10KSB 1 lk10ksb093006.txt VALCOM, INC. FORM 10-KSB 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, 2006 SECURITIES AND EXCHANGE COMMISSION FILE NUMBER 000-28416 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) 2525 North Naomi Street, Burbank, California 91504 --------------------------------------------------- (Address of Principal executive offices) (Zip Code) (818) 848-5800 --------------------------- (Issuer's telephone number) 920 South Commerce Street, Las Vegas, Nevada 89106 ---------------------------------------------------------- (Former address of principal executive offices) (zip Code) 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 AND PREFERRED STOCK, PAR VALUE $0.001 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. [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] YES [X] NO Issuer's revenues for its most current fiscal year: $3,402,278 Aggregate market value of the voting and non-voting common equity held by non- affiliates as of January 12, 2007: $1,965,746 Number of common shares outstanding as of January 12, 2007 at $.001 par value: 4,914,365 shares. DOCUMENTS INCORPORATED BY REFERENCE: NONE Transitional Small Business Disclosure Format: [ ] YES [X] NO TABLE OF CONTENTS =================== Item Page Number Number Item -------- ------ ------------- Part I ------- Item 1. _ Description of Business Item 2. _ Description of Property Item 3. _ Legal Proceedings Item 4. _ Submission of Matters to a Vote of Security Holders Part II ------- Item 5. _ Market for Common Equity and Related Stockholder Matters Item 6. _ Management's Discussion and Analysis or Plan of Operation Item 7. _ Financial Statements Item 8. _ Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 8A. _ Controls and Procedures Item 8B. _ Other Information Part III -------- Item 9. _ Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Item 10. _ Executive Compensation Item 11. _ Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters Item 12. _ Certain Relationships and Related Transactions Item 13. _ Exhibits Item 14. _ Principal Accountant Fees and Services Signatures _ Ex. 31.1 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 PART I ITEM 1. DESCRIPTION OF BUSINESS BACKGROUND 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 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 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, 2006, 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 and 2525 North Naomi Street, Burbank, California 91504 which is leased. Corporate offices are located at the Burbank Studios which houses a state-of-the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. VALCOM BURBANK STUDIOS, one of Burbank's television production facilities, with three edit bays, two sound stages and over 25,000 square feet of production support was recently acquired by ValCom, Inc. The Burbank Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production for many years in addition to a past client base consisting of: HGTV, D.I.V., History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television, Lifetime, over a period of 12 years. 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) Jeff Franklin Film and TV production - Jeff Franklin, Executive Producer of "Funny Money" and founder of FWE Picture Company began his entertainment career in the music industry managing the careers of music icons George Clinton and Marvin Gaye. Franklin recently began working with Stan Lee on two new pictures, including "Light Speed" and "The Harpy." Cumulatively, theatrical features that Franklin has produced and executive produced, such as "Casper," "Kull-The Conquerer," "Cold Around the Heart," "Stuart Little" and "Stuart Little 2," have grossed over one billion dollars. Franklin has also produced many television series, as well as producing on and off-Broadway. 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{trademark}, The Hulk{trademark}, and the X- Men{trademark}, have spun off into television programs and feature films 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 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. BUSINESS OVERVIEW We are a diversified entertainment company with the following operating activities: 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 11 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, animation and post-production. VALCOM BURBANK STUDIOS, one of Burbank's television production facilities, with three edit bays, two sound stages and over 25,000 square feet of production support was recently acquired by ValCom, Inc. The Burbank Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production for many years in addition to a past client base consisting of: HGTV, D.I.V., History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television, Lifetime, over a period of 12 years. FILM PRODUCTION DIVISION Jeff Franklin, Executive Producer of "Funny Money" and founder of FWE Picture Company began his entertainment career in the music industry managing the careers of music icons George Clinton and Marvin Gaye. Franklin recently began working with Stan Lee on two new pictures, including "Light Speed" and "The Harpy." Cumulatively, theatrical features that Franklin has produced and executive produced, such as "Casper," "Kull-The Conquerer," "Cold Around the Heart," "Stuart Little" and "Stuart Little 2," have grossed over one billion dollars. Franklin has also produced many television series, as well as producing on and off-Broadway. ValCom, Inc. entered a joint venture 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{trademark}, The Hulk{trademark}, and the X- Men{trademark}, have spun off into television programs and feature films LIVE THEATRE DIVISION February 9, 2006, ValCom Inc. named Jeff Kutash as President of their Live Theatre Division. The first venture, a theatre production called "Headlights and Tailpipes" opened at the Las Vegas Stardust Casino and Hotel on April 3, 2006. 