UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
SECURITIES AND EXCHANGE COMMISSION FILE NUMBER O-28416
VALCOM, INC.
============
(Name of small business issuer specified in its charter)
Delaware 58-1700840
-------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
920 South Commerce Street, Las Vegas, Nevada 89106-4501
-------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(702) 385-9000
--------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001 - PREFERRED STOCK, PAR VALUE $0.001
==================================================================
(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 preceding 12 months (or
for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] 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 the issuer'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]
Issuer's revenues for its most current fiscal year: $930,138
Aggregate market value of the voting and non-voting common equity held by
non-affiliates as of January 13, 2006: $4,536,358
Indicate by check mark whether the registrant is a shell company
(asdefined in Rule 12b-2 of the Exchange Act). Yes No X
Number of common shares outstanding as of January 13, 2006 at $.001
par value: 50,403,986
Documents Incorporated By Reference: None
Transitional Small Business Disclosure Format: Yes ____ No _X_
===================
TABLE OF CONTENTS
===================
Item Page
Number Number Item Caption
- -------- ------ -------------
Part I
- -------
Item 1. 3 Description of Business
Item 2. 7 Description of Properties
Item 3. 8 Legal Proceedings
Item 4. 8 Submission of Matters to a Vote of Security Holders
Part II
- -------
Item 5. 9 Market for Common Equity and Related Stockholder Matters
Item 6. 15 Management's Discussion and Analysis or Plan of Operation
Item 7. 18 Financial Statements and Summary Financial Data
Item 8. 38 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Item 8A. 38 Controls and Procedures
Item 8B. 38 Other Information
Part III
- --------
Item 9. 39 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. 41 Executive Compensation
Item 11. 43 Security Ownership of Certain Beneficial Owners and Management
Related Stockholder Matters
Item 12. 43 Certain Relationships and Related Transactions
Item 13. 43 Exhibits
Item 14. 44 Principal Accountant Fees and Services
Signatures 47
Ex. 31.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Ex. 31.2 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Ex. 32.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Ex. 32.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Ex. 1.1 Consent of Armando C. Ibarra, C.P.A.
PART I
======
Statements contained in this Annual Report on Form 10-KSB that are
not historical facts are forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements are subject to risk and uncertainties, which could
cause actual results to differ materially from estimated results. Certain of
such risks and uncertainties are described in the Company's filings with
the Securities and Exchange Commission and in Item 1 ("DESCRIPTION OF
BUSINESS") and Item 6("MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION") below.
ITEM I. DESCRIPTION OF BUSINESS
===================================
GENERAL
=======
ValCom, Inc., a publicly held Delaware corporation (the "Company"),
was originally organized in the State of Utah on September 23, 1983,
under the corporate name Alpine Survival Products, Inc. Its name was
changed to Justin Land and Development, Inc. during October of 1984, and
to Supermin, Inc. on November 20, 1985.
The Company was originally formed to engage in the acquisition of
any speculative investment or business opportunity without restriction as to
type or classification. On September 29, 1986, Supermin, Inc. concluded a
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of
1954, as amended, pursuant to which it exchanged 200,000 shares of its
common stock, $.001 par value (all share numbers, unless otherwise stated,
have been adjusted to reflect a one-for-20 reverse stock split) for all of the
capital stock of Satellite Bingo, Inc., a Georgia corporation organized
on January 10, 1986, and the originator of the Company's current business
(the "SBI Subsidiary"). In conjunction with such reorganization, the former
stockholders of the SBI Subsidiary acquired control of the Company and the
Company changed its name to Satellite Bingo, Inc.
On March 10, 1988, the Company changed its name to SBI Communications, Inc.,
and on January 28, 1993, the Company reincorporated in Delaware through a
statutory merger with a wholly-owned Delaware subsidiary in reliance on the
exemption from registration requirements of Section 5 of the Securities
Act of 1933, as amended, provided by Rule 145(a)(2) promulgated thereunder.
On July 20, 2000, the Board of Directors approved a "2-1 forward stock
split" with a distribution date of August 14, 2001 and a stockholder record
date of August 10, 2000. The purpose of the forward split was to
strengthen the Company's flexibility and address the liquidity issue in
increasing the available float in the market.
On August 21, 2000, the principals of Valencia Entertainment International,
LLC ("VEI") and SBI Communications, Inc. ("SBI") executed a letter of
intent to consummate a merger. On October 16, 2000, the majority stockholders
approved the Agreement and Plan of Merger. Pursuant to the Merger
Agreement, the Company appointed new Board members, changed the par value
of the Preferred Stock, increased the authorized Common Stock and changed
its name to ValCom, Inc. ("ValCom"). A Schedule 14C Information Statement was
filed with the Securities and Exchange Commission. The Securities and
Exchange Commission approved the definitive Schedule 14C Information
Statement on February 13, 2001. The Merger was finalized on March 6, 2001.
VALCOM'S CORPORATE STRUCTURE
==============================
As of September 30, 2005, ValCom, Inc. had four subsidiaries:
Valencia Entertainment International, LLC, a California limited liability
company; Half Day Video, Inc., a California corporation; 80% equity in
ValCom Studios, Inc. a Nevada Corporation and 45% equity interest in ValCom
Broadcasting, LLC, a New York limited liability company, which operates KVPS
(Channel 8), an independent broadcaster. Unless the context requires
otherwise, the term "Company" includes ValCom, Inc., a publicly held
Delaware corporation and, its subsidiaries, predecessors and affiliates
whose operations or assets have been taken over by ValCom, Inc.
The Company is a diversified entertainment company with the following
operating activities:
a) Studio rental - ValCom's business includes television production
for network and syndication programming, motion pictures, and real estate
holdings, however, revenue is primarily generated through the lease of
the sound stages and production. ValCom's past and present clients in
addition to Paramount Pictures and Don Belisarious Productions, include
Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox,
Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing
its sound stages, ValCom also owns a small library of television content,
which is ready for worldwide distribution and several major television
series in advanced stages of development. ValCom's Studio Division is
composed of two properties: 920 South Commerce which is leased and 41 North
Mojave in which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000
square feet of commercial space, giving ValCom a total of 9 sound stages and a
recording studio. Corporate offices are located at the Commerce Studios which
houses a state-of-the art production studio, broadcast facilities, recording
studios, production design construction, animation and post-production.
b) Studio equipment and rental - operating under the name Half Day Video,
Inc., the Company supplies and rents personnel, cameras and other production
equipment to various production companies on a short-term or long-term basis.
c) Film and TV production -The Company, in addition to producing its own
television and motion picture programming, has an exclusive facilities
agreement in place for productions in Los Angeles County for a three-year term
with Woody Fraser/Woody Fraser Productions.
d) Broadcast Television - The Company owns a 45% equity interest in ValCom
Broadcasting, LLC, a New York limited liability company, which operates KVPS
(Channel 8), an independent television broadcaster in the Palm Springs,
California market, which is strategically located in the middle of four major
markets including Los Angeles, Phoenix, Las Vegas and San Diego.
e) ValCom, Inc. signed a letter of intent to acquire Digital Animation
Media, Ltd., a privately held Irish corporation headquartered in Dublin,
Ireland. Digital Animation Media, Ltd., is of the premier independent
animation companies in Europe and a leading provider of animation software to
other production companies worldwide. With its production capability and
proprietary technology, the company is well positioned to take advantage of the
growth in existing animation markets as well as a burgeoning market for
wireless animation tools and content with clients such as Disney, Warner and
The New Zoo Revue.
BUSINESS OVERVIEW
==================
We are a diversified entertainment company with the following
operating activities:
1. STUDIO RENTAL.
Valencia Entertainment International, LLC, recently emerged from Chapter
11 bankruptcy after selling property per a court order. On April 7, 2003,
Valencia Entertainment International LLC filed on an emergency basis a
voluntary Chapter 11 bankruptcy petition. Throughout the pendency of this
case, we have worked with our two real estate secured lenders, Finance
Unlimited, LLC and Laurus Master Fund, Limited on the details of cash
collateral stipulation. An order approving a global interim cash collateral
stipulation with Finance Unlimited and Laurus was entered on August 26,
2003. This stipulation permitted the Company's use of the lenders' cash
collateral through March 31, 2004. On January 15, 2004, the Court approved
two additional cash collateral stipulations, one each with Finance
Unlimited and Laurus, authorizing our continued use of cash collateral
through March 31, 2004 (Second Interim Stipulation). The Second Interim
Stipulation generally grants Finance Unlimited and Laurus relief from the
automatic bankruptcy stay effective March 31, 2004, and the right to hold
foreclosures sales on their real and personal property collateral as early
as April 1, 2004.
In May 2004, Laurus paid off Finance Unlimited and was subrogated to
Finance's $6,565,998 claim, which became included in the senior of Laurus'
two claims. Laurus then sought to conduct a non-judicial foreclosure sale of
the property, and we objected. The Bankruptcy Court issued an order on
June 3, 2004, that while Laurus could conduct a non-judicial foreclosure
sale of the property, Laurus would not be entitled to any deficiency claim
against either us or any other assets other than the property itself (and
the rents and leases appurtenant thereto).
On June 10, 2004, ValCom had the property sold. At this sale, Laurus claimed
that its senior note had a balance of $7,407,873 and its junior note a
balance of $2,405,093. Virtually all of the disputed penalties, along
with a disproportionate share of disputed legal fees and expenses, were
incorporated into the junior balance, while the senior included the
$6,565,998 million subrogated from the Finance claim. The sale was
conducted through the junior note, and the property was sold for $2.9
million to a third party.
An affiliate of this third party then purchased the senior note directly
from Laurus, without a second sale.
As a result of the Bankruptcy Court's order and the subsequent trustee's sale
of the property, we are not subject to any further liabilities on account of
the notes and deeds of trust previously held by Finance and Laurus. Even
though the senior note still technically exists, it has been rendered non-
recourse by the Bankruptcy Court's order, and could only be enforced against
the property itself (which no longer belongs to us). Any liability owed to
the third party, which purchased the property with regard to the rents
collected for June 2004, has been resolved by settlement with that party.
On August 3, 2004, the Bankruptcy Court granted the motion for dismissal
of Chapter 11 bankruptcy case against our subsidiary.
2. FILM, PRODUCTION DIVISION.
In addition to producing our own television and motion picture programming,
we have an exclusive three-year term facilities agreement in place for
productions in Los Angeles County with Woody Fraser of Woody Fraser
Productions A joint venture agreement was entered into between ValCom
Inc and Woody Fraser Productions and Woody Fraser on January 1, 2001.
According to the contract Woody Fraser Productions and Woody Fraser are
responsible for developing, selling and producing various Television and Film
series and the developing expenses are to be borne by ValCom Inc. The net
profit participation to be ValCom Inc 75% and WPF together with Fraser 25%.
The revenues for year ending Sept. 30, 2002 was around $7 million. The
revenues for year ending September 30, 2003 were negligible as Woody Fraser
was unable to obtain any production orders. The joint venture Agreement
between the parties was terminated on April 10, 2003 and was replaced by an
exclusive facilities agreement for productions in Los Angeles County for a
three-year term with Woody Fraser/Woody Fraser Productions. The future
outlook for this business is uncertain and will entirely depend on Woody
Fraser's ability to obtain production contracts.
3. ANIMATION DIVISION.
October 1, 2003, we formed New Zoo Revue LLC pursuant to a joint
venture agreement with O Atlas Enterprises Inc., a California corporation.
New Zoo Revue LLC was formed for the development and production of "New Zoo
Revue" a feature film and television series and marketing of existing
episodes. ValCom shall contribute all funding required for the development of
the above to a maximum of $1,000,000 and O Atlas shall contribute an
exclusive ten (10) year worldwide license in and to all rights, music and
characters as its equal contribution towards Capital. The net profit after
all expenses will be shared equally by ValCom Inc. and O Atlas. New Zoo
Review LLC is expected to generate revenue by 2005 and expected to grow based
on our ability to sell the TV Series of New Zoo Revue. The Company has
secured a seven year marketing contract with BCI Navarre, a video marketing
company.
