Alliance Entertainment Holding Corp 10-Q for FY2026 Q3
Alliance Entertainment Holding Corp (AENT)
About this 10-Q
Alliance Entertainment Holding Corp filed this 10-Q on May 14, 2026, covering the quarter ended March 31, 2026 (FY2026 Q3).
Headline figures
Quarter ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $600K
- down 14.3% from $700K a year earlier
- Net income
- $2.31M
- up 24.9% from net income of $1.85M a year earlier
- Diluted EPS
- $0.05
- up 25.0% from $0.04 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarter ended
For the transition period from to
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 14, 2026, shares of Class A common stock, par value $ per share and contingent1 shares of Class E common stock, par value $ per share, were issued and outstanding.
| 1 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2026
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| ($ in thousands except per share amounts) | March 31, 2026 | June 30, 2025 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Trade Receivables, Net of Allowance for Credit Losses of $ | ||||||||
| Inventory, Net | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Operating Lease Right-of-Use Assets, Net | ||||||||
| Goodwill | ||||||||
| Intangibles, Net | ||||||||
| Other Long-Term Assets | ||||||||
| Deferred Tax Asset, Net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Current Portion of Operating Lease Obligations | ||||||||
| Current Portion of Finance Lease Obligations | ||||||||
| Deferred Consideration | ||||||||
| Contingent Liability | ||||||||
| Total Current Liabilities | ||||||||
| Revolving Credit Facility, Net | ||||||||
| Finance Lease Obligation, Non- Current | ||||||||
| Operating Lease Obligations, Non-Current | ||||||||
| Shareholder Loan (subordinated), Non-Current | ||||||||
| Contingent Liability, Non-Current | ||||||||
| Acquired Royalty Obligation (Endstate), Non-Current | ||||||||
| Warrant Liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock: Par Value $ per share, Authorized shares, Issued and Outstanding and shares as of March 31, 2026, and June 30, 2025 | ||||||||
| Common Stock: Par Value $ per share, Authorized shares at March 31, 2026, and at June 30, 2025; Issued and Outstanding Shares as of March 31, 2026, and at June 30, 2025, respectively | ||||||||
| Paid In Capital | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| ($ in thousands except share and per share amounts) | March 31, 2026 | March 31, 2025 | March 31, 2026 | March 31, 2025 | ||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues (excluding depreciation and amortization) | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Distribution and Fulfillment Expense | ||||||||||||||||
| Selling, General and Administrative Expense | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
| Transaction Costs | ||||||||||||||||
| Insurance Claim Recovery | ( | ) | ||||||||||||||
| Restructuring Cost | ||||||||||||||||
| Gain on Disposal of Fixed Assets | ( | ) | ( | ) | ||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Other Expenses | ||||||||||||||||
| Interest Expense | ||||||||||||||||
| Change in Fair Value of Warrants | ( | ) | ( | ) | ||||||||||||
| Total Other Expenses | ||||||||||||||||
| Income Before Income Tax Expense | ||||||||||||||||
| Income Tax Expense | ||||||||||||||||
| Net Income | ||||||||||||||||
| Net Income per Share – Basic | $ | $ | $ | $ | ||||||||||||
| Weighted Average Common Shares Outstanding - Basic | ||||||||||||||||
| Net Income per Share – Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted Average Common Shares Outstanding - Diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended March 31, 2026 (Unaudited)
| ($ in thousands) | Common Stock Shares Issued and Outstanding | Par Value | Paid In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total | ||||||||||||||||||
| Balances at June 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based Compensation Expense | ||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based Compensation Expense | ||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at December 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based Compensation Expense | ||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at March 31, 2026 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended March 31, 2025 (Unaudited)
| ($ in thousands) | Common Stock Shares Issued | Par Value | Paid In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total | ||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Warrants conversion, from Liability to Equity | - | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at December 31, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balances | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balances at March 31, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balances | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended | Nine Months Ended | |||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to Reconcile Net Income to | ||||||||
| Net Cash Provided by Operating Activities: | ||||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: | ||||||||
| Depreciation of Property and Equipment | ||||||||
| Amortization of Intangible Assets | ||||||||
| Amortization of Deferred Financing Costs (Included in Interest Expense) | ||||||||
| Allowance for Credit Losses | ||||||||
| Change in Fair Value of Warrants | ||||||||
| Deferred Income Taxes | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Stock-based Compensation Expense | ||||||||
| Gain on Disposal of Fixed Assets | ( | ) | ( | ) | ||||
| Changes in Assets and Liabilities | ||||||||
| Trade Receivables | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Income Taxes Payable | ||||||||
| Operating Lease Obligations | ( | ) | ( | ) | ||||
| Other Assets | ( | ) | ( | ) | ||||
| Accounts Payable | ||||||||
| Accrued Expenses and Contingent Liability | ( | ) | ( | ) | ||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital Expenditures | ( | ) | ( | ) | ||||
| Cash Paid for Business Acquisition/Asset Purchase | ( | ) | ( | ) | ||||
| Cash Inflow from Asset Disposal | ||||||||
| Investment in Captive Stock | ||||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on Financing Leases | ( | ) | ( | ) | ||||
| Payments on Revolving Credit Facility | ( | ) | ( | ) | ||||
| Borrowings on Revolving Credit Facility | ||||||||
| Repayments on Shareholder Note (Subordinated), Non-Current | ( | ) | ||||||
| Deferred Financing Cost | ( | ) | ||||||
| Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
| Net Increase in Cash | ||||||||
| Cash, Beginning of the Period | ||||||||
| Cash, End of the Period | $ | $ | ||||||
| Supplemental disclosure for Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Income Taxes | $ | $ | ||||||
| Supplemental Disclosure for Non-Cash Investing and Financing Activities | ||||||||
| Conversion of Warrants from liability to Equity | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2026
Note 1: Organization and Summary of Significant Accounting Policies
Alliance is a leading global wholesaler and distributor of physical media, entertainment products, hardware, and accessories across various platforms. Employing an established multi-channel strategy, Alliance operates as the vital link between renowned international manufacturers of entertainment content and top-tier retail partners both domestically and internationally. Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Alliance also provides state-of-the art warehousing and distribution technologies, operating systems and services that seamlessly enable entertainment product transactions to better serve customers directly or through our distribution affiliates.
On December 31, 2025, the Company completed the acquisition of Endstate Authentic LLC (“LLC”), a digital authentication and loyalty-driven consumer brand. The transaction was accounted for as a business combination under ASC 805. Accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The purchase price allocation is preliminary and subject to adjustment as the Company continues to finalize its valuation analyses. Results of operations for Endstate are included in the Company’s condensed consolidated financial statements beginning on the acquisition date. Additional information related to this acquisition is provided in Note 23 – Business Combinations.
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 21.
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals and adjustments) which are necessary in order to state fairly the Company’s results of operations, financial position, stockholders’ equity and cash flows as of and for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes, including the Summary of Significant Accounting Policies, included in the Company’s Annual Report on Form 10-K filed September 10, 2025. June 30, 2025, balance sheet information contained herein was derived from the Company’s audited consolidated financial statements as of that date included therein.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Basis for Presentation
The condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The condensed consolidated financial statements include the accounts of Alliance Entertainment Holding Corporation and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Liquidity
On
October 1, 2025, the Company entered into a $
| 6 |
Concentration of Credit Risk
Concentration of Credit Risk consists of the following at:
Schedule of Concentration of Credit Risk
Customers:
| * | Less than 10% |
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| Revenue | March 31, 2026 | March 31, 2025 | March 31, 2026 | March 31, 2025 | ||||||||||||
| Customer #1 | % | % | % | % | ||||||||||||
| Customer #2 | % | % | % | % | ||||||||||||
| Customer #3 | % | % | % | |||||||||||||
| Receivables | March 31, 2026 | June 30, 2025 | ||||||
| Customer #1 | % | % | ||||||
| Customer #2 | * | % | ||||||
| Customer #3 | * | |||||||
| * |
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| Purchases | March 31, 2026 | March 31, 2025 | March 31, 2026 | March 31, 2025 | ||||||||||||
| Supplier #1 | % | % | % | % | ||||||||||||
| Supplier #2 | % | % | % | % | ||||||||||||
| Supplier #3 | * | * | * | % | ||||||||||||
| Supplier #4 | % | % | % | * | ||||||||||||
| * |
| Payables | March 31, 2026 | June 30, 2025 | ||||||
| Supplier #1 | % | % | ||||||
| Supplier #2 | % | * | ||||||
| Supplier #3 | % | % | ||||||
| * |
Accounting Pronouncements
Recently Issued and Adopted Accounting Pronouncements
In July 2025, the Company adopted Accounting Standards Update (“ASU”) 2024-02, Codification Improvements -Amendments to Remove References to the Concepts Statements. This ASU removes references to the FASB Concepts Statements from the Accounting Standards Codification and makes related conforming amendments. The adoption of ASU 2024-02 did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
In July 2025, the Company adopted ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards, which clarifies how entities determine whether certain profits interest or similar awards should be accounted for as stock-based compensation under Topic 718 or under other applicable guidance. The Company does not issue profits interest or similar awards, and adoption of this ASU did not have a material impact on its condensed consolidated financial statements.
| 7 |
Recently Issued but Not Yet Adopted Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which requires additional disaggregation of certain income statement expense categories in the notes to the financial statements. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which enhances income tax disclosure requirements, including expanded disaggregation of effective tax rate reconciliations and income taxes paid by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this ASU, which is expected to primarily affect annual income tax disclosures.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, and early adoption is permitted. The Company is evaluating the applicability of this ASU to its consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which includes targeted improvements to the accounting and disclosure requirements for internal-use software costs. The amendments are effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual reporting periods, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.
Note 2: Summary of Significant Accounting Policies
There have been no material changes or updates to the Company’s significant accounting policies from those described in Note 1 to the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2025.
Earnings per Share
Basic Earnings Per Share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue shares, such as stock options, warrants, and unvested restricted stock units, were exercised and converted into common shares and the impact would not be antidilutive. Diluted EPS is computed by dividing net income available to common shareholders by the weighted average shares outstanding during the period, increased by the number of additional shares that would have been outstanding if the potential shares had been issued and were dilutive. Contingently issuable shares are included in basic net income per share only when there is no circumstance under which those shares would not be issued.
