ALLIANCE ENTERTAINMENT HOLDING CORP

Note 1: Organization and Summary of Significant Accounting Policies

Alliance Entertainment Holding Corporation (“Alliance”) was formed on August 9, 2010. The Company provides full-service distribution of pre-recorded music, video movies, video games and related accessories, and merchandising to retailers and other independent customers primarily in the United States. It provides product and commerce solutions to “brick-and-mortar”, e-commerce retailers, and consumer direct websites, while maintaining trading relationships with manufacturers of pre-recorded music, video movies, video games and related accessories.

On December 31, 2025, the Company completed the acquisition of Endstate Authentic LLC (“Endstate”), 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 consolidated financial statements beginning on the acquisition date. Additional information related to this acquisition is provided in Note 22 – 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 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 contingent Class E shares and warrant liabilities, as discussed further in Notes 15 and 20.

A summary of the significant accounting policies consistently applied in the preparation of the consolidated financial statements:

Reclassification

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of Alliance Entertainment Holding Corporation and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Liquidity

On 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 consolidated financial statements.

Revenue Recognition

The Company enters into contracts with its customers for the purchase of products in the ordinary course of business. A contract with commercial substance exists once the Company receives and accepts a purchase order under a sales contract. Payment terms on invoiced amounts generally range from 0 to 90 days. Revenue from the sale and distribution of pre-recorded music, video, games, accessories, and other related products are recognized when the performance obligations under the terms of a contract with its customer are satisfied, which occurs with the transfer of control of the product. For the majority of the Company’s products, control is transferred, and revenue is recognized when the product is shipped from the Company’s distribution center to the Company’s customers, which primarily consist of retailers. For most of the Company’s distribution contracts, the Company is considered to be the principal to these transactions, and the revenue is recognized on a gross basis, since the Company is the primary obligor for fulfilling the promise to its customers on these arrangements, has inventory risk, and has latitude in establishing prices. In limited circumstances, the Company has determined that it acts as an agent (ASC 606-10-55-36 through 55-40) because it does not control the specified goods before they are transferred to the customer. For these arrangements, revenue is recognized on a net basis, reflecting only the fee or commission to which the Company is entitled in exchange for arranging the sale.

Additionally, the Company ships some of its products to retailers on a consignment basis. The Company retains ownership of its products stored at these retailers. As the Company’s products are sold by the retailer, ownership is transferred from the Company to the retailer. At that time, the Company invoices the retailer and recognizes revenue for these consignment transactions. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on relative standalone selling price. Shipping and handling activities are treated as a fulfillment activity rather than a promised service, and therefore, are not considered a performance obligation. Sales, use, value-added, and other excise taxes the Company collects concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense when incurred.

The Company applies ASC 606,Revenue from Contracts with Customers, (ASC 606) utilizing the following allowable exemptions or practical expedients:

Revenue is recognized at the transaction price which the Company expects to be entitled to receive. When determining the transaction price, the Company estimates variable consideration by applying the portfolio approach practical expedient under ASC 606. The primary sources of variable consideration for the Company are rebate programs, incentive programs and product returns. The rebate and incentives are recorded as a reduction to revenue at the time of the initial sale or when offered. The Company estimates variable consideration related to products sold under its rebate and incentive programs using the expected value method, which is based on sales terms with customers, historical experience, inventory levels, volume purchases, and known changes in relevant trends in the future. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale.

Substantially all of the Company’s sales are domestic and are made to customers under agreements permitting certain limited rights of return based upon the prior months’ sales and vendor return rights. Except for video games and vinyl sales, which are not returnable, generally it is the Company’s policy not to accept product returns that cannot be returned to the Company’s vendors. Revenue from product sales is recognized net of estimated returns. Sales in the pre-recorded music and video movies industry generally give certain customers the right to return products. In addition, the Company’s suppliers generally permit the Company to return products that are in the supplier’s current product listing, except for video games and vinyl.

Based on historical returns, review of current catalog list and the change of mass merchant’s floor space and store locations carrying the Company’s products, management provides for estimated net returns at the time of sale and other specific reserves when appropriate. This is typically done using a twelve-month average return rate by product.

The Company has determined that the nature, amount, timing, and uncertainty of revenue and cash flows are most significantly affected by the overall economic health of the consumer product industry in the United States.

Cash

Cash includes all investments with original maturities of three months or less when purchased. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Trade Receivables, Net

The Company grants credit to customers on credit terms in the ordinary course of business. Credit is extended based on an evaluation of a customer’s financial condition, and collateral is generally not required. Trade receivables are carried at the original invoice amount less estimates made for allowances for credit losses based on a periodic review of all outstanding amounts. Management measures all expected losses based on a forward-looking expected loss model, which reflects probable losses based on historical experience, current conditions, and reasonable and supportable forecasts. Trade receivables are written off against the allowance when they are deemed uncollectable. Recoveries of trade receivables previously written off are recorded as a credit to the allowance for uncollectable accounts when received.

