Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservoir Holdings, Inc. and Subsidiaries

 

Condensed Consolidated Financial Statements as of and for the Three Months Ended June 30, 2021 and 2020 (Unaudited)

 

 

Reservoir Holdings, Inc. and Subsidiaries

 

June 30, 2021 and 2020

 

 

Table of contents

  

Condensed consolidated statements of income for the three months ended June 30, 2021 and 2020 (Unaudited)	3
Condensed consolidated statements of comprehensive income for the three months ended June 30, 2021 and 2020 (Unaudited)	4
Condensed consolidated balance sheets as of June 30, 2021 (Unaudited) and March 31, 2021	5
Condensed consolidated statements of shareholders’ equity for the three months ended June 30, 2021 and 2020 (Unaudited)	6
Condensed consolidated statements of cash flows for the three months ended June 30, 2021 and 2020 (Unaudited)	7
Notes to the condensed consolidated financial statements (Unaudited)	8

  

  

Reservoir Holdings, Inc. and Subsidiaries

Condensed consolidated statements of income

(Expressed in U.S. dollars)

(Unaudited)        

 

		Three Months Ended June 30,
		2021				2020
		$				$
Revenues			16,718,150				13,644,193
Costs and expenses:
Cost of revenue			7,692,387				5,903,292
Amortization and depreciation			4,079,245				3,429,868
Administration expenses			4,664,830				3,004,634
Total costs and expenses			16,436,462				12,337,794
Operating income			281,688				1,306,399
Interest expense			(2,779,052	)			(2,207,696	)
Loss on foreign exchange			(18,321	)			(115,927	)
Gain (loss) on fair value of swaps			547,488				(254,281	)
Interest and other income			68				4,778
Loss before income taxes			(1,968,129	)			(1,266,727	)
Income tax benefit			(510,646	)			(321,923	)
Net loss			(1,457,483	)			(944,804	)
Net loss attributable to noncontrolling interests			53,983				58,790
Net loss attributable to Reservoir Holdings, Inc.			(1,403,500	)			(886,014	)
Loss per common share (Note 13):
Basic and diluted			(9.64	)			(6.23	)
Weighted average common shares outstanding (Note 13):
Basic and diluted			145,560				142,161

 

See accompanying notes to the condensed consolidated financial statements.

 

 

Reservoir Holdings, Inc. and Subsidiaries

Condensed consolidated statements of comprehensive income

(Expressed in U.S. dollars)

(Unaudited)        

 

		Three Months Ended June 30,
		2021				2020
		$				$
Net loss			(1,457,483	)			(944,804	)
Other comprehensive income (loss):
Translation adjustments			215,142				1,974,652
Total comprehensive (loss) income			(1,242,341	)			1,029,848
Comprehensive loss attributable to noncontrolling interests			53,983				58,790
Total comprehensive (loss) income attributable to Reservoir Holdings, Inc.			(1,188,358	)			1,088,638

 

See accompanying notes to the condensed consolidated financial statements.

 

 

Reservoir Holdings, Inc. and Subsidiaries

Condensed consolidated balance sheets

(Expressed in U.S. dollars)

(Unaudited)        

 

		June 30, 2021				March 31, 2021
		$				$
Assets
Current assets
Cash and cash equivalents			14,024,704				9,209,920
Accounts receivable			13,989,896				15,813,384
Current portion of royalty advances			13,245,315				12,840,855
Inventory and prepaid expenses			3,789,098				1,406,379
Total current assets			45,049,013				39,270,538
Intangible assets, net			500,591,041				393,238,010
Investment in equity affiliates			2,089,094				1,591,179
Royalty advances, net of current portion			32,205,385				28,741,225
Property, plant and equipment, net			311,795				321,766
Other assets			737,285				781,735
Total assets			580,983,613				463,944,453
Liabilities
Current liabilities
Accounts payable and accrued liabilities			4,220,365				3,316,768
Royalties payable			19,962,733				14,656,566
Accrued payroll			809,175				1,634,852
Deferred revenue			1,844,043				1,337,987
Other current liabilities			7,322,215				2,615,488
Amounts due to related parties (Note 11)			81,203,792				290,172
Current portion of loans and secured notes payable			1,000,000				1,000,000
Income taxes payable			533,937				533,495
Total current liabilities			116,896,260				25,385,328
Loans and secured notes payable			244,400,373				211,531,875
Deferred income taxes			19,772,056				19,735,537
Fair value of swaps			4,019,049				4,566,537
Other liabilities			1,127,336				6,739,971
Total liabilities			386,215,074				267,959,248
Contingencies and commitments (Note 15)
Shareholders' Equity
Preferred stock, $0.00001 par value 500,000 shares authorized;
82,500 shares issued and outstanding at June 30, 2021 and March 31, 2021			81,632,500				81,632,500
Common stock, $0.00001 par value; 1,000,000 shares authorized,
145,560 shares issued and outstanding at June 30, 2021; and March 31, 2021			1				1
Additional paid-in capital			110,524,828				110,499,153
Retained earnings (accumulated deficit)			(652,004	)			751,496
Accumulated other comprehensive income (loss)			2,311,500				2,096,358
Total Reservoir Holdings, Inc. shareholders' equity			193,816,825				194,979,508
Noncontrolling interest			951,714				1,005,697
Total shareholders' equity			194,768,539				195,985,205
Total liabilities and shareholders' equity			580,983,613				463,944,453

