-----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, OtBzMOU4VrZubvPlHIdZfMNmpwchLOpmS3tvNx8DZKAqHnR7IM/WhKUdxnzxg7/7 weDt50xxUuytrvtmIhy/kQ== 0001227528-06-000042.txt : 20060119 0001227528-06-000042.hdr.sgml : 20060119 20060119172055 ACCESSION NUMBER: 0001227528-06-000042 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20060119 DATE AS OF CHANGE: 20060119 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28416 FILM NUMBER: 06538908 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 10KSB/A 1 l10ksb011906.txt VALCOM, INC FORM 10-KSB/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 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) 920 South Commerce Street, Las Vegas, Nevada 89106-4501 ------------------------------------------------------- (Address of Principal executive offices) (Zip Code) (702) 385-9000 -------------- (Issuer's telephone number) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $0.001 - PREFERRED STOCK, PAR VALUE $0.001 ================================================================== (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and will not be contained, to the best of the issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for its most current fiscal year: $930,138 Aggregate market value of the voting and non-voting common equity held by non-affiliates as of January 13, 2006: $4,536,358 Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes No X Number of common shares outstanding as of January 13, 2006 at $.001 par value: 50,403,986 Documents Incorporated By Reference: None Transitional Small Business Disclosure Format: Yes ____ No _X_ =================== TABLE OF CONTENTS =================== Item Page Number Number Item Caption - -------- ------ ------------- Part I - ------- Item 1. 3 Description of Business Item 2. 7 Description of Properties Item 3. 8 Legal Proceedings Item 4. 8 Submission of Matters to a Vote of Security Holders Part II - ------- Item 5. 9 Market for Common Equity and Related Stockholder Matters Item 6. 15 Management's Discussion and Analysis or Plan of Operation Item 7. 18 Financial Statements and Summary Financial Data Item 8. 38 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 8A. 38 Controls and Procedures Item 8B. 38 Other Information Part III - -------- Item 9. 39 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Item 10. 41 Executive Compensation Item 11. 43 Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters Item 12. 43 Certain Relationships and Related Transactions Item 13. 43 Exhibits Item 14. 44 Principal Accountant Fees and Services Signatures 47 Ex. 31.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ex. 31.2 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ex. 32.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Ex. 32.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Ex. 1.1 Consent of Armando C. Ibarra, C.P.A. 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 described in the Company's filings with the Securities and Exchange Commission and in Item 1 ("DESCRIPTION OF BUSINESS") and Item 6("MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION") below. ITEM I. 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 share numbers, unless otherwise stated, have been 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 in 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 stockholder 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, the principals of Valencia Entertainment International, LLC ("VEI") and SBI Communications, Inc. ("SBI") executed a letter of intent to consummate a merger. On October 16, 2000, the majority stockholders approved the Agreement and Plan of Merger. Pursuant to the Merger Agreement, the Company appointed new Board members, changed the par value of the Preferred Stock, increased the authorized Common Stock and changed its name to ValCom, Inc. ("ValCom"). A Schedule 14C Information Statement was filed with the Securities and Exchange Commission. The Securities and Exchange Commission approved the definitive Schedule 14C Information Statement on February 13, 2001. The Merger was finalized on March 6, 2001. VALCOM'S CORPORATE STRUCTURE ============================== As of September 30, 2005, ValCom, Inc. had four subsidiaries: Valencia Entertainment International, LLC, a California limited liability company; Half Day Video, Inc., a California corporation; 80% equity in ValCom Studios, Inc. a Nevada Corporation and 45% equity interest in ValCom Broadcasting, LLC, a New York limited liability company, which operates KVPS (Channel 8), an independent broadcaster. 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. The Company is a diversified entertainment company with the following operating activities: a) Studio rental - ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings, however, revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients in addition to Paramount Pictures and Don Belisarious Productions, include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development. ValCom's Studio Division is composed of two properties: 920 South Commerce which is leased and 41 North Mojave in which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space, giving ValCom a total of 9 sound stages and a recording studio. Corporate offices are located at the Commerce Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. b) Studio equipment and rental - operating under the name Half Day Video, Inc., the Company supplies and rents personnel, cameras and other production equipment to various production companies on a short-term or long-term basis. c) Film and TV 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. d) Broadcast Television - The Company owns a 45% equity interest in ValCom Broadcasting, LLC, a New York limited liability company, which operates KVPS (Channel 8), an independent television broadcaster in the Palm Springs, California market, which is strategically located in the middle of four major markets including Los Angeles, Phoenix, Las Vegas and San Diego. e) ValCom, Inc. signed a letter of intent to acquire Digital Animation Media, Ltd., a privately held Irish corporation headquartered in Dublin, Ireland. Digital Animation Media, Ltd., is of the premier independent animation companies in Europe and a leading provider of animation software to other production companies worldwide. With its production capability and proprietary technology, the company is well positioned to take advantage of the growth in existing animation markets as well as a burgeoning market for wireless animation tools and content with clients such as Disney, Warner and The New Zoo Revue. BUSINESS OVERVIEW ================== We are a diversified entertainment company with the following operating activities: 1. STUDIO RENTAL. Valencia Entertainment International, LLC, recently emerged from Chapter 11 bankruptcy after selling property per a court order. On April 7, 2003, Valencia Entertainment International LLC filed on an emergency basis a voluntary Chapter 11 bankruptcy petition. Throughout the pendency of this case, we have worked with our two real estate secured lenders, Finance Unlimited, LLC and Laurus Master Fund, Limited on the details of cash collateral stipulation. An order approving a global interim cash collateral stipulation with Finance Unlimited and Laurus was entered on August 26, 2003. This stipulation permitted the Company's use of the lenders' cash collateral through March 31, 2004. On January 15, 2004, the Court approved two additional cash collateral stipulations, one each with Finance Unlimited and Laurus, authorizing our continued use of cash collateral through March 31, 2004 (Second Interim Stipulation). The Second Interim Stipulation generally grants Finance Unlimited and Laurus relief from the automatic bankruptcy stay effective March 31, 2004, and the right to hold foreclosures sales on their real and personal property collateral as early as April 1, 2004. In May 2004, Laurus paid off Finance Unlimited and was subrogated to Finance's $6,565,998 claim, which became included in the senior of Laurus' two claims. Laurus then sought to conduct a non-judicial foreclosure sale of the property, and we objected. The Bankruptcy Court issued an order on June 3, 2004, that while Laurus could conduct a non-judicial foreclosure sale of the property, Laurus would not be entitled to any deficiency claim against either us or any other assets other than the property itself (and the rents and leases appurtenant thereto). On June 10, 2004, ValCom had the property sold. At this sale, Laurus claimed that its senior note had a balance of $7,407,873 and its junior note a balance of $2,405,093. Virtually all of the disputed penalties, along with a disproportionate share of disputed legal fees and expenses, were incorporated into the junior balance, while the senior included the $6,565,998 million subrogated from the Finance claim. The sale was conducted through the junior note, and the property was sold for $2.9 million to a third party. An affiliate of this third party then purchased the senior note directly from Laurus, without a second sale. As a result of the Bankruptcy Court's order and the subsequent trustee's sale of the property, we are not subject to any further liabilities on account of the notes and deeds of trust previously held by Finance and Laurus. Even though the senior note still technically exists, it has been rendered non- recourse by the Bankruptcy Court's order, and could only be enforced against the property itself (which no longer belongs to us). Any liability owed to the third party, which purchased the property with regard to the rents collected for June 2004, has been resolved by settlement with that party. On August 3, 2004, the Bankruptcy Court granted the motion for dismissal of Chapter 11 bankruptcy case against our subsidiary. 2. FILM, PRODUCTION DIVISION. In addition to producing our own television and motion picture programming, we have an exclusive three-year term facilities agreement in place for productions in Los Angeles County with Woody Fraser of Woody Fraser Productions A joint venture agreement was entered into between ValCom Inc and Woody Fraser Productions and Woody Fraser on January 1, 2001. According to the contract Woody Fraser Productions and Woody Fraser are responsible for developing, selling and producing various Television and Film series and the developing expenses are to be borne by ValCom Inc. The net profit participation to be ValCom Inc 75% and WPF together with Fraser 25%. The revenues for year ending Sept. 30, 2002 was around $7 million. The revenues for year ending September 30, 2003 were negligible as Woody Fraser was unable to obtain any production orders. The joint venture Agreement between the parties was terminated on April 10, 2003 and was replaced by an exclusive facilities agreement for productions in Los Angeles County for a three-year term with Woody Fraser/Woody Fraser Productions. The future outlook for this business is uncertain and will entirely depend on Woody Fraser's ability to obtain production contracts. 3. ANIMATION DIVISION. October 1, 2003, we formed New Zoo Revue LLC pursuant to a joint venture agreement with O Atlas Enterprises Inc., a California corporation. New Zoo Revue LLC was formed for the development and production of "New Zoo Revue" a feature film and television series and marketing of existing episodes. ValCom shall contribute all funding required for the development of the above to a maximum of $1,000,000 and O Atlas shall contribute an exclusive ten (10) year worldwide license in and to all rights, music and characters as its equal contribution towards Capital. The net profit after all expenses will be shared equally by ValCom Inc. and O Atlas. New Zoo Review LLC is expected to generate revenue by 2005 and expected to grow based on our ability to sell the TV Series of New Zoo Revue. The Company has secured a seven year marketing contract with BCI Navarre, a video marketing company. On September 27, 2005,ValCom, Inc. signed a letter of intent to acquire Digital Animation Media, Ltd., a privately held Irish corporation headquartered in Dublin, Ireland. Digital Animation Media, Ltd., one of the premier independent animation companies in Europe and a leading provider of animation software to other production companies worldwide. With its production capability and proprietary technology, the company is well positioned to take advantage of the growth in existing animation markets as well as a burgeoning market for wireless animation tools and content with clients such as Disney, Warner and The New Zoo Revue. 