SEC Form 10-Q filed by Alliance Entertainment Holding Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarter ended
For the transition period from to
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
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).
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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | 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 November 12, 2025, shares of Class A common stock, par value $ per share and contingent1 shares of Class E common stock, par value $ per share, were issued and outstanding.
| 1 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
FORM 10-Q FOR THE QUARTER ENDED September 30, 2025
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| ($ in thousands except per share amounts) | September 30, 2025 | June 30, 2025 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Trade Receivables, Net of Allowance for Credit Losses of $ | ||||||||
| Inventory, Net | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Operating Lease Right-of-Use Assets, Net | ||||||||
| Goodwill | ||||||||
| Intangibles, Net | ||||||||
| Other Long-Term Assets | ||||||||
| Deferred Tax Asset, Net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Current Portion of Operating Lease Obligations | ||||||||
| Current Portion of Finance Lease Obligations | ||||||||
| Contingent Liability | ||||||||
| Total Current Liabilities | ||||||||
| Revolving Credit Facility, Net | ||||||||
| Finance Lease Obligation, Non- Current | ||||||||
| Operating Lease Obligations, Non-Current | ||||||||
| Shareholder Loan (subordinated), Non-Current | ||||||||
| Warrant Liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock: Par Value $ per share, Authorized shares, Issued and Outstanding shares as of September 30, 2025, and June 30, 2025 | ||||||||
| Common Stock: Par Value $ per share, Authorized shares at September 30, 2025, and at June 30, 2025; Issued and Outstanding Shares as of September 30, 2025, and June 30, 2025 | ||||||||
| Paid In Capital | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands except share and per share amounts) | September 30, 2025 | September 30, 2024 | ||||||
| Net Revenues | $ | $ | ||||||
| Cost of Revenues (excluding depreciation and amortization) | ||||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | ||||||||
| Selling, General and Administrative Expense | ||||||||
| Depreciation and Amortization | ||||||||
| Transaction Costs | ||||||||
| Restructuring Cost | ||||||||
| Gain on Disposal of Fixed Assets | ( | ) | ( | ) | ||||
| Total Operating Expenses | ||||||||
| Operating Income | ||||||||
| Other Expenses | ||||||||
| Interest Expense | ||||||||
| Change in Fair Value of Warrants | ||||||||
| Total Other Expenses | ||||||||
| Income (Loss) Before Income Tax Expense (Benefit) | ( | ) | ||||||
| Income Tax Expense (Benefit) | ( | ) | ||||||
| Net Income | $ | $ | ||||||
| Net Income per Share – Basic and Diluted | $ | $ | ||||||
| Weighted Average Common Shares Outstanding – Basic | ||||||||
| Weighted Average Common Shares Outstanding – Diluted | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended September 30, 2025 (unaudited)
| ($ in thousands) | Common Stock Shares Issued and Outstanding | Par Value | Paid In Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total | ||||||||||||||||||
| Balances at June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based Compensation Expense | - | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended September 30, 2024 (unaudited)
| Common Stock Shares | Paid In | Accumulated Other Comprehensive | Retained | |||||||||||||||||||||
| ($ in thousands) | Issued | Par Value | Capital | Loss | Earnings | Total | ||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2025 | September 30, 2024 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to Reconcile Net Income to | ||||||||
| Net Cash Provided by (Used in) Operating Activities: | ||||||||
| Depreciation of Property and Equipment | ||||||||
| Amortization of Intangible Assets | ||||||||
| Amortization of Deferred Financing Costs (Included in Interest Expense) | ||||||||
| Allowance for Credit Losses | ||||||||
| Change in Fair Value of Warrants | ||||||||
| Deferred Income Taxes | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Stock-based Compensation Expense | ||||||||
| Gain on Disposal of Fixed Assets | ( | ) | ( | ) | ||||
| Changes in Assets and Liabilities | ||||||||
| Trade Receivables | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Income Taxes Payable\Receivable | ( | ) | ||||||
| Operating Lease Right-of-Use Assets | ||||||||
| Operating Lease Obligations | ( | ) | ( | ) | ||||
| Other Assets | ( | ) | ( | ) | ||||
| Accounts Payable | ||||||||
| Accrued Expenses and Contingent Liability | ( | ) | ( | ) | ||||
| Net Cash Provided by (Used in) Operating Activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Expenditures | ( | ) | ( | ) | ||||
| Cash Inflow from Asset Disposal | ||||||||
| Net Cash (Used in) Provided by Investing Activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on Financing Leases | ( | ) | ( | ) | ||||
| Payments on Revolving Credit Facility | ( | ) | ( | ) | ||||
| Borrowings on Revolving Credit Facility | ||||||||
| Deferred Financing Cost | ( | ) | ||||||
| Net Cash (Used in) Provided by Financing Activities | ( | ) | ||||||
| Net Increase in Cash | ||||||||
| Cash, Beginning of the Period | ||||||||
| Cash, End of the Period | $ | $ | ||||||
| Supplemental disclosure for Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Income Taxes | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2025
Note 1: Organization and Summary of Significant Accounting Policies
Alliance is a leading global wholesaler and distributor of physical media, entertainment products, hardware, and accessories across various platforms. Employing an established multi-channel strategy, Alliance operates as the vital link between renowned international manufacturers of entertainment content and top-tier retail partners both domestically and internationally. Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Alliance also provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 21.
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals and adjustments) which are necessary in order to state fairly the Company’s results of operations, financial position, stockholders’ equity and cash flows as of and for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes, including the Summary of Significant Accounting Policies, included in the Company’s Annual Report on Form 10-K filed September 10, 2025. June 30, 2025, balance sheet information contained herein was derived from the Company’s audited consolidated financial statements as of that date included therein.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Basis for Presentation
The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of Alliance Entertainment Holding Corporation and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Liquidity
On
December 21, 2023, the Company entered into a three-year credit facility with White Oak Commercial Finance, LLC, which will mature on
December 21, 2026. The facility is a $
Concentration of Credit Risk
Concentration of Credit Risk consists of the following at:
Customers:
| Three Months Ended | Three Months Ended | |||||||
| Revenue | September 30, 2025 | September 30, 2024 | ||||||
| Customer #1 | % | % | ||||||
| Customer #2 | % | % | ||||||
| Customer #3 | % | % | ||||||
| 6 |
| Receivables | September 30, 2025 | June 30, 2025 | ||||||
| Customer #1 | % | % | ||||||
| Customer #2 | * | % | ||||||
| * |
| Three Months Ended | Three Months Ended | |||||||
| Purchases | September 30, 2025 | September 30, 2024 | ||||||
| Supplier #1 | % | % | ||||||
| Supplier #2 | * | % | ||||||
| Supplier #3 | % | % | ||||||
| * |
| Payables | September 30, 2025 | June 30, 2025 | ||||||
| Supplier #1 | % | % | ||||||
| Supplier #2 | % | * | ||||||
| Supplier #3 | % | % | ||||||
Accounting Pronouncements
Recently Issued and Adopted Accounting Pronouncements
In July 2025, the Company adopted Accounting Standards Update 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements. This ASU updates accounting standards for revenue recognition (ASC 606), lease accounting (ASC 842), and impairment of long-lived assets (ASC 360), providing enhanced guidance for estimating variable consideration, accounting for contract modifications, determining lease terms, and simplifying impairment testing for long-lived assets. It also introduces clarifying disclosure requirements for financial instruments and derivatives. The adoption of ASU 2024-02 did not have a material impact on the Company’s consolidated financial statements or related disclosures.
In July 2025, the Company adopted Accounting Standards Update 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This ASU clarifies how entities determine whether certain profits-interest or similar awards should be accounted for as stock-based compensation under ASC 718 or under other guidance. The amendments are intended to improve consistency and comparability in reporting such awards. The Company does not issue profits-interest or similar awards, and the adoption of ASU 2024-01 did not have a material impact on its consolidated financial statements.
Recently Issued but Not Yet Adopted Accounting Pronouncements
Accounting Standard Update 2024-03, In 2024, Income Statement Reporting Comprehensive Income. The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU provides guidance on the disaggregation of income statement expenses, aiming to enhance the transparency of financial reporting by requiring more detailed disclosures of expense categories. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements to determine the potential effect on its financial reporting and disclosures.
| 7 |
Accounting Standard Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). In December 2023, the FASB issued ASU 2023-09, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the disclosure requirements related to the new standard.
