SEC Filing | Reservoir Media, Inc.

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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 June 30, 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.)

75 Varick Street

9th Floor

New York, New York 10013

(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 August 1, 2022, there were 64,373,904 shares of Common Stock of Reservoir Media, Inc. issued and outstanding.

Table of Contents

RESERVOIR MEDIA, INC.

FORM 10-Q FOR THE QUARTER ENDED June 30, 2022

TABLE OF CONTENTS


			Page
Part I. Financial Information			1
Item 1. Financial Statements			1
Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2022 and 2021 (unaudited)			1
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2022 and 2021 (unaudited)			2
Condensed Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022 (unaudited)			3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended June 30, 2022 and 2021 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 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			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			37
Part II. Other Information			38
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Mine Safety Disclosures			38
Item 5. Other Information			38
Item 6. Exhibits			39
Part III. Signatures			40

Table of Contents

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	$	24,278,770	$	16,632,631
Costs and expenses:
Cost of revenue		9,975,131		7,692,387
Amortization and depreciation		5,361,503		4,059,723
Administration expenses		7,621,610		4,664,830
Total costs and expenses		22,958,244		16,416,940

Operating income		1,320,526		215,691

Interest expense		(2,976,060)		(2,779,052)
Gain (loss) on foreign exchange		107,343		(18,321)
Gain on fair value of swaps		1,570,337		547,488
Interest and other income		13		68
Income (loss) before income taxes		22,159		(2,034,126)
Income tax expense (benefit)		5,338		(527,145)
Net income (loss)		16,821		(1,506,981)
Net loss attributable to noncontrolling interests		59,218		53,983
Net income (loss) attributable to Reservoir Media, Inc.	$	76,039	$	(1,452,998)

Earnings (loss) per common share (Note 15):
Basic	$	0.00	$	(0.05)
Diluted	$	0.00	$	(0.05)

Weighted average common shares outstanding (Note 15):
Basic		64,223,531		28,539,299
Diluted		64,781,739		28,539,299

See accompanying notes to the condensed consolidated financial statements.

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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)	$	16,821	$	(1,506,981)
Other comprehensive income (loss):
Translation adjustments		(5,011,563)		215,142
Total comprehensive loss		(4,994,742)		(1,291,839)
Comprehensive loss attributable to noncontrolling interests		59,218		53,983
Total comprehensive loss attributable to Reservoir Media, Inc.	$	(4,935,524)	$	(1,237,856)

See accompanying notes to the condensed consolidated financial statements.

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RESERVOIR MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	June 30,		March 31,
	2022		2022
Assets
Current assets
Cash and cash equivalents	$	12,570,147	$	17,814,292
Accounts receivable		25,604,221		25,210,936
Current portion of royalty advances		13,539,768		12,375,420
Inventory and prepaid expenses		4,533,111		4,041,471
Total current assets		56,247,247		59,442,119

Intangible assets, net		564,416,843		571,383,855
Equity method and other investments		3,676,072		3,912,978
Royalty advances, net of current portion		50,392,471		44,637,334
Property, plant and equipment, net		359,633		342,080
Operating lease right of use assets, net		2,002,931		—
Fair value of swap assets		5,562,139		3,991,802
Other assets		662,110		559,922
Total assets	$	683,319,446	$	684,270,090

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	5,351,476	$	4,436,943
Royalties payable		26,269,490		21,235,815
Accrued payroll		388,080		1,938,281
Deferred revenue		725,438		1,103,664
Other current liabilities		3,387,361		12,272,577
Income taxes payable		116,324		77,496
Total current liabilities		36,238,169		41,064,776

Secured line of credit		277,428,149		269,856,169
Deferred income taxes		24,040,179		24,884,170
Operating lease liabilities, net of current portion		1,404,826		—
Other liabilities		905,509		1,012,651
Total liabilities		340,016,832		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 June 30, 2022 and March 31, 2022		—		—
Common stock, $0.0001 par value; 750,000,000 shares authorized, 64,290,324 issued and outstanding at June 30, 2022; 64,150,186 issued and outstanding at March 31, 2022		6,429		6,415
Additional paid-in capital		336,217,999		335,372,981
Retained earnings		12,289,558		12,213,519
Accumulated other comprehensive loss		(6,209,621)		(1,198,058)
Total Reservoir Media, Inc. shareholders’ equity		342,304,365		346,394,857
Noncontrolling interest		998,249		1,057,467
Total shareholders’ equity		343,302,614		347,452,324
Total liabilities and shareholders’ equity	$	683,319,446	$	684,270,090

See accompanying notes to the condensed consolidated financial statements.

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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	—	$	—	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


	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	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

See accompanying notes to the condensed consolidated financial statements.