Schedule of Computation of Basic and Diluted Net Earnings Per Share of Common Stock
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| March 31, 2026 | March 31, 2025 | March 31, 2026 | March 31, 2025 | |||||||||||||
| Net Income (in thousands) | $ | $ | $ | $ | ||||||||||||
| Basic and diluted shares | ||||||||||||||||
| Weighted-average Class A Common Stock outstanding - Basic | ||||||||||||||||
| Weighted-Average Class A Common Stock Outstanding - Diluted | ||||||||||||||||
| Income per share for Class A Common Stock | ||||||||||||||||
| — Basic | $ | $ | $ | $ | ||||||||||||
| Income per share for Class A Common Stock | ||||||||||||||||
|
— Diluted | $ | $ | $ | $ | ||||||||||||
| 8 |
There are shares of contingently issuable Common Stock that were not included in the computation of basic or diluted earnings per share since the contingencies for the issuance of these shares have not been met as of March 31, 2026, and March 31, 2025. For the three and nine months ended March 31, 2026, there are warrants outstanding that have been excluded from diluted earnings per share because they are anti-dilutive.
Note 3: Trade Receivables, Net
Trade Receivables, Net consists of the following at:
Schedule of Trade Receivables, Net
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Trade Receivables | $ | $ | ||||||
| Less: | ||||||||
| Allowance for Credit Losses | ( | ) | ( | ) | ||||
| Sales Returns Reserve | ( | ) | ( | ) | ||||
| Customer Rebate and Discount Reserve | ( | ) | ( | ) | ||||
| Total Allowances | ( | ) | ( | ) | ||||
| Trade Receivables, Net | $ | $ | ||||||
The following table provides a roll forward of the allowance for credit losses accounts for the periods ending March 31, 2026 and June 30, 2025:
| Allowance for Credit Losses Roll forward | March 31, 2026 | June 30, 2025 | ||||||
| ($ in thousands) | ||||||||
| Beginning Balance | ( | ) | ( | ) | ||||
| Current Period Provision for Expected Credit Losses | ( | ) | ( | ) | ||||
| Write-offs | ||||||||
| Recoveries of Previously Written-off Accounts | ( | ) | ( | ) | ||||
| Ending Balance | ( | ) | ( | ) | ||||
Note 4: Inventory, Net
Inventory, Net (all finished goods) consists of the following at:
Schedule of Inventory, Net
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Inventory | $ | $ | ||||||
| Less: Reserves | ( | ) | ( | ) | ||||
| Inventory, Net | $ | $ | ||||||
Note 5: Other Current and Long-Term Assets
Other Current and Long-Term Assets consist of the following at:
Schedule of Other Current and Long-term Assets
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Other Assets–Current | ||||||||
| Prepaid Intellectual Property | $ | $ | ||||||
| Escrow Receivable | ||||||||
| Insurance Receivable | ||||||||
| Prepaid Insurance | ||||||||
| Contract Acquisition receivable | ||||||||
| Prepaid Catalogs | ||||||||
| Prepaid Manufacturing Components | ||||||||
| Prepaid Maintenance | ||||||||
| Other Current Assets | ||||||||
| Prepaid Molding | ||||||||
| Prepaid Shipping Supplies | ||||||||
| Prepaid Vault | ||||||||
| Prepaid Royalties | ||||||||
| Total Other Assets–Current | $ | $ | ||||||
| Other Long-Term Assets | ||||||||
| Deposits | $ | $ | ||||||
| Income tax receivable | ||||||||
| Total Other Long-Term Assets | $ | $ | ||||||
| 9 |
Note 6: Property and Equipment, Net
Property and Equipment, Net consists of the following at:
Schedule of Property and Equipment, Net
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Property and Equipment | ||||||||
| Leasehold Improvements | $ | $ | ||||||
| Machinery and Equipment | ||||||||
| Furniture and Fixtures | ||||||||
| Capitalized Software | ||||||||
| Equipment Under Finance Leases | ||||||||
| Computer Equipment | ||||||||
| Construction in Progress | ||||||||
| Property and Equipment, Gross | ||||||||
| Less: Accumulated Depreciation and Amortization | ( | ) | ( | ) | ||||
| Total Property and Equipment, Net | $ | $ | ||||||
Depreciation
Expense for the three months ended March 31, 2026, and 2025 was $
Note 7: Goodwill and Intangibles, Net
Goodwill
reported is the result of multiple acquisitions made by Alliance Entertainment Holding Corporation over the years. The $
Schedule of Goodwill
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Goodwill, Beginning Balance | $ | $ | ||||||
| Additions | ||||||||
| Goodwill, Ending Balance | $ | $ | ||||||
Intangibles, Net consists of the following at:
Schedule of Intangible Assets, Net
| ($in thousands) | March 31, 2026 | June 30, 2025 | ||||||||||||||||||
| Intangibles: | Intangibles Cost | Accum. Amortization | Intangibles, Net | Accum. Amortization | Intangibles, Net | |||||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| Contract Acquisition | ( | ) | ( | ) | ||||||||||||||||
| Tradename - HMBR | ||||||||||||||||||||
| Trademark - Endstate | ( | ) | ||||||||||||||||||
| Technology - Endstate | ( | ) | ||||||||||||||||||
| Customer Relationships - Endstate | ( | ) | ||||||||||||||||||
| Mecca Customer Relationships | ( | ) | ( | ) | ||||||||||||||||
| Customer List | ( | ) | ( | ) | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
During
the three months ended March 31, 2026, and 2025, the Company recorded amortization expenses of $
| 10 |
Expected amortization over the next five years and thereafter, as of March 31, 2026, is as follows:
Schedule of Expected Amortization Over the Next Five Years and Thereafter
| ($ in thousands) | Intangible Assets | |||
| Year Ended June 30, | ||||
| Remaining in fiscal year 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total Expected Amortization | $ | |||
| Indefinite-lived Intangible asset | ||||
| Total Intangible Assets | $ | |||
Note 8: Accrued Expenses
Accrued Expenses consists of the following at:
Schedule of Accrued Expenses
| ($ in thousands) | March 31, 2026 | June 30, 2025 | ||||||
| Marketing Funds Accruals | $ | $ | ||||||
| Payroll and Payroll Tax Accruals | ||||||||
| Accruals for Other Expenses | ||||||||
| Income Tax Payable | ||||||||
| Accrued Contract Liability | ||||||||
| Total Accrued Expenses | $ | $ | ||||||
Note 9: 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 $
Borrowings
under the Revolving Credit Facility bear interest at the 30-day SOFR rate, subject to a floor of
Availability
under the Revolving Credit Facility is based on eligible accounts receivable and inventory. As of March 31, 2026, availability was
approximately $
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
The Company was in compliance with all applicable covenants under the Revolving Credit Facility as of March 31, 2026.
| 11 |
Letters of Credit
The
Revolving Credit Facility permits the issuance of letters of credit, which reduces availability under the borrowing base. As of March
31, 2026, the Company had letters of credit outstanding totaling $
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 $
The Prior Revolving Credit Facility was terminated and fully repaid on October 1, 2025; therefore, as of March 31, 2026, no amounts were outstanding and an effective interest rate was not applicable.
As
of June 30, 2025, outstanding borrowings under the Prior Revolving Credit Facility were approximately $
Schedule of Revolver Balance
| ($ in thousands) | New Credit Facility March 31, 2026 | Prior Credit Facility June 30, 2025 | ||||||
| Outstanding Balance | $ | $ | ||||||
| Less: Deferred Finance Costs | ( | ) | ( | ) | ||||
| Revolving Credit Facility, Net | $ | $ | ||||||
During
the three months ended March 31, 2026, and 2025, the Company incurred interest expense of approximately $
Recurring
amortization of deferred financing costs was approximately $
Note 10: Employee Benefits Company Health Plans
During the year ended June 30, 2025, the Company transitioned its health insurance coverage from a self-funded model to an Individual Coverage Health Reimbursement Arrangement (“ICHRA”), which eliminates the Company’s exposure to self-insured medical and dental claims; therefore, no similar liabilities are expected under the current plan structure. As a result, the self-insured medical plans (including both PPO and HDHP options) under the Alliance Health & Benefits Plan (“AHBP”) were terminated. Under the ICHRA model, the Company reimburses employees and executive officers for individual health insurance premiums, with contribution levels varying based on coverage tiers.
There were no changes to the Company’s dental (PPO and HMO), vision, life insurance, or short-term disability plans. The Company’s dental HMO plan remains self-insured, with exposure limited to a maximum per individual procedure based on a published fee schedule. The dental PPO plan is fully insured. The Company contributes various percentages toward premium costs across benefit offerings, based on coverage levels and Board-approved schedules. The vision, life insurance, and short- and long-term disability plans are fully insured and Company-sponsored, with premiums paid by both the employer and employees in accordance with Board-approved contribution structures.
As of March 31, 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.
| 12 |
401(k) Plan
The
Company has the Alliance Entertainment 401(k) Plan (the Plan) covering all eligible employees of the Company. All employees over the
age of 18 are eligible to participate in the Plan at the beginning of the month following date of hire. The Plan has automatic deferral
at the beginning of the month following the date of hire. Employees are automatically enrolled in the Plan with a
During
the three and nine months ended March 31, 2026, and 2025, the Company contributed $
Note 11: Segment Information
Management performed an assessment of the Company’s operating segments in accordance with ASC 280-10-50-1 through 50-9. Based on this evaluation, the Company determined that it operates as a single operating segment, which is also its sole reportable segment. Segment revenue is derived from the sale of distribution of pre-recorded music, video movies, video games and related accessories, and merchandising. This conclusion is consistent with prior periods.
The Company’s Chief Executive Officer and Chairman are the Chief Operating Decision Makers (“CODM”) and review financial performance and make resource allocation decisions at the consolidated entity level. The CODM utilizes net income, prepared in accordance with U.S. GAAP, to evaluate financial performance, monitor variances against budget and forecast, and guide strategic decisions. Segment assets are reported as consolidated assets on the Company’s condensed consolidated balance sheet.