On September 27, 2005,ValCom, Inc. signed a letter of intent to acquire Digital
Animation Media, Ltd., a privately held Irish corporation headquartered in
Dublin, Ireland. Digital Animation Media, Ltd., one of the premier independent
animation companies in Europe and a leading provider of animation software to
other production companies worldwide. With its production capability and
proprietary technology, the company is well positioned to take advantage of the
growth in existing animation markets as well as a burgeoning market for
wireless animation tools and content with clients such as Disney, Warner and
The New Zoo Revue.
4. BROADCAST TELEVISION.
The Company owns a 45% equity interest in ValCom Broadcasting, LLC, a New
York limited liability company, which operates KVPS (Channel 8), an
independent television broadcaster in the Palm Springs, California
market, which is strategically located in the middle of four major markets
including Los Angeles, Phoenix, Las Vegas and San Diego.
ValCom's business includes television production for network and
syndication programming, motion pictures, and real estate holdings,
however, revenue is primarily generated through the lease of the sound
stages and production. ValCom's past and present clients in addition to
Paramount Pictures and Don Belisarious Productions, include Warner
Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney,
CBS, Sony, Showtime, and the USA Network. In addition to leasing its
sound stages, ValCom also owns a small library of television content, which
is ready for worldwide distribution and several major television series in
advanced stages of development. ValCom's Studio Division is composed of two
properties: 920 South Commerce which is leased and 41 North Mojave which
ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of
commercial space, giving ValCom a total of 9 sound stages and a recording
studio. Corporate offices are located at the Commerce Studios which houses a
state-of-the art production studio, broadcast facilities, recording studios,
production design construction, animation and post-production.
EXPANSION PLANS
- ----------------
The Company continuously reviews industry developments and regulations
for potential expansion opportunities. As a public company, the Company
benefits from operating in highly regulated markets, which levels the
competitive playing field.
It is imperative that the Company continues to grow its operational
revenues. The Company has made a significant investment in assembling its
management team and operational infrastructure. This investment cost is now
relatively fixed, however, the Company has the potential to significantly
leverage its profitability through incremental revenue increases. The
Company will therefore continue to employ an aggressive yet methodical growth
strategy. It intends to make strategic expansions in markets with: (i)
accommodating regulations; (ii) favorable demographics; (iii) successful
operations management; and (iv) customer acceptance and patronization.
The Company intends to grow through both acquisitions and developments. It
uses extensive review procedures to evaluate expansion opportunities,
including market studies, legal evaluations, financial analyses and
operational reviews. The Company determines development budgets and
acquisition prices based on the proposed investment's expected financial
performance, competitive market position, risk profile and overall strategic
fit within the Company's operational plans. Acquisition terms typically
include cash payments, issuance of Company securities and seller-financed notes.
Consulting and non-competition agreements with the target companies' principals
may also be included.
The development of telecommunications, the emergence of new technology and
the international nature of the Internet has created opportunities to develop
new, efficient and secure ways to deliver entertainment to customers. As one
of the companies that plans to employ these new technologies on the
Internet, ValCom intends to capitalize on its expertise in the analysis of
consumer data and information to become a world leader in online
entertainment.
HALF DAY VIDEO, INC.
- -----------------------
On March 8, 2001, the Company executed a definitive agreement for the
purchase of 100% of the stock of Half Day Video, Inc. ("Half Day"). Half Day
specializes in supporting the entertainment industry with television and
film equipment rentals. Half Day's client list includes The Academy Awards,
Emmy Awards, NBC, Entertainment Tonight, MTV, Oscar Awards, General
Hospital and other major entertainment and production companies. Half Day
has approximately $50,000 in assets, not including depreciation, with current
revenues of $89.257.
JOINT VENTURE AGREEMENT WITH NEW GLOBAL COMMUNICATIONS, INC. - VALCOM
==============================================================================
BROADCASTING, LLC
- ------------------
In May 2002, the Company entered into a joint venture agreement with New
Global Communications, Inc. ("Global") whereby Global agreed to contribute
$500,000 to the joint venture in exchange for a 55% equity interest in a new
entity known as ValCom Broadcasting, LLC,a New York limited liability company,
and the Company would contribute certain fixed assets and manage the
operations of the joint venture for a 45% equity interest in ValCom
Broadcasting, LLC. The joint venture operates a newly developed low power
television broadcast station K08MX-LP in Indio-Palm Springs, California
operating on Channel 8. The Company believes that the investment in the joint
venture adds to the Company's infrastructure of becoming a full-service
television and motion picture company. The amount contributed to the joint
venture by Global will be used to purchase the license for the television
station from the licensee. The effectiveness of the joint venture agreement
was dependent on approval by the Federal Communications Commission (the"FCC").
On September 20, 2002, the FCC approved the transaction.
FILM ENTERTAINMENT OVERVIEW
=============================
Competition in the film entertainment business is diverse and fragmented,
with scores of companies operating at various levels of product budget nd
scope. The market is overwhelmingly dominated by the major Hollywood
studios, with the top-ranked company, Disney in 1999, usually commanding 15
to 20 percent of the domestic market share in any given year.
ValCom plans to succeed by choosing its projects and markets carefully,
and selecting segments and geographic areas where it can build proprietary
competitive advantages. With the proper positioning and segment focus,
the Company believes it can insulate itself from the brunt of competition
in the entertainment content business. Since the sector's revenues from
foreign markets are growing rapidly, a sound niche strategy should
ensure superior profitability.
INDEPENDENT PRODUCTION COMPANIES
==================================
Consolidation through acquisition has recently reduced the number of
independent production companies in operation. However, barriers to entry
remain relatively low, and management anticipates that the market segments in
which it intends to compete will remain highly competitive.
THE COMPANY'S COMPETITIVE POSITION
=====================================
The Company's operations are in competition with all aspects of the
entertainment industry, locally, nationally and worldwide.
ValCom experiences competition from three market segments:
1) Traditional television, game shows and reality television drama
2) Movies for television and theatrical releases
3) Other entertainment/media companies
OTHER ACTIVITIES
=================
INTERACTIVE TECHNOLOGY
=======================
The Company has experience in the interactive communications and
entertainment fields, which brings together elements of the "Information
Superhighway." It has created and broadcast interactive national and
international television programs using state-of-the-art computer
technology, proprietary software programs, satellite communications, and
advanced telecommunications systems.
The Company's management believes that its experience in developing
and delivering interactive television programs, as well as its ownership
of proprietary systems and software, enhances its ability to launch new
entertainment and information programs based on comparable resources.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
=================================================
The Company has two customers who accounted for approximately 99% of total
real estate rental revenues for the year ended September 30, 2004. As of
September 30, 2004, all sound and production stages in Valencia, California
were under non-cancelable operating leases for one year from two major
production companies. The Company's subsidiary, Half Day Video, Inc., does
not rely on a small group of customers. It may rent production equipment and
personnel to any motion picture studio or production company. The Company's
television broadcast operations do not rely on a small group of customers;
rather, any advertiser who wishes to advertise on Channel 8 in Indio-Palm
Springs, California may generate revenues.
EMPLOYEES
=========
As of September 30, 2005, the Company had 4 full-time employees, including two
officers and three professional staff.
No employee of the Company is represented by a labor union or is subject to
a collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
===================================
ValCom's business includes television production for network and
syndication programming, motion pictures, and real estate holdings,
however, revenue is primarily generated through the lease of the sound
stages and production. ValCom's past and present clients in addition to
Paramount Pictures and Don Belisarious Productions, include Warner
Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney,
CBS, Sony, Showtime, and the USA Network. In addition to leasing its
sound stages, ValCom also owns a small library of television content, which
is ready for worldwide distribution and several major television series in
advanced stages of development. ValCom's Studio Division is composed of two
properties: 920 South Commerce which is leased and 41 North Mojave which
ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of
commercial space, giving ValCom a total of 9 sound stages and a recording
studio. Corporate offices are located at the Commerce Studios which houses a
state-of-the art production studio, broadcast facilities, recording studios,
production design construction, animation and post-production.
PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, FRANCHISES, CONCESSIONS,
=======================================================================
ROYALTY AGREEMENTS OR LABOR CONTRACTS, INCLUDING DURATION
===============================================================
The Company has no patent rights. It has the following service marks:
SATELLITE BINGO:
- ----------------
International Class 41 (production and distribution of television game shows)
granted Registration Number 1,473,709 on January 19, 1988 to Satellite Bingo,
Inc. 20 years.
"HANGIN WITH THE BOYZ":
- --------------------------
International Class 25 (Clothing) and 41 (Production and distribution
of television game shows) application filed on March 1, 2000, Serial NO.
75/932,583,
"WHO CAN YOU TRUST?"
- -----------------------
Mark granted March 9, 1999 for 20 years International Class 41 (production
and distribution of television game shows) serial NO.75/485225,
"FUHGEDABOWDIT":
- ----------------
International Class 41 (production and distribution of television game
shows) Serial NO. 75/784,763 application filed on August 26, 1999.
"ULTIMATE DRIVER":
- -------------------
The Company applied for registration of copyright of "Ultimate Driver"
in October, 2002.
"FINAL ROUND" FIGHT FILM: registered under the Writer's Guild of America
(WGA). The Company applied for registration of copyright of "The Final
Round-The Gabriel Ruelas Story" on December 2, 2000.
The Company obtained an assignment to a copyright for "The Works,"
copyright registrations for Globalot Bingo and derivatives: Number PAU 855-
931 (June 10, 1986); Number Pau 847-876 (March 11, 1986); Number PAU 788-
031 (September 19, 1985); Number PAU 927-410 (November 4, 1986); Number
PA 370-721 (February 9, 1988); Number PA 516-494 (January 17, 1991);
Number PA 533-697 (January 17, 1991); from Satellite Bingo, Inc. to SBI
Communications, Inc., dated September 14, 1993.
The Company applied for registration of copyright of "The Final Round-
The Gabriel Ruelas Story" on December 2, 2000. The Company obtained an
assignment of copyright of "The Life", Txu 744-678 June 12, 1996. The
Company obtained a copyright by assignment of "PCH" Pau 2-040-426
September 12, 1995.
ITEM 3 - LEGAL PROCEEDINGS
==============================
On October 5, 2004, ValCom, Inc. and Valencia Entertainment International,
LLC, commenced a lawsuit in the Los Angeles Superior Court, State of
California, against Chicago Title Company and Laurus Master Fund, Ltd. The
suit seeks an accounting of the amount due in connection with a non-judicial
foreclosure of a deed of trust securing a promissory note executed by ValCom
and Valencia. It also alleges that Chicago Title breached its trustee's
duties and Laurus breached the terms of the promissory note and deed
of trust securing it. ValCom's attorney has expressed his belief that the
lawsuit it meritorious but at this stage in the proceeding, he is unable to
state how much, if any, will be recovered in the lawsuit.
Lloyd Kurtz
Pending or Threatened Litigation, Claims and Assessments by the prior
contractor for the renovations, at ValCom Studios in Nevada has been
replaced. Mr. Lloyd Kurtz filed suit on October 25, 2004 against ValCom,
Inc., A private Nevada Corporation which is 80% owned by ValCom, Inc. a
Delaware Corporation, ValCom, Inc. a Delaware Corporation and Vincent
Vellardita.The suit alleges a violation of Securities Act of 1933 and states
that Mr. Kurtz purchased 600,000 shares of ValCom - Delaware at $0.25 per
share and that the shares were not registered. He claims he is owed an
additional $303,000. Mr. Kurtz has filed a Mechanic's Lien for $303,000. A
motion to dismiss the claim of Mr. Kurtz has been filed. If the corporation
does not prevail on its Motions to Dismiss the corporation will file its
full defense and counterclaims which exceed the amount claimed by Mr. Kurtz.
