U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER 1 TO
FORM 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002
- --------------------------------------------------------------------------------
[ ] Transition Report under Section 13 or 15(d)of the Exchange Act For the
Transition Period from ________ to ___________
- --------------------------------------------------------------------------------
Commission File Number: 0-30829
- --------------------------------------------------------------------------------
Muller Media, Inc.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Nevada 88-0430189
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11 East 47th Street, Third Floor, New York, New York 10017
---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(212) 317-0175
---------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
1
Common Stock, $0.001 par value per share, 20,000,000 shares authorized,
13,475,750 issued and outstanding as of June 30, 2002. Preferred
Stock, $0.001 par value per share, 5,000,000 shares authorized, no
Preferred Stock issued nor outstanding as of June 30, 2002.
Traditional Small Business Disclosure Format (check one) Yes [ ] No [X]
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 4
Independent Accountant's Report...................... 5
Balance Sheets...................................... 6
Statements of Operations............................... 7
Statement of Comprehensive Income (Loss)............... 8
Statements of Cash Flows.............................. 9
Notes to Financial Statements........................ 10-21
Item 2. Management's Discussion and Analysis of Plan
of Operation......................................... 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 28
Item 2. Changes in Securities and Use of Proceeds........... 28
Item 3. Defaults upon Senior Securities..................... 28
Item 4. Submission of Matters to a Vote
of Security Holders................................. 28
Item 5. Other Information.................................... 28
Item 6. Exhibits and Reports on Form 8-K..................... 28
Signatures..................................................... 29
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
As prescribed by Item 310 of Regulation S-B, the independent accountants
have reviewed these unaudited interim financial statements of the
registrant for the six months ended June 30, 2002. The financial
statements reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period presented.
The unaudited financial statements of registrant for the six months ended
June 30, 2002, follow.
4
INDEPENDENT ACCOUNTANTS? REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS MULLER MEDIA, INC.
We have reviewed the accompanying balance sheet of Muller Media, Inc. as of
June 30, 2002, and the related statements of operations, comprehensive income
(loss) and cash flows for the six months then ended. These financial statements
are the responsibility of the Company?s management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principle generally accepted in the United States of America.
We have audited, in accordance with auditing standards generally accepted in
the United States of America, the balance sheet as of December 31, 2001, and
the related statements of income, comprehensive income, stockholders? equity,
and cash flows for the year then ended (not presented herein); and in our
report dated February 22, 2002, we expressed an unqualified opinion on those
consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed balance
sheet as of December 31, 2001 is fairly stated in all material respects in
relation to the balance sheet from which it has been derived.
MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C.
Certified Public Accountants
New York, New York
August 15, 2002
5
MULLER MEDIA, INC.
BALANCE SHEETS
BALANCE SHEETS
June 30, December 31,
2002 2001
------------ ------------
ASSETS (Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 1,071,840 $ 952,906
Accounts receivable, net of allowance for
doubtful accounts of $76,047 and $52,582, respectively 2,526,410 1,925,678
Securities available for sale 38,640 38,934
Prepaid expenses 7,405 27,723
------------ ------------
Total current assets 3,644,295 2,945,241
Property and equipment, less accumulated
depreciation and amortization 3,707 2,038
Accounts receivable, non-current 934,425 497,621
Deferred charges - payments to producers - 197,681
Deferred tax asset 6,703 14,633
Advances to former parent company 955,670 877,259
Goodwill, less accumulated amortization of $290,556 1,343,880 1,343,880
Deposit 7,500 7,500
------------ ------------
TOTAL ASSETS $ 6,896,180 $ 5,885,853
============ ============
LIABILITIES AND STOCKHOLDERS? EQUITY
Current liabilities
Accounts payable and accrued expenses $ 20,169 $ 60,420
Accrued income taxes 290,454 313,633
Due to producers 503,927 192,055
Deferred revenue, current portion 2,015,662 1,521,531
Convertible note 225,000 300,000
------------ ------------
Total current liabilities 3,055,212 2,387,639
Deferred revenue, less current portion 811,160 734,925
------------ ------------
Total liabilities 3,866,372 3,122,564
------------ ------------
Commitments and contingencies - -
Stockholders? equity
Preferred stock, $.001 par value; 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.001 par value; 20,000,000 shares
authorized; 13,475,750 and 13,175,750 issued
and outstanding, respectively 13,476 13,176
Additional paid-in capital 2,079,740 1,804,710
Retained earnings 947,022 955,539
Unrealized loss on marketable securities (10,430) (10,136)
------------ ------------
Total stockholders? equity 3,029,808 2,763,289
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS? EQUITY $ 6,896,180 $ 5,885,853
============ ============
See accompanying notes and accountants? report.