Note 2: Summary of Significant Accounting Policies
There have been no material changes or updates to the Company’s significant accounting policies from those described in Note 1 to the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2025.
Earnings per Share
Basic Earnings Per Share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options, warrants, and unvested restricted stock units, were exercised and converted into common shares and the impact would not be antidilutive. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive. Contingently issuable shares are included in basic net income per share only when there is no circumstance under which those shares would not be issued.
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2025 | September 30, 2024 | |||||||
| Net Income (in thousands) | $ | $ | ||||||
| Basic and diluted shares | ||||||||
| Weighted-average Class A Common Stock outstanding (basic) | ||||||||
| Weighted-average Class A Common Stock outstanding (diluted) | ||||||||
| Income per share for Class A Common Stock | ||||||||
| — Basic and Diluted | $ | $ | ||||||
| 8 |
There are shares of contingently issuable Common Stock that were not included in the computation of basic or diluted earnings per share since the contingencies for the issuance of these shares have not been met as of September 30, 2025, and June 30, 2025. For the three months ended September 30, 2025, and June 30, 2025 there are warrants outstanding that have been excluded from diluted earnings per share because they are anti-dilutive.
Note 3: Trade Receivables, Net
Trade Receivables, Net consists of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Trade Receivables | $ | $ | ||||||
| Less: | ||||||||
| Allowance for Credit Losses | ( | ) | ( | ) | ||||
| Sales Returns Reserve | ( | ) | ( | ) | ||||
| Customer Rebate and Discount Reserve | ( | ) | ( | ) | ||||
| Total Allowances | ( | ) | ( | ) | ||||
| Trade Receivables, Net | $ | $ | ||||||
| Allowance for Credit Losses Roll forward | September 30, 2025 | June 30, 2025 | ||||||
| ($ in thousands) | ||||||||
| Beginning Balance | ( | ) | ( | ) | ||||
| Current Period Provision for Expected Credit Losses | ( | ) | ( | ) | ||||
| Write-offs | ||||||||
| Recoveries of Previously Written-off Accounts | ( | ) | ( | ) | ||||
| Ending Balance | ( | ) | ( | ) | ||||
Note 4: Inventory, Net
Inventory, Net (all finished goods) consists of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Inventory | $ | $ | ||||||
| Less: Reserves | ( | ) | ( | ) | ||||
| Inventory, Net | $ | $ | ||||||
| 9 |
Note 5: Other Current and Long-Term Assets
Other Current and Long-Term Assets consist of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Other Assets–Current | ||||||||
| Prepaid Intellectual Property | $ | $ | ||||||
| Escrow Receivable | ||||||||
| Insurance Receivable | ||||||||
| Prepaid Insurance | ||||||||
| Contract Acquisition receivable | ||||||||
| Prepaid Catalogs | ||||||||
| Prepaid Manufacturing Components | ||||||||
| Prepaid Maintenance | ||||||||
| Other Current Assets | ||||||||
| Prepaid Molding | ||||||||
| Prepaid Shipping Supplies | ||||||||
| Prepaid Vault | ||||||||
| Prepaid Royalties | ||||||||
| Total Other Assets–Current | $ | $ | ||||||
| Other Long-Term Assets | ||||||||
| Deposits | $ | $ | ||||||
| Income tax receivable | ||||||||
| Total Other Long-Term Assets | $ | $ | ||||||
Note 6: Property and Equipment, Net
Property and Equipment, Net consists of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Property and Equipment | ||||||||
| Leasehold Improvements | $ | $ | ||||||
| Machinery and Equipment | ||||||||
| Furniture and Fixtures | ||||||||
| Capitalized Software | ||||||||
| Equipment Under Finance Leases | ||||||||
| Computer Equipment | ||||||||
| Construction in Progress | ||||||||
| Less: Accumulated Depreciation and Amortization | ( | ) | ( | ) | ||||
| Total Property and Equipment, Net | $ | $ | ||||||
Depreciation
Expense for the three months ended September 30, 2025, and 2024 was $
Note 7: Goodwill and Intangibles, Net
Goodwill reported is the result of multiple acquisitions made by Alliance Entertainment Holding Corporation over the years.
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Goodwill, Beginning Balance | $ | $ | ||||||
| Goodwill, Ending Balance | $ | $ | ||||||
| 10 |
Intangibles, Net consists of the following at:
| ($in thousands) | September 30, 2025 | June 30, 2025 | ||||||||||||||||||
| Intangibles: | Intangibles Cost | Accum. Amortization | Intangibles, Net | Accum. Amortization | Intangibles, Net | |||||||||||||||
| Customer Relationships | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Contract Acquisition | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Tradename - HMBR | $ | $ | $ | |||||||||||||||||
| Mecca Customer Relationships | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Customer List | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | |||||||||||||
During
the three months ending September 30, 2025, and 2024, the Company recorded amortization expense of $
Expected amortization over the next five years and thereafter, as of September 30, 2025, is as follows:
| ($ in thousands) | Intangible Assets | |||
| Year Ended June 30, | ||||
| Remaining in fiscal year 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total Expected Amortization | $ | |||
| Indefinite-lived Intangible asset | ||||
| Total Intangible Assets | $ | |||
Note 8: Accrued Expenses
Accrued Expenses consists of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Marketing Funds Accruals | $ | $ | ||||||
| Payroll and Payroll Tax Accruals | ||||||||
| Accruals for Other Expenses | ||||||||
| Accrued Contract Liability | ||||||||
| Total Accrued Expenses | $ | $ | ||||||
Note 9: Revolving Credit Facility
On
December 21, 2023, the Company entered into a credit facility with White Oak Commercial Finance, LLC, which will mature on
On
June 30, 2025, the Company entered into an amendment to its Credit Facility with White Oak, which reduced the applicable interest rate
margin from a range of
| 11 |
If
the Company reduces or terminates the commitments under the Revolving Credit Facility before its maturity, it would have incurred an
early termination fee of
Availability
under the Revolving Credit Facility is determined by the Company’s borrowing base calculation, as defined in the credit agreement
relating to this facility. The Company also incurs a commitment fee of
The
maximum borrowings under the Revolving Credit Facility are determined by a formula based on eligible accounts receivable and inventory,
subject to lender discretion. The facility includes standard representations and warranties, events of default, and financial reporting
requirements, including maintaining a fixed charge coverage ratio of at least
The Company was in compliance with its covenants as of September 30, 2025, and June 30, 2025. Revolving Credit Facility, net consists of the following at:
| ($ in thousands) | September 30, 2025 | June 30, 2025 | ||||||
| Outstanding Balance | $ | $ | ||||||
| Less: Deferred Finance Costs | ( | ) | ( | ) | ||||
| Revolving Credit Facility, Net | $ | $ | ||||||
During
the three months ending September 30, 2025, and 2024, the Company had interest expenses of $
Note 10: Employee Benefits Company Health Plans
During the year ended June 30, 2025, the Company transitioned its health insurance coverage from a self-funded model to an Individual Coverage Health Reimbursement Arrangement (“ICHRA”), which eliminates the Company’s exposure to self-insured medical and dental claims; therefore, no similar liabilities are expected under the current plan structure. As a result, the self-insured medical plans (including both PPO and HDHP options) under the Alliance Health & Benefits Plan (“AHBP”) were terminated. Under the ICHRA model, the Company reimburses employees and executive officers for individual health insurance premiums, with contribution levels varying based on coverage tiers.
There were no changes to the Company’s dental (PPO and HMO), vision, life insurance, or short-term disability plans. The Company’s dental HMO plan remains self-insured, with exposure limited to a maximum per individual procedure based on a published fee schedule. The dental PPO plan is fully insured. The Company contributes various percentages toward premium costs across benefit offerings, based on coverage levels and Board-approved schedules. The vision, life insurance, and short- and long-term disability plans are fully insured and Company-sponsored, with premiums paid by both the employer and employees in accordance with Board-approved contribution structures.