4. BROADCAST TELEVISION. The Company owns a 45% equity interest in ValCom Broadcasting, LLC, a New York limited liability company, which operates KVPS (Channel 8), an independent television broadcaster in the Palm Springs, California market, which is strategically located in the middle of four major markets including Los Angeles, Phoenix, Las Vegas and San Diego. ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings, however, revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients in addition to Paramount Pictures and Don Belisarious Productions, include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development. ValCom's Studio Division is composed of two properties: 920 South Commerce which is leased and 41 North Mojave which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space, giving ValCom a total of 9 sound stages and a recording studio. Corporate offices are located at the Commerce Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. 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, 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. 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 analyses 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 with the target companies' principals 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 analysis of consumer data and information to become a world leader in online entertainment. HALF DAY VIDEO, INC. - ----------------------- On March 8, 2001, the Company executed a definitive agreement for the purchase of 100% of the stock of Half Day Video, Inc. ("Half Day"). Half Day 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 $50,000 in assets, not including depreciation, with current revenues of $89.257. JOINT VENTURE AGREEMENT WITH NEW GLOBAL COMMUNICATIONS, INC. - VALCOM ============================================================================== BROADCASTING, LLC - ------------------ In May 2002, the Company entered into a joint venture agreement with New Global Communications, Inc. ("Global") whereby Global agreed to contribute $500,000 to the joint venture in exchange for a 55% equity interest in a new entity known as ValCom Broadcasting, LLC,a New York limited liability company, and the Company would contribute certain fixed assets and manage the operations of the joint venture for a 45% equity interest in ValCom Broadcasting, LLC. The joint venture operates a newly developed low power television broadcast station K08MX-LP in Indio-Palm Springs, California operating on Channel 8. The Company believes that the investment in the joint venture adds to the Company's infrastructure of becoming a full-service television and motion picture company. The amount contributed to the joint venture by Global will be used to purchase the license for the television station from the licensee. The effectiveness of the joint venture agreement was dependent on approval by the Federal Communications Commission (the"FCC"). On September 20, 2002, the FCC approved the transaction. FILM ENTERTAINMENT OVERVIEW ============================= Competition in the film entertainment business is diverse and fragmented, with scores of companies operating at various levels of product budget nd 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 plans to succeed by choosing its projects and markets carefully, and selecting segments and geographic areas 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 market segments in which it intends to compete will remain highly competitive. THE COMPANY'S COMPETITIVE POSITION ===================================== The Company's operations are in competition with all aspects of the entertainment industry, locally, nationally and worldwide. ValCom experiences competition from three market segments: 1) Traditional television, game shows and reality television drama 2) Movies for television and theatrical releases 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 programs, as well as its ownership of proprietary systems and software, enhances its ability to launch new entertainment and information programs based on comparable resources. DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS ================================================= The Company has two customers who accounted for approximately 99% of total real estate rental revenues for the year ended September 30, 2004. As of September 30, 2004, all sound and production stages in Valencia, California were under non-cancelable operating leases for one year from two major production companies. The Company's subsidiary, Half Day Video, Inc., does not rely on a small group of customers. It may rent production equipment and personnel to any motion picture studio or production company. The Company's television broadcast operations do not rely on a small group of customers; rather, any advertiser who wishes to advertise on Channel 8 in Indio-Palm Springs, California may generate revenues. EMPLOYEES ========= As of September 30, 2005, the Company had 4 full-time employees, including two officers and three 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 =================================== ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings, however, revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients in addition to Paramount Pictures and Don Belisarious Productions, include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development. ValCom's Studio Division is composed of two properties: 920 South Commerce which is leased and 41 North Mojave which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space, giving ValCom a total of 9 sound stages and a recording studio. Corporate offices are located at the Commerce Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. 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, "FUHGEDABOWDIT": - ---------------- International Class 41 (production and distribution of television game shows) Serial NO. 75/784,763 application filed on August 26, 1999. "ULTIMATE DRIVER": - ------------------- The Company applied for registration of copyright of "Ultimate Driver" in October, 2002. "FINAL ROUND" FIGHT FILM: registered under the Writer's Guild of America (WGA). The Company applied for registration of copyright of "The Final Round-The Gabriel Ruelas Story" on December 2, 2000. The Company obtained an assignment to a copyright 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 ============================== 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 a suit against the Company and its President alleging violations of State and Federal Securities Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince Vellardita et al. were filed in Los Angeles Superior Court as Case Number PC035673. On November 23, 2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ of attachment against the Company for $325,000.00. The case has been settled as of November 2005. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ======================================================================= None PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS; PREFERRED =============================================================================== STOCK ===== At September 30, 2005, 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 10% 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 one for five 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 10% 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 one for one 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 one for one basis. In the event of any liquidation, the holder of shares of Series C 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 while Series D Preferred Stock shall be junior to both Series B and C Preferred Stock. The Board of Directors has not declared any dividends for any of the series of convertible preferred stock. MARKET FOR COMMON EQUITY - --------------------------- The Company's common stock is traded on the NASD Over-the-Counter Electronic Bulletin Board under the symbol of VACM. As of January 13, 2006, the Company had 44,000,000 shares of common stock outstanding, with approximately 9,500,000 in the public float and approximately 3,200 shareholders of record. For the fiscal year ended September 30, 2004, the Company reported revenues of $1,953,480 and a net loss of $5,929,714. The Company's trading symbol on the Frankfurt XETRA is "VAM" and its security code is #940589. No common equity is subject to options or warrants to purchase or securities convertible into common stock, except for the currently issued 4,479,999 shares of preferred stock which are convertible into common stock and 1,733,333 warrants to purchase common stock. In addition to this, Laurus Master Fund (see note 5 below) has an option to convert unpaid principle and interest into shares. Due to bankruptcy proceedings, they cannot convert any amount of interest and principle into Common Stock. The following table sets forth in United States dollars the high and low bid and ask quotations for the Company's common stock for each quarter within the last two fiscal years. Such bid and ask quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and do not necessarily represent actual transactions. The source of the following information is the NASD Over-the-Counter Electronic Bulletin Board. Common Stock Date Bid Ask - ------ ----- ----- Low High Low High ------ ------- ------ ------- 2005 ==== First Quarter $ [___] $ [___] $ [___] $ [___] ------ ------- ------ ------- Second Quarter $ [___] $ [___] $ [___] $ [___] ------ ------- ------ ------- Third Quarter $ [___] $ [___] $ [___] $ [___] ------ ------- ------ ------- Fourth Quarter $ [___] $ [___] $ [___] $ [___] ------ ------- ------ ------- 2004 ===== First Quarter $0.340 $ 0.420 $0.480 $ 0.500 ------ ------- ------ ------- Second Quarter $0.330 $ 0.340 $0.400 $ 0.410 ------ ------- ------ ------- Third Quarter $0.090 $ 0.140 $0.300 $ 0.320 ------ ------- ------ ------- Fourth Quarter $0.200 $ 0.220 $0.220 $ 0.260 - --------------- ------ ------- ------ ------- Prices quoted reflect a one share-for-twenty reverse split effective on February 1, 1993, 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. DIVIDENDS - --------- There have been no cash dividends declared or paid since the inception of the Company. 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 of which are designated as preferred stock, $0.001 par value per share. As of September 30, 2005, approximately 41,000,000 shares of Common Stock were outstanding and held of record by approximately 3,200 persons. In addition, 4,479,999 shares of preferred stock were outstanding, and held by approximately ten (10) persons. Continental Stock Transfer & Trust Company, 17 Battery Place; New York, New York 10004, acts as transfer agent and registrar for the Company's common and preferred stock. EQUITY COMPENSATION PLAN - -------------------------- The Company has a 2004 Employee Stock Compensation Plan (the "ESCP") to enhance its ability to attract, retain and compensate experienced employees, officers, directors and consultants. The effective date of the ESCP is January 10, 2004. A total of 2,000,000 shares of common stock were registered for issuance under the ESCP on Form S-8 registration statement filed December 30, 2003. Pursuant to the ESCP, the Compensation Committee or the Board of Directors may award registered shares of the Company's common stock to employees, officers, directors or consultants for cash, property, services rendered or other form of payment constituting lawful consideration. Plan shares awarded for other than services rendered shall be sold at not less than fair market value on the date of grant. During the fiscal year ended September 30, 2004, the Company issued an aggregate of 1,000,000 shares of registered common stock to employees, officers, directors and consultants pursuant to the ESCP for services rendered. The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance as of the fiscal year ended September 30, 2005. EQUITY COMPENSATION PLAN INFORMATION
