Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2025

Organization and Summary of Significant Accounting Policies

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Background

Mills Music Trust (the “

Trust

”) was created by a Declaration of Trust, dated December 3, 1964 (the “

Declaration of Trust

”), for the purpose of acquiring from Mills Music, Inc. (“

Old Mills

”), the right to receive payment of a deferred contingent purchase price obligation (the “

Contingent Portion

”) payable to Old Mills. The obligation to pay the Contingent Portion arose as the result of the sale by Old Mills of its music and lyric copyright catalogue (the “

Catalogue

”) to a newly formed company pursuant to an asset purchase agreement dated December 5, 1964 (the “

Asset Purchase Agreement

”). Pursuant to the Asset Purchase Agreement, payment of the Contingent Portion to the Trust continues until the end of the year in which the last copyright in the Catalogue expires and cannot be renewed.

The Contingent Portion amounts are currently payable by EMI Mills Music Inc. (“

EMI

”), the owner of the copyrighted materials contained in the Catalogue. The Trust has been advised that Sony/ATV Music Publishing LLC (“

Sony/ATV

”) is the administrator and manager of EMI and the Catalogue.

HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust (the “

Corporate Trustee

”), and Lee Eastman is the Individual Trustee of the Trust (the “Individual Trustee” and together with the Corporate Trustee, the “Trustees”).

Proceeds from Contingent Portion Payments

The Trust receives quarterly payments of the Contingent Portion from EMI and distributes the amounts it receives to the registered owners of Trust Certificates (the “

Unit Holders

”) representing interests in the Trust (the “

Trust Units

”), after payment of, or withholdings in connection with, expenses and liabilities of the Trust. The Declaration of Trust provides that these are the Trust’s sole responsibilities and that the Trust is prohibited from engaging in any business activities.

Payments of the Contingent Portion to the Trust are based on royalty income which the Catalogue generates. The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust as its Contingent Portion payment obligation, in accordance with the terms of the Asset Purchase Agreement.

Contingent Portion Payments

Payments of the Contingent Portion to the Trust are ordinarily made on a quarterly basis, approximately two to three months after a quarter ends. The Trust generally distributes the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.

The amount of each payment of the Contingent Portion is based on a formula set forth in the Asset Purchase Agreement. Prior to the first quarter of 2010, the Contingent Portion was calculated as an amount ranging from 65% to 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty expenses. In addition, the Contingent Portion was guaranteed to be at least a minimum of $167,500 per quarter (the “

Minimum Payment Obligation

”).

Beginning with the first quarter of 2010, the Asset Purchase Agreement provides for certain changes with respect to the calculation of the Contingent Portion. One such change is that the Minimum Payment Obligation is no longer in effect. The Trust is also of the view that the Contingent Portion payable to the Trust changed to a fixed 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty related expenses (the “

New Calculation Method

”). However, EMI has disputed that the New Calculation Method is the correct interpretation of the Asset Purchase Agreement. As a result of EMI not applying the New Calculation Method, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view, by the following amounts (the “

Underpayments

”):


Quarterly Payment Period	Amount of Deficiency
March 31, 2016	$	79,889
September 30, 2016		37,529
March 31, 2017		85,359
September 30, 2017		41,557
March 31, 2018		98,901
September 30, 2018		75,712
March 31, 2019		71,489
June 30, 2019		41,786
September 30, 2019		68,571
December 31, 2019		42,572
March 31, 2020		40,025
June 30, 2020		15,557
September 30, 2020		40,085
March 31, 2021		42,742
June 30, 2021		43,148
September 30, 2021		38,846
December 31, 2021		38,112
March 31, 2022		0
June 30, 2022		70,709
September 30, 2022		83,438
December 31, 2022		0
March 31, 2023		44,908
June 30, 2023		37,491
September 30, 2023		131,213
December 31, 2023		40,761
March 31, 2024		43,909
June 30, 2024		0
September 30, 2024		135,768
December 31, 2024		0
March 31, 2025		69,244

Total	$	1,559,321

As of the date hereof, the Trust has not received the Underpayments, and EMI has expressly disagreed with the Trust.

