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, 2001
[ ] 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
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
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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
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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,
2002, was approximately $ 14,260,577.
As of March 15, 2002, there were 57,275,860 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.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business............................................ 3
Item 2. Description of Properties.......................................... 7
Item 3. Legal Proceedings.................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................ 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........... 9
Item 6. Management's Discussion and Analysis............................... 12
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..................... 20
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
Viking Capital Group, Inc. (the "Company" or "Registrant") is a Utah corporation formed on November 12, 1986. The Company was originally formed under the name Silver Harvest, Inc. and took its current name in 1990. In 1991 it performed a 1 for 5 reverse split. There have been no splits since that time.
Viking Capital Group, Inc. is a diversified international holding company whose mission is to become the recognized leader at creating extraordinary long-term value for its shareholders through acquisitions. To achieve our mission, Viking identifies businesses for acquisition that are currently not optimizing opportunities that are available. To determine the opportunities available, Viking looks at the overall business environment with a clear focus on fundamental changes in politics, regulation, technology and world economics.
During 2000 and 2001 the Company began expanding its horizons for acquisitions to include companies outside of insurance and technology and also outside of the United States. The Company's stock was also determined to be the primary vehicle for acquisitions. The Company began focusing on China because of business contacts available to management, the growth of the Chinese economy (gross domestic product) in excess of 7% a year with expectations to continue to grow at such rates, the privatization of assets and businesses, the restructuring of companies' debt at banks (the Company looks for debt relief negotiations and or purchase of companies at a steep discount) and the expected entry into World Trade Organization (WTO). China won entry into WTO in December 2001.
The Company's current focus on China was firmly established in February 2001 when a strategic agreement was signed with Oriental Enterprise Holdings Entrustment & Operation (H.K.) Co. Ltd., (Oriental) that makes Viking an authorized representative (non-exclusive) in the Americas of any interested purchaser of a privatized company or asset in China. This agreement, in addition to the Company's other contacts in China, creates the opportunity to review many potential acquisition candidates. Management refers to this as deal flow. In August of 2001, the Company announced its first acquisition of 25% of Beijing Fei Yun Viking Enterprises Company, Ltd. (Fei Yun), which became effective on December 3, 2001. Subsequently, the Company purchased an additional 71% of Fei Yun bringing its ownership to a total of 96% at December 31, 2001. Separately, the Company also purchased 25% of Wuxi Viking Garments Company, Ltd.(Wuxi Viking).
The acquisition of a total of 96% of Fei Yun Viking and 25% of Wuxi Viking in late 2001 increased the Company from approximately $1 million in consolidated assets to approximately $129 million in consolidated assets. Consolidated debt increased from approximately $2 million to $96 million during 2001 while owners' equity increased from approximately negative $1.1 million to a positive $25 million. There is also a separate minority interest in equity of approximately $8 million in addition to the $25 million in equity attributable to Viking's shareholders.
In addition to notes receivable of approximately $11 million (which relate to the prior sale of two businesses) Fei Yun Viking has three subsidiaries and is primarily engaged in real estate activities. The three subsidiaries are Beijing Golden Horse Great Wall Estate Construction Company, Ltd. (Golden Horse) (60% owned), Lianyugang East Sea Highway Development and Management Company, Ltd.(Lianyugang) (40% owned) and Beijing Fei Yun Viking Chemical Products
Company Trading Company, Ltd.(Chemical)(100% owned). The largest asset is Sunshine Plaza which is 100% owned by Golden Horse. Sunshine Plaza is a large mixed use real estate complex located in the northern part of Beijing, China with about 1,688,000 total square feet. There are approximately 575 condominium units, 100 office space units and over 425,000 square feet of retail shopping space. The retail shopping space includes "Pretty Mall" for clothing and apparel, "Wonderful Mart" for groceries and sundries and several service stores including a "Kentucky Fried Chicken(TM)", "Starbucks(TM)", a pizza restaurant, travel agency, dry cleaner, bank and other services for the benefit of Sunshine Plaza residents and other customers. Sunshine Plaza derives it revenues from leasing space and selling condominiums. Competition for lease space is generally driven by terms of the lease. Terms of leases fluctuate widely and can include items such as free rent for a period, base rent plus percentage of revenue, increasing or decreasing rent over time, lump sum discounts and other terms. Lianyugang's primary business is the construction and operation of toll-ways. One toll-way project joins Shangdong with the north of Jiangsu, is named Provincial Highway 227 and is about 25 miles long. This toll-way is expected to be completed in mid to late 2002. A second toll-way construction project covering Huozhou of Shanxi has not begun construction and is about 23 miles long. The Chemical company's business is the buying of chemicals primarily from suppliers outside of China and selling them inside China. This business is not active but it does have a proven customer list and experienced personnel available.
Wuxi Viking is the parent and a producing member of a total of six garment manufacturing companies located in Wuxi, China. Wuxi Viking primarily produces men's pants and shirts and children's clothing although it has the ability to produce almost any article of clothing. Its primary customers are in Japan and is currently diversifying and expanding its customer base in China, the European Union (EU) and the United States. Fabric is primarily supplied from Chinese and other Asian suppliers and is readily available. Governments regulate the import of certain articles of clothing into their country via quotas. These quotas are in turn administered by the Chinese government and stipulate the maximum number of garments that may be produced by any one entity. Quotas are purchased among companies to try to fill customers' orders. The garment industry is highly competitive. Most garment manufacturers, including Wuxi Viking, compete on price, quality and timely delivery. Wuxi Viking and its subsidiaries have a good reputation for quality garments and timely delivery.
The Company is continuing to analyze additional companies in China for acquisition. Specific areas of focus are real estate (multi-family residential and commercial), manufacturing, and technology services (such as application service provider(ASP) or enterprise resource planning(ERP) solutions provider). The Company may also pursue real estate development projects if they are found to be suitable in management's opinion.
The market for acquisitions and investment in China is vast. According to the Chinese Ministry Of Foreign Trade and Economic Co-operation (MOFTEC), actual direct foreign investment in China reached a new high of $46.85 billion in 2001. This represents a 14.9% increase over the prior year. Management believes that China's entry into WTO has increased investor confidence. The Company believes it has an advantage in pursuing acquisition targets over others because of its contacts, long-standing relationships and management's belief that the Chinese prefer to work with a small to medium size public company like Viking versus very large companies. Management also believes that the current business and political climate in China favors foreign companies. Competition for acquisitions is not expected to significantly intensify beyond current levels for the foreseeable future.
During prior periods, the Company's plans called for the acquisition of life insurance companies and the development and/or purchasing/licensing of software to provide Internet based services as an application service provider (ASP) primarily for banks and insurance companies. The driving force behind this
strategy was to capitalize on expected new needs of banks, insurance companies and securities firms based upon the anticipated change in the regulatory environment of these industries. The change expected was that regulators and legislators would allow the convergence of the banking, insurance and securities industries that were previously separated under the Glass-Steagal Act of 1933. The Company was proven correct in its assumptions as the Gramm-Leach-Bliley Act was passed in November 1999 restructuring the financial services industries. However, the Company was not able to obtain the capital required to pursue the acquisitions of life insurance companies. Separately, although potential remote banking customers were interested in our services, they would not sign a contract as they felt the Company was under-capitalized. The Company does not intend to focus on this aspect of the business in the near future.
Current activities continue to focus on opportunities in China. All other opportunities will be measured against expected returns on Chinese projects.
EMPLOYEES
At December 31, 2001, the Company including only its consolidated subsidiaries had approximately 338 employees. The Company's relations with its employees are favorable.
RISK FACTORS
The Company faces substantial risks at all times. Some of these risks are listed here. This list is not intended to be an all encompassing description of risks, but as a reminder that there are substantial risks involved in investing in this stock or any stock and that persons inclined to invest in a company must do so after personal due diligence and a personal assessment of their risk tolerance. We encourage you to review this entire document and perform other information gathering of your own.
1) Substantially all of our assets and revenues are currently derived from businesses in China.
Conducting business in China is highly dependent upon relationships, the political atmosphere and political agendas. If relationships should suffer, for any reason, results of operations and continued growth of the Company could be materially and adversely affected. Changing perceptions of China in the general public or in politics may also materially and adversely affect the Company's growth, continued operations and stock prices.
China's entry into the World Trade Organization is expected to increase positive perceptions of doing business with China. However, perceptions can and do fluctuate over time with consequences that may be adverse and material.
2) Our ability to acquire other companies faces substantial obstacles. Our failure to overcome any of these obstacles may materially and adversely affect our planned growth.
The key element of our strategy is to acquire additional companies. The success of our acquisitions will depend on our ability to overcome substantial obstacles, such as the availability of acquisition candidates, our ability to compete successfully with other potential acquirors seeking similar or the same acquisition candidates, the availability of funds to finance acquisitions and the availability of management resources to oversee the operation of acquired businesses. The Company has limited resources and we can offer no assurance that
we will succeed in consummating any additional acquisitions or that we will be able to integrate and manage any acquisitions successfully.
3) The business of Fei Yun Viking is currently largely dependent upon Sunshine Plaza for its revenues. Sunshine Plaza is largely dependent upon its two major tenants Pretty Mall and Wonderful Mart, who are controlled by one entity. The loss of these customers would materially and adversely affect results of operations. Sunshine Plaza also produces revenues by selling condominiums whose sales have slowed considerably. If sales do not increase, results of operations would materially and adversely be affected.
Pretty Mall and Wonderful Mart constitute 67% of the commercial leasable square feet at Sunshine Plaza. The leases with Pretty Mall and Wonderful Mart are 20 year leases expiring in 2021. Management of these malls have good reputations but no degree of assurance can be made as to future events. Management of Viking does not anticipate any significant change in the good standing of these tenants at this time.
4) A substantial portion of our outstanding common stock is feely tradable and may be sold into the market at any time. An additional minimum of 15,800,000 common restricted shares will be eligible to have restrictions removed within a year. This could cause the market price of our common stock to drop significantly, even if our business is growing.
Our common stock has experienced in the past, and is expected to experience in the future, significant price and volume volatility, which substantially increases the risk of loss to persons owning our common stock.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains certain "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, both inside and out-side the U.S, changes or anticipated changes in regulatory environments, competitive factors, general economic conditions, customer relations, relationships with vendors, Viking and its subsidiaries' ability to recruit and retain skilled personnel, the interest rate environment, governmental regulation and supervision, international relations between the US and foreign countries, seasonality, distribution networks, telecommunication networks, product introductions and acceptance, technological change, changes in industry practices, timely completion and successful integration of acquisitions, economic, social and political conditions in the countries in which Viking, its customers or its suppliers operate including security risks, possible disruptions in the communication and transportation networks and fluctuations in foreign currency exchange rates, one-time events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
ITEM 2. PROPERTIES
The Company's executive offices are located in 10,970 square feet of office space at Two Lincoln Centre, 5420 LBJ Freeway, Suite 300, Dallas, Texas 75240 at the base rate of $21,026 per month for a period of eighteen months (18) months through 12/31/2002. Approximately 6,143 square feet are subleased to independent third parties pursuant to written lease agreements providing for monthly lease payments of $11,774 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.
In 2001, the Company purchased a 25% interest in Wuxi Viking Garments Company, Ltd. (Wuxi Viking). Wuxi Viking is a producing member of six garment manufacturing companies that are also partially owned by Wuxi Viking. These companies are all located in Wuxi, China and occupy substantial land and building space that are owned by one or more of these companies and other parties. Wuxi Viking alone, without its subsidiaries, has approximately 377,000 square feet of building space. Because these companies are not consolidated, no additional detailed information is provided here.
Also in 2001, Viking Capital Group, Inc. acquired properties in Beijing, China. Sunshine Plaza, wholly owned by Beijing Golden Horse Great Wall Estate Construction Company, Ltd. (Golden Horse) is a mixed-use property located at 68 Anli Road, Chaoyang area in Beijing, China. The area is also known as the Olympic District. Total square footage is in excess of 1,688,000 square feet comprised of approximately 575 condominium units, 100 office units, 400 car parking units and a three story retail shopping center occupying in excess of 425,000 square feet. The retail shopping space includes "Pretty Mall" for clothing and apparel, "Wonderful Mart" for groceries and sundries and is ringed on the exterior by several service stores including a "Kentucky Fried Chicken(TM)", "Starbucks(TM)", a pizza restaurant, travel agency, dry cleaner, bank and other services for the benefit of Sunshine Plaza residents and other customers. Construction was completed in 1999 and the building is in very good condition. Golden Horse is 60% owned by Beijing Fei Yun Viking Enterprises Co., Ltd. which is 96% owned by the Registrant.
Condominium units range from approximately 1,700 to 2,500 square feet each and are carried in inventory with a value of $90.52 per square foot. Condominiums are currently selling at a significant premium to this amount. A 2001 sale carried a value of $141.43 per square foot. Current competition in the area is increasing with new buildings being constructed but prices have also increased since the announcement that Beijing had won the right to host the 2008 Olympics. At December 31, 2001 there were approximately 344,424 square feet of condominium space available for sale. Approximately 71% of condominium space has already been sold.
