-----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, RgSqYZ4IhwtqlshzH0zXLrtLljO8lZWH+D1EMI0qM06ThL4ikxMxDc+1mhGWnryI iNCGftG8RAS7w6vuyogslA== 0001227528-06-000118.txt : 20060223 0001227528-06-000118.hdr.sgml : 20060223 20060223164327 ACCESSION NUMBER: 0001227528-06-000118 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060223 DATE AS OF CHANGE: 20060223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALCOM, INC CENTRAL INDEX KEY: 0001013453 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 581700840 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28416 FILM NUMBER: 06639928 BUSINESS ADDRESS: STREET 1: 920 COMMERCE STREET CITY: LAS VEGAS STATE: NV ZIP: 89106-4501 BUSINESS PHONE: 702-385-9000 MAIL ADDRESS: STREET 1: 920 COMMERCE STREET CITY: LAS VEGAS STATE: NV ZIP: 89106-4501 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 20040816 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 20030213 FORMER COMPANY: FORMER CONFORMED NAME: SBI COMMUNICATIONS INC DATE OF NAME CHANGE: 20030204 10QSB/A 1 l10qsba022206.txt VALCOM, INC. FORM 10-QSB/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-QSB (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL QUARTER ENDED December 31, 2005 Commission file Number 0-28416 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ======================================================================= VALCOM, INC. (Name of small business issuer specified in its charter) ====================================================================== Delaware 58-1700840 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 920 S. Commerce Street, Las Vegas, NV 89106 ---------------------------------------------- (Address of Principal executive offices) (Zip code) (702) 385-9000 ----------------------- Issuer's telephone number Securities registered pursuant to 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK $0.001 PAR VALUE ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] As of February 17, 2006 the issuer had 51,066,435 shares of its $0.001 par value common stock outstanding. -1- UNAUDITED INTERIM FINANCIAL STATEMENTS The accompanying financial statements are unaudited and are prepared in accordance with rules and regulations of the Securities and Exchange Commission for interim quarterly reporting. Accordingly, these financial statements do not include all disclosures required under generally accepted accounting principles. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of ValCom, Inc. and subsidiaries as of December 31, 2005 and the results of their operations and their cash flows for the three months ended December 31, 2005. These consolidated financial statements include the accounts of ValCom, Inc. and its subsidiary companies (together "the Company"). Results for the three months ended December 31, 2005, are not necessarily indicative of the operations, which may occur during the year ending December 31, 2006. Refer to the Company's Annual Report on Form 10- KSB for the year ended September 30, 2005 for further information. -2- VALCOM, INC. FORM 10-QSB INDEX Page - ----- ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheet as of December 31, 2005 (unaudited) 4-5 Condensed Consolidated Statements of Operations for the three month period ended December 31, 2005 and 2004 (unaudited) 6-7 Condensed Consolidated Statements of Cash Flows for the three month period ended December 31,2005 and 2004 (unaudited) 8 Notes to Condensed Consolidated Financial State- ments (unaudited) 9-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Disclosure Controls and Procedures 14 Part II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 SIGNATURES -3-
VALCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS AS OF DECEMBER 31, 2005 (unaudited) ------------ CURRENT ASSETS Cash $ 4,686 Accounts receivable, net 114,723 Prepaid expenses 25,000 Notes receivable 490,190 ------------ TOTAL CURRENT ASSETS 634,600 NET PROPERTY & EQUIPMENT 106,840 OTHER ASSETS Deposits 8,350 Other assets 1,150,000 ------------ TOTAL OTHER ASSETS 1,158,350 ------------ TOTAL ASSETS $ 1,899,790 ============
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VALCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY AS OF DECEMBER 31, 2005 (unaudited) ------------ CURRENT LIABILITIES Accounts payable $ 540,984 Accrued interest 49,064 Accrued expenses 20,000 Deferred income Due to related parties 338,744 Notes payable 702,278 ------------ TOTAL CURRENT LIABILITIES 1,651,069 LIABILITIES SUBJECT TO COMPROMISE Mortgage payable - Long term loans - ------------ TOTAL LIABILITIES - ------------ TOTAL LIABILITIES 1,651,069 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 Series C, 15,000,000 shares authorized; 10,517,000 shares issued and outstanding as of December 31, 2005 10,517 Common stock ($0.001 par value, 100,000,000 shares authorized; 41,883,717 and 28,119,449 shares issued and outstanding as of September 30, 2005 and 2004, respectively) 44,664 Treasury stock (35) Additional paid-in capital 10,895,780 Retained (deficit) (10,702,243) ------------ TOTAL STOCKHOLDERS' EQUITY 248,721 ------------ TOTAL LIABILITIEs & STOCKHOLDERS' EQUITY $ 1,899,790 ============ See accompanying notes to the condensed consolidated financial statements -5-
VALCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 3 MONTH PERIOD ENDED DECEMBER 31, DECEMBER 31, 2005 2004 (unaudited) (unaudited) ------------- -------------- REVENUES Rental income $ 31,275 $ 173,372 Production income 1,770,134 62,039 Other income - 5,000 ------------- -------------- TOTAL REVENUES 1,801,409 240,411 COSTS AND EXPENSES Production 1,712,514 47,786 Selling and promotion 63,908 12,062 Depreciation and amortization 8,650 26,253 General and administrative 259,670 617,634 Consulting and professional fees 110,007 517,312 Bad debts - - ------------- -------------- TOTAL COSTS AND EXPENSES 2,154,749 1,221,047 ------------- -------------- OPERATING LOSS (353,340) (980,636) -6- OTHER INCOME & (EXPENSES) Interest expense (15,694) (4,494) Gain on sale of assets - - Interest Income 3,125 - Other income 9,016 25,686 ------------- -------------- TOTAL OTHER INCOME & (EXPENSES) (3,553) 21,192 ------------- -------------- NET LOSS $ (356,893) $ (959,444) ============= ============== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) $ (0.27) ============= ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 42,454,473 $ 31,501,469 ============= ============== See accompanying notes to the condensed consolidated financial statements -7-
VALCOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 3 MONTH PERIOD ENDED DECEMBER 30, DECEMBER 31, 2005 2004 (unaudited) (unaudited) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (356,893) $ (959,444) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Accrued interest expense 15,694 Depreciation expense 8,650 26,253 Stock issued for services & compensation 67,419 547,781 Changes in operating assets and liabilities: Receivables (27,103) 2,135 Note receivables (490,190) Production in Progress (3,397) Prepaid Expenses (25,000) - Accounts payable and accrued expenses 15,505 172,290 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (791,919) (214,382) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property plant and equipment (20,068) (25,698) Proceeds from sale of fixed assets - - ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (20,068) (25,698) CASH FLOWS FROM FINANCING ACTIVITIES Principal repayment of notes payable (68,693) - Preferred stock issued for cash - - Common tock issued for cash 248,000 48,090 Principal borrowings on notes 290,298 176,664 Net borrowings from related parties 70,788 16,000 ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 540,393 240,754 ------------ ------------ NET INCREASE (DECREASE) IN CASH (271,594) 674 ------------ ------------ CASH AT BEGINNING OF YEAR 276,280 21,468 CASH AT END OF YEAR $ 4,686 $ 22,142 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid during period for interest $ - $ 4,494 ============ ============ Cash paid during period for taxes $ - $ - ============ ============ See accompanying notes to the condensed consolidated financial statements -8-
VALCOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 BANKRUPTCY PROCEEDINGS, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- On April 7, 2003, the Company filed on an emergency basis a voluntary Chapter 11 bankruptcy petition. 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 March 31, 2004. 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 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 VEI 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 VEI or Valcom, or any other assets other than the Property itself (and the rents and leases appurtenant thereto). On June 10, 2004, Laurus 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, neither VEI nor Valcom are 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 VEI). 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 the Company. DESCRIPTION OF BUSINESS - ------------------------- ValCom, Inc. and subsidiaries (the "Company"), formerly SBI Communications, Inc., was originally organized in the State of Utah on September 23, 1983, under the corporate name of Alpine Survival Products, Inc. Its name was subsequently changed to Supermin, Inc. on November 20, 1985. On September 29, 1986, Satellite Bingo, Inc. became the surviving corporate entity in a statutory merger with Supermin, Inc. In connection with the above merger, the former shareholders of Satellite Bingo, Inc. acquired control of the merged entity and changed the corporate name to Satellite Bingo, Inc. On January 1, 1993, the Company executed a plan of merger that effectively changed the Company's state of domicile from Utah to Delaware. Through shareholder approval dated March 10, 1998, the name was changed to SBI Communications, Inc. In October 2000, the Company was issued 7,570,997 shares by SBI for 100% of the shares outstanding in Valencia Entertainment International, LLC ("VEI"), a California limited liability company. This acquisition has been accounted for as a reverse acquisition merger with VEI as the surviving entity. The corporate name was changed to ValCom, Inc. effective March 21, 2001. The Company is a diversified entertainment company with the following operating activities: 1. 