Viking Capital Group Inc – ‘10KSB40’ for 12/31/96

As of:  Monday, 3/31/97   ·   For:  12/31/96   ·   Accession #:  950134-97-2503   ·   File #:  0-22744

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Annual Report — Small Business — [x] Reg. S-B Item 405   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB40     Form 10-Ksb for Year Ended December 31, 1996          41    195K 
 2: EX-21.1     Subsidiaries of the Registrant                         1      4K 
 3: EX-27       Financial Data Schedule                                1      8K 

10KSB40   —   Form 10-Ksb for Year Ended December 31, 1996
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB 
(Mark One)                                                                      
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES        
EXCHANGE ACT OF 1934 (Fee Required)                           

For the Fiscal Year Ended December 31, 1996 

[ ]      TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES   
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)                        

   For the transition period from       to
                                        ------   -----

Commission File Number 0-22744

VIKING CAPITAL GROUP, INC.
(Name of small business issuer in its charter)

Utah                                                87-0442090
-------------------------                            ------------------------   
(State or other jurisdiction                             (I.R.S. Employer       
   of incorporation)                                Identification Number)

Two Lincoln Centre, Suite 300, 5420 LBJ Freeway, Dallas, Texas 75240
--------------------------------------------------------------------
(Address of Principal Executive Offices) ( Zip Code)

Registrant's Telephone Number, Include Area Code: (972) 386-9996                
Securities Registered Pursuant to section 12(b) of the Exchange Act:            

        Title of Each Class          Name of Each Exchange on Which Registered
        -------------------          -----------------------------------------
None                                    None    

Securities Registered Pursuant to Section 12(g) of the Exchange Act:            

Common Stock, $.001 par value 
(Title of Class)

          Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or  
for such shorter period that the registrant was required to file such reports); 
and (2) has been subject to such filing requirements for the past ninety (90)   
days. Yes X No                                                                  

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-KSB or any amendment to   
this Form 10-KSB. [X]                                                           

      The issuer's revenues for its most recent fiscal year were $273,925.

   As of December 31, 1996, 13,946,095 shares of common stock of the
Registrant were outstanding. As of such date, the aggregate market value of the 
common stock held by non-affiliates, computed using the average bid and asked   
price at 12/31/96, was approximately $2,209,484.                                

DOCUMENTS INCORPORATED BY REFERENCE 

     The following document is incorporated herein by reference in Item 10
Part III:                                                                       

       Adoption of an Employee Stock Option Plan as described and incorporated
into the Proxy Statement on the annual statement for fiscal year ended December 
31, 1995.                                                                       

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TABLE OF CONTENTS 

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                                                                                      Page 
                                                                                      ---- 
                                                                                           
PART I                                                                                     
       Item 1.  Description of Business .............................................   3  
       Item 2.  Description of Properties ...........................................   7  
       Item 3.  Legal Proceedings ...................................................   7  
       Item 4.  Submission of Matters to a Vote of Security Holders .................   7  

PART II                                                                                    
       Item 5.  Market for Common Equity and Related Stockholder Matters ............   7  
       Item 6.  Management's Discussion and Analysis ................................   9  
       Item 7.  Financial Statements ................................................  11  
       Item 8.  Changes in and Disagreements with Accountants on Accounting and            
                Financial Disclosure ................................................  11  

PART III                                                                                   
       Item 9.  Directors, Executive Officers, Promoters and Control Persons               
                Compliance with Section 16(a) of the Exchange Act ...................  11  
       Item 10. Executive Compensation ..............................................  13  
       Item 11. Security Ownership of Certain Beneficial Owners and Management ......  15  
       Item 12. Certain Relationships and Related Transactions ......................  16  
       Item 13. Exhibits and Reports on Form 8-K ....................................  17  

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PART I

ITEM I.  DESCRIPTION OF BUSINESS                                                

  BACKGROUND. Viking Capital Group, Inc. (the "Company") is a Utah
corporation formed on November 12, 1986. The Company was originally formed      
under the name Silver Harvest, Inc. for the purpose of obtaining capital to     
seek out, investigate and acquire interests in new products, properties or      
businesses. In June of 1988, the Company received from subscribers in a public  
offering subscriptions for the purchase of 2,500,000 shares of its common stock 
for an aggregate of $75,000. The Company's public offering was conducted        
pursuant to the registration requirements set forth in Section 61-1-10 of the   
Utah Uniform Securities Act and in reliance upon the exemption from federal     
registration requirements set forth in Rule 504 of Regulation D as promulgated  
under the Securities Act of 1933, as amended. Pursuant to Rule 11.1 of the Utah 
Securities Division, the proceeds from the Company's public offering were       
placed in escrow pending the specific allocation of such proceeds and subject   
to the subscribers' right to rescind their subscriptions upon determination of  
the definitive use of proceeds.                                                 

     In 1989, the Company entered into an agreement with Louis Sylvester
pursuant to which the Company agreed to issue 1,000,000 shares of common stock  
to Mr. Sylvester in exchange for all rights to certain financial education      
seminar and business concepts developed by Mr. Sylvester. Pursuant to such      
agreement, the Company agreed to change its name to The Institute for Financial 
Fitness and to operate as a financial consulting and education firm utilizing   
certain concepts developed by Mr. Sylvester. The Utah Securities Division then  
approved the release of the funds held in escrow to the Company.                

 The Company subsequently abandoned its financial consulting and
education activities and pursued and abandoned various other opportunities and  
Mr. Sylvester returned the shares of common stock received from the Company for 
cancellation. In February of 1990, the Company changed its name to Viking       
Capital Group, Inc.. In November of 1991, the Company declared a 1 for 5        
reverse stock split.                                                            

       From 1990 through mid 1994 the Company laid the ground work to become
a insurance holding company and a fully reporting SEC public holding company    
via the filing of the form 10 with the SEC. In mid 1994 the Company became a    
fully reporting SEC Company and the effective first reporting period was as of  
12/31/93. The next major activity was to enlist a market maker to establish     
trading in the Company's common stock via the over the counter electronic       
bulletin board. This was achieved on January 20, 1995. Subsequently, the        
common stock of the Company has attracted seven (7) market makers spread        
across the USA, therein trading the stock coast to coast. As of December 31,    
1996 the Company's activities include: (1) development of private and           
institutional investors for various acquisitions, specifically, the purchase    
of insurance companies, (2) implementation of the plan described below to       
become a provider of specialized administration and data processing services    
for insurance companies and banks including the licensing of the Sun            
Microsystems, Inc. "Sun Closed Caption Index Media Stream (IMS)" software       
with Viking Systems, Inc.                                                       

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DESCRIPTION OF BUSINESS                                                         

PLAN OF OPERATION. The Company is a development stage company which has         
developed a comprehensive multi-step plan to (1) become a provider of           
specialized administrative and data processing services for insurance and       
securities products offered by other companies and (2) acquire a base of        
insurance managed assets under the Company's management. The Company's primary  
objective is to provide quality fee based administration, data processing,      
product development and management consulting services to businesses,           
particularly banks and insurance companies, and to build its own insurance      
managed assets via acquisitions and reinsurance purchases to a total of $1.5    
billion of insurance managed assets. The Company's financial methodology is to  
generate profits from its fee based services described above, equal to or in    
excess of the cost of managing its own assets and policy holders. This          
methodology is expected to allow the Company to achieve a higher margin of      
profitability than its competitors and allow shareholder equity to grow as the  
managed asset base grows. Management expects the Company's proposed services    
will permit financial services companies, particularly small to medium sized    
banks, merchant banks and insurance companies, to expand their sources of       
revenues while minimizing costs. Implementation of the Company's plan of        
operations is expected to be carried out through one or more strategic          
acquisitions of, or combinations with, operating companies. While the Company   
has not purchased an insurance company yet, it has started operations in        
corporate relations services, via Viking Financial Services, Inc., insurance    
marketing services, via Viking Insurance Services, Inc., data processing        
services, via Viking Systems, Inc. (incorporated in 1996), administration       
services, via Viking Administrators, Inc. (incorporated in 1996). There is no   
assurance that the Company can successfully continue to fund the start-up of    
Viking Financial Services, Inc., Viking Insurance Services, Inc., Viking        
Systems, Inc., Viking Administrators, Inc. and other operations or that such    
other operations can be integrated and carried out on a profitable basis.       

       While the Company presently has no known, specific source of funds to
implement its total plan of operations, the Company intends to pursue its plan  
of operations through mergers, exchanges of stock for assets or stock, the      
issuance of debt and/ or the private placement or public offering of stock for  
cash. The Company believes that its status as a reporting company under the     
Securities Exchange Act of 1934, the trading of its common stock on the over    
the counter electronic bulletin board (symbol VGCP) and the stature and         
industry contacts of Chairman, William J. Fossen, will make it more attractive  
to potential merger or acquisition candidates and will enhance the Company's    
ability to raise capital through the placement of its debt and/or equity        
securities. No binding agreements, or agreements in principal, to raise capital 
for the Company or invest in the Company existed as of December 31, 1996, and,  
therefore, there can be no assurance that the Company will be successful in     
obtaining the financing necessary to implement its plan of operations.          

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     CORPORATE RELATIONS SERVICES. (Viking Financial Services, Inc.) The
first phase of the Company's proposed plan of operation consists of the         
initiation of its corporate relations services, Viking Financial Services,      
Inc.. This subsidiary of the Company intends to help provide capitalization,    
restructuring and public offerings for the Company and for client companies     
that have significant potential and/or assets. These services will be provided  
by the Company on a fee and percentage basis with limited liability arising on  
behalf of the Company.                                                          

The Company intends to provide services through various       
broker/dealers, nationwide. The Company intends to contract with broker/dealers 
via Viking Financial Services, Inc., large enough to provide all types of       
securities products and trading services (stocks, bonds, etc.). The Company     
presently does not intend to have ownership in any broker/dealerships that it   
does business with, but may so choose to in the future, if management deems it  
is necessary to properly serve its client companies and banks.                  

        The operations of Viking Financial Services, Inc. has been carried out
to date by non-salaried individuals. No gross income was generated during 1996  
from the operation of Viking Financial Services, Inc..                          

