# EDGAR Filing Document

**Accession Number:** 0001823584
**File Stem:** 0001493152-26-006391
**Filing Date:** 2026-2
**Character Count:** 161710
**Document Hash:** 606097c6ad1a090d14c06f4a14d1b0bd
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001493152-26-006391.hdr.sgml**: 20260212

**ACCESSION NUMBER**: 0001493152-26-006391

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 104

**CONFORMED PERIOD OF REPORT**: 20251231

**FILED AS OF DATE**: 20260212

**DATE AS OF CHANGE**: 20260212

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** ALLIANCE ENTERTAINMENT HOLDING CORP
- **CENTRAL INDEX KEY:** 0001823584
- **STANDARD INDUSTRIAL CLASSIFICATION:** WHOLESALE-DURABLE GOODS, NEC [5099]
- **ORGANIZATION NAME:** 07 Trade & Services
- **EIN:** 852373325
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 0630

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-40014
- **FILM NUMBER:** 26626046

**BUSINESS ADDRESS:**
- **STREET 1:** 8201 PETERS ROAD
- **STREET 2:** SUITE 1000
- **CITY:** PLANTATION
- **STATE:** FL
- **ZIP:** 33324
- **BUSINESS PHONE:** (954) 255-4000

**MAIL ADDRESS:**
- **STREET 1:** 8201 PETERS ROAD
- **STREET 2:** SUITE 1000
- **CITY:** PLANTATION
- **STATE:** FL
- **ZIP:** 33324

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Adara Acquisition Corp.
- **DATE OF NAME CHANGE:** 20230208

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Alliance Entertainment Holding Corp.
- **DATE OF NAME CHANGE:** 20230208

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Adara Acquisition Corp.
- **DATE OF NAME CHANGE:** 20200903

?xml version='1.0' encoding='ASCII'?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**(MARK ONE)**

**☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarter ended December 31, 2025**

**☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from to**

**Commission file number: 001-40014**

**ALLIANCE ENTERTAINMENT HOLDING CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

---

| | |
|:---|:---|
| **Delaware** | **85-2373325** |
| (State or other jurisdiction of<br> incorporation or organization) | (I.R.S. Employer<br> Identification No.) |

---

**8201 Peters Road, Suite 1000**

**Plantation, FL 33324**

(Address of principal executive offices)

**(954) 255-4000**

(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** |
| Class A common stock, par value $0.0001 per share | AENT | **The Nasdaq Stock Market LLC** |
| Redeemable warrants, exercisable for shares of Class A common stock at an exercise price of $11.50 per share | AENTW | **The Nasdaq 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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐ Accelerated filer ☐ <br> Non-accelerated filer ☒ Smaller reporting company ☒ <br> 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 February 12, 2026, 50,957,370 shares of Class A common stock, par value $0.0001 per share and 60,000,000 contingent**<sup>1</sup>** shares of Class E common stock, par value $0.0001 per share, were issued and outstanding.

1 The 60 million Class E shares are set aside in an escrow account as additional consideration contingent on triggering events occurring within 10 years after the Merger

**ALLIANCE ENTERTAINMENT HOLDING CORPORATION**

**FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2025**

**TABLE OF CONTENTS**

---

| | | |
|:---|:---|:---|
|  |  | **Page** |
| [Part I. Financial Information](#a_001) | [Part I. Financial Information](#a_001) | 1 |
| Item 1. | [Condensed Consolidated Financial Statements](#a_002) | 1 |
|  | [Condensed Consolidated Balance Sheets as of December 31, 2025 (Unaudited) and June 30, 2025](#a_003) | 1 |
|  | [Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended December 31, 2025, and 2024](#a_004) | 2 |
|  | [Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Six Months Ended December 31, 2025, and 2024](#a_005) | 3 |
|  | [Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended December 31, 2025, and 2024](#a_006) | 5 |
|  | [Notes to Condensed Consolidated Financial Statements (Unaudited)](#a_007) | 6 |
| Item 2. | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#a_008) | 24 |
| Item 3. | [Quantitative and Qualitative Disclosures About Market Risk](#a_018) | 33 |
| Item 4. | [Controls and Procedures](#a_019) | 33 |
| [Part II. Other Information](#a_009) | [Part II. Other Information](#a_009) | 34 |
| Item 1. | [Legal Proceedings](#a_010) | 34 |
| Item 1A. | [Risk Factors](#a_011) | 35 |
| Item 2. | [Unregistered Sales of Equity Securities and Use of Proceeds](#a_012) | 35 |
| Item 3. | [Defaults Upon Senior Securities](#a_013) | 35 |
| Item 4. | [Mine Safety Disclosures](#a_014) | 35 |
| Item 5. | [Other Information](#a_015) | 35 |
| Item 6. | [Exhibits](#a_016) | 36 |
| [Part III. Signatures](#a_017) | [Part III. Signatures](#a_017) | 37 |

---

i

[**Table of Contents**](#toc_001)

**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)* | **December 31, 2025** | **June 30, 2025** |
|  | **(Unaudited)** |  |
| **Assets** |  |  |
| Current Assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $1379 | $1236 |
| &nbsp;&nbsp;&nbsp;Trade Receivables, Net of Allowance for Credit Losses of $1,833 and $867, respectively | 148653 | 95027 |
| &nbsp;&nbsp;&nbsp;Inventory, Net | 117801 | 102848 |
| &nbsp;&nbsp;&nbsp;Other Current Assets | 18858 | 19021 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Current Assets | 286691 | 218132 |
| Property and Equipment, Net | 11108 | 11291 |
| Operating Lease Right-of-Use Assets, Net | 17698 | 19214 |
| Goodwill | 94081 | 89116 |
| Intangibles, Net | 20037 | 18475 |
| Other Long-Term Assets | 235 | 789 |
| Deferred Tax Asset, Net | 4211 | 4211 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Assets | $434061 | $361228 |
| **Liabilities and Stockholders' Equity** |  |  |
| Current Liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts Payable | $187966 | $155300 |
| &nbsp;&nbsp;&nbsp;Accrued Expenses | 15287 | 9548 |
| &nbsp;&nbsp;&nbsp;Current Portion of Operating Lease Obligations | 3299 | 3229 |
| &nbsp;&nbsp;&nbsp;Current Portion of Finance Lease Obligations | 3180 | 3075 |
| &nbsp;&nbsp;&nbsp;Deferred Consideration | 1300 |  |
| &nbsp;&nbsp;&nbsp;Contingent Liability | 1577 | 1577 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Current Liabilities | 212609 | 172729 |
| Revolving Credit Facility, Net | 84547 | 55268 |
| Finance Lease Obligation, Non- Current | 320 | 1931 |
| Operating Lease Obligations, Non-Current | 15877 | 17432 |
| Shareholder Loan (subordinated), Non-Current |  | 10000 |
| Acquired Royalty Obligation (Endstate), Non-Current | 165 | - |
| Warrant Liability | 2959 | 646 |
| &nbsp;&nbsp;&nbsp;Total Liabilities | 316477 | 258006 |
| Commitments and Contingencies (Note 13) |  |  |
| Stockholders' Equity |  |  |
| Preferred Stock: Par Value $0.0001 per share, Authorized 1,000,000 shares, Issued and Outstanding 0 shares as of December 31, 2025, and June 30, 2025 |  |  |
| Common Stock: Par Value $0.0001 per share, Authorized 550,000,000 shares at December 31, 2025, and at June 30, 2025; Issued and Outstanding 50,957,370 Shares as of December 31, 2025, and June 30, 2025 | 5 | 5 |
| &nbsp;&nbsp;&nbsp;Paid In Capital | 48664 | 48570 |
| &nbsp;&nbsp;&nbsp;Accumulated Other Comprehensive Loss | (76) | (76) |
| &nbsp;&nbsp;&nbsp;Retained Earnings | 68991 | 54723 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Stockholders' Equity | 117584 | 103222 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities and Stockholders' Equity | $434061 | $361228 |

---

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

[**Table of Contents**](#toc_001)

**ALLIANCE ENTERTAINMENT HOLDING CORPORATION**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>*($ in thousands except share and per share amounts)* | **Three Months**<br> **Ended**<br>**December 31,**<br> **2025** | **Three Months**<br> **Ended**<br>**December 31,**<br> **2024** | **Six Months**<br> **Ended**<br>**December 31,**<br> **2025** | **Six Months**<br> **Ended**<br>**December 31,**<br> **2024** |
| **Net Revenues** | $368712 | $393672 | $622685 | $622662 |
| Cost of Revenues (excluding depreciation and amortization) | 321616 | 351382 | 538409 | 554837 |
| **Operating Expenses** |  |  |  |  |
| Distribution and Fulfillment Expense | 12121 | 12419 | 22041 | 21437 |
| Selling, General and Administrative Expense | 16591 | 13800 | 31668 | 26905 |
| Depreciation and Amortization | 1290 | 1255 | 2574 | 2512 |
| Transaction Costs | 225 |  | 596 |  |
| Restructuring Cost | 2 | 19 | 2 | 69 |
| Insurance Claim Recovery | (408) | - | (408) |  |
| Gain on Disposal of Fixed Assets | (4) | - | (24) | (15) |
| &nbsp;&nbsp;&nbsp;**Total Operating Expenses** | 29817 | 27493 | 56449 | 50908 |
| &nbsp;&nbsp;&nbsp;**Operating Income** | 17279 | 14797 | 27827 | 16917 |
| **Other Expenses** |  |  |  |  |
| Interest Expense | 3454 | 2827 | 5801 | 5666 |
| Change in Fair Value of Warrants | 850 | 2545 | 2313 | 2586 |
| &nbsp;&nbsp;&nbsp;**Total Other Expenses** | 4304 | 5372 | 8114 | 8252 |
| &nbsp;&nbsp;&nbsp;**Income Before Income Tax Expense** | 12975 | 9425 | 19713 | 8665 |
| Income Tax Expense | 3587 | 2354 | 5445 | 1197 |
| &nbsp;&nbsp;&nbsp;**Net Income** | 9388 | 7071 | 14268 | 7468 |
| Net Income per Share – Basic and Diluted | $0.18 | $0.14 | $0.28 | $0.15 |
| Weighted Average Common Shares Outstanding - Basic | 50957370 | 50957370 | 50957370 | 50957370 |
| Weighted Average Common Shares Outstanding - Diluted | 51010519 | 50965970 | 51010519 | 50965970 |

---

 

*The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.*

 

[**Table of Contents**](#toc_001)

 

**Alliance Entertainment Holding Corporation**

Condensed Consolidated Statements of Changes in Stockholders' Equity

Three and Six Months Ended December 31, 2025 (unaudited)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| ***($ in thousands)*** | **Common Stock Shares Issued and Outstanding** | **Par Value** | &nbsp;&nbsp;**Paid In**<br> **Capital** | &nbsp;&nbsp;**Accumulated Other Comprehensive**<br> **Loss** | &nbsp;&nbsp;**Retained**<br> **Earnings** | **Total** |
| **Balances at June 30, 2025** | **50957370** | $**5** | $**48570** | $**(76)** | $**54723** | $**103222** |
| Stock-based Compensation Expense |  |  | 25 |  |  | 25 |
| Net Income | - | - | - | - | 4880 | 4880 |
| **Balances at September 30, 2025** | **50957370** | $**5** | $**48595** | $**(76)** | $**59603** | $**108127** |
| Stock-based Compensation Expense |  |  | 69 |  |  | 69 |
| Net Income | - | - | - | - | 9388 | 9388 |
| **Balances at December 31, 2025** | **50957370** | $**5** | $**48664** | $**(76)** | $**68991** | $**117584** |

