ALLIANCE ENTERTAINMENT HOLDING CORP

Previous wording

Net Revenue: Year-over-year, total net revenues decreased from $445 million to $426 million (-$19 million, -4.3%) for the three months ended December 31, 2023. Along with other retailers and distributors in the United States, we are not immune to the macroeconomic headwinds caused by high interest rates and consumer discretion prompted by reduced buying power. Our business to business (“B2B”) customer base, which are primarily retailers, benefited from a long holiday season, with 32 days between Thanksgiving and Christmas, but were challenged by earlier than usual promotional cycles and labor constraints. Alliance Entertainment stands out as a value-added retail distributor thanks to our exclusive distribution rights for approximately 160 studios and labels in the film and music industry. This extensive portfolio of unique content enables us to cater to bulk B2B and direct-to-consumer (DTC) businesses with a vast selection of products unavailable through other distributors. Our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled approximately 45% of our gross sales revenue for the three months ended December 31, 2023 versus 37% for the same period prior year.

Current wording

Net Revenue: Year-over-year, net revenue decreased from $228 million to $211 million (-$17 million, -7%) for the three months ended March 31, 2024. Along with other retailers and distributors in the United States, we are not immune to the macroeconomic headwinds caused by high interest rates and consumer discretion prompted by reduced buying power. Alliance Entertainment stands out as a value-added retail distributor with our exclusive distribution rights for approximately 160 studios and labels in the film and music industry. This extensive portfolio of unique content enables us to cater to bulk B2B and direct-to-consumer (DTC) businesses with a vast selection of products unavailable through other distributors. Our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled over 33% of our gross sales revenue for the three months ended March 31, 2024, versus approximately 33% for the same period prior year.

Previous wording

Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $637 million to $578 million (-$59 million or -9%) year over year primarily due to the direct relation of product costs to sales volume. However, gross margin dollars increased significantly year over year as product margins improved from 6.8% to 11.3%. The gross margin increase for the six months ended December 31, 2023, over the same period prior year, was primarily due to less overstock inventory resulting in less consumer incentives to drive sales.

Current wording

Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $200 million to $183 million (-$17 million or -9%) the prior year period primarily due to the direct relation of product costs to sales volume. However, gross margin dollars increased the prior year period as product margins improved from 12.0% to 13.3% primarily due to less overstock inventory resulting in significantly less consumer incentives to stimulate demand.

Previous wording

Operating Expenses: Total operating expenses decreased from $38.7 million to $31.7 million and decreased as a percentage of net revenue over the same period of the year from 8.7% to 7.5% (1.2% points). Total Distribution and Fulfillment Expense declined 26% and decreased from 4.6% to 3.6% (1.0% points) as a percentage of net revenue for the three months ended December 31, 2023, versus the same period prior year. Fulfillment payroll was $9.4 million for the three months ended December 31, 2023, and $12.6 million (-$3.2 million, -26%) for the same period of the prior year. Low unemployment rates, combined with competition for temporary labor, increased the average cost per labor hour approximately 4% versus the prior year. To address the scarcity of labor resources, we have invested in warehouse automation and will continue to use temporary labor forces to manage changes in demand. Since we believe that for the foreseeable future, there will be upward pressure on labor availability and costs, we continue to innovate our warehouse processes to reduce fulfilment costs. Total selling, administrative, and general costs decreased by $0.4 million or 2.7% compared to the same period last year due primarily due to the reduction in workforce last Spring to right size the back-office support for the business. IC DISC Commissions were $0 for the three months ended December 31, 2023, versus $1.4 million for the same period of the prior year. The IC DISC has been discontinued as of December 31, 2022, and no additional expenses will be incurred.

Current wording

Operating Expenses: Total operating expenses decreased from $34.7 million to $28.8 million (-5.9 million, -17%) and decreased as a percentage of net revenue over the same period prior year from 15.3% to 13.6% (-1.7% points). Total Distribution and Fulfillment Expense declined 25% and decreased from 6.6% to 5.3% (-1.3% points) as a percentage of net revenue for the three months ended March 31, 2024, versus the same period prior year. Fulfillment payroll was $7.4 million for the three months ended March 31, 2024, and $9.5 million (-$2.1 million, -22%) for the same period of the prior year. Low unemployment rates, combined with competition for temporary labor, increased the average cost per labor hour approximately 4% versus the prior year. To address the scarcity of labor resources, we have invested in warehouse automation and will continue to use temporary labor forces to manage changes in demand. Since we believe that for the foreseeable future, there will be upward pressure on labor availability and costs, we continue to innovate our warehouse processes to reduce fulfilment costs. Total selling, administrative, and general costs decreased by $0.8 million or 6% compared to the same period last year due primarily due to the reduction in workforce last Spring to right size the back-office support for the business.

