SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) December 3, 2001
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VIKING CAPITAL GROUP, INC.
--------------------------
(Exact Name of Registrant as Specified in its Charter
Utah
----------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-22744 87-0442090
- ---------------------- -------------------------
Commission File Number (IRS Employer Ident. No.)
Two Lincoln Centre, 5420 LBJ Freeway, Ste 300, Dallas, Texas 75240
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(Address of Principal Executive Offices) (Zip Code)
(972) 386-9996
--------------
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
On December 17, 2001, the Company filed a Form 8-K with earliest reportable
event date of December 3, 2001 disclosing the acquisition of 25% of Beijing Fei
Yun Viking Enterprises Company, Ltd. This Form 8-K/A amends and supplements such
original filing to include financial information required by Item 7(a) and 7(b)
of Form 8-K. Accordingly, Item 7 of such Form 8-K is amended as set forth
herein.
Item 7(a) contains historical financial statements for Beijing Feiyun Xin Ye
Chemical Trading Co., Ltd., Lianyugang East Sea Highway Development and
Management Co., Ltd. and Beijing Golden Horse Great Wall Estate Construction
Co., Ltd. (Golden Horse) respectively. Golden Horse is the single largest part
of the acquisition and includes Sunshine Plaza.
Item 7(a) begins below and Item 7(b) - Proforma Financial Information, begins
after the historical financial statements and footnotes to the financial
statements of Beijing Golden Horse Great Wall Estate Construction Co., Ltd.
ITEM 7(a) - FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(The remainder of this page is left blank intentionally)
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BEIJING FEIYUN XIN YE
CHEMICAL TRADING CO., LTD.
For the Nine Months Ended September 30, 2001 (Unaudited) and
For the Period from November 2, 2000 (Inception) through December 31, 2000
1
BEIJING FEIYUN XIN YE
CHEMICAL TRADING CO., LTD.
INDEX
Page
----
Report of Independent Certified Public Accountants...........................3
Financial Statements
Balance Sheets at September 30, 2001 (Unaudited)
and December 31, 2000...................................................4
Statements of Operations for the Nine Months Ended September 30,
2001 (Unaudited) and the Period from November 2, 2000
(Inception) through December 31, 2000...................................5
Statement of Changes in Owners' Equity for the Period from
November 2, 2000 (Inception) through December 31, 2000..................6
Statements of Cash Flows for the Nine Months Ended September 30,
2001 (Unaudited) and the Period from November 2, 2000
(Inception) through December 31, 2000...................................7
Notes to Financial Statements............................................8
2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Beijing Feiyun Xin Ye Chemical Trading Co., Ltd.
We have audited the accompanying balance sheet of Beijing Feiyun Xin Ye Chemical
Trading Co., Ltd. (the "Company") as of December 31, 2000 and the related
statements of operations, owners' equity and cash flows for the period from
November 2, 2000 (inception) through December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Beijing Feiyun Xin Ye Chemical
Trading Co., Ltd. as of December 31, 2000 and the results of its operations and
its cash flows for the period from November 2, 2000 (inception) through December
31, 2000, in conformity with accounting principals generally accepted in the
United States of America.
As described in Note B, the accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As more fully described
in Note B, the entity which generated the Company's revenues ceased operations.
This condition raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ King Griffin & Adamson P.C.
--------------------------------
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
October 25, 2001
3
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
BALANCE SHEETS
--------------
ASSETS
September 30,
2001 December 31,
(Unaudited) 2000
------------- -------------
LONG-TERM ASSETS
Property and equipment, net of accumulated depreciation
of $119,657 (unaudited) and $0 at September 30, 2001
and December 31, 2000, respectively $ 2,018,632 $ 2,138,289
Construction-in-progress 398,223 395,982
------------- -------------
Total assets $ 2,416,855 $ 2,534,271
============= =============
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Income taxes payable $ 91,712 $ --
OWNERS' EQUITY
Paid-in capital 2,534,271 2,534,271
Accumulated deficit (209,128) --
------------- -------------
Total owners' equity 2,325,143 2,534,271
------------- -------------
Total liabilities and owners' equity $ 2,416,855 $ 2,534,271
============= =============
The accompanying notes are an integral part of these financial statements.
4
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
STATEMENTS OF OPERATIONS
Period from
November 2,
Nine Months 2000
ended (inception)
September 30, through
2001 December 31,
(Unaudited) 2000
------------- -------------
NET REVENUE $ 354,784 $ --
OPERATING EXPENSES 227,704 --
------------- -------------
Income from operations 127,080 --
LOSS ON TRANSFER OF CURRENT ASSETS
FOR NO CONSIDERATION (244,496) --
OTHER INCOME (EXPENSE)
Income tax expense (91,712) --
------------- -------------
Net loss $ (209,128) $ --
============= =============
The accompanying notes are an integral part of this financial statement.
5
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
STATEMENT OF CHANGES IN OWNERS' EQUITY
For the Period From November 2, 2000 (Inception) through December 31, 2000
Paid-in Retained
Capital Earnings Total
--------- ---------- ----------
Balance, November 2, 2000 $ -- $ -- $ --
Capital contribution 2,534,271 -- 2,534,271
---------- ---------- ----------
Balance, December 31, 2000 $2,534,271 $ -- $2,534,271
========== ========== ==========
The accompanying notes are an integral part of this financial statement.
6
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
STATEMENTS OF CASH FLOWS
Period from
November 2,
Nine months 2000
ended inception)
September 30, through
2001 December 31,
(Unaudited) 2000
------------- -------------
Cash flows from operating activities:
Net loss $ (209,128) $ --
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 119,657 --
Changes in operating assets and liabilities:
Income taxes payable 91,712 --
------------- -------------
Cash flows provided by operating activities 2,241 --
------------- -------------
Cash flows used in investing activities:
Construction-in-progress (2,241) --
------------- -------------
Net increase (decrease) in cash -- --
Cash, beginning of period -- --
------------- -------------
Cash, end of period $ -- $ --
============= =============
Supplemental cash flow information:
Interest paid $ -- $ --
============= =============
Taxes paid $ -- $ --
============= =============
Non-cash Supplemental Information:
Capital contribution of property and equipment and
construction-in-progress $ -- $ 2,534,271
============= =============
Distribution of net current assets $ 244,496 $ --
============= =============
The accompanying notes are an integral part of these financial statements.
7
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 2001 and December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Beijing Feiyun Xin Ye Chemical Trading Co., Ltd. (the "Company") was
incorporated on November 2, 2000 to engage in the trading and transportation of
chemical products in the People's Republic of China. The Company is 100% owned
by Feiyun Property Development Company, Ltd.
The Company entered into an agreement effective January 1, 2001, with Beijing
Northern Xin Ye Trading Co., Ltd. ("Northern Xin Ye") whereby Northern Xin Ye
agreed to produce the chemical products sold for a fee of 10%. Based on the
agreement, Northern Xin Ye collects the funds from the chemical trading
activities and distributes 90% of the profits to the Company. During the period
from January 1, 2001 through September 30, 2001, the revenues were derived
solely from the net fees received from Northern Xin Ye.
Interim Information
- -------------------
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of interim results
have been included in accordance with generally accepted accounting principles.
