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VIKING SYSTEMS: Squar Milner Expresses Going Concern Doubt

Troubled Company Reporter, Apr. 5, 2007

Squar, Milner, Peterson, Miranda & Willamson LLP raised substantial doubt about the ability of Viking Systems, Inc. to continue as a going concern after auditing the company's financial statements for the year ended Dec. 31, 2006, and 2005.  The auditing firm pointed to the company's recurring losses from operations through Dec. 31, 2006, and working capital deficit at Dec. 31, 2006.

The company incurred a net loss of $8.7 million on net sales of $5.6 million for the year ended Dec. 31, 2006, as compared with a net loss of $7.5 million on net sales of $3.8 million for the year ended Dec. 31, 2005.

As of Dec. 31, 2006, the company's balance sheet showed total assets of $3.5 million, total current liabilities of $6.7 million, and capital lease obligations of $77,253, resulting to total stockholders' deficit of $11.7 million.  The company's December 31 balance sheet also showed strained liquidity with total current assets of $2.5 million available to pay total current liabilities of $6.7 million.

The company's accumulated deficit as of Dec. 31, 2006, stood at $18.5 million, an increase over an accumulated deficit of $9.8 million as of Dec. 31, 2005.

Since Dec. 31, 2003, Viking System's principal sources of liquidity were funds from the sale of its equity securities and the sale of Convertible Notes.  At Dec. 31, 2006, the company had cash and cash equivalents of $440,465.

Convertible Notes

During 2005 Viking Systems entered into a securities purchase agreement with 23 investors for the issuance of convertible debentures in the amount of about $5.9 million.  The notes bore interest at 10%, matured on March 21, 2006, and were convertible into the company's common stock, at the holders' option, at $0.20 per share.  Proceeds from the issuance of the convertible notes amounted to about $5.7 million, net of original issue discount of $105,000 and debt issuance costs of $93,750.  The notes were subject to certain affirmative and negative covenants and were secured by substantially all of the company's assets.

In May, 2006 the company issued 8,000 shares of Series B Preferred stock for gross proceeds of $8 million, and incurred about $436,143 in issuance costs, which were recorded as a discount to the carrying value of the Series B Preferred.  Proceeds from the sale of Series B Preferred consisted of about $7.3 million in cash and the conversion of $750,000 of convertible notes.

A full-text copy of the company's annual report is available for free at 

About Viking Systems

Based in La Jolla, California, Viking Systems, Inc. (OTCBB: VKSY) -- -- provides 3D endoscopic vision systems to hospitals for minimally invasive surgery.  Viking is leveraging that position to become a market leader in bringing integrated solutions to the digital surgical environment.  The company's focus is to deliver integrated information, visualization and control solutions to the surgical team, enhancing their capability and performance in MIS and complex surgical procedures.

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