6
MULLER MEDIA, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Revenue $ 691,292 $2,080,101 $2,379,967 $2,355,160
Cost of revenue - producers? fees 432,408 1,459,912 1,354,141 1,633,502
---------- ---------- ---------- ----------
Net revenue 258,884 620,189 1,025,826 721,658
---------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative 386,398 248,636 1,118,041 594,987
Depreciation and amortization 143 10,215 333 20,430
Bad debt 7,196 - 42,729 102,386
---------- ---------- ---------- ----------
Total operating expenses 393,737 258,851 1,161,103 717,803
---------- ---------- ---------- ----------
Income (loss) from operations (134,853) 361,338 (135,277) 3,855
Other income (expenses)
Interest income 92,182 93,995 129,932 234,041
Interest expense (7,642) - (18,421) -
---------- ---------- ---------- ----------
Total other income 84,540 93,995 111,511 234,041
---------- ---------- ---------- ----------
Income (loss) before income taxes (50,313) 455,333 (23,766) 237,896
Income tax (provision) benefit 28,545 (206,800) 15,249 (113,800)
Cumulative effect of change in
accounting principle - - - (448,061)
---------- ---------- ---------- ----------
Net income (loss) $ (21,768) $ 248,533 $ (8,517) $(323,965)
========== ========== ========== ==========
Net income (loss) per common share
- basic and diluted $ - $ 2,485 $ - $ (3,240)
========== ========== ========== ==========
Weighted average common shares
- basic 13,475,750 100 13,395,641 100
========== ========== ========== ==========
- diluted 15,473,689 100 15,393,580 100
========== ========== ========== ==========
See accompanying notes and accountants? report.
7
MULLER MEDIA, INC.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
COMPREHENSIVE INCOME
Net income (loss) $ (21,768) $ 248,533 $ (8,517) $(323,965)
Net unrealized gain (loss) on
Securities available for sale 504 840 (294) 840
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (21,264) $ 249,373 $ (8,811) $(323,125)
========== ========== ========== ==========
See accompanying notes and accountants? report.
8
MULLER MEDIA, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
STATEMENTS OF CASH FLOWS
June 30,
--------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) (Unaudited)
Net (loss) $ (8,517) $ (323,965)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 333 20,430
Bad debt expense 42,729 102,386
Issuance of common stock for services 275,330 -
(Increase) decrease in assets:
Accounts receivable (1,080,265) 1,308,726
Prepaid expenses 20,318 -
Deferred charges 197,681 (180,336)
Deferred tax asset 7,930 -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (40,251) 10,728
Due to producers 311,872 (3,490,515)
Accrued income taxes (23,179) (1,198,770)
Deferred revenue 570,366 3,902,202
------------ -----------
Net cash provided by operating activities 274,347 150,886
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in property and equipment (2,002) -
Advances to affiliated company (128,091) (185,453)
------------ -----------
Net cash used in investing activities (130,093) (185,453)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of convertible note (25,320) -
------------ -----------
NET INCREASE (DECREASE) IN CASH 118,934 (34,567)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 952,906 1,412,334
------------ -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,071,840 $ 1,377,767
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for -
Interest $ 18,421 $ -
============ ===========
Income taxes $ - $ -
============ ===========
See accompanying notes and accountants? report.
9
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Muller Media, Inc. was originally incorporated on February 1, 1982
in New York State and, subsequently, on June 9, 1998, became a
wholly owned subsidiary of DCI Telecommunications, Inc. (?DCI?)
pursuant to a stock purchase agreement, through which DCI acquired
100% of the outstanding stock of the Company in exchange for 1,200
shares of common stock of DCI.