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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:
Net income (loss)	$	16,821	$	(1,506,981)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of intangible assets		5,315,265		4,028,444
Depreciation of property, plant and equipment		46,238		31,279
Share-based compensation		765,503		25,675
Non-cash interest charges		578,955		218,498
Gain on fair value of swaps		(1,570,337)		(547,488)
Share of earnings of equity affiliates, net of tax		(25,721)		—
Dividend from equity affiliates		6,168		8,088
Deferred income taxes		—		20,020
Changes in operating assets and liabilities:
Accounts receivable		(393,285)		1,823,488
Inventory and prepaid expenses		(491,640)		(2,382,719)
Royalty advances		(6,919,485)		(3,868,620)
Other assets and liabilities		96,506		—
Accounts payable and accrued expenses		4,339,141		5,891,735
Income tax payable		38,828		442
Net cash provided by operating activities		1,802,957		3,741,861
Cash flows from investing activities:
Purchases of music catalogs		(12,708,782)		(112,178,528)
Investment in equity method and other investments		—		(500,000)
Purchase of property, plant and equipment		(63,791)		(21,308)
Net cash used for investing activities		(12,772,573)		(112,699,836)
Cash flows from financing activities:
Proceeds from secured line of credit		7,000,000		32,900,000
Repayments of secured loans		—		(250,000)
Taxes paid related to net share settlement of restricted stock units		(475,858)		—
Deferred financing costs paid		(6,975)		—
Draws on related party loans		—		80,913,620
Net cash provided by financing activities		6,517,167		113,563,620
Foreign exchange impact on cash		(791,696)		209,139
(Decrease) increase in cash and cash equivalents		(5,244,145)		4,814,784
Cash and cash equivalents beginning of period		17,814,292		9,209,920
Cash and cash equivalents end of period	$	12,570,147	$	14,024,704

See accompanying notes to the condensed consolidated financial statements.

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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, $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 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.

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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.

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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 $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.

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,

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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 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.

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 $1,038,536 and $82,148 from performance obligations satisfied in previous periods for the three months ended June 30, 2022 and 2021, respectively.

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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	$	8,463,870	$	6,610,811
Performance		3,536,424		2,649,213
Synchronization		3,299,346		1,941,916
Mechanical		514,468		408,967
Other		632,599		592,866
Total Music Publishing		16,446,707		12,203,773

Digital		4,563,542		2,811,841
Physical		1,297,178		966,637
Neighboring rights		685,349		327,275
Synchronization		1,024,642		102,042
Total Recorded Music		7,570,711		4,207,795

Other revenue		261,352		221,063
Total revenue	$	24,278,770	$	16,632,631


	Three Months Ended June 30,
	2022		2021
Revenue by Geographical Location
United States Music Publishing	$	9,843,294	$	6,823,175
United States Recorded Music		3,802,836		1,570,937
United States other revenue		261,352		221,063
Total United States		13,907,482		8,615,175
International Music Publishing		6,603,413		5,380,598
International Recorded Music		3,767,875		2,636,858
Total International		10,371,288		8,017,456
Total revenue	$	24,278,770	$	16,632,631

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	$	1,103,664	$	1,337,987
Cash received during period		156,140		898,661
Revenue recognized during period		(534,366)		(392,605)
Balance at end of period	$	725,438	$	1,844,043

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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 $3,391,376 and $111,070,099, respectively, inclusive of deferred acquisition payments.

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 $100 million, which was the most significant acquisition transaction during the three months ended June 30, 2021. Two members of the Company’s board of directors (the “Board”) were also members of Tommy Boy’s board of managers and had an equity interest in both companies. The acquisition of Tommy Boy was accounted for as an asset acquisition as a result of the significant concentration of the fair value of gross assets acquired in a recorded music catalog intangible asset (weighted average useful life of 30 years).

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:
Publishing and recorded music catalogs	$	652,123,466	$	654,284,671
Artist management contracts		876,509		947,723
Gross intangible assets		652,999,975		655,232,394
Accumulated amortization		(88,583,132)		(83,848,539)
Intangible assets, net	$	564,416,843	$	571,383,855

Straight-line amortization expense totaled $5,315,265 and $4,028,444 in the three months ended June 30, 2022 and 2021, respectively.

NOTE 8. ROYALTY ADVANCES

The Company made royalty advances totaling $10,227,209 and $6,258,299 during the three months ended June 30, 2022 and 2021, respectively, recoupable from the writer’s or artist’s share of future royalties otherwise payable, in varying amounts. Advances expected to be recouped within the next twelve months are classified as current assets, with the remainder classified as noncurrent assets.


