10KSB 1 c10ksb-128.txt ANNUAL REPORT Securities and Exchange Commission Washington, D.C., 20549 FORM 10-KSB Annual Report Pursuant To Sections 13 Or 15 (D) Of The Securities Exchange Act Of 1934 For the Fiscal Year Ended September 30, 2001 Filed Pursuant To Sections 13 Or 15(D) Of The Securities Exchange Act of 1934 Securities and Exchange Commission File Number O-28416 =============================================================================== ValCom, Inc. (Name of small business issuer specified in its charter) ===============================================================================
Delaware 58-1700840 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 26030 Avenue Hall Studio 5 (661) 257-8000 Valencia, California 91355 (Issuer's telephone number) (Address of Principal Executive Offices) (Zip Code)
============================================================================== Securities registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, Par value $0.001 - Preferred Stock, Par Value $0.001 ------------------------------------------------------------------ (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 requirement for the past 90 days. YES X NO __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definite proxy or information statements incorporation by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. YES X NO __ Registrant's revenues for its most current fiscal year: $ 2,413,260.00 Aggregate market value of the voting stock held by non-affiliates as of December 15, 2001: $3,563,760.00 Number of common shares outstanding as of 9/30/2001 or latest practical date at $.001 par value: 8,909,401
Documents Incorporated By Reference: None Location of Exhibit Index: The index of exhibits is contained in part IV herein on page number 49 plus exhibits. Transitional Small Business Disclosure Format: Yes ____ No _X_ =============================================================================== Dated December 27, 2001 ________________________________________________________________________________ -1-
Table of Contents Item Page Number Number Item Caption ------ ------ ------------ Part I ------ Item 1. 3 Description of Business Item 2. 8 Description of Properties Item 3. 9 Legal Proceedings. Item 4. 10 Submission of Matters to a Vote of Security Holders Part II ------- Item 5. 10 Market Price of and Dividends on the Registrant's Common Equity and other Shareholder Matters Item 6. 15 Management's Discussion and Analysis or Plan of Operation Item 7. 18/F1Financial Statements and Summary Financial Data Item 8 37 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Part III -------- Item 9 37 Directors, Executive Officers, Promoters and Control Persons Item 10. 39 Executive Compensation Item 11. 39 Security Ownership of Certain Beneficial Owners and Management Item 12. 42 Certain Relationships and Related Transactions Part IV ------- Item 13. 42 Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures 44 ----------
-2- Part I ------ Statements contained in this Annual Report on Form 10-KSB that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act Of 1995. Such forward-looking statements are subject to risk and uncertainties, which could cause actual results to differ materially from estimated results. Certain of such risks and uncertainties are detailed in filings with the Securities and Exchange Commission and the Company's in Item 1 "BUSINESS" and Item 6 MANAGEMENT'S DISCUSSION AND DESCRIPTION OR PLAN OF OPERATION" below. Item I. Description of Business ------ ----------------------- General ------ Item 1. Description of Business General ValCom, Inc., a publicly held Delaware corporation (the "Company"), was originally organized in the State of Utah on September 23, 1983, under the corporate name Alpine Survival Products, Inc. Its name was changed to Justin Land and Development, Inc., during October of 1984, and to Supermin, Inc., on November 20, 1985. The Company was originally formed to engage in the acquisition of any speculative investment or business opportunity without restriction as to type or classification. On September 29, 1986, Supermin, Inc., concluded a reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1954, as amended, pursuant to which it exchanged 200,000 shares of its common stock, $.001 par value (all shares numbers, unless otherwise stated, adjusted to reflect a one for 20 reverse stock split) for all of the capital stock of Satellite Bingo, Inc., a Georgia corporation organized on January 10, 1986, and the originator of the Company's current business (the "SBI Subsidiary"). In conjunction with such reorganization, the former stockholders of the SBI Subsidiary, acquired control of the Company and the Company changed its name to Satellite Bingo, Inc. On March 10, 1988, the Company changed its name to SBI Communications, Inc., and on January 28, 1993, the Company reincorporated into Delaware through a statutory merger with a wholly owned Delaware subsidiary in reliance on the exemption from registration requirements of Section 5 of the Securities Act of 1933, as amended, provided by Rule 145(a)(2) promulgated thereunder. On July 20, 2000 the Board of Directors approved a "2-1 forward stock split" with a distribution date of August 14, 2001 and a Shareholder record date of August 10, 2000. The purpose of the forward split was to strengthen the Company's flexibility and address the liquidity issue in increasing the available float in the market. On August 21, 2000, a letter of intent was executed between the principals of Valencia Entertainment International, LLC (VEI) and SBI Communications, Inc. (SBI) Both parties conducted due diligence and began the formal process of drafting the merger agreement. On October 16, 2000, the majority stockholders executed a written shareholder resolution approving the Agreement and Plan of Merger. Pursuant to the Merger Agreement the Company appointed new Board -3- members, changed the par value of Preferred Stock, increased the authorized Common Stock and changed its name to ValCom, Inc. (ValCom) A 14C information statement was filed with the Securities and Exchange Commission. The Securities and Exchange Commission approved the definitive 14C on February 13, 2001. The Merger was finalized on March 6, 2001. Appointment of New Directors --------------------------------------- The Board of Directors unanimously nominated and the consenting stockholders approved and elected 4 individuals as directors to hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified. Each of the following individuals has consented to serve as a director of ValCom and there is no familial relationship between any nominated director and any current director or between any of the nominated directors. Name and Position in the Company Age Since Vince Vellardita 44 2000 CEO/President/Chairman of the Board Ronald Foster 60 1986 Vice President/Secretary/Director David Weiner 42 2001 Director Stephen A. Weber 53 2001 Director Change In Par Value Of Preferred Stock ------------------------------------------------- The Board of Directors and the consenting stockholders unanimously adopted and approved an amendment to the SBI's certificate of incorporation (now Valcom) to change the par value of its preferred stock. SBI's previous capital structure authorized 10,000,000 million shares of preferred stock at a par value of $5.00 per share. Delaware law computes the annual franchise tax based either on the authorized share method or the assumed par value capital method, but in no event is the annual franchise tax greater than $150,000. In order to reduce and minimize the annual franchise tax, the Board of Directors and the consenting stockholders unanimously adopted and approved an amendment to the SBI's(now ValCom) certificate of incorporation to change the preferred stock par value from $5.00 to $.001 per share. Increase In Authorized Common Stock ------------------------------------------------ The Board and the consenting stockholders unanimously adopted and approved an amendment to SBI's(now ValCom) certificate of incorporation to increase the authorized common stock from 40,000,000 to 100,000,000 shares. The terms of the merger made VEI a wholly owned subsidiary of ValCom and the principals of VEI received shares of ValCom's common stock based upon an agreed upon fair market valuation of the net assets of VEI. In order to consummate the merger, SBI (now ValCom) was required to issue 75,709,965 shares of common stock to the principals of VEI. The shares of common stock do not have any pre-emptive rights. The Authorized Shares Amendment was implemented by filing the certificate of amendment with the Secretary of State of Delaware. -4- Name Amendment ------------------------------- The Board of Directors and the consenting stockholders unanimously adopted and approved an amendment to the SBI's certificate of incorporation to change the corporation's name to ValCom, Inc., which is referred to as the "Name Amendment." The Name Amendment was implemented by filing a certificate of amendment to the certificate of incorporation with the Delaware Secretary of State. In the judgment of the SBI Board of Directors, the change of the corporate name was desirable in view of the significant change in the SBI's character and strategic focus as a result of the merger with VEI. ValCom's Corporate Structure ---------------------------------------- ValCom, Inc. has one subsidiary: Half Day Video, Inc. a California Corporation Unless the context requires otherwise, the term "Company" includes ValCom, Inc., a publicly held Delaware corporation and, its subsidiaries, predecessors and affiliates whose operations or assets have been taken over by ValCom, Inc. Business Overview -------------------- ValCom's business includes television production for network and syndication programming, motion pictures, Internet and real estate holdings, however, revenue is primarily generated through the lease of the sound stages. ValCom, which owns 6 acres of real property and a 120,000 square foot production facility in Valencia, California, is currently the studio set for JAG, produced by Paramount Pictures and Power Rangers produced by Saban productions. The Company's sound stages have been operating at full capacity since 1995. ValCom also leases an additional 3 acres and 52,000 square feet production facility that includes two full-service sound stages, for a total of eight sound stages. ValCom's past and present clients 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 has a small library of wholly owned television content that are ready for worldwide distribution, and several major series in advanced stages of development. Expansion Plans --------------- The Company continuously reviews industry developments and regulations for potential expansion opportunities. As a public company, the Company benefits from operating in highly regulated markets, which levels the competitive playing field. It is imperative that the Company continues to grow its operational revenues. The Company has made a significant investment in assembling its management team and operational infrastructure. This investment cost is now relatively fixed, however, and the Company has the potential to significantly leverage its profitability through incremental revenue increases. The Company will therefore continue to employ an aggressive yet methodical growth strategy. It intends to make strategic expansions in markets with: i) accommodating regulations; ii) favorable demographics; iii) successful operations management; and iv) customer acceptance and patronization. -5- The Company intends to grow through both acquisitions and developments. It uses extensive review procedures to evaluate expansion opportunities, including market studies, legal evaluations, financial analyzes and operational reviews. The Company determines development budgets and acquisition prices based on the proposed investment's expected financial performance, competitive market position, risk profile and overall strategic fit within the Company's operational plans. Acquisition terms typically include cash payments, issuance of Company securities and seller-financed notes. Consulting and non-competition agreements may also be included. The development of telecommunications, the emergence of new technology and the international nature of the Internet has created opportunities to develop new, efficient and secure ways to deliver entertainment to customers. As one of the companies that plans to employ these new technologies on the Internet, ValCom intends to capitalize on its expertise in the analyzing of consumer data and information to become a world leader of online entertainment. Joint Venture Agreement With Woody Fraser Productions ---------------------------------------------------------------------- On March 30, 2001 a joint venture agreement was executed between ValCom and Woody Fraser Productions, in which the parties agreed that Woody Fraser and his company, Woody Fraser Productions would serve exclusively as a television production company for ValCom. The primary purpose of the joint venture is the development and production of various television projects. Woody Fraser has 25 years of experience as an executive producer in Hollywood. He operates his own production company, Woody Fraser Productions, which has created and produced many television shows including the "Dick Cavitt Show", "Steve Allen Show", "That's Incredible", "Mike Douglas Show", "Good Morning America", "Richard Simmons", and "The Home Show". Mr. Fraser holds a Bachelors Degree from Dartmouth College and is a member of the Director's & Writer's Guilds. Woody Fraser Productions has recently received firm commitments to produce one television series, with an initial order of 13 episodes, as well as two pilots that are expected to be picked by the buyer as television series productions. These shows are likely to generate license fees of $200,000 per episode. Pursuant