U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 March 31, 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,
13,575,750 issued and outstanding as of March 31, 2002. Preferred
Stock, $0.001 par value per share, 5,000,000 shares authorized, no
Preferred Stock issued nor outstanding as of March 31, 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 Sheet....................................... 6
Income Statement....................................... 7
Statement of Comprehensive Income...................... 8
Statements of Cash Flows.............................. 9
Notes to Financial Statements........................ 10-17
Item 2. Management's Discussion and Analysis of Plan
of Operation......................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 23
Item 2. Changes in Securities and Use of Proceeds........... 23
Item 3. Defaults upon Senior Securities..................... 23
Item 4. Submission of Matters to a Vote
of Security Holders................................. 23
Item 5. Other Information.................................... 23
Item 6. Exhibits and Reports on Form 8-K..................... 24
Signatures..................................................... 25
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
As prescribed by Item 310 of Regulation S-B, the independent accountant's
report has reviewed these unaudited interim financial statements of the
registrant for the three months ended March 31, 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 three months ended
March 31, 2002, follow.
4
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors
Muller Media, Inc.
We have reviewed the accompanying balance sheet of Muller Media, Inc. as of
March 31, 2002, and the related statements of income, comprehensive income and
cash flows for the three 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 generally accepted auditing standards, 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 principles 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 & CORSO, P.C.
Certified Public Accountants
New York, New York
May 17, 2002
5
MULLER MEDIA, INC.
BALANCE SHEETS
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
BALANCE SHEETS
ASSETS March 31, 2002 December 31, 2001
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 886,475 952,906
Accounts receivable, net of allowance for
doubtful accounts of $88,115 2,641,732 1,925,678
Securities available for sale 38,136 38,934
Prepaid expenses 121,478 27,723
-------------- -----------------
Total current assets 3,687,821 2,945,241
Property and equipment, less accumulated
depreciation and amortization 3,851 2,038
Accounts receivable, non-current 1,360,891 497,621
Deferred charges - payment to producers - 197,681
Deferred tax asset 21,640 14,633
Advances to parent company 921,201 877,259
Goodwill, less accumulated amortization
of $290,556 1,343,880 1,343,880
Deposit 7,500 7,500
-------------- -----------------
TOTAL ASSETS $ 7,346,784 $ 5,885,853
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 79,595 $ 60,420
Accrued income taxes 333,936 313,633
Due to producers 493,054 192,055
Deferred revenue, current portion 2,047,742 1,521,531
Convertible note 300,000 300,000
-------------- -----------------
Total current liabilities 3,254,327 2,387,639
-------------- -----------------
Deferred revenue, less current portion 950,414 734,925
-------------- -----------------
Total liabilities 4,204,741 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;
13,575, 750 and 13,175,750 shares
issued and outstanding at March 31,
2002 and December 31,2001,respectively 13,576 13,176
Additional paid-in capital 2,170,610 1,804,710
Retained earnings 968,791 955,539
Unrealized loss on marketable securities (10,934) (10,136)
-------------- -----------------
Total stockholders' equity 3,142,043 2,763,289
-------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,346,784 $ 5,885,853
============== =================
The accompanying notes are an integral part of these financial statements.
6
MULLER MEDIA, INC.
INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
INCOME STATEMENT
March 31, 2002 March 31, 2001
(Unaudited) (Unaudited)
Revenue $ 1,688,675 $ 275,059
Cost of revenue - producers' fees 921,733 173,590
-------------- -------------
Net revenue 766,942 101,469
Operating expenses
Selling, general and administrative 731,643 336,136
Depreciation and amortization 190 20,430
Bad debt 35,533 102,386
-------------- -------------
Total operating expenses 767,366 458,952
(Loss) from operations (424) (357,483)
Other income (expenses)
Interest income 37,750 140,886
Interest expense (10,779) -
-------------- -------------
Total other income (expenses) 26,971 140,886
-------------- -------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 26,547 (216,597)
Income tax (provision) benefit (13,296) 93,000
Cumulative effect of change in accounting principle - (448,061)
-------------- --------------
Net income (loss) $ 13,251 $ (571,658)
============== ==============
Net income per common share
Basic $ - $ (5,717)
============== =============
Diluted $ - $ (5,717)
============== =============
Weighted average common shares
Basic 13,575,890 100
============== =============
Diluted 15,573,829 100
============== =============
The accompanying notes are an integral part of these financial statements.