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Reservoir Holdings, Inc. and Subsidiaries

Condensed consolidated statements of shareholders' equity

(Expressed in U.S. dollars, except share amounts)

(Unaudited)                                    

 

		Preferred Stock								Common Stock								Additional Paid-In				Retained earnings (Accumulated				Accumulated other comprehensive				Noncontrolling				Shareholders'
		Shares				Amount				Shares				Amount				Capital				deficit)				income (loss)				interest				equity
						$								$				$				$				$				$				$
Balance, March 31, 2020			82,500				81,632,500				140,227				1				102,423,444				(9,537,465	)			(4,385,615	)			959,024				171,091,889
Issuance of common shares			-				-				5,333				-				7,973,010				-				-				-				7,973,010
Share-based compensation			-				-				-				-				25,674				-				-				-				25,674
Net loss			-				-				-				-				-				(886,014	)			-				(58,790	)			(944,804	)
Other comprehensive income			-				-				-				-				-				-				1,974,652				-				1,974,652
Balance, June 30, 2020			82,500				81,632,500				145,560				1				110,422,128				(10,423,479	)			(2,410,963	)			900,234				180,120,421
Balance, March 31, 2021			82,500				81,632,500				145,560				1				110,499,153				751,496				2,096,358				1,005,697				195,985,205
Share-based compensation			-				-				-				-				25,675				-				-				-				25,675
Net loss			-				-				-				-				-				(1,403,500	)			-				(53,983	)			(1,457,483	)
Other comprehensive income			-				-				-				-				-				-				215,142				-				215,142
Balance, June 30, 2021			82,500				81,632,500				145,560				1				110,524,828				(652,004	)			2,311,500				951,714				194,768,539

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Reservoir Holdings, Inc. and Subsidiaries

Condensed consolidated statements of cash flows

(Expressed in U.S. dollars)

(Unaudited)        

 

		Three Months Ended June 30,
		2021				2020
		$				$
Cash flows from operating activities
Net loss			(1,457,483	)			(944,804	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets			4,047,966				3,373,978
Depreciation of property, plant and equipment			31,279				55,890
Share-based compensation			25,675				25,674
Non-cash interest charges			218,498				183,777
(Gain) loss on fair value of derivative instruments			(547,488	)			254,281
Dividend from equity affiliates			8,088				10,491
Deferred income tax			36,519				405,136
Changes in operating assets and liabilities:
Accounts receivable			1,823,488				875,791
Inventory and prepaid expenses			(2,382,719	)			(651,778	)
Royalty advances			(3,868,620	)			(1,638,368	)
Other assets			-				70,967
Accounts payable and accrued expenses			5,891,735				5,572,390
Income tax payable			442				(49,072	)
Net cash provided by operating activities			3,827,380				7,544,353
Cash flows from investing activities:
Purchases of music catalogs			(112,308,497	)			(72,758,747	)
Investment in equity affiliate			(500,000	)			-
Decrease in deferred music composition acquisition costs			44,450				-
Purchase of property, plant and equipment			(21,308	)			(26,344	)
Net cash used for investing activities			(112,785,355	)			(72,785,091	)
Cash flows from financing activities:
Issuance of common shares, net of issuance costs			-				7,973,010
Proceeds from secured line of credit			32,900,000				11,000,000
Repayments of secured loans			(250,000	)			(250,000	)
Deferred financing costs paid			-				(325,968	)
Draw on related party loans			80,913,620				175,055
Net cash provided by financing activities			113,563,620				18,572,097
Foreign exchange impact on cash			209,139				1,997,236
Increase (decrease) in cash and cash equivalents			4,814,784				(44,671,405	)
Cash and cash equivalents beginning of period			9,209,920				58,240,123
Cash and cash equivalents end of period			14,024,704				13,568,718

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

 

1.