Escrow Receivable

As of June 30, 2026, the Company had $8.5 million held in escrow related to a terminated acquisition transaction. The Company does not have access to or control over the escrow account, and the acquisition did not proceed. The funds are classified as a receivable within Other Long-Term Assets, and the Company is actively pursuing return of the escrowed funds.

Inventory and Inventory Reserves

Inventory is stated at the lower of cost, using the weighted average cost method, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Excess or obsolete inventory reserves that reduce the cost basis of the assets are established when inventory is estimated to not be sellable or returnable to suppliers based on product demand and product life cycle.

Property and Equipment, Net

Property and equipment are recorded at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the asset’s estimated useful life. Costs of major additions and improvements are capitalized, while repair and maintenance costs are charged to expense as incurred. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is reflected in the consolidated statements of income and comprehensive income.

Depreciation and Amortization

Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over their estimated useful lives using the straight-line method. The estimated useful lives are as follows:

Goodwill and Definite-Lived Intangible Assets, Net

Goodwill is assessed using either a qualitative assessment or quantitative approach to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. The qualitative assessment evaluates factors including macroeconomic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. Otherwise, no further assessment is required. The quantitative approach compares the estimated fair value of the reporting units to it carrying amount, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, and an impairment charge is recognized for the differential.

The Company completes its annual goodwill impairment tests in the fourth quarter, or whenever there are indicators that the fair value of the reporting unit might be less than the carrying amount. For the years ended June 30, 2026, and 2025, the Company did not record any impairment.

Definite-Lived intangible assets are stated at cost, less accumulated amortization. Amortization of customer relationships, Trademarks, technology, and customer lists is recorded using an accelerated method over the useful lives of the related assets, which range from 5 to 15 years. Covenants not to compete and trade names are amortized using the straight-line method over the estimated useful lives of the related assets, which range from 5 to 15 years.

Indefinite-lived intangible assets, such as certain trade names, are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. For the years ended June 30, 2026 and 2025 the company didnot record any impairment.

Impairment of Long-Lived Assets

Recoverability of long-lived assets, including property and equipment and certain identifiable intangible assets are evaluated whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Factors considered important which could trigger an impairment review include but are not limited to significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, significant decrease in the market value of the assets and significant negative industry or economic trends. In the event the carrying amount of the long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual deposition. If the carrying amount of an asset exceeds the sum of the estimated future undiscounted cash flow, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. There wasno impairment during the years ended June 30, 2026, and 2025.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying consolidated financial statements include management’s estimates of allowance for credit losses, sales returns reserve, warrants fair value, customer rebates and discount reserves, goodwill impairment, and inventory valuation. On an ongoing basis, management evaluates its estimates against historical experience and trends, which form the basis for judgments about the carrying value of assets and liabilities.

Fair Value of Financial Instruments

The Company complies with ASC 820,Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles and expands disclosure requirements about fair value measurements. Under ASC 820, there are three categories for the classification and measurement of assets and liabilities carried at fair value:

Level 1: Valuation based on quoted market prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples include publicly traded equity securities and publicly traded mutual funds that are actively traded on a major exchange or over-the-counter market.

Level 2: Valuation based on quoted market prices of investments that are not actively traded or for which certain significant inputs are not observable, either directly or indirectly. Examples include municipal bonds, where fair value is estimated using recently executed transactions, bid asked prices and pricing models that factor in, where applicable, interest rates, bond spreads and volatility.

Level 3: Valuation based on inputs that are unobservable and reflect management’s best estimate of what market participants would use as fair value. Examples include limited partnerships and private equity investments.

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 June 30, 2026, and 2025, based on the short-term nature and maturity of these instruments.

The estimated fair value of 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 June 30, 2026, and 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 estimated fair value of the tangible and intangible assets acquired, and the liabilities assumed in connection with the acquisition of Think3Fold were measured using Level 2 and Level 3 inputs.

The estimated fair value of warrants, and contingent shares is determined based on various valuation methodologies, including the Black-Scholes option pricing model and other appropriate valuation techniques. These methodologies consider factors such as the exercise price, expected volatility, expected term, and risk-free interest rate.

Warrants

Management evaluates all of the Company’s financial instruments, including warrants issued to purchase its Class A Common Stock, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480,Distinguishing Liabilities from Equityand ASC 815-15,Derivatives and Hedging-Embedded Derivatives. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed at issuance of the financial instrument and re-assessed at the end of each reporting period.

