UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarterly period ended
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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☒ | Smaller reporting company | ||
| Emerging growth company |
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As of August 1, 2022, there were
RESERVOIR MEDIA, INC.
FORM 10-Q FOR THE QUARTER ENDED June 30, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In U.S. dollars, except share data)
(Unaudited)
| Three Months Ended June 30, | |||||
| 2022 |
| 2021 | |||
Revenues | $ | | $ | | ||
Costs and expenses: | ||||||
Cost of revenue | | | ||||
Amortization and depreciation | | | ||||
Administration expenses |
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Total costs and expenses |
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Operating income |
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Interest expense |
| ( |
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Gain (loss) on foreign exchange |
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| ( | ||
Gain on fair value of swaps | | | ||||
Interest and other income |
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Income (loss) before income taxes |
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| ( | ||
Income tax expense (benefit) |
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| ( | ||
Net income (loss) | | ( | ||||
Net loss attributable to noncontrolling interests | | | ||||
Net income (loss) attributable to Reservoir Media, Inc. | $ | | $ | ( | ||
Earnings (loss) per common share (Note 15): | ||||||
Basic | $ | $ | ( | |||
Diluted | $ | $ | ( | |||
Weighted average common shares outstanding (Note 15): | ||||||
Basic | | | ||||
Diluted | | |
See accompanying notes to the condensed consolidated financial statements.
1
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In U.S. dollars)
(Unaudited)
Three Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Net income (loss) | $ | | $ | ( | ||
Other comprehensive income (loss): |
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Translation adjustments |
| ( |
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Total comprehensive loss |
| ( |
| ( | ||
Comprehensive loss attributable to noncontrolling interests |
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Total comprehensive loss attributable to Reservoir Media, Inc. | $ | ( | $ | ( |
See accompanying notes to the condensed consolidated financial statements.
2
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share data)
(Unaudited)
June 30, | March 31, | |||||
| 2022 |
| 2022 | |||
Assets |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable |
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Current portion of royalty advances |
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Inventory and prepaid expenses | | | ||||
Total current assets | | | ||||
Intangible assets, net |
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Equity method and other investments |
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Royalty advances, net of current portion | | | ||||
Property, plant and equipment, net | |
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Operating lease right of use assets, net | | — | ||||
Fair value of swap assets | | | ||||
Other assets | | | ||||
Total assets | $ | | $ | | ||
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Liabilities |
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Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | | $ | | ||
Royalties payable | | | ||||
Accrued payroll |
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Deferred revenue | | | ||||
Other current liabilities |
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Income taxes payable | | | ||||
Total current liabilities | | | ||||
Secured line of credit | | | ||||
Deferred income taxes | | | ||||
Operating lease liabilities, net of current portion | | — | ||||
Other liabilities | | | ||||
Total liabilities | | | ||||
Contingencies and commitments (Note 17) | ||||||
Shareholders' Equity | ||||||
Preferred stock, $ | ||||||
Common stock, $ | | | ||||
Additional paid-in capital | | | ||||
Retained earnings | | | ||||
Accumulated other comprehensive loss | ( | ( | ||||
Total Reservoir Media, Inc. shareholders’ equity | | | ||||
Noncontrolling interest | | | ||||
Total shareholders’ equity | | | ||||
Total liabilities and shareholders’ equity | $ | | $ | |
See accompanying notes to the condensed consolidated financial statements.
3
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In U.S. dollars, except share data)
(Unaudited)
| For the Three Months Ended June 30, 2022 | ||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Preferred Stock | Common Stock | other | |||||||||||||||||||||||
Additional | Retained | comprehensive | Noncontrolling | Shareholders' | |||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| earnings |
| loss |
| interests |
| equity | ||||||||
Balance, March 31, 2022 |
| — | $ | — | | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Share-based compensation |
| — |
| — | — |
| — |
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| — |
| — |
| — |
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Vesting of restricted stock units, net of shares withheld for employee taxes | — | — | | | ( | — | — | — | ( | ||||||||||||||||
Reclassification of liability-classified awards to equity-classified awards | — | — | — | — | | — | — | — | | ||||||||||||||||
Net income (loss) |
| — |
| — | — |
| — |
| — |
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| — |
| ( |
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Other comprehensive loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||
Balance, June 30, 2022 |
| — | $ | — | | $ | | $ | | $ | | $ | ( | $ | | $ | |
| For the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Preferred Stock | Common Stock | other | |||||||||||||||||||||||
Additional | Accumulated | comprehensive | Noncontrolling | Shareholders’ | |||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| paid-in capital |
| deficit |
| income |
| interests |
| equity | ||||||||
Balance, March 31, 2021 |
| | $ | | | $ | | $ | | $ | ( | $ | | $ | | $ | | ||||||||
Share-based compensation |
| — | — | — | — | | — | — | — | | |||||||||||||||
Net loss | — | — | — | — | | ( | — | ( | ( | ||||||||||||||||
Other comprehensive income |
| — |
| — | — |
| — |
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| — |
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| — |
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Balance, June 30, 2021 |
| | $ | | | $ | | $ | | $ | ( | $ | | $ | | $ | |
See accompanying notes to the condensed consolidated financial statements.