All adjustments are of a normal recurring nature. The results for interim
periods are not necessarily indicative of results to be expected for the entire
year.
Use of Estimates and Assumptions
- --------------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and depreciated over their estimated
useful lives ranging from five to twenty years, using the straight-line method.
Repairs and maintenance are charged to operations as incurred. Major
improvements are capitalized.
Revenue Recognition
The Company records income based on the provisions of its agreement with
Northern Xin Ye. Based on this agreement, the Company earns 90% of the net
profits Northern Xin Ye generates from its activities.
Foreign Currency Translation
- ----------------------------
All operations are conducted in the People's Republic of China. The local
currency is the functional currency (primary currency in which business is
conducted). As the functional currency has been stable in relation to the U. S.
dollar for all periods presented, there is no adjustment resulting from
translating the foreign functional currency assets and liabilities into U. S.
dollars. Accordingly, no such gain or loss from foreign currency translation is
presented as a separate component of owners' equity.
8
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 2001 and December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company is not subject to any income taxes in the United States. The Company
is subject to income taxes within the People's Republic of China.
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 statements and the tax
basis 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 such taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
NOTE B - GOING CONCERN UNCERTAINTY
The financial statements have been prepared under the assumption that the
Company will continue as a going concern. In July 2001, Northern Xin Ye ceased
its operations. Since the Company's revenues were derived solely from the
activities of Northern Xin Ye, this raises substantial doubt as to whether the
entity can continue as a going concern. The Company's ability to continue as a
going concern is dependent on management's ability to generate new business
under their new license agreement. (See Note E)
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.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2000:
Land and buildings $2,114,000
Office equipment 24,289
----------
2,138,289
Less: Accumulated depreciation --
----------
$2,138,289
==========
NOTE D - CONSTRUCTION-IN-PROGRESS
Construction-in-progress consists of costs incurred to construct a building that
will be used as the Company's office. After completing the construction, the
Company will depreciate the building over its estimated useful life of 20 years.
9
BEIJING FEIYUN XIN YE CHEMICAL
TRADING CO., LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 2001 and December 31, 2000
NOTE E - INTERIM FINANCIAL INFORMATION (UNAUDITED)
Effective in September 2001, a new entity, Beijing Feiyun Odyssey Chemical
Trading Company, Ltd., was established by Feiyun Property Development Company,
Ltd. The chemical trading operations are to be continued by this entity after it
receives the necessary licenses. In connection with this entity's formation, the
Company contributed its net current assets of $244,496 at net book value. This
transfer of assets for no consideration has been recorded as a loss in the
accompanying statements of operations.
10
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
and the Period from August 2, 2000 (Date of Inception) through December 31, 2000
1
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
INDEX
Page
----
Report of Independent Certified Public Accountants...........................3
Financial Statements
Balance Sheets at September 30, 2001 (Unaudited)
and December 31, 2000..................................................4
Statements of Operations for the Nine Months Ended September 30,
2001 and 2000 (Unaudited), the Period from August 2, 2000
(Date of Inception) through December 31, 2000, and for the
period from inception (August 2, 2000) to September 30, 2001...........5
Statement of Changes in Owners' Equity for the Period from August 2,
2000 (Date of Inception) through December 31, 2000.....................6
Statements of Cash Flows for the Nine Months Ended September 30,
2001 and 2000 (Unaudited), the Period from August 2, 2000
(Date of Inception) through December 31, 2000, and for the
period from inception (August 2, 2000) to September 30, 2001..........7
Notes to Financial Statements............................................8
2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Lianyugang East Sea Highway Development and Management Co., Ltd. (a Development
Stage Enterprise)
We have audited the accompanying balance sheet of Lianyugang East Sea Highway
Development and Management Co., Ltd. (a Development Stage Enterprise), (the
"Company") at December 31, 2000 and the related statements of operations,
owners' equity and cash flows for the period from August 2, 2000 (date of
inception) through December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Lianyugang East Sea Highway
Development and Management Co., Ltd. (a Development Stage Enterprise) as of
December 31, 2000 and the results of its operations and its cash flows for the
period from August 2, 2000 (date of inception) through December 31, 2000 in
conformity with accounting principals generally accepted in the United States of
America.
As described in Note B, the accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company will not
begin generating revenues until 2002 after the completion of its highway
project. Additionally, at December 31, 2000, the Company's current liabilities
exceeded its current assets by $927,270. The Company will also need to obtain
additional financing to complete its highway project in order to begin
generating revenues. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ King Griffin & Adamson P.C.
--------------------------------
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
October 25, 2001
3
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
BALANCE SHEETS
--------------
ASSETS
September 30,
2001 December 31,
(Unaudited) 2000
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 73,446 $ 871,930
Note receivable 728,413 --
Amounts due from related parties 60,278 51,340
------------- -------------
Total current assets 862,137 923,270
LONG-TERM ASSETS
Note receivable from a related party -- 966,410
Property and equipment, net of accumulated depreciation of
$2,295 and $0 at September 30, 2001 and December 31, 2000 60,157 --
Construction-in-progress 21,112,503 10,160,000
------------- -------------
Total long-term assets 21,172,660 11,126,410
------------- -------------
Total assets $ 22,034,797 $ 12,049,680
============= =============
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Short-term loan $ 2,053,569 $ --
Current portion of long-term debt 2,415,964 1,208,000
Other payables 122,248 --
Accrued interest 164,406 38,540
Amounts due to related parties 2,527,098 604,000
Accrued interest due to related parties 120,315 --
------------- -------------
Total current liabilities 7,403,600 1,850,540
LONG-TERM LIABILITIES
Long-term debt, less current portion 1,751,574 2,959,600
Long-term loan due to a related party -- 1,769,720
Accrued interest 94,827 39,500
Accrued interest on loans due to related parties -- 27,180
Deferred revenue 9,975,030 4,237,180
------------- -------------
Total liabilities 19,225,031 10,883,720
------------- -------------
OWNERS' EQUITY
Paid-in capital 3,019,955 1,208,000
Deficit accumulated in the development stage (210,189) (42,040)
------------- -------------
Total owners' equity 2,809,766 1,165,960
------------- -------------
Total liabilities and owners' equity $ 22,034,797 $ 12,049,680
============= =============
The accompanying notes are an integral part of these financial statements.
4
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(Unaudited)
--------------------------------- Period from
Period from Period from August 2, 2000
August 2, 2000 August 2, 2000 (date of inception)
Nine months (inception) (inception) through
ended through through September 30,
September 30, September 30, December 31, 2001
2001 2000 2000 (Unaudited)
-------------- -------------- -------------- --------------
Net sales $ -- $ -- $ -- $ --
Cost of sales -- -- -- --
-------------- -------------- -------------- --------------
Gross profit -- -- -- --
Operating expenses 168,149 18,000 42,040 210,189
-------------- -------------- -------------- --------------
Net loss $ 168,149 $ 18,000 $ 42,040 $ 210,189
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
5
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
STATEMENT OF CHANGES IN OWNERS' EQUITY
Period from August 2, 2000 (Date of Inception) through December 31, 2000
Additional
Paid-in Accumulated
Capital Deficit Total
----------- ----------- -----------
Balance, August 2, 2000 $ -- $ -- $ --
Capital contribution 1,208,000 -- 1,208,000
Net loss -- (42,040) (42,040)
----------- ----------- -----------
Balance, December 31, 2000 $ 1,208,000 $ (42,040) $ 1,165,960
=========== =========== ===========
The accompanying notes are an integral part of this financial statement.