         INSURANCE MARKETING SERVICES COMPANY.  (Viking Insurance Services,Inc.)
On May 6, 1995 the Company purchased for 450,000 common shares, the national    
marketing operations of Viking Insurance Services, Inc. In 1996, Viking         
Insurance Services, Inc. created a new product line on behalf of World          
Travelers Association for health and other benefits for travelers visiting the  
USA. Plans call for the "Viking Travel Plan", as it is referred to, to begin    
marketing in Canada in the second quarter of 1997 and in a number of other      
foreign countries over the next few years. Viking Insurance Services, Inc.      
generated $74,955 of gross income via contract sales for future business in     
1996.                                                                           

         DATA PROCESSING COMPANY.  (Viking Systems, Inc.) The Company formed and
incorporated Viking Systems, Inc. on February 15, 1996. Viking Systems, Inc.    
will serve as the Company's data processing center for all the Company's        
Management Information Systems (MIS) needs and will also serve as a "profit     
center", providing MIS services to outside client corporations. Viking Systems, 
Inc. has completed two tasks for the Federal Government during the last half of 
1996 which generated a gross income of $198,970. Viking Systems, Inc. announced 
on October 10, 1996 a streaming, digital video indexing capability as an        
integral step in the strategic plan of placing Viking Capital Group, Inc. at    
the forefront of utilizing the information superhighway for agent and policy    
holder services. This capability, derived from software licensed from Sun       
Microsystems, Inc. (Mountain View, SUNW), allows searching indexed video for a  
particular word or phrase, much like searching for text in an electronic        
document. As of 12/31/96 the Company or Viking Systems, Inc. had no new         
commitments or agreements with the Federal Government or any other outside      
corporate client.                                                               

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       ADMINISTRATION SERVICES. (Viking Administrators, Inc.) The Company,
through Viking Administrators, Inc. (incorporated during 1996), intends to offer
a comprehensive range of administrative services associated with the internal   
operations of insurance companies, including accounting, billing, policy        
issuance, policy servicing, compliance and financial reporting services. As of  
December 31, 1996, the Company had not entered into any negotiations,           
commitments or agreements to provide administration services. There can be no   
assurances that the Company can successfully contract and/or fund the           
operations of Viking Administrators, Inc.                                       

        PROPOSED ACQUISITION OF INSURANCE COMPANY. The Company is proposing to
purchase a life and/or Property and Casualty (P&C) insurance company. The       
purchase of its own P&C insurance company will allow the Company the choice of  
issuing its own master policy to the World Travelers Association, therein       
increasing its gross profits as compared to issuing the Travel Plan through a   
unrelated insurance company. The purchase of a life insurance company, in       
addition to facilitating uniform compliance with required administrator license 
requirements, is expected to serve as a warehouse or structure within which the 
Company intends to acquire insurance policies with a goal of accumulating a     
managed asset base of $1.5 billion. The Company intends to acquire blocks of    
insurance utilizing three methods: (1) reinsuring a portion of the Company's    
client insurance companies' insurance sales for whom the Company is performing  
data processing and administration services; (2) purchasing blocks of business  
(a block or book of business is generally described as a number of insurance    
policies of the same type or plan), including the required accumulated          
reserves, typically comprised of securities, some mortgages and real estate,    
referred to as "managed assets"; and (3) purchasing entire insurance companies  
so as to take over all of the desired blocks of business in the targeted        
insurance company.                                                              

         Management presently has identified several targets that are available.
These targets may or may not be available upon the Company's completion of its  
capitalization. However, management believes that appropriate companies are     
readily available. The anticipated cost of acquiring and capitalizing an        
operation is estimated at $3,000,000 to $7,200,000. for a shell insurance       
company and from $15,000,000 and up for existing operating insurance companies, 
depending upon the assets accumulated in such a target insurance company.       
Management looks for targets that have under performing investment portfolios,  
but with high quality investments and high per policy general administrative    
expenses compared to the Company's service costs. There can be no assurances    
that the Company can successfully contract and/or fund the purchase of an       
insurance company.                                                              

    MARKET AND COMPETITION. The Company is presently aware of no other
company providing or planning to provide services of the nature and scope       
proposed to be offered by the Company in the medium to small insurance company  
market. However, as the trend toward "outsourcing" continues to grow as a means 
of controlling costs and maximizing profitability, management expects that      
other companies will attempt to duplicate the Company's services.               

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EMPLOYEES. At December 31, 1996, the Company had 12 full time 
employees.  The Company's relations with its employees are favorable.           

ITEM 2.  DESCRIPTION OF PROPERTIES                                              

      The Company's executive offices are located in 15,189 square feet of
office space at Two Lincoln Centre, 5420 LBJ Freeway, Suite 300, Dallas, Texas  
75240 at the rate of $21,518 per month for a period of sixty (60) months        
through 6/31/2001. 6,000 square feet are subleased to two independent third     
parties pursuant to a written lease agreement providing for monthly lease       
payments of $5,000. and $1,800 for a period of twelve (12) months through       
6/31/97. Both subleases have requested to continue their lease for an           
additional year. The Company has not as of this date herein, determined its     
full space requirements for the months subsequent to 6/31/97. The Company's     
present facilities are believed to be adequate to support its present holding   
company and data processing operations for the remainder of the lease.          

ITEM 3.  LEGAL PROCEEDINGS                                                      

   The Company is not involved in any threatened, pending or ongoing
litigation to the best knowledge of management.                                 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

   No matters were submitted to a vote of the Company's shareholders
through the solicitation of proxies, or otherwise, during the fourth quarter of 
the Company's fiscal year ended December 31, 1996.                              

PART II 

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS               

MARKET. The Company's common stock began trading in the over the                
counter (OTC) market January 20, 1995. The Company's trading symbol is "VGCP".  
The volume in the trading averages approximately 20,000 a day. As of 12/31/96   
the stock was quoted at $0.31 ask and $0.25 bid. There is a total of            
approximately 13,946,095 common shares outstanding of which 4,156,941 are free  
trading shares as of 12/31/96.                                                  

       At December 31, 1996 the Company had 100,000 shares of Class B common
stock authorized and outstanding. All 100,000 shares where issued to William J. 
Fossen, Chairman, President and CEO of the Company. The Class B common shares   
can choose to elect two thirds (2/3) of the board of directors.                 

        At December 31, 1996, the Company had outstanding options of 9,719,252
of which                                                                        

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4,841,851 where exercisable to purchase common stock.                           

      Of the 13,946,095 shares of common stock outstanding at December 31,
1996, 9,635,779 shares are "restricted stock" as defined by Rule 144. At        
December 31, 1996, approximately 5,624,108 shares of the restricted common      
stock were eligible for resale pursuant to Rule 144.                            

        At December 31, 1996, the Company had certain note agreements in the
amount of $11,500 which were convertible to 3,833 shares of common restricted   
stock [at $2.00 per share through July 1, 1995 and increasing $.50 per share    
every twelve months thereafter, to a maximum of $3.00 per share], the shares    
are required to be registered for resale (registration rights) when and if the  
Company ever filed for any registration of any of its common shares. All note   
holders were offered a one time opportunity to convert their notes and purchase 
a like amount of additional common shares by October 1, 1995 for a conversion   
price of $1.10 per share. All but $14,000 note holders had converted as of      
12/31/95 for a total conversion and purchase rights of 230,182 common           
restricted shares. Subsequent to 12/31/95, $2500. plus all interest had been    
repaid to a single note holder leaving a balance of $11,500 in the above        
mentioned notes as of 12/31/96. Note holders that converted to common stock     
received one A warrant and one B warrant for each dollar that they convert.     
Each A warrant is exercisable at $3.00 per share when the trading bid price of  
the common stock reaches a $4.00 average over five consecutive trading days.    
Each B warrant is exercisable at $6.00 per share when the trading bid price of  
the common stock is a $6.00 average over five consecutive trading days. Each    
such warrant expires upon the ninetieth day after the market trading bid price  
has reached the designated price as outlined above.                             

As of 12/31/96 the Company had $51,000 convertible notes outstanding that had   
the option to converted to 170,000 common restricted shares; $106,720           
convertible notes outstanding that had the option to convert to 213,440 common  
restricted shares; $15,560 convertible notes outstanding that had the option to 
convert to 20,747 common restricted shares. All convertible notes if converted, 
carried an option of a like amount at the same price as the conversion price.   
All notes are due in 1997 and all options if the notes are converted, are for a 
period of one year.                                                             

The Company had no ongoing or proposed public offerings of its common equity at 
12/31/96.                                                                       

HOLDERS                                                                         

       At December 31, 1996, there were approximately 1012 holders of record
of the common stock of the Company.                                             

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DIVIDENDS                                                                       

        The Company has paid no cash dividends to any common equity holders to
date and does not expect to pay any dividends in the foreseeable future.        
Payment of dividends on the Company's common stock is subject to the payment of 
all accumulated dividends payable to the holders of the Company's outstanding   
preferred stock. The Company had no preferred stock outstanding as of 12/31/96. 
Other than the foregoing, there are no restrictions, nor are there likely to be 
in the future, that limit the ability of the Company to pay dividends on its    
common stock.                                                                   

ITEM 6   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION              

     The Company's operations for the four years ended December 31, 1994
have consisted of efforts to develop its existing plan to become a provider of  
specialized administration and data processing services for the insurance and   
financial services industries as described elsewhere herein and efforts to      
attract capital in order to implement the Company's plan of operations. In      
addition, during this period the Company has become a fully reporting SEC       
company and publicly traded with market makers offering the Company's common    
stock across the USA. The Company became a fully reporting SEC Company in 1994  
and its common stock began trading on the over the counter electronic bulletin  
board January 20, 1995. The Company has received no significant revenues        
through 1995, and revenues of $273,925 in 1996, and has generated substantial   
losses.                                                                         

 The Company's plan of operation is described in full in Item 1.
Business, above. The Company's plan of operations has been implemented in       
multiple phases with the implementation of each phase being subject to the      
receipt of various levels of funding. It is management's belief that such       
phases have been accomplished as it pertains to preparing the Company for the   
acquisition of its first insurance company. Complete implementation of the      
Company's plan of operations is anticipated to require approximately $4,500,000 
of funding. The Company is seeking to secure $3,000,000 in the form of a equity 
sale of the Company's convertible preferred stock and $1,500,000 in computer    
equipment leases. The amount of computer equipment leases will be dictated by   
the requirement of potential government contracts for the completion of         
integrated systems and/or the requirements of future insurance company          
acquisitions. Further sales of the Company's preferred stock will also be       
required to raise additional capital for the purchase of insurance company      
assets to meet the Company's goal of $1.5 billion of managed insurance assets.  

      Viking Financial Services, Inc. (VFSI), a wholly owned subsidiary of
the Registrant, was incorporated June 10, 1994, in the state of Texas, Viking   
Insurance Services, Inc. (VISI) was purchased as a wholly owned subsidiary of   
the Registrant on May 6, 1995, Viking Systems, Inc. (VSI), a wholly owned       
subsidiary of the Registrant, was incorporated February 7, 1996 in the state of 
Texas and Viking Administrators, Inc., a wholly owned subsidiary of the         
registrant, was incorporated March 27, 1996 in the state of Texas. (See Item I. 
Business - Corporate Relations Services, Viking Insurance Services, Inc.,       
Viking Systems, Inc. and Viking Administrators, Inc. above). VFSI began limited 
operations on May 1, 1996 and had no revenue during 1996.                       

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VISI filed and contracted for insurance marketing products with other insurance 
companies and generated $74,955 of revenue in 1996. VSI completed on 10-10-96   
the licensing of the Sun software for the operations of Sun Microsystems,       
Inc.'s "Sun Closed Caption Index Media Stream" software. Viking Systems, Inc.   
continues towards the completion of its own in house development of index media 
software and other applications for use on the Viking corporate intranet and    
the Internet. VSI had revenue for 1996 of $198,970.                             