4
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
(Unaudited)
| Three Months Ended June 30, | |||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
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Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Amortization of intangible assets |
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Depreciation of property, plant and equipment |
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Share-based compensation |
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Non-cash interest charges |
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Gain on fair value of swaps |
| ( |
| ( | ||
Share of earnings of equity affiliates, net of tax | ( | — | ||||
Dividend from equity affiliates |
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Deferred income taxes |
| — |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Inventory and prepaid expenses | ( | ( | ||||
Royalty advances | ( | ( | ||||
Other assets and liabilities | | — | ||||
Accounts payable and accrued expenses | | | ||||
Income tax payable | | | ||||
Net cash provided by operating activities | | | ||||
Cash flows from investing activities: | ||||||
Purchases of music catalogs | ( | ( | ||||
Investment in equity method and other investments | — | ( | ||||
Purchase of property, plant and equipment | ( | ( | ||||
Net cash used for investing activities | ( | ( | ||||
Cash flows from financing activities: | ||||||
Proceeds from secured line of credit | | | ||||
Repayments of secured loans | — | ( | ||||
Taxes paid related to net share settlement of restricted stock units | ( | — | ||||
Deferred financing costs paid | ( | — | ||||
Draws on related party loans | — | | ||||
Net cash provided by financing activities | | | ||||
Foreign exchange impact on cash | ( | | ||||
(Decrease) increase in cash and cash equivalents | ( | | ||||
Cash and cash equivalents beginning of period | | | ||||
Cash and cash equivalents end of period | $ | | $ | |
See accompanying notes to the condensed consolidated financial statements.
5
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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, $
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
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 months ended June 30, 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.
6
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 months ended June 30, 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 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 is currently evaluating the effect that ASU 2016-03 will have on the Company’s consolidated financial statements.
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. 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, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The discontinuation of LIBOR will impact the Senior Credit Facility as well as the Interest Rate Swaps which will be outstanding as of the effective date of the discontinuation. The Company is currently evaluating the effect that ASU 2020-04 will have on the Company’s consolidated financial statements, but does not expect it will have a material effect.
7
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Accounting Standards Recently Adopted
In February 2016, the FASB issued Accounting Standards Update (“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 $
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.
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 $
8
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
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
Approximately $
A portion of the proceeds from the Business Combination and the PIPE Investment was used to pay transaction fees and expenses, and approximately $
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
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 $
9
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Disaggregation of Revenue
The Company’s revenue consisted of the following categories during the three months ended June 30, 2022 and 2021:
Three Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Revenue by Type | ||||||
Digital | $ | | $ | | ||
Performance |
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Synchronization |
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Mechanical |
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Other |
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Total Music Publishing |
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Digital |
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Physical |
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Neighboring rights |
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Synchronization |
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Total Recorded Music |
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Other revenue |
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Total revenue | $ | | $ | |
Three Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Revenue by Geographical Location |
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United States Music Publishing | $ | | $ | | ||
United States Recorded Music |
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United States other revenue |
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Total United States |
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International Music Publishing |
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International Recorded Music |
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Total International |
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Total revenue | $ | | $ | |
Only the United States represented 10% or more of the Company’s total revenues in the three months ended June 30, 2022 and 2021.