Regarding the retail space, a significant amount of effort and expense was put forth to remodel the retail shopping areas during 2001. Sunshine Plaza held a grand re-opening for "Pretty Mall" in September 2001 and a grand re-opening for "Wonderful-Mart" in December of 2001. These two retail areas constitute approximately 67% of the leasable retail shopping space of Sunshine Plaza and occupy approximately 290,626 square feet. At December 31, 2001, approximately 77% of the total retail space was leased out. After December 31, 2001 approximately another 75,000 square feet were leased bringing the occupancy rate up to approximately 95%. Other operating data is detailed in the tables below.
LEASE EXPIRATIONS
The following table shows commercial retail shopping space lease
expirations for the next ten years for Sunshine Plaza assuming that none of the
tenants exercise renewal options.
DECEMBER 31, 2001
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Gross Leasable Area Annualized Minimum Rent
Percent Of
Total
Expiration Number Percent Annualized
Year of Leases Square Of Dollar Base Rents at
Expiring Feet Total Amount 12/31/2001
--------- ------ ----- --------- ----------
2002 11 20,150 4.5% $190,938 10.0%
2003 1 96 0.0% $ 8,833 0.5%
2004 1 1,409 0.3% $ 30,371 1.6%
2005 1 1,452 0.3% $ 37,389 2.0%
2006 0 - - - -
2007 0 - - - -
2008 1 3,934 0.9% $ 78,650 4.1%
2009 0 - - - -
2010 1 4,274 0.9% $193,600 10.1%
2011 1 8,339 1.8% $211,387 11.1%
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Total 17 39,654 8.7% $817,905 39.4%
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MAJOR TENANTS
The following table sets forth certain information regarding Sunshine Plaza's major tenants that represent 10% or more of the gross leasable retail area as of December 31, 2001.
Percent Of
Annualized
Number Annualized Base Rents
Of Minimum As Of
Tenant Name Leases Rent 12/31/2001
----------- ------ ---------- ----------
Pretty Mall 1 $ -0- 0%
Wonderful-Mart 1 $1,080,288 57%
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Total 2 $1,080,288 57%
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The rent of Pretty Mall is based entirely upon a percentage of gross sales completed in Pretty Mall. Based on last years average monthly lease payments, 2002 collections for Pretty Mall are expected to be in excess of $525,000. Wonderful-Mart's rent is determined by the higher of the base-rent amount or a percentage of gross sales completed in Wonderful-Mart. The two companies are controlled by the same management and have several other similar operations in Asia. The leases are twenty year leases expiring in 2021.
Investments in real estate are evaluated on a case-by-case basis. Management has not dictated any specific minimum or maximum percentage of total assets that can be invested in real estate. Instead, the Company evaluates the over-all expectations on any given project, real estate or otherwise, and makes a decision based upon those expectations. The Company has, at this time, decided to limit its real estate ventures to multi-family residential properties and commercial properties. At this time, the Company does not expect to invest in securities related to real estate (e.g. secondary market mortgages) or in securities of real estate related companies. These decisions may be changed at any time without shareholder approval.
Fixed assets at Sunshine Plaza are depreciated over 20 years using the straight-line method. A 10% residual value of the original cost is assumed. The registrant does not pay U.S. income taxes on this property but is subject to a 33% income tax rate in China. Golden Horse carries property and liability insurance on its Sunshine Plaza facility. Condominium owners are responsible for insurance coverage of their condominiums. The Company is currently reviewing all insurance coverages.
The Registrant's ownership of properties is limited by its effective ownership percentage of the company that owns the property and by loans that are collateralized by certain properties. Golden Horse is 60% owned by Fei Yun and Fei Yun is 96% owned by the Company. Certain loans at Golden Horse are collateralized by certain space related to Sunshine Plaza. Golden Horse has a loan in the total amount of approximately $26,983,000 bearing interest at 5.94%. An amount of $1,452,000 is due on October 31, 2002. The balance of $25,531,000 is due on December 31, 2004. These amounts are collateralized by two stories of the retail shopping space occupying approximately 209,380 square feet. Another loan of $18,192,229 bearing interest at the rate of 7.56% is collateralized by one story of the retail shopping space plus 17 condominium units occupying approximately 33,723 square feet. An agreement for renewal of this loan is in process at this time. Neither loan carries any penalty for prepayment.
All other real estate associated with the Company not already described is related to operations in non-consolidated holdings.
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 2001.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET
The Company's common stock trades in the Over The Counter (OTC) market currently. The Company's trading symbol is "VGCP". The volume in the trading
averages approximately 40,388 shares a day during 2001. As of December 31, 2001 the stock was quoted at $0.21 ask and $0.17 bid. There is a total of approximately 56,335,860 common shares outstanding of which approximately 17,435,268 are free trading shares at December 31, 2001.
At December 31, 2001 the Company had 100,000 shares of Class B common stock authorized and outstanding and do not trade. All 100,000 shares were issued to William J. Fossen, Chairman 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. Source:
NASDAQ Trading and Market Services
Bid Bid Bid Bid
QTR Low High QTR Low High
1Q00 $0.24 $0.61 1Q01 $0.10 $0.26
2Q00 $0.13 $0.37 2Q01 $0.09 $0.20
3Q00 $0.16 $0.38 3Q01 $0.10 $0.58
4Q00 $0.10 $0.28 4Q01 $0.17 $0.50
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At December 31, 2001, the Company had outstanding options of approximately 19,323,496 shares of which approximately 18,823,143 are currently exercisable for the purchase of common restricted stock. In addition, the Company had convertible notes, some with options available when converted, and convertible preferred stock outstanding that had the right to convert to 3,458,939 and 3,600,000 common restricted shares respectively.
Of the 56,335,860 shares of common stock outstanding at December 31, 2001, approximately 38,900,592 shares are "restricted stock" as defined by Rule 144. At December 31, 2001, approximately 19,202,176 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 December 31, 1998 all these note holders had converted or were repaid. Total conversion and purchase rights were 230,182 common restricted shares. The shares are required to be registered for resale (registration rights) when and if the Company ever filed for any registration of any of its authorized but unissued common shares.
Note holders that converted to common stock received one A warrant and one B warrant for each dollar that they convert. Each A warrant is exercisable at $3.00 per share when the trading bid price of the common stock reaches a $4.00 average over five consecutive trading days. Each B warrant is exercisable at $5.00 per share when the trading bid price of the common stock is a $6.00 average over five consecutive trading days. Each such warrant expires upon the ninetieth day after the market trading bid price has reached the designated price as outlined above.
At December 31, 2001, the Company had principal of $352,746 of notes outstanding that have the opton to convert into common shares at a rate ranging from $0.14 - $0.25 per share, If converted, $152,696 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, wthi exercise prices ranging from $0.25 - $0.50 per share. An additional $135,000 of notes carry an option t purchase one-half of the number of common shares that the holder was orgininally entitled to receive if thenotes were converted to equity, with exercei prices ranging from $0.25 - $0.50 per share. All options, if the notes are converted, are exercisable for a period of one year from conversion.
During the fourth quarter of 2001, the Company sold common restricted shares (Class A Common) in private transactions under exemption from registration under the Securities Act pursuant to Section 4(2) and/or Regulation D, Rule 506 or other available exemptions. Sales have been made to accredited investors only. In summary, the Company issued 747,667 common restricted shares for $201,500 cash, 128,072 common restricted shares for $19,211 related to conversion of principal and interest, 15,800,000 common restricted shares in conjunction with acquisitions with the shares valued at $6,140,000 and 500 common restricted shares valued at $75.00 for other.
HOLDERS
At December 31, 2001, there were approximately 1,221 holders of record of the common stock of the Company excluding share owners who hold stock in brokerage houses nation wide in "street name".
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. No dividends were due or accumulated for outstanding preferred stock at December 31, 2001. 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 following discussion should be read in conjunction with the consolidated financial statements and related notes and the other information included in this report.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains certain "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, both inside and out-side the U.S, changes or anticipated changes in regulatory environments, competitive factors, general economic conditions, customer relations, relationships with vendors, Viking and its subsidiaries' ability to recruit and retain skilled personnel, the interest rate environment, governmental regulation and supervision, international relations between the US and foreign countries, seasonality, distribution networks, telecommunication networks, product introductions and acceptance, technological change, changes in industry practices, timely completion and successful integration of acquisitions, economic, social and political conditions in the countries in which Viking, its customers or its suppliers operate including security risks, possible disruptions in the communication and transportation networks and fluctuations in foreign currency exchange rates, one-time events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
PLAN OF OPERATIONS
Management of Viking Capital Group, Inc. considers 2001 to be a very successful year. The Company's first significant acquisition of assets was accomplished during the end of 2001, moving the Company toward its goals. During 2001, the Company increased consolidated assets from approximately $1 million at December 31, 2000 to consolidated assets of approximately $129 million at December 31, 2001. Consolidated debt increased from approximately $2 million to $96 million during 2001 while owners' equity increased from approximately negative $1.1 million to a positive $25 million. There is also a separate minority interest in equity of approximately $8 million that is in addition to the $25 million equity attributable to Viking's shareholders. Revenues were negligible because acquisitions did not become effective until December 2001. A discussion of additional financial data is in later sections of this item.
The Company is currently focusing on China because of business contacts available to management, the growth of the Chinese economy (gross domestic product) in excess of 7% a year with expectations to continue to grow at such rates, the privatization of assets and businesses, the restructuring of
companies' debt at banks (the Company looks for debt relief negotiations and or purchase of companies at a steep discount) and China's entry into World Trade Organization (WTO) in December 2001. Specific areas of focus are real estate (multi-family residential and commercial), manufacturing, and technology services (such as application service provider(ASP) or enterprise resource planning(ERP) solutions provider). The Company may also pursue real estate development projects if they are found to be suitable in management's opinion.
The Company expects to continue to acquire companies in China that have, on average, $100 to $200 million in assets. The Company focuses on making acquisitions from China's privatization program and bank restructuring opportunities.
Part of the expected continued success of the acquisition strategy is that the Company's stock has been well accepted in China. The Company expects however that it will need additional cash for acquisitions and therefore desires and expects to raise significant amounts of capital to pursue acquisitions. The Company may also use companies or assets it already owns as all or part of the purchase price of future acquisitions.
Capital raised will be for additional acquisitions, repurchase of existing outstanding preferred stock, fees and costs associated with acquisitions, working capital and potential debt reduction. Part of the Company's strategy in any acquisition is Management's belief that a significant amount of debt at an acquisition candidate may be negotiated and settled at a significant discount. It is also Management's belief that after the preferred stock is repurchased (which was used to purchase a portion of Beijing Fei Yun Viking Enterprises Company, Ltd. (Fei Yun)), an additional 40% of Beijing Golden Horse Great Wall Estate Construction Company, Ltd. (Golden Horse) may be available under very favorable terms. The Company currently owns 60% of Golden Horse via Fei Yun and expects to pursue the remaining 40%.
The Company has in the past been dependent upon raising capital for its U.S. administrative and management operations. The Company has been successful in the past in meeting its cash needs from private investors and will continue to raise capital for these purposes from qualified private investors for the foreseeable future. During 2001, the company raised approximately $900,000 to meet its cash needs. Potential increases to the Company's U.S. cash needs include hiring additional employees in the financial and administrative departments and potential increases in professional fees associated with acquisitions. Operations in China will continue to manage their own cash needs except for acquisitions. Management believes that it can continue to raise funds from private investors for its cash needs in the U.S.. The Company is expecting to raise significantly larger amounts of capital for the purposes described above, including working capital. However, there can be no degree of assurance that the Company can continue to raise capital from private investors or that it can raise funds from any other sources in large or small amounts.
Consolidated debt at December 31, 2001 was $96 million and is almost entirely associated with Golden Horse. These debts are expected to be repaid through sales of condominiums, rental/lease income, and negotiated settlements. Part of the negotiated settlements may include the payment of a lump sum of money that is less than the full amount due to a creditor. Such funds may come from additional investments made into Viking. Other negotiated settlements may not require any cash and will be settled through an agreement for release of the debt. Approximately $6 million of debt was settled in December 2001 due to Viking management's negotiation efforts. There can be no degree of assurance given that management will continue to be successful in negotiating such settlements.
DISCUSSION OF OPERATIONS OF ACQUIRED COMPANIES
It should be clearly noted that the following discussion of operations pertain to revenues and costs that do not appear on the Registrant's income statement as of December 31, 2001. The financial data discussed does not appear on the Company's financial statements because its acquisitions were not completed until December 2001. These amounts cannot be attributed to the Company. If a discussion occurs about an item that does appear on the Company's income statement currently or is an expectation of what will be on the Company's income statement in the future, it will be clearly noted. Please also refer again to the "Forward Looking Statements" section above.
