UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 2010
Commission file Number 0-28416
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
VALCOM, INC.
(Name of small business issuer specified in its charter)
Delaware 58-1700840
- ------------------------------------ -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2113A Gulf Boulevard, Indian Rocks Beach, Florida 33785
-------------------------------------------------------
(Address of Principal executive offices) (Zip code)
(727) 953 - 9778
------------------------------
Issuer's telephone number
Securities registered pursuant to 12(b) of the Act: None Securities to be
registered pursuant to Section 12(g) of the Act:
COMMON STOCK $0.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has 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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T
({section}232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
[ ] Yes [ ] No.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 24, 2010, the
issuer had 40,584,158 shares of its $0.001 par value common stock outstanding.
VALCOM, INC.
FORM 10-Q
Page
PART I - FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Item 3. Quantitative and Qualitative Market Risk 12
Item 4. Controls and Procedures 12
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 1A. Risk Factors 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Removed and Reserved 13
Item 5. Other Information 13
Item 6. Exhibits 13
SIGNATURES 14
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALCOM, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2010 SEPTEMBER 30, 2009
-------------- ------------------
ASSETS
CURRENT ASSETS
Cash $ 21,432 $ 110,846
Restricted cash 60,313 60,230
Accounts receivable, net 105,555 44,303
Prepaid show costs 275,000 -
Inventory 424,209 487,324
--------------- ------------------
Total Current Assets 886,509 702,703
Property, equipment and film library, net of accumulated
depreciation of $158,169 and $126,711, respectively 208,296 238,664
Intangible assets, net of accumulated amortization of
$170,029 and $104,211, respectively 224,877 290,695
--------------- ------------------
TOTAL ASSETS $ 1,319,682 $ 1,232,062
================ ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,036,303 $ 633,605
Due to related parties 922,027 900,048
Derivative liabilities 50,000 -
Notes payable, net of unamortized discounts of $720,000
and $82,411, respectively 661,240 378,839
Related party debt, net of unamortized discounts of
$22,500 and $0, respectively 2,500 -
--------------- ------------------
Total Current Liabilities 2,672,070 1,912,492
Derivative liabilities 208,311 -
--------------- ------------------
Total Liabilities 2,880,381 1,912,492
STOCKHOLDERS' DEFICIT
Series B Preferred stock, 1,000,000 shares authorized
at par value of $0.001, 38,000 shares issued and outstanding 38 38
Series C Preferred stock, 25,000,000 shares authorized
at par value of $0.001, 14,691,395 shares issued and outstanding 14,691 14,691
Common stock, 250,000,000 shares authorized at par value
of $0.001, 40,434,158 and 22,776,099 shares issued
and outstanding, respectively 39,201 39,064
Treasury stock, 35,000 shares (23,522) (23,522)
Additional paid-in capital 20,457,548 19,791,048
Accumulated deficit (22,048,655) (20,501,749)
--------------- ------------------
Total Stockholders' Deficit (1,560,699) (680,430)
--------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,319,682 $ 1,232,062
=============== ==================
The accompanying notes are an integral part of these consolidated financial statements.
1
VALCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2010 2009 2010 2009
-------------------------- --------------------------
REVENUES $ 170,971 $ 318,935 $ 362,156 $ 385,204
COST OF GOODS SOLD 376,037 - 499,501 107
------------ --------- ----------- -----------
GROSS MARGIN (205,066) 318,935 (137,345) 385,097
OPERATING EXPENSES
Advertising and marketing 10,974 (80,243) 11,511 (26,105)
Depreciation and amortization 48,604 32,588 97,276 55,377
General and administrative 718,867 681,754 1,081,993 1,095,370
------------ --------- ----------- -----------
TOTAL OPERATING EXPENSES 778,445 634,099 1,190,780 1,124,642
------------ --------- ----------- -----------
LOSS FROM OPERATIONS (983,511) (315,164) (1,328,125) (739,545)
OTHER INCOME (EXPENSES)
Interest expense (43,218) (30,894) (49,218) (51,397)
Amortization of debt discount (133,377) - (180,549) -
Derivative liability 84,709 - 197,056 -
Interest income and other 887 552,475 1,221 552,635
------------ --------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (90,999) 521,581 (31,490) 501,238
------------ --------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,074,510) 206,417 (1,359,615) (238,307)
PROVISION FOR INCOME TAXES - - - -
------------ --------- ----------- -----------
