-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqTZt23HU+VTS+dADr0MzjZNv77D8ZDRa41gvqgls84L5D5T7INnmT43GkY5nOlS WKklO3ECGfSscIVfUD9BjQ== 0001227528-05-000091.txt : 20050516 0001227528-05-000091.hdr.sgml : 20050516 20050513183135 ACCESSION NUMBER: 0001227528-05-000091 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050516 DATE AS OF CHANGE: 20050513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALCOM, INC CENTRAL INDEX KEY: 0001013453 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 581700840 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28416 FILM NUMBER: 05831009 BUSINESS ADDRESS: STREET 1: 920 COMMERCE STREET CITY: LAS VEGAS STATE: NV ZIP: 89106-4501 BUSINESS PHONE: 702-385-9000 MAIL ADDRESS: STREET 1: 920 COMMERCE STREET CITY: LAS VEGAS STATE: NV ZIP: 89106-4501 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 20040816 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 20030213 FORMER COMPANY: FORMER CONFORMED NAME: SBI COMMUNICATIONS INC DATE OF NAME CHANGE: 20030204 10QSB 1 l10qsb033105.txt 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 MARCH 31, 2005 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) 41 North Mojave Road, Las Vegas, Nevada 89101 (Address of Principal executive offices) (Zip code) (702) 385-9000 Issuer's telephone number Securities registered pursuant to 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK $0.001 PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] As of March 31, 2005 the issuer had 35,822,926 shares of its $0.001 par value common stock outstanding. UNAUDITED INTERIM FINANCIAL STATEMENTS The accompanying financial statements are un-audited and are prepared in accordance with rules and regulations of the Securities and Exchange Commission for interim quarterly reporting. Accordingly, these financial statements do not include all disclosures required under generally accepted accounting principles. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of ValCom, Inc. and subsidiaries as of March 31, 2005 and the results of their operations and their cash flows for the three months and six months ended March 31, 2005. These consolidated financial statements include the accounts of ValCom, Inc. and its subsidiary companies (together "the Company"). Results for the three months and six months ended March 31, 2005, are not necessarily indicative of the operations, which may occur during the year ending September 30, 2005. Refer to the Company's Annual Report on Form 10-KSB for the year ended September 30, 2004 for further information. VALCOM, INC. FORM 10-QSB INDEX Page PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheet as of March 31,2005 (unaudited) 4 Condensed Consolidated Statements of Operations for the six and three month periods ended March 31, 2005 and 2004 (unaudited) 6 Condensed Consolidated Statements of Cash Flows for the six month periods ended March 31, 2005 and 2004 (unaudited) 8 Notes to Condensed Consolidated Financial Statements (unaudited) 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Disclosure Controls and Procedures 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 23 Part III. EXHIBITS PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALCOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 2005 (UNAUDITED) ASSETS Current Assets: Cash & Cash equivalents $ 49,018 Accounts receivable, net 20,661 Production in Progress 94,598 ----------- Total Current Assets 164,277 Property and equipment - net 163,090 Investment 1,000,000 Deposits and other assets 40,631 ------------ Total Assets $ 1,367,998 ============ See accompanying notes to the condensed consolidated financial statements VALCOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED) MARCH 31, 2005 (UNAUDITED) LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities Current liabilities: Accounts payable $ 568,937 Accrued expenses 14,550 Due to related parties 88,450 Notes payable 330,845 --------- Total Current Liabilities 1,002,782 Long term loans 19,822 --------- TOTAL LIABILITIES 1,022,605 Stockholders' deficit: Convertible preferred stock: all with par value $0.001; Shares authorized and outstanding as of March 31, 2005 Series B, 1,000,000 shares authorized; 38,000 shares issued and outstanding 38 Series C, 5,000,000 shares authorized; 5,692,416 shares issued and outstanding, 5,692 Common stock, par value $.001; 100,000,000 shares authorized; 35,822,949 shares issued and outstanding 35,823 Treasury stock (35) Additional Paid-in capital 9,709,344 Minority Interest (260,543) Accumulated deficit (9,144,926) ----------- Total Stockholders' deficit 345,393 ----------- Total Liabilities and Stockholders' deficit $ 1,367,998 =========== See accompanying notes to the condensed consolidated financial statements VALCOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the six months For the six months For the three months For the three months ended MARCH 31, 2005 ended MARCH 31, 2004 ended MARCH 31, 2005 ended MARCH 31, 2004 Revenue: Rental 436,711 1,265,195 $ 263,339 $ 734,624 Production 126,031 37,474 58,992 7,147 Other 5,000 30,222 5000 27,882 ------------- ------------------- -------------- --------------- Total Revenue 567,742 1,332,891 327,331 769,653 ------------- ------------------- -------------- --------------- Cost and Expenses: Production 88,314 58,944 40,528 48,052 Selling and promotion 29,608 17,546 Depreciation and amortization 30,583 175,690 4,330 75,330 General