valcom_10k-093008.htm

	For the Year Ended
	September 30,
	2008			2007
OPERATING ACTIVITIES

Net loss	$	(433,816	)	$	(2,006,102	)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation expense		25,340			25,340
Common stock issued for services		518,915			188,008
Impairment of asset		-			-
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable		173,328			22,921
(Increase) decrease in prepaid expenses		(24,434	)		-
Increase (decrease) in accrued interest payable		2,271			815,580
Increase (decrease) in accounts payable		(438,610	)		95,618
(Increase) decrease in deposits		158,853			1,958

Net Cash Used in Operating Activities		(18,153	)		(856,677	)

INVESTING ACTIVITIES

Proceeds from sale of equipment		-			-
Purchase of property and equipment		-			-

Net Cash Used in Investing Activities		-			-

FINANCING ACTIVITIES

Proceeds from preferred and common stock		502,000			131,486
Repayment of notes payable		(403,357	)		-
Proceeds from note payable		-			296,673
Proceeds from related party payable		-			362,832

Net Cash Provided by Financing Activities		98,643			790,991

NET DECREASE IN CASH		80,490			(65,686	)

CASH AT BEGINNING OF YEAR		5,926			71,612

CASH AT END OF YEAR	$	86,416		$	5,926

SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION

CASH PAID FOR:
Interest	$	-		$	10,007
Income Taxes	$	-		$	-

NON CASH FINANCING ACTIVITIES:
Common stock issued for debt	$	-		$	669,014

The accompanying notes are an integral part of these financial statements.

F-5

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

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. The Company’s past and present clients include movie studios and television networks. In addition to leasing its sound stages, the Company also owns a small library of television content, which is ready for worldwide distribution and several major television series in advanced stages of development.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. BASIS OF PRESENTATION

This summary of significant accounting policies of the Company is presented to assist in understanding the consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.

b. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Valcom, Inc. and four wholly-owned subsidiaries, VEI, which was acquired effective February 2001, and Half Day Video, Inc., which was acquired effective March 2001. ValCom Nevada which was acquired effective March 1, 2004, and New Zoo Revue which was acquired effective October 2003. Investments in affiliated companies over which the Company has a significant influence or ownership of more than 20% but less than or equal to 50% are accounted for under the equity method. The Company has no equity affiliates as of September 30, 2008 and 2007.

c. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

d. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standard No. 107, Disclosures About Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to the short-term maturity of these instruments. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of September 30, 2008 and 2007.

e. RECLASSIFICATIONS

Certain amounts from prior periods have been reclassified to conform to the current year presentation.

F-6

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

f. DEPRECIATION AND AMORTIZATION

For financial and reporting purposes, the Company follows the policy of providing depreciation and amortization on the straight-line method over the estimated useful lives of the assets, which are as follows:

Buildings	39 years
Building Improvements	39 years
Production Equipment	5 years
Office Furniture and Equipment	5 to 7 years
Leasehold Improvements	5 years
Autos and Trucks	5 years

g. INCOME TAXES

The Company has adopted FASB 109 to account for income taxes. The Company currently has no issues which create timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years, but due to the uncertainty as to the utilization of net operating loss carry forwards, a valuation allowance has been made to the extent of any tax benefit that net operating losses may generate.

h. SHARE-BASED COMPENSATION

The Company has adopted the fair value based method of accounting for stock-based employee compensation in accordance with Statement of Financial Accounting Standards Number 123 (REVISED 2004), "Share-Based Payment" (SFAS 123[R]). In accordance with SFAS 123[R], option expense of $-0-and $-0- was recognized for the years ended September 30, 2008 and 2007, respectively. The expense was calculated using the Black-Scholes valuation model.

i. REVENUE RECOGNITION

Revenues from studio and equipment rentals are recognized ratably over the contract terms. Revenues from the production and licensing of television programming are recognized when the films or series are available for telecast and certain contractual terms of the related production and licensing agreements have been met.

j. 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, 2008.

F-7

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, 2008.

m. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. The Company does believe that FSP EITF 03-6-1 would have material effect on its consolidated financial position.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and Interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.

F-8

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

m. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations.’This Statement replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirements in Statement 141. This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

F-9

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

m. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities—Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entities first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements. The Company adopted SFAS No. 159 beginning March 1, 2008. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company adopted this statement March 1, 2008, and it is not believed that this will have an impact on the Company’s consolidated 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, 2008 and 2007 an allowance for doubtful receivables $256,191 and $1,071,874, respectively, was considered necessary. Recoveries of trade receivables previously written off are recorded when received.

o. BASIC LOSS PER SHARE

The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.

