Reservoir Media, Inc. [RSVR] Filings

10-Q 1 rsvr-20221231x10q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39795

RESERVOIR MEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware		83-3584204
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Varick Street

Suite 801A

New York, New York 10014

(Address of principal executive offices, including zip code)

(212) 675-0541

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share (the “Common Stock”)	RSVR	The Nasdaq Stock Market LLC
Warrants to purchase one share of Common Stock, each at an exercise price of $11.50 per share	RSVRW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), during the preceding 12 months (or for 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 6, 2023, there were 64,385,198 shares of Common Stock of Reservoir Media, Inc. issued and outstanding.

Table of Contents

RESERVOIR MEDIA, INC.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2022

TABLE OF CONTENTS


			Page
Part I. Financial Information			1
Item 1. Financial Statements			1
Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended December 31, 2022 and 2021 (unaudited)			1
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended December 31, 2022 and 2021 (unaudited)			2
Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022 (unaudited)			3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended December 31, 2022 and 2021 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2022 and 2021 (unaudited)			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			43
Part II. Other Information			44
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Mine Safety Disclosures			44
Item 5. Other Information			44
Item 6. Exhibits			45
Part III. Signatures			46

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements.

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In U.S. dollars, except share data)

(Unaudited)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021

Revenues	$	29,931,413	$	25,812,556	$	87,475,894	$	72,718,351
Costs and expenses:
Cost of revenue		11,750,296		11,436,180		35,665,462		31,220,470
Amortization and depreciation		5,546,301		4,955,036		16,292,145		13,771,887
Administration expenses		8,035,758		6,731,953		23,031,248		17,051,623
Total costs and expenses		25,332,355		23,123,169		74,988,855		62,043,980

Operating income		4,599,058		2,689,387		12,487,039		10,674,371

Interest expense		(4,098,910)		(2,499,576)		(10,579,788)		(8,007,453)
Loss on early extinguishment of debt		(914,040)		—		(914,040)		—
Gain (loss) on foreign exchange		56,973		(48,304)		337,659		126,635
(Loss) gain on fair value of swaps		(179,573)		1,663,743		4,323,207		2,888,961
Interest and other income		43		2		90		357
(Loss) income before income taxes		(536,449)		1,805,252		5,654,167		5,682,871
Income tax expense		3,529,984		395,251		5,217,691		1,407,989
Net (loss) income		(4,066,433)		1,410,001		436,476		4,274,882
Net income attributable to noncontrolling interests		(340,190)		(226,930)		(230,127)		(95,439)
Net (loss) income attributable to Reservoir Media, Inc.	$	(4,406,623)	$	1,183,071	$	206,349	$	4,179,443
(Loss) earnings per common share (Note 15):
Basic	$	(0.07)	$	0.02	$	—	$	0.07
Diluted	$	(0.07)	$	0.02	$	—	$	0.07
Weighted average common shares outstanding (Note 15):
Basic		64,379,536		64,106,963		64,316,532		48,836,288
Diluted		64,379,536		64,716,756		64,765,381		56,405,487

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In U.S. dollars)

(Unaudited)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021

Net (loss) income	$	(4,066,433)	$	1,410,001	$	436,476	$	4,274,882
Other comprehensive income (loss):
Translation adjustments		4,652,084		155,092		(5,283,489)		(1,409,203)
Total comprehensive income (loss)		585,651		1,565,093		(4,847,013)		2,865,679
Comprehensive income attributable to noncontrolling interests		(340,190)		(226,930)		(230,127)		(95,439)
Total comprehensive income (loss) attributable to Reservoir Media, Inc.	$	245,461	$	1,338,163	$	(5,077,140)	$	2,770,240

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. dollars, except share data)

(Unaudited)


	December 31,		March 31,
	2022		2022
Assets
Current assets
Cash and cash equivalents	$	17,022,824	$	17,814,292
Accounts receivable		26,846,808		25,210,936
Current portion of royalty advances		14,362,383		12,375,420
Inventory and prepaid expenses		5,854,743		4,041,471
Total current assets		64,086,758		59,442,119
Intangible assets, net		587,826,761		571,383,855
Equity method and other investments		2,267,036		3,912,978
Royalty advances, net of current portion		48,522,430		44,637,334
Property, plant and equipment, net		512,652		342,080
Operating lease right of use assets, net		7,578,783		—
Fair value of swap assets		8,315,009		3,991,802
Other assets		1,169,546		559,922
Total assets	$	720,278,975	$	684,270,090