        During 1996, the Company also incorporated an insurance administration
company called Viking Administrators, Inc. . This leaves the last phase of the  
strategic plans of the Company, which are to purchase insurance companies. The  
Company also has contracted with a national continuing education firm for       
insurance and securities agents and plans to sign a strategic alliance with a   
broker/dealer and prepare for a public and/or private offering of approximately 
$3,000,000 and $15,000,000 of the Company's preferred stock. The cost of        
implementing such steps is estimated to be $150,000. If the Company is          
successful in securing such funding and carrying out such steps, the Company    
expects to utilize the proceeds of the proposed public and/or private offering  
and other available funding to implement the remaining phase of the Company's   
plan of operations of acquiring and capitalization of the first insurance       
company at an estimated cost of $3,000,000. The estimated cost to acquire       
further insurance assets via the purchase of insurance companies and/or         
individual books of insurance business to reach the Company's goal of $1.5      
Billion, is $150,000,000. The estimated completion cost for equipment and       
software of the DP center (VSI) is $1,500,000 and $500,000 respectively. The    
estimated start-up cost of an administration center is $200,000.                

     At December 31, 1996, the Company had cash on hand of approximately
$9,920 and had liabilities totaling approximately $810,525. Subsequent to       
12/31/96 the Company had raised additional funds via private loans of           
approximately $240,000 and receivables of $99,703. The Company anticipates that 
the funds on hand will only sustain current operations for approximately the    
first six months and are not sufficient to implement any of the Company's plan  
of operations. Accordingly, in order to sustain operations past such period     
and to implement the Company's plan of operations, the Company must secure      
funds from other sources.                                                       

The Company will continue to negotiate for funding of up to   
$15,000,000 to fund acquisition of an insurance company and provide additional  
working capital for subsidiaries. The Company has not received any commitments  
from any private or institutional lender or investor or from any other source   
to provide funding to the Company as of 12/31/96. Accordingly, while the        
Company believes that it can successfully conduct a private placement of debt   
and/or equity, continue to capitalize its subsidiaries, establish broker/dealer 
alliances and conduct a public offering before the end of 1997, with            
implementation of the remaining phase of the Company's plan of operations to    
follow shortly thereafter, there is no assurance that the Company can           
successfully complete a private placement of debt and/or equity or a public     
offering or that it can successfully implement any of its plan of operations.   
Failure to successfully complete a private placement and/or public offering of  
debt and/or equity, or securing funding from other sources, would materially    
adversely affect the timing and ability of implementation of the Company's plan 
of operations. If the Company is successful in implementing its plan of         
operations, the Company will be required to lease, acquire or construct         
significant additional facilities and equipment and hire substantial additional 
employees to carry out such operations.                                         

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ITEM 7.  FINANCIAL STATEMENTS                                                   

The "F series" pages follow page 18 and begin with "F-1"                        

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Independent  Auditor's Reports........................................................F-3 
Consolidated Balance Sheets as of December 31, 1995, and 1996.........................F-4 
Consolidated Statements of Operations for the years ended December 31, 1995,              
1996 and for the period from inception (November 12, 1986) to December 31, 1996.......F-6 
Consolidated Statements of Stockholders' Equity for the years ended December 31,          
1995, and 1996 and for the period from inception (November 12, 1986) to                   
December 31, 1996 ....................................................................F-7 
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996,        
and for the period from inception (November 12, 1986) to December 31, 1996............F-12
Notes to Consolidated Financial Statements............................................F-15

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND        
FINANCIAL DISCLOSURE                                          

  The Company's financial statements are audited by King Griffin &
Adamson, P.C., Dallas, Texas. King Griffin & Adamson, P.C. also audited the     
Company's financial statements for the prior year. King Griffin & Adamson's     
name was changed from King Burns & Company, P.C. effective March 1, 1997        

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;          
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT             

INFORMATION REGARDING PRESENT DIRECTORS AND EXECUTIVE OFFICERS                  

   The following table sets forth certain information concerning the
Company's current directors and executive officers:                             

Age              Title        
---              -----        

William J. Fossen        58         Chairman of the Board, President and CEO    
Tommy L. Walker          62         Director, Vice Chairman                     
Mary M. Pohlmeier        48         Director                                    
Walter E. Muller         47         Director                                    

      Officers and directors are elected on an annual basis. The terms for
each director will expire at the next annual meeting of shareholders or at such 
time as a successor is duly elected. Officers serve at the discretion of the    
Board of Directors.                                                             

 There are no family relationships among any of the directors or
officers of the Company.                                                        

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       The following is a biographical summary of the business experience of
the directors and executive officers of the Company:                            

        WILLIAM J. FOSSEN has served as Chairman of the Board and President of
Viking Capital Group, Inc. since November 1989. Since March of 1982, Mr. Fossen 
has served as Chairman of the Board, Chief Executive Officer and President of   
National Investors Holding Corporation and its subsidiaries, a company engaged  
primarily in the marketing of life and medical insurance and annuities. In      
November of 1988, the operating insurance subsidiary of National Investors      
Holding became insolvent and was liquidated and since such date the company has 
been inactive. Mr. Fossen continues to serve as an officer and director of      
National Investors Holding Corporation. Since 1969, Mr. Fossen has been engaged 
in various facets of the insurance industry, including sales, asset management, 
data processing and administration.                                             

   TOMMY L. WALKER has served as a Director and Vice Chairman of the
Company since October of 1991. Since July of 1989 Mr. Walker has conducted his  
own investment and financial consulting firm . From May of 1985 to June of      
1989, Mr. Walker served as Vice President of Sales for First Winthrop           
Corporation/Winthrop Securities Company, Inc. Previously, Mr. Walker served in  
various managerial, consulting and entrepreneurial positions, including serving 
as founder and Executive Vice President and a Director of National Sharedata    
Corporation, a bank data processing firm.                                       

 MARY M. POHLMEIER has served as a Director of the Company since
October of 1991. Since June of 1987, Ms. Pohlmeier has been employed by         
Frito-lay, Inc. in research and development and is presently a Technical        
Project Manager and Principal Scientist where her responsibilities include the  
identification and execution of strategies and designed testing for the         
introduction of new products, coordination of functional support groups and     
supervision of professional and technical staff on various projects.            

WALTER E. MULLER has served as a Director of the Company since
December of 1994. Mr. Muller is currently serving as a Director at the Texas    
Society of Certified Public Accountants. He has served the Dallas chapter of    
the Texas Society of Certified Public Accountants as their secretary, vice      
president, director, committee member and chairman. Mr. Muller, with his own    
accounting firm, Muller and Company, P.C., is an experienced business owner,    
responsible for origination and management of various types of business.        

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT                               

Not Applicable                                                

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ITEM 10. EXECUTIVE COMPENSATION                                                 

SUMMARY COMPENSATION TABLE                                                      

The following table sets forth information concerning cash and
non-cash compensation paid or accrued by the Company and its subsidiaries to or 
on behalf of the Company's Chief Executive Officer during the four years ended  
December 31, 1996. No other executive officer of the Company received, or had   
accrued on his or her behalf, total compensation exceeding $100,000 during such 
periods.                                                                        

                                                        [Enlarge/Download Table]


                                          Annual Compensation                              
                                        -----------------------                            
                             Fiscal                              Other Annual   All Other  
Name and Principal Position   Year       Salary           Bonus  Compensation  Compensation
---------------------------   ----       ------           -----  ------------  ------------

                                                                                           
William J. Fossen             (1) 1996  $89,400 (4)       $ -0-       $ -0-         $ -0-  
President and Chief           (2) 1995  $55,438 (4)       $ -0-       $ -0-         $ -0-  
Executive Officer             (3) 1994  $63,275 (4)       $ -0-       $ -0-         $ -0-  

(1)   The aggregate remuneration to William Fossen during 1996 consisted of     
$89,400 in cash.                                                    
(2)   The aggregate remuneration to William Fossen during 1995 consisted of     
$55,438 in cash.                                                    
(3)   The aggregate remuneration to William Fossen during 1994 consisted of     
$63,275 in cash.                                                    
(4)   The amounts above exclude accrued salaries not paid of approximately      
$231,500.                                                           

OPTION/SAR GRANTS TABLE                                                         

      THE FOLLOWING TABLE SETS FORTH THE OPTIONS AND/OR STOCK APPRECIATION
RIGHTS (SARS) MADE DURING THE LAST COMPLETED FISCAL YEAR TO EACH OF THE NAMED   
EXECUTIVE OFFICERS.                                                             

Option/SAR Grants in Last Fiscal Year 

                                                        [Enlarge/Download Table]

                                                              Potential Realized                        
                                                                  Value at                              
                                                                Assumed Annual           Alternative    
                                                              Rates of Stock Price       to (f) and (g):
                                                               Price Appreciation        Grant Date     
                               Individual Grants                 for Option Term         Value.         
------------------------------------------------------------------------------------------------------- 
                                                                                                        
(a)        (b)                (c)           (d)      (e)               (f)         (g)      (f)         
          Number of        % of                                                                         
          Securities       Options/                                                                     
          Underlying       SARs                                                                         
          Options/         Granted to       Exercise                                        Grant       
          SARs             Employees        or Base                                         Date        
          Granted          in Fiscal        Price      Expiration                           Present     
Name      (#)              Year             ($/Sh)     Date             5%($)     10%($)    Value $     
--------------------------------------------------------------------------------------------------------

William J. Fossen                           None granted in 1996.               
President and Chief                                                             
Executive Officer                                                               

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Compensation of Directors                                                       

      The Directors of the Company are not paid any fee for their services
in such capacity on a regular plan. During 1996, former Director Peter Plunkett 
was awarded a 5 year option expiring on 05/29/01 for 181,875 shares at $1.00    
per share for past services. During 1996, former Director Louis Sylvester was   
awarded a 5 year option expiring on 5/29/01 for 50,000 shares at $1.00 per      
share for past services. Both Directors listed here resigned during 1996.       

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL        
ARRANGEMENTS                                                                    

 The Company has no employment contracts with any of its present
executive officers and has no plans or arrangements with respect to payments    
resulting from the resignation, retirement or any other termination of a named  
executive officer's employment or from a change-in-control of the Company.      
The Company does have past due salaries accumulating to Mr. Fossen of           
approximately $231,500.                                                         

COMPENSATION PURSUANT TO PLANS                                                  

      The Company has adopted Viking Capital Group, Inc. 1996 Stock Option
Plan which was approved by the shareholders at the last annual meeting. Such    
plan is incorporated by reference as described at Item 13.                      

(This area intentionally left blank.) 

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

PRINCIPAL SHAREHOLDERS
DECEMBER 31, 1996 

       The following table sets forth the names of the persons who own stock
of the Company of 5% or more, of record or beneficially, and all officers and   
directors of the Company and all officers and directors as a group.             