7
MULLER MEDIA, INC.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
STATEMENT OF COMPREHENSIVE INCOME
March 31, 2002 March 31, 2001
(Unaudited) (Unaudited)
Net income (loss) $13,251 ($571,658)
Net unrealized gain (loss) on securities
available for sale (798) 3,476
-------------- --------------
Comprehensive income (loss) $ 12,453 $ (568,182)
============== ==============
The accompanying notes are an integral part of these financial statements.
8
MULLER MEDIA, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
STATEMENTS OF CASH FLOWS
March 31, 2002 March 31, 2001
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ( loss) $ 13,251 $ (571,658)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Depreciation and amortization 190 20,430
Bad debt expense 35,533 102,386
Issuance of common stock for services 366,300 -
(Increase) decrease in assets:
Accounts receivable (1,614,857) 643,759
Prepaid expenses (93,755) -
Deferred charges 197,681 (1,050,000)
Deferred tax asset (7,007) -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 19,175 29,555
Due to producers 300,999 (3,490,515)
Accrued income taxes 20,303 (1,277,070)
Deferred revenue 741,700 5,750,694
-------------- --------------
Net cash provided by (used in) operating
activities (20,487) 157,581
-------------- --------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Increase in property and equipment (2,002) -
Advances to affiliated company (43,942) (205,000)
-------------- --------------
Net cash (used in) investing activities (45,944) (205,000)
-------------- --------------
NET (DECREASE) IN CASH (66,431) (47,419)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 952,906 1,412,334
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 886,475 $ 1,364,915
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 3,278 $ -
============== ==============
Income taxes $ - $ -
============== ==============
The accompanying notes are an integral part of these financial statements.
9
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization
- ------------
Muller Media, Inc. was originally incorporated on February 1, 1982 in New York
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, 000 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. As a result of this transaction
DCI acquired and exercised control over a majority of the BTS' shares.
Accordingly, for accounting purposes, the transaction has been treated as
recapitalization of Muller, and, 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. 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.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumption 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.
10
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(continued)
NOTE 1 - SUMMARY OF SIGNIFIICANT ACCOUNTING POLICIES (continued)
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 its 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.
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.
Goodwill
- --------
Through December 31, 2001, goodwill was amortized over 20 years. 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 in
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.
11
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(continued)
NOTE 1 - SUMMARY OF SIGNIFICIANT ACCOUNTING POLICIES (continued)
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 bases.
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 operations.
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 March 31, 2002
and December 31, 2001.
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 their 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 Statements of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes." As changes in tax laws or rates
areenacted, 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").
The computation of basic earnings per share is computed by dividing earnings
available to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted EPS gives effect to all diluted
potential common shares outstanding during the period.
12
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 1 - SUMARY OF SIGNIFICIANT ACCOUNT POLICIES (Continued)
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.
Basis of presentation
Interim Financial Statements
- ----------------------------
The accompanying financial statements are unaudited but, in the opinion
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 generally accepted accounting principles applicable to interim
periods. 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.
NOTE 2 - MARKETABLE SECURITIES
---------------------
At March 31, 2002 and December 31, 2001 marketable securities classified as
available-for-sale are comprised as follows.