Pursuant to a purchase agreement dated August 1, 2001 the Company acquired 25% of Beijing Fei Yun Viking Enterprises Company, Ltd.(Fei Yun), a Chinese holding company with three subsidiaries and other assets. Subsequently the Company purchased another 71% of Fei Yun bringing its total ownership to 96%. These transactions were effective in December 2001. Separately, 25% of Wuxi Viking Garments Company, Ltd. (Wuxi) was purchased late in 2001. See Description of Business for more detailed information.
The single largest revenue-producing asset acquired during 2001 is the real estate complex Sunshine Plaza owned by Golden Horse. Sunshine Plaza is a mixed use real estate complex with a total of approximately 1,688,000 square feet. Sunshine Plaza primarily derives its revenues from leasing retail space and the sale of condominiums. During most of 2001, Sunshine Plaza was remodeling approximately 67% of its leaseable retail space to accommodate Pretty Mall and Wonderful Mart. Lease revenues for the year 2001 were approximately $735 thousand and are expected to be in excess of approximately $1.4 million for year 2002 based upon annualized January and February 2002 collections. Condominium sales for the year 2001 were approximately $9.3 million. Sales of condominiums have been slow in the past year but are expected to increase in the future. There is an inventory of condominium space available for sale with a carrying cost (based on construction costs) of approximately $31.2 million (344,424 square feet with inventory cost of $90.53 per square foot) at December 31, 2001. Using the sales price per square foot from actual sales in the fourth quarter of 2001, an implied, expected revenue from the sale of the condominium inventory is $48.7 million (344,424 square feet sold at $141.43 per square foot). The price at which these condominiums are actually sold may be higher or lower than past sales and there can be no degree of assurance given as to when, over what time period, or if these condominiums may be sold. If Viking had owned its current portion of Golden Horse for the entire year 2001, Viking's share of net income after taxes and extraordinary items would have been approximately $3.3 million.
After the acquisition of Fei Yun (including Golden Horse), the Company was able to negotiate a settlement of approximately $6 million of debt that was owed by Golden Horse. The net effect of this item on income is reported as an extraordinary item on the year-end consolidated statement of operations of the Company. Management expects that it will continue to be able to negotiate settlements of debts at companies it owns and at companies it expects to acquire in the future in China. However, no degree of assurance can be given as to the amounts, if any, or the timing of such events.
Beijing Fei Yun Viking Chemical Trading Co., Ltd. (Chemical Co.) is not actively brokering/trading chemicals at this time. The Chemical Co. is waiting for certain licenses for Chemical trading and capital reserves for extending credit terms to its customers.
Lianyugang East Sea Highway Development and Management Company, Ltd. is a
tollway development and management company. Its current project is not expected
to be completed and generating revenues until the latter half of 2002.
Regarding Viking's equity accounted investment in Wuxi Viking Garments
Company, Ltd., this company generated approximately $12,472 of income on the
Company's income statement for year end 2001 for its share of net profits during
the month of December 2001. If the Company had owned its 25% position for the
entire year of 2001, its share of net profits would have been $149,657. The
Company's investment in Wuxi Viking is $540,000 in common restricted stock.
SUMMARY
The Company's plan of operations are well summarized by our updated mission
and vision statement. Viking Capital Group, Inc. is a diversified international
holding company whose mission is to become the recognized leader at creating
extraordinary long-term value for its shareholders through acquisitions. To
achieve our mission, Viking identifies businesses for acquisition that are
currently not optimizing opportunities that are available. To determine the
opportunities available, Viking looks at the overall business environment with a
clear focus on fundamental changes in politics, regulation, technology and world
economics.
ITEM 7. FINANCIAL STATEMENTS
The "F series" pages follow page 22 and begin with "F-1"
Page
Report of Independent Certified Public Accountants..........................................F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000................................F-4
Consolidated Statements of Operations for the years ended December 31, 2001 and 2000........F-6
Consolidated Statement of Stockholders' Equity(Deficit)
for the years ended December 31, 2001 and 2000............................................F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000.......F-8
Notes to Consolidated Financial Statements..................................................F-10
|
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 63 Chairman of the Board and CEO
Matthew W. Fossen 36 Director, President, CFO, Secretary, Treasurer
Mary M. Pohlmeier 53 Director
Robin M. Sandifer 64 Director
Jiang Dong (John) Lu 48 Executive Director Asian/Pacific Operations
|
The terms for each director will expire at the next annual meeting of shareholders or at such time as a successor is duly elected. Officers serve at the discretion of the Board of Directors.
There are two family relationships among the Directors and Officers. Matthew W. Fossen is the son of William J. Fossen and Qian Yu Ping is the sister of Qian Bo Rong. Qian Yu Ping and Qian Bo Rong are both vice presidents of the Company and are executives at Wuxi Viking. Other Company vice presidents are Zhou Haiping and Wang Ping and are executives at Fei Yun.
The following is a biographical summary of the business experience of the directors and named executive officers of the Company including dates of service as directors:
WILLIAM J. FOSSEN, CHAIRMAN & CEO - Mr. Fossen has served as the Chairman and CEO of the Company since 1989. He founded his own securities firm at age 26, and now has 37 years of high level executive experience in financial institutions. He has served as chairman, director, president, vice president, and founder of public companies for 30 years. Mr. Fossen holds a Bachelor of Science degree. Mr. Fossen has personally established relationships with various officers of government owned businesses and public officials in China over the last 10 years, and the Fossen family's ties with China have developed over the past 52 years.
MATTHEW W. FOSSEN, PRESIDENT & CHIEF FINANCIAL OFFICER - Mr. Fossen has served as Chief Financial Officer, Secretary, Treasurer and Director since 1997 and president since March 2001. He has specialized financial reporting systems experience gained from working in various locations for Texas Instruments, including Tokyo, Nice, Dallas, and Austin. He earned his B.B.A. degree from University of Texas, Austin, and his M.B.A. from University of North Texas, where he also received the Outstanding M.B.A. Candidate in Finance Award and the Financial Executive Institute Award.
MARY M. POHLMEIER, DIRECTOR - Ms. Pohlmeier has served as a director since 1991. Ms. Pohlmeier is the Technical Project Manager and Principal Scientist for Frito-Lay, Inc. Ms. Pohlmeier earned her M.B.A. from St. Louis University and her B.S. Degree in Food Sciences from the University of Nebraska, Lincoln. She is currently pursuing her Phd. in food science and chemistry at the University of Nebraska, Lincoln.
ROBIN M. SANDIFER, DIRECTOR - Mr. Sandifer has served as a director since 1997. Mr. Sandifer has been the owner and president of Tex American Food Marketing, Inc. since 1982. He earned his B.S. Degree in Economics from Iowa State University. Mr. Sandifer and an associate own an exclusive seat on the Chicago Mercantile Exchange.
JIANG DONG (JOHN) LU, EXECUTIVE DIRECTOR ASIAN/PACIFIC OPERATIONS, VICE PRESIDENT - Mr. Lu has been the executive director Asian/Pacific operations since 1999 and a vice president since 2001. As an employee three years and then a consultant, Mr. Lu has been associated with the Company for ten years. Mr. Lu holds a bachelor's degree from SE University, Nanjing, China and a master's degree in economics from Indiana State University, Terre Haute, Indiana.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Not Applicable
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning cash and non-cash
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's Chief Executive Officer, William J. Fossen, and the named
officer during the three years ended December 31, 2001. No other executive
officer of the Company received, or had accrued on his or her behalf, total
compensation exceeding $100,000 during such periods.
Annual Compensation Long-term Compensation
---------------------- ------------------------------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options Granted Compensation
--------------------------- ----- -------------------------------------- ------------
($) ($) (#) ($)
William J. Fossen (1) 2001 $ 36,000(2) $ -0- -0-(3) $ -0-
Chairman & CEO (1) 2000 $ 44,624(2) $ -0- 1,000,000(3) $ -0-
(1) 1999 $148,732(2) $ -0- 5,500,000(3) $ -0-
Matthew W. Fossen (4) 2001 $ 60,000(5) $ -0- -0-(6) $ -0-
President, Secretary (4) 2000 $ 33,498(5) $ -0- 1,000,000(6) $ -0-
Treasurer, CFO (4) 1999 $ 50,041(5) $ -0- 1,100,000(6) $ -0-
|
(1) The aggregate cash remuneration to William Fossen, chairman & CEO, during
1999, 2000 and 2001was $148,732, $44,624 and $36,000 respectively.
(2) The amounts above exclude total accrued salaries at December 31, 2001 not
paid of approximately $1,145,339 including $181,500, $245,376 and $146,500
in 2001, 2000 and 1999 respectively .
(3) These option shares consist of: 1,000,000 shares granted in a five year
option exercisable at $0.25 per share. Such option becomes exercisable at
the rate of 25% each 90 days after 12/07/00 and expires December 2005.
These options were issued to Mr. Fossen in his capacity as an officer and
director of the Company. 5,000,000 shares granted in a five year option
exercisable at $0.75 per share expiring in July 2004 and a 500,000 share
option granted in a five year option exercisable at $1.00 per share
expiring in September 2004. The 500,000 share option was granted to Mr.
Fossen in his capacity as a board member. All of these options are
exercisable. The options listed here constitute Mr. Fossen's entire option
holdings at December 31, 2001.
(4) The aggregate cash remuneration to Matthew Fossen, president, secretary,
treasurer, CFO and board member, during 1999, 2000 and 2001 consisted of
$50,041, $33,498 and $60,000 respectively.
(5) The amounts above exclude total accrued salaries at December 31, 2001 not
paid of approximately $441,960 including $82,500, $156,502 and $139,959 for
2001, 2000 and 1999 respectively.(5)
(6) These option shares consist of: 1,000,000 shares granted in a five year
option exercisable at $0.25 per share. Such option becomes exercisable at
the rate of 25% each 90 days after 12/07/2000 and expires December 2005.
These options were granted to Mr. Fossen in his capacity as an officer and
director of the Company. A 1,000,000 share option and a 100,000 share
option granted in five year options exercisable at $1.00 per share expiring
in September 2004. The 100,000 share option was granted to Mr. Fossen in
his capacity as a board member. All of these options are exercisable.
OPTION/SAR GRANTS TABLE
This table is omitted as no options were granted during 2001 to the named
executive officers.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
---------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Name Shares acquired Value Number of
On exercise Realized securities Value of
(#) ($) underlying unexercised in-
unexercised the-money
options/SARs at options/SARs at
FY-end(#) FY-end ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
---------------------------------------------------------------------------------------------
William J. Fossen, CEO n/a n/a 6,500,000 (EX) n/a
Matthew W. Fossen, CFO n/a n/a 2,540,000 (EX) n/a
|
(EX) = Exercisable
(UN) = Un-exercisable
COMPENSATION OF DIRECTORS
The Directors of the Company are not paid any fee for their services in such capacity on a regular plan.
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 William J. Fossen and Matthew W. Fossen of approximately $1,145,339 and $441,960 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
----------------------
DECEMBER 31, 2001
-----------------
The following table sets forth the names of the persons who own common 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 (Class A Common) and Percentages Owned
--------------------------------------------------------------------------------
Shares Owned
Including Options
Shares Owned Exercisable Within
Name Excluding Options Percent (1) 60 Days Percent(2)
----------------------- ----------------- ----------- ------------------ ----------
National Investors
Holding Corp. 900,000 1.6% 900,000 (3) 1.3%
William J. Fossen 2,085,750 3.7% 8,585,750 (4) 12.5%
Mary M. Pohlmeier 956,353 1.7% 1,806,353 (5) 2.6%
Matthew W. Fossen 850,127 1.5% 3,350,127 (6) 4.9%
Robin M. Sandifer 461,987 0.8% 1,061,987 (7) 1.5%
Jiang Dong Lu 165,000 0.3% 1,965,000 (8) 2.9%
All Officers, Directors
and Beneficial owners
as a Group 5,419,217 9.6% 17,669,217 25.8%
|
(1) Based on 56,335,860 shares outstanding at December 31, 2001.
(2) Based on 56,335,860 shares outstanding at December 31, 2001 plus 12,250,000
shares represented by options that are exercisable within 60 days as
follows: William J. Fossen, 6,500,000 shares; Mary M. Pohlmeier, 850,000
shares, Matthew W. Fossen 2,500,000 shares; Robin M. Sandifer 600,000
shares and Jiang Dong Lu, 1,800,000 shares.
(3) William J. Fossen is President and 56% owner of National Investors Holding
Corporation (NIHC).
(4) Includes 5,000,000 plus 500,000 plus 1,000,000 shares that may be acquired
by Mr. Fossen upon the exercising of options at $0.75, $1.00 and $0.25 per
share respectively within 60 days. Excludes 1,450,127 shares held by Mr.
Fossen's adult children to which Mr. Fossen disclaims beneficial ownership.