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	5,908,549	$	4,436,943
Royalties payable		32,089,550		21,235,815
Accrued payroll		1,011,721		1,938,281
Deferred revenue		2,743,424		1,103,664
Other current liabilities		3,698,396		12,272,577
Income taxes payable		1,625,607		77,496
Total current liabilities		47,077,247		41,064,776

Secured line of credit		292,158,064		269,856,169
Deferred income taxes		28,056,203		24,884,170
Operating lease liabilities, net of current portion		7,333,559		—
Other liabilities		799,516		1,012,651
Total liabilities		375,424,589		336,817,766

Contingencies and commitments (Note 17)

Shareholders’ Equity
Preferred stock, $0.0001 par value 75,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2022 and March 31, 2022		—		—
Common stock, $0.0001 par value; 750,000,000 shares authorized, 64,385,198 issued and outstanding at December 31, 2022; 64,150,186 issued and outstanding at March 31, 2022		6,438		6,415
Additional paid-in capital		337,622,033		335,372,981
Retained earnings		12,419,868		12,213,519
Accumulated other comprehensive loss		(6,481,547)		(1,198,058)
Total Reservoir Media, Inc. shareholders’ equity		343,566,792		346,394,857
Noncontrolling interest		1,287,594		1,057,467
Total shareholders’ equity		344,854,386		347,452,324
Total liabilities and shareholders’ equity	$	720,278,975	$	684,270,090

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In U.S. dollars, except share data)

(Unaudited)


	For the Three and Nine Months Ended December 31, 2022
	Preferred Stock			Common Stock							Accumulated
							Additional				other
							paid-in		Retained		comprehensive		Noncontrolling		Shareholders’
	Shares	Amount		Shares	Amount		capital		earnings		income (loss)		interests		equity
Balance, March 31, 2022	—	$	—	64,150,186	$	6,415	$	335,372,981	$	12,213,519	$	(1,198,058)	$	1,057,467	$	347,452,324
Share-based compensation	—		—	—		—		359,461		—		—		—		359,461
Vesting of restricted stock units, net of shares withheld for employee taxes	—		—	140,138		14		(475,872)		—		—		—		(475,858)
Reclassification of liability-classified awards to equity-classified awards	—		—	—		—		961,429		—		—		—		961,429
Net income (loss)	—		—	—		—		—		76,039		—		(59,218)		16,821
Other comprehensive loss	—		—	—		—		—		—		(5,011,563)		—		(5,011,563)
Balance, June 30, 2022	—	$	—	64,290,324	$	6,429	$	336,217,999	$	12,289,558	$	(6,209,621)	$	998,249	$	343,302,614
Share-based compensation	—		—	—		—		596,184		—		—		—		596,184
Vesting of restricted stock units	—		—	83,580		8		(8)		—		—		—		—
Reclassification of liability-classified awards to equity-classified awards	—		—	—		—		145,000		—		—		—		145,000
Net income (loss)	—		—	—		—		—		4,536,933		—		(50,845)		4,486,088
Other comprehensive loss	—		—	—		—		—		—		(4,924,010)		—		(4,924,010)
Balance, September 30, 2022	—	$	—	64,373,904	$	6,437	$	336,959,175	$	16,826,491	$	(11,133,631)	$	947,404	$	343,605,876
Share-based compensation	—		—	—		—		605,146		—		—		—		605,146
Stock option exercises	—		—	11,294		1		57,712		—		—		—		57,713
Net (loss) income	—		—	—		—		—		(4,406,623)		—		340,190		(4,066,433)
Other comprehensive income	—		—	—		—		—		—		4,652,084		—		4,652,084
Balance, December 31, 2022	—	$	—	64,385,198	$	6,438	$	337,622,033	$	12,419,868	$	(6,481,547)	$	1,287,594	$	344,854,386