As a result of the Merger, the Company initially had 5,750,000 Public Warrants,4,120,000 Private Placement Warrants, and 50,090 Representative Warrants issued that are exercisable to purchase shares of Class A Common Stock. The Public Warrants qualify for the derivative scope exception under ASC 815 and are therefore presented as a component of Stockholders’ Equity on the consolidated balance sheets without subsequent fair value re-measurement.

The Private Placement Warrants and Representative Warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the Private Placement Warrants and Representative Warrants as liabilities at fair value in the consolidated balance sheets with the warrant liabilities subject to re-measurement at each balance sheet date until exercised, and any change in fair value recognized in the consolidated statements of income and comprehensive income.

The Company re-computes 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. Refer to Note 20, Warrants and Note 21, Fair Value for additional details of the Warrants and related valuation.

Earnings per Share

Basic Earnings Per Share 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 loss 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 years ended June 30, 2026, and 2025 respectively:

There are 60,000,000 shares of Class E 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 June 30, 2026. For the year ended June 30, 2026, there are also 9,919,993 warrants outstanding and 87,765 restricted shares that have been excluded from diluted earnings per share because they are anti-dilutive.

Advertising Costs

Advertising costs, which consist primarily of mailers, catalogs, online marketing and other promotions, are expensed in the period in which the advertisement or promotion occurs. Additionally, the Company maintains cooperative advertising agreements with certain vendors to include their logos and product descriptions prominently in the catalogs and calendars. The fee revenues charged to the vendors for the cooperative advertising arrangements are recorded as a reduction of advertising expense and any excess fees are recorded as a reduction of cost of revenues. Advertising costs, which are included as selling, general and administrative expenses, were $7.6 million and $7.7 million for the years ended June 30, 2026, and 2025, respectively.

Deferred Financing Costs

Deferred financing costs relating to the Company’s revolving credit facility are deferred and amortized ratably over the life of the debt using the straight-line method. Deferred financing costs are included as an addition to interest expense on the consolidated statements of income and comprehensive income and are included in Revolving Credit Facility, Net on the consolidated balance sheets.

Shipping and Handling

The Company accounts for shipping and handling activities as fulfillment activities. As such, the Company does not evaluate shipping and handling as promised services to its customers. Shipping and handling costs are included in cost of revenues in the accompanying consolidated statements of income and comprehensive income.

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company’s foreign subsidiary is measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated into United States dollars at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Foreign currency translation (loss) income totaled approximately ($1) thousand and $3 thousand for the years ended June 30, 2026, and 2025, respectively.

The Company does not typically hedge its foreign exchange rate position. Realized gains or losses from foreign currency transactions are included in operations as incurred.

Business Combinations — Valuation of Acquired Assets and Liabilities Assumed

The Company allocates the purchase price for each business combination, or acquired business, based upon (i) the fair value of the consideration paid and (ii) the fair value of net assets acquired, and liabilities assumed. The determination of the fair value of net assets acquired and liabilities assumed requires estimates and judgements of future cash flow expectations for the acquired business and the allocation of those cash flows to identifiable tangible and intangible assets. Fair values are calculated by applying estimates related to Internal Rate of Return (IRR) and Weighted Average Cost of Capital (WACC) assumptions as well as incorporating expected cash flows into industry standard valuation techniques. Goodwill is the amount by which the purchase price consideration exceeds the fair value of tangible and intangible assets acquired, less assumed liabilities.

Intangible assets, such as customer relationships and trade names, when identified, are separately recognized and amortized over their estimated useful lives, if considered definite lived. Acquisition costs are expensed as incurred and are included in the consolidated statements of income and comprehensive income.

Leases

The Company is a lessee in multiple noncancelable operating and financing leases. If the contract provides the Company with the right to substantially all the economic benefits and the right to direct the use of the identified asset, it is generally considered to be or contain a lease. Right-of-Use (ROU) assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the expected lease term. The ROU asset is also adjusted for any lease prepayments made, lease incentives received, and initial direct costs incurred.

The lease liability is initially and subsequently recognized based on the present value of its future lease payments. Variable payments are included in the future lease payments when those variable payments depend on an index or a rate. Increases (decreases) to variable lease payments due to subsequent changes in an index or rate are recorded as variable lease expense (income) in the future period in which they are incurred.

The discount rate used is the implicit rate in the lease contract, if it is readily determinable, or the Company’s incremental borrowing rate. The Company uses the incremental borrowing rate based on the information available at the commencement date for all leases. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment.