Description of business

 

Reservoir Holdings, Inc. (the “Company”) was incorporated on April 23, 2019 under the laws of Delaware for the sole purpose of serving as the holding company of Reservoir Media Management, Inc. (“RMM”). RMM commenced operations on April 27, 2007 and the activities of RMM 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 130,000 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 include the ownership of over 36,000 sound recordings.

 

The Company’s operations are concentrated primarily in the U.S. and UK and, to a lesser degree, United Arab Emirates.

 

As discussed in Note 17, on July 28, 2021, the Company consummated its previously announced business combination through which it became a wholly-owned subsidiary of a publicly-traded entity listed on the Nasdaq Stock Market LLC.

 

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. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had a negative impact on the global economy.

 

The Company has evaluated and continues to evaluate the potential impact of the COVID-19 pandemic on its consolidated financial statements. 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, 2021 and 2020. 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 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.

 

  

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

Paycheck Protection Program Loan

 

During the three months ended June 30, 2020, the Company borrowed $616,847 under the Paycheck Protection Program (“PPP”) (the “PPP Loan”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. In accordance with the terms of the program, the Company applied for and received confirmation of loan forgiveness for the entire amount borrowed under the PPP.

 

The Company accounted for the PPP Loan as an in-substance government grant because it expected to meet the PPP Loan eligibility criteria and concluded that the loan represented, in substance, a grant that was expected to be forgiven. Proceeds from the PPP Loan were initially recognized as a deferred income liability and presented as an operating activity within the Company’s consolidated statement of cash flows. Subsequently, the Company reduced this liability and recognized a reduction in payroll expenses on a systematic basis over the period in which the related costs for which the PPP Loan was intended were incurred. No interest for the PPP Loan was recognized in the Company’s financial statements.

 

2.

Basis of presentation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-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. Certain information and note disclosures normally 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, 2021 and 2020.

 

   

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

   

The condensed consolidated balance sheet as of March 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by 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 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending March 31, 2022, or any other period.

 

3.

Recent accounting pronouncements

 

Accounting Standards Not Yet Adopted

 

As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our Business Startups Act (‘‘JOBS Act’’) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases: (Topic 842) (“ASU 2016-02”), which establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of income. For public entities, this guidance was effective for annual reporting periods beginning after December 15, 2018, including interim periods within that annual reporting period. Under the guidance of ASU 2020-05, the new standard is effective for the Company April 1, 2022 and interim periods within the fiscal year beginning April 1, 2023. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has not yet completed an analysis of the impact of the new lease guidance. Under current accounting guidance for leases, the Company does not recognize an asset or liability created by operating leases where the Company is the lessee. Therefore, the Company expects an increase to its assets and liabilities on the Company’s consolidated balance sheet as a result of recognizing assets and liabilities for operating leases where the Company is the lessee on the date of initial application of the new guidance. However, the Company cannot currently quantify this increase or the impact, if any, on its consolidated statements of income. The Company does not expect the adoption of this new guidance will have a material impact on the amount or timing of the Company’s cash flows or liquidity.

 

   

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology in current US GAAP, with a methodology that reflects expected credit losses. Subsequent to ASU 2016-13, the FASB has issued several related ASUs amending the original ASU. 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, this guidance was effective for annual reporting periods beginning after December 15, 2019, including interim periods within that annual reporting period. For the Company, this update is effective April 1, 2023, including interim periods within that fiscal year, with early adoption permitted for annual periods beginning after December 15, 2018. The Company has not yet evaluated the effect that this ASU will have on the Company’s consolidated financial statements.

 

In April 2020, the FASB issued ASU No. 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 this ASU 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 this ASU 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 Company has not yet evaluated the effect that this ASU will have on the Company’s consolidated financial statements.

