10QSB 1 a010q-30.txt QUARTERLY REPORT Securities and Exchange Commission Washington, D.C., 20549 FORM 10-QSB (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL QUARTER ENDED DECEMBER 31, 2001 Commission file Number 0-28416 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ============================================================================== ValCom, Inc. (Name of small business issuer specified in its charter) ============================================================================== Delaware 58-1700840 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 26030 Avenue Hall - Studio #5, Valencia, California 91355 ----------------------------------------------------- (Address of Principal executive offices) (Zip code) (661) 257-8000 -------------- Issuer's telephone number
============================================================================== Securities registered pursuant to 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock and Preferred Stock Common Stock $0.001 Par Value - Preferred Stock $0.001 Par Value --------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] As of December 31, 2001 the Registrant had 9,757,649 shares of its $0.001 par value Common Stock Outstanding. ============================================================================== January 30, 2002 ==============================================================================
Table Of Contents ValCom, Inc. FORM 10-QSB INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Consolidated Balance Sheets as of September 30, 2001 and and December 31, 2001 Consolidated Statements of Operations 5 for the three months ended December 31, 2000 and 2001 Consolidated Statement of Changes 6 in Shareholders' Equity for the three months ended December 31, 2001 Consolidated Statements of Cash Flows 6 for the three months ended December 31, 2000 and 2001 Notes to Consolidated Financial State- 8 ments Item 2. Management's Discussion and Analysis 12 of Financial Condition and Results of Operations Condition Part II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote 15 of Security Holders Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 16
-2- PART I. FINANCIAL INFORMATION Financial Statements VALCOM, INC. AND SUBSIDIARY ----------------------------- CONSOLIDATED BALANCE SHEETS -----------------------------
December 31, September 30, 2001 2001 ------ ----- (Unaudited) (Audited) Cash $ 59,840 $ 420,857 Accounts receivable, net 212,022 156,179 Other receivables 74,000 74,000 Prepaid development costs 180,555 190,699 Note receivable, related party 1,300,000 1,415,000 ------------ ------------- Total Current Assets 1,826,417 2,256,735 ------------ ------------- Fixed Assets - net $11,921,885 $11,959,941 Prepaid loan fees 211,791 232,171 Deposits 30,291 31,750 Notes receivable, long-term 100,000 100,000 ------------ ------------- Total Assets $ 14,090,384 $ 14,580,597 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Account payable $ 509,896 $ 540,983 Accrued interest 20,384 20,384 Accrued other 202,923 107,824 Credit line payable 150,837 150,837 Notes payable - current portion 213,067 133,405 Production advances, net -0- 765,656 ----------- ------------ Total Current Liabilities 1,097,107 1,719,089 Notes Payable 6,530,401 6,636,734 ------------ ----------- Total Liabilities $ 7,627,508 $ 8,355,823 Commitments and contingencies (Note 5) See accompanying notes to consolidated financial statements -3- Stockholders' equity: Preferred stock, par value $0.001; 10,000,000 shares authorized: 1,538,000 shares issued and outstanding at December 31, 2001 and 2000, respectively: 1,538 1,538 common stock, par value $.001; 100,000,000 shares authorized; 9,757,649 and 8,909,401 shares issued and outstanding at December 31, 2001 and 2000 respectively: 9,758 8,909 Additional Paid in capital 9,700,735 9,512,699 Accumulated deficit ( 3,249,155) (3,298,372) ------------- -------------- 6,462,876 6,224,774 ------------- -------------- $ 14,090,384 $ 14,580,597 ============= ==============
See accompanying notes to consolidated financial statements -4- VALCOM, INC. AND SUBSIDIARY ------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------- December 31, ------------- 2001 2000 ----- ------ (unaudited) (unaudited) Revenue Rental $ 886,472 $ 134,500 Production 2,819,239 37,500 Other -0- 28,791 ------------ -------------- 3,705,711 200,791 Cost and Expenses: ------------ -------------- Production and development 2,540,890 73,599 Selling and promotion 18,085 85,870 Depreciation 52,412 168,778 Administrative and general 875,570 564,189 ------------- -------------- Total 3,486,957 892,436 ------------- -------------- Operating income 218,754 ( 691,645) Interest Expense (169,537) ( 338,582) -------------- -------------- Net Income (loss) $ 49,217 $ (1,030,227) ============== ============== Basic net income (loss) per share......... $ 0.01 $ (.04) ============== ============== Weighted number of shares 9,135,419 13,770,878 ============== ==============
