ALLIANCE ENTERTAINMENT HOLDING CORP

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 matterIn 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.