	September 30,
	2008			2008
NET LOSS	$	(433,816	)	$	(2,006,102	)

BASIC LOSS PER COMMON SHARE	$	(0.03	)	$	(0.30	)

BASIC WEIGHTED AVERAGE

NUMBER OF SHARES OUTSTANDING		15,827,349			6,777,997

F-10

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

o. BASIC LOSS PER SHARE (Continued)

The computation of loss per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year. Common stock equivalents, consisting of 78,625 and 78,625 in options and -0- and -0- in warrants were considered but were not included in the computation of loss per share at September 30, 2008 and 2007, respectively, because they would have been anti-dilutive.

p. ADVERTISING AND MARKETING

The Company expenses advertising costs in the period in which they are incurred. Advertising and marketing expense was $12,294 and $6,998 for the years ended September 30, 2008 and 2007, respectively.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30:

	2008			2007
Building Improvements	$	4,500		$	4,500
Production Equipment		723,094			723,094
Leasehold Improvements		62,677			62,677
Autos and Trucks		33,971			33,971
Office Furniture and Equipment		48,421			48,421
Video Equipment		181,877			181,877
		1,054,540			1,054,540
Less: accumulated depreciation		(431,452	)		(406,112	)
impairment allowance		(547,068	)		(547,068	)

Net book value	$	76,020		$	101,360

Depreciation expense for the years ended September 30, 2008 and 2007 was $25,340 and $25,340, respectively. The Company recorded an impairment allowance for the property and equipment of $547,068 due to the bankruptcy filing.

NOTE 4. NOTES AND JUDGMENTS PAYABLE

The Company issued $416,480 convertible notes in 2004. $301,480 in notes were converted during years ended September 30, 2008 and 2007 into shares of the Company’s common stock. The Company is subject to $140,000 in judgments payable to creditors. During the year ended September 30, 2007, the Company borrowed $157,173 in the form of unsecured notes payable. The Company’s notes payable incur interest at 8% per annum with different due dates. Accrued interest of $166,061 is payable as of September 30, 2008.

Convertible notes payable	$	115,000
Judgments payable		140,000
Notes payable		157,173

Total	$	412,173

F-11

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 5. RELATED PARTY TRANSACTIONS

At September 30, 2008, related party payables represent $86,181 payable to Directors and Shareholders of the Company. At September 30, 2007, 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, 2008, $1,669,730 of the related party payables were converted to 1,670,000 shares of the Company’s convertible preferred stock.

NOTE 6. OTHER ASSETS

The Company holds an equity interest in real estate in Las Vegas Nevada which it carries at its cost of $1,000,000.

The Company holds a library of video productions which are carried at cost less the estimated valuation allowance of $-0-. The Company has impaired the library of video productions in full due to the uncertainty of recoverability created by the bankruptcy filing.

At September 30, 2007, the Company had a deposit of $158,853 against the lease of the studio in Burbank California. The Company ceased making lease payments due to the bankruptcy filing and the deposit was used to settle the lease obligation in 2007.

NOTE 7. INCOME TAXES

No provision for Federal and state income taxes has been recorded as the Company has incurred net operating losses through September 30, 2008. At September 30, 2008, the Company had approximately $16,600,233 of net operating loss carry-forwards for Federal income tax reporting purposes available to offset future taxable income. Such carry-forwards expire beginning in 2003. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses and capital losses carried forward may be impaired or limited in certain circumstances. Events, which may cause limitations in the amount of net operating losses that the Company may utilize in any one year, include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period.

Deferred tax assets at September 30, 2008 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. The Company has provided a full valuation allowance on the deferred tax assets at September 30, 2008 to reduce such deferred income tax assets to zero, as it is management's belief that realization of such amounts is not considered more likely than not.

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

	September 30, 2008			September 30, 2007

Tax expense (credit) at statutory rate-federal		(34	)%		(34	)%

State tax expense net of federal tax		(6	)		(6	)
Changes in valuation allowance		40	%		40	%

Tax expense at actual rate	$	-		$	-

F-12

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 7. INCOME TAXES (CONTINUED)

The components of the net deferred tax asset are summarized below:

	September 30, 2008			September 30, 2007

Deferred tax asset
Net operating losses	$	6,640,093		$	6,674,133

Less: valuation allowance		(6,640,093	)		(6,674,133	)
	$	-0-		$	-0-

NOTE 8. COMMITMENTS

In May 2005, the Company leased facilities in Las Vegas Nevada. The lease has a term of three years. Initial monthly base rent is $8,250 with no increases, and the initial monthly base rent expense for Burbank is $30,000. Rent expense for the year ended September 30, 2008 and 2007 were $89,557 and $94,454, respectively. The lease obligations were terminated due to the bankruptcy filing and the deposits held by the landlord was used to settle the obligations.