As of September 30, 2025, and June 30, 2025, the Company had no remaining liability related to the terminated self-insured medical plans, as the previously accrued estimated run-out exposure was fully settled during the first quarter of fiscal 2026.
401(k) Plan
The
Company has the Alliance Entertainment 401(k) Plan (the Plan) covering all eligible employees of the Company. All employees over the
age of 18 are eligible to participate in the Plan at the beginning of the month following date of hire. The Plan has automatic deferral
at the beginning of the month following the date of hire. Employees are automatically enrolled in the Plan with a
During the three months ended September 30, 2025, and 2024, the Company contributed $
| 12 |
Note 11: Segment Information
Management performed an assessment of the Company’s operating segments in accordance with ASC 280-10-50-1 through 50-9. Based on this evaluation, the Company determined that it operates as a single operating segment, which is also its sole reportable segment. Segment revenue is derived from the sale of distribution of pre-recorded music, video movies, video games and related accessories, and merchandising. This conclusion is consistent with prior periods.
The Company’s Chief Executive Officer and Chairman are the Chief Operating Decision Makers (“CODM”) and review financial performance and make resource allocation decisions at the consolidated entity level. The CODM utilizes net income, prepared in accordance with U.S. GAAP, to evaluate financial performance, monitor variances against budget and forecast, and guide strategic decisions. Segment assets are reported as consolidated assets on the Company’s condensed consolidated balance sheet.
Significant expense categories regularly reviewed by the CODM include:
| ● | Cost of Revenues (excluding depreciation and Amortization) | |
| ● | Distribution and Fulfillment Expense | |
| ● | Sales and Marketing |
Other Segment Items:
Other segment items include expenses that are part of segment profit or loss but are not classified as significant segment expenses. These include:
| ● | General and Administrative Expense | |
| ● | Technology Expense | |
| ● | Interest Expense | |
| ● | Income Tax Expense |
The following table presents segment revenue, net income, and the significant segment expenses for the Company’s single reportable segment for the three months ended September 30, 2025, and 2024:
Reconciliation to Consolidated Net Income:
| ($ in thousands) | Three months ended September 30, 2025 | Three months ended September 30, 2024 | ||||||
| Net Revenues | $ | $ | ||||||
| Cost of Revenues (excluding depreciation and Amortization) | ||||||||
| Distribution and Fulfillment Expense | ||||||||
| Sales and Marketing | ||||||||
| Other Segment items* | ||||||||
| Net income | $ | $ | ||||||
| * |
| 13 |
Note 12: Income Taxes
The
effective tax rate was
Note 13: Commitments and Contingencies
Commitments
The
Company enters into various agreements with suppliers for the products it distributes. The Company had
Litigation, Claims and Assessments
We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our condensed consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.
On August 8, 2024, a class action complaint, Feller v. Alliance Entertainment, LLC and DirectToU, LLC, was filed under the Video Privacy Protection Act (“VPPA”). The complaint alleges that the Company violated the VPPA by disclosing users’ personally identifiable information, as well as information regarding videos they viewed on the Company’s website, to Facebook through the use of Facebook Pixel. The Company is evaluating the claims and intends to defend against the allegations vigorously. At this time, the potential outcome or range of financial impact cannot be reasonably estimated.
On
June 6, 2024, Office Create Corporation filed a complaint against COKeM International Ltd. (“COKeM”) in the United
States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of
origin and unjust enrichment relating to COKeM’s alleged distribution of a specific video game, Cooking Mama: Cookstar. Office
Create Corporation is seeking damages of no less than $
| 14 |
Jonathan
Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California; Case No. 3:24-cv-06447; Douglas Feller,
Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District
of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749.- On or about September 12, 2024,
Jonathan Hoang To, who allegedly used the website www.deepdiscount.com; Douglas Feller and Jeffry Haise, who allegedly used the website
www.ccvideo.com; Joseph Mull and Vivek Shah, who allegedly used the website www.moviesunlimited.com. The lawsuits also put at issue any
other website owned or operated by Alliance Entertainment, LLC (“Alliance”) or one of its corporate affiliates, including
the websites www.ccmusic.com and wowhd.co.uk. The lawsuits bring claims against DirectToU, LLC (“DirectToU”) and/or Alliance,
alleging a violation of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure
to Meta and other third parties, including data brokers, of alleged private information and user data regarding a user’s account
information and video viewing/purchasing history from the respective Websites. Plaintiff Hoang To also alleges violations of California’s
state VPPA equivalent, as well as violations of California’s Unfair Competition Law. DirectToU and Alliance dispute the allegations
and will defend the lawsuits vigorously. The parties in the Hoang To matter have reached a settlement with respect to all potential class
members. The settlement agreement has been submitted to the court for approval, slated for December 15, 2024. An approved settlement
would cover the class members covered by the Feller matter, rendering such litigation moot. A motion to stay the Feller matter pending
court approval of the settlement in Hoang To has been filed and granted. Counsel for the Feller parties filed a motion to intervene and
stay the settlement in Hoang, which motions were rejected. The parties await final settlement approval. The settlement was rejected by
the court and the court has mandated the parties initiate discovery with respect to third-party data collection. The Alliance parties
have filed a reply memorandum in support of its motion to compel arbitration on April 28, 2025. The parties reached a new settlement
on June 12, 2025, whereby COKeM will pay to the class a settlement amount of $
Balabbo v Abysse America, Inc., Target Corporation, DirectToU, LLC (Prop 65): On or about December 11, 2024, DirectToU received a tender of defense from Target Corporation citing a possible violation of California Proposition 65 for a product sold by DirectToU allegedly containing lead. The product in question was supplied to Alliance by Abysse America. Alliance/DTU have tendered defense to Abysse. Abysse has engaged counsel to respond to the Prop 65 Violation Notice. At this time, Alliance/DTU have discontinued the product, but have documentation supplied by Abysse showing that the product was properly tested and was within allowable thresholds for lead and other substances.
Algomus v. Alliance: Alliance received a cease and desist notice from Algomus on July 24, 2025, alleging that Alliance breached a non-solicitation provision of a Master Services Agreement between the parties when Alliance agreed to become the Category Advisor for Walmart. Alliance responded to the letter on August 8, 2025, asserting that Algomus’s position lacks merit. Alliance had been conducting business with Walmart prior to the Master Services Agreement, and Algomus and Walmart’s relationship is not governed by the language of the non-solicitation provision. There has been no further litigation activity since the letter was issued.
On June 9, 2025, Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors “DCD”): Sparkle Pop has sued the Alliance entities in bankruptcy court alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid and subsequent termination of the Asset Purchase Agreement in the DCD bankruptcy matter. Alliance brought a motion to dismiss the original complaint with prejudice, but during the pendency of the motion plaintiff filed an Amended Complaint. Alliance has filed a motion to dismiss the Amended Complaint.
Note 14: Related Party Transactions
GameFly Holdings, LLC
On February 1, 2023, Alliance entered into a Distribution Agreement (the “Agreement”) with GameFly Holdings, LLC, a customer owned by the principal stockholders of Alliance, effective from February 1, 2023, through March 31, 2028. At the end of such term, the Agreement continues indefinitely until either party provides the other party with six-month advance notice to terminate the Agreement. Alliance did not recognize any distribution revenue under this Agreement during the three months ended September 30, 2025, or 2024.
During
the three months ended September 30, 2025, and 2024, the Company had sales to GameFly Holdings, LLC. of $
As
of September 30, 2025, and June 30, 2025, the Company had receivables, net from GameFly Holdings, LLC. of $
| 15 |
Ogilvie Loans
On
July 3, 2023, the Company entered into a $
B&D Capital Partners, LLC
During the fiscal year ended June 30, 2024, the Company entered into a financial advisory agreement with B&D Capital Partners, LLC (“BDCP”). W. Tom Donaldson III, a director of the company, is a managing partner and a principal equity holder of Blystone & Donaldson, the parent company of BDPC. The agreement, dated July 28, 2023, engaged BDCP as a non-exclusive financial advisor to assist the Company in issuing privately held debt securities and related transactions. BDCP is owned by Blystone & Donaldson, LLC, and Mr. Donaldson, an independent director of the Company, is a principal of BDCP.
