10-K/A 1 vc10ka093009jssr6.txt VALCOM, 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2009 {square} Transition Report Pursuant to Section 13 or 15(d) of the SECURITIES EXCHANGE ACT OF 1934 VALCOM, INC. -------------------------------------------------------- (Name of small business issuer specified in its charter) Delaware 58-1700840 ------------------------------------ ----------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 2113A Gulf Boulevard, Indian Rocks Beach, Florida 33785 ------------------------------------------------------- (Address of Principal executive offices) (Zip code) (727) 953 - 9778 ------------------------- Issuer's telephone number Securities registered pursuant to 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK $0.001 PAR VALUE ----------------------------- (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ({section}232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Revenues for year ended September 30, 2009: $ 766,355 Number of shares of the registrant's common stock outstanding as of February 12, 2010 was 39,684,158 TABLE OF CONTENTS PAGE PART I ITEM 1. BUSINESS 2 ITEM 1A.RISK FACTORS 8 ITEM 2. PROPERTIES 11 ITEM 3. LEGAL PROCEEDINGS 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 14 ITEM 6. SELECTED FINANCIAL DATA 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 22 ITEM 9A.CONTROLS AND PROCEDURES 22 PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 23 ITEM 11.EXECUTIVE COMPENSATION 27 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 28 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 29 ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES 29 PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES 29 SIGNATURES 30 PART I ITEM 1. DESCRIPTION OF BUSINESS VALCOM, INC.'S CORPORATE STRUCTURE As of September 30, 2009, ValCom, Inc. had the following operating subsidiaries: 1. My Family TV, LLC 100% 2. Sun Investments, LLC 51% 3. Valencia Entertainment International 100% 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 also has a number of non-operating subsidiaries. The Company is a diversified entertainment company and during 2009, reorganized its operations into the following five divisions: 1. BROADCASTING On December 15, 2008, we acquired 100% of Faith TV LLC, a Christian TV network operating through 65 television broadcast affiliates and through IPTV & LPTV networks. Upon closing, we re-branded the network and launched it as "MyFamily TV," a new family focused TV network with plans to add significantly more broadcast affiliates. My Family TV is a strong family oriented network with a core established audience and broadcasts to over 50m households on full-time and part-time through its extensive affiliate network. My Family TV is a new network created for American families, broadcasting over 80 movies per month and in July 2009 launched Kid Mango, a daily 3 hour kids block in a venture with Porchlight Entertainment which is carried on Sky Angel, iLife and on the ION digital channel and featuring major kids programs including Emmy Award winning titles such as Jakkers, Jay Jay the Jet Plane and Denis the Menace. With the acquisition of My Family TV, we now have a library of over 1,000 films, over 200 episodic TV series and more than 500 individual TV one-off specials and documentary programs. The purchase price included 100,000 shares of convertible preferred stock valued at $9,000 based on an "as if" converted basis; 1,500,000 shares of common stock valued at $59,400 based on the Company's quoted stock price; cash payments totaling $661,092. The total adjusted purchase price was $729,492. Through 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 has not realized significant revenues from this joint venture to date. 2 2. FILM AND TV PROGRAM PRODUCTION DIVISION ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings. Revenue is primarily generated through the lease of the sound stages and production. ValCom's past and present clients include Paramount Pictures, Don Belisarious Productions, Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, the USA Network, the Game Show Network, Endemol, BET Home Shopping Network and Sullivan Studios. ValCom has a long history of TV and film production and continuously develops projects for productions and considers proposals for co-production. ValCom has developed and produced a number of live action series pilots and full length feature film projects such as PCH (Pacific Coast Highway), One Deadly Road and the 40 episode TV series AJ's Time Travelers. Valcom has been commissioned to produce pilots such as Truster for Fox, It also produces development pilots itself for pitching to networks such as the New York based sitcom Fuhgedabowit and Lets Do It Again featuring Frankie Avalon and Ultimate Driver. With its integrated studio operation, studio equipment and post production facility, ValCom has the opportunity to co-produce by way of the provision of services with the opportunity to defer costs and also to provide executive producer services to assist with development, planning, financing and distribution. 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. The company did not proceed with the production of the new feature film or series but in 2004, it did complete a distribution agreement for the DVD with BCI Eclipse for 183 episodes of the New Zoo Revue library. Valcom has not realized significant revenues from animation to date. ValCom's Studio Division is composed of its studio at 14375 Myerlake Circle, Clearwater, Florida which houses a state-of- the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. Corporate offices are located at 2113A Indian Rocks Beach, Florida. In 2009, Valcom produced the documentary feature film `Michel Legrand is Music'. The documentary pays tribute to Michel Legrand's five-decade, multiple award-winning career composing many of the most memorable film and television scores and songs of all time. ValCom Inc. will premiere the documentary in a limited week-long theatrical run in New York City on September 18th at the Coliseum Theater. In addition, the documentary will premiere in Los Angeles on September 16th at the Laemmle Grand Cineplex 4. "Michel Legrand Is Music" honors the work of the three-time Academy Award-winning French music composer, arranger, conductor and pianist Michel Legrand. Legrand composed more than 200 film and television scores and numerous jazz, popular and classical musical albums. He won Academy Awards for Best Music, Original Song for "The Windmills of Your Mind" from "The Thomas Crown Affair" (1969), Best Music, Original Dramatic Score for "Summer of '42" (1971) and Best Music, Original Song for Barbra Streisand Movie "Yentl" (1983). Academy Award-winning actor Jon Voight narrates the documentary. 3 3. LIVE THEATRE AND EVENT DIVISION Valcom has a live theatre division responsible for bringing live shows and events to fruition. In 2006 Valcom produced a theater production called 'Headlights and Tailpipes' which was unveiled at the Las Vegas Stardust hotel and ran until July 2006. Other events produced included the 2006 Superbowl pre- game Wrap Bowl Event featuring Young Jeezy, Academy Award winner Ludacris, Juvenile and Juelz Santana. Valcom is producing a live theatre event based on Michel Legrand and his music scheduled for March 2010 at the MGM Grand, Las Vegas and featuring a line-up of major international recording stars. 4. DISTRIBUTION Valcom , through Valencia Entertainment International operates a compete distribution and syndication service to producers and thus acquire content for its networks at little or no cost with its ability to guarantee TV broadcast and provide a launch for further home entertainment distribution on DVD and on- demand channels through it other relationships. ValCom also has the opportunity to co-produce film and TV programs by way of the provision of services with the opportunity to defer costs and also to provide executive producer services to assist with development, planning, financing and then be able to acquire distribution rights for these productions. ValCom owns a substantial library of television content with over 1000 films and it also acquires third party film and TV programming which it distributes through Valencia Entertainment International. Valcom's extensive library also contains 5000 music titles, with some of the original records of the Platters, Elvis and Ike and Tina Turner. On November 6, 2007, Valencia Entertainment signed an agreement with Porchlight Distribution Inc. from Santa Monica Blvd., Los Angeles, for the worldwide distribution of all 40 episodes of A.J.'s Time Travelers. In December 2008, Valcom signed a production and distribution agreement with XFC, the mixed martial arts promoter for the editing and world-wide distribution of 13 one hour shows featuring live events promoted by XFC. XFC events are currently attracting the largest audiences of any mixed martial arts events promoted in the US To coincide with the Michel LeGrand live events in Las Vegas in 2010, Valcom is planning a number of distribution opportunities including the distribution and syndication of programming based on the live event, music recordings, album and other related events. 5. REAL ESTATE AND OTHER BROADCAST EVENT AUCTIONS In 2009, Valcom pioneered the process of live event auctions covering a wide range of events for TV broadcast and live webcast. Combining the expertise in TV production, live event promotion and now as the owner of a broadcast TV network, the opportunity offers a synergistic approach to such events. In 2008 and 2009, Valcom produced a wide range live TV and webcast events including 1. The Hilton `Make a Wish Foundation' broadcast live from Barron Hilton's mansion in Beverly Hills in December 2008 2. The Universal Studios `Battlestar Galactica' prop and memorabilia auction by live web-cast in 2009 over a number of days from the Pasadena Convention Centre 3. The Grammy Awards `Music Cares' auction as part of the 2009 Grammy Awards In June 2009, Valcom together with Florida Opportunities, Inc set up Sun Investments LLC, a 51% subsidiary of Valcom, Inc to develop the business opportunity of live event and regular real estate auctions on broadcast TV. Sun Investments will acquire suitable properties and together with Valcom production studios, My Family TV will produce live auction events. Valcom acquires additional TV carriage through the purchase of airtime on major networks and markets the events nationwide. The first such event took place in June 2009 with live broadcast from the Valcom studios media centre in Clearwater, Florida and broadcast live over 4 hours on My Family TV and carried on other networks with an auction of over 40 foreclosure properties acquired by Sun Investments. A series of further live events are planned for October and November 2009. 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. On July 14, 2007, we voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code and became a Debtor in Possession. During 2008, we completed a plan of reorganization and emerged from bankruptcy. The background to the bankruptcy was that Valcom had initiated suit against Chicago Title and The Laurus Master Fund in October 2005 because it claimed that Laurus and Chicago Title had retained the $500,000 overage arising out of the proceeding in 2003/4. Subsequently, the trial court entered summary judgment in favor of Chicago Title and Laurus. Valcom appealed, contending that there were triable issues as to whether: (1) Valcom suffered damages; (2) Chicago Title and Laurus violated Civil Code sections 2924K, 2924d, and 2924h; and (3) Chicago Title breached its duties as the foreclosure trustee. Additionally, at the time that the trial court granted Summary Judgment against Valcom, the trial court awarded costs and attorney fees of $562,127.30, and Valcom argued in its appeal that Chicago Title was not entitled to attorney fees, and the attorney fees awarded to Laurus were excessive. Prior to the filing of the Chapter 11 bankruptcy, Valcom attempted to obtain a stay against enforcement of the attorney fees and costs judgment awarded to Chicago Title and Laurus pending appeal. Valcom was unable to prove to the trial court's satisfaction that the value of Valcom's assets was sufficient to protect Chicago Title and Laurus' judgment. The Court denied Valcom's attempt to use its property in lieu of a cash bond, and threatened with enforcement of the judgment, Valcom had no choice but to file for the protection of the bankruptcy court. 4 Valcom, through appeals counsel, filed an appeal, and oral argument on the appeal occurred December 17, 2007. On February 13, 2008, subsequent to the Debtor's status conference in bankruptcy court, the Court of Appeals for the Second Appellate District, Division Two, case number B193714, ruled in favor of Valcom, Inc. Valcom has reasserted its claim against Laurus and Chicago Title for money damages based upon a foreclosure conducted by them. The case is set for trial on April 6, 2009. No action or claim has been asserted against ValCom by these defendants. On March 24, 2009, Valcom and Laurus Master Fund, Ltd, and Chicago Title Company entered into a Settlement Agreement whereby Valcom resolved its previously asserted claims against Laurus and Chicago Title. Pursuant to the terms of the Agreement, Laurus agrees to pay the Company five hundred and fifty thousand dollars ($550,000) which was received by the Company's attorney on March 30, 2009. Within ten calendar days after the Company receives payment from Laurus, the Company filed a Request for Dismissal of its claims, with prejudice, of its actions against Laurus and Chicago Title and Chicago Title. This settlement is reflected as `Other Income' with full accrual made for legal costs relating to the settlement. During this time, Valcom completed a major re-organization of its operations and prepared a new business plan that will allow the Company to grow through acquisitions and internal growth. It is imperative that the Company continues to grow its operational revenues. The Company has invested in new corporate offices, new studio facilities and has assembled its management team and operational infrastructure. On August 1, 2008, ValCom signed a letter of intent to acquire 100% of Faith TV LLC, a Christian TV network operating through 65 television broadcast affiliates and through IPTV & LPTV networks. On December 15, 2008, Valcom closed the agreement for the 100% purchase of Faith TV and has rebranded the network and launched it as "MyFamily TV", a new family focused TV network with plans to add significantly more broadcast affiliates. 