Deferred Revenue
The following table reflects the change in deferred revenue during the three months ended June 30, 2022 and 2021:
| June 30 2022 |
| June 30 2021 | |||
Balance at beginning of period | $ | | $ | | ||
Cash received during period |
| |
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Revenue recognized during period |
| ( |
| ( | ||
Balance at end of period | $ | | $ | |
10
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 6. ACQUISITIONS
In the ordinary course of business, the Company regularly acquires publishing and recorded music catalogs, which are typically accounted for as asset acquisitions. During the three months ended June 30, 2022 and 2021, the Company completed such acquisitions totaling $
The Company did not complete any individually significant acquisition transactions during the three months ended June 30, 2022. On June 2, 2021, the Company acquired U.S. based record label and music publishing company Tommy Boy for approximately $
NOTE 7. INTANGIBLE ASSETS
Intangible assets subject to amortization consist of the following as of June 30, 2022 and March 31, 2022:
| June 30, 2022 |
| March 31, 2022 | |||
Intangible assets subject to amortization: |
|
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Publishing and recorded music catalogs | $ | |
| $ | | |
Artist management contracts |
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Gross intangible assets |
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Accumulated amortization |
| ( |
| ( | ||
Intangible assets, net | $ | | $ | |
Straight-line amortization expense totaled $
NOTE 8. ROYALTY ADVANCES
The Company made royalty advances totaling $
| June 30, 2022 |
| June 30, 2021 | |||
Balance at beginning of period | $ | | $ | | ||
Additions |
| |
| | ||
Recoupments |
| ( |
| ( | ||
Balance at end of period | $ | | $ | |
NOTE 9. SECURED LINE OF CREDIT
Long-term debt consists of the following:
| June 30, 2022 |
| March 31, 2022 | |||
Secured line of credit bearing interest at LIBOR plus a spread | $ | | $ | | ||
Debt issuance costs, net |
| ( |
| ( | ||
$ | | $ | |
11
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Credit Facilities
On December 19, 2014, Reservoir Media Management, Inc. (“RMM”), a subsidiary of RHI, entered into a credit agreement (the “RMM Credit Agreement”) governing RMM’s secured term loan (the “Secured Loan”) and secured revolving credit facility (the “Secured Line of Credit” and together with the Secured Loan, the “Credit Facilities”). The Credit Facilities were subsequently amended multiple times and were refinanced in July 2021 in connection with the consummation of the Business Combination, pursuant to that certain Fourth Amended and Restated Credit Agreement, dated as of July 28, 2021 (the “Debt Refinancing”). On December 7, 2021, RMM entered into an amendment (the “First Amendment”) to the RMM Credit Agreement. The First Amendment amended the RMM Credit Agreement to increase RMM’s senior secured revolving credit facility from $
The Senior Credit Facility has a scheduled maturity date of October 16, 2024. Borrowings under the Senior Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin of
The RMM Credit Agreement contains customary covenants limiting the ability of the Company, RHI, RMM and certain of its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, make investments, make cash dividends, redeem or repurchase capital stock, dispose of assets, enter into transactions with affiliates or enter into certain restrictive agreements. In addition, the Company, on a consolidated basis with its subsidiaries, must comply with financial covenants requiring the Company to maintain (i) a total leverage ratio (net of up to $
The Senior Credit Facility also includes an “accordion feature” that permits RMM to seek additional commitments in an amount not to exceed $
Interest Rate Swaps
At March 31, 2022, RMM had the following interest rate swaps outstanding, under which it pays a fixed rate and receives a floating interest payment from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement:
| Notional |
|
| ||||
Amount at | Pay | ||||||
June 30, | Fixed | ||||||
Effective Date | 2022 | Rate | Maturity | ||||
March 10, 2022 | $ | |
| | % | September 2024 | |
March 10, 2022 | $ | |
| | % | September 2024 | |
December 31, 2021 | $ | |
| | % | September 2024 |
On March 10, 2022, two previous interest rate swaps expired with original notional amounts of $
12
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 10. INCOME TAXES
Income tax expense (benefit) for the three months ended June 30, 2022 and 2021 was $
NOTE 11. SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid and income taxes paid for the three months ended June 30, 2022 and 2021 were comprised of the following:
| 2022 |
| 2021 | |||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | — |
Non-cash investing and financing activities for the three months ended June 30, 2022 and 2021 were comprised of the following:
| 2022 |
| 2021 | |||
Acquired intangible assets included in other liabilities | $ | | $ | — | ||
Reclassification of liability-classified awards to equity-classified awards | $ | | $ | — |
NOTE 12. AMOUNTS DUE TO / (FROM) RELATED PARTIES
The Company has various shared services agreements with a shareholder and other affiliated entities under the control of its shareholder. These agreements cover services such as IT support and re-billed services of staff who perform services across multiple entities. Amounts due to this shareholder and other affiliated entities totaled $
The acquisition of Tommy Boy was financed using cash on hand and borrowings from related parties (the “Tommy Boy Related Party Notes”). The Tommy Boy Related Party Notes bore interest of
NOTE 13. SHAREHOLDERS’ EQUITY
The condensed consolidated statements of shareholders’ equity reflect the reverse capitalization as of the Closing Date. Because RHI was deemed to be the accounting acquirer in the reverse capitalization with ROCC, all periods prior to the Closing Date reflect the balances and activity of RHI. The consolidated balances, share activity and per share amounts in these condensed consolidated statements of equity were retroactively adjusted, where applicable, using the Exchange Ratio. See Note 1, “Description of Business” and Note 4, “Business Combination and PIPE Investment” for additional information.