	For the Three and Nine Months Ended December 31, 2021
	Preferred Stock			Common Stock					Retained		Accumulated
							Additional		earnings		other
							paid-in		(Accumulated		comprehensive		Noncontrolling		Shareholders’
	Shares	Amount		Shares	Amount		capital		deficit)		income (loss)		interests		equity
Balance, March 31, 2021	16,175,406	$	81,632,500	28,539,299	$	2,854	$	110,496,300	$	(863,108)	$	2,096,358	$	1,005,697	$	194,370,601
Share-based compensation	—		—	—		—		25,675		—		—		—		25,675
Net loss	—		—	—		—		—		(1,452,998)		—		(53,983)		(1,506,981)
Other comprehensive income	—		—	—		—		—		—		215,142		—		215,142
Balance, June 30, 2021	16,175,406	$	81,632,500	28,539,299	$	2,854	$	110,521,975	$	(2,316,106)	$	2,311,500	$	951,714	$	193,104,437
RHI Preferred Stock Conversion	(16,175,406)		(81,632,500)	16,175,406		1,618		81,630,882		—		—		—		—
Business Combination and PIPE Investment, net of transaction costs	—		—	19,354,548		1,935		141,144,876		—		—		—		141,146,811
Share-based compensation	—		—	—		—		191,478		—		—		—		191,478
Net income (loss)	—		—	—		—		—		4,449,370		—		(77,508)		4,371,862
Other comprehensive loss	—		—	—		—		—		—		(1,779,437)		—		(1,779,437)
Balance, September 30, 2021	—	$	—	64,069,253	$	6,407	$	333,489,211	$	2,133,264	$	532,063	$	874,206	$	337,035,151
Share-based compensation	—		—	—		—		1,208,685		—		—		—		1,208,685
Issuance of shares	—		—	69,386		7		(7)		—		—		—		—
Net income	—		—	—		—		—		1,183,071		—		226,930		1,410,001
Other comprehensive income	—		—	—		—		—		—		155,092		—		155,092
Balance, December 31, 2021	—	$	—	64,138,639	$	6,414	$	334,697,889	$	3,316,335	$	687,155	$	1,101,136	$	339,808,929

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. dollars)

(Unaudited)


	Nine Months Ended December 31,
	2022		2021
Cash flows from operating activities:
Net income	$	436,476	$	4,274,882
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		16,152,354		13,646,413
Depreciation of property, plant and equipment		139,791		125,474
Share-based compensation		2,408,677		1,425,838
Non-cash interest charges		1,738,414		1,067,946
Loss on early extinguishment of debt		914,040		—
Gain on fair value of swaps		(4,323,207)		(2,888,961)
Share of earnings of equity affiliates, net of tax		(34,131)		—
Dividend from equity affiliates		62,304		17,584
Deferred income taxes		3,658,643		489,443
Changes in operating assets and liabilities:
Accounts receivable		(1,635,872)		(2,734,615)
Inventory and prepaid expenses		(1,813,272)		(3,136,275)
Royalty advances		(5,872,059)		(9,880,464)
Other assets and liabilities		(483,961)		345,682
Accounts payable and accrued liabilities		13,307,088		10,107,397
Income taxes payable		1,548,111		(9,053)
Net cash provided by operating activities		26,203,396		12,851,291

Cash flows from investing activities:
Purchases of music catalogs		(45,099,964)		(155,992,828)
Investment in equity method and other investments		—		(2,464,486)
Purchase of property, plant and equipment		(310,363)		(122,762)
Net cash used for investing activities		(45,410,327)		(158,580,076)

Cash flows from financing activities:
Proceeds from Business Combination and PIPE Investment, net of issuance costs		—		141,146,811
Proceeds from secured line of credit		23,182,694		89,554,866
Repayments of secured line of credit		—		(55,000,000)
Repayments of secured loans		—		(18,500,000)
Proceeds from stock option exercises		57,713		—
Taxes paid related to net share settlement of restricted stock units		(475,858)		—
Deferred financing costs paid		(3,533,253)		(4,377,473)
Repayments of related party loans		—		(81,203,792)
Draws on related party loans		—		80,913,620
Net cash provided by financing activities		19,231,296		152,534,032

Foreign exchange impact on cash		(815,833)		(1,382,372)

(Decrease) Increase in cash and cash equivalents		(791,468)		5,422,875
Cash and cash equivalents beginning of period		17,814,292		9,209,920
Cash and cash equivalents end of period	$	17,022,824	$	14,632,795

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS

Reservoir Media, Inc. (formerly known as Roth CH Acquisition II Co. (“ROCC”)), a Delaware corporation (the “Company”), is an independent music company based in New York City, New York and with offices in Los Angeles, Nashville, Toronto, London and Abu Dhabi.