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 "Gold 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{trademark} and Golden Globe{trademark} for his participation on "Taxi", and was responsible for staging the 20th Anniversary Grammy{trademark} 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. ValCom, Inc. introduced a live theatre production debuting April 4, 2006 entitled "Headlights and Tailpipes" at the Stardust Resort & Casino. "Headlights and Tailpipes", starring Playboy Playmate Lauren Anderson (July 2002), recently captured the city's top spot as the number one adult-style production in Las Vegas. The show, performing in the Stardust Theater at the Stardust Resort & Casino, is a sexy and seductive production that celebrates America's love affair with fast cars, beautiful girls, and heart-pounding rock `n roll. The show consist of a series of exotic dance numbers that are choreographed to hit rock `n roll songs around a motorcycle or hot rod. Featured cars range from a vintage Ford Thunderbird to a new 2007 Shelby Cobra. Perhaps the most famous of these automobiles is Starsky & Hutch's 1976 Ford Gran Torino. 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.. 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., an independent animation companies in Europe and a provider of animation software to other production companies worldwide. With its production capability and proprietary technology, we believe that 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. 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. The Company will utilize its assets of film library, broadcast station and studio facilities to expand in the IP world. 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 and scope. The market is overwhelmingly dominated by the major Hollywood studios, with the top-ranked company, Disney in 1999, usually commanding 15 to 20 percent of the domestic market share in any given year. ValCom 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 STUDIO FACILITIES The Company emerged as one of the top studio facilities over the years and has been very successful with an occupancy rate of 95%. With ValCom's most recent purchase of the Burbank Studios, the Company is focusing on its core business and capitalizes on its reputation in the Hollywood to increase its revenue base. The Company does not rely on a small group of customers. It may rent facilities, 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. 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. HEADLIGHTS AND TAILPIPES Live Theater Show Debut and Stardust Casino: Broadcast, merchandise and food/beverages. SIN CITY RECORDS Record Studio, Record Label, publishing, music, television, films and merchandise MOTOWN PARTNERS, LLC Live Theatre, Production Revenue and Concerts EMPLOYEES As of January 15, 2007, the Company had 14 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. We have never experienced a work stoppage and believe our employee relations are very good. ITEM 2. DESCRIPTION OF PROPERTY ValCom's Studio Division is composed of two properties: 2525 North Naomi Street, Burbank, California 91504 and 920 South Commerce which are leased for $33,000 and $2,000. per month. ValCom also holds a 1/3 equity in the real estate of 7.5 acres, 160,000 square feet of commercial space without access. Corporate offices are located at the Burbank Studios which houses a state-of- the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. ITEM 3 - LEGAL PROCEEDINGS 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. The defendants won a summary judgment motion and the company is pursuing the appellant process. The company anticipate an appellate herring in late 2007. 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. BONNIE NELSON Ms. Bonnie Nelson, a former ValCom employee and Director filed suit against ValCom, Inc. The suit alleges a breach of oral agreement and employment contract. ValCom, Inc. terminated Ms. Nelson for cause in breach of her employment agreement. ValCom is countersuing Ms. Nelson for defamation and breach of fiduciary duties to both the Company and its shareholders. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 1. On November 20, 2006, the Company held a Special Meeting of Stockholders at the Company's offices at 920 South Commerce Street, Las Vegas, Nevada 89106 at 10:00 A.M. local time. 2. There were present in person or by proxy 58,146,661 shares of Common Stock, of a total of 105,243,318 shares of Common Stock entitled to vote. 3. The number of shares voted in favor of the election of the following nominees for director is set forth opposite each nominee's name: Nominee Number of Shares --------------------- ---------------------- Vincent Vellardita 54,514,041 Richard Shintaku 54,514,041 Ian Adlington 54,514,041 4. 54,514,041 shares were voted in favor of amending our Certificate of Incorporation to increase the number of authorized shares of common stock, par value $.001 per share, of the Company from 100,000,000 shares to 250,000,000 shares. 5. 54,514,041 shares were voted in favor of amending our Certificate of Incorporation to increase the number of authorized shares of "blank check" preferred stock, par value $.001 per share, of the Company from 10,000,000 shares to 25,000,000 shares. 6. 54,514,041 shares were voted in favor of amending our Certificate of Incorporation to effect a reverse stock split of the issued an outstanding shares of common stock of the Company at a ratio of either one-for-two, one- for-five, one-for-ten, one-for-twenty, as determined by the Board of Directors to be in the best interests of the Company without further approval from stockholders. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR COMMON EQUITY The Company's common stock is traded on the NASD Over-the-Counter Electronic Bulletin Board under the symbol VLCO upon the effectuation of a one-for-twenty reverse stock split on December 11, 2006. The Company's common stock was previously traded on the NASD Over-the-Counter Electronic Bulletin Board under the symbol VACM. The Company's trading symbol on the Frankfurt XETRA is "VAM" and its security code is #940589. 