 

4.

Revenue recognition

 

For our 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 $82,148 and $1,185,300 from performance obligations satisfied in previous periods for the three months ended June 30, 2021 and 2020, respectively.

  

   

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

 

Disaggregation of Revenue

 

The Company’s revenue consists of the following categories during the three months ended June 30:

 

		2021				2020
		$				$
Revenue by Type
Performance			2,662,756				3,102,412
Digital			6,647,432				5,905,888
Mechanical			409,948				388,352
Synchronization			1,951,838				1,543,353
Other			593,496				401,537
Total Music Publishing			12,265,470				11,341,542
Digital			2,821,369				1,722,590
Physical			969,019				192,349
Synchronization			107,998				65,113
Neighboring rights			333,231				203,884
Total Recorded Music			4,231,617				2,183,936
Other revenue			221,063				118,715
Total revenue			16,718,150				13,644,193

 

		2021				2020
		$				$
Revenue by Geographical Location
United States Music Publishing			6,854,023				6,894,711
United States Recorded Music			1,582,849				658,251
United States other revenue			221,063				118,715
Total United States			8,657,935				7,671,677
International Music Publishing			5,411,447				4,446,831
International Recorded Music			2,648,768				1,525,685
Total international			8,060,215				5,972,516
Total revenue			16,718,150				13,644,193

  

Only the United States represented 10% or more of the Company’s total revenues in the three months ended June 30, 2021 and 2020.

 

The following table reflects the change in deferred revenue during the three months ended June 30:

 

		2021				2020
		$				$
Balance at beginning of period			1,337,987				473,022
Cash received during period			898,661				4,628,779
Revenue recognized during period			(392,605	)			(2,279,677	)
Balance at end of period			1,844,043				2,822,124

 

    

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

5.

Acquisitions

 

In the ordinary course of business, the Company regularly acquires music catalogs (publishing and recorded), which are typically accounted for as asset acquisitions. During the three months ended June 30, 2021 and 2020, the Company completed such acquisitions totaling $111,155,618 and $70,096,954, respectively, inclusive of deferred acquisition payments. Significant acquisition transactions, all of which have been accounted for as asset acquisitions, completed during the three months ended June 30, 2021 and 2020 included the following:

 

On June 2, 2021, the Company acquired U.S. based record label and music publishing company Tommy Boy Music, LLC (“Tommy Boy”) for approximately $100 million. Two of the Company’s board members were also board members of Tommy Boy 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).

 

On April 13, 2020, the Company acquired all of the copyrights to the musical compositions owned by Shapiro, Bernstein & Co., Inc. (“SBI”), one of the oldest music publishers in the United States. The transaction was accounted for as an asset acquisition as a result of the significant concentration of the fair value of gross assets acquired in a publishing catalog intangible asset (weighted average useful life of 30 years).

 

6.

Intangible assets

 

Intangible assets subject to amortization consist of the following at June 30, 2021 and March 31, 2021:

 

		June 30, 2021				March 31, 2021
		$				$
Intangible assets subject to amortization:
Music catalogs (publishing and recorded)			569,076,831				457,662,303
Artist management contracts			999,220				995,464
Gross intangible assets			570,076,051				458,657,767
Accumulated amortization			(69,485,010	)			(65,419,757	)
Intangible assets, net			500,591,041				393,238,010

 

Amortization expense totaled $4,047,966 and $3,373,978 in the three months ended June 30, 2021 and 2020, respectively.

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

   

7.

Royalty advances

 

The Company made royalty advances totaling $6,258,299 and $3,718,678 during the three months ended June 30, 2021 and 2020, respectively, recoupable from the writer’s share of future royalties otherwise payable, in varying amounts. Advances expected to be recouped within the next 12 months are classified as current assets, with the remainder classified as noncurrent assets.

 

		Three Months Ended June 30,
		2021				2020
		$				$
Balance at beginning of period			41,582,080				40,263,439
Additions			6,258,299				3,718,678
Recoupments			(2,389,679	)			(2,080,310	)
Balance at end of period			45,450,700				41,901,807

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

8.