---

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

[**Table of Contents**](#toc_001)

**Alliance Entertainment Holding Corporation**

Condensed Consolidated Statements of Changes in Stockholders' Equity

Three and Six Months Ended December 31, 2024 (unaudited)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| <br>***($ in thousands)*** | **Common<br> Stock**<br>**Shares**<br>**Issued** |<br>**Par**<br>**Value** |<br>**Paid In**<br>**Capital** | **Accumulated<br> Other**<br>**Comprehensive**<br>**Loss** |<br>**Retained**<br>**Earnings** |<br>**Total** |
| **Balances at June 30, 2024** | **50957370** | $**5** | $**48058** | $**(79)** | $**39645** | $**87629** |
| Net Income |  | - | - | - | 397 | 397 |
| **Balances at September 30, 2024** | **50957370** | $**5** | $**48058** | $**(79)** | $**40042** | $**88026** |
| Warrants conversion, from Liability to Equity |  |  | 454 |  |  | 454 |
| Net Income | - | - | - | - | 7071 | 7071 |
| **Balances at December 31, 2024** | **50957370** | $**5** | $**48512** | $**(79)** | $**47113** | $**95551** |

---

*The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.*

 

[**Table of Contents**](#toc_001)

 

**ALLIANCE ENTERTAINMENT HOLDING CORPORATION**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
| <br>*($ in thousands)* | **Six Months Ended**<br>**December 31, 2025** | **Six Months Ended**<br>**December 31, 2024** |
| **Cash Flows from Operating Activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Net Income | $**14268** | $**7468** |
| &nbsp;&nbsp;&nbsp;Adjustments to Reconcile Net Income to |  |  |
| &nbsp;&nbsp;&nbsp;Net Cash (Used in) Provided by Operating Activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation of Property and Equipment | 887 | 849 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of Intangible Assets | 1687 | 1663 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of Deferred Financing Costs (Included in Interest Expense) | 2021 | 702 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance for Credit Losses | 1114 | 575 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in Fair Value of Warrants | 2313 | 2586 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred Income Taxes |  | (967) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash lease expense | 1516 | 1414 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based Compensation Expense | 94 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on Disposal of Fixed Assets | (24) | (15) |
| &nbsp;&nbsp;&nbsp;Changes in Assets and Liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade Receivables | (54740) | (55255) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (14953) | 1849 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes Payable\Receivable | 3560 | 1494 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating Lease Obligations | (1484) | (649) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Assets | 681 | (2319) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts Payable | 32666 | 57141 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued Expenses and Contingent Liability | (3419) | (2918) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Net Cash (Used in) Provided by Operating Activities** | (13813) | 13618 |
| **Cash Flows from Investing Activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital Expenditures | (712) | (10) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash Paid for Business Acquisition/Asset Purchase | (1150) | (7551) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash Inflow from Asset Disposal | 30 | 15 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment in Captive Stock | 36 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Net Cash Used in Investing Activities** | (1796) | (7546) |
| **Cash Flows from Financing Activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments on Financing Leases | (1506) | (1397) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments on Revolving Credit Facility | (578325) | (538604) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings on Revolving Credit Facility | 606229 | 535290 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments on Shareholder Note (Subordinated), Non-Current | (10000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred Financing Cost | (646) | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Net Cash Provided by (Used in) Financing Activities** | 15752 | (4711) |
| Net Increase in Cash | 143 | 1361 |
| Cash, Beginning of the Period | 1236 | 1129 |
| **Cash, End of the Period** | $1379 | $2490 |
| **Supplemental disclosure for Cash Flow Information** |  |  |
| Cash Paid for Interest | $5785 | $5735 |
| Cash Paid for Income Taxes | $1886 | $795 |
| **Supplemental Disclosure for Non-Cash Investing and Financing Activities** |  |  |
| Conversion of Warrants from liability to Equity |  | 454 |

---

*The accompanying notes are an integral part of these condensed consolidated financial statements*

 

[**Table of Contents**](#toc_001)

 

**ALLIANCE ENTERTAINMENT HOLDING CORPORATION**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31** **, 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.

In December 31, 2025, the Company completed the acquisition of Endstate Authentic LLC ("LLC"), a digital authentication and loyalty-driven consumer brand. The transaction was accounted for as a business combination under ASC 805. Accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The purchase price allocation is preliminary and subject to adjustment as the Company continues to finalize its valuation analyses. Results of operations for Endstate are included in the Company's condensed consolidated financial statements beginning on the acquisition date. Additional information related to this acquisition is provided in Note 23 – Business Combinations.

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 condensed 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 condensed 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 October 1, 2025, the Company entered into a $120 million senior secured asset-based revolving credit facility with Bank of America, N.A. (the "Revolving Credit Facility"). The new facility refinanced and replaced the Company's prior three-year $120 million asset-based revolving credit facility with White Oak Commercial Finance, LLC, which was entered into on December 21, 2023, and was scheduled to mature on December 21, 2026. Based on the Company's cash on hand, cash flows from operations, working capital, and availability under its revolving credit facility, management has concluded that the Company has sufficient liquidity to fund its operations and obligations for at least twelve months from the issuance of these condensed consolidated financial statements.

[**Table of Contents**](#toc_001)

**Concentration of Credit Risk**

Concentration of Credit Risk consists of the following at:

Customers:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Three Months Ended** | **Three Months Ended** | **Six Months Ended** | **Six Months Ended** |
| <br>**Revenue** | **December 31,** <br> **2025** | **December 31,** <br> **2024** | **December 31,** <br> **2025** | **December 31,** <br> **2024** |
| Customer #1 | 15.0% | 10.9% | 15.2% | 10.8% |
| Customer #2 | 12.9% | 12.9% | 13.7% | 14.6% |
| Customer #3 | \* | \* | 10.5% | 10.7% |

---

\* Less than 10%

---

| | | |
|:---|:---|:---|
| **Receivables** | **December 31,**<br> **2025** | **June 30,<br> 2025** |
| Customer #1 | 36.0% | 30.2% |
| Customer #3 | \* | 13.1% |

---

\* Less than 10%

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Three Months Ended** | **Three Months Ended** | **Three Months Ended** | **Three Months Ended** | **Six Months Ended** | **Six Months Ended** | **Six Months Ended** | **Six Months Ended** |
| <br>**Purchases** | **December 31,** <br> **2025** | **December 31,** <br> **2025** | **December 31,** <br> **2024** | **December 31,** <br> **2024** | **December 31,** <br> **2025** | **December 31,** <br> **2025** | **December 31,** <br> **2024** | **December 31,** <br> **2024** |
| Supplier #1 | 19.4 | 19.4% | 23.6 | 23.6% | 22.0 | 22.0% | 18.5 | 18.5% |
| Supplier #2 |  | 10.6% |  | 20.6% |  | 10.8% |  | 20.5% |

---

\* Less than 10%

---

| | | |
|:---|:---|:---|
| **Payables** | **December 31,**<br> **2025** | **June 30,<br> 2025** |
| Supplier #1 | 20.4% | 18.8% |
| Supplier #2 | 12.5% | \* |
| Supplier #3 | 10.0% | 12.9% |

---

\* Less than 10%

**Accounting Pronouncements**

***Recently Issued and Adopted Accounting Pronouncements***

 ****

In July 2025, the Company adopted Accounting Standards Update ("ASU") 2024-02, Codification Improvements -Amendments to Remove References to the Concepts Statements. This ASU removes references to the FASB Concepts Statements from the Accounting Standards Codification and makes related conforming amendments. The adoption of ASU 2024-02 did not have a material impact on the Company's condensed consolidated financial statements or related disclosures.

In July 2025, the Company adopted ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which clarifies how entities determine whether certain profits interest or similar awards should be accounted for as stock-based compensation under Topic 718 or under other applicable guidance. The Company does not issue profits interest or similar awards, and adoption of this ASU did not have a material impact on its condensed consolidated financial statements.

***Recently Issued but Not Yet Adopted Accounting Pronouncements***

 ****

In November 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disaggregation of certain income statement expense categories in the notes to the financial statements. The 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 condensed consolidated financial statement disclosures.

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In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which enhances income tax disclosure requirements, including expanded disaggregation of effective tax rate reconciliations and income taxes paid by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this ASU, which is expected to primarily affect annual income tax disclosures.

In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, and early adoption is permitted. The Company is evaluating the applicability of this ASU to its consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which includes targeted improvements to the accounting and disclosure requirements for internal-use software costs. The amendments are effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual reporting periods, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

**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.

The following table sets forth the computation of basic and diluted net earnings per share of Common Stock for the three and six months ended December 31, 2025, and 2024, respectively:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended**<br>**December 31, 2025** | **Three Months Ended**<br>**December 31, 2024** | **Six Months Ended**<br>**December 31, 2025** | **Six Months Ended**<br>**December 31, 2024** |
| Net Income (in thousands) | $9388 | $7071 | $14268 | $7468 |
| Basic and diluted shares |  |  |  |  |
| Weighted-average Class A Common Stock outstanding - Basic | 50957370 | 50957370 | 50957370 | 50957370 |
| Weighted-Average Class A Common Stock Outstanding - Diluted | 51010519 | 50965970 | 51010519 | 50965970 |
| Income per share for Class A Common Stock |  |  |  |  |
| — Basic and Diluted | $0.18 | $0.14 | $0.28 | $0.15 |

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There are 60,000,000 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 December 31, 2025, and June 30, 2025. For the three and six months ended December 31, 2025, and June 30, 2025, there are 9,920,000 warrants outstanding that have been excluded from diluted earnings per share because they are anti-dilutive.

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**Note 3: Trade Receivables, Net**

Trade Receivables, Net consists of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Trade Receivables | $153583 | $100799 |
| Less: |  |  |
| Allowance for Credit Losses | (1833) | (867) |
| Sales Returns Reserve | (2787) | (2257) |
| Customer Rebate and Discount Reserve | (310) | (2648) |
| Total Allowances | (4930) | (5772) |
| Trade Receivables, Net | $148653 | $95027 |

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| | | |
|:---|:---|:---|
| **Allowance for Credit Losses Roll forward** | **December 31, 2025** | **June 30, 2025** |
| *($ in thousands)* |  |  |
| Beginning Balance | (867) | (648) |
| Current Period Provision for Expected Credit Losses | (1114) | (1068) |
| Write-offs | 154 | 861 |
| Recoveries of Previously Written-off Accounts | (6) | (12) |
| Ending Balance | (1833) | (867) |

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**Note 4: Inventory, Net**

Inventory, Net (all finished goods) consists of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Inventory | $121416 | $108590 |
| Less: Reserves | (3615) | (5742) |
| **Inventory, Net** | $117801 | $102848 |

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**Note 5: Other Current and Long-Term Assets**

Other Current and Long-Term Assets consist of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Other Assets–Current |  |  |
| Prepaid Intellectual Property | $2299 | $2786 |
| Escrow Receivable | 8500 | 8500 |
| Insurance Receivable | 1863 | 1377 |
| Prepaid Insurance | 842 | 377 |
| Contract Acquisition receivable |  | 2342 |
| Prepaid Catalogs | 612 | 632 |
| Prepaid Manufacturing Components | 447 | 385 |
| Prepaid Maintenance | 1374 | 1041 |
| Other Current Assets | 636 |  |
| Prepaid Molding | 370 | 140 |
| Prepaid Shipping Supplies | 1793 | 1270 |
| Prepaid Vault | 21 | 154 |
| Prepaid Royalties | 101 | 17 |
| Total Other Assets–Current | $18858 | $19021 |
| Other Long-Term Assets |  |  |
| Deposits | $235 | $175 |
| Income tax receivable | - | 614 |
| Total Other Long-Term Assets | $235 | $789 |

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**Note 6: Property and Equipment, Net**

Property and Equipment, Net consists of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Property and Equipment |  |  |
| Leasehold Improvements | $1313 | $908 |
| Machinery and Equipment | 30472 | 30624 |
| Furniture and Fixtures | 1689 | 1717 |
| Capitalized Software | 10377 | 10377 |
| Equipment Under Finance Leases | 12488 | 12488 |
| Computer Equipment | 1756 | 1757 |
| Construction in Progress | 350 | 43 |
|  | 58445 | 57914 |
| Less: Accumulated Depreciation and Amortization | (47337) | (46623) |
| Total Property and Equipment, Net | $11108 | $11291 |

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Depreciation Expense for the three months ended December 31, 2025, and 2024 was $0.4 million, and for the six months ended December 31, 2025, and 2024 was $0.9 million and $0.8 million, respectively.