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 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. 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. ValCom Inc. entered into a production agreement with entertainment industry billion dollar producer Jeff Franklin who also joins ValCom's Strategic Advisory Board. Franklin has brought in more than $2 billion in domestic box office sales and with the addition of the film division. Mr. Franklin is one of producers of the theatrical feature, "Casper" and is executive producer on "Kull, The Conqueror," "Cold Around The Heart," "Stuart Little," and "Stuart Little 2." 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. BASIS OF PRESENTATION - ----------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and related notes included in the Company's Form 10-KSB. The audited consolidated financial statements of the Company for the year ended September 30, 2004 were filed on March 10, 2005, with the Securities and Exchange Commission and are hereby referenced. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) considered necessary for fair presentation has been included. The results of operations for the three and nine months ended June 30, 2004 are not necessarily indicative of the results to be expected for the entire year. Following is a summary of the significant accounting policies followed in the preparation of these consolidated financial statements, which policies are in accordance with accounting principles generally accepted in the United States of America. PRINCIPLES OF CONSOLIDATION - ----------------------------- The consolidated financial statements include the accounts of ValCom, Inc. and two wholly-owned subsidiaries, Valencia Entertainment International, LLC, which was acquired effective February 2001 and Half Day Video, Inc., which was acquired effective March 2001. Investments in affiliated companies over which the Company has a significant influence or ownership of more than 20% but less than or equal to 50% are accounted for under the equity method. USE OF ESTIMATES - ------------------ The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ form those estimates. DEPRECIATION AND AMORTIZATION - ------------------------------- For financial and reporting purposes, the Company follows the policy of providing depreciation and amortization on the straight-line method over the estimated useful lives of the assets, which are as follows: Building 39 years Building Improvements 39 years Production Equipment 5 years Office Furniture and Equipment 5 to 7 years Leasehold Improvements 5 years Autos and Trucks 5 years CONCENTRATIONS AND CREDIT RISK - --------------------------------- The Company has two customers who accounted for approximately 99% of total rental revenues for the nine months ended June 30, 2005 and 2004, respectively. As of June 30, 2005, all sound and production stages were under non-cancelable operating leases for one year from two major production companies. Financial instruments that potentially subject the Company to concentrations of risk consist of trade receivables principally arising from monthly leases from television producers. The Company continuously monitors the credit- worthiness of its customers to minimize its credit risk. FAIR VALUE OF FINANCIAL INSTRUMENTS - --------------------------------------- Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value. IMPAIRMENT OF LONG-LIVED ASSETS - ---------------------------------- Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal As per Court order dated June 3, 2004 and based on the deed of trust bearing instrument nos. 99-2400871, 02-1209820 and 02-1209821, the property belonging to VEI, as defined in the instruments was auctioned for sale. The properties which were valued at Land $7,392,292 Building $4,028,785 and Building improvements $1,154,406 and Accumulated Depreciation of $1,294,088 were sold to repay the obligations to Laurus (Laurus having paid the obligations owed to Finance Unlimited) under Trust Sale Nos: 8413-40 and 8414-30.Consequently the loss incurred due to this sale is recorded as $1,405,656 under the heading "Impairment of Property and Equipment" in the Profit and loss account of VEI for the nine months ending June 30, 2004. REVENUE RECOGNITION - -------------------- Revenues from studio and equipment rentals are recognized ratably over the contract terms. Revenues from the production and licensing of television programming are recognized when the films or series are available for telecast and certain contractual terms of the related production and licensing agreements have been met. EQUITY INVESTMENT - ------------------ The Company accounts for its investments in companies over which the Company has significant influence or ownership of more than 20% but less than or equal to 50% under the equity method. GOING CONCERN - -------------- The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a net loss to date of $927,120 and a working capital deficiency of $956,876 and an accumulated deficit of $9,585,792 at June 30, 2005. Valencia Entertainment International, LLC, a