The ROU asset for operating leases is subsequently measured throughout the lease term at the amount of the remeasured lease liability (i.e., present value of the remaining lease payments), plus unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received, and any impairment recognized. Operating leases with fluctuating lease payments: For operating leases with lease payments that fluctuate over the lease term, the total lease costs are recognized on a straight-line basis over the lease term. The ROU asset for finance leases is amortized on a straight-line basis over the lease term.

For all underlying classes of assets, the Company has elected the practical expedient to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are generally deemed short-term leases with lease costs included in short- term lease expense. The Company recognizes short-term lease cost on a straight-line basis over the lease term.

Variable Interest Entity

The Company evaluates its ownership, contractual, and other interests in entities to determine if it has any variable interest in a variable interest entity (VIE). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available historical information, among other factors. If the Company determines that an entity in which it holds a contractual, or ownership, interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.

Changes in consolidation status are applied prospectively. The Company evaluated its transactions with a related party included in Note 13 and concluded that the arrangements do not result in variable interests and do not require consolidation of any of the related party entities.

Concentrations

Customers:

Suppliers:

Segments

Operating segments are defined as components of an enterprise where discrete financial information is available and evaluated regularly by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers (CEO and Executive Chairman) manage the business, allocate resources, and assess performance on a consolidated basis. Accordingly, the Company has one operating and reportable segment.

Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

Accounting Standards Update 2023-07, In 2023, Segment Reporting. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU provides guidance intended to improve reportable segment disclosures, principally through enhanced disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, disclosure of an amount for other segment items by reportable segment and a description of its composition, disclosure of the title and position of the chief operating decision maker and an explanation of how the reported measures of segment profit or loss are used in assessing performance and allocating resources, and extension of the annual segment disclosures to interim periods. The ASU also requires that an entity with a single reportable segment provide all of the disclosures required by the amendments and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied retrospectively to all prior periods presented. The Company adopted the annual disclosure requirements of this ASU for the fiscal year ended June 30, 2025 and the interim disclosure requirements during the fiscal year ended June 30, 2026. The adoption of this ASU did not impact the Company’s consolidated financial position, results of operations, or cash flows, and resulted in expanded segment disclosures. See Note 10 — Segment Information.

Accounting Standards Update 2023-09, In 2023, Income Taxes. The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU provides guidance requiring more detailed income tax disclosures, including disaggregated information about the effective tax rate reconciliation, additional information for reconciling items that meet a quantitative threshold, disclosure of income taxes paid net of refunds received disaggregated by federal, state and foreign jurisdictions and by individual jurisdictions meeting a quantitative threshold, and disaggregation of income before income taxes and of income tax expense between domestic and foreign amounts. This ASU is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted, and is required to be applied on a prospective basis, with retrospective application permitted. The Company adopted ASU 2023-09 effective July 1, 2025 for the fiscal year ended June 30, 2026 on a prospective basis. The adoption of this ASU did not impact the Company’s consolidated financial position, results of operations, or cash flows, and resulted in expanded income tax disclosures in the notes to the consolidated financial statements, including a disaggregated effective tax rate reconciliation and disclosure of income taxes paid by jurisdiction. See Note 11 — Income Taxes.

Accounting Standards Update 2024-01, In 2024, Compensation—Stock Compensation. The FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This ASU provides guidance clarifying how an entity determines whether a profits interest or similar award should be accounted for as a share-based payment arrangement under Topic 718 or as a cash bonus or profit-sharing arrangement under other Topics, and adds an illustrative example intended to reduce diversity in practice in applying that scope guidance. This ASU is effective for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2024-01 effective July 1, 2025 for the fiscal year ended June 30, 2026. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or disclosures.

Accounting Standards Update 2024-02, In 2024, Codification Improvements—Amendments to Remove References to the Concepts Statements. The FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. This ASU removes references to various FASB Concepts Statements from the Accounting Standards Codification. In most instances the references were extraneous and not required to understand or apply the guidance, and in other instances the references were used to provide guidance in certain topical areas. This ASU is effective for public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2024-02 effective July 1, 2025 for the fiscal year ended June 30, 2026. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or disclosures.

Recently Issued but Not Yet Adopted Accounting Pronouncements

Accounting Standards Update 2024-04, In 2024, Debt—Debt with Conversion and Other Options. The FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This ASU provides guidance clarifying the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features and convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2026, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements or disclosures.