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 Low High ----- ------ ------- 2007 ==== First Quarter $ 1.76 $ 0.40 ------ ------- Second Quarter* $ 0.51 $ 0.35 ------ ------- 2006 ==== First Quarter $ 4.10 $ 0.90 ------ ------- Second Quarter $ 4.00 $ 1.26 ------ ------- Third Quarter $ 3.98 $ 1.16 ------ ------- Fourth Quarter $ 2.80 $ 1.34 ------ ------- 2005 ==== First Quarter $ 4.80 $ 1.44 ------ ------- Second Quarter* $ 2.40 $ 1.00 ------ ------- Third Quarter $ 2.00 $ 0.80 ------ ------- Fourth Quarter $ 4.00 $ 0.40 ------ ------- 2004 ===== First Quarter $11.00 $ 6.00 ------ ------- Second Quarter $ 9.40 $ 4.60 ------ ------- Third Quarter $ 7.00 $ 1.80 ------ ------- Fourth Quarter $ 5.20 $ 1.80 --------------- ------ ------- *Through January 11, 2007 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, a one share-for-ten reverse split effective on September 27, 2001 and a one-for-twenty reverse split effective on December 11, 2006. As of January 12, 2007, the Company had 4,914,365 shares of common stock outstanding, with approximately 1, 450,000 in the public float and approximately 2,110 shareholders of record. DIVIDENDS There have been no cash dividends declared or paid since the inception of the Company. 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. DESCRIPTION OF SECURITIES The Company is authorized to issue 275,000,000 shares of capital stock, 250,000,000 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. The holders of common stock do not have cumulative voting rights and are entitled to one vote per share on all matters to be voted upon by the stockholders. Our common stock is not entitled to preemptive rights and is not subject to redemption (including sinking fund provisions) or conversion. Upon our liquidation, dissolution or winding-up, the assets (if any) legally available for distribution to stockholders are distributable ratably among the holders of our common stock after payment of all classes or series of our preferred stock. All outstanding shares of our common stock are validly issued, fully-paid and non-assessable. The rights, preferences and privileges of holders of our common stock are subject to the preferential rights of all classes or series of preferred stock that we may issue in the future. PREFERRED STOCK At September 30, 2006, 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. 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, 2006. 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 On January 24, 2006, the Company issued 4,000,000 shares of Series C Preferred Stock in lieu of cash payment. (A) 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. During the three months ended December 31, 2005, 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, 2005, 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, 2005, the Company issued 1,495,269 shares of common stock to convert $89,669 in liabilities. On May 19, 2006, the Company issued 1,000,000 shares of the Company's common stock, $0.001 par value per share, to Media City Teleproductions as partial consideration of the purchase price to be paid pursuant to a certain Letter Agreement of equal date entered into by the Company and MCT for the Company's purchase of Media City Studios. The Company claims an exemption from the registration requirements of the Act for the issuance of the Preferred Stock and Common Stock, as set forth above, pursuant to Section 4(2) of the Act and/or Regulation D promulgated thereunder since, as among other things, the transaction did not involve a public offering, the investors and/or purchasers were each an accredited investor and/or qualified institutional buyer, the investors had access to information about the Company and their investment, the investors took the preferred and common stock for investment and not resale and the Company took appropriate measures to restrict the transfer of the preferred and common stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS. Certain statements in "Management's Discussion and Analysis or Plan of Operation" below, and elsewhere in this annual report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Forward-looking statements frequently are accompanied by such words such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward- looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this annual report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth below and elsewhere in this annual report, and in other reports filed by us with the SEC. INTRODUCTION PLAN OF OPERATION As of September 30, 2006, ValCom, Inc. operations were comprised of the following divisions: 1. Studio Division 2. Rental Division 3. Broadcast Television 4. Film and Television Production; and Animation Division. 5. Live Theater 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 Jeff Franklin, Executive Producer of "Funny Money" and founder of FWE Picture Company began his entertainment career in the music industry managing the careers of music icons George Clinton and Marvin Gaye. Franklin recently began working with Stan Lee on two new pictures, including "Light Speed" and "The Harpy." Cumulatively, theatrical features that Franklin has produced and executive produced, such as "Casper," "Kull-The Conquerer," "Cold Around the Heart," "Stuart Little" and "Stuart Little 2," have grossed over one billion dollars. Franklin has also produced many television series, as well as producing on and off-Broadway. 