5 In December 2008, Valcom signed a production and distribution agreement with XFC, the mixed martial arts promoter for the editing and world-wide distribution of 13 one hour shows featuring live events promoted by XFC. Valcom entered into an agreement dated June 19, 2009 with Florida Opportunities, Inc. ("FOI"), an investor in real estate properties, to sell REO properties in an on-line auction format promoted by television advertising. The company has an agreement with FOI to share in the profits of the sale of properties on shared basis after expenses are deducted through a joint venture, Sun Investment Services, LLC ("Sun"). Sun is jointly owned (51%:49%) by Valcom and FOI and the Parties are currently negotiating an operating agreement for future auctions. Valcom is also in active discussion with other entities to market and promote properties utilizing its auction promotion format. 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 four market segments: 1) Traditional television broadcasting 2) Interactive television, game shows and reality television drama 3) Movies for television and theatrical releases 4) Studio facility services and other entertainment/media companies TELEVISION BROADCASTING While the company has significant experience in TV broadcasting and is broadcasting a 24/7 network through an affiliate network, technology advancements in the television broadcast area with a move to high definition broadcast and expansion through IPTV & LPTV networks will be a feature of virtually TV networks. The competitive environment for advertising has been especially difficult over recent times but the management expects that consolidation in the industry, alignment with other networks to increase carriage and household coverage and continued innovative programming, particularly where network broadcast is a key element to a number of revenue streams will be the focus of the management for the continued growth of the network. INTERACTIVE TECHNOLOGY The Company has experience in the interactive communications and entertainment fields, which brings together elements of the TV and telecom industry. During the year, Valcom facilities produced major live interactive TV shows and reality TV based games shows including such shows as BET's `Take the Cake' which was broadcast live 5 night a week from the studios Burbank facility. It has created and broadcast interactive national and international television programs using state-of-the-art computer technology, satellite communications, and advanced telecommunications systems. The Company's management believes that it's experience in developing and delivering interactive television programs, will enhances its ability to launch new entertainment and information programs based on comparable resources. 6 DEPENDENCE ON STUDIO FACILITIES The Company's experience of studio facilities management over the years and has been very successful. ValCom is focusing on its core business and capitalizes on its reputation in the film and TV business 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 will offer further opportunities to revenue share in a broader way with TV productions through its ability to broadcast and syndicate programming and further distribution though its distribution subsidiary. 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: MYFAMILY TV International Class 41, Granted registration number 77631826 on December 12, 2008 to Valcom Inc., 10 years. 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. 7 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 September 30, 2009, the Company had 12 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 1A. RISK FACTORS RISKS ASSOCIATED WITH OUR OPERATIONS WE WILL REQUIRE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS STRATEGY AND OUR INABILITY TO OBTAIN ADDITIONAL FINANCING COULD CAUSE US TO CEASE OUR BUSINESS OPERATIONS. We will need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our capital requirements to implement our business strategy will be significant. However, at this time, we cannot determine the amount of additional funding necessary to implement such plan. We anticipate requiring additional funds in order to fully implement our business plan to significantly expand our operations. We may not be able to obtain financing if and when it is needed on terms we deem acceptable. Our inability to obtain financing would have a material negative effect on our ability to implement our acquisition strategy, and as a result, could require us to diminish or suspend our acquisition strategy. If we are unable to obtain financing on reasonable terms, we could be forced to delay, scale back or eliminate certain product and service development programs. In addition, such inability to obtain financing on reasonable terms could have a material negative effect on our business, operating results, or financial condition to such extent that we are forced to restructure, file for bankruptcy, sell assets or cease operations, any of which could put your investment dollars at significant risk. 8 IT IS LIKELY THAT ADDITIONAL SHARES OF OUR STOCK WILL BE ISSUED IN THE NORMAL COURSE OF OUR BUSINESS DEVELOPMENT, WHICH WILL RESULT IN A DILUTIVE EFFECT ON OUR EXISTING SHAREHOLDERS. We will issue additional stock as required to raise additional working capital in order to secure intellectual properties, undertake company acquisitions, recruit and retain an effective management team, compensate our officers and directors, engage industry consultants and for other business development activities. IF WE FAIL TO ADEQUATELY MANAGE OUR GROWTH, WE MAY NOT BE SUCCESSFUL IN GROWING OUR BUSINESS AND BECOMING PROFITABLE. We expect our business and number of employees to grow over the next year. We expect that our growth will place significant stress on our operation, management, employee base and ability to meet capital requirements sufficient to support our growth over the next 12 months. Any failure to address the needs of our growing business successfully could have a negative impact on our chance of success. IF WE ACQUIRE OR INVEST IN OTHER BUSINESSES, WE WILL FACE CERTAIN RISKS INHERENT IN SUCH TRANSACTIONS. We may acquire, make investments in, or enter into strategic alliances or joint ventures with, companies engaged in businesses that are similar or complementary to ours. If we make such acquisitions or investments or enter into strategic alliances, we will face certain risks inherent in such transactions. For example, we could face difficulties in managing and integrating newly acquired operations. Additionally, such transactions would divert management resources and may result in the loss of artists or songwriters from our rosters. We cannot assure you that if we make any future acquisitions, investments, strategic alliances or joint ventures that they will be completed in a timely manner, that they will be structured or financed in a way that will enhance our creditworthiness or that they will meet our strategic objectives or otherwise be successful. Failure to effectively manage any of these transactions could result in material increases in costs or reductions in expected revenues, or both. "PENNY STOCK" RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT. Trading in our securities is subject to the "penny stock" rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser's written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker- dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. Broker- dealers who sell penny stocks to certain types of investors are required to comply with the Commission's regulations concerning the transfer of penny stocks. These regulations require broker-dealers to: * Make a suitability determination prior to selling a penny stock to the purchaser; * Receive the purchaser's written consent to the transaction; and * Provide certain written disclosures to the purchaser. 9 RISKS ASSOCIATED WITH THE ENTERTAINMENT, MEDIA AND COMMUNICATIONS INDUSTRIES COMPETITION FROM PROVIDERS OF SIMILAR PRODUCTS AND SERVICES COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES AND FINANCIAL CONDITION. The industry in which we compete is a rapidly evolving, highly competitive and fragmented market, which is based on consumer preferences and requires substantial human and capital resources. We expect competition to intensify in the future. There can be no assurance that we will be able to compete effectively. We believe that the main competitive factors in the entertainment, media and communications industries include effective marketing and sales, brand recognition, product quality, product placement and availability, niche marketing and segmentation and value propositions. They also include benefits of one's company, product and services, features and functionality, and cost. Many of our competitors are established, profitable and have strong attributes in many, most or all of these areas. They may be able to leverage their existing relationships to offer alternative products or services at more attractive pricing or with better customer support. Other companies may also enter our markets with better products or services, greater financial and human resources and/or greater brand recognition. Competitors may continue to improve or expand current products and introduce new products. We may be perceived as relatively too small or untested to be awarded business relative to the competition. To be competitive, we will have to invest significant resources in business development, advertising and marketing. We may also have to rely on strategic partnerships for critical branding and relationship leverage, which partnerships may or may not be available or sufficient. We cannot assure that it will have sufficient resources to make these investments or that we will be able to make the advances necessary to be competitive. Increased competition may result in price reductions, reduced gross margin and loss of market share. Failure to compete successfully against current or future competitors could have a material adverse effect on the Company's business, operating results and financial condition. THE SPECULATIVE NATURE OF THE ENTERTAINMENT, MEDIA AND COMMUNICATIONS INDUSTRY MAY RESULT IN OUR INABILITY TO PRODUCE PRODUCTS OR SERVICES THAT RECEIVE SUFFICIENT MARKET ACCEPTANCE FOR US TO BE SUCCESSFUL. Certain segments of the entertainment, media and communications industry are highly speculative and historically have involved a substantial degree of risk. For example, the success of a particular film, program or recreational attraction depends upon unpredictable and changing factors, including the success of promotional efforts, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, public acceptance and other tangible and intangible factors, many of which are beyond our control. If we complete a business combination with a target business in such a segment, we may be unable to produce products or services that receive sufficient market acceptance for us to be successful. 10 CHANGES IN TECHNOLOGY MAY REDUCE THE DEMAND FOR THE PRODUCTS OR SERVICES WE MAY OFFER FOLLOWING A BUSINESS COMBINATION. The entertainment, media and communications industries are substantially affected by rapid and significant changes in technology. These changes may reduce the demand for certain existing services and technologies used in these industries or render them obsolete. We cannot assure you that the technologies used by or relied upon or produced by a target business with which we effect a business combination will not be subject to such occurrence. While we may attempt to adapt and apply the services provided by the target business to newer technologies, we cannot assure you that we will have sufficient resources to fund these changes or that these changes will ultimately prove successful. IF OUR PRODUCTS OR SERVICES THAT WE MARKET AND SELL ARE NOT ACCEPTED BY THE PUBLIC, OUR PROFITS MAY DECLINE. Certain segments of the entertainment, media and communications industries are dependent on developing and marketing new products and services that respond to technological and competitive developments and changing customer needs and tastes. We cannot assure you that the products and services of a target business with which we effect a business combination will gain market acceptance. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, could result in a loss of actual or potential market share and a decrease in revenues. THE TV BROADCASTING INDUSTRY IS EXTREMELY COMPETITIVE AND REQUIRES CONTINUES INVESTMENT IN NEW TECHNOLOGY, MARKETING, CARRIAGE AND IN NEW PROGRAMMING The TV broadcast industry continues to be under severe pressure with declining advertising revenues and a very competitive environment. At the same time, the viewer are seeking continued technology improvements such as High Definition broadcast which requires continued investment and higher costs of operation. The investment required for this and the additional investment in improved programming cannot guarantee that the broadcast networks will retain its viewing audience or be attractive for advertisers in the future. IF OUR REAL ESTATE WE SELL BY LIVE TV AUCTION OR BY DIRECT SALE IS NOT ACCEPTED BY THE MARKET OR CARRIES ANY RESIDUAL LIABILITY, THIS MAY HAVE AN ADVERSE EFFECT ON OUR PROFITS. There is no guarantee that the TV auction sales or other real estate sales will be successful, or that the company will be able to continue to source properties suitable for live TV auction sales or that these properties, due to the fact that most of these are foreclosed properties, may carry some contingent or other liability. ITEM 2. PROPERTIES ValCom's Studio Division is composed of leased studio facility at 14375 Myerlake Circle, Clearwater, Florida and its corporate office at 2113A Gulf Blvd, Indian Rocks Beach , Florida, 33785. ValCom also holds a 1/3 equity interest in the real estate of 7.5 acres, 160,000 square feet of commercial space. 