6
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(Unaudited)
--------------------------------- Period from
Period from Period from August 2, 2000
August 2, 2000 August 2, 2000 (date of inception)
Nine months (inception) (inception) through
ended through through September 30,
September 30, September 30, December 31, 2001
2001 2000 2000 (Unaudited)
-------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (168,149) $ (18,000) $ (42,040) $ (210,189)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,295 -- -- 2,295
Changes in operating assets and liabilities:
Amount due from related parties (8,938) (214,000) (51,340) (60,278)
Other payables 122,248 -- -- 122,248
Accrued interest 181,130 22,000 78,040 259,170
Accrued interest to related parties 93,136 -- 27,180 120,316
-------------- -------------- -------------- --------------
Cash flows provided by operating activities 221,722 (210,000) 11,840 233,562
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (62,452) -- -- (62,452)
Expenditures for construction-in-progress (5,214,653) (1,630,000) (5,922,820) (11,137,473)
Issuance and receipt of proceeds from note receivable 237,997 (966,000) (966,410) (728,413)
-------------- -------------- -------------- --------------
Cash flows used in investing activities (5,039,108) (2,596,000) (6,889,230) (11,928,338)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loan 2,053,569 -- -- 2,053,569
Proceeds from issuance of capital 1,811,955 1,208,000 1,208,000 3,019,955
Proceeds from repayment of note receivable -- -- -- --
Proceeds from long-term debt -- 2,416,000 4,167,600 4,167,600
Proceeds from (payment of) long-term debt from
a related party (1,769,720) -- 1,769,720 --
Amounts loaned by related parties 1,923,098 -- 604,000 2,527,098
-------------- -------------- -------------- --------------
Cash flows provided by financing activities 4,018,902 3,624,000 7,749,320 11,768,222
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (798,484) 818,000 871,930 73,446
CASH, BEGINNING OF PERIOD 871,930 -- -- --
-------------- -------------- -------------- --------------
CASH, END OF PERIOD $ 73,446 $ 818,000 $ 871,930 $ 73,446
============== ============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 73,326 $ -- $ 1,933 $ 75,259
============== ============== ============== ==============
Taxes paid $ -- $ -- $ -- $ --
============== ============== ============== ==============
SUPPLEMENTAL NON-CASH INVENTORY
AND FINANCING ACTIVITIES
Contribution of services $ 5,737,851 $ -- $ 4,237,180 $ 9,975,031
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
7
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Lianyugang East Sea Highway Development and Management Co., Ltd., ("The
Company") is engaged in the construction of a highway in the Jiangsu Province of
the People's Republic of China. At December 31, 2000 the Company was 40% owned
by Feiyun Property Development Company, 20% by East Sea County Transportation
Bureau ("East Sea"), 24% by Mr. Zhou Haiping, and 16% by Mr. Wang Jun. The
highway is owned by East Sea County Transportation Bureau and the operating
rights, along with the highway tolls, are to be transferred to the Company for
an operating period of 15 to 20 years. The construction of the highway is
expected to be completed in 2002. The Company will begin generating revenues and
amortizing the cost of the project after completing the construction of the
highway.
Interim Information
Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of interim results
have been included in accordance with generally accepted accounting principles.
All adjustments are of a normal recurring nature. The results for interim
periods are not necessarily indicative of results to be expected for the entire
year.
Use of Estimates and Assumptions
- --------------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly-liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
Foreign Currency Translation
- ----------------------------
All operations are conducted in the People's Republic of China. The local
currency is the functional currency (primary currency in which business is
conducted). As the functional currency has been stable in relation to the U. S.
dollar for all periods presented, there is no adjustment resulting from
translating the foreign functional currency assets and liabilities into U. S.
dollars. Accordingly, no such gain or loss from foreign currency translation is
presented as a separate component of owners' equity.
8
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
- ------------
The Company is not subject to any income taxes in the United States. The Company
is subject to income taxes within the People's Republic of China.
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 statements and the tax
basis 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 such taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Construction-in-Progress
- ------------------------
Costs capitalized as construction-in-progress in connection with the
construction of the highway include, all direct material and labor costs and all
indirect costs associated with the project. Any general and administrative costs
are expensed as incurred. The Company will begin amortizing these costs once the
highway is completed and revenues are being generated. Total interest
capitalized for the year ended December 31, 2000 totaled $105,217.
NOTE B - GOING CONCERN UNCERTAINTY
The financial statements have been prepared under the assumption that the
Company will continue as a going concern. The Company has not completed
construction of the highway which once completed will be its sole source of
revenues. The construction process is expected to be completed in mid 2002.
Since the development of this highway is a government sponsored project,
management believes that they will be able to obtain additional government
financing, if necessary, in order to complete the highway.
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.
NOTE C - CONSTRUCTION-IN-PROGRESS AND DEFERRED REVENUE
During the period ended December 31, 2000 the Company received $4,237,180 in
grants in the form of contributed services from East Sea, a government entity
which is also a 20% equity owner of the Company. The Company also received
$604,000 from East Sea under a short-term loan agreement which was subsequently
converted into additional capital (see Note E). The grant of $4,237,180 has been
recorded as deferred revenue and will be amortized into income using the
straight-line method over the estimated useful life of the highway, once revenue
begins to be generated.
9
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
NOTE D - RELATED PARTY TRANSACTIONS
At December 31, 2000, the Company had certain notes receivable from related
parties totaling $27,180. These notes have no stated interest rates or repayment
terms. The Company also has a note receivable from a related party totaling
$24,160 at December 31, 2000. Interest on this note receivable is charged at the
People's Republic of China Bank rate (6.138% at December 31, 2000). This note
which is unsecured, matures in September 2001, and is currently due.
At December 31, 2000, the Company also has a long-term note receivable due from
a related party totaling $966,410. The Company advanced this entity money to use
as working capital. An owner and director of the Company's parent is also a
director of this related entity. Interest on the note is charged at the interest
rate of the People's Republic of China Bank (6.138% at December 31, 2000). The
note matures in January 2002 and is unsecured.
As discussed in Note C, East Sea awarded grants and subsidies to the Company
totaling $4,237,180. In addition, $604,000 was loaned to the Company. On March
28, 2001, East Sea approved the conversion of the $604,000 as a capital
contribution.
During the period from August 2, 2000 (inception) through December 31, 2000, the
Company borrowed $1,769,720 from an entity in which one of the Company's owners
is also a director. The amount due at December 31, 2000 totaling $1,769,720,
which is unsecured, bears interest at the People's Republic of China Bank rate
(6.138% at December 31, 2000) and matures April, 2002. At December 31, 2000,
accrued interest on this loan totaled $27,180.