NET INCOME (LOSS) $(1,074,510) $ 206,417 $(1,359,615) $ (238,307)
============ ========= ============ ===========
BASIC LOSS PER SHARE (0.03) 0.01 (0.03) (0.01)
============ ========= ============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 40,434,158 24,834,493 40,170,971 24,148,362
============ ========= ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
2
VALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Series B Series C Additional Total
Preferred Stock Preferred Stock Common Stock Treasury Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Stock Capital Deficit Deficit
---------------- ------------------- ------------------- -------- ----------- ------------ ------------
Balances, September 30, 38,000 $38 14,691,395 $14,691 $39,064,158 $39,064 $(23,522) $20,014,218 (20,724,919) (680,430)
2009
Cumulative effect of
change in accounting
principle - October 1, 2009
reclassification of embedded
feature of equity- linked
financial instruments to
derivative liabilities - - - - - - - (475,533) 35,879 (439,654)
Stock based compensation - - - - 1,050,000 105 - 77,895 - 78,000
Sale of common stock - - - 320,000 32 - 15,968 - 16,000
Debt discount due to
profit interest given with
debt - - - - - - - 825,000 - 825,000
Net loss - - - - - - - - (1,359,615) (1,359,615)
------- ------ ---------- ------- ----------- ------- -------- ----------- ------------- ------------
Balances, March 31, 2010 38,000 $38 4,691,395 $14,691 40,434,158 $39,201 $(23,522) $20,457,548 $(22,048,655) $(1,560,699)
======= ====== ========== ======= =========== ======= ========= =========== ============= ============
The accompanying notes are an integral part of these consolidated financial statements.
3
VALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
2010 2009
----------------------------
OPERATING ACTIVITIES
Net loss $ (1,359,615) $ (238,307)
Adjustments to reconcile net loss to net cash
used by operating activities:
Stock based compensation 78,000 131,199
Depreciation expense 31,458 55,377
Amortization of intangible assets 65,818 -
Amortization of debt discounts 180,549 -
Gain on derivative contracts (197,056) -
Changes in operating assets and liabilities:
Accounts receivable (61,252) (100,063)
Prepaid assets (275,000) (12,000)
Inventory 63,115 -
Accounts payable and accrued expenses 402,773 (86,466)
Accounts payable to related party 21,979 -
------------ -----------
Net Cash Used in Operating Activities (1,049,231) (250,260)
INVESTING ACTIVITIES
Purchase of property and equipment (1,090) (264,352)
Purchase of other assets - (616,278)
Increase in restricted cash (83) -
------------ -----------
Net Cash Used in Investing Activities (1,173) (880,630)
FINANCING ACTIVITIES
Proceeds from sale of common stock 16,000 484,212
Proceeds from note payable 919,990 486,267
Proceeds from related party payable 25,000 426,101
------------ -----------
Net Cash Provided by Financing Activities 960,990 1,396,580
------------ -----------
NET INCREASE (DECREASE) IN CASH (89,414) 265,690
CASH AT BEGINNING OF YEAR 110,846 86,416
------------ -----------
CASH AT END OF YEAR $ 21,432 $ 352,106
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 2,500 $ -
Income Taxes - -
NON CASH FINANCING ACTIVITIES:
Cumulative effect of change in accounting principal $ 455,367 $ -
Debt discount due to profit interest given with debt 825,000 -
The accompanying notes are an integral part of these consolidated financial statements.
4
VALCOM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of ValCom, Inc., have
been prepared in accordance with accounting principles generally accepted in
the United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in Valcom's Form 10K. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 2010 and for all periods presented have
been made.
Notes to the financial statements that would substantially duplicate the
disclosures contained in the audited consolidated financial statements for
fiscal 2009 as reported in the Form10K, have been omitted. The results of
operations for the period ended March 31, 2010 and 2009 are not necessarily
indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
ValCom's financial statements are prepared using generally accepted accounting
principles applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the normal course of business.
In order to continue as a going concern and achieve a profitable level of
operations, ValCom will need, among other things, additional capital resources
and to develop a consistent source of revenues. Management's plans include
investing in and developing all types of businesses related to the
entertainment industry.
The ability of ValCom to continue as a going concern is dependent upon its
ability to successfully accomplish the plan described in the preceding
paragraph and eventually attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if
ValCom is unable to continue as a going concern.
