☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New York | 13-6183792 | |
(State or other jurisdiction of | ||
incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
TABLE OF CONTENTS
ITEM 1. | ||||||
ITEM 2. | 5 | |||||
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 7 | ||||
ITEM 4. | 7 | |||||
PART II — OTHER INFORMATION | 7 | |||||
ITEM 1. | LEGAL PROCEEDINGS | 7 | ||||
ITEM 1A. | RISK FACTORS | 7 | ||||
ITEM 2. | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS | 7 | ||||
ITEM 3. | DEFAULT UPON SENIOR SECURITIES | 7 | ||||
ITEM 4. | MINE SAFETY DISCLOSURES | 8 | ||||
ITEM 5. | OTHER INFORMATION | 8 | ||||
ITEM 6. | EXHIBITS | 8 | ||||
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Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Receipts from EMI | $ | 451,247 | $ | 284,082 | $ | 879,892 | $ | 805,620 | $ | 216,119 | $ | 207,916 | $ | 488,950 | $ | 428,645 | ||||||||||||||||
Undistributed Cash at Beginning of Period | 142,071 | (1) | 46 | 46 | 46 | 46 | 46 | 46 | 46 | |||||||||||||||||||||||
Disbursements — Administrative Expenses | (195,418 | ) (1) | (68,149 | ) | (260,847 | ) | (202,391 | ) | ||||||||||||||||||||||||
Disbursements - Administrative Expenses | (81,487 | ) (1) | (0 | ) (3) | (169,468 | ) (1) | (65,429 | ) (3) | ||||||||||||||||||||||||
Balance Available for Distribution | 397,900 | 215,979 | 619,091 | 603,275 | 134,678 | 207,962 | 319,528 | 363,262 | ||||||||||||||||||||||||
Cash Distributions to Unit Holders | (397,854 | ) | (215,933 | ) | (619,045 | ) | (603,229 | ) | (105,297 | ) | (65,891 | ) | (290,147 | ) | (221,191 | ) | ||||||||||||||||
Undistributed Cash at End of period | $ | 46 | $ | 46 | $ | 46 | $ | 46 | ||||||||||||||||||||||||
Undistributed Cash at End of Period | $ | 29,382 | (2) | $ | 142,071 | (4) | $ | 29,382 | (2) | $ | 142,071 | (4) | ||||||||||||||||||||
Cash Distribution per Unit (based on 277,712 Trust Units outstanding) | $ | 1.43 | $ | 0.78 | $ | 2.23 | $ | 2.17 | ||||||||||||||||||||||||
Cash Distributions Per Unit (based on 277,712 Trust Units Outstanding) | $ | 0.38 | $ | 0.24 | $ | 1.05 | $ | 0.80 | ||||||||||||||||||||||||
(1) | Administrative expenses in the aggregate amount of $29,334 attributable to the three-months ended June 30, 2023 were actually paid by the Trust in July 2023. |
(2) | Includes amounts reserved for administrative expenses in the aggregate amount of $29,334 attributable to the three-months ended June 30, 2023 which were actually paid by the Trust in July 2023. |
(3) | Administrative expenses in the aggregate amount of $142,025, attributable to the three-months ended June 30, 2022 were actually paid by the Trust on July 5, 2022. |
(4) | Includes amounts reserved for administrative expenses in the aggregate amount of $142,025 attributable to the three-months ended June 30, 2022 which were actually paid by the Trust on July 5, 2022. |
Three Months Ended September 30 | Nine Months Ended September 30 | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Corporate Trustee Fees and Expenses | $ | 1,250 | $ | 625 | $ | 1,875 | $ | 1,875 | 0 | $ | 0 | 1,250 | $ | 625 | ||||||||||||||||||
Individual Trustee Fees and Expenses | 2,500 | 1,250 | 3,750 | 3,750 | 1,250 | 0 | 2,500 | 1,250 | ||||||||||||||||||||||||
Transfer Agent and Registrar (1) | 7,500 | 3,750 | 11,250 | 11,250 | ||||||||||||||||||||||||||||
Transfer Agent and Registrar Fees and Expenses (1) | 0 | 0 | 7,500 | 3,750 | ||||||||||||||||||||||||||||
Total | $ | 11,250 | (2) | $ | 5,625 | $ | 16,875 | $ | 16,875 | |||||||||||||||||||||||
TOTALS | $ | 1,250 | (2) | $ | 0 | (3) | $ | 11,250 | (2) | $ | 5,625 | (3) | ||||||||||||||||||||
(1) | These services are performed by the Corporate Trustee. |
(2) | six-months ended June 30, 2023 were actually paid by the Trust in July 2023. |
(3) | Corporate Trustee Fees and Expenses of $625, Individual Trustee Fees and Expenses of $1,250 and Transfer Agent Registrar Fees and Expenses of $3,750 attributable to the three- and six-months ended March 31, 2022 |
ITEM | 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The Copyright Catalogue
The Catalogue is estimated to be composed of over 12,000 music titles, of which approximately 1,430 produced royalty income in recent years. Based on the Listing, the majority of the Trust’s receipts are derived principally from copyrights established prior to 1960 in the Unites States. The receipts fluctuate based on consumer interest in the nostalgia appeal of older songs and the overall popularity of the songs contained in the Catalogue. The Catalogue also generates royalty income in Canada and other foreign countries in which copyright is claimed.