11 ITEM 3 - LEGAL PROCEEDINGS Any significant legal action involving the company during the financial year and currently are set out below. The company also pursues legal action where appropriate in the normal course of business such as for the collection of receivables or in the defense of frivolous claims on the company. CHAPTER 11 BANKRUPTCY During August 2008, the Company emerged from bankruptcy following approval of a plan of re-organization by the United States Bankruptcy Court, Central District of California on August 5, 2008 and during 2008 and 2009 completed the approved plan of re-organization. ValCom had filed a voluntary chapter 11 bankruptcy petition on July 14, 2007 and obtained the status of Debtor in Possession. Valcom had initiated a suit against Chicago Title and The Laurus Master Fund in October 2005 because it claimed that Laurus and Chicago Title had retained the $500,000 overage arising out of the proceeding in 2003/4. Subsequently, the trial court entered summary judgment in favor of Chicago Title and Laurus. Valcom appealed, contending that there were triable issues as to whether: (1) Valcom suffered damages; (2) Chicago Title and Laurus violated Civil Code sections 2924K, 2924d, and 2924h; and (3) Chicago Title breached its duties as the foreclosure trustee. Additionally, at the time that the trial court granted Summary Judgment against Valcom, the trial court awarded costs and attorney fees of $562,127.30, and Valcom argued in its appeal that Chicago Title was not entitled to attorney fees, and that the attorney fees awarded to Laurus were excessive. Prior to the filing of the Chapter 11 bankruptcy, Valcom attempted to obtain a stay against enforcement of the attorney fees and costs judgment awarded to Chicago Title and Laurus pending appeal. Valcom was unable to prove to the trial court's satisfaction that the value of Valcom's assets was sufficient to protect Chicago Title and Laurus' judgment. The Court denied Valcom's attempt to use its property in lieu of a cash bond, and threatened with enforcement of the judgment, Valcom had no choice but to file for the protection of the bankruptcy court. 12 Valcom, through appeals counsel, filed an appeal, and oral argument on the appeal occurred December 17, 2007. On February 13, 2008, subsequent to the Debtor's status conference in bankruptcy court, the Court of Appeals for the Second Appellate District, Division Two, case number B193714, ruled in favor of Valcom inc. LAURUS MASTER FUND AND CHICAGO TITLE Valcom had initiated an action against Chicago Title and The Laurus Master Fund in October 2005 because it claimed that Laurus and Chicago Title had retained the $500,000 overage arising out of the proceeding in 2003/4. Subsequently, the trial court entered summary judgment in favor of Chicago Title and Laurus. Valcom appealed, contending that there were triable issues as to whether: (1) Valcom suffered damages; (2) Chicago Title and Laurus violated Civil Code sections 2924K, 2924d, and 2924h; and (3) Chicago Title breached its duties as the foreclosure trustee. Additionally, at the time that the trial court granted Summary Judgment against Valcom, the trial court awarded costs and attorney fees of $562,127.30, and Valcom argued in its appeal that Chicago Title was not entitled to attorney fees, and that the attorney fees awarded to Laurus were excessive. Valcom, through appeals counsel, filed an appeal, and oral argument on the appeal occurred December 17, 2007. On February 13, 2008, subsequent to the Debtor's status conference in bankruptcy court, the Court of Appeals for the Second Appellate District, Division Two, case number B193714, ruled in favor of Valcom Inc. Valcom has reasserted its claim against Laurus and Chicago Title for money damages based upon a foreclosure conducted by them. The case is set for trial on April 6, 2009. No action or claim has been asserted against ValCom by these defendants. On March 24, 2009, Valcom and Laurus Master Fund, Ltd, a company organized under the laws of the Cayman Islands and Chicago Title Company, a California Corporation entered into a Settlement Agreement whereby Valcom resolved its previously asserted claims against Laurus and Chicago Title. Pursuant to the terms of the Agreement, Laurus agrees to pay the Company five hundred and fifty thousand dollars ($550,000) which was received by the Company's attorney on March 30th. Within ten calendar days after the Company receives payment from Laurus, the Company filed a Request for Dismissal of its claims, with prejudice, of its actions against Laurus and Chicago Title and Chicago Title. This settlement is reflected as `Other Income' with full accrual made for legal costs relating to the settlement. VALCOM, INC. V. TTL PRODUCTIONS, INC., TROY LINGER, CHRIS LENTO DBA BRENTWOOD MAGAZINE, Case number SC094099. This matter involves breach of contract and fraud against the Defendants for $380,000 filed on June 1, 2007 in the Superior Court of Los Angeles, Santa Monica District alleging breach of contract, specific performance, injunctive relief, declaratory relief, accounting and negligence. In this matter, Valcom is the plaintiff and sued the defendants for breach of contract with respect to Valcom's purchase of Brentwood Magazine. This matter is currently scheduled for a post-mediation conference on February 4, 2009 and the parties subsequently reached agreement and settlement on this matter. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 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 Year to September 30 2009 Low High ------------------------- ------- ------- First Quarter $ 0.05 $ 0.20 ------- ------- Second Quarter $ 0.04 $ 0.12 ------- ------- Third Quarter $ 0.03 $ 0.05 ------- ------- Fourth Quarter $ 0.04 $ 0.10 ------- ------- Year to September 30 2008 ------------------------- First Quarter $ 0.03 $ 0.29 ------- ------- Second Quarter $ 0.03 $ 0.10 ------- ------- Third Quarter $ 0.04 $ 0.09 ------- ------- Fourth Quarter $ 0.08 $ 0.22 ------- ------- Year to September 30 2007 ------------------------- First Quarter $ 0.03 $ 1.00 ------- ------- Second Quarter $ 0.51 $ 0.08 ------- ------- Third Quarter $ 0.14 $ 0.27 ------- ------- Fourth Quarter $ 0.06 $ 0.37 ------- ------- Year to September 2006 ---------------------- First Quarter $ 0.06 $ 0.21 ------- ------- Second Quarter $ 0.06 $ 0.20 ------- ------- Third Quarter $ 0.06 $ 0.20 ------- ------- Fourth Quarter $ 0.07 $ 0.14 ------- ------- 14 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 September 30, 2009, we had 39,064,158 shares of common stock outstanding, with approximately 6.3m shares in the public float and approximately 1440 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, 2009, 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, 2009. 15 EQUITY COMPENSATION PLAN INFORMATION.
Plan category NUMBER OF WEIGHTED AVERAGE NUMBER OF SECURITIES SECURITIES EXERCISE PRICE OF REMAINING TO BE ISSUED OUTSTANDING OPTIONS, AVAILABLE PLANS UPON EXERCISE OF WARRANTS FOR FUTURE ISSUANCE OUTSTANDING AND RIGHTS UNDER EQUITY PLANS OPTIONS, (EXCLUDING SECURITIES WARRANTS REFLECTED IN AND RIGHTS COLUMN (A) (A) (B) (C) ---------------- ---------------- --------------------- EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS TOTAL Nil Nil Nil
RECENT ISSUANCES OF UNREGISTERED SECURITIES (A) COMMON STOCK 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. SELECTED FINANCIAL DATA Not applicable. 16 ITEM 7. 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, 2009, ValCom, Inc. operations were comprised of the following activities: 1. BROADCASTING On August 1, 2008, ValCom signed a letter of intent to acquire 100% of Faith TV LLC, a Christian TV network operating through 65 television broadcast affiliates and through IPTV & LPTV networks. On December 15, 2008, Valcom closed the agreement for the 100% purchase of Faith TV and has re-branded the network and launched it as "MyFamily TV", a new family focused TV network with plans to add significantly more broadcast affiliates. My Family TV is a strong family oriented network with a core established audience and broadcasts to over 50m households on full-time and part-time through its extensive affiliate network. My Family TV is a new network created for American families, broadcasting over 80 movies per month and in July 2009 launched Kid Mango, a daily 3 hour kids block in a venture with Porchlight Entertainment which is carried on Sky Angel, iLife and on the ION digital channel and featuring major kids programs including Emmy Award winning titles such as Jakkers, Jay Jay the Jet Plane and Denis the Menace. With the acquisition of My Family TV, Valcom now has a library of over 1,000 films, over 200 episodic TV series and more than 500 individual TV one-off specials and documentary programs. Through 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 has not realized significant revenues from this joint venture to date. 17 2. FILM AND TV PROGRAM PRODUCTION DIVISION ValCom's business includes television production for network and syndication programming, motion pictures, and real estate holdings. Revenue is primarily generated through the lease of the sound stages and production. Our past and present clients include Paramount Pictures, Don Belisarious Productions, Warner Brothers, Universal Studios, MGM, HBO, NBC, 20th Century Fox, Disney, CBS, Sony, Showtime, the USA Network, the Game Show Network, Endemol, BET Home Shopping Network and Sullivan Studios. ValCom has a long history of TV and film production and continuously develops projects for productions and considers proposals for co-production. ValCom has developed and produced a number of live action series pilots and full length feature film projects such as PCH (Pacific Coast Highway) and the 40 episode TV series AJ's Time Travelers. Valcom has been commissioned to produce pilots such as Truster for Fox, It also produces development pilots itself for pitching to networks such as the New York based sitcom Fuhgedabowit and Lets Do It Again featuring Frankie Avalon. With its integrated studio operation, studio equipment and post production facility, ValCom has the opportunity to co- produce by way of the provision of services with the opportunity to defer costs and also to provide executive producer services to assist with development, planning, financing and distribution. 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. The company did not proceed with the production of the new feature film or series but in 2004, it did complete a distribution agreement for the DVD with BCI Eclipse for 183 episodes of the New Zoo Revue library. Valcom has not realized significant revenues from animation to date. ValCom's Studio Division is composed of its studio at 14375 Myerlake Circle, Clearwater, Florida which houses a state-of- the art production studio, broadcast facilities, recording studios, production design construction, animation and post-production. Corporate offices are located at 2113A Indian Rocks Beach, Florida. In 2009, Valcom produced the documentary feature film `Michel Le Grand is Music'. The documentary pays tribute to Michel Legrand's five-decade, multiple award-winning career composing many of the most memorable film and television scores and songs of all time. ValCom Inc. will premiere the documentary in a limited week-long theatrical run in New York City on September 18th at the Coliseum Theater. In addition, the documentary will premiere in Los Angeles on September 16th at the Laemmle Grand Cineplex 4. "Michel Legrand Is Music" honors the work of the three-time Academy Award-winning French music composer, arranger, conductor and pianist Michel Legrand. Legrand composed more than 200 film and television scores and numerous jazz, popular and classical musical albums. He won Academy Awards for Best Music, Original Song for "The Windmills of Your Mind" from "The Thomas Crown Affair" (1969), Best Music, Original Dramatic Score for "Summer of '42" (1971) and Best Music, Original Song for Barbra Streisand Movie "Yentl" (1983). Academy Award-winning actor Jon Voight narrates the documentary. 18 3. LIVE THEATRE AND EVENT DIVISION Valcom has a live theatre division responsible for bringing live shows and events to fruition. In 2006 Valcom produced a theater production called 'Headlights and Tailpipes' which was unveiled at the Las Vegas Stardust hotel and ran until July 2006. Other events produced included the 2006 Superbowl pre- game Wrap Bowl Event featuring Young Jeezy, Academy Award winner Ludacris, Juvenile and Juelz Santana. Valcom is producing a live theatre event based on Michel LeGrand and his music scheduled for March 2010 at the MGM Grand, Las Vegas and featuring a line-up of major international recording stars. 