**Note 7: Goodwill and Intangibles, Net**

Goodwill reported is the result of multiple acquisitions made by Alliance Entertainment Holding Corporation over the years. The $4,965 increase in goodwill during the six months ended December 31, 2025 relates to the Endstate business combination discussed in Note 23, Business Combination (Endstate). Goodwill consists of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Goodwill, Beginning Balance | $89116 | $89116 |
| Additions | 4965 | - |
| Goodwill, Ending Balance | $94081 | $89116 |

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Intangibles, Net consists of the following at:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| *($in thousands)* |  | December 31, 2025 | December 31, 2025 | June 30, 2025 | June 30, 2025 |
| Intangibles: | Intangibles Cost | Accum. Amortization | Intangibles, Net | Accum. Amortization | Intangibles, Net |
| Customer Relationships | $78000 | $(74755) | $3245 | $(73928) | $4072 |
| Contract Acquisition | 1800 | (360) | 1440 | (180) | 1620 |
| Tradename - HMBR | 6800 |  | 6800 |  | 6800 |
| Trademark - Endstate | 800 |  | 800 |  |  |
| Technology - Endstate | 1550 |  | 1550 |  |  |
| Customer Relationships - Endstate | 900 |  | 900 |  |  |
| Mecca Customer Relationships | 8023 | (6681) | 1342 | (6393) | 1630 |
| Customer List | 12760 | (8800) | 3960 | (8407) | 4353 |
| **Total** | $110633 | $90596 | $20037 | $(88908) | $18475 |

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During the three months ended December 31, 2025, and 2024, the Company recorded amortization expense of $0.8 million and during the six months ended December 31, 2025, and 2024, the Company recorded amortization expenses of $1.5 million and $1.7 million, respectively.

Expected amortization over the next five years and thereafter, as of December 31, 2025, is as follows:

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| | |
|:---|:---|
| ($ in thousands) | **Intangible Assets** |
| Year Ended June 30, |  |
| Remaining in fiscal year 2026 | $1850 |
| 2027 | 3651 |
| 2028 | 2623 |
| 2029 | 1344 |
| 2030 | 704 |
| Thereafter | 3065 |
| Total Expected Amortization | $13237 |
| Indefinite-lived Intangible asset | 6800 |
| Total Intangible Assets | $20037 |

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**Note 8: Accrued Expenses**

Accrued Expenses consists of the following at:

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **December 31, 2025** | **June 30, 2025** |
| Marketing Funds Accruals | $3517 | $4870 |
| Payroll and Payroll Tax Accruals | 1624 | 1690 |
| Accruals for Other Expenses | 1831 | 1688 |
| Accrued Earnout - Endstate | 5500 |  |
| Income Tax Payable | 2815 |  |
| Accrued Contract Liability | - | 1300 |
| Total Accrued Expenses | $15287 | $9548 |

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**Note 9: Revolving Credit Facility**

**New Credit Facility**

On October 1, 2025, the Company entered into an asset-based revolving credit facility (the "Revolving Credit Facility") with Bank of America, which refinanced and replaced its prior asset-based revolving credit facility with White Oak Commercial Finance, LLC. The Revolving Credit Facility provides for borrowings of up to $120.0 million, subject to a borrowing base, and matures on October 1, 2030.

Borrowings under the Revolving Credit Facility bear interest at the 30-day SOFR rate, subject to a floor of 2.00%, plus an applicable margin of 1.50% through March 31, 2026 and 1.625% thereafter. The 30-day SOFR rate as of December 31, 2025 was 3.7%. The Company also pays a commitment fee of 0.15% per annum on unused availability. Commitment fees incurred during the quarter ended December 31, 2025 were $0.01 million. Included in interest expense for the three months ended December 31, 2025, is $1.6 million related to the accelerated amortization of unamortized deferred financing costs associated with the prior revolving credit facility that was refinanced and replaced.

Availability under the Revolving Credit Facility is based on eligible accounts receivable and inventory. As of December 31, 2025, availability was approximately $34.8 million, with outstanding borrowings of approximately $85.2 million.

The Revolving Credit Facility contains customary affirmative and negative covenants, including limitations on additional indebtedness, liens, dividends, and certain investments, and requires the maintenance of a fixed charge coverage ratio of at least 1.0 to 1.0 on a trailing twelve-month basis, as defined in the credit agreement. The facility is secured by a first-priority security interest in substantially all of the Company's and its subsidiaries' assets.

The Company was in compliance with all applicable covenants under the Revolving Credit Facility as of December 31, 2025.

**Letters of Credit**

The Revolving Credit Facility permits the issuance of letters of credit, which reduces availability under the borrowing base. As of December 31, 2025, the Company had letters of credit outstanding totaling $0.75 million.

**Prior Credit Facility**

The Company's prior asset-based revolving credit facility with White Oak Commercial Finance, LLC (the "Prior Revolving Credit Facility") provided for borrowings of up to $120.0 million, subject to a borrowing base, and was scheduled to mature on December 21, 2026. Borrowings under the Prior Revolving Credit Facility bore interest at the 30-day SOFR rate, subject to a floor of 2.00%, plus a margin ranging from 4.00% to 4.25%. As of December 31, 2024, the effective interest rate on outstanding borrowings was 9.7%.

The Prior Revolving Credit Facility was terminated and fully repaid on October 1, 2025, in connection with the Company's entry into the new Revolving Credit Facility with Bank of America. No early termination fees were incurred. As of December 31, 2025, there were no borrowings outstanding under the Prior Revolving Credit Facility; accordingly, an effective interest rate was not applicable.

As of June 30, 2025, outstanding borrowings under the Prior Revolving Credit Facility were approximately $57.0 million, with approximately $54.0 million in availability.

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| | | |
|:---|:---|:---|
| *($ in thousands)* | **New Credit Facility December 31, 2025** | **Prior Credit Facility June 30, 2025** |
| Outstanding Balance | $85161 | $57257 |
| Less: Deferred Finance Costs | (614) | (1988) |
| Revolving Credit Facility, Net | $84547 | $55269 |

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During the three months ended December 31, 2025 and 2024, the Company incurred interest expense of approximately $1.7 million and $2.0 million, respectively. During the six months ended December 31, 2025 and 2024, interest expense was approximately $3.2 million and $4.0 million, respectively.

Recurring amortization of deferred financing costs was approximately $0.03 million and $0.4 million for the three months ended December 31, 2025, and 2024, respectively, and approximately $0.6 million and $0.7 million for the six months ended December 31, 2025, and 2024, respectively. In addition, interest expense for the three and six months ended December 31, 2025, includes approximately $1.6 million of accelerated amortization of deferred financing costs related to the early refinancing and termination of the prior revolving credit facility on October 1, 2025.

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**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 December 31, 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 3% contribution; however, they have the option to increase/decrease their deferrals or opt out of the Plan at any time. The Company currently offers a match contribution of $0.50 of every dollar up to 4% of contribution percentage. The Company conducts a retirement plan review on an annual basis.

During the three and six months ended December 31, 2025, and 2024, the Company contributed $0.2 million and 0.1 million, respectively and $0.3 million and $0.3 million, respectively, to the Plan.

**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

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The following table presents segment revenue, net income, and the significant segment expenses for the Company's single reportable segment for the three and six months ending December 31, 2025, and 2024:

**Reconciliation to Condensed Consolidated Net Income:**

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| | | | | |
|:---|:---|:---|:---|:---|
| *($ in thousands)* | **Three months ended December 31, 2025** | **Three months ended December 31, 2024** | **Six months ended December 31, 2025** | **Six months ended December 31, 2024** |
| Net Revenues | $368712 | $393672 | $622685 | $622662 |
| Cost of Revenues (excluding depreciation and Amortization) | 321616 | 351382 | 538409 | 554837 |
| Distribution and Fulfillment Expense | 12121 | 12419 | 22041 | 21437 |
| Sales and Marketing | 8327 | 6624 | 16026 | 12841 |
| Other Segment items\* | 17259 | 16176 | 31941 | 26078 |
| Net income | $9388 | $7071 | $14268 | $7468 |

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\* Other segment items include interest expense, income tax expense, general and administrative expenses, and technology expenses, which are reported separately on the condensed consolidated statements of operations.

**Note 12: Income Taxes**

The effective tax rate was approximately 28% and 25.0% for the three months ended December 31, 2025 and 2024, respectively. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the three months ended December 31, 2025 primarily resulted from state income taxes, foreign-derived intangible income ("FDII"), fair value adjustments related to the Company's warrant liability, and tax items attributable to periods prior to the Company's acquisition by its parent. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the three months ended December 31, 2024 primarily resulted from state income taxes and FDII.

The effective tax rate was approximately 28% and 14.0% for the six months ended December 31, 2025 and 2024, respectively. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the six months ended December 31, 2025 primarily resulted from state income taxes, FDII, fair value adjustments related to the Company's warrant liability, and tax items attributable to periods prior to the Company's acquisition by its parent. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the six months ended December 31, 2024 primarily resulted from state income taxes, FDII, and a discrete item related to an out-of-measurement period adjustment to the deferred tax liability related to software costs.

The Company completed the acquisition of Endstate Authentic LLC on December 31, 2025. For U.S. federal and state income tax purposes, the transaction is treated as a taxable purchase of assets because Endstate Authentic LLC is a disregarded entity. As a result, the tax basis of the acquired assets and assumed liabilities was stepped up generally to their respective fair values. Based on the Company's analysis as of the acquisition date, the acquisition did not result in material acquisition-date temporary differences and, accordingly, no material deferred tax assets or liabilities were recorded in connection with the acquisition.

**Note 13: Commitments and Contingencies**

***Commitments***

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The Company enters into various agreements with suppliers for the products it distributes. The Company had no long-term purchase commitments or arrangements with its suppliers as of December 31, 2025, and June 30, 2025.

***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.

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**Video Privacy Protection Act Matters.** Beginning in August 2024, several putative class actions and related proceedings were filed against the Company and its subsidiary, DirectToU, LLC ("DirectToU"), in federal courts and arbitration alleging violations of the Video Privacy Protection Act ("VPPA") and similar state laws. The complaints generally allege that the Company disclosed certain customer information and video viewing or purchasing data to third parties through the use of website tracking technologies.

In June 2025, the parties reached a settlement resolving the VPPA-related claims, subject to court approval. The settlement provides for a cash payment of $1.577 million to the class. The Company expects a portion of the settlement payment to be covered by insurance and, accordingly, recorded an insurance receivable of $1.377 million. The Company recorded a settlement liability of $1.577 million and the related insurance receivable during the three months ended September 30, 2025, and such amounts remained recorded in the Company's condensed consolidated financial statements as of December 31, 2025.