                           Common Shares and Percentages Owned
                           -----------------------------------------
                                                             Fully
Name                             Shares Owned     Percent (1)     Diluted (7)   
----                             ------------     ----------     -----------    

National Investors                 900,000(2)        5.4%            3.8%       
Holding Corp.                                                                   

William J. Fossen                2,940,000(3)       17.6%           12.4%       

Tommy L. Walker                  2,200,000(4)       13.2%            9.3%       

Mary M. Pohlmeier                1,261,661(5)        7.6%            5.3%       

Walter E. Muller                   207,500(6)        1.2%            0.9%       

All Officers, Directors                                                         
and Beneficial owners                                                           
as a Group                       7,509,161          45.0%                       
Fully Diluted                    7,509,161                          31.7%       

(1)      Based on 13,946,095 shares outstanding at December 31, 1996 plus       
        2,755,000 shares represented by options that are exercisable within 60
      days of this report as follows: William J. Fossen, 1,040,000 shares;
       Tommy L. Walker, 1,000,000 shares; Mary M. Pohlmeier, 515,000 shares;
Walter E. Muller, 200,000 shares.                             
(2)      William J. Fossen is President and 56% owner of National Investors     
        Holding Corporation (NIHC). All NIHC shares have been pledged to First
City Bank, Texas, Farmers Branch, Texas.                      
(3)      Includes 1,000,000 shares which may be acquired by Mr. Fossen upon the 
       exercising of options at $1.00 per share. Also includes a convertible
        note of $20,000 which may be converted to common shares at a $1.00 per
    share. Upon conversion, an option to purchase an additional 20,000
    shares at $1.00 is awarded.  Excludes 1,100,500 shares held by Mr.
  Fossen's adult children to which Mr. Fossen disclaims beneficial
ownership.                                                    
(4)      Includes 1,000,000 shares which may be acquired by Mr. Walker upon     
the exercising of options at $1.00 per share.                 
(5)      Includes 515,000 shares which may be acquired by Ms. Pohlmeier upon the
        exercising of options of 180,000 shares exercisable at $1.00 per share
and 335,000 shares exercisable at $1.10 per share.            
(6)      Includes 200,000 shares which may be acquired by Mr. Muller upon the   
exercising of options at $1.10 per share.                     
(7)      At 12/31/96 the Company had outstanding options for 9,719,252 shares   
       of which 4,841,851 were exercisable at 12/31/96. Fully diluted shares
outstanding at 12/31/96 are 23,665,347.                       

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

       During 1995 Ms. Mary Pohlmeier was paid $60,000 and 150,000 shares in
full payment and cancellation of her consulting agreement.                      

 During 1995 and 1996, no other transaction or series of similar
transactions involving persons named in Item 11 above or any of their immediate 
family occurred which would have involved an amount in excess of $60,000.       

(This area intentionally left blank.) 

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ITEM 13.                                                                        

EXHIBITS AND REPORTS ON FORM 8-K                                                

(")      EXHIBITS                                                               

Exhibit                                                                         
Number                     Description of Exhibit                               
------                     ----------------------                               

3.1    Articles of Incorporation of Viking Capital Group, Inc. as amended*  
3.2    Bylaws of Viking Capital Group, Inc. as amended*                     
4.1    Specimen Common Stock Certificate*                                   
4.2    Specimen Preferred Stock Certificate*                                
10.1    1996 Stock Option Plan of the Registrant filed on Form 14A in 1996.** 
21.1    List of Subsidiaries                                                  
27.1    Financial Data Schedule                                               

*      Incorporated by reference pursuant to Exchange Act Rule 12b-23 to the
Registrant's Form 10-SB (File No. 0-22744) effective December 27, 1993.       

**      Incorporated by reference pursuant to Exchange Act Rule 12b-23 to the 
Registrant's Form 14A (File No. 0-22744) for 1996.                            

(b)      The Registrant has filed the following 8-K reports during 1996:        

               (i)     Form 8-K, dated January 17, 1996, to report the signing
                 of a billing service contract with Trans National
              Communications, Inc. of Boston, Massachusetts.
             (ii)    Form 8-K, dated March 8, 1996, to report the changing
                      of lead auditor from David J. Quick, CPA to King Burns
& Griffin, P.C.                 
       (iii)   Form 8-K, dated October 10, 1996, to report the
            contracting of a software licensing from Sun
          Microsystems, Inc. to Viking Systems, Inc.

(This area intentionally left blank.) 

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SIGNATURES

 In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,    
thereunto duly authorized.                                                      

                          VIKING CAPITAL GROUP, INC.

                         By: /s/ WILLIAM J. FOSSEN
                                          ------------------------------------
                       William J. Fossen
               President

Dated:   March 31, 1997                                                         

        In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and  
on the dates indicated.                                                         

                                                                [Download Table]


Signature                      Title                             Date        
---------                      -----                             ----        

                                                                             

/s/ WILLIAM J. FOSSEN                                                        
---------------------------  President, Chairman of the Board                
William J. Fossen            and Chief Executive Officer       March 31, 1997
                             (Principal Executive Officer)                   
/s/ TOMMY L. WALKER                                                          
---------------------------                                                  
Tommy L. Walker              Director                          March 31, 1997

/s/ MARY M. POHLMEIER                                                        
---------------------------                                                  
Mary M. Pohlmeier            Director                          March 31, 1997

/s/ WALTER E. MULLER                                                         
---------------------------                                                  
Walter E. Muller             Director                          March 31, 1997

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CONSOLIDATED FINANCIAL STATEMENTS AND 
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

DECEMBER 31, 1996 AND 1995

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VIKING CAPITAL GROUP, INC.

(A Development Stage Enterprise)

CONTENTS

                                                                      PAGE
                                                                      ----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-3    

FINANCIAL STATEMENTS                                                            

 Consolidated Balance Sheets                                         F-4

 Consolidated Statements of Operations                               F-6

 Consolidated Statements of Stockholders' Equity (Deficit)           F-7

  Consolidated Statements of Cash Flows                               F-12

  Notes to Consolidated Financial Statements                          F-15

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders                                      
of Viking Capital Group, Inc.                                                 

We have audited the accompanying consolidated balance sheet of Viking Capital   
Group, Inc. and subsidiaries (a development stage enterprise), as of December   
31, 1996 and 1995 and the related consolidated statements of operations,        
stockholders' equity (deficit) and cash flows for the years then ended. These   
consolidated financial statements are the responsibility of the Company's       
management. Our responsibility is to express an opinion on these consolidated   
financial statements based on our audits. We did not audit the consolidated     
statements of operations, stockholders' equity (deficit) and accumulated        
deficit, and cash flows of Viking Capital Group, Inc. and subsidiaries for the  
period from November 12, 1986 (inception) to December 31, 1994. Those           
statements were audited by other auditors whose reports have been furnished to  
us and our opinion insofar as it relates to the cumulative amounts included for 
Viking Capital Group, Inc. and subsidiaries is based solely on the reports of   
the other auditors.                                                             

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the consolidated financial statements are    
free of material misstatement. An audit includes examining, on a test basis,    
evidence supporting amounts and disclosures in the consolidated financial       
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audit provides a          
reasonable basis for our opinion.                                               

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Viking Capital      
Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and the results   
of their operations and their cash flows for the years then ended in conformity 
with generally accepted accounting principles.                                  

As described in Note B, the accompanying consolidated financial statements have 
been prepared assuming that the Company will continue as a going concern. The   
Company has experienced recurring losses and has not generated any significant  
revenue since its inception. Additionally, at December 31, 1996, the Company's  
current liabilities exceeded its current assets by $551,264 and its total       
liabilities exceeded its total assets by $492,524. These conditions raise       
substantial doubt about the Company's ability to continue as a going concern.   
Unless the Company obtains additional financing, it will not be able to meet    
its obligations as they come due and it will be unable to execute its long-term 
business plan. The consolidated financial statements do not include any         
adjustments that might result from the outcome of this uncertainty.             

                                                 KING GRIFFIN & ADAMSON P.C.

Dallas, Texas                                                                   
March 18, 1997                                                                  

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VIKING CAPITAL GROUP, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS 

ASSETS

                                                                [Download Table]

                                                               December 31,     
                                                         ---------------------- 
                                                           1996         1995    
                                                         ---------    --------- 
CURRENT ASSETS                                                                  
                                                                                
  Cash                                                   $   9,920    $  77,023 
  Accounts receivable                                       99,703         --   
  Notes receivable, net of allowance of $33,000                                 
     and $12,000 in 1996 and 1995, respectively             59,250        5,000 
  Notes receivable - related party, net of allowance of                         
     $26,160 and $13,000 in 1996 and 1995, respectively      6,612       13,160 
  Accrued interest receivable                                6,623        1,580 
  Accrued interest receivable - related party                  588          479 
  Prepaid expense                                             --         14,500 
  Other                                                       --            454 
                                                         ---------    --------- 
             Total current assets                          182,696      112,196 
                                                         ---------    --------- 

OFFICE FURNITURE AND EQUIPMENT                             115,373       16,015 
Accumulated depreciation and amortization                  (11,835)     (10,485)
                                                         ---------    --------- 
             Net office furniture and equipment            103,538        5,530 
                                                         ---------    --------- 

OTHER ASSETS                                                31,767       15,100 
                                                         ---------    --------- 

TOTAL ASSETS                                             $ 318,001    $ 132,826 
                                                         =========    ========= 

The accompanying notes are an integral part of these financial statements.      

F-4 

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS - CONTINUED 

LIABILITIES AND STOCKHOLDERS' DEFICIT 

                                                        [Enlarge/Download Table]

                                                                                  December 31,      
                                                                             1996           1995    
                                                                         -----------    ----------- 
                                                                                                    
CURRENT LIABILITIES                                                                                 
  Notes payable                                                          $   272,720    $   177,000 
  Notes payable - related party                                               62,060         10,000 
  Current obligations under capital leases                                    20,688           --   
  Accounts payable                                                            55,496         76,447 
  Accruals payable-related party                                               6,700           --   
  Accrued payroll and payroll taxes                                          304,342        150,765 
  Other accrued expenses                                                       4,405         10,673 
  Dividends payable-preferred stock                                             --              300 
  Interest payable                                                             5,108          5,527 
  Interest payable - related party                                             2,441           --   
                                                                         -----------    ----------- 
             Total current liabilities                                       733,960        430,712 

LONG-TERM DEBT                                                                                      
  Notes payable                                                                                     
  Obligations under capital lease, less current portion                       76,565         14,000 
                                                                         -----------    ----------- 
             Total liabilities                                               810,525        444,712 
                                                                         -----------    ----------- 

STOCKHOLDERS= DEFICIT                                                                               
  Preferred stock $1.00 Par Value; 50,000,000 shares authorized; 10,000                             
     shares issued and outstanding as of December 31, 1995                      --           10,000 
  Series A Preferred Stock $10 Par Value; 2,500,000 shares                                          
     authorized, no shares issued and outstanding                               --             --   
  Common stock $0.001 par value; 150,000,000 shares authorized;                                     
     13,971,720 and 12,352,770 issued as of                                                         
     December 31, 1996 and 1995, respectively                                 13,971         12,352 
  Common stock Class B $0.001 par value; 100,000 shares                                             
     authorized, issued and outstanding                                          100            100 
  Additional paid-in capital                                               3,294,575      2,479,870 
  Deficit accumulated in the development stage                            (3,794,764)    (2,814,208)
                                                                         -----------    ----------- 
                                                                            (486,118)      (311,886)
             Less treasury stock, 25,625 shares at cost                       (6,406)          --   
                                                                         -----------    ----------- 
             Total stockholders' deficit                                    (492,524)      (311,886)
                                                                         -----------    ----------- 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                              $   318,001    $   132,826 
                                                                         ===========    =========== 

The accompanying notes are an integral part of these financial statements.      