Under
the terms of the agreement, BDCP provided financial advisory services, including the review of confidential information,
identification and engagement of potential transaction parties, and assistance with investor presentations. During the three months
ending September 30, 2025, and 2024, the Company did not incur any related party fees with BDCP. For the fiscal year ended June 30,
2024, the Company paid BDCP approximately $
Note 15: Leases
The
Company leases offices, warehouses, computer equipment, and vehicles. Certain leases include options to renew, which may extend the lease
term from one
to
Leasehold improvements and assets are depreciated over the shorter of their useful life or the lease term unless the lease includes a purchase option or title transfer that is reasonably certain to occur.
Our lease agreements do not include material residual value guarantees or restrictive covenants. Lease payments generally include fixed payments, with some leases requiring variable payments. These variable payments typically cover the Company’s proportionate share of property taxes, insurance, and common area maintenance and are recognized as incurred rather than being included in the lease liability.
On the condensed consolidated condensed balance sheet, operating leases are reflected in “Operating Lease Right-of-Use Assets, Net,” “Current Portion of Operating Lease Obligations,” and “Operating Lease Obligations, Non-Current.” Finance leases are included under “Property & Equipment, Net,” “Current Portion of Finance Lease Obligations,” and “Finance Lease Obligations, Non-Current.
The extended lease term will result in continued amortization of the ROU asset over the remaining lease period, with the associated lease liabilities being remeasured in accordance with ASC 842, Leases. The Company will continue to amortize the ROU asset in line with the revised lease terms and conditions, reflecting the financial impact of the extension in future periods.
| 16 |
Components of lease expense were as follows for the three months ending September 30, 2025, and 2024:
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2025 | September 30, 2024 | |||||||
| Lease Cost ($ in thousands) | ||||||||
| Finance Lease Cost: | ||||||||
| Amortization of Right of Use Assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating Lease Cost | ||||||||
| Short - Term Lease Cost | ||||||||
| Variable Lease Cost | ||||||||
| Total Lease Cost | $ | $ | ||||||
| Other Information ($ in thousands) | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Financing cash flows from finance leases | $ | $ | ||||||
| Right of use assets obtained in exchange for new finance lease liabilities | $ | $ | ||||||
| Right of use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Net Right of use asset remeasurement | ||||||||
| Weighted average remaining lease term - finance leases (in Years) | ||||||||
| Weighted average remaining lease term - operating leases (in Years) | ||||||||
| Weighted average discount rate - finance leases | % | % | ||||||
| Weighted average discount rate - operating leases | % | % | ||||||
Maturities of operating and finance lease liabilities as of September 30, 2025 are as follows:
| ($ in thousands) | Operating Leases | Finance Leases | ||||||
| Remaining in fiscal 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total Lease Payments | ||||||||
| Less Imputed Interest | ( | ) | ( | ) | ||||
| Present Value Obligation | ||||||||
| Short-term Liability | ||||||||
| Total | $ | $ | ||||||
Finance ROU leases are recorded in Property and Equipment, net on the condensed consolidated balance sheets.
| September 30, 2025 | June 30, 2025 | |||||||
| Cost | $ | $ | ||||||
| Additions | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Book Value | $ | $ | ||||||
| 17 |
Note 16: Merger
As disclosed in Note 1, on February 10, 2023, the Company completed the Merger with Alliance and a Merger Sub, resulting in the Company becoming a publicly traded company. While Adara was the legal acquirer in the Merger, for financial accounting and reporting purposes under U.S. GAAP, Legacy Alliance was the accounting acquirer, and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the exchange of stock by Alliance for Legacy Alliance’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Alliance. Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Alliance became the historical consolidated financial statements of the combined company, and Alliance’s assets, liabilities and results of operations were consolidated with Legacy Alliance beginning on the acquisition date. Operations prior to the Merger are presented as those of Legacy Alliance in future reports. The net assets of Alliance were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded.
At the closing of the Merger, each of the then issued and outstanding shares of Alliance common stock were cancelled and automatically converted into the right to receive the number of shares of Alliance common stock equal to the exchange ratio (determined in accordance with the Business Combination Agreement). The Company’s shares of previously outstanding common stock were exchanged for shares of Class A Common Stock. In addition, the treasury stock was cancelled. This change in equity structure has been retroactively reflected in the financial statements for all periods presented.
The following table summarizes the shares of Class A outstanding following consummation of the Merger:
| Alliance Public Shares | ||||
| Alliance Sponsor Shares | ||||
| Legacy Alliance Shares | ||||
| Total Shares of Common Stock Outstanding after Merger |
Up
to
| ● | If
the stock price increases to $ per share within | |
| ● | If
the stock price increases to $ per share within | |
| ● | If
the stock price increases to $ per share within |
Each share of Class A and Class E common stock has one vote, and the common shares collectively will possess all voting power and will have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Since the Class E shares are subject to vesting conditions and meet the contingent exercise and settlement provisions to be considered indexed to the Company’s stock, they are accounted for as equity instruments, and are reflected as a reduction of retained earnings, at their fair value on the date of the Merger.
During the fiscal year ended June
30, 2023, the Company incurred total transaction costs of
approximately $
In connection with the Merger, the Company’s 2023 Omnibus Equity Incentive Plan (the “2023 Plan”) became effective. The 2023 Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentives awards to based officers, employees, and directors of, and consultants and advisers to, Alliance and its subsidiaries. The Company has reserved a total of shares of Class A common stock for issuance as or under awards to be made under the 2023 Plan. To the extent that an award lapses, expires, is cancelled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any common stock subject to such award shall again be available for the grant of a new award. The 2023 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date), and the Board of Directors in its discretion may terminate it at any time with respect to any shares for which awards have not theretofore been granted, provided certain conditions are met, in accordance with the 2023 Plan. The price at which a share may be purchased upon exercise of a share option shall be determined by the Plan Committee; provided, however, that such option price (i) shall not be less than the fair market value of a share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2023 Plan. On November 7, 2024, the Company’s stockholders approved an amendment to the 2023 Plan to increase the number of shares of Class A common stock for issuance as or under awards to be made under the 2023 Plan to shares. As of September 30, 2025, shares were awarded under the 2023 Plan.
| 18 |
Note 17: Asset Purchase
On
December 17, 2024, the Company completed an asset purchase from Bensussen Deutsch & Associates, LLC, “an unrelated third party”
for a total cash consideration to the seller of $
The allocation of the purchase price was as follows:
| ($ in thousands) | ||||
| Inventory | $ | |||
| Property and Equipment, tooling | ||||
| Prepaid Assets | ||||
| Accrued Liability | ( | ) | ||
| Total Identifiable net assets (liabilities) | ||||
| Intangible assets (Trademark) (including capitalized costs) | ||||
| Total Purchase Price (allocated) | $ | |||
| Total Cash Consideration Paid to Seller | $ | |||
| Capitalized Acquisition Costs (Legal and Shipping fees) | ||||
The acquired intangible asset represents a trademark associated with the Company’s recently acquired product line, Handmade by Robots. The trademark is determined to have an indefinite useful life and will not be amortized. Instead, it will be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired, in accordance with ASC 350 (Intangibles – Goodwill and Other).
For the three months ended September 30, 2025, and 2024, there was no impairment recorded.
Inventory
was recorded at its estimated fair value on the acquisition date and is expected to be sold within 18 months. Acquisition-related costs
of $
Note 18: Reclassification of Private Warrants to Public Warrants
Reclassification from Liability to Equity
During the fiscal year ended June 30, 2025, certain shareholders of the Company sold private warrants to third parties who were not deemed “permitted transferees” under the terms of the Warrant Agreement. In accordance with the Warrant Agreement, upon such a sale, the private warrants became subject to the same redemption provisions as the Company’s public warrants.
As
a result of this change in terms, the affected warrants, which had previously been accounted for as a liability, were reclassified to
equity. Accordingly, the Company reclassified approximately
As part of the Merger on February 10, 2023, shares were authorized for a one-time employee stock plan. The compensation committee approved shares of restricted stock awards to employees on June 15, 2023. The shares fully vest on October 4, 2023. The company does not have an annual stock-based compensation plan.
| 19 |
In September 2024, the Company’s Board approved, subject to stockholder approval, an amendment to the 2023 Plan to increase the number of shares authorized for issuance thereunder by shares of Class A common stock, for a total amount reserved under the 2023 Plan of shares of Class A common stock. On November 7, 2024, the Company’s stockholder approved the amendment to the 2023 Plan.