A number of factors create uncertainties with respect to the Catalogue’s ability to continue to generate royalty income on a continuing, long-term basis for the Trust. These factors include: (i) the effect that foreign and domestic copyright laws and any changes thereto have or will have on renewal rights (e.g., vesting of renewal term rights), (ii) the length of the term of copyright protection under foreign and domestic copyright laws, (iii) reversionary rights that may effectaffect whether EMI is able to retain its rights to the Copyrighted Songs during certain renewal terms (e.g., statutory termination of transfers or “copyright recapture”) and (iv) ongoing disputes regarding the payment and calculation of the Contingent Portion.
The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust in accordance with its Contingent Portion payment obligation.
The Trust’s income is dependent, in part, on EMI’s ability to maintain its rights in the Copyrighted Songs through copyright protection. Although Copyrighted Songs may continue to generate royalty revenue after their copyrights have expired, in general as the copyrights for the Copyrighted Songs expire, less royalty income will be generated, and the size of each payment of the Contingent Portion will be reduced accordingly.
Based on the Listing, the Top 50 Songs obtained copyright registration under the United States Copyright Act of 1909 (the “
The Copyrighted Songs are subject to statutory rights of termination of transfers, which may impact whether EMI is able to retain its ownership of the Copyrighted Songs during their respective terms of copyright protection. For copyrights governed by the 1909 Act, this termination right vests at the end of two different renewal terms, which vary for each Copyrighted Song. As the owner of the Catalogue, EMI (and not the Trust) is responsible for administrating the Catalogue and seeking renewals of the Copyrighted Songs. The Asset Purchase Agreement provides that EMI is obligated to use its best efforts to secure renewals.
Contingent Portion Payments; Audit Report
Payments of the Contingent Portion to the Trust are ordinarily made on a quarterly basis, approximately two to three months after a quarter ends. The Trust distributes the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The amount of each payment of the Contingent Portion is based on a formula provided in the Asset Purchase Agreement. Prior to the first quarter of 2010, the Contingent Portion was calculated as an amount ranging from 65% to 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty expenses. In addition, the Contingent Portion was guaranteed to be at least a minimum of $167,500 per quarter (the “
Beginning with the first quarter of 2010, the Asset Purchase Agreement provides for certain changes with respect to the calculation of the Contingent Portion. One such change is that the Minimum Payment Obligation is no longer in
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Quarterly Payment Period | Amount of Deficiency | |||
March 31, 2016 | $ | 79,889 | ||
September 30, 2016 | 37,529 | |||
March 31, 2017 | 85,359 | |||
September 30, 2017 | 41,557 | |||
March 31, 2018 | 98,901 | |||
September 30, 2018 | 75,712 | |||
March 31, 2019 | 71,489 | |||
June 30, 2019 | 41,786 | |||
September 30, 2019 | 68,571 | |||
December 31, 2019 | 42,572 | |||
March 31, 2020 | 40,025 | |||
June 30, 2020 | 15,557 | |||
September 30, 2020 | 40,085 | |||
March 31, 2021 | 42,742 | |||
June 30, 2021 | 43,148 | |||
September 30, 2021 | 38,846 | |||
December 31, 2021 | 38,112 | |||
March 31, 2022 | 0 | |||
June 30, 2022 | 70,709 | |||
September 30, 2022 | 83,438 | |||
Total | $ | 1,056,027 | ||
Quarterly Payment Period | Amount of Deficiency | |||
March 31, 2016 | $ | 79,889 | ||
September 30, 2016 | 37,529 | |||
March 31, 2017 | 85,359 | |||
September 30, 2017 | 41,557 | |||
March 31, 2018 | 98,901 | |||
September 30, 2018 | 75,712 | |||
March 31, 2019 | 71,489 | |||
June 30, 2019 | 41,786 | |||
September 30, 2019 | 68,571 | |||
December 31, 2019 | 42,572 | |||
March 31, 2020 | 40,025 | |||
June 30, 2020 | 15,557 | |||
September 30, 2020 | 40,085 | |||
March 31, 2021 | 42,742 | |||
June 30, 2021 | 43,148 | |||
September 30, 2021 | 38,846 | |||
December 31, 2021 | 38,112 | |||
March 31, 2022 | 0 | |||
June 30, 2022 | 70,709 | |||
September 30, 2022 | 83,438 | |||
December 31, 2022 | 0 | |||
March 31, 2023 | 44,908 | |||
June 30, 2023 | 37,491 | |||
|
| |||
Total | $ | 1,138,426 | ||
|
|
As of the date hereof, the Trust has not received the Underpayments.