Plan category NUMBER OF WEIGHTED NUMBER OF SECURITIES SECURITIES AVERAGE REMAINING AVAILABLE PLANS TO BE ISSUED EXERCISE FOR FUTURE ISSUANCE UPON PRICE OF UNDER EQUITY EXERCISE OF OUTSTANDING COMPENSATION OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES OPTIONS, WARRANTS AND REFLECTED IN WARRANTS AND RIGHTS COLUMN (A) RIGHTS ------------ ----------- ---------------------------- (A) (B) (C) EQUITY COMPENSATION -0- -0- -0- PLANS APPROVED BY SECURITY HOLDERS EQUITY COMPENSATION -0- -0- -0- PLANS NOT APPROVED BY SECURITY HOLDERS ------------ ----------- ---------------------------- TOTAL -0- -0- -0- ------------ ----------- ----------------------------
RECENT ISSUANCES OF UNREGISTERED SECURITIES - ----------------------------------------------- (B) COMMON STOCK - ------------------ The value of the development costs totaled approximately $266,500, which was computed based upon the market prices of the common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 1,900,000 shares of common stock in lieu of compensation consultancy services performed and compensation. The value of the services performed totaled approximately $797,600, which was computed based upon the market prices of the common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 30,000 shares of common stock to a director in lieu of an interest payment of $3,000, which was computed based upon the market price of common stock at the applicable payment date. Fiscal Year ended September 30, 2004, the Company issued 500,000 shares of common stock to a director in lieu for compensation valued at $95,000 and principal loan repayment for $50,000, which was computed based upon the market price of common stock at the applicable payment date. Fiscal Year ended September 30, 2004, the Company issued 250,000 shares of common stock to a director in lieu of services valued at $ 35,000, which was computed based upon the market price of common stock at the applicable payment date. Fiscal Year ended September 30, 2004, the Company issued 300,000 shares of common stock to a director in lieu of retirement of a loan which was computed based upon the market prices of common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued an aggregate of 315,750 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $121,458, 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. Fiscal Year ended September 30, 2004, the Company issued 600,000 shares of common stock in exchange for 600,000 shares of series C preferred convertible on a one on one basis and retired 110,000 to treasury as part of settlement agreement. Fiscal Year ended September 30, 2004, the Company issued 1,344,667 shares of common stock for options exercised amounting to $ 282,000. Fiscal Year ended September 30, 2004, the Company issued 2,792,468 shares of common stock to individuals through a Private Placement Memorandum for $1,024,000. Fiscal Year ended September 30, 2004, the Company issued 975,000 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 $140,376, which was computed based upon the market prices of the common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 597,500 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $54,475, which was computed based upon the market prices of the common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 26,400 shares of common stock in lieu of debt retirement. Total value of the debt retired was approximately $3,870, which was computed based upon the market prices of the common stock issued on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 1,000,000 shares of common stock in lieu of compensation, salaries and bonuses to an officer. Total value of the compensation, salaries and bonuses was approximately $100,000, 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. Fiscal Year ended September 30, 2004, the Company issued 16,400 shares of common stock in lieu of compensation for consulting services performed. The value of the legal and consulting services performed totaled approximately $2,460., which was computed based upon the market prices of the common stock on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 1,000,000 shares of common stock in lieu of compensation, salaries and bonuses to an employee. Total value of the compensation, salaries and bonuses was approximately $100,000, 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. Fiscal Year ended September 30, 2004, the Company issued 300,000 shares of preferred stock bearing interest of 8% for one year to be paid quarterly to an individual through a Private Placement Memorandum for $30,000. Fiscal Year ended September 30, 2004, the Company issued 600,000 shares of common stock to an individual through a Private Placement Memorandum for $150,000. Fiscal Year ended September 30, 2004, the Company issued 50,000 shares of common stock in lieu of compensation, salaries and bonuses to an officer. Total value of the compensation, salaries and bonuses was approximately $10,000, 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. Fiscal Year ended September 30, 2004, the Company issued 11,000 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $1,100, 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. Fiscal Year ended September 30, 2004, the Company issued 41,667 shares of preferred stock bearing interest of 8% for one year to be paid quarterly to an individual through a Private Placement Memorandum for $5,000. Fiscal Year ended September 30, 2004, the Company issued 760,000 shares of common stock in lieu of debt retirement. Total value of the debt retired was approximately $95,000, which was computed based upon the market prices of the common stock issued on the applicable payment dates. Fiscal Year ended September 30, 2004, the Company issued 295,750 shares of preferred stock bearing interest of 8% for one year to be paid quarterly to individuals through a Private Placement Memorandum for $39,090. Fiscal Year ended September 30, 2004, the Company on September 16, 2004 filed with the Security and Exchange Commission a Form SB-2. The prospectus relates to the resale by certain selling stockholders of up to 15,199,661 shares of common stock of ValCom, Inc. issuable to the selling stockholders: - - up to 13,574,661 shares of common stock issuable to certain selling stockholders upon the conversion of principal and interest, or in payment of interest, under 8% Callable Secured Convertible Notes; and - - up to 1,500,000 shares of common stock issuable to certain selling stockholders assuming the exercise of outstanding common share purchase warrants. - - up to 125,000 shares of common stock. The selling stockholders may offer to sell the shares of common stock being offered in this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. We will not receive any proceeds from the resale of shares of our common stock by the selling stockholders. We have issued 8% Callable Secured Convertible Notes and share purchase warrants, and our obligations under the 8% Callable Secured Convertible Notes and the warrants pose risks to the price of our common stock and our continuing operations. We have executed an agreement for the issuance of 8% Callable Secured Convertible Notes, in the aggregate principal amount of $750,000. The 8% Callable Secured Convertible Notes provide that in certain circumstances the holder of the debentures may convert the outstanding principal and accrued interest, into shares of our common stock. The purchasers of the discounted 8% Callable Secured Convertible Notes and 8% Callable Secured Convertible Notes also hold an aggregate of 750,000 warrants. The terms and conditions of the 8% Callable Secured Convertible Notes and the warrants pose unique and special risks to our continuing operations and the price of our common stock. There are a large number of shares underlying our 8% Callable Secured Convertible Notes, and warrants that may be available for future sale and the sale of these shares may depress the market price of our common stock. As of August 26, 2004, we had 26,611,928 shares of common stock issued and outstanding and an obligation to reserve 13,574,661 issuable upon conversion of the Notes at current market prices. In addition, we have outstanding options and warrants to purchase 300,000 shares of common stock through June 30, 2004. In addition, the number of shares of common stock issuable upon conversion of the outstanding 8% Callable Secured Convertible Notes may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the debentures and upon exercise of our warrants, may be sold without restriction. The sale of these shares may adversely affect the market price of our common stock. The continuously adjustable conversion price feature of our 8% Callable Secured Convertible Notes could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders. Our obligation to issue shares upon conversion of our convertible securities is essentially limitless. The following is an example of the amount of shares of our common stock that are issuable, upon conversion of our 8% Callable Secured Convertible Notes, based on market prices 25%, 50% and 75% below the market price, as of January 13, 2005 of $0.21. % Below Price Per Discount Number of Shares Percentage of Market Share of 35% Issuable Outstanding stock - ------- --------- -------- ---------------- ----------------- 25% $ 0.1575 $ 0.1024 7,324,218 21.58% - ------- --------- -------- ---------------- ----------------- 50% $ 0.1050 $ 0.0683 10,980,966 29.21% - ------- --------- -------- ---------------- ----------------- 75% $ 0.0525 $ 0.0341 21,994,134 65.82% - ------- --------- -------- ---------------- ----------------- As illustrated, the number of shares of common stock issuable upon conversion of our 8% Callable Secured Convertible Notes will increase if the market price of our stock declines, which will cause dilution to our existing stockholders. The continuously adjustable conversion price feature of our 8% Callable Secured Convertible Notes may encourage investors to make short sales in our common stock, which could have a depressive effect on the price of our common stock. The 8% Callable Secured Convertible Notes are convertible into shares of our common stock at a 35% discount to the trading price of the common stock prior to the conversion. The significant downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of common stock could encourage short sales by investors. This could place further downward pressure on the price of the common stock. The selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion or exercise of debentures, warrants and options, but also the mere perception that these sales could occur, may adversely affect the market price of the common stock. The issuance of shares upon conversion of the 8% Callable Secured Convertible Notes and exercise of outstanding warrants may cause immediate and substantial dilution to our existing stockholders. The issuance of shares upon conversion of the 8% Callable Secured Convertible Notes and exercise of warrants may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. Although the selling stockholders may not convert their 8% Callable Secured Convertible Notes and/or exercise their warrants if such conversion or exercise would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent the selling stockholders from converting and/or exercising some of their holdings and then converting the rest of their holdings. In this way, the selling stockholders could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering. If we are required for any reason to repay our outstanding 8% Callable Secured Convertible Notes, we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the 8% Callable Secured Convertible Notes, if required, could result in legal action against us, which could require the sale of substantial assets. In August 2004, we entered into a Securities Purchase Agreement for the sale of an aggregate of $750,000 principal amount of 8% Callable Secured Convertible Notes. The 8% Callable Secured Convertible Notes are due and payable, with 8% interest, two years from the date of issuance, unless sooner converted into shares of our common stock. Although we currently have $250,000 8% Callable Secured Convertible Notes outstanding, the investor is obligated to purchase additional 8% Callable Secured Convertible Notes in the aggregate of $500,000. In addition, any event of default as described in the 8% Callable Secured Convertible Notes could require the early repayment of the 8% Callable Secured Convertible Notes, including a default interest rate of 15% on the outstanding principal balance of the debentures if the default is not cured with the specified grace period. We anticipate that the full amount of the 8% Callable Secured Convertible Notes, together with accrued interest, will be converted into shares of our common stock, in accordance with the terms of the 8% Callable Secured Convertible Notes. If we are required to repay the 8% Callable Secured Convertible Notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations. This SB-2 filing is not effective as of this filing date. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================ INTRODUCTION PLAN OF OPERATION As of September 30, 2005, ValCom, Inc. operations were comprised of the following divisions: 1. Studio Division 2. Rental Division 3. Broadcast Television 4. Film and Television Production; and 5. Animation Division. RENTAL ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings, however, revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients in addition to Paramount Pictures and Don Belisarious Productions, include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development. ValCom's Studio Division is composed of two properties: 920 South Commerce which is leased and 41 North Mojave which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space, giving ValCom a total of 9 sound stages and a recording studio. Corporate offices are located at the Commerce Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. TELEVISION, FILM, & ANIMATION PRODUCTION WOODY FRASER PRODUCTIONS In addition to producing our own television and motion picture programming, we have an exclusive facilities agreement in place for productions in Los Angeles County fora three-year term with Woody Fraser/Woody Fraser Productions. A joint venture agreement was entered into between ValCom Inc and Woody Fraser Productions and Woody Fraser on January 1, 2001. According to the contract Woody Fraser Productions and Woody Fraser are responsible for developing, selling and producing various Television and Film series and the developing expenses are to be borne by ValCom Inc. The net profit participation to be ValCom Inc 75% and WPF together with Fraser 25%. The revenues for year ending September 30, 2005 were around $7,000. The revenues for year ending Sep 30, 2002 were around $7 million. The revenues for year ending September 30, 2003 were negligible as Woody Fraser was unable to obtain any production orders. The joint venture Agreement between the parties was terminated on April 10, 2003 and was replaced by an exclusive facilities agreement for productions in Los Angeles County for a three-year term with Woody Fraser/Woody Fraser Productions. The future outlook for this business is uncertain and will entirely depend on Woody Fraser's ability to obtain production contracts. October 1, 2003, we formed New Zoo Revue LLC pursuant to a joint venture agreement with O Atlas Enterprises Inc.,a California corporation. New Zoo Revue LLC was formed for the development and production of "New Zoo Revue" a feature film and television series and marketing of existing episodes. ValCom shall contribute all funding required for the development of the above to a maximum of $1,000,000 and O Atlas shall contribute an exclusive ten (10) year worldwide license in and to all rights, music and characters as its equal contribution towards Capital. The net profit after all expenses will be shared equally by ValCom Inc. and O Atlas. New Zoo Review LLC is expected to generate revenue by 2005 and expected to grow based on our ability to sell the TV Series of New Zoo Revue. CHANNEL 8 IN PALM SPRINGS, CALIFORNIA In connection with our joint venture with New Global Communications, Inc., we own a 45% equity interest in ValCom Broadcasting, LLC, a New York limited liability company, which operates KVPS (Channel 8), an independent television broadcaster in the Palm Springs, California market. RESULTS OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, =============================================================================== 2003 [NEEDS TO BE UPDATED FOR 2005 V. 2004] ==== Revenues for the year ended September 30, 2005 decreased from to $1,953,480 for the same period in 2004 to $930,108 for the year ended September 30, 2004. The decrease in revenue was principally due to decreased production revenues associated with the joint venture with Woody Fraser Productions and decreased rental revenues. Production costs for the year ended September 30, 2005 decreased from $151,040 for the year ended September 30, 2003 to $151,048 for the same period in 2004. The decrease in production costs was principally due to decreased production associates with Woody Fraser Productions as described above. Selling and promotion costs for the year ended September 30, 2004 increased by $55,554 or 268% from $20,745 for the same period in 2004 to $43,--- for the year ended September 30, 2005. The decrease was due principally to a decrease in travel and public relations expenses. Depreciation and amortization expense for the year ended September 30, 2005 increased from $665,525 for the year ended September 30, 2004 to $192,001 for the same period in 2005. The decrease in depreciation and amortization expense was due to decreased amortization related to the write off of prepaid loan fees in the prior year period. General and administrative expenses for the year ended September 30, 2005 increased from $5,059,272 for the year ended September 30, 2004 to $955,690 for the same period in 2005. The decrease was due principally to decreased personnel costs, outside services, utilities, settlement fees, and goodwill impairment. Consulting and professional fees for the year ended September 30, 2005 from $12,--- for the year ended September 30, 2004 to $1,301,907 for the same period in 2004. The decrease in consulting and professional fees was principally due to decreased consulting fees partially offset by an increase in legal and accounting costs. Bad debt expense for the year ended September 30, 2005 increased by $59,293 or 100% for the year ended September 30, 2004 to$0.00 for the same period in 2004. Interest expense for the year ended September 30, 2005 decreased from a negative of $854,161 for the year ended September 30, 2004 to negative of $51,562 for the same period in 2004. The decrease was due principally to the conversion convertible debt in the prior year period. Due to the factors described above, the Company's net loss decreased by $3,499,555 from a loss of $5,929,714 for the year ended September 30, 2004 to a loss of $1,820,041 for the same period in 20054 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE - ----------------------------------------------------------- See Notes to Consolidated Financial Statements in Part F/S for a description of the Company's calculation of earnings per share. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the consolidated financial statements, the Company has a net loss of $5,929,714 and cash flow from operations of $5,268,905 for the year ended September 30, 2004, and an accumulated deficit of $8,658,671 at September 30, 2004. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Cash totaled $21,468 on September 30, 2004, compared to $211,682 at September 30, 2003. During the fiscal year 2004, net cash used by operating activities totaled $5,268,905 compared to a negative cash flow of $300,582 for the year ended September 30, 2003. A significant portion of operating activities included payments for accounting and legal fees, consulting fees, salaries, and rent. Net cash used by financing activities for fiscal year 2004 totaled $3,807,194 compared to cash provided of $16,067 for the year ended September 30, 2003. Net cash provided by investing activities during fiscal year 2004 totaled $1,404,839 compared to of $184,395 during the year ended September 30, 2003, for proceeds from sales of fixed assets and decreased expenditures for the purchase of equipment. The above cash flow activities yielded a net cash increase of $56,872 during fiscal year 2004 compared to a decrease of $131,692 during the year ended September 30, 2003. Net working capital (current assets less current liabilities) was a negative $991,566 as of September 30, 2004. During the twelve months ended September 30, 2004, the Company raised $1,411,273 from private placements of common stock. The Company will need to continue to raise funds through various financings to maintain its operations until such time as cash generatedby operations is sufficient to meet its operating and capital requirements. There can be no assurance that the Company will be able to raise such capital on terms acceptable to the Company, if at all. Total shareholders' equity decreased to $120,048 in fiscal year 2004. Additional paid in capital decreased to $8,746,116 in fiscal year ended September 30, 2004. INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY During the last fiscal year, the Company financed its operations with cash from its operating activities and through sales of equipment and private offerings of its securities to a director of the Company. The Company anticipates that its stock issuances and projected positive cash flow from operations collectively will generate sufficient funds for the Company's operations for the next 12 months. If the Company's existing cash combined with cash from operating activities is not adequate to finance the Company's operations during the next 12 months, the Company will consider one or more of the following options: (1) issuing equity securities in exchange for services, (2) selling additional equity or debt securities or (3) reducing the number of its employees. FUTURE FUNDING REQUIREMENTS The Company's capital requirements have been and will continue to be significant. The Company's adequacy of available funds during the next fiscal year and thereafter will depend on many factors, including whether the Company will be able to: (1) retain its existing tenants (2) rent its production equipment and personnel profitably, (3) develop additional distribution channels for its programming. Assuming funds are available, during the next fiscal year, the Company expects to spend approximately $400,000 for plant and equipment. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to the Company. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of the Company's existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on the operating flexibility of the Company. The Company's failure to successfully obtain additional future funding may jeopardize its ability to continue its business and operations. ITEM 7. FINANCIAL STATEMENTS AND SUMMARY FINANCIAL DATA ============================================================== FINANCIAL STATEMENTS ==================== The audited consolidated balance sheet of the Company as of September 30, 2005 and the related consolidated statements of operations, stockholder's equity and cash flows for the years ended September 30, 2005 and 2004 are submitted herewith. CONTENTS OF REPORT Independent Auditors' Reports F-1 Consolidated Balance Sheets F-2/F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders Equity F-5/F-6 Consolidated Statements of Cash Flow F-7 Notes to Consolidated Financial Statements F-8/F-17 VALCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 A C I ARMANDO C. IBARRA CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION Armando C. Ibarra, C.P.A. Members of the California Society of Certified Public Accountants Registered with the Public Company Accounting Oversight Board To the Board of Directors Valcom, Inc. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited the accompanying consolidated balance sheet of Valcom, Inc. and subsidiaries as of September 30, 2005 and 2004 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valcom, Inc., and subsidiaries as of September 30, 2005and 2004, and the results of their operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company's losses from operations raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ARMANDO C. IBARRA, C.P.A. - ----------------------------- ARMANDO C. IBARRA, C.P.A. December 16, 2005 Chula Vista, Ca. 91910 371 "E" STREET, CHULA VISTA, CA 91910 TEL: (619) 422-1348 FAX: (619) 422-1465 F-1