The court granted preliminary approval of the settlement in October 2025. Final approval of the settlement remains pending. The Company believes the recorded accrual is adequate based on currently available information.

**Office Create Litigation.** On June 6, 2024, Office Create Corporation filed a civil action against COKeM International Ltd. ("COKeM") in the United States District Court for the District of Minnesota alleging contributory trademark infringement, false designation of origin, unfair competition, unjust enrichment, and civil conspiracy arising from the alleged distribution of the video game Cooking Mama: Cookstar. Office Create seeks monetary damages, which it asserts exceed $40 million. No damages have been awarded.

COKeM has denied the allegations. COKeM filed a third-party complaint against Planet Entertainment LLC and its principal seeking indemnification and contribution. Default has been entered against those third-party defendants. In January 2026, Office Create dismissed its claims against Plaion, Inc. and Plaion GmbH pursuant to a confidential settlement agreement. The matter remains in discovery, with trial readiness scheduled for October 2026. The Company maintains insurance coverage that may apply to this matter, subject to policy limits and shared coverage provisions. At this time, the Company cannot reasonably estimate the amount or range of any potential loss, if any, associated with this matter, and no accrual has been recorded.

**Sparkle Pop Matter.** On June 9, 2025, Sparkle Pop, LLC filed an adversary proceeding against the Company in the United States Bankruptcy Court for the District of Maryland in the matter *In re Diamond Comic Distributors*, alleging theft of trade secrets and tortious interference with contractual relations. The Company has moved to dismiss the amended complaint, and that motion remains pending. The Company denies the allegations. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.

**TCPA Demand.** In November 2025, the Company received a demand letter asserting potential claims under the federal Telephone Consumer Protection Act against its subsidiary, DirectToU, LLC, relating to alleged marketing text messages. No complaint has been filed, and discussions between the parties are ongoing. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.

**Other Matters**

From time to time, the Company is involved in other legal and regulatory matters arising in the ordinary course of business.

In December 2024, DirectToU, LLC received a third-party tender of defense regarding a notice of alleged noncompliance with California Proposition 65 concerning a product supplied by a vendor and sold by the Company. The Company discontinued the product and tendered defense to the supplier, which has assumed responsibility for responding to the notice. The Company does not believe this matter is material.

In July 2025, the Company received a cease-and-desist letter alleging a breach of a contractual non-solicitation provision. The Company disputes the allegations, has responded to the correspondence, and has not filed any litigation. The Company does not believe this matter is material.

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**Note 14: Related Party Transactions**

***GameFly Holdings, LLC***

On February 1, 2023, the Company entered into a Distribution Agreement (the "Agreement") with GameFly Holdings, LLC ("GameFly"), a customer owned by the Company's principal stockholders. The Agreement is effective from February 1, 2023 through March 31, 2028, and thereafter continues on an indefinite basis unless terminated by either party upon six months' prior written notice.

The Company did not recognize any distribution revenue under the Agreement during the three or six months ended December 31, 2025 or 2024. During the three months ended December 31, 2025 and 2024, the Company recognized sales to GameFly of approximately $0.7 million and $0.8 million, respectively. During the six months ended December 31, 2025 and 2024, sales to GameFly totaled approximately $1.6 million for each respective period. Sales to GameFly were conducted on terms consistent with those offered to third-party customers.

As of December 31, 2025 and June 30, 2025, the Company had receivables, net, from GameFly of approximately $0.2 million and $0.2 million, respectively, which are included in other receivables, net, on the condensed consolidated balance sheets.

***Ogilvie Loans***

 ****

On July 3, 2023, the Company entered into a $17.0 million line of credit with Bruce Ogilvie, a principal stockholder (the "Ogilvie Loan"). The Company made and repaid various short-term borrowings under the Ogilvie Loan through October 2023. The Ogilvie Loan would have matured on December 22, 2026, and bore interest at a rate equal to 30-day SOFR plus 5.0%.

In connection with the Company's entry into an asset-based revolving credit facility with Bank of America on October 1, 2025, the Company repaid the outstanding balance of $10.0 million under the Ogilvie Loan in full. As a result, there were no amounts outstanding under the Ogilvie Loan as of December 31, 2025.

Interest expense related to the Ogilvie Loan was zero for the three months ended December 31, 2025, as no borrowings were outstanding during that period. Interest expense related to the Ogilvie Loan for the three months ended December 31, 2024 was approximately $0.26 million. Interest expense for the six months ended December 31, 2025 and 2024 was approximately $0.24 million and $0.53 million, respectively.

 ****

***B&D Capital Partners, LLC***

B&D Capital Partners, LLC ("BDCP") is a financial advisory firm whose parent company is majority owned by W. Tom Donaldson III, a member of the Company's board of directors. During the fiscal year ended June 30, 2024, the Company paid BDCP approximately $1.8 million in advisory fees in connection with the Company's former credit facility with White Oak Commercial Finance, LLC, which were capitalized as deferred financing costs.

The White Oak credit facility was repaid in full and terminated on October 1, 2025. During the three and six months ended December 31, 2025, the Company did not incur any related-party fees with BDCP; however, upon termination of the facility, the Company expensed $1.6 million of the remaining unamortized deferred financing costs associated with that facility. No amounts were payable to BDCP as of December 31, 2025.

**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 1 to 13 years. The decision to exercise renewal options is at the Company's sole discretion and is included in the lease term when it is reasonably certain that the option will be exercised.

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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 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.

Components of lease expense were as follows for the three and six months ending December 31, 2025, and 2024:

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| | | | | |
|:---|:---|:---|:---|:---|
| <br>**Lease Cost *($ in thousands)*** | **Three Months**<br>**Ended**<br>**December 31,**<br>**2025** | **Three Months**<br>**Ended**<br>**December 31,**<br>**2024** | **Six Months**<br>**Ended**<br>**December 31,**<br>**2025** | **Six Months**<br>**Ended**<br>**December 31,**<br>**2024** |
| Finance Lease Cost: |  |  |  |  |
| Amortization of Right of Use Assets | 372 | 364 | 744 | 743 |
| Interest on lease liabilities | 75 | 130 | 164 | 272 |
| Capitalized Operating Lease Cost | 1069 | 1062 | 2134 | 2123 |
| Short – Term Lease Cost | 19 | 20 | 40 | 30 |
| Variable Lease Cost | 185 | 264 | 469 | 506 |
| Total Lease Cost | 1720 | 1840 | 3551 | 3674 |
| **Other Information** |  |  |  |  |
| Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |
| Operating cash flows from finance leases |  |  |  |  |
| Operating cash flows from Capitalized Operating leases | 1050 | 559 | 2077 | 1357 |
| Financing cash flows from finance leases | 760 | 709 | 1506 | 1421 |

---

---

| | | |
|:---|:---|:---|
|  | **December 31, 2025** | **June 30, 2025** |
| Right of use assets obtained in exchange for new operating lease liabilities | 57 |  |
| Net Right of use asset remeasurement | (22) |  |
| Weighted average remaining lease term - finance leases (in Years) | 1.08 | 1.58 |
| Weighted average remaining lease term - operating leases (in Years) | 5.04 | 5.52 |
| Weighted average discount rate - finance leases | 7.1% | 7.1% |
| Weighted average discount rate – Capitalized operating leases | 5.7% | 5.7% |

---

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Maturities of operating and finance lease liabilities as of December 31, 2025 are as follows:

---

| | | |
|:---|:---|:---|
| **($ in thousands)** | **Operating Leases** | **Finance Leases** |
| Remaining in fiscal 2026 | $2149 | $1670 |
| 2027 | 4160 | 1987 |
| 2028 | 4249 |  |
| 2029 | 4362 |  |
| 2030 | 4493 |  |
| Thereafter | 2680 | - |
| Total Lease Payments | 22093 | 3657 |
| Less Imputed Interest | (2917) | (157) |
| Present Value Obligation | 19176 | 3500 |
| Short-term Liability | 3299 | 3180 |
| Total | $15877 | $320 |

---

Finance ROU leases are recorded in Property and Equipment, net on the condensed consolidated balance sheets.

---

| | | |
|:---|:---|:---|
|  | December 31, 2025 | June 30, 2025 |
| Cost | $13841 | $13831 |
| Additions |  | 10 |
| Accumulated Depreciation | (4147) | (3403) |
| Net Book Value | $9694 | $10438 |

---

**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 900 shares of previously outstanding common stock were exchanged for 47,500,000 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 | 167170 |
| Alliance Sponsor Shares | 1500000 |
| Legacy Alliance Shares | 47500000 |
| Total Shares of Common Stock Outstanding after Merger | 49167170 |

---

Up to 60 million additional Class E shares may be issued to the Legacy Alliance shareholders at no cost based on future performance of the company's stock price, and 9.9 million warrants (Class A) that can be exercised for common shares at $11.50 per share (See Note 21). The 60 million Class E shares are set aside in an escrow account as additional consideration contingent on triggering events occurring within 10 years after the Merger. Upon reaching the following triggering events, the Class E shares will be released from the escrow account to the three major shareholders, and converted to Class A shares on a 1:1 basis:

● If the stock price increases to $20 per share within 5 years, 20 million Class E shares will be released.

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● If the stock price increases to $30 per share within 7 years, 20 million Class E shares will be released.

● If the stock price increases to $50 per share within 10 years, 20 million Class E shares will be released.

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 $5.0 million, including legal, financial advisory and other professional fees related to the Merger, which was recorded as an expense as the transaction costs exceeded the proceeds received in the Merger.

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 600,000 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 1,000,000 shares. As of December 31, 2025, 622,550 shares were awarded under the 2023 Plan.

**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 $7,551,000. The asset purchase included inventory, tooling equipment, and a trademark.

The allocation of the purchase price was as follows:

---

| | |
|:---|:---|
| *($ in thousands)* |  |
| Inventory | $753 |
| Property and Equipment, tooling | 124 |
| Prepaid Assets | 2 |
| Accrued Liability | (25) |
| Total Identifiable net assets | 854 |
| Intangible assets (Trademark) (including capitalized costs) | 6800 |
| Total Purchase Price (allocated) | $7654 |
| Total Cash Consideration Paid to Seller | $7551 |
| Capitalized Acquisition Costs (Legal and Shipping fees) | 103 |

---

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).

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For the three and six months ended December 31, 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 $103 thousand, consisting of capitalized legal and shipping fees, included in the value of the intangible asset in accordance with ASC 805 -50-30-1. As a result, the total allocated purchase price, including capitalized costs, is $7.7 million.

**Note 18: Reclassification of Private Warrants to Public Warrants**

Reclassification from Liability to Equity

During the six months ended December 31, 2024, 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 769,000 warrants with a carrying value of $0.5 million from warrant liabilities to paid-in capital during fiscal 2025. This reclassification had no impact on the Company's condensed consolidated statements of operations or cash flows. Prior period balances were not restated (See Note 21).

**Note 19: Stock-Based Compensation:**

As part of the Merger on February 10, 2023, 600,000 shares were authorized for a one-time employee stock plan. The compensation committee approved 463,800 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.

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 400,000 shares of Class A common stock, bringing the total reserved under the 2023 Plan to 1,000,000 shares of Class A common stock. On November 7, 2024, the Company's stockholders approved the amendment to the 2023 Plan.