Significant expense categories regularly reviewed by the CODM include:
| ● | Cost of Revenues (excluding depreciation and Amortization) | |
| ● | Distribution and Fulfillment Expense | |
| ● | Sales and Marketing |
Other Segment Items:
Other segment items include expenses that are part of segment profit or loss but are not classified as significant segment expenses. These include:
| ● | General and Administrative Expense | |
| ● | Technology Expense | |
| ● | Interest Expense | |
| ● | Income Tax Expense |
The following table presents segment revenue, net income, and the significant segment expenses for the Company’s single reportable segment for the three and nine months ending March 31, 2026, and 2025:
Reconciliation to Condensed Consolidated Net Income:
Schedule of Segment Reporting for Financial Information
| ($ in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 | Nine months ended March 31, 2026 | Nine months ended March 31, 2025 | ||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues (excluding depreciation and Amortization) | ||||||||||||||||
| Distribution and Fulfillment Expense | ||||||||||||||||
| Sales and Marketing | ||||||||||||||||
| Other Segment items* | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| * |
| 13 |
Note 12: Income Taxes
The
effective tax rates were
The
effective tax rate was approximately
The Company completed the acquisition of Endstate Authentic LLC on December 31, 2025. For U.S. federal and state income tax purposes, the transaction is treated as a taxable purchase of assets because Endstate Authentic LLC is a disregarded entity. As a result, the tax basis of the acquired assets and assumed liabilities was stepped up generally to their respective fair values. Based on the Company’s analysis as of the acquisition date, the acquisition did not result in material acquisition-date temporary differences and, accordingly, no material deferred tax assets or liabilities were recorded in connection with the acquisition.
Note 13: Commitments and Contingencies
Commitments
The
Company enters into various agreements with suppliers for the products it distributes. The Company had
Litigation, Claims and Assessments
We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our condensed consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.
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 $
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.
| 14 |
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 Cooking Mama: Cookstar. Office Create seeks monetary damages in excess of $
COKeM has denied the allegations and 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, which is reflected in Office Create’s expert damages analysis.
Discovery is ongoing. On March 9, 2026, Office Create served an expert report
opining that total damages are approximately $
Sparkle Pop Matter. On June 9, 2025, Sparkle Pop, LLC filed an adversary proceeding against the Company in the United States Bankruptcy Court for the District of Maryland in the matter In re Diamond Comic Distributors, alleging theft of trade secrets and tortious interference with contractual relations. The Company has moved to dismiss the amended complaint, and that motion remains pending. The Company denies the allegations. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.
TCPA Demand. In November 2025, the Company received a demand letter asserting potential claims under the federal Telephone Consumer Protection Act against its subsidiary, DirectToU, LLC, relating to alleged marketing text messages. No complaint has been filed, and discussions between the parties are ongoing. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.
Other Matters
From time to time, the Company is involved in other legal and regulatory matters arising in the ordinary course of business.
In December 2024, DirectToU, LLC received a third-party tender of defense regarding a notice of alleged noncompliance with California Proposition 65 concerning a product supplied by a vendor and sold by the Company. The Company discontinued the product and tendered defense to the supplier, which has assumed responsibility for responding to the notice. The Company does not believe this matter is material.
In July 2025, the Company received a cease-and-desist letter alleging a breach of a contractual non-solicitation provision. The Company disputes the allegations, has responded to the correspondence, and has not filed any litigation. The Company does not believe this matter is material.
Tariffs and Trade Policy: IEEPA Ruling and Contingent Refund
Background. From February 4, 2025, through February 24, 2026, the U.S. government imposed tariffs on imported goods pursuant to executive orders issued under the International Emergency Economic Powers Act (IEEPA). These tariffs affected certain products the Company imported during that period.
Supreme Court Ruling. On February 20, 2026, the U.S. Supreme Court issued a 6-3 decision in Learning Resources, Inc. v. Trump, No. 24-1287, holding that IEEPA does not authorize the President to impose tariffs. The ruling invalidated all IEEPA-based tariffs imposed during the period February 4, 2025, through February 24, 2026. Following the ruling, President Trump issued an executive order terminating the IEEPA tariff orders, effective February 24, 2026. The ruling did not affect tariffs imposed under other statutory authorities, including Section 232 (steel and aluminium) and Section 301 (goods of Chinese origin), which remain in effect.
| 15 |
CIT Refund Order. On March 4, 2026, the U.S. Court of International Trade (CIT) issued an order directing U.S. Customs and Border Protection (CBP) to refund IEEPA duties to importers of record through CBP’s normal administrative procedures. On March 6, 2026, the CIT suspended enforcement of that order to allow CBP time to develop a dedicated refund processing system. The CIT’s directive to provide refunds remains in place; only enforcement has been temporarily suspended. CBP has launched the Consolidated Administration and Processing of Entries (CAPE) portal on April 20, 2026, to process refund applications. The government’s deadline to appeal the scope of the CIT’s refund order is approximately June 7, 2026.
Contingent
Refund. The Company is the importer of record on entries subject to IEEPA tariffs paid during the period February 4, 2025, through
February 24, 2026. Based on the Company’s internal analysis of its CBP entry records, management estimates the total IEEPA tariffs
paid for which a refund may be available to be approximately $
No Impact to Current Period Results. The impact of IEEPA tariffs on the Company’s cost of sales during the quarter ended March 31, 2026 and the year-to-date period was not material.
Note 14: Related Party Transactions
GameFly Holdings, LLC
On February 1, 2023, the Company entered into a Distribution Agreement (the “Agreement”) with GameFly Holdings, LLC (“GameFly”), a customer owned by the Company’s principal stockholders. The Agreement is effective from February 1, 2023 through March 31, 2028, and thereafter continues on an indefinite basis unless terminated by either party upon six months’ prior written notice.
During
the three-month periods ended March 31, 2026, and 2025, and the nine-months periods ended March 31, 2026, and 2025, the Company had
additional sales to GameFly of $
As
of March 31, 2026, and June 30, 2025, the Company had receivables, net, from GameFly of approximately $
For the three months ended March 31, 2026, and
2025, the Company recognized revenue of $
For the three months ended March 31, 2026, and
2025, the Company incurred consulting expense of $
| 16 |
Ogilvie Loans
On
July 3, 2023, the Company entered into a $
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 $
Interest
expense related to the Ogilvie Loan was
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 $
The
White Oak credit facility was repaid in full and terminated on October 1, 2025. During the three and nine months ended March 31, 2026,
the Company did not incur any related-party fees with BDCP; however, upon termination of the facility, the Company expensed $
Note 15: Leases
The
Company leases offices, warehouses, computer equipment, and vehicles. Certain leases include options to renew, which may extend the lease
term from
Leasehold improvements and assets are depreciated over the shorter of their useful life or the lease term unless the lease includes a purchase option or title transfer that is reasonably certain to occur.
Our lease agreements do not include material residual value guarantees or restrictive covenants. Lease payments generally include fixed payments, with some leases requiring variable payments. These variable payments typically cover the Company’s proportionate share of property taxes, insurance, and common area maintenance and are recognized as incurred rather than being included in the lease liability.
On the condensed consolidated balance sheet, operating leases are reflected in “Operating Lease Right-of-Use Assets, Net,” “Current Portion of Operating Lease Obligations,” and “Operating Lease Obligations, Non-Current.” Finance leases are included under “Property & Equipment, Net,” “Current Portion of Finance Lease Obligations,” and “Finance Lease Obligations, Non-Current.
The extended lease term will result in continued amortization of the ROU asset over the remaining lease period, with the associated lease liabilities being remeasured in accordance with ASC 842, Leases. The Company will continue to amortize the ROU asset in line with the revised lease terms and conditions, reflecting the financial impact of the extension in future periods.
| 17 |
Components of lease expense were as follows for the three and nine months ending March 31, 2026, and 2025:
Schedule of Components of Lease Expense
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| Lease Cost ($ in thousands) | March 31, 2026 | March 31, 2025 | March 31, 2026 | March 31, 2025 | ||||||||||||
| Finance Lease Cost: | ||||||||||||||||
| Amortization of Right of Use Assets | ||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Capitalized Operating Lease Cost | ||||||||||||||||
| Short – Term Lease Cost | ||||||||||||||||
| Variable Lease Cost | ||||||||||||||||
| Total Lease Cost | ||||||||||||||||
| Other Information | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from Capitalized Operating leases | ||||||||||||||||
| Financing cash flows from finance leases | ||||||||||||||||
| March 31, 2026 | June 30, 2025 | |||||||
| Right of use assets obtained in exchange for new operating lease liabilities | ||||||||
| Net Right of use asset remeasurement | ||||||||
| Weighted average remaining lease term - finance leases (in Years) | ||||||||
| Weighted average remaining lease term - operating leases (in Years) | ||||||||
| Weighted average discount rate - finance leases | % | % | ||||||
| Weighted average discount rate – Capitalized operating leases | % | % | ||||||
Maturities of operating and finance lease liabilities as of March 31, 2026 are as follows:
Schedule of Maturities of Lease Liabilities
| ($ in thousands) | Operating Leases | Finance Leases | ||||||
| Remaining in fiscal 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total Lease Payments | ||||||||
| Less Imputed Interest | ( |
( |
||||||
| Present Value Obligation | ||||||||
| Short-term Liability | ||||||||
| Total | $ | $ | ||||||
Finance ROU leases are recorded in Property and Equipment, net on the condensed consolidated balance sheets and is as follows:
Schedule of Finance leases in Property and Equipment
| March 31, 2026 | June 30, 2025 | |||||||
| Cost | $ | $ | ||||||
| Additions | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Book Value | $ | $ | ||||||
| 18 |
Note 16: Merger
As disclosed in Note 1, on February 10, 2023, the Company completed the Merger with Alliance and a Merger Sub, resulting in the Company becoming a publicly traded company. While Adara was the legal acquirer in the Merger, for financial accounting and reporting purposes under U.S. GAAP, Legacy Alliance was the accounting acquirer, and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the exchange of stock by Alliance for Legacy Alliance’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Alliance. Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Alliance became the historical consolidated financial statements of the combined company, and Alliance’s assets, liabilities and results of operations were consolidated with Legacy Alliance beginning on the acquisition date. Operations prior to the Merger are presented as those of Legacy Alliance in future reports. The net assets of Alliance were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded.