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VIKING CAPITAL GROUP, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS 
Years ended December 31, 1996 and 1995 and period 
from November 12, 1986 (inception) to December 31, 1996 

                                                        [Enlarge/Download Table]

                                                                              Period from    
                                                       Years Ended          November 12, 1986
                                                       December 31,          to December 31, 
                                                  1996            1995            1996       
                                              ------------    ------------    ------------   
                                                                                             
REVENUE                                       $    273,925    $     38,852    $    316,855   
                                              ------------    ------------    ------------   
COSTS AND EXPENSES                                                                           
     Advertising                                    12,923             925          21,466   
     Bad debt expense                               28,414            --            28,414   
     Bank charges                                     --               396           1,661   
     Commissions on revenue                           --            31,346          31,346   
     Consulting                                     89,096         389,064         715,024   
     Consulting-related party                         --           262,847         767,446   
     Depreciation and amortization                   1,350           1,865          13,835   
     Equipment lease                                 3,625            --             4,162   
     Insurance and employee health care               --             1,291          10,772   
     Miscellaneous                                    --              --             4,430   
     Miscellaneous-related party                      --              --             2,883   
     Office expense                                 34,476          15,297          66,066   
     Office expense-related party                     --              --               500   
     Professional fees                              57,331         358,028         474,101   
     Professional fees-related party                  --            26,041          34,491   
     Provision for doubtful notes receivable          --            25,000          25,000   
     Rent                                          125,902          26,130         211,667   
     Salaries and contract labor                   671,874         242,495       1,104,526   
     Payroll taxes                                  38,157          14,022          70,400   
     Taxes, licenses and fees                       22,223          10,792          67,407   
     Telephone                                      25,772           8,527          60,087   
     Travel and entertainment                      120,554          58,505         269,263   
     Vehicle expense                                  --                12          10,022   
                                              ------------    ------------    ------------   
         Total costs and expenses                1,231,697       1,472,583       3,994,969   
                                              ------------    ------------    ------------   
         Loss from operations                     (957,772)     (1,433,731)     (3,678,114)  
                                              ------------    ------------    ------------   

OTHER INCOME (EXPENSE)                                                                       
     Interest income                                 7,294             781          15,961   
     Interest expense                              (28,746)        (16,358)        (56,879)  
     Interest expense-related party                   --              --            (7,250)  
     Other                                          (1,332)           (645)        (37,260)  
                                              ------------    ------------    ------------   
         Total other income (expense)              (22,784)        (16,222)        (85,428)  
                                              ------------    ------------    ------------   
         Loss before income taxes                 (980,556)     (1,449,953)     (3,763,542)  
         Income tax provision                         --              --               (32)  
                                              ------------    ------------    ------------   
NET LOSS                                      $   (980,556)   $ (1,449,953)   $ (3,763,574)  
                                              ============    ============    ============   
Loss per common share:                                                                       
     Loss per common share                           $0.07           $0.13                   
     Loss per common share                                                                   
         assuming full dilution                      $0.07           $0.13                   

Weighed average common shares outstanding       13,353,520      10,962,033                   

The accompanying notes are an integral part of these financial statements.      

F-6 

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VIKING CAPITAL GROUP, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 
Period from November 12, 1986 (inception) to
December 31, 1996 

                                                        [Enlarge/Download Table]


                                                                                         Class B           Additional 
                                         Preferred Stock           Common Stock         Common Stock         Paid-In  
                                        Shares     Amount        Shares      Amount   Shares      Amount     Capital  
                                        ------     ------        ------      ------   ------      ------   -----------
                                                                                                                      
Balance at November 12,                                                                                               
    1986 (date of inception)               --   $       --           --   $       --      --   $       --  $       -- 

Issuance of 1,000,000 shares                                                                                          
    of common stock at $.0075                                                                                         
    per share                              --           --      200,000          200      --           --       7,300 

Expenses of stock issuance                 --           --           --           --      --           --        (200)

Net loss                                   --           --           --           --      --           --          -- 
                                         ----   ----------    ---------   ----------    ----   ----------  ---------- 
Balance at December 31, 1986               --           --      200,000          200      --           --       7,100 

Net loss                                   --           --           --           --      --           --          -- 
                                         ----   ----------     --------   ----------    ----   ----------  ---------- 

Balance at December 31, 1987               --           --      200,000          200      --           --       7,100 

Issuance of 2,500,000                                                                                                 
    shares of common stock                                                                                            
    at $.03 per share                      --           --      500,000          500      --           --      74,500 

Expenses of stock issuance                 --           --           --           --      --           --      (6,095)

Net income                                 --           --           --           --      --           --          -- 
                                         ----   ----------     --------   ----------    ----   ----------  ---------- 

Balance at December 31, 1988               --           --      700,000          700      --           --      75,505 

Issuance of 14,000,000 shares                                                                                         
    of common stock at $.001 for                                                                                      
    coal production                        --           --    2,800,000        2,800      --           --      11,200 


                                     Deficit                                                                          
                                   Accumulated                                                                        
                                   During the                                                                         
                                   Development                                                                        
                                      Stage        Total                                                              
                                  ------------    --------                                                            

                                                                                                                      
Balance at November 12,                                                                                               
    1986 (date of inception)       $       --    $      --                                                            

Issuance of 1,000,000 shares                                                                                          
    of common stock at $.0075                                                                                         
    per share                              --         7,500                                                           

Expenses of stock issuance                 --          (200)                                                          

Net loss                                 (124)         (124)                                                          
                                   ----------       -------                                                           
Balance at December 31, 1986             (124)        7,176                                                           

Net loss                                 (274)         (274)                                                          
                                    ----------       -------                                                          

Balance at December 31, 1987             (398)        6,902                                                           

Issuance of 2,500,000                                                                                                 
    shares of common stock                                                                                            
    at $.03 per share                      --        75,000                                                           

Expenses of stock issuance                 --        (6,095)                                                          

Net income                                522           522                                                           
                                   ----------       -------                                                           

Balance at December 31, 1988              124        76,329                                                           

Issuance of 14,000,000 shares                                                                                         
    of common stock at $.001 for                                                                                      
    coal production                        --        14,000                                                           

The accompanying notes are an integral part of these financial statements.      

F-7 

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED 
Period from November 12, 1986 (inception) to
December 31, 1996 

                                                        [Enlarge/Download Table]

                                                                                             Class B          Additional
                                        Preferred Stock        Common Stock              Common Stock          Paid-In  
                                      Shares      Amount      Shares        Amount     Shares      Amount      Capital  
                                      ------      ------      ------        ------     ------      ------    -----------
                                                                                                                        
Expenses of stock issuance              --   $       --           --    $       --        --   $       --  $   (5,421)  

Net loss                                --           --           --            --        --           --          --   
                                   -------   ----------   ----------    ----------   -------   ----------  ----------   

Balance at December 31, 1989            --           --    3,500,000         3,500        --           --      81,284   

Rescind issuance of                                                                                                     
    common stock for coal                                                                                               
    production contract                 --           --   (2,800,000)       (2,800)       --           --     (11,200)  

Issuance of common stock:                                                                                               
    60,000 shares for cash              --           --       60,000            60        --           --      14,940   
    265,000 shares for assets           --           --      265,000           265        --           --      39,735   
    40,000 shares for services          --           --       40,000            40        --           --         160   

Net loss                                --           --           --            --        --           --          --   
                                   -------   ----------   ----------    ----------   -------   ----------  ----------   

Balance at December 31, 1990            --           --    1,065,000         1,065        --           --     124,919   

Issuance of common stock:                                                                                               
    For cash                            --           --          400            --        --           --         500   
    For services                        --           --    5,561,019         5,561        --           --      22,242   

Net loss                                --           --           --            --        --           --          --   
                                   -------   ----------   ----------    ----------   -------   ----------  ----------   

Balance of December 31, 1991            --           --    6,626,419         6,626        --           --     147,661   

Issuance of common stock                                                                                                
    for services                        --           --      210,000           210        --           --          --   

Issuance of Preferred stock                                                                                             
    at $1.00                       110,000      110,000           --            --        --           --          --   



                                  Deficit                                                                               
                                Accumulated                                                                             
                                 During the                                                                             
                                Development                                                                             
                                   Stage        Total                                                                   
                                ------------   ---------                                                                
                                                                                                                        
Expenses of stock issuance      $       --    $   (5,421)                                                               

Net loss                           (32,780)      (32,780)                                                               
                                ----------    ----------                                                                

Balance at December 31, 1989       (32,656)       52,128                                                                

Rescind issuance of                                                                                                     
    common stock for coal                                                                                               
    production contract                 --       (14,000)                                                               

Issuance of common stock:                                                                                               
    60,000 shares for cash              --        15,000                                                                
    265,000 shares for assets           --        40,000                                                                
    40,000 shares for services          --           200                                                                

Net loss                           (42,023)      (42,023)                                                               
                                ----------    ----------                                                                

Balance at December 31, 1990       (74,679)       51,305                                                                

Issuance of common stock:                                                                                               
    For cash                            --           500                                                                
    For services                        --        27,803                                                                

Net loss                           (93,047)      (93,047)                                                               
                                ----------    ----------                                                                

Balance of December 31, 1991      (167,726)      (13,439)                                                               

Issuance of common stock                                                                                                
    for services                        --           210                                                                

Issuance of Preferred stock                                                                                             
    at $1.00                            --       110,000                                                                

The accompanying notes are an integral part of these financial statements.      

F-8 

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED 
Period from November 12, 1986 (inception) to
December 31, 1996 

                                                        [Enlarge/Download Table]

                                                                                         Class B         Additional 
                                      Preferred Stock          Common Stock           Common Stock         Paid-In  
                                      Shares    Amount       Shares      Amount    Shares      Amount      Capital  
                                      ------    ------       ------      ------    ------      ------    -----------
                                                                                                                    
Net loss                                --    $       --          --   $       --      --   $       --  $       --  

Cumulative preferred stock                                                                                          
    dividends                           --            --          --           --      --           --          --  
                                   -------    ----------   ---------   ----------    ----   ----------  ----------  
Balance at December 31, 1992       110,000       110,000   6,836,419        6,836      --           --     147,661  

Issuance of common stock:                                                                                           
    For services                        --            --   2,192,506        2,193      --           --     217,058  
    For cash                            --            --     202,500          202      --           --     209,798  

To convert notes payable and                                                                                        
    accrued interest payable            --            --      75,706           76      --           --     126,337  

Net loss                                --            --          --           --      --           --          --  

Cumulative preferred stock                                                                                          
    dividends                           --            --          --           --      --           --          --  
                                   -------    ----------   ---------   ----------    ----   ----------  ----------  
Balance at December 31, 1993       110,000       110,000   9,307,131        9,307      --           --     700,854  

Issuance of common stock:                                                                                           
    For services                        --            --     463,500          464      --           --      45,887  
    For cash                            --            --     210,319          210      --           --     215,640  
    To convert preferred stock                                                                                      
       and accrued dividends       (90,000)      (90,000)     57,561           58      --           --     115,063  

Net loss                                --            --          --           --      --           --          --  

Cumulative preferred stock                                                                                          
    dividends                           --            --          --           --      --           --          --  
                                   -------    ----------   ---------   ----------    ----   ----------  ----------  


                                  Deficit                                                                           
                                Accumulated                                                                         
                                 During the                                                                         
                                Development                                                                         
                                   Stage        Total                                                               
                                ------------   ----------                                                           