NOTE 3 - WARRANT DERIVATIVES
In June 2008, the FASB finalized FASB ASC 815-15, which specifies a procedure
to determine if an equity-linked financial instrument (or embedded feature) is
indexed to its own common stock. FASB ASC 815-15 is effective for fiscal years
beginning after December 15, 2008. A total of 5,209,000 of ValCom's warrants
that were previously classified in equity were reclassified to derivative
liabilities on October 1, 2009 as a result of FASB ASC 815-15. In addition,
certain embedded features related to convertible debt were bifurcated and
recorded as derivative liabilities on October 1, 2009. ValCom estimated the
fair value of these liabilities as of October 1, 2009 to be $455,366. In
addition, ValCom recorded a reduction of $475,533 to Additional Paid-in
Capital; $35,879 to Accumulated Deficit and an increase in debt discount of
$15,638. The effect of this adjustment is recorded as a cumulative effect of
change in accounting principle in ValCom's consolidated statement of
stockholders' deficit. At March 31, 2010 the derivative liability was marked to
market and had a market value of $258,311. During the three months ended March
31, 2010, we recorded a gain on derivative liabilities totaling $84,709, and
for the six months ended March 31, 2010, we recorded a gain of $197,056.
5
NOTE 4 - NOTES PAYABLE
During the quarter ended March 31, 2010, ValCom entered into note agreements
with various lenders for an aggregate of $625,000. The proceeds of the notes
are to be used to fund a concert by Michel Legrand (the Concert). The notes
earn 0% interest and are collateralized by a 2.5% of the outstanding shares of
Valencia for every $25,000 borrowed. In addition, for every $25,000 borrowed,
the note holder receives 2.5% of the net profits of the Concert (after
all costs related to the Concert are recovered). The fair value of the
profit interests, up to the face value of the debt, of $625,000 was
recorded as a discount on the notes and is being amortized over the life of the
loans using the effective interest rate method. During the three months ended
March 31, 2010, amortization of $62,500 was recorded on the discounts. The
notes mature on March 31, 2010.
During the three months ended March 31, 2010, ValCom borrowed an aggregate of
$119,990 from various lenders which loans are unsecured, due on demand and bear
no interest.
During the three months ended March 31, 2010, ValCom borrowed an aggregate of
$175,000 from two lenders. The notes are unsecured and mature between on demand
and April 17, 2010. Upon maturity, ValCom is required to repay a total of
$57,500 in addition to the principal amounts as loan interest costs. $36,935 of
this amount was recorded as accrued interest during the quarter ended March 31,
2010. In addition, the note holders are entitled to 10% of the net proceeds
earned on the Michel Legrand PBS Special. The fair value of the net profit
interests, up to the face value of the debt, was recorded as a discount on
the notes. As a result, the company recorded a discount of $175,000,
which was equal to the face value of the notes. The discount is being amortized
over the life of the loans using the effective interest rate method. During
the three months ended March 31, 2010, amortization of $17,500 was recorded on
the discounts.
NOTE 5 - RELATED PARTY TRANSACTIONS
On March 25, 2010, ValCom borrowed $25,000 from its President and Chief
Executive Officer. The note is unsecured and matures on May 17, 2010. The note
does not have a stated interest rate. Upon maturity, ValCom is required to
repay a total of $2,500 in addition to the principal as loan interest cost.
$283 of this amount was recorded as accrued interest during the quarter ended
March 31, 2010. In addition, the note holder is entitled to 10% of the net
proceeds earned on the Michel Legrand PBS Special. The fair value of the profit
interest, up to the face value of the debt, was recorded as a discount on
the note. As a result, the company recorded a discount of $25,000, which was
equal to the face value of the note. The discount is being amortized over the
life of the loan using the effective interest rate method. During the three
months ended March 31, 2010, amortization of $2,500 was recorded on the
discount.
NOTE 6 - STOCKHOLDERS' EQUITY
During the six months ended March 31, 2010, ValCom sold 320,000 common shares
for $16,000 and issued 1,050,000 common shares for services valued at $78,000.
NOTE 7 - SUBSEQUENT EVENTS
On May 17, 2010, ValCom entered into an agreement with PBS to deliver a 1 -hour
television special produced by ValCom. In return, ValCom will receive an
aggregate $250,000 plus $12 for every DVD sold and $8 for every CD sold over 26
months.