In addition, on October 1, 2020, the Trust engaged Citrin Cooperman & Company LLP, an accounting firm specializing in auditing royalty income (“
The Trust can offer no assurance that it will be able to recover any of the Underpayments or other amounts identified in the Citrin Report, or that it will resolve the dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.
Recent Contingent Portion Payment
On August 30, 2022June 1, 2023, the Trust received a Contingent Portion payment of $451,247 (or $1.6249$216,119 ($0.7782 per Trust Unit) from EMI which was attributable tofor royalty income generated by the Catalog during the secondfirst quarter of 2022,2023, as compared to $284,082$207,916 ($1.02290.7487 per Trust Unit) for the payment attributable to the secondfirst quarter of 2021.
Recent Distributions to Unit Holders
On September 21, 2022,June 26, 2023, the Trust made a distribution of $397,854 (or $1.4326$105,297 ($0.3791 per Trust Unit) to the Trust’s Unit Holders of record at the close of business on September 20, 2022.June 25, 2023. For computation details regarding the distribution please refer to the quarterly distribution report, dated September 21, 2022June 26, 2023, attached as Exhibit 99.1 to the Current Report on
Cash and Administrative Expenses
As of October 25, 2022,July 24, 2023, the Trust was holding $46 in cash and had received invoices for an aggregate of $24,047$0 in unpaid administrative expenses for services rendered to the Trust.
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Inflation
The Trust does not believe that inflation has materially affected its activities.
Liquidity and Capital Resources
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
See the table headed “Statements of Cash Receipts and Disbursements” under Part 1 — Item 1, “Financial Statements” for information regarding cash disbursements made to Unit Holders during the three and ninesix months ended SeptemberJune 30, 20222023 and SeptemberJune 30, 2021.
Off-Balance
There are no
ITEM | 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable
ITEM | 4. CONTROLS AND PROCEDURES |
Controls and Procedures
As of the end of the period covered by this quarterly report, the Trust carried out an evaluation of the effectiveness of the design and operation of the Trust’s “disclosure controls and procedures” (as defined in Rules
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Trust’s reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Trust’s reports filed under the Exchange Act is accumulated and communicated to Trust’s management, including the Chief Financial Individual providing accounting services and the trust officer of the Corporate Trustee, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Trust’s internal control over financial reporting (as such term is defined in
PART II — OTHER INFORMATION
ITEM | 1. LEGAL PROCEEDINGS |
None.
ITEM 1A. RISK FACTORS
The Trust is a smaller reporting company as defined by Rule
ITEM | 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM | 3. DEFAULT UPON SENIOR SECURITIES |
None.
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ITEM | 4. MINE SAFETY DISCLOSURES |
Not applicable.
ITEM | 5. OTHER INFORMATION |
None.
ITEM | 6. EXHIBITS |
Exhibit No. | Description | |
31.1 | Certification by the Chief Financial Individual providing accounting services pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
31.2 | Certification by the trust officer of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
32.1* | Certification by the Chief Financial Individual providing accounting services pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) | |
32.2* | Certification by the trust officer for the Corporate Trustee Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) | |
XBRL Instance Document | ||
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Documents | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Labels Linkbase Documents | |
101.PRE | XBRL Presentation Linkbase Documents |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | Furnished, not filed |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Mills Music Trust | ||||||||||
(Registrant) | ||||||||||
By: | /s/ Garfield Barrett | |||||||||
Trust Officer of the Corporate Trustee | ||||||||||
HSBC Bank USA, NA |
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