In connection with awards granted, the Company recognized $ million and $n stock-based compensation during the three months ending September 30, 2025, and September 30, 2024, respectively.
Certain outstanding warrants issued by the Company are classified as liabilities in accordance with ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, due to specific terms that require them to be remeasured at fair value at each reporting date. Changes in fair value are recognized as a non-cash gain or loss in the condensed consolidated statements of operations, which resulted in fluctuations in the Company’s reported net income and earnings per share (EPS).
During
the three months ending September 30, 2025, and 2024, the Company recorded a loss of $
The
fair value of the warrant liabilities at September 30, 2025, and June 30, 2025, was $
Investors should note that the remeasurement of warrant liabilities is a non-operational, non-cash item. Future changes in fair value will continue to be recorded in earnings until the warrants are either exercised, transferred to public warrants or expire. Additional details on the fair value assumptions and measurement techniques are provided in Note 22 – Fair Value.
Note 21: Warrants
At
September 30, 2025, and June 30, 2025, there were
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant. It will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the Warrants is then effective. A prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. Additionally, no warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified, or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants.
The Company filed with the SEC on April 11, 2023, its registration statement covering the shares of Class A common stock issuable upon exercise of the Warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. The registration, as amended, became effective June 29, 2023.
| 20 |
Public Warrants:
The
Public Warrants qualify for the derivative scope exception under ASC 815 and are therefore classified as equity on the consolidated balance
sheets. They may only be exercised for a whole number of shares. The Public Warrants are currently exercisable at $
| ● | in whole and not in part. | |
| ● | at a price of $ per Public Warrant. | |
| ● | upon not less than 30 days’ prior written notice of redemption after the warrants become exercisable to each warrant holder; and | |
| ● | if,
and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
Even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger, or consolidation. However, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.
Private Placement Warrants:
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering but are classified as liabilities on the condensed consolidated balance sheet as they are not considered indexed to the company’s own stock. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants as described above.
Representative Warrants
The Company issued Representative Warrants, for minimal consideration to ThinkEquity, a division of Fordham Financial Management, Inc. (and/or its designees), in a private placement simultaneously with the closing of Alliance’s initial public offering, which are also classified as liabilities on the condensed consolidated balance sheet. The Representative Warrants are identical to the Private Warrants except that so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, the Representative Warrants (i) will not be redeemable by the Company, (ii) may be exercised by the holders on a cashless basis, (iii) are entitled to registration rights and (iv) are not exercisable more than five years from the effective date of the Merger.
Note 22: Fair Value
The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
| 21 |
As of September 30, 2025 and June 30, 2025, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants.
The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of September 30, 2025, and June 30, 2025, based on the short-term nature and maturity of these instruments.
The estimated fair values of subordinated shareholder debt and the credit facility is based on Level 2 inputs, which consist of interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. As of September 30, 2025, and June 30, 2025 the estimated fair value of the Company’s short and long-term debt approximates it carrying value due to market interest rates charged on such debt or their short-term maturities.
The Company recomputes the fair value of the Private and the Representative Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The Company utilized the following assumptions to estimate fair value of the Private Warrants and Representative Warrants as of:
| September 30, | June 30, | |||||||
| 2025 | 2025 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise price per share | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
The significant assumptions using the Lattice model approach for valuation of the Private Placement Warrants and Representative Warrants were determined in the following manner:
| (i) | Risk-free interest rate: the risk-free interest rate is based on the U.S. Treasury rate with a term matching the time to expiration. | |
| (ii) | Expected term: the expected term is estimated to be equivalent to the remaining contractual term. | |
| (iii) | Expected volatility: expected stock volatility is based on daily observations of the Company’s historical stock value and implied by market price of the Public Warrants, adjusted by guideline public company volatility. | |
| (iv) | Expected dividend yield: expected dividend yield is based on the Company’s anticipated dividend payments. As the Company has never issued dividends, the expected dividend yield is %, and this assumption will be continued in future calculations unless the Company changes its dividend policy. |
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as follows (in thousands)
| As of September 30, 2025 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | $ | $ | $ | ||||||||||||
| As of June 30, 2025 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | $ | $ | $ | ||||||||||||
| 22 |
The table below presents the change in the number and fair value of the Private and Representative Warrants for the period ended September 30, 2025, and September 30, 2024 (in thousands, except the number of shares)
| Private Warrants | Representative Warrants | Total | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| June 30, 2025 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | ||||||||||||||||||||||||
| September 30, 2025 | $ | $ | $ | |||||||||||||||||||||
| Private Warrants | Representative Warrants | Total | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| June 30, 2024 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | ||||||||||||||||||||||||
| September 30, 2024 | $ | $ | $ | |||||||||||||||||||||
Note 23: Subsequent Events
On
October 1, 2025, the Company refinanced its asset-based lending facility with White Oak Commercial Finance, LLC and entered into a new
five year $
Proceeds
from the initial borrowings were used to repay in full all outstanding obligations under the Company’s prior credit facility with
White Oak Commercial Finance, LLC and to fully repay the $
Management evaluated subsequent events through the date these condensed consolidated financial statements were issued and determined that, other than the refinancing described above, no other subsequent events required adjustment to or disclosure herein.
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The objective for the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is to provide information the Company’s management team believes is necessary to achieve an understanding of its financial condition and the results of business operations with particular emphasis on the Company’s future and should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended June 30, 2025, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2025.
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward- looking and carries with it risks and uncertainties. See “Statement Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors, of this Form 10-Q for a discussion of other uncertainties, risks and assumptions associated with these statements.
Alliance is a leading global wholesaler and distributor of physical media, entertainment products, hardware, and accessories across various platforms. Employing an established multi-channel strategy, Alliance operates as the vital link between renowned international manufacturers of entertainment content and top-tier retail partners both domestically and internationally. With premier suppliers such as Universal Pictures, Warner Brothers Home Video, Walt Disney Studios, Sony Pictures, Lionsgate, Paramount, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take Two, Electronic Arts, Ubisoft, Square Enix, and others, Alliance maintains in-stock inventory of over 340,000 SKU products, consisting of vinyl records, video games, compact discs, DVD, Blu-Rays, and collectibles. Combined with exclusive content from AMPED Distribution and Distribution Solutions, Alliance Entertainment serves as a valued added wholesale distributor, direct-to-consumer (“DTC”) distributor and e-commerce provider to notable partners including industry leaders like Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, Kohl’s, Target, Shopify, and others. Currently, the company sells its products, permitted for export, to more than 70 countries worldwide.
Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Notable brands include DeepDiscount, PopMarket, ImportCDs, Critics’ Choice Video, Collectors’ Choice Music, Movies unlimited and WowHD.
Alliance provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates. These technology-led platforms, combined with Alliance’s sales and distribution network, create a modern entertainment physical product marketplace that provides the discerning customer with enhanced options on efficient consumer-friendly platforms inventory. Alliance is the retailers’ back office for in-store and e-commerce solutions. All electronic data interchange (“EDI”) and logistics are operational and ready for existing retail channels to add new products.
License Agreements
In January 2025, Alliance entered into an exclusive home entertainment distribution agreement with Paramount Pictures, designating Alliance as the sole distributor of Paramount’s physical media – including DVDs, Blu-rays, and 4K UHD titles, across the United States and Canada. This strategic partnership significantly enhances Alliance’s leadership in home entertainment distribution by providing direct access to Paramount’s extensive library of blockbuster films and iconic TV series. The collaboration has already yielded positive results. This partnership not only strengthens relationships with major retailers and collectors but also reinforces Alliance’s commitment to delivering high-quality entertainment products to consumers.
Merger, Asset Purchase and Business Acquisition
Alliance has a proven history of successfully acquiring and integrating competitors and complementary businesses. The Company will continue to evaluate opportunities to identify targets that meet strategic and economic criteria.