California limited liability company and the Registrant's subsidiary filed on April 7, 2003, a voluntary petition in bankruptcy for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (note 8). The main income of the Registrant is from the operations of Valencia Entertainment International. As of May 30th, 2005, we have closed the operation at Valencia Entertainment International, California. Management has taken various steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue on in next twelve months. Management devoted considerable effort during the period ended June 30, 2005, towards management of liabilities and improving the operations. The management believes that the above actions will allow the Company to continue its operations through the next twelve months. -9- VALCOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) ----------- 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. 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. RECLASSIFICATION - ---------------- Certain prior period amounts have been reclassified to conform to the current period's presentation. NOTE 2 NET INCOME (LOSS) PER SHARE - ---------------------------------------- The Company's net loss per share was calculated using weighted average shares outstanding of 42,454,473 for the three months ended December 31, 2005 and 31,504,469 for the three ended December 31, 2004, respectively. Although convertible preferred stock, convertible debt, and warrants are common stock equivalents, they are not included in the calculation of diluted earnings per share as their effect would be anti-dilutive. NOTE 3. PROPERTY AND EQUIPMENT ================================== Property and equipment consists of the following at: December September 31, 2005 30, 2005 ---------- ------------ Building Improvements 4,500 4,500 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 47,814 Video Equipment 181,877 279,021 Recording Studio 17,068 - ---------- ----------- 416,615 396,547 Less: accumulated depreciation (309,775) (301,125) ---------- ----------- Net book value . . . . . . . $106,840 $3,539,513 ========== =========== Depreciation expense for the periods ended December 31, 2005 and September 30, 2005 was $8,650 and $92,001, 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. 1. AJW Partner 34,453 -------- 2. AJW Partner 85,000 -------- 3. AJW Qualified 94,746 -------- 4. AJW Off Shore 79,672 -------- 5. New Millenium Capital 6,460 -------- $300,331 ======== -10- VALCOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5 LITIGATION - ------------------- 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 June 30, 2004, the Company was in compliance of all of its duties under the Bankruptcy Code and all applicable guidelines of the Office of the United States Trustee. 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 March 31, 2004. On April 28, 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 May 31, 2004. The court approved an extension and granted the restructuring of notes/debt with Finance Unlimited and Laurus for settlement and to be discharged from bankruptcy. In May 2004, Laurus paid off Finance 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 VEI 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 VEI or ValCom, or any other assets other than the Property itself (and the rents and leases appurtenant thereto). On June 10, 2004, Laurus 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, neither VEI nor ValCom are 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 VEI). 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 October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC, commenced a lawsuit in the Los Angeles Superior Court, State of California, against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an accounting of the amount due in connection with a non-judicial foreclosure of a deed of trust securing a promissory note executed by Valcom and Valencia. It also alleges that Chicago Title breached its trustee's duties and Laurus breached the terms of the promissory note and deed of trust securing it. Valcom's attorney has expressed his belief that the lawsuit it meritorious but at this stage in the proceeding, he is unable to state how much, if any, will be recovered in the lawsuit. Lloyd Kurtz Pending or Threatened Litigation, Claims and Assessments by the prior contractor for the renovations, at ValCom Studios in Nevada has been replaced. Mr. Lloyd Kurtz filed suit on October 25, 2004 against ValCom, Inc., A private Nevada Corporation which is 80% owned by ValCom, Inc. a Delaware Corporation, ValCom, Inc. a Delaware Corporation and Vincent Vellardita. The suit alleges a violation of Securities Act of 1933 and states that Mr. Kurtz purchased 600,000 shares of ValCom - Delaware at $0.25 per share and that the shares were not registered. He claims he is owed an additional $303,000. Mr. Kurtz has filed a Mechanic's Lien for $303,000. A motion to dismiss the claim of Mr. Kurtz has been filed. If the corporation does not prevail on its Motions to Dismiss the corporation will file its full defense and counterclaims which exceed the amount claimed by