Farkhanda Rana
On October 20, 2004 a shareholder of ValCom initiated a suit against the
Company and its President alleging violations of State and Federal
Securities Law along with Fraud and Breach of Contract. The lawsuit
captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince
Vellardita et al. were filed in Los Angeles Superior Court as Case Number
PC035673. On November 23, 2004 after a hearing the Plaintiff in this
matter obtained a pre-judgment writ of attachment against the Company
for $325,000.00. The case has been settled as of November 2005.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
=======================================================================
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;
PREFERRED
===============================================================================
STOCK
=====
At September 30, 2005, the Company had three series of convertible
preferred stock: B, C and D. Series B Preferred Stock has no voting rights, is
entitled to receive cumulative dividends in preference to any dividend on the
common stock at a rate of 10% per share, per year, to be issued if and when
declared by the Board of Directors and can be converted at any time into
common stock on a one for five basis. In the event of any liquidation, the
holders of shares of Series B Preferred Stock then outstanding shall be
entitled to receive an amount equal to the purchase price per share, plus an
amount equal to declared but unpaid dividends thereon, if any, to the date of
payment. Series C Preferred Stock has no voting rights, is entitled to receive
cumulative dividends in preference to any dividend on the common stock at a
rate of 10% per share, per year, to be issued if and when declared by the Board
of Directors and can be converted at any time into common stock on a one
for one basis. In the event of any liquidation, the holders of shares of Series
C Preferred Stock then outstanding shall be entitled to receive an amount equal
to the purchase price per share, plus an amount equal to declared but unpaid
dividends thereon, if any, to the date of payment. Series D Preferred Stock has
no voting rights, no dividends and can be converted at any time to common
stock on a one for one basis. In the event of any liquidation, the holder of
shares of Series C Preferred Stock then outstanding shall be entitled to
receive an amount equal to the purchase price per share. With respect to
rights on liquidation, Series B, C and D Preferred Stock shall rank senior to
the common stock but Series C Preferred Stock shall be senior to both Series B
and D Preferred Stock while Series D Preferred Stock shall be junior to both
Series B and C Preferred Stock. The Board of Directors has not declared any
dividends for any of the series of convertible preferred stock.
MARKET FOR COMMON EQUITY
- ---------------------------
The Company's common stock is traded on the NASD Over-the-Counter Electronic
Bulletin Board under the symbol of VACM. As of January 13, 2006, the Company
had 44,000,000 shares of common stock outstanding, with approximately 9,500,000
in the public float and approximately 3,200 shareholders of record. For the
fiscal year ended September 30, 2004, the Company reported revenues of
$1,953,480 and a net loss of $5,929,714. The Company's trading symbol
on the Frankfurt XETRA is "VAM" and its security code is #940589. No common
equity is subject to options or warrants to purchase or securities convertible
into common stock, except for the currently issued 4,479,999 shares of
preferred stock which are convertible into common stock and 1,733,333 warrants
to purchase common stock. In addition to this, Laurus Master Fund (see note 5
below) has an option to convert unpaid principle and interest into shares. Due
to bankruptcy proceedings, they cannot convert any amount of interest and
principle into Common Stock. The following table sets forth in United States
dollars the high and low bid and ask quotations for the Company's common stock
for each quarter within the last two fiscal years. Such bid and ask
quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and do not necessarily represent actual transactions. The
source of the following information is the NASD Over-the-Counter Electronic
Bulletin Board.
Common Stock
Date Bid Ask
- ------ ----- -----
Low High Low High
------ ------- ------ -------
2005
====
First Quarter $ [___] $ [___] $ [___] $ [___]
------ ------- ------ -------
Second Quarter $ [___] $ [___] $ [___] $ [___]
------ ------- ------ -------
Third Quarter $ [___] $ [___] $ [___] $ [___]
------ ------- ------ -------
Fourth Quarter $ [___] $ [___] $ [___] $ [___]
------ ------- ------ -------
2004
=====
First Quarter $0.340 $ 0.420 $0.480 $ 0.500
------ ------- ------ -------
Second Quarter $0.330 $ 0.340 $0.400 $ 0.410
------ ------- ------ -------
Third Quarter $0.090 $ 0.140 $0.300 $ 0.320
------ ------- ------ -------
Fourth Quarter $0.200 $ 0.220 $0.220 $ 0.260
- --------------- ------ ------- ------ -------
Prices quoted reflect a one share-for-twenty reverse split effective on
February 1, 1993, a two share-for-one forward split effective on August 14,
2000 and a one share-for-ten reverse split effective on September 27,
2001.
DIVIDENDS
- ---------
There have been no cash dividends declared or paid since the inception of
the Company.
DESCRIPTION OF SECURITIES
- ---------------------------
GENERAL
The Company is authorized to issue 110,000,000 shares of capital
stock, 100,000,000 shares of which are designated as common stock, $0.001 par
value per share, and the balance of which are designated as preferred stock,
$0.001 par value per share.
As of September 30, 2005, approximately 41,000,000 shares of Common Stock were
outstanding and held of record by approximately 3,200 persons. In addition,
4,479,999 shares of preferred stock were outstanding, and held by
approximately ten (10) persons. Continental Stock Transfer & Trust Company,
17 Battery Place; New York, New York 10004, acts as transfer agent and
registrar for the Company's common and preferred stock.
EQUITY COMPENSATION PLAN
- --------------------------
The Company has a 2004 Employee Stock Compensation Plan (the "ESCP") to
enhance its ability to attract, retain and compensate experienced employees,
officers, directors and consultants. The effective date of the ESCP is January
10, 2004. A total of 2,000,000 shares of common stock were registered for
issuance under the ESCP on Form S-8 registration statement filed December 30,
2003. Pursuant to the ESCP, the Compensation Committee or the Board of
Directors may award registered shares of the Company's common stock to
employees, officers, directors or consultants for cash, property, services
rendered or other form of payment constituting lawful consideration. Plan
shares awarded for other than services rendered shall be sold at not less than
fair market value on the date of grant. During the fiscal year ended September
30, 2004, the Company issued an aggregate of 1,000,000 shares of registered
common stock to employees, officers, directors and consultants pursuant to
the ESCP for services rendered.
The following table shows information with respect to each equity compensation
plan under which our common stock is authorized for issuance as of the fiscal
year ended September 30, 2005.
EQUITY COMPENSATION PLAN INFORMATION
Plan category NUMBER OF WEIGHTED NUMBER OF SECURITIES
SECURITIES AVERAGE REMAINING AVAILABLE PLANS
TO BE ISSUED EXERCISE FOR FUTURE ISSUANCE
UPON PRICE OF UNDER EQUITY
EXERCISE OF OUTSTANDING COMPENSATION
OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
OPTIONS, WARRANTS AND REFLECTED IN
WARRANTS AND RIGHTS COLUMN (A)
RIGHTS
------------ ----------- ----------------------------
(A) (B) (C)
EQUITY COMPENSATION -0- -0- -0-
PLANS APPROVED BY
SECURITY HOLDERS
EQUITY COMPENSATION -0- -0- -0-
PLANS NOT APPROVED BY
SECURITY HOLDERS
------------ ----------- ----------------------------
TOTAL -0- -0- -0-
------------ ----------- ----------------------------
RECENT ISSUANCES OF UNREGISTERED SECURITIES
- -----------------------------------------------
(B) COMMON STOCK
- ------------------
The value of the development costs totaled approximately $266,500, which
was computed based upon the market prices of the common stock on the
applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 1,900,000 shares
of common stock in lieu of compensation consultancy services performed
and compensation. The value of the services performed totaled approximately
$797,600, which was computed based upon the market prices of the common
stock on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 30,000 shares of
common stock to a director in lieu of an interest payment of $3,000, which was
computed based upon the market price of common stock at the applicable
payment date.
Fiscal Year ended September 30, 2004, the Company issued 500,000 shares
of common stock to a director in lieu for compensation valued at $95,000
and principal loan repayment for $50,000, which was computed based upon the
market price of common stock at the applicable payment date.
Fiscal Year ended September 30, 2004, the Company issued 250,000 shares
of common stock to a director in lieu of services valued at $ 35,000, which
was computed based upon the market price of common stock at the applicable
payment date.
Fiscal Year ended September 30, 2004, the Company issued 300,000 shares
of common stock to a director in lieu of retirement of a loan which was
computed based upon the market prices of common stock on the applicable
payment dates.
Fiscal Year ended September 30, 2004, the Company issued an aggregate of
315,750 shares of common stock in lieu of compensation, salaries and
bonuses to employees. Total value of the compensation, salaries and
bonuses was approximately $121,458, which was computed based upon the market
prices of the common stock on the applicable payment dates. This issuance of
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
Fiscal Year ended September 30, 2004, the Company issued 600,000 shares
of common stock in exchange for 600,000 shares of series C preferred
convertible on a one on one basis and retired 110,000 to treasury as
part of settlement agreement.
Fiscal Year ended September 30, 2004, the Company issued 1,344,667 shares
of common stock for options exercised amounting to $ 282,000.
Fiscal Year ended September 30, 2004, the Company issued 2,792,468 shares
of common stock to individuals through a Private Placement Memorandum
for $1,024,000.
Fiscal Year ended September 30, 2004, the Company issued 975,000 shares
of common stock in lieu of compensation for legal and consulting services
performed. The value of the legal and consulting services performed totaled
approximately $140,376, which was computed based upon the market prices of the
common stock on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 597,500 shares
of common stock in lieu of compensation, salaries and bonuses to employees.
Total value of the compensation, salaries and bonuses was approximately
$54,475, which was computed based upon the market prices of the common stock
on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 26,400 shares of
common stock in lieu of debt retirement. Total value of the debt
retired was approximately $3,870, which was computed based upon the market
prices of the common stock issued on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 1,000,000 shares
of common stock in lieu of compensation, salaries and bonuses to an officer.
Total value of the compensation, salaries and bonuses was approximately
$100,000, which was computed based upon the market prices of the common
stock on the applicable payment dates.
This issuance of shares was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended.
Fiscal Year ended September 30, 2004, the Company issued 16,400 shares of
common stock in lieu of compensation for consulting services performed.
The value of the legal and consulting services performed totaled approximately
$2,460., which was computed based upon the market prices of the common stock
on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 1,000,000 shares
of common stock in lieu of compensation, salaries and bonuses to an employee.
Total value of the compensation, salaries and bonuses was approximately
$100,000, which was computed based upon the market prices of the common
stock on the applicable payment dates. This issuance of shares was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.
Fiscal Year ended September 30, 2004, the Company issued 300,000 shares
of preferred stock bearing interest of 8% for one year to be paid quarterly
to an individual through a Private Placement Memorandum for $30,000.
Fiscal Year ended September 30, 2004, the Company issued 600,000 shares
of common stock to an individual through a Private Placement Memorandum
for $150,000.
Fiscal Year ended September 30, 2004, the Company issued 50,000 shares of
common stock in lieu of compensation, salaries and bonuses to an officer.
Total value of the compensation, salaries and bonuses was approximately
$10,000, which was computed based upon the market prices of the common stock
on the applicable payment dates. This issuance of shares was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
Fiscal Year ended September 30, 2004, the Company issued 11,000 shares of
common stock in lieu of compensation, salaries and bonuses to employees.
Total value of the compensation, salaries and bonuses was approximately
$1,100, which was computed based upon the market prices of the common stock
on the applicable payment dates. This issuance of shares was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
Fiscal Year ended September 30, 2004, the Company issued 41,667 shares
of preferred stock bearing interest of 8% for one year to be paid quarterly
to an individual through a Private Placement Memorandum for $5,000.
Fiscal Year ended September 30, 2004, the Company issued 760,000 shares
of common stock in lieu of debt retirement. Total value of the debt retired
was approximately $95,000, which was computed based upon the market prices
of the common stock issued on the applicable payment dates.