Previous wording

Interest Expense: For the three months ended December 31, 2023, interest expense decreased from $3.5 million to $3.3 million (-$0.2 million) versus the same period of the prior year. While our effective interest rate increased from 6.1% to 8.9%, the impact was tempered by a significant decline of the average revolver balance from $184 million to $122 million (-$62 million, -34%) year over year.

Current wording

Interest Expense: For the three months ended March 31, 2024, interest expense decreased from $3.2 million to $3.1 million (-$0.1 million, -3%) versus the same period of the prior year. While our effective interest rate increased from 6.9% to 10.0% (3.1 points), the financial impact was tempered by a significant decline of the average revolver balance from $150 million to $94 million (-$56 million, -37%) year over year.

Previous wording

Income Tax: For the three months ended December 31, 2023, an income tax expense of $3.8 million was recorded compared to a benefit of $5.9 million for the same period in the prior year. Alliance reported a pretax gain of $12.7 million and pretax loss of $21.4 million for the three-months ended December 31, 2023, and 2022, respectively. The annual effective tax rate (“ETR”) for the three months ended December 31, 2023, was 30% which includes a one-time tax implication for the distribution of Restricted Stock Units.

Current wording

Income Tax: For the three months ended March 31, 2024, an income tax benefit of $0.5 million was recorded compared to a $2.9 million benefit for the same period in the prior year. Alliance reported a pretax loss of $3.9 million and pretax loss of $10.6 million for the three-months ended March 31, 2024, and 2023, respectively. The expected annual effective tax rate (“ETR”) for twelve months ended June 30, 2024, is 50%, including two discrete one-time tax adjustments for out of period Goodwill adjustment and the distribution of Restricted Stock Units.

Previous wording

Non-GAAP Financial Measures: For the three months ended December 31, 2023, we had non-GAAP Adjusted EBITDA of approximately $17.9 million compared to Adjusted EBITDA of approximately -$14.5 million prior year or a year-over-year improvement of $32.4 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) fair value of Warrants and other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. 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.

Current wording

Non-GAAP Financial Measures: For the three months ended March 31, 2024, we had non-GAAP Adjusted EBITDA of approximately $2.9 million compared to Adjusted EBITDA of approximately -$2.4 million prior year or a year-over-year improvement of $5.3 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) fair value of Warrants and other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. 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.

Previous wording

Net Revenue: Year-over-year, total net revenues decreased from $684 million to $652 million (-$32 million, -4.7%) for the six months ended December 31, 2023. Along with other retailers and distributors in the United States, we are not immune to the macroeconomic headwinds caused by high interest rates and consumer discretion prompted by reduced buying power. Our B2B customer base, which are primarily retailers, benefited from a long holiday season, with 32 days between Thanksgiving and Christmas, but were challenged by earlier than usual promotional cycles and labor constraints. Alliance Entertainment stands out as a value-added retail distributor thanks to our exclusive distribution rights for approximately 160 studios and labels in the film and music industry. This extensive portfolio of unique content enables us to cater to bulk B2B and DTC businesses with a vast selection of products unavailable through other distributors. Our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled approximately 40% of our gross sales revenue for the six months ended December 31, 2023, versus 34% for the same period prior year.

Current wording

Net Revenue: Net revenue decreased from $912 million to $864 million (-$47 million, -5%) for the nine months ended March 31, 2024 over the prior year period. Along with other retailers and distributors in the United States, we are not immune to the macroeconomic headwinds caused by high interest rates and consumer discretion prompted by reduced buying power. Alliance Entertainment stands out as a value-added retail distributor thanks to our exclusive distribution rights for approximately 160 studios and labels in the film and music industry. This extensive portfolio of unique content enables us to cater to bulk B2B and DTC businesses with a vast selection of products unavailable through other distributors. Our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, enabled approximately 40% of our gross sales revenue for the nine months ended March 31, 2024, versus 34% for the same period prior year.