Pursuant to the Agreement and Plan of Merger by and among Muller
Media, Inc. (?Company? or ?Muller?), Business Translation Services,
Inc. (the ?Seller? or ?BTS?) and DCI Telecommunications, Inc. (the
?Purchaser? or ?DCI?) dated November 12, 2001 and the Share Purchase
Agreement between the Purchaser and the Seller dated November 12,
2001, DCI purchased 10,000,000 (?Selling Shares?), of BTS common
stock, accounting for 82% of BTS? issued and stock after the sale.
As part of the cost of the merger, the Company also issued an
aggregate 2,3000,000 common stock purchase warrants; 1,200,000
warrants have an exercise price of $0.125, and the remaining
1,100,000 warrants have an exercise price of $0.025. All of the
warrants are exercisable through November 12, 2006. Immediately
after the execution and delivery of the agreement, DCI caused Muller
to merge with and into BTS? shares. As a result of this
transaction, DEC acquired and exercised control over a majority of
the BTS shares. Accordingly, for accounting purposes, the
transaction has been treated as recapitalization of Muller;
therefore, the financial statements represent a continuation of the
accounting acquirer, Muller, not BTS, the legal acquirer:
i. Muller is deemed to be the purchaser and surviving company
for accounting purposes. Accordingly, its net assets are
included in the balance sheet at their historical book value.
ii. Control of the net assets and business of BTS was
acquired effective November 12, 2001 (the ?Effective Date?).
BTS had no significant operations prior to the acquisition.
acquisition. At the Effective Date, BTS had net assets of
approximately $80.
Effective with the merger, the Company changed its fiscal year end
to December 31.
Nature of Operations
--------------------
The Company packages motion pictures and other entertainment events
and distributes them to the television stations and cable networks.
10
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
Revenue Recognition
-------------------
In accordance with SOP 00-2, revenue from the distribution of motion
pictures and other entertainment events is recorded when the
material is available for telecasting by the licensee and when other
conditions are met.
License agreements for the telecast of motion pictures and other
entertainment events are routinely entered into in advance of their
available date for telecast. Cash received in connection with such
contractual rights for which revenue is not yet recognizable is
classified as deferred revenue. Because deferred revenue generally
relates to contracts for the licensing of motion pictures and other
entertainment events which have already been produced, the
recognition of revenue for such completed products is principally
only dependent upon the commencement of the availability period for
telecast under the terms of the related licensing agreement.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
The Company places it cash in what it believes to be credit-worthy
financial institutions. However, cash balances may exceed FDIC
insured levels at various times during the year.
11
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFIICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable
-------------------
License contracts, generally ranging from 24 to 36 months, are
discounted at a risk-free rate of interest to their present value.
Discount on these licenses is amortized over the lives of the
contracts and included in interest income.
For financial reporting purposes, the Company utilizes the allowance
method of accounting of doubtful accounts. The Company performs
ongoing credit evaluations of its customers and, if required,
maintains an allowance for potential credit losses. The allowance
is based on an experience factor and review of accounts receivable.
Uncollectible accounts are written off against the allowance
accounts when deemed uncollectible.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided
for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives, primarily on a
straight-line basis.
Maintenance and repairs are charged to expense as incurred;
additions and betterments are capitalized. Upon retirement or sale,
the cost and related accumulated depreciation of the disposed assets
are removed and any resulting gain or loss is credited or charged to
operation.
Fair Value of Financial Instruments
-----------------------------------
The Company?s financial instruments consist of cash, accounts
receivable, marketable securities, deferred charges, advances to
former parent, accounts payable, deferred revenue, deferred income
taxes and convertible note. The carrying amounts of cash, accounts
receivable, accounts payable, deferred revenue, deferred income
taxes and convertible note approximate fair value due to the highly
liquid nature of these short-term instruments at June 30, 2002 and
December 31, 2001.
12
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFIICANT ACCOUNTING POLICIES (Continued)
Goodwill
--------
In July 2001, the Financial Accounting Standards Board (?FASB?)
issued Statement of Financial Accounting Standards No. 142 (?SFAS?),
which requires companies to stop amortizing goodwill and certain
intangible assets with an indefinite useful life. Instead, goodwill
and intangible assets deemed to have an indefinite useful life will
be subject to annual review for impairment. The new standard was
effective for Muller Media, Inc. in the first quarter of 2002. The
company will perform its annual impairment review during the fourth
quarter of each year, commencing in the fourth quarter of 2002.