to the terms of the joint venture agreement, ValCom will recoup all production costs on a short-term basis. Seventy-five percent (75%) of the net profits will be distributed to ValCom. Woody Fraser's numerous contacts and affiliations with the major studios, talent agencies and Internet and marketing firms provide an invaluable resource for the Company. Management feels that Mr. Fraser's experience in production, creation and development will greatly benefit the Company in obtaining its goal of becoming a top television producer and therefore contribute to shareholder value. Acquisition of Half Day Video ------------------------------------- On March 8, 2001 negotiations were completed and an agreement was executed for the purchase of 100% of the stock of Half Day Video,Inc. (HalfDay) by the Company. Half Day is located in Burbank, California and specializes in supporting the entertainment industry with television and film equipment rentals. Half Day's client list includes The Academy Awards, Emmy Awards, NBC, Entertainment Tonight, MTV, Oscar Awards, General Hospital and other major entertainment and production companies. Half Day has approximately $847,000 in assets with current revenues of $609,000. Half Day leases its offices and warehouse facility in Burbank and will continue to operate and -6- service its clients using its current employees. This acquisition is expected to significantly enhance the Company's ability to service the entertainment industry thereby further increasing shareholder value. Competition ------------ Film Entertainment Overview -------------------------------------- Competition in the film entertainment business is diverse and fragmented, with scores of companies operating at various levels of product budget and scope. The market is overwhelmingly dominated by the major Hollywood studios, with the top-ranked company, Disney in 1999, usually commanding 15 to 20 percent of the domestic market share in any given year. ValCom will succeed by choosing its projects and markets carefully, and by selecting segments and geographic areas in where it can build proprietary competitive advantages. With the proper positioning and segment focus, the Company believes it can insulate itself from the brunt of competition in the entertainment content business. Since the sector's revenues from foreign markets are growing rapidly, a sound niche strategy should ensure superior profitability. Independent Production Companies ------------------------------------------ Consolidation through acquisition has recently reduced the number of independent production companies in operation. However, barriers to entry remain relatively low, and management anticipates that the segments in which it intends to compete will remain highly competitive. The Company's Competitive Position ---------------------------------- The Company operations are in competition with all aspects of the entertainment industry, both locally, nationally and worldwide. ValCom experiences competition from three market segments: 1) Traditional television, game shows, Reality Television Drama 2) Movies for television and Theatrical Release 3) Other entertainment/media companies Other Activities ---------------- Interactive Technology ---------------------- The Company has experience in the interactive communications and entertainment fields which brings together elements of the "Information Superhighway." It has created and broadcast interactive national and international television programs using state-of-the-art computer technology, proprietary software programs, satellite communications, and advanced telecommunications systems. The Company's management believes that its experience in developing and delivering interactive television program, as well as its ownership of proprietary systems and software, provide and advanced in its ability to launch new entertainment and information programs based on comparable resources. -7- 1. Sources and Availability of Raw Materials and the Names of Principal ----------------------------------------------------------------------- Suppliers --------- None of the Company's proposed activities are reliant on raw materials. Rather, they depend on the ability to exploit emerging technologies that are expected to be readily available. 2. Dependence on One or a Few Major Customers --------------------------------------------- The Company's real estate rental, broadcast operations and contemplated future Internet web site operations are not expected to be reliant on any single or small group of customers. Employees --------- As of September 30, 2001, the Company had 20 permanent employees, including two officers and four professional staff. No employee of the Company is represented by a labor union or is subject to a collective bargaining agreement. Item 2. Description of Property ------------------------------- Premises The Company's corporate offices are located at 26030 Avenue Hall Studio #5, Valencia, California. The Company controls 9 acres of land in Valencia, California. The premises are comprised of 8 production sound stages and consist of approximately 425,000 square feet for which 270,000 are owned and the balance are leased. Offices occupy 60,000 square feet. Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions, ----------------------------------------------------------------------------- Royalty Agreements or Labor Contracts, Including Duration ---------------------------------------------------------- The Company has no patent rights. It has the following service marks: Satellite Bingo: --------------- International Class 41 (production and distribution of television game shows) granted Registration Number 1,473,709 on January 19, 1988 to Satellite Bingo, Inc. 20 years. "Hangin With The Boyz": ----------------------- International Class 25 (Clothing) and 41 (Production and distribution of television game shows) application filed on March 1,2000, Serial NO. 75/932,583, "Who Can You Trust?" -------------------- Mark granted March 9,1999 for 20 years International Class 41(production and distribution of television game shows) serial NO.75/485225, -8- "Fuhgetabowtit": ---------------- International Class 41 (production and distribution of television game shows) Serial NO. 75/784,763 application filed on August 26, 1999. Globalot Bingo: --------------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. Rico Bingo: ----------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. C-Note: ------- International Class 41 (production and distribution of television game shows) applied for on September 24, 1993, by SBI Communications, Inc. The Company obtained an assignment to a copyrights for "The Works," copyright registrations for Globalot Bingo and derivatives: Number PAU 855-931 (June 10, 1986); Number Pau 847-876 (March 11, 1986); Number PAU 788-031 (September 19, 1985); Number PAU 927-410 (November 4, 1986); Number PA 370-721 (February 9, 1988); Number PA 516-494 (January 17, 1991); Number PA 533-697 (January 17,1991); from Satellite Bingo, Inc., to SBI Communications, Inc., dated September 14, 1993. The Company applied for registration of copyright of "The Final Round-The Gabriel Ruelas Story" on December 2,2000. The Company obtained an assignment of copyright of "The Life",Txu 744-678 June 12, 1996. The Company obtained a copyright by assignment of "PCH" Pau 2-040-426 September 12, 1995. Item 3 - Legal Proceedings -------------------------- Involvement in Certain Legal Proceedings ---------------------------------------- On September 14, 2001, plaintiffs Diane Russomanno and Knowledge Booster, Inc. v. Valencia Entertainment International, ValCom, Inc., Vince Vellardita, Tom Grimmett, Nalin Rathod, Aburizal Bakrie, Nirwan Bakrie, Linda Layton, Barak Isaacs, and Does 1 through 20, Case No. BC257989 (Sup. Ct., L.A. Co., C.A.). This matter arises from an underlying action wherein plaintiffs obtained judgments against Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. in the amounts of $3,000,000 and $1,200,000, respectively. In this matter, Plaintiffs' first of two causes of action alleges that we, and other defendants, are alter-egos of Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. and, therefore, plaintiffs are entitled to enforce the aforementioned judgments against us. Plaintiffs seek payment of the judgments in the amount of $4,200,000 plus interest under this cause of action. -9- Further, Plaintiffs second cause of action concerning malicious prosecution also elleges alter-ego liability. Plaintiffs allege that Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. filed a cross-complaint in the underlying litigation without any probable cause and for an improper motive or purpose. Plaintiffs similarly allege that we, and other defendants, are alter egos of Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. are, therefore, liable for such malicious prosecution. Plaintiffs seek unspecified compensatory and punitive damages under this cause of action. We believe the allegations are without merit and intend to vigorously defend ourselves. The Company is also indemnified by a related party for any loss incurred in this matter. Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ On October 16, 2000 a 14-C was filed with the Security and Exchange Commission which a majority of the shareholders approved a plan of merger, name change, change of authorized common stock , change of par value of preferred stock and elected new directors. On February 13, 2001 the plan was approved by the Security and Exchange Commission and all shareholders were notified. This action was completed on March 6, 2001. A) a) The Company held its 2001 annual Meeting of Stockholders on May 22, 2001. b) Vince Vellardita, Stephen A. Weber, Ronald Foster, and David Weiner were elected as directors of the Company. c) Vote cast for each nominee for director were as follows: For Against Abstain Non-Votes -------- --------- --------- ----------- Mr. Vellardita 8,460,521 0 0 448,880 Mr. Weber 8,460.521 0 0 448,880 Mr. Foster 8,460,521 0 0 448,880 Mr. Weiner 8,460,521 0 0 448,880 B) Reverse Split of Shares ----------------------- On August 15, 2001, the Company's Board of Directors approved an amendment to the Company's Amended and Restated Certificate of Incorporation to effect a one-for-ten reverse stock split (the "Reverse Split") of the Company's issued and outstanding Common Stock (the "Existing Common"). On August 15, 2001, the amendment was approved in a written consent executed by the holders of more than a majority of the outstanding shares of Common Stock. Approval by the Board of Directors and by the holders of a majority of the outstanding shares of Common Stock is adequate under Delaware law to effect the amendment. PART II Item 5. Market Price of and Dividends on the Company's Common ------------------------------------------------------ Equity and Related Stockholder Matters -------------------------------------- Preferred Stock --------------- All attributes of the currently unissued preferred stock will be determined by the Company's Board of Directors prior to issuance, as permitted by and subject to the requirements of applicable Delaware law. The currently -10- outstanding preferred stock has a $0.001 per share par value and a $5.00 per share liquidation preference; paying no dividend but convertible into common stock upon demand at a conversion rate equal to five shares of common to one share of preferred stock. The preferred stock has no voting rights except as to matters specifically dealing with changes in the attributes of the preferred stock. Market for Common Equity ------------------------ The Company's stock is traded on the NASDAQ OTC Electronic Bulletin Board under the symbol of VACM. The Company currently has 8,909,401 shares of stock outstanding, with 1,500,000 in the public float. There are approximately 3,123 shareholders of record. For the fiscal year ended September 30, 2001 the Company reported revenues of $2,413,260. and a net loss of $2,126,291. Its trading symbol on Frankurt EXTRA is "VAM" and security code #940589. No common equity is subject to options or warrants to purchase or securities convertible into common stock, except for the currently issued 1,543,000 shares of preferred stock which are convertible into common stock and 72,737 warrants to purchase in conjunction with common stock. No common stock is currently being offered or proposed to be offered which offering could be reasonably expected to have a materially adverse effect on the market price of the Company's common equity; and there are approximately 400,000 shares of common stock which will become eligible for sale by September 30, 2001, pursuant to the provisions of Securities and Exchange Commission Rule 144. The Company has not agreed to register securities for resale under the Securities Act of 1933, as amended, for anyone. The following table sets forth in United States dollars the high and low bid quotations for such shares. Such bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and do not necessarily re-present actual transactions. The source of the following information is the National Association of Securities Dealers, Inc.'s NASDAQ Electronic Bulletin Board. Common Stock Date Low High ---- --- ---- Bid Ask ----- ----- Low High Low High ----- ---- --- ----- 1999 ---- First Quarter $1.3000 $1.8750 $1.8750 $3.1250 Second Quarter $1.2500 $1.5625 $2.1875 $2.1875 Third Quarter $0.1000 $1.2500 $0.6000 $2.1875 Fourth Quarter $0.2000 $0.2400 $0.4000 $0.3000 -11- 2000 ---- First Quarter $1.1000 $3.8000 $1.6000 $5.0000 Second Quarter $ .9380 $3.1250 $1.6500 $3.4380 Third Quarter $1.2550 $35.300 $19.000 $35.313 Fourth Quarter $2.3000 $21.400 $21.563 $25.000 2001 ---- First Quarter $ .6875 $1.5600 $ .7500 $1.6250 Second Quarter $2.1000 $6.4200 $3.1000 $7.3000 Third Quarter $ .5100 $ .7000 $1.1000 $3.0000 As of September 30, 2001 there were approximately 3,123 stockholders of record of the common stock.
