UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-QSB/A
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file Number 0-28416
VALCOM, INC.
--------------------------------------------------------
(Name of small business issuer specified in its charter)
Delaware 58-1700840
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
920 S. Commerce Street, Las Vegas, NV 89106
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(Address of Principal executive offices)
(702) 385-9000
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 7, 2006 the issuer had 76,223,346 shares of its $0.001 par value
common stock issued and outstanding.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying financial statements are unaudited and are prepared in
accordance with rules and regulations of the Securities and Exchange Commission
for interim quarterly reporting. Accordingly, these financial statements do not
include all disclosures required under generally accepted accounting
principles.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of ValCom, Inc.
and subsidiaries as of June 30, 2006 and the results of their operations and
their cash flows for the nine months ended June 30, 2006. These consolidated
financial statements include the accounts of ValCom, Inc. and its subsidiary
companies (together "the Company"). Results for the nine months ended June 30,
2006, are not necessarily indicative of the operations, which may occur during
the year ending September 30, 2006. Refer to the Company's Annual Report on
Form 10-KSB for the year ended September 30, 2005 for further information.
VALCOM, INC.
FORM 10-QSB
INDEX Page
- ----- ----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of
June 30, 2006 (unaudited) 4
Condensed Consolidated Statements of Operations
for the three month period ended June 30,
2006 and 2005 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the nine month period ended June 30, 2006
and 2005 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2. Management's Discussion and Analysis or Plan
of Operation 13
Item 3. Controls and Procedures 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits
SIGNATURES 16
VALCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of
June 30,
2006
(unaudited)
---------------
CURRENT ASSETS
Cash $ 117,681
Accounts receivable, net 166,522
Prepaid expenses 25,000
Notes receivable 449,000
---------------
Total Current Assets 758,203
NET PROPERTY & EQUIPMENT 122,520
OTHER ASSETS
Deposits 108,350
Other assets 1,150,000
---------------
Total Other Assets 1,258,350
---------------
TOTAL ASSETS $ 2,139,073
===============
See accompanying notes to the condensed consolidated financial statements
VALCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
December 31,
2005
(unaudited)
---------------
CURRENT LIABILITIES
Accounts payable $ 453,670
Accrued interest 43,061
Accrued expenses 133,670
Deferred income
Due to related parties 849,387
Notes payable 772,980
---------------
Total Current Liabilities 2,252,768
LIABILITIES SUBJECT TO COMPROMISE
Mortgage payable -
Long term loans
---------------
Total Liabilities -
---------------
TOTAL LIABILITIES 2,252,768
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
Series C, 15,000,000 shares authorized;
10,517,000 shares issued and outstanding
as of December 31, 2005 10,517
Common stock ($0.001 par value, 100,000,000
shares authorized; 74,752,247 shares issued
and outstanding as of June 30, 2006 74,752
Treasury stock (35)
Additional paid-in capital 13,322,837
Retained (deficit) (13,521,804)
---------------
Total Stockholders' Equity ( 113,695)
---------------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY $ 2,139,073
===============
See accompanying notes to the condensed consolidated financial statements
4
VALCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
3 Month Period Ended 9 Month Period Ended
June 30 June 30 June 30 June 30
2006 2005 2006 2005
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
REVENUES
Rental income $ 69,421 $ 37,270 201,351 $ 446,042
Production income 562,578 239,435 2,537,461 369,963
Other income - - 350 -
----------- ----------- ----------- -----------
Total Revenues 631,999 276,705 2,739,162 816,005
COSTS AND EXPENSES
Production 413,214 200,701 3,010,597 289,015
Selling and promotion 471,390 1,590 543,456 8,020
Depreciation and amortization 8,650 32,638 25,950 63,222
General and administrative 499,586 161,409 1,208,635 1,000,638
Consulting and professional fees 39,644 59,009 1,069,465 724,357
Bad debts - - 19,757 -
Impairment of assets - - - -
----------- ----------- ----------- -----------
Total Costs and
Expenses 1,432,484 455,347 5,872,710 2,085,252
OPERATING LOSS (800,485) (178,642) (3,088,548) (1,269,247)
OTHER INCOME & (EXPENSES)
Interest expense (18,523) (1,680) (49,910) (8,239)
Other expense (360,745) - (636,056) -
Gain on sale of assets - - - 321,395
Other income 560,741 - 598,060 28,971
----------- ----------- ----------- -----------
Total Other Income &
(Expenses) 181,474 (1,680) 87,906 342,127
----------- ----------- ----------- -----------
NET GAIN (LOSS) $ (619,011) $ (180,322) (3,176,454) $ (927,120)