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{trademark}, The Hulk{trademark}, and the X- Men{trademark}, have spun off into television programs and feature films 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. VALCOM BURBANK STUDIOS, one of Burbank's television production facilities, with three edit bays, two sound stages and over 25,000 square feet of production support was recently acquired by ValCom, Inc. The Burbank Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production for many years in addition to a past client base consisting of: HGTV, D.I.V., History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television, Lifetime, over a period of 12 years. RESULTS OF OPERATIONS FISCAL YEAR ENDED SEPT. 30, 2006 COMPARED TO FISCAL YEAR ENDED SEP. 30, 2005 Revenues for the year ended September 30, 2006 increased by $2,472,171 from $930,107 for the same period in 2005 to $3,402,278 for the year ended September 30, 2006. The increase in revenue was principally due to increase in production revenue. Production costs for the year ended September 30, 2006 increased by $2,608,462 or 60% from $430,082 for the year ended September 30, 2005 to $3,038,544 for the same period in 2006. The increase in production costs was principally due to increased production. Selling and promotion costs for the year ended September 30, 2006 increased by $892,469or 2503.77% from $35,645 for the same period in 2005 to $928,114 for the year ended September 30, 2006. The increase was due principally to production increases, requisitions and acquisitions of new entities. Depreciation and amortization expense for the year ended September 30, 2006 decreased by $11,989 or 13.03% from $92,001 for the year ended September 30, 2005 to $80,012 for the same period in 2006. The decrease in depreciation and amortization expense was due to ending of asset cycle. General and administrative expenses for the year ended September 30, 2006 increased by $938,813 or 98% from $955,690 for the year ended September 30, 2005 to $1,894,503 for the same period in 2006. The increase was due principally to increased production. Consulting and professional fees for the year ended September 30, 2006 decreased by $66,552 or by 95.11% from $1,301,907 for the year ended September 30, 2005 to $1,235,355 for the same period in 2006. The decrease in consulting and professional fees was principally due to increased control by management of these expenses. Bad debt expense for the year ended September 30, 2006 decrease by $39,536 or 66.7% from the year ended September 30, 2005 to $19,757 for the same period in 2006. Interest expense for the year ended September 30, 2006 increased by $26,766 or 52% from $51,567 for the year ended September 30, 2005 to $78,328 for the same period in 2006. The increase was due principally to new acquisitions of the Burbank Studios. Due to the factors described above, the Company's net loss increased by $2,711,434 or 148.95% from a net loss of $1,820,022 for the year ended September 30, 2005 to a loss of $4,531,472 for the year ended September 30, 2006. 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 $4,531,476 and a negative cash flow from operations of $2,719,429 for the year ended September 30, 2006, and an accumulated deficit of $14,876,826 at September 30, 2006. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Cash totaled $52,807 on September 30, 2006, compared to $276,280 at September 30, 2005. During the fiscal year 2006, net cash used by operating activities totaled $2,719,429 compared to a negative cash flow of $52,734 for the year ended September 30, 2005. A significant portion of operating activities included payments for accounting and legal fees, consulting fees, salaries, and rent. Net cash increase by financing activities for fiscal year 2006 totaled $3,074,303. Net cash used by investing activities during fiscal year 2006 totaled $578,346 from purchase of fixed assets and increased expenditures for the purchase of equipment. The above cash flow activities yielded a net cash decrease of $223,472 during fiscal year 2006 compared to a increase of $10,363 during the year ended September 30, 2005. There can be no assurance that the Company will be able to raise capital on terms acceptable to the Company, if at all. Total shareholders' equity decreased to $(788,782)in fiscal year 2006. Additional paid in capital increased to $13,993,462 in fiscal year ended September 30, 2006. 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 $1,000,000. for facility, equipment and growth. 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
VALCOM, INC. AND SUBSIDIARIES Consolidated Balance Sheets ASSETS As of As of September 30, September 30, 2006 2005 ------------ ------------- CURRENT ASSETS Cash $ 52,807 $ 276,280 Accounts receivable, net 432,813 87,620 Prepaid expenses 40,000 - Notes receivable 449,000 - ------------ ------------- Total Current Assets 974,620 363,899 NET PROPERTY & EQUIPMENT 673,678 95,422 OTHER ASSETS Deposits 108,350 8,350 Other assets 1,150,000 1,150,000 ------------ ------------- Total Other Assets 1,258,350 1,158,350 ------------ ------------- TOTAL ASSETS $ 2,906,738 $ 1,617,672 ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 692,059 $ 525,478 Accrued interest 68,172 33,370 Accrued expenses 106,951 20,000 Deferred Income 26,100 120,000 Due to related parties 1,672,456 267,955 Notes payable 1,129,782 416,480 ------------ ------------- Total Current Liabilities 3,695,520 1,383,284 LIABILITIES SUBJECT TO COMPROMISE Mortgage payable - - Long term loans - - ------------ ------------- Total Liabilities subject to compromise - - TOTAL LIABILITIES 3,695,520 1,383,284 STOCKHOLDERS' EQUITY Convertible preferred stock: all with par value of $0.001; shares authorized and outstanding as of September 30, 2006 and 2004 are as follow: Series B, 1,000,000 shares authorized; 38,000 shares issued and outstanding. 38 38 Series C, 25,000,000 shares authorized; 9,267,416 and 6,517,416 shares issued and outstanding as of September 30, 2006 and 2005, respectively. 9,267 6,517 Series 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; 85,312,064 and 41,884,000 shares issued and outstanding as of September 30, 2006 and 2005, respectively) 85,312 41,884 Treasury stock (35) (35) Minority Interest - - Additional paid-in capital 13,993,462 10,531,335 Retained (deficit) (14,876,826) (10,345,312) ------------ ------------- Total Stockholders' Equity (788,782) 234,389 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 2,906,738 $ 1,617,672 ============ ============= See accompanying notes to financial statements.