Prices quoted reflect a one share for twenty reverse split effective on February 1, 1993. Also, a two share for one forward split effective on August 14, 2000 and a one share for ten reverse split effective on September 27, 2001. Dividend Policy --------------- The Company has never paid any dividends. It is the present intention of the Company to pay dividends as soon as possible. There can, however, be no assurance that funds for payment of dividends will ever be available, or that even if available, the Company's Board of Directors then serving will resolve to declare them. Market ------ The Company's securities are currently quoted on the Nation Association of Securities Dealers, Inc.'s NASDAQ Bulletin Board and on the Frankfurt XETRA:"VAM". Section 15(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires brokers and dealers to make risk disclosures to customers before effecting any transactions in "penny stocks". It also directs the Securities and Exchange Commission to adopt rules setting forth additional standards for disclosure of information concerning transactions in penny stocks. Penny stocks are low-priced, over-the-counter securities that are prone to manipulation because of their price and a lack of reliable market information regarding them. Under Section 3(a)(51)(A) of the Exchange Act, any equity security is considered to be a "penny stock," unless that security is: i) registered and traded on a national securities exchange meeting specified Securities and Exchange Commission criteria; ii) authorized for quotation on the National Association of Securities Dealers, Inc.'s (NASD") automated inter-dealer quotation system ("NASDAQ"); iii) issued by a registered investment company; iv) excluded, on the basis of price or the issuer's net tangible assets, from the definition of the term by Securities and exchange Commission rule; or v) excluded from the definition by the Securities and Exchange Commission. -12- Pursuant to Section 3(a)(51)(B), securities that normally would be considered penny stocks because they are registered on an exchange or authorized for quotation on NASDAQ may be designated as penny stocks by the Securities and Exchange Commission if the securities are traded off the exchange or if transactions in the securities are effected by market makers that are not entering quotations in NASDAQ. Rule 3a51-1 was adopted by the Securities and Exchange Commission for the purpose of implementing the provisions of Section 3(a)(51). Like Section 3(a)(51), it defines penny stocks by what they are not. Thus, the rule excludes from the definition of penny stock any equity security that is: (1) a "reported" security; (2) issued by an investment company registered under the 1940 Act; (3) a put or call option issued by the Options Clearing Corporation; (4) priced at five dollars or more; (5) subject to last sale reporting; or (6) whose issuer has assets above a specified amount. (Release No. 30608, Part III.A). Rule 3a51-1(a) excludes from the definition of penny stock any equity security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported security is any exchange-listed or NASDAQ security for which transaction reports are required to be made on a real-time basis pursuant to an effective transaction reporting plan. Securities listed on the New York Stock Exchange (the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex criteria, and NASDAQ National Market System ("NMS") securities are not considered penny stocks. (Release No. 30608, Part III. A.1). Generally, securities listed on the American Stock Exchange (the "Amex") pursuant to the Amex's original and junior tier or its "Emerging Company Marketplace" listing criteria, are not considered penny stocks. Securities listed on the Amex pursuant to its Emerging Companies Market ("ECM") criteria, however, are considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6). (Release No. 30608, Part III.A.1). Rule 3a51-1(d) excludes securities that are priced at five dollars or more. Price, in most cases, will be the price at which a security is purchased or sold in a particular transaction, excluding any broker commission, commission equivalent, mark-up, or mark-down. In the absence of a particular transaction, the five dollar price may be based on the inside bid quotation for the security as displayed on a Qualifying Electronic Quotation System (i.e., an automated inter-dealer quotation system as set forth in Exchange Act Section 17B(b)(2)). "Inside bid quotation" is the highest bid quotation for the security displayed by a market maker in the security on such a system. If there is no inside bid quotation, the average of at least three inter-dealer bid quotations displayed by three or more market makers in the security must meet the five dollar requirement. Broker-dealers may not rely on quotations if they know that the quotations have been entered for the purpose of circumventing the rule. (Release No. 30608, Part III.A.3.b). An inter-dealer quotation system is defined in Rule 15c2-7(c)(1) as any system of general circulation to brokers and dealers that regularly disseminates quotations of identified brokers or dealers. In the case of a unit composed of one or more securities, the price divided by the number of shares of the unit that are not warrants, options, or rights must be five dollars or more. Furthermore, the exercise price of any warrant, option, or right, or of the conversion price of any convertible security, included in the unit must meet the five dollar requirement. For example: a unit composed of five shares of common stock and five warrants would satisfy the requirements of the rule only if the unit price was twenty-five dollars or more, and the warrant exercise price was five dollars or more. Once the components of the unit begin -13- trading separately on the secondary market, they must each be separately priced at five dollars or more. (Release No. 30608, footnote 66). Securities that are registered, or approved for registration upon notice of issuance, on a national securities exchange are also excluded from the definition of penny stock (Rule 3a51-1(e)). The exchange must make transaction reports available pursuant to Rule 11Aa3-1 for the exclusion to work. The exclusion is further conditioned on the current price and volume information with respect to transactions in that security being reported on a current and continuing basis and made available to vendors of market information. In addition, the exclusion is limited to exchange-listed securities that actually are purchased or sold through the facilities of the exchange, or as part of a distribution. Exchange-listed securities satisfying Rule 3a51-1(e), but which are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny stocks for purposes of Exchange Action Section 15(b)(6). Exchanges that qualified for this exclusion as of April, 1992 were the NYSE, Amex, Boston Stock Exchange, Cincinnati Stock Exchange, Midwest Stock Exchange, Pacific Stock exchange, Philadelphia Stock Exchange, and the Chicago Board of Options. (Release No. 30608, footnote 37). Securities that are registered, or approved for registration upon notice of issuance, on NASDAQ are excluded from the definition of penny stock (Rule 3a51-1(f)). Similar to the exchange-registered exclusion of Rule 3a51-1(e), the NASDAQ exclusion is conditioned on the current price and volume information with respect to transactions in that security being reported on a current and continuing basis and made available to vendors of market information pursuant to the rules of NASD. NASDAQ securities satisfying Rule 3a51-1(e), but which are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny stocks for purposes of Exchange Act Section 15(b)(6). An exclusion is available for the securities of issuers that meet certain financial standards. This exclusion pertains to: (1) issuers that have been in continuous operation for at least three years having net tangible assets in excess of $2 million (Rule 3a51-1(g)(1); ii) issuers that have been in continuous operation for less than three years having net tangible assets in excess of $5 million (Rule3a51-1(g)(1); iii) issuers that have an average revenue of at least $6 million for the last three years (Rule 3a51-1(g)(2)). To satisfy this requirement, an issuer must have had total revenues of $18 million by the end of a three-year period. (Release No. 30608, Part III.A.4). The Company believes that its securities qualify under this exemption. For domestic issuers, net tangible assets or revenues must be demonstrated by financial statements that are dated no less than fifteen months prior to the date of the related transaction. The statements must have been audited and reported on by an independent accountant in accordance with Regulation S-X. For foreign private issuers, net tangible assets or revenues must be demonstrated by financial statements that are dated no less than fifteen months prior to the date of the related transaction. The statements must be filed with the Securities and Exchange Commission pursuant to Rule 12g3-2(b). If the issuer has not been required to furnish financial statements during the previous fifteen months, the statements may be prepared and audited in compliance with generally accepted accounting principles of the country of incorporation. -14- Whether the issuer is domestic or foreign, in all cases a broker or dealer must review the financial statements and have a reasonable basis for believing that they were accurate as of the date they were made (Rule 3a51-1(g) (3). In most cases a broker-dealer need not inquire about or independently verify information contained in the statements. (Release No. 30608, Part III.A.4). Brokers and dealers must keep copies of the domestic or foreign issuer's financial statements for at least three years following the date of the related transaction (Rule 3a51-1(g)(4). Security Holders ---------------- As of September 30, 2001, the latest practicable date for which information is available, the Company's management was of the opinion that the Company had approximately 3,123 common stock holders. Dividends --------- There have been no cash dividends declared or paid since the inception of the Company and no dividends are contemplated to be paid in the foreseeable future. Description of Securities ------------------------- General ------- The Company is authorized to issue 110,000,000 shares of capital stock, 100,000,000 shares of which are designated as common stock, $0.001 par value per share, and the balance as preferred stock, $0.001 par value per share. As of September 30, 2001, 8,909,401 shares of Common Stock were outstanding (excluding the 2,500,000 shares held but not yet allocated by the Company's Employees' Trust) and held of record by approximately 3,123 persons. In addition, 1,538,000 shares of preferred stock were outstanding, and held by approximately four persons. Continental Stock Transfer and Trust Company, 17 Battery Place; New York, NY 10004, acts as transfer agent and registrar for the Company's common and preferred stock. Item 6. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations and Plan of Operation. ------------------------------------------------ Introduction ------------ Plan of Operation: ValCom, Inc. operations at present are comprised of three divisions; 1) Studio Rental, 2) Studio Equipment Rental, and 3) Film and Television Production. -15- Studio Rental -------------- The Company owns six improved acres with 6 sound stages and two additional leased stages in Valencia, California doing business as Valencia Entertainment International. Seven of the eight stages are leased under annual contracts to two major production companies. Rental income for the seven stages should remain constant at approximately $1,900,000 annually with cost of living increases. The eighth stage has been developed into a television studio and being utilized under a facility production contract (Film Production below). Studio Equipment Rental ----------------------- In March 2001 the Company acquired for stock Half Day Video, Inc. a company which supplies personnel, cameras and other production equipment to various production companies on a short term basis. As a result of additional equipment purchases and increased marketing activity it is anticipated that Half Day Video revenue should increase significantly from the prior year. Film Production --------------- In March 2001 the Company entered into an agreement with Woody Fraser Productions to produce various television productions. Under the terms of the agreement the Company will retain, after costs of production, 75% of the net profits derived from any production. In March 2001 the company signed contracts with a Cable Television Network to produce a television series consisting of 13 episodes and a separate pilot episode for a new potential series. Revenue to be recognized under these contracts during 2002 will be approximately $2,500,000. The Company's Half Day Video subsidiary will handle a majority of the production rental needs. Additionally, the Company signed a contract with a different Cable Television Network to produce six (6) episodes of a television series at a contracted amount of approximately $513,000. After costs of production, the Company will retain 100% of any profits plus a portion of the executive producer fees. Additional productions are in the development process. Revenues will be recognized when all individual programs are available and accepted by the customer. Results of Operation -------------------- In December 2001 The Company elected to change its fiscal year end from December 31, to September 30. The year end of September 30 will more closely match the Company's natural business cycle. September 30, 2001 and December 31, 2000 Comparison --------------------------------------------------- As of September 30, 2001 the Company had working capital of $537,646. As of the prior year working capital was $1,074,031. The change was due primarily to the increase in accounts payable and accrued liabilities. Total assets were $14,580,597 at September 30, 2001 versus $16,008,529 at December 31, 2000 and additionally total liabilities were $8,355,823 and $8,987,769 respectively. The changes in total assets and liabilities are substantially accounted for by above described changes in current assets and liabilities. For the nine months ended September 30, 2001 the Company had revenue of $2,413,260, operating expenses of $3,988,588 and net losses of $(2,126,291). Loss before depreciation and interest was $(1,327,951) for the nine month period. -16- Rental revenue increased $93,251 for the nine months compared with the corresponding prior year. This increase was the result of the revenue earned from two additional stages and contractual rate increases. Production revenue increased $914,734 for the nine months versus the prior year. Production costs increased $708,450 for the nine months compared with the prior year. This increase relates to the increase in production activity and expensed development costs. Selling and promotion costs increased $126,307 for the nine months due to the effort to promote the Company and its services/productions. Depreciation expense decrease of $79,789 was due to the fully depreciated status of certain assets as of September 30, 2001. For the nine months ended September 30, 2001, administrative and general costs increased by $797,903. This increase was the result of significant increases in Legal and Accounting, Management Consulting, Salaries and Fringes, Taxes and Licenses, Development Costs and Rent Expense categories for the following reasons: A $34,059 increases in Legal and Accounting was due to the performance of audits and the preparation of agreements and other legal matters related to the merger. A $207,250 increases in Management Consulting was due to costs incurred in the planning and reorganization of the newly merged companies. A $53,172 increase in Taxes and Licenses was due to adjustments made for the under adjacent to the Valencia studio property. A $368,194 increase in Salaries and Fringes was primarily due to management staffing increases. September 30, 2001 and September 30, 2000. ------------------------------- September 30, 2000 was prior to the October 17, 2000 merger with Valencia Entertainment International and prior to the March 2001 joint venture with Woody Fraser Productions. For the nine months ended September 30, 2000 the Company had no revenue and had not completed the merger with Valencia Entertainment or Half Day Video. For the nine months ended September 30, 2001 the Company incurred administrative and general costs of $289,335, web site development costs of $102,491 and Interest expense of $100,000. The web site development was completed, however all other costs increased substantially due to the acquisitions and formations of new business entities. The Company did not record any income tax expense for any periods due to its tax loss and tax loss carry forwards. At the end of fiscal 2001, the Company had tax loss carry forwards in excess of $12 million. Effective September 28, 2001 the Company sold 100% of the outstanding equity of SBI Communications, Inc. of Alabama, a Alabama corporation to Ronald C. Foster, an officer, director and shareholder of ValCom, Inc. The Company received a promissory note for $1,200,000. -17- The net assets of SBI Communications, Inc. of Alabama included the Piedmont property with a carrying value of $3,940,000 previously classified as "Property held for sale" and related liabilities including a Mortgage, Accrued interest and amounts due Ronald C. Foster for salaries and advances made to the Company. The following table sets forth the relative relationship to total revenue of the revenue categories in the Company's statement of income and percentage changes (rounded to the nearest whole dollar). Amount of Total Revenue
Fiscal Year Ended: September 30, December 31, -------------- ------------ 2001 2000 2000 ---- ---- ---- Revenues: Rental $ 1,422,033 -0- $ 1,328,782 Production 952,234 -0- 37,500 Other Income 38,993 -0- 28,791 ----------- ----------- ------------ Total Revenue $ 2,413,260 $ -0- $ 1,395,073 =========== =========== ============
Should the Company successfully acquire additional production facilities and broadcast companies under consideration, or expand operations in areas previously discussed as currently under consideration, revenues and expenses of the Company would change significantly. Management is not able to predict the impact of such changes on revenues or expenses at this time. Statement Re Computation of Earnings Per Share ---------------------------------------------- See Notes To Consolidated Financial Statements included elsewhere in this filing for a description of the Company's calculation of earnings per share. Capital Resources ----------------- Internal and external source of funding: --------------------------------------- The Company has obtained a line of credit from Laurus Family of Funds for $2,750,000. To date, the Company has drawn $1,000,000. Such line is represented as Convertible Notes. ValCom has sufficient funds to operate for the next 12 months through its use of the credit facility. Also, the Company has sold its Piedmont property for a note receivable of $1,200,000 due September 2002 and is anticipating increased revenues from studio facility and productions. Item 7. Financial Statement and Summary Financial Data ------ ----------------------------------------------- Financial Statements -------------------- The audited consolidated balance sheet of the Company as of September 30, 2001 and December 31, 2000 and the unaudited consolidated balance sheet as of -18- September 30, 2000 and the related consolidated statements of operations, stockholder's equity and cash flows are submitted herewith. CONTENTS OF REPORT ------------------------------------------------------------------------------- Consolidated Independent Auditors' Report F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Cash Flow F-4 Consolidated statements of Stockholders Equity F-6 Notes to Consolidated Financial Statements F-7/F-16 To the Board of Directors ValCom, Inc.: We have audited the accompanying consolidated balance sheets of ValCom, Inc. and subsidiaries (the "Company") as of September 30, 2001, and December 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2000 and the nine month period ended September 30, 2001.These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2001 and December 31, 2000, and the consolidated results of its operations and its cash flows for the year ended December 31, 2000 and the nine months ended September 30, 2001 in conformity with generally accepted accounting principles. /s/JAY J. SHAPIRO, C.P.A. a professional corporation Encino, California December 27, 2001 F-1 VALCOM, INC AND SUBSIDIARY ---------------------------------------- CONSOLIDATED BALANCE SHEET --------------------------- ASSETS ------
September 30, December 31, ------------- ----------- 2001 2000 2000 ----- ---- ---- (Unaudited) Cash $ 420,857 $ 22,541 $ 7,787 Accounts receivable, net 156,179 -0- 74,455 Other receivables 74,000 -0- 52,634 Prepaid expenses -0- -0- 11,569 Inventory -0- 22,000 -0- Prepaid development costs 190,699 -0- -0- Property held for sale -0- 3,940,000 3,940,000 Note receivable, related party 1,415,000 -0- -0- --------------- ------------ ------------- Total Current Assets 2,256,735 3,984,541 4,086,445 --------------- ------------ ------------- Fixed Assets - net $11,959,941 $ 75,000 $11,681,381 Production costs -0- -0- 110,201 Prepaid loan fees 232,171 -0- 100,501 Deposits 31,750 20,500 30,000 Notes receivable, long-term 100,000 -0- -0- ---------------- ------------ ------------- Total Assets $ 14,580,597 $ 4,080,041 $ 16,008,528 ================ ============ ============= See accompanying notes to consolidated financial statements F-2 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accrued interest $ 20,384 $ 299,000 $ 325,010 Accrued wages due stockholder -0- 550,000 670,000 Advances due stockholder -0- 295,000 200,508 Loan payable affiliate -0- 150,000 150,000 Other current liabilities -0- -0- 42,461 Accrued other 107,824 -0- -0- Credit line payable 150,837 -0- 110,000 Notes payable -- current portion 133,405 1,181,181 1,289,586 Accounts payable 540,983 76,000 297,285 Production advances, net 765,656 -0- -0- ----------- ----------- ------------ Total Current Liabilities 1,719,089 2,551,181 3,084,850 Notes Payable 6,636,734 -0- 5,902,919 ----------- ------------ ----------- Total Liabilities $ 8,355,823 $ 2,551,181 $ 8,987,769 F-2 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, par value $0.001; 10,000,000 shares authorized: 1,538,000 and 1,543,000 1,543,000 shares issued and outstanding at September 30, 2001 and 2001 and December 31, 2000, respectively: 1,538 1,543 1,543 Common stock, par value $.001; 100,000,000 shares authorized; 8,909,401 and 13,770,878 and 90,139,843 shares issued and outstanding at September 30, 2001 and 2000 and December 31, 2000 respectively: 8,909 6,885 90,140 Additional Paid in capital 9,512,699 4,508,025 8,101,157 Accumulated deficit (3,298,372) (2,987,593) (1,172,081) ------------- ------------- -------------- 6,224,774 1,528,860 7,020,759 ------------- ------------- -------------- $ 14,580,597 $ 4,080,041 $ 16,008,528 ============= ============= ==============