=========== =========== =========== ===========
BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE (0.06) 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - 35,787,925
=========== ===========
See accompanying notes to the condensed consolidated financial statements
5
VALCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
9 Month Period Ended
June 30 June 30
2006 2005
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(3,176,454) $ (927,120)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Accrued interest expense 35,868
Depreciation expense 25,950 63,772
Bad Debt Expense - 70,646
Stock issued for settlements 392,692
Stock issued for services & compensation 543,723 550,866
Preferred Stock issued for services &
Compensation 200,000
Changes in operating assets and liabilities:
Receivables 78,902 (128,246)
Note receivables 449,000 91,201
Production in progress 45,332
Deposits (100,000)
Prepaid Expenses (25,000)
Accounts payable and accrued expenses (433,270) 178,055
----------- -----------
Net Cash Provided by (Used in)
Operating Activities (2,008,589) (52,734)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property plant and
equipment (44,442) -
Disposition of property and equipment - (363,663)
----------- -----------
Net Cash Provided by (Used in)
Investing Activities (44,442) (363,663)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayment of notes payable - -
Preferred stock issued for cash - -
Cash proceeds from sale of stock 243,500 93,673
Common tock issued for cash 713,000 -
Principal borrowings on notes 581,432 334,813
Net borrowings from related parties 356,5002 (1,726)
----------- -----------
Net Cash Provided by (Used in)
Financing Activities 1,894,432 426,760
----------- -----------
Net Increase (Decrease) in Cash (158,599) 10,363
----------- -----------
Cash at Beginning of Year 276,280 21,468
----------- -----------
Cash at End of Year $ 117,681 $ 31,831
=========== ===========
Supplemental Cash Flow Disclosures:
Cash paid during period for interest $ - $ -
=========== ===========
Cash paid during period for taxes $ - $ -
=========== ===========
Supplemental Cash Flow Disclosures:
=========== ===========
Stock issued for services $ 543,723 $ -
=========== ===========
Stock issued for note conversions &
Settlements $ 390,311 $ -
=========== ===========
See accompanying notes to the condensed consolidated financial statements
6
VALCOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BANKRUPTCY PROCEEDINGS, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
On April 7, 2003, the Company filed on an emergency basis a voluntary Chapter
11 bankruptcy petition.
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 March 31, 2004.
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 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 VEI 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 VEI or ValCom, or any other assets other than the
Property itself (and the rents and leases appurtenant thereto).
On June 10, 2004, Laurus 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, neither VEI nor ValCom are 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 VEI).
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 the Company.
DESCRIPTION OF BUSINESS
ValCom, Inc. and subsidiaries (the "Company"), formerly SBI
Communications, Inc., was originally organized in the State of Utah on
September 23, 1983, under the corporate name of Alpine Survival Products, Inc.
Its name was subsequently changed to Supermin, Inc. on November 20,
1985. On September 29, 1986, Satellite Bingo, Inc. became the surviving
corporate entity in a statutory merger with Supermin, Inc. In connection
with the above merger, the former shareholders of Satellite Bingo, Inc.
acquired control of the merged entity and changed the corporate name to
Satellite Bingo, Inc. On January 1, 1993, the Company executed a plan of
merger that effectively changed the Company's state of domicile from Utah to
Delaware. Through shareholder approval dated March 10, 1998, the name was
changed to SBI Communications, Inc.
In October 2000, the Company was issued 7,570,997 shares by SBI for 100% of
the shares outstanding in Valencia Entertainment International, LLC
("VEI"), a California limited liability company. This acquisition has been
accounted for as a reverse acquisition merger with VEI as the surviving
entity. The corporate name was changed to ValCom, Inc. effective March 21,
2001.
The Company is a diversified entertainment company with the following operating
activities:
1. 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 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.
VALCOM BURBANK STUDIOS, one of Burbank's television production
facilities, with three edit bays, two sound stages and over 25,000 square feet
of production support was recently acquired by ValCom, Inc. The Burbank
Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production
for many years in addition to a past client base consisting of: HGTV, D.I.V.,
History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney
Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television,
Lifetime, over a period of 12 years.