(5) Includes 350,000 plus 500,000 shares that may be acquired by Ms. Pohlmeier
upon the exercising of options at $1.00 and $0.25 per share respectively
within 60 days.
(6) Includes 1,500,000 plus 1,000,000 shares that may be acquired by Mr. M. W.
Fossen upon the exercising of options at $1.00 and $0.25 per share
respectively within 60 days.
(7) Includes 100,000 plus 500,000 shares that may be acquired by Mr. Sandifer
upon the exercising of options at $1.00 and $0.25 per share respectively
within 60 days.
(8) Includes 1,000,000 plus 800,000 shares that may be acquired by Mr. Lu upon
the exercising of options at $1.00 and $0.25 per share respectively within
60 days.
(9) At 12/31/01 the Company had outstanding options for 19,323,496 shares of
which 18,823,143 were exercisable at 12/31/01. If all options, convertible
notes and convertible preferred shares were converted to common stock as of
12/31/01, there would be approximately 82,718,295 common shares
outstanding.
(10) All ownership is direct unless indicated otherwise.
(11) The 7.5 million shares issued in connection with the acquisition of Beijing
Fei Yun Viking Enterprises Company, Ltd. (Fei Yun) is not included in the
table as it is held by Fei Yun and are therefore treasury shares.
CLASS B COMMON: William J. Fossen owns 100,000 shares of the Class B Common Stock. This ownership represents 100% of all the authorized and issued Class B Common shares. The Class B Common is entitled to elect a majority of the directors. The creation and issuance of these shares to William J. Fossen was approved by the shareholders at the Annual Meeting of the Shareholders held in 1995.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 2001, amounts due to Fei Yun from related parties totaled $1,711,000. This balance included $138,000 that is due to Golden Horse from a shareholder of Golden Horse, and $1,573,000 that is due from an entity that is owned by two directors of Fei Yun. Amounts due from Fei Yun to related parties totaled $1,174,000 including $693,000 that was advanced from China land Property, an entity related to a shareholder of Golden Horse and $481,000 that was advanced from an entity that acts as a property manager for Golden Horse. The amounts due from and to related parties at Fei Yun are unsecured, bear no interest and have no fixed terms of repayment. During 2001, the Company loaned a total of $107,000 to two officers of the Company. At December 31, 2001 and 2000, loan balances for these two officers totaled $60,000 and $19,000 respectively. Also during 2001, the Company borrowed $23,600 from related parties including executives, board members and family members of the officers. At December 31, 2001 and 2000, the Company had notes payable and accrued interest payable to these related parties of $63,000 and $40,000 respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Contract for acquisition of 25% of Beijing Fei Yun Viking Enterprises
Co., Ltd ***
2.2 Contract for acquisition of additional 71% of Beijing Fei Yun Viking
Enterprises Co. Ltd. ***
3.1 Amended and Restated Articles of Incorporation of Viking Capital
Group, Inc. **
3.2 Amendment to Amended and Restated Articles of Incorporation of Viking
Capital Group, Inc.
3.3 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
|
* 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 Forms 8-K filed on 12/17/01 and 1/11/02 and to their respective amendments filed on 2/12/02.
b) The following reports were filed on Form 8K during the fourth quarter of 2001 or related to the fourth quarter of 2001, noting the date of filing of financial statements required by such Form 8K.
Date Date
Filed Financial
Statements
Filed Description
12/17/01 2/12/02 Disclosed acquisition of 25% of Fei Yun Viking
Enterprises
1/11/02 2/12/02 Disclosed acquisition of additional 71% of
Fei Yun Viking Enterprises
|
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/ Matthew W. Fossen
------------------------
Matthew W. Fossen
President
Dated: April 15, 2002
|
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
-----------------------------
William J. Fossen Chairman of the Board April 15, 2002
and Chief Executive Officer
(Principal Executive Officer)
/s/ Matthew W. Fossen
-----------------------------
Matthew W. Fossen President, Director ,CFO, April 15, 2002
Secretary, Treasurer
/s/ Mary M. Pohlmeier
-----------------------------
Mary M. Pohlmeier Director April 15, 2002
/s/ Robin M. Sandifer
-----------------------------
Robin M. Sandifer Director April 15, 2002
|
EXHIBIT INDEX
Exhibit Number Description of Exhibit ------- ---------------------- |
2.1 Contract for acquisition of 25% of Beijing Fei Yun Viking Enterprises
Co., Ltd ***
2.2 Contract for acquisition of additional 71% of Beijing Fei Yun Viking
Enterprises Co. Ltd. ***
3.1 Amended and Restated Articles of Incorporation of Viking Capital
Group, Inc. **
3.2 Amendment to Amended and Restated Articles of Incorporation of Viking
Capital Group, Inc.
3.3 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
* 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 Forms 8-K filed on 12/17/01 and 1/11/02 and to their respective amendments filed on 2/12/02.
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
DECEMBER 31, 2001 AND 2000
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...................................................3
FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2001 and 2000.......................................4
Consolidated Statements of Operations for the years ended December 31, 2001 and
2000 ........................................................................................6
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended
December 31, 2001 and 2000 ..................................................................7
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and
2000 .......................................................................................8
Notes to Consolidated Financial Statements......................................................10
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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 as of December 31, 2001 and 2000 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, 2001 and 2000 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
As described in Note B, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Managements plans addressing going concern are also described in Note B. The Company has experienced recurring losses from operations and has not generated any significant revenue since its inception. Additionally, at December 31, 2001, the Company's current liabilities significantly exceeded its current liquid assets. The Company is dependent upon additional financing in order to execute its long-term business plan, or will need to increase the revenue and related cash flow from operations of its operating subsidiaries. These conditions raise substantial doubt about the Company's ability to continue as a going concern. 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 31, 2002
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VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2001 2000
--------- ---------
(in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 7,191 $ 13
Other receivables 719 --
Mortgage notes receivable 15,797 --
Notes receivable and accrued interest, net of allowance of
$191,000 and $131,000 at December 31, 2001 and 2000,
respectively (including related party amount of $60,000
and $19,000 at December 31, 2001 and 2000, respectively) 60 81
Deposit 1,210 --
Real estate held for sale 50,592 --
--------- ---------
Total current assets 75,569 94
PROPERTY AND EQUIPMENT
Building 37,543 --
Computer equipment 157 157
Furniture and office equipment 43 22
Vehicles 39 --
Building improvements 640 --
--------- ---------
38,422 179
Accumulated depreciation and amortization (173) (151)
--------- ---------
Net property and equipment 38,249 28
CAPITALIZED SOFTWARE, net of accumulated amortization
of $361,000 and $152,000 at December 31, 2001 and 2000,
respectively 413 622
NOTES AND OTHER RECEIVABLES FROM RELATED PARTIES 12,876 --
INVESTMENTS IN AFFILIATES 2,118 --
OTHER ASSETS 44 85
--------- ---------
TOTAL ASSETS $ 129,269 $ 829
========= =========
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The accompanying notes are an integral part of these consolidated financial
statements.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
2001 2000
--------- ---------
(in thousands)
CURRENT LIABILITIES
Current maturities of long-term debt (including $63,000 and
$40,000 due to related parties at December 31, 2001 and 2000,
respectively, net of unamortized debt discount of $48,000 at
December 31, 2001) $ 19,960 $ 277
Accounts payable 12,454 248
Accrued officers' salaryand payroll taxes 1,658 1,430
Other payables 12,642 --
Due to related parties 1,174 --
Deferred income tax liability 13,737 --
Current income taxes payable 568 --
Other accrued expenses 8,320 24
--------- ---------
Total current liabilities 70,513 1,979
LONG-TERM DEBT, less current portion 25,531 --
--------- ---------
Total liabilities 96,044 1,979
MINORITY INTEREST 8,091 --
COMMITMENTS AND CONTINGENCIES (Notes B and K)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $1.00 par value; 50,000,000 shares authorized:
Series 2001 Callable Preferred Stock $1.00 par value; 5,000,000
shares authorized, 1,800,000 shares issued and outstanding at
December 31, 2001 (liquidation preference of $18,000,000) 1,800 --
Common stock $0.001 par value; 150,000,000 shares authorized,
64,361,000 and 36,582,000 shares issued at December 31, 2001
and 2000, respectively 64 36
Common stock Class B $0.001 par value; 100,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 36,205 9,514
Accumulated deficit (9,894) (10,659)
--------- ---------
28,175 (1,109)
Less treasury stock; 8,026,000 and 526,000 shares at cost
at December 31, 2001 and 2000, respectively (3,041) (41)
--------- ---------
Total stockholders' equity (deficit) 25,134 (1,150)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 129,269 $ 829
========= =========
|
The accompanying notes are an integral part of these consolidated financial statements.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2001 2000
-------- --------
(in thousands, except earnings per share)
REVENUE $ -- $ 15
COST OF REVENUE -- 13
-------- --------
GROSS PROFIT -- 2
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,753 1,654
-------- --------
Loss from operations (1,753) (1,652)
OTHER INCOME (EXPENSE)
Interest income 9 21
Interest expense (including $7,000 and $3,000 to related parties) (148) (31)
Loss from equity accounted investment (59) --
Other -- 65
-------- --------
Total other income (expense) (198) 55
-------- --------
Loss before provision for income taxes, minority interest
and extraordinary item (1,951) (1,597)
Income tax benefit 542 --
-------- --------
Loss before extraordinary and minority interest (1,409) (1,597)
EXTRAORDINARY ITEM
Gain on extinguishment of debt, net of income taxes of
$2,122,000, net of minority interest portion of $2,135,000 2,174 --
-------- --------
NET INCOME (LOSS) $ 765 $ (1,597)
======== ========
EARNINGS PER SHARE:
Basic
Net loss per share before extraordinary item $ (0.04) $ (0.05)
Extraordinary item 0.06 --
-------- --------
Net income (loss) per share $ 0.02 $ (0.05)
======== ========
Diluted
Net loss per share before extraordinary item $ (0.03) $ (0.05)
Extraordinary item 0.05 --
-------- --------
Net income (loss) per share $ 0.02 $ (0.05)
======== ========
WEIGHTED-AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 39,760 34,072
EFFECT OF DILUTIVE STOCK OPTIONS 1,755 --
-------- --------
WEIGHTED-AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 41,515 34,072
======== ========
|
The accompanying notes are an integral part of these consolidated financial
statements.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2001 and 2000
(in thousands)
Class B Additional
Preferred Stock Common Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
--------- --------- --------- --------- -------- --------- -----------
Balance at December 31, 1999 -- $ -- 32,029 $ 32 100 $ -- $ 9,197
Issuance of common stock
For cash -- -- 2,639 3 -- -- 641
For notes receivable -- -- 495 -- -- -- 79
For services -- -- 1,316 1 -- -- 339
For other -- -- 2 -- -- -- --
Issuance of stock options for services -- -- -- -- -- -- 66
Conversion of notes payable
and accrued interest -- -- 101 -- -- -- 24
Reclass of note receivable issued
for stock to capital -- -- -- -- -- -- (832)
Net loss -- -- -- -- -- -- --
--------- --------- --------- --------- -------- --------- -----------
Balance at December 31, 2000 -- -- 36,582 36 100 -- 9,514
Issuance of Common Stock
For cash -- -- 3,203 4 -- -- 698
For services -- -- 807 1 -- -- 125
For acquisitions -- -- 23,300 23 -- -- 9,117
Issuance of preferred stock for acquisition 1,800 1,800 -- -- -- -- 16,200
Issuance of stock options for services -- -- -- -- -- -- 332
Conversion of notes payable
and accrued interest -- -- 470 -- -- -- 71
Embedded beneficial conversion feature
of convertible notes -- -- -- -- -- -- 148
Net income -- -- -- -- -- -- --
--------- --------- --------- --------- -------- --------- -----------
Balance at December 31, 2001 1,800 $ 1,800 64,362 $ 64 100 $ -- $ 36,205
========= ========= ========= ========= ======== ========= ===========
Notes
Receivable
Accumulated Treasury Issued for
Deficit Stock Stock Total
------------ --------- --------- ---------
Balance at December 31, 1999 $ (9,062) $ (41) $ (753) $ (627)
Issuance of common stock
For cash -- -- -- 644
For notes receivable -- -- (79) --
For services -- -- -- 340
For other -- -- -- --
Issuance of stock options for services -- -- -- 66
Conversion of notes payable
and accrued interest -- -- -- 24
Reclass of note receivable issued
for stock to capital -- -- 832 --
Net loss (1,597) -- -- (1,597)
------------ --------- --------- ---------
Balance at December 31, 2000 (10,659) (41) -- (1,150)
Issuance of Common Stock
For cash -- -- -- 702
For services -- -- -- 126
For acquisitions -- (3,000) -- 6,140
Issuance of preferred stock for acquisition -- -- -- 18,000
Issuance of stock options for services -- -- -- 332
Conversion of notes payable
and accrued interest -- -- -- 71
Embedded beneficial conversion feature
of convertible notes -- -- -- 148
Net income 765 -- -- 765
------------ --------- --------- ---------
Balance at December 31, 2001 $ (9,894) $ (3,041) $ -- $ 25,134
============ ========= ========= =========
|
The accompanying notes are an integral part of this consolidated financial
statement.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2001 2000
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 765 $(1,597)
Non cash charges included in operations
Provision for doubtful notes receivable 60 8
Depreciation and amortization 232 173
Amortization of deferred financing costs 100 --
Common stock issued for services 126 340
Stock options issued for services 332 67
Loss from equity accounted in affiliates 59 --
Common stock issued for interest payable -- 4
Extraordinary gain from extinguishment of debt (2,174) --
Changes in assets and liabilities (net of effects of acquisitions)
(Increase) decrease in receivables -- 14
(Increase) decrease in accrued interest receivable -- 47
(Increase) decrease in other assets 32 5
Increase (decrease) in accounts payable (170) (115)
Increase (decrease) in accrued officers' salary and
payroll taxes 264 402
Increase (decrease) in other accrued expenses (2,269) 9
Increase (decrease) in deferred income tax liability 1,580 --
Increase (decrease) in other payables 450 --
------- -------
Net cash used for operating activities (613) (643)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans made -- (60)
Loans made to shareholders (107) --
Loans made to related parties -- (19)
Loan repayments -- 20
Loan repayments-related parties 68 --
Net repayments on amounts due from related parties 567 --
Cash received in connection with acquisition 8,062 --
------- -------
Net cash provided by (used for) investing activities 8,590 (59)
|
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)
Years Ended December 31,
2001 2000
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable $ 5,552 $ 119
Proceeds from notes payable - related parties 24 75
Net advances to related parties (7,036) --
Repayments of notes payable (27) (62)
Repayments of notes payable - related parties (1) (46)
Repayments of capital lease obligations (13) (22)
Proceeds from sale of common stock 702 643
-------- --------
Net cash (used in) provided by financing activities (799) 707
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,178 5
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13 8
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,191 $ 13
======== ========
SUPPLEMENTAL DISCLOSURES
Cash flow information:
Interest paid $ 18 $ 14
Interest paid - related party -- 2
Income taxes paid -- --
Non-cash financing activities:
Preferred stock issued for:
Acquisitions 18,000 --
Common stock issued for:
Acquisitions 6,140 --
Repayment of notes payable 71 20
Notes receivable -- 79
Note payable issued for:
Payment of interest 8 --
Settlement of note payable through reduction
of related note receivable 10 --
Beneficial conversion feature of convertible
notes payable 148 --
|
The accompanying notes are an integral part of these consolidated financial
statements.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Viking Capital Group, Inc. ("Viking") 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 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.