NOTE E - LONG-TERM DEBT
At December 31, 2000, long-term debt consists of the following:
2000
----------
Note payable to Agricultural Bank of China, bearing interest at 8.00%, due
December 2, 2001. This note is personally guaranteed by the directors of
the Company $1,208,000
Note payable to Nanjing Zaichong Enterprise Management Consulting Company
Limited, principal plus interest due at maturity, bearing interest at the
People's Republic of China Bank rate (6.138% at December 31, 2000), maturing
March 2002. This note is unsecured 1,208,000
Note payable to Nanjing Zaichong Enterprise Management Consulting Company
Limited, principal plus interest due at maturity, bearing interest at the
People's Republic of China Bank rate (6.138% at December 31, 2000), maturing
December 2002. This note is unsecured 362,400
10
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
NOTE E - LONG-TERM DEBT (Continued)
2000
----------
Note payable to Jiangsu Tianying Trading Enterprise Co., Ltd., with a maximum
facility of $1,449,600; principal plus interest due at maturity, bearing interest
at People's Republic of China Bank rate (6.138% at December 31, 2000),
maturing November 2002. This note is unsecured 1,389,200
----------
4,167,600
Less current maturities of long-term debt 1,208,000
----------
Total long-term debt $2,959,600
==========
At December 31, 2000, future maturities of long-term debt were as follows:
Year Ending
December 31,
------------
2001 $ 1,208,000
2002 2,959,600
------------
Total $ 4,167,600
============
NOTE F - INCOME TAXES
During the period ended December 31, 2000, the Company incurred financial
reporting and income tax losses. The Company provided a valuation allowance
against the deferred tax asset resulting from this carryforward since
realization of this benefit cannot be reasonably assured. At December 31, 2000,
there were no other significant deferred tax assets or liabilities.
NOTE G - CONCENTRATION OF CREDIT RISK
Cash held in financial institutions may potentially expose the Company to
concentrations of credit risk. To minimize risk, the Company monitors the
institutions where it places its cash and cash equivalents and does not believe
there is significant risk with respect to these amounts.
NOTE H - INTERIM FINANCIAL INFORMATION (UNAUDITED)
During May 2001, the Company entered into a loan agreement with China
Agricultural Bank for $1,208,000, bearing interest at 7.722% per annum, with the
principal and interest due in May 2002. The loan is personally guaranteed by the
owners of the Company. The amount is unsecured.
During August 2001, the Company entered into a loan agreement with Nanjing
Ziachong Enterprise Management Consulting Company, Limited for $845,600, bearing
interest at the People's Republic of China Bank Rate (6.138% at September 30,
2001), with the principal and interest due in August 2002. The note is
unsecured.
11
LIANYUGANG EAST SEA HIGHWAY
DEVELOPMENT AND MANAGEMENT CO., LTD.
(a Development Stage Enterprise)
NOTE H - INTERIM FINANCIAL INFORMATION (UNAUDITED) (Continued)
During the nine months ended September 30, 2001, the Company borrowed $2,527,098
from an entity in which one of the Company's directors is also a director. The
amounts are due April through July 2002 and bear interest at current market
rates. The amounts are unsecured.
Also during the nine months ended September 30, 2001, the Company received an
additional $5,737,850 in the form of contributed services from East Sea.
12
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
and the Twelve Months Ended December 31, 2000 and 1999
1
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
INDEX
Page
----
Report of Independent Certified Public Accountants...........................3
Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2001 (Unaudited) and
December 31, 2000 and 1999.............................................4
Consolidated Statements of Operations for the Nine Months
ended September 30, 2001 and 2000 (Unaudited) and the Years
ended December 31, 2000 and 1999.......................................5
Consolidated Statement of Changes in Owners' Equity for the
Years Ended December 31, 2000 and 1999.................................6
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2001 and 2000 (Unaudited) and the Years
ended December 31, 2000 and 1999.......................................7
Notes to Consolidated Financial Statements...............................8
2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Owners
Beijing Golden Horse Great Wall Estate Construction Co., Ltd.
We have audited the accompanying consolidated balance sheets of Beijing Golden
Horse Great Wall Estate Construction Co., Ltd. and Subsidiary (the "Company"),
at December 31, 2000 and 1999 and the related consolidated statements of
operations, owners' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Beijing Golden Horse
Great Wall Estate Construction Co., Ltd. and Subsidiary, at December 31, 2000
and 1999 and the results of their operations and their cash flows for the years
then ended in conformity with accounting principals generally accepted in the
United States of America.
As described in Note B, the accompanying consolidated financial statements have
been prepared assuming the Company will continue as a going concern. At December
31, 2000, short-term payables of $98,479,000 significantly exceeded current
liquid assets. The Company incurred losses before extraordinary items of
$4,027,000 and $985,000 for the years ended December 31, 2000 and 1999,
respectively. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ King Griffin & Adamson P.C.
-------------------------------
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
October 25, 2001
3
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
(Unaudited)
December 31,
September 30, ------------------------------
2001 2000 1999
------------- ------------- -------------
ASSETS
Cash and cash equivalents $ 242 $ 241 $ 312
Other receivables 124 -- --
Real estate held for sale 54,451 56,256 56,913
Mortgage loans receivable, less allowance for loan
losses of $5,852 (unaudited), $5,852 and $5,852 at
September 30, 2001 and December 31, 2000 and
1999, respectively 15,945 16,475 15,886
Property and equipment, net of accumulated
depreciation of $5,228 (unaudited), $4,019 and
$2,212 at September 30, 2001 and December 31,
2000 and 1999, respectively 34,896 35,838 37,471
Amounts due from related party 1,816 1,249 8,602
------------- ------------- -------------
Total assets $ 107,474 $ 110,059 $ 119,184
============= ============= =============
LIABILITIES AND OWNERS' EQUITY
LIABILITIES
Short-term loans $ 39,725 $ 39,769 $ 39,977
Accounts payable 12,466 13,913 13,579
Accrued expenses 5,850 3,330 1,326
Other payables 26,117 30,334 42,063
Amounts due to related parties 11,935 11,133 11,616
------------- ------------- -------------
Total liabilities 96,093 98,479 108,561
MINORITY INTEREST 1,642 1,700 1,775
COMMITMENTS AND CONTINGENCIES (Note B)
OWNERS' EQUITY
Paid-in capital 10,472 10,472 10,472
Accumulated deficit (733) (592) (1,624)
------------- ------------- -------------
Total owners' equity 9,739 9,880 8,848
------------- ------------- -------------
Total liabilities and owners' equity $ 107,474 $ 110,059 $ 119,184
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Nine months
ended Year ended
September 30, December 31,
------------------- ------------------
2001 2000 2000 1999
------- ------- ------- -------
REVENUE
Sales of real estate, net of sales taxes $ 2,959 $ 983 $ 983 $ 4,761
Rental income 173 268 524 336
------- ------- ------- -------
Total revenue 3,132 1,251 1,507 5,097
COSTS AND EXPENSES
Cost of real estate sales 1,804 657 657 2,783
Interest expense 2,613 2,400 3,439 800
Selling expenses 300 482 649 188
General and administrative expenses 1,863 1,714 2,542 2,563
------- ------- ------- -------
Total costs and expenses 6,580 5,253 7,287 6,334
Operating income (loss) (3,448) (4,002) (5,780) (1,237)
OTHER INCOME (EXPENSE), NET (3) -- -- --
------- ------- ------- -------
Income (loss) before provision for income taxes,
minority interest and extraordinary item (3,451) (4,002) (5,780) (1,237)
INCOME TAX (EXPENSE) BENEFIT 723 1,321 1,679 174
MINORITY INTEREST 58 58 74 78
------- ------- ------- -------
Income (loss) before extraordinary item (2,670) (2,623) (4,027) (985)
EXTRAORDINARY ITEM
Gain on extinguishment of debt, net of income taxes
of $1,245 in 2001 and $2,492 in 2000 2,529 5,059 5,059 --
------- ------- ------- -------
NET INCOME (LOSS) $ (141) $ 2,436 $ 1,032 $ (985)
======= ======= ======= =======
The accompanying notes are an integral part of this consolidated financial
statement.