RHI Preferred Stock
Prior to the Business Combination, RHI had
13
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
While outstanding, the RHI Preferred Stock participated in dividends declared on common shares, if any, on the basis as if the shares of RHI Preferred Stock were converted into shares of RHI Common Stock. The Company did not declare any dividends subsequent to the issuance of RHI Preferred Stock through the RHI Preferred Stock Conversion.
As of June 30, 2022 and March 31, 2022, the Company had
Warrants
As of June 30, 2022, the Company’s outstanding warrants included
The Company may redeem the outstanding Public Warrants in whole, but not in part, at a price of $
The Company evaluated the Warrants under ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”), and in accordance with its accounting policies, concluded they meet the criteria to be equity classified as they were determined to be indexed in the Company’s stock and meet the requirements for equity classification.
NOTE 14. SHARE-BASED COMPENSATION
2021 Incentive Plan
On July 28, 2021, in connection with the Business Combination, the Company adopted the Reservoir Media, Inc. 2021 Omnibus Incentive Plan (the “2021 Incentive Plan”), which became effective on such date. In addition, pursuant to terms of the Merger Agreement, at the effective time of the Business Combination, options previously granted under the Reservoir Holdings, Inc. 2019 Long Term Incentive Plan (the “Previous RHI 2019 Incentive Plan”) to purchase shares of RHI Common Stock were converted into options to purchase
As of the effective date of the 2021 Incentive Plan, no further stock awards have been or will be granted under the Previous RHI 2019 Incentive Plan, and the Previous RHI 2019 Incentive Plan is no longer in effect.
Share-based compensation expense totaled $
14
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
the accompanying condensed consolidated statements of income. The increase in share-based compensation expense during the three months ended June 30, 2022 reflects the restricted stock units (“RSUs”) granted subsequent to the Merger.
During the three months ended June 30, 2022, the Company granted RSUs to satisfy previous obligations to issue a variable number of equity awards based on a fixed monetary amount. Prior to the issuance of these RSUs, the Company classified these awards as liabilities. Upon issuance of the RSU’s the awards became equity-classified as they no longer met the criteria to be liability-classified and a liability of $
NOTE 15. EARNINGS (LOSS) PER SHARE
The following table summarizes the basic and diluted earnings (loss) per common share calculation for the three months ended June 30, 2022 and 2021:
Three Months Ended | ||||||
June 30, | ||||||
| 2022 |
| 2021 | |||
Basic earnings (loss) per common share |
|
|
|
| ||
Net income (loss) attributable to Reservoir Media, Inc. | $ | | $ | ( | ||
Weighted average common shares outstanding - basic |
| |
| | ||
Earnings (loss) per common share - basic | $ | — | $ | ( | ||
Diluted earnings (loss) per common share |
|
| ||||
Net income (loss) attributable to Reservoir Media, Inc. | $ | | $ | ( | ||
Weighted average common shares outstanding - basic |
| |
| | ||
Weighted average effect of potentially dilutive securities: |
|
| ||||
Effect of dilutive stock options and RSUs |
| |
| — | ||
Weighted average common shares outstanding - diluted | | | ||||
Earnings (loss) per common share - diluted | $ | — | $ | ( |
Because of their anti-dilutive effect,
Prior to the RHI Preferred Stock Conversion in connection with the Business Combination, shares of the RHI Preferred Stock were considered participating securities. The RHI Preferred Shares are excluded from the loss per share calculation for the three months ended June 30, 2021 as they did not have an obligation to share or fund in the Company’s net losses and their inclusion would be anti-dilutive. Additionally, because of their anti-dilutive effect,
NOTE 16. FINANCIAL INSTRUMENTS
The Company is exposed to the following risks related to its financial instruments:
(a) | Credit Risk |
Credit risk arises from the possibility that the Company’s debtors may be unable to fulfill their financial obligations. Revenues earned from publishing and distribution companies are concentrated in the music and entertainment industry. The Company monitors its exposure to credit risk on a regular basis.