Income Taxes
------------
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and the reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates, applicable to the period in which the
deferred tax assets and liabilities are expected to be realized, or
settled as prescribed by SFAS No. 109, ?Accounting for Income
Taxes.? As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes.
Earnings Per Share
------------------
SFAS No. 128, ?Earnings Per Share? requires presentation of basic
earnings per share (?Basic EPS) and diluted earnings per share
(?Diluted EPS?).
13
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICIANT ACCOUNTING POLICIES (Continued)
Earnings Per Share (continued)
------------------------------
The computation of basic earnings per share is computed by dividing
earnings available to common stockholders by the weighted average
number of outstanding common during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during
the period.
Investment in Equity Securities
-------------------------------
The Company accounts for its investments in equity securities under
the provision of SFAS No 115, ?Accounting for Certain Investments in
Debt and Equity Securities.? This standard provides that available-
for sale investments in securities that have readily determinable
fair values be measured at fair value in the balance sheet, and that
unrealized holding gains and losses for these investments be
reported in a separate component of stockholders? equity until
realized.
Interim Financial Statements
----------------------------
The accompanying financial statements are unaudited but, in the
opinion of management, contain all the adjustments (consisting of
those of a normal recurring nature) considered necessary to present
fairly the financial position and the results of operations and cash
flows for the periods presented in conformity with accounting
principles generally accepted in the United States of America
applicable to interim periods. Results of the six months ended
June 30, 2002 are not necessarily indicate of results to be expected
for the full year ending December 31, 2002. The accompanying
financial statements should be read in conjunction with the audited
financial statements of Muller Media, Inc., included in its annual
report of Form 10-KSB for the transition period from April 2001 to
December 31, 2001.
14
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 2 - MARKETABLE SECURITIES
Marketable securities classified as available-for-sale are comprised
as follows:
June 30, December 31,
2002 2001
------------ ---------------
Common stock
Market securities, at cost $ 49,070 $ 49,070
Fair value 38,640 38,934
------------ ---------------
Unrealized loss $ (10,430) $ (10,136)
============ ===============
NOTE 3 - ADVANCES TO AFFILIATED COMPANY
Advances to former affiliated company consist of the following as
of:
June 30, December 31,
2002 2001
------------ ---------------
Advances $ 1,446,627 $ 1,378,216
Tax credit due to affiliated
company (490,957) (490,957)
------------ ---------------
$ 955,670 $ 887,259
============ ===============
15
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of:
June 30, December 31,
2002 2001
------------ ---------------
Furniture,fixtures,and equipment $ 78,722 $ 78,722
Auto 32,894 30,891
------------ ---------------
111,616 109,613
Less: accumulated depreciation 107,909 107,575
------------ ---------------
Fixed assets - net $ 3,707 $ 2,038
============ ===============
Depreciation expense $ 333 $ 228
============ ===============
NOTE 5 - GOODWILL
Goodwill as of June 30, 2002 and December 31, 2001 was:
June 30, December 31,
2002 2001
------------ ---------------
Goodwill $ 1,634,436 $ 1,634,436
Less: accumulated amortization 290,556 290,556
------------ ---------------
$ 1,343,880 $ 1,343,880
============ ===============
The goodwill arose from the acquisition of Muller Media, Inc. by
DCI, the former parent company of Muller Media, Inc.
16
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 5 - GOODWILL (Continued)
The acquisition was accounted for as a purchase, effective June
1998, upon the last payment. Cost in access of net assets acquired
was recorded on Muller's books at $1,634,436.