Accounting Standards Update 2025-05, In 2025, Financial Instruments—Credit Losses. The FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This ASU provides all entities with a practical expedient permitting an entity to assume that current conditions as of the balance sheet date do not change for the remaining life of current accounts receivable and current contract assets arising from transactions accounted for under Topic 606 when estimating expected credit losses. The ASU also provides entities other than public business entities with an accounting policy election to consider collection activity after the balance sheet date; that election is not available to the Company. This ASU is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2026, with early adoption permitted, and is required to be applied prospectively to estimates of expected credit losses performed after the date of adoption. The Company is currently evaluating whether it will elect the practical expedient and the impact of this ASU on its financial statements to determine the potential effect on its financial reporting and disclosures.

Accounting Standards Update 2024-03, In 2024, Income Statement—Reporting Comprehensive Income. The FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU provides guidance on the disaggregation of income statement expenses, aiming to enhance the transparency of financial reporting by requiring more detailed disclosures of expense categories, including purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each relevant expense caption, a qualitative description of the amounts remaining in each relevant expense caption that are not separately disaggregated quantitatively, and disclosure of total selling expenses and, on an annual basis, the Company’s definition of selling expenses. As clarified by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, this ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, which for the Company is the fiscal year beginning July 1, 2027 and interim periods within the fiscal year beginning July 1, 2028, with early adoption permitted. The amendments are required to be applied prospectively, with retrospective application to any or all prior periods presented permitted. The Company is currently evaluating the impact of this ASU on its financial statements to determine the potential effect on its financial reporting and disclosures.

Accounting Standards Update 2025-03, In 2025, Business Combinations and Consolidation. 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. This ASU provides guidance on determining the accounting acquirer in a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business, requiring an entity to consider the same factors that are currently required for determining the accounting acquirer in other acquisition transactions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2027, with early adoption permitted, and is required to be applied prospectively to business combinations with an acquisition date on or after the date of initial application. The Company is currently evaluating the impact of this ASU on its financial statements to determine the potential effect on its financial reporting and disclosures.

Accounting Standards Update 2025-06, In 2025, Intangibles—Goodwill and Other—Internal-Use Software. 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. This ASU removes all references to software development project stages so that the guidance is neutral to the software development method used, and instead requires an entity to capitalize software costs when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. In evaluating that threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2028, with early adoption permitted as of the beginning of an annual reporting period, and may be applied prospectively, using a modified transition approach, or retrospectively. The Company is currently evaluating the impact of this ASU on its financial statements to determine the potential effect on its financial reporting and disclosures.

Note 2: Trade Receivables, Net

Trade Receivables, Net consists of the following at:

The following table provides a roll forward of the allowance for credit losses accounts for the fiscal years ended June 30, 2026, and 2025:

Note 3: Inventory, Net

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

There wereno inventory write-downs recorded for the fiscal years ended June 30, 2026, and 2025.

Note 4: Other Current and Long-Term Assets

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

Note 5: Property and Equipment, Net

Property and Equipment, Net consists of the following at:

Depreciation Expense for the years ended June 30, 2026, and 2025 was $1.8 million in both years.

Note 6: Goodwill and Intangibles, Net

Goodwill reported is the result of multiple acquisitions made by Alliance Entertainment Holding Corporation over the years. The $4.97 million increase in goodwill during the fiscal year ended June 30, 2026 relates to the Endstate business combination discussed in Note 22, Business Combination (Endstate). For the fiscal year ended June 30, 2026 and June 30, 2025, goodwill activity consisted of the following:

Intangibles, Net consists of the following at:

During the years ended June 30, 2026, and 2025, the Company recorded amortization expense of $3.6 million and $3.5 million, respectively.

Expected amortization over the next five years and thereafter, as of June 30, 2026, is as follows:

Note 7: Accrued Expenses

Accrued Expenses consists of the following at:

Note 8: Revolving Credit Facility

New Credit Facility

On October 1, 2025, the Company entered into an asset-based revolving credit facility (the “New 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 June 30, 2026 was 3.61%. The Company also pays a commitment fee of 0.15% per annum on unused availability. Commitment fees incurred during the year ended June 30, 2026 and 2025 were $0.12 million and $0.22 million, respectively. Included in interest expense for the year ended June 30, 2026, 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 June 30, 2026, availability was approximately $45.7 million, with outstanding borrowings of approximately $74.3 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 June 30, 2026.

Letters of Credit

The Revolving Credit Facility permits the issuance of letters of credit, which reduces availability under the borrowing base. As of June 30, 2026, 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 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%.

The Prior Revolving Credit Facility was terminated and fully repaid on October 1, 2025; therefore, as of June 30, 2026, no amounts were outstanding and an effective interest rate was not applicable.

During the years ended June 30, 2026, and 2025, the Company had interest expenses of $4.9 million and $7.2 million, respectively, and amortization of deferred finance costs of $2.1 million and $1.4 million, respectively.