VALCOM, INC. AND SUBSIDIARIES Consolidated Statements of Operations Year Ended Year Ended September 30, September 30, 2006 2005 ------------- ------------ REVENUES Rental income $ 708,588 $ 377,931 Production income 2,669,118 548,582 Other income 23,439 3,594 ------------- ------------ Total Revenues 3,402,278 930,108 COSTS AND EXPENSES Production 3,038,544 430,082 Selling and promotion 928,114 35,645 Depreciation and amortization 80,012 92,001 General and administrative 1,894,503 955,690 Consulting and professional fees 1,235,355 1,301,907 Bad debts 19,757 59,293 ------------- ------------ Total Costs and Expenses 7,196,285 2,874,618 ------------- ------------ OPERATING LOSS (3,794,007) (1,944,510) OTHER INCOME & (EXPENSES) Interest expense (78,328) ( 51,562) Other expense (703,432) - Gain on sale of assets - 176,051 Interest Income - - Other income 44,291 - ------------- ------------ Total Other Income & (Expenses) (737,469) 124,489 ------------- ------------ NET LOSS $ (4,531,476) $ (1,820,021) ============= ============ BASIC AND DILUTED EARNINGS (LOSS) PER SHARE BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.06) $ (0.05) ============= =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 49,376,756 36,257,129 ============= =========== See accompanying notes to financial statements.
VALCOM INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity From October 1, 2003 through September 30, 2006 Series C - Preferred Preferred Series B Preferred Series C Preferred Series D Stock to be issued Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ---------- ------ ---------- ---------- ------ ------ Balance October 1, 2003 38,000 38 1,480,000 1,480 1,250,000 1,250 - - Intercompany transfer of assets and discontinue subsidiary *** Shares issued for services Shares issued for debt retirement Private Placement Memorandum Conversion of preferred stock 2,999,999 3,000 (1,250,000) (1,250) Less treasury stock Net Loss ------ ------ ---------- ------ ---------- ---------- ------ ------ Balance September 30, 2004 38,000 38 4,479,999 4,480 - - - - Shares issued for services Private Placement Memorandum Preferred stock issued for cash, net 2,537,417 2,537 Conversion to common (500,000) (500) Net Loss (1,820,021) ------ ------ ---------- ------ ---------- ---------- ------ ------ Balance September 30, 2005 38,000 38 6,517,416 6,517 - - - - Preferred Stock issued for services 4,000,000 4,000 Shares issued for services Shares issued for notes and settlements Notes conversions to stock (1,250,000) (1,250) Net Loss ------ ------ ---------- ------ ---------- ---------- ------ ------ Balance September 30, 2006 38,000 38 9,267,416 9,267 - - - - ====== ====== ========== ====== ========== ========== ====== ====== See accompanying notes to financial statements.
VALCOM INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity From October 1, 2003 through September 30, 2006 (Continued) Additional Common Paid-in Treasury Retained Shares Amount Capital Stock Earnings Total ---------- ------ ---------- -------- ----------- ---------- Balance October 1, 2003 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 1,750 Less treasury stock (35) (35) Net Loss (5,929,714) (5,929,714) ---------- ------ ---------- -------- ----------- ---------- Balance September 30, 2004 28,119,449 28,120 8,762,774 (35) (8,525,329) 270,049 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 Conversion to common 500,000 500 - Net Loss (1,820,021) ---------- ------ ---------- -------- ----------- ---------- Balance September 30, 2005 41,883,717 41,884 10,397,993 (35) (10,345,350) 101,047 Preferred Stock issued for services 196,000 200,000 Shares issued for services 5,924,575 5,925 534,783 540,708 Shares issued for notes and settlements 33,948,503 33,949 2,579,321 2,613,270 Notes conversions to stock 2,745,269 2,745 88,174 88,669 Net Loss (4,531,476) (4,531,476) ---------- ------ ---------- -------- ----------- ---------- Balance September 30, 2006 85,312,064 85,312 13,993,462 (35) (14,876,826) (788,781) ========== ====== ========== ======== =========== ========== See accompanying notes to financial statements.