NOTE 6 - CONVERTIBLE NOTE
In connection with the merger with and into BTS, the Company issued
a $300,000 convertible note for cash proceeds equal to the face
amount. The note bears interest at 10% per year and is payable in
three installments with interest, $75,000 on April 30, 2002,
$100,000 on July 31, 2002 and $125,000 on October 31, 2002. The
note is convertible at any time, at the option of the holder. The
conversion price is $0.50 per share, subject to adjustment for stock
split, stock dividends, recapitalization, etc. If the Company
defaults in the payment of principal of interest when due, and such
default is not cured within five calendar days following notice,
then the Company shall issue to the holder, within five calendar
days after demand, two million shares of Common Stock of the Company
and the conversion price will be reduced by 50%.
The holder must convert the payments due April 30, 2002 and July 31,
2002 into shares of common stock of the Company at the conversion
price then in effect provided the holder has, prior to
April 30,2002, sold shares to the Company's common stock to net
Assets of at least $250,000, and provided further that at the date
of such conversion the Company is not in default of any of the terms
and conditions of this Note or any security agreement or other
agreement executed in connection with this Note. The exercise of any
warrants or other convertible instruments will not of itself
contribute in any way to shares referenced above, but any
subsequent sale of common shares obtained as a result of such
conversion or exercise will be applied towards the $250,000.
On April 30, 2002 the Company made a payment to the holder of the
convertible note in the amount of $25,320. The difference between
$25,320 and the amount due of $75,000 (plus interest) of
approximately $50,800 represented a claim by the company that it was
overcharged an investment fee by a related party to the note holder,
in the amount of $50,800, which it offset against the payment due on
April 30, 2002.
The Company has obtained legal opinion to the effect that the note
holder and associated and affiliated parties have breached
fundamental obligations to the Company giving rise to offset as
compensation for breach of such duties as well as damages that is in
excess of the amount of the note. The Company has advised the note
holder that the debt has been extinguished by offset and the Company
does not plan to make any additional payments.
17
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
----------------
The Company leases office space and has two non-convertible
operating leases that expire on November 30, 2002 and June 30, 2004,
respectively:
Year Amount
------------- ------------
June 30, 2003 $ 75,433
June 30, 2004 72,762
Employment Agreements
---------------------
The Company has entered into employment agreements as follows. Two
five-year agreements, each providing for an annual salary of
$125,000, expiring November 2006.
A three-year agreement, provided for an annual salary of $226,000
expiring June, 2004.
A renewable one-year agreement providing for an annual salary of
$200,000 was not renewed on June 8, 2002 by mutual consent of the
parties.
NOTE 8 - CAPITAL STOCK
a. The Company is authorized to issue 5,000,000 shares of $.001 par
value. Preferred Stock, none of which were outstanding at March 31,
2002.
b. On November 12, 2001, BTS issued 10,000,000 shares of $.001 par
value common stock for all the shares of Muller. Before the
transaction, there were 2,200,750 shares of BTS outstanding.
After the transaction, the ownership of BTS was as follows:
Shares Percent
----------- -------
Original shareholders 2,200,750 18%
Former owner of Muller 10,000,000 82%
----------- -------
12,200,750 100%
=========== =======
18
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 8 - CAPITAL STOCK (Continued)
Because the parent of Muller obtained control of BTS, the
transaction would normally be considered a purchase by Muller;
however, since BTS is not a business, the transaction is accounted
for as a recapitalization of Muller and the issuance of stock by
Muller (represented by the outstanding shares of BTS) for the assets
and liabilities of BTS. The value of the net assets is the same as
their historical book value.
c. In the quarter ended March 31, 2002, the Company issued 400,000 of
$0.001 par value common stock for legal and consultant services to
be rendered. The fair value of these shares at the time of issuance
was $366,060. During the quarter ended June 30, 2002, 100,000 of
these shares were returned to the Company as a result of an
agreement between the holder of the shares and the Company. The
effect of the return of shares was to reduce selling, general and
administrative expenses by approximately $90,000.
NOTE 9 - WARRANTS
As part of the cost of the merger described in Note 1, the Company
also issued an aggregate 2,300,000 common stock purchase warrants,
1,200,000 warrants have an exercise price of $0.125, and the
remaining 1,100,000 warrants have an exercise price of $0.025. All
of the warrants are exercisable through November 12, 2006.