On December 17, 2024, Alliance acquired Handmade by Robots from Bensussen Deutsch & Associates, LLC, for $7.6 million. Handmade by Robots produces licensed vinyl figures that mimic the look of knitted or crocheted plush toys. These figures feature characters from popular franchises such as DC Comics, Ghostbusters, Harry Potter, Star Trek, and Stranger Things, and have become favorites among fans and collectors. The acquisition included inventory, tooling equipment, and a trademark associated with the product line. This addition has diversified our product offerings by adding an exclusive line to our portfolio.
| 24 |
On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, LLC, a collectibles distribution company. This acquisition resulted in increased shelf space at our largest customers and expanded our product offerings. On February 10, 2023, AENT Corporation (f/k/a Alliance Entertainment Holding Corporation) (“Legacy Alliance”), Adara Acquisition Corp. (“Adara”) and Adara Merger Sub, Inc. (“Merger Sub”) consummated the closing of the transactions contemplated by the Business Combination Agreement, dated as of June 22, 2022, by and among Adara, Merger Sub and Legacy Alliance. Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Adara was affected by the merger of Merger Sub with and into Alliance (the “Merger” or the “Business Combination”), with Alliance surviving the Merger as a wholly-owned subsidiary of Adara. Following the consummation of the Merger on the closing of the Business Combination, Adara changed its name from Adara Acquisition Corp. to Alliance Entertainment Holding Corporation (the “Company”).
While the legal acquirer in the Business Combination Agreement was Adara, for financial accounting and reporting purposes under U.S. GAAP, Legacy Alliance was the accounting acquirer, and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the exchange of stock by Adara for Legacy Alliance’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Alliance in many respects. Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Alliance became the historical consolidated financial statements of the combined company, and Adara’s assets, liabilities and results of operations were consolidated with Legacy Alliance beginning on the acquisition date. Operations prior to the Merger are presented as those of Legacy Alliance in future reports. The net assets of Adara were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded.
Upon consummation of the Merger, the most significant change in Legacy Alliance’s future reported financial position and results of operations was a decrease in net Equity of $787,000 as compared to Legacy Alliance’s consolidated balance sheet.
As a result of the Merger, Alliance Entertainment became the successor to an SEC-registered company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Macroeconomic Uncertainties
Unfavourable conditions in the economy in the United States and abroad may negatively affect the growth of our business and have affected our results of operations. Alliance has navigated significant macroeconomic challenges in recent years, including inflation, the U.S. Federal Reserve interest rates, and the Russia-Ukraine war and Middle East conflicts have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”
Key Performance Indicators
Management monitors and analyzes key performance indicators to evaluate financial performance, including:
Net Revenue: To derive Net Revenue, the Company reduces total gross sales by customer returns, returns reserve, and allowances, including discounts.
Cost of Revenues (excluding depreciation and amortization): Our cost of revenue reflects the total costs incurred to market and distribute products to customers. Changes in cost are impacted primarily by sales volume, product mix, product obsolescence, freight costs, and market development funds (“MDF”).
Operating Expenses: Our Operating Expenses are the direct and indirect costs associated with the distribution and fulfillment of products and services. They include both Distribution and Fulfillment and Selling, General and Administrative (SG&A) Expenses. The Distribution and Fulfillment Expenses are the payroll and operating expenses associated with the receipt, warehousing, and distribution of product.
| 25 |
Margins: To analyze profitability, the Company reviews gross and net margins in dollars and as a percent of revenue by line of business and product line.
Selling, General and Administrative Expenses: The Selling, General and Administrative Expenses are payroll and operating costs for Information Technology, Sales & Marketing, and General & Administrative functions. In addition, we include Depreciation and Amortization expenses and Transaction Costs, if applicable.
Balance Sheet Indicators: The Company views cash, product inventory, accounts payable, and working capital as key indicators of its financial position.
Alliance Entertainment Holding Corporation
Results of Operations Three Months Ended September 30, 2025, Compared to Three Months Ended
September 30, 2024
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2025 | September 30, 2024 | ||||||
| Net Revenues | $ | 253,974 | $ | 228,990 | ||||
| Cost of Revenues (excluding depreciation and amortization) | 216,793 | 203,455 | ||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | 9,920 | 9,018 | ||||||
| Selling, General and Administrative Expense | 15,078 | 13,104 | ||||||
| Depreciation and Amortization Expense | 1,286 | 1,258 | ||||||
| Transaction Costs | 370 | - | ||||||
| Restructuring Costs | - | 50 | ||||||
| Gain on Disposal of Fixed Assets | (20 | ) | (15 | ) | ||||
| Total Operating Expenses | $ | 26,634 | $ | 23,415 | ||||
| Operating Income | 10,547 | 2,120 | ||||||
| Other Expenses | ||||||||
| Change in Fair Value of Warrants | 1,462 | 41 | ||||||
| Interest Expense | 2,347 | 2,839 | ||||||
| Total Other Expenses | 3,809 | 2,880 | ||||||
| Income Before Income Tax Expense (Benefit) | 6,738 | (760 | ) | |||||
| Income Tax Expense (Benefit) | 1,858 | (1,157 | ) | |||||
| Net Income | $ | 4,880 | $ | 397 | ||||
Net Revenue: Year over year, total net revenues increased from $229 million to $254 million (+$25 million, +11%) for the three months ended September 30, 2025. Alliance Entertainment is a recognized leader in the entertainment industry, excelling in the licensing, production, and distribution of a diverse range of entertainment products and content, including motion pictures, music, gaming hardware, retro arcades, and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, our extensive portfolio of unique content, combined with our deep inventory, enables us to service bulk business-to-business (B2B) and direct-to-consumer (DTC) channels with a vast selection of products unavailable through other distributors. . Our recent acquisition of Handmade by Robots and the Paramount licensing contract further enhance our portfolio of exclusive content. The resulting sales from these partnerships now contribute nearly 13% of the Company’s total gross revenue. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 33% of gross revenue for the three months ended September 30, 2025.
Year over year, vinyl record sales increased from $70.5 million to $75.8 million (+$5.3 million, +7.6%) for the three months ending September 30, 2025. This growth was driven by an 8.3% increase in sales volume, partly offset by a 0.7% reduction in the average selling price. The modest decline in pricing was outweighed by higher unit demand, resulting in overall revenue growth of 7.6%. The increase in vinyl record revenue reflects continued consumer demand for physical music formats, particularly among collectors and enthusiasts seeking premium and limited-edition releases. The higher sales volume was driven by strong new release activity, expanded retail distribution, and the ongoing popularity of vinyl as a preferred format among both legacy and emerging artists.
| 26 |
Music Compact Disc (CD) sales declined modestly from $34.4 million to $33.9 million for the three months ended September 30, 2025, representing a decrease of $0.5 million or 1.4% year-over-year. The decrease was driven by a 5.2% drop in average selling price, partially offset by a 4.0% increase in unit volume. The modest decline reflects the continued shift toward streaming and digital formats, though demand for K-Pop titles and collectible editions helped support pricing and limit the overall revenue impact.
Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, rose from $52.9 million to $84.0 million (+$31.1 million, +58.7%) for the three months ended September 30, 2025, compared with the same period in the prior year. A 2.5% increase in average selling price, together with higher unit shipments, drove substantial year-over-year revenue growth. This strong performance reflects a consistent flow of theatrical releases and sustained consumer interest in premium formats such as 4K Ultra HD and collectible SteelBooks. The launch of a new exclusive content partnership earlier in the year further expanded our film portfolio, introducing several high-profile titles that bolstered both pricing leverage and in-store visibility. The continued shift toward premium, higher-margin content supported the improvement in average selling price and offset softness in lower-priced catalog products. Looking ahead, we expect this trend to persist as retailers emphasize curated, high-value selections and omnichannel strategies, positioning the Company to maintain growth momentum across its physical media segment.
For the quarter ended September 30, 2025, consumer products revenue, which includes both collectibles and electronics, rose from $7.3 million to $8.3 million (+$1.0 million, +14.4%) compared with the prior-year period. Within this category, Collectibles revenue grew from $4.8 million to $6.4 million (+$1.6 million, +31.9%). Although unit volume declined by 27.5%, the sharp 81.9% increase in average selling price more than offset that drop and drove the revenue advance. Following our acquisition of Handmade by Robots, completed in December 2024, we launched an enhanced pipeline of theatre and streaming-tie merchandise, positioning the business for increased collectible and merchandise sales and improved margins. The global collectibles market remains robust and projected steady growth. We continue to view collectibles as a key and profitable pillar of our entertainment-driven consumer products portfolio. Electronics revenue totalled $1.9 million, down from $2.4 million in the prior year ($0.5 million, 20%). The decline was primarily driven by a 34.2% reduction in average selling price, partially offset by a 21.6% increase in unit volume. The lower pricing reflects ongoing competitive pressures and changes in product mix, while the increase in volume suggests that demand remained relatively stable compared with the prior-year period.