Fiscal Year ended September 30, 2004, the Company issued 295,750 shares
of preferred stock bearing interest of 8% for one year to be paid
quarterly to individuals through a Private Placement Memorandum for
$39,090.
Fiscal Year ended September 30, 2004, the Company on September 16, 2004
filed with the Security and Exchange Commission a Form SB-2. The prospectus
relates to the resale by certain selling stockholders of up to 15,199,661
shares of common stock of ValCom, Inc. issuable to the selling
stockholders:
- - up to 13,574,661 shares of common stock issuable to certain
selling stockholders upon the conversion of principal and interest, or in
payment of interest, under 8% Callable Secured Convertible Notes; and
- - up to 1,500,000 shares of common stock issuable to certain selling
stockholders assuming the exercise of outstanding common share purchase
warrants.
- - up to 125,000 shares of common stock.
The selling stockholders may offer to sell the shares of common stock
being offered in this prospectus at fixed prices, at prevailing market prices
at the time of sale, at varying prices or at negotiated prices. We will not
receive any proceeds from the resale of shares of our common stock
by the selling stockholders.
We have issued 8% Callable Secured Convertible Notes and share
purchase warrants, and our obligations under the 8% Callable Secured
Convertible Notes and the warrants pose risks to the price of our common
stock and our continuing operations.
We have executed an agreement for the issuance of 8% Callable
Secured Convertible Notes, in the aggregate principal amount of
$750,000. The 8% Callable Secured Convertible Notes provide that in
certain circumstances the holder of the debentures may convert the
outstanding principal and accrued interest, into shares of our common stock.
The purchasers of the discounted 8% Callable Secured Convertible Notes and
8% Callable Secured Convertible Notes also hold an aggregate of 750,000
warrants. The terms and conditions of the 8% Callable Secured Convertible
Notes and the warrants pose unique and special risks to our continuing
operations and the price of our common stock.
There are a large number of shares underlying our 8% Callable Secured
Convertible Notes, and warrants that may be available for future sale and
the sale of these shares may depress the market price of our common
stock.
As of August 26, 2004, we had 26,611,928 shares of common stock issued
and outstanding and an obligation to reserve 13,574,661 issuable upon
conversion of the Notes at current market prices. In addition, we have
outstanding options and warrants to purchase 300,000 shares of common stock
through June 30, 2004. In addition, the number of shares of common stock
issuable upon conversion of the outstanding 8% Callable Secured Convertible
Notes may increase if the market price of our stock declines. All of the
shares, including all of the shares issuable upon conversion of the
debentures and upon exercise of our warrants, may be sold without
restriction. The sale of these shares may adversely affect the market price
of our common stock.
The continuously adjustable conversion price feature of our 8% Callable
Secured Convertible Notes could require us to issue a substantially greater
number of shares, which will cause dilution to our existing stockholders.
Our obligation to issue shares upon conversion of our convertible securities
is essentially limitless.
The following is an example of the amount of shares of our common stock that
are issuable, upon conversion of our 8% Callable Secured Convertible Notes,
based on market prices 25%, 50% and 75% below the market price, as of
January 13, 2005 of $0.21.
% Below Price Per Discount Number of Shares Percentage of
Market Share of 35% Issuable Outstanding stock
- ------- --------- -------- ---------------- -----------------
25% $ 0.1575 $ 0.1024 7,324,218 21.58%
- ------- --------- -------- ---------------- -----------------
50% $ 0.1050 $ 0.0683 10,980,966 29.21%
- ------- --------- -------- ---------------- -----------------
75% $ 0.0525 $ 0.0341 21,994,134 65.82%
- ------- --------- -------- ---------------- -----------------
As illustrated, the number of shares of common stock issuable upon
conversion of our 8% Callable Secured Convertible Notes will increase if the
market price of our stock declines, which will cause dilution to our existing
stockholders.
The continuously adjustable conversion price feature of our 8% Callable
Secured Convertible Notes may encourage investors to make short sales in
our common stock, which could have a depressive effect on the price of our
common stock. The 8% Callable Secured Convertible Notes are convertible
into shares of our common stock at a 35% discount to the trading price of the
common stock prior to the conversion. The significant downward pressure on
the price of the common stock as the selling stockholder converts and sells
material amounts of common stock could encourage short sales by investors.
This could place further downward pressure on the price of the common stock.
The selling stockholder could sell common stock into the market in
anticipation of covering the short sale by converting their securities,
which could cause the further downward pressure on the stock price. In
addition, not only the sale of shares issued upon conversion or exercise of
debentures, warrants and options, but also the mere perception that these
sales could occur, may adversely affect the market price of the common stock.
The issuance of shares upon conversion of the 8% Callable Secured
Convertible Notes and exercise of outstanding warrants may cause immediate
and substantial dilution to our existing stockholders.
The issuance of shares upon conversion of the 8% Callable Secured
Convertible Notes and exercise of warrants may result in substantial
dilution to the interests of other stockholders since the selling
stockholders may ultimately convert and sell the full amount issuable on
conversion. Although the selling stockholders may not convert their 8%
Callable Secured Convertible Notes and/or exercise their warrants if such
conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and
then converting the rest of their holdings. In this way, the selling
stockholders could sell more than this limit while never holding more than
this limit.
There is no upper limit on the number of shares that may be issued which
will have the effect of further diluting the proportionate equity interest
and voting power of holders of our common stock, including investors in
this offering. If we are required for any reason to repay our outstanding 8%
Callable Secured Convertible Notes, we would be required to deplete our
working capital, if available, or raise additional funds. Our failure to
repay the 8% Callable Secured Convertible Notes, if required, could result in
legal action against us, which could require the sale of substantial assets.
In August 2004, we entered into a Securities Purchase Agreement for the sale
of an aggregate of $750,000 principal amount of 8% Callable Secured
Convertible Notes. The 8% Callable Secured Convertible Notes are due and
payable, with 8% interest, two years from the date of issuance, unless
sooner converted into shares of our common stock. Although we currently
have $250,000 8% Callable Secured Convertible Notes outstanding, the
investor is obligated to purchase additional 8% Callable Secured Convertible
Notes in the aggregate of $500,000. In addition, any event of default as
described in the 8% Callable Secured Convertible Notes could require the
early repayment of the 8% Callable Secured Convertible Notes, including a
default interest rate of 15% on the outstanding principal balance of the
debentures if the default is not cured with the specified grace period.
We anticipate that the full amount of the 8% Callable Secured Convertible
Notes, together with accrued interest, will be converted into shares of our
common stock, in accordance with the terms of the 8% Callable
Secured Convertible Notes. If we are required to repay the 8% Callable
Secured Convertible Notes, we would be required to use our limited working
capital and raise additional funds. If we were unable to repay the
debentures when required, the debenture holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due.
Any such action would require us to curtail or cease operations. This SB-2
filing is not effective as of this filing date.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
============================================================================
INTRODUCTION
PLAN OF OPERATION
As of September 30, 2005, ValCom, Inc. operations were comprised of
the following divisions:
1. Studio Division
2. Rental Division
3. Broadcast Television
4. Film and Television Production; and
5. Animation Division.
RENTAL
ValCom's business includes television production for network and
syndication programming, motion pictures, and real estate holdings,
however, revenue is primarily generated through the lease of the sound
stages and production. ValCom's past and present clients in addition to
Paramount Pictures and Don Belisarious Productions, include Warner
Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney,
CBS, Sony, Showtime, and the USA Network. In addition to leasing its
sound stages, ValCom also owns a small library of television content, which
is ready for worldwide distribution and several major television series in
advanced stages of development. ValCom's Studio Division is composed of two
properties: 920 South Commerce which is leased and 41 North Mojave which
ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of
commercial space, giving ValCom a total of 9 sound stages and a recording
studio. Corporate offices are located at the Commerce Studios which houses a
state-of-the art production studio, broadcast facilities, recording studios,
production design construction, animation and post-production.
TELEVISION, FILM, & ANIMATION PRODUCTION
WOODY FRASER PRODUCTIONS
In addition to producing our own television and motion picture programming,
we have an exclusive facilities agreement in place for productions in Los
Angeles County fora three-year term with Woody Fraser/Woody Fraser Productions.
A joint venture agreement was entered into between ValCom Inc and Woody
Fraser Productions and Woody Fraser on January 1, 2001. According to the
contract Woody Fraser Productions and Woody Fraser are responsible for
developing, selling and producing various Television and Film series and the
developing expenses are to be borne by ValCom Inc. The net profit participation
to be ValCom Inc 75% and WPF together with Fraser 25%. The revenues for year
ending September 30, 2005 were around $7,000.
The revenues for year ending Sep 30, 2002 were around $7 million. The revenues
for year ending September 30, 2003 were negligible as Woody Fraser was unable
to obtain any production orders. The joint venture Agreement between the
parties was terminated on April 10, 2003 and was replaced by an exclusive
facilities agreement for productions in Los Angeles County for a three-year
term with Woody Fraser/Woody Fraser Productions. The future outlook for this
business is uncertain and will entirely depend on Woody Fraser's ability
to obtain production contracts.
October 1, 2003, we formed New Zoo Revue LLC pursuant to a joint venture
agreement with O Atlas Enterprises Inc.,a California corporation. New Zoo Revue
LLC was formed for the development and production of "New Zoo Revue" a feature
film and television series and marketing of existing episodes. ValCom shall
contribute all funding required for the development of the above to a maximum
of $1,000,000 and O Atlas shall contribute an exclusive ten (10) year
worldwide license in and to all rights, music and characters as its equal
contribution towards Capital. The net profit after all expenses will be shared
equally by ValCom Inc. and O Atlas. New Zoo Review LLC is expected to generate
revenue by 2005 and expected to grow based on our ability to sell the TV Series
of New Zoo Revue.
CHANNEL 8 IN PALM SPRINGS, CALIFORNIA
In connection with our joint venture with New Global Communications, Inc.,
we own a 45% equity interest in ValCom Broadcasting, LLC, a New York
limited liability company, which operates KVPS (Channel 8), an independent
television broadcaster in the Palm Springs, California market.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30,
===============================================================================
2003 [NEEDS TO BE UPDATED FOR 2005 V. 2004]
====
Revenues for the year ended September 30, 2005 decreased from to $1,953,480
for the same period in 2004 to $930,108 for the year ended September 30, 2004.
The decrease in revenue was principally due to decreased production revenues
associated with the joint venture with Woody Fraser Productions and decreased
rental revenues.
Production costs for the year ended September 30, 2005 decreased from $151,040
for the year ended September 30, 2003 to $151,048 for the same period in 2004.
The decrease in production costs was principally due to decreased production
associates with Woody Fraser Productions as described above.
Selling and promotion costs for the year ended September 30, 2004 increased by
$55,554 or 268% from $20,745 for the same period in 2004 to $43,--- for
the year ended September 30, 2005. The decrease was due principally to a
decrease in travel and public relations expenses.
Depreciation and amortization expense for the year ended September 30, 2005
increased from $665,525 for the year ended September 30, 2004 to $192,001 for
the same period in 2005. The decrease in depreciation and amortization expense
was due to decreased amortization related to the write off of prepaid loan fees
in the prior year period. General and administrative expenses for the year
ended September 30, 2005 increased from $5,059,272 for the year ended September
30, 2004 to $955,690 for the same period in 2005. The decrease was due
principally to decreased personnel costs, outside services, utilities,
settlement fees, and goodwill impairment. Consulting and professional fees for
the year ended September 30, 2005 from $12,--- for the year ended September
30, 2004 to $1,301,907 for the same period in 2004. The decrease in consulting
and professional fees was principally due to decreased consulting fees
partially offset by an increase in legal and accounting costs.
Bad debt expense for the year ended September 30, 2005 increased by $59,293 or
100% for the year ended September 30, 2004 to$0.00 for the same period in 2004.