Mr. Kurtz. Farkhanda Rana On October 20, 2004 a shareholder of ValCom initiated suit against the Company and its President alleging violations of State and Federal Securities Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince Vellardita et al. were filed in Los Angeles Superior Court as Case Number PC035673. On November 23, 2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ of attachment against the Company for $325,000.00. The case has been settled as of November 2005. NOTE 6 RELATED PARTY TRANSACTIONS - ------------------------------------- Mr. Vince Vellardita, CEO is owed 281,445 from advances, cash and accrued wages from the Company as of December 31, 2005. NOTE 7 STOCKHOLDERS' EQUITY - ------------------------------ (A) CONVERTIBLE PREFERRED STOCK - ---------------------------------- On December 31, 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 8% per share, per year. Series B Preferred Stock is to be issued if and when declared by the Board of Directors, and can be converted at any time into common stock on a 1 for 5 basis. In the event of any liquidation, the holders of shares of Series B Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series C Preferred Stock has no voting rights, is entitled to receive cumulative dividends in preference to any dividend on the common stock at a rate of 8% per share, per year, to be issued if and when declared by the Board of Directors and can be converted at any time into common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series C Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series D Preferred Stock has no voting rights, no dividends and can be converted at any time to common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series D Preferred Stock then outstanding, shall be entitled to receive an amount equal to the purchase price per share. With respect to rights on liquidation, Series B, C, and D Preferred Stock shall rank senior to the common stock, but Series C Preferred Stock shall be senior to both Series B and D Preferred Stock. Series D Preferred Stock shall be junior to both Series B and C Preferred Stock. No dividends have been declared by the Board of Directors for any of the Series of convertible Preferred Stock for the three months ended December 31, 2005. Assumption used (for Black Scholes calculations): ====================================================== Exercise Price $ .25 Life 12 months Volatility 125% Interest Rate 8% The following is the summary of warrants as of June 30, 2005: Warrants as of September 30, 2003 0 Warrants issued during the period 300,000 Warrants exercised during the period 0 Warrants expired during the period 0 Warrants outstanding as of June 30, 2004 300,000 -11- VALCOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (B) COMMON STOCK - ----------------- COMMON STOCK ISSUED During the three months ended December 31, 2005, the Company issued 750,000 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 $42,500, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 25,000 shares of common stock in lieu of compensation, salaries and bonuses to employees. Total value of the compensation, salaries and bonuses was approximately $1,250, which was computed based upon the market prices of the common stock on the applicable payment dates. During the three months ended December 31, 2004, the Company issued 810,000 shares of common stock pursuant to its private placement memorandum in exchange for $198,000 in cash. During the three months ended December 31, 2004, the Company issued 1,495,269 shares of common stock to convert $89,669 in liabilities. NOTE 9 DISPOSAL OF BUILDING (UNDER THE ORDER OF BANKRUPTCY COURT) VEI filed a voluntary chapter 11 bankruptcy petition on April 7, 2003. By May 2004, the Property was subject to three (3) secured claims. These were a note and first-priority deed of trust held by Finance Unlimited, LLC ("Finance") in the amount of $6,565,998 and two notes, secured by second-priority and third-priority deeds of trust, both held by Laurus Master Fund, Ltd. ("Laurus"). Laurus claimed that it was owed a total of $2,978,876 plus additional penalties and additional legal fees on the two notes but VEI disputed many of the penalty claims by Laurus. The Finance note was solely the obligation of VEI, but ValCom, Inc. was also an obligor on the two Laurus notes. In May 2004, Laurus paid off Finance 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 VEI 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 VEI or valium, or any other assets other than the Property itself (and the rents and leases appurtenant thereto). On June 10,2004, Laurus 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, neither VEI nor ValCom are 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 VEI). 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. 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. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION PLAN OF OPERATION As of December 31, 2005, ValCom, Inc. operations were comprised of four divisions: 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 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. FILM PRODUCTION DIVISION 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 for a 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. ValCom Inc. entered into a production agreement with entertainment industry billion dollar producer Jeff Franklin who also joins ValCom's Strategic Advisory Board. Franklin has brought in more than $2 billion in domestic box office sales and with the addition of the film division. Mr. Franklin is one of producers of the theatrical feature, "Casper" and is executive producer on "Kull, The Conqueror," "Cold Around The Heart," "Stuart Little," and "Stuart Little 2." ANIMATION 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. 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. 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. THREE MONTHS ENDED December 31, 2005 VS. December 31, 2004 - ----------------------------------------------------------- Revenues for the three months December 31, 2005 increased by $1,560,997 or 649% from $240,411 for the three months ended December 31, 2004 to $1,801,409 for the same period in 2005. The increase in revenue was principally due to increased production revenues associated with the Valcom's activities. Production costs for the three months ended December 31, 2005 increased by $1,664,728 from $47,786 for the three months ended December 31, 2004 to $1,712,514 for the same period in 2005. The increase in production costs was principally due to increased production associated with Valcom Productions. Depreciation and amortization expense for the three months ended December 31, 2005 decreased by $17,603 or 67.05% from $26,253 for the three months ended December 31, 2004 to $8,650 for the same period in 2005. General and administrative expenses for the three months ended December 31, 2005 decreased by $257,964 or 41.77% from $617,634 for the three months ended December 31, 2004 to $359,670 for the same period in 2005. The decrease was due principally to decreased personnel costs for the new projects. Consulting and professional fees for the three months ended December 31, 2005 decreased by $326,974 or 63.21% from $517,312 for the three months ended December 31, 2004 to $190,338 for the same period in 2005. The decrease was due principally to decreases in use of professionals. Interest expense for the three months ended December 31, 2005 increased by $11,200 or 249.22% from $4,494 for the three months ended December 31, 2004 to $15,694 for the same period in 2005. The increase was due principally to the increase in notes payables. Due to the factors described above, the Company's net loss decreased by $422,220 from $959,444 for the three months ended December 31, 2004 to $537,224 for the same period in 2005. FUTURE OUTLOOK The Company has entered into a joint venture agreement with O. Atlas Enterprises to produce an animation movie and an animation TV series called "New Zoo Revue" based on an American Classic of the same name, which was highly successful. BCI/Navarre has purchased an exclusive agreement to distribute 195 existing shows of New Zoo Revue for the retail market. We anticipate the New Zoo Revue to be available to consumers through 4,000 Wal- Mart retail outlets by August 31, 2004. The Company has already incurred start-up costs, which have been reflected in the financial statements for the six months ended March 31, 2004. The Company has entered into agreement with Q Television Network, Palm Springs, CA on April 1, 2005. The Company has granted Q Television Network a License to use 142 films and television shows for a period of seven years. Q Television Network issued 50,000,000 shares of the Company valued at $150,000 as advance. September 22, 2005, ValCom Inc. entered into a production agreement with entertainment industry billion dollar producer Jeff Franklin who also joins ValCom's Strategic Advisory Board. Franklin has brought in more than $2 billion in domestic box office sales and with the addition of the film division. Mr. Franklin is one of producers of the theatrical feature, "Casper" and is executive producer on "Kull, The Conqueror," "Cold Around The Heart," "Stuart Little," and "Stuart Little 2." 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 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. ValCom, Inc. entered a joint venture in February, 2006 with entertainment giant, Stan Lee's POW! Entertainment. POW! (Purveyors of Wonder) Entertainment, Inc. is founded by Stan Lee, together with Gill Champion and Arthur Lieberman. POW's principals combined have over a hundred years experience creating, producing, and licensing original intellectual properties. POW! specializes in franchises for the entertainment industry, including animation and live-action feature films, plus television, DVDs, video games, merchandising, and related ancillary markets. POW! partners with studios and networks in creating new and exciting characters. In some cases, POW! creates 'custom-tailored' properties for a specific star or director. Stan Lee, chairman and chief creative officer of POW!, is the creator and inventor of the modern superhero. A prolific author, Lee revolutionized