See accompanying notes to consolidated financial statements F-3 VALCOM, INC. AND SUBSIDIARY ------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------- September 30, December 31, -------------- ------------- 2001 2000 2000 ------ ----- ------ (unaudited) Revenue Rental $ 1,422,033 $ -0- $ 1,328,782 Production 952,234 -0- 37,500 Other 38,993 -0- 28,791 ------------ ------------ -------------- 2,413,260 -0- 1,395,073 Cost and Expenses: ------------ ------------ -------------- Production and development 981,667 -0- 273,217 Selling and promotion 230,483 -0- 104,176 Depreciation 191,925 -0- 271,714 Web site development -0- 102,491 -0- Administrative and general 2,529,061 289,335 1,786,610 ------------- ------------- -------------- Total 3,933,136 391,826 2,435,717 ------------- ------------- -------------- Operating (loss) ( 1,519,876) (391,826) (1,040,644) Interest Expense (606,415) (100,000) (851,078) ------------- -------------- -------------- Net Loss $ (2,126,291) $ (491,826) $ (1,891,722) ============= ============== ============== Basic net (loss) per share......... $ ( 0.23) $ (0.04 ) $ (.06) ============= ============ =========== Weighted number of shares 9,135,419 13,770,878 29,805,000 ============= ============ ===========
See accompanying notes to consolidated financial statements F-4 VALCOM, INC. AND SUBSIDIARY ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOW ------------------------------------ September 30 December 31 ------------ ----------- 2001 2000 2000 ---- ---- ---- Unaudited Operating Activities: Net (Loss) ($2,126,291) ( 491,826) ($1,891,722) Not Requiring Cash: Depreciation and amortization 191,925 -0- 271,714 Stock issued for services 280,000 141,565 617,084 Other -0- -0- 2,167 ------------ ------------- ------------ (1,654,366) ( 350,261) (1,000,757) ------------ ------------- ------------ Changes in: Receivables (61,223) -0- 307,623 Inventory -0- 22,000 -0- Mortgage escrow hold back -0- -0- -0- Prepaid expenses 11,569 ( 11,569) Liabilities assumed by buyer or property held for sale ( 2,525,000) -0- -0- Development costs (80,498) -0- -0- Other assets -0- -0- (101,034) Accounts payable and other accrued expenses ( 9,986) 120,000 293,575 Production deposits 765,656 -0- -0- Credit line payable 40,837 -0- 110,000 Loans payable -0- 150,000 Due to stockholder (870,508) 280,802 225,372 ------------ ------------ ----------- 2,320,847 422,802 973,967 ------------ ------------ ----------- Cash Provided (used) by Operations 666,481 72,541 (26,790) ------------ ------------ ----------- Investing Activities: Acquisition of fixed assets (401,179) ( 20,000) (180,441) Acquisition of Half Day, Video 141,742 -0- -0- Renovation costs ( 75,000) -0- Deposits ( 1,750) -0- -0- Notes receivable (100,000) -0- -0- Prepaid loan fees (131,670) -0- -0- ------------ ------------- ------------ Cash Used by Financing Activities (634,599) ( 95,000) (180,441) ------------ ------------- ------------ Financing Activities: Principal payments on notes payable 131,198 -0- (213,676) Withdrawl of capital contribution -0- (2,000,000) Issuance of stock 205,000 45,000 150,000 ------------ ----------- ------------ Cash Provided (Used) by Financial Activities 336,198 45,000 (2,063,676) ------------ ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents 368,080 ( 22,541) (2,270,907) Cash and cash equivalents, beginning of year 52,777 -0- 2,278,694 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 420,857 $ 22,541 7,787 ============ ============ ============ Supplemental disclosure of cash flow information: Interest paid $ 299,000 $ -0- $ 291,000 ============ ============ ============ Income taxes paid $ 0 $ 0 $ 0 ============ ============ ============ Notes receivable accepted for property held for sale $ 1,415,000 -0- -0- ============ ============ ============
See accompanying notes to consolidated financial statements F-5 VALCOM, INC. AND SUBSIDIARY --------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ----------------------------------------------- YEAR ENDED SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 ---------------------------------------
Additional Common Preferred Paid-in Accumulated ------- ---------- Capital Deficit Shares Amount Shares Amount ---------- ----------- ------- ------- ------ ------- Balance Jan 1, 2000 9,693,878 9,694 1,653,000 1,653 9,399,742 719,641 Shares issued for services 2,736,000 2,736 616,515 (458,250) Shares issued for assets 100,000 100 12,400 Shares issued for cash 900,000 900 169,100 Conversion of preferred 1,100,000 1,100 (110,000) (110) (990) Withdrawal of capital contribution December 2000 (2,000,000) Retirement upon merger (100,000) (100) (19,900) Acquisition of VEI-Oct 2000 75,709,965 75,710 (75,710) Net loss for 2000 (1,433,472) --------- ------- ----------- ----------- -------- ---------- Balance December 31, 2000 90,139,843$90,140 1,543,000 $ 1,543 $8,101,157 ($1,172,081) Acquisition of Half Day 950,000 950 140,792 Discount on convertible debt 375,000 Shares issued for services 1,600,000 1,600 378,400 ( 380,000) Shares issued for debt retirement 869,162 869 227,695 Shares issued for cash 410,000 410 204,590 Conversion of preferred shares 25,000 25 ( 5,000) ( 5) ( 20) Correction of shares issued upon merger 100,000 100 ( 100) Canceled (5,000,000)(5,000) 5,000 Reverse split 1:10 (80,184,604)(80,185) 80,185 Net loss for the period (1,746,291) ----------- ------- --------- ---------- ---------- ------------ Balance September 30,2001 8,909,401$ 8,909 1,538,000 $ 1,538 $9,512,699 (3,298,372) ========== ======= ========== ========= ========== ===========
See accompanying notes to consolidated financial statements F-6 VALCOM, INC. AND SUBSIDIARY ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SEPTEMBER 30, 2001 AND 2000, AND DECEMBER 31, 2000 ----------------------------------------------------- NOTE 1 Summary of Significant Accounting Policies ------------------------------------------------- Following is a summary of the significant accounting policies followed in the preparation of these financial statements, which policies are in accordance with generally accepted accounting principles: Organization ------------ ValCom, Inc. (the "Company"), formerly SBI Communication, 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. Through shareholder approval dated March 10, 1988, the name was changed to SBI Communications, 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. In October 2000, the Company was issued 75,709,965 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 becoming the surviving entity. The corporate name was changed to ValCom, Inc. Principles of Consolidation/Presentation --------------------------- The consolidated financial statements include the accounts of the Company and one wholly-owned subsidiary Half Day Video, Inc. These financial statements include all activities as if the acquisition occurred on January 1, 2000. F-7 ValCom, Inc. and Subsidiary ------------ Notes to Consolidated Financial Statements -------------------------------------------- September 30, 2001 and 2000 and December 31,2000 ------------------------------------------------ Note 1 Summary of Significant Accounting Policies (cont'd) ---------------------------------------------------------- The Company changed its fiscal year to September 30 from December 31 to better reflect its operating cycle. Accordingly the audited financial statements for the nine months ended 9/30/01 are presented with the unaudited statements as of 9/30/00 for comparison purposes. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Commitments, Risk And Contingencies ------------------------------------ Financial instruments that potentially subject the Company to concentrations of risk, consist of trade receivables principally arising from monthly leases from television producers. Management believes all receivables to be fully collectible. In addition, the Company has a standby letter of credit for $30,000 related to a lease of the facility. Cash Equivalents ---------------- The Company maintains cash and cash equivalents (short-term highly liquid investments with original maturity less than three months) with various financial institutions. From time to time, cash balances may exceed Federal Deposit Insurance Corporation insurance limits. Fair Value of Financial Instruments ----------------------------------- The carrying value of cash, receivables and accounts payable approximates fair value due to the short maturity of these instruments. The carrying value of short and long-term debt approximates fair value based on discounting the projected cash flows using market rates available for similar instruments. None of the financial instruments are held for trading purposes. As of September 30, 2001 accounts receivable has been reported net of a $20,000 allowance for bad debts. F-8 ValCom, Inc. and Subsidiary -------------- Notes to Consolidated Financial Statements -------------------------------------------- September 30, 2001 and 2000 and December 31, 2000 ------------------------------------------------- Note 1 Summary of Significant Accounting Policies (cont'd) ---------------------------------------------------------- Depreciation ------------ For financial and reporting purposes, the Company follows the policy of providing depreciation and amortization on the straight-line and accelerated declining balance methods over the estimated useful lives of the assets, which are as follows: Building 39 years Building Improvements 39 years Office Furniture and Equipment 5 to 7 years Production Equipment 5 years Amortization of Prepaid Loan Costs ---------------------------------- For financial reporting purposes, costs are amortized on the straight line method over the term of the related loan. Income Taxes ------------ The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, which requires the use of the asset and liability method and recognizes deferred income taxes for the consequences of "temporary differences" by applying enacted statutory tax rate applicable to future years differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Related Party Transactions -------------------------- From time to time, a shareholder of the Company advances money to the Company for operations. All amounts owed to the shareholder are non-interest bearing. In addition to advances, the Company accrued salaries payable to the shareholder. All amounts owed to the shareholder are payable on demand upon disposition of property held for sale to related party. The Company's financial statements reflect 1.2 million secured note receivable with interest due at 5%. F-9 ValCom, Inc. and Subsidiary ------------- Notes to Consolidated Financial Statements -------------------------------------------- September 30, 2001 and 2000 and December 31, 2000 ------------------------------------------------- Note 1 Summary of Significant Account Policies (cont'd) ------------------------------------------------------- Stock-Based Compensation ------------------------ As provided for in SFAS #123, the Company elected to apply APBO #25 and related interpretations whereby the fair value of stock given is determined at the grant date and additional disclosures are provided in Note 7. Impairment of Long-Lived Assets ------------------------------- Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recover ability is based on an estimate of undisclosed future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Revenue Recognition ------------------- Revenues from licensing of television programming is recorded when the material is available for telecasting by the licensee and when certain other conditions are met. Rental revenue is recognized monthly pursuant to written contracts. Note 2 Property and Equipment ----------------------------- Property and equipment consists of the following at: September 30, December 31, --------------- ------------- 2001 2000 2000 ----- ------ ------ Land $7,392,292 -0- $7,392,292 Building 4,028,785 -0- 4,028,785 Building Improvements 1,154,406 -0- 1,240,070 Production Equipment 699,286 -0- -0- Leasehold Improvements 50,164 -0- -0- Autos and Trucks 89,087 -0- -0- Office Furniture and 73,243 75,000 39,500 equipment ------------- ------------ ----------- 13,487,263 75,000 12,700,647 Less: Accumulated depreciation (1,527,322) -0- ( 1,019,266) ------------- ------------ ------------- Net Book Value $ 11,959,941 75,000 $11,681,381 ============= ============ =============