                                                                                                                    
Net loss                        $ (137,754)   $ (137,754)                                                           

Cumulative preferred stock                                                                                          
    dividends                       (8,400)       (8,400)                                                           
                                ----------    ----------                                                            

Balance at December 31, 1992      (313,880)      (49,383)                                                           

Issuance of common stock:                                                                                           
    For services                        --       219,251                                                            
    For cash                            --       210,000                                                            

To convert notes payable and                                                                                        
    accrued interest payable            --       126,413                                                            

Net loss                          (519,112)     (519,112)                                                           

Cumulative preferred stock                                                                                          
    dividends                      (13,200)      (13,200)                                                           
                                ----------    ----------                                                            

Balance at December 31, 1993      (846,192)      (26,031)                                                           

Issuance of common stock:                                                                                           
    For services                        --        46,351                                                            
    For cash                            --       215,850                                                            
    To convert preferred stock                                                                                      
       and accrued dividends            --        25,121                                                            

Net loss                          (508,473)     (508,473)                                                           

Cumulative preferred stock                                                                                          
    dividends                       (8,390)       (8,390)                                                           
                                ----------    ----------                                                            

The accompanying notes are an integral part of these financial statements       

F-9 

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED 
Period from November 12, 1986 (inception) to
December 31, 1996 

                                                        [Enlarge/Download Table]


                                                                                                     Class B        Additional 
                                        Preferred Stock               Common Stock                 Common Stock      Paid-In   
                                        Shares     Amount           Shares       Amount         Shares      Amount   Capital   
                                        ------     ------          ------       ------         ------      ------   -----------
                                                                                                                               
Balance at December 31, 1994           20,000    $    20,000     10,038,511   $    10,039           --   $      --  $ 1,077,444

Issuance of common stock:                                                                                                      
    For services                           --             --        931,701           932           --          --      639,429
    For cash                               --             --        615,345           615           --          --      504,685

Conversion of preferred stock                                                                                                  
    and accrued dividends             (10,000)       (10,000)         5,217             5           --          --       10,429

Conversion of notes payable                --             --        150,000           150           --          --       74,850

Acquisition of VISI                        --             --        454,545           454           --          --           --

Conversion of notes payable and                                                                                                
    accrued interest                       --             --        157,451           157           --          --      173,033

Issuance of Class B common stock                                                                                               
    .001 par for services                  --             --             --            --      100,000         100           --

Net loss                                   --             --             --            --           --          --           --

Cumulative preferred                                                                                                           
    stock dividends                        --             --             --            --           --          --           --
                                  -----------    -----------     ----------   -----------  -----------   ---------  -----------


                                     Deficit                                                                                   
                                    Accumulated                                                                                
                                    During the                                                                                 
                                    Development                                                                                
                                      Stage               Total                                                                
                                  ---------------       ----------                                                             
                                                                                                                               
Balance at December 31, 1994      $(1,363,055)          $  (255,572)                                                           

Issuance of common stock:                                                                                                      
    For services                           --               640,361                                                            
    For cash                               --               505,300                                                            

Conversion of preferred stock                                                                                                  
    and accrued dividends                  --                   434                                                            

Conversion of notes payable                --                75,000                                                            

Acquisition of VISI                        --                   454                                                            

Conversion of notes payable and                                                                                                
    accrued interest                       --               173,190                                                            

Issuance of Class B common stock                                                                                               
    .001 par for services                  --                   100                                                            

Net loss                           (1,449,953)           (1,449,953)                                                           

Cumulative preferred                                                                                                           
    stock dividends                    (1,200)               (1,200)                                                           
                                  -----------           -----------                                                            


The accompanying notes are an integral part of these financial statements.      

F-10  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED 
Period from November 12, 1986 (inception) to
December 31, 1996 

                                                        [Enlarge/Download Table]


                                                                                                             Class B         
                                       Preferred Stock                   Common Stock                      Common Stock      
                                    Shares         Amount          Shares           Amount             Shares        Amount  
                                    ------         ------          ------           ------             ------        ------  
                                                                                                                             
Balance at December 31, 1995         10,000    $      10,000     12,352,770    $      12,352          100,000   $         100

Issuance of common stock:                                                                                                    
    For services                         --               --        659,500              660               --              --
    For cash                             --               --        833,300              833               --              --

Retirement of:                                                                                                               
    Preferred stock                 (10,000)         (10,000)            --               --               --              --
    Common stock                         --               --         (2,500)              (3)              --              --

Conversion of  notes payable                                                                                                 
    and accrued interest                 --               --        128,650              129               --              --

Treasury stock acquired                  --               --             --               --               --              --

Net loss                                 --               --             --               --               --              --
                                -----------    -------------     ----------   --------------         --------  --------------

Balance at December 31, 1996             --    $          --     13,971,720    $      13,971          100,000   $         100
                                ===========    =============     ==========    =============          =======   =============


                                                Deficit                                                                      
                                               Accumulated                                                                   
                              Additional       During the                                                                    
                               Paid-In         Development      Treasury                                                     
                                Capital           Stage           Stock                  Total                               
                              -------------   -------------    ------------             ---------                            
                                                                                                                             
Balance at December 31, 1995  $   2,479,870    $ (2,814,208)   $         --             $ (311,886)                          

Issuance of common stock:                                                                                                    
    For services                     65,290              --              --                 65,950                           
    For cash                        690,810              --              --                691,643                           

Retirement of:                                                                                                               
    Preferred stock                  (1,319)             --              --                (11,319)                          
    Common stock                     (5,597)             --              --                 (5,600)                          

Conversion of  notes payable                                                                                                 
    and accrued interest             65,521              --              --                 65,650                           

Treasury stock acquired                  --              --          (6,406)                (6,406)                          

Net loss                                 --         (980,556)            --               (980,556)                          
                              -------------    -------------   ------------            -----------                           
Balance at December 31, 1996  $   3,294,575    $  (3,794,764)        (6,406)           $  (492,524)                          
                              =============    =============   ============            ===========                           

The accompanying notes are an integral part of these financial statements.      

F-11  

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VIKING CAPITAL GROUP, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS 
Years Ended December 31, 1996 and 1995
and Period from November 12, 1986 (inception) to December 31, 1996

                                                        [Enlarge/Download Table]

                                                                                        Period from   
                                                                  Years Ended           November 12,  
                                                                  December 31,            1986 to     
                                                              1996           1995    December 31, 1996
                                                         -----------    -----------  -----------------
                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES                                                                  
     Net loss                                            $  (980,556)   $(1,449,953)   $(3,763,574)   
     Non cash charges included in operations                                                          
         Depreciation and amortization                         1,350          1,865         13,835    
         Common stock issued for services                     55,950        476,458        641,221    
         Common stock issued for                                                                      
              services-related party                          10,000        163,906        358,908    
         Common stock issued for services and                                                         
              accrued expenses                                    --            434         30,434    
         Common stock issued for interest payable              3,000         10,690         20,102    
         Class B common stock issued for services                 --            100            100    
         Note payable issued for services-related party           --             --          3,200    
         Provision for doubtful notes receivable              27,754         25,000         52,754    
         Loss on assets                                           --             --         15,000    
         Advances to stockholder expensed to consulting           --             --         57,706    
     Changes in assets and liabilities                                                                
         (Increase) in accounts receivable                   (99,703)            --        (99,703)   
         Decrease in prepaid expense                          14,500        (14,500)            --    
         (Increase) in interest receivable                    (5,043)        (1,313)        (6,623)   
         Decrease in interest receivable-related party          (109)           830           (588)   
         Other                                                   454            131            585    
         (Increase) in deposits                              (31,667)          (100)       (31,767)   
         Increase (decrease) in accounts payable             (20,951)        29,772         48,595    
         Increase in accounts payable-related party            6,700          6,901         28,601    
         Increase (decrease) in accrued expenses              (6,687)        15,522         12,647    
         Increase in accrued                                                                          
              expenses-related party                           2,441            (30)         2,441    
         Increase in accrued payroll and payroll taxes       153,577         56,725        302,552    
                                                         -----------    -----------    -----------    
Net Cash Used For Operating Activities                      (868,990)      (677,562)    (2,313,574)   
                                                         -----------    -----------    -----------    

CASH FLOWS FROM INVESTING ACTIVITIES                                                                  
     Organization costs                                           --             --            (50)   
     Purchase of office furniture and equipment               (2,105)        (3,468)       (21,414)   
     Loans made                                              (76,142)            --        (76,142)   
     Loans made to shareholder                                    --        (12,000)       (17,000)   
     Loans made to related parties                            (1,000)       (28,160)       (95,366)   
     Long-term loan                                               --        (15,000)       (15,000)   
     Loan repayments                                           5,000             --          5,000    
     Loan repayments-related parties                              --          7,529         10,500    
     Deposit on coal production contract                          --             --        (15,000)   
                                                         -----------    -----------    -----------    
Net Cash Used For Investing Activities                       (74,247)       (51,099)      (224,472)   
                                                         -----------    -----------    -----------    

The accompanying notes are an integral part of these financial statements.      

F-12  

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VIKING CAPITAL GROUP, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 
Years Ended December 31, 1996 and 1995
and Period from November 12, 1986 (inception) to December 31, 1996

                                                        [Enlarge/Download Table]

                                                                                   Period from   
                                                           Years Ended             November 12,  
                                                           December 31,               1986 to    
                                                       1996           1995      December 31, 1996
                                                   -----------    ------------  -----------------
                                                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES                                                             
     Stock sale expenses                           $        --    $        --   $   (11,716)     
     Proceeds from notes payable                       334,580        408,709       989,159      
     Proceeds from notes payable-related parties       105,560          1,700       229,827      
     Repayments of notes payable                      (189,330)       (71,210)     (261,202)     
     Repayments of notes payable-related parties       (55,000)       (52,249)     (121,742)     
     Proceeds from preferred stock sale                     --             --        20,000      
     Retirement of preferred stock                     (11,319)            --       (11,319)     
     Dividends converted to preferred stock                 --           (434)         (434)     
     Proceeds from sale of common stock                691,643        505,300     1,720,793      
     Preferred dividends paid                               --         (1,200)       (5,400)     
                                                   -----------    -----------   -----------      
Net Cash Provided  From Financing Activities           876,134        790,616     2,547,966      
                                                   -----------    -----------   -----------      

Increase (decrease) In Cash                            (67,103)        61,955         9,920      

Cash At Beginning Of Period                             77,023         15,068            --      
                                                   -----------    -----------   -----------      

CASH AT END OF PERIOD                              $     9,920    $    77,023   $     9,920      
                                                   ===========    ===========   ===========      

SUPPLEMENTAL DISCLOSURES                                                                         
Cash Flow Information:                                                                           
     Interest paid                                 $    22,679    $       705   $    26,247      
     Interest paid-related party                   $     4,070    $     1,800   $     8,395      
     Income taxes paid                                      --             --   $        32      
Non-Cash Investing Activities:                                                                   
     Common stock issued for:                                                                    
         Acquisition of VISI                                --    $       434   $       434      
         Oil lease                                          --             --   $    40,000      
Non-Cash Financing Activities:                                                                   
     Preferred stock issued for:                                                                 
         Note payable-related party                         --             --   $    60,000      
         Accrued interest-related party                     --             --   $     4,500      
         Accrued expenses-related party                     --             --   $    25,500      
     Common stock issued for:                                                                    
         Services                                  $    55,950    $   466,458   $   503,008      
         Services-related party                    $    10,000    $   163,906   $   358,908      
         Repayment of notes payable-related party  $    10,000    $    75,000   $    85,000      
         Repayment of notes payable                $    62,650    $   162,500   $   225,150      
         Payment of interest                       $     3,000    $    10,690   $    20,103      
         Payment of accounts payable-                       --             --   $    15,000      
         Conversion of preferred stock                      --    $    10,000   $   100,000      
         Payment of preferred stock dividend                --    $       434   $    25,556      

The accompanying notes are an integral part of these financial statements.      