the comic book industry by creating compelling characters who, despite extraordinary powers and talents, are nonetheless plagued by the same doubts and difficulties experienced by ordinary people. Some of his most enduring characters, like Spider-Man(R)(a), The Hulk(R)(a), and the X-Men(R)(a), have spun off into television programs and feature films that have grossed hundreds of millions of dollars at the box office. On February 9, 2006 ValCom, Inc. named Jeff Kutash as President of their Live Theatre Division. The first venture Kutash will undertake is a theater production called 'Headlights and Tailpipes' that will be unveiled at a Las Vegas hotel and casino. In heading up this division, Kutash will be responsible for developing and directing new productions and live theatrical events throughout the world. Kutash's experience in the field of theatre, television and film create a vast knowledge of the entertainment field. Several large-scale productions put Kutash on the map for live entertainment including the first rock n' roll revue 'Good Ol' Rock n' Roll,' 'Dancin' Machine' and most notably 'Splash,' which recently celebrated its 20 year anniversary. Kutash received accolades for the choreography he staged for John Travolta's appearance in the film 'Saturday Night Fever.' Kutash continued staging and began co-producing television for ABC, NBC, CBS, Viacom and Filmways. His television work garnered an Emmy(R) and Golden Globe(R) for his participation on 'Taxi,' and was responsible for staging the 20th Anniversary Grammy(R) Awards. He has spent the last several years commuting to and from Europe on a regular basis, coordinating international talent, music, theatrical, and television productions. LIQUIDITY AND CAPITAL RESOURCES The Company's condensed consolidated financial statements have been prepared, assuming that the Company will continue as a going concern. The Company has a net loss of $356,893 and a negative cash flow from operations of $271,594 for the three months ended December 31, 2005, a working capital deficiency of $1,106,857 and an accumulated deficit of $10,882,574 at December 31, 2005. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Cash totaled $4,686 on December 31, 2005 compared to $22,142 as at December 31, 2004. During the three months ended December 31, 2005, net cash used by operating activities totaled $815,588 compared to net cash used by operating activities of $214,382 for the comparable three-month period in 2004. A significant portion of operating activities included payments for interest and production development costs. Net cash used by financing activities for the three months ended December 30,2005 totaled $564,062 compared to $240,754 for the comparable three-month period in 2004. The above cash flow activities yielded a net cash decrease of $271,594 during the three months ended December 31, 2005 compared to a increase of $674 during the comparable prior year period. Net working capital (current assets less current liabilities) was a negative $936,801 as of December 31,2005. The Company will need to raise funds through various financings to maintain its operations until such time as cash generated by operations is sufficient to meet its operating and capital requirements. There can be no assurance that the Company will be able to raise such capital on terms acceptable to the Company, if at all. -13- ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures - ----------------------------------------------------- Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company's periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the periodic reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Within the 90 days prior to the filing date of this Report, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. This evaluation was conducted under the supervision and with the participation of the Company's Chief Executive Officer and Principal Financial Officer. Effective Disclosure Controls - ------------------------------- 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. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ---------------------------- The Company is involved from time to time in legal proceedings incident to the normal course of business. Management believes that the ultimate outcome of any pending or threatened litigation would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 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 June 30, 2004, the Company was in compliance of all of its duties under the Bankruptcy Code and all applicable guidelines of the Office of the United States Trustee. 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 March 31, 2004. On April 28, 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 May 31, 2004. The court approved an extension and granted the restructuring of notes/debt with Finance Unlimited and Laurus for settlement and to be discharged from bankruptcy. In May 2004, Laurus paid off Finance 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 VEI 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 VEI or ValCom, or any other assets other than the Property itself (and the rents and leases appurtenant thereto). On June 10, 2004, Laurus 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, neither VEI nor ValCom are 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 VEI). 