F-10 NOTE 3 BUSINESS ACQUISITION --------------------------- In March 2001, the company acquired 100% ownership of Half Day Video, Inc. a California corporation, for 950,000 shares of ValCom, Inc. common stock. The net book value of Half Day Video, Inc. has been determined to be the fair market value of the common stock issued. NOTE 4 PRODUCTION AGREEMENT --------------------------- In March 2001, the Company entered into an agreement with Woody Fraser Productions, (WFP) to produce various television productions. Under the terms of the agreement the Company will advance WFP $500,000 per year to be used for various development costs. Additionally 25% of the net profits from any productions will be paid to WFP. In March 2001 the venture signed contracts to produce a television series of 13 episodes and a pilot for a cable TV Network. VALCOM, INC AND SUBSIDIARY ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ September 30, 2001 and 2000 and December 31, 2000 --------------------------------------------------- NOTE 5 Notes Payable --------------------- The following is a summary of the Company's Notes Payable at year end.
September 30, December 31, -------------- ------------- 2001 2000 2000 ---- ----- ------ Promissory note payable to First Fidelity Investment and Loan due in monthly installments of principal and interest of $54,648 at 10.03% per annum. The rate is variable dependent on the 6 month US T-Bill rate. The note is secured by a Deed of Trust on the Valencia Studio property. The note matures December 2009. 5,927,508 -0- $5,961,324 Convertible promissary note net of discount of $336,000 See note 6 for further description. 586,388 -0- -0- Promissory note payable to private lender due with interest at 12% per annum and was due July, 1999. The note is secured by a Deed of Trust on the Piedmont property. -0- 1,050,000 $1,050,000 Various other loans, 8.00% -11.00% Interest 256,243 131,181 181,181 ------------ ------------ ------------- Total 6,770,139 1,181,181 7,192,505 Less Current Maturities 133,405 1,181,181 1,289,586 ------------ ------------ ----------- Notes Payable $ 6,636,734 $ -0- $5,902,919 ============ ============ ============ Maturities on the notes are as follows: 2001 $ 133,405 2002 650,909 2003 71,277 2004 78,740 2005 86,986 2006 87,027 Thereafter $5,661,795 ------------- $6,770,139 =============
The Company's average short-term weighted interest rate is 10% and 9% respectively for the periods presented. F-11 VALCOM, INC. AND SUBSIDIARY --------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- September 30, 2001 and 2000 and December 31, 2000 ------------------------------------------------- NOTE 6 CONVERTIBLE NOTE PAYABLE ------------------------------- On June 6, 2001 and September 7, 2001 the Company borrowed $750,000 and $250,000 from the Laurus Master Fund, LTD (LMF). The borrowing are evidenced by convertible promissory notes due June 7, 2003 and September 7, 2003. Interest at 8% per annum is payable quarterly. Any or all principal or interest is convertible into common stock of the Company at 80% of the average of the lowest closing prices during the preceding 60 days. Subsequent to September 30, 2001 $77,612 of the principal and interest was converted to 537,490 shares of common stock. The detachable warrant entitles LMF to purchase up to 72,737 shares of common stock of the company at the lesser $.548 per share or 120% of the average three lowest closing prices during the immediately preceding 10 trading days. A discount of $375,000 was recognized on the convertible features of this debt and the detachable warrants. NOTE 7 Income Taxes --------------------- Deferred income tax assets and liabilities are summarized as follows at September 30, 2001:
Deferred tax assets attributable to operating loss carry forwards $4,800,000 Valuation allowance due to uncertainty surrounding realization of operating loss carry forwards ($ 4,800,000) ------------ Total deferred taxes $ 0 ============
The Company has available at September 30, 2001, unused operating loss carry forwards, which may be applied against future taxable income, that expire as follows: F-12
Amount of Unused Expiration During Operating Loss Year Ended Carry Forwards December 31 --------------- ---------------- $ 550,000 2002 $ 1,200,000 2003 $ 300,000 2004 $ 490,000 2007 $ 340,000 2008 $ 320,000 2009 $ 650,000 2010 $ 1,050,000 2011 $ 700,000 2012 $ 3,836,000 2013 $ 289,000 2014 $ 1,892,000 2015 $ 2,126,000 2016 ------------- $13,743,000 -------------
------------------------------------------------- NOTE 8 Commitments ------------------ In May 2000 the Company leased additional facilities adjacent to its location in Valencia. The lease has a term of five years. Initial monthly base rent is $29,000 with annual increases until 2004 when base rent will be $34,585. During fiscal 2001, the Company recognized $173,650 rent expense. The Company has various employment agreements with certain officers, shareholders and key employees which expire beginning in 2002. These agreements provide for compensation aggregating $300,000 per annum. NOTE 9 Net Loss Per Share ------------------------- The Company's net loss per share was calculated using weighted average shares outstanding of 9,135,419, 13,770,878, 29,805,000 for the nine month periods ended September 2001 and 2000, and the year ended December 31, 2000 respectively. Although convertible preferred stock and convertible debt are a common stock equivalent, with a conversion rate of 5 shares of common stock for each share of preferred stock conversion has not been included in the calculation of earnings per share as it would be antidilutive. NOTE 10 Stockholders' Equity --------------------------- In January 2000, the Company issued 200,000 shares of its common stock for cash of $5,000 and financial marketing services with a fair value of $7,500. In January 2000, Valencia Entertainment International, LLC distributed $2,000,000 to its partners. This amount was accounted for as a reduction of partners' capital. F-13 ValCom, Inc. and Subsidiary ------------- Notes to Consolidated Financial Statements ----------------------------------------- September 30, 2001 and 2000 and December 31, 2000 --------------------------------------------------- NOTE 10 Stockholders' Equity (cont'd) ------------------------------------- In February 2000, the Company issued 400,000 shares of restricted stock for the origination of $25,000 on a $150,000 loan from two parties. In June 2000, the Company issued 100,000 shares for $25,000 cash. In June 2000, the Company issued 100,000 shares for $20,000 cash. These shares were sold to VEI and were therefore retired upon merger in October 2000. In June 2000 the Company issued 400,000 shares of restricted stock for web site development fees valued at $50,000. In July 2000 the Company issued 100,000 shares for purchase of an auto with fair value of $12,500. In August 2000, the Company issued 30,000 shares of restricted stock as a loan origination fee valued at $3,350. In August 2000, 110,000 shares of preferred stock were converted to 1,100,000 shares of common stock. In October 2000, the Company split its common stock on a 2-for-1 basis changed par value of its preferred stock from $5.00 to $.001 per share and issued 75,709,965 post-split shares of common stock to the partners of Valencia Entertainment International, LLC. The consolidated financial statements have been retroactively restated for the split. In November 2000, the Company issued 200,000 shares of restricted stock for legal services at fair value. A price guarantee of $0.50 accompanied the issuance. In December 2000, the Company issued 6,000 shares of restricted stock to employees of the Company. These shares were valued at $0.50 per share. In December 2000, the Company issued 500,000 shares of restricted stock as satisfaction of a debt of $250,000. In December 2000, the Company issued 500,000 shares of restricted common stock for cash of $125,000. In December 2000, the Company issued 1,000,000 shares of restricted common stock for management consulting and legal services with a fair value of $175,000. In January 2001, the Company issued 500,000 shares of restricted common stock for management consulting services with a fair value of $87,500. F-14 In February 2001, the Company issued 250,000 shares of restricted common stock for management consulting services with a fair value of $26,250. In February 2001, the Company issued 950,000 shares of restricted common stock for the acquisition of 100% of the common stock of Half Day Video, Inc. with a net book value of $141,742. In March 2001, the Company issued 400,000 shares of restricted stock for cash of $205,000. In March 2001, the Company issued 331,664 shares of restricted stock as satisfaction of a debt of $150,000. In March 2001, the Company issued 500,000 shares of restricted common stock for management consulting services with a fair value of $87,500. In March 2001, the company issued 250,000 shares of restricted stock for prepaid development costs with a fair value of $43,500. In April 2001, the Company issued 100,000 shares of restricted common stock for management consulting services with a fair value of $17,500. In April 2001 5,000 shares of preferred stock were converted to 25,000 shares of common stock. In July 2001, the Company's CEO surrendered 5,000,000 shares of restricted common stock in an effort to improve the share market value. In August 2001, the Company issued 200,000 shares of restricted stock as a correction of shares issued upon merger. On various dates from June through September 2001, 537,498 shares of common stock registered under an SB-2 were issued as satisfaction of convertible debt valued at $78,027. In September 2001, the Company reverse split its common stock on a 10-for-1 basis. F-15 ValCom, Inc. and Subsidiary -------------- Notes to Consolidated Financial Statements --------------------------------------------- September 30, 2001 and 2000 and December 31, 2000 ------------------------------------------------- NOTE 11 Segment Information -------------------------- The Company has two segments - studio operations and production/distribution of television programming.