During April 2010, ValCom issued 150,000 common shares for consulting services.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in "Management's Discussion and Analysis or Plan of
Operation" below, and elsewhere in this quarterly report, are not related to
historical results, and are forward-looking statements. Forward-looking
statements present our expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward- looking statements. Forward-looking statements
frequently are accompanied by such words such as "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," or the negative of such terms or other
words and terms of similar meaning. Although we believe that the expectations
reflected in the forward- looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance, achievements, or
timeliness of such results. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such forward-looking
statements. We are under no duty to update any of the forward-looking
statements after the date of this quarterly report. Subsequent written and oral
forward looking statements attributable to us or to persons acting in our
behalf are expressly qualified in their entirety by the cautionary statements
and risk factors set forth below and elsewhere in this quarterly report, and in
other reports filed by us with the SEC.
INTRODUCTION COMPANY UPDATE
Valcom is a fully integrated Entertainment Company that has been in business
for over 25 years and has gone through its ups and downs. It looks like its
turning the corner within the Broadcast Division by paying off its Television
Network and has found a niche in the Live Events Television Production Division
by successfully producing a hit show; Michel Legrand and Friends, which
received great reviews and was purchased by one of the top Television Networks
in the United States. The show will generate a minimum of $500,000 of revenue
to the company and it anticipates bringing millions.
As far as for the Real Estate Auction we have finally figured out how to
successfully run the program after the previous attempts that did show success,
but had some mistakes. We have now entered into a 3 year deal with Direct
Shopping Network that does over $60 Million in Annual Sales. The company will
begin the auctions in June 2010 and carry there over through the rest of the
year.
PLAN OF OPERATION
As of March 31, 2010, ValCom, Inc. ("Valcom" or the "Company") operations were
comprised of the following activities:
1. TV Stations and Broadcast Division
2. Film and Television Production
3. Live Theater Event Division
4. Real Estate Channel Auctions
Corporate offices are located at 2113A Indian Rocks Beach, Florida.
Certain statements in "Management's Discussion and Analysis or Plan of
Operation" below, and elsewhere in this annual report, are not related to
historical results, and are forward-looking statements. Forward-looking
statements present our expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward- looking statements. Forward-looking statements
frequently are accompanied by such words such as "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," or the negative of such terms or other
words and terms of similar meaning. Although we believe that the expectations
reflected in the forward- looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance, achievements, or
timeliness of such results. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such forward-looking
statements. We are under no duty to update any of the forward-looking
statements after the date of this annual report. Subsequent written and oral
forward looking statements attributable to us or to persons acting in our
behalf are expressly qualified in their entirety by the cautionary statements
and risk factors set forth below and elsewhere in this annual report, and in
other reports filed by us with the SEC.
1. BROADCASTING UPDATE
Following the 100% acquisition of the Christian Television Network, Faith TV
LLC on December 15 2008, ValCom began an immediate rebranding to "My Family
TV". The network which had been operating through 65 broadcast, IPTV and cable
affiliates at the time of acquisition has now grown to over 88 affiliates. With
a primary focus on family friendly programming, management has engaged a
strategic plan of growth through quality programming, distribution through
organic growth and acquisition leading to a strong foundation for sales. My
Family TV is a strong family friendly network with a core established audience
and broadcasts to over 50m households through its extensive affiliate network
of full and part time affiliates. My Family TV is an emerging network created
for American families.
With the acquisition of My Family TV, Valcom now has a library of over 1,000
films, over 200 episodic TV series and more than 500 individual TV one-off
specials and documentary programs.
7
A major revenue stream for ValCom is network television. The vision of the
company is to follow the path of ABC Family; a network that was purchased for
$1.6 Billion and was later sold for $5.1 Billion. The first network being built
by ValCom is My Family TV, which was acquired by the company in 2008.
ValCom has made significant changes to My Family TV that have increased the
overall value of the network. Some of these changes include: New programming
blocks of health and lifestyle, classic television, comedies, children's and
primetime entertainment and over 80 movies per month; Increasing carriage to
include major growth markets such as: Charlotte, Dallas, Denver, Phoenix, San
Francisco and Tampa. The implementation of an aggressive effort to secure cable
and broadcast coverage in additional major markets will lead to improved
ratings and increased revenues.
In less than one year ValCom has eliminated all debt from the acquisition and
is operating My Family TV with almost no debt load. Short term plans include
the acquisition and launching of new channels that will grow in value based on
4 factors: Programming, Distribution, Ad Sales and Low Operational Expenses.