5
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
STATEMENT OF CHANGES IN OWNERS' EQUITY
--------------------------------------
For the Years ended December 31, 2000 and 1999
(in thousands)
Paid-In Accumulated
Capital Deficit Total
----------- ----------- -----------
Owners' equity, January 1, 1999 $ 10,472 $ (639) $ 9,833
Net loss for the year ended December 31, 1999 -- (985) (985)
----------- ----------- -----------
Owners' equity, December 31, 1999 10,472 (1,624) 8,848
Net income for the year ended December 31, 2000 -- 1,032 1,032
----------- ----------- -----------
Owners' equity, December 31, 2000 $ 10,472 $ (592) $ 9,880
=========== =========== ===========
The accompanying notes are an integral part of this consolidated financial
statement.
6
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months Nine months Year ended
ended ended December 31,
September 30, September 30, ------------------------------
2001 2000 2000 1999
------------- ------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ (141) $ 2,436 $ 1,032 $ (985)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary item, net of income taxes (2,529) (5,059) (5,059) --
Gain on disposal of fixed asset (14) -- -- --
Depreciation and amortization 1,420 1,342 1,807 1,814
Minority interest (58) (58) (74) (78)
Changes in operating assets and liabilities:
Mortgage loans receivable 530 161 (590) (5,336)
Other receivables (124) -- -- --
Inventories 1,804 657 657 2,782
Accounts payable (1,449) (2,675) 334 4,000
Other payables (1,685) (9,197) (6,671) 4,302
Accrued expenses 2,520 1,958 2,004 935
------------- ------------- ------------- -------------
Cash flows provided by (used in) operating activities 274 (10,435) (6,560) 7,434
------------- ------------- ------------- -------------
Cash flows from investing activities:
Amounts due from related parties (567) 9,544 7,353 (1,557)
Purchases of property and equipment (590) (103) (172) (1,045)
Proceeds from sale of property and equipment 126 -- -- --
------------- ------------- ------------- -------------
Cash flows provided by (used in) investing activities (1,031) 9,441 7,181 (2,602)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Amounts due to related parties 802 992 (484) (4,837)
Proceeds from (repayments of) short-term loans (44) -- (208) (168)
------------- ------------- ------------- -------------
Cash flows provided by (used in) financing activities 758 992 (692) (5,005)
Net increase (decrease) in cash 1 (2) (71) (173)
Cash, beginning of period 241 312 312 485
------------- ------------- ------------- -------------
Cash, end of period $ 242 $ 310 $ 241 $ 312
============= ============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 94 $ 1,548 $ 1,539 $ 1,548
============= ============= ============= =============
Income taxes paid $ 20 $ -- $ 13 $ 241
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
7
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background Information
Beijing Golden Horse Great Wall Estate Construction Co., Ltd. ("Golden Horse")
is a Sino-foreign joint venture cooperative company established on December 25,
1992. Golden Horse is the sole developer and owner of Sunshine Plaza which was
developed in the Chaoyang area in Beijing China. Sunshine Plaza is a facility
which includes approximately 425,000 square feet of retail space, 97,000 square
feet of office space, and 980,000 square feet of condominium space. Construction
of Sunshine Plaza was completed in 1999. At December 31, 2000, Golden Horse was
owned 80% by Golden Horse International Investment Company and 20% by Beijing
Municipal Construction Engineering Corporation.
Consolidation
- -------------
The accompanying consolidated financial statements include the accounts of
Golden Horse and its 89% owned subsidiary, collectively referred to as "the
Company". All significant intercompany transactions and balances have been
eliminated in consolidation.
Interim Periods
- ---------------
The information set forth in these financial statements as of September 30, 2001
and for the nine months ended September 30, 2001 is unaudited and reflects all
adjustments, consisting only of normal recurring adjustments, that, in the
opinion of management, are necessary to present fairly the financial position
and results of operations of the Company. Results of operations for the interim
period are not necessarily indicative of the results of operations for the full
fiscal year.
Use of Estimates and Assumptions
- --------------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
Real Estate Held for Sale
- -------------------------
Real estate held for sale consists of condominium units, office units, and
parking garage spaces. Real estate held for sale is stated at the lower of cost
or estimated net realizable value.
8
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
Specific valuation allowances are provided for loans receivable when it becomes
probable that all of the principal and interest payments will not be received as
scheduled in the loan agreement (excluding insignificant delays or payment
shortfalls). In addition to specific allowances, a general allowance may be
provided for future losses based on an evaluation of the loan portfolio and
prevailing market conditions. Additions to the allowance are expensed as
recognized.
Impairment Losses
- -----------------
Real estate held for sale is reported in the balance sheet at the lower of cost
or fair value less costs to sell. Real estate held for sale is assessed for
impairment when management believes that events or changes in circumstances
indicate that its carrying amount may not be recoverable. Based on this
assessment, property that is considered impaired is written down to its fair
value. Impairment losses are expensed as recognized.
Foreign Currency Translation
- ----------------------------
All operations are conducted in the People's Republic of China. The local
currency is the functional currency (primary currency in which business is
conducted). As the functional currency has been stable in relation to the U. S.
dollar for all periods presented, there is no adjustment resulting from
translating the foreign functional currency assets and liabilities into U. S.
dollars. Accordingly, no such gain or loss from foreign currency translation is
presented as a separate component of owners' equity.
Income Taxes
- ------------
The Company is not subject to any income taxes in the United States. The Company
is subject to income taxes within the People's Republic of China. Golden Horse
and its 89% owned subsidiary file separate income tax returns and accordingly,
current and deferred income taxes are recorded for each entity separately.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due and deferred taxes.
Deferred taxes are recognized for differences between the bases of assets and
liabilities for financial statement and income tax purposes. The deferred tax
assets and liabilities represent future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income. Valuation
allowances are recorded, as necessary, when net deferred taxes are not
reasonably assured of being realized.
Property and Equipment
- ----------------------
Property and equipment, including retail space which earns rental income, is
stated at cost less accumulated depreciation. The cost of additions,
improvements and interest on construction of rental property are capitalized
while maintenance and repairs are charged to expense as incurred. Depreciation
of property and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Estimated useful lives are summarized as
follows:
Buildings 20 years
Office equipment 5 years
Motor vehicles 5 years
9
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Sales of Real Estate and Interest Income
- ----------------------------------------
Sales of real estate generally are accounted for under the full accrual method.