2. FILM, PRODUCTION DIVISION.
ValCom, Inc. entered a joint venture with entertainment giant, Stan Lee's POW!
Entertainment. POW! (Purveyors of Wonder) Entertainment, Inc. is founded by
Stan Lee, together with Gill Champion and Arthur Lieberman. POW's principals
combined have over a hundred years experience creating, producing, and
licensing original intellectual properties. POW! Specializes in franchises for
the entertainment industry, including animation and live-action feature films,
plus television, DVDs, video games, merchandising, and related ancillary
markets. POW! partners with studios and networks in creating new and exciting
characters. In some cases, POW! creates `custom-tailored' properties for a
specific star or director.
Stan Lee, chairman and chief creative officer of POW!, is the creator and
inventor of the modern superhero. A prolific author, Lee revolutionized the
comic book industry by creating compelling characters who, despite
extraordinary powers and talents, are nonetheless plagued by the same doubts
and difficulties experienced by ordinary people. Some of his most enduring
characters, like Spider-Man{trademark}, The Hulk{trademark}, and the X-
Men{trademark} , have spun off into television programs
and feature films.
3. LIVE THEATRE.
February 9, 2006, ValCom Inc. named Jeff Kutash as President of their Live
Theatre Division. The first venture, a theatre production called "Headlights
and Tailpipes" opened at the Las Vegas Stardust Casino and Hotel on April 3,
2006.
Kutash's experience in the field of theatre, television and film create a vast
knowledge of the entertainment field.
Several large-scale productions put Kutash on the map for live entertainment
including the first rock n' roll revue "Gold Ol' Rock n' Roll," "Dancin'
Machine" and most notably "Splash," which recently celebrated its 20 year
anniversary. Kutash received accolades for the choreography he staged for John
Travolta's appearance in the film "Saturday Night Fever." Kutash continued
staging and began co-producing television for ABC, NBC, CBS, Viacom and Film
ways. His television work garnered an Emmy{reg-trade-mark} and Golden
Globe{reg-trade-mark} for his participation on "Taxi", and was responsible for
staging the 20th Anniversary Grammy{reg-trade-mark} Awards. He has spent the
last several years commuting to and from Europe on a regular basis,
coordinating international talent, music, theatrical, and television
productions.
4. 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 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.
5. 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.
VALCOM BURBANK STUDIOS, one of Burbank's television production
facilities, with three edit bays, two sound stages and over 25,000 square feet
of production support was recently acquired by ValCom, Inc. The Burbank
Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production
for many years in addition to a past client base consisting of: HGTV, D.I.V.,
History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney
Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television,
Lifetime, over a period of 12 years.
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated interim
financial statements reflect all adjustments (consisting of only normal and
recurring adjustments) necessary to present fairly the financial position of
ValCom, Inc. (the "Company"), as of March 31, 2006, and the results of its
operations and cash flows for the six-month period ended March 31, 2006 and
2005. The results of operations for such interim periods are not necessarily
indicative of the results for a full year. The accompanying unaudited condensed
interim financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial reporting and with instructions to Form 10-QSB and, accordingly, do
not include all disclosures required by accounting principles generally
accepted in the United States of America. The condensed financial statements
should be read in conjunction with the audited financial statements and the
notes to the audited financial statements included in the Company's Form 10-
KSB registration report for the period ending September 30, 2005 filed with
the
Securities and Exchange Commission. The accounting policies followed for
interim financial reporting are the same as those disclosed under Note 1 in the
notes to the financial statements included in the Company's Form 10-KSB
registration report for the year ended June 30, 2005.
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 to date of $3,878,414 and a working capital deficiency of $2,442,406
and an accumulated deficit of $14,233,764 at June 30, 2006.
Valencia Entertainment International, LLC, a California limited liability
company and the Registrant's subsidiary filed on April 7, 2003, a
voluntary petition in bankruptcy for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of California (note 8). The main income of the
Registrant is from the operations of Valencia Entertainment International. As
of May 30th, 2005, we have closed the operation at Valencia Entertainment
International, California.
Management has taken various steps to revise its operating and
financial requirements, which it believes are sufficient to provide the
Company with the ability to continue on in next twelve months. Management
devoted considerable effort during the period ended June 30, 2006, towards
management of liabilities and improving the operations. The management
believes that the above actions will allow the Company to continue its
operations through the next twelve months.
VALCOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 "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.}"
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.