The company has positioned itself to be a U.S. market leader in live
interactive televised auctions, traditional and innovative family programming,
and sports, and will launch this successful formula to major international
markets in 2010.
Through 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. Valcom has not realized significant
revenues from this joint venture to date.
2. FILM AND TV PROGRAM PRODUCTION DIVISION / DISTRIBUTION UPDATE
ValCom's business includes television production for network and syndication
programming, motion pictures, and real estate holdings. Revenue is primarily
generated through the lease of the sound stages and production. Our past and
present clients include Paramount Pictures, Don Belisarious Productions, Warner
Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS,
Sony, Showtime, the USA Network, the Game Show Network, Endemol, BET Home
Shopping Network and Sullivan Studios.
ValCom has a long history of TV and film production and continuously develops
projects for productions and considers proposals for co-production. ValCom has
developed and produced a number of live action series pilots and full length
feature film projects such as PCH (Pacific Coast Highway) and the 40 episode TV
series AJ's Time Travelers. Valcom has been commissioned to produce pilots such
as Truster for Fox, It also produces development pilots itself for pitching to
networks such as the New York based sitcom Fuhgedabowit and Let's Do It Again
featuring Frankie Avalon. With its integrated studio operation, studio
equipment and post production facility, ValCom has the opportunity to co-
produce by way of the provision of services with the opportunity to defer costs
and also to provide executive producer services to assist with development,
planning, financing and distribution.
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. The
company did not proceed with the production of the new feature film or series
but in 2004, it did complete a distribution agreement for the DVD with BCI
Eclipse for 183 episodes of the New Zoo Revue library. Valcom has not realized
significant revenues from animation to date.
ValCom's Studio Division is composed of its studio at 14375 Myerlake Circle,
Clearwater, Florida which houses a state-of- the art production studio,
broadcast facilities, recording studios, production design construction,
animation and post-production. Corporate offices are located at 2113A Indian
Rocks Beach, Florida.
In 2009, Valcom produced the documentary feature film `Michel Legrand is
Music'. The documentary pays tribute to Michel Legrand's five-decade, multiple
award-winning career composing many of the most memorable film and television
scores and songs of all time. ValCom Inc. will premiere the documentary in a
limited week-long theatrical run in New York City on September 18th at the
Coliseum Theater. In addition, the documentary will premiere in Los Angeles on
September 16th at the Laemmle Grand Cineplex 4. "Michel Legrand Is Music"
honors the work of the three-time Academy Award-winning French music composer,
arranger, conductor and pianist Michel Legrand. Legrand composed more than 200
film and television scores and numerous jazz, popular and classical musical
albums. He won Academy Awards for Best Music, Original Song for "The Windmills
of Your Mind" from "The Thomas Crown Affair" (1969), Best Music, Original
Dramatic Score for "Summer of '42" (1971) and Best Music, Original Song for
Barbra Streisand Movie "Yentl" (1983). Academy Award-winning actor Jon Voight
narrates the documentary.
Valcom , through Valencia Entertainment International operates a compete
distribution and syndication service to producers and thus acquire content for
its networks at little or no cost with its ability to guarantee TV broadcast
and provide a launch for further home entertainment distribution on DVD and on-
demand channels through it other relationships. ValCom also has the opportunity
to co-produce film and TV programs by way of the provision of services with the
opportunity to defer costs and also to provide executive producer services to
assist with development, planning, financing and then be able to acquire
distribution rights for these productions.
ValCom owns a substantial library of television content with over 1000 films
and it also acquires third party film and TV programming which it distributes
through Valencia Entertainment International.
On November 6, 2007, Valencia Entertainment signed an agreement with Porchlight
Distribution Inc. from Santa Monica Blvd., Los Angeles, for the worldwide
distribution of all 40 episodes of A.J.'s Time Travelers.
In December 2008, Valcom signed a production and distribution agreement with
XFC, the mixed martial arts promoter for the editing and world-wide
distribution of 13 one hour shows featuring live events promoted by XFC. XFC
events are currently attracting the largest audiences of any mixed martial arts
events promoted in the US
To coincide with the Michel Legrand live event in Las Vegas in 2010, Valcom is
planning a number of distribution opportunities including the distribution and
syndication of programming based on the live event, music recordings, album and
other related events.
8
Valencia Entertainment entered into a Distribution Agreement with DLT
Entertainment to sell the Michel Legrand and Friends Special around the world.