NOTE 10 - INTEREST INCOME
Interest income consisted of the following for the periods listed
below:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
Discount earned on
accounts receivable $ 89,605 $ 82,085 $ 125,105 $ 208,339
Interest income 2,577 11,070 4,827 25,702
------------- ------------- ------------ ------------
$ 92,182 $ 93,155 $ 129,932 $ 234,041
============= ============= ============ ============
19
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30 2002
NOTE 11 - INCOME TAXES
The components of income taxes consisted of the following for the
periods listed below:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
Current tax expense
(benefit):
U.S. Federal $ (19,324) $ 156,700 $ (9,352) $ (85,350)
State and local (9,221) 50,100 (5,897) (28,450)
------------- ------------- ------------ ------------
Total current (28,545) 206,800 (15,249) (113,800)
Deferred:
U.S. Federal (11,202) - (5,947) -
State and local (3,735) - (1,983) -
------------- ------------- ------------ ------------
Total deferred (14,937) - (7,930) -
------------- ------------- ------------ ------------
Total tax (benefit) $ (43,482) $ 206,800 $ (23,179) $ (113,800)
============= ============= ============ ============
A reconciliation between federal statutory tax rate and the
effective tax rate is as follows:
20
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
NOTE 11 - INCOME TAXES (CONTINUED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
Statutory federal
income tax rate 15% 34% 15% 34%
Non-deductible expenses 31% - 31% -
State and local income
taxes
Net of federal income
taxes 11% 11% 11% 11%
------------- ------------- ------------ ------------
Effective income tax rate 57% 45% 57% 45%
============= ============= ============ ============
21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Muller Media is in the business of syndication of feature films to free
television networks, cable networks as well as independent stations
throughout the United States.
The Company was originally incorporated under the name Puppettown.com, Inc.
on July 1, 1999 with the filing of Articles of Incorporation with the
Secretary of State of the State of Nevada. On July 26, 1999, a Certificate
of Amendment was filed under which the Company?s corporate name was changed
to Business Translation Services, Inc. (?BTS?).
On November 12, 2001 there was a change in control of the Company. On the
same day the Company entered into a merger with Muller Media, Inc., a New
York corporation formed in 1982, under the terms of which the surviving
entity was BTS. On January 22, 2002, the Company filed a Certificate of
Amendment with the Secretary of State of the State of Nevada whereby the
Company changed its corporate name to Muller Media Inc.
Primarily, the Company represents independent film producers for purposes
of distribution of their product and content to the networks and broadcast
distribution companies.
Muller Media currently has under license the distribution rights in the
United States to over 100 feature films. The Company groups together from
10 to 20 feature films designed to appeal to the 18 to 49 year old adult
population and licenses the broadcast distribution companies for exhibition
of its films in compliance with Muller's own licensing rights.
It is Muller's plan to continue to acquire the distribution broadcast rights
to independently produced films so as to expand its library and thus expand
its product offerings to clients. The Company is also seeking to acquire
other firms with film libraries that would be of appeal to its existing
client base.
Although the Company has limited its distribution to U.S. markets until now,
the Company is considering expansion into international markets, beginning
initially with Europe. Subsequently the markets in Asia and South America
will be targets of opportunity for Muller. China currently has more
television sets than the U.S. and their population is clambering for media,
including movie content.
The Company's principal goal is to increase the content of its film library.
This will include primarily feature films, with a view toward other forms of
programming which can add to profitability.
Muller has carved out a niche which will cause the Company to continue to grow
profitably. As most major companies in the industry are becoming increasingly
integrated, with regard to production, distribution and exhibition, some
content is "falling through the cracks". Many of the best creative projects
are being forced into a secondary position. Some of the content which will be
added to Muller's library will come from this segment.
22
As a relatively small company in an industry of giants, Muller has adopted
less costly, more innovative strategies, both in securing content and selling
movie or other packages. For the time being and until Muller has carved out a
larger niche within the industry, this methodology will continue. One of the
Company's greatest strengths lies in the ability of its executives to deal
directly with keys players both from the production side as well as the
exhibition (TV, cable, etc.) side of the industry.