Interest expense for the year ended September 30, 2005 decreased from a
negative of $854,161 for the year ended September 30, 2004 to negative of
$51,562 for the same period in 2004. The decrease was due principally to
the conversion convertible debt in the prior year period.
Due to the factors described above, the Company's net loss decreased by
$3,499,555 from a loss of $5,929,714 for the year ended September 30, 2004 to a
loss of $1,820,041 for the same period in 20054
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
- -----------------------------------------------------------
See Notes to Consolidated Financial Statements in Part F/S for a description
of the Company's calculation of earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the
consolidated financial statements, the Company has a net loss of $5,929,714
and cash flow from operations of $5,268,905 for the year ended September
30, 2004, and an accumulated deficit of $8,658,671 at September 30, 2004.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Cash totaled $21,468 on September 30, 2004,
compared to $211,682 at September 30, 2003. During the fiscal year 2004,
net cash used by operating activities totaled $5,268,905 compared to a
negative cash flow of $300,582 for the year ended September 30, 2003. A
significant portion of operating activities included payments for accounting
and legal fees, consulting fees, salaries, and rent. Net cash used by
financing activities for fiscal year 2004 totaled $3,807,194 compared to cash
provided of $16,067 for the year ended September 30, 2003. Net cash provided by
investing activities during fiscal year 2004 totaled $1,404,839 compared to
of $184,395 during the year ended September 30, 2003, for proceeds from sales
of fixed assets and decreased expenditures for the purchase of equipment.
The above cash flow activities yielded a net cash increase of $56,872
during fiscal year 2004 compared to a decrease of $131,692 during the year
ended September 30, 2003.
Net working capital (current assets less current liabilities) was a negative
$991,566 as of September 30, 2004. During the twelve months ended September 30,
2004, the Company raised $1,411,273 from private placements of common stock.
The Company will need to continue to raise funds through various financings
to maintain its operations until such time as cash generatedby operations
is sufficient to meet its operating and capital requirements.
There can be no assurance that the Company will be able to raise such capital
on terms acceptable to the Company, if at all.
Total shareholders' equity decreased to $120,048 in fiscal year 2004.
Additional paid in capital decreased to $8,746,116 in fiscal year ended
September 30, 2004.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
During the last fiscal year, the Company financed its operations with cash
from its operating activities and through sales of equipment and private
offerings of its securities to a director of the Company.
The Company anticipates that its stock issuances and projected positive
cash flow from operations collectively will generate sufficient funds for
the Company's operations for the next 12 months. If the Company's existing
cash combined with cash from operating activities is not adequate to finance
the Company's operations during the next 12 months, the Company will consider
one or more of the following options: (1) issuing equity securities in
exchange for services, (2) selling additional equity or debt securities or (3)
reducing the number of its employees.
FUTURE FUNDING REQUIREMENTS
The Company's capital requirements have been and will continue to be
significant. The Company's adequacy of available funds during the next
fiscal year and thereafter will depend on many factors, including whether the
Company will be able to: (1) retain its existing tenants (2) rent its
production equipment and personnel profitably, (3) develop additional
distribution channels for its programming. Assuming funds are available,
during the next fiscal year, the Company expects to spend approximately
$400,000 for plant and equipment. There can be no assurance that additional
private or public financing, including debt or equity financing, will be
available as needed, or, if available, on terms favorable to the Company. Any
additional equity financing may be dilutive to stockholders and such
additional equity securities may have rights, preferences or privileges
that are senior to those of the Company's existing common or preferred
stock. Furthermore, debt financing, if available, will require payment of
interest and may involve restrictive covenants that could impose limitations
on the operating flexibility of the Company. The Company's failure to
successfully obtain additional future funding may jeopardize its ability to
continue its business and operations.
ITEM 7. FINANCIAL STATEMENTS AND SUMMARY FINANCIAL DATA
==============================================================
FINANCIAL STATEMENTS
====================
The audited consolidated balance sheet of the Company as of September 30,
2005 and the related consolidated statements of operations, stockholder's
equity and cash flows for the years ended September 30, 2005 and 2004
are submitted herewith.
CONTENTS OF REPORT
Independent Auditors' Reports F-1
Consolidated Balance Sheets F-2/F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders Equity F-5/F-6
Consolidated Statements of Cash Flow F-7
Notes to Consolidated Financial Statements F-8/F-17
VALCOM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
As of As of
Setpember 30, September 30,
2005 2004
------------ -------------
CURRENT ASSETS
Cash $ 276,280 $ 21,468
Accounts receivable, net 87,620 28,767
Production in progress - 91,201
------------ -------------
Total Current Assets 363,899 141,436
NET PROPERTY & EQUIPMENT 95,422 3,539,513
OTHER ASSETS
Deposits 8,350 40,631
Other assets 1,150,000 -
------------ -------------
Total Other Assets 1,158,350 40,631
------------ -------------
TOTAL ASSETS $ 1,617,672 $ 3,721,580
============ =============
F-2
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 525,478 $ 342,116
Accrued interest 33,370 100,796
Accrued expenses 20,000 53,138
Deferred Income 120,000
Due to related parties 267,955 100,000
Notes payable 416,480 386,952
------------ -------------
Total Current Liabilities 1,383,284 983,002
LIABILITIES SUBJECT TO COMPROMISE
Mortgage payable - 2,400,000
Long term loans - 68,530
------------ -------------
Total Liabilities - 2,468,530
TOTAL LIABILITIES 1,383,284 3,451,532
STOCKHOLDERS' EQUITY
Convertible preferred stock: all
with par value of $0.001; shares
authorized and outstanding as of
September 30, 2005 and 2004 are
as follow:
Series B, 1,000,000 shares
authorized; 38,000 shares issued
and outstanding. 38 38
Series C, 5,000,000 shares
authorized; 4,479,999 and 480,000
shares issued and outstanding as
of September 30, 2005 and 2004,
respectively. 6,517 4,480
Sereis D, 1,250,000 shares
authorized; -0- and 1,250,000
shares issued and outstanding as
of September 30, 2005 and 2004,
respectively.
Common stock ($0.001 par value,
100,000,000 shares authorized;
41,746,935 and 28,119,449 shares
issued and outstanding as of
September 30, 2005 and 2004,
respectively) 41,884 28,120
Treasury stock (35) (35)
Minority Interest - (133,342)
Additional paid-in capital 10,531,335 8,896,116
Retained (deficit) (10,345,312) (8,525,329)
------------ -------------
Total Stockholders' Equity 234,389 270,049
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 1,617,672 $ 3,721,580
============ =============
See accompanying notes to financial statements.
F-3
VALCOM, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended Year Ended
September 30, September 30,
2005 2004
------------- ------------
REVENUES
Rental income $ 377,931 $ 1,856,834
Production income 548,582 90,353
Other income 3,594 6,293
------------- ------------
Total Revenues 930,108 1,953,480
COSTS AND EXPENSES
Production 430,082 151,048
Selling and promotion 35,645 76,299
Depreciation and amortization 92,001 665,525
General and administrative 955,690 5,059,272
Consulting and professional fees 1,301,907 1,292,439
Bad debts 59,293 -
------------- ------------
Total Costs and Expenses 2,874,618 7,244,582
------------- ------------
OPERATING LOSS (1,944,510) (5,291,102)
OTHER INCOME & (EXPENSES)
Interest expense (51,562) (854,161)
Gain on sale of assets 176,051 140,451
Interest Income - 7,936
Other income - 67,162
------------- ------------
Total Other Income & (Expenses) 124,489 (638,612)
------------- ------------
NET LOSS $ (1,820,021) $ (5,929,714)
============= ============
BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE
BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.27)
============= ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 36,257,129 21,913,888
============= ===========
See accompanying notes to financial statements.
F-4
VALCOM INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
From October 1, 2003 through September 30, 2005
Series C - Preferred Additional
Preferred Series B Preferred Series C Preferred Series D Stock to be issued Common Paid-in Treasury Retained
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Stock Earnings Total
------ ------ --------- ------ --------- ------ --------- ------ ---------- ------ ---------- -------- -------- -----
Balance
October 1, 2003 38,000 38 1,480,000 1,480 1,250,000 1,250 - - 12,925,833 12,926 13,108,874 - (10,423,007) 2,701,562
Intercompany transfer of
assets and discontinue
subsidiary *** (8,207,252) 7,827,392 (379,860)
Shares issued for services 9,248,617 9,849 2,230,574 2,240,423
Shares issued for
debt retirement 1,198,333 598 224,052 224,650
Private Placement Memorandum 4,746,666 4,747 1,406,526 1,411,273
Conversion of preferred stock 2,999,999 3,000 (1,250,000) (1,250) 1,750
Less treasury stock (35) (35)
Net Loss (5,929,714) (5,929,714)
------ ------ --------- ------ --------- ------ --------- ------ ---------- ------ ---------- -------- -------- -----
Balance
September 30, 2004 38,000 38 4,479,999 4,480 - - - - 28,119,449 28,120 8,762,774 (35) (8,525,329) 270,049
F-5
Shares issued for services 7,139,268 7,139 1,286,344 1,293,483
Private Placement Memorandum 6,125,000 6,125 348,875 355,000
Preferred stock issued for
cash, net 2,537,417 2,537 2,537
Conversion to common (500,000) (500) 500,000 500 -
Net Loss (1,820,021) (1,820,021)
------ ------ --------- ------ --------- ------ --------- ------- ---------- ------ ---------- -------- -------- -----
Balance
September 30, 2005 38,000 38 6,517,416 6,517 - - - - 41,883,717 41,884 10,397,993 (35) (10,345,350) 101,047
====== ====== ========= ====== ========= ====== ========= ======= ========== ====== ========== ======== ======== =====
See accompanying notes to financial statements.
F-6
VALCOM, INC.
Consolidated Statements of Cash Flows
Year Ended Year Ended
September 30, September 30,
2005 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,820,021) $ (5,929,714)
Adjustments to reconcile net loss to net
cash (used in) provided
by operating activities:
Depreciation expense 92,001 665,525
Beneficial interest - 290,599
Stock issued for compensation - 885,755
Stock issued for services 1,293,483 1,342,600
Investment write off - 189,392
Changes in operating assets and liabilities:
Receivables (58,853) 43,140
Production in Progress 91,201 (91,201)
Deposits 32,281 74,907
Deferred compensation - 258,680
Deferred interest - 153,060
Accounts payable and accrued expenses 82,798 (2,088,509)
------------- -------------
Net Cash Provided by (Used in)
Operating Activities (287,110) (4,205,766)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets 55,432 140,451
------------- -------------
Net Cash Provided by (Used in)
Investing Activities 55,432 140,451
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayment of notes payable - 2,468,530
Preferred stock issued for cash 2,537 1,750
Common tock issued for cash 355,000 1,411,273
Principal borrowings on notes (39,002) 52,768
Net borrowings from related parties 167,955 (59,220)
------------- -------------
Net Cash Provided by (Used in)
Financing Activities 486,490 3,875,101
------------- -------------
Net Increase (Decrease) in Cash 254,812 (190,214)
Cash at Beginning of Year 21,468 211,682
------------- -------------
Cash at End of Year $ 276,280 $ 21,468
============= =============
Supplemental Cash Flow Disclosures:
Cash paid during period for interest $ - $ 854,161
============= =============
Cash paid during period for taxes $ 800 $ 800
============= =============
See accompanying notes to financial statements.