Gaming product revenue declined from $57.1 million to $45.6 million (-$11.5 million, -20.2%), reflecting a broader slowdown in the gaming industry. Unit volume increased 42% year-over-year, while average selling price fell 43.8%, partly due to a pause in arcade hardware purchases following a reassessment of vendor partnerships, as well as limited hardware availability and delays in major game releases. Despite these factors, demand remains strong, with the market anticipating next-generation high-performance consoles. As a distributor of physical gaming products, we continue to adjust our offerings to align with consumer trends and maximize profitability, while monitoring potential supply challenges arising from market volatility and trade tensions with China.
Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, increased from $203 million to $217 million (+$13 million, +7%) year-over-year, reflecting the direct relationship between product costs and higher sales volume. Gross margin dollars rose $12 million, driven by both increased sales and improved margins. For the quarter ended September 30, 2025, gross margins expanded from 11.2% to 14.6% (+3.4 percentage points) compared with the same period of the prior year. This improvement was primarily supported by higher average selling prices and the successful launch of a new exclusive content partnership earlier this year. Additional factors contributing to margin expansion included enhanced inventory management and slight improvement of freight costs, which collectively strengthened overall profitability.
Operating Expenses: Total operating expenses for the quarter increased from $23.4 million to $26.6 million (+$3.2 million or +13.7%) and increased as a percentage of net revenue versus the same quarter prior year from 10.2% to 10.5%. Total Distribution and fulfillment expense increased from $9.0 million to $9.9 million (+$0.9 million, +10%) but remained consistent as a percentage of net revenue at 3.9% for the three months ended September 30, 2025, versus the same prior year period. We continue to invest in warehouse automation to reduce the need for total warehouse labor and utilize temporary labor forces to manage changes in demand. As a result, even though fulfillment payroll increased from $6.3 million to $6.4 million (+$0.1 million, 1.7%), it improved as a percentage of net revenue from 2.7% to 2.5% for the current quarter verses prior year. Average labor costs per hour were up approximately 3.0%, reflecting market conditions. The May 2024 consolidation of our Shakopee, Minnesota warehouse continues to drive cost savings and operational efficiencies through centralization.
We continue to identify and implement business-process changes aimed at improving overall efficiency and supporting long-term scalability, total selling, general, and administrative costs increased from $13.1 million to $15.1 million, a rise of $2.0 million or 15.1% year over year. This increase reflects strategic investments in infrastructure, technology, and personnel, including the addition of team members to support our new exclusive content partnership, all aimed at strengthening operational effectiveness and positioning the business for sustainable growth. Depreciation and Amortization remained consistent at $1.3 million for the quarter ended September 30, 2025, over the prior year period.
| 27 |
Interest Expense: For the three months ended September 30, 2025, total interest expense decreased from $2.8 million to $2.3 million (-$.5 million, -17.3%) versus the prior year period. This decline was primarily driven by a reduction in the average revolver balance from $81.2 million to $73.7 million (-$7.5 million, -9.4%) and a lower effective interest rate, which decreased from 9.9% to 8.4%.
Income Tax: For the three months ended September 30, 2025, an income tax expense of $1.9 million was recorded compared to a benefit of $1.2 million for the prior year period. Alliance reported a pretax income of $6.7 million for the three months ended September 30, 2025, versus a loss of $0.8 million for the three months ended September 30, 2024. The effective tax rate was 28% and 152% for the three months ended September 30, 2025, and 2024, respectively. The difference between the Company’s effective tax rate for the three months ended September 30, 2025, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and fair value adjustments related to the Company’s warrant liability. The difference between the Company’s effective tax rate for the three months ended September 30, 2024, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and one immaterial discrete item from a one-time adjustment for out of measurement period for deferred tax liability from software costs.
Non-GAAP Financial Measures: For the three months ended September 30, 2025, we had non-GAAP Adjusted EBITDA of approximately $12.2 million compared with Adjusted EBITDA of approximately $3.4 million in the prior year period, or a year-over-year improvement of $8.8 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; (iv) depreciation and amortization expense; and (v) other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. We use Adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process. We present Adjusted EBITDA as a supplemental measure because we believe such a measure is useful to investors as a reasonable indicator of operating performance. We believe this measure is a financial metric used by many investors to compare companies. This measure is not a recognized measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. See the table below for a reconciliation, for the periods presented, of our GAAP net income (loss) to Adjusted EBITDA.
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2025 | September 30, 2024 | ||||||
| Net Income | $ | 4,880 | $ | 397 | ||||
| Add back: | ||||||||
| Interest Expense | 2,347 | 2,839 | ||||||
| Income Tax Expense (Benefit) | 1,858 | (1,157 | ) | |||||
| Depreciation and Amortization Expense | 1,286 | 1,258 | ||||||
| EBITDA | $ | 10,371 | $ | 3,337 | ||||
| Adjustments | ||||||||
| Stock-based Compensation Expense | 25 | - | ||||||
| Transaction Costs | 370 | - | ||||||
| Change In Fair Value of Warrants | 1,462 | 41 | ||||||
| Restructuring Cost | - | 50 | ||||||
| Gain on Disposal of Property and Equipment | (20 | ) | (15 | ) | ||||
| Adjusted EBITDA | $ | 12,208 | $ | 3,413 | ||||
LIQUIDITY AND CAPITAL RESOURCES
Liquidity: On December 21, 2023, Alliance Entertainment Holding Corporation entered into a Loan and Security Agreement, providing for a three-year $120 million senior secured asset-based credit facility with White Oak Commercial Finance, LLC (the “Prior Credit Facility”). Subsequent to the end of the quarter, on October 1, 2025, the Company refinanced its asset-based lending with White Oak Commercial Finance, LLC and entered into a new $120 million senior secured revolving credit facility with Bank of America, N.A. (the “New Credit Facility”) Additionally, the Company has implemented certain strategic initiatives to reduce expenses and focus on the sale of higher margin products. As a result of the New Credit Facility, combined with these initiatives and the Company’s financial performance for the three months ended September 30, 2025, the Company has concluded that it has sufficient cash to fund its operations and obligations (from its cash on hand, operations, working capital and availability on the credit facility) for at least twelve months from the issuance of these consolidated financial statements.
| 28 |
Our primary sources of liquidity are cash on-hand, cash provided by operating activities, and borrowings under our new credit facility. As of September 30, 2025, in addition to the $3.2 million of cash, we carried a $56 million revolver balance on the Prior Credit Facility. Year over year, we have converted accounts receivable and inventory to cash which was used to reduce the Prior Credit Facility balance from $88 million on September 30, 2024, to $58 million ($30 million or 35%) on September 30, 2025. As a result, our availability under the Prior Credit Facility increased from $32 million on September 30, 2024, to $61 million on September 30, 2025 ($29 million, 94%).
| ($in millions) | September 30, 2025 | September 30, 2024 | ||||||
| Revolver Balance | $ | 58 | $ | 88 | ||||
| Availability | $ | 61 | $ | 32 | ||||
As of September 30, 2025, the Company intends to continue relying primarily on its borrowing capacity under the Current Credit Facility, as well as any renewal or replacement of such facility, to fund working capital and other operational requirements. The availability of additional cash proceeds from the potential exercise of outstanding Warrants is contingent upon the market price of the Company’s Class A common stock exceeding the Warrant exercise price of $11.50 per share. Given that the market price of the Class A common stock was $2.40 as of May 12, 2025, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities, and liquidity needs.