Recurring amortization of deferred financing costs was approximately $0.6 million and $1.4 million for the years ended June 30, 2026, and 2025, respectively. In addition, interest expense for the year ended June 30, 2026, included 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.

Note 9: 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 June 30, 2026, 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. For the fiscal year ending June 30, 2026, and 2025 the company’s matching expense was approximately $0.8 million and $0.6 million respectively. The Company conducts a retirement plan review on an annual basis.

Note 10: Segment Information

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about a public entity’s reportable segments, including significant segment expense categories and expanded interim reporting requirements. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 for the fiscal year ended June 30, 2025.

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 asingle 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 balance sheet.

Significant expense categories regularly reviewed by the CODM include:

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:

The following table presents segment revenue, net income, and the significant segment expenses for the Company’s single reportable segment for the fiscal years ended June 30, 2026, and 2025 (in thousands):

Reconciliation to Consolidated Net Income:

Note 11: Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to reverse.

Effective July 1, 2025, the Company adopted Accounting Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures. This standard requires enhanced disaggregation of the statutory rate reconciliation and cash income taxes paid. The Company has adopted this standard on a prospective basis. Accordingly, the enhanced disclosures required by ASU 2023-09 are presented for fiscal year 2026 only, and prior-period disclosures have not been revised.

Income Before Income Taxes

The components of income before income taxes from continuing operations were as follows (in thousands):

Provision for Income Taxes

The provision for income taxes consisted of the following (in thousands):

Effective Tax Rate Reconciliation

The following table reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate for fiscal 2026. The fiscal 2026 reconciliation reflects the disclosure requirements of ASU 2023-09.

Fiscal 2026 Effective Tax Rate Reconciliation

Nontaxable or nondeductible items were primarily attributable to tax effects associated with acquisition-related items from the Adara merger and other permanent differences.

The effect of cross-border tax laws primarily relates to the Company’s deduction for foreign-derived intangible income ( “FDII”), which reduced the Company’s effective tax rate for fiscal 2026.

For the fiscal year ended June 30, 2026, California, Pennsylvania, and Kentucky represented a majority of the Company’s state and local income tax effect included in the effective tax rate reconciliation.

Fiscal 2025 Effective Tax Rate Reconciliation

Deferred Taxes

The net deferred tax asset primarily relates to interest expense carryforwards under Section 163(j), operating lease liabilities, inventory-related temporary differences, and state net operating loss carryforwards, partially offset by deferred tax liabilities associated with goodwill and intangible assets, operating lease assets, property and equipment, and prepaid expenses.

The significant components of the Company’s deferred tax liabilities (assets) at June 30, 2026 are as follows:

Valuation Allowance

The Company evaluates deferred tax assets for recoverability each reporting period. Based upon the weight of available positive and negative evidence, management concluded that it is more likely than not that the Company’s deferred tax assets will be realized. Accordingly, no valuation allowance was recorded as of June 30, 2026 or 2025.

Uncertain Tax Positions

As of June 30, 2026, 2025 and 2024, the Company had no unrecognized tax benefits and, accordingly, no accrued interest or penalties related to uncertain tax positions. Federal income tax returns remain subject to examination for years subsequent to 2022. State income tax returns remain subject to examination based upon the respective statutes of limitation. The Company is currently under examination by the Florida taxing authorities. Management believes its tax positions are more likely than not to be sustained and has not recorded a liability for uncertain tax positions.

Net Operating Loss Carryforwards

As of June 30, 2026, the Company had no federal net operating loss carryforwards and state net operating loss carryforwards of approximately $6.49 million. Approximately $5.6 million of these carryforwards will expire, if unused, through 2043. The remaining carryforwards may be carried forward indefinitely. The Company had approximately $15.6 million of federal business interest expense carryforwards under IRC Section 163(j), which may be carried forward indefinitely.

The utilization of net operating losses and certain tax attributes may be limited under Section 382 of the Internal Revenue Code and similar state provisions following an ownership change.

Income Taxes Paid

Income taxes paid, net of refunds, consisted of the following (in thousands):

Individual taxing jurisdictions representing more than 5% of total income taxes paid, net of refunds, during fiscal 2026 were as follows (in thousands):

Note 12: Commitments and Contingencies

Commitments

The Company enters into various agreements with suppliers for the products it distributes. The Company hadno long-term purchase commitments or arrangements with its suppliers as of June 30, 2026, 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 consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.