F-7
VALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
NOTE 1. DESCRIPTION OF BUSINESS
=====================================================
ValCom's business includes television production for network and
syndication programming, motion pictures, and real estate holdings,
however, revenue is primarily generated through the lease of the sound
stages and production. ValCom's past and present clients in addition to
Paramount Pictures and Don Belisarious Productions, include Warner
Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney,
CBS, Sony, Showtime, and the USA Network. In addition to leasing its
sound stages, ValCom also owns a small library of television content, which
is ready for worldwide distribution and several major television series in
advanced stages of development. ValCom's Studio Division is composed of two
properties: 920 South Commerce which is leased and 41 North Mojave which
ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of
commercial space, giving ValCom a total of 9 sound stages and a recording
studio. Corporate offices are located at the Commerce Studios which houses a
state-of-the art production studio, broadcast facilities, recording studios,
production design construction, animation and post-production.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
=====================================================
Following is a summary of the significant accounting policies followed in the
preparation of these consolidated financial statements, which policies are in
accordance with accounting principles generally accepted in the United States
of America.
a. BASIS OF PRESENTATION
This summary of significant accounting policies of the Company is presented to
assist in understanding the consolidated financial statements. The consolidated
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
consolidated financial statements.
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valcom, Inc. and
four two wholly-owned subsidiaries, VEI, which was acquired effective February
2001, and Half Day Video, Inc., which was acquired effective March 2001. ValCom
Nevada which was acquired effective March 1, 2004, and New Zoo Revue which was
acquired effective October 2003. Investments in affiliated companies over which
the Company has a significant influence or ownership of more than 20% but less
than or equal to 50% are accounted for under the equity method.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
====================================================================
c. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
d. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the Company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying, as financial instruments are a reasonable estimate of fair value.
e. DEPRECIATION AND AMORTIZATION
For financial and reporting purposes, the Company follows the policy of
providing depreciation and amortization on the straight-line method over the
estimated useful lives of the assets, which are as follows:
Building 39 years
- ------------------------- ------------
Building Improvements 39 years
- ------------------------- ------------
Production Equipment 5 years
------------
Office Furniture & Equip. 5 to 7 years
------------
Leasehold Improvements 5 years
------------
Autos and Trucks 5 years
- ------------------------- ------------
f. RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to the
current year presentation.
g. INCOME TAXES
Deferred income tax assets or liabilities are computed based on the difference
between the financial reporting and income tax basis of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or benefits
are based on the changes in the asset or liability from period to period.
h. STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans using the
intrinsic value based method, under which compensation cost is measured as the
excess of the stock's market price at the grant date over the amount an
employee must pay to acquire the stock.
F-9
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
=====================================================================
i. REVENUE RECOGNITION
Revenues from studio and equipment rentals are recognized ratably over the
contract terms. Revenues from the production and licensing of television
programming are recognized when the films or series are available for telecast
and certain contractual terms of the related production and licensing
agreements have been met.
j. TREASURY STOCK
Treasury stock is accounted for by the cost method. Issuance of treasury
shares is accounted for on a first in, first-out basis. Differences between
the cost of treasury shares and the re-issuance proceeds are charged to
additional paid-in capital, if reissued. During July 2002, the Company
purchased 35,000 shares of its common stock at a total cost of $23,522. No
shares have been reissued as of September 30, 2005. In September 2004, the
Company retired these shares back into the treasury.
k. NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "{ellipsis} under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and re-handling costs may
be so abnormal as to require treatment as current period charges{ellipsis}"
This Statement requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of "so abnormal." In
addition, this Statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Shared-Based Payment ("SFAS 123R). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the
third quarter of fiscal year 2005. Currently, the Company accounts for its
share-based payment transactions under the provisions of APB 25, which does not
necessarily require the recognition of compensation cost in the financial
statements. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
F-10
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary transactions ("SFAS 153"). This statement amends
APB Opinion 29 to eliminate the exception for no monetary exchanges of similar
productive assets and replaces it with a general exception of exchanges of no
monetary assets that do not have commercial substance. Under SFAS 153, if a no
monetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for non-monetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
NOTE 3. PROPERTY AND EQUIPMENT
==================================
Property and equipment consists of the following at:
September September
30,2005 30, 2004
---------- ------------
Land $ - $1,940,000
Building - 1,226,146
Building Improvements 4,500 219,211
Production Equipment 68,708 68,708
Leasehold Improvements 62,677 62,677
Autos and Trucks 33,971 33,971
Office Furniture and Equipment 44,814 45,971
Video Equipment 181,877 279,021
---------- -----------
396,547 3,875,105
Less: accumulated depreciation 301,125 (335,592)
---------- -----------
Net book value . . . . . . . $ (95,422) $3,539,513
========== ===========
Depreciation expense for the years ended September 30, 2005 and 2004 was
$92,001 and $665,525, respectively.
NOTE 4. CONVERTIBLE NOTES PAYABLE
=================================
The following are convertible notes issued in 2004. All of these notes incur
interest at 8% per annum with different due dates. All related interest has
been accrued and reflected in the financial statements. Four of following eight
notes were converted common shares of the Company's stock subsequent to year-
end.
F-11
1. Richard Shintaku 30,000
--------
2. AJW Partner 40,000
--------
3. AJW Partner 85,000
--------
4. AJW Qualified 110,000
--------
5. AJW Off Shore 92,500
--------
6. Jeff Gleckman 11,500
--------
7. Condor Financial 39,980
--------
8. New Millenium Capital 7,500
--------
$416,480
========
NOTE 5. RELATED PARTY TRANSACTIONS
==================================
At September 30, 2004, related party payables represent $100,000 due to a
Director and Shareholder of the Company.
At September 30, 2005, related party payables represent $267,955 due to the
President of the Company for his salary and various advances to the Company.
NOTE 6. TREASURY STOCK
======================
Treasury stock is accounted for by the cost method. Issuance of treasury shares
is accounted for on a first-in, first-out basis. Differences between the cost
of treasury shares and the re-issuance proceeds are charged to additional paid-
in capital, if reissued.
NOTE 7. INCOME TAXES
====================
No provision for Federal and state income taxes has been recorded as the
Company has incurred net operating losses through September 30, 2005. At
September 30, 2005, the Company had approximately $10,345,350 of net operating
loss carry-forwards for Federal income tax reporting purposes available to
offset future taxable income. Such carry-forwards expire beginning in 2003.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating losses and capital losses carried forward may be impaired or limited
in certain circumstances. Events, which may cause limitations in the amount of
net operating losses that the Company may utilize in any one year, include, but
are not limited to, a cumulative ownership change of more than 50% over a
three-year period.
F-12
Deferred tax assets at September 30, 2005 consist primarily of the tax effect
of net operating loss carry-forwards, which amounted to approximately
$2,586,388. Other deferred tax assets and liabilities are not significant. The
Company has provided a full valuation allowance on the deferred tax assets at
September 30, 2005 to reduce such deferred income tax assets to zero, as it is
management's belief that realization of such amounts is not considered more
likely than not.
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Statement of
Operations:
September 30, 2005 September 30, 2004
------------------- ------------------
Tax expense (credit)
at statutory rate-federal (34)% (34)%
------------------- ------------------
State tax expense net of
federal tax (6) (6)
------------------- ------------------
Changes in valuation allowance 40 40
------------------- ------------------
Tax expense at actual rate - -
------------------- ------------------
The components of the net deferred tax asset are summarized below:
- ------------------------------------------------------------------
September 30, 2005 September 30, 2004
------------------- ------------------
Deferred tax asset
Net operating losses $ 2,586,338 2,131,768
------------------- ------------------
Less: valuation allowance (2,586,338) (2,131,768)
------------------- ------------------
$ -0- -0-
------------------- ------------------
NOTE 8. STOCKHOLDERS' EQUITY
============================
a. EQUITY INVESTMENT
- ---------------------
The Company accounts for its investments in companies over which the Company
has significant influence or ownership of more than 20% but less than or equal
to 50% under the equity method. The Company's 45% investment in a recently
acquired television station has been accounted for as an investment under the
equity method.
b. TREASURY STOCK
- -------------------
Treasury stock is accounted for by the cost method. Issuance of treasury shares
is accounted for on a first-in, first-out basis. Differences between the cost
of treasury shares and the re-issuance proceeds are charged to additional paid-
in capital, if reissued.
F-13
c. LOSS PER COMMON SHARE
- ----------------------------
Basic loss per common share is based on net loss divided by the weighted
average number of common shares outstanding. Common stock equivalents were not
included in the calculation of diluted loss per share as their effect would be
anti-dilutive.
NOTE 9. COMMITMENTS
======================
In May 2005, the Company leased facilities in Las Vegas Nevada. The lease has
a term of three years. Initial monthly base rent is $8,250 with no increases.
Rent expense for the year ended September 30, 2005 and 2004 were $159,905 and
$430,989, respectively.
Future Commitments:
1 $ 99,000
2 99,000
3 76,250
----------------
Total $272,250
================
NOTE 10. STOCK ACTIVITY
==========================
a. CONVERTIBLE PREFERRED STOCK
- -------------------------------
At September 30, 2005 and 2004, the Company had three series of convertible
Preferred Stock: B, C and D. Series B Preferred Stock has no voting rights, is
entitled to receive cumulative dividends in preference to any dividend on the
common stock at a rate of 10% per share, per year, to be issued if and when
declared by the Board of Directors and can be converted at any time into common
stock on a 1 for 5 basis. In the event of any liquidation, the holders of
shares of Series B Preferred Stock then outstanding shall be entitled to
receive an amount equal to the purchase price per share, plus an amount equal
to declared but unpaid dividends thereon, if any, to the date of payment.
Series C Preferred Stock has no voting rights, is entitled to receive
cumulative dividends in preference to any dividend on the common stock at a
rate of 10% per share, per year, to be issued if and when declared by the Board
of Directors and can be converted at any time into common stock on a 1 for 1
basis. In the event of any liquidation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to receive an amount equal
to the purchase price per share, plus an amount equal to declared but unpaid
dividends thereon, if any, to the date of payment. Series D Preferred Stock
has no voting rights, no dividends and can be converted at any time to common
stock on a 1 for 1 basis. In the event of any liquidation, the holders of
shares of Series C Preferred Stock then outstanding shall be entitled to
receive an amount equal to the purchase price per share.
F-14
With respect to rights on liquidation, Series B, C and D Preferred Stock shall
rank senior to the common stock but Series C Preferred Stock shall be senior to
both Series B and D Preferred Stock while Series D Preferred Stock shall be
junior to both Series B and C Preferred Stock. The Board of Directors declared
no dividends for any of the Series of convertible Preferred Stock during the
fiscal year ended September 30, 2005.
b) WARRANTS
- -------------
During the fiscal year ended September 30, 2003, the Company issued warrants to
purchase 2,083,334 shares of the Company's common stock to a director in
connection with services provided and to be provided to the company. The
weighted average exercise price for the warrants issued was $0.12, and all of
the warrants begin to expire in September 2005. No warrants were exercised for
the period ending September 30, 2005.
NOTE 11. STOCK COMPENSATION PLAN AND NON-QUALIFIED STOCK OPTIONS
================================================================
The Company has a 2001 Employee Stock Compensation Plan (the "ESCP") to enhance
its ability to attract, retain and compensate experienced employees, officers,
directors and consultants. The effective date of the ESCP is January 2001. A
total of 2,600,000 shares of common stock were registered for issuance under
the ESCP on three Form S-8 registration statements filed January 16, 2001,
March 26, 2001 and October 19, 2001. Pursuant to the ESCP, the Compensation
Committee or Board of Directors may award registered shares of the Company's
common stock to employees, officers, directors or consultants for cash,
property, services rendered or other form of payment constituting lawful
consideration. Plan shares awarded for other than services rendered shall be
sold at not less than the fair market value on the date of grant.
During the fiscal year ended September 30, 2005, the Company issued an
aggregate of 1,572,500 shares of registered common stock to employees,
officers, directors and consultants pursuant to the ESCP. The expense recorded
during fiscal year 2005 under the ESCP amounted to $151,722 and was based on
the closing trading price of the Company's common stock on the date granted.
NOTE 12. LITIGATION
====================
Vince please update.