During the three months ended December 31, 2025, the Company granted restricted stock awards to certain employees pursuant to employment offer letters executed in December 2025. Although the employment offer letters reference a December 31 grant date, the Company determined that, for accounting purposes under ASC 718, the grant date was January 1, 2026, as this was the date on which all requisite terms of the awards were finalized, requisite approvals were obtained, and the employees commenced service. Accordingly, the fair value of these awards was measured as of January 1, 2026, and stock-based compensation expense is recognized over the requisite service period beginning on that date.

In connection with awards granted, the Company recognized $0.1 million and $0 in stock-based compensation expense during the three- and six-month periods ending December 31, 2025, and December 31, 2024, respectively.

**Note 20: Impact of Warrant Liabilities on Earnings Per Share (EPS)**

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 and six months ending December 31, 2025, and 2024 the Company recorded a loss of $0.9 million, and $2.5 million, respectively and $2.3 million and $2.6 million, respectively related to the fair value measurement of warrant liabilities, primarily due to changes in the market price of our common stock and the volatility assumptions used in the valuation model. Reported EPS was negatively impacted by $0.02 for the three months ended December 31, 2025 and by $0.05 for the three months ended December 31, 2024. For the six months ended December 31, 2025 and 2024, reported EPS was negatively impacted by $0.05 per share in each period.

The fair value of the warrant liabilities at December 31, 2025, and June 30, 2025, was $3.0 million and $0.6 million, respectively, and is recorded under warrant liabilities on the condensed consolidated balance sheets.

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 December 31, 2025, and June 30, 2025, there were 6,519,083 Public Warrants, 3,357,667Private Placement Warrants, and 43,340 Representatives Warrants issued and outstanding, each exercisable to purchase one share of Class A common stock at an exercise price of $11.50 (the "Warrants").

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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.

**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 $11.50 per share and will expire five years after the completion of the Merger or earlier upon redemption or liquidation. The Company may redeem for cash the outstanding Public Warrants:

● in whole and not in part.

● at a price of $0.01 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 $18 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within a 30 -trading day period commencing once the Public Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right.

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.

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**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.

As of December 31, 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 December 31, 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 December 31, 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:

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2025** | **June 30,**<br>**2025** |
| Stock Price | $8.08 | $3.77 |
| Exercise price per share | $11.50 | $11.50 |
| Risk-free interest rate | 35.6% | 3.63% |
| Expected term (years) | 2.11 | 2.62 |
| Expected volatility | 3.42% | 47.1% |
| 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:

&nbsp;&nbsp;&nbsp;&nbsp;(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 0 %, and this assumption will be continued in future calculations unless the Company changes
 its dividend policy.

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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 December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2025** |
|  | **Total** | **Level 1** | **Level 2** | **Level 3** |
| Private Placement and Representative Warrants | $2959 | $- | $- | $2959 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** |
|  | **Total** | **Level 1** | **Level 2** | **Level 3** |
| Private Placement and Representative Warrants | $646 | $— | $— | $646 |

---

The table below presents the change in the number and fair value of the Private and Representative Warrants for the period ended December 31, 2025, and December 31, 2024 (in thousands, except the number of shares)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Private Warrants** | **Private Warrants** | **Representative Warrants** | **Representative Warrants** | **Total** | **Total** |
|  | **Shares** | **Value** | **Shares** | **Value** | **Shares** | **Value** |
| June 30, 2025 | 3356767 | $638 | 43340 | $8 | 3401007 | $646 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Change in value | - | $1444 | - | 19 | - | $1463 |
| September 30, 2025 | 3356767 | $2082 | 43340 | $27 | 3401007 | $2109 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Change in value | - | $839 | - | $11 | - | $850 |
| December 31, 2025 | 3356767 | $2921 | 43340 | $38 | 3401007 | $2959 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Private Warrants** | **Private Warrants** | **Representative Warrants** | **Representative Warrants** | **Total** | **Total** |
|  | **Shares** | **Value** | **Shares** | **Value** | **Shares** | **Value** |
| June 30, 2024 | 4120000 | $244 | 50090 | $3 | 4170090 | $247 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Change in value | - | $41 | - | - | - | $41 |
| September 30, 2024 | 4120000 | $285 | 50090 | $3 | 4170090 | $288 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Change in classification from Private to Public | (762333) | (450) | (6750) | (4) | (769083) | (454) |
| &nbsp;&nbsp;&nbsp;Change in value | - | $2509 | - | $36 | - | $2545 |
| December 31, 2024 | 3357667 | $2344 | 43340 | $35 | 3401007 | $2379 |

---

**Note 23: Business Combinations - Endstate**

On December 31, 2025, Alliance Entertainment Holding Corporation (the "Company"), through a wholly owned subsidiary, completed the acquisition of substantially all of the assets of Endstate (the "Acquisition"). The Acquisition was accounted for as a business combination under ASC 805, *Business Combinations*.

The Acquisition was completed to enhance the Company's technology capabilities and expand its digital and direct-to-consumer product offerings. Because the Acquisition closed on December 31, 2025, the results of Endstate's operations were not included in the Company's condensed consolidated results of operations for the period ended December 31, 2025.

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**Purchase Consideration**

The total consideration transferred in connection with the Acquisition was **$7.9 million**, which consisted of the following (in thousands):

Schedule of Purchase Consideration

---

| | |
|:---|:---|
|  | **Amount** |
| Cash paid at closing | $1150 |
| Deferred payment payable one year after closing | 1300 |
| Fair value of contingent consideration | 5500 |
| **Total consideration transferred** | $**7950** |

---

Certain payments to the founders, including guaranteed payments and sign-on bonuses that were not contingent on continued employment, were determined to represent consideration transferred in exchange for the acquired business and were included in purchase consideration. Payments contingent on continued employment were excluded from purchase consideration and will be recognized as compensation expense over the requisite service period.

**Preliminary Purchase Price Allocation**

The allocation of the purchase consideration is preliminary and subject to adjustment during the measurement period as the Company finalizes its valuation of acquired assets and assumed liabilities. The preliminary allocation of the consideration transferred is as follows (in thousands):

---

| | |
|:---|:---|
| **Asset / (Liability)** | **Amount** |
| Identifiable intangible assets: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology | $1550 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trademarks | 800 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Customer relationships | 900 |
| **Total identifiable intangible assets** | **3250** |
| Goodwill | 4965 |
| Net liabilities assumed | (265) |
| **Total consideration transferred** | $**7950** |

---

Identifiable intangible assets are being amortized on a straight-line basis over an estimated useful life of **ten years**.

Goodwill represents the excess of the consideration transferred over the estimated fair value of the identifiable net assets acquired and reflects expected synergies, future technology enhancements, and the assembled workforce. Goodwill is deductible through amortization over 15 years for income tax purposes.

**Contingent Consideration**

The Acquisition includes contingent consideration arrangements consisting of earnout payments based on future financial performance during the 2026 through 2028 periods.

The contingent consideration was recorded at an estimated fair value of $5.5 million as of the acquisition date and is included in accrued liabilities on the accompanying condensed consolidated balance sheets. The fair value was determined using a probability-weighted discounted cash flow model and includes significant unobservable inputs. Accordingly, the contingent consideration liability is classified as **Level 3** within the fair value hierarchy.

Contingent consideration is remeasured at each reporting date, with changes in fair value recognized in earnings.

**Acquisition-Related Costs**

Transaction costs incurred in connection with the Acquisition were expensed as incurred and included in transaction costs.

**Note 24: Subsequent Events**

The Company evaluated subsequent events occurring through February 12, 2026, the date these condensed consolidated financial statements were issued (or available to be issued). Based on this evaluation, the Company identified the following non-recognized subsequent event that requires disclosure.

Home Entertainment License Agreement

On January 1, 2026, The Company, entered into an exclusive Home Entertainment License Agreement (the "AmazonMGM Agreement") with Amazon MGM Studios Distribution ("Amazon MGM"). The AmazonMGM Agreement grants the Company exclusive rights to distribute certain Amazon MGM physical media titles, including DVD, Blu-ray, and UHD formats, in the United States and Canada.

Under the terms of the AmazonMGM Agreement, the Company will manufacture, distribute, and fulfill physical media products for Amazon MGM titles, while Amazon MGM retains responsibility for its digital media distribution. The AmazonMGM Agreement covers both newly released and catalog film and television titles.

The AmazonMGM Agreement is effective January 1, 2026. The AmazonMGM Agreement has an initial term of five years beginning January 1, 2026, unless earlier terminated in accordance with its terms. The Company evaluated this event under ASC 855, Subsequent Events, and determined that the AmazonMGM Agreement represents a non-recognized subsequent event. Accordingly, no adjustments were made to the Company's consolidated financial statements as of and for the period ended.

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**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 collectibles, 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, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take Two, Electronic Arts, Funko, Mattel 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, distribution, and technology platforms that support the efficient sale and fulfillment of physical entertainment products and collectibles across retail and e-commerce channels. These capabilities are enhanced by Handmade by Robots, which expands Alliance's premium licensed collectibles offering, and Endstate, which contributes NFC-enabled authentication and digital product identity technology that supports product verification and authenticated resale. Together, these platforms strengthen Alliance's position in the collectibles market by enabling secure, traceable, and scalable distribution of high-value physical products. Alliance also serves as the retailers' back office, with EDI and logistics infrastructure fully operational to support existing and new product launches.

**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.

Subsequent to December 31, 2025, in January 2026, Alliance Entertainment entered into a new exclusive home entertainment license agreement with Amazon MGM Studios Distribution covering physical media distribution in the United States and Canada. Under the agreement, Alliance will serve as the exclusive distributor of Amazon MGM Studios' physical media titles, including new releases and select catalog content, across major wholesale, e-commerce, and brick-and-mortar retail channels. Management expects the agreement to expand the Company's physical media portfolio and support continued growth in higher-value and collectible product offerings.

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**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 31, 2025, Alliance completed its strategic acquisition of Endstate Acquisition LLC and established Endstate Authentic LLC ("Endstate") as a wholly owned subsidiary focused on authentication and resale technology. The acquisition supports the launch of Alliance Authentic, a new premium platform designed to create authenticated, certified vinyl collectibles and a trusted global marketplace for buying, selling, and trading investment-grade physical media. Endstate's patented NFC-enabled authentication and digital product identity technology enables real-time product verification, counterfeit prevention, and authenticated resale services, forming the technological foundation of the Alliance Authentic platform. As part of the transaction, Endstate co-founders Bennett Collen and Stephanie Howard joined Alliance's leadership team as President and Senior Vice President of Operations, respectively. The acquisition resulted in the recognition of $5.0 million of goodwill and $3.3 million of identifiable intangible assets as of December 31, 2025, primarily related to Endstate's proprietary technology and digital identity systems. Management believes the acquisition strengthens Alliance's strategic position in the growing authenticated collectibles market and supports the development of new technology-enabled and recurring revenue opportunities.

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.

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.

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.

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.

[**Table of Contents**](#toc_001)

**Macroeconomic Uncertainties**

The Company continued to operate amid macroeconomic uncertainty during the period ended December 31, 2025, including inflationary pressures and geopolitical instability related to ongoing global conflicts. While inflation moderated during late 2025, consumer discretionary spending remained uneven, affecting demand patterns across certain product categories. The Company also experienced cost pressures related to existing and potential tariffs on imported goods, particularly for internationally sourced physical media and collectibles. Despite these challenges, management continues to actively manage pricing, product mix, and sourcing strategies to mitigate the impact of economic and trade-related volatility. While these conditions may continue to influence future periods, the Company believes its diversified product offerings and focus on higher-value collectibles position it to navigate ongoing uncertainty. 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.

**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 Expenses. The Distribution and Fulfillment Expenses are the payroll and operating expenses associated with the receipt, warehousing, and distribution of product.