Previous wording

Year-over-year, gaming sales decreased from $207 million to $192 million (-$15 million, -7%) for the three months ended December 31, 2023. The average selling price of gaming products increased 110% and offset by a decrease in volume as we transitioned our strategy for the holiday season to higher dollar margin products. This revenue mix shift of price and volume was twofold: First, arcade sales were down approximately 30% year over year as we reduced our inventory footprint and focused on profitable sales; and second, we mixed out of lower priced value games that typically drive volume albeit with less margin. vinyl record sales decreased from $101 million to $97 million (-$4 million, 4%) for the three months ended December 31, 2023. The average selling price of Vinyl was up 4.4% and offset by decreased volume resulting in the revenue decline versus the prior year. Potential expansion of K-Pop to the vinyl format this year may improve results going forward. Music Compact Discs (CDs) increased from $34 million to $38 million ($4 million, 12%). The popularity of K-Pop helped us realize a 19% increase in the average selling price of CDs, however, the decline in volume offset some of the gains but resulted in a year-over-year revenue improvement. Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, decreased slightly from $71 million to $70 million (-$1 million, -1%) versus the same period last year. The average selling price of physical film products increased significantly year over year but was offset by the decline in volume. The consistent flow of new theatrical releases continues to drive home video sales, and when combined with the release of 4K content, drove the average selling price higher. Consumer products revenue decreased from $28 million to $16 million (-$12 million, or -43%) versus the prior year as the toys & collectibles industry grapples with normalizing sales volume in the post-pandemic era.

Current wording

Vinyl record sales remained consistent at $242 million for the nine months ended March 31, 2024, compared to the prior year period. The average selling price of vinyl was up 6% and partially offset by volume versus the prior year period. Music compact discs (CDs) increased from $91 million to $97 million ($6 million, 7%). The continued popularity of K-Pop helped us realize a 12% increase in the average selling price of CDs, however, the decline in volume offset some of the gains but resulted in a year-over-year revenue improvement. Physical movie sales, which include DVDs, Blu-Ray, and Ultra HD, increased from $147 million to $159 million ($12 million, 8%) versus the same period last year. The average selling price of physical film products increased 18% year-over-year and partially offset by the decline in volume. Digital sales of our exclusive content more than doubled compared to the same period last year. The consistent flow of new theatrical releases continues to drive home video sales, combined with 4K and more recently SteelBook collectables, drove the average selling price higher. We expect the trend of higher price points to continue as brick & mortar retailers cater to the consumer preference for omnichannel shopping experiences and curated content versus inexpensive, mass market product offerings. Alliance Entertainment’s ability to offer retailers in-store and on-line channels a deep, extensive library of both music and movies helps provide them the products for a cohesive shopping experience based on personal preference and engagement with their respective brands.

Previous wording

Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, decreased from $424 million to $378 million (-$46 million or -11%) year over year primarily due to the direct relation of product costs to sales volume. However, gross margin dollars increased year over year as product margins improved from 4.7% to 11.2%. The gross margin increase for the three months ended December 31, 2023, over the same period prior year, was primarily due to less overstock inventory resulting in significantly less consumer incentives to stimulate demand.

Current wording

**Cost of Revenues:**Total cost of revenues, excluding depreciation and amortization, decreased from $838 million to $762 million (-$76 million or -9%) compared to the prior year period primarily due to the direct relation of product costs to sales volume. However, gross margin dollars increased year over year as product margins improved from 8.1% to 11.8% primarily due to less overstock inventory resulting in significantly less consumer incentives to stimulate demand.

Previous wording

Operating Expenses: Total operating expenses decreased from $72.0 million to $59.5 million and decreased as a percentage of net revenue over the same period of the year from 10.5% to 9.1%. Total distribution and fulfillment expense declined 24% and decreased from 5.2% to 4.1% as a percentage of net revenue for the six months ended December 31, 2023, versus the same period prior year. Fulfillment payroll was $16.9 million for the six months ended December 31, 2023, and $22.4 million (-$5.7 million, 25%) for the same period of the prior year. Low unemployment rates, combined with competition for temporary labor, increased the average cost per labor hour by approximately 3% versus the same period prior year. To address the scarcity of labor resources, we have invested in warehouse automation and will continue to use temporary labor forces to manage changes in demand. Since we believe that for the foreseeable future, there will be upward pressure on labor availability and costs, we continue to innovate our warehouse processes to reduce fulfilment costs. Total selling, administrative, and general costs decreased by $2 million compared to the same period last year due primarily due to the reduction in the workforce last spring to right size the back-office support for the business. IC DISC Commissions were $0 for the six months ended December 31, 2023, versus $2.8 million for the same period of the prior year. The IC DISC was discontinued as of December 31, 2022, and no additional expenses were incurred.