September 30, 2001 September 30, 2000 December 31, 2000 ------------------- ------------------- ------------------ Studio Programming Studio Programming Studio Programming ------- ----------- ------ ------------ ------ ----------- Identifiable assets $11,959,941 $1,625,578 -0- -0- 9,399,742 110,201 =========== ========== ======== ======= ========= ======== Revenues 1,422,033 952,234 -0- -0- 1,357,573 37,500 =========== =========== ======== ========= ========== ======== Operating (Losses) ($1,090,443) ($429,433) -0- -0- (804,927)(235,717) =========== =========== ======== ========= ========= ========
NOTE 12 LEGAL ------------ LITIGATION On September 14, 2001, an action was filed against Valencia Entertainment International, Inc. and ValCom, Inc. This matter arises from an underlying action wherein plaintiffs obtained judgements against Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. in the amounts of $3,000,000 and $1,200,000, respectively. In this matter, Plaintiffs' first of two causes of action alleges that The Company, and other defendants, are alter-egos of Ricky Rocket Enterprises, Inc. and Time Travelers, Inc. and, therefore, plaintiffs are entitled to enforce the aforementioned judgments against The Company. Further, a second cause of action concerning malicious prosecution also alleges alter-ego liability. Unspecified compensatory and punitive damages are sought under this cause of action. Valencia Entertainment was a distributor for Time Travelers, Inc. and management believes it should not be a party to this action and did not become the distributor for Time Travelers, Inc. until four years after the alleged wrong doing occurred. The Company believes the allegations are without merit and intends to vigorously defend itself. In addition the Company is indemnified by a related party if any loss relative to this matter is sustained. F-16 VALCOM, INC. AND SUBSIDIARIES ----------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ September 30, 2001 - September 30, 2000 and December 31, 2000 -------------------------------------------------------------- Summary Financial Data ---------------------- Set forth below is selected financial information of the Company and its consolidated subsidiaries as derived from the audited statements of income (loss) for the last two fiscal periods ( September 30, 2001 and December 2000), from the balance sheets for the periods then ended. The selected financial information should be read in conjunction with the financial statements (including the notes thereto) filed with this Registration Statement and are qualified by reference to such financial statements. September 30, December 31, --------------------- ------------- 2001 2000 2000 ----- ----- ------ Unaudited Statement of Operations Data ---------------------------- Gross Revenues $ 2,413,260 -0- $ 1,395,073 Income from Operations(Loss) (1,575,328) (391,826) ( $1,891,722) Net Income(Loss) per share * ( .18) ( .04) ( .06) Balance Sheet Data ------------------ Assets ------ Current Assets $ 2,256,735 $ 3,984,541 $ 4,086,445 --------------- ------------ ------------- Fixed assets-net 11,959,941 75,000 $11,681,381 Production costs -0- -0- 110,201 Note receivable 100,000 -0- -0- Prepaid loan fees 232,171 -0- 100,501 Deposits 31,750 20,500 30,000 ------------- ------------- ------------- Total Assets $14,580,597 $4,080,041 $16,008,528 ============= ============= ============= Liabilities ----------- Current Liabilities 1,719,089 2,551,181 3,084,850 Notes payable 6,636,734 -0- 5,902,919 ------------- -------------- ------------- Total Liabilities 8,355,823 2,551,181 8,987,769 Total Stockholders' Equity 6,224,774 1,528,860 7,020,759 -------------------------- ------------- -------------- ------------- Total Liabilities and Equity $ 14,580,597 $ 4,080,041 $16,008,528 ============= ============== =============
* See above. Per share data is computed based on the weighted average of common stock outstanding as of the report date. -36- Item 8. Charges in and Disagreements with Accountants on Accounting ----------------------------------------------------------- and Financial Disclosure ------------------------ None Item 9. Directors, Executive Officers, Promoters and Control Persons -------------------------------------------------------------------- DIRECTORS AND EXECUTIVE OFFICERS -------------------------------- The following table sets forth the names and ages of the members of the Company's board of directors and its executive officers, the positions with the Company held by each, and the period during which each such person has held such position. Name Age Position Since ---- --- -------- ---- Vince Vellardita 44 CEO/ Chairman of the Board 2000 Steve Weber 53 President/CFO/Director 2000 Ronald Foster 60 Secretary/Vice President/Director 1986 David Weiner 43 Director 2001
Messrs. Vellardita, and Foster, are all engaged with the Company's business on a full time basis. All directors hold office until the next annual meeting of stockholders of the Company (currently expected to be held during: February 26) and until their successors are elected and qualified. Officers hold office until the first meeting of directors following the annual meeting of stockholders and until their successors are elected and qualified, subject to earlier removal by the board of directors. There are currently no committees of the board of directors. Biographies of the Company's Executive Officers and Directors ------------------------------------------------------------- Vince Vellardita Vince Vellardita is currently President, Chief Executive Officer, and Chairman of the Board of ValCom, Inc. Mr. Vellardita was instrumental in having Valencia Entertainment acquire a 180,000 square foot production facility in Valencia, California that houses 8 film and production sound stages that have been occupied for the past four years by the hit CBS series' JAG and Fox's Power Rangers. Mr. Vellardita began his career in 1977 as a music producer and promoter of live shows and is credited with bringing Duran/Duran and U2 to North America for their first US tour. He also produced a benefit tour for the 1980 Presidential campaign of John Anderson. Mr. Vellardita is a 25 year veteran production executive with a successful track record that extends throughout many arms of the Entertainment Industry. While in Nashville Mr. Vellardita was responsible for the turn a round for a small,(run of the mill) production house for music into a television satellite network, housing multiple sound-stages and edit bays. Mr. Vellardita also increased revenues by bring national accounts to this network. Mr. Vellardita has been involved in over 10,000 episodes of television and 100 films. After Mr. Vellardita's success in Nashville, he moved to Los Angeles focusing -37- on film and television where he developed independent production studios. Mr. Vellardita handled everything from the coordination of sales and contracts negotiations, to the launching of Marketing strategies to lure some of the biggest names in the television community. These include Paramount, Warner Brothers, and Disney. Mr. Vellardita does not currently serve as a director of any other reporting company. Ronald Foster, Ron Foster has served as the Company's Chief Executive Officer, President and Chairman of the Board from 1986 to October 2000. Mr. Foster, 60, is presently Vice President, Secretary and director on the Board of ValCom. He has been working with the Company since its inception in 1984. His primary responsibilities include finance, marketing and technical review. In addition to his responsibilities with the Company, Mr. Foster has held a number of other management positions over the years. From 1984 to 1986, he was executive vice president and producer of Pioneer Games of American Satellite Bingo, in Albany, Georgia. Mr. Foster was also the owner and operator of Artist Management & Promotions where he was responsible for coordinating television entertainers, sports figures and other celebrities for department store promotions. Previously, Mr. Foster has served as president and director of Ed-Phills, Inc., a Nevada corporation, and executive vice president and member of the Board of Directors of Golden American Network, a California corporation. From 1984 to 1994, he has also been the president and chief executive officer of ROPA Communications, Inc., which owned and operated WTAU-TV-19 in Albany, Georgia. He created and produced "Stock Outlook 87, 88, and 89," a video presentation of public companies through Financial News Network (FNN), a national cable network. Mr. Foster also has experience as technical director and associate producer for numerous national live sports broadcasts produced by ABC, CBS and WTBS. Mr. Foster is Director/Producer/Writer of the Company Interactive Broadcast Programs. Other than the Company, Mr. Foster does not currently serve as a director of any other reporting company. David Weiner, Mr. Weiner is a Director of ValCom, Inc. Mr. Weiner received his MBA degree from U.C.L.A. and gained a wide variety of business experiences early in his career working in the investment banking and pension fund management arena. He joined the consulting group of Deloitte and Touche in 1988, where he provided general and corporate finance consulting services to a wide variety of entertainment, telecommunications, and direct response clients including K-tel, International, Inc. Mr. Weiner joined K-tel in 1993, as Vice President of Corporate Development and was appointed President in September of 1996. His responsibilities included directing all United States operations of the company as well as its wholly owned subsidiaries in the Untied Kingdom, Germany and Finland. Mr. Weiner resigned as President of K-tel in 1998 to form W-Net, Inc., an Internet and software development and consulting firm. Mr. Weiner does not currently serve as a director of any other reporting company. Stephen A Weber, Mr. Weber is a Director of ValCom, Inc. Mr. Weber has over 20 years of background in Finance and Management and is a certified public accountant. Prior to joining ValCom, Mr. Weber was the Co-founder and President of a publicly traded marketing company that had annual revenues of $60 million. Mr. Weber was instrumental in negotiating the sale of the company to a NYSE corporation. Prior to joining ValCom, Mr. Weber, was a practicing CPA for 13 years, where he was the -38- managing partner for a regional audit firm. Currently, in addition to his duties at ValCom Mr. Weber also consults for a publicly traded Internet company, Genesis