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.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
NOTE 2 NET INCOME (LOSS) PER SHARE
The Company's net loss per share was calculated using weighted average
shares outstanding of 45,197,572 for the nine months ended June 30,
2006 and 35,787,925 for the six months ended June 30, 2005, respectively.
Although convertible preferred stock, convertible debt, and warrants are
common stock equivalents, they are not included in the calculation of diluted
earnings per share as their effect would be anti-dilutive.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
June September
30, 2006 30, 2005
-------- ---------
Building Improvements 4,500 4,500
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 44,814
Video Equipment 181,877 181,877
Recording Studio 44,442 -
-------- ---------
440,989 396,547
Less: accumulated depreciation (318,469) (301,125)
-------- ---------
Net book value . . . . . . . $122,520 $ 95,422
======== =========
Depreciation expense for the periods ended June 30, 2006 and September 30,
2005 was $17,300 and $92,001, respectively.
NOTE 4. NOTES PAYABLE
The following are notes issued as of March 31, 2006. All of these notes
incur interest at 10% per annum with different due dates. All related
interest has been accrued and reflected in the financial statements.
1. Vince Vellardita $ 360,000
2. ICAG, Inc. $ 125,000
3. Condor Financial $ 40,000
4. Loan to Company Subsidiaries $ 722,980
VALCOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 LITIGATION
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 June 30, 2004, the Company was in
compliance of all of its duties under the Bankruptcy Code and all applicable
guidelines of the Office of the United States Trustee.
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 March 31, 2004.
On April 28, 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 May 31, 2004. The
court approved an extension and granted the restructuring of notes/debt with
Finance Unlimited and Laurus for settlement and to be discharged from
bankruptcy.
In May 2004, Laurus paid off Finance 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 VEI 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 VEI or ValCom, or any other assets other than the Property itself
(and the rents and leases appurtenant thereto).
On June 10, 2004, Laurus 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, neither VEI nor ValCom are 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 VEI).
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 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. The defendants won a summary judgment motion and
the company is pursuing the appellant process.
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 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 June 30, 2006. Both parties have released each other.
NOTE 6 RELATED PARTY TRANSACTIONS
Mr. Vince Vellardita, CEO is owed $496,106 from advances, cash and accrued
wages
from the Company as of December 31, 2005.
NOTE 7 STOCKHOLDERS' EQUITY
(A) CONVERTIBLE PREFERRED STOCK
On June 31, 2006, 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 8% per share, per year. Series B Preferred Stock is 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 8% 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 D 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. Series D Preferred Stock
shall be junior to both Series B and C Preferred Stock. No dividends have
been declared by the Board of Directors for any of the Series of convertible
Preferred Stock for the three months ended December 31, 2005.
Assumption used (for Black Scholes calculations):
======================================================
Exercise Price $.25
Life 12 months
Volatility 125%
Interest Rate 8%
The following is the summary of
warrants as of June 30, 2005:
Warrants as of September 30, 2003 0
Warrants issued during the period 300,000
Warrants exercised during the period 0
Warrants expired during the period 0
Warrants outstanding as of June 30, 2004 300,000
VALCOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
COMMON STOCK ISSUED
During the three months ended June 30, 2006, the Company issued
61,165 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 $3,085, which was computed based
upon the market prices of the common stock on the applicable payment dates.
During the three months ended June 30, 2006, the Company issued 7,500,000
shares of common stock for cash. Total cash received for these shares
was approximately $515,000.
During the three months ended June 30, 2006, the Company issued
900,000 shares of common stock to convert $115,000 for liabilities and
legal settlements.
NOTE 8 DISPOSAL OF BUILDING (UNDER THE ORDER OF BANKRUPTCY COURT)
VEI filed a voluntary chapter 11 bankruptcy petition on April 7, 2003. By
May 2004, the property was subject to three (3) secured claims. These were a
note and first-priority deed of trust held by Finance Unlimited, LLC
("Finance") in the amount of $6,565,998 and two notes, secured by
second-priority and third-priority deeds of trust, both held by Laurus Master
Fund, Ltd. ("Laurus"). Laurus claimed that it was owed a total of $2,978,876
plus additional penalties and additional legal fees on the two notes but VEI
disputed many of the penalty claims by Laurus. The Finance note was
solely the obligation of VEI, but ValCom, Inc. was also an obligor on
the two Laurus notes. In May 2004, Laurus paid off Finance 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 VEI 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 VEI or valium, or any other assets other
than the Property itself (and the rents and leases appurtenant thereto).