Current wording

Operating Expenses: Total operating expenses decreased from $107 million to $88 million (-$19 million, 18%) and decreased as a percentage of net revenue over the same period prior year from 11.7% to 10.2%. There was a $2.1 million transaction expense for a non-cash out of period transaction, without which total operating costs as a percentage of net revenue would have decreased to 10.0%. This adjustment is directly related to the purchase accounting of a recent acquisition by the company. Had this adjustment been recognized within the designated measurement period, it would have led to an increase in the Goodwill of the Company. Total distribution and fulfillment expense declined 24% and decreased from 5.5% to 4.4% as a percentage of net revenue for the nine months ended March 31, 2024, versus the same period prior year. Fulfillment payroll was $24 million for the nine months ended March 31, 2024, and $32 million (-$8 million, 25%) for the same period of the prior year. Low unemployment rates and competition for temporary labor increased the average cost per labor hour by approximately 3% versus the same period prior year. To address the scarcity of labor resources, we have invested in warehouse automation and will continue to use temporary labor forces to manage changes in demand. Since we believe that there will be upward pressure on labor availability and costs for the foreseeable future, we will continue to innovate our warehouse processes to reduce fulfillment costs. Total selling, administrative, and general costs decreased by $1.0 million or 2% compared to the same period last year primarily due to the reduction in the workforce. Selling, administrative, and general costs also include a one-time expense of $1.4 million for restricted stock awards. IC DISC Commissions were $0 for the nine months ended March 31, 2024, versus $2.8 million for the same period of the prior year. The IC DISC was discontinued as of December 31, 2022, and no additional expenses were incurred.

Previous wording

Interest Expense: For the six months ended December 31, 2023, interest expense increased from $5.9 million to $6.5 million ($0.6 million) versus the same period of the prior year. The primary driver was an increase of our effective interest rate from 5.4% to 8.7% and offset by a reduction of the average revolver balance from $176 million to $123 million (-$53 million, -30%) for the six months ended December 31, 2023 versus the six months ended December 31, 2022.

Current wording

Interest Expense: For the nine months ended March 31, 2024, interest expense increased from $9.1 million to $9.5 million ($0.4 million, 4%) versus the same period of the prior year. The primary driver was an increase of our effective interest rate from 5.5% to 8.8% and offset by a reduction of the average revolver balance from $167 million to $114 million (-$53 million, -32%) for the nine months ended March 31, 2024 versus the nine months ended March 31, 2023.

Previous wording

Income Tax: For the six months ended December 31, 2023, an income tax expense of $2.5 million was recorded compared to a benefit of $8.5 million for the same period in the prior year. Alliance reported a pretax gain of $8.0 million and pretax loss of $31.5 million for the six-months ended December 31, 2023, and 2022, respectively. The annual effective tax rate (“ETR”) for the six months ended December 31, 2023, was 32% which includes a one-time tax implication for the distribution of Restricted Stock Units.

Current wording

**Income Tax:**For the nine months ended March 31, 2024, an income tax expense of $2.0 million was recorded compared to a benefit of $11.4 million for the same period in the prior year. Alliance reported a pretax income of $4.1 million and a pretax loss of $42.2 million for the nine months ended March 31, 2024, and 2023, respectively. The expected annual effective tax rate (“ETR”) for twelve months ending June 30, 2024, is 50%, including two discrete one-time tax adjustments for out of period Goodwill adjustment and the distribution of Restricted Stock Units.

Previous wording

Non-GAAP Financial Measures: For the six months ended December 31, 2023, we had non-GAAP Adjusted EBITDA of approximately $19.2 million compared to Adjusted EBITDA of approximately -$18.6 million for the prior year or a year-over-year improvement of $37.8 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) fair value of Warrants and other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. 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.