Loans and secured notes payable

 

Long-term debt consists of the following:

 

		June 30, 2021				March 31, 2021
		$				$
Secured loan bearing interest at LIBOR plus a spread			18,250,000				18,500,000
Secured line of credit bearing interest at LIBOR plus a spread			229,990,848				197,090,848
Debt issuance costs, net			(2,840,475	)			(3,058,973	)
			245,400,373				212,531,875
Less: short term portion of secured loan			1,000,000				1,000,000
			244,400,373				211,531,875

  

Credit Facilities

 

On December 19, 2014, RMM entered into a credit agreement (the “Credit Agreement”) governing the Company’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. See Note 17.

 

Prior to the refinancing, the principal amount of the term loan amortized in quarterly instalments equal to $250,000 through June 30, 2024, with the balance due in full by October 16, 2024, subject to certain prepayment conditions as defined in the loan agreements. Repayment of the line of credit was due in full by October 16, 2024, subject to certain conditions. The Credit Facilities also included an incremental commitment amount (the “accordion feature”) that is not to exceed a $50,000,000 increase to the revolving credit facility. At June 30, 2021, the secured line of credit had a borrowing capacity of $230,000,000.

 

Borrowings under the Credit Facilities are secured by all the Company’s assets. The interest rate applicable to borrowings under the Credit Facilities is 1M LIBOR plus 2.50%.

 

Capitalized debt issuance costs are amortized over the term of the Credit Agreement into interest expense using the effective interest method.

 

    

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

 

Interest rate swaps

 

As of March 31, 2019, the Company had entered into two interest rate swaps, both of which expire on March 10, 2022, one with a notional amount of $40,228,152 and one for $59,325,388. Under the terms of the interest rate swaps, the Company pays a fixed rate of 2.812% and 2.972% respectively, to the counterparty and receives a floating interest from the counter party based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement. The notional amount of the interest rate swaps is $97,345,585 at June 30, 2021 and $97,533,496 at March 31, 2021.

 

In October 2019 and January 2020, the Company added two additional interest rate swaps in the amounts of $8,875,000 and $88,098,862, respectively. These swaps have an effective date of March 10, 2022 which coincides with the expiration of the previous two swaps, and the Company will pay a fixed rate of 1.602% and 1.492%, respectively, and receives a floating interest from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement.

 

9.

Income taxes

 

The income tax benefit for the three months ended June 30, 2021 and 2020 was $510,646 (25.9% effective tax rate) and $321,923 (25.4% effective tax rate), respectively. The effective tax rates during these periods reflects the amount and mix of income from multiple tax jurisdictions.

 

10.

Supplementary cash flow information

 

Summary of interest paid and income taxes paid for the three months ended June 30 comprised the following:

 

		2021				2020
		$				$
Interest paid			2,214,072				2,023,919
Income taxes paid			-				26,187

  

11.

Amounts due to / (from) related parties

 

The Company has various shared services agreements with its majority shareholder and other affiliated entities under the control of its majority shareholder. These agreements cover services such as IT support and re-billed services of staff who perform services across multiple entities.

 

    

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

 

The acquisition of Tommy Boy was financed using cash on hand and borrowings from related parties (the “Tommy Boy Related Party Notes”), which were outstanding at June 30, 2021 as indicated in the table below. The Tommy Boy Related Party Notes bear interest of 4.66% per year and are payable upon the earlier of the closing of the business combination with Roth CH II Acquisition Co. or December 21, 2021. The Tommy Boy Related Party Notes and accrued interest were paid upon the closing of the business combination with Roth CH II Acquisition Co. on July 28, 2021, as discussed in Note 17.

 

		June 30, 2021				March 31, 2021
		$				$
Due to (from) Wesbild Holdings Ltd., parent company of Wesbild Inc.
Unsecured, bears no interest,
with no specific terms of repayment			149,603				83,480
Sub-total			149,603				83,480
Due to (from) DRI Capital Inc., a subsidiary of Wesbild Holdings Ltd.
Unsecured, bears no interest,
with no specific terms of repayment			147,817				81,738
Due to Reservoir Media Management (Canada) Inc.,
a subsidiary of Wesbild Holdings Ltd.
Unsecured, bears no interest,
with no specific terms of repayment			268,423				124,954
Sub-total			416,240				206,692
Tommy Boy Related Party Notes:
Due to Wesbild Holdings Ltd., parent company of Wesbild Inc.			38,000,000				-
Due to ER TB, LLC, controlled by shareholder of the Company			28,870,155				-
Due to BTCSJC Trust, controlled by shareholder of the Company			13,767,794				-
Sub-total			80,637,949				-
			81,203,792				290,172

 

12.