F-13  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS - 
CONTINUED Years Ended December 31, 1996 
and 1995
and Period from November 12, 1986 (inception) to December 31, 1996

                                                        [Enlarge/Download Table]

                                                                      Period from    
                                                      Years Ended     November 12,   
                                                      December 31,       1986 to     
                                                      1996    1995  December 31, 1996
                                                    -------   ----  -----------------

                                                                                     
Note payable issued for services-related party           --     --       $ 3,200     
Assignment of oil lease in payment of note payable       --     --       $40,000     
Common stock acquired for conversion of                                              
    note receivable                                 $ 6,406     --       $ 6,406     
Common stock canceled for conversion of                                              
    note receivable                                 $ 5,600     --       $ 5,600     

Additions to equipment under capital leases         $97,253     --       $97,253     

The accompanying notes are an integral part of these financial statements.      

F-14  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND              

Viking Capital Group, Inc. ("Company") is currently in the development stage as 
it has generated no significant revenue. The Company is currently working to    
secure capital necessary to execute its business plan to provide insurance      
administrative services, corporate relations services and to purchase insurance 
managed assets via the acquisition of insurance company books of business and   
entire insurance companies.                                                     

History                                                                         

Viking Capital Group, Inc. was incorporated November 12, 1986, as a Utah        
business corporation under the name of Silver Harvest, Inc. to transact any     
business authorized under the general corporation law of Utah. On November 23,  
1989, the Company amended its Articles of Incorporation to change its name to   
The Institute For Financial Fitness, Inc. and on February 21, 1990 the Company  
amended its Articles of Incorporation to change its name to Viking Capital      
Group, Inc. with all the same provisions of the original articles to remain in  
full force. During June, 1994, the Company formed a wholly-owned subsidiary,    
Viking Financial Services, Inc., a Texas corporation, to provide corporate      
relations services. During 1995, the Company issued 454,545 common shares in    
exchange for 100 percent of the common stock of Viking Insurance Services, Inc. 
("VISI") to provide insurance related services. During 1996, the Company        
incorporated two additional wholly owned subsidiaries, Viking Systems, Inc. and 
Viking Administrators, Inc. None of these companies have provided any           
significant level of services to date. The Company has generated no significant 
revenues through 1996. (During the fourth quarter 1996, the Company generated   
$224,295 in revenues.)                                                          

Consolidation                                                                   

The accompanying consolidated financial statements include the assets,          
liabilities and operating activities of the Company's wholly-owned              
subsidiaries. All material intercompany transactions are eliminated in          
consolidation.                                                                  

Office Furniture and Equipment                                                  

Office furniture and equipment are stated at cost. Equipment under capital      
leases are stated at the present value of minimum lease payments at the         
inception of the lease. The Company provides for depreciation of its office     
furniture and equipment using the straight line method over the estimated       
useful life of the depreciable assets ranging from five to seven years.         
Equipment held under capital leases are amortized straight line over the        
shorter of the lease term or the estimated useful life of the asset ranging     
from three to five years. Amortization of assets held under capital leases is   
included with depreciation expense. Maintenance and repairs are expensed as     
incurred. Replacements and betterments are capitalized.                         

At December 31, 1996, the gross amount and accumulated amortization for assets  
held under capital leases amounted to $97,253 and $0, respectively.             

Income Taxes                                                                    

The Company utilizes the asset and liability approach to financial accounting   
and reporting for income taxes. Deferred income tax assets and liabilities are  
computed annually for differences between the financial statement and tax bases 
of assets and liabilities that will result in taxable or deductible amounts in  
the future based on enacted tax laws and rates applicable to the periods in     
which the differences are expected to affect taxable income. Valuation          
allowances are established when necessary to reduce deferred tax assets to the  
amount expected to be realized. Income tax expense is the tax payable or        
refundable for the period plus or minus the change during the period in         
deferred tax assets and liabilities.                                            

F-15  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND - Continued  

Loss per Common Share                                                           

Loss per common share was calculated by dividing the Company's net loss plus    
preferred dividends paid and accrued during the year (where applicable) by the  
weighted average common shares outstanding. Common stock equivalents were       
excluded from the calculation as such inclusion would have had an anti-dilutive 
effect.                                                                         

Software Development                                                            

During 1996, the Company was engaged in developing certain software             
capabilities relating to potential products and services. All costs incurred to 
date have been expensed.                                                        

Revenue Recognition and Government Contract                                     

During 1996, the Company earned approximately $198,000 under a fixed price      
Federal contract for the analysis and video proof of concept demonstration.     
Contract revenue has been recorded as earned based on contract completion. At   
December 31, 1996, the accounts receivable balance of $99,703 represents unpaid 
billings relating to this contract, which were collected subsequent to December 
31, 1996.                                                                       

Use of Estimates and Assumptions                                                

Management uses estimates and assumptions in preparing its financial statements 
in accordance with generally accepted accounting principles. Those estimates    
and assumptions affect the reported amounts of assets and liabilities, the      
disclosure of contingent assets and liabilities, and the reported amounts of    
revenues and expenses. Actual results could vary from the estimates that were   
used.                                                                           

NOTE B - GOING CONCERN                                                          

The financial statements have been prepared on the assumption that the Company  
will continue as a going concern. The financial statements do not include any   
adjustments to reflect the possible effects on the recoverability and           
classification of assets or classification of liabilities which may result from 
the inability of the Company to continue as a going concern. The Company        
sustained a net operating loss of approximately $980,556 during the year ended  
December 31, 1996 and has accumulated losses of $3,794,764 since its inception, 
November 12, 1986. Cash used by operating activities for the same periods       
aggregated $868,990 and $2,313,574, respectively. Current liabilities at        
December 31, 1996 of $733,960 exceed current assets of $182,696. Total          
liabilities at December 31, 1996 of $810,525 exceed total assets of $318,001.   
The Company's continued existence depends upon the success of management's      
efforts to raise additional capital necessary to meet the Company's obligations 
as they come due and to obtain sufficient capital to execute its business plan. 
There can be no degree of assurance given that the Company will be successful   
in completing additional financing transactions.                                

The financial statements do not include any adjustments to reflect the possible 
effects on the recoverability and classification of assets or liabilities which 
may result from the inability of the Company to continue as a going concern.    

F-16  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE C -  NOTES PAYABLE                                                         

The Company entered into various notes during 1996 all of which mature during   
1997, totaling $440,140. The notes bear interest between 12% and 15% and are    
secured by the assets of the Company. Interest payments are due semi-annually.  
Included in the $440,140 is $25,000 borrowed from the President of the Company  
and $80,560 from other related parties. The Company borrowed $72,650 during     
1995 which was converted into 125,650 common shares during 1996 and $75,000     
during 1995 which was converted into 150,000 common shares during 1995.         

During 1996 and 1995, notes payable totaling $62,650 and $162,500, respectively 
and related accrued interest of $3,000 and $10,690 were converted to 56,000 and 
157,451 common shares, respectively. As of December 31, 1996, the Company had   
$51,000 of convertible notes outstanding that had the option to convert to      
170,000 common restricted shares; $106,720 convertible notes outstanding that   
had the option to convert to 213,440 common restricted shares; $15,560          
convertible notes outstanding that had the option to convert to 20,747 common   
restricted shares; $85,000 convertible notes outstanding that had the option to 
convert to 85,000 common restricted shares. All of these notes, if converted,   
carry an additional option to purchase the same number of common shares which   
the holder was originally entitled to convert to, such shares to be purchased   
at the same share price used in the conversion. All of these notes are due in   
1997 and all options, if the notes are converted, are for a period of one year. 

A note holder with a note balance of $11,500 may convert the outstanding        
balance of the note to the Company's common stock at a conversion price of      
$3.00 per common share on or before July 1, 1997. If the note holder converts   
his note to common stock, he will receive one (1) A Warrant (which is for one   
common share) and one (1) B Warrant (which is for one common share) for each    
dollar of the note converted. The A Warrants may be exercised at $3.00 per      
share and the B Warrants may be exercised at $5.00 per share. The Warrants may  
only be exercised once the Company's common stock has achieved an average       
closing bid price of $4.00 per share and $6.00 per share over five consecutive  
business days, respectively. Once the Company's common stock has reached the    
required trading price, the warrants must be exercised within ninety (90) days. 

NOTE D - INCOME TAXES                                                           

The Company has operating loss carryforwards totaling $3,529,695, subject to    
limitations under Section 382 of the Internal Revenue Code, that are available  
to offset its future income tax liability. The net operating loss carryforwards 
expire as follows:                                                              

                                                                [Download Table]
                                                         
Year 2004                                    $     32,780
Year 2005                                          42,043
Year 2006                                          93,047
Year 2007                                         137,754
Year 2008                                         297,236
Year 2009                                         503,473
Year 2010                                       1,442,806
     Year 2011                                    980,556
                                               ----------
                                               $3,529,695
                                               ==========

F-17  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE D - INCOME TAXES - Continued                                               

As further described in Note B, realization of the benefit of these net         
operating loss carryforwards appears uncertain,                                 
accordingly, a valuation allowance of $1,200,000 has been recorded in 1996      
against the deferred tax asset resulting from the net operating loss            
carryforward. The valuation allowance increased by $333,000 during the year     
ended December 31, 1996.                                                        

There are no other significant temporary differences for financial and income   
tax reporting purposes at December 31, 1996 or 1995.                            