4. DISTRIBUTION Valcom , through Valencia Entertainment International operates a compete distribution and syndication service to producers and thus acquire content for its networks at little or no cost with its ability to guarantee TV broadcast and provide a launch for further home entertainment distribution on DVD and on- demand channels through it other relationships. ValCom also has the opportunity to co-produce film and TV programs by way of the provision of services with the opportunity to defer costs and also to provide executive producer services to assist with development, planning, financing and then be able to acquire distribution rights for these productions. ValCom owns a substantial library of television content with over 1000 films and it also acquires third party film and TV programming which it distributes through Valencia Entertainment International. On November 6, 2007, Valencia Entertainment signed an agreement with Porchlight Distribution Inc. from Santa Monica Blvd., Los Angeles, for the worldwide distribution of all 40 episodes of A.J.'s Time Travelers. In December 2008, Valcom signed a production and distribution agreement with XFC, the mixed martial arts promoter for the editing and world-wide distribution of 13 one hour shows featuring live events promoted by XFC. XFC events are currently attracting the largest audiences of any mixed martial arts events promoted in the US To coincide with the Michel LeGrand live events in Las Vegas in 2010, Valcom is planning a number of distribution opportunities including the distribution and syndication of programming based on the live event, music recordings, album and other related events. 19 5. REAL ESTATE AND OTHER BROADCAST EVENT AUCTIONS In 2009, Valcom pioneered the process of live event auctions covering a wide range of events for TV broadcast and live webcast. Combining the expertise in TV production, live event promotion and now as the owner of a broadcast TV network, the opportunity offers a synergistic approach to such events. In 2008 and 2009, Valcom produced a wide range live TV and webcast events including 1. The Hilton `Make a Wish Foundation' broadcast live from the Hilton mansion in Beverly Hills in December 2008 2. The Universal Studios `Battlestar Galactica' prop and memorabilia auction by live web-cast in 2009 over a number of days from the Pasadena Convention Centre 3. The Grammy Awards `Music Cares' auction as part of the 2009 Grammy Awards In June 2009, Valcom together with Florida Opportunities, Inc set up Sun Investments LLC, a 51% subsidiary of Valcom, Inc to develop the business opportunity of live event and regular real estate auctions on broadcast TV. Sun Investments will acquire suitable properties and together with Valcom production studios, My Family TV will produce live auction events. Valcom acquires additional TV carriage through the purchase of airtime on major networks and markets the events nationwide. The first such event took place in June 2009 with live broadcast from the Valcom studios media centre in Clearwater, Florida and broadcast live over 4 hours on My Family TV and carried on other networks with an auction of over 40 foreclosure properties acquired by Sun Investments. A series of further live events are planned for October and November 2009. RESULTS OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 2009 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2008 Revenues for the year ended September 30, 2009 decreased by $169,336 or 18% from $935,691 for the year ended September 30, 2008 to $766,355 for the same period in 2009. The decrease in revenue was principally due to reduced production activity. Production costs for the year ended September 30, 2009 increased by $177,832 or 59% to $478,993 for the year ended September 30, 2009 compared to $301,161 for the same period in 2008. The increase in production costs was principally due to additional direct production costs. Advertising and marketing costs for the year ended September 30, 2009 decreased by $168,357 or 75% to $56,437 compared to $224,794 for the year ended September 30, 2008. The decrease was due principally to decreased promotion spend. Depreciation and amortization expense for the year ended September 30, 2009 increased by $42,200 or 37% from $112,701 for the year ended September 30, 2008 to $154,901 for the same period in 2009. The increase was primarily due to additional assets from the acquisitiono of Faith TV. General and administrative expenses for the year ended September 30, 2009 increased by $1,46,699 or 86% to $2,481,574 for the year ended September 30, 2009 from $1,334,875 for the same period in 2008. The decrease was due principally to increased costs from the acquisition of subsidiaries. Interest expense for the year ended September 30, 2009 increased by $77,594 or 123% from $63,054 for the year ended September 30, 2008 to $140,348 for the same period in 2009. The decrease was due principally to reduction in interest bearing loan notes. Due to the factors described above, the Company's net loss increased by $1,182,199 or 232% from a net loss of $510,130 for the year ended September 30, 2008 to a loss of $1,692,329 for the year ended September 30, 2009. 20 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 $1,692,329 and a negative cash flow from operations of $549,962 for the year ended September 30, 2009, and an accumulated deficit of $20,501,749 at September 30, 2009. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Cash totaled $110,846 on September 30, 2009, compared to $86,415 at September 30, 2008. During the fiscal year 2009, net cash used by operating activities totaled $549,962 compared to $315,170 for the year ended September 30, 2008. 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 2009 totaled $1,276,250. Net cash used by investing activities during fiscal year 2009 totaled $701,857 with ,the ,purchase of subsidiaries and fixed assets. The above cash flow activities yielded a net cash increase of $24,431 during fiscal year 2009 compared to a net cash increase of $80,489 during the year ended September 30, 2008. There can be no assurance that the Company will be able to raise capital on terms acceptable to the Company, if at all. The total shareholders' equity deficit increased to $680,430 in fiscal year 2009. Additional paid in capital increased by $1,628,250 in fiscal year ended September 30, 2009. INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY During the last fiscal year, the Company financed its operations with cash from its operating activities and private offerings of its securities to directors of the Company. On September 15, 2008, the Company converted $1,669,729 in debt by issuing 1,669,729 shares of Series C Preferred Stock 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 and reducing its operating costs. 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 $2,000,000 for facilities, 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 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Valcom, Inc Indian Rocks Beach, Florida We have audited the consolidated balance sheet of Valcom, Inc. and subsidiaries (the "Company") as of September 30, 2009 and 2008, and the related consolidated statements of operations, stockholders'deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Company as of September 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that Valcom, Inc. will continue as a going concern. As discussed in Note 3 to the financial statements, Valcom, Inc. suffered losses from operations and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/MaloneBailey, LLP www.malone-bailey.com Houston, Texas February 22, 2010 F-1
VALCOM, INC. Balance Sheets Assets September 30, September 30, 2009 2008 Restated Restated -------------- -------------- CURRENT ASSETS Cash $ 110,846 $ 86,415 Restricted cash 60,230 Accounts receivable, net 44,303 25,947 Inventory 487,324 -------------- -------------- Total Current Assets 702,703 112,362 -------------- -------------- FIXED ASSETS Film library, net of accumulated depreciation of $44,859 and $- 205,141 - Property and equipment, net of accumulated depreciation of $5,831 and $- 33,523 - Intangible assets, net of accumulated amortization of $104,211 and $- 290,695 - -------------- -------------- TOTAL ASSETS $ 1,232,062 $ 112,362 ============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable and accrued expenses $ 633,605 $ 425,945 Due to related parties 900,048 - Convertible notes payable 157,589 Notes payable 221,250 177,500 -------------- -------------- Total Current Liabilities 1,912,492 751,201 ------------- -------------- TOTAL LIABILITIES 1,912,492 751,201 -------------- -------------- STOCKHOLDERS' DEFICIT Series B Preferred stock, 1,000,000 shares authorized at par value of $0.001, 38,000 shares issued and outstanding 38 38 Series C Preferred stock, 25,000,000 shares authorized at par v alue of $0.001, 14,691,395, 9,591,395 and shares issued 14,691 9,591 and outstanding, respectively Common stock, 250,000,000 shares authorized at par value of $0.001, 39,064,158, 21,676,099 and shares issued and outstanding, respectively 39,064 21,676 Treasury stock, 35,000 shares (23,522) (23,522) Additional paid-in capital 20,014,218 18,162,798 Accumulated deficit (20,724,919) (18,809,420) -------------- -------------- Total Stockholders' Deficit (680,430) (638,839) -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,232,062 $ 112,362 ============== ============== The accompanying notes are an integral part of these financial statements.
F-2
VALCOM, INC. Statements of Operations For the Year Ended September 30, ------------------ 2009 2008 Restated Restated ----------- ------------ REVENUES $ 766,355 $ 935,691 COST OF GOODS SOLD (478,993) (301,161) ----------- ------------ GROSS MARGIN 287,362 634,530 OPERATING EXPENSES Advertising and marketing 56,437 224,794 Depreciation expense 154,901 112,701 General and administrative 2,481,574 1,334,875 ----------- ------------ Total Operating Expenses 2,692,912 1,672,370 ----------- ------------ LOSS FROM OPERATIONS (2,405,550) (1,037,840) ----------- ------------ OTHER INCOME Interest expense, net (140,648) (63,054) Gain on settlement of litigation 550,000 - Gain on extinguishment of debt - 588,462 Gain on derivative liabilities 60,672 - Other Income(Expense) 20,027 2,302 ----------- ------------ TOTAL OTHER INCOME (EXPENSE) 490,051 527,710 ----------- ------------ LOSS BEFORE INCOME TAXES (1,915,499) (510,130) PROVISION FOR INCOME TAXES - - ----------- ------------ NET LOSS $(1,915,499) $ (510,130) =========== ============ BASIC LOSS PER SHARE $ (0.07) $ (0.03) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 28,762,932 14,775,061 =========== ============ The accompanying notes are a integral part of these financials statements.
F-3
VALCOM, INC. Condensed consolidated Statements of Stockholders' Equity (Deficit) (These Financial Statements are Unaudited) Series B Preferred Stock Series C Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Restated Restated Restated ------ -------- --------- -------- ----------- -------- Balance, September 30, 2007 - as filed 38,000 38 7,921,666 7,921 10,376,099 10,376 Correction of an error - - - - - - Balance, September 30, 2007 - Restated 38,000 38 7,921,666 7,921 10,376,099 10,376 Common stock issued for services - - - - 6,130,000 6,130 Preferred stock issued for debt - - 1,669,729 1,670 - - Common stock issued for debt - - - - 500,000 500 Common stock issued for interest 600,000 600 Common stock issued for cash - - - - 4,070,000 4,070 Net loss for the year ended September 30, 2008 - - - - - - ------ ------ --------- ------- ----------- ------- Balance, September 30, 2008 38,000 $ 38 9,591,395 $ 9,591 21,676,099 $21,676 ====== ====== ========= ======= =========== ======= Balance, September 30, 2008 38,000 $ 38 9,591,395 $ 9,591 21,676,099 $21,676 Common stock issued for services - - 4,497,059 4,497 Preferred stock issued for cash - - 5,000,000 5,000 Preferred stock issued for Subsidiary Acquisition 100,000 100 Common stock issued for debt extension - - 75,000 75 Common stock issued for cash - - 10,125,000 10,125 Common Stock issued for Subsidiary Acquisition 1,500,000 1,500 Common Stock issued for registration rights penalties 1,191,000 1,191 Derivative liability - tainted warrants Derivative liability - settlement Net loss for the year ended September 30, 2009 - - ------ ------ --------- ------- ----------- ------- Balance, September 30, 2009 - Restated 38,000 $ 38 14,691,395 $14,691 39,064,158 $39,064 ====== ====== ========== ======= =========== ======= The accompanying notes are an integral part of these financial statements.
F-4
VALCOM, INC. Condensed consolidated Statements of Stockholders' Equity (Deficit) (These Financial Statements are Unaudited) (CONTINUED) Total Additional Stockholders' Treasury Paid-In Accumulated Equity Stock Capital Deficit (Deficit) Restated Restated --------- ---------- ----------- ------------ Balance,September 30, 2007 - as filed (23,522) 15,081,739 (17,299,290) (2,222,738) Correction of an error - - (1,000,000) (1,000,000) Balance, September 30, 2007 - Restated (23,522) 15,081,739 (18,299,290) (3,222,738) Common stock issued for services - 835,170 - 841,300 Preferred stock issued for debt - 1,668,059 - 1,669,729 Common stock issued for debt - 79,500 - 80,000 Common stock issued for interest 95,400 - 96,000 Common stock issued for cash - 402,930 - 407,000 Net loss for the year ended September 30, 2008 - - (510,130) (510,130) --------- ----------- ------------ ------------ Balance, September 30, 2008 $ (23,522) $18,162,798 $(18,809,420) $ (638,839) ========= =========== ============ ============ Balance, September 30, 2008 $ (23,522) $18,162,798 $(18,809,420) $ (638,839) Common stock issued for services - 360,150 364,647 Preferred stock issued for cash 245,000 250,000 Preferred stock issued for Subsidiary Acquisition 8,900 9,000 Common stock issued for debt extension 4,800 4,875 Common stock issued for cash 732,375 742,500 Common Stock issued for Subsidiary Acquisition 57,900 59,400 Common Stock issued for registration rights penalties 79,797 80,988 Warrants issued to settle registration rights penalities 223,170 223,170 Derivative liability - tainted warrants (103,220) (103,220) Derivative liability - settlement 242,548 242,548 Net loss for the year ended September 30, 2009 (1,915,499) (1,915,499) --------- ----------- ------------ ------------ Balance, September 30, 2009 $ (23,522) $20,014,218 $(20,724,919) $ (680,430) - Restated ========= =========== ============ ============ The accompanying notes are an integral part of these financial statements.