NOTE 9. STOCK ACTIVITY

a. CONVERTIBLE PREFERRED STOCK

At September 30, 2008 and 2007, the Company had three series of convertible Preferred Stock: B, C and D. Series B Preferred Stock has no voting rights, is entitled to receive cumulative dividends in preference to any dividend on the common stock at a rate of 10% per share, per year, to be issued if and when declared by the Board of Directors and can be converted at any time into common stock on a 1 for 5 basis. In the event of any liquidation, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series C Preferred Stock has no voting rights, is entitled to receive cumulative dividends in preference to any dividend on the common stock at a rate of 10% per share, per year, to be issued if and when declared by the Board of Directors and can be converted at any time into common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to receive an amount equal to the purchase price per share, plus an amount equal to declared but unpaid dividends thereon, if any, to the date of payment. Series D Preferred Stock has no voting rights, no dividends and can be converted at any time to common stock on a 1 for 1 basis. In the event of any liquidation, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to receive an amount equal to the purchase price per share.

With respect to rights on liquidation, Series B, C and D Preferred Stock shall rank senior to the common stock but Series C Preferred Stock shall be senior to both Series B and D Preferred Stock while Series D Preferred Stock shall be junior to both Series B and C Preferred Stock. The Board of Directors declared no dividends for any of the Series of convertible Preferred Stock during the fiscal year ended September 30, 2008.

b. WARRANTS

During the fiscal year ended September 30, 2003, the Company issued warrants to purchase 2,083,334 shares of the Company's common stock to a director in connection with services provided and to be provided to the company. The weighted average exercise price for the warrants issued was $0.12, and all of the warrants begin to expire in September 2005. No warrants were exercised for the period ending September 30, 2008.

F-13

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 9. STOCK ACTIVITY (CONTINUED)

c. REVERSE STOCK SPLIT

On December 11, 2006, the Company completed a 1 for 20 reverse split of its common stock. The reverse stock split is reflected in the financial statements on a retroactive basis.

NOTE 10. STOCK COMPENSATION PLAN AND NON-QUALIFIED STOCK OPTIONS

The Company has a 2001 Employee Stock Compensation Plan (the "ESCP") to enhance its ability to attract, retain and compensate experienced employees, officers, directors and consultants. The effective date of the ESCP is January 2001. A total of 2,600,000 shares of common stock were registered for issuance under the ESCP on three Form S-8 registration statements filed January 16, 2001, March 26, 2001 and October 19, 2001. Pursuant to the ESCP, the Compensation Committee or Board of Directors may award registered shares of the Company's common stock to employees, officers, directors or consultants for cash, property, services rendered or other form of payment constituting lawful consideration. Plan shares awarded for other than services rendered shall be sold at not less than the fair market value on the date of grant. During the fiscal year ended September 30, 2005, the Company issued an aggregate of 1,572,500 shares of registered common stock to employees, officers, directors and consultants pursuant to the ESCP.

NOTE 11. 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 shall be 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 provides 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 contemplated to be on or about August 15, 2008 (the "Effective Date"). The Company plans to fund the Plan through cash on hand and accumulated by the Effective Date to pay off the allowed Priority Unsecured Tax claims of potentially $191,164.05, and the first month's payment of approximately $17,000 plus interest to its non-priority unsecured creditors. The Company has on hand approximately $170,000 and estimates that it will have almost $300,000 available for disbursement on the Effective Date.

On the Effective Date, unexpired leases and executory contracts shall be assumed as obligations of the reorganized Company. The Order of the Court approving the Plan constitutes an order approving the assumption of each lease and contract. Within 120 days of the entry of the order confirming the Plan, the Company will file a status report with the Court explaining what progress has been made toward consummation of the confirmed Plan. The status report shall be served on the United States Trustee, the twenty largest unsecured creditors, and those parties who have requested notice. Further status reports shall be filed every 120 days and served on the same entities until the Plan is fully consummated.

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 Company, pursuant to the terms of the Plan, is contemplating the issuance of approximately 38,000,000 shares of common stock to insiders who are

F-14

VALCOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007

NOTE 11. BANKRUPTCY FILING (CONTINUED)

also debt holders of the Company who have the pre-petition, pre-existing right to receive equity for debt. Of the total amount of common shares contemplated to be issued, a majority of the common shares are to be issued to insiders of the Company. However, the Directors and President of the company elected to convert their debt of $1,670,000 to Preferred Convertible Stock rather than issue approximately 33,400,000 shares of common stock as contemplated in the Plan.