The following discussion is intended to provide an analysis of Muller?s
financial condition and should be read in conjunction with our financial
statements and the notes thereto. The matters discussed in this section that
are not historical and current facts deal with potential future circumstances
and developments. Such forward-looking statements include, but are not
limited to, the development plans for Muller?s growth, trends in the results
of the Company?s development, anticipated development plans, operating expenses
and anticipated capital requirements and capital resources. The Company?s
actual results could differ materially from the results discussed in the
forward-looking statements.
RESULTS OF OPERATIONS
- ---------------------
Revenue
- -------
Revenue for the six months ended June 30, 2002 increased by approximately
$25,000 as compared with the same period in 2001. This increase can be
directly related to the distribution of a new package of motion pictures and
sales fees earned on cable contracts executed in early 2002. Revenue for the
three months ended June 30, 2002 decreased by approximately $1,389,000 as
compared to the same period in 2001. This decrease can be directly related to
timing differences in the start dates of motion pictures which were released
after March 31, 2001. In contrast, in the year 2002, most of the motion
pictures were released prior to March 31, 2002.
Cost of Revenue
- ---------------
Cost of revenue as a percent of gross revenue decreased from 69% for the six
months ended June 30, 2001 to 57% for the six months ended June 30, 2002.
In the three months ended June 30, 2002 the cost of revenue as a percent of
gross revenue decreased from 70% for the three month period ended June 30, 2001
to 62%.
23
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the six month period ended
June 30, 2002 increased by approximately $523,000 as compared with the same
period in 2001. This was a result of an increase in the number of
administrative staff in the company and the issuance of common stock to
consultants (a non-cash transaction), both of which occurred in 2002. A charge
of $366,000 was taken in relation to the non-cash issuance of common stock.
Selling, general and administrative expenses for the three month period ended
June 30, 2002 increased by approximately $138,000 as compared with the same
period in 2001. This increase can be attributed to the increase in the number
of administrative staff and other operating expenses.
Interest Income
- ---------------
Interest income for the six month period ended June 30, 2002 decreased by
approximately $104,000 as compared with the same period in 2001. This decrease
can be directly attributed to a general reduction in the prime interest rate
and corresponding decline in interest rates paid by financial institutions on
deposits.
Cumulative Effect of Change in Accounting Principle
- ---------------------------------------------------
In March, 2001 the company adopted SOP 00-2, Revenue for the Distribution of
Motion Pictures and other Entertainment Events. As a result of this adoption
the company recorded a cumulative change in accounting principle which resulted
in a charge to operations of approximately $448,000.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 2002, Muller's current assets exceeded its current liabilities
by approximately $589,083.
a) The Company is authorized to issue 20,000,000 shares of $.001 par
value Common Stock, of which 13,575,750 were outstanding at June
30, 2002.
b) The Company is authorized to issue 5,000,000 shares of $.001 par
value Preferred Stock, none of which were outstanding at June
30, 2002.
24
c) On November 12, 2001, BTS issued 10,000,000 shares of $.001 par
value common stock for all the shares of Muller. Before the
transaction, there were 2,200,750 shares of Business Translation
Services outstanding. After the transaction, the ownership of
Business Translation Services was as follows:
Shares Percent
Original shareholders 2,200,750 18%
Former owner of Muller 10,000,000 82%
---------- ----
12,200,750 100%
========== ====
d) In the quarter ended March 31, 2002, the Company issued 400,000 of
$0.001 par value common stock for legal and consultant services to
be rendered. The fair value of these shares at the time of issuance
was $366,060. During the quarter ended June 30, 2002, 100,000 of
these shares were returned to the Company as a result of an
agreement between the holder of the shares and the Company. The
effect of the return of shares was to reduce selling, general and
administrative expenses by approximately $90,000.
e) In connection with the merger with and into BTS, the Company issued
a $300,000 convertible note for cash proceeds equal to the face amount.