F-5
VALCOM, INC. Statements of Cash Flows For the Year Ended September 30, 2009 2008 Restated Restated ------------- ------------- OPERATING ACTIVITIES Net loss $ (1,915,499) $ (510,130) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 154,901 112,701 Common stock issued for services 364,647 841,300 Common stock issued for debt extension 4,875 - Common stock issued for registration rights penalty 80,988 - Warrants issued to settle registration rights penalties 223,170 - Gain on derivative liabilities (60,672) - Amortization of debt discount 117,589 - Provision for bad debt 228,536 - Gain on sale of fixed assets (22,000) - Gain on debt extinguishment - (588,463) Changes in operating assets and liabilities (Increase) decrease in accounts receivable (123,013) 147,381 (Increase) decrease in inventory (487,324) - Increase (decrease) in accounts payable 194,048 (344,009) and accrued expenses Increase (decrease) in due to related parties 752,292 (132,803) (Increase)decrease in prepaid and other current assets (62,500) 158,853 ------------- ------------- Net Cash Used in Operating Activities (549,962) (315,170) ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of equipment 22,000 - Cash paid for acquisition of MyFamily TV (661,092) - Increase in restricted cash (60,230) - Purchase of property and equipment (2,535) (11,341) ------------- ------------- Net Cash Used in Investing Activities (701,857) (11,341) ------------- ------------- FINANCING ACTIVITIES Proceeds from sale of common stock 742,500 407,000 Borrowings on debt 390,000 - Repayment of debt (106,250) - Proceeds from sale of preferred stock 250,000 - ------------- ------------- Net Cash Provided by Financing Activities 1,276,250 407,000 ------------- ------------- NET CHANGE IN CASH 24,431 80,489 CASH AT BEGINNING OF YEAR 86,415 5,926 ------------- ------------- CASH AT END OF YEAR $ 110,846 $ 86,415 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID FOR: Interest $ 8,750 $ - Income Taxes $ - $ - NON CASH FINANCING ACTIVITIES: Debt discount due to embedded conversion option and warrants issued with debt 200,000 - Common stock warrants tainted as derivative liability 103,220 - Preferred stock issued for related party payables - 1,669,729 Common stock issued for debt - 79,500 Common stock issued for accrued interest - 96,000 Resolution of tainted derivative liabilities 242,548 - Common stock issued for acquisition of My Family TV 59,400 - Preferred stock issued for acquisition of My Family TV 9,000 - The accompanying notes are an integral part of these financial statements.
F-6 VALCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2009 NOTE 1. DESCRIPTION OF BUSINESS ValCom, Inc and its Subsidiaries' (collectively the Company) businesses include 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, a TV network and live event broadcasting including real estate auctions. The Company's past and present clients include movie studios and television networks. In addition to leasing its sound stages, the Company also a library of television content for worldwide distribution and acquired a further library of film and television series with the acquisition of Faith TV (now renamed My Family TV) during the year. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). 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 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. Faith TV, LLC (now renamed My Family TV) was acquired in December 2008 and Sun Investments, 51% owned by Valcom Inc was set up in June 2009. 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. The Company has no equity affiliates as of September 30, 2009. We have a 45% ownership in a limited liability company. The company has had minimal operations since inception and our investment was reduced to zero in prior years. As of September 30, 2009 and 2008, we have no assets or liabilities recorded on our balance sheet related to this investment. In addition, losses attributable to Valcom, Inc. are limited to allocable gains. Therefore, we have not recorded any loss related to this investment for the two years presented in these financial statements. 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 ASC820 "Fair Value Measurements and Disclosures", adopted January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for current receivables and payables qualify as financial instruments. Management concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value. e. RECLASSIFICATIONS Certain amounts from prior periods have been reclassified to conform to the current year presentation. F-7 f. DEPRECIATION AND AMORTIZATION For financial and reporting purposes, the Company follows the policy of providing depreciationon the straight-line method over the estimated useful lives of the assets. The company amortizes the film lilbrary using the film forcecast methodology. Unamortized cost related to the film library was $205,141 at September 30, 2009. The esitmated useful lives of these assets are: Film Library 5 years Production and Office Equipment 3 to 5 years g. INCOME TAXES The Company accounts for income taxes in accordance with ASC740 "Accounting for Income Taxes". ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company adopted the accounting standard for uncertainty in income taxes which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). h. SHARE-BASED COMPENSATION The Company accounts for stock options in accordance with FASB ASC 718, "Share- Based Payment" and FASB ASC 505-50, "Equity-Equity-Based Payments to Non- Employees." (See Note 10) 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. Revenues from the television network are principally advertising revenue and payment for program broadcast and both are recognized over the period of the broadcast. j. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas. We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $100,000. Statement of Financial Accounting Standards No. 105 identifies this as a concentration of credit risk requiring disclosure, regardless of the degree of risk. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had no amounts in excess of federally insured limits at September 30, 2009. k. CASH AND CASH EQUIVALENTS For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents. l. 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, 2009. F-8 m. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification (ASC) and amended the hierarchy of generally accepted accounting principles (ASC) and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). The Company adopted the ASC on July 1, 2009. This standard did not have an impact on the Company's consolidated results of operations or financial condition. However, throughout the notes to the consolidated financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC. In December 2007, the FASB issued a new standard which established the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case); that increases and decreases in the parent's ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements. In June 2009, the FASB issued a new standard regarding the accounting for transfers of financial assets amending the existing guidance on transfers of financial assets to, among other things, eliminate the qualifying special- purpose entity concept, include a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarify and change the derecognition criteria for a transfer to be accounted for as a sale, and require significant additional disclosure. The standard is effective for new transfers of financial assets beginning October 1, 2010. The adoption of this standard is not expected to have a material impact on the Company's consolidated results of operations or financial condition. In June 2009, the FASB issued an accounting standard that revised the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities, a new approach for determining who should consolidate a variable- interest entity, and changes to when it is necessary to reassess who should consolidate a variable-interest entity. The standard is effective October 1, 2010. The Company is currently evaluating the impact of this standard, but would not expect it to have a material impact on the Company's consolidated results of operations or financial condition. In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" (Now ASC 855), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ASC 855 is effective for interim and annual periods ending after June 15, 2009. We do not expect the adoption of ASC 855 will have a material impact on our financial position, results of operations or cash flows. n. ACCOUNTS RECEIVABLE Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves are estimated by management based on certain assumptions and variables, including the customer's financial condition, age of the customer's receivables, and changes in payment histories. As of September 30, 2009 an allowance for doubtful receivables $412,305 was considered necessary. Recoveries of trade receivables previously written off are recorded when received. o. BASIC LOSS PER SHARE Basic net loss per share is computed by dividing the net loss by the weighted- average number of common shares outstanding. Diluted net loss per share is computed based on the weighted-average number of common shares outstanding increased by dilutive common stock equivalents. For the years ended December 31, 2008 and 2007, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted earnings per common share. p. ADVERTISING AND MARKETING The Company expenses advertising costs in the period in which they are incurred. Advertising and marketing expense was $56,437 and $224,794 for the years ended September 30, 2009 and 2008, respectively. q. INVENTORY Inventory consists of real property, which is sold in our live event auctions. Inventory is carried a the lower of cost or fair value. We review for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Inventory at September 30, 2009 consists of three groups of houses with an aggregate cost of $487,324. r. IMPAIRMENT Amortizable intangible assets and other long-lived assets are tested for impairment utilizing an income approach based on undiscounted cash flows upon the occurrence of certain triggering events and, if impaired, written down to fair value. Goodwill and indefinite-lived intangible assets are tested for impairment using a fair value approach at the reporting unit level for goodwill. A reporting unit is the operating segment, or a business which is one level below that operating segment. For all periods presented, the Company's reporting units are consistent with its operating segments in all material respects. s. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is calculated using the straight-line method. Costs associated with repairs and maintenance of property and equipment are expensed as incurred. F-9 t. BUSINESS COMBINATIONS AND INTANGIBLE ASSETS INCLUDING GOODWILL The Company accounts for business combinations using the purchase method of accounting, which allocated the consideration to the fair value of the net assets acquired, including intangible assets, with the residual allocated to goodwill. Beginning October 1, 2009, the Company will account for business combinations using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, 100% of the assets, liabilities and certain contingent liabilities acquired, including amounts attributed to noncontrolling interests, are recorded at fair value. Goodwill represents the residual difference between the fair value of consideration paid and the net assets acquired, and transaction costs are expensed as incurred. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which is 5 years. Goodwill and identifiable intangible assets with indefinite lives are not amortized, but rather are tested annually for impairment, or sooner when circumstances indicate impairment may exist. NOTE 3. GOING CONCERN The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. As of and for the year ended September 30, 2009, the Company has a negative working capital, has incurred significant net losses, and has negative cash flows from operating activities. In addition, the Company had an accumulated loss of $20,501,749. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company increasing sales to the point it becomes profitable. The Company may need to raise additional capital for marketing to increase its sales. If the Company is unable to increase sales sufficiently or obtain adequate capital, it could be forced to cease operation. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Management Plans to Continue as a Going Concern Management plans to increase sales by increasing its activity at its recently acquired acquisitions and new business and to obtain additional capital from the private placement of shares of its common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. F-10 NOTE 4. RESTATEMENT 2009 RESTATEMENT ---------------- Subsequent to filing the September 30, 2009 Form 10-K, we discovered a number of errors that impacted the balance sheet, statement of operations and statement of cash flow. Specifically, these adjustments reflect the following errors: - Restricted cash - certain cash balances are restricted and should be reported separately on the fact of the balance sheet. - Intangible assets - a purchase price adjustment was not properly considered, which decreased intangible assets and related amortization expense. This error also impacted accounts payable and depreciation expense. - Share-based compensation - certain grants of common stock for services were not appropriately recorded, which resulted in an adjustment of $77,200. In addition, there was an adjustment related to stock issued for a debt extension which was valued at $4,875. - Retained earnings - adjustments to retained earnings relate to errors in stock compensation recognized in 2008. The 2008 statements are restated to reflect these adjustments to opening retained earnings. - Registration rights penalty - an additional expense of $223,170 was recorded in general and administrative expense related to warrants issued to settle registration rights penalties in March 2009.