At the closing of the Merger, each of the then issued and outstanding shares of Alliance common stock were cancelled and automatically converted into the right to receive the number of shares of Alliance common stock equal to the exchange ratio (determined in accordance with the Business Combination Agreement). The Company’s shares of previously outstanding common stock were exchanged for shares of Class A Common Stock. In addition, the treasury stock was cancelled. This change in equity structure has been retroactively reflected in the financial statements for all periods presented.
The following table summarizes the shares of Class A outstanding following consummation of the Merger:
Schedule of Consummation of Merger
| Alliance Public Shares | ||||
| Alliance Sponsor Shares | ||||
| Legacy Alliance Shares | ||||
| Total Shares of Common Stock Outstanding after Merger |
Up
to
| ● | If
the stock price increases to $ per share within | |
| ● | If
the stock price increases to $ per share within | |
| ● | If
the stock price increases to $ per share within |
Each share of Class A and Class E common stock has one vote, and the common shares collectively will possess all voting power and will have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Since the Class E shares are subject to vesting conditions and meet the contingent exercise and settlement provisions to be considered indexed to the Company’s stock, they are accounted for as equity instruments, and are reflected as a reduction of retained earnings, at their fair value on the date of the Merger.
During
the fiscal year ended June 30, 2023, the Company incurred total transaction costs of approximately $
In connection with the Merger, the Company’s 2023 Omnibus Equity Incentive Plan (the “2023 Plan”) became effective. The 2023 Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentives awards to based officers, employees, and directors of, and consultants and advisers to, Alliance and its subsidiaries. The Company has reserved a total of shares of Class A common stock for issuance as or under awards to be made under the 2023 Plan. To the extent that an award lapses, expires, is cancelled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any common stock subject to such award shall again be available for the grant of a new award. The 2023 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date), and the Board of Directors in its discretion may terminate it at any time with respect to any shares for which awards have not theretofore been granted, provided certain conditions are met, in accordance with the 2023 Plan. The price at which a share may be purchased upon exercise of a share option shall be determined by the Plan Committee; provided, however, that such option price (i) shall not be less than the fair market value of a share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2023 Plan. On November 7, 2024, the Company’s stockholders approved an amendment to the 2023 Plan to increase the number of shares of Class A common stock for issuance as or under awards to be made under the 2023 Plan to shares. As of March 31, 2026, shares were awarded under the 2023 Plan.
| 19 |
Note 17: Asset Purchase
On
December 17, 2024, the Company completed an asset purchase from Bensussen Deutsch & Associates, LLC, “an unrelated third party”
for a total cash consideration to the seller of $
The allocation of the purchase price was as follows:
Schedule of Allocation of Purchase Price
| ($ in thousands) | ||||
| Inventory | $ | |||
| Property and Equipment, tooling | ||||
| Prepaid Assets | ||||
| Accrued Liability | ( | ) | ||
| Total Identifiable net assets | ||||
| Intangible assets (Trademark) (including capitalized costs) | ||||
| Total Purchase Price (allocated) | $ | |||
| Total Cash Consideration Paid to Seller | $ | |||
| Capitalized Acquisition Costs (Legal and Shipping fees) | ||||
The acquired intangible asset represents a trademark associated with the Company’s recently acquired product line, Handmade by Robots. The trademark is determined to have an indefinite useful life and will not be amortized. Instead, it will be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired, in accordance with ASC 350 (Intangibles – Goodwill and Other).
For
the three and nine months ended March 31, 2026, and 2025, there was
Inventory
was recorded at its estimated fair value on the acquisition date and is expected to be sold within 18 months. Acquisition-related costs
of $
Note 18: Reclassification of Private Warrants to Public Warrants
Reclassification from Liability to Equity
During the six months ended December 31, 2024, certain shareholders of the Company sold private warrants to third parties who were not deemed “permitted transferees” under the terms of the Warrant Agreement. In accordance with the Warrant Agreement, upon such a sale, the private warrants became subject to the same redemption provisions as the Company’s public warrants.
As
a result of this change in terms, the affected warrants, which had previously been accounted for as a liability, were reclassified to
equity. Accordingly, the Company reclassified approximately
| 20 |
As part of the Merger on February 10, 2023, shares were authorized for a one-time employee stock plan. The compensation committee approved shares of restricted stock awards to employees on June 15, 2023. The shares fully vest on October 4, 2023. The company does not have an annual stock-based compensation plan.
In September 2024, the Company’s Board approved, subject to stockholder approval, an amendment to the 2023 Plan to increase the number of shares authorized for issuance thereunder by shares of Class A common stock, bringing the total reserved under the 2023 Plan to shares of Class A common stock. On November 7, 2024, the Company’s stockholders approved the amendment to the 2023 Plan.
During the three months ended March 31, 2026, the Company granted restricted stock awards to certain employees pursuant to employment offer letters executed in December 2025. Although the employment offer letters reference a December 31 grant date, the Company determined that, for accounting purposes under ASC 718, the grant date was January 1, 2026, as this was the date on which all requisite terms of the awards were finalized, requisite approvals were obtained, and the employees commenced service. Accordingly, the fair value of these awards was measured as of January 1, 2026, and stock-based compensation expense is recognized over the requisite service period beginning on that date. During the three and nine months ended March 31, 2026, shares of restricted stock vested under the 2023 Plan.
In connection with awards granted, the Company recognized $ and $ and $ and $ in stock-based compensation expense during the three and nine months ended March 31, 2026, and March 31, 2025.
Certain outstanding warrants issued by the Company are classified as liabilities in accordance with ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, due to specific terms that require them to be remeasured at fair value at each reporting date. Changes in fair value are recognized as a non-cash gain or loss in the condensed consolidated statements of operations, which resulted in fluctuations in the Company’s reported net income and earnings per share (EPS).
For
the nine months ended March 31, 2026 and 2025, changes in the fair value of warrant liabilities reduced reported EPS by $ and $
per share, respectively. These changes were primarily driven by movements in the market price of our common stock and changes in the
volatility assumptions used in the valuation model. For the three and nine months ended March 31, 2026 and 2025, the Company recorded
(i) gains of $
The
fair value of the warrant liabilities at March 31, 2026, and June 30, 2025, was a reduction of $
Investors should note that the remeasurement of warrant liabilities is a non-operational, non-cash item. Future changes in fair value will continue to be recorded in earnings until the warrants are either exercised, transferred to public warrants or expire. Additional details on the fair value assumptions and measurement techniques are provided in Note 22 – Fair Value.
Note 21: Warrants
At
March 31, 2026, and June 30, 2025, there were
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant. It will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock underlying the Warrants is then effective. A prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. Additionally, no warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified, or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants.
| 21 |
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 $
| ● | in whole and not in part. | |
| ● | at a price of $ per Public Warrant. | |
| ● | upon not less than 30 days’ prior written notice of redemption after the warrants become exercisable to each warrant holder; and | |
| ● | if,
and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
Even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger, or consolidation. However, the Public Warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.
Private Placement Warrants:
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering but are classified as liabilities on the condensed consolidated balance sheet as they are not considered indexed to the company’s own stock. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants as described above.
Representative Warrants
The Company issued Representative Warrants, for minimal consideration to ThinkEquity, a division of Fordham Financial Management, Inc. (and/or its designees), in a private placement simultaneously with the closing of Alliance’s initial public offering, which are also classified as liabilities on the condensed consolidated balance sheet. The Representative Warrants are identical to the Private Warrants except that so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, the Representative Warrants (i) will not be redeemable by the Company, (ii) may be exercised by the holders on a cashless basis, (iii) are entitled to registration rights and (iv) are not exercisable more than five years from the effective date of the Merger.
| 22 |
Note 22: Fair Value
The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
As of March 31, 2026 and June 30, 2025, the Company has classified the Private Placement Warrants and the Representative Warrants as Level 3 fair value measurements. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed below, the Company utilized the Black Scholes Model in valuing the Private Placement Warrants and Representative Warrants.
The estimated fair value of cash, trade receivables, accounts payable, accrued expenses and other current liabilities are based on Level 1 inputs as the fair values approximate carrying amounts as of March 31, 2026, and June 30, 2025, based on the short-term nature and maturity of these instruments.
The estimated fair values of subordinated shareholder debt and the credit facility is based on Level 2 inputs, which consist of interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. As of March 31, 2026, and June 30, 2025 the estimated fair value of the Company’s short and long-term debt approximates it carrying value due to market interest rates charged on such debt or their short-term maturities.
The Company recomputes the fair value of the Private and the Representative Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The Company utilized the following assumptions to estimate fair value of the Private Warrants and Representative Warrants as of:
Schedule of Estimate Fair Value of Private Warrants and Representative Warrants
| March 31, 2026 | June 30, 2025 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise price per share | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Warrants and rights outstanding measurement input | ||||||||
The significant assumptions using the Lattice model approach for valuation of the Private Placement Warrants and Representative Warrants were determined in the following manner:
| (i) | Risk-free interest rate: the risk-free interest rate is based on the U.S. Treasury rate with a term matching the time to expiration. | |
| (ii) | Expected term: the expected term is estimated to be equivalent to the remaining contractual term. | |
| (iii) | Expected volatility: expected stock volatility is based on daily observations of the Company’s historical stock value and implied by market price of the Public Warrants, adjusted by guideline public company volatility. | |
| (iv) | Expected dividend yield: expected dividend yield is based on the Company’s anticipated dividend payments. As the Company has never issued dividends, the expected dividend yield is %, and this assumption will be continued in future calculations unless the Company changes its dividend policy. |
| 23 |
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)
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
| As of March 31, 2026 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | $ | $ | $ | ||||||||||||
| As of June 30, 2025 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | $ | $ | $ | ||||||||||||
The table below presents the change in the number and fair value of the Private and Representative Warrants for the period ended March 31, 2026, and March 31, 2025 (in thousands, except the number of shares)
Schedule of Change in Number and Fair Value of Private and Representative Warrants
| Private Warrants | Representative Warrants | Total | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| June 30, 2025 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | $ | $ | ||||||||||||||||||||||
| September 30, 2025 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in classification from Private to Public | ||||||||||||||||||||||||
| Change in value | $ | $ | $ | |||||||||||||||||||||
| December 31, 2025 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| March 31, 2026 | $ | $ | $ | |||||||||||||||||||||
| Private Warrants | Representative Warrants | Total | ||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||
| June 30, 2024 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | $ | $ | ||||||||||||||||||||||
| September 30, 2024 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in classification from Private to Public | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Change in value | $ | $ | $ | |||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | |||||||||||||||||||||
| Exercised | ||||||||||||||||||||||||
| Change in value | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| March 31, 2025 | $ | $ | $ | |||||||||||||||||||||
Note 23: Business Combinations - Endstate
On December 31, 2025, Alliance Entertainment Holding Corporation (the “Company”), through a wholly owned subsidiary, completed the acquisition of substantially all of the assets of Endstate (the “Acquisition”). The Acquisition was accounted for as a business combination under ASC 805, Business Combinations.