In addition, on October 1, 2020, the Trust engaged Citrin Cooperman & Company LLP, an accounting firm specializing in auditing royalty income (“

Citrin

”), to conduct a special audit of the books and records of EMI administered by Sony/ATV to determine the areas and extent of underpayment, if any, of quarterly Contingent Portion payments payable to the Trust for the periods beginning January 1, 2016 and ended December 31, 2020 (the “

Audit Period

”). Citrin’s final report (the “

Citrin Report

”) was delivered to the Trustees on April 4, 2022. The Citrin Report identified multiple asserted royalty omissions and expense over-deductions from the Contingent Portion during the Audit Period in addition to the Underpayments. The Trust distributed the Citrin Report to EMI on or about April 13, 2022. EMI has disputed the findings of the Citrin Report. As part of an effort to settle any disagreement regarding the computation or payment of the Contingent Portion, including the Underpayments and the other amounts identified in the Citrin Report, on October 3, 2022, EMI and the Trust executed a Tolling Agreement pursuant to which the parties agreed to suspend, effective as of January 1, 2022, the running of any relevant statute of limitations applicable to any claim relating to the royalty omissions and expense over-deductions identified in the Citrin Report. As of December 17, 2024, EMI and the Trust have extended the tolling period through May 31, 2025, subject to either party’s right to terminate the tolling period on thirty days’ prior written notice.

The Trust can offer no assurance that it will be able to recover any of the Underpayments or other amounts identified in the Citrin Report, or that it

will

resolve the dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.

Cash Distributions to Unit Holders

The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust. In March 2025, the Trust received from EMI a Contingent Portion payment of $260,759 ($

.9390

per Trust Unit) attributable to royalties received by EMI for the fourth quarter of 2024. After receiving such Contingent Portion payment, the Trust paid $196,827 to third parties in connection with invoices rendered to the Trust, leaving a balance of $63,932 ($

.2302

per Trust Unit).

The Trustees decided to reserve the full amount of such balance for potential future administrative and liabilities expenses in accordance with the Declaration of Trust, and therefore did not make a distribution to Unit Holders in respect of such quarterly Contingent Portion payment. The Trust will continue from time to time to assess the Trust’s needs with respect to future potential administrative expenses and liabilities and whether any cash distribution to Unit Holders should be made in connection with any quarterly Contingent Portion payment received by the Trust from EMI. See the table headed “Statement of Cash Receipts and Disbursements” for information regarding cash disbursements made to Unit Holders during the three months ended March 31, 2025 and March 31, 2024.

The Copyright Catalogue

The Catalogue is estimated to be composed of over 12,000 music titles (the “

Copyrighted Songs

”), of which approximately 1,430 produced royalty income in recent years. EMI has provided the Trust with a listing of the top 50 earning songs in the Catalogue during the 2024 calendar year (the “

Top 50 Songs

”), together with certain copyright information with respect to each of the Top 50 Songs (the “

Listing

”). A copy of the Listing, as provided by EMI, is included in the Trust’s annual report on Form

10-K

for the fiscal year ended December 31, 2024. The Listing does not include any information regarding Copyrighted Songs for the 2025 calendar year.

Recent Accounting Pronouncements

The Trustees do not believe that any recently issued, but not yet effective, accounting standards, if adopted, would have a material effect on the Trust’s financial statement.

Accounting Policies

EMI typically makes payments to the Trust of the Contingent Portion in March, June, September and December for the prior calendar quarter. The payments received are accounted for on a cash basis, as are expenses of the Trust. The Declaration of Trust provides for the distribution of the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.

The Trust’s financial statements reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting, as contemplated by generally accepted accounting principles in the United States. The Trust does not prepare a balance sheet or a statement of cash flows.

These unaudited financial statements should be read in conjunction with the financial statement and related notes in the Trust’s Annual Report on Form

10-K

for the fiscal year ended December 31, 2024. The cash receipts and disbursements for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

MILLS MUSIC TRUST 10-Q