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 October 5, 2004, Valcom, Inc. and Valencia Entertainment International, LLC, commenced a lawsuit in the Los Angeles Superior Court, State of California, against Chicago Title Company and Laurus Master Fund, Ltd. The suit seeks an accounting of the amount due in connection with a non-judicial foreclosure of a deed of trust securing a promissory note executed by Valcom and Valencia. It also alleges that Chicago Title breached its trustee's duties and Laurus breached the terms of the promissory note and deed of trust securing it. Valcom's attorney has expressed his belief that the lawsuit it meritorious but at this stage in the proceeding, he is unable to state how much, if any, will be recovered in the lawsuit. Lloyd Kurtz Pending or Threatened Litigation, Claims and Assessments by the prior contractor for the renovations, at ValCom Studios in Nevada has been replaced. Mr. Lloyd Kurtz filed suit on October 25, 2004 against ValCom, Inc., A private Nevada Corporation which is 80% owned by ValCom, Inc. a Delaware Corporation, ValCom, Inc. a Delaware Corporation and Vincent Vellardita. The suit alleges a violation of Securities Act of 1933 and states that Mr. Kurtz purchased 600,000 shares of ValCom - Delaware at $0.25 per share and that the shares were not registered. He claims he is owed an additional $303,000. Mr. Kurtz has filed a Mechanic's Lien for $303,000. A motion to dismiss the claim of Mr. Kurtz has been filed. If the corporation does not prevail on its Motions to Dismiss the corporation will file its full defense and counterclaims which exceed the amount claimed by Mr. Kurtz. Farkhanda Rana On October 20, 2004 a shareholder of ValCom initiated suit against the Company and its President alleging violations of State and Federal Securities Law along with Fraud and Breach of Contract. The lawsuit captioned Farkhanda Rana vs. ValCom, Inc., Valencia Entertainment and Vince Vellardita et al. were filed in Los Angeles Superior Court as Case Number PC035673. On November 23, 2004 after a hearing the Plaintiff in this matter obtained a pre-judgment writ of attachment against the Company for $325,000.00. The case has been settled as of November 2005. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES - --------------------------------- (A) PREFERRED STOCK: On January 24 Company issued 4,000,000 shares of C preferred Stock in lieu of cash payment. COMMON STOCK - ------------------ During the three months ended December 31, 2005, the Company issued 750,000 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 $42,500, which was computed based upon the market prices of the common stock on the applicable payment dates. -15- ITEM 3. DEFAULTS UPON SENIOR SECURITIES - -------------------------------------------- Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - --------------------------------------------------------------------- Not applicable ITEM 5. OTHER INFORMATION - ---------------------------- Not applicable ITEM 6. EXHIBITS - ------------------------------------------- (A) Exhibits
31.1Certification by CEO pursuant to Section 302 of Sarbanes Oxley Act of 2002. 31.2Certification by CFO pursuant to Section 302 of Sarbanes Oxley Act of 2002. 32.1Certification of Chief Executive Office Pursuant to 18 U.S.C. Section 1350. 32.2Certification of Chief Executive Office Pursuant to 18 U.S.C. Section 1350.
The Company incorporates by reference all exhibits to its Form 10-KSB for the year ending September 30, 2005. -16- SIGNATURES ---------- In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VALCOM, INC. Date: February 22, 2006 By: /s/Vince Vellardita ------------------------------------- Vince Vellardita Chairman of the Board and Chief Executive Officer (Principal executive officer) In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- BY: /s/ Vince Vellardita CEO/President February 22, 2006 - ---------------------------Chairman of the Board Vince Vellardita BY: /s/ Sandy Markham Secretary February 22, 2006 - ----------------------- (Principal Accounting Officer) Sandy Markham EX-1 2 ex_31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 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, Vince Vellardita, the Company's Chief Executive Officer (the "Officer"), 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/Vince Vellardita -------------------------- Vince Vellardita Chief Executive Office EX-2 3 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-3 4 ex_32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 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, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Vince Vellardita, the Company's Chief Executive Officer (the "Officer"), 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/ Vince Vellardita ---------------------------- Vince Vellardita Chief Executive Officer EX-4 5 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-----