**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 December 31, 2025, Compared to Three Months Ended**

**December 31, 2024**

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| | | |
|:---|:---|:---|
| <br>***($ in thousands)*** | **Three Months <br> Ended**<br>**December 31, <br> 2025** | **Three Months <br> Ended**<br>**December 31, <br> 2024** |
| **Net Revenues** | $368712 | $393672 |
| Cost of Revenues (excluding depreciation and amortization) | 321616 | 351382 |
| **Operating Expenses** |  |  |
| Distribution and Fulfillment Expense | 12121 | 12419 |
| Selling, General and Administrative Expense | 16591 | 13800 |
| Depreciation and Amortization Expense | 1290 | 1255 |
| Transaction Costs | 225 |  |
| Restructuring Costs | 2 | 19 |
| Insurance Claim Recovery | (408) | - |
| Gain on Disposal of Fixed Assets | (4) | - |
| &nbsp;&nbsp;&nbsp;**Total Operating Expenses** | $29817 | $27493 |
| &nbsp;&nbsp;&nbsp;**Operating Income** | 17279 | 14797 |
| **Other Expenses** |  |  |
| Change in Fair Value of Warrants | 850 | 2545 |
| Interest Expense | 3454 | 2827 |
| &nbsp;&nbsp;&nbsp;**Total Other Expenses** | 4304 | 5372 |
| **Income Before Income Tax Expense** | 12975 | 9425 |
| Income Tax Expense | 3587 | 2354 |
| &nbsp;&nbsp;&nbsp;**Net Income** | $9388 | $7071 |

---

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**Net Revenue:** Year over year, total net revenues decreased from $394 million to $369 million (-$25 million, -6%) for the three months ended December 31, 2025. The decline was primarily attributable to a significant reduction in gaming product revenues, reflecting softer industry conditions, lower hardware availability, and changes in product mix during the quarter. This decrease was partially offset by growth across several core categories, including vinyl records, physical movies, and collectibles, supported by continued consumer demand for premium physical formats, exclusive content offerings, and higher-value products. Overall, revenue performance during the quarter reflects a shift in mix toward higher-priced, differentiated products, while gaming sales weighed on consolidated results. 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. 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 39% of gross revenue for the three months ended December 31, 2025.

Year over year, vinyl record sales increased from $109 million to $112 million for the three months ended December 31, 2025, representing an increase of $3 million, or 3%, compared to the prior-year period. The increase in revenue was primarily driven by a 2.9% increase in unit sales volume, reflecting continued consumer demand for vinyl records, with a modest contribution from a 0.1% increase in average selling prices. The growth in sales volume was supported by strong new release activity, continued interest in collectible and limited-edition offerings, and sustained demand for vinyl as a preferred physical music format among both established and emerging artists. While pricing remained relatively stable during the period, increased unit demand more than offset the minimal change in average selling price, resulting in overall revenue growth.

Music Compact Disc (CD) sales increased from $39 million to $41 million for the three months ended December 31, 2025, representing an increase of $2 million, or 5%, compared to the prior-year period. The increase in revenue was driven primarily by a 7% increase in unit sales volume, partially offset by a 1% decline in average selling price. The growth in unit volume reflects heightened demand for select new releases during the period, including Taylor Swift's album released in October 2025, as well as continued demand for K-Pop titles and collectible CD editions. While the broader market continues to shift toward streaming and digital formats, strong performance from major artist releases and fan-driven purchases supported increased CD sales during the quarter.

Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, increased from $86 million to $114 million for the three months ended December 31, 2025, representing an increase of $28 million, or 33%, compared with the same period in the prior year. The increase was driven by a 4% increase in average selling price, together with higher unit shipments, resulting in significant year-over-year revenue growth. Performance during the current quarter benefited from a consistent flow of theatrical releases and sustained consumer demand for premium formats, including 4K Ultra HD and collectible SteelBook editions. In addition, the launch of a new exclusive content partnership with Paramount earlier in the year expanded the Company's film portfolio and contributed to improved pricing and increased retail visibility for select titles. A favorable mix shift toward premium, higher-margin products supported the increase in average selling price and partially offset softness in lower-priced catalog titles.

For the quarter ended December 31, 2025, collectibles revenue rose from $6 million to $8 million (+$2 million, +31%) compared with the prior-year period. Although unit sales volume declined by 17%, a 56% increase in average selling price more than offset the decrease and drove overall revenue growth. The increase reflects a favorable shift toward higher-value collectibles, supported by expanded sourcing activity and new vendor additions during the second half of 2025, which contributed incremental revenue primarily in the quarter. Growth was further supported by the transition of Handmade by Robots from a distributed brand in 2024 to an owned brand in 2025, as well as improved profitability from certain legacy brands following inventory rationalization in the prior year.

For the quarter ended December 31, 2025, electronics revenue remained flat at $6 million compared to the prior-year period. Unit sales volume declined by 9%; however, this decrease was offset by a 5.1% increase in average selling price, resulting in relatively stable revenue year-over-year. The higher average selling price reflected changes in product mix and competitive pricing dynamics, while the decline in unit volume indicates softer demand compared with the prior-year period. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related accessories, which are generally sold as complementary products alongside physical music and movie media.

Gaming product revenue declined from $140 million to $80 million for the three months ended December 31, 2025, representing a decrease of $60 million, or 43%, compared to the prior-year period. The decline reflected a broader slowdown in the gaming industry, with unit sales volume decreasing 23% year over year and average selling price declining 25%. These decreases were driven in part by a pause in arcade hardware purchases following a reassessment of vendor partnerships, limited availability of certain hardware products, and delays in major game releases during the period. While overall sales declined during the quarter, industry interest in next-generation, high-performance consoles remains evident. As a distributor of physical gaming products, the Company continues to adjust its product mix and distribution strategies to align with evolving consumer demand and to manage profitability, while monitoring potential supply chain and cost pressures related to market volatility and ongoing trade tensions with China.

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**Cost of Revenues:** Total cost of revenues, excluding depreciation and amortization, decreased from $351 million to $322 million for the year-over-year period, representing a decline of $29 million, or 8.5%, primarily reflecting the direct relationship between product costs and lower sales volume. Gross margin dollars increased by $5 million, driven by improved margins. For the quarter ended December 31, 2025, gross margin expanded from 11% to 13%, an increase of 2 percentage points, compared with the same period in the prior year. The improvement was supported by higher average selling prices and the launch of a new exclusive content partnership earlier in the year. Additional factors contributing to margin expansion included enhanced inventory management and modest improvements in distribution fees, which together strengthened overall profitability.

**Operating Expenses:** Total operating expenses for the quarter increased from $28 million to $30 million, or 9% year over year, rising as a percentage of net revenue from 7% to 8%. The increase was primarily driven by higher selling, general, and administrative expenses, which grew from $14 million to $16 million, reflecting strategic investments in infrastructure, technology, and personnel to support the Company's exclusive content partnerships and future growth initiatives. Distribution and fulfillment expenses decreased slightly from $12.4 million to $12.1 million, or 2.4%, though these costs increased modestly as a percentage of net revenue to 3.3%. The Company continues to invest in warehouse automation to support a more permanent labor structure and reduce reliance on temporary staff, while maintaining flexibility to manage demand fluctuations. Fulfillment payroll remained flat at $8 million but rose as a percentage of net revenue from 2.1% to 2.2%, reflecting lower net revenue and a 4% increase in average labor costs per hour. The May 2024 consolidation of the Shakopee, Minnesota warehouse continued to deliver cost savings and operational efficiencies through increased centralization. Depreciation and amortization expense remained consistent at $1 million compared with the prior-year period.

**Interest Expense:** For the three months ended December 31, 2025, total interest expense increased from $2.8 million to $3.5 million, driven primarily by the full expensing of remaining deferred financing costs from the Company's former White Oak credit facility, including $1.8 million in advisory fees previously paid to B&D Capital Partners, LLC ("BDCP"), a firm partially owned by board member W. Tom Donaldson III. Excluding this non-recurring charge of $1.6 million, interest expense declined year over year due to a lower effective rate from Bank of America, which fell from 9.3% to 7.5%, more than offsetting the modest increase in the average revolver balance from $85 million to $87 million.

**Income Tax:** For the three months ended December 31, 2025, an income tax expense of $3.6 million was recorded compared to $2.4 million for the prior year period. Alliance reported a pretax income of $13.0 million for the three months ended December 31, 2025, versus income of $9.4 million for the three months ended December 31, 2024. The effective tax rate was 28% and 25% for the three months ended December 31, 2025, and 2024, respectively. The difference between the Company's effective tax rate for the three months ended December 31, 2025, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, fair value adjustments related to the Company's warrant liability, and prior taxes related to parent's pre-acquisition period. The difference between the Company's effective tax rate for the three months ended December 31, 2024, and the federal statutory rate primarily resulted from state income taxes, and Foreign Derived Intangible Income. The Company completed the acquisition of Endstate Authentic LLC on December 31, 2025. For U.S. federal and state income tax purposes, the transaction is treated as a taxable purchase of assets because Endstate Authentic LLC is a disregarded entity. As such, the tax basis of all acquired assets and assumed liabilities was stepped up to an amount equal to their fair values determined under ASC 805. Accordingly, the acquisition did not give rise to any temporary differences, and no deferred tax assets or liabilities were recognized on the acquisition date.

**Non-GAAP Financial Measures:** For the three months ended December 31, 2025, we had non-GAAP Adjusted EBITDA of approximately $18.5 million compared with Adjusted EBITDA of approximately $16.1 million in the prior year period, or a year-over-year improvement of $2.4 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.

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| | | |
|:---|:---|:---|
| <br>**($ in thousands)** | **Three Months <br> Ended**<br>**December 31, 2025** | **Three Months <br> Ended**<br>**December 31, 2024** |
| **Net Income** | $**9388** | $**7071** |
| *Add back:* |  |  |
| Interest Expense | 3454 | 2827 |
| Income Tax Expense | 3587 | 2354 |
| Depreciation and Amortization Expense | 1290 | 1255 |
| **EBITDA** | $17719 | $**13507** |
| *Adjustments* |  |  |
| Stock-based Compensation Expense | 69 |  |
| Transaction Costs | 225 |  |
| Change In Fair Value of Warrants | 850 | 2545 |
| Restructuring Cost | 2 | 19 |
| Insurance Claim Recovery | (408) |  |
| Gain on Disposal of Property and Equipment | (4) | - |
| **Adjusted EBITDA** | $18453 | $**16071** |

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**Alliance Entertainment Holding Corporation**

**Results of Operations Six Months Ended December 31, 2025, Compared to Six Months Ended**

**December 31, 2024**

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| | | |
|:---|:---|:---|
| <br>***($ in thousands)*** | **Six Months <br> Ended**<br>**December 31, <br> 2025** | **Six Months <br> Ended**<br>**December 31, <br> 2024** |
| **Net Revenues** | $622685 | $622662 |
| Cost of Revenues (excluding depreciation and amortization) | 538409 | 554837 |
| **Operating Expenses** |  |  |
| Distribution and Fulfillment Expense | 22041 | 21437 |
| Selling, General and Administrative Expense | 31668 | 26905 |
| Depreciation and Amortization Expense | 2574 | 2512 |
| Transaction Costs | 596 |  |
| Restructuring Costs | 2 | 69 |
| Insurance Claim Recovery | (408) | - |
| Gain on Disposal of Fixed Assets | (24) | (15) |
| &nbsp;&nbsp;&nbsp;**Total Operating Expenses** | $56449 | $50908 |
| &nbsp;&nbsp;&nbsp;**Operating Income** | 27827 | 16917 |
| **Other Expenses** |  |  |
| Interest Expense | 5801 | 5666 |
| Change in Fair Value of Warrants | 2313 | 2586 |
| &nbsp;&nbsp;&nbsp;**Total Other Expenses** | 8114 | 8252 |
| **Income Before Income Tax Expense** | 19713 | 8665 |
| Income Tax Expense | 5445 | 1197 |
| &nbsp;&nbsp;&nbsp;**Net Income** | $14268 | $7468 |

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**Net Revenue:** Year over year, total net revenues remained the same at $623 million for the six months ended December 31, 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 and direct-to-consumer 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. 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 37% of gross revenue for the six months ended December 31, 2025.