Current wording

Non-GAAP Financial Measures: For the nine months ended March 31, 2024, we had non-GAAP Adjusted EBITDA of approximately $22.2 million compared to Adjusted EBITDA of approximately -$21.0 million for the prior year or a year-over-year improvement of $43.2 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; and (iv) depreciation and amortization expense and (v) fair value of Warrants and other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. 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.

Previous wording

The Company has implemented certain strategic initiatives to reduce expenses and focus on the sale of higher margin products. As a result of the new credit facility, combined with these initiatives and the Company’s financial performance for the three and six months ended December 31, 2023, the Company has concluded that it has sufficient cash to fund its operations and obligations (from its cash on hand, operations, working capital and availability on the credit facility) for at least twelve months from the issuance of these consolidated financial statements.

Current wording

The Company has implemented certain strategic initiatives to reduce expenses and focus on the sale of higher margin products. As a result of the new credit facility, combined with these initiatives and the Company’s financial performance for the three and nine months ended March 31, 2024, the Company has concluded that it has sufficient cash to fund its operations and obligations (from its cash on hand, operations, working capital and availability on the credit facility) for at least twelve months from the issuance of these consolidated financial statements.

Previous wording

Our primary sources of liquidity are cash and cash equivalents, cash provided by operating activities, and borrowings under our credit facility. As of December 31, 2023, in addition to the $1.8 million of cash, we carried a $101 million revolver balance on our $120 million credit facility under the Loan and Security Agreement with White Oak Commercial Finance, LLC. Since June 30, 2023, our available collateral increased from $135 million to $194 million ($59 million, 44%) due to seasonally higher sales revenue and the subsequent increase in the accounts receivable balance. The revolver balance decreased from $133 million to $101million (-$32 million, -24%) and our debt service expense exposure is significantly reduced. In addition, with a loan ceiling of $120 million versus $175 million we minimize financing fees. As of December 31, 2023 our availability was $19 million with an additional $74 million of suppressed availability, which is the excess of the available collateral amount over our $120 million facility ceiling.

Current wording

Our primary sources of liquidity are cash and cash equivalents, cash provided by operating activities, and borrowings under our credit facility. As of March 31, 2024, in addition to the $1.6 million of cash, we carried a $81 million revolver balance on our $120 million credit facility under the Loan and Security Agreement with White Oak Commercial Finance, LLC. Since June 30, 2023, our available collateral decreased from $135 million to $115 million ($20 million, 15%); however, our availability increased from $2 million to $34 million, an increase of $32 million, as we converted accounts receivable and inventory to cash which was used to reduce debt. Combined with a lower loan ceiling of $120 million versus $175 million, we have reduced debt service costs.

Previous wording

Our liquidity position has not changed significantly since the Merger, and we intend to principally rely on our borrowing capacity under the Revolving Credit Facility as well as any renewal of such facility. Since the exercise price of the Warrants of $11.50 per share is significantly greater than the current market price of the Class A common stock, we do not expect the Warrants to be exercised until such time, if ever, that the market price of the Class A common stock exceeds the exercise price of the Warrants. Although the Company does not currently intend to do so, the Company may seek to raise additional capital through the sale of equity securities.

Current wording

Our liquidity position has not changed significantly since the Merger, and we intend to principally rely on our borrowing capacity under the Revolving Credit Facility as well as any renewal of such facility. Although the Company does not currently intend to do so, the Company may seek to raise additional capital through the sale of equity securities.

Previous wording

The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash. The $11.50 exercise price per share of the Warrants is considerably higher than the $1.35 closing sale price of the Class A common stock on February 5, 2023. If the price of our Class A common stock remains below the respective Warrant exercise prices per share, we believe warrant holders will be unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us.

Current wording

The receipt of cash proceeds from the exercise of our Warrants is dependent upon the market price exceeding the $11.50 exercise price and the Warrants being exercised for cash. Since the exercise price of the Warrants of $11.50 per share is significantly greater than the current market price of the Class A common stock, we do not expect the Warrants to be exercised until such time, if ever, that the market price of the Class A common stock exceeds the exercise price of the Warrants. If the price of our Class A common stock remains below the respective Warrant exercise prices per share, we believe warrant holders will be unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us.