and administrative 992,050 1,781,430 374,416 902,172 Consulting and professional 517,312 expenses Impairment of assets (321,395) (321,395) ------------- -------------- --------------- Total Cost and Expenses 1,336,472 2,016,064 115,525 1,025,554 ------------- ------------------- -------------- --------------- Operating Profit (loss) (768,730) (683,173) (211,906) (255,901) Other Income (Expense): Interest expense (7,038) (584,010) (2,544) (316,418) Gain on sale of assets 53,949 - Interest income Other income 28,971 3,284 ------------- ------------------- -------------- --------------- Total Other Income (Expense) 21,933 (530,061) 739 (316,418) ------------- ------------------- -------------- --------------- Loss from continuing operations (746,797) (1,213,234) 212,646 (572,319) Discontinued Operations: ------------- ------------------- -------------- --------------- - - ============= =================== ============== =============== Net loss $(2,036,796) $ (1,213,234) $ (212,646) $ (572,319) ============= =================== ============== =============== Basic and diluted loss per share from continuing operations (0.06) (0.08) (0.03) (0.04) ------------- ------------------- -------------- --------------- Basic and diluted loss per share from discontinued operations (0.0) (0.0) (0.0) (0.0) Basic and diluted loss per share (0.06) (0.08) (0.03) (0.04) Weighted average shares outstanding: Basic 33,564,277 15,010,000 34,897,428 15,010,000 Weighted average shares outstanding: Basic 34,397,610 15,010,000 35,730,761 15,010,000 ------------- ------------------- -------------- ---------------
See accompanying notes to the condensed consolidated financial statements CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months For the three months ended MARCH 31, 2005 ended MARCH 31, 2004 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) income $ (2,036,796) $ ( 1,213,234) Adjustments to reconcile net loss to net cash used in operating activities: Impairment of property and equipment 978,604 Depreciation and amortization 30,583 297,690 Bad debt expense 5,697 Gain on sale of fixed assets (53,949) Stock issued for services and compensation 550,866 1,338,006 Changes in operating assets and liabilities: Receivables 8,455 10,638 Production in progress (3,397) (339,074) Other Assets (20,145) Deferred Compensation 33,080 Deposits Accounts payable and accrued expenses 58,971 418,503 --------------- -------------- Net Cash Used In Operating Activities (407,017) 471,515 --------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Disposition of property and equipment (25,698) (741,547) Notes receivable payments 36,981 Proceeds from sale of property and equipment 57,200 --------------- -------------- Net Cash Provided(used) Investing Activities (25,698) (647,366) CASH FLOWS FROM FINANCING ACTIVITIES: Cash proceeds from sale of stock 51,173 219,000 Principal repayments on notes (41,107) Committed to issue 42,500 Cash received for shares to be issued Principal borrowings on notes and mortgages 266,664 Due to related parties 78,450 16,000 --------------- -------------- Net Cash Provided By (Used In) Financing Activities 438,787 193,893 --------------- -------------- NET DECREASE IN CASH & CASH EQUIVALENTS 6,072 18,042 CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,468 211,682 --------------- -------------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 27,540 $ 229,724 =============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 7,038 $ 390,000 --------------- -------------- Income taxes paid $ 0 $ 0 --------------- --------------
See accompanying notes to the condensed consolidated financial statements VALCOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS ValCom, Inc. and subsidiaries (the "Company"), formerly SBI communications, Inc., was originally organized in the State of Utah on September 23, 1983, under the corporate name of Alpine Survival Products,Inc. Its name was subsequently changed to Supermin, Inc. on November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. became the surviving corporate entity in a statutory merger with Supermin, Inc. In connection with the above merger, the former shareholders of Satellite Bingo, Inc. acquired control of the merged entity and changed the corporate name to Satellite Bingo, Inc. On January 1, 1993, the Company executed a plan of merger that effectively changed the Company's state of domicile from Utah to Delaware. Through shareholder approval dated March 10, 1998, the name was changed to SBI Communications, Inc. In October 2000, the Company was issued 7,570,997 shares by SBI for 100% of the shares outstanding in Valencia Entertainment International, LLC ("VEI"), a California limited liability company. This acquisition has been accounted for as a reverse acquisition merger with VEI as the surviving entity. The corporate name was changed to ValCom, Inc. effective March 21, 2001. The Company is a diversified entertainment company with the following operating activities: a) Studio rental - The Company and its subsidiary, Valencia Entertainment International, LLC, operated eight sound stages in Valencia, California until June 10,2004 when six of the sound stages were sold off to pay the debts of Laurus and Finance Unlimited. The Company leases the other two sound stages. Beginning June 2003, the Company and its subsidiary signed one-year lease with five one-year options for its sound stages. The Company's subsidiary, Half Day Video, Inc., supplies personnel, cameras, and other production equipment to various production companies on a short-term basis. b) Film, TV, & Animation Production -The Company, in addition to producing its own television and motion picture programming, has an exclusive facilities agreement in place for productions in Los Angeles County for a three-year term with Woody Fraser/Woody Fraser Productions BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and related notes included in the Company's Form 10-KSB. The audited consolidated financial statements of the Company for the year ended September 30, 2004 were filed on March 14, 2005 with the Securities and Exchange Commission and are hereby referenced. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) considered necessary for fair presentation has been included. The results of operations for the six months ended March 31, 2005 are not necessarily indicative of the results to be expected for the entire year. Following is a summary of the significant accounting policies followed in the preparation of these consolidated financial statements, which policies are in accordance with accounting principles generally accepted in the United States of America. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of ValCom, Inc. and three wholly-owned subsidiaries, Valencia Entertainment International, LLC, which was acquired effective February 2001, Half Day Video, Inc., which was acquired effective March 2001, New Zoo Revenue was acquire during 2004 and Valcom Nevada. Investments in affiliated companies over which the Company has a significant influence or ownership of more than 20% but less than or equal to 50% are accounted for under the equity method. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ form those estimates. DEPRECIATION AND AMORTIZATION For financial and reporting purposes, the Company follows the policy of providing depreciation and amortization on the straight-line method over the estimated useful lives of the assets, which are as follows: Building 39 years Building Improvements 39 years Production Equipment 5 years Office Furniture and Equipment 5 to 7 years Leasehold Improvements 5 years Autos and Trucks 5 years CONCENTRATIONS AND CREDIT RISK The Company had one production customer and one major rental income customer who accounted for total rental revenues for the six months ended March 31, 2005. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value. IMPAIRMENT OF LONG-LIVED ASSETS Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. REVENUE RECOGNITION Revenues from studio and equipment rentals are recognized ratably over the contract terms. Revenues from the production and licensing of television programming are recognized when the films or series are available for telecast and certain contractual terms of the related production and licensing agreements have been met. EQUITY INVESTMENT The Company accounts for its investments in companies over which the Company has significant influence or ownership of more than 20% but less than or equal to 50% under the equity method. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficiency of $1,128,506 and an accumulated deficit of $10,434,925 at March 31, 2005. The Company had a net loss of $2,036,796 and 1,077,353 for the six moths and three months ended March 31, 2005. Management has taken various steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue on in next twelve months. Management devoted considerable effort during the period ended March 31, 2005, towards management of liabilities and improving the operations. The management believes that the above actions will allow the Company to continue its operations through the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS On May 15 2003, the FASB issued FASB Statement No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS 150 requires disclosure regarding the terms of those instruments and settlement alternatives. SFAS 150 affects an entity's classification of the following freestanding instruments: a) Mandatorily redeemable instruments b) Financial instruments to repurchase an entity's own equity instruments c) Financial instruments embodying obligations that the issuer must or could choose to settle by issuing a variable number of its shares or other equity instruments based solely on (i) a fixed monetary amount known at inception or (ii) something other than changes in its own equity instruments d) SFAS 150 does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The guidance in SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. For private companies, mandatorily redeemable financial instruments are subject to the provisions of SFAS 150 for the fiscal period beginning after December 15, 2003. The adoption of SFAS No. 150 does not have a material impact on the Company's financial position or results of operations or cash flows. In December 2003, the Financial Accounting Standards Board (FASB) issued a revised Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R addresses consolidation by business enterprises of variable interest entities and significantly changes the consolidation application of consolidation policies to variable interest entities and, thus improves comparability between enterprises engaged in similar activities when those activities are conducted through variable interest entities. The Company does not hold any variable interest entities. RECLASSIFICATION Certain prior period amounts have been reclassified to conform to the current period's presentation. NOTE 2 NET INCOME (LOSS) PER SHARE The Company's net loss per share was calculated using weighted average shares outstanding of 34,897,428 and 33,564,277 for the three months and six months ended March 31, 2005. Convertible preferred stock, convertible debt, and warrants are common stock equivalents, they are included in the calculation of diluted earnings per share. NOTE 3 EQUITY INVESTMENT None NOTE 4 SEGMENT INFORMATION