On June 10,2004, Laurus 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,
neither VEI nor ValCom are 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 VEI). 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.
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. The defendants won a summary judgment motion and
the company is pursuing the appellant process.
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.
Farkhanda Rana
On October 20, 2004 a shareholder of ValCom initiated 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. was 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 June 30, 2006. Both parties have released each other.
7
NOTE 9. RESTATED FINANCIAL STATEMENTS
The Company's reviewed financial statements as of June 30, 2006 have been
restated to reduce its current liabilities by $947,541 as follows.
- The Company had $162,764 in accounts payable which it reclassified
into other income due to as the payables are being disputed or have been
settled by an officer who subsequently forgave the debt.
- The Company had $39,467 which have been paid by a subsidiary and
erroneously double recorded as additional expenses.
- In related party debt the Company failed to revise a contract
payable in the amount of $100,150 which the company prior to the quarter
end has rescinded.
- In Notes payable the company had (i) had several deposits in the
amount of $243,500 which should have been recorded as share issuances,
(ii) a note in the amount of $394,000 which have been settled and
forgiven by an officer of the Company, and (iii) several notes in the
amount of $7,960 which have been settled and erroneously duplicated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
INTRODUCTION
PLAN OF OPERATION
As of June 30, 2006, ValCom, Inc. operations were comprised of five divisions:
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 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 11 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, animation and post-production.
VALCOM BURBANK STUDIOS, one of Burbank's television production
facilities, with three edit bays, two sound stages and over 25,000 square feet
of production support was recently acquired by ValCom, Inc. The Burbank
Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production
for many years in addition to a past client base consisting of: HGTV, D.I.V.,
History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney
Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television,
Lifetime, over a period of 12 years.
FILM PRODUCTION DIVISION
ValCom, Inc. entered a joint venture with entertainment giant, Stan Lee's POW!
Entertainment. POW! (Purveyors of Wonder) Entertainment, Inc. is founded by
Stan Lee, together with Gill Champion and Arthur Lieberman. POW's principals
combined have over a hundred years experience creating, producing, and
licensing original intellectual properties. POW! specializes in franchises for
the entertainment industry, including animation and live-action feature films,
plus television, DVDs, video games, merchandising, and related ancillary
markets. POW! partners with studios and networks in creating new and exciting
characters. In some cases, POW! creates `custom-tailored' properties for a
specific star or director.
Stan Lee, chairman and chief creative officer of POW!, is the creator and
inventor of the modern superhero. A prolific author, Lee revolutionized the
comic book industry by creating compelling characters who, despite
extraordinary powers and talents, are nonetheless plagued by the same doubts
and difficulties experienced by ordinary people. Some of his most enduring
characters, like Spider-Man{trademark}, The Hulk{trademark},
and the X-Men{trademark}, have spun off into television programs and
feature films
8
LIVE THEATRE DIVISION
February 9, 2006, ValCom Inc. named Jeff Kutash as President of their Live
Theatre Division. The first venture, a theatre production called "Headlights
and Tailpipes" opened at the Las Vegas Stardust Casino and Hotel on April 3,
2006.
Kutash's experience in the field of theatre, television and film create a vast
knowledge of the entertainment field.
Several large-scale productions put Kutash on the map for live entertainment
including the first rock n' roll revue "Gold Ol' Rock n' Roll," "Dancin'
Machine" and most notably "Splash," which recently celebrated its 20 year
anniversary. Kutash received accolades for the choreography he staged for John
Travolta's appearance in the film "Saturday Night Fever." Kutash continued
staging and began co-producing television for ABC, NBC, CBS, Viacom and
Filmways. His television work garnered an Emmy{trademark} and Golden
Globe{trademark} for his participation on "Taxi", and was responsible for
staging the 20th Anniversary Grammy{trademark} Awards. He has spent the
last several years commuting to and from Europe on a regular basis,
coordinating international talent, music, theatrical, and television
productions.
ValCom, Inc. introduced a live theatre production debuting April 4, 2006
entitled "Headlights and Tailpipes" at the Stardust Resort & Casino.
"Headlights and Tailpipes", starring Playboy Playmate Lauren Anderson (July
2002), recently captured the city's top spot as the number one adult-style
production in Las Vegas. The show, performing in the Stardust Theater at the
Stardust Resort & Casino, is a sexy and seductive production that celebrates
America's love affair with fast cars, beautiful girls, and heart-pounding rock
`n roll.