Shareholders’ equity

 

Issuance of common shares

 

During the first quarter of fiscal 2021, the Company issued 5,333 shares of common stock for aggregate consideration of $8,000,009 to existing shareholders to fund further acquisitions. The Company incurred $27,000 of issuance costs in connection with the issuance of this common stock, which the Company accounted for as a reduction in the proceeds from the common stock.

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

   

13.

Earnings (loss) per share

 

The following table summarizes the basic and diluted loss per share calculation for the three months ended June 30:

 

		2021				2020
Basic and diluted loss per common share
Net loss attributable to Reservoir Holdings, Inc.		$	(1,403,500	)		$	(886,014	)
Basic and diluted weighted average common shares outstanding			145,560				142,161
Basic and diluted loss per common share		$	(9.64	)		$	(6.23	)

  

The Company’s Preferred Shares are participating securities but are excluded from the loss per share calculation as they do 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, 7,624 common share equivalents comprised of stock options have been excluded from the diluted earnings per share calculation for the three months ended June 30, 2021 and 2020.

 

14.

Financial instruments

 

The Company is exposed to the following risk 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.

 

(b)

Interest rate risk

 

The Company is exposed to market risk from changes in interest rates on its secured loan. As described in Note 8, the Company entered into interest rate swap agreements to partially reduce its exposure to fluctuations in interest rates on its secured loans.

 

The fair value of the outstanding interest rate swaps was a $4,019,049 liability at June 30, 2021 and a $4,566,537 liability at March 31, 2021. 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 of $547,488 during the three months ended June 30, 2021 was recorded as a gain on changes in fair value of derivative instruments. The change in the unrealized fair value of the swaps of $254,281 during the three months ended June 30, 2020 was recorded as a loss on changes in fair value of derivative instruments.

 

    

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

   

(c)

Foreign exchange risk

 

The company is exposed to foreign exchange risk in fluctuations of currency rates on its revenue from royalties, writer’s fee and its subsidiaries’ operations.

 

(d)

Financial instruments

 

Financial instruments not described elsewhere include cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, secured loans payable and borrowing under its line of credit. The carrying values of these instruments at June 30, 2021 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 readily determinable secondary market.

 

15.

Contingencies and commitments

 

On September 8, 2020, an action was filed in the United States District Court for the Southern District of New York against a consolidated subsidiary of the Company and certain prior owners (“Prior Owners”) of certain music copyrights acquired by the Company. The legal action asserts that in 2000, the plaintiff entered into certain engagement letters (the “Engagement Letters”) with certain of the Prior Owners, which purportedly gave the plaintiff, among other things, an exclusive right to broker any future sale by the Prior Owners of the music copyrights acquired by the Company as well as a commission fee. Based on the Engagement Letters’ alleged grant of a security interest in such music copyrights, the plaintiff filed financing statements and various notices of liens, in the amount of $2,651,125, in the United States Copyright Office between 2000 and 2018. The plaintiff alleges, among other things, that the Prior Owners breached the Engagement Letters by consummating a purchase agreement with a consolidated subsidiary of the Company in 2018 without involving the plaintiff; that a consolidated subsidiary of the Company tortiously interfered with the Engagement Letters; and that the Plaintiff is permitted to foreclose on the lien, including foreclosing on those music copyrights acquired by a consolidated subsidiary of the Company under the 2018 purchase agreement. The Company determined a loss resulting from the action is not reasonably possible. The Company believes all claims and threatened claims against the consolidated subsidiary of the Company in this legal action are without merit and intends to defend vigorously against them. The Company also believes it has obtained appropriate indemnifications from the Prior Owners in relation to the claims in this legal action.

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

In addition to the foregoing, 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 the accompanying consolidated financial statements.

 

16.

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”). While each segment incurs direct administration expenses reflected in segment income, all corporate-level administration expenses, such as executive management, are included in the Music Publishing segment and are not allocated between segments.

 

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.