On May 17, 2010 the show was delivered to Public Broadcast Network, who bought
the Project for the US rights for a $250K fee and $12.00 per DVD and $8.00 per
CD sold over the next 26 months. The Show will start airing in August 2010 and
the Network likes what Valencia Entertainment has produced and delivered to
them. We also have several other countries interested in purchasing the
project.
3. LIVE THEATRE AND EVENT DIVISION UPDATE
Valcom has a live theatre division responsible for bringing live shows and
events to fruition. In 2006 Valcom produced a theater production called
'Headlights and Tailpipes' which was unveiled at the Las Vegas Stardust hotel
and ran until July 2006. Other events produced included the 2006 Superbowl pre-
game Wrap Bowl Event featuring Young Jeezy, Academy Award winner Ludacris,
Juvenile and Juelz Santana.
Valcom, through its subsidiary, Valencia Entertainment is producing a live
theatre event based on Michel Legrand and his music scheduled for March 2010 at
the MGM Grand's Garden Arena, Las Vegas and featuring a line-up of major
international recording stars. The event will take place over two nights on
March 26th and 27th and Michel Legrand will be conducting a 66-piece orchestra
and will include guests such as Quincy Jones, Dionne Warwick, Andy Williams,
George Benson, Jon Voight, Patti Page, Steve Lawrence, Melissa Manchster, Neil
Sedaka and Jerry Lewis. The two-night shows will pay musical tribute to come of
Legrand's Academy Award-winning MGM movies including "Yentl", "Thomas Crown
Affair" and "Summer of 42". The superstar extravaganza will also be captured on
film for a made-for-TV-Special to air at a later date.
The Michel Legrand and Friends Special had a very successful turnout with over
3,000 attendees at the show, while the Box Office generated over $150,000 in
Sales; topping it off with the sale to Public Broadcast Network, who will air
the show in August. The Network will pay the Company a $250K fee and a Backend
participation of $12.00 for every DVD sold and $8.00 for every CD sold over the
next 26 months. The Contract is for the United States only.
4. REAL ESTATE AND OTHER BROADCAST EVENT AUCTIONS UPDATE
In 2009, Valcom pioneered the process of live event auctions covering a wide
range of events for TV broadcast and live webcast. Combining the expertise in
TV production, live event promotion and now as the owner of a broadcast TV
network, the opportunity offers a synergistic approach to such events. In 2008
and 2009, Valcom produced a wide range live TV and webcast events including
1. The Hilton `Make a Wish Foundation' broadcast live from the Hilton mansion
in Beverly Hills in December 2008
2. The Universal Studios `Battlestar Galactica' prop and memorabilia auction by
live web-cast in 2009 over a number of days from the Pasadena Convention Centre
3. The Grammy Awards `Music Cares' auction as part of the 2009 Grammy Awards
In June 2009, Valcom together with Florida Opportunities, Inc set up Sun
Investments LLC, a 51% subsidiary of Valcom, Inc to develop the business
opportunity of live event and regular real estate auctions on broadcast TV. Sun
Investments will acquire suitable properties and together with Valcom
production studios, My Family TV will produce live auction events. Valcom
acquires additional TV carriage through the purchase of airtime on major
networks and markets the events nationwide.
The first such event took place on June 2009 followed by an event in October
2009 with live broadcast from the Valcom studios media centre in Clearwater,
Florida and broadcast live over 4 hours on My Family TV, the Ion Network with
an auction of over 40 foreclosure properties acquired by Sun Investments. In
November the next event was broadcasted over My Family TV and DSN (Direct
Shopping Network).
Beginning in June, we are starting with a series of Auctions on the DSN
Network, where we anticipate to make the auctions more exciting with the
offering of financing as well as auctioning off down payments rather than the
sales price. These are variants that will make the process more enticing and
will create more interaction. Commencing in June, we hope to quickly ramp up
the frequency of the auctions to a minimum of 2 per month.
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2010 VS. MARCH 31, 2009
Revenues for the three months March 31, 2010 decreased by $147,964 or 46% from
$318,935 for the three months ended March 31, 2009 to $170,971 for the same
period in 2010. The decrease in revenue was principally due to a decrease in
auction and studio rental income.
Production costs for the three months ended March 31, 2010 increased from $0
for the three months ended March 31, 2009 to $376,037 for the same period in
2010. The increase was primarily due to production costs and satellite
expenses.