On June 6, 2024, Office Create Corporation (“Office Create”) filed a complaint against COKeM International Ltd. (“COKeM”) in the United States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of origin and unjust enrichment relating to COKeM’s alleged distribution of the video game Cooking Mama: Cookstar. Office Create originally sought damages of no less than $20,913,200, plus interest of 9% accruing from October 3, 2022. On August 29, 2024, COKeM filed a response denying all allegations, and on September 12, 2024 filed a third-party complaint against Planet Entertainment LLC and Steven Grossman asserting claims for indemnification and contribution. Office Create later filed an amended complaint impleading the former owner, chairman, chief financial officer and senior vice president of sales of COKeM and asserting claims for willful trademark infringement and civil conspiracy, increasing the damages sought to an amount in excess of $35 million. COKeM filed an amended answer as to the new claims pertaining to it directly on March 12, 2025, denies the allegations, and intends to continue to defend the lawsuit vigorously.

The parties then completed fact discovery, including depositions of a co-defendant corporate designee and of current and former COKeM personnel taken between September 2025 and February 2026, and each party designated a damages expert. On January 6, 2026, Office Create stipulated to the dismissal of its claims against the Plaion defendants pursuant to a confidential settlement, and the court dismissed those defendants from the litigation the same day. Fact discovery has concluded.

The parties have engaged in settlement discussions that have not resulted in an agreement, and their respective positions as to value remain materially divergent. During the period from April 17, 2026 through June 30, 2026 the matter remained in the expert-motion phase: COKeM denies liability and continues to defend the matter. The Company maintains liability insurance applicable to this claim. Because the proceedings remain at an expert and pre-trial stage and the parties’ valuations of the claim differ materially, the Company is unable to estimate the amount or range of reasonably possible loss, and no liability has been recorded for this matter as of June 30, 2026. An unfavorable outcome could exceed available insurance and could be material to the Company’s consolidated financial position, results of operations and cash flows.

Jonathan Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California, Case No. 3:24-cv-06447; Douglas Feller, Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749. — On or about September 12, 2024, these actions were brought against DirectToU, LLC (“DirectToU”) and/or Alliance Entertainment, LLC (“Alliance”) alleging violations of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure to Meta and other third parties including data brokers of, private information and user data regarding a user’s account information and video viewing and purchasing history from websites operated by the Company. DirectToU and Alliance disputed the allegations. The Feller action was dismissed and those plaintiffs were added to the Hoang To matter.

The parties agreed to resolve the claims on a class-wide basis for $1.58 million. The court granted preliminary approval of the settlement on September 22, 2025 and entered final approval on May 5, 2026. The settlement was funded during the fiscal year ended June 30, 2026, and the matter was fully resolved as of that date. No further obligation or contingency exists in respect of these claims.

The Company recorded a contingent liability of $1.58 million for the settlement and a related insurance recovery receivable from CNA of $1.38 million as of June 30, 2025. Both amounts were settled during the fiscal year ended June 30, 2026, and no balances relating to this matter remain recorded on the consolidated balance sheet as of June 30, 2026.

Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors): On June 9, 2025, Sparkle Pop sued the Alliance entities in the United States Bankruptcy Court for the District of Maryland (In re Diamond Comic Distributors) alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid for, and subsequent termination of, the asset purchase agreement in the Diamond Comic Distributors bankruptcy. Alliance moved to dismiss the original complaint on July 10, 2025. On July 24, 2025, Sparkle Pop filed an amended complaint asserting the same claims plus an additional claim for breach of a non-disclosure agreement, and on August 7, 2025 Alliance moved to dismiss the amended complaint on the grounds that Sparkle Pop lacks standing, having been neither a party to, an intended third-party beneficiary of, nor an assignee of rights under the non-disclosure agreement, and that it failed to state a claim. Briefing was completed on September 17, 2025, and on November 10, 2025 the court heard oral argument and denied Alliance’s motion to dismiss. The adversary proceeding was stayed until February 16, 2026 to permit the appointed Chapter 7 trustee to become familiar with the litigation, after which the parties advance to discovery.

Note 13: Related Party Transactions

GameFly Holdings, LLC

During the years ended June 30, 2026 and 2025, Alliance sold new-release movies, video games and video game consoles to GameFly Holdings LLC totaling approximately $2.7 million in each year. GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, two Alliance shareholders. Alliance believes the amounts that GameFly paid for New Release, movies, video games, and video game consoles are at fair market value. GameFly does fulfillment services of fast selling new releases by providing 3PL services at market rates. Either party may terminate the agreement at any time. GameFly is free to purchase from any competitor of Alliance.

As of June 30, 2026 and 2025, the Company had receivables from GameFly LLC of $0.2 million at each year-end, which were included in Other receivables, net on the consolidated balance sheets.

For the year ended June 30, 2026 and 2025, the Company recognized revenue for consulting services provided to Gamefly of $0.3 million in each period. For the year ended June 30, 2026 and 2025, the Company incurred consulting expense of $0.09 million and $0.2 million, respectively, for services received from GameFly.