15
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
(b) | Interest Rate Risk |
The Company is exposed to market risk from changes in interest rates on its secured loan. As described in Note 9, “Secured Line of Credit,” the Company entered into interest rate swap agreements to partially reduce its exposure to fluctuations in interest rates on its Credit Facilities.
The fair value of the outstanding interest rate swaps was a $
(c) | Foreign Exchange Risk |
The Company is exposed to foreign exchange risk in fluctuations of currency rates on its revenue from royalties, writers’ fees and its subsidiaries’ operations.
(d) | Financial Instruments |
Financial instruments not described elsewhere include cash, accounts receivable, accounts payable, accrued liabilities, secured loans payable and borrowing under its line of credit. The carrying values of these instruments as of June 30, 2022 do not differ materially from their respective fair values due to the immediate or short-term duration of these items or their bearing market-related rates of interest.
The fair value of amounts due from and owed to related parties are impracticable to determine due to the related party nature of such amounts and the lack of a readily determinable secondary market.
NOTE 17. CONTINGENCIES AND COMMITMENTS
(a) | Leases |
The Company leases its business premises under operating leases which have expiration dates between 2022 – 2027. The Company determines if an arrangement is or contains a lease at inception of the contract. Beginning April 1, 2022, the Company recognizes on the balance sheet a lease liability for its obligation to make lease payments arising from the lease and a corresponding ROU asset representing its right to use the underlying asset over the period of use based on the present value of lease payments over the lease term as of the lease commencement date in accordance with ASC 842.
Certain leases contain fixed rent escalations and/or renewal options. None of the Company’s operating leases include variable lease payments. Subsequent amortization of the ROU asset and accretion of the lease liability for an operating lease is recognized as a single lease cost, on a straight-line basis, over the lease term. Reductions of the ROU asset and the change in the lease liability are included in changes in Other assets and liabilities in the Consolidated Statement of Cash Flows.
During the three months ended June 30, 2022, the Company extended one operating lease by two months. The resulting increase to the lease liability totaled approximately $
In April 2022, the Company entered into an agreement for its new headquarter office facility consisting of 12,470 square feet of leased office space at 200 Varick Street, Suite 801A, New York, NY (the “New HQ Lease”). The New HQ Lease is expected to commence during the Company’s third quarter of the fiscal year ending March 31, 2023. The total commitment of approximately $
16
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
(b) | Litigation |
The Company is subject to claims and contingencies in the normal course of business. To the extent the Company cannot predict the outcome of the claims and contingencies or estimate the amount of any loss that may result,
NOTE 18. SEGMENT REPORTING
The Company’s business is organized in
The accounting policies of the Company’s business segments are consistent with the Company’s policies for the consolidated financial statements. The Company does not have sales between segments.
The following tables present total revenue and reconciliation of OIBDA to operating income by segment for the three months ended June 30, 2022 and 2021:
Three Months Ended June 30, 2022 | ||||||||||||
Music | Recorded | |||||||||||
| Publishing |
| Music |
| Other |
| Consolidated | |||||
Total revenue | $ | | $ | | $ | | $ | | ||||
Reconciliation of OIBDA to operating income (loss): |
|
|
|
| ||||||||
Operating income (loss) | ( |
| |
| | | ||||||
Amortization and depreciation |
| |
| |
| |
| | ||||
OIBDA | $ | | $ | | $ | | $ | |
Three Months Ended June 30, 2021 | ||||||||||||
Music | Recorded | |||||||||||
| Publishing |
| Music |
| Other |
| Consolidated | |||||
Total revenue | $ | | $ | | $ | | $ | | ||||
Reconciliation of OIBDA to operating income (loss): |
|
|
|
| ||||||||
Operating income (loss)(a) |
| ( |
| | | |||||||
Amortization and depreciation |
| |
| |
| |
| | ||||
OIBDA | $ | | $ | | $ | | $ | |
17
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 19. CORRECTION OF PRIOR PERIOD ERRORS
As previously disclosed in Note 19 to the Company’s consolidated financial statements as of and for the fiscal year ended March 31, 2022, the Company identified prior period accounting errors that the Company has concluded are not material to the Company’s previously reported consolidated financial statements and unaudited interim condensed consolidated financial statements.