Studio Rental Film & TV Production Total For the six months ended March 31, 2005 Revenues $ 408,267 $ 126,031 $ 534,298 Operating Income (Loss) (1,001,811) (88,314) (1,090,125) Total Assets 1,367,,998 1,367,998 Depreciation and Amortization 30,583 30,583 -
NOTE 5 LITIGATION On October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC, commenced a lawsuit in the Los Angeles Superior Court, State of California, against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an accounting of the amount due in connection with a non-judicial foreclosure of a deed of trust securing a promissory note executed by Valcom and Valencia. It also alleges that Chicago Title breached its trustee's duties and Laurus breached the terms of the promissory note and deed of trust securing it. Valcom's attorney has expressed his belief that the lawsuit it meritorious but at this stage in the proceeding, he is unable to state how much, if any, will be recovered in the lawsuit. Lloyd Kurtz Pending or Threatened Litigation, Claims and Assessments by the prior contractor for the renovations, at ValCom Studios in Nevada has been replaced. Mr. Lloyd Kurtz filed suit on October 25, 2004 against ValCom, Inc., A private Nevada Corporation which is 80% owned by ValCom, Inc. a Delaware Corporation, ValCom, Inc. a Delaware Corporation and Vincent Vellardita. The suit alleges a violation of Securities Act of 1933 and states that Mr. Kurtz purchased 600,000 shares of ValCom - Delaware at $0.25 per share and that the shares were not registered. He claims he is owed an additional $303,000. Mr. Kurtz has filed a Mechanic's Lien for $303,000. A motion to dismiss the claim of Mr. Kurtz has been filed. If the corporation does not prevail on its Motions to Dismiss the corporation will file its full defense and counterclaims which exceed the amount claimed by Mr. Kurtz. Farkhanda Rana On October 20, 2004 a shareholder of ValCom initiated suit against the Company and its President alleging violations of State and Federal Securities Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince Vellardita et al. were filed in Los Angeles Superior Court as Case Number PC035673. On November 23, 2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ of attachment against the Company for $325,000.00. NOTE 6 IMPAIRMENT OF PROPERTY AND EQUIPMENT None during this quarter NOTE 7 RELATED PARTY TRANSACTIONS THE COMPANY BORROWED $58,450 FROM MR. VINCE VELLARDITA, PRESIDENT AND CEO AND $30,000 FROM RICHARD SHINTAKU. NOTE 8 STOCKHOLDERS' EQUITY (A) CONVERTIBLE PREFERRED STOCK On December 31, 2004, the Company had three series of convertible Preferred Stock: B, C, and D. Series B Preferred Stock has no voting rights, is entitled to receive cumulative dividends in preference to any dividend on the common stock at a rate of 8% per share, per year. Series B Preferred Stock is to be issued if and when declared by the Board of Directors, and can be converted at any time into common stock on a 1 for 5 basis. In the event of any liquidation, the holders of shares of Series B Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series C Preferred Stock has no voting rights, is entitled to receive cumulative dividends in preference to any dividend on the common stock at a rate of 8% per share, per year, to be issued if and when declared by the Board of Directors and can be converted at any time into common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series C Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series D Preferred Stock has no voting rights, no dividends and can be converted at any time to common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series D Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share. With respect to rights on liquidation, Series B, C, and D Preferred Stock shall rank senior to the common stock, but Series C Preferred Stock shall be senior to both Series B and D Preferred Stock. Series D Preferred Stock shall be junior to both Series B and C Preferred Stock. No dividends have been declared by the Board of Directors for any of the Series of convertible Preferred Stock for the six months ended March 31, 2005. During the six month periods ending March 31, 2005, the Company issued 379,084 Series C Preferred Stock in lieu of cash payment. The Company granted no warrants associated with the issuance of the preferred stock. On January 24 Company issued 833,333 shares of C preferred Stock in lieu of cash payment. (B) COMMON STOCK During the three months ended December 31, 2004, the Company issued an aggregate of 2,500,000 shares of common stock under the Company stock option plan to employee. Total value of the compensation was approximately $25,000, which was computed based upon the market prices of the common stock on the applicable payment dates. This issuance of shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. During the three months ended