VALCOM, INC. Consolidated Statements of Cash Flows Year Ended Year Ended September 30, September 30, 2005 2006 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (1,820,021) $ (1,820,021) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation expense 92,001 92,001 Beneficial interest - - Stock issued for compensation - - Stock issued for services 1,293,483 1,293,483 Investment write off - - Changes in operating assets and liabilities: Receivables (58,853) (58,853) Production in Progress 91,201 91,201 Deposits 32,281 32,281 Deferred compensation - - Deferred interest - - Accounts payable and accrued expenses 82,798 82,798 ------------- ------------- Net Cash Provided by (Used in) Operating Activities (287,110) (287,110) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of fixed assets 55,432 55,432 ------------- ------------- Net Cash Provided by (Used in) Investing Activities 55,432 55,432 CASH FLOWS FROM FINANCING ACTIVITIES Principal repayment of notes payable - - Preferred stock issued for cash 2,537 2,537 Common tock issued for cash 355,000 355,000 Principal borrowings on notes (39,002) (39,002) Net borrowings from related parties 167,955 167,955 ------------- ------------- Net Cash Provided by (Used in) Financing Activities 486,490 486,490 ------------- ------------- Net Increase (Decrease) in Cash 254,812 254,812 Cash at Beginning of Year 21,468 21,468 ------------- ------------- Cash at End of Year $ 276,280 $ 276,280 ============= ============= Supplemental Cash Flow Disclosures: Cash paid during period for interest $ - $ - ============= ============= Cash paid during period for taxes $ 800 $ 800 ============= =============
See accompanying notes to VALCOM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2006 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. VALCOM BURBANK STUDIOS, assets were purchased on May 19, 2006 from Media City Teleproductions("MCT") pursuant to which parties expressed their intention and set forth the principal terms for the Company's purchase of Media City Studios, including certain equipment and facilities contained therein (the "Studio") such as all studio production equipment. ValCom Burbank Studios, one of Burbank's finest television production facilities, with three edit bays, two sound stages and over 25,000 square feet of production support was recently acquired by ValCom, Inc. The Burbank Studios was the home of 'Jeopardy' and the 'Wheel of Fortune' post production for many years in addition to a past client base consisting of: HGTV, D.I.V., History Channel, Discovery, Food Network, Sony Pictures T.V., PAX, MTV, Disney Channel, HBO, ABC, CBS, NBC, Sci Fi, GSN, Comedy Central, VH-1, FOX Television, Lifetime, over a period of 12 years 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. 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. 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. 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 30,2006 30, 2005 ---------- ------------ Land $ - $ - Building - - Building Improvements 4,500 4,500 Production Equipment 723,094 68,708 Leasehold Improvements 62,677 62,677 Autos and Trucks 33,971 33,971 Office Furniture and Equipment 48,421 44,814 Video Equipment 181,877 181,877 ---------- ----------- 1,054,540 396,547 Less: accumulated depreciation (380,772) (301,125) ---------- ----------- Net book value . . . . . . . $673,768 $ 95,422 ========== =========== Depreciation expense for the years ended September 30, 2006 and 2005 was $80,012 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. Four of following eight notes were converted common shares of the Company's stock subsequent to year- end. 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, 2005, related party payables represent $267,955 due to a Director and Shareholder of the Company. At September 30, 2006, related party payables represent $1,672,456 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, 2006. At September 30, 2006, the Company had approximately $14,876,826 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. Deferred tax assets at September 30, 2006 consist primarily of the tax effect of net operating loss carry-forwards, which amounted to approximately $3,719,279. 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, 2006 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, 2006 September 30, 2006 ------------------- ------------------ 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 $ 3,719,279 2,586,338 ------------------- ------------------ Less: valuation allowance (3,719,279) (2,586,338) ------------------- ------------------ $ -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. 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, and the initial monthly base rent expense for Burbank is $30,000. Rent expense for the year ended September 30, 2006 and 2005 were $219,535 and $159,905, respectively. FUTURE COMMITMENTS: Total Las Vegas Burbank 1 $ 517,080 $ 99,000 $418,080 2 528,572 82,500 446,072 3 459,455 459,455 4 473,238 473,238 5 487,435 487,435 ---------------- ----------- ----------- Total $459,531 $ 181,500 $ 2,284,281 ================ =========== =========== NOTE 10. STOCK ACTIVITY a. CONVERTIBLE PREFERRED STOCK At September 30, 2006 and 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 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. 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, 2006. 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 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. 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. On June 14, 2006, the defendants won a summary judgment motion. Valcom has filed for a new trial and will vigorously fight for the shareholders. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Armando C. Ibarra sold the firm to Park Lee, Certified Public Accountants. On June 1, 2006 , the Registrant engaged Park Lee, Certified Public Accountants, as the Registrant's independent accountants to report on the Company's consolidated balance sheet as of September 30, 2006, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. The decision to appoint Park Lee, Certified Public Accountants was approved by the Registrant's Board of Directors. The Registrant auditors, Armando C. Ibarra, Certified Public Accountants (herein after "Ibarra,") resigned effective June 1, 2006 due to the sale of the business to Park Lee, Certified Public Accountants. Ibarra served as the Registrant's independent auditors' for the Registrant's fiscal years ended September 30, 2005 and 2004, as well through the date of its dismissal. Ibarra's report on the Registrant's consolidated financial statements for the registrant's fiscal year September 30, 2005 and September 30, 2004 (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 Ibarra as Registrant's independent accountants until Ibarra's resignation, there were no disagreements with Ibarra 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 Ibarra's satisfaction, would have caused Ibarra to make reference to the subject matter of the disagreements in connection with its reports. ITEM 8A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30, 2006, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Our Chief Executive Officer and Chief Financial Officer also concluded that, as of September 30, 2006, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.. (b) Changes in Internal Controls. During the quarter ended September 30, 2006, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 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. . 