The Acquisition was completed to enhance the Company’s technology capabilities and expand its digital and direct-to-consumer product offerings. The results of operations of the acquired business were included in the Company’s condensed consolidated financial statements at March 31, 2026, since the acquisition date was not material.
| 24 |
Purchase Consideration
The
total consideration transferred in connection with the Acquisition was $
Schedule of Purchase Consideration
| Amount | ||||
| Cash paid at closing | $ | |||
| Deferred payment payable one year after closing | ||||
| Fair value of contingent consideration | ||||
| Total consideration transferred | $ | |||
Certain payments to the founders, including guaranteed payments and sign-on bonuses that were not contingent on continued employment, were determined to represent consideration transferred in exchange for the acquired business and were included in purchase consideration. Payments contingent on continued employment were excluded from purchase consideration and will be recognized as compensation expense over the requisite service period.
Preliminary Purchase Price Allocation
The allocation of the purchase consideration is preliminary and subject to adjustment during the measurement period as the Company finalizes its valuation of acquired assets and assumed liabilities. The preliminary allocation of the consideration transferred is as follows (in thousands):
Schedule of Preliminary Purchase Price Allocation
| Asset / (Liability) | Amount | |||
| Identifiable intangible assets: | ||||
| Technology | $ | |||
| Trademarks | ||||
| Customer relationships | ||||
| Total identifiable intangible assets | ||||
| Goodwill | ||||
| Net liabilities assumed | ( | ) | ||
| Total consideration transferred | $ | |||
Identifiable
intangible assets are being amortized on a straight-line basis over an estimated useful life of
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
contingent consideration was recorded at an estimated fair value of $
Contingent consideration is remeasured at each reporting date, with changes in fair value recognized in earnings.
Acquisition-Related Costs
Transaction costs incurred in connection with the Acquisition were expensed as incurred and included in transaction costs.
Note 24: Subsequent Events
The Company evaluated subsequent events occurring through May 14, 2026, the date these condensed consolidated financial statements were issued (or available to be issued). Based on this evaluation, the Company did not identify any non-recognized subsequent events that requires disclosure.
| 25 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The objective for the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is to provide information that the Company’s management team believes is necessary to achieve an understanding of its financial condition and the results of business operations with particular emphasis on the Company’s future and should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended June 30, 2025, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2025.
This analysis contains forward-looking statements concerning the Company’s performance expectations and estimates. Other than statements with historical context, commentary should be considered forward-looking and carries with it risks and uncertainties. See “Statement Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors, of this Form 10-Q for a discussion of other uncertainties, risks and assumptions associated with these statements.
Alliance is a leading global wholesaler and distributor of collectibles, physical media, entertainment products, hardware, and accessories across multiple platforms. Through an established multi-channel strategy, the Company serves as a key link between leading content producers and manufacturers and top-tier retail partners, both domestically and internationally. Alliance partners with premier suppliers, including Universal Pictures, Nintendo, Warner Bros. Home Entertainment, Walt Disney Studios, Sony Pictures, Lionsgate, Universal Music Group, Sony Music Entertainment (including The Orchard), Warner Music Group, Microsoft, Take-Two Interactive, Electronic Arts, Funko, and Mattel. The Company maintains an in-stock assortment of over 340,000 SKUs, including vinyl records, video games, compact discs, DVDs, Blu-ray titles, and collectibles. In addition to its wholesale operations, Alliance distributes exclusive content through AMPED Distribution and Alliance Home Entertainment, and operates as a value-added wholesale distributor, direct-to-consumer (“DTC”) distributor, and e-commerce provider. Its customer base includes leading retailers such as Walmart, Amazon, Barnes & Noble, Target, Verizon, BJ’s Wholesale Club, Costco, eBay, Best Buy, and Kohl’s, among others. The Company sells export-permitted products to customers in more than 70 countries worldwide.
Additionally, Alliance manages a diverse portfolio of owned e-commerce brands through its DirectToU LLC division, catering to various entertainment and collectible markets. Notable brands include CDWow, Vinyl Unlimited, DeepDiscount, PopMarket, Collectibles Unlimited, Critics’ Choice Video, Collectors’ Choice Music, Movies Unlimited and WowHD.
Alliance provides advanced distribution and technology platforms that enable the efficient sale and fulfillment of physical entertainment products and collectibles across retail and e-commerce channels. These capabilities are further enhanced by Handmade by Robots, which expands the Company’s portfolio of premium licensed collectibles, and Alliance Authentic (formerly Endstate), which delivers NFC-enabled authentication and digital product identity technology to support product verification and authenticated resale. Together, these capabilities strengthen Alliance’s position in the collectibles market by enabling secure, traceable, and scalable distribution of high-value physical products. In addition, Alliance supports its retail partners with integrated back-office services, including fully operational EDI and logistics infrastructure, to facilitate both ongoing operations and new product launches.
License Agreements
In January 2025, Alliance entered into an exclusive home entertainment distribution agreement with Paramount Pictures, designating Alliance as the sole distributor of Paramount’s physical media – including DVDs, Blu-rays, and 4K UHD titles, across the United States and Canada. This strategic partnership significantly enhances Alliance’s leadership in home entertainment distribution by providing direct access to Paramount’s extensive library of blockbuster films and iconic TV series. The collaboration has already yielded positive results. This partnership not only strengthens relationships with major retailers and collectors but also reinforces Alliance’s commitment to delivering high-quality entertainment products to consumers.
In January 2026, Alliance Entertainment entered into an exclusive home entertainment license agreement with Amazon MGM Studios Distribution for physical media distribution in the United States and Canada. Under the agreement, the Company acts as the exclusive distributor of Amazon MGM Studios’ physical media titles, including new releases and select catalog content, across wholesale, e-commerce, and brick-and-mortar retail channels. The partnership broadens the Company’s physical media portfolio, particularly in higher-value and collectible offerings, while leveraging its scale, marketing capabilities, and omnichannel fulfillment platform to drive distribution and category growth.
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Merger, Asset Purchase and Business Acquisition
Alliance has a proven history of successfully acquiring and integrating competitors and complementary businesses. The Company will continue to evaluate opportunities to identify targets that meet strategic and economic criteria.
On December 31, 2025, Alliance completed its strategic acquisition of Endstate Authentic LLC and established Endstate Authentic LLC (“Endstate”) as a wholly owned subsidiary focused on authentication and resale technology. The acquisition supports the launch of Alliance Authentic, a new premium platform designed to create authenticated, certified vinyl collectibles and a trusted global marketplace for buying, selling, and trading investment-grade physical media. Endstate’s patented NFC-enabled authentication and digital product identity technology enables real-time product verification, counterfeit prevention, and authenticated resale services, forming the technological foundation of the Alliance Authentic platform. As part of the transaction, Endstate co-founders Bennett Collen and Stephanie Howard joined Alliance’s leadership team as President and Senior Vice President of Operations, respectively. The acquisition resulted in the recognition of $5 million of goodwill and $3.3 million of identifiable intangible assets as of March 31, 2026, primarily related to Endstate’s proprietary technology and digital identity systems. Management believes the acquisition strengthens Alliance’s strategic position in the growing authenticated collectibles market and supports the development of new technology-enabled and recurring revenue opportunities.
On December 17, 2024, Alliance acquired Handmade by Robots from Bensussen Deutsch & Associates, LLC, for $7.6 million. Handmade by Robots produces licensed vinyl figures that mimic the look of knitted or crocheted plush toys. These figures feature characters from popular franchises such as DC Comics, Ghostbusters, Harry Potter, Star Trek, and Stranger Things, and have become favorites among fans and collectors. The acquisition included inventory, tooling equipment, and a trademark associated with the product line. This addition has diversified our product offerings by adding an exclusive line to our portfolio.
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 21.
On July 1, 2022, Alliance purchased the assets and liabilities of Think3Fold, LLC, a collectibles distribution company. This acquisition resulted in increased shelf space at our largest customers and expanded our product offerings.
Upon consummation of the Merger, the most significant change in Legacy Alliance’s future reported financial position and results of operations was a decrease in net Equity of $787,000 as compared to Legacy Alliance’s consolidated balance sheet.
As a result of the Merger, Alliance Entertainment became the successor to an SEC-registered company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Macroeconomic Uncertainties
The Company continues to operate amid macroeconomic uncertainty during the period ended March 31, 2026, including inflationary pressures, evolving trade policies, and geopolitical instability related to ongoing global conflicts. While inflation has moderated compared to prior periods, consumer discretionary spending remains uneven, impacting demand across certain product categories. The Company continues to experience cost pressures associated with existing and potential tariffs on imported goods, particularly for internationally sourced physical media and collectibles. In response, management continues to actively manage pricing, product mix, and sourcing strategies to mitigate the effects of economic and trade-related volatility. While these conditions may persist, the Company believes its diversified product portfolio and focus on higher-value and collectible offerings position it to effectively navigate the current environment. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”
| 27 |
Tariffs and Trade Policy
The U.S. trade policy environment has undergone significant change since early 2025. From February 4, 2025, through February 24, 2026, the U.S. government-imposed tariffs on a broad range of imported goods under IEEPA. These tariffs affected certain products distributed by the Company. The impact of IEEPA tariffs on the Company’s cost of sales during the three months ended March 31, 2026, was not material.