Pursuant to a Stock Purchase Agreement dated August 1, 2001, Viking acquired 25% of the ownership of Beijing Fei Yun Viking Enterprises Company, Ltd. ("Fei Yun"), with its principal place of business located in Beijing, China. Twenty-five percent of this newly formed entity was acquired for common shares of Viking. A total of 7,500,000 common shares were issued directly to Fei Yun and the remaining 14,000,000 common shares were issued to the owners of the assets that were transferred into Fei Yun in conjunction with Viking's purchase. The agreement to acquire 25% of Fei Yun was entered into on August 1, 2001 and was effective on December 3, 2001, after receiving all necessary significant approvals from the Chinese authorities. For the period from December 3, 2001 to December 27, 2001, Viking accounted for its investment in Fei Yun under the equity method. On December 27, 2001, Viking purchased an additional 71% of Fei Yun with the issuance of 1,800,000 shares of Viking's preferred stock. After the acquisition of the additional 71% interest, Viking began accounting for its investment in Fei Yun under the consolidation method. The total value of the common and preferred stock issued for the acquisition of 96% of Fei Yun totaled $23,600,000. The common stock issued directly to Fei Yun is reflected as treasury stock in the accompanying consolidated financial statements.
Fei Yun owns five principal assets. Specifically, Fei Yun owns 60% of Beijing Golden Horse Great Wall Estate Construction Company, Ltd. ("Golden Horse"), 40% of Lianyugang East Sea Highway Development and Management Company, Ltd. ("Highway"), 100% of Beijing Fei Yun Viking Chemical Trading Company, Ltd. ("Chemical") which acquired certain assets and liabilities acquired from Beijing Fei Yun Chemical Trading Company, Ltd., and two notes receivable effectively collateralized by the underlying equity of two operating companies. Golden Horse is a Sino-foreign joint venture company established on December 25, 1992. Golden Horse is the sole developer and owner of Sunshine Plaza which was developed in the Chaoyang area in Beijing China. Sunshine Plaza is a facility which includes approximately 425,000 square feet of retail space, 97,000 square feet of office space, and 980,000 square feet of condominium space. Construction of Sunshine Plaza was completed in 1999. At December 31, 2001, Golden Horse is owned 60% by Fei Yun, 20% by Golden Horse International Investment Company and 20% by Beijing Municipal Construction Engineering Corporation. Highway is engaged in the construction of a highway in the Jiangsu Province of the People's Republic of China. At December 31, 2001, Highway was 40% owned by Fei Yun, 20% by East Sea County Transportation Bureau, a government related entity ("East Sea"), 24% by Mr. Zhou Haiping (a director of Fei Yun), and 16% by Mr. Wang Jun. The highway is owned by East Sea County Transportation Bureau, and the operating rights, along with the highway tolls, are owned by the Company for an operating period of approximately 15 years. The construction of the highway is expected to be completed in 2002. The Company will begin generating revenues and amortizing the cost of the project after completing the construction of the highway. Chemical is engaged in the trading and transportation of chemical products in the People's Republic of China. Chemical is currently not generating any revenue.
Additionally, pursuant to a stock purchase agreement dated September 3, 2001, which became effective November 29, 2001, after receiving all necessary significant approvals from the Chinese authorities, Viking acquired 25% of Wuxi Viking Garmets Co., Ltd ("Wuxi"), with its principal place of business located in Wuxi, China. This entity was acquired for 1,800,000 common shares of Viking. The total value of the common stock issued for the acquisition was $540,000. Viking accounts for its investment in Wuxi using the equity method of accounting.
Viking and its subsidiaries are collectively referred to as the "Company."
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The accompanying consolidated financial statements of Viking have been prepared in accordance with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements include the assets, liabilities and operating activities of the Company's wholly-owned and majority owned subsidiaries. All material inter-company transactions with its consolidated subsidiaries and equity accounted affiliates are eliminated on consolidation, pursuant to the applicable accounting principles for consolidation and the equity method of accounting.
The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
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 and vehicles using the straight line method over the estimated useful life of the depreciable assets ranging from five to seven years. Buildings and improvements are depreciated over 20 years. Computer 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 gross amount of the assets held under capital leases amounted to $107,631 at December 31, 2001 and 2000. The accumulated amortization of the assets held under capital leases totaled $107,631 and $97,634 at December 31, 2001 and December 31, 2000, respectively.
The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). In accordance with SFAS No. 121, long-lived assets are reviewed when events or changes in circumstances indicate that their carrying value may not be recoverable. If conditions indicate that an asset might be impaired, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. The impairment would be measured by the amount by which the carrying value of the asset exceeds its fair value typically represented by the future undiscounted cash flow associated with the asset.
Real estate held for sale consists of condominium units, office units, and parking garage spaces. Real estate held for sale is reported in the balance sheet at the lower of cost or fair value less costs to sell. Real estate held for sale is assessed for impairment when management believes that events or changes in circumstances indicate that its carrying amount may not be recoverable. Based on this assessment, property that is considered impaired is written down to its fair value. Impairment losses are expensed as recognized.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Selling costs to obtain regulatory approvals are capitalized and recognized as units are sold. Direct selling costs that relate to units that are sold and accounted for under a method other than the full accrual method are deferred and recognized as the related gain is recognized. Other selling costs are charged to expense when incurred.
Specific valuation allowances are provided for loans receivable when it becomes probable that all of the principal and interest payments will not be received as scheduled in the loan agreement (excluding insignificant delays or payment shortfalls). In addition to specific allowances, a general allowance may be provided for future losses based on an evaluation of the loan portfolio and prevailing market conditions. Additions to the allowance are expensed as recognized.
CHEMICAL SALES - The Company is currently not generating revenues from the sale of chemical products. Future sales of chemical products will be recorded after the products have been delivered and accepted by the customer.
SALES OF REAL ESTATE AND INTEREST INCOME - Sales of real estate generally are accounted for under the full accrual method. Under this method, gain is not recognized until the collectibility of the sales price is reasonably assured and the earnings process is virtually complete. The sales earning process is generally considered complete upon receiving a significant deposit (defined as at least 15% of total sales price). For most sales contracts, significant deposits are received and the total sales amount is normally collected within one year. Due to the short-term nature of these sales contracts, interest income is not charged on the outstanding loan balance. When a sale does not meet the requirements for income recognition, gain is deferred until those requirements are met.
RENTAL REVENUE - Rent is reported as income over the lease term as it becomes receivable according to the provisions of the lease. However, if the rentals vary from the straight-line basis, the income is recognized on a straight-line basis unless another systematic and rational basis is more representative of the time pattern in which the use benefit from the leased property is diminished, in which case that basis shall be used.
Taxation is accounted for based on United States and Chinese rates of tax, respectively. 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 bases 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.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net income (loss) per common share is computed by dividing the net income (loss) during the year by the weighted average number of shares of common stock outstanding for the year. Diluted income (loss) per share includes the effect of all dilutive options and warrants and instruments convertible into common stock. The total number of stock options and warrants excluded from the diluted computation at December 31, 2001 and 2000 (because they are anti-dilutive) was 17,568,683 and 18,499,842, respectively.
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"). In accordance with 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. During 2001 and 2000 the Company amortized $209,012 and $143,448 of software costs, respectively, using an estimated useful life of three years. Beginning in the fourth quarter of 2001, the Company was no longer amortizing this software as the product is currently not in use.
Investments in significant 20 to 50 percent owned affiliates are accounted for by the equity method of accounting, whereby the investment is carried at original cost, plus or minus Viking's equity in undistributed earnings or losses since acquisition.
Fei Yun's operations are conducted in the People's Republic of China. Fei Yun's local currency is the functional currency (primary currency in which business is conducted). As Fei Yun's functional currency has been stable in relation to the U. S. dollar for the period since the acquisition through December 31, 2001, there is no adjustment resulting from translating the foreign functional currency assets and liabilities into U. S. dollars.
The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation expense for employees is based on the excess, if any, on the date of grant, between the fair value of the Company's stock over the exercise price.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance is complete or the date on which it is probable that performance will occur.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. 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.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supercedes SFAS 121, "Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") and the accounting and reporting provisions of the Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 establishes a single accounting model, based on the framework established by SFAS 121, for long-lived assets to be disposed of by sale and resolved significant implementation issues related to SFAS 121. SFAS 144 retains the requirements of SFAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and measure an impairment loss as the difference between the carrying amount and the fair value of the asset. SFAS 144 excludes goodwill from its scope, describes a probability-weighted cash flow estimation approach, and establishes a "primary-asset" approach to determine the cash flow estimation period for groups of assets and liabilities. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company believes the adoption of SFAS 144 will not have a material impact on its financial position or results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 "Business Combinations" which requires the purchase method of accounting for business combination transactions initiated after June 30, 2001.
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the new rules, goodwill and intangible assets that are deemed to have indefinite lives are no longer amortized but are reviewed annually for impairment. The provisions of SFAS 142 are required for fiscal years beginning after December 15, 2001, although earlier adoption is permitted for companies with fiscal years beginning after March 31, 2001, provided that no interim financial statements have been issued. The Company adopted the new standard effective August 1, 2001, however, SFAS 142 had no effect on the Company's financial statements.
Certain prior year amounts have been reclassified to conform with current year presentation.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE B - GOING CONCERN UNCERTAINTY
The consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company has experienced recurring losses from operations and has not generated any significant revenue since its inception. Additionally at December 31, 2001 the Company's current liabilities significantly exceeded its current liquid assets. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
As further described in Note C, in December 2001 the Company completed the acquisition of Fei Yun, an entity based in Beijing, China. The Company expects to generate cash flows from operations from its Chinese subsidiaries but has verbally agreed not to withdraw funds up to the Parent during its first year of control. The Company also plans to reduce current debt levels and related interest expense through negotiations with debt holders although the likelihood of success of the negotiations can not be predicted at this time. In the meantime, the Company will continue to incur expenses relating to corporate overhead and activities in connection with managing the Company's investments and considering additional opportunities. The Company has been and continues to be dependent upon outside financing in the form of debt and equity to perform its business development activities and cover current overhead expenses. Although the Company has been successful raising capital in the past, if the Company is unable to raise capital, it may be required to sell assets or reduce the level of its operations. Such actions could have a material adverse effect on the Company's business and operations.