Entermedia.com, Inc. where he sits on the Board of Director and is Chairman of the Audit Committee. Meeting and Committee of the Board of Directors ------------------------------------------------- Each director is elected to serve for a term of one (1) year until the next annual meeting of shareholders or until a successor is duly elected and qualified. There are no family relationships among directors or persons nominated or chosen by the Company to become a director. The present term of office of each director will expire at the next annual meeting of shareholders. During the fiscal year ended September 30, 2001, the Board of Directors held 62 meetings of which no director attended fewer than 75% of the total number of meetings. Outside directors received no cash compensation for their services, however they were reimbursed for their expenses associated with attendance at meetings or otherwise incurred in connection with the discharge of their duties as directors of the Company. No officer of the Company receives any additional compensation for his services as a director, and the Company does not contribute to any retirement, pension, or profit sharing plans covering its directors. Item 10 Executive Compensation ---------------------------------- The Summary Compensation Table below sets forth all compensation paid to the Officers and Directors of the Company during the period from January 1, 2001 through September 30, 2001 Prior to October 2000, the date on which a change in control of the Company was effected and current management took over their respective positions. 2001 Summary Compensation Table ------------------------------- Name Annual Compensation Long Term Compensation and Awards Awards LTIP All Principal Restricted Restricted Pay- Other Position Salary Bonus Other Stock Options outs Compensation -------- ------------ ------------ ------- ---- ------------ Vince Vellardita ** (6) * * * * * * Steve Weber*** (8) * * * * * * * Ron Foster + (6)*(4) * * * * * * Bob Berry ++ (8) * * * * * * * Wayne Lepoff+++ (5) * * * * * * * ______________________________________________________________________________ -39- 2000 Summary Compensation Table ------------------------------- Name Annual Compensation Long Term Compensation and Awards Awards LTIP All Principal Restricted Restricted Pay - Other Position Salary Bonus Other Stock Options outs Compensation ------------ ------------ --------- ----- ----------- Vince Vellardita** 6 Y * Y * * * * Ronald Foster ** 6 Y * Y * * * * Claude Pichard +(2) * * * * * * * * Karien Anderson(1)(2)8 * * * * * * *
______________________________________________________________________________ * None. ** Chairman, President and Chief Executive Officer. ++ Chief Financial Officer. +++ Chief Operating Officer. + Vice President. (1) Secretary and Treasurer. (2) Director. (3) Director. (4) Vice President. (5) $120,000. (6) $130,000. (7) $150,000. (8) $ 80,000. (9) $ 36,000. (10) No person listed has any options to acquire securities of the kind required to be disclosed pursuant to instruction 1 of Item 403 of Regulation SB. (Y) Yes Employment Agreements --------------------- The Company is a party to employment agreements with Vince Vellardita, Ronald Foster, Clay Harrison, Egan Elledge and Shari Edwards. On January 1, 1992, Mr. Foster entered into a ten year employment agreement with the Company, renewable thereafter for a continuing one five year term unless one of the parties provides the other with written intention not to renew, on or before the 180th day prior to expiration of the then current term. Although the agreement can be terminated by the Company for cause, or the Company's stockholders can refuse to comply with its terms by not re-electing Mr. Foster as a director, such events accelerate Mr. Foster's rights to compensation under the Agreement. The Agreement provides the Company with an obligation to defend and indemnify Mr. Foster to the fullest extent legally permitted, and calls for the following compensation: (a) Mr. Foster is entitled to a salary starting at $2,500.00 per Week, but subject to review on a quarterly basis, with the expectation that it will be substantially increased as increased profits and cash flow from operations permit. -40- (b In addition to the foregoing, Mr. Foster is entitled to a benefit package equal to the most favorable benefit package provided by the Company or its subsidiaries to any of their employees, officers, directors, consultants or agents. All required payments are accruing until such time as the Company has adequate funds to meet its operating expenses and commitments. Item 11. Security Ownership of Certain Beneficial Owners & Management ------------------------------------------------------------------------------ The following table sets forth, as of the date of this Registration Statement, the number and percentage of shares of common stock owned of record and beneficially by any group (as that term is defined for purposes of Section 13(d)(3) of the Exchange Act), person or firm that owns more than five percent (5%) of the Company's outstanding common stock (the Company's only class of voting securities). Name and Address of Amount of Nature of Percent of Beneficial Owner *Shares Ownership Class Ronald Foster 415,411 Record & 4.61% Common 103 Firetower Road Beneficial Leesburg, Georgia, 31763 Vince Vellardita 1,377,491 Record & 15.30% Common 26030 Avenue Hall Beneficial Valencia, California 91355 E-Blaster International 3,000,000 Record & 33% Common JL. H.R. Rasuna Said Kav. Beneficial B-1 6th Floor, Jakarta, 12920 Indonesia Radorm Technology Limited 567,824 Record & 6.2% Common Jakarta, 12920 Beneficial Indonesia Great Asian Holdings Limit 2,110,422 Record & 23% Common Jakarta, 12920 Beneficial Indonesia
_______________________________________________________________________________ * Includes all stock held either personally or by affiliates. (b) Security Ownership of Management ---------------------------------------- The following table sets forth, as of the date of this Registration Statement, the number and percentage of the equity securities of the -41- Company, its parent or subsidiaries, owned of record or beneficially by each officer, director and person nominated to hold such office and by all officers and directors as a group. Title of Name of Amount Nature of Percent of Class Beneficial Owner Shares Ownership Class ----- --------------- ------ --------------- Common Ronald Foster 415,411 ** 04.61% Common Vince Vellardita 1,377,491 *** 15.30% Common Steve Weber 40,050 ** 00.005% Common David Weiner 0 *** 00.00% Common All officers and directors as a group (4 people) 1,832,952 ** 19.915%
___ * Includes all stock held either personally or by affiliates. ** Record & Beneficial. *** Not Applicable. To the best knowledge and belief of the Company, there are no arrangements, understandings, or agreements relative to the disposition of the Company's securities, the operation of which would at a subsequent date result in a change in control of the Company. Changes In Control ------------------ ValCom is unaware of any contract or other arrangement, the operation of which may at a subsequent date result in a change in control of ValCom. Item 12. Certain Relationships and Related Transactions --------------------------------------------------------- There are no family relationships among directors, executive officers or persons chosen by the Company to be nominated as a director or appointed as an executive officer of the Company of any of its affiliated subsidiaries. PART IV ------- Item 13. Index to Exhibits ------- ------------------- Description of Exhibits
Page or Exhibit Source of Number Incorporation Description ------ ----------------- --------------- EX 27 Summary Financial Information -42- The following documents are incorporated by reference into the indicated parts of this report: Annual Report to Stockholders of the year ended December 31, 2000. 10KSB 2000 Merger Agreement 10KSB 2000 Written Consent of The Majority Stockholders 10KSB 2000 The Name Amendment 10KSB 2000 The Par Value & Authorized Share Amendment 10KSB 2000 Joint Venture Agreement Woody Fraser 10KSB 2000 Memorandum of Agreement Half-Day ------------------------------------------------------------------------------- 8K Edgar 6 each 8-K filing were made throughout 2001 S8 Edgar 3 each S-8 filing were made throughout 2001 PRE 14C Edgar Filed October 23, 2000 DEF 14C Edgar Filed February 13, 2001 PRER 14C Edgar Filed January 10, 2001 DEFR 14A Edgar Filed May 11, 2001 SB 2 Edgar Filed June 19, 2001 PRE 14C Edgar Filed August 17, 2001 DEF 14C Edgar Filed August 31, 2001
Additional Information ---------------------- Headquarters ------------ ValCom, Inc. ------------ 26030 Avenue Hall Studio #5 - Valencia, California 91355. ------------------------------------------------------ Subsidiaries ------------ Half/Day Video -------------- 2711 Empire Avenue - Burbank, California 91504 ------------------------------------------------- Officers & Directors -------------------- Vince Vellardita: Chairman of the Board, President & Chief Executive Officer Ron Foster: Secretary/Vice President/Director Steve Weber: Director David Weiner: Director Auditors -------- Mr. Jay J. Shapiro Jay J. Shapiro, CPA. A Professional Corporation 16501 Ventura Boulevard, Suite 650, Encino, California 91436 Legal Counsel ------------ Sichenzia, Ross, Friedman and Ference LLP - Mr. Gregory Sichenzia 135 West 50th Street, New York, New York 10020 -43- Transfer Agent -------------- Continental Stock Transfer & Trust 17 Battery Place - New York, New York 10004 Exhibits to this Form 10-KSB will be provided, subject to payment of actual copy costs, to shareholders of the Company upon written request addressed to Marcus Omote, ValCom, Inc., at the Company's headquarters listed above. Signatures ---------- Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, as amended, the Company has duly caused this First Amended Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized. ValCom, Inc. Dated: December 28, 2001 /s/Vince Vellardita ------------------- Vince Vellardita Chairman, President & Chief Executive Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Vince Vellardita Chairman, President Feb 26, 2002 ------------------- & Chief Executive Officer Vince Vellardita /s/ Steve Weber Director Feb 26, 2002 ------------------- Steve Weber /s/ Ronald Foster Director, Secretary/Vice President Feb 26, 2002 ------------------- Ronald Foster /s/ David Weiner Director Feb 26, 2002 ------------------- David Weiner -44-