On July 28, 2021 (the “Closing Date”), ROCC consummated the acquisition of Reservoir Holdings, Inc., a Delaware corporation (“RHI”), pursuant to the agreement and plan of merger, dated as of April 14, 2021 (the “Merger Agreement”), by and among ROCC, Roth CH II Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of ROCC (“Merger Sub”), and RHI. On the Closing Date, Merger Sub merged with and into RHI, with RHI surviving the merger as a wholly-owned subsidiary of ROCC (the “Business Combination”). In connection with the consummation of the Business Combination, “Roth CH Acquisition II Co.” was renamed “Reservoir Media, Inc.” effective as of the Closing Date. The common stock, $0.0001 par value per share, of the Company (the “Common Stock”) and warrants are traded on The Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbols “RSVR” and “RSVRW,” respectively.

The Business Combination was accounted for as a reverse recapitalization, with RHI determined to be the accounting acquirer and the Company as the acquired company for accounting purposes. All historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of RHI and its consolidated subsidiaries as if RHI is the predecessor to the Company. See Note 4, “Business Combination and PIPE Investment” for additional information with respect to the Business Combination and related transactions.

The Company’s activities are organized into two operating segments: Music Publishing and Recorded Music. Operations of the Music Publishing segment involve the acquisition of interests in music catalogs from which royalties are earned as well as signing songwriters to exclusive agreements which give the Company an interest in the future delivery of songs. The publishing catalog includes ownership or control rights to more than 140,000 musical compositions that span across historic pieces, motion picture scores and current award-winning hits. Operations of the Recorded Music segment involve the acquisition of sound recording catalogs as well as the discovery and development of recording artists and the marketing, distribution, sale and licensing of the music catalog. The Recorded Music operations are primarily conducted through the Chrysalis Records platform and Tommy Boy Music, LLC (“Tommy Boy”), acquired in June 2021, and include the ownership of over 36,000 sound recordings. See Note 6, “Acquisitions” for additional information with respect to the Tommy Boy acquisition.

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. Government-imposed restrictions and general behavioral changes in response to the pandemic adversely affected the Company’s results of operations for the three and nine months ended December 31, 2022 and 2021. This included performance revenue generated from retail, restaurants, bars, gyms and live shows, synchronization revenue, and the release schedule of physical product. Even as government restrictions are lifted and consumer behavior starts to return to pre-pandemic norms, it is unclear for how long and to what extent the Company’s operations will continue to be affected.

Although the Company has not made material changes to any estimates or judgments that impact its consolidated financial statements as a result of COVID-19, the extent to which the COVID-19 pandemic may impact the Company will depend on future developments, which are highly uncertain and cannot be predicted. Future developments surrounding the COVID-19 pandemic could negatively affect the Company’s operating results, including reductions in revenue and cash flow and could impact the Company’s impairment assessments of accounts receivable or intangible assets, which may be material to our consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)

NOTE 2. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. All intercompany transactions and balances have been eliminated in these condensed consolidated financial statements. Certain information and note disclosures typically included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s audited financial statements as of and for the fiscal years ended March 31, 2022 and 2021.

The condensed consolidated balance sheet of the Company as of March 31, 2022, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by US GAAP on an annual reporting basis.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods. The results for the three and nine months ended December 31, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending March 31, 2023 or any other period.

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Significant estimates are used for, but not limited to, determining useful lives of intangible assets, intangible asset recoverability and impairment and accrued revenue. Actual results could differ from these estimates.