NOTE 12. GOING CONCERN

The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Historically, the Company has incurred significant annual losses, which have resulted in an accumulated deficit of $17,733,106 at September 30, 2008 which raises 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 increase sales by increasing its marketing program 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.

Delaware	58-1700840
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

Large accelerated filer o	Non-accelerated filer (Do not check if a smaller reporting company) o

Accelerated filer o	Smaller reporting company x

	PAGE
PART I	2
ITEM 1. BUSINESS	2
ITEM 1A. RISK FACTORS	5
ITEM 2. PROPERTIES	7
ITEM 3. LEGAL PROCEEDINGS	7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	8

PART II	9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	9
ITEM 6. SELECTED FINANCIAL DATA	13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	17
ITEM 9A.CONTROLS AND PROCEDURES	17

PART III	19
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	19
ITEM 11.EXECUTIVE COMPENSATION	21
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	22
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	22
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES	22

PART IV	23
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES	23

SIGNATURES	24

	§	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.

Date	Low		High
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

Plan category	NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS		WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS		NUMBER OF SECURITIES REMAINING AVAILABLE PLANS FOR FUTURE ISSUANCE UNDER EQUITY PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (A)
	(A)		(B)		(C)
EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS		-0-		-0-		-0-

EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS		-0-		-0-		-0-
TOTAL		-0-		-0-		-0-

	Series B Preferred Stock			Series C Preferred Stock			Common Stock			Treasury		Additional Paid-In		Accumulated		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Stock		Capital		Deficit		(Deficit)

Balance, September 30, 2006	38,000	$	38	9,267,416	$	9,267	4,265,603	$	4,266	$	(23,522)	$	14,097,995	$	(15,293,188)	$	(1,205,144)

Common stock issued for
cash	-		-	-		-	770,725		771		-		130,715		-		131,486

Common stock issued for
services	-		-	-		-	2,561,283		2,561		-		185,447		-		188,008

Common stock issued for
debt	-		-	-		-	2,711,200		2,711		-		666,303		-		669,014

Preferred stock conversion	-		-	(1,345,750)		(1,346)	67,288		67		-		1,279		-		-

Net loss for the year
ended September 30, 2007	-		-	-		-	-		-		-		-		(2,006,102)		(2,006,102)

Balance, September 30, 2007	38,000		38	7,921,666		7,921	10,376,099		10,376		(23,522)		15,081,739		(17,299,290)		(2,222,738)

Common stock issued for
services	-		-	-		-	7,630,000		7,630		-		511,285		-		518,915

Preferred stock issued for
debt	-		-	1,670,000		1,670	-		-		-		1,668,060		-		1,669,730

Common stock issued for
debt	-		-	-		-	250,000		250		-		19,750		-		20,000

Common stock issued for
cash	-		-	-		-	4,520,000		4,520		-		497,480		-		502,000

Net loss for the year
ended September 30, 2008	-		-	-		-	-		-		-		-		(433,816)		(433,816)

Balance, September 30, 2008	38,000	$	38	9,591,666	$	9,591	22,776,099	$	22,776	$	(23,522)	$	17,778,314	$	(17,733,106)	$	54,091

	−	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.

Name	Age	Position	Since
Vince Vellardita	50	CEO/CFO/President/Chairman of the Board	2000
Richard Shintaku	66	Director	2003
Frank O Donnell	58	Director	2006

Name & Position	Year	Salary		Bonus	Other	Restricted Stock		Options	LTIP	All Other
Vincent Vellardita,	2008	$	0	0.000	0		0	0	0	0
CEO	2007	$	0	0.000	0		0	0	0	0
	2006	$	0	0.000	0		140,400	0	0	0

Title of Class	Name and Address of BeneficialOwner	Amount and Nature of Beneficial Owner (1)		Percent(2) of Class
Common	Vince Vellardita		4,500,000		19.8	%
	(CEO, CFO, Chairman)
Common	Richard Shintaku		4,500,000		19.8	%
	(Director)
Common	Frank O’Donnell		750,000		3.3	%
Common	All Officers and Directors as a Group		9,750,000		42.9	%
	(Three [3] individuals)

	2007		2008
Audit fees	$	13,000	$	13,000
Quarterly reviews	$	12,000	$	12,000
Total	$	25,000	$	25,000

	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)

SIGNATURE	TITLE	DATE

By: /s/ Vince Vellardita	Chief Executive Officer, Chairman of the Board	January 13, 2009
Vince Vellardita

By: /s/ Richard Shintaku	Director	January 13, 2009
Richard Shintaku

By: /s/ Frank O Donnell	Director	January 13, 2009
Frank O Donnell