The Company also intends to obtain additional funds in order to complete additional acquisitions in China and to develop its financial services business in the United States of America. This capital may come from additional debt or equity issuances. The Company currently has no firm commitments in place to provide additional financing. There can be no degree of assurance given that the Company will be successful in completing additional financing transactions.
The consolidated financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or classification of liabilities which may result from the inability of the Company to continue as a going concern.
NOTE C - ACQUISITIONS
During November 2001, the Company acquired a 25% ownership interest in Wuxi Viking Enterprises Co. Ltd. ("Wuxi"), a Chinese corporation, for 1,800,000 shares of Viking's common stock recorded at $540,000 based on the market value of Viking's common stock at the date of acquisition. This acquisition was accounted for under the equity method of accounting, and accordingly, Viking's portion of the net income of the acquired entity is included in operations of the Company from the acquisition date.
On August 1, 2001, Viking acquired a 25% interest in Fei Yun, a Chinese company. The transaction was effective on December 3, 2001, after receiving all necessary significant approvals from the Chinese authorities. On December 27, 2001 Viking purchased an additional 71% of Fei Yun, increasing its ownership percentage to 96%. For the period from December 3, 2001 to December 27, 2001, the Company accounted for its investment in Fei Yun Viking under the equity method. After the acquisition of the additional 71%, the Company began accounting for its investment in Fei Yun under the consolidation method. The December 27, 2001 acquisition was accounted for under the purchase method of accounting, and accordingly, the results of operations of the acquired entities are included in the consolidated operations of the Company from the acquisition date.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE C - ACQUISITIONS (Continued)
As consideration for the Fei Yun transactions, the Company issued 21,500,000
shares (including 7,500,000 shares issued directly to Fei Yun) of common stock
and 1,800,000 shares of Series 2001 callable preferred stock with a par value of
$1 and face value of $10.00. The total amount of the consideration of
$23,600,000 is based on the market value of the 14,000,000 common shares (using
an average trading price 2 days before and after the acquisition were announced)
and the $18,000,000 of preferred stock.
A summary of the fair value of underlying assets acquired and liabilities
assumed is as follows (in thousands):
Golden Notes
Horse Chemical Highway Receivable Total
--------- -------- -------- ---------- --------
Cash $ 8,062 $ - $ - $ - $ 8,062
Mortgage and notes receivable 15,797 - - 11,165 26,962
Property and equipment 38,244 - - - 38,244
Real estate held for sale 50,592 - - - 50,592
Other 2,748 1,459 - - 4,207
Investment in affiliates - - 1,578 - 1,578
Other payables (41,005) (7) - - (41,012)
Accounts payable (12,377) - - - (12,377)
Accrued expenses (6,966) - - - (6,966)
Debt (39,792) - - - (39,792)
Minority interest (5,840) (58) - - (5,898)
--------- -------- --------- ------------ --------
Net assets $ 9,463 $ 1,394 $ 1,578 $ 11,165 $ 23,600
========= ======== ========= ============ ========
Unaudited pro-forma financial information for the years ended December 31, 2001
and 2000, as though the acquisitions had occurred on January 1, 2000 is as
follows (in thousands):
2001 2000
------------- ---------
Revenues $ 9,571 $ 1,507
============= =============
Net income (loss) $ 1,594 $ (932)
============= =============
Net income (loss) per share:
Basic $ .04 $ (.03)
============= ==============
Diluted $ .04 $ (.03)
============= ==============
|
The table above includes $150,000 and $55,000 of pro forma net income for the years ended December 31, 2001 and 2000, respectively, related to the acquisition of Wuxi.
NOTE D - MINORITY INTEREST
Minority interest of $8,091,000 at December 31, 2001 represents the cumulative minority interests in Viking's ownership in Fei Yun and Fei Yun's minority portion of its less than 100% owned subsidiaries.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE E - INVESTMENT IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
During November 2001, the Company acquired a 25% ownership interest in Wuxi, a
Chinese corporation, which is accounted for under the equity method of
accounting. This equity accounted affiliate is engaged in operating garment
factories in China. The Company's equity accounted income (loss) of Wuxi is not
significant from its acquisition date through December 31, 2001.
Through its acquisition of Fei Yun in December 2001, the Company acquired a 38%
effective ownership interest in Highway, which is accounted for under the equity
method. This equity accounted affiliate is engaged in the construction of a
highway in the Jiangsu Province of the People's Republic of China. There has
been no significant operating activity from the date of acquisition through
December 31, 2001.
NOTE F - MORTGAGE NOTES RECEIVABLE
The mortgage notes receivable result from the sale of apartments, parking spaces
and office spaces. These mortgage notes receivable do not have specified
interest rates or repayment dates; however, they are normally collected within
one year, and thus due to their short-term nature, interest income is not
charged on the outstanding note balance.
Mortgage notes receivable consist of the following at December 31, (in
thousands):
December 31, December 31,
2001 2000
-------------- ---------------
Apartment units $ 15,797 $ -
Parking spaces - -
Office units - -
-------------- --------------
Total mortgage notes receivable $ 15,797 $ -
============== ==============
NOTE G - REAL ESTATE HELD FOR SALE
At December 31, 2001 and 2000, real estate held for sale consists of the
following (in thousands):
December 31, December 31,
2001 2000
-------------- ---------------
Apartment units $ 31,178 $ -
Office units 4,572 -
Parking garage spaces 14,842 -
-------------- --------------
Total $ 50,592 $ -
============== ==============
|
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE H - NOTES PAYABLE
The following is a summary of long-term debt at December 31, 2001 (in
thousands):
2001 2000
------------- --------------
Notepayable to Bank of China, interest payable quarterly at 5.94%; 5% of the
principal due on October 31, 2002 with the remaining amount due on December
31, 2004,
secured by a portion of the building $ 26,983 $ -
Notepayable to Industrial and Commercial Bank of China, bearing interest at
prime (7.56% at December 31, 2001), with an extended maturity date of
September 30, 2000, currently
due on demand, secured by a portion of the building 18,192 -
Convertible notes payable to various investors (including $63 and $40 to
related parties), bearing interest from 10% to 14% due annually, maturing
in 2002 or on demand, secured by assets of Viking (net of unamortized debt
discount of $48
at December 31, 2001) 316 277
------------- --------------
45,491 277
Less current maturities of long-term debt 19,960 277
------------- -------------
Long-term debt $ 25,531 $ -
============= =============
The following are maturities of long-term debt for each of the next five years
ended December 31, (in thousands):
2002 $ 19,960
2003 -
2004 25,531
-------------
$ 45,491
=============
|
During the year ended December 31, 2001 the Company entered into new convertible
notes or renewed existing convertible existing notes totaling $496,221. All
outstanding convertible notes at December 31, 2001 mature in 2002 or on demand,
bear interest ranging from 10% to 14% and are secured by the assets of Viking,
except for a $100,000 note which is secured by 200,000 free trading shares owned
by directors and shareholders of the Company. Interest payments on these notes
are due annually. During 2001 and 2000, notes payable totaling $68,927 and
$20,199, respectively, and related accrued interest of $2,043 and $3,618 were
converted to 469,909 and 100,514 common shares, respectively. At December 31,
2001, the Company had $316,000 (net of discount) of convertible notes
outstanding that have the option to convert into common shares at a rate ranging
from $0.14 - $0.25 per share. If converted, $152,696 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, with
exercise prices ranging from $0.25 - $0.50 per share. An additional $135,000 of
notes 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, with exercise prices ranging from $0.25 - $0.50 per share. All options,
if the notes are converted, are exercisable for a period of one year from
conversion. The Company records a charge for the fair value of beneficial
conversion features as the notes are originated. During 2001 the Company
recorded $106,970 related to the beneficial conversion feature for new notes
issued.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE H - NOTES PAYABLE (Continued)
The Company computes the fair value of these options at the date that note is
originated using the Black-Sholes option pricing model. During 2001, the
following assumptions were used in calculating the value of stock options
included in newly originated notes: applicable risk free interest rate based on
the current treasury-bill interest rate at the issuance date of 4.7%; dividend
yields of 0%; volatility factors of the expected market price of the Company's
common stock of 125%; and an expected life of the options of one year. The
Company records and amortizes this portion of the debt discount if and when the
options are issued (upon conversion of the note). Total amortization expense of
debt discount related to these options recorded in 2001 totaled $5,518.
NOTE I - OTHER PAYABLES
At December 31, 2001 and 2000, other payables consist of the following (in
thousands):
2001 2000
------------- -------------
Refunds due resulting from incompleted sales contracts $ 7,694 $ -
Deposits 3,387 -
Other 1,561 -
-------------- -------------
$ 12,642 $ -
============= =============
NOTE J - INCOME TAXES
The Company's subsidiary entity, Fei Yun is not subject to any income taxes in
the United States, but is subject to income taxes within the People's Republic
of China generally at 33%. The $542,000 benefit recorded in 2001 is federal
deferred income taxes.
Deferred tax assets and liabilities at December 31, 2001 and 2000 are as follows
(in thousands):
UNITED STATES TAXES:
2001 2000
------------- -------------
Current deferred tax asset $ 605 $ 495
Valuation allowance for current deferred tax asset (605) (495)
------------- -------------
Net current deferred tax asset $ - $ -
============= =============
Non-current deferred tax asset $ 3,510 $ 3,160
Non-current deferred tax liability (135) -
------------- -------------
Net non-current deferred tax asset 3,375 -
Valuation allowance for non-current deferred tax asset (3,375) (3,160)
------------- --------------
Net non-current deferred tax asset $ - $ -
============= =============
|
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE J - INCOME TAXES (Continued)
CHINESE TAXES:
2001 2000
------------- -------------
Current deferred tax asset $ 808 $ -
Current deferred tax liability (14,545) -
------------- -------------
Net current deferred tax liability $ (13,737) $ -
============= =============
Differences between the statutory federal income tax rate and the effective rate
for the years ended December 31, 2001 and 2000 (excluding extraordinary item)
are as follows:
2001 2000
--------- --------
Income tax benefit at statutory rate 34.00% 34.00%
Income attributable to foreign subsidiaries 27.8 -
Change in valuation allowance (16.7) (23.6)
Permanent differences primarily stock based
compensation differences (6.33) -
Change in prior year estimate (9.9) (7.3)
Other (1.07) (3.1)
--------- -------
Effective income tax rate 27.80% 0.00%
========= =======
|
The non-current deferred tax asset results from the tax benefit of the net operating losses and software development costs which are capitalized for financial reporting purposes and amortized over their estimated useful life and deducted for federal income tax reporting purposes. The current deferred tax asset includes 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.
The deferred tax assets and liabilities relate to differences in timing of revenue and expense items for financial reporting and tax reporting purposes.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE J - INCOME TAXES (Continued)
The Company has operating loss carryforwards available in the United States totaling approximately $10,313,000, 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 (in thousands):
Year 2004 $ 21
Year 2005 -
Year 2006 168
Year 2007 206
Year 2008 450
Year 2009 504
Year 2010 1,443
Year 2011 977
Year 2012 1,572
Year 2013 1,273
Year 2014 1,637
Year 2015 1,042
Year 2021 1,020
------------
$ 10,313
============
|
As further described in Note B, realization of the benefit of these net operating loss carryforwards and other deferred tax assets appear uncertain. Accordingly, a valuation allowance of $3,980,000 has been recorded at December 31, 2001. The valuation allowance increased by $325,000 and $732,000 during the years ended December 31, 2001 and 2000, respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
During 1996, the Company entered into operating lease agreements for office space and certain computer equipment. The office lease expires in 2002. Total rental expense was $141,573 and $180,058 in 2001 and 2000, respectively, offset by $119,172 and $142,509 of rental income in 2001 and 2000, respectively, received under a sub-lease of part of the office space. Future minimum lease payments under non-cancelable operating leases at December 31, 2001 are as follows (in thousands):
Operating
Leases
----------
2002 $ 258
Less lease income from sub-lease (141)
----------
$ 117
|
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE K - COMMITMENTS AND CONTINGENCIES (Continued)
Conducting business in China is highly dependent upon relationships, the political atmosphere and political agendas. If relationships that the Company presently has should suffer for any reason, results of operations and the financial condition of the Company could be materially and adversely affected. Changing perceptions of China in the general public or in politics may also materially and adversely affect the Company's growth, and continued operations.
In connection with its foreign acquisition, Viking purchased 60% of Golden Horse. The individuals who Viking bought this entity from (now directors of Fei Yun), previously acquired this entity with a note payable. As of December 31, 2001, a significant amount of this note payable remains unpaid. In addition, at December 31, 2001, certain amounts due under this note payable are past due. The notes are not directly collateralized by the interest that Viking acquired but the original seller may have civil remedies under Chinese law if the notes are not paid.