BALANCE SHEET AS OF SEPTEMBER 30, 2009: AS REPORTED ADJUSTMENT AS RESTATED Cash & Equivalents $ 171,076 $ (60,230) $ 110,846 Restricted cash - 60,230 60,230 Intangible assets, net 411,349 (120,654) 290,695 NON-CURRENT ASSETS 650,013 (120,654) 529,359 TOTAL ASSET 1,352,716 (120,654) 1,232,062 Accounts payable and accrued expenses 797,513 (163,908) 633,605 TOTAL LIABILITIES 2,076,400 (163,908) 1,912,492 Additional paid-in capital 19,860,148 154,070 20,014,218 Accumulated deficit (20,614,103) (110,816) (20,724,919) TOTAL STOCKHOLDER'S DEFICIT (723,684) 43,254 (680,430) TOTAL LIABILITY AND EQUITY 1,352,716 (120,654) 1,232,062 STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2009: AS REPORTED ADJUSTMENT AS RESTATED General and administrative 2,131,205 350,369 2,481,574 Depreciation expense 198,155 (43,254) 154,901 OPERATING EXPENSES 2,385,797 (307,115) 2,692,912 NET LOSS (1,608,384) (307,115) (1,915,499) EPS - BASIC (0.05) (0.02) (0.07) WEIGHTED AVERAGE SHARES OS 30,649,326 (1,886,394) 28,762,932 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2009: AS REPORTED ADJUSTMENT AS RESTATED Net loss (1,608,384) (307,115) (1,915,499) Adjustments to reconcile net loss to - net cash used by operating activities: - Depreciation expense 198,155 (43,254) 154,901 Common stock issued for services 287,447 77,200 364,647 Common stock for debt extension - 4,875 4,875 Common stock issued for registration rights penalty - 80,988 80,988 Warrants issued to settle registration rights penalties - 223,170 223,170 Amortization of debt discount 122,464 (4,875) 117,589 Increase (decrease) in accounts payable and accrued expenses 355,591 (161,543) 194,048 NET CASH USED IN OPERATING (419,408 (130,554) (549,962) INVESTING ACTIVITY Cash paid for acquisition of MYFamily TV (822,633) 161,541 (661,092) NET CASH PROVIDED BY INVESTING (863,398) (701,857) FINANCING ACTIVITY Proceeds from sale of common stock 692,500 50,000 742,500 Common stock issued for exercise of warrants 80,988 (80,988) - NET CASH PROVIDED BY FINANCING 1,307,238 (30,988) 1,276,250 Net increase in cash 24,432 (1) 24,431 Cash at beginning of year 86,415 86,415 CASH AT END OF YEAR 110,847 (1) 110,846
F-11 During the review of the ownership related to the building and lot in Las Vegas, we determined that the company may have to take legal proceedings to exert its rights for this ownership share. Due to the uncertainty of the outcome of any such potential action, we determined that it was appropriate to impair the value of property fully. Because the circumstances surrounding the ownership existed prior to September 30, 2007, the asset was removed from our books as an opening balance adjustment to our fiscal year 2008. The 2008 financial statements have been restated to reflect numerous errors. The following significant items were adjusted: - Investment in Las Vegas building and lot - as discussed above, we no longer have ownership rights to this property. These rights were lost prior to 2008. The adjustment resulted in a reduction of assets and equity by $1,000,000 - Extinguishment of debt - certain uncollateralized notes payable incorrectly recorded or were absolved through bankruptcy proceedings. We executed a plan of reorganization and emerged from bankruptcy during fiscal 2008. The adjustment resulted in a reduction of liabilities and a gain on extinguishment of debt totaling $588,462; and a reduction of accrued interest and interest expense of $72,367. - Judgment payable - during 2008, a note holder received a judgment against Valcom for $165,000. At the time of the judgment, only $100,000 was recorded in notes payable. The adjustment resulted in an increase in liabilities and additional expense of $57,000, net of $8,000 in accrued interest. - Other errors related to accounts payable cutoff, and amortization of prepaid assets resulted in additional expense of $95,395. The effects of the restatement on reported amounts for the year ended September 30, 2008 are presented below in the following tables:
SEPTEMBER 30, 2008 -------------------------------------------------------------- AS REPORTED ADJUSTMENTS AS RESTATED -------------- -------------- ------------------ Cash & Equivalents $ 86,416 $ (1) $ 86,415 Prepaid Expenses 24,434 (24,434) - Receivables - 25,947 25,947 -------------- -------------- ------------------ Current Assets 110,850 1,512 112,362 Property, Plant and Equipment, net 76,020 (76,020) - Other Assets 1,000,000 (1,000,000) - -------------- -------------- ------------------ Non-Current Assets 1,076,020 (1,076,058) - -------------- -------------- ------------------ TOTAL ASSET $ 1,186,870 (1,074,020) $ 112,362 ============== ============== ================== Accounts Payable and Accrued Liabilities $ 468,364 (42,419) $ 425,945 Accounts Payable - Related Party 86,181 61,575 147,756 Accrued Interest 166,061 (166,061) - Notes payable 412,173 (234,673) 177,500 -------------- -------------- ------------------ Total Liabilities 1,132,779 (381,578) 751,201 Series B - Preferred Stock 38 - 38 Series C - Preferred Stock 9,591 - 9,591 Common Stock 22,776 (1,100) 21,676 Additional Paid In Capital 17,778,314 384,484 18,162,798 Accumulated Deficit (17,733,106) (1,076,314) (18,809,420) Treasury Stock (23,522) - (23,522) -------------- -------------- ------------------ Equity 54,091 (692,930) (638,839) -------------- -------------- ------------------ TOTAL LIABILITIES AND EQUITY $ 1,186,870 (1,074,508) $ 112,362 ============== ============== ==================
F-12
YEAR ENDED SEPTEMBER 30, 2008 ------------------------------------------------ AS REPORTED ADJUSTMENTS AS RESTATED -------------- -------------- -------------- Revenue $ 953,209 $ (17,518) $ 935,691 Cost of Revenue (6,383) (294,778) (301,161) -------------- -------------- -------------- Gross Margin 946,826 (312,296) 634,530 Selling, General and Administrative 1,267,929 66,946 1,334,875 Advertising and Promotion 12,294 212,500 224,794 Depreciation and Amortization Expense 25,340 87,361 112,701 Operating Expenses 1,305,563 366,807 1,672,370 -------------- -------------- -------------- Other income (expense) Interest Expense (79,085) 16,031 (63,054) Other Income 4,006 (1,705) 2,301 Gain on extinguishment of debt - 588,463 588,463 -------------- -------------- -------------- Total other income (expense) 75,079 (600,843) 527,710 -------------- -------------- -------------- TOTAL EXPENSE 1,380,642 (235,982) 1,144,660 -------------- -------------- -------------- NET LOSS $ (433,816) (76,314) $ (510,130) ============== ============== ============== EPS - Basic $ (0.03) $ (0.03) Weighted average shares OS 15,827,349 14,775,061
F-13
YEAR ENDED SEPTEMBER 30, 2008 --------------------------------------- AS REPORTED ADJUSTMENTS AS RESTATED ----------- ----------- ----------- Operating Net loss (433,816) (76,314) (510,130) Depreciation expense 25,340 87,361 112,701 Common stock issued for services 518,915 322,385 841,300 Gain on extinguishment of debt - (588,463) (588,463) Accounts receivable 173,328 (25,947) 147,381 Prepaid expenses (24,434) 24,434 - Accrued interest payable 2,271 (2,271) - Accounts payable (438,610) 94,601 (344,009) AP related party - (132,803) (132,803) Deposits 158,853 - 158,853 ----------- ----------- ----------- (18,153) (297,017) (315,170) Investing Acquisition of Fixed Assets - (11,341) (11,341) Financing Sale of stock 502,000 (95,000) 407,000 Repayment of note (403,357) 403,357 - ----------- ----------- ----------- 98,643 308,357 407,000 Net increase in cash 80,490 (1) 80,489 Cash at beginning of year 5,926 - 5,926 ----------- ----------- ----------- Cash at end of year 86,416 (1) 86,415 ----------- ----------- -----------
F-14 NOTE 5. ACQUISITION OF FAITH TV, LLC On December 15, 2008, we purchased 100% of the outstanding shares of FaithTV, LLC. The purchase is reflected in the financial statements along with the operating results of FaithTV, LLC from December 16, 2008 through September 30, 2009. The purchase price included 100,000 shares of convertible preferred stock valued at $9,000 based on an "as if" converted basis; 1,500,000 shares of common stock valued at $59,400 based on the Company's quoted stock price; cash payments totaling $661,092. The adjusted purchase price was $729,492. The preferred stock is convertible to shares of the Company's common stock on a one share for one share basis. The revised purchase price was allocated based upon the fair value of the assets purchased as follows: Equipment $ 36,819 Film library 250,000 Paid programming contracts 394,906 Cash 2,365 Accounts receivable, net 126,379 Allowance (65,000) Other current assets 2,300 Accounts payable (17,558) Other (719) ---------- $ 729,492 ========== The following table summarizes the required disclosures of the unaudited pro forma combined entity, as if the acquisitions occurred at November 1, 2007: For the years ended September 30 -------------------------------- 2009 2008 -------------- ------------- Revenue $ 827,239 $ 1,515,019 Net loss (1,607,487) (544,070) Earnings per share $ (0.06) $ (0.04) The unaudited pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred at November 1, 2007 and 2008, respectively, nor is it necessarily indicative of future operating results. NOTE 6. PROPERTY AND EQUIPMENT, FILM LIBRARY AND INTANGIBLES Property and equipment and intangibles consists of the following at September 30: September 30, September 30, 2009 2008 ------------ ------------ Production Equipment $ 39,354 $ 76,020 Accumulated Depreciation (5,831) (76,020) ------------ ------------ Net property and equipment $ 33,523 $ - ============ ============ Film library $ 250,000 $ - Accumulated Depreciation (44,859) - ------------ ------------ Net property and equipment $ 205,141 $ - ============ ============ Intangible assets: Paid programming contracts $ 394,906 $ - Accumulated amortization (104,211) - ------------ ------------ Net intangible assets $ 290,695 $ - Depreciation expense for the years ended September 30, 2009 was $154,901. F-15 NOTE 7. NOTES AND JUDGMENTS PAYABLE September 30, December 31, 2009 2008 --------- ---------- Convertible Notes Payable $ 240,000 $ - Other notes Payable 62,500 12,500 Judgments Payable 158,750 165,000 Less: unamortized discount (82,411) - --------- ---------- Total $ 378,839 $ 177,500 ========= ========== Convertible notes On November 25, 2008, we entered into a convertible note agreement. The terms of the note are as follows: principal amount $100,000; annual interest rate of 15%; maturity date of January 24, 2009. The note was convertible into common shares based on the lower of 70% of the lowest 3-day average quoted stock price over the 20 trading days preceding the conversion date or $0.10. The note was repaid in February 2009. In connection with the note, we issued 400,000 warrants with an exercise price of $0.10. These warrants, which vested immediately, were valued using the Black Scholes Option Pricing Model. In connection with these warrants, $100,000 was recorded as a discount to the note and was amortized over the life of the note using the effective interest method. For the years ended September 30, 2009, we amortized $100,000 of the discount into interest expense. This note was paid in full in February 2009. On January 24, 2009, we modified the terms of this loan to extend the maturity date through February 5, 2009. In connection with the extension, we issued the lender 75,000 common shares valued at $4,875. We evaluated the modification under FASB ASC 470-50 and concluded that the revised terms constituted a debt modification rather than a debt extinguishment. Accordingly, the fair value of the shares issued were recorded as a discount on the debt and amortized over the remaining life of the modified loan using the effective interest rate method. The entire discount was amortized to interest expense during the year ended September 30, 2009. On January 6, 2009, we entered into a convertible note agreement. The terms of the note are as follows: principal amount $100,000; annual interest rate of 10%; maturity date of January 6, 2010. The note is convertible into common shares at a rate of $0.10. In connection with the note, we issued 1,000,000 warrants with an exercise price of $0.20. These warrants, which vested immediately, were valued using the Black Scholes Option Pricing Model. $100,000 was recorded as a discount to the note and was amortized over the life of the note using the effective interest method. For the years ended September 30, 2009, we amortized $17,589 of the discount into interest expense. F-16 In June 2009, we entered into 2 participation agreements related to the acquisition of real property. Under the terms of these agreements, we borrowed $140,000 to purchase certain real estate properties. Any profits from the sale of the real estate properties are shared equally between Valcom and the lender. The loans are secured by the real property purchased with the proceeds. The terms of the notes are as follows, in aggregate: principal amount $140,000; annual interest rate of 10%; maturity date of June 2010. These notes are convertible into Valcom's common stock at $0.10 per share. One of the convertible notes included a conversion feature that is based on the market value of the stock at the date of conversion. This conversion feature was evaluated under FAS 133 and EITF 00-19 and was determined under EITF 00-19 to have characteristics of a liability and therefore a derivative liability under FAS 133. The conversion price was variable which caused the Company to conclude it was possible at some point in the future to not have available the number of common shares required to share settle all common stock equivalent instruments. This caused warrants not subject to FAS 123 and all other convertible debt to also be classified as derivative liabilities under FAS 133. Each reporting period, this derivative liability is marked-to-market with the non-cash gain or loss recorded in the period as a gain or loss on derivatives. During the year ended September 30, 2009, the convertible note creating the derivative liability was repaid. As a result, we marked the derivative liability to fair value through February 13, 2009, the date in which the note was paid, recording the change in fair value as a gain/loss on derivative liability. On the date of the repayment, we removed the derivative liability and recognized the unamortized debt discount in connection with the derivative liability, we recognized a gain of deriative liabilities of $60,672 Other notes payable On July 13, 2009, we entered into a participation agreement for the acquisition of real property. Under the terms of these agreements, we borrowed $50,000 to purchase certain real estate properties. Any profits from the sale of the real estate properties are shared equally between Valcom and the lender. As of September 30, 2009, there were no sales of properties related to this agreement. On July 19, 2007, we borrowed $12,500. The loan is not interst bearing and is payable on demand. The full amount was outstanding at September 30, 2009 During fiscal year 2008, we received notice of a judgment against Valcom