On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs, invalidating all IEEPA-based tariff orders. The President subsequently revoked the IEEPA tariff orders effective February 24, 2026. Following litigation before the U.S. Court of International Trade, CBP launched the CAPE portal on April 20, 2026, to process IEEPA refund applications. Based on its internal analysis of CBP entry records, the Company estimates it may be entitled to refunds of approximately $1.5 million in IEEPA tariffs previously paid. This amount has not been recognized in the financial statements as of March 31, 2026, due to uncertainties surrounding the refund process, including potential government appeal and administrative implementation. See Note 13 to the condensed consolidated financial statements.
Despite the invalidation of IEEPA-based tariffs, other tariff authorities remain in effect. The administration has imposed a 10% temporary import surcharge under Section 122 of the Trade Act of 1974, effective February 24, 2026, and currently scheduled to expire July 24, 2026, along with continuing Section 301 tariffs on goods of Chinese origin and Section 232 tariffs on steel and aluminum products. The Company continues to evaluate the impact of the evolving trade policy environment on its sourcing, cost structure, and product distribution arrangements. While the Company’s exposure to currently effective tariffs has not been material to date, a further escalation of tariffs or the imposition of new tariff measures could adversely affect the Company’s cost of sales, gross margin, or supply chain in future periods.”
Key Performance Indicators
Management monitors and analyzes key performance indicators to evaluate financial performance, including:
Net Revenue: To derive Net Revenue, the Company reduces total gross sales by customer returns, returns reserve, and allowances, including discounts.
Cost of Revenues (excluding depreciation and amortization): Our cost of revenue reflects the total costs incurred to market and distribute products to customers. Changes in cost are impacted primarily by sales volume, product mix, product obsolescence, freight costs, and market development funds.
Operating Expenses: Our Operating Expenses are the direct and indirect costs associated with the distribution and fulfillment of products and services. They include both Distribution and Fulfillment and Selling, General and Administrative Expenses. The Distribution and Fulfillment Expenses are the payroll and operating expenses associated with the receipt, warehousing, and distribution of product.
Margins: To analyze profitability, the Company reviews gross and net margins in dollars and as a percent of revenue by line of business and product line.
Selling, General and Administrative Expenses: The Selling, General and Administrative Expenses are payroll and operating costs for Information Technology, Sales & Marketing, and General & Administrative functions. In addition, we include Depreciation and Amortization expenses and Transaction Costs, if applicable.
Balance Sheet Indicators: The Company views cash, product inventory, accounts payable, and working capital as key indicators of its financial position.
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Alliance Entertainment Holding Corporation
Results of Operations Three Months Ended March 31, 2026, Compared to Three Months Ended
March 31, 2025
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Net Revenues | $ | 258,201 | $ | 213,045 | ||||
| Cost of Revenues (excluding depreciation and amortization) | 225,180 | 183,984 | ||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | 11,120 | 9,989 | ||||||
| Selling, General and Administrative Expense | 16,878 | 14,187 | ||||||
| Depreciation and Amortization Expense | 1,392 | 1,352 | ||||||
| Transaction Costs | 313 | - | ||||||
| Restructuring Costs | - | 4 | ||||||
| Total Operating Expenses | $ | 29,703 | $ | 25,532 | ||||
| Operating Income | 3,318 | 3,529 | ||||||
| Other Expenses | ||||||||
| Change in Fair Value of Warrants | (884 | ) | (1,676 | ) | ||||
| Interest Expense | 1,568 | 2,435 | ||||||
| Total Other Expenses | 684 | 759 | ||||||
| Income Before Income Tax Expense | 2,634 | 2,770 | ||||||
| Income Tax Expense | 323 | 919 | ||||||
| Net Income | $ | 2,311 | $ | 1,851 | ||||
Net Revenue: Year over year, total net revenues increased from $213.0 million to $258.2 million (+$45.2 million, +21.2%) for the three months ended March 31, 2026. The increase was driven by broad-based growth across several key product categories, most notably CDs, vinyl records, collectibles, and electronics. CD sales increased significantly, rising approximately 90% year-over-year, while vinyl remained the largest category, growing by 14.7%, supported in part by increased demand ahead of Record Store Day in April. Collectibles and electronics also delivered strong growth, reflecting continued consumer demand for higher-value and premium physical products. Video (DVD/Blu-ray/UltraHD) and gaming revenues increased by 4.6% and 12.4%, respectively, contributing to overall growth, though at a more moderate pace. Digital downloads declined by $1.1 million (-31.4%), consistent with the Company’s strategic focus on physical media and collectibles. Overall, revenue performance during the quarter reflected strong demand across core physical product categories and a continued shift in mix toward higher-value offerings, partially offset by declines in digital formats. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 30.4% of gross revenue for the three months ended March 31, 2026.
Year over year, vinyl record sales increased from $86 million to $99 million for the three months ended March 31, 2026, representing an increase of $13 million, or 15%, compared to the prior-year period. The increase was primarily driven by higher unit sales volume, reflecting continued consumer demand for vinyl records. Growth during the quarter benefited from several notable vinyl releases, including major pop and rock comeback albums, high-profile pop titles, and early-year metal and industrial releases, as well as continued interest in collectible and limited-edition offerings. Sales were also supported by retailer and consumer purchasing in advance of Record Store Day in April 2026. Vinyl continued to perform well as a preferred physical music format among both established and emerging audiences, and increased demand more than offset relatively stable pricing during the period, resulting in overall year-over-year revenue growth.
Music Compact Disc (CD) sales increased from $21 million to $39 million for the three months ended March 31, 2026, representing an increase of $19 million, or 90%, compared to the prior-year period. The increase in revenue was primarily driven by a 39% increase in unit sales volume, along with a 37% increase in average selling price. The growth in unit volume reflects sustained demand for physical music products tied to select high-profile releases and catalog strength, as well as continued consumer interest in collectible and value-priced CD formats. While the broader music market continues to shift toward streaming and digital consumption, CD performance during the quarter ended March 31, 2026, was supported by loyal fan purchasing behavior, particularly for major artist releases and genre-driven demand in pop and international music segments, with K-pop remaining a key driver of incremental volume, helping to offset long-term category decline pressures.
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Physical movie sales, which include DVD, Blu-ray, and Ultra HD formats, increased from $58 million to $61 million for the three months ended March 31, 2026, representing growth of $3 million, or 5%, compared with the same period in the prior year. The increase was primarily driven by higher unit shipments, along with a modest 0.5% increase in average selling price, resulting in overall revenue growth. Performance during the quarter benefited from a steady cadence of theatrical releases and continued consumer demand for premium physical formats, including 4K Ultra HD and collectible SteelBook editions. The primary driver of the increase was the Paramount partnership, which was initially launched in January 2025 but began to meaningfully ramp in April 2025, contributing to stronger title availability, improved retail placement, and increased volume during the current period. In addition, the Amazon MGM Studios Distribution partnership introduced during the year provided incremental catalog depth and further supported assortment expansion across key retail channels. A favorable product mix shift toward higher-margin premium products also contributed to the increase in average selling price and partially offset softness in lower-priced catalog titles.
For the quarter ended March 31, 2026, collectibles revenue increased from $5 million to $8 million, a gain of $3 million, or 48%, compared to the same period last year. While unit volume declined by 11%, this was more than offset by a 67% rise in average selling prices, which drove the overall increase in revenue. The improvement reflects a mix shift toward higher-priced collectibles, supported by expanded sourcing efforts and the addition of new vendors in the latter half of 2025, which contributed incremental sales during the quarter. Performance also benefited from the transition of Handmade by Robots from a distributed brand in 2024 to an owned brand in 2025, along with improved margins from certain legacy brands following inventory optimization initiatives implemented in the prior year.
For the quarter ended March 31, 2026, electronics revenue increased from $2.6 million to $4.0 million, representing growth of $1.4 million, or 53%, compared to the prior-year period. The increase was driven by a 19% rise in unit sales volume, along with a 29% increase in average selling price, both of which contributed to the overall revenue growth. The higher average selling price reflects a shift in product mix toward higher-priced items, as well as competitive pricing dynamics. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related products, which are typically sold as complementary items alongside physical music and movie media. Growth in the category was also supported by continued strength in vinyl and physical media sales, which helped drive demand for playback devices and related accessories.
Gaming product revenue increased from $29 million to $33 million for the three months ended March 31, 2026, representing an increase of $4 million, or 12%, compared to the prior-year period. The growth was driven by a 6% increase in unit sales volume and a 7% increase in average selling price. The improvement in performance was primarily attributable to steady demand for the Nintendo Switch II, which was released in June 2025 and therefore did not contribute to the prior-year quarter. Sales during the current period benefited from continued consumer interest in this next-generation console platform and related software titles, as well as improved product availability compared to the prior year. Gaming product sales primarily consist of consoles, physical game titles, and accessories. As a distributor of physical gaming products, the Company continues to align its product mix and distribution strategy with evolving consumer preferences, while monitoring supply chain conditions and broader industry trends.
Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, increased from $184 million to $225 million for the year-over-year period, representing an increase of $41 million, or 22%, primarily reflecting higher sales volume and the corresponding increase in product costs. Gross margin dollars increased by $4 million, driven by overall sales growth, partially offset by margin compression. For the quarter ended March 31, 2026, gross margin declined from 13.6% to 12.8%, a decrease of 80 basis points compared with the same period in the prior year. The decrease was primarily attributable to a lower mix of digital sales, which carry higher margins, as well as reduced trade spending and vendor rebates received during the period. Additional pressure on margins resulted from slightly higher freight costs and increased product returns processed during the quarter, which negatively impacted gross margin.
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Operating Expenses: Total operating expenses for the quarter increased from $25.5 million to $29.7 million, an increase of 16.3% year over year, while declining as a percentage of net revenue from 12.0% to 11.5%. The increase in absolute dollars was driven primarily by higher selling, general and administrative (“SG&A”) expenses (excluding depreciation and amortization) and distribution and fulfillment costs. SG&A expenses increased from $14.2 million to $16.9 million, reflecting strategic investments in infrastructure, technology, and personnel to support the Company’s exclusive content partnerships and future growth initiatives. Despite the increase in dollars, SG&A as a percentage of net sales improved from 6.7% to 6.5% for the quarter ended March 31, 2026. Distribution and fulfillment expenses increased from $10.0 million to $11.1 million, or 11.3%, primarily due to higher shipping volumes, partially offset by improved operating leverage. However, these costs decreased as a percentage of net revenue from 4.7% to 4.3%. The Company continues to utilize a flexible labor model within its warehouse operations, with a higher proportion of temporary staffing to support seasonal and demand-driven fluctuations, while maintaining targeted investments in automation to enhance efficiency and scalability over time. Fulfillment payroll increased to $7.1 million from $6.2 million in the prior year, primarily driven by higher staffing levels to support increased demand; however, as a percentage of net revenue, it improved from 2.9% to 2.7%, reflecting improved labor productivity and operating leverage. This was further supported by a slight 0.3% decrease in average labor costs per hour. Depreciation and amortization expense remained consistent at $1.4 million compared with the prior-year period.