Under this method, gain is not recognized until the collectibility of the sales
price is reasonably assured and the earnings process is virtually complete. The
sales earning process is generally considered complete upon receiving a
significant deposit (defined as at least 15% of total sales price). For most
sales contracts significant deposits are received and the total sales amount is
normally collected within one year. Due to the short-term nature of these sales
contracts, interest income is not charged on the outstanding loan balance and is
not material to the consolidated financial statements. Impaired loans at
December 31, 2000 and 1999 were originated in years prior to the year ended
December 31, 1999. The Company does not record interest income on impaired
loans. When a sale does not meet the requirements for income recognition, gain
is deferred until those requirements are met.
Rental Revenue
- --------------
Rent is reported as income over the lease term as it becomes receivable
according to the provisions of the lease. However, if the rentals vary from the
straight-line basis, the income is recognized on a straight-line basis unless
another systematic and rational basis is more representative of the time pattern
in which the use benefit from the leased property is diminished, in which case
that basis shall be used.
Selling Costs
- -------------
Selling costs that relate to tangible assets and costs to obtain regulatory
approvals are capitalized and recognized as lots are sold. Direct selling costs
that relate to lots that are sold and accounted for under a method other than
the full accrual method are deferred and recognized as the related gain is
recognized. Other selling costs are charged to expense when incurred.
NOTE B - GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. At December 31, 2000, short-term
payables of $98,479,000 significantly exceeded current liquid assets. The
Company incurred losses before extraordinary items of $4,027,000 and $985,000
for the years ended December 31, 2000 and 1999, respectively. The Company
intends to be more aggressive in its collection efforts in order to recover
past-due amounts. The Company also intends to actively pursue additional sales
of real estate transactions. In addition, the Company has spent a significant
amount of time, effort and money to upgrade its retail rental space and has a
new anchor tenant which they believe improves the value of the property.
Management expects to collect increased amounts of future rental income from the
new tenant that began operations in September 2001. In addition management is
negotiating debt settlements which is expected to significantly reduce the total
debt burden to the Company. 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.
10
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE C - REAL ESTATE HELD FOR SALE
At December 31, 2000 and 1999, real estate held for sale consists of the
following (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Apartment units $ 36,790 $ 37,322
Office units 4,649 4,774
Parking garage spaces 14,817 14,817
------------ ------------
Total $ 56,256 $ 56,913
============ ============
NOTE D - MORTGAGE LOANS RECEIVABLE
At December 31, 2000 and 1999, mortgage loans receivable consist of the
following (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Mortgage loans receivable $ 22,327 $ 21,738
Less: Allowance for loan losses (5,852) (5,852)
------------ ------------
Net mortgage loans receivable $ 16,475 $ 15,886
============ ============
At December 31, 2000 and 1999, the Company's total investment in impaired loans
was approximately $20,209,459. The allowance for loan losses relating to these
impaired loans totaled $5,852,000 at December 31, 2000 and 1999.
The average total investment in impaired loans during the years ended December
31, 2000 and 1999 was $20,209,459 and $19,824,664, respectively.
An analysis of the allowance for loan losses is as follows (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Balance, beginning of year $ 5,852 $ 5,852
Provision for losses -- --
Loans charged-off -- --
Recoveries of previous charge-offs -- --
------------ ------------
$ 5,852 $ 5,852
============ ============
11
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE D - MORTGAGE LOANS RECEIVABLE (Continued)
Information about the Company's impaired loans as of and for the years ended
December 31, 2000 and 1999, follows (in thousands):
2000 1999
------- -------
Investment in impaired loans with recorded allowance $20,209 $20,209
Investment in impaired loans for which allowance
was not considered necessary -- --
------- -------
Total investment in impaired loans $20,209 $20,209
======= =======
Allowance for credit losses on impaired loans $ 5,852 $ 5,852
======= =======
Average total investment in impaired loans $20,209 $19,824
======= =======
NOTE E - PROPERTY AND EQUIPMENT
At December 31, 2000 and 1999, property and equipment consists of the following
(in thousands):
2000 1999
------- -------
Office equipment $ 184 $ 105
Motor vehicles 413 413
Buildings (including rental property (See Note K)) 39,260 39,165
------- -------
39,857 39,683
Less: Accumulated depreciation 4,019 2,212
------- -------
$35,838 $37,471
======= =======
NOTE F - SHORT TERM LOANS
At December 31, 2000 and 1999, short term loans consist of the following (in
thousands):
2000 1999
------- -------
Bank of China $ 21,502 $21,707
Industrial Commercial Bank of China 18,267 18,270
------- -------
$39,769 $39,977
======= =======
Amounts due to the Bank of China are secured by certain of the Company's
property and equipment. Interest is charged at a rate of 7.11% per annum on the
outstanding balance. This loan was originally due in full on March 28, 1999 and
is currently due on demand. Overdue penalties related to this loan have been
properly accrued at 0.58% per annum on principal in accordance with the loan
agreement.
12
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE F - SHORT TERM LOANS (Continued)
Amounts due to the Industrial Commercial Bank of China are secured by certain of
the Company's property and equipment and real estate held for sale. Interest is
charged at a rate of 7.56% per annum on the outstanding balance. This loan was
originally due in full on September 30, 2000. Overdue penalties related to this
loan have been properly accrued at 8.93% per annum on overdue principal in
accordance with the loan agreement.
The Company is currently in negotiation with these banks to extend the due dates
of these amounts.
NOTE G - RELATED PARTIES AND RELATED PARTY TRANSACTIONS
At December 31, 2000 and 1999, related party receivable (payable) balances are
as follows (in thousands):
2000 1999
-------- --------
Shareholder of Golden Horse International Investment Company $ 1,249 $ 8,602
======== ========
Sunshine San He $ (2,416) $ (2,658)
China Land Property (7,003) (4,204)
Golden Horse International Investment Company (1,244) (1,350)
Shareholder of Golden Horse International Investment Company -- (3,062)
Beijing Sunshine Property Management Company (470) (342)
-------- --------
$(11,133) $(11,616)
======== ========
The amount due from a majority shareholder of Golden Horse International
Investment Company is unsecured, bears no interest and has no fixed terms of
repayment.
The Company has a note payable (with a 5.85% interest rate) to Sunshine San He,
an entity owned by two directors of the Company. Sunshine San He advanced the
Company funds to use as working capital.
The Company received advances from China Land Property, an entity related to the
majority shareholder of Golden Horse International Investment Company. The
amounts bear no interest and are due on demand.
The Company has an unsecured note bearing no interest due to Golden Horse
International Investment Company and Beijing Sunshine City Property Management.
There are no fixed terms of repayment for these notes.
13
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE H - OTHER PAYABLES
At December 31, 2000 and 1999, other payables consist of the following (in
thousands):
2000 1999
------- -------
Current income tax payable $ 608 $ 100
Deferred income tax liability 11,154 10,861
Other taxes payable 3,214 4,582
Commissions payable -- 15,230
Refunds due resulting from incompleted sales contracts 6,015 1,964
Deposits 4,063 3,688
Other 5,280 5,638
------- -------
$30,334 $42,063
======= =======
NOTE I - EXTINGUISHMENT OF DEBT
The Company recorded extraordinary income for debt forgiveness totaling
$5,059,000 (net of income taxes of $2,492,000) during the year ended December
31, 2000. This amount represents amounts due for commissions payable to an
entity which acted as a sales agent for the sale of apartments in Sunshine
Plaza. In connection with a negotiated settlement this entity waived the balance
owed to them.