March 31, 2002 December 31, 2001
-------------- -----------------
Common stock
Market securities, at cost $ 49,070 $ 49,070
Fair value 38,136 38,934
-------------- ---------------
Unrealized loss $ (10,934) $ (10,136)
============== ===============
NOTE 3 - ADVANCES TO AFFILIATED COMPANY
------------------------------
Advances to former affiliated company consist of the following as of:
March 31, 2002 December 31, 2001
-------------- -----------------
Advances $ 1,412,158 $ 1,378,216
Tax credit due to affiliated company (490,957) (490,957)
-------------- ----------------
$ 921,201 $ 887,259
============== ================
13
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of:
March 31, 2002 December 31, 2001
-------------- -----------------
Furniture, fixtures, and equipment $ 78,722 $ 78,722
Auto 32,894 30,891
-------------- ---------------
111,616 109,613
Less: accumulated depreciation 107,765 107,575
-------------- ---------------
Fixed assets - net $ 3,851 $ 2,038
============== ===============
Depreciation expense recorded in
the income statement $ 190 $ 20,430
NOTE 5 - GOODWILL - as of March 31, 2002 and December 31, 2001 was:
March 31, 2002 December 31, 2001
-------------- -----------------
Goodwill $ 1,634,436 $ 1,634,436
Less: Accumulated amortization 290,556 290,556
-------------- ---------------
Total $ 1,343,880 $ 1,343,880
============== ===============
The goodwill arises from the acquisition of Muller Media, Inc. by DCI, the
former parent company of Muller Media, Inc.
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 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%.
14
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 6 - CONVERTIBLE NOTE (continued)
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.
On April 30, 2002 the Company paid the first installment on the convertible
note of $75,000 along with the accrued interest due.
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
---- ------
2003 72,762
2004 19,518
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, providing for an annual salary of $226,000 expiring
June, 2004.
A renewable one-year agreement providing for an annual salary of $200,000.
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, and
December 31, 2001.
b) On November 12, 2002 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%
========== =======
15
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 shares
of $0.001 par value common stock for services rendered or to be
rendered. These shares have a fair value of $555,000 of which
$320,337 has been charged to operations in the three months ended
March 31, 2002.
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.l25 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 consists of the following for the three month periods ended:
March 31, 2006 March 31, 2001
-------------- --------------
Discount earned on contracts receivable $ 35,500 $ 126,254
Interest income from investments 2,250 14,632
-------------- --------------
$ 37,750 $ 140,886
NOTE 11 - INCOME TAXES
The components of the income taxes are as follows at March 31, 2002 and
March 31, 2001.
March 31, 2002 March 31, 2001
-------------- --------------
Current tax expense (benefit) $ 9,972 $ (69,750)
U.S. Federal 3,324 (23,250)
-------------- --------------
State and local
Total current 13,296 (93,000)
U.S. Federal 5,255 -
State and local 1,752 -
Total deferred 7,007 -
-------------- --------------
Total tax provision (benefit) $ 20,303 $ 93,000
============== ==============
16
MULLER MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
NOTE 11 - INCOME TAXES (continued)
A reconciliation between the federal statutory tax rate and the effective income
tax rate is as follows:
March 31, 2002 March 31, 2001
-------------- --------------
Statutory federal income tax rate 34.0% 34.0%
Non-deductible expenses 31.6 -
State and local income taxes net
of federal taxes 10.9 10.9
---- ----
Effective income tax rate 76.5% 44.9%
==== ====
17
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 our corporate name was changed to
Business Translation Services, Inc.
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 Business Translation Services, Inc. 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 our the 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.
18
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 our 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 or current facts deal with potential future circumstances and
developments. Such forward-looking statements include, but are not limited
to, the development plans for our growth, trends in the results of our
development, anticipated development plans, operating expenses and our
anticipated capital requirements and capital resources. Our actual results
could differ materially from the results discussed in the forward-looking
statements.
RESULTS OF OPERATIONS
- ---------------------
Revenues for the three months ended March 31, 2002 increased by approximately
$1,400,000 as compared to the same period in 2001. This increase can be
directly attributed to a release of a new package in early 2002 and a sales
agent fee resulting from an agreement with a producer of a motion picture.
Cost of Revenue - producers' fee - The cost of revenue as a percentage of
gross revenue for the three months ended March 31, 2002 as compared to the
same period decreased by approximately 9%. The decrease can directly be
attributed to sales agent fees earned in the three months ended March 31, 2002
that the company earned without any related producers' fees.