Year over year, vinyl record sales increased from $179 million to $188 million (+$9 million, +5%) for the six months ending December 31, 2025. The increase in revenue was driven by a 5% increase in unit sales volume, partially offset by a 0.3% decrease in average selling price. The modest decline in pricing was more than offset by higher unit demand, resulting in overall revenue growth. 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. Higher sales volume during the period was supported by strong new release activity, expanded retail distribution, and the ongoing popularity of vinyl as a preferred format among both established and emerging artists.

Music Compact Disc sales increased from $73 million to $75 million for the six months ended December 31, 2025, representing an increase of $2 million or 2% year-over-year. The increase was driven by a 5% increase in unit volume partially offset by a 3% drop in average selling price. Higher unit demand more than offset the decline in pricing, resulting in overall revenue growth for the period. Sales were supported in part by the release of *The Life of a Showgirl*, the twelfth studio album by Taylor Swift, which was released on October 3, 2025 and generated notable physical sales activity during the 6 months ended December 31, 2025. Continued consumer interest in select physical releases and collectible CD editions also contributed to the increase in CD revenue, even as broader industry trends favor streaming and digital formats.

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Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, increased from $139 million to $198 million for the six months ended December 31, 2025, representing an increase of $59 million, or 43%, compared with the same period in the prior year, and accounted for approximately 32% of total net sales during the period. The increase in revenue was driven by a 3% increase in average selling price, together with a 38% increase in unit shipments, resulting in significant year-over-year growth. Performance during the period benefited from a consistent flow of theatrical releases and sustained consumer demand for premium formats, including 4K Ultra HD and collectible SteelBook editions. In addition, the launch of a new exclusive content partnership with Paramount earlier in the year expanded the Company's film portfolio and contributed to improved pricing and increased retail visibility for select titles. A favorable shift in sales mix toward premium, higher-margin content supported the increase in average selling price and partially offset softness in lower-priced catalog titles.

For the six months ended December 31, 2025, collectibles revenue rose from $11 million to $14 million (+$3 million, +31%) compared with the prior-year period. Although unit volume declined 23%, a 71% increase in average selling price more than offset lower volumes and drove revenue growth. Results were supported by the addition of over 20 new collectibles vendors that began contributing sales in the second half of 2025, generating more than $0.5 million in incremental revenue. Existing vendors also delivered higher sales driven by new product lines, and Handmade by Robots' transition from a distributed brand in 2024 to an owned brand in 2025 contributed meaningfully to year-over-year performance.

For the six months ended December 31, 2025, electronics revenue declined from $8 million to $7 million (-$1 million, -9%) compared to the prior-year period. Unit sales volume increased 4%, but this was more than offset by a 13% decline in average selling price, resulting in an overall reduction in revenue. The decline in average selling price primarily reflected changes in product mix and competitive pricing dynamics. Electronics sales primarily consist of audio playback devices and related accessories, including turntables, headphones, speakers, and other ancillary products that complement physical music and movie media.

Gaming product revenue declined from $197 million to $126 million (-$71 million, -36%), for the six months ended December 31, 2025. The decline in revenue was driven by a 34% decrease in average selling price, together with a 3% decrease in unit sales volume year over year. The reduction in average selling price reflected a pause in arcade hardware purchases, which typically carry higher price points, following a reassessment of vendor partnerships, as well as limited availability of certain hardware products and delays in major game releases during the period. While unit volume declined modestly, consumer interest in physical gaming products remained evident. As a distributor of physical gaming products, the Company continues to adjust its product mix and sourcing strategies to align with evolving consumer demand and to manage profitability, while monitoring potential supply chain risks related to market volatility and ongoing trade tensions with China.

**Cost of Revenues:** Total cost of revenues, excluding depreciation and amortization, decreased from $555 million to $538 million (-$17 million, -3%) year-over-year, driven by improved cost discipline, a more favorable product mix, and the impact of our exclusive content partnership, which supported higher-value physical media sales. For the six months ended December 31, 2025, gross margin increased from 10.9% to 13.5%, an expansion of 2.6 percentage points compared with the prior-year period. This improvement was primarily attributable to higher average selling prices and the successful ramp-up of the exclusive content partnership, modest improvements in distribution fees, which together strengthened overall profitability.

**Operating Expenses:** Total operating expenses for the six months ended December 31, 2025, increased from $51 million to $57 million (+$6 million, +12%), rising as a percentage of net revenue from 8% to 9% compared with the same period of the prior year. This increase was primarily driven by higher selling, general, and administrative expenses, which rose from $27 million to $32 million (+$5 million, +18%) due to strategic investments in infrastructure, technology, and personnel, including additions to support our new exclusive content partnership. These investments are intended to strengthen operational effectiveness and position the business for sustainable growth. Distribution and fulfillment expenses increased modestly from $21 million to $22 million (+$1 million, +3%), remaining largely consistent as a percentage of net revenue at 3.5% compared with 3.4% in the prior-year period. The Company continues to invest in warehouse automation initiatives to support a more permanent labor structure while maintaining flexibility to manage fluctuations in demand. As a result, fulfillment payroll decreased slightly from $14.5 million to $14.3 million (-$0.2 million, -1.3%) and remained consistent as a percentage of net revenue at 2.3%, despite an approximate 3% increase in average hourly labor costs driven by market conditions. The May 2024 consolidation of the Shakopee, Minnesota warehouse continues to generate cost savings and operational efficiencies through centralized operations. We continue to identify and implement business-process improvements to enhance operational efficiency and support long-term scalability. Depreciation and amortization remained consistent at $3 million for the six months ended December 31, 2025, compared with the prior-year period.

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**Interest Expense:** For the six months ended December 31, 2025, total interest expense increased slightly from $5.7 million to $5.8 million (+$0.1 million, +2.4%) compared with the prior-year period, primarily due to the full expensing of remaining deferred financing costs from the Company's former White Oak credit facility, including $1.8 million in advisory fees previously paid to B&D Capital Partners, LLC, a firm partially owned by board member W. Tom Donaldson III. This non-recurring amortization totaled $1.6 million. Excluding this item, interest expense for the six months ended December 31, 2025, declined compared with the prior-year period, primarily due to a lower effective interest rate from Bank of America , which decreased from 9.6% to 8.0%, a decline of 1.6 percentage points, or 16.9% year over year. This reduction, combined with a modest decline in the average revolver balance to $81 million from $83 million, contributed to the overall decrease in interest expense excluding the non-recurring amortization.

**Income Tax:** For the six months ended December 31, 2025, an income tax expense of $5.4 million was recorded compared to $1.2 million for the prior year period. Alliance reported a pretax income of $19.7 million for the six months ended December 31, 2025, versus $8.7 million for the six months ended December 31, 2024. The effective tax rate was approximately 28% and 14.0% for the six months ended December 31, 2025, and 2024, respectively. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the six months ended December 31, 2025, primarily resulted from state income taxes, FDII, fair value adjustments related to the Company's warrant liability, and tax items attributable to periods prior to the Company's acquisition by its parent. The difference between the Company's effective tax rate and the U.S. federal statutory rate for the six months ended December 31, 2024 primarily resulted from state income taxes, FDII, and a discrete item related to an out-of-measurement period adjustment to the deferred tax liability related to software costs.

**Non-GAAP Financial Measures:** For the six months ended December 31, 2025, we had non-GAAP Adjusted EBITDA of approximately $30.7 million compared with Adjusted EBITDA of approximately $19.5 million in the prior year period, or a year-over-year improvement of $11.2 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.

---

| | | |
|:---|:---|:---|
| <br>**($ in thousands)** | **Six Months <br> Ended**<br>**December 31, 2025** | **Six Months <br> Ended**<br>**December 31, 2024** |
| **Net Income** | $**14268** | $**7468** |
| *Add back:* |  |  |
| Interest Expense | 5801 | 5666 |
| Income Tax Expense | 5446 | 1197 |
| Depreciation and Amortization Expense | 2574 | 2512 |
| **EBITDA** | $**28088** | $**16843** |
| *Adjustments* |  |  |
| Stock-based Compensation Expense | 94 |  |
| Transaction Costs | 596 |  |
| Change In Fair Value of Warrants | 2313 | 2586 |
| Restructuring Cost | 2 | 69 |
| Insurance Claim Recovery | (408) |  |
| Gain on Disposal of Property and Equipment | (24) | (15) |
| **Adjusted EBITDA** | $**30661** | $**19483** |

---

[**Table of Contents**](#toc_001)

**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity:** On October 1, 2025, Alliance Entertainment Holding Corporation entered into a new Loan and Security Agreement providing for a $120 million senior secured revolving credit facility with Bank of America, N.A. (the "Revolving Credit Facility"), which replaced the Company's prior asset-based credit facility with White Oak Commercial Finance, LLC (the "Prior Credit Facility"). The Revolving Credit Facility enhances the Company's liquidity profile and provides increased financial flexibility to support working capital needs and ongoing operations. In addition, the Company continues to implement strategic initiatives focused on cost control and the sale of higher-value products. Based on the availability under the Revolving Credit Facility, cash on hand, cash generated from operations, and working capital, management believes the Company has sufficient liquidity to fund its operations and meet its obligations for at least twelve months from the issuance of these consolidated financial statements.

Our primary sources of liquidity are cash on-hand, cash provided by operating activities, and borrowings under our new credit facility. As of December 31, 2025, in addition to the $1.4 million cash, we carried an $85 million revolver balance on the Revolving Credit Facility. Year over year, working capital levels increased, resulting in higher borrowings under the Company's revolving credit facility. As of December 31, 2025, the Company carried an $85 million revolver balance, compared with a $70 million balance under the prior credit facility as of December 31, 2024, representing an increase of $15 million, or 22%. As a result, our availability under the Prior Credit Facility decreased from $50 million on December 31, 2024, to $35 million on December 31, 2025 ($15 million, 30%).

Under the Revolving Credit Facility, the Company may request the issuance of letters of credit, which reduce availability under the borrowing base and increase outstanding borrowings. As of December 31, 2025, the Company had a $750,000 letter of credit outstanding, which reduced availability under the Revolving Credit Facility and increased borrowings outstanding by a corresponding amount. The letter of credit is collateralized under the terms of the credit agreement and does not represent restricted cash held by the Company.

---

| | | |
|:---|:---|:---|
| **($in millions)** | **December 31, 2025** | **December 31, 2024** |
| Revolver Balance | $85 | $70 |
| Availability | $35 | $50 |

---

As of December 31, 2025, the Company intends to continue relying primarily on its borrowing capacity under the Revolving 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 $7.58 as of January 23, 2026, 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 six months ended December 31, 2025, and 2024.