Interest Expense: For the three months ended March 31, 2026, total interest expense decreased from $2.4 million to $1.6 million (-$.9 million, -35.6%) versus the prior year period. The decrease was primarily driven by a lower effective interest rate, which declined from 8.9% to 7.3%, following the transition of the Company’s revolving credit facility from White Oak to Bank of America. This reduction in borrowing costs was partially offset by an increase in the average revolver balance from $68.4 million to $81.4 million (+$15.7 million, +23%), reflecting increased utilization of the facility to support working capital needs and improved liquidity.
Income Tax: For the three months ended March 31, 2026, an income tax expense of $0.3 million was recorded compared to $0.9 million for the prior year period. Alliance reported a pretax income of $2.6 million for the three months ended March 31, 2026, versus income of $2.8 million for the three months ended March 31, 2025. The effective tax rate was 12% and 33% for the three months ended March 31, 2026, and 2025, respectively. In accordance with ASC 740-270, the Company calculates its interim income tax provision using an estimated annual effective tax rate (“ETR”) applied to year-to-date ordinary income. This approach ensures that the interim tax expense reflects the best estimate of the annual tax rate, as required by U.S. GAAP. Items that are unusual, infrequent, or not expected to recur—such as discrete events—are recognized separately in the period in which they occur and are not included in the estimated annual ETR. The difference between the Company’s effective tax rate for the three months ended March 31, 2026, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and fair value adjustments related to the Company’s warrant liability.
Non-GAAP Financial Measures: For the three months ended March 31, 2026, we had non-GAAP Adjusted EBITDA of approximately $5.1 million compared with Adjusted EBITDA of approximately $4.9 million in the prior year period, or a year-over-year improvement of $0.2 million. We define Adjusted EBITDA as net income (loss) adjusted to exclude: (i) income tax expense; (ii) interest expense; (iii) depreciation and amortization; (iv) changes in the fair value of warrant liabilities; and (v) other non-recurring or non-cash items, including transaction costs and stock-based compensation. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. We use Adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process. We present Adjusted EBITDA as a supplemental measure because we believe such a measure is useful to investors as a reasonable indicator of operating performance. We believe this measure is a financial metric used by many investors to compare companies. This measure is not a recognized measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. See the table below for a reconciliation, for the periods presented, of our GAAP net income (loss) to Adjusted EBITDA.
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Net Income | $ | 2,311 | $ | 1,851 | ||||
| Add back: | ||||||||
| Interest Expense | 1,568 | 2,435 | ||||||
| Income Tax Expense | 323 | 919 | ||||||
| Depreciation and Amortization Expense | 1,392 | 1,352 | ||||||
| EBITDA | $ | 5,594 | $ | 6,557 | ||||
| Adjustments | ||||||||
| Stock-based Compensation Expense | 55 | - | ||||||
| Transaction Costs | 313 | - | ||||||
| Change In Fair Value of Warrants | (884 | ) | (1,676 | ) | ||||
| Restructuring Cost | - | 4 | ||||||
| Adjusted EBITDA | $ | 5,078 | $ | 4,885 | ||||
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Alliance Entertainment Holding Corporation
Results of Operations Nine Months Ended March 31, 2026, Compared to Nine Months Ended
March 31, 2025
| Nine Months Ended | Nine Months Ended | |||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Net Revenues | $ | 880,886 | $ | 835,707 | ||||
| Cost of Revenues (excluding depreciation and amortization) | 763,590 | 738,821 | ||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | 33,161 | 31,425 | ||||||
| Selling, General and Administrative Expense | 48,545 | 41,092 | ||||||
| Depreciation and Amortization Expense | 3,966 | 3,865 | ||||||
| Transaction Costs | 909 | - | ||||||
| Restructuring Costs | 2 | 73 | ||||||
| Insurance Claim Recovery | (408 | ) | - | |||||
| Gain on Disposal of Fixed Assets | (24 | ) | (15 | ) | ||||
| Total Operating Expenses | $ | 86,151 | $ | 76,440 | ||||
| Operating Income | 31,145 | 20,446 | ||||||
| Other Expenses | ||||||||
| Interest Expense | 7,369 | 8,101 | ||||||
| Change in Fair Value of Warrants | 1,428 | 910 | ||||||
| Total Other Expenses | 8,797 | 9,011 | ||||||
| Income Before Income Tax Expense | 22,346 | 11,435 | ||||||
| Income Tax Expense | 5,769 | 2,116 | ||||||
| Net Income | $ | 16,579 | $ | 9,319 | ||||
Net Revenue: Year over year, total net revenues increased from $836 million to $881 million for the nine months ended March 31, 2026 (+$45 million, +5%). The increase reflected broad-based growth across the Company’s core physical entertainment categories, partially offset by softness in gaming and digital downloads. Overall performance benefited from continued demand for physical media, collectibles, and related services, as well as the Company’s broad distribution platform, deep inventory positions, and exclusive content arrangements. Alliance Entertainment remains a leading distributor of entertainment products and content across music, video, gaming hardware, electronics and pop culture collectibles. With exclusive distribution rights for approximately 150 studios and labels in the film and music industry, the Company is well positioned to serve both business-to-business and direct-to-consumer channels. In addition, the acquisition of Handmade by Robots and the Paramount and newly obtained Amazon MGM Studios Distribution licensing contracts further expand the Company’s portfolio of exclusive and differentiated content. In addition, our unique DTC suite of distribution and inventory solutions for the e-commerce retail industry, including our consumer direct subsidiary DirectToU LLC, accounted for approximately 34.8% of gross revenue for the nine months ended March 31, 2026.
Year over year, vinyl record sales increased from $266 million to $287 million (+$21 million, +8%) for the nine months ending March 31, 2026. The increase in revenue was driven by a 4% increase in unit sales volume and a 4% increase in average selling price. The growth in unit volume reflects continued consumer demand for physical music formats, particularly among collectors and enthusiasts seeking premium and limited-edition releases. Volume growth during the period was also supported by strong pre-orders and early purchasing activity ahead of Record Store Day in April 2026, as retailers and consumers prepared for anticipated limited-edition releases. In addition, higher average selling prices were driven by a favorable shift in product mix toward premium and specialty vinyl formats, including colored vinyl, boxed sets, and collectible editions. Overall, vinyl performance benefited from strong new release activity, expanded retail distribution, and sustained demand for vinyl as a preferred format among both established and emerging artists.
| 32 |
Music Compact Disc (CD) sales increased from $94 million to $114 million for the nine months ended March 31, 2026, representing an increase of $20 million, or 21%, year over year. The increase was driven by a 14% increase in unit volume and a 6% increase in average selling price. The growth reflects strengthening demand for physical music products, supported by continued consumer interest in tangible and collectible formats despite the broader industry shift toward streaming and digital consumption. Sales during the period were supported in part by the release of The Life of a Showgirl, the twelfth studio album by Taylor Swift, which was released on October 3, 2025, and generated significant physical sales activity throughout the nine-month period ended March 31, 2026. In addition, sustained demand for K-pop releases continued to be a meaningful contributor to CD performance, driven by strong fan engagement and collectible multi-version purchasing behavior. Continued consumer interest in select physical releases and collectible CD editions also contributed to revenue growth, as fans continued to prioritize special editions and packaged formats even as broader industry trends favor streaming and digital formats.
Physical movie sales, encompassing DVD, Blu-ray, and Ultra HD formats, increased from $197 million to $260 million for the nine months ended March 31, 2026, representing an increase of $63 million, or 31%, compared with the same period in the prior year, and accounted for approximately 30% of total net sales during the period. The increase in revenue was driven by a 3% increase in average selling price, together with a 28% increase in unit shipments, resulting in significant year-over-year growth. Performance during the period benefited from a consistent flow of theatrical releases and sustained consumer demand for premium formats, including 4K Ultra HD and collectible SteelBook editions. Growth was supported by the continued ramp of the Paramount exclusive content partnership, which was launched in January 2025, and contributed to expanded title availability, improved retail placement, and stronger unit performance throughout the period. In addition, the newly launched Amazon MGM Studios Distribution partnership in January 2026 further expanded the Company’s film portfolio and enhanced assortment breadth across key retail channels. A favorable shift in sales mix toward premium, higher-margin content supported the increase in average selling price and partially offset softness in lower-priced catalog titles.
For the nine months ended March 31, 2026, collectibles revenue rose from $16 million to $22 million (+$6 million, +37%) compared with the prior-year period. Although unit volume declined 20%, a 71% increase in average selling price more than offset lower volumes and drove revenue growth. Results were supported by the addition of over 20 new collectibles vendors that began contributing sales in the latter part of 2025, generating more than $1.5 million in incremental revenue. Existing vendors also delivered higher sales driven by new product lines and Handmade by Robots’ transition from a distributed brand in 2024 to an owned brand in 2025 contributed meaningfully to year-over-year performance.
For the nine months ended March 31, 2026, electronics revenue increased from $11 million to $12 million, representing growth of $1 million, or 6%, compared to the prior-year period. The increase was driven by an 8% rise in unit sales volume, partially offset by a 2% decline in average selling price. The decrease in average selling price primarily reflects changes in product mix and competitive pricing dynamics, reflecting continued demand for entry-level and mid-tier audio playback devices alongside premium accessory offerings. Electronics sales primarily consist of audio playback devices and related accessories, including turntables, headphones, speakers, and other ancillary products that complement physical music and movie media.