	June 30, 2022		June 30, 2021
Balance at beginning of period	$	57,012,754	$	41,582,080
Additions		10,227,209		6,258,299
Recoupments		(3,307,724)		(2,389,679)
Balance at end of period	$	63,932,239	$	45,450,700

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	$	282,645,715	$	275,645,715
Debt issuance costs, net		(5,217,566)		(5,789,546)
	$	277,428,149	$	269,856,169

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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 $248,750,000 to an aggregate amount of $350,000,000 (the “Senior Credit Facility”) and modified certain covenants (discussed below).

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 1.25% or the sum of a LIBO rate plus a margin of 2.25%. RMM is also required to pay an unused fee in respect of unused commitments under the Senior Credit Facility, if any, at a rate of 0.25% per annum. Substantially all tangible and intangible assets of the Company, RHI, RMM and the other subsidiary guarantors are pledged as collateral to secure the obligations of RMM under the RMM Credit Agreement.

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 $20,000,000 of certain cash balances) of no greater than 7.50:1.00 as of the end of each fiscal quarter, (ii) a fixed charge coverage ratio of not less than 1.25:1.00 for each four fiscal quarter period, and (iii) a consolidated senior debt to library value ratio of 0.475, subject to certain adjustments. If RMM does not comply with the covenants in the RMM Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Senior Credit Facility.

The Senior Credit Facility also includes an “accordion feature” that permits RMM to seek additional commitments in an amount not to exceed $50,000,000 that would increase the Senior Credit Facility. As of June 30, 2022, the Senior Credit Facility had a borrowing capacity of $350,000,000, with remaining borrowing availability of $67,354,285.

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	$	8,625,000	1.602	%	September 2024
March 10, 2022	$	87,979,412	1.492	%	September 2024
December 31, 2021	$	53,395,588	1.042	%	September 2024

On March 10, 2022, two previous interest rate swaps expired with original notional amounts of $40,228,152 and $59,325,388. Through the expiration date of these previous interest rate swaps, RMM paid fixed rates of 2.812% and 2.972%, respectively, to the counterparty and received 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.

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NOTE 10. INCOME TAXES

Income tax expense (benefit) for the three months ended June 30, 2022 and 2021 was $5,338 (24.1% effective tax rate) and $(527,145) (25.9% effective tax rate), respectively. The effective tax rates during these periods reflect the amount and mix of income from multiple tax jurisdictions.

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	$	2,397,105	$	2,214,072
Income taxes paid	$	10,000	$	—

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	$	315,455	$	—
Reclassification of liability-classified awards to equity-classified awards	$	961,429	$	—

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 $0 as of June 30, 2022 and March 31, 2022.

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 4.66% per year and were payable upon the earlier of the consummation of the Business Combination and December 21, 2021. The Tommy Boy Related Party Notes and accrued interest were paid on the Closing Date. See Note 4, “Business Combination and PIPE Investment” for additional information with respect to the consummation of the Business Combination.

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 16,175,406 shares of RHI Preferred Stock outstanding. The RHI Preferred Stock was convertible into an equal number of shares of RHI Common Stock at the option of the preferred shareholder and was mandatorily converted into an equal number of shares of RHI Common Stock upon a qualified public offering of RHI Common Stock. Immediately prior to the effective time of the Business Combination, each share of RHI Preferred Stock that was issued and outstanding was automatically converted into a number of shares of RHI Common Stock pursuant to the RHI Preferred Stock Conversion. See Note 4, “Business Combination and PIPE Investment” for additional information with respect to the RHI Preferred Stock Conversion.

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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 no shares of RHI Preferred Stock outstanding.

Warrants

As of June 30, 2022, the Company’s outstanding warrants included 5,750,000 publicly-traded warrants (the “Public Warrants”), which were issued during ROCC’s initial public offering on December 15, 2020, and 137,500 warrants sold in a private placement to ROCC’s sponsor (the “Private Warrants” and together with the Public Warrants, the “Warrants”), which were assumed by the Company in connection with the Business Combination and exchanged into warrants for shares of Common Stock. Each whole Warrant entitles the registered holder to purchase one whole share of Common Stock at a price of $11.50 per share, provided that the Company has an effective registration statement under the Securities Act covering the shares of Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the warrant agreement, a registered holder may exercise its Warrants only for a whole number of shares of Common Stock. The Warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.

The Company may redeem the outstanding Public Warrants in whole, but not in part, at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of Common Stock equals or exceeds $18.00 per share for any 20-trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the registered holders. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a cashless basis. In no event will the Company be required to net cash settle the warrant exercise. The Private Warrants are identical to the Public Warrants, except that the Private Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

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 1,494,848 shares of Common Stock pursuant to the 2021 Incentive Plan.