On April 7, 2003, the Company filed on an emergency basis a voluntary Chapter
11 bankruptcy petition. The case is pending in the United States Bankruptcy
Court, Central District of California, San Fernando Valley Division, as Case
No. SV 03-12998-GM. As of December 31, 2003, the company was in compliance of
all its duties under the Bankruptcy Code and all applicable guidelines of the
Office of the United States Trustee.
F-15
The Company requires the use of its secured creditor's cash collateral to
operate. Throughout the pendency of this case, the Company has worked with its
two real estate secured lenders, Finance Unlimited, LLC and Laurus Master Fund,
Limited on the details of cash collateral stipulation. An order approving a
global interim cash collateral stipulation with Finance Unlimited and Laurus
was entered on August 26, 2003. This stipulation permitted the Company's use of
the lenders' cash collateral through December 31, 2003.
On January 15, 2004, the Court approved two additional cash collateral
stipulations, one each with Finance Unlimited and Laurus, authorizing the
Company's continued use of cash collateral through March 31, 2004 (Second
Interim Stipulation). The Second Interim Stipulation generally grant Finance
Unlimited and Laurus relief from the automatic bankruptcy stay effective March
31, 2004, and the right to hold foreclosures sales on their real and personal
property collateral as early as April 1, 2004.
On June 26, 2003, the Company filed within its bankruptcy case an adversary
complaint against six creditors for injunctive relief and to extend the
protections of the automatic stay arising under section 362 of Bankruptcy Code.
Through this action, the Company seeks to bar temporarily the defendant
creditors from attempting to collect on their allowed claims from the Company's
key personnel.
BANKRUPTCY DISMISSAL
=====================
VEI filed a voluntary chapter 11 bankruptcy petition on April 7, 2003 and
obtained the status of Debtor in Possession. After successfully settling the
debts owed to secured creditors through sale of property as per court order
dated June 3,2004 VEI applied to the United States Bankruptcy Court, Central
District of California, San Fernando Valley Division for a Motion to dismiss
Chapter 11 Bankruptcy case ("the Motion"). The Court on August 3, 2004, having
considered the Motion and pleadings filed in support thereof, having heard
argument of counsel, finding that notice was proper, and for good cause
appearing therefore, ordered (1) The Motion granted (2) Debtor's Chapter 11
bankruptcy case dismissed.
On October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC,
commenced a lawsuit in the Los Angeles Superior Court, State of California,
against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an
accounting of the amount due in connection with a non-judicial foreclosure of a
deed of trust securing a promissory note executed by Valcom and Valencia. It
also alleges that Chicago Title breached its trustee's duties and Laurus
breached the terms of the promissory note and deed of trust securing it.
ValCom's attorney has expressed his belief that the lawsuit it meritorious but
at this stage in the proceeding, he is unable to state how much, if any, will
be recovered in the lawsuit.
F-16
Lloyd Kurtz
Pending or Threatened Litigation, Claims and Assessments by the prior
contractor for the renovations, at Valcom Studios in Nevada has been replaced.
Mr. Lloyd Kurtz filed suit on October 25, 2004 against Valcom, Inc., A private
Nevada Corporation which is 80% owned by Valcom, Inc. a Delaware Corporation,
Valcom, Inc. a Delaware Corporation and Vincent Vellardita. The suit alleges a
violation of Securities Act of 1933 and states that Mr. Kurtz purchased 600,000
shares of Valcom - Delaware at $0.25 per share and that the shares were not
registered. He claims he is owed an additional $303,000. Mr. Kurtz has filed a
Mechanic's Lien for $303,000. A motion to dismiss the claim of Mr. Kurtz has
been filed. If the corporation does not prevail on its Motions to Dismiss the
corporation will file its full defense and counterclaims which exceed the
amount claimed by Mr. Kurtz.
Farkhanda Rana
On October 20, 2004 a shareholder of Valcom initiated a suit against the
Company and its President alleging violations of State and Federal Securities
Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda
Rana vs. Valcom, Inc., Valencia Entertainment and Vince Vellardita et al. were
filed in Los Angeles Superior Court as Case Number PC035673. On November 23,
2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ
of attachment against the Company for $325,000.00.
The Company is involved from time to time in legal proceedings incident to the
normal course of business. Management believes that the ultimate outcome,
except the cases mentioned above, of any pending or threatened litigation would
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows. The company settled the case on
November 10, 2005.
NOTE 13. SUBSEQUENT EVENTS
===============================
Subsequent to September 30, 2005, the Company issued 4,250,000 shares of common
stock at $0.06 amounting to $252,500 through private placements; 100,000 shares
at $0.47 per share for services rendered; 495,269 shares at $0.50 per share for
services rendered. In addition to this the Company also issued 6,025,000 shares
for $0.25 per share as per the terms of employment agreements.
NOTE 14. GOING CONCERN
======================
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a net loss
of $1,820,021 for the year ended September 30, 2005, and an accumulated deficit
of $10,345,350 as of September 30, 2005. The Company had a net loss of
$5,929,714 for the year ended September 30, 2004. These conditions raise doubt
about the Company's ability to continue as a going concern.
Management plans to raise additional funds through private placements (see note
13) to keep the Company operating. The Company also expects a substantial
increase in revenues in the coming year. There is no guarantee that either of
these points will come to fruition.
F-17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
==============================================================================
On February 1, 2005, the Registrant engaged Armando C. Ibarra, Certified
Public Accountants, as the Registrant's independent accountants to
report on the Company's consolidated balance sheet as of September 30, 2004,
and the related consolidated statements of income, stockholders' equity and
cash flows for the year then ended. The decision to appoint Armando C.
Ibarra, Certified Public Accountants was approved by the Registrant's
Board of Directors.
The Registrant auditors, Kabani & Company, Inc. PA (herein after
"KC") resigned effective February 1, 2005. KC served as the Registrant's
independent auditors' for the Registrant's fiscal years ended September 30,
2003 and 2002, as well through the date of its dismissal. KC's report on
the Registrant's consolidated financial statements for the registrant's fiscal
year September 30, 2003 and September 30, 2002 (the "Reports") does not
contain an adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles, however,
it was modified to include an explanatory paragraph wherein they expressed
substantial doubt about the Registrant's ability to continue as a going
concern.
During the Registrant's association with KC as Registrant's independent
accountants until KC's resignation, there were no disagreements with KC
within the meaning of item 304 of regulation S-B or any matter of
accounting principles or practices, financial disclosure, or auditing
scope or procedure, which disagreements if not resolved to KC's
satisfaction, would have caused KC to make reference to the subject
matter of the disagreements in connection with its reports.
During the Registrant's two most recent fiscal years and any subsequent
interim period prior to the engagement of Armando C. Ibarra, neither the
Registrant nor anyone on the Registrant's behalf consulted with Armando C.
Ibarra regarding either (i) the application of accounting principles
to a specified transaction, either contemplated or proposed, or the type of
audit opinion that might be rendered on the Registrant's financial statements
or (ii) any matter that was either the subject of a "disagreement" or a
"reportable event." The Registrant has requested KC to review the disclosure
contained herein and has provided KC the opportunity to furnish the
Registrant with a letter addressed to the Commission containing any new
information, clarification of the Registrant's expression of KC 's views, or
the respects in which KC does not agree with the statements contained
herein. KC has reviewed the disclosure contained herein and has
provided to the Registrant a letter addressed to the Securities and Exchange
Commission stating that it has reviewed the disclosure provided in this
Current Report and has no disagreement with the relevant portions of
this disclosure, pursuant to the requirements of Item 30 4(a) (3) of Regulation
S-B.
ITEM 8A. CONTROLS and PROCEDURES
==================================
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the Company's periodic reports filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the periodic
reports filed under the Securities Exchange Act of 1934 is accumulated and
communicated to management, including the Chief Executive Officer and Principal
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Within the 90 days prior to the filing date of this Report, the Company
conducted an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Securities Exchange Act Rule
13a-14. This evaluation was conducted under the supervision and with the
participation of the Company's Chief Executive Officer and Principal Financial
Officer.
EFFECTIVE DISCLOSURE CONTROLS
-----------------------------
Based upon that evaluation, the Company's officers concluded that many of the
Company's disclosure controls and procedures are effective in gathering,
analyzing and disclosing information needed to satisfy the Company's disclosure
obligations under the Securities Exchange Act of 1934. For example, the
Company's internal controls, particularly the areas of payroll, control of cash
and accounts payable, are effective. In addition, the Audit Committee meets
with the principal accounting officer on a regular basis to review and evaluate
the Company's financial position. The Audit Committee also reports to the Board
of Directors on the accounting and finance functions on a regular basis.
WEAKNESSES IN DISCLOSURE CONTROLS
---------------------------------
The Company's officers also identified several weaknesses in the Company's
disclosure controls. Such weaknesses, and the steps the Company plans to take
to remedy the weaknesses, are discussed below.
1. The Company's records of stock and equity related transactions were
not updated on a timely basis and do not reflect the current ownership
of the Company as accurately as they might. Remedy: The Company intends to
engage a stock transfer agent to handle issuances and conversions of all series
of its preferred stock. In addition, the Company will maintain more accurate
records of all equity transactions during the year. The Board of Directors will
ensure that it authorizes all stock, warrants and options granted in
accordance with applicable agreements and/or compensation plans to avoid
the possibility of unauthorized issuances of stock, warrants and
options.
2. The Company recorded a significant number of audit adjustments during the
fourth quarter, which were required to properly state the account balances at
September 30, 2003. Remedy: The Company will implement comprehensive closing
procedures, including an analysis of all balance sheet accounts and significant
income statement accounts.
3. The minutes of the Board of Directors' and stockholders' meetings were not
always complete. Remedy: The Company will implement procedures to be more
comprehensive in the preparation of its minutes to include all important
matters that affect the Company's operations. The Company will take appropriate
steps to ensure that all minutes are properly approved and signed by the
applicable parties.
4. The Company drafted several agreements without consulting its legal
counsel. Therefore, some of the agreements had terms and provisions that either
changed the purpose of the agreement or undermined the purpose or intent of
management. Remedy: The Company will consult its legal counsel as to the
legality of future agreements and consult its auditors regarding the proper
accounting treatment of such agreements in order to preserve the purpose of the
agreements and the intent of management.
CHANGES IN INTERNAL CONTROLS
- -------------------------------
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls since the most
recent evaluation of such controls. The Company intends to make extensive
improvements, as outlined above, to its disclosure controls.
ITEM 8B. OTHER INFORMATION
============================
None
PART III
========
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
============================================================================
DIRECTORS AND EXECUTIVE OFFICERS
================================
The following table sets forth the names and ages of the Company's directors
and executive officers, the positions with the Company held by each, and the
period during which each such person has held such position.
Name Age Position Since
- ------------------- ----- ----------- --------
Vince Vellardita. . 48 CEO/President/Chairman of the Board 2000
Richard Shintaku. . 56 Director 2003
Bonnie Nelson . . . 54 Director 2005
Sandra Markham. . . 45 Secretary/Treasurer 2005
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors are elected and qualified. Officers
hold office until the first meeting of directors following the annual
meeting of stockholders and until their successors are elected and
qualified, subject to earlier removal by the Board of Directors.
BIOGRAPHIES OF THE COMPANY'S EXECUTIVE OFFICERS AND DIRECTORS
====================================================================
Vince Vellardita - 48
Chairman of the Board, Chief Executive Officer and President
Vince Vellardita has served as the Company's President, Chief Executive
Officer and Chairman of the Board since October 2000. Mr. Vellardita was
instrumental in having Valencia Entertainment International, LLC acquire a
180,000 square foot production facility in Valencia, California that
houses eight film and production sound stages that have been occupied for
the past four years by the hit CBS series JAG and Fox's Power Rangers. Mr.