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-03, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-03”), which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. Subsequent to ASU 2016-03, the FASB has issued several related ASUs amending the original ASU 2016-03. The updates are intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. For public entities, ASU 2016-03 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within that annual reporting period. For the Company, ASU 2016-03 is effective beginning April 1, 2023, including interim periods within that fiscal year, with early adoption permitted for annual periods beginning after December 15, 2018. The Company does not expect the adoption of ASU 2016-03 will have a material effect on the Company’s consolidated financial statements.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)

In April 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting; particularly as it relates to the risk of cessation of LIBOR. The amendments in ASU 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”) which deferred the sunset date of ASU 2020-04. Following the issuance of ASU 2022-06, the expedients and exceptions provided by ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. As discussed in Note 9 “Secured Line of Credit” the Senior Credit Facility was amended on December 16, 2022, including the modification of the indexed interest rate from LIBOR to SOFR effective on the amendment date. Additionally, in January 2023, RMM modified its outstanding interest rate swaps to replace the floating rate interest payments received from the counterparty based on LIBOR to floating rate interest payments received from the counterparty based on SOFR, with corresponding adjustments to the fixed rates paid by RMM. Consequently, ASU 2020-04 will not have a material effect on the Company’s consolidated financial statements.

Accounting Standards Recently Adopted

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which established a new ASC Topic 842, “Leases” (“ASC 842”) that introduced a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of income. The Company adopted the new standard beginning April 1, 2022 (the “effective date”), using a modified retrospective transition approach with application as of the effective date as the date of initial application without restating comparative period financial statements.

The new guidance also provides several practical expedients and policies that companies may elect. The Company elected the package of practical expedients under which it did not reassess the classification of its existing leases, reevaluate whether any expired or existing contracts are or contain leases or reassess initial direct costs under the new guidance. Rather, the Company retained the conclusions reached for these items under ASC Topic 840, Leases. Additionally, the Company elected a practical expedient to not separate non-lease components, such as common area maintenance, from lease components. The Company did not elect the practical expedient that permits a reassessment of lease terms for existing leases.

Upon its transition to the new guidance, the Company recognized approximately $2.1 million of operating lease liabilities and corresponding ROU assets. As the rates implicit in the Company’s leases are not readily determinable, the Company used its incremental borrowing rate based on the information available at the effective date to determine the present value of lease payments. This rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The adoption of this new guidance will not have a material impact on the amount or timing of the Company’s cash flows or liquidity.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted ASU 2019-12 on April 1, 2022 and this adoption did not have a material impact to the Company’s consolidated financial statements or the Company’s disclosures.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)

NOTE 4. BUSINESS COMBINATION AND PIPE INVESTMENT

As discussed in Note 1, “Description of Business,” on the Closing Date, the Company consummated the Business Combination pursuant to the terms of the Merger Agreement. The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP, primarily because former shareholders of RHI continue to control the Company upon closing of the Business Combination. Under this method of accounting, the Company is treated as the “acquired” company for accounting purposes and the Business Combination is treated as the equivalent of RHI issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company are stated at historical cost, with no goodwill or intangible assets recorded. In addition, all historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of RHI and its consolidated subsidiaries as if RHI is the predecessor to the Company.

Immediately prior to the consummation of the Business Combination, each share of Series A preferred stock, par value $0.00001 per share, of RHI (the “RHI Preferred Stock”) that was issued and outstanding was automatically converted into a number of shares of common stock, par value $0.00001 per share, of RHI (the “RHI Common Stock”) at the then-effective conversion rate as calculated pursuant RHI’s second amended and restated certificate of incorporation (the “RHI Preferred Stock Conversion”). Additionally, each share of RHI Common Stock (including the RHI Common Stock resulting from the RHI Preferred Stock Conversion) that was issued and outstanding immediately prior to the consummation of the Business Combination was canceled and converted into the right to receive 196.06562028646 (the “Exchange Ratio”) shares of Common Stock. Furthermore, each option to acquire a share of RHI Common Stock that was outstanding immediately prior to the consummation of the Business Combination became fully vested in accordance with the original terms of the awards and was converted into an option to purchase shares of Common Stock (each option, an “RMI Exchanged Option”), with the number of shares of Common Stock subject to the options and exercise price of each RMI Exchanged Option adjusted commensurately with the Exchange Ratio.

In connection with the Business Combination, ROCC entered into subscription agreements with certain accredited investors (the “PIPE Investors”), pursuant to which ROCC issued 15,000,000 shares of common stock, par value $0.0001 per share, of ROCC (the “ROCC Common Stock”) at a purchase price of $10.00 per share for an aggregate purchase price of $150.0 million (the “PIPE Investment”). ROCC consummated the PIPE Investment immediately prior to the consummation of the Business Combination.