The show consist of a series of exotic dance numbers that are choreographed to
hit rock `n roll songs around a motorcycle or hot rod. Featured cars range
from a vintage Ford Thunderbird to a new 2007 Shelby Cobra. Perhaps the most
famous of these automobiles is Starsky & Hutch's 1976 Ford Gran Torino.
9
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..
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., an independent
animation companies in Europe and a provider of animation software to
other production companies worldwide. With its production capability and
proprietary technology, we believe that 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.
10
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 - THREE MONTHS ENDED JUNE 30, 2006 VS. JUNE 30, 2005
Revenues for the three months ended June 30, 2006 increased by $355,294 or 128%
from $276,705 for the three months ended June 30, 2005 to $631,999 for the same
period in 2006. The increase in revenue was principally due to increased
production revenues associated with the ValCom's activities.
Production costs for the three months ended June 30, 2006 increased by $212,513
from $ 200,701 for the three months ended June 30, 2005 to $413,214 for the
same
period in 2006. The increase in production costs was principally due to
increased production associated with ValCom Productions.
Depreciation and amortization expense for the three months ended June 30, 2006
decreased by $ 23,988 or 73.1% from $32,638 for the three months ended June
30,
2005 to $8,650 for the same period in 2006.
General and administrative expenses for the three months ended June 30, 2006
increased by $ 338177 or 210.2 % from $ 161,409 for the three months ended June
30, 2005 to $ 499,586 for the same period in 2006. The increase was due
principally to increased overall activities and costs for the new projects.
Consulting and professional fees for the three months ended June 30, 2006
increased by $ 19,365 or 33.1% from $59,009 for the three months ended June 30,
2005 to $39,644 for the same period in 2006. The decrease was due principally
to the cancellation of a contract.
Interest expense for the three months ended June 30, 2006 increased by $16,843
or 1003% from $1,680 for the three months ended June 30, 2005 to $18,523 for
the same period in 2006. The increase was due principally to the increase in
notes payables.
Due to the factors described above, the Company's net loss increased by
$ 438,689 from $180,332 for the three months ended June 30, 2005 to $619,011
for the same period in 2006.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 2006 VS. JUNE 30, 2005
Revenues for the nine months ended June 30, 2006 increased by $1,923,157 or
235.5% from $816,009 for the nine months ended June 30, 2005 to $2,739,162 for
the same period in 2006. The increase in revenue was principally due to
increased production revenues associated with the ValCom's activities.
Production costs for the nine months ended June 30, 2006 increased by
$2,721,582 from $289,015 for the nine months ended June 30, 2005 to $3,010,597
for the same period in 2006. The increase in production costs was principally
due to increased production associated with ValCom Productions.
Depreciation and amortization expense for the nine months ended June 30, 2006
decreased by $37,272 or 58.9% from $63,222 for the nine months ended June 30,
2005 to $25,950 for the same period in 2006.
General and administrative expenses for the nine months ended June 30, 2006
increased by $207,947 or 20.8% from $1,000,638 for the nine months ended June
30, 2005 to $1,208,635 for the same period in 2006. The increase was due
principally to increased overall activities and costs for the new projects.
Consulting and professional fees for the nine months ended June 30, 2006
increased by $ 294958 or 40.7% from $724,357for the nine months ended June 30,
2005 to $1,019,315 for the same period in 2006. The increase was due
principally to increases in use of professionals.
Interest expense for the nine months ended June 30, 2006 increased by $41,671
or 505.8% from $8,239 for the nine months ended June 30, 2005 to $49,910 for
the same period in 2006. The increase was due principally to the increase in
notes payables.
Due to the factors described above, the Company's net loss increased by
$2,249,334 from $927,170 for the nine months ended June 30, 2005 to $3,176,454
for the same period in 2006.
FUTURE OUTLOOK
The Company has entered into a joint venture agreement with O. Atlas
Enterprises to produce an animation movie and an animation TV series called
"New Zoo Revue" based on an American Classic of the same name. BCI/Navarre has
purchased an exclusive agreement to distribute 195 existing shows of New Zoo
Revue for the retail market. The Company has already incurred start-up costs,
which have
been reflected in the financial statements for the six months ended March 31,
2004.