See accompanying notes to consolidated financial statements -5- VALCOM, INC. AND SUBSIDIARY ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOW ------------------------------------ December 31, ------------ 2001 2000 ---- ---- (Unaudited) (Unaudited) Operating Activities: Net income (Loss) 49,217 ($1,030,227) Not Requiring Cash: Depreciation and amortization 72,792 168,778 Stock issued for services 56,088 278,000 Other 132,797 -0- ------------- ------------ 310,894 (583,449) ------------- ------------ Changes in: Receivables (55,843) (38,946) Other assets -0- 22,000 Production costs 10,144 64,235 Accounts payable and other accrued exp 64,012 69,232 Production deposits (765,656) -0- Credit line payable -0- 110,000 Due to stockholder -0- 25,508 ------------ ----------- (747,343) 252,029 ------------ ----------- Cash Provided (used) by Operations (436,449) (331,420) Investing Activities: Acquisition of fixed assets ( 14,356) (125,035) Deposits 1,459 40,500 Acquisition of VEI -0- 80,738 Notes receivable payments 115,000 -0- ------------- ------------ Cash Used by Investing Activities 102,103 (3,797) ------------- ------------ Financing Activities: Principal payments on notes payable ( 26,671) 195,436 Issuance of stock -0- 125,000 ------------- ------------ Cash Provided (Used) by Financial Activities ( 26,671) 320,463 ------------- ------------ See accompanying notes to consolidated financial statements -6- Increase (Decrease) in Cash and Cash Equivalents (361,017) (14,754) Cash and cash equivalents, beginning of period 420,857 22,541 ------------ ------------ Cash and cash equivalents, end of period $ 59,840 $ 7,787 ============ ============ Supplemental disclosure of cash flow information: Interest paid $ 169,537 $ 338,582 ============ ============ Income taxes paid $ 0 $ 0 ============ ============
VALCOM, INC. AND SUBSIDIARY --------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ----------------------------------------------- QUARTER ENDED DECEMBER 31, 2001 AND 2000 ---------------------------------------
Additional Common Preferred Paid-in Accumulated ------- ---------- Capital Deficit Shares Amount Shares Amount ---------- ----------- ------- ------- ------ ------- Balance October 31, 2001 8,909,401 $8,909 1,538,000 $ 1,538 $9,512,699 ($3,298,372) Shares issued for services 320,500 321 55,767 ( 56,088) Shares issued for debt retirement 527,748 528 132,269 (5,403) Net income for the period 110,708 ----------- ------- --------- ---------- ---------- ------------ Balance December 31,2001 9,757,649 $ 9,758 1,538,000 $ 1,538 $9,700,735 (3,249,155) ========== ======= =========== ======= ========== ===========
See accompanying notes to consolidated financial statements -7- VALCOM, INC. AND SUBSIDIARY ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 2001 AND 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 7,570,997 shares by SBI for 100% of the shares outstanding in Valencia Entertainment International LLC ("VEI"), a California limited liability company. This acquisition has been accounted for as a reverse acquisition merger with VEI 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, 2001. -8- ValCom, Inc. and Subsidiary ------------ Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2001 and 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. 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 December 31, 2001 accounts receivable has been reported net of a $10,000 allowance for bad debts. -9- ValCom, Inc. and Subsidiary -------------- Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2001 and 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 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%. -10- ValCom, Inc. and Subsidiary ------------- Notes to Consolidated Financial Statements -------------------------------------------- December 31, 2001 and 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. 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: December 31, ------------- 2001 2000 ----- ------ Land $7,392,292 $7,392,292 Building 4,028,785 4,028,785 Building Improvements 1,154,406 1,240,070 Production Equipment 713,839 -0- Leasehold Improvements 51,218 -0- Autos and Trucks 87,836 -0- Office Furniture and 73,243 39,500 equipment ------------ ----------- 13,501,621 12,700,647 Less: Accumulated depreciation (1,597,734) ( 1,019,266) ------------ ------------- Net Book Value $ 11,921,885 $11,681,381 ============ =============
-11- NOTE 3 Net Loss Per Share ------------------------- The Company's net loss per share was calculated using weighted average shares outstanding of 9,135,419 and 13,770,878 for the quarters ended December 31, 2001 and 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. ValCom, Inc. and Subsidiary -------------- Notes to Consolidated Financial Statements --------------------------------------------- December 31, 2001 and 2000 ------------------------------------------------- NOTE 4 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 AJ 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 AJ 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. -12- Studio Rental -------------- The Company owns six improved acres with six 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 $2,000,000 annually with cost of living increases. Rental income for the eighth stage increased in August 2001 to $95,000 per month. Studio Equipment Rental ----------------------- In March 2001 the Company acquired with 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 activity, from both internal and external services, it is anticpated that Half Day Video revenue should increase significantly from prior periods. Film Production --------------- In March 2001, the Company entered into an agreement with Woody Fraser Productions to produce various television productions on its behalf. Under the terms of the agreement, the Company will fund up to $500,000 of annual production development costs. In return, the Company will retain after costs of production, 75% of the net savings derived from all production. In January 2002, the Company signed contracts with a Cable Television Network to produce the second season of a television series consisting of 13 episodes. Revenue under this contract during 2002 will be approximately $2,500,000. In addition to retaining 75% of any possible net savings from the productions, the Company's Half Day Video unit 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) epiodes of a television series at a contracted amount of approximately $500,000. After costs of production, the Company will retain 100% of any savings plus a portion of the executive producer fees. Additional productions are in the development process. Revenues will be recognized when individual programs are available. Results of Operation -------------------- December 31, 2001 and 2000 Comparison As of December 31, 2001 the Company had working capital of $729,310. As of December 31, 2000 working capital was $537,646. The change was due primarily to a decrease in Cash. Total assets were $14,090,384 at December 31, 2001 a decrease of $490,195 from December 31, 2000 total assets of $14,580,579. The decrease in total assets was due to a decrease in Cash and Notes Receivable. Total liabilities were $8,355,823 at December 2001 and $7,627,508 at December 2000 this decrease was due primarily to the use of production advances. The merger with Valencia Entertianment International took place on October 17, 2000. The amounts reflected on the Statement of Operations and Statement of Cash Flow reflect an acquisition date of October 1, 2000. The acquisition of Half Day Video, Inc. and the joint venture with Woody Fraser -13- Productions both occurred in 2001 and are not included in the year 2000 amounts. For the quarter ended December 31, 2001 the Company had revenue of $3,705,711, operating expenses of $3,486,957 and a net income of $49,217. Income before depreciation and interest for the quarter was $271,166. Production revenue increased $37,500 in 2000 to $2,819,239 in 2001. This increase was due to the recognition of revenue on various television productions, primarily $2,400,000 in revenue from the Ultimate Revenge production. In accordance with generally accepted accounting principles production revenue has not been recognized until the material was available for telecasting by the licensee. Rental revenue for the quarter ended December 31, 2001 was $886,472 an increase of $751,792 from December 31, 2000. The decrease was due to the rental of a previously vacant stage of a production company. Production and development costs increased from $73,599 for the quarter ended December 31, 2000 to $2,540,890 for the quarter ended December 31,2001. This increase was due to the revenue recognition discussed above and the development costs incurred with Woody Fraser Productions. Depreciation expense decreased due to the fully depreciated status of certain assets. General and administrative expenses increased from $564,189 for the quarter ended December 31, 2000 to $875,570 for the quarter ended December 31, 2001. This increase of $311,381 was primarily due to the increase in rent expense for an additional stage of $107,511 and increases in utilities and related costs for newly rented stages amounting to $125,493. Trends events of uncertainties : ------------------------------- The studios rented by the Company are on one year extensions of previous long term leases. The options expire at various dates during 2002. If these productions are canceled, it is unlikely lease options would be extended. An uncertainty may exist regarding the Company's ability to rent the properties at profitable amounts. Capital Resources ----------------- Internal and external source of funding: ---------------------------------------- The Company projects positive cash flow from its studio division. ValCom may issue stock for services as a means of maintaining working capital. Additionally, the Company is currently seeking refinancing of its Studio real estate sufficient to provide approximately $1,500,000 in working capital. ValCom has sufficient funds to operate for the next 12 months through its refinancing, common stock issues and projected positive cash flow from its operation of business. 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. -14- PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 14, 2001, plaintiffs Diane Russomanno and Knowledge Booster, Inc. commenced an action in the Superior Court of the State of California, County of Los Angeles 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 AJ 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 AJ 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. Further, Plaintiffs second cause of action concerning malicious prosecution also alleges alter-ego liability. Plaintiffs allege that Ricky Rocket Enterprises, Inc. and AJ 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 AJ 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. ITEM 2. CHANGES IN SECURITIES In October 2001 the company issued 243,000 shares of common stock for consulting services. Also in December, the company issued 52,000 shares of common stock to employees as bonuses and 25,000 shares for stage rental services. In December 2001, the Company issued 527,748 shares of common stock to Laurus Fund for the retirement of a debt in the amount of $132,269 and interest. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION CHANGE IN MANAGEMENT. NONE -15- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: EXHIBITS DESCRIPTION 11 Statement re: computation of per share earnings (B) REPORTS ON FORM 8-K: No 8-K were filed SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ValCom, Inc. Date: January 30, 2002 By: /s/Vince Vellardita ------------------------------------- Vince Vellardita Chairman of the Board and Chief Executive Officer (principal executive officer) -16-