Depreciation and amortization expense for the three months ended March 31, 2010
increased by $16,016 or 49% from $32,588 for the three months ended March 31,
2009 to $48,604 for the same period in 2010. The increase was due to the
acquisition of fixed assets and intangibles in December 2008 and the related
amortization and depreciation.
General and administrative expenses for the three months ended March 31, 2010
increased by $37,113 or 5% from $681,754 for the three months ended March 31,
2009 to $718,867 for the same period in 2010. The increase was due principally
to increased labor costs.
Interest expense for the three months ended March 31, 2010 increased by $12,324
or 40 % from $30,894for the three months ended March 31, 2009 to $43,218 for
the same period in 2010. The increase was due principally to an increase in
interest bearing notes outstanding during the period.
Other income decreased from $552,475 for the three months ended March 31, 2009,
to $887 for the three months ended March 31, 2010. For the three months ended
March 31, 2009 the company settled a lawsuit and received a $550,000
settlement.
Due to the factors described above, the Company's net loss increased by
$1,280,927 from net income of $206,417 for the three months ended March 31,
2009 to a net loss of $1,074,510 for the same period in 2010.
SIX MONTHS ENDED MARCH 31, 2010 VS. MARCH 31, 2009
Revenues for the six months ended March 31, 2010 decreased by $23,048 or 6%
from $385,204 for the six months ended March 31, 2009 to $362,156 for the same
period in 2010. The decrease in revenue was principally due to a decrease in
studio rental and auction income offset by an increase in home sales.
Production costs for the six months ended March 31, 2010 increased from $107
for the six months ended March 31, 2009 to $499,501 for the same period in
2010. The increase was primarily due to production costs, satellite expenses,
and cost of homes sold.
Depreciation and amortization expense for the six months ended March 31, 2010
increased by $41,899 or 76% from $55,377for the six months ended March 31, 2009
to $97,276 for the same period in 2010. The increase was due to the acquisition
of fixed assets and intangibles in December 2008 and the related amortization
and depreciation.
General and administrative expenses for the six months ended March 31, 2010
decreased by $13,377 or 1% from $1,095,370 for the six months ended March 31,
2009 to $1,081,993for the same period in 2010. The decrease was due principally
to labor costs.
Interest expense for the six months ended March 31, 2010 decreased by $2,179 or
4% from $51,397 for the six months ended March 31, 2009 to $49,218 for the same
period in 2010. The decrease was due principally to the decrease in interest
bearing notes outstanding during the period.
Due to the factors described above, the Company's net loss increased by
$1,121,308 from net loss of $238,307 for the six months ended March 31, 2009 to
a net loss of $1,359,615 for the same period in 2010.
10
FUTURE OUTLOOK COMPANY UPDATE
Valcom, through its subsidiary, Valencia Entertainment just completed producing
a live theatre event based on Michel Legrand and his music in March 2010 at the
MGM Grand's Garden Arena, Las Vegas and featured a line-up of major
international recording stars. The event took place on March 26th and Michel
Legrand conducted a 66-piece orchestra which included guests such as Quincy
Jones, Dionne Warwick, Andy Williams, George Benson, Jon Voight, Patti Page,
Steve Lawrence, Melissa Manchester, Neil Sedaka and Jerry Lewis. The show paid
musical tribute to some of Legrand's Academy Award-winning MGM movies including
"Yentl", "Thomas Crown Affair" and "Summer of 42". The superstar extravaganza
was also captureded on film for a made-for-TV-Special. Valencia Entertainment,
through DLT Entertainment sold the Michel Legrand Special to Public
Broadcasting Network for a License Fee of $250,000 and $12 per DVD and $8 per
CD sold over the next 26 months.
Valencia Entertainment has already begun discussions with other Broadcast
Networks on new show ideas branching from its library. One show in particular
is The Platters; the Company owns all of the masters from the late 1950's as
well as other top musical giants and plans on structuring another show similar
to the successful project, Michel Legrand and Friends. The Platters' show is
planned for the Fall of 2010, which would also be another TV Special Concert
and sell through a DVD and CD program, similar to the Doo Wop Special Rhino
Records put out; which has grossed over 40 Million US dollars to date.
Valencia Entertainment was also contacted by a group in Europe to produce a
project at the World Cup in July at the closing ceremony in South Africa with
some of the biggest stars in the world.
There are also several production projects Valcom is looking at and bidding on.