NOTE J - INCOME TAXES
At December 31, 2000 and 1999, deferred tax assets and liabilities are as
follows (in thousands):
2000 1999
-------- --------
Golden Horse:
Current deferred tax liability $(11,154) $(16,701)
Current deferred tax asset -- 5,840
Valuation allowance for current deferred tax asset -- --
-------- --------
(11,154) (10,861)
-------- --------
Subsidiary:
Current deferred tax liability $ -- $ --
Current deferred tax asset 459 234
Valuation allowance for current deferred tax asset (459) (234)
-------- --------
-- --
-------- --------
Net current deferred tax liability $(11,154) $(10,861)
======== ========
The current deferred tax liability results from timing differences for revenue
and expense recognition for financial and tax reporting purposes primarily
related to real estate sales, and allowances for loan losses. Golden Horse and
its 89% owned subsidiary file separate income tax returns. Net operating losses
of the subsidiary have a 100% valuation allowance recorded due to the
uncertainty of this entity generating taxable income in the future.
14
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE J - INCOME TAXES (Continued)
At December 31, 2000 and 1999, income tax (expense) benefit consists of the
following (in thousands):
2000 1999
------------ ------------
Current $ (520) $ --
Deferred 2,199 174
------------ ------------
$ 1,679 $ 174
============ ============
Differences between the statutory federal income tax rate and the effective rate
for the years ended December 31, 2000 and 1999 are as follows (in thousands):
2000 1999
------------ ------------
Income tax benefit at statutory rate of 33% $ 1,907 $ 408
Change in valuation allowance (225) (234)
Other (3) --
------------ ------------
$ 1,679 $ 174
============ ============
NOTE K - RENTAL PROPERTY
The components of rental property follow (in thousands):
December 31, December 31,
2000 1999
------------ ------------
Retail office space $ 23,581 $ 23,581
Less: Accumulated depreciation (2,172) (1,098)
------------ ------------
$ 21,409 $ 22,483
============ ============
The property is leased under cancelable and noncancelable arrangements. Future
minimum lease payments to be received under existing noncancelable operating
leases at December 31, 2000 are as follows (in thousands):
2001 $ 444,000
2002 807,000
2003 775,000
2004 723,000
2005 689,000
Thereafter 2,250,000
------------
Total $ 5,688,000
============
15
BEIJING GOLDEN HORSE GREAT WALL ESTATE
CONSTRUCTION CO., LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001, December 31, 2000 and 1999
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments at December 31,
2000, none of which are held for trading purposes, are as follows:
Carrying Fair
Amount Value
-------- --------
Financial Assets:
Cash and cash equivalent $ 241 $ 241
Mortgage loans receivable 16,475 16,475
Financial Liabilities:
Short-term loans $ 39,769 $ 39,769
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
o Cash and cash equivalents and short-term loans: The carrying amounts
reported in the balance sheet approximate fair value because of the short
maturities of those instruments.
o Mortgage loans receivable: The carrying amounts reported in the balance
sheet approximate fair values because the rates approximate the current
rates offered by the Company for notes with similar credit quality,
maturities and terms, or have been written down to fair value by accruing
appropriate allowances for loan losses.
NOTE M - INTERIM FINANCIAL INFORMATION (Unaudited)
During the nine months ended September 30, 2001, the Company recorded $2,529,000
(net of income taxes of $1,245,000) as a gain on extinguishment of debt. The
amount represents amounts due for loan fees payable in connection with
construction of Sunshine Plaza was waived by Xin Da Zhong Enterprise Development
Co., Ltd. in connection with a negotiated settlement.
16
ITEM 7(b) - PROFORMA FINANCIAL INFORMATION
Pro Forma Financial Information
Pursuant to a Stock Purchase Agreement dated August 1, 2001, Viking Capital
Group, Inc. ("Viking" or "the Company") has acquired 25% of the ownership of an
entity, with its principal place of business located in Beijing, China. This
newly formed entity was acquired for 21,500,000 newly-issued, common shares of
Viking. A total of 7,500,000 shares were issued directly to the entity being
acquired and the remaining 14,000,000 shares were issued to the selling owners
of the assets transferred into the acquisition entity. The acquisition date was
effective on December 3, 2001, after receiving all necessary significant
approvals from the Chinese authorities. This newly formed entity owns five
principal assets. Specifically, this entity being acquired owns 60% of Beijing
Golden Horse Great Wall Estate Construction Company, Ltd. and 40% of Lianyugang
East Sea Highway Development and Management Company, Ltd. In addition, this
entity acquired the business operations of Beijing Feiyun Chemical Trading
Company, Ltd. and two notes receivable which are collateralized by the
underlying equity of two other operating companies.
The unaudited pro forma condensed balance sheet of Viking as of September 30,
2001 reflects this acquisition under the equity method as if it had occurred on
September 30, 2001.
The unaudited pro forma condensed statements of operations for the year ended
December 31, 2000 and nine months ended September 30, 2001, reflect the
acquisition as if it had occurred on January 1, 2000.
The unaudited pro forma condensed balance sheet and statements of operations
should be read in conjunction with the separate historical financial statements
of the Company and related notes appearing elsewhere in this document. The pro
forma financial information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it necessarily indicative of the future results of the
entities.