Cash Flow: The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements for the three months ended September 30, 2025, and 2024.
| Three Months Ended | ||||||||
| ($ in thousands) | September 30, 2025 | September 30, 2024 | ||||||
| Net Income | $ | 4,880 | $ | 397 | ||||
| Net Cash Provided By (Used In): | ||||||||
| Operating Activities | $ | 2,720 | $ | (11,637 | ) | |||
| Investing Activities | $ | (319 | ) | $ | 5 | |||
| Financing Activities | $ | (414 | ) | $ | 14,793 | |||
For the three months ended September 30, 2025, on net income of $4.9 million, the Company generated $2.7 million of cash from operating activities, compared to $11.6 million of cash used in the prior-year period. The year-over-year improvement was primarily driven by higher profitability and more efficient working capital management. Accounts payable increased by $18.6 million, compared to a $43.0 million increase in the prior year, reflecting more normalized purchasing activity and improved cash management practices following the prior year’s heavy build-up of inventory and supplier payments. Inventory increased by $18.9 million, versus a $41.1 million increase in the prior year period, largely due to the timing of inbound product shipments and inventory replenishment ahead of the holiday selling season. The more moderate inventory growth reflects improved forecasting, tighter purchasing controls, and a more balanced inventory position aligned with current demand levels.
Cash used in investing activities was $0.3 million for the three months ended September 30, 2025, compared to $0.1 million provided during the same period in the prior year. The variance primarily reflects increased capital expenditures related to facility improvements and warehouse automation, along with minor cash outflows from asset disposals as part of ongoing asset optimization efforts. No business acquisitions or contractual payments occurred during either period.
| 29 |
Net cash provided by financing activities totalled $0.4 million for the three months ended September 30, 2025, compared to $14.8 million in the prior-year period. Activity during the quarter primarily reflected borrowings and repayments under the Company’s previous revolving credit facility, which had net inflows of $0.4 million compared to $15.5 million in the prior year. The change reflects more stable working capital needs and improved cash generation from operations, resulting in lower reliance on external financing.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results, and other assumptions we believe are reasonable. The actual results could differ materially from these estimates.
No changes were made to the critical accounting estimates discussed in the 2025 Annual Report during the three months ended September 30, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a small reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2025. Based on that evaluation, management concluded that our disclosure controls and procedures were effective as of that date.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025, management concluded that the material weaknesses previously identified in prior periods were fully remediated as of June 30, 2025. The Company continues to monitor and enhance its internal control environment to support reliable financial reporting.
| 30 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Alliance is currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights.
Depending on the nature of the proceeding, claim, or investigation, the Company may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect Alliance’s business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters.
On August 8, 2024, a class action complaint, Feller v. Alliance Entertainment, LLC and DirectToU, LLC, was filed under the Video Privacy Protection Act (“VPPA”). The complaint alleges that the Company violated the VPPA by disclosing users’ personally identifiable information, as well as information regarding videos they viewed on the Company’s website, to Facebook through the use of Facebook Pixel. The Company is evaluating the claims and intends to defend against the allegations vigorously. At this time, the potential outcome or range of financial impact cannot be reasonably estimated.
On June 6, 2024, Office Create Corporation filed a complaint against COKeM International Ltd. (“COKeM”) in the United States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of origin and unjust enrichment relating to COKeM’s alleged distribution of a specific video game, Cooking Mama: Cookstar. Office Create Corporation is seeking damages of no less than $20,913,200, plus interest of 9% accruing from October 3, 2022. On August 29, 2024, COKeM filed a response denying all allegations. COKeM intends to vigorously defend the lawsuit. On September 12, 2024, COKeM filed a Third-Party Complaint against Planet Entertainment LLC and Steven Grossman asserting claims for indemnification and contribution. Mediation has been postponed. Office Create Corporation has filed an amended complaint impleading the former owner, chairman, CFO and SVP of Sales for COKeM seeking willful trademark infringement claims and civil conspiracy. Alliance filed an amended Answer insofar as any new claims pertain to COKeM directly on March 12, 2025. The Amended Complaint is now seeking damages in excess of $35 million. The court did schedule a settlement conference for August 11, 2025 but Office Create Corporation cancelled it with no new date scheduled. COKeM has offered a settlement amount of $330,000 which has been rejected by Office Create Corporation. COKeM believes that Office Create Corporation is relying on case law that has been overturned and precedent that is not-binding in the 8th Circuit court. COKeM has some insurance coverage for this claim with insurance carrier, CNA but the policy is capped at $2.5 million for all claims and also has to be shared with the VPPA class action claim(s) discussed below.
Jonathan Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California; Case No. 3:24-cv-06447; Douglas Feller, Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749.- On or about September 12, 2024, Jonathan Hoang To, who allegedly used the website www.deepdiscount.com; Douglas Feller and Jeffry Haise, who allegedly used the website www.ccvideo.com; Joseph Mull and Vivek Shah, who allegedly used the website www.moviesunlimited.com. The lawsuits also put at issue any other website owned or operated by Alliance Entertainment, LLC (“Alliance”) or one of its corporate affiliates, including the websites www.ccmusic.com and wowhd.co.uk. The lawsuits bring claims against DirectToU, LLC (“DirectToU”) and/or Alliance, alleging a violation of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure to Meta and other third parties, including data brokers, of alleged private information and user data regarding a user’s account information and video viewing/purchasing history from the respective Websites. Plaintiff Hoang To also alleges violations of California’s state VPPA equivalent, as well as violations of California’s Unfair Competition Law. DirectToU and Alliance dispute the allegations and will defend the lawsuits vigorously. The parties in the Hoang To matter have reached a settlement with respect to all potential class members. The settlement agreement has been submitted to the court for approval, slated for December 15, 2024. An approved settlement would cover the class members covered by the Feller matter, rendering such litigation moot. A motion to stay the Feller matter pending court approval of the settlement in Hoang To has been filed and granted. Counsel for the Feller parties filed a motion to intervene and stay the settlement in Hoang, which motions were rejected. The parties await final settlement approval. The settlement was rejected and the court has mandated the parties initiate discovery with respect to third-party data collection. The Alliance parties have filed a reply memorandum in support of its motion to compel arbitration on April 28, 2025. The parties reached a settlement on June 12, 2025, whereby COKeM will pay to the class a settlement amount of $1.577 million and COKeM’s insurance carrier CNA has approved to cover their part of the settlement amount. COKeM will have an estimated receivable of $1.377 million. The company had accrued for the liability and the receivables from CNA on the balance sheet for the three months ending September 30, 2025. The court granted preliminary approval of the settlement in October 2025.
| 31 |
Balabbo v Abysse America, Inc., Target Corporation, DirectToU, LLC (Prop 65): On or about December 11, 2024, DirectToU received a tender of defense from Target Corporation citing a possible violation of California Proposition 65 for a product sold by DirectToU allegedly containing lead. The product in question was supplied to Alliance by Abysse America. Alliance/DTU have tendered defense to Abysse. Abysse has engaged counsel to respond to the Prop 65 Violation Notice. At this time, Alliance/DTU have discontinued the product, but have documentation supplied by Abysse showing that the product was properly tested and was within allowable thresholds for lead and other substances.
Algomus v. Alliance: Alliance received a cease and desist notice from Algomus on July 24, 2025, alleging that Alliance breached a non-solicitation provision of a Master Services Agreement between the parties when Alliance agreed to become the Category Advisor for Walmart. Alliance responded to the letter on August 8, 2025, asserting that Algomus’s position lacks merit. Alliance had been conducting business with Walmart prior to the Master Services Agreement, and Algomus and Walmart’s relationship is not governed by the language of the non-solicitation provision. No further litigation activity since the letter was issued.
On June 9, 2025, Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors “DCD”): Sparkle Pop has sued the Alliance entities in bankruptcy court alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid and subsequent termination of the Asset Purchase Agreement in the DCD bankruptcy matter. Alliance brought a motion to dismiss the original complaint with prejudice, but during the pendency of the motion plaintiff filed an Amended Complaint. Alliance has filed a motion to dismiss the Amended Complaint.
Item 1A. Risk Factors
In addition to the risks described below, factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the year ending June 30, 2025, filed with the SEC on September 10, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
| 32 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
| 33 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALLIANCE ENTERTAINMENT HOLDING CORPORATION | ||
| Date: November 12, 2025 | By: | /s/ Jeffrey Walker |
| Name: | Jeffrey Walker | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| 34 |