---

| | | |
|:---|:---|:---|
| | **Six Months Ended** | **Six Months Ended** |
| <br>**($ in thousands)** | **December 31, 2025** | **December 31, 2024** |
| Net Income | $14268 | $7468 |
| Net Cash Provided By (Used In): |  |  |
| Operating Activities | $(13813) | $13618 |
| Investing Activities | $(1796) | $(7546) |
| Financing Activities | $15752 | $(4711) |

---

[**Table of Contents**](#toc_001)

For the six months ended December 31, 2025, on net income of $14.3 million, the Company used $13.8 million of cash from operating activities, compared to $13.6 million of cash generated in the prior-year period. The year-over-year change was primarily driven by working capital dynamics, including the timing of collections, inventory purchases, and vendor payments. Accounts payable increased by $32.7 million, compared to a $57.1 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 $15.0 million, versus a $1.8 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 $1.8 million for the six months ended December 31, 2025, compared to $7.5 million used during the same period in the prior year. Cash used during the current period primarily reflects capital expenditures related to facility improvements and warehouse automation, partially offset by minor cash inflows from asset disposals, as well as cash paid in connection with the Endstate acquisition completed on December 31, 2025. Cash used in the prior-year period primarily related to the Handmade by Robots acquisition, which contributed to the higher investing cash outflows in that period.

Net cash provided by financing activities was $15.8 million for the six months ended December 31, 2025, compared with net cash used of $4.7 million in the prior-year period. Financing activity during the current period primarily reflected borrowings under the Company's revolving credit facility to support working capital requirements, resulting in net borrowings of approximately $27.9 million, compared with net repayments of $3.3 million in the prior-year period offset by repayment of the $10 million outstanding under loans from Bruce Ogilvie, Executive Chairman of the Board and a principal stockholder of the Company. The increase in net borrowings reflects higher working capital needs during the current period, partially offset by improved liquidity following the Company's transition to its new revolving credit facility with Bank of America.

**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 six months ended December 31, 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 December 31, 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 December 31, 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.

[**Table of Contents**](#toc_001)

**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.

**Video Privacy Protection Act Matters.** Beginning in August 2024, several putative class actions and related proceedings were filed against the Company and its subsidiary, DirectToU, LLC ("DirectToU"), in federal courts and arbitration alleging violations of the Video Privacy Protection Act ("VPPA") and similar state laws. The complaints generally allege that the Company disclosed certain customer information and video viewing or purchasing data to third parties through the use of website tracking technologies.

In June 2025, the parties reached a settlement resolving the VPPA-related claims, subject to court approval. The settlement provides for a cash payment of $1.577 million to the class. The Company expects a portion of the settlement payment to be covered by insurance and, accordingly, recorded an insurance receivable of $1.377 million. The Company recorded a settlement liability of $1.577 million and the related insurance receivable during the three months ended September 30, 2025, and such amounts remained recorded in the Company's condensed consolidated financial statements as of December 31, 2025.

The court granted preliminary approval of the settlement in October 2025. Final approval of the settlement remains pending. The Company believes the recorded accrual is adequate based on currently available information.

**Office Create Litigation.** On June 6, 2024, Office Create Corporation filed a civil action against COKeM International Ltd. ("COKeM") in the United States District Court for the District of Minnesota alleging contributory trademark infringement, false designation of origin, unfair competition, unjust enrichment, and civil conspiracy arising from the alleged distribution of the video game Cooking Mama: Cookstar. Office Create seeks monetary damages, which it asserts exceed $40 million. No damages have been awarded.

COKeM has denied the allegations. COKeM filed a third-party complaint against Planet Entertainment LLC and its principal seeking indemnification and contribution. Default has been entered against those third-party defendants. In January 2026, Office Create dismissed its claims against Plaion, Inc. and Plaion GmbH pursuant to a confidential settlement agreement. The matter remains in discovery, with trial readiness scheduled for October 2026. The Company maintains insurance coverage that may apply to this matter, subject to policy limits and shared coverage provisions. At this time, the Company cannot reasonably estimate the amount or range of any potential loss, if any, associated with this matter, and no accrual has been recorded.

**Sparkle Pop Matter.** On June 9, 2025, Sparkle Pop, LLC filed an adversary proceeding against the Company in the United States Bankruptcy Court for the District of Maryland in the matter *In re Diamond Comic Distributors*, alleging theft of trade secrets and tortious interference with contractual relations. The Company has moved to dismiss the amended complaint, and that motion remains pending. The Company denies the allegations. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.

**TCPA Demand.** In November 2025, the Company received a demand letter asserting potential claims under the federal Telephone Consumer Protection Act against its subsidiary, DirectToU, LLC, relating to alleged marketing text messages. No complaint has been filed, and discussions between the parties are ongoing. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.

**Other Matters**

From time to time, the Company is involved in other legal and regulatory matters arising in the ordinary course of business.

In December 2024, DirectToU, LLC received a third-party tender of defense regarding a notice of alleged noncompliance with California Proposition 65 concerning a product supplied by a vendor and sold by the Company. The Company discontinued the product and tendered defense to the supplier, which has assumed responsibility for responding to the notice. The Company does not believe this matter is material.

In July 2025, the Company received a cease-and-desist letter alleging a breach of a contractual non-solicitation provision. The Company disputes the allegations, has responded to the correspondence, and has not filed any litigation. The Company does not believe this matter is material.

[**Table of Contents**](#toc_001)

**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.

**Risks Related to the Acquisition and Integration of Endstate**

On December 31, 2025, we completed the acquisition of Endstate Authentic LLC ("Endstate"). The acquisition introduces operational, financial, and strategic risks that could adversely affect our business if we are unable to successfully integrate or operate the acquired business. Endstate operates a digital authentication and loyalty-driven consumer brand that differs from our traditional wholesale and distribution operations. Successfully integrating Endstate requires, among other things, aligning technology platforms, operational processes, personnel, and corporate culture. We may experience challenges integrating Endstate's systems and technology, retaining key employees, maintaining relationships with customers and partners, or achieving anticipated growth and synergies. If the integration of Endstate is delayed or unsuccessful, or if Endstate's business does not perform as expected, our results of operations, cash flows, and financial condition could be materially adversely affected.

***The Endstate acquisition includes contingent consideration and other payment obligations that may adversely affect our liquidity and results of operations.***

As part of the Endstate acquisition, we assumed obligations that include contingent consideration arrangements, deferred consideration, and acquired royalty obligations. The contingent consideration is based on Endstate's future financial performance and is subject to remeasurement at fair value each reporting period, with changes recognized in earnings. At December 31, 2025, we accrued $5,500,000 under earnout. Actual amounts payable under these arrangements could exceed the currently estimated amounts and may require significant cash resources. In addition, changes in the estimated fair value of contingent consideration could negatively impact earnings and result in earnings volatility in future periods. These obligations could adversely affect our liquidity, financial flexibility, and results of operations.

***Our goodwill and intangible assets recorded in connection with the Endstate acquisition may become impaired.***

In connection with the Endstate acquisition, we recorded additional goodwill and finite-lived intangible assets, including technology, trademarks, and customer relationships. The purchase price allocation for the acquisition is preliminary and subject to adjustment as valuation analyses are finalized. Goodwill and intangible assets are subject to impairment testing, which requires significant judgment and estimates regarding future cash flows, growth rates, and market conditions. If Endstate's operating performance, consumer adoption, or market conditions do not meet our expectations, we may be required to record impairment charges in future periods. Any such impairment could be material and would adversely affect our results of operations and financial condition.

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

None.

**Item 3. Defaults Upon Senior Securities**

None.

**Item 4. Mine Safety Disclosures**

Not applicable.

**Item 5. Other Information**

None.

[**Table of Contents**](#toc_001)

**Item 6. Exhibits**

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

---

| | |
|:---|:---|
| **No.** | **Description of Exhibit** |
| 31.1\* | [Certification of Chief Executive Officer and Principal Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002](ex31-1.htm) |
| 31.2\*\* | [Certification of Chief Financial Officer and Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002](ex31-2.htm) |
| 32.1\*\* | [Certification of Principal Executive Officer and Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002](ex32-1.htm) |
| 32.2\*\* | [Certification of Chief Financial Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002](ex32-2.htm) |
| 101.INS\* | Inline XBRL Instance Document |
| 101.SCH\* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL\* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF\* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB\* | Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE\* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104\* | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |

---

\* Filed herewith. <br>\*\* Furnished herewith.

[**Table of Contents**](#toc_001)

**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** | **ALLIANCE ENTERTAINMENT HOLDING CORPORATION** |
| Date: February 12, 2026 | By: | */s/ Jeffrey Walker* |
|  | Name: | Jeffrey Walker |
|  | Title: | Chief Executive Officer |
|  |  | (Principal Executive Officer) |

---

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER**

**PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Jeffrey Walker, certify that:

1. I
 have reviewed this quarterly report on Form 10-Q of Alliance Entertainment Holding Corporation;

2. Based
 on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
 to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
 the periods covered by this report;

3. Based
 on my knowledge, the unaudited condensed financial statements, and other financial information included in this report, fairly present
 in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
 presented in this report;

4. I,
 as the registrant's Chief Executive Officer, am responsible for establishing and maintaining disclosure controls and procedures
 (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined
 in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a) Designed
 such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to
 ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during
 the periods in which this report is being prepared; and

b) (Paragraph
 omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a));

c) Evaluated
 the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about
 the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation;
 and

d) Disclosed
 in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
 most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
 or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I,
 as the registrant's Chief Executive Officer, have disclosed, based on my most recent evaluation of internal control over financial
 reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
 the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a) All
 significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
 reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
 and

b) Any
 fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
 internal control over financial reporting.

---

| | |
|:---|:---|
| Date: February 12, 2026 | */s/ Jeffrey Walker* |
|  | Jeffrey Walker |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER**

**PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Amanda Gnecco, certify that:

1. I
 have reviewed this quarterly report on Form 10-Q of Alliance Entertainment Holding Corporation;

2. Based
 on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
 to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
 the periods covered by this report;

3. Based
 on my knowledge, the unaudited condensed financial statements, and other financial information included in this report, fairly present
 in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
 presented in this report;

4. I,
 as the registrant's Chief Financial Officer, am responsible for establishing and maintaining disclosure controls and procedures
 (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined
 in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a) Designed
 such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to
 ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during
 the periods in which this report is being prepared; and

b) (Paragraph
 omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a));

c) Evaluated
 the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about
 the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation;
 and

d) Disclosed
 in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
 most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
 or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I,
 as the registrant's Chief Financial Officer, have disclosed, based on my most recent evaluation of internal control over financial
 reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
 the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a) All
 significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
 reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
 and

b) Any
 fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
 internal control over financial reporting.

---

| | |
|:---|:---|
| Date: February 12, 2026 | */s/ Amanda Gnecco* |
|  | Amanda Gnecco |
|  | Chief Financial Officer |

---

## Exhibit 32.1

**EXHIBIT 32.1**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Alliance Entertainment Holding Corporation (the "Company") on Form 10-Q for the quarterly period ended December 31, 2025, as filed with the Securities and Exchange Commission (the "Report"), I, Jeffrey Walker, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;1. The
 Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The
 information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
 of the Company.

---

| | |
|:---|:---|
| Dated: February 12, 2026 | */s/ Jeffrey Walker* |
|  | Jeffrey Walker |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

## Exhibit 32.2

**EXHIBIT 32.2**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350**

**AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Alliance Entertainment Holding Corporation (the "Company") on Form 10-Q for the quarterly period ended December 31, 2025, as filed with the Securities and Exchange Commission (the "Report"), I, Amanda Gnecco, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;1. The
 Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The
 information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
 of the Company.

---

| | |
|:---|:---|
| Dated: February 12, 2026 | */s/ Amanda Gnecco* |
|  | Amanda Gnecco |
|  | Chief Financial Officer |

---