1
VIKING CAPITAL GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED BALANCE SHEET
September 30, 2001
ASSETS
------
(Note A)
Viking Capital Pro Forma Pro Forma
Group, Inc. Adjustments Combined
-------------- -------------- --------------
CURRENT ASSETS
Cash $ 150,243 $ -- $ 150,243
Marketable securities 8,977 -- 8,977
Accounts receivable -- -- --
Notes and other accounts receivable and accrued interest,
net of allowance of $161,722 at September 30,
2001 including related party amount of $106,444 at
September 30, 2001 140,623 -- 140,623
-------------- -------------- --------------
Total current assets 299,843 -- 299,843
PROPERTY AND EQUIPMENT
Computer equipment 157,307 -- 157,307
Furniture and office equipment 21,241 -- 21,241
Accumulated depreciation and amortization (170,875) -- (170,875)
-------------- -------------- --------------
Net property and equipment 7,673 -- 7,673
CAPITALIZED SOFTWARE, net of accumulated
amortization of $352,461 at September 30, 2001 421,168 -- 421,168
INVESTMENT IN AFFILIATES ACCOUNTED FOR
USING THE EQUITY METHOD -- 5,600,000 5,600,000
OTHER ASSETS 60,027 -- 60,027
-------------- -------------- --------------
TOTAL ASSETS $ 788,711 $ 5,600,000 $ 6,388,711
============== ============== ==============
2
VIKING CAPITAL GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED BALANCE SHEET (Continued)
September 30, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
(Note A)
Viking Capital Pro Forma Pro Forma
Group, Inc. Adjustments Combined
------------ ------------ -------------
CURRENT LIABILITIES
Notes payable $ 327,730 $ -- $ 327,730
Notes payable - related party 62,600 -- 62,600
Current obligations under capital leases 3,412 -- 3,412
Accounts payable 223,130 -- 223,130
Accrued payroll taxes 55,480 -- 55,480
Accrued officers' salary 1,683,299 -- 1,683,299
Interest payable 18,067 -- 18,067
Interest payable - related party 7,535 -- 7,535
------------ ------------ -------------
Total current liabilities 2,381,253 -- 2,381,253
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $1.00 par value; 50,000,000 shares authorized,
no shares issued and outstanding -- -- --
Series A Preferred Stock $1.00 par value; 2,500,000 shares
authorized, no shares issued and outstanding -- -- --
Series AA Preferred Stock $1.00 par value; 6,000,000 shares
authorized, no shares issued and outstanding -- -- --
Common stock $0.001 par value, 150,000,000 shares authorized,
61,691,246 issued and 53,665,621 outstanding at September
30, 2001 40,191 21,500 61,691
Common stock Class B $0.001 par value, 100,000 shares
authorized, issued and outstanding 100 -- 100
Additional paid-in capital 10,236,099 8,578,500 18,814,599
Deficit accumulated in the development stage (11,827,726) -- (11,827,726)
------------ ------------ -------------
(1,551,336) 8,600,000 7,048,664
Less treasury stock - 8,025,625 shares at cost (41,206) (3,000,000) (3,041,206)
------------ ------------ -------------
Total stockholders' equity (deficit) (1,592,542) 5,600,000 4,007,458
------------ ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 788,711 $ 5,600,000 $ 6,388,711
============ ============ =============
3
VIKING CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2001
(Note B)
Viking Capital Pro Forma Pro Forma
Group, Inc. Adjustments Combined
------------- ------------- -------------
REVENUE $ -- $ -- $ --
COST OF REVENUE -- -- --
------------- ------------- -------------
GROSS PROFIT -- -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 220,968 -- 220,968
General and administrative expenses 917,864 -- 917,864
------------- ------------- -------------
Total costs and expenses 1,138,832 -- 1,138,832
------------- ------------- -------------
Loss from operations (1,138,832) -- (1,138,832)
OTHER INCOME (EXPENSE)
Interest income 6,472 -- 6,472
Interest expense (30,578) -- (30,578)
Interest expense-related party (4,961) -- (4,961)
Other (441) -- (441)
Income (loss) from equity accounted investment -- (1,028,463) (1,028,463)
------------- ------------- -------------
Total other income (expense) (29,508) (1,028,463) (1,057,971)
------------- ------------- -------------
Loss before income taxes (1,168,340) (1,028,463) (2,196,803)
Income tax provision -- -- --
------------- ------------- -------------
NET LOSS $ (1,168,340) $ (1,028,463) $ (2,196,803)
============= ============= =============
Loss per common share:
Basic and diluted loss per common share $ (.031) $ (.043)
============= =============
Weighted-average common shares outstanding
(Basic and diluted) 37,419,554 51,419,554
============= =============
4
VIKING CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
Year Ended December 31, 2000
(Note B)
Viking Capital Pro Forma Pro Forma
Group, Inc. Adjustments Combined
-------------- -------------- --------------
REVENUE $ 14,982 $ -- $ 14,982
COST OF REVENUE 13,366 -- 13,366
-------------- -------------- --------------
GROSS PROFIT 1,616 -- 1,616
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,653,589 -- 1,653,589
-------------- -------------- --------------
Loss from operations (1,651,973) -- (1,651,973)
OTHER INCOME (EXPENSE)
Interest income 21,088 -- 21,088
Interest expense (27,915) -- (27,915)
Interest expense-related party (2,865) -- (2,865)
Other 64,597 -- 64,597
Income (loss) from equity accounted investment -- (1,633,954) (1,633,954)
-------------- -------------- --------------
Total other income (expense) 54,905 (1,633,954) (1,579,049)
-------------- -------------- --------------
Loss before income taxes (1,597,068) (1,633,954) (3,231,022)
Income tax provision -- -- --
-------------- -------------- --------------
NET LOSS $ (1,597,068) $ (1,633,954) $ (3,231,022)
============== ============== ==============
Loss per common share:
Basic and diluted loss per common share $ (0.047) $ (0.068)
============== ==============
Weighted-average common shares outstanding
(Basic and diluted) 34,072,484 48,072,484
============== ==============
5
VIKING CAPITAL GROUP, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION
NOTE A - PRO FORMA CONDENSED BALANCE SHEET
The issuance of 14,000,000 shares of Viking's common stock to the owners of the
acquired entity was recorded at $0.40 per share, which is the weighted average
trading price of Viking's common stock for two days prior through two days after
agreeing to the terms and announcing the acquisition. The acquisition was agreed
to and announced on August 1, 2001. The total value of the common stock of
$5,600,000 has been recorded as an equity investment with a corresponding credit
to equity. Shares issued to the entity that Viking acquired are reflected as
treasury stock.
The acquisition of Beijing Feiyun Viking Enterprises Company, Ltd. was accounted
for using the equity method of accounting.
NOTE B - PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The equity income (loss) recorded as a pro forma adjustment represents the 25%
equity income or loss of each entity's income or loss for the respective periods
plus interest income on the underlying notes receivable as follows:
Per Historical Financial Proforma Financial
Statements Information
------------------------------ ------------------------------
Nine Months Year Nine Months Year
Ended Ended Ended Ended
September 30, December 31, September 30, December 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Income (loss) from continuting
operations
Lianyugang East Sea $ (168,149) $ (42,040) $ (16,815) $ (4,204)
Highway Development
and Management
Company, Ltd.
Beijing Feiyun Xin Ye (209,128) -- (52,282) --
Chemical Trading Co., Ltd.
Beijing Golden Horse Great (3,915,000) (6,519,000) (978,750) (1,629,750)
Wall Estate Construction
Co., Ltd.
Interest income on notes 77,537 -- 19,384 --
receivable (Note 2)
------------- -------------
$ (1,028,463) $ (1,633,954)
============= =============
Note 1: The pro forma financial information represents 25% of the net income or
loss for Beijing Feiyun Xin Ye Chemical Trading Co., Ltd. Beijing Golden Horse
Great Wall Estate Construction Co., Ltd. is owned 60% by the acquired entity and
accordingly is consolidated with the acquired entity. As a result, the pro forma
financial information for this entity represents 25% of the net income or loss
from continuing operations, after a 40% minority interest deduction. Lianyugang
East Sea Highway Development and Management Company, Ltd. is owned 40% by the
acquired entity and accordingly is accounted for by the acquired entity on the
equity method. As a result, the pro forma financial information for this entity
represents 25% of the net income or loss for the acquired entity's 40% ownership
interest.
NOTE B - PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (Continued)
Note 2: Notes receivable were originated on July 31, 2001. Accordingly, interest
income is calculated from this point with a 4% annual interest rate.
6
VIKING CAPITAL GROUP, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION (Continued)
NOTE C - WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
The weighted average common shares outstanding for the pro forma combined
information includes Viking's weighted average common shares outstanding plus
the 14,000,000 shares issued to the prior owners in connection with this
acquisition.
7
Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
Viking Capital Group, Inc.
Date: February 12, 2002 /s/ Matthew W. Fossen
----------------------------
Matthew W. Fossen
President, Chief Financial Officer
8