Previous wording

**Cash Flow:**The following table summarizes net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the six months ended December 31, 2023 and 2022.

Current wording

**Cash Flow:**The following table summarizes net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements for the nine months ended March 31, 2024 and 2023.

Previous wording

For the six months ended December 31, 2023, on a net income of $5.5 million, the Company’s cash from operating activities was $26.1 million versus ($40.7) million used in operations for the six months ended December 31, 2022. The primary drivers of the $66.4 million improvement, compared to the same six-month period in 2022, was a $28.8 million improvement in net income combined with a $60.7 million decline in accounts payable versus a $25.7 million of cash from operations compared to the prior year. The relatively large change in payables was directly attributed to an intentional objective to reduce inventory on-hand at December 31, 2022. The change in inventory decreased $32.8 million for the six months ended December 31, 2023, versus a decrease of $68.5 million for same six month period prior year; however, the central element was an ending inventory of $114 million at December 31, 2023 versus $175 million (-$61 million, -35%) in the prior year period.

Current wording

For the nine months ended March 31, 2024, on a net income of $2.0 million, the Company’s cash provided by operating activities was $46.2 million versus $8.3 million for the nine months ended March 31, 2023. The $37.9 million improvement to cash provided by operating activities was driven by several variables. Net income, year over year, improved $32.9 million or from a net loss of ($30.8) million to $2.7 million for the trailing nine months. Accounts payable increased $19.1 million for the trailing nine months versus an increase of $73.3 million to accounts payable for the same period prior year. The relatively large change in payables was directly attributed to the Company’s objective to reduce inventory on-hand. Inventory decreased $38.9 million for the nine months ended March 31, 2024, versus a decrease of $80.8 million for same nine-month period prior year; however, the central element was an ending inventory of $108 million at March 31, 2024 versus $163 million (-$55 million, -34%) at March 31, 2023.

Previous wording

The cashflow from investing activities was $0 for the six months ended December 31, 2023. For the same prior year period, the change was marginal due to the combined net working capital structure of the acquisition transaction attributed to cash paid for business acquisition of Think3Fold that was acquired for no consideration.

Current wording

The cashflow from investing activities was $0.2 million for the nine months ended March 31, 2024. For the same prior year period, the change was marginal due to the combined net working capital structure of the acquisition transaction attributed to cash paid for business acquisition of Think3Fold that was acquired for no consideration.

Previous wording

Net cash used in financing activities was $24.2 million for the six months ended December 31, 2023, versus cash provided of $40.6 million for the same period prior year. The primary reason for the decline was reduced borrowing necessary to maintain desired inventory levels as noted above. In addition, our debt service exposure declined as the revolver balance declined from $177 million on December 31, 2022, to $97 million (-$80 million or -45%) on December 31, 2023.

Current wording

Net cash used in financing activities was $45.2 million for the nine months ended March 31, 2024, versus cash used in financing of $8.8 million for the same period prior year. The primary reason for the favorable change in borrowing was our ability to sell through excess inventory levels. In addition, our debt service exposure declined as the revolver balance declined from $127 million on March 31, 2023, to $81 million (-$46 million or -36%) on March 31, 2024.

Previous wording

Goodwill and Definite-Lived Intangible Assets, Net: The Company tests its goodwill for impairment only upon the occurrence of an event or circumstances that may indicate the fair value of the entity is less than it’s carrying amount. For the six months ended December 31, 2023, and year ended June 30, 2023, the Company tested goodwill for impairment at the entity level, since there is one Reporting Unit. As part of the analysis, we performed a discounted cash flow based on the Company’s three-year projections and determined that the fair value of equity is higher than the carrying value of equity. As such, the Company’s analysis concluded that there was no impairment to goodwill.

Current wording

Goodwill and Definite-Lived Intangible Assets, Net: The Company tests its goodwill for impairment only upon the occurrence of an event or circumstances that may indicate the fair value of the entity is less than it’s carrying amount. For the nine months ended March 31, 2024, and year ended June 30, 2023, the Company tested goodwill for impairment at the entity level, since there is one Reporting Unit. As part of the analysis, we performed a discounted cash flow based on the Company’s three-year projections and determined that the fair value of equity is higher than the carrying value of equity. As such, the Company’s analysis concluded that there was no impairment to goodwill.