NOTE L - RENTAL PROPERTY
The property (all retail space) is leased under cancelable and non-cancelable arrangements. Future minimum lease payments to be received under existing non-cancelable operating leases at December 31, 2001 are as follows (in thousands):
2002 $ 1,911
2003 1,715
2004 1,694
2005 1,672
2006 1,641
Thereafter 18,201
---------
Total $ 26,834
=========
|
The schedule above excludes rental income on one tenant for which rents are based on revenues generated by the tenant estimated at $526,000 per year terminating in 2001.
NOTE M - 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 an officer of Viking for services provided. The Class B shares hold the right to elect a majority of Viking's Board of Directors, effectively functioning as an "anti-takeover" provision against any unwelcome acquisition or merger attempts for or with Viking.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE N - PREFERRED STOCK
As of December 20, 2001 the Company created a new series 2001 Callable Preferred
Stock (callable at any time by the Company), with a par value of $1 and
5,000,000 authorized shares. This Callable preferred stock has 0% dividend rate
and is convertible into common stock at a $5 per share of common stock with a
$10 liquidation preference per share. Total authorized preferred stock at
December 31, 2001 is 50,000,000 shares. The Board of Directors has the
discretion to attach any dividend rate and/or conversion privilege at the time
of issuance of a new series.
NOTE O - 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, 2001 and 2000, there were a total of 1,215,000
and 1,269,000 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. During 2001,
the Company issued 1,106,000 options as compensation to service providers
(excluding employees) as compensation for consulting and other services provided
during 2001. The options issued to services providers vest in 2001. In
connection with options issued to service providers (excluding employees), the
Company has recorded $331,702 and $66,539 of professional service costs in 2001
and 2000, respectively, calculated using the Black-Scholes model.
At December 31, 2001 and 2000, there were a total of 19,323,496 and 18,499,842
options (including compensatory and non-compensatory) outstanding, respectively.
All options granted by the Company related to restricted stock under rules
promulgated by the Securities and Exchange Commission.
A summary of changes in the Company's compensatory options follows:
Employee Stock Plan Other Compensatory Combined Total
------------------- ------------------ --------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
----------- -------- --------- --------- -------
Outstanding at 12/31/99 1,919,000 - 9,003,424 - 10,922,424
Granted - - 6,618,000 $ 0.42 6,618,000
Exercised - - - - -
Forfeited (650,000) $ 1.00 (855,000) $ 1.01 (1,505,000)
------------ ---------- -----------
Outstanding at 12/31/00 1,269,000 $ 1.00 14,766,424 $ 0.65 16,035,424
Granted - - 1,906,000 $ 0.30 1,906,000
Exercised - - - - -
Forfeited (54,000) $ 1.00 (1,245,011) $ 0.84 (1,299,011)
----------- ----------- -----------
Outstanding at 12/31/01 1,215,000 15,427,413 16,642,413
=========== =========== ===========
|
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE O - STOCK OPTIONS (Continued)
The fair value of all compensatory options issued during 2001 and 2000 was and
$276,839 and $562,878, respectively. The following table summarizes information
about options outstanding at December 31, 2001 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 1,215,000 1.4 years $1.00 745,000 $1.00
The following table summarizes information about other compensatory stock
options outstanding at December 31, 2001:
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
--------------- ----------- ---------------- -------------- ----------- -----------------
$0.25-$1.00 15,427,413 3.3 years $0.59 15,397,060 $0.59
A summary of changes in the Company's non-compensatory options follows:
Non-Compensatory Weighted Average
Options Exercise Price
---------------- -----------------
Outstanding at 12/31/99 2,003,402 $ 0.43
Granted 1,621,660 0.42
Exercised (100,000) 0.20
Forfeited (1,060,644) 0.40
-----------
Outstanding at 12/31/00 2,464,418 0.46
Granted 1,955,825 0.37
Exercised -
Forfeited (1,739,160) 0.46
-----------
Outstanding at 12/31/01 2,681,083 $ 0.27
===========
|
The Company applies APB Opinion No. 25 in accounting for its compensatory options to employees. The options granted in 2001 and 2000 have exercise prices which, generally, approximate fair value and accordingly, no compensation cost has been recognized for its compensatory stock options issued to employees and directors.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE O - STOCK OPTIONS (Continued)
Had compensation cost for the Company's stock options been determined consistent
with SFAS 123, the Company's net income (loss) and net (income) loss per share
would have been (decreased) increased to the pro forma amounts indicated below:
Years ended December 31,
2001 2000
--------- ----------
Net income (loss) As reported $ 765 $ (1,597)
Pro forma $ 88 $ (1,742)
Net income (loss) per share As reported
Basic $ 0.02 $ (0.05)
Diluted $ 0.02 $ (0.05)
Pro forma
Basic $ 0.00 $ (0.05)
Diluted $ 0.00 $ (0.05)
|
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 2001; dividend yield at 0%, expected volatility at 125%, risk free interest rate of 4.7%, and an expected life of 1-2 years. The following assumptions were used for grants in 2000; dividend yield of 0%, expected volatility of 149%, risk free interest rate of 6.5%, and an expected life of 1-5 years.
The weighted average grant date fair value per share of compensatory options using the Black-Scholes option pricing model issued during 2001 and 2000 was $0.28 and $0.19, respectively.
NOTE P - RELATED PARTY TRANSACTIONS
Viking loaned $107,000 to two officers of the Company during 2001. The loans, bearing interest from 8% to 10%, are due on demand and are unsecured. At December 31, 2001 and 2000, Viking notes and interest receivable from related parties totaled $60,000 and $19,000, respectively.
At December 31, 2001, amounts due from related parties to Fei Yun totaled $1,711,000. This balance includes $138,000 that is due to Golden Horse from a shareholder of Golden Horse, and $1,573,000 that is due from an entity that is owned by two directors of Fei Yun. The amounts due from the related parties are unsecured, bear no interest and have no fixed terms of repayment.
In connection with the Fei Yun acquisition, the Company obtained two notes receivable totaling $11,165,000 from officers of Fei Yun. The first note receivable totals $5,148,060. This note bears interest, payable annually, at 4%. The first principal payment equaling 50% of the note balance is due 5 years from the date of the note (or July 2006) with the remaining principal balance due 10 years from the date of the note (2011). This note contains an option for the Company to purchase 40% of the common ownership of Heibie Kangshun FeiYun Organic Waste Processing Company, Ltd. for consideration consisting of the surrender of the note receivable.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE P - RELATED PARTY TRANSACTIONS (Continued)
The second note receivable totals $6,482,544. This note bears interest, payable annually, at 4%. The first principal payment equaling 50% of the note balance is due 5 years from the date of the note (or July 2006) with the remaining principal balance due 10 years from the date of the note (2011). This note contains an option for the Company to purchase 33 1/3% of the common ownership of Beijing Anhua Office Building Co., Ltd. for consideration consisting of the surrender of the note receivable.
During 2001, Viking borrowed $23,600 from related parties including members of the Board of Directors, officers of the Company and a family member of the officers. The loans, bearing interest at 12%, are due on demand. At December 31, 2001 and 2000, Viking had notes and accrued interest payable of $63,000 and $40,000, respectively.
At December 31, 2001, amounts due to related parties from Fei Yun totaled $1,174,000. This balance includes $693,000 that was advanced from China Land Property, an entity related to a shareholder of Golden Horse and $481,000 that was advanced from an entity that acts as a property manager for Golden Horse. The amounts due to related parties are unsecured, bear no interest and have no fixed terms of repayment.
For the years ended December 31, 2001 and 2000, $6,854 and $2,865 of interest expense was paid to related parties, respectively.
NOTE Q - CONCENTRATIONS OF CREDIT RISK
Significant instruments that are subject to credit risk include cash and cash equivalents, mortgage notes receivable and amounts due from related parties. At December 31, 2001 almost all the cash and cash equivalents are maintained in bank accounts in China. The Company reduces its potential credit exposure by placing its cash with high quality financial institutions.
The notes receivable from related parties totaling $11,165,000 at December are subject to credit risk. (See Note P) At December 31, 2001 $1,711,000 of amounts due from related parties are unsecured. |
Mortgage notes receivable are generally secured by the underlying property. All of the mortgage notes receivable relate to the sale of apartments and office units in one large complex, Sunshine Plaza. Generally speaking, the Company requires a significant deposit (15%) in order to complete the sale of one of its units. Apartment unit sales, which make up the majority of mortgage notes receivable, are generally sold to individuals.
The Company leases office and retail space primarily to small and medium-size retail and commercial businesses. Credit risk associated with the lease agreements is limited to the amount of rents receivable from tenants, if any.
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.
Two customers (which are commonly controlled), Pretty Mall and Wonderful Mart constitute 67% of the commercial leasable square feet at Sunshine Plaza. The leases with Pretty Mall and Wonderful Mart are 20 year leases expiring in 2021. Management of these businesses have good reputations but no degree of assurance can be made as to future events. Management of Viking does not anticipate any significant change in the good standing of these tenants at this time.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE R - EMPLOYEE BENEFIT PLAN
On April 18, 1995, the Company registered an Employee Benefit Plan ("Plan")
under regulation S-8 that reserved 1,000,000 shares of common stock for issuance
under the Plan. These shares can be issued by approval of an Employee Benefit
Committee appointed by the Board of Directors. Through December 31, 2001, the
Company registered a combined total of 3,250,000 common shares through Form S-8
filings. During years ended December 31, 2001 and 2000 282,777 and 1,137,926
shares, respectively were issued under the terms of the Plan.
NOTE S - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's significant financial instruments at
December 31, 2001, none of which are held for trading purposes, are as follows
(in thousands):
Carrying Fair
Amount Value
----------- -----------
Financial Assets:
Cash and cash equivalents $ 7,191 $ 7,191
Mortgage loans receivable $ 15,797 $ 15,797
Notes receivable from related parties $ 11,165 $ 9,763
Financial Liabilities:
Long-term loans payable, including current portion $ 45,491 $ 45,491
|
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
o Cash and cash equivalents: The carrying amounts reported in the balance sheet approximate fair value because of the short maturities of those instruments.
o Mortgage loans receivable: The carrying amounts reported in the balance sheet approximate fair value because of the short term nature of these receivables.
o Notes receivable from related parties: The amounts reported in the balance sheet bear interest at 4%. The fair value has been calculated using 6% which is the rate which the Company could get from third parties currently.
o Long-term debt: The carrying amounts reported in the balance sheet approximate fair value because the rates approximate the current rates offered by lending institutions for notes with similar credit risk, maturities and terms.
VIKING CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE T - SEGMENTS
The Company's operations are classified into four principal reportable segments;
all of which were acquired in November and December 2001 - real estate, chemical
sales, construction, and garment manufacturing. All businesses are located and
operate in the People's Republic of China. The real estate segment owns and
operates a commercial and residential property. The chemical segment trades and
transports chemical products. The construction segment is constructing a highway
in the Jiangsu Province of the People's Republic of China. The garment
manufacturing segment manufactures clothing specifically focusing on export
garments.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The following table presents information about the four segments for 2001 (in
thousands):
Real Estate Chemical Garment
Sales Sales Construction Manufacturing Adjustment Consolidated
----- ----- ------------ ------------- ---------- ------------
Revenues from
external customers $ - $ - $ - $ - $ - $ -
Interest income - - - - 9 9
Interest expense - - - - (148) (148)
Depreciation and
amortization - - - - 232 232
Income (loss) from
equity accounted
investment (69) - (3) 13 - (59)
Income tax benefit
(expense) 542 - - - - 542
Extraordinary gain
resulting from the
extinguishment of
debt 2,174 - - - - 2,174
Net income (loss) 2,647 - (3) 12 (1,891) 765
Total assets 113,939 1,459 1,089 540 12,242 129,269
|
The real estate, chemical sales, construction and garment manufacturing segments represent the foreign operations in the People's Republic of China. The adjustments represent the corporate assets (including $11,165,000 of notes receivable from related parties), corporate expenses to reconcile segment amounts to consolidated balances.
NOTE U - EXTINGUISHMENT OF DEBT
The Company recorded extraordinary income for debt forgiveness totaling $2,174,055 (net of income taxes of $2,122,000 and minority interest portion of $2,135,000) during the year ended December 31, 2001. This amount represents advances that were due to various entities that are controlled by one of the current 20% owners of Golden Horse which were forgiven.
EXHIBIT 3.2 AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCOPORATION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VIKING CAPITAL GROUP, INC.
In accordance with Section 16-10a-602 and Section 16-10a-1006 of the Utah Code, and in accordance with the Articles of Incorporation of Viking Capital Group, Inc. (the "Corporation"), a Utah Corporation, the Corporation does hereby adopt the following amendments (the "Amendments") to the Articles of Incorporation.
1. THE ARTICLES OF INCORPORATION OF THE CORPORATION ARE HEREBY AMENDED BY DELETING FROM ARTICLE IV, THE ENTIRETY OF ITEMS C. AND D. THAT DESIGNATED THE RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES AA PREFERRED STOCK AND SERIES A1 PREFERRED STOCK RESPECTIVELY. BOTH SERIES ARE WHOLLY UNISSUED.