in the amount of $165,000. The judgment relates to claim for paymnet on an outstanding debt plus interest. We initially recorded the full amount of the judgment and are currently negotiation a settlement. As of September 30, 2009 we accrued $158,750 related to this judgment. NOTE 8. RELATED PARTY TRANSACTIONS At September 30, 2009 and 2008, related party payables to Directors and Shareholders of the Company totaled $900,048 and $147,756, respectively. At September 30, 2008, related party payables represent $1,950,288 payable to the President of the Company and Directors for various advances to the Company. The advances are non interest bearing and due upon demand. During the year ended September 30, 2009, $1,669,729 of the related party payables were converted to 1,669,729 shares of the Company's convertible preferred stock. F-17 NOTE 9. FILM LIBRARY AND INTANGIBLES With the acquisition of Faith TV (now My Family TV), the company acquired a library of over 800 films and TV programs. An aggregate value of $250,000 was allocated to the film library in purchase accounting. The film library is being amortized over its estimated useful life of five years using the film forecasting methodology. During the year ended September 30, 2009, we recorded depreciation expense of $44,859. In connection with the acquisition of Faith TW, we acquired certain paid programming contracts. An aggregate value of $394,906 was allocated to paid programming contracts in purchase accounting. The balance is amortized over the life of the agreements. During the year ended September 30, 2009, we recorded amortization expense of $104,211. NOTE 10. INCOME TAXES No provision for Federal and state income taxes has been recorded as the Company has incurred net operating losses through September 30, 2009. At September 30, 2009, the Company had approximately $20,322,950 of net operating loss carry-forwards for Federal income tax reporting purposes available to offset future taxable income. Such carry-forwards expire beginning in 2010. Deferred tax assets at September 30, 2009 consist primarily of the tax effect of net operating loss carry-forwards, which amounted to approximately $6,640,093. Other deferred tax assets and liabilities are not significant. We provided a full valuation allowance on the deferred tax assets at September 30, 2009 to reduce such deferred income tax assets to zero, as we believe 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, September 30, 2009 2008 ------------ ------------ Tax Expense (Benefit) at Statutory Rate (34)% (34)% State Tax Rate, Net of Federal (6) (6) Change In Valuation Allowance 40 40 ------------ ------------ Effective Tax Rate 0 % 0 % ============ ============ The components of the net deferred tax asset are summarized below: September 30, September 30, 2009 2008 Restated Restated ------------ ------------ Deferred Tax Asset: Net Operating Losses $ 8,129,180 $ 7,630,502 Less: Valuation Allowance (8,129,180) (7,630,502) ------------ ------------ Total $ - $ - ============ ============ F-18 NOTE 11. COMMITMENTS In September 2008, the Company leased facilities in Clearwater, Florida. The lease has a term of five years. Initial monthly base rent is $11,000 with no increases, and a corporate office at Indian Rocks Beach at $1000 per month. At September 30, 2009, future minimum lease payments due under non-cancelable leases were: 2010 $ 57,844 2011 59,580 2012 61,367 2013 52,411 2014 - Thereafter - -------- Total $231,202 ======== NOTE 12. STOCK ACTIVITY a. CONVERTIBLE PREFERRED STOCK At September 30, 2009, we authorized 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. As of September 30, 2009, 38,000 shares of preferred stock with a par value of $38 were issued and outstanding. 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. In connection with the acquisition of Faith TV, we issued 100,000 shares of Series C Preferred Stock valued at $9,000. We also sold 5,000,000 shares of Series C Preferred Stock for $250,000. As of September 30, 2009, 14,691,395 shares of preferred stock with a par value of $14,691 were issued and outstanding. 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. No shares were issued as of September 30, 2009 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, 2009. F-19 b. WARRANTS At September 30, 2009 and 2008, we had 4,209,000 and 1,000,000 warrants granted and outstanding, respectively. There were no warrants granted during fiscal year 2008. During fiscal 2009, we granted 1,400,000 warrants in connection with certain notes payable. These warrants had a weighted average exercise price of $0.17. The aggregate fair value of these warrants, which was computed using the Black Scholes Option Pricing Model was $133,296 and was recorded as a discount to the respectively notes payable. In connection with the settlement of certain registration rights penalties, we issued 2,809,000 warrants on March 2, 2009. On the same day, we cancelled the 1,000,000 warrants previously issued. This resulted in additional expense of $223,170. At September 30, 2009, there were $4,209,000 warrants outstanding with a weighted average exercise price was $0.09; the weighted average remaining life was 4.55 years; the aggregate intrinsic value was $137,641; and all warrants were exercisable. b. COMMON STOCK Stock for cash During fiscal year 2009, we issued an aggregate 10,125,000 shares of common stock for $742,500 cash. During fiscal year 2008, we issued an aggregate 4,070,000 shares of common stock for $407,000. Stock for services During fiscal year 2009, we granted 4,497,059 shares of common stock for various services. These shares vested immediately and had an aggregate fair value of $364,647, which was recorded as share-based compensation. The fair value was determined based on the quoted stock price on the date of grant. During fiscal year 2008, we granted 6,130,000 shares of common stock for various services. These shares vested immediately and had an aggregate fair value of $841,300, which was recorded as share-based compensation. The fair value was determined based on the quoted stock price on the date of grant. Stock for debt On February 1, 2009, we issued 75,000 shares of common stock in return for an extension on a note payable. We concluded that the debt was modified under FASB ASC 470-50. The fair value ($4,875) of the shares issued was recorded as a discount on the debt. During fiscal year 2008, we issued 500,000 shares of common stock to settle $50,000 in debt. The common shares were valued at $80,000 based on the quoted stock price on the date of grant. The difference between the fair value of the common shares and the book value of the loan was recorded as additional expense. F-20 During fiscal year 2008, we issued 600,000 shares of common stock in lieu of cash for payment of interest on two notes. Stock for acquisition On December 15, 2008, we purchased 100% of the outstanding shares of FaithTV, LLC. In connection with the acquisition, we issued 1,500,000 shares of common stock, in aggregate, valued at $59,400 based on the Company's quoted stock price. We also issued 100,000 shares of preferred stock valued at $9,000. Stock and warrants to settle registration rights penalties On April 17, 2009, we issued 1,191,000 shares of common stock to settle certain registration rights penalties associated with warrants issued in prior years. The share were valued at $80,988, based on the quoted market value on the date of grant, and recorded as an expense. We also issued 2,809,000 warrants on March 2, 2009 to settle these penalties. Concurrently, we cancelled 1,000,000 warrants previously issued to these two investors. We recorded an aggregate expense of $223,170 related to these warrants. 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. No employee stock options were issued or outstanding as September 30, 2009. Registration rights During 2005, we entered into two stock subscription agreements. In addition to shares, the purchasers received 1,000,000 warrants in aggregate to purchase stock at an exercise price of $0.06 per share. The subscription agreements included a requirement to register the shares underlying the warrants. The penalty for failing to register the shares by the prescribed date was 10,000 shares of common stock per day until the shares were registered. We failed to meet the registration requirement and entered into the penalty period. In February 2009, we settled the penalty by issuing 1,191,000 shares of common stock and exchanging the 1,000,000 warrants for 2,809,000 in aggregate of new warrants with an exercise price of $0.05. In connection with this settlement, we recorded additional expense of $223,170. F-21 NOTE 13. SEGMENTS The following is a discussion of our operating segments: - MyFamily TV - is a TV network and broadcasting division centered primarily on Christian ministry paid programming, older and public domain movies, and family programming such as Here's Lucy and the Beverly Hillbillies. - Film & TV Productions - has over 1000 movie titles and 200 television episodes and 5000 songs which are typically licensed out for seven years. - Real Estate Auctions - is primarily designed to sell discounted foreclosed properties to a TV audience through a live auction. Years ended September 30, 2009 2008 REVENUE: My Family TV 301,842 - Film and TV Production 397,763 935,691 Real Estate Auction 667,750 - OPERATING INCOME: My Family TV (266,171) - Film and TV Production (1,710,009) (1,933,179) Real Estate Auction (206,200) - TOTAL ASSETS: My Family TV 583,557 - Film and TV Production 84,743 112,362 Real Estate Auction 563,762 - NOTE 14. BANKRUPTCY FILING On August 5, 2008, the United States Bankruptcy Court for the Central District of California entered an Order Confirming Second Amended Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the "Plan") of the Company. The Plan classifies claims and interest in various Classes according to their right to priority of payments as provided in the United States Bankruptcy Code, 11 U.S.C.{section} 101 et seq. (the "Bankruptcy Code"). The Plan provides that upon payment of all obligations pursuant to the Plan, the Company was discharged of liability for payment of debts, claims and liabilities incurred before confirmation of the Plan, to the extent specified in {section}1141 of the Bankruptcy Code. The Plan provided for the treatment of each Class, and for the cash payments that each Class of creditors will receive and for the existing equity interests and rights that equity security holders will retain under the Plan. The effective date of the Plan is August 5, 2008 (the "Effective Date"). The Company funded the Plan through cash on hand and accumulated by the Effective Date to pay off the allowed Priority Unsecured Tax claims of $191,164, and the first month's payment interest to its non-priority unsecured creditors took place in September 2008 . The Company had on hand approximately $170,000 and $300,000 was required for the completse for disbursement of the priority and unsecured amount outstanding. On the Effective Date, unexpired leases and executory contracts shall be assumed as obligations of the reorganized Company. By agreement with Naomi Partners Inc., the lease for the Burbank Studio was surrendered by agreement with no further liability to the Company other than the retention of the lease deposit held by Naomi Partners Inc and to be applied to rents due on the effective date. If these reports have been filed then this can be confirmed. All persons or entities holding preferred or common stock in the Company are referred to in the Plan as "Interest Holders". The pre-existing pre-petition equity ownership interests and rights of all Interest Holders will be left intact and unimpaired. The Directors and President of the company elected to convert their debt of $1,670,000 to 1,669,729 shares of Series C Preferred Convertible Stock. NOTE 15. LITIGATION, CONTINGENCIES AND COMMITMENTS Laurus Master Fund Settlement On March 24, 2009, Valcom and Laurus Master Fund, Ltd, a company organized under the laws of the Cayman Islands and Chicago Title Company, a California Corporation entered into a Settlement Agreement whereby Valcom resolved its previously asserted claims against Laurus and Chicago Title. Pursuant to the terms of the Agreement, Laurus agrees to pay the Company five hundred and fifty thousand dollars ($550,000) which was received by the Company's attorney on March 30, 2009. Within ten calendar days after the Company receives payment from Laurus, the Company filed a Request for Dismissal of its claims, with prejudice, of its actions against Laurus and Chicago Title and Chicago Title. This settlement is reflected as `Other Income' with full accrual made for legal costs relating to the settlement. Other litigation NOTE 16. SUBSEQUENT EVENTS Management has reviewed the subsequent events through February 19, 2010 and all significant events are disclosed. We granted 300,000 shares of common stock to an officer for services. The shares were valued at $27,000 based on teh quoted stock price on the date of grant. We received $85,000 from investors to purchase stock. The stock has not yet been issued. F-22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On January 18, 2010, the board of directors of Valcom, Inc. (the "Company") dismissed Seale & Beers CPAs("S&B") as the Company's independent registered public accounting firm. On January 18, 2010, the Company engaged Malone & Bailey ("M&B") as its independent registered public accounting firm for the Company's fiscal year ended September 30, 2009. The change in the Company's independent registered public accounting firm was approved by the Company's Board of Directors on January 18, 2010. ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Pursuant to Rule 13a-15(b) under the Securities Exchange Act ("Exchange Act") of 1934, the Company carried out an evaluation with the participation of the Company's management, including Vince Vellardita, the Company's Chief Executive Officer and Chief Financial Officer ("CEO/CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the year ended September 30, 2009. Based upon that evaluation, the Company's CEO /CFO concluded that the Company's disclosure controls and procedures are not effective primarily due to an overreliance on consultants to review critical accounting areas and disclosures; and a lack of sufficient qualified accounting staff. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Valcom, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: - Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; - Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and - Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of September 30, 2009, the Company's internal control over financial reporting is not effective based on those criteria. In performing this assessment, management identified the following material weaknesses: - Lack of adequate segregation of controls - Lack of adequate and qualified accounting staff to oversee the accounting and financial statement close process - Lack of adequate controls over debt and equity transactions - Lack of controls over the expense cycle This annual report does not include an attestation report of the Company's registered accounting firm regarding internal control over financial reporting. The management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal year that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting. 22 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 52 CEO/CFO/President/Chairman of the Board 2000 Richard Shintaku 67 Director 2003 Frank O Donnell 59 Director 2006 Carl Austin Powers 47 Director/Vice President of Sales 2009 and Marketing Patrick Wilemsen 35 Director 2009 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 - CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT VINCE VELLARDITA, Chairman and Chief Executive Officer for Valcom, Inc., has utilized his 30 years of experience in the entertainment industry and successfully turned Valcom, Inc., into an Independent Entertainment Company having a 275 million dollar market cap. Mr. Vellardita strategically led the Company in acquiring property and studios in Las Vegas, Los Angeles, and Palm Springs. These entertainment studios combined consisted of 20 sound stages with back lot at 350 thousand sq. ft. on over 20 acres of land. He has been very instrumental in acquiring 143 films, 10 TV series, millions of dollars worth of equipment, and an ownership of a TV station KVPS Palm Springs. Valcom has maintained long-term contracts with Paramount Pictures CBS's series "JAG" and "NCIS", and Walt Disney's Sabans "Mighty Morphin Power Rangers". Mr. Vellardita has consulted with Broadcasters and Studios all over the world and continues long-standing relationships throughout the entertainment industry. Mr. Vellardita began his career in 1977 as a fast-paced music producer and promoter of over 200 live events and concerts with some of the biggest acts in the world. He also produced a Presidential campaign, Super Bowl events and Broadway Theater and Las Vegas shows. In 1987, Mr. Vellardita bought his first TV station in Nashville and built it into a television network with over 35 TV stations servicing over 9 million households, housing multiple sound stages and edit bays, as well as increasing revenues by bring in national accounts to this network. With Mr. Vellardita's diversified background and successful track record in Nashville, he relocated to Los Angeles and developed independent productions studios and focused on film and television from building the sound stages to all aspects of deal making, as well as luring some of the biggest names in the television and motion picture community, including Paramount, Warner Brothers and Disney. Mr. Vellardita's excellent reputation in the entertainment industry allowed him to maintain a 95% occupancy rate while being involved in the production of several thousand episodes of television and hundreds of films. At fifty two years of age, Mr. Vellardita has been married to his wife Teresa for 20 years and has 2 sons, Jesse 26 and Anthony 23. Vince and Teresa reside in Florida and keep residence in both Los Angeles and Las Vegas, Nevada. 23 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. ICAG is a Merrill Lynch investment "Alliance Partner". He is currently Vice President and principal of MRI International, Inc., one of the nation's 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. FRANK O'DONNELL- DIRECTOR The Company appointed Frank to the Board in 2007. Frank O'Donnell is also Vice- Chairman of TVcompass and a founder of the Company. From 1996 to 2004, Mr. O'Donnell was the founder and President of Evolve Products, Inc. From 1986 to 1995, he was the founder and Vice President of Universal Electronics, Inc. and from 1979 to 1986 he was the founder and President of Cable Business Associates, Inc. Further, he previously managed the custom designs for Time Warner Cable and Comcast (AT&T/TCI) universal remote controls. CARL AUSTIN POWERS- DIRECTOR Carl Austin Powers joined the Company's Board on February 06th 2009 and was also appointed as Executive Vice President Sales and Marketing on the same date. Mr. Powers had a successful career in the telecommunications industry starting with Cable and Wireless Communications in 1986 as National Account Manager and then in 1990 MCI Communications, Inc. as Florida Regional Manager, Global Accounts and then MCI Worldcom as Southern Region Executive Director. In 2001 he joined Global Crossing Communications as Southern Regional Vice President of Global Network Solutions and in 2002 becoming North America managing director , alternative channel sales for Primus Telecommunications, Inc. 24 PATRICK WILLEMSEN- DIRECTOR On September 22, 2009, the Company's Board of Directors appointed Patrick Willemsen as a director of the Company. Mr. Willemsen started his professional career with a Dutch foundation that was responsible for the implementation of the first Internet-over-cable and TV-shopping mall solution for a Dutch CATV operator. In 1995 he started a trading company in the Netherlands and imported food products from the Middle East to Europe, US and Asia. In 1997 Mr. Willemsen started a telecom company and quickly led the company to a market cap of over 250 million USD. Early 2003 Mr. Willemsen moved to the USA and started the company Emergo Consultancy. Emergo is active in consultancy and international business opportunities. The company assists small and medium sized companies in growth and provides an emphasis on international expansion. In 2007 Mr. Willemsen began ABEX Capital INC, which was founded to manage investment funds used for structuring and acquiring distressed real estate and notes. Mr. Willemsen studied economics and management in Amsterdam at the Hogeschool van Amsterdam. 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, 2009, and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended September 30, 2009, we believe that during the year ended September 30, 2009, our executive officers, directors and all persons who own more than ten percent of a registered class of our equity securities have complied with all Section 16(a) filing requirements. 25 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 Frank O Donnell, 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-K. 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-K for the fiscal year ended September 30, 2008 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-K for the fiscal year ended September 30, 2008 for filing with the Securities and Exchange Commission. Messrs. Vellardita, Shintaku and O Donnell 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 2009, the Board of Directors met and/or executed unanimous written consents of the Board of Directors ____ 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. 26 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation (including cash bonuses) paid or accrued by us for our years ended September 30, 2009, 2008 and 2007 to our Chief Executive Officer and our four most highly compensated officers other than the Chief Executive Officer at September 30, 2009. SUMMARY COMPENSATION TABLE
Name & Year Salary Bonus Other Restricted Options LTIP All Position Stock Other ------------ ---- -------- ----- ----- ---------- ------- ---- ----- Vincent 2009 $125,000 Vellardita 2008 $ 0 0.000 0 100,000 0 0 0 CEO 2007 $ 0 0.000 0 0 0 0 0 C. A. Powers 2009 $ 58,863
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 None AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES None. 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, for just cause Mr. Vellardita's employment at any time. The Agreement shall be automatically renewed for successive five 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. 27 The Company entered into an Employment Agreement with Carl Austin Powers, the Company's Executive Vice President Sales and Marketing and Director effective 06th February 2009. The term of the agreement is 3 years and the agreement may be terminated in accordance with the terms of the agreement and for just cause. The annual compensation commences at $80,000 per year and increased to $120,000 per year after 90 days and under the terms of the agreement, Mr. Powers will enjoy the benefits of such pension, 401 (k), profit sharing, bonus, life insurance, hospitalization, major medical, are in effect at any time during the term, to the extent the Executive is eligible under the terms of those Plans and will participate in an executive incentive compensation plan with others sharing in an amount equal to 5% of the company's net after tax profits for each fiscal year during the term of the agreement; if and when the Company participates in such programs. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHODLER MATTERS The following table sets forth information as to the shares of our common stock beneficially owned as of September 30, 2008 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., 2113A Gulf Boulevard, Indian Rocks Beach, Florida 33785.
Title of Name and Amount and Percent(2) Class Address of Nature of of Class Beneficial Owner Beneficial Owner (1) ---------- ---------------- ---------------- --- Common Vince Vellardita 6,100,000 13.8% Preferred (CEO, CFO, Chairman) 2,715,729 21.4% Common Richard Shintaku 3,700,000 8.3% Preferred (Director) 1,537,333 8.2% Common Frank O'Donnell 550,000 1.2% Preferred (Director) 1,000,000 5.4% Preferred Carl Austin Powers (Director)* 29.1% (Executive Vice President) 5,000,000 Common Patrick Wilemsen (Director)* 5,000,000 9.1% Preferred 4,000,000 21.4% Common 15,350,000 32.4% All Officers and Directors as a Group (Five (5) individuals)
* Represent 5,000,000 shares of Series C Preferred Class stock owned by Rain Day Holdings, LLC. Rain Day Holdings LLC is owned by Tracey A. Powers, wife of Carl Austin Powers. Carl Austin Powers is the authorized agent for Rain Day Holdings LLC and holds all the voting rights on said shares. **Represents 4,000,000 shares of common stock held by Abex Capital, Inc. and 1,000,000 shares of common stock held by Florida Opportunities, both entities for which Patrick Willemsen holds voting and dispositive power and 4,000,000 shares of Series C Preferred Stock held by Abex Capital Inc, for which Patrick Willemsen holds voting and dispositive power. (2) *Less than one percent. (1) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares, which the selling stockholder has the right to acquire within 60 days. "Shares Beneficially Owned After the Offering" assumes the sale of all of the common shares offered by this prospectus and no other purchases or sales of our common shares by the selling stockholders. (2) Based upon 39,064,158 share of common stock issued and outstanding as of September 30, 2009. 28 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE NONE ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The aggregate fees billed by Malone and Bailey, Certified Public Accountants, Seale and Bears, Certified Public Accountants and Moore and Associates, Certified Public Accountants for professional services rendered for the audit of the Company's annual financial statements for the years ended September 30, 2009 and 2008 and the review of the financial statements included in the Company's Forms 10-Q, totaled as follows: 2009 2008 --------- --------- Audit fees $ 27,000 $ 13,000 Quarterly reviews $ 13,000 $ 12,000 Total $ 40,000 $ 25,000 PART IV ITEM 15. EXHIBITS; FINANCIAL STATEMENT SCHEDULES Ex. 2.1 Second Amended Plan of Reorganization (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on August 15, 2008). Ex. 3.1 Articles of Incorporation (Incorporated by reference to the Company's Form 10SB filed with the Securities and Exchange Commission, File # 000-28416) Ex. 3.2 Bylaws (Incorporated by reference to the Company's Form 10SB filed with the Securities and Exchange Commission, File # 000-28416) Ex. 3.3 Certificate of Amendment to Certificate of Incorporation (Incorporated by reference to the Company's Schedule Def 14A filed with the Securities and Exchange Commission on October 20, 2006). Ex. 10.1 Form of Convertible Debenture dated November 25, 2008, by and between Valcom, Inc. and Able Income Fund LLC (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on December 1, 2008) Ex. 10.2 Form of Guaranty dated November 25, 2008, by and between Valcom, Inc. and Able Income Fund LLC (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on December 1, 2008) Ex. 10.3 Form of Pledge Agreement dated November 25, 2008, by and between Valcom, Inc. and Able Income Fund LLC (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on December 1, 2008) Ex. 10.4 Form of Warrant dated November 25, 2008, by and between Valcom, Inc. and Able Income Fund LLC (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on December 1, 2008) Ex. 10.5 Form of Agreement for the Purchase and Sale of Common Stock by and among Faith TV LLC, A. Kenneth Curtis, William Curtis, Jim West, Mark McGregor and Valcom, Inc. (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on December 19, 2008) Ex. 10.6 Form of Note Purchase Agreement dated January 6, 2009 by and between Valcom, Inc. and OmniReliant holdings, Inc. (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on January 9, 2009) Ex. 10.7 Form of 10% Secured Promissory Note dated January 6, 2009 by and between Valcom, Inc. and OmniReliant Holdings, Inc. (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on January 9, 2009) Exhibit 10.8 Form of Security Agreement dated January 6, 2009 by and between Valcom, Inc. and OmniReliant Holdings, Inc. (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on January 9, 2009) Ex. 10.9 Form of Warrant dated January 6, 2009 (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on January 9, 2009) Ex. 10.10 Memorandum of Understanding by and between Valcom, Inc. and Jeremiah's International Trading Co. Inc (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on February 12, 2009) Ex. 10.11 Form of Securities Purchase Agreement dated September 22, 2009 (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on September 30, 2009) Ex. 16.1 Letter from Kempisty & Company, dated August 19, 2008 (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on August 20, 2008) 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 Ex. 99.1 Order Confirming Second Amended Plan of Reorganization under Chapter 11 of the Bankruptcy Code, entered on August 5, 2008 (Incorporated by reference to the Company's current report on Form 8-K as filed with the Securities and Exchange Commission on August 15, 2008). 29 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: February 22, 2010 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, ---------------- Chairman of the Board February 22, 2010 Vince Vellardita By: /s/ Richard Shintaku Director February 22, 2010 ---------------- Richard Shintaku By: /s/ Frank O Donnell Director February 22, 2010 --------------- Frank O Donnell By: /s/ Carl Austin Powers Director February 22, 2010 ------------------ Carl Austin Powers By: /s/ Patrick Wilemsen Director February 22, 2010 ---------------- Patrick Wilemsen 30