49 CEO/President/Chairman of the Board 2000 Richard Shintaku. . 57 Director 2003 Ian Adlington . . . 62 Director 2006 Sandra Markham. . . 46 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 - 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 - DIRECTOR Richard Shintaku has served on the Board since 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. IAN ADLINGTON - DIRECTOR Ian Adlington has served as the founder and Chief Executive Officer of Newport Capital Group from 1998 to the present, a venture capital company which provides Bio Science advice. He is a Member of the Institute of Management Services, the British Institute of Management and the Institute of Bankers as well as a Fellow at the Institute of Directors. In 1979, Mr. Adlington received his B.A. with honors in Math and Economics from the University of Keele. In addition, he received his M.A. in Economics from the University of Keele in 1980. Mr. Adlington also received his M.B.A. from Open Business School and Plymouth School in 1993 as well as a PhD from the Plymouth Business School and his D.B.A. from the Chartered Institute of Marketing in 1997. Currently Mr. Adlington serves of the Board of Directors of over twenty domestic and international companies. SANDY MARKHAM - TREASURER AND SECRETARY Sandy 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 was appointed Secretary of the Company on September 14, 2004. Ms. Aws has served as Vice President of Administration of RWT, the Company's wholly owned subsidiary, since February 2004. Prior to that, Ms. Aws served as Executive Administrator, General Mortgage Corporation of America, from August 24, 2003 to February 2004; Director of Just for Kids, an after school and summer camp program for children, from December 2002 to August 2003; Assistant to the Chief Executive Officer of RWT from December 2002 through February 2004; and Administrative Assistant to Vice President of Marketing and Sales and Manager of Proposals and Contracts Administration for RWT. FAMILY RELATIONSHIPS There are no family relationships among our executive officers and directors. LEGAL PROCEEDINGS There are no material proceedings to which any of our directors, executive officers, affiliates or stockholders is a party adverse to us. There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining any of our officers or directors from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft or of any felony or any conviction in a criminal proceeding or being subject to a pending criminal proceeding. SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year ended September 30, 2006, and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended September 30, 2006, we believe that during the year ended September 30, 2006, our executive officers, directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements. THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE Our Board of Directors is responsible for establishing broad corporate policies and for overseeing our overall management. In addition to considering various matters which require Board approval, the Board provides advice and counsel to, and ultimately monitors the performance of, our senior management. We do not have a standing Audit Committee, a Compensation Committee, or a Nominations and Governance Committee of the board of directors. Our directors perform the functions of audit, nominating and compensation committees. Our directors, Vincent Vellardita, Richard Shintaku and Ian Adlington, participate in the consideration of director nominees. Due to the small size of our company and our board, the board of directors does not believe that establishing a separate nominating committee is necessary for effective governance. When additional members of the Board of Directors are appointed or elected, we will consider creating a nominating committee. The entire Board of Directors participates in audit related matters of our company, including, but not limited to, reviewing and discussing our audited financial statements with management and our auditors and recommending to the board of directors that the financial statements be included in our Annual Reports on Form 10-KSB. In performing their role equivalent to an audit committee, the Board of Directors (i) reviewed and discussed the Company's audited financial statements in the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005 with management, (ii) discussed with the Company's independent registered public accounting firm the matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication With Audit Committees), (iii) discussed with its independent registered public accounting firm matters relating to independence, including the disclosures made to the Board as required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees ), and (iv) in reliance on the aforementioned reviews and discussions, recommended to management the inclusion of the Company's audited financial statements in the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005 for filing with the Securities and Exchange Commission. Messrs. Vellardita, Shintaku and Adlington are not considered independent directors as defined by any national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934 or by any national securities association registered pursuant to Section 15A(a) of the Securities Exchange Act of 1934. The Board and our management strive to perform and fulfill their respective duties and obligations in a responsible and ethical manner. The Board performs annual self-evaluations. We have adopted a comprehensive Code of Ethics for all directors, officers and employees. During 2006, the Board of Directors met and/or executed unanimous written consents of the Board of Directors 15 times. While we do not have a formal policy requiring members of the Board to attend the Annual Meeting of Stockholders, we strongly encourage all directors to attend. No director attended fewer than 90% of the total number of meetings. DIRECTOR COMPENSATION The Company has not paid and does not presently propose to pay cash compensation to any director for acting in such capacity. However, the Company will give the directors a grant of shares of common stock and reimbursement for reasonable out-of-pocket expenses for attending meetings. Outside directors received no cash compensation for their services; however they were reimbursed for their expenses associated with attendance at meetings or otherwise incurred in connection with the discharge of their duties as directors of the Company. No officer of the Company receives any additional compensation for his services as a director, and the Company does not contribute to any retirement, pension, or profit sharing plans covering its directors. ITEM 10 EXECUTIVE COMPENSATION The following table sets forth the cash compensation (including cash bonuses) paid or accrued by us for our years ended September 30, 2006, 2005 and 2004 to our Chief Executive Officer and our four most highly compensated officers other than the Chief Executive Officer at September 30, 2005.