The note bears interest at 10% per year and is payable in six
installments with interest, $75,000, on April 30, 2002, $100,000 on
July 31, 2002 and $125,000 on October 31, 2002. The note is convertible
at any time, at the option of the holder. The conversion price of $0.50
per share, subject to adjustment for stock splits, stock dividends,
recapitalization, etc. If the Company defaults in the payment
of principal or interest when due, and such default is not cured within
five calendar days following notice, then the Company shall issue to
the holder, within five calendar days after demand, two million shares
of Common Stock of the Company and the conversion price will be reduced
by 50%.
f) The holder must convert the payments due April 30, 2002 and July 31,
2002 into shares of common stock of the Company at the conversion price
then in effect provided the holder has, prior to April 30, 2002, sold
shares to the Company's common stock to net assets at least $250,000, and
provided further that at the date of such conversion the Company is not in
default of any of the terms and conditions of this Note or any security
agreement or other agreement executed in connection with this Note. The
exercise of any warrants or other convertible instruments will not of
itself contribute in any way to shares referenced above, but any
subsequent sale of common shares obtained as a result of such conversion
or exercise will be applied towards the $250,000.
The holder must convert the payments due April 30, 2002 and July 31, 2002
into shares of common stock of the Company at the conversion price then in
effect provided the holder has, prior to April 30,2002, sold shares to the
Company's common stock to net assets at least $250,000, and provided
further that at the date of such conversion the Company is not in default
of any of the terms and conditions of this Note or any security agreement
or other agreement executed in connection with this Note. The exercise of
any warrants or other convertible instruments will not of itself contribute
in any way to shares referenced above, but any subsequent sale of common
shares obtained as a result of such conversion or exercise will be applied
towards the $250,000.
25
Employees
- ---------
As of June 30, 2002, Muller employed eight people, of whom four are
executive and administrative personnel. None of our employees are covered
by a collective bargaining agreement. Muller considers its employee
relations to be good.
The Company has entered into employment agreements as follows:
a) Two five-year agreements, each providing for an annual salary of
$125,000, expiring November 2006.
b) A three-year agreement, provided for an annual salary of $226,000
expiring June, 2004.
c) A renewable one-year agreement providing for an annual salary of
$200,000 was not renewed on June 8, 2002 by mutual consent of the
parties.
The Company has no material commitments for capital expenditures nor does it
foresee the need for such expenditures over the next year. In addition,
management believes that its current facilities will remain suitable as
the main administrative office and research facilities for the next
twenty-four (24) months. The Company has one additional executive office,
and there are currently no proposed programs for the renovation, improvement or
development of the properties currently being leased by the Company.
Market For Company's Common Stock
- ---------------------------------
On February 5, 2001, the Company's common stock was cleared for trading on
the OTC Bulletin Board system under the symbol "BTSV." When the Company
changed its name to Muller Media, Inc., it changed it symbol to "MULM." A
limited market exists for the trading of the Company's common stock.
Dividend Policy
- ---------------
The Company has never paid or declared any dividend on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
26
Forward-Looking Statements
- --------------------------
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference
in this Form 10-QSB which address activities, events or developments which
the Company expects or anticipates will or may occur in the future,
including such things as future capital expenditures (including the amount
and nature thereof), finding suitable merger or acquisition candidates,
expansion and growth of the Company's business and operations, and other
such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results or
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, general economic market and
business conditions; the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the Company.
This Form 10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar
terms. These statements appear in a number of places in this Registration and
include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, among other
things: (i) trends affecting the Company's financial condition or results of
operations for its limited history; (ii) the Company's business and growth
strategies; and, (iii) the Company's financing plans. Investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Factors that could adversely affect
actual results and performance include, among others, the Company's operating
history, potential fluctuations in quarterly operating results and expenses,
government regulation, technological change and competition.
Consequently, all of the forward-looking statements made in this Form 10-QSB
are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequence to or effects on the Company or its business or operations. The
Company assumes no obligations to update any such forward-looking statements.
27
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended June 30, 2002, no matters were submitted to
the Company's security holders.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to Section 1350 to Chapter 63 of Title 18
of the United States Code as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a Current Report dated March 14, 2002, pursuant to Item 4
("Changes in Accountants") entitled "Changes in Registrant's Certifying
Account" and pursuant to Item 7 ("Exhibits") entitled "Letter regarding
Change in Certifying Accountant."
28
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: August 16, 2002 Muller Media, Inc.
/s/ John J. Adams
---------------------
Chairman of the Board
CEO and Director
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: August 16, 2002 Muller Media, Inc.
/s/ Clifford Postelnik
-------------------------------
Vice President, General Counsel,
Secretary and Director
29