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

 

The following tables present Total revenue and a reconciliation of OIBDA to operating income by segment for the three months ended June 30, 2021 and 2020:

 

		Music Publishing				Recorded Music				Other				Consolidated
For the Three Months Ended June 30, 2021:		$				$				$				$
Total revenue			12,265,470				4,231,617				221,063				16,718,150
Reconciliation of OIBDA to operating income (loss):
Operating income (loss)			(316,020	)			537,883				59,825				281,688
Amortization and depreciation			3,184,336				869,853				25,056				4,079,245
OIBDA			2,868,316				1,407,736				84,881				4,360,933

 

		Music Publishing				Recorded Music				Other				Consolidated
For the Three Months Ended June 30, 2020:		$				$				$				$
Total revenue			11,341,542				2,183,936				118,715				13,644,193
Reconciliation of OIBDA to operating income (loss):
Operating income (loss)			1,039,565				270,706				(3,872	)			1,306,399
Amortization and depreciation			2,886,047				543,821				-				3,429,868
OIBDA			3,925,612				814,527				(3,872	)			4,736,267

  

17.

Subsequent events

 

(a)

Business Combination

 

On July 28, 2021 (the “Closing Date”), the Company consummated its previously announced business combination (the “Business Combination”) by and among Roth CH Acquisition II Co., a Delaware corporation (“ROCC”), Roth CH II Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of ROCC (“Merger Sub”) and the Company pursuant to the agreement and plan of merger, dated as of April 14, 2021 (the “Merger Agreement”). Upon the completion of the Business Combination and other transactions contemplated by the Merger Agreement (the “Transactions”), Roth CH Acquisition II Co. was renamed “Reservoir Media, Inc.” (“RMI”) and the Company became a wholly-owned subsidiary of RMI, whose common stock and warrants are listed on the Nasdaq Stock Market LLC (“NASDAQ”) under the ticker symbols “RSVR” and “RSVRW,” respectively. The Business Combination will be accounted for as a reverse recapitalization, with the Company determined to be the accounting acquirer.

 

    

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

Immediately prior to the consummation of the Business Combination, each Preferred Share of the Company that was issued and outstanding was automatically converted into a number of shares of common stock, par value $0.00001 per share, of the Company at the then-effective conversion rate as calculated pursuant to the Company’s second amended and restated certificate of incorporation (the “Preferred Share Conversion”).

 

Each share of the Company’s common stock (including the common stock resulting from the Preferred Share 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 shares of common stock (the “Exchange Ratio”), par value $0.0001 per share, of RMI (the “RMI Common Stock”). Additionally, each option to acquire a share of the Company’s 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 RMI Common Stock (such option, an “RMI Exchanged Option”), with the number of shares of RMI 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”) whereby it issued 15,000,000 shares of 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 Transaction and incurred fees in connection with the closing of the PIPE Investment in the amount of approximately $5.8 million, which will be accounted for as a reduction in proceeds.

 

A portion of the proceeds from the Business Combination and PIPE Investment were used to pay transaction fees and expenses, pay approximately $81,300,000 to retire the Tommy Boy Related Party Notes 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.

 

Debt Refinancing

 

In connection with the consummation of the Business Combination, RMM completed a refinancing of its Credit Facilities (the “Debt Refinancing”), pursuant to that certain Fourth Amended and Restated Credit Agreement, dated as of July 28, 2021 (the “RMM Credit Agreement”). The RMM Credit Agreement provides RMM with a senior secured revolving credit facility in the amount of $248,750,000 (the “Senior Credit Facility”).

 

The Senior Credit Facility has a scheduled maturity date of October 16, 2024. Borrowings under the RMM Credit Agreement 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%. The Company is also required to pay an unused fee in respect of unused commitments under the RMM Credit Facility, if any, at a rate of 0.25% per annum. Substantially all tangible and intangible assets of RMI, the Company, RMM and the other subsidiary guarantors are pledged as collateral to secure the obligations of RMM under the RMM Credit Agreement.

 

     

Reservoir Holdings, Inc. and Subsidiaries

Notes to the condensed consolidated financial statements

June 30, 2021 and 2020

(Expressed in U.S. dollars)

(Unaudited)

 

  

The RMM Credit Agreement contains customary covenants limiting the ability of RMI, the Company, 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, RMI, on a consolidated basis with its subsidiaries, must comply with financial covenants requiring RMI to maintain (i) a total leverage ratio of no greater than 6.00:1.00 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 0.55, 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.

 

(b)

Subsequent events have been evaluated through August 16, 2021, which is the date these financial statements were available for issuance.