In June 2010, we have the next auction planned; from there on we plan to do a
minimum of 2 auctions per month. These auctions are conducted through our
partnership with DSN in California. These auctions will also demonstrate a
greater variety of the methods of auctioning where we anticipate including
auctioning off the down payment and offer financing.
Valcom is also actively pursuing opportunities to either merge with or acquire
a television network. At this moment My Family TV has no debt and is operating
near breakeven, growing the network can be done through organic growth or
through an acquisition or merger. Valcom is currently having discussions with
potential targets and evaluating what the best course of action would be. A
merger or acquisition would result in lowering our operating expenses due to
cost efficiency that can be reach and increase of footprint.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements have been prepared, assuming
that the Company will continue as a going concern. The Company incurred a net
loss of $1,359,615 and negative cash flows from operations of $1,049,231 for
the six months ended March 31, 2010 and had a working capital deficiency of
$1,785,561 and an accumulated deficit of $22,048,655 at March 31, 2010. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
Cash (exclusive of restricted cash) totaled $21,432 on March 31, 2010 compared
to $110,846 as of March 31, 2009. During the six months ended March 31, 2010,
net cash used by operating activities totaled $1,049,231 compared to net cash
used by operating activities of $250,260 for the comparable six month period in
2009. Net cash used in investing activities for the six months ended March 31,
2010 totaled $1,173 compared to $880,630 for the comparable six month period in
2009. Net cash provided by financing activities for the six months ended March
31, 2010 totaled $960,990 compared to $1,396,580 for the comparable six month
period in 2009.
The above cash flow activities yielded a net cash decrease of $89,414 during
the six months ended March 31, 2010 compared to an increase of $265,690 during
the comparable prior year period.
Net working capital (current assets less current liabilities) was a deficit of
$1,785,561 as of March 31, 2010. 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.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) that is designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an
evaluation with the participation of the Company's management, including Vince
Vellardita, the Company's Chief Executive Officer and Chief Financial Officer
("CEO/CFO"), of the effectiveness of the Company's disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
three months ended March 31, 2010. Based upon that evaluation, the Company's
CEO /CFO concluded that the Company's disclosure controls and procedures are
not effective to ensure that information required to be disclosed by the
Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including the
Company's CEO /CFO, as appropriate, to allow timely decisions regarding
required disclosure.
CHANGES IN INTERNAL CONTROLS
There were no change occurred in the Company's internal controls over financial
reporting during the 2010 Quarter ended March 31, 2010 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
12
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS COMPANY
None
ITEM 1A. RISK FACTORS
WE WILL REQUIRE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS STRATEGY AND
OUR INABILITY TO OBTAIN ADDITIONAL FINANCING COULD CAUSE US TO CEASE OUR
BUSINESS OPERATIONS.
We will need to raise additional funds through public or private debt or sale
of equity to achieve our current business strategy. Such financing may not be
available when needed. Even if such financing is available, it may be on terms
that are materially adverse to your interests with respect to dilution of book
value, dividend preferences, liquidation preferences, or other terms. Our
capital requirements to implement our business strategy will be significant.
However, at this time, we cannot determine the amount of additional funding
necessary to implement such plan. We anticipate requiring additional funds in
order to fully implement our business plan to significantly expand our
operations. We may not be able to obtain financing if and when it is needed on
terms we deem acceptable. Our inability to obtain financing would have a
material negative effect on our ability to implement our acquisition strategy,
and as a result, could require us to diminish or suspend our acquisition
strategy.
If we are unable to obtain financing on reasonable terms, we could be forced to
delay, scale back or eliminate certain product and service development
programs. In addition, such inability to obtain financing on reasonable terms
could have a material negative effect on our business, operating results, or
financial condition to such extent that we are forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could put your
investment dollars at significant risk.
Except as set forth above, there have been no material changes from the Risk
Factors described in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2009.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS UPDATE
There have been no sales of Equity Securities.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES UPDATE
No defaults
ITEM 4 - REMOVED AND RESERVED
ITEM 5 - OTHER INFORMATION
NONE.
ITEM 6 - EXHIBITS.
(A) Exhibits
31.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of Sarbanes Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350.
13
The Company incorporates by reference all exhibits to its Form 10-K for the
year ending September 30, 2007.
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.
Dated: May 24, 2010
VALCOM, INC., A DELAWARE CORPORATION
By: /s/ Vince Vellardita
- -------------------------
Vince Vellardita
Chief Executive Officer (Principal Executive Officer)
and Chief Financial Officer (Principal Accounting and Financial Officer)
14