December 31, 2004, the Company issued 2,000,000 shares of common stock in lieu of compensation for legal and consulting services performed. The value of the legal and consulting services performed totaled approximately $480,000, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 193,500 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $30,471, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 760,000 shares of common stock to convert $95,000 in liabilities from Great Asian Holding. During the Quarter ending March 31, 2005 Company issued 2,000,000 shares of Common Stock to Mr. Dadon for joining the Board. During the Quarter ending March 31, 2005 Company issued 750,000 shares of Common Stock to Maheu. NOTE 9 SUBSEQUENT EVENTS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION PLAN OF OPERATION As of March 31, 2005, ValCom, Inc. operations were comprised of four divisions: (1) Studio (2) Equipment and Personnel Rental, and (3) Film and (4) Television Production. RENTAL The Company and its subsidiary, Valencia Entertainment International, LLC, operates two sound stages in Valencia, California, which the Company leases. Beginning June 2003, the Company and its subsidiary have a newly signed one- year lease with five one-year options for two sound stages. The Company's subsidiary, Half Day Video, Inc., supplies personnel, cameras, and other production equipment to various production companies on a short-term basis. TELEVISION, FILM, & ANIMATION PRODUCTION The Company, in addition to producing its own television and motion picture programming, has an exclusive facilities agreement in place for productions in Los Angeles County for a three-year term with Woody Fraser/Woody Fraser Productions (See Note 5). RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2005 VS. MARCH 31, 2004 - ------------------------------------------------------------- Revenues for the three months March 31, 2005 decreased by $470,766 or 61.16% from $769,653 for the three months ended March 31, 2004 to $298,887 for the same period in 2005. The decrease in revenue was principally due to decreased studio revenues and decreased production revenues associated with the joint venture with Woody Fraser Productions. Production costs for the three months ended March 31, 2005 decreased by $7,524 or 15.65% from $48,052 for the three months ended March 31, 2004 to $40,528 for the same period in 2005. The decrease in production costs was principally due to decreased production associated with Woody Fraser Productions as described above. Depreciation and amortization expense for the three months ended March 31, 2005 decreased by $71,000 or 94.25% from $75,330 for the three months ended March 31, 2004 to $4,330 for the same period in 2005. General and administrative expenses for the three months ended March 31, 2005 decreased by $561,896 or 62.28% from $902,172 for the three months ended March 31, 2004 to $340,276 for the same period in 2004. The decrease was due principally to decreased personnel costs, insurance, printing, and bad debt expenses. Interest expense for the three months ended March 31, 2005 decreased by $313,874 or 99.19% from $316,418 for the three months ended March 31, 2004 to $2,544 for the same period in 2005. The decrease was due principally to the decrease in interest rates associated with the company's mortgage loans. Other income for the three months ended March 31, 2005 increased by $3,283 from $0 for the three months ended March 31, 2004 to $3,283 for the same period in 2005. Due to the factors described above, the Company's net loss decreased by $784,965 from $572,319 loss for the three months ended March 31, 2004 to $212,646 profit for the same period in 2005. SIX MONTHS ENDED MARCH 31, 2005 VS. MARCH 31, 2004 - ----------------------------------------------------------- Revenues for the six months ended March 31, 2005 decreased by $793,592 or 59.53% from $1,332,891 for the six months ended March 31, 2004 to $539,298 for the same period in 2005. The decrease in revenue was principally due to decreased rental income from sound stages leased to Paramount and decreased production revenues associated with the joint venture with Woody Fraser Productions and decreased rental revenues from equipment rental. Production costs for the six months ended March 31, 2005 increased by $29,370 or 49.82% from $58,944 for the six months ended March 31, 2004 to $88,314 for the same period in 2005. The increase in production costs was principally due to increased production associated with Woody Fraser Productions as described above. Depreciation and amortization expense for the six months ended March 31, 2005 30,583 decreased by $145,107 or 82.59% from $175,690 or for the six months ended March 31, 2004 to $30,583 for the same period in 2005. General and administrative expenses for the six months ended March 31, 2005 decreased by $823,520 or 46.22% from $1,781,430 for the six months ended March 31, 2004 to $957,910 for the same period in 2005. The decrease was due to decreased personnel costs, legal and accounting fees, outside services and consulting fees, and bad debt expense. Interest expense for the six months ended March 31, 2005 decreased by $576,972 or 98.79% from $584,010 for the six months ended March 31, 2004 to $7,038. Other income for the six months ended March 31, 2005 increased by $ 28,971 or 100% from $0 for the six months ended March 31, 2004 to $28,971 primarily due