VALCOM, INC. AND SUBSIDIARIES Consolidated Balance Sheets ASSETS As of As of Setpember 30, September 30, 2005 2004 ------------ ------------- CURRENT ASSETS Cash $ 276,280 $ 21,468 Accounts receivable, net 87,620 28,767 Production in progress - 91,201 ------------ ------------- Total Current Assets 363,899 141,436 NET PROPERTY & EQUIPMENT 95,422 3,539,513 OTHER ASSETS Deposits 8,350 40,631 Other assets 1,150,000 - ------------ ------------- Total Other Assets 1,158,350 40,631 ------------ ------------- TOTAL ASSETS $ 1,617,672 $ 3,721,580 ============ ============= F-2 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 525,478 $ 342,116 Accrued interest 33,370 100,796 Accrued expenses 20,000 53,138 Deferred Income 120,000 Due to related parties 267,955 100,000 Notes payable 416,480 386,952 ------------ ------------- Total Current Liabilities 1,383,284 983,002 LIABILITIES SUBJECT TO COMPROMISE Mortgage payable - 2,400,000 Long term loans - 68,530 ------------ ------------- Total Liabilities - 2,468,530 TOTAL LIABILITIES 1,383,284 3,451,532 STOCKHOLDERS' EQUITY Convertible preferred stock: all with par value of $0.001; shares authorized and outstanding as of September 30, 2005 and 2004 are as follow: Series B, 1,000,000 shares authorized; 38,000 shares issued and outstanding. 38 38 Series C, 5,000,000 shares authorized; 4,479,999 and 480,000 shares issued and outstanding as of September 30, 2005 and 2004, respectively. 6,517 4,480 Sereis D, 1,250,000 shares authorized; -0- and 1,250,000 shares issued and outstanding as of September 30, 2005 and 2004, respectively. Common stock ($0.001 par value, 100,000,000 shares authorized; 41,746,935 and 28,119,449 shares issued and outstanding as of September 30, 2005 and 2004, respectively) 41,884 28,120 Treasury stock (35) (35) Minority Interest - (133,342) Additional paid-in capital 10,531,335 8,896,116 Retained (deficit) (10,345,312) (8,525,329) ------------ ------------- Total Stockholders' Equity 234,389 270,049 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,617,672 $ 3,721,580 ============ ============= See accompanying notes to financial statements. F-3
VALCOM, INC. AND SUBSIDIARIES Consolidated Statements of Operations Year Ended Year Ended September 30, September 30, 2005 2004 ------------- ------------ REVENUES Rental income $ 377,931 $ 1,856,834 Production income 548,582 90,353 Other income 3,594 6,293 ------------- ------------ Total Revenues 930,108 1,953,480 COSTS AND EXPENSES Production 430,082 151,048 Selling and promotion 35,645 76,299 Depreciation and amortization 92,001 665,525 General and administrative 955,690 5,059,272 Consulting and professional fees 1,301,907 1,292,439 Bad debts 59,293 - ------------- ------------ Total Costs and Expenses 2,874,618 7,244,582 ------------- ------------ OPERATING LOSS (1,944,510) (5,291,102) OTHER INCOME & (EXPENSES) Interest expense (51,562) (854,161) Gain on sale of assets 176,051 140,451 Interest Income - 7,936 Other income - 67,162 ------------- ------------ Total Other Income & (Expenses) 124,489 (638,612) ------------- ------------ NET LOSS $ (1,820,021) $ (5,929,714) ============= ============ BASIC AND DILUTED EARNINGS (LOSS) PER SHARE BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.27) ============= =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 36,257,129 21,913,888 ============= =========== See accompanying notes to financial statements. F-4
VALCOM INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity From October 1, 2003 through September 30, 2005 Series C - Preferred Additional Preferred Series B Preferred Series C Preferred Series D Stock to be issued Common Paid-in Treasury Retained Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Stock Earnings Total ------ ------ --------- ------ --------- ------ --------- ------ ---------- ------ ---------- -------- -------- ----- Balance October 1, 2003 38,000 38 1,480,000 1,480 1,250,000 1,250 - - 12,925,833 12,926 13,108,874 - (10,423,007) 2,701,562 Intercompany transfer of assets and discontinue subsidiary *** (8,207,252) 7,827,392 (379,860) Shares issued for services 9,248,617 9,849 2,230,574 2,240,423 Shares issued for debt retirement 1,198,333 598 224,052 224,650 Private Placement Memorandum 4,746,666 4,747 1,406,526 1,411,273 Conversion of preferred stock 2,999,999 3,000 (1,250,000) (1,250) 1,750 Less treasury stock (35) (35) Net Loss (5,929,714) (5,929,714) ------ ------ --------- ------ --------- ------ --------- ------ ---------- ------ ---------- -------- -------- ----- Balance September 30, 2004 38,000 38 4,479,999 4,480 - - - - 28,119,449 28,120 8,762,774 (35) (8,525,329) 270,049 F-5 Shares issued for services 7,139,268 7,139 1,286,344 1,293,483 Private Placement Memorandum 6,125,000 6,125 348,875 355,000 Preferred stock issued for cash, net 2,537,417 2,537 2,537 Conversion to common (500,000) (500) 500,000 500 - Net Loss (1,820,021) (1,820,021) ------ ------ --------- ------ --------- ------ --------- ------- ---------- ------ ---------- -------- -------- ----- Balance September 30, 2005 38,000 38 6,517,416 6,517 - - - - 41,883,717 41,884 10,397,993 (35) (10,345,350) 101,047 ====== ====== ========= ====== ========= ====== ========= ======= ========== ====== ========== ======== ======== ===== See accompanying notes to financial statements. F-6
VALCOM, INC. Consolidated Statements of Cash Flows Year Ended Year Ended September 30, September 30, 2005 2004 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (1,820,021) $ (5,929,714) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation expense 92,001 665,525 Beneficial interest - 290,599 Stock issued for compensation - 885,755 Stock issued for services 1,293,483 1,342,600 Investment write off - 189,392 Changes in operating assets and liabilities: Receivables (58,853) 43,140 Production in Progress 91,201 (91,201) Deposits 32,281 74,907 Deferred compensation - 258,680 Deferred interest - 153,060 Accounts payable and accrued expenses 82,798 (2,088,509) ------------- ------------- Net Cash Provided by (Used in) Operating Activities (287,110) (4,205,766) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of fixed assets 55,432 140,451 ------------- ------------- Net Cash Provided by (Used in) Investing Activities 55,432 140,451 CASH FLOWS FROM FINANCING ACTIVITIES Principal repayment of notes payable - 2,468,530 Preferred stock issued for cash 2,537 1,750 Common tock issued for cash 355,000 1,411,273 Principal borrowings on notes (39,002) 52,768 Net borrowings from related parties 167,955 (59,220) ------------- ------------- Net Cash Provided by (Used in) Financing Activities 486,490 3,875,101 ------------- ------------- Net Increase (Decrease) in Cash 254,812 (190,214) Cash at Beginning of Year 21,468 211,682 ------------- ------------- Cash at End of Year $ 276,280 $ 21,468 ============= ============= Supplemental Cash Flow Disclosures: Cash paid during period for interest $ - $ 854,161 ============= ============= Cash paid during period for taxes $ 800 $ 800 ============= ============= See accompanying notes to financial statements. F-7
VALCOM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005 NOTE 1. DESCRIPTION OF BUSINESS ===================================================== ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings, however, revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients in addition to Paramount Pictures and Don Belisarious Productions, include Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, and the USA Network. In addition to leasing its sound stages, ValCom also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development. ValCom's Studio Division is composed of two properties: 920 South Commerce which is leased and 41 North Mojave which ValCom has 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space, giving ValCom a total of 9 sound stages and a recording studio. Corporate offices are located at the Commerce Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ===================================================== 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. a. BASIS OF PRESENTATION This summary of significant accounting policies of the Company is presented to assist in understanding the consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. b. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Valcom, Inc. and four two wholly-owned subsidiaries, VEI, which was acquired effective February 2001, and Half Day Video, Inc., which was acquired effective March 2001. ValCom Nevada which was acquired effective March 1, 2004, and New Zoo Revue which was acquired effective October 2003. 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. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ==================================================================== c. 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 the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8 d. 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. e. 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 & Equip. 5 to 7 years ------------ Leasehold Improvements 5 years ------------ Autos and Trucks 5 years - ------------------------- ------------ f. RECLASSIFICATIONS Certain amounts from prior periods have been reclassified to conform to the current year presentation. g. INCOME TAXES Deferred income tax assets or liabilities are computed based on the difference between the financial reporting and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the asset or liability from period to period. h. STOCK-BASED COMPENSATION The Company accounts for its stock-based employee compensation plans using the intrinsic value based method, under which compensation cost is measured as the excess of the stock's market price at the grant date over the amount an employee must pay to acquire the stock. F-9 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ===================================================================== i. 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. j. TREASURY STOCK Treasury stock is accounted for by the cost method. Issuance of treasury shares is accounted for on a first in, first-out basis. Differences between the cost of treasury shares and the re-issuance proceeds are charged to additional paid-in capital, if reissued. During July 2002, the Company purchased 35,000 shares of its common stock at a total cost of $23,522. No shares have been reissued as of September 30, 2005. In September 2004, the Company retired these shares back into the treasury. k. NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "{ellipsis} under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and re-handling costs may be so abnormal as to require treatment as current period charges{ellipsis}" This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this Statement will have any immediate material impact on the Company. On December 16, 2004, the Financial Accounting Standards Board ("FASB") published Statement of Financial Accounting Standards No. 123 (Revised 2004), Shared-Based Payment ("SFAS 123R). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. Accordingly, the Company will implement the revised standard in the third quarter of fiscal year 2005. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. F-10 On December 16, 2004, FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary transactions ("SFAS 153"). This statement amends APB Opinion 29 to eliminate the exception for no monetary exchanges of similar productive assets and replaces it with a general exception of exchanges of no monetary assets that do not have commercial substance. Under SFAS 153, if a no monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. NOTE 3. PROPERTY AND EQUIPMENT ================================== Property and equipment consists of the following at: September September 30,2005 30, 2004 ---------- ------------ Land $ - $1,940,000 Building - 1,226,146 Building Improvements 4,500 219,211 Production Equipment 68,708 68,708 Leasehold Improvements 62,677 62,677 Autos and Trucks 33,971 33,971 Office Furniture and Equipment 44,814 45,971 Video Equipment 181,877 279,021 ---------- ----------- 396,547 3,875,105 Less: accumulated depreciation 301,125 (335,592) ---------- ----------- Net book value . . . . . . . $ (95,422) $3,539,513 ========== =========== Depreciation expense for the years ended September 30, 2005 and 2004 was $92,001 and $665,525, respectively. NOTE 4. CONVERTIBLE NOTES PAYABLE ================================= The following are convertible notes issued in 2004. All of these notes incur interest at 8% per annum with different due dates. All related interest has been accrued and reflected in the financial statements. Four of following eight notes were converted common shares of the Company's stock subsequent to year- end. F-11 1. Richard Shintaku 30,000 -------- 2. AJW Partner 40,000 -------- 3. AJW Partner 85,000 -------- 4. AJW Qualified 110,000 -------- 5. AJW Off Shore 92,500 -------- 6. Jeff Gleckman 11,500 -------- 7. Condor Financial 39,980 -------- 8. New Millenium Capital 7,500 -------- $416,480 ======== NOTE 5. RELATED PARTY TRANSACTIONS ================================== At September 30, 2004, related party payables represent $100,000 due to a Director and Shareholder of the Company. At September 30, 2005, related party payables represent $267,955 due to the President of the Company for his salary and various advances to the Company. NOTE 6. TREASURY STOCK ====================== Treasury stock is accounted for by the cost method. Issuance of treasury shares is accounted for on a first-in, first-out basis. Differences between the cost of treasury shares and the re-issuance proceeds are charged to additional paid- in capital, if reissued. NOTE 7. INCOME TAXES ==================== No provision for Federal and state income taxes has been recorded as the Company has incurred net operating losses through September 30, 2005. At September 30, 2005, the Company had approximately $10,345,350 of net operating loss carry-forwards for Federal income tax reporting purposes available to offset future taxable income. Such carry-forwards expire beginning in 2003. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses and capital losses carried forward may be impaired or limited in certain circumstances. Events, which may cause limitations in the amount of net operating losses that the Company may utilize in any one year, include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. F-12 Deferred tax assets at September 30, 2005 consist primarily of the tax effect of net operating loss carry-forwards, which amounted to approximately $2,586,388. Other deferred tax assets and liabilities are not significant. The Company has provided a full valuation allowance on the deferred tax assets at September 30, 2005 to reduce such deferred income tax assets to zero, as it is management's belief that realization of such amounts is not considered more likely than not. The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations: September 30, 2005 September 30, 2004 ------------------- ------------------ Tax expense (credit) at statutory rate-federal (34)% (34)% ------------------- ------------------ State tax expense net of federal tax (6) (6) ------------------- ------------------ Changes in valuation allowance 40 40 ------------------- ------------------ Tax expense at actual rate - - ------------------- ------------------ The components of the net deferred tax asset are summarized below: - ------------------------------------------------------------------ September 30, 2005 September 30, 2004 ------------------- ------------------ Deferred tax asset Net operating losses $ 2,586,338 2,131,768 ------------------- ------------------ Less: valuation allowance (2,586,338) (2,131,768) ------------------- ------------------ $ -0- -0- ------------------- ------------------ NOTE 8. STOCKHOLDERS' EQUITY ============================ a. 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. The Company's 45% investment in a recently acquired television station has been accounted for as an investment under the equity method. b. TREASURY STOCK - ------------------- Treasury stock is accounted for by the cost method. Issuance of treasury shares is accounted for on a first-in, first-out basis. Differences between the cost of treasury shares and the re-issuance proceeds are charged to additional paid- in capital, if reissued. F-13 c. LOSS PER COMMON SHARE - ---------------------------- Basic loss per common share is based on net loss divided by the weighted average number of common shares outstanding. Common stock equivalents were not included in the calculation of diluted loss per share as their effect would be anti-dilutive. NOTE 9. COMMITMENTS ====================== In May 2005, the Company leased facilities in Las Vegas Nevada. The lease has a term of three years. Initial monthly base rent is $8,250 with no increases. Rent expense for the year ended September 30, 2005 and 2004 were $159,905 and $430,989, respectively. Future Commitments: 1 $ 99,000 2 99,000 3 76,250 ---------------- Total $272,250 ================ NOTE 10. STOCK ACTIVITY ========================== a. CONVERTIBLE PREFERRED STOCK - ------------------------------- At September 30, 2005 and 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 10% 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 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 10% 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 C Preferred Stock then outstanding shall be entitled to receive an amount equal to the purchase price per share. F-14 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 while Series D Preferred Stock shall be junior to both Series B and C Preferred Stock. The Board of Directors declared no dividends for any of the Series of convertible Preferred Stock during the fiscal year ended September 30, 2005. b) WARRANTS - ------------- During the fiscal year ended September 30, 2003, the Company issued warrants to purchase 2,083,334 shares of the Company's common stock to a director in connection with services provided and to be provided to the company. The weighted average exercise price for the warrants issued was $0.12, and all of the warrants begin to expire in September 2005. No warrants were exercised for the period ending September 30, 2005. NOTE 11. STOCK COMPENSATION PLAN AND NON-QUALIFIED STOCK OPTIONS ================================================================ The Company has a 2001 Employee Stock Compensation Plan (the "ESCP") to enhance its ability to attract, retain and compensate experienced employees, officers, directors and consultants. The effective date of the ESCP is January 2001. A total of 2,600,000 shares of common stock were registered for issuance under the ESCP on three Form S-8 registration statements filed January 16, 2001, March 26, 2001 and October 19, 2001. Pursuant to the ESCP, the Compensation Committee or Board of Directors may award registered shares of the Company's common stock to employees, officers, directors or consultants for cash, property, services rendered or other form of payment constituting lawful consideration. Plan shares awarded for other than services rendered shall be sold at not less than the fair market value on the date of grant. During the fiscal year ended September 30, 2005, the Company issued an aggregate of 1,572,500 shares of registered common stock to employees, officers, directors and consultants pursuant to the ESCP. The expense recorded during fiscal year 2005 under the ESCP amounted to $151,722 and was based on the closing trading price of the Company's common stock on the date granted. NOTE 12. LITIGATION ==================== Vince please update. On April 7, 2003, the Company filed on an emergency basis a voluntary Chapter 11 bankruptcy petition. The case is pending in the United States Bankruptcy Court, Central District of California, San Fernando Valley Division, as Case No. SV 03-12998-GM. As of December 31, 2003, the company was in compliance of all its duties under the Bankruptcy Code and all applicable guidelines of the Office of the United States Trustee. F-15 The Company requires the use of its secured creditor's cash collateral to operate. Throughout the pendency of this case, the Company has worked with its two real estate secured lenders, Finance Unlimited, LLC and Laurus Master Fund, Limited on the details of cash collateral stipulation. An order approving a global interim cash collateral stipulation with Finance Unlimited and Laurus was entered on August 26, 2003. This stipulation permitted the Company's use of the lenders' cash collateral through December 31, 2003. On January 15, 2004, the Court approved two additional cash collateral stipulations, one each with Finance Unlimited and Laurus, authorizing the Company's continued use of cash collateral through March 31, 2004 (Second Interim Stipulation). The Second Interim Stipulation generally grant Finance Unlimited and Laurus relief from the automatic bankruptcy stay effective March 31, 2004, and the right to hold foreclosures sales on their real and personal property collateral as early as April 1, 2004. On June 26, 2003, the Company filed within its bankruptcy case an adversary complaint against six creditors for injunctive relief and to extend the protections of the automatic stay arising under section 362 of Bankruptcy Code. Through this action, the Company seeks to bar temporarily the defendant creditors from attempting to collect on their allowed claims from the Company's key personnel. BANKRUPTCY DISMISSAL ===================== VEI filed a voluntary chapter 11 bankruptcy petition on April 7, 2003 and obtained the status of Debtor in Possession. After successfully settling the debts owed to secured creditors through sale of property as per court order dated June 3,2004 VEI applied to the United States Bankruptcy Court, Central District of California, San Fernando Valley Division for a Motion to dismiss Chapter 11 Bankruptcy case ("the Motion"). The Court on August 3, 2004, having considered the Motion and pleadings filed in support thereof, having heard argument of counsel, finding that notice was proper, and for good cause appearing therefore, ordered (1) The Motion granted (2) Debtor's Chapter 11 bankruptcy case dismissed. On October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC, commenced a lawsuit in the Los Angeles Superior Court, State of California, against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an accounting of the amount due in connection with a non-judicial foreclosure of a deed of trust securing a promissory note executed by Valcom and Valencia. It also alleges that Chicago Title breached its trustee's duties and Laurus breached the terms of the promissory note and deed of trust securing it. ValCom's attorney has expressed his belief that the lawsuit it meritorious but at this stage in the proceeding, he is unable to state how much, if any, will be recovered in the lawsuit. F-16 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 a 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, except