VALCOM INC /CA/ (VCMI.OB)
Quarterly Report (SEC form 10QSB)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction Plan of Operation:
ValCom, Inc. operations at present are comprised of three divisions; 1) Studio Rental, 2) Studio Equipment Rental, and 3) Film and Television Production.
Studio Rental The Company owns six improved acres with six sound stages and two additional leased stages in Valencia California doing business as Valencia Entertainment International. Seven
of the eight stages are leased under annual contracts to two major production companies. Rental income for the seven stages should remain constant at approximately $2,000,000 annually with
small cost of living increases. It is anticipated that rental income for the eighth stage should increase beginning in September 2001.
Studio Equipment Rental - In March 2001 the Company acquired for stock Half Day Video, Inc. a company which rents personnel, cameras and other production equipment to various
production companies on a short term basis. As a result of additional equipment purchases and increased activity, from both internal and external productions, it is anticpated that Half Day Video
revenue should increase significantly from the prior year.
Film Production -
In March 2001 the Company entered into an agreement with Woody Fraser Productions to produce various television productions on its behalf. Under the terms of the agreement the Company
will retain, after costs of production, 75% of the net savings derived from any production. In March 2001 the company signed contracts with a Cable Television Network to produce a television
series consisting of 13 episodes and a seperate pilot episode for a new potential series. Revenue under these contracts during 2001 will be approximately $2,500,000. In addition to retaining 75%
of any possible net savings from the productions, the Company's Half Day Video unit will handle a majority of the production rental needs. Additionally, the Company signed a contract with a
different Cable Television Network to produce six (6) epiodes of a television series at a contracted amount of approximately $500,000. After costs of production, the Company will retain 100%
of any savings plus a portion of the executive producer fees. Additional productions are in the development process. Revenues will be recognized when all individual programs are available.
Results of Operation June 30, 2001 and 2000 Comparison
As of June 30, 2001 the Company had working capital of $690,426. As of the prior year working capital was $1,074,031. The change was due primarily to increase in accruals.
Total assets were $17,800,910 at June 30, 2001 versus $16,164,691 at December 31, 2000 and additionally total liabilities were $11,573,297 and $9,002,190 respectively. The changes in total
assets and liabilities are substantially accounted for by above described changes in current assets and liabilities.
For the quarter and six months ended June 30, 2001 the Company had respective revenue of $924,297 and $1,573,668, operating expenses of $1,447,829 and $2,801,761 and net losses of
$(683,950) and $(1,569,888). Losses before depreciation and interest were $(488,492) and $(1,146,474) for the quarter and six month periods.
Rental revenue increased $163,452 for the quarter and $172,502 for the six months compared with the corresponding prior year periods. These increases were the result of the revenue earned
from two additional stages and contractual rate increases. Production income increased $111,913 for the quarter from the prior year and $263,774 for the six months from the prior year. Other
income increased $97,889 and $91,056 for the quarter and six months respectively from the prior year due to the operation of an auto auction at the Piedmont, Alabama property.
Production costs increased $66,321 for the quarter and $114,480 for the six months compared with the corresponding prior year periods. This increase relates to the increase in production
income.
Selling and promotion costs increased $86,801 and $132,003 for the quarter and six months due to the effort to promote the Company.
Depreciation expense decreases of $13,253 and $22,505 were due to the fully depreciated status of certain assets.
For the quarter and six months ended June 30, 2001, administrative and general costs increased by $888,461 for the quarter and $1,743,637 for the six months. These were a result of significant
increases in Legal and Accounting, Management Consulting, Salaries and Fringes, Taxes and Licenses, Development Costs and Rent catagories as follows:
The $10,479 and $136,547 increases in Legal and Accounting was due to the performance of audits and the preparation of agreements and other legal matters related to the merger.
The $7,167 and $225,917 increases in Management Consulting was due to costs incurred in the planning and reorganization of the newly merged companies.
The $122,522 and $147,884 increase in Development Costs represents costs expended with Woody Fraser Productions for the development of new projects.
The $66,397 and $76,212 increase in Taxes and Licenses was due to adjustments made for the under accrual of prior period taxes.
The $108,979 and $217,676 increase in Rent was due to the leasing in late 2000 of additional studio space adjacent to the Valencia studio property.
The $74,529 and $294,733 increase in Salaries and Fringes was primarily due to management staffing increases.
The Company did not record any income tax expense for either the quater or the six months due to its tax loss and tax loss carryforwards. At the end of fiscal 2000, the Company had tax loss
carryforwards in excess of $11 million.
Capital Resources - Internal and external source of funding: The Company has obtained a line of credit from Laurus Family of Funds. for $2,750,000. ValCom has sufficient funds to operate
for the next 12 months through its use of the credit facility. The Company is in the process of refinancing the Piedmont property for $2,500,000. The Company has also listed the property for
sale.
Statement Regarding Computation of Earnings Per Share
See Notes To Consolidated Financial Statements included elsewhere in this filing for a description of the Company's calculation of earnings per share. |