to less equipment rental activity. Due to the factors described above, the Company incurred a net loss of $746,797 for the six months ended March 31, 2005 compared to net loss of $1,213,234 for the same period in 2004. FUTURE OUTLOOK The Company has entered into a joint venture agreement with O. Atlas Enterprises to produce an animation movie and an animation TV series called "New Zoo Revue" based on an American Classic of the same name, which was highly successful. BCI/Navarre has purchased an exclusive agreement to distribute 195 existing shows of New Zoo Revue for the retail market. We anticipate the New Zoo Revue to be available to consumers through 4,000 Wal-Mart retail outlets. The Company has already incurred start-up costs, which have been reflected in the financial statements for the six months ended March 31, 2005. LIQUIDITY AND CAPITAL RESOURCES The Company's condensed consolidated financial statements have been prepared, assuming that the Company will continue as a going concern. The Company has a net loss of $746,797 and a negative cash flow from operations of 306,788 for the six months ended March 31, 2005, a working capital deficiency of 838,506 and an accumulated deficit of $ 9,144,926 at March 31, 2005. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Cash totaled $49,018 on March 31, 2005 compared to $229,724 as at March 31,2004. During the six months ended March 31, 2005, net cash used by operating activities totaled $306,788 compared to negative net cash used by operating activities totaled $471,515 for the comparable six-month period in 2004. A significant portion of operating activities included payments for production development costs. Net cash provided by financing activities for the six months ended March 31, 2005 totaled $360,036 compared to $2,893,893 for the comparable six-month period in 2004. Negative net cash used by investing activities during the six months ended March 31, 2005 totaled $25,698 compared to net cash provided $3,347,366 during the comparable prior year period due principally to Acquisition of studio facilities in Las Vegas. The above cash flow activities yielded a net cash increase of $27,550 during the six months ended March 31, 2005 compared to a increase of $18,042 during the comparable prior year period. There can be no assurance that the Company will be able to raise such capital on terms acceptable to the Company, if at all. ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company's periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the periodic reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Within the 90 days prior to the filing date of this Report, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. This evaluation was conducted under the supervision and with the participation of the Company's Chief Executive Officer and Principal Financial Officer. EFFECTIVE DISCLOSURE CONTROLS WEAKNESSES IN DISCLOSURE CONTROLS The Company's officers also identified several weaknesses in the Company's disclosure controls. Such weaknesses, and the steps the Company plans to take to remedy the weaknesses, are discussed below. 1. The Company's records of stock and equity related transactions were not updated on a timely basis and do not reflect the current ownership of the Company as accurately as they might. Remedy: The Company intends to engage a stock transfer agent to handle issuances and conversions of all series of its preferred stock. In addition, the Company will maintain more accurate records of all equity transactions during the year. 2. The Company drafted several agreements without consulting its legal counsel. Therefore, some of the agreements had terms and provisions that either changed the purpose of the agreement or undermined the purpose or intent of management. Remedy: The Company will consult its legal counsel as to the legality of future agreements and consult its auditors regarding the proper accounting treatment of such agreements in order to preserve the purpose of the agreements and the intent of management. CHANGES IN INTERNAL CONTROLS There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls. The Company intends to make extensive improvements, as outlined above, to its disclosure controls. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC, commenced a lawsuit in the Los Angeles Superior Court, State of California, against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an accounting of the amount due in connection with a non-judicial foreclosure of a deed of trust securing a promissory note executed by Valcom and Valencia. It also alleges that Chicago Title breached its trustee's duties and Laurus breached the terms of the promissory note and deed of trust securing it. Valcom's attorney has expressed his belief that the lawsuit it meritorious but at this stage in the proceeding, he is unable to state how much, if any, will be recovered in the lawsuit. Lloyd Kurtz Pending or Threatened Litigation, Claims and Assessments by the prior contractor for the renovations, at ValCom Studios in Nevada has been replaced. Mr. Lloyd Kurtz filed suit on October 25, 2004 against ValCom, Inc., A private Nevada Corporation which is 80% owned by ValCom, Inc. a Delaware Corporation, ValCom, Inc. a Delaware Corporation and Vincent Vellardita. The suit alleges a violation of Securities Act of 1933 and states that Mr. Kurtz purchased 600,000 shares of ValCom - Delaware at $0.25 per