Approximately $20,900,000 of transaction fees and expenses were incurred in connection with the closing of the Business Combination and the PIPE Investment, which have been accounted for as a reduction in proceeds.

A portion of the proceeds from the Business Combination and the PIPE Investment was used to pay transaction fees and expenses, and approximately $81,300,000 was used to retire the Tommy Boy Related Party Notes (as defined below) and related accrued interest, repay the secured loan outstanding in an amount of $18,250,000 and make a payment totaling $36,750,000 on the secured line of credit in connection with a refinancing of the Previous Credit Facilities. See Note 9, “Secured Line of Credit” for additional information with respect to the Company’s financing arrangements.

On the Closing Date, the Company also amended and restated its certificate of incorporation to adjust the number of its authorized shares of capital stock to 750,000,000 shares of Common Stock and 75,000,000 shares of preferred stock.

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)

NOTE 5. REVENUE RECOGNITION

For the Company’s operating segments, Music Publishing and Recorded Music, the Company accounts for a contract when it has legally enforceable rights and obligations and collectability of consideration is probable. The Company identifies the performance obligations and determines the transaction price associated with the contract. Revenue is recognized when, or as, control of the promised services or goods is transferred to the Company’s customers, and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods. Certain of the Company’s arrangements include licenses of intellectual property with consideration in the form of sales- and usage-based royalties. Royalty revenue is recognized when the subsequent sale or usage occurs using the best estimates available of the amounts that will be received by the Company. The Company recognized revenue of $3,478,970 and $1,210,132 from performance obligations satisfied in previous periods for the nine months ended December 31, 2022 and 2021, respectively. The increase in revenue recognized from performance obligations satisfied in previous periods is impacted by an updated estimate of Music Publishing royalties based on the Company’s current estimate of effects arising from the July 2022 ruling by the U.S. Copyright Royalty Board (the “CRB”) to affirm increases to the statutory royalty rate structure for mechanical royalties in the U.S. for the period 2018 to 2022. For much of the period between 2018 and 2022, most digital service providers have accounted and submitted payment to the Company using the applicable 2017 rate while the remand process took place.

Disaggregation of Revenue

The Company’s revenue consisted of the following categories during the three and nine months ended December 31, 2022 and 2021:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Revenue by Type
Digital	$	10,717,506	$	8,331,669	$	32,428,357	$	26,503,799
Performance		4,407,361		3,454,835		12,355,228		10,461,131
Synchronization		3,670,065		2,426,601		11,382,565		8,513,259
Mechanical		589,209		741,649		2,104,190		2,108,872
Other		770,990		2,734,586		2,394,879		4,386,722
Total Music Publishing		20,155,131		17,689,340		60,665,219		51,973,783

Digital		5,246,986		4,499,408		16,122,688		12,002,943
Physical		1,104,207		1,254,258		3,252,740		4,739,055
Neighboring rights		822,106		573,036		2,248,387		1,363,710
Synchronization		388,305		1,181,661		2,402,179		1,588,658
Total Recorded Music		7,561,604		7,508,363		24,025,994		19,694,366

Other revenue		2,214,678		614,853		2,784,681		1,050,202
Total revenue	$	29,931,413	$	25,812,556	$	87,475,894	$	72,718,351

Table of Contents

RESERVOIR MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(Unaudited)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Revenue by Geographical Location
United States Music Publishing	$	11,187,010	$	8,676,305	$	35,946,459

Reservoir Media, Inc. [RSVR] Filings
Reservoir Media, Inc. [RSVRW] Filings
10-Q	[2023-02-08]
10-Q	[2022-11-08]
10-Q	[2022-08-05]
10-K	[2022-06-21]
10-Q	[2022-02-08]
10-Q	[2021-11-09]
10-Q	[2021-08-06]
S-1	[2021-07-01]
10-Q	[2021-05-24]
10-K	[2021-03-29]
S-1	[2020-11-24]

Reservoir Media, Inc. [RSVR] Filings

Reservoir Media, Inc. [RSVRW] Filings