Vellardita began his career in 1977 as a music producer and promoter of
live shows and is credited with bringing Duran/Duran and U2 to North
America for their first US tours. He also produced a benefit tour for the
1980 Presidential campaign of John Anderson. Mr. Vellardita is a 25-year
veteran production executive with a successful track record. While in
Nashville,Mr. Vellardita was responsible for the turnaround for a production
house for music into a television satellite network, housing multiple sound-
stages and edit bays. Mr. Vellardita also increased revenues by bringing
national accounts to this network. Mr. Vellardita has been involved in over
10,000 episodes of television and 100 films. After Mr. Vellardita's success
in Nashville, he moved to Los Angeles, focusing on film and television,
where he developed independent production studios. Mr. Vellardita handled
everything from the coordination of sales and contracts negotiations, to
the launching of marketing strategies to lure some of the biggest names
in the television community. These include Paramount, Warner Brothers, and
Disney. Mr. Vellardita does not currently serve as a director of any
other reporting company.
Richard Shintaku - 56 Director
The Company appointed Mr. Shintaku to its Board of Directors on August 5,
2003. He is currently President and CEO of Inter-Continental Associates
Group, LLC and ICAG, Inc. Mr. Shintaku has been married for 36 years and has
two daughters and three grandsons and resides at Lake Las Vegas, Nevada.
ICAG has been a leading investment and consulting firm in the Asia/Pacific
region since 1973. ICAG is a Merrill Lynch investment "Alliance Partner". He
is currently Vice President and principal of MRI International, Inc., one
of the nations largest medical receivables funding companies, Executive
Vice President and principal of JMR Nevada, Inc. (Harmon Medical Center),
and KK JMR (Medical, Japan centers). Mr. Shintaku is also Chairman and CEO
of Premier Entertainment Services, Inc., (product placement in Digatech
International, Inc. (Gaming technology) and Owner/Proprietor of The Royal
Hawaiian Farms (Pistachio/Grapes). He is a Partner of Super Nova Financial
Services (NY Mercantile Exchange). He also serves on various board of
directors of many Asian and domestic firms. He has recently been asked to
serve as the first Honorary Consul General of Japan in the State of Nevada
and is presently serving as the Nevada representative on the Republican
Presidential Roundtable.
Bonnie Nelson - 54 Director
Ms. Nelson is 54 years old and resides in Aventura, Florida. Ms. Nelson has
been a member of the Board of Directors of Lakeview Health Systems, a drug and
alcohol rehab facility, since February 2000 until December 2003.
For more than fives years, Ms. Nelson has consulted and facilitated numerous
development stage companies performing, but not limited to, the following
activities: Corporate restructuring; Debt including asset based financing;
Forming management teams with "hands on" operation supervision; Coordinating
corporate public relations. Ms. Nelson has various experiences in numerous
medical ventures, as principal and consultant for both start-up and established
companies. These include but are not limited to: Infectious Disease Centers,
Medical Practice Centers; and IV Therapy Corporations. Since 1998, Ms. Nelson
has been President of Growth Capital One Corp., a merchant banking company.
Sandra Markham - 45 Treasurer and Secretary
Ms. Markham was appointed to the position of Secretary and Treasurer of the
Corporation in July 22, 2005. She has been with ValCom since March 2005. Ms.
Markham holds a Bachelor Degree in Business Administration from Regis
University and has extensive experience in executive secretarial business. She
has provided corporate support for the past 25 years for the casino/hotel
industry in addition to other government, profit and non-profit organizations.
She has extensive background in the field of advertising, marketing, special
event coordinator, and personnel management.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
officers, directors and beneficial owners of more than 10% of any class of
equity securities of a public company to file with the Securities and Exchange
Commission certain individual periodic reports -- (Form 3) (Initial Statement
of Beneficial Ownership of Securities), Form 4 (Statement of Changes of
Beneficial Ownership of Securities) and Form 5 (Annual Statement of Beneficial
Ownership of Securities) -- which disclose their beneficial ownership of
the company's securities. Securities and Exchange Commission regulations
require officers, directors and greater than 10% stockholders to furnish the
Company with copies of all such forms they file. The Company's other directors
and executive officers and more than 10% stockholders filed their Section 16(a)
reports as required.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
=================================================
Each director is elected to serve for a term of one (1) year until the next
annual meeting of stockholders or until a successor is duly elected
and qualified. There are no family relationships among directors or
persons nominated or chosen by the Company to become a director. The
present term of office of each director will expire at the next annual meeting
of stockholders. During the fiscal year ended September 30, 2004 the Board of
Directors held 37 meetings. No director attended fewer than 75% of the total
number of meetings. Outside directors received no cash compensation for their
services; however they were reimbursed for their expenses associated with
attendance at meetings or otherwise incurred in connection with the discharge
of their duties as directors of the Company. No officer of the Company
receives any additional compensation for his services as a director, and
the Company does not contribute to any retirement, pension, or profit
sharing plans covering its directors.
The Board of Directors has two committees, the Audit Committee and
the Compensation Committee. The sole member of the Audit Committee is
Krishnaswamy Alladi. As of September 30, 2004, the members of the Compensation
Committee were Vince Vellardita and Sandra Markham.
ITEM 10 EXECUTIVE COMPENSATION
=================================
The Summary Compensation Table below sets forth all compensation paid to the
Company's officers and directors during the fiscal years ended September 30,
2005, 2004 and 2003.
SUMMARY COMPENSATION TABLE
----------------------------
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------- ------ -------
(b) (C) (d) (e) (f) (g) (h) (i)
-------- ----------- ----------- -------- ------ -------- ----- ---
All
Other Securities Other
Annual Restricted Underlying Comp-
Compen- Stock Options/ LTIP ensa-
Salary Bonus sation Award(s) SARs Payouts
Name & Principle Position. Year ($) ($) ($) ($) ($)
-------- ----------- ----------- -------- ----- -------
Vince
Vellardita, Chairman,
CEO & President 2003 120,000 * * * *
-------- ----------- ----------- -------- ----- -------
2004 140,400 * * * *
-------- ----------- ----------- -------- ----- -------
Bonnie Nelson,
Director (1) 2005 120,000 * * * *
-------- ----------- ----------- -------- ----- -------
Sandra Markham,
Secretary, Treasurer, 2005 46,800 * * * *
-------- ----------- ----------- -------- ----- -------
NONE
(1) Mr. Magier served as the Company's Treasurer, Secretary and Director
during the fiscal year ended September 30, 2003. Effective March 29, 2004, he
resigned as an officer and director. Effective April 2004, the Board of
Directors appointed Tracey Eland as Treasurer and Secretary to replace
Mr. Magier. Ms. Eland resigned and was replaced by Sandra Markham. Ms.
Markham was appointed as Treasurer and Secretary effective July 22, 2005.
EMPLOYMENT AGREEMENTS
- ----------------------
The Company is a party to employment agreement with Vince Vellardita.
VINCE VELLARDITA
The Company entered into an Employment Agreement with Vince Vellardita,
the Company's Chairman of the Board, Chief Executive Officer and
President, effective October 1, 2000. The term of the Agreement is for
five years. The Board of Directors may terminate Mr. Vellardita's employment
at any time. The Agreement shall be automatically renewed for successive one-
year terms, unless either party gives written notice of termination three
months prior to the end of the term. The Agreement provides for an annual
salary of $120,000 for the first year, $150,000 for the second year and
$200,000 for the third year, plus a bonus if authorized by the Board of
Directors. If the Company is involved in a merger or consolidation in which
it does not survive, or if the Company transfers substantially all of its
assets, the surviving entity in the merger or consolidation or the
transferee of the Company's assets shall be bound by the Agreement. With the
exception of ownership of up to five percent of the equity securities of
another publicly traded corporation, the Agreement prohibits Mr. Vellardita
from engaging in any activity competitive with or adverse to the Company's
business or welfare without the Company's prior written consent.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
==============================================================================
The following table sets forth, as of January 13, 2006 the number
and percentage of shares of common stock owned of record and beneficially
by any "group" as that term is defined in Item 403 of Regulation S-B), person
or firm that owns more than five percent (5%) of the Company's outstanding
common stock (the Company's only class of voting securities).
a) Security Ownership of Certain Beneficial Owner
NAME OF NUMBER OF SHARES BENEFICIALLY OWNED (2) PERCENT OF TOTAL
BENEFICIAL OWNER (1)
- ------------------------- --------------------------------------- ----------------
Vince Vellardita 8,070,549 19.71%
920 South Commerce Street
Las Vegas, NV 89106
- ------------------------- --------------------------------------- ----------------
E-Blaster International 3,000,000 10.68%
JL. H.R. Rasuna Said Kav.
B-1 6th Floor,
Jakarta, 12920
Indonesia (2)
- ------------------------- --------------------------------------- ----------------
Radorm Technology Limited 567,824 2.02%
Jakarta, 12920
Indonesia (2)
- ------------------------- --------------------------------------- ----------------
Great Asian Holdings Ltd. 2,110,422 7.51%
Jakarta, 12920
Indonesia (2)
- ------------------------- --------------------------------------- ----------------
David Dadon 3,000,000 10.68%
Los Angeles, CA
- ------------------------- --------------------------------------- ----------------
(1) Includes all stock held either personally or by affiliates.
(2) These three entities together comprise a "group" as defined in Item
403 of Regulation S-B.
(b) Security Ownership of Management
- ----------------------------------------
The following table sets forth, as of January 13, 2006 the number and
percentage of the equity securities of the Company, its parent or
subsidiaries, owned of record or beneficially by each officer, director and
person nominated to hold such office and by all officers and directors
as a group.
NAME OF NUMBER OF SHARES BENEFICIALLY OWNED (2) PERCENT OF TOTAL
BENEFICIAL OWNER (1)
- -------------------- --------------------------------------- ----------------
Vince Vellardita 8,070,549 19.71%
- -------------------- --------------------------------------- ----------------
Richard Shintaku 3,395,833 5.02%
- -------------------- --------------------------------------- ----------------
Bonnie Nelson
- -------------------- --------------------------------------- ----------------
Sandra Markham
- -------------------- --------------------------------------- ----------------
All officers and
directors as a group
(4 people)
- -------------------- --------------------------------------- ----------------
(1) Includes all stock held either personally or by affiliates.
(2) Includes ownership of record and beneficial ownership.
CHANGES IN CONTROL
- --------------------
To the best knowledge and belief of the Company, there are no
arrangements, understandings, or agreements relative to the disposition
of the Company's securities, the operation of which would, at a subsequent
date, result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
=============================================================
There are no family relationships among directors, executive officers or
persons chosen by the Company to be nominated as a director or appointed as an
executive officer of the Company of any of its affiliated subsidiaries.
ITEM 13. EXHIBITS
===================
Ex. 31.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Ex. 31.2 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Ex. 32.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Ex. 32.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Ex. 1.1 Consent of Armando C. Ibarra, C.P.A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
=================================================
The aggregate fees billed by Armando C. Ibarra, Certified Public Accountants
for professional services rendered for the audit of the Company's annual
financial statements for the years ended September 30, 2005 and 2004, the
review of the financial statements included in the Company's Forms 10-QSB and
Forms 8K totaled $[______] and $[_______] as follows:
2005 2004
Audit fees $ $
Audit-related fees $ $
Tax fees $ $
Other fees $ $
Total $ $
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the issuer
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: January 13, 2006 VALCOM, INC., a Delaware corporation
By: /s/ Vince Vellardita
----------------------
Vince Vellardita
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the issuer and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
By: /s/Vince Vellardita Chief Executive Officer, President January 13, 2006
-------------------- Chairman of the Board
Vince Vellardita
By: /s/ Richard Shintaku, Director January 13, 2006
----------------------
Richard Shintaku
By: /s/ Bonnie Nelson, Director January 13, 2006
---------------------
Bonnie Nelson
By: /s/ Sandra Markham Secretary and Treasurer January 13, 2006
---------------------
Sandra Markham