SUMMARY COMPENSATION TABLE Restricted Name & Position Year Salary Bonus Other Stock Options LTIP All Other ----------------------- ---- ------ ----- ----- ---------- ------- ---- --------- Vincent Vellardita, 2006 $ 0.000 0 140,400 0 0 0 Chairman and CEO 2005 $ 0.000 0 140,400 0 0 0 2004 $ 0.000 0 140,400 0 0 0 Sandy Markham 2006 $ 0.000 0 48,800 0 0 0 Treasurer and Secretary 2005 $ 0.000 0 48,800 0 0 0
2004 EMPLOYEE STOCK 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. OPTIONS GRANTS IN LAST FISCAL YEAR The following table sets forth information with respect to grants of options to purchase our common stock to the named executive officers during the fiscal year ended September 30, 2006.
OPTIONS IN YEAR ENDED SEPTEMBER 30, 2006 INDIVIDUAL GRANTS Name Number of Shares Underlying % of Total Options Granted to Exercise Market Expiration Options Employees Price Price Date ---- --------------------------- ----------------------------- -------- ------ ---------- N/A 0 0 -- -- -- N/A 0 0 -- -- -- N/A 0 0 -- -- --
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth information as of September 30, 2006 with respect to the named executive officers information with respect to options exercised, unexercised options and year-end option values in each case with respect to options to purchase shares of our common stock.
Number of Securities Underlying Value of Unexercised In The Unexercised Options at Money Options At September 30, 2006 September 30, 2006 ------------------------------- ----------------------------- Shares Value Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable Name Exercise (#) ($) (#) (#) ($) ($) ---- ------------ -------- ----------- ------------- ----------- ------------- N/A 0 0 -- -- 0 0 N/A 0 0 -- -- 0 0 N/A 0 0 -- -- 0 0
EMPLOYMENT AGREEMENT 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 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as to the shares of our common stock beneficially owned as of January 16, 2007 by (i) each person known to us to be the beneficial owner of more than 5% of our common stock; (ii) each director and nominee for director; (iii) each executive officer; and (iv) all of our directors and executive officers as a group. Unless otherwise indicated in the footnotes following the table, the persons as to whom the information is given had sole voting and investment power over the shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each person shown is c/o ValCom, Inc., 2525 North Naomi Street, Burbank, California 91504.
Vincent Vellardita, Chief Executive Officer and Chairman 9,441,049 11.22 % Steven Cantrock, Chief Financial Officer 0 0 % Richard Shintaku, Director 3,395,833 4.04 % Ian Adlington, Director 0 0 % Sandy Markham, Treasurer and Corporate Secretary 105,000 * Directors and Officers as a Group (6 persons) 13,341,882 15.85 %
*Less than one percent. CHANGES IN CONTROL To the best of the knowledge and belief of the Company, there are no arrangements, understandings, or other 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, AND DIRECTOR INDEPENDENCE At September 30, 2005, related party payables represent $267,955 due to a Director and shareholder of the Company. At September 30, 2006, related party payables represent $1,672,456, $845,158 due to Vince Vellardita and $827,298 due to Richard Shintaku. We believe that these transactions were advantageous to us and were on terms no less favorable to us than could have been obtained from unaffiliated third parties. ITEM 13. EXHIBITS Ex. 31.1 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 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, 2006 and 2005, the review of the financial statements included in the Company's Forms 10-QSB, totaled $21,500 and $21,500 as follows: 2006 2005 -------- ------- Audit fees $ 17,000 $17,000 Quarterly reviews $ 4,500 $ 4,500 Total $ 21,500 $21,500 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 16, 2007 VALCOM, INC., a Delaware Corporation By: /s/ Vince Vellardita ---------------------- Vince Vellardita Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting and Financial 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, January 16, 2007 -------------------- Chairman of the Board Vince Vellardita By: /s/ Richard Shintaku Director January 16, 2007 ---------------------- Richard Shintaku By: /s/ Ian Adlington Director January 16, 2007 --------------------- Ian Adlington