The Company has entered into agreement with Q Television Network, Palm Springs,
CA on April 1, 2005. The Company has granted Q Television Network a License to
use 142 films and television shows for a period of seven years. Q Television
Network issued 50,000,000 shares of the Company valued at $150,000 as advance.
September 22, 2005, ValCom Inc. entered into a production agreement with
entertainment industry producer Jeff Franklin who also joins
ValCom's Strategic Advisory Board. Franklin has brought in more than $2 billion
in domestic box office sales and with the addition of the film division. Mr.
Franklin is one of producers of the theatrical feature, "Casper" and is
executive producer on "Kull, The Conqueror," "Cold Around The Heart," "Stuart
Little," and "Stuart Little 2."
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 provider of animation software
to other production companies worldwide. With its production capability and
proprietary technology, we believe that 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.
ValCom, Inc. entered a joint venture in February, 2006 with entertainment
giant, Stan Lee's POW! Entertainment. POW! (Purveyors of Wonder) Entertainment,
Inc. is founded by Stan Lee, together with Gill Champion and Arthur Lieberman.
POW's principals combined have over a hundred years experience creating,
producing, and licensing original intellectual properties. POW! specializes in
franchises for the entertainment industry, including animation and live-action
feature films, plus television, DVDs, video games, merchandising, and related
ancillary markets. POW! partners with studios and networks in creating new and
exciting characters. In some cases, POW! creates 'custom-tailored' properties
for a specific star or director.
Stan Lee, chairman and chief creative officer of POW!, is the creator and
inventor of the modern superhero. A prolific author, Lee revolutionized the
comic book industry by creating compelling characters who, despite
extraordinary powers and talents, are nonetheless plagued by the same doubts
and difficulties experienced by ordinary people. Some of his most enduring
characters, like Spider-Man(R), The Hulk(R), and the X-Men(R), have
spun off into television programs and feature films that have grossed hundreds
of millions of dollars at the box office.
11
On February 9, 2006 ValCom, Inc. named Jeff Kutash as President of their Live
Theatre Division. The first venture Kutash will undertake is a theater
production called 'Headlights and Tailpipes' that will be unveiled at a Las
Vegas hotel and casino. In heading up this division, Kutash will be responsible
for developing and directing new productions and live theatrical events
throughout the world. Kutash's experience in the field of theatre, television
and film create a vast knowledge of the entertainment field.
Several large-scale productions put Kutash on the map for live entertainment
including the first rock n' roll revue 'Good Ol' Rock n' Roll,' 'Dancin'
Machine' and most notably 'Splash,' which recently celebrated its 20 year
anniversary. Kutash received accolades for the choreography he staged for John
Travolta's appearance in the film 'Saturday Night Fever.' Kutash continued
staging and began co-producing television for ABC, NBC, CBS, Viacom and
Filmways. His television work garnered an Emmy(R) and Golden Globe(R) for his
participation on 'Taxi,' and was responsible for staging the 20th Anniversary
Grammy(R) Awards. He has spent the last several years commuting to and from
Europe on a regular basis, coordinating international talent, music,
theatrical, and television productions.
ValCom Burbank Studios was purchased June 1, 2006, for cash and stock. It is
one of Burbank's finest television production facilities, with three edit bays,
two sound stages and over 25,000 square feet of production support.
Blue Chip Client Base
ValCom Burbank Studios' past client base consisted of: HGTV, D.I.V., History
Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney Channel,
HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television,
Lifetime, over a period of 12 years. This turn-key, state-of-the-art facility
was the home of 'Jeopardy' and the 'Wheel of Fortune' post production for many
years.
On June 28, 2006, ValCom, Inc. along with entertainment giants, Stan Lee's POW!
Entertainment and entertainment industry producer Jeff Franklin announced the
second of three upcoming films, a Stan Lee Sci-Fi picture entitled "The Harpy"
written by DeClan O'Brien and directed by Josh Becker.
"The Harpy" will star Steven Baldwin who appeared in "The Usual Suspects," "28
Days," "Nuts" and "Brief Encounter" and Peter Jason, whose more notable
appearances include John Carpenter films such as "The Prince of Darkness,"
"They Live," "Village of the Damned," "Escape from L.A." and "Ghosts of Mars."
12
"Pre-production of "The Harpy" started Monday, June 26th at ValCom's recently
acquired Burbank Studios. This film is for NBC Universal Sci-Fi Network to be
aired in May 2007.