the cases mentioned above, 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. The company settled the case on November 10, 2005. NOTE 13. SUBSEQUENT EVENTS =============================== Subsequent to September 30, 2005, the Company issued 4,250,000 shares of common stock at $0.06 amounting to $252,500 through private placements; 100,000 shares at $0.47 per share for services rendered; 495,269 shares at $0.50 per share for services rendered. In addition to this the Company also issued 6,025,000 shares for $0.25 per share as per the terms of employment agreements. NOTE 14. GOING CONCERN ====================== The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a net loss of $1,820,021 for the year ended September 30, 2005, and an accumulated deficit of $10,345,350 as of September 30, 2005. The Company had a net loss of $5,929,714 for the year ended September 30, 2004. These conditions raise doubt about the Company's ability to continue as a going concern. Management plans to raise additional funds through private placements (see note 13) to keep the Company operating. The Company also expects a substantial increase in revenues in the coming year. There is no guarantee that either of these points will come to fruition. F-17 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ============================================================================== On February 1, 2005, the Registrant engaged Armando C. Ibarra, Certified Public Accountants, as the Registrant's independent accountants to report on the Company's consolidated balance sheet as of September 30, 2004, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. The decision to appoint Armando C. Ibarra, Certified Public Accountants was approved by the Registrant's Board of Directors. The Registrant auditors, Kabani & Company, Inc. PA (herein after "KC") resigned effective February 1, 2005. KC served as the Registrant's independent auditors' for the Registrant's fiscal years ended September 30, 2003 and 2002, as well through the date of its dismissal. KC's report on the Registrant's consolidated financial statements for the registrant's fiscal year September 30, 2003 and September 30, 2002 (the "Reports") does not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, however, it was modified to include an explanatory paragraph wherein they expressed substantial doubt about the Registrant's ability to continue as a going concern. During the Registrant's association with KC as Registrant's independent accountants until KC's resignation, there were no disagreements with KC within the meaning of item 304 of regulation S-B or any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure, which disagreements if not resolved to KC's satisfaction, would have caused KC to make reference to the subject matter of the disagreements in connection with its reports. During the Registrant's two most recent fiscal years and any subsequent interim period prior to the engagement of Armando C. Ibarra, neither the Registrant nor anyone on the Registrant's behalf consulted with Armando C. Ibarra regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Registrant's financial statements or (ii) any matter that was either the subject of a "disagreement" or a "reportable event." The Registrant has requested KC to review the disclosure contained herein and has provided KC the opportunity to furnish the Registrant with a letter addressed to the Commission containing any new information, clarification of the Registrant's expression of KC 's views, or the respects in which KC does not agree with the statements contained herein. KC has reviewed the disclosure contained herein and has provided to the Registrant a letter addressed to the Securities and Exchange Commission stating that it has reviewed the disclosure provided in this Current Report and has no disagreement with the relevant portions of this disclosure, pursuant to the requirements of Item 30 4(a) (3) of Regulation S-B. ITEM 8A. 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 ----------------------------- Based upon that evaluation, the Company's officers concluded that many of the Company's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company's disclosure obligations under the Securities Exchange Act of 1934. For example, the Company's internal controls, particularly the areas of payroll, control of cash and accounts payable, are effective. In addition, the Audit Committee meets with the principal accounting officer on a regular basis to review and evaluate the Company's financial position. The Audit Committee also reports to the Board of Directors on the accounting and finance functions on a regular basis. 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. The Board of Directors will ensure that it authorizes all stock, warrants and options granted in accordance with applicable agreements and/or compensation plans to avoid the possibility of unauthorized issuances of stock, warrants and options. 2. The Company recorded a significant number of audit adjustments during the fourth quarter, which were required to properly state the account balances at September 30, 2003. Remedy: The Company will implement comprehensive closing procedures, including an analysis of all balance sheet accounts and significant income statement accounts. 3. The minutes of the Board of Directors' and stockholders' meetings were not always complete. Remedy: The Company will implement procedures to be more comprehensive in the preparation of its minutes to include all important matters that affect the Company's operations. The Company will take appropriate steps to ensure that all minutes are properly approved and signed by the applicable parties. 4. 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. ITEM 8B. OTHER INFORMATION ============================ None PART III ======== ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ============================================================================ DIRECTORS AND EXECUTIVE OFFICERS ================================ The following table sets forth the names and ages of the Company's directors and 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. . 48 CEO/President/Chairman of the Board 2000 Richard Shintaku. . 56 Director 2003 Bonnie Nelson . . . 54 Director 2005 Sandra Markham. . . 45 Secretary/Treasurer 2005 All directors hold office until the next annual meeting of stockholders of the Company 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. BIOGRAPHIES OF THE COMPANY'S EXECUTIVE OFFICERS AND DIRECTORS ==================================================================== Vince Vellardita - 48 Chairman of the Board, Chief Executive Officer and President Vince Vellardita has served as the Company's President, Chief Executive Officer and Chairman of the Board since October 2000. Mr. Vellardita was instrumental in having Valencia Entertainment International, LLC acquire a 180,000 square foot production facility in Valencia, California that houses eight 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 tours. 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. While in Nashville,Mr. Vellardita was responsible for the turnaround for a production house for music into a television satellite network, housing multiple sound- stages and edit bays. Mr. Vellardita also increased revenues by bringing 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 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. Richard Shintaku - 56 Director The Company appointed Mr. Shintaku to its Board of Directors on August 5, 2003. He is currently President and CEO of Inter-Continental Associates Group, LLC and ICAG, Inc. Mr. Shintaku has been married for 36 years and has two daughters and three grandsons and resides at Lake Las Vegas, Nevada. ICAG has been a leading investment and consulting firm in the Asia/Pacific region since 1973. ICAG is a Merrill Lynch investment "Alliance Partner". He is currently Vice President and principal of MRI International, Inc., one of the nations largest medical receivables funding companies, Executive Vice President and principal of JMR Nevada, Inc. (Harmon Medical Center), and KK JMR (Medical, Japan centers). Mr. Shintaku is also Chairman and CEO of Premier Entertainment Services, Inc., (product placement in Digatech International, Inc. (Gaming technology) and Owner/Proprietor of The Royal Hawaiian Farms (Pistachio/Grapes). He is a Partner of Super Nova Financial Services (NY Mercantile Exchange). He also serves on various board of directors of many Asian and domestic firms. He has recently been asked to serve as the first Honorary Consul General of Japan in the State of Nevada and is presently serving as the Nevada representative on the Republican Presidential Roundtable. Bonnie Nelson - 54 Director Ms. Nelson is 54 years old and resides in Aventura, Florida. Ms. Nelson has been a member of the Board of Directors of Lakeview Health Systems, a drug and alcohol rehab facility, since February 2000 until December 2003. For more than fives years, Ms. Nelson has consulted and facilitated numerous development stage companies performing, but not limited to, the following activities: Corporate restructuring; Debt including asset based financing; Forming management teams with "hands on" operation supervision; Coordinating corporate public relations. Ms. Nelson has various experiences in numerous medical ventures, as principal and consultant for both start-up and established companies. These include but are not limited to: Infectious Disease Centers, Medical Practice Centers; and IV Therapy Corporations. Since 1998, Ms. Nelson has been President of Growth Capital One Corp., a merchant banking company. Sandra Markham - 45 Treasurer and Secretary Ms. Markham was appointed to the position of Secretary and Treasurer of the Corporation in July 22, 2005. She has been with ValCom since March 2005. Ms. Markham holds a Bachelor Degree in Business Administration from Regis University and has extensive experience in executive secretarial business. She has provided corporate support for the past 25 years for the casino/hotel industry in addition to other government, profit and non-profit organizations. She has extensive background in the field of advertising, marketing, special event coordinator, and personnel management. Section 16(a) Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires officers, directors and beneficial owners of more than 10% of any class of equity securities of a public company to file with the Securities and Exchange Commission certain individual periodic reports -- (Form 3) (Initial Statement of Beneficial Ownership of Securities), Form 4 (Statement of Changes of Beneficial Ownership of Securities) and Form 5 (Annual Statement of Beneficial Ownership of Securities) -- which disclose their beneficial ownership of the company's securities. Securities and Exchange Commission regulations require officers, directors and greater than 10% stockholders to furnish the Company with copies of all such forms they file. The Company's other directors and executive officers and more than 10% stockholders filed their Section 16(a) reports as required. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS ================================================= Each director is elected to serve for a term of one (1) year until the next annual meeting of stockholders 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 stockholders. During the fiscal year ended September 30, 2004 the Board of Directors held 37 meetings. 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. The Board of Directors has two committees, the Audit Committee and the Compensation Committee. The sole member of the Audit Committee is Krishnaswamy Alladi. As of September 30, 2004, the members of the Compensation Committee were Vince Vellardita and Sandra Markham. ITEM 10 EXECUTIVE COMPENSATION ================================= The Summary Compensation Table below sets forth all compensation paid to the Company's officers and directors during the fiscal years ended September 30, 2005, 2004 and 2003.