Selling, general and administrative expenses - Selling, general and
administrative expenses for the three months ended March 31, 2002 increased
by approximately $395,000 as compared to the corresponding period for 2001.
This increase can be directly attributed to an increase in the executive
staff of the company and the retaining of various consultants.
Cumulative effect of change in accounting principle - In the three months
ended March 31, 2001 the Company adopted SOP 00-2 Revenue from The Distribution
of Motion Pictures and Other Entertainment Events. As a result of this
adoption the company recorded a cumulative change in accounting principle of
which resulted in a charge of approximately $448,000.
19
Liquidity and Capital Resources
As of March 31, 2002, Muller's current assets exceeded its current liabilities
by approximately $433,494.
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 March
31, 2002.
b) 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.
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%
========== ====
Because the parent of Muller obtained control of Business Translation
Services, the transaction would normally be considered a purchase
by Muller. However, since Business Translation Services is not a
business of Muller, the transaction is accounted for as a
recapitalization of Muller and the issuance of stock by Muller
(represented by the outstanding shares of Business Translation
Services) for the assets and liabilities of Business Translation
Services. The value of the net assets is the same as their
historical book value.
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 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%.
20
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 this Note or any
security agreement or other agreement executed 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 paid the first installment on the
convertible note of $75,000 along with the accrued interest due.
d) On November 12, 2001, the Company issued 975,000 shares of $0.001
par value common stock in consideration for services rendered in
connection with the merger. These shares have been valued at this
fair value of $117,550 and recorded as a cost of the merger and
charged to additional paid-in capital.
e) In the quarter ended March 31, 2002 the company issued 400,000 shares
of $0.001 par value common stock for services rendered or to be
rendered. These shares have a fair value of $555,000 of which
$320,337 has been charged to operations in the three months ended
March 31, 2002.
Employees
- ---------
As of March 31, 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 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.
21
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.
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.
22
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 March 31, 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
3 Articles of Incorporation & By-Laws
(a) Articles of Incorporation of the Company filed July 1,
1999 and the Amended Articles of Incorporation filed on
July 26, 1999. Incorporated by reference to the exhibits to
the Company's General Form For Registration Of Securities
Of Small Business Issuers on Form 10-SB, and Amendment No. 1
to Form 10-SB previously filed with the Commission.
(b) By-Laws of the Company adopted July 28, 1999.
Incorporated by reference to the exhibits to the Company's
General Form For Registration Of Securities Of Small
Business Issuers on Form 10-SB, previously filed with the
Commission.
13 Annual or Quarterly Reports
(a) Form 10-KSB for the year ended December 31, 2000 and
December 31, 2001, incorporated by reference to the Company's
Annual Report for Small Business Issuers on Form 10-KSB,
previously filed with the Commission.
(b) Form 10-QSB for the Quarter ended June 30, 2000 and
September 30, 2000, March 31, 2001, June 30, 2001 and
September 30, 2001, incorporated by reference to the
Company's Quarterly Report for Small Business Issuers on
Form 10-QSB, previously filed with the Commission.
23
Reports on Form 8-K
The Company filed a Current Report dated October 30, 2001, pursuant to Item 1
("Change in Control of Registrant") and Item 5 ("Other Materially Important
Events"), entitled "Change in Corporate address."
The Company filed a Current Report dated November 12, 2001, pursuant to Item 1
("Change in Control of Registrant") and Item 5 ("Other Materially Important
Events"), entitled "Change in Corporate Directors."
The Company filed a Current Report dated November 12, 2001, pursuant to
Item 5 ("Other Materially Important Events"), and Item 7 ("Exhibits")
entitled Agreement and Plan of Merger."
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."
24
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: May 20, 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: May 20, 2002 Muller Media, Inc.
/s/ Clifford Postelnik
-------------------------------
Vice President, General Counsel,
Secretary and Director
25