Stan Lee, chairman and chief creative officer of POW!, is the creator and
inventor of the modern superhero. A prolific author, Lee revolutionized the
comic book industry by creating compelling characters who, despite
extraordinary powers and talents, are nonetheless plagued by the same doubts
and difficulties experienced by ordinary people. Some of his most enduring
characters, like Spider-Man(R)(a), The Hulk(R)(a), and the X-Men(R)(a), have
spun off into television programs and feature films.
Jeff Franklin lends years of entertainment production experience where he
facilitates the overall vision of each project.
LIQUIDITY AND CAPITAL RESOURCES
The Company's condensed consolidated financial statements have been prepared,
assuming that the Company will continue as a going concern. The Company has a
net loss of $3,878,414and a negative cash flow from operations of $158,599
for
the nine months ended June 30, 2006, a working capital deficiency of
$1,061,596
and an accumulated deficit of $14,232,764 at June 30, 2006. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
Cash totaled $117,681on June 30, 2006 compared to $31,831 as at June 30, 2005.
During the nine months ended June 30, 2006, net cash used by operating
activities totaled $2,510,669 compared to net cash provided by operating
activities of $52,734 for the comparable nine-month period in 2005. A
significant portion of operating activities included payments for interest and
production development costs. Net cash used by financing activities for the
nine months ended June 30, 2006 totaled $2,396,342 compared to $426,760 for the
comparable nine-month period in 2005.
The above cash flow activities yielded a net cash decrease of $158,599 during
the nine months ended June 30, 2006 compared to a increase of $10,363 during
the comparable prior year period.
Net working capital (current assets less current liabilities) was a negative
$2,442,406 as of June 30, 2006. The Company will need to raise funds through
various financings to maintain its operations until such time as cash generated
by 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.
SUBSEQUENT EVENTS
Purchase of Media City Studios
On May 19, 2006, the Company entered into a letter agreement with Media City
Teleproductions ("MCT") pursuant to which parties expressed their intention
and set forth the principal terms for the Company's purchase of Media City
Studios, including certain equipment and facilities contained therein (the
"Studio") such as all studio production equipment. The purchase price for
the Studio is:
* $750,000, $100,000 of which was paid to MCT by the Company on May
29, 2006 and the balance of $650,000 is to be paid no later than 60 days after
the date of execution of final definitive agreements; and
* 1,000,000 shares (the "Shares") of the Company's common stock, par
value $.001 per share, which the Company issued to MCT on June 12, 2006.
The completion of the transaction is contingent upon the completion of
satisfactory due diligence by the parties and negotiation and execution of
final definitive agreements.
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ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms.
(b) Changes in internal controls. There was no change in our internal controls
or in other factors that could affect these controls during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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PART II--OTHER INFORMATION
ITEM 1. 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. The defendants won a summary judgment motion and
the company is pursuing the appellant process.
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.
Farkhanda Rana
On October 20, 2004 a shareholder of ValCom initiated 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 June 30, 2006. Both parties have released each other.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(A) COMMON STOCK:
On May 19, 2006, the Company issued 1,000,000 shares of the Company's common
stock, $0.001 par value per share, to Media City Tele-productions as
partial
consideration of the purchase price to be paid pursuant to a certain Letter
Agreement of equal date entered into by the Company and MCT for the Company's
purchase of Media City Studios.
The Company claims an exemption from the registration requirements of the Act
for the issuance of the Preferred Stock and Common Stock, as set forth above,
pursuant to Section 4(2) of the Act and/or Regulation D promulgated
thereunder since, as among other things, the transaction did not involve a
public offering, the investors and/or purchasers were each an accredited
investor and/or qualified institutional buyer, the investors had access to
information about the Company and their investment, the investors took the
preferred and common stock for investment and not resale and the Company took
appropriate measures to restrict the transfer of the preferred and common
stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(A) Exhibits
31.1 Certification by Chief Executive Officer pursuant to Section 302 of
Sarbanes Oxley Act of 2002.
31.2 Certification by Chief Financial Officer pursuant to Section 302 of
Sarbanes Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VALCOM, INC.
Date: October 4, 2006
By: /s/ Vince Vellardita
- -------------------------------------
Vince Vellardita Chairman
Chief Executive Officer
Date: October 4, 2006
By: /s/ Steven Cantrock
- -------------------------------------
Steven Cantrock
Chief Financial Officer and
Principal Accounting Officer
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