Based on management’s evaluation of the accounting errors in consideration of the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded the errors are not material, on an individual or aggregate basis, to the Company’s previously reported annual and interim consolidated financial statements affected by the errors, which includes the Company’s previously reported unaudited interim condensed consolidated financial information for the three months ended June 30, 2021 (the “previously reported financial statements”). However, the Company further concluded the accounting errors cannot be corrected as an out-of-period adjustment in the Company’s consolidated financial statements as of and for the year ended March 31, 2022, because to do so would cause a material misstatement in those financial statements. Accordingly, the Company referred to the guidance prescribed by SAB 108 which specifies that the errors must be corrected the next time the previously reported financial statements are filed. Therefore, the Company corrected the accounting errors in all of the Company’s previously reported annual and interim consolidated financial statements impacted by the errors, which includes the accompanying unaudited condensed consolidated financial statements as of and for the three months ended June 30, 2021.
The following is a description of the accounting errors and their impact on the Company’s previously reported financial statements:
The Company identified certain accounting errors that originated in the fourth quarter of fiscal year 2020 related to the recognition of royalty revenue associated with royalties generated from the pre-acquisition usage of intellectual property rights that the Company acquired in certain of its music catalog acquisitions for which the Company was entitled to collect pre-acquisition royalties from the sellers for a specified period prior to the closing date of these acquisitions. The Company’s historical accounting practice with respect to pre-acquisition royalties was to recognize revenue upon closing of the acquisitions. Upon further review, the Company concluded that the pre-acquisition royalties should have been accounted for as reduction of the purchase price of the acquired music catalogs, as prescribed by ASC 805-50, Business Combinations – Related Issues (“ASC 805-50”) rather than recognized as revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”).
As part of its review, the Company further concluded that certain royalty revenue generated from pre-acquisition usage that remained uncollected at closing, as well as the related royalties due to certain artists or songwriters associated with each of the acquired music catalogs, should have been recognized as accounts receivable and royalties payable, respectively, on the closing date of the acquired music catalog based on the Company’s best estimate of the uncollected royalties due to the Company and payables due to the artists or songwriters on the closing date. The Company’s historical accounting practice associated with these uncollected royalties and royalties payable was to recognize the uncollected royalties as revenue under ASC 606 as they were collected after the closing date, and to recognize cost of revenue as the royalties due to the artists or songwriters when the related royalty revenue was collected. The Company also concluded that the acquired accounts receivable and royalties payable assumed on the date of closing should have been included in the purchase price allocation of the Company’s acquired music catalogs, as prescribed by ASC 805-50. The financial tables below present the impact of correcting the accounting errors on the Company’s previously reported financial statements.
18
RESERVOIR MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The following table presents the impact of correcting the accounting errors on the Company’s previously reported unaudited condensed consolidated statement of income for the three months ended June 30, 2021:
| Three Months Ended June 30, 2021 | ||||||||
As Reported | Adjustment | Revised | |||||||
Revenues | $ | | $ | ( | $ | | |||
Amortization and depreciation |
| |
| ( |
| | |||
Total costs and expenses |
| |
| ( |
| | |||
Operating income |
| |
| ( |
| | |||
Loss before income taxes |
| ( |
| ( |
| ( | |||
Income tax benefit |
| ( |
| ( |
| ( | |||
Net loss |
| ( |
| ( |
| ( | |||
Net loss attributable to Reservoir Media, Inc. |
| ( |
| ( |
| ( | |||
Loss per common share - basic | $ | ( | $ | — | $ | ( | |||
Loss per common share - diluted | $ | ( | $ | — | $ | ( |
The following table presents the impact of correcting the accounting errors on the Company’s previously reported unaudited condensed consolidated statement of comprehensive income (loss) for the three months ended June 30, 2021:
| Three Months Ended June 30, 2021 | ||||||||
As Reported | Adjustment | Revised | |||||||
Net loss | $ | ( | $ | ( | $ | ( | |||
Total comprehensive loss |
| ( |
| ( |
| ( | |||