NOTE E - LEASE COMMITMENTS                                                      

During 1996, the Company entered into operating lease agreements for office     
space and computer equipment. The office lease expires in 2001. The Company     
leases computer equipment under capital leases and long-term non-cancelable     
operating leases. Total rental expense was $129,527 in 1996, net of $30,000 of  
rental income receivable under a sub-lease of part of the office space. Future  
minimum lease payments under non-cancelable operating leases and capital leases 
at December 31, 1996 are as follows:                                            

                                                                [Download Table]

                                                    Operating         Capital   
                                                     Leases           Leases    
                                                   -----------       ---------  
                                                                                
     1997                                          $   267,504       $  34,032  
     1998                                              267,504          34,032  
     1999                                              265,280          34,032  
     2000                                              258,216          14,760  
2001 and thereafter                                    129,108          14,760  
                                                    ----------        --------  
     Total                                           1,187,612         131,616  
Less lease income from sub-lease                       (40,800)                 
                                                    ----------                  
                                                    $1,146,812                  
                                                    ==========                  

Less amount representing interest                                       (34,363)
                                                                        ------- 
Present value of net minimum lease payments                                     
     including current maturities of $20,688                          $  97,253 
                                                                       -------- 

NOTE F - COMMON STOCK                                                           

In 1995, the Company amended its Articles of Incorporation to authorize the     
issuance of 100,000 shares of Class B Common Stock with a par value of $.001.   
All 100,000 shares were issued in 1995 to the President of the Company for      
services provided. The Class B shares shall only hold the right to elect a      
simple majority of the Company's Board of Directors, effectively functioning as 
an "anti-takeover" provision against any unwelcome acquisition or merger        
attempts for or with the Company.                                               

NOTE G - PREFERRED STOCK                                                        

The Company amended its Articles of Incorporation on October 17, 1991 to        
authorize the issuance of twenty million (20,000,000) shares of preferred stock 
with a par value of one dollar ($1.00). A second amendment in 1995 increased    
the authorized shares to 50,000,000. The Board of Directors has the discretion  
to attach any dividend rate and/or conversion privilege at the time of          
issuance.                                                                       

F-18  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE G - PREFERRED STOCK - Continued                                            

The Company issued one hundred ten thousand (110,000) shares in 1992 with a     
cumulative twelve percent (12%) annual dividend rate and the holder had a       
conversion privilege of one (1) common share per two (2) preferred shares of    
stock. The Company had the right to redeem the preferred stock at 115% of the   
par value. During November, 1994, a Director of the Company, who held 90,000 of 
the above referenced preferred shares elected to convert the preferred stock    
and accrued dividends to 57,561 shares of common stock at the conversion price  
of $2.00 per common share. During 1995, an additional 10,000 of the above       
referenced preferred shares and accrued dividends were converted to 5,217       
shares of common stock at the conversion price of $2.00 per common share.       
During 1996, the remaining 10,000 shares were redeemed for cash.                

Effective October 14, 1996, the Board of Directors authorized the issuance of   
2,500,000 shares of new Series A preferred stock, with a par value of $10 per   
share. These shares are non-voting cumulative, callable preferred stock         
convertible to common stock eighteen months after issuance at a rate equal to   
one half the market value of the common stock. The new preferred stock will     
carry a coupon rate of 10%. As of December 31, 1996, no Series A preferred      
stock had been issued.                                                          

NOTE H - STOCK OPTIONS                                                          

Effective July, 1996, the Board of Directors approved a qualified employee      
stock option plan for the Company (the "Plan"). Under the Plan, the Company may 
grant options for up to five million shares of common stock. The exercise price 
of each option may not be less than the fair market value of common stock at    
the date of grant, without approval of the Board of Directors. Options are      
exercisable according to the term set out in the option agreement, not to       
exceed ten years. At December 31, 1996, there were a total of 1,982,685 options 
outstanding under the Plan. In addition, the Company has issued stock options   
outside of the Plan to employees, directors and others as compensation for      
services provided to the Company as well as options which are non-compensatory  
in nature. At December 31, 1996 and 1995 there was a total of 9,719,252 and     
6,632,722 options (including compensatory and non-compensatory) outstanding,    
respectively.                                                                   

A summary of changes in the Company's compensatory options follows:             

                                                        [Enlarge/Download Table]

                            Employee Stock Plan    Other Compensatory      Combined Total
                            -------------------   ----------------------  -------------- 
                                      Weighted                  Weighted                 
                                       Average                   Average                 
                                      Exercise                  Exercise                 
                          Options       Price       Options      Price          Options  
                         ---------      -----     ----------      -----        --------- 
                                                                                         
Outstanding at 12/31/94          -                3,405,000        $1.02       3,405,000 
                                                  ---------                    --------- 

Granted                          -                2,176,346        $1.03       2,176,346 
Exercised                        -                        -            -               - 
Forfeited                        -                 (555,000)       $1.00        (555,000)
                         ---------               ----------                   ---------- 
Outstanding at 12/31/95          -                5,026,346        $1.03       5,026,346 

Granted                  1,982,685       $1.00    1,623,746        $1.00       3,606,431 
Exercised                        -                        -            -               - 
Forfeited                        -                 (855,145)       $1.00        (855,145)
                         ---------               ----------                   ---------- 
Outstanding at 12/31/96  1,982,685                5,794,947                    7,777,632 
                         =========               ==========                   ========== 

The fair value of options issued during 1996 and 1995 was $2,895,793 and        
$1,304,796, respectively.                                                       

F-19  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE H - STOCK OPTIONS - Continued                                              

The following table summarizes information about options outstanding at         
December 31, 1996 under the Employee Stock Plan:                                

                                                        [Enlarge/Download Table]

                              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         1,982,685          4.55             $1.00          467,743                $1.00    

The following table summarizes information about other compensatory stock       
options outstanding at December 31, 1996:                                       

                                                        [Enlarge/Download Table]

                              Options Outstanding                          Options Exercisable        
                              -------------------                          -------------------        
                                 Weighted Avg.                                                        
   Range of        Number          Remaining        Weighted Avg.    Number            Weighted Avg.  
Exercise Prices  Outstanding   Contractual Life    Exercise Price  Exercisable       Exercisable Price
---------------  -----------   ----------------    --------------  -----------       -----------------
                                                                                                      
$1.00-$1.10      5,794,947             2.44             $1.05      3,274,121                $1.00     

A summary of changes in the Company's non-compensatory options follows:         

                                                                [Download Table]

                           Non-Compensatory           Weighted Average
                               Options                  Exercise Price
                           ----------------           ----------------

                                                                      
Outstanding at 12/31/94      550,145                       $1.03      
                           ---------                                  
Granted                    1,356,376                       $2.66      
Exercised                         --                                  
Forfeited                   (300,145)                      $1.00      
                           ---------                                  
Outstanding at 12/31/95    1,606,376                       $2.40      

Granted                      670,680                       $0.95      
Exercised                         --                                  
Forfeited                   (335,436)                      $1.00      
                          ----------                                  
Outstanding at 12/31/96    1,941,620                       $2.15      
                          ==========                                  

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to         
Employees" ("APB25"), in accounting for its compensatory options. The options   
granted in 1996 and 1995 have exercise prices which approximate fair value and  
accordingly, no compensation cost has been recognized for its compensatory      
stock options in the consolidated financial statements. Had compensation cost   
for the Company's stock options been determined consistent with FASB statement  
No. 123, "Accounting for Stock Based Compensation", the Company's net loss and  
net loss per share would have been increased to the pro forma amounts indicated 
below:                                                                          

F-20  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE H - STOCK OPTIONS - Continued                                              

                                                                [Download Table]

                                            Years ended December 31,   
                                            ---------------------------
                                              1996               1995  
                                            -------             -------

                                                                       
Net Loss                   As reported     $   980,556       1,449,953 
                           Pro forma        $3,876,349       2,754,749 

Loss per share             As reported           $0.07            0.13 
                           Pro forma             $0.29            0.25 

The fair value of each option grant is estimated on the date of grant using the 
Black-Scholes option-pricing model with the following assumptions used for      
grants in both 1996 and 1995; dividend yield of 0%, expected volatility of      
334%, risk free interest rates ranging from 5.8% to 6.7% over a 1-5 year        
period, and an expected life of 1-5 years.                                      

The model is based on historical stock prices and volatility which due to the   
low volume of transactions may not be representative of future price            
variations. The assumptions have also used information relating to free-trading 
shares, when in fact the options granted are for restricted shares.             

NOTE I - RELATED PARTY TRANSACTIONS                                             

During the years ended December 31, 1996 and 1995, the Company issued an        
aggregate of 659,500 and 931,701 common shares in exchange for services,        
respectively. Of these shares, 100,000 and 341,701 shares were issued to        
officers and directors as a group during 1996 and 1995, respectively. During    
1995, the Company issued 500 shares to the Viking Capital Group Inc.'s          
President's son. Such transactions have been recorded at a value of ten cents   
$.10 to $1.00 per share which was estimated as the fair market value of the     
services rendered to the Company in exchange for the shares.                    

Total consulting fees paid to related parties in the form of cash or stock      
during 1996 and 1995 aggregated  $10,000 and $262,847,  respectively.           
Professional  fees paid to related parties in the form of cash or stock during  
1995 aggregated $26,041.                                                        

As further described in Note C, the Company entered into short term note        
agreements with the President of the Company and other related parties.         

NOTE J - CONCENTRATIONS OF CREDIT RISK                                          

The Company's notes receivables are subject to potential credit risk. Some      
notes receivable are collateralized against shares held in the Company; all     
other notes receivable are uncollateralized. The Company has provided an        
allowance for doubtful receivables which reflects its estimates of              
uncollectible amounts. The maximum exposure assuming non performance by the     
debtors is the amount shown on the balance sheet at the date of                 
non-performance.                                                                

NOTE K - EMPLOYEE BENEFIT PLAN                                                  

On April 18, 1995, the Company registered an Employee Benefit Plan ("Plan")     
under regulation S-8 that reserved 1,000,000 shares of common stock for         
issuance under the Plan. These shares can be issued by approval of a three      
person Employee Benefit Committee. During 1996, the Company registered an       
additional 1,000,000 common shares through a Form S-8. During years ended       
December 31, 1996 and 1995, 619,500 and 450,000 shares had been issued under    
the terms of the Plan.                                                          

F-21  

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VIKING CAPITAL GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS                                    

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair     
Value of Financial Instruments", requires disclosure about the fair value of    
all financial assets and liabilities for which it is practicable to estimate.   
Cash, accounts receivable, notes receivable, accounts payable, notes payable    
and other liabilities are carried at amounts that reasonably approximate their  
fair values.                                                                    

NOTE M - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)                     

A significant fourth quarter adjustment amounting to $173,000 (net of income    
taxes of $0) was recorded in the 1996 consolidated financial statements. The    
adjustment corrects previously recorded compensation expense in connection with 
the issuance of common shares. The Company intends to re-file the applicable    
quarterly financial statements.                                                 

NOTE N - SUBSEQUENT EVENTS                                                      

For the period from December 31, 1996 through the date of this report, the      
Company issued 275,691 shares at $0.50 as part of a conversion of notes         
payable. The Company also issued 133,358 options to acquire common shares, at   
$0.50 per share. All the options expire within one year from the date of grant. 

F-22  

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                                                                [Download Table]


                                 EXHIBIT INDEX  
                                 -------------  

EXHIBIT                                         
 NUMBER                  DESCRIPTION            
 ------                  -----------            

                                                
21.1                     List of Subsidiaries   
27.1                     Financial Data Schedule

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB40’ Filing		Date		First		Last			Other Filings
		7/1/97		35
Filed on:		3/31/97		18					10QSB
		3/18/97		21
		3/1/97		11
For Period End:		12/31/96		1		40
		10/14/96		37
		10/10/96		5		17
		5/1/96		9
		3/27/96		9
		3/8/96		17
		2/15/96		5
		2/7/96		9
		1/17/96		17
		12/31/95		1		40
		10/1/95		8
		7/1/95		8
		5/6/95		5		9
		4/18/95		39
		1/20/95		3		9
		12/31/94		9		28
		6/10/94		9
		12/31/93		27
		12/27/93		17
		12/31/92		27
									List all Filings