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 $765,503 ($590,032, net of taxes) and $25,675 ($19,791, net of taxes) during the three months ended June 30, 2022 and 2021, respectively. Share-based compensation expense is classified as “Administration expenses” in

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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 $961,429 was reclassified from accounts payable and accrued liabilities to additional paid-in capital.

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.	$	76,039	$	(1,452,998)
Weighted average common shares outstanding - basic		64,223,531		28,539,299
Earnings (loss) per common share - basic	$	—	$	(0.05)

Diluted earnings (loss) per common share
Net income (loss) attributable to Reservoir Media, Inc.	$	76,039	$	(1,452,998)
Weighted average common shares outstanding - basic		64,223,531		28,539,299
Weighted average effect of potentially dilutive securities:
Effect of dilutive stock options and RSUs		558,208		—
Weighted average common shares outstanding - diluted		64,781,739		28,539,299
Earnings (loss) per common share - diluted	$	—	$	(0.05)

Because of their anti-dilutive effect, 5,887,500 shares of Common Stock equivalents comprised of warrants have been excluded from the diluted earnings per share calculation for the three months ended June 30, 2022.

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, 1,494,848 shares of Common Stock equivalents comprised of stock options have been excluded from the diluted earnings per share calculation for the three months ended June 30, 2021.

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.

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(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 $5,562,139 asset as of June 30, 2022 and a $3,991,802 asset as of March 31, 2022. Fair value is determined using Level 2 inputs, which are based on quoted prices and market observable data of similar instruments. The change in the unrealized fair value of the swaps during the three months ended June 30, 2022 of $1,570,337 was recorded as a gain on changes in fair value of derivative instruments. The change in the unrealized fair value of the swaps during the three months ended June 30, 2021 of $547,488 was recorded as a gain on changes in fair value of derivative instruments.

(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 $74,000, with a corresponding increase to the ROU asset.

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 $8.4 million will be payable monthly with escalating rental payments over the 130-month lease term.

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(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, no provision for any contingent liabilities has been made in the consolidated financial statements. The Company believes that losses resulting from these matters, if any, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company. All such matters which the Company concludes are probable to result in a loss and for which management can reasonably estimate the amount of such loss have been accrued for within these condensed consolidated financial statements.

NOTE 18. SEGMENT REPORTING

The Company’s business is organized in two reportable segments: Music Publishing and Recorded Music. The Company identified its Chief Executive Officer as its Chief Operating Decision Maker (“CODM”). The Company’s CODM evaluates financial performance of its segments based on several factors, of which the primary financial measure is operating income before depreciation and amortization (“OIBDA”).

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	$	16,446,707	$	7,570,711	$	261,352	$	24,278,770

Reconciliation of OIBDA to operating income (loss):
Operating income (loss)		(261,308)		1,581,310		524		1,320,526
Amortization and depreciation		3,954,370		1,384,481		22,652		5,361,503
OIBDA	$	3,693,062	$	2,965,791	$	23,176	$	6,682,029


	Three Months Ended June 30, 2021
	Music		Recorded
	Publishing		Music		Other		Consolidated
Total revenue	$	12,203,773	$	4,207,795	$	221,063	$	16,632,631

Reconciliation of OIBDA to operating income (loss):
Operating income (loss)^(a)		229,167		(73,301)		59,825		215,691
Amortization and depreciation		3,169,209		865,458		25,056		4,059,723
OIBDA	$	3,398,376	$	792,157	$	84,881	$	4,275,414

(a)During the fourth quarter the fiscal year ended March 31, 2022, the Company revised the methodology it uses to allocate corporate general and administrative expenses to its operating segments to better align usage of corporate resources allocated to the Company segments. The updated allocation methodology had no impact on the Company’s consolidated statements of operations. This change was applied retrospectively, and segment OIBDA for all comparative periods has been updated to reflect this change.

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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.

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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	$	16,718,150	$	(85,519)	$	16,632,631
Amortization and depreciation		4,079,245		(19,522)		4,059,723
Total costs and expenses		16,436,462		(19,522)		16,416,940
Operating income		281,688		(65,997)		215,691
Loss before income taxes		(1,968,129)		(65,997)		(2,034,126)
Income tax benefit		(510,646)		(16,499)		(527,145)
Net loss		(1,457,483)		(49,498)		(1,506,981)
Net loss attributable to Reservoir Media, Inc.		(1,403,500)		(49,498)		(1,452,998)

Loss per common share - basic	$	(0.05)	$	—	$	(0.05)
Loss per common share - diluted	$	(0.05)	$	—	$	(0.05)

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	$	(1,457,483)	$	(49,498)	$	(1,506,981)
Total comprehensive loss		(1,242,341)		(49,498)		(1,291,839)