2. THE ARTICLES OF INCORPORATION OF THE CORPORATION ARE HEREBY AMENDED BY ADDING TO ARTICLE IV, A NEW ITEM C. DESIGNATING THE RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES 2001 CALLABLE PREFERRED STOCK AS FOLLOWS:
Article IV
C. Series 2001 Callable Preferred Stock shall have designations, rights, preferences, and privileges as follows:
1. Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall have, for all purposes with respect to the Corporation's Series 2001 Callable Preferred Stock, the meanings herein specified.
(a) "Assumed Value" means $10.00, being the value per share of the Series 2001 Callable Preferred Stock assumed hereunder for purposes of dividend and conversion calculations.
(b) "Call Notice" shall be defined as it is in Section 4(a) below.
(c) "Call Premium" shall be defines as it is in Section 4(c) below.
(d) "Common Stock" means the Corporation's Class A Common Stock, $0.001 par value per share.
(e) left blank intentionally
(f) "Conversion Notice" means a written notice of conversion of Series 2001 Callable Preferred Stock as contemplated in Section 3 below, together with the certificate(s) representing the shares being converted that has been endorsed for transfer or is accompanied by a duly executed stock power.
(g) "Corporation" means Viking Capital Group, Inc., a Utah corporation.
(h) "Liquidation Payment" or "Liquidation Payments" shall be defined as in Section 5 below.
(i) "Redemption Date" shall be defined as it is in Section 4(c) below.
(j) "Series 2001 Callable Preferred Stock" means 5,000,000 shares of the Preferred Stock, $1.00 par value per share, of the Corporation that have been designated by the Board of Directors as Series 2001 Callable Preferred Stock, which shares shall possess the designations, rights, preferences, and privileges set forth herein.
(k) "Trading Day" means a day on which Common Stock is traded on any national securities exchange or any automated quote system or electronic bulletin board.
2. Dividends. The holders of the Series 2001 Callable Preferred Stock shall not be entitled to receive dividends and therefore carries a dividend rate of zero percent (0.0%) per annum, and no more, calculated based on the $10.00 per share Assumed Value.
3. Conversion.
(a) Optional Conversion. Each holder of Series 2001 Callable Preferred Stock shall have the right and option to convert any or all of such holder's shares of Series 2001 Callable Preferred Stock to Common Stock at the rate of $5.00 per share of Common Stock in accordance with Section 3(b) below after the Corporation receives the holder's Conversion Notice. In order to effect such a conversion, the holder shall tender a complete Conversion Notice to the Corporation at its corporate offices. The Corporation will issue to each holder tendering Series 2001 Callable Preferred Stock certificates for conversion (i) a certificate representing the shares of Common Stock issuable upon such conversion, and (ii) a certificate representing any shares of Series 2001 Preferred Stock covered by the surrendered certificate but not being converted.
(b) Conversion Ratio. The number of shares of Common Stock issuable upon any such conversion shall be determined by the result of a fraction:
(i) The numerator of which is the Aggregate Assumed Value of the shares of Series 2001 Callable Preferred Stock being converted, and
(ii) The denominator of which is $5.00.
(c) Fractional Shares. No fractional shares shall be issued by the Corporation on conversion of the Series 2001 Callable Preferred Stock, but the Corporation shall pay in lieu thereof the full value in cash to the holders who would but for this provision be entitled to receive such fractional shares.
(d) Re-Issuance. Series 2001 Callable Preferred Stock converted pursuant to this Section 3 or called pursuant to Section 4 shall be eligible for re-issuance.
(e) Reservation of Adequate Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting conversion of its Series 2001 Callable Preferred Stock, the full number of shares of Common Stock that would be required on conversion of all Series 2001 Callable Preferred Stock from time to time outstanding.
(f) Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Series 2001 Callable Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder to the Series 2001 Callable Preferred Stock.
(g) Adjustment of Common Stock Price Threshold. If the Corporation executes any stock split, reverse stock split, stock dividend (excluding payment of preferred stock dividends in Common Stock), or similar transaction after the date of adoption of this statement of designations, rights, preferences and privileges by the Corporation's Board of Directors, then the $5.00 Common Price Per Share contemplated in (i) the denominator of the conversion ratio fraction set forth in Section 3(b) above, and (ii) the Common Price Per Share set forth in Section 3(e) above, shall automatically be adjusted as appropriate.
4. Corporation's Right to Call.
(a) General. The Corporation shall have the right to call for redemption some or all of the outstanding shares of Series 2001 Callable Preferred Stock at any time after issuance of such shares, upon 30 days written notice (a "Call Notice") to the holder(s) of the shares being called.
(b) Right to Convert. A holder receiving a Call Notice from the Corporation shall be entitled, during the 30-day notice period, to convert the called shares to Common Stock pursuant to Section 3 above.
(c) Procedures for Redemption. On or before the closing date specified in the Call Notice for redemption of called shares (the "Redemption Date"), each holder whose Series 2001 Callable Preferred
Stock has been called for redemption and has not been converted to Common Stock prior to the Redemption Date shall tender to the Corporation, at the address specified in the Call Notice, the certificate(s) representing the called shares. Upon receipt of such certificate(s), the Corporation shall tender to the applicable holder a Corporation check in an amount equal to the sum of (i) the aggregate Assumed Value of the shares of Series 2001 Callable Preferred Stock called plus (ii) the Call Premium. The Call Premium shall be calculated by multiplying the Assumed Value of the shares by a percentage. Such percentage is determined based upon the number of months elapsed between the issuance date and the date of the Call Notice as follows:
(i) Zero percent during the first twelve months,
(ii) 2% during the second twelve months,
(iii) 4% during the third twelve months and,
(iv) 6% thereafter.
(d) Failure to Tender Called Shares. Should a holder of Series 2001 Callable Preferred Stock called for redemption fail or refuse for any reason to tender to the Corporation the certificate(s) representing any of such shares, then on the Redemption Date (provided the shares to be redeemed have not been converted to Common Stock prior to the Redemption Date), (i) the shares called for redemption shall immediately cease to accumulate dividends, and (ii) such shares shall also cease to possess any of the rights, preferences or privileges associated with Series 2001 Callable Preferred Stock, including without limitation convertibility features, preference on liquidation, and any other features, rights or privileges associated with the Series 2001 Callable Preferred Stock, other than the right to tender such shares to the Corporation in exchange for payment of the applicable redemption price (as calculated as of the proposed Redemption Date, without interest).
(e) Subject to Applicable Laws. Any call of Series 2001 Callable Preferred Stock pursuant to this Section 4 shall be subject to the requirements of applicable corporate and securities laws and of any governing body having jurisdiction.
5. Liquidation Rights. In the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation: (i) the holders of Series 2001 Callable Preferred Stock shall be entitled, before any distribution or payment is made upon any stock ranking in liquidation junior to the Series 2001 Callable Preferred Stock, to be paid in an amount equal to the Assumed Value per share, together with accrued and unpaid dividends to the distribution date, whether or not declared, and (ii) the holders of the Series 2001 Callable Preferred Stock shall not be entitled to any further payment, such amount payable with respect to one share of the Series 2001 Callable Preferred Stock being sometimes referred to as the "Liquidation Payment" and with respect to all shares of the Series 2001 Callable Preferred Stock the "Liquidation Payments." Upon such liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or otherwise, if the assets to be distributed among the holders of the Series 2001 Callable Preferred Stock shall be insufficient to permit payment to the holders of the Series 2001 Callable Preferred Stock of the Liquidation Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably among the holders of the Series 2001 Callable Preferred Stock. Upon any such liquidation, dissolution, or winding up of the Corporation, the assets remaining after payment of the Liquidation Payments may be distributed to the holders of stock ranking in liquidation junior to the Series 2001 Callable Preferred Stock. Written notice of such liquidation, dissolution, or winding up, stating a payment date, the amount of the Liquidation Payment, and the place where said Liquidation Payment shall be payable, shall be given by mail, postage prepaid, or by fax to non-U.S. residents, not less than twenty (20) days prior to the payment date stated therein, to the holders of record of Series 2001 Callable Preferred Stock, such notice to be addressed to each such holder at his address as shown by the records of the Corporation. For purposes hereof, the Common Stock shall rank in liquidation junior to the Series 2001 Callable Preferred Stock. A consolidation or merger of the Corporation with or into one or more corporations or the sale or transfer of all or substantially all of the assets of the Corporation shall not be deemed to be a liquidation, dissolution, or winding up of the Corporation.
6. Voting Rights.
(a) The Series 2001 Callable Preferred Stock shall have no voting rights other than as set forth below. Holders of Series 2001 Callable Preferred Stock shall not be entitled to notice of any meeting of holders of Common Stock unless the Board of Directors of the Corporation contemplates prior to the meeting that at the meeting there will be discussion of or a vote on a matter requiring approval of the holders of the Series 2001 Callable Preferred Stock.
(b) The Corporation will not, without the affirmative vote (with each share of Series 2001 Callable Preferred Stock being entitled to one vote) of the holders of at least a majority of the outstanding
shares of Series 2001 Callable Preferred Stock, voting together as single class, by resolution adopted at a meeting called for such purpose:
(i) Change the aggregate number of authorized shares of Series 2001 Callable Preferred Stock;
(ii) Effect an exchange, reclassification or cancellation of all or part of the shares of Series 2001 Callable Preferred Stock (other than as expressly contemplated herein);
(iii) Effect an exchange, or create a right of exchange of all or part of the shares of another class or series into shares of Series 2001 Callable Preferred Stock;
(iv) Create a class or series of equity securities having rights or preferences as to the payment of dividends (a "Dividend Preference") or having rights or preferences upon liquidation of the Corporation (a "Liquidation Preference") that are superior to the Dividend Preference and the Liquidation Preference, respectively, of the Series 2001 Callable Preferred Stock; provided, however, that nothing contained herein shall be interpreted to require any approval or otherwise restrict the ability of the Corporation to issue one or more classes or series of equity securities, which might include one or more classes or series of preferred stock, that:
(x) Have Dividend Preference or a Liquidation Preference, or both, on parity with the Series 2001 Callable Preferred Stock; or
(y) Have rights, preferences, privileges, or features, other than the Dividend Preference or Liquidation Preference, that might be considered more favorable than the rights, preferences, privileges or features of the Series 2001 Callable Preferred Stock, such as, for example (but without limitation), a higher dividend rate, more favorable terms of conversion (which may mean a more favorable ratio of conversion to common stock, the possibility of converting to assets of the Corporation instead of common stock, or both), or the right to vote; or
(v) Amend the Articles of Incorporation in any way if such amendment would change, alter, cancel or impair the preferences or rights of all or part of the Series 2001 Callable Preferred Stock, except for minor corrections, adjustments or other changes that do not, either individually or in the aggregate, have a material adverse effect on the substantive rights of any holder of Series 2001 Callable Preferred Stock.
7. Notices. All notices to the holders of the Series 2001 Callable Preferred Stock shall be in accordance with the Articles of Incorporation and Bylaws of the Corporation.
1. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE PROVISION OF THE CORPORATION'S ARTICLES OF INCORPORATION (AS PREVIOUSLY AMENDED, RESTATED, AND AMENDED) SHALL REMAIN UNAMENDED AND SHALL CONTINUE IN FULL FORCE AND EFFECT.
2. BY EXECUTION OF THESE ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION, THE PRESIDENT AND THE SECRETARY OF THE CORPORATION DO CERTIFY THAT THE FOREGOING AMENDMENT TO THE ARTICLES OF INCORPORATION WERE ADOPTED AS AN AMENDMENT TO THE ORIGINAL ARTICLES OF INCORPORATION OF THE CORPORATION (AS PREVIOUSLY AMENDED, RESTATED AND AMENDED) BY THE BOARD OF DIRECTORS OF THE CORPORATION AT A MEETING HELD ON DECEMBER 20, 2001. THIS ACTION WAS TAKEN BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER ACTION AS SHAREHOLDER ACTION WAS NOT REQUIRED IN ACCORDANCE WITH THE ARTICLES OF INCORPORATION OF THE CORPORATION. THE RIGHTS, PREFERENCES AND PRIVILEGES OF THE TWO SERIES OF PREFERRED STOCK DELETED BY THIS AMENDMENT WERE WHOLLY UNISSUED AND THEREFORE DID NOT REQUIRE APPROVAL FROM ANY PREFERRED SHAREHOLDERS.
EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT Subsidiary and Name Under Which Business is Done Percent Owned Where Organized ------------------------------------------------ ------------- --------------- Beijing Fei Yun Viking Enterprises Company, Ltd. 96% China NIAI Insurance Administrators, Inc. 100% California Viking Capital Financial Services, Inc. 100% Texas Viking Insurance Services, Inc. 100% Texas Viking Systems, Inc. 100% Texas Viking Administrators, Inc. 100% Texas Wuxi Viking Garments Company, Ltd. 25% China |