Mills Music Trust - 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Based on the Listing, the Trust derives its receipts principally from copyrights established in or prior to 1954 in the United States. The receipts fluctuate based on consumer interest in the nostalgia appeal of older songs and the overall popularity of the songs contained in the Catalogue. The Catalogue also generates royalty income in foreign countries in which copyright is claimed.

A number of factors create uncertainties with respect to the Catalogue’s ability to continue to generate royalty income on a continuing, long-term basis for the Trust. These factors include: (i) the effect that foreign and domestic copyright laws and any changes thereto have or will have on renewal rights (e.g., vesting of renewal term rights), (ii) the length of the term of copyright protection under foreign and domestic copyright laws, (iii) reversionary rights that may affect whether EMI is able to retain its rights to the Copyrighted Songs during certain renewal terms (e.g., statutory termination of transfers or “copyright recapture”) and (iv) ongoing disputes regarding the payment and calculation of the Contingent Portion.

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 in accordance with its Contingent Portion payment obligation.

The Trust’s income is dependent, in part, on EMI’s ability to maintain its rights in the Copyrighted Songs through copyright protection. Although Copyrighted Songs may continue to generate royalty revenue after their copyrights have expired, in general as the copyrights for the Copyrighted Songs expire, less royalty income will be generated, and the size of each payment of the Contingent Portion will be reduced accordingly.

Based on the Listing, most of the Top 50 Songs obtained copyright registration under the U.S. Copyright Act of 1909 (the “ 1909 Act” ) between 1926 and 1954. For copyrighted works subject to the 1909 Act, copyright law generally provides for a possible 95 years of copyright protection, subject to certain factors, including the initial registration date of each copyright and compliance with certain statutory provisions including notice and renewal. Based on the Listing, the Copyright expiration years for the Top 50 Songs, to the extent known, range between 2021 and 2049, as set forth in the Listing.

The Copyrighted Songs are subject to statutory rights of termination of transfers, which may impact whether EMI is able to retain its ownership of the Copyrighted Songs during their respective terms of copyright protection. For copyrights governed by the 1909 Act, this termination right vests at the end of two different renewal terms, which vary for each Copyrighted Song. As the owner of the Catalogue, EMI (and not the Trust) is responsible for administrating the Catalogue and seeking renewals of the Copyrighted Songs. The Asset Purchase Agreement provides that EMI is obligated to use its best efforts to secure renewals.

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 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 provided 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 ”).

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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 (the “Calculation Method Dispute”). As a result of the New Calculation Method not being applied, after giving effect to the Settlement described below, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view by the following amounts (as of December 31, 2025 (the “Calculation Method Underpayments ”):

Quarterly Payment Period

Amount of

Deficiency ($)

March 31, 2025

June 30, 2025

September 30, 2025

December 31, 2025

Total

As of the date hereof, the Trust has not received any amounts in respect of the Calculation Method Underpayments, and EMI has expressly disagreed with the Trust. The Trust can offer no assurance that it will be able to recover any portion of the Calculation Method Underpayments or that it will resolve favorably the ongoing dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.

Recent Audit Settlement

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 Calculation Method Underpayments. The Trust distributed the Citrin Report to EMI on or about April 13, 2022. EMI has disputed the findings of the Citrin Report.

On October 30, 2025 (the “Settlement Date”), the Trust, Trustees, EMI and certain EMI affiliates entered into a settlement agreement, effective as of July 1, 2025 (the “Settlement Agreement”), pursuant to which the parties agreed to settle (the “Settlement”) all claims (the “Settled Claims”) of the Trust and/or the Trustees (i) for all periods of time prior to December 31, 2024 relating to EMI’s obligation to make Contingent Portion payments under the Asset Purchase Agreement, and (ii) regarding the interpretation of certain provisions of the Asset Purchase Agreement that had been subject to a tolling agreement between EMI and the Trust.

Under the terms of the Settlement, among other things, (i) EMI made a payment to the Trust in the amount of $500,000 on November 5, 2025 in full and final settlement of the Settled Claims (the “Settlement Payment”), (ii) the Trust and EMI agreed to amend Section 1(c)(i)(A) of the Asset Purchase Agreement to provide that beginning with the quarterly period beginning July 1, 2025, in calculating any Contingent Portion Payment due and payable by EMI to the Trust, EMI shall cap the foreign sub-publishing fee between EMI and any foreign affiliate thereof at twenty-five percent (25%), which cap acts as a limitation on certain deductions that EMI can make against payments due to the Trust, and (iii) the Trust and EMI agreed to amend Section 1(c)(i)(B) of the Asset Purchase Agreement to provide that beginning with the quarterly period beginning July 1, 2025, EMI shall only be entitled to offset the costs associated with EMI obtaining U.S. copyright renewals for a song against royalty income collected by EMI in the U.S. for such song (and not against any foreign royalty income collected outside of the U.S. for such song), and this modification also serves to narrow permissible offsets to payments due from EMI to the Trust.

The Settlement includes all claims relating to the Calculation Method Dispute through December 31, 2024 and all claims relating to the underpayments included in the Citrin Report. The Settlement does not include any claims for any periods after December 31, 2024 nor does it resolve the Calculation Method Dispute. As such, the Trustees and EMI have not agreed to settle any claims relating to the Calculation Method Dispute or the Calculation Method Underpayments for any period of time after December 31, 2024. The Trust can offer no assurance that it will be able to recover any portion of the Calculation Method Underpayments that were not subject to the Settlement, or that it will favorably resolve the Calculation Method Dispute with respect to future payments of the Contingent Portion.

For the full text of the pro forma Asset Purchase Agreement, as amended by the Settlement Agreement, please refer to the Current Report on Form 8-K, dated October 30, 2025, which the Trust filed with the Securities and Exchange Commission on November 5, 2025.

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Unit Holder Distributions and Trust Expenses

Recent Payments

During the year ended December 31, 2025, the Trust received a total of $1,570,141 from EMI, of which $500,000 was attributable to the Settlement Payment and the remainder of which was attributable to ordinary Contingent Portion Payments made by EMI to the Trust during the 2025 calendar year. During the year ended December 31, 2024, the Trust received a total of $1,291,775 from EMI, all of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2024 calendar year.

Recent Distributions

During the year ended December 31, 2025, the Trust made cash distributions to Unit Holders in the aggregate amount of $652,817 ($2.35 per Trust Unit), as compared to cash distributions to Unit Holders in the aggregate amount of $658,733 ($2.37 per Trust Unit) during the year ended December 31, 2024. For computation details regarding the distributions made during the year ended December 31, 2025, please see the table headed “Statements of Cash Receipts and Disbursements” under Part II, Item 8, “Financial Statements and Supplementary Data”.

Cash and Administrative Expenses

As of December 31, 2025 the Trust had an aggregate of $0 in unpaid administrative expenses for services rendered to the Trust. As of March 31, 2026, the Trust had no unpaid administrative expenses for services rendered to the Trust prior to such date.

Inflation

The Trust does not believe that inflation has materially affected its activities.

Liquidity and Capital Resources

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. See the table headed “Statements of Cash Receipts and Disbursements” under Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding cash disbursements made to Unit Holders for the years ended December 31, 2025 and 2024.

Off-Balance

Sheet Arrangements

There are no

off-balance

sheet arrangements that have or are reasonably likely to have a current or future effect on the Trust’s financial condition, changes in financial condition, revenues or expenses, results of operations or liquidity that is material to investors.