SUMMARY COMPENSATION TABLE ---------------------------- Long Term Compensation ---------------------- Annual Compensation Awards Payouts -------------------- ------ ------- (b) (C) (d) (e) (f) (g) (h) (i) -------- ----------- ----------- -------- ------ -------- ----- --- All Other Securities Other Annual Restricted Underlying Comp- Compen- Stock Options/ LTIP ensa- Salary Bonus sation Award(s) SARs Payouts Name & Principle Position. Year ($) ($) ($) ($) ($) -------- ----------- ----------- -------- ----- ------- Vince Vellardita, Chairman, CEO & President 2003 120,000 * * * * -------- ----------- ----------- -------- ----- ------- 2004 140,400 * * * * -------- ----------- ----------- -------- ----- ------- Bonnie Nelson, Director (1) 2005 120,000 * * * * -------- ----------- ----------- -------- ----- ------- Sandra Markham, Secretary, Treasurer, 2005 46,800 * * * * -------- ----------- ----------- -------- ----- -------
NONE (1) Mr. Magier served as the Company's Treasurer, Secretary and Director during the fiscal year ended September 30, 2003. Effective March 29, 2004, he resigned as an officer and director. Effective April 2004, the Board of Directors appointed Tracey Eland as Treasurer and Secretary to replace Mr. Magier. Ms. Eland resigned and was replaced by Sandra Markham. Ms. Markham was appointed as Treasurer and Secretary effective July 22, 2005. EMPLOYMENT AGREEMENTS - ---------------------- The Company is a party to employment agreement with Vince Vellardita. VINCE VELLARDITA The Company entered into an Employment Agreement with Vince Vellardita, the Company's Chairman of the Board, Chief Executive Officer and President, effective October 1, 2000. The term of the Agreement is for five years. The Board of Directors may terminate Mr. Vellardita's employment at any time. The Agreement shall be automatically renewed for successive one- year terms, unless either party gives written notice of termination three months prior to the end of the term. The Agreement provides for an annual salary of $120,000 for the first year, $150,000 for the second year and $200,000 for the third year, plus a bonus if authorized by the Board of Directors. If the Company is involved in a merger or consolidation in which it does not survive, or if the Company transfers substantially all of its assets, the surviving entity in the merger or consolidation or the transferee of the Company's assets shall be bound by the Agreement. With the exception of ownership of up to five percent of the equity securities of another publicly traded corporation, the Agreement prohibits Mr. Vellardita from engaging in any activity competitive with or adverse to the Company's business or welfare without the Company's prior written consent. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT ============================================================================== The following table sets forth, as of January 13, 2006 the number and percentage of shares of common stock owned of record and beneficially by any "group" as that term is defined in Item 403 of Regulation S-B), 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). a) Security Ownership of Certain Beneficial Owner
NAME OF NUMBER OF SHARES BENEFICIALLY OWNED (2) PERCENT OF TOTAL BENEFICIAL OWNER (1) - ------------------------- --------------------------------------- ---------------- Vince Vellardita 8,070,549 19.71% 920 South Commerce Street Las Vegas, NV 89106 - ------------------------- --------------------------------------- ---------------- E-Blaster International 3,000,000 10.68% JL. H.R. Rasuna Said Kav. B-1 6th Floor, Jakarta, 12920 Indonesia (2) - ------------------------- --------------------------------------- ---------------- Radorm Technology Limited 567,824 2.02% Jakarta, 12920 Indonesia (2) - ------------------------- --------------------------------------- ---------------- Great Asian Holdings Ltd. 2,110,422 7.51% Jakarta, 12920 Indonesia (2) - ------------------------- --------------------------------------- ---------------- David Dadon 3,000,000 10.68% Los Angeles, CA - ------------------------- --------------------------------------- ----------------
(1) Includes all stock held either personally or by affiliates. (2) These three entities together comprise a "group" as defined in Item 403 of Regulation S-B. (b) Security Ownership of Management - ---------------------------------------- The following table sets forth, as of January 13, 2006 the number and percentage of the equity securities of the 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.
NAME OF NUMBER OF SHARES BENEFICIALLY OWNED (2) PERCENT OF TOTAL BENEFICIAL OWNER (1) - -------------------- --------------------------------------- ---------------- Vince Vellardita 8,070,549 19.71% - -------------------- --------------------------------------- ---------------- Richard Shintaku 3,395,833 5.02% - -------------------- --------------------------------------- ---------------- Bonnie Nelson - -------------------- --------------------------------------- ---------------- Sandra Markham - -------------------- --------------------------------------- ---------------- All officers and directors as a group (4 people) - -------------------- --------------------------------------- ----------------
(1) Includes all stock held either personally or by affiliates. (2) Includes ownership of record and beneficial ownership. CHANGES IN CONTROL - -------------------- 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. 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. ITEM 13. EXHIBITS =================== Ex. 31.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ex. 31.2 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ex. 32.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Ex. 32.2 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Ex. 23.1 Consent of Armando C. Ibarra, C.P.A. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ================================================= The aggregate fees billed by Armando C. Ibarra, Certified Public Accountants for professional services rendered for the audit of the Company's annual financial statements for the years ended September 30, 2005 and 2004, the review of the financial statements included in the Company's Forms 10-QSB and Forms 8K totaled $[______] and $[_______] as follows:
2005 2004 Audit fees $ $ Audit-related fees $ $ Tax fees $ $ Other fees $ $ Total $ $
SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Exchange Act, the issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 13, 2006 VALCOM, INC., a Delaware corporation By: /s/ Vince Vellardita ---------------------- Vince Vellardita Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ----- By: /s/Vince Vellardita Chief Executive Officer, President January 13, 2006 -------------------- Chairman of the Board Vince Vellardita By: /s/ Richard Shintaku, Director January 13, 2006 ---------------------- Richard Shintaku By: /s/ Bonnie Nelson, Director January 13, 2006 --------------------- Bonnie Nelson By: /s/ Sandra Markham Secretary and Treasurer January 13, 2006 --------------------- Sandra Markham
EX-1 2 ex_23-1.txt EXHIBIT 23.1 A C I ARMANDO C. IBARRA CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION Armando C. Ibarra, C.P.A. Members of the California Society of Certified Public Accountants Registered with the Public Company Accounting Oversight Board January 12, 2006 To Whom It May Concern: The firm of Armando C. Ibarra, Certified Public Accountants, consents to the inclusion of our report of December 16, 2005, on the audited financial statements of Valcom Studios, Inc. as of September 30, 2005, in any filings that are necessary now or in the near future with the U.S. Securities and Exchange Commission or other regulatory agency. /s/ ARMANDO C. IBARRA, C.P.A. - ----------------------------- ARMANDO C. IBARRA, C.P.A. 371 E. STREET, CHULA VISTA, CA 91910 TEL: (619) 422-1348 FAX: (619) 422-1465 EX-2 3 ex_31-1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SARBANES-OXLEY SECTION 302 I, Vince Vellardita, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ValCom, Inc.; 2. Based on my knowledge, this quarterly 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 with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this quarterly report; 4. The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and (b) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; 5. The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls over financial reporting. Dated: January 19, 2006 VALCOM, INC. By: /s/ Vince Vellardita -------------------- Vince Vellardita Chief Executive Officer EX-3 4 ex_31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATIONS PURSUANT TO RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of ValCom, Inc., a Delaware corporation (the "Company"), on Form 10-KSB for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sandra Markham, the Company's Secretary and Treasurer,certify, pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, that: (1) The Officer has reviewed the Report. (2) Based on the Officer's 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 with respect to the period covered by the Report. (3) Based on the Officer's knowledge, the financial statements and other financial information included in the Report fairly present in all material respects the Company's financial condition and results of operations as of, and for, the periods presented in the Report. (4) The Officer and the other certifying officer: (a) Are responsible for establishing and maintaining "disclosure controls and procedures," as that term is defined by the Securities and Exchange Commission, for the Company. (b) Have designed such disclosure controls and procedures to ensure that material information relating to the Company is made known to them, 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 within 90 days prior to the filing date of the Report. (d) Have presented in the Report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date. (5) The Officer and the other certifying officer have disclosed to the Company's auditors and 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, as that term is defined by the Securities and Exchange Commission, 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) The Officer and the other certifying officer 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. Dated: January 13, 2006 By: /s/ Sandra Markham --------------------------- Sandra Markham Secretary and Treasurer EX-4 5 ex_32-1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO SARBANES-OXLEY SECTION 302 I, Sandra Markham, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ValCom, Inc.; 2. Based on my knowledge, this quarterly 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 with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this quarterly report; 4. The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and (b) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; 5. The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls over financial reporting. Dated: January 19, 2006 VALCOM, INC. By: /s/ Sandra Markham -------------------- Sandra Markham Secretary and Treasurer EX-5 6 ex_32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 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 Annual Report of ValCom, Inc., a Delaware corporation (the "Company"), on Form 10-KSB for the period ending September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sandra Markham the Company's Secretary and Treasurer, 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 Company's financial condition and results of operations. Dated: January 13, 2005 By: /s/ Sandra Markham ---------------------------- Sandra Markham Secretary and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----