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”), which bore interest at a rate equal to 30-day SOFR plus 5.0% and would have matured on December 22, 2026. 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, and there were no amounts outstanding as of June 30, 2026. Interest expense related to the Ogilvie Loan was $0.2 million and $0.8 million for the fiscal years ended June 30, 2026, and 2025, 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 year ended June 30, 2026, the Company did not incur any related-party fees with BDCP; however, upon termination of the facility, the Company expensed $0.6 million of the remaining unamortized deferred financing costs associated with that facility. There were no amounts payable to BDCP as of June 30, 2026 and June 30, 2025.

Note 14: 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.

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 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 years ended June 30, 2026, and 2025:

Maturities of operating and finance lease liabilities as of June 30, 2026 are as follows:

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

Note 15: 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:

Up to 60 million additional contingent 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 20). The 60 million contingent 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 contingent 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:

Each share of Class A and contingent 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 contingent 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 June 30, 2026 and 2025,294,400 and 101,300 shares, respectively, were outstanding under the 2023 Plan. Since inception of the 2023 Plan through June 30, 2026,764,500 shares had been awarded, of which 13,200 were subsequently forfeited and returned to the Plan, leaving 248,700 shares available for future issuance.

Note 16: 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:

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).

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 $0.10 million, 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 17: Reclassification of Private Warrants to Public Warrants

Reclassification from Liability to Equity

During the fiscal year ended June 30, 2025, certain shareholders of the Company sold private warrants to third parties who were not deemed “permitted transferees” under the terms of the Warrant Agreement. In accordance with the Warrant Agreement, upon such a sale, the private warrants became subject to the same redemption provisions as the Company’s public warrants.

As a result of this change in terms, the affected warrants, previously 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 consolidated statements of income and comprehensive income or cash flows. Prior period balances were not restated (See Note 20).

Note 18: 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 of 1,000,000 shares of Class A common stock. On November 7, 2024, the Company’s stockholders approved the amendment to the 2023 Plan. Restricted stock awards granted under the 2023 Plan vest in full on the third anniversary of the grant date.

In connection with awards granted, the Company recognized $0.3 million and $0.05 million in stock-based compensation during the years ended June 30, 2026, and 2025, respectively.

The total fair value of restricted stock that vested during the year ended June 30, 2026, was $0.03 million.

Note 19: 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 consolidated statements of income and comprehensive income, which resulted in fluctuations in the Company’s reported net income and earnings per share (EPS).

During the fiscal years ended June 30, 2026, and 2025, the Company recorded a loss of $0.9 million in both years 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.

The fair value of the warrant liabilities at June 30, 2026, and 2025, was $1.5 million and $0.6 million, respectively, and is recorded under warrant liabilities on the 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 21 – Fair Value.

Note 20: Warrants

As a result of the Merger, at June 30, 2026 and 2025, there were 6,519,083 Public Warrants,3,357,667 Private Placement Warrants and 43,340 Representative Warrants issued and outstanding, each exercisable for one share of Class A Common Stock with an exercise price of $11.50 (the “Warrants”). (See Note 17: Reclassification of Private Warrants to Public Warrants)

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 $11.5 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:

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 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 consolidated balance sheet. The Representative Warrants are identical to the Private Warrants except that so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, the Representative Warrants (i) will not be redeemable by the Company, (ii) may be exercised by the holders on a cashless basis, (iii) are entitled to registration rights and (iv) are not exercisable more than five years from the effective date of the Merger.

Note 21: 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 June 30, 2026 and 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 June 30, 2026, and 2025, based on the short-term nature and maturity of these instruments.

The estimated fair value of 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 June 30, 2026, and 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:

The significant assumptions using the Lattice model approach for valuation of the Private Placement Warrants and Representative Warrants were determined in the following manner:

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)

The table below presents the change in the number and fair value of the Private and Representative Warrants since the Merger on June 30, 2026 (in thousands, except the number of shares)

Note 22: Business Combinations – Endstate Authentic LLC

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. The results of operations of the acquired business were included in the Company’s consolidated financial statements at June 30, 2026, since the acquisition date was not material.

Purchase Consideration

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

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 which ends on December 31, 2026. The Company is finalizing its valuation of acquired assets and assumed liabilities. The preliminary allocation of the consideration transferred is as follows (in thousands):

Identifiable intangible assets are being amortized on a straight-line basis over an estimated useful life often 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 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 23: Subsequent Events

The Company has evaluated subsequent events through September 10, 2026, the date the consolidated financial statements were issued, and determined that there are no subsequent events that require adjustment to or disclosure in the consolidated financial statements.