Gaming product revenue declined from $226 million to $158 million, a decrease of $68 million, or 30%, for the nine months ended March 31, 2026. The decline was driven by a 29% decrease in average selling price, together with a slight 1% decrease in unit sales volume year-over-year. The reduction in average selling price primarily reflected a pause in higher-priced arcade hardware purchases following a reassessment of vendor partnerships, as well as limited availability of certain hardware products and delays in major game releases during the period. While unit volumes were supported in part by strong demand for the Nintendo Switch II following its release in June 2025, this was not sufficient to offset declines in other higher-value product categories, resulting in a slight overall decline in unit sales volume. As a result, overall revenue decreased during the period. As a distributor of physical gaming products, the Company continues to adjust its product mix and sourcing strategies to align with evolving consumer demand and to manage profitability.
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Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, increased from $739 million to $764 million (+$25 million, +3%) year-over-year, primarily reflecting higher overall sales volume. The increase was partially offset by a more favorable product mix and the impact of exclusive content partnerships, which supported higher-margin physical media sales. For the nine months ended March 31, 2026, gross margin increased from 11.6% to 13.3%, an expansion of 170 basis points compared with the prior-year period. The improvement was driven by higher average selling prices, a favorable shift toward premium and exclusive content, including the continued ramp of the Paramount partnership and the launch of Amazon MGM Studios Distribution in January 2026, as well as improvements in distribution-related economics, all of which contributed to enhanced overall profitability.
Operating Expenses: Total operating expenses for the nine months ended March 31, 2026, increased from $76.4 million to $86.2 million (+$9.7 million, +12.7%), and rose as a percentage of net revenue from 9.1% to 9.8% compared with the same period in the prior year. The increase was primarily driven by higher selling, general, and administrative expenses, which grew from $41.1 million to $48.5 million (+$7.4 million, +18.1%) reflecting strategic investments in infrastructure, technology, and personnel to support exclusive content partnerships and ongoing growth initiatives. These increases also include costs associated with various operational and strategic projects undertaken during the period. Distribution and fulfillment expenses increased modestly from $31.4 million to $33.2 million (+$1.7 million, +5.5%) and remained consistent as a percentage of net revenue at 3.8% year over year. The Company continues to invest in warehouse automation initiatives while utilizing a flexible labor model, including a higher proportion of temporary staffing, to support demand variability and project-based activities. As a result, fulfillment payroll increased slightly from $20.7 million to $21.4 million (+$.7 million, +3.1%) however, it declined as a percentage of net revenue from 2.5% to 2.4%, reflecting improved labor productivity and operating leverage, despite an approximately 2% increase in average hourly labor costs driven by market conditions. The Company continues to identify and implement process improvements to enhance operational efficiency and support long-term scalability. Depreciation and amortization remained consistent at $3.9 million for the nine months ended March 31, 2026, compared with the prior-year period.
Interest Expense: For the nine months ended March 31, 2026, total interest expense decreased from $8.1 million to $7.4 million (-$.7 million, -8.6%) compared with the prior-year period. Included in the $7.4 million for the current period is $1.6 million of non-recurring expense related to the amortization of deferred financing costs associated with the Company’s former White Oak credit facility, including advisory fees of $1.8 million previously paid to B&D Capital Partners, LLC, a firm partially owned by board member W. Tom Donaldson III. Excluding this non-recurring amortization, interest expense declined more significantly year-over-year, primarily due to a lower effective interest rate following the transition to Bank of America, which decreased from 9.4% to 7.7%, a reduction of 170 basis points. This benefit was achieved despite a modest increase in the average revolver balance to $81 million from $78 million, reflecting increased utilization of the facility to support working capital needs and improved cash flow flexibility.
Income Tax: For the nine months ended March 31, 2026, an income tax expense of $5.8 million was recorded compared to $2.1 million for the prior year period. Alliance reported a pretax income of $22.3 million for the nine months ended March 31, 2026, versus $11.4 million for the nine months ended March 31, 2025. The effective tax rate was approximately 26% and 19% for the nine months ended March 31, 2026, and 2025, respectively. In accordance with ASC 740-270, the Company calculates its interim income tax provision using an estimated annual effective tax rate (“ETR”) applied to year-to-date ordinary income. This approach ensures that the interim tax expense reflects the best estimate of the annual tax rate, as required by U.S. GAAP. Items that are unusual, infrequent, or not expected to recur—such as discrete events—are recognized separately in the period in which they occur and are not included in the estimated annual ETR. The difference between the Company’s effective tax rate for the nine months ended March 31, 2026, and the federal statutory rate primarily resulted from state income taxes, Foreign Derived Intangible Income, and fair value adjustments related to the Company’s warrant liability.
Non-GAAP Financial Measures: For the nine months ended March 31, 2026, we had non-GAAP Adjusted EBITDA of approximately $35.7 million compared with Adjusted EBITDA of approximately $24.4 million in the prior year period, or a year-over-year improvement of $11.3 million. We define Adjusted EBITDA as net gain or loss adjusted to exclude: (i) income tax expense; (ii) other income (loss); (iii) interest expense; (iv) depreciation and amortization expense; and (v) other non- recurring expenses. Our method of calculating Adjusted EBITDA may differ from other companies and accordingly, this measure may not be comparable to measures used by other companies. We use Adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process. We present Adjusted EBITDA as a supplemental measure because we believe such a measure is useful to investors as a reasonable indicator of operating performance. We believe this measure is a financial metric used by many investors to compare companies. This measure is not a recognized measure of financial performance under GAAP in the United States and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. See the table below for a reconciliation, for the periods presented, of our GAAP net income (loss) to Adjusted EBITDA.
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| Nine Months Ended | Nine Months Ended | |||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Net Income | $ | 16,579 | $ | 9,319 | ||||
| Add back: | ||||||||
| Interest Expense | 7,369 | 8,101 | ||||||
| Income Tax Expense | 5,769 | 2,116 | ||||||
| Depreciation and Amortization Expense | 3,966 | 3,865 | ||||||
| EBITDA | $ | 33,683 | $ | 23,401 | ||||
| Adjustments | ||||||||
| Stock-based Compensation Expense | 149 | - | ||||||
| Transaction Costs | 909 | |||||||
| Change In Fair Value of Warrants | 1,428 | 910 | ||||||
| Restructuring Cost | 2 | 73 | ||||||
| Insurance Claim Recovery | (408 | ) | - | |||||
| Gain on Disposal of Property and Equipment | (24 | ) | (15 | ) | ||||
| Adjusted EBITDA | $ | 35,739 | $ | 24,369 | ||||
LIQUIDITY AND CAPITAL RESOURCES
Liquidity: On October 1, 2025, Alliance Entertainment Holding Corporation entered into a new Loan and Security Agreement providing for a $120 million senior secured revolving credit facility with Bank of America, N.A. (the “Revolving Credit Facility”), which replaced the Company’s prior asset-based credit facility with White Oak Commercial Finance, LLC (the “Prior Credit Facility”). The Revolving Credit Facility enhances the Company’s liquidity profile and provides increased financial flexibility to support working capital needs and ongoing operations. In addition, the Company continues to implement strategic initiatives focused on cost control and the sale of higher-value products. Based on the availability under the Revolving Credit Facility, cash on hand, cash generated from operations, and working capital, management believes the Company has sufficient liquidity to fund its operations and meet its obligations for at least twelve months from the issuance of these consolidated financial statements.
Our primary sources of liquidity are cash on hand, cash provided by operating activities, and borrowings under our revolving credit facility. As of March 31, 2026, the Company had $1.2 million of cash on hand and $64 million outstanding under the Revolving Credit Facility. While working capital requirements increased during the period, reflecting higher inventory levels to support sales growth, period-end borrowings under the revolving credit facility decreased from $68 million under the Prior Credit Facility as of March 31, 2025, to $64 million as of March 31, 2026, primarily due to the timing of repayments and improved availability under the new facility. As a result, availability increased from $52 million to $56 million over the same period (+$4 million, +8%).
Under the Revolving Credit Facility, the Company may request the issuance of letters of credit, which reduce availability under the borrowing base and increase outstanding borrowings. As of March 31, 2026, the Company had a $750,000 letter of credit outstanding, which reduced availability under the Revolving Credit Facility and increased borrowings outstanding by a corresponding amount. The letter of credit is collateralized under the terms of the credit agreement and does not represent restricted cash held by the Company.
| ($in millions) | March 31, 2026 | March 31, 2025 | ||||||
| Revolver Balance | $ | 64 | $ | 68 | ||||
| Availability | $ | 56 | $ | 52 | ||||
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As of March 31, 2026, the Company intends to continue relying primarily on its borrowing capacity under the Revolving Credit Facility, as well as any renewal or replacement of such facility, to fund working capital and other operational requirements. The availability of additional cash proceeds from the potential exercise of outstanding Warrants is contingent upon the market price of the Company’s Class A common stock exceeding the Warrant exercise price of $11.50 per share. Given that the market price of the Class A common stock was $7.34 as of April 24, 2026, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities, and liquidity needs.
Cash Flow: The following table summarizes our net cash provided by or used on operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements for the nine months ended March 31, 2026, and 2025.
| Nine Months Ended | ||||||||
| ($ in thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Net Income | $ | 16,579 | $ | 9,319 | ||||
| Net Cash Provided By (Used In): | ||||||||
| Operating Activities | $ | 7,329 | $ | 16,081 | ||||
| Investing Activities | $ | (2,058 | ) | $ | (7,588 | ) | ||
| Financing Activities | $ | (5,270 | ) | $ | (7,592 | ) | ||
For the nine months ended March 31, 2026, the Company generated $7.3 million of cash from operating activities, compared to $16.1 million generated in the prior-year period. The decrease in operating cash flow was primarily driven by working capital changes, most notably a use of cash in inventory of $23.8 million, compared to a $5.0 million increase in the prior-year period, reflecting higher purchasing activity and timing of inventory receipts to support sales growth and upcoming demand periods. Accounts payable increased by $3.2 million, compared to a $6.4 million increase in the prior year, indicating a lower level of vendor financing relative to the prior period and contributing to the reduction in operating cash flow. Partially offsetting these impacts, trade receivables increased by $1.0 million compared to a $3.3 million increase in the prior-year period, reflecting improved collections and more efficient receivables management. Overall, the change in operating cash flow reflects the Company’s investment in working capital to support growth, partially offset by improvements in receivables performance.
Cash used in investing activities was $2.1 million for the nine months ended March 31, 2026