share and that the shares were not registered. He claims he is owed an additional $303,000. Mr. Kurtz has filed a Mechanic's Lien for $303,000. A motion to dismiss the claim of Mr. Kurtz has been filed. If the corporation does not prevail on its Motions to Dismiss the corporation will file its full defense and counterclaims which exceed the amount claimed by Mr. Kurtz. Farkhanda Rana On October 20, 2004 a shareholder of ValCom initiated suit against the Company and its President alleging violations of State and Federal Securities Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince Vellardita et al. were filed in Los Angeles Superior Court as Case Number PC035673. On November 23, 2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ of attachment against the Company for $325,000.00. The Company is involved from time to time in legal proceedings incident to the normal course of business. Management believes that the ultimate outcome of any pending or threatened litigation would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. ITEM 2. CHANGES IN SECURITIES PREFERRED STOCK: During the six month periods ending March 31, 2005, the Company issued 379,084 Series C Preferred Stock in lieu of cash payment. The Company granted no warrants associated with the issuance of the preferred stock. On January 24 Company issued 833,333 shares of C preferred Stock in lieu of cash payment. (B) COMMON STOCK During the three months ended December 31, 2004, the Company issued an aggregate of 2,500,000 shares of common stock under the Company stock option plan to employee. Total value of the compensation was approximately $25,000, which was computed based upon the market prices of the common stock on the applicable payment dates. This issuance of shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. During the three months ended December 31, 2004, the Company issued 2,000,000 shares of common stock in lieu of compensation for legal and consulting services performed. The value of the legal and consulting services performed totaled approximately $480,000, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 193,500 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $30,471, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 760,000 shares of common stock to convert $95,000 in liabilities from Great Asian Holding. During the Quarter ending March 31, 2005 Company issued 2,000,000 shares of Common Stock to Mr. Dadon for joining the Board. During the Quarter ending March 31, 2005 Company issued 750,000 shares of Common Stock to Maheu. 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 REPORTS ON FORM 8-K 1. Resignation of Krishna Swamy Alladi from the Board of Director (filed with Edgar on December 13, 2004. 2. ITEM 4.01. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT filed with Edgar on February 1, 2005 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: March 15, 2005 By: /s/Vince Vellardita ------------------------------------- Vince Vellardita Chairman of the Board and Chief Executive Officer (Principal executive officer) In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE TITLE DATE BY: /s/Vince Vellardita CEO/President March 15, 2005 Chairman of the Board Vince Vellardita EX-1 2 ex_31-1.txt EXHIBIT 31.1 CERTIFICATION OF PRESIDENT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 RULES 13A-14 AND 15D-14 OF THE AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ValCom, Inc., a Delaware corporation (the "Company"), on Form 10-QSB for the period ending March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Vince Vellardita, President of the Company (the "Officer"), certify, pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that: (1) I have reviewed the Report. (2) Based upon my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading; (3) Based upon my knowledge, the financial statements and other financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Company, and as of, and for, the periods presented in the Report; (4) I and the other certifying officers of the Company: (a) Are responsible for establishing and maintaining disclosure controls and procedures, for the Company; (b) Have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the periodic Report is being prepared; (c) Have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the reporting period; and (d) Have presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation. (5) I and the other certifying officers have disclosed to the Company's auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function): (a) All significant deficiencies in the design or operation of internal controls (a pre-existing term relating to internal controls regarding financial reporting) which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls. (6) I and the other certifying officers have indicated in the Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/Vince Vellardita ---------------------- Vince Vellardita Chief Executive Office Dated: May 15, 2005 EX-2 3 ex_32.txt EXHIBIT 32 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ValCom, Inc., a Delaware corporation (the "Company"), on Form 10-QSB for the period ending March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Vince Vellardita, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Vince Vellardita - ---------------------- Vince Vellardita, Chief Executive Officer and President May 15, 2005 -----END PRIVACY-ENHANCED MESSAGE-----