acquisition of VISI -- -- 434
Acquisition of NIAI -- 10,000 10,000
Acquisition (rescission) of Triple A (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 427,602 300,416 1,231,026
Services - related party -- 105,000 463,908
Fees and other costs 25,000 72,767 97,767
Fees and other costs - related party -- 65,047 65,047
Expense reimbursement 4,571 12,055 16,625
Repayment of notes payable 269,800 624,967 1,119,917
Repayment of notes payable-related party 7,500 27,000 119,500
Payment of interest 25,203 78,662 123,968
Payment of interest - related party -- 3,097 3,097
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Continued Years Ended December 31, 1998 and 1997
and period from November 12, 1986 (inception) to December 31, 1998
Period from
Years Ended November 12,
December 31, 1986 to
1998 1997 December 31, 1998
------- -------- -----------------
<S> <C> <C> <C>
Payment of accounts payable$ -- $ -- $ 15,000
Conversion of preferred stock -- -- 100,000
Payment of preferred stock dividend -- -- 25,556
Notes receivable 327,141 301,922 629,062
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
Common stock canceled for conversion of
note receivable -- -- 5,600
Additions to equipment under capital leases -- 10,378 107,631
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 was accounted for under the equity method during
1997, as discussed further in Note B. The Triple A acquisition agreement was
rescinded during 1998. The Company portion of equity income or loss related to
its investment in Triple A during the year ended 1998 was minimal.
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 was accounted for using the equity method. All
material inter-company transactions are eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Equipment under capital leases is
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 is 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 Company purchased $27,788 of property and equipment during 1998. The Company
also capitalized $623,579 of software development costs.
The gross amount and accumulated amortization for assets held under capital
leases amounted to $107,631 and $59,267, respectively at December 31, 1998 and
$107,631 and $28,689, respectively at December 31, 1997.
F-14
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes
- ------------
Deferred income taxes are determined using the asset and liability method, under
which deferred tax assets and liabilities are calculated based on differences
between financial accounting and tax basis of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the payable or
refund 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
- --------------------
Software development costs have been capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). Under SFAS 86,
capitalization of software development costs begins upon the establishment of
technological feasibility and ends when a product is available for general
release to customers. Software development costs will be amortized after the
product is placed in service over a period ranging from three to five years.
Use of Estimates and Assumptions
- --------------------------------
Management uses estimates and assumptions in preparing 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, was limited to the form and content of the Company's
disclosures and did 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, 1998 and 1997
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In June 1998, the Financial Accounting Standards Board issued Standard No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective beginning in 2000. The adoption of SFAS 133 is not expected to have a
material impact on the financial position or results of operations of the
Company.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
("SOP 98-5"), "Reporting on the Costs of Start-up Activities". This statement is
required to be adopted for fiscal years beginning after December 15, 1998 and
requires the expensing of all start-up costs, as defined, as they are incurred.
The Company has voluntarily applied accounting policies consistent with SOP 98-5
for the years ended December 31, 1998 and 1997.
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 was unclear whether or not control of the
subsidiary would 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. Under terms
of the contingent provision, the Triple A acquisition agreement was rescinded
during 1998.
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 $1,540,614 during the year ended December 31, 1998 and has
accumulated losses of $7,051,054 since its inception, November 12, 1986. Cash
used by operating activities for the same periods aggregated $397,160 and
$3,628,266, respectively. Current liabilities at December 31, 1998 of $1,459,985
exceed current assets of $106,394. Total liabilities at December 31, 1998 of
$1,486,138 exceed total assets of $930,272. 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. The Company intends to obtain
capital primarily through issuance of common and preferred stock. 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.
F-16
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE D - NOTES PAYABLE
The Company entered into new notes or renewed existing notes totaling $539,985
during 1998. All of outstanding notes at December 31, 1998 mature during 1999.
The notes maturing in 1999 bear interest at 12% and are secured by the assets of
the Company. Interest payments are due annually. Included in the $539,985 is
$13,667 from other related parties.
During 1998 and 1997, notes payable totaling $277,300 and $651,967, respectively
and related accrued interest of $25,203 and $81,759 were converted to 900,720
and 2,419,174 common shares, respectively. As of December 31, 1998, the Company
had $46,148 of convertible notes outstanding that had the option to convert to
230,740 common restricted shares; $125,000 convertible notes outstanding that
had the option to convert to 500,000 common restricted shares; $15,000
convertible notes outstanding that had the option to convert to 50,000 common
restricted shares; $16,370 convertible notes outstanding that had the option to
convert to 46,771 common restricted shares; $101,622 convertible notes
outstanding that had the option to convert to 203,244 common restricted shares.
If converted, $62,322 of these notes 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. An additional $192,000 carry an option to
purchase one-half of the 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 $15,000 convertible notes payable
with a conversion rate of $0.30 per share and an option rate of $0.50 per share
and $110,000 convertible notes payable with a conversion rate of $0.25 per share
and an option rate of $0.50 per share. All of these notes are due in 1999 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, 1998 and 1997 are as
follows:
<TABLE>
1998 1997
------------ ------------
<S> <C> <C>
Current deferred tax asset $ 255,042 $ 136,667
Current deferred tax liability (255,042) (136,667)
Valuation allowance for current deferred tax asset - -
------------ ------------
Net current deferred tax asset $ - $ -
============ ============
Non-current deferred tax asset 2,062,798 1,657,564
Non-current deferred tax liability - -
Valuation allowance for non-current deferred tax asset (2,062,798) (1,657,564)
------------ ------------
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 and the allowance for doubtful
accounts which is not deducted for federal income tax reporting purposes until
written-off.
F-17
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE E - INCOME TAXES - Continued
The Company has operating loss carryforwards totaling approximately $6,816,000,
subject to limitations under Section 382 of the Internal Revenue Code, that are
available to offset its future income tax liability. The net operating loss
carryforwards expire as follows:
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
Year 2013 1,540,000
------------
$ 6,816,000
============
As further described in Note C, realization of the benefit of these net
operating loss carryforwards appears uncertain, accordingly, a valuation
allowance of $2,062,798 has been recorded in 1998 against the deferred tax asset
resulting from the recurring deferred tax benefit. The valuation allowance
increased by $405,234 and 553,744 during the years ended December 31, 1998 and
1997, respectively.
NOTE F - LEASE COMMITMENTS
During 1996, the Company entered into operating lease agreements for office
space and certain 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 $169,593 and $186,880
in 1998 and 1997, net of $86,400 and $96,095 of rental income in 1998 and 1997
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, 1998 are as follows:
Operating Capital
Leases Leases
---------- --------
1999 $ 265,280 $ 46,563
2000 258,216 15,701
2001 129,108 15,252
---------- --------
Total 652,604 77,516
Less lease income from sub-lease (43,200)
$ 609,404
==========
Less amount representing interest (11,423)
Present value of net minimum lease payments --------
including current maturities of $39,940 $ 66,093
========
F-18
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
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.
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 $1.00 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, 1998, 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, 1998 and 1997, there were a total of 2,590,045
and 3,637,685 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, 1998 and 1997 there were a
total of 9,222,461 and 11,805,291 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.
F-19
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE I - STOCK OPTIONS - Continued
A summary of changes in the Company's compensatory options follows:
Employee Stock Plan Other Compensatory Combined Total
------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
----------- -------- ----------- -------- -----------
Outstanding at 12/31/96 1,982,685 - 5,794,947 - 7,777,632
Granted 1,655,000 $ 1.00 335,000 $ .44 1,990,000
Exercised - - (335,000) $ .44 (335,000)
Forfeited - - (1,196,871) $ 1.00 (1,196,871)
----------- ----------- -----------
Outstanding at 12/31/97 3,637,685 4,598,076 8,235,761
Granted 780,000 $ 1.00 241,413 $ 0.87 1,021,413
Exercised - - - - -
Forfeited (1,827,640) $ 1.00 (1,100,000) $ 1.10 (2,927,640)
----------- ----------- -----------
Outstanding at 12/31/98 2,590,045 3,739,489 6,329,534
=========== =========== ===========
The fair value of compensatory options issued during 1998 and 1997 was $340,581
and $847,817, respectively.
The following table summarizes information about options outstanding at December
31, 1998 under the Employee Stock Plan:
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 2,590,045 3.3 years $1.00 849,968 $1.00
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1998:
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
- --------------- ----------- ---------------- -------------- ----------- -----------------
$0.75-$1.10 3,739,489 1.0 years $1.02 3,618,076 $1.03
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE I - STOCK OPTIONS - Continued
A summary of changes in the Company's non-compensatory options follows:
Non-Compensatory Weighted Average
Options Exercise Price
---------------- ----------------
<S> <C> <C>
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
Granted 2,451,024 0.49
Exercised (1,249,129) 0.41
Forfeited (1,878,498) 0.65
------------
Outstanding at 12/31/98 2,892,927 $ 0.74
============
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB25"), in accounting for its compensatory options. The options
granted in 1998 and 1997 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,
------------------------
1998 1997
---- ----
Net Loss As reported $ 1,540,614 $ 1,746,866
Pro forma $ 1,859,249 $ 2,594,683
Loss per share As reported (Basic
and diluted) $ 0.07 $ 0.11
Pro forma $ 0.08 $ 0.16
</TABLE>
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 1998; dividend yield at 0%, expected volatility at 202%, risk free
interest rates ranging from 5.3% 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 1997;
dividend yield of 0%, expected volatility of 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 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.
F-21
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE J - RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997, the Company issued an
aggregate of 1,171,750 and 2,469,112 common shares in exchange for services,
respectively. Of these shares, 600,000 shares were issued to officers and
directors as a group during 1997. Such transactions have been recorded at values
of $.10 to $.65 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 1998 and 1997 aggregated $15,000 and $70,317, respectively.
At December 31, 1998, the Company had notes and interest receivable of $53,695
(net of allowance).
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.
NOTE K - CONCENTRATIONS OF CREDIT RISK
The Company's notes receivables and accounts receivable are subject to potential
credit risk. Some notes receivable are collaterized against shares held in the
Company; all other notes receivable are uncollatoralized. 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).
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 $200,772 at December 31, 1998. 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 an Employee Benefit
Committee appointed by the Board of Directors. During 1996, the Company
registered an additional 1,000,000 common shares through a Form S-8. During
years ended December 31, 1998 and 1997, 189,669 and 560,000 shares,
respectively, have been issued under the terms of the Plan.
F-22
<PAGE>
VIKING CAPITAL GROUP, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
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 payments will be recognized
as revenue when received.
NOTE O - YEAR 2000
The Company has completed a survey of internal administrative office equipment
and software for Year 2000 issues. Additionally, the software developed by the
Company is Year 2000 compliant. The Company plans to continue to evaluate the
Year 2000 readiness of its consultants, vendors, and suppliers and develop
contigency plans where necessary. Based on current information, the Company
believes that the cost of compliance with the Year 2000 will not be material to
the Company's financial condition or operations, and will not significantly
affect the Company's ability to deliver its products and and services; however,
given the uncertain consequences of Year 2000 issues outside the scope or
control of the Company, there can be no assurance that any one or more such Year
2000 consequences would not have a material adverse effect on the Company.
NOTE P - SUBSEQUENT EVENTS
For the period from December 31, 1998 through the date of this report, the
Company issued 2,707,442 common shares. Of this amount, 257,477 shares were
issued in conjunction with the conversion of $68,716 notes payable. The Company
also granted 220,000 options to acquire common shares. All the options expire
within one to four years from the date of grant.
On January 21, 1999, the Company registered an additional 1,000,000 common
shares through an S-8.
F-23
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
21.1 List of Subsidiaries
27.1 Financial Data Schedule
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 Capital Financial Services, Inc. Texas
Viking Insurance Services, Inc. Texas
Viking Systems, Inc. Texas
Viking Administrators, Inc. Texas
NIAI Insurance Administrators, Inc. California
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 47,506
<SECURITIES> 0
<RECEIVABLES> 174,048
<ALLOWANCES> 115,160
<INVENTORY> 0
<CURRENT-ASSETS> 106,394
<PP&E> 787,018
<DEPRECIATION> 78,069
<TOTAL-ASSETS> 930,272
<CURRENT-LIABILITIES> 1,459,985
<BONDS> 26,153
0
0
<COMMON> 26,357
<OTHER-SE> (582,223)
<TOTAL-LIABILITY-AND-EQUITY> 930,272
<SALES> 0
<TOTAL-REVENUES> 19,055
<CGS> 0
<TOTAL-COSTS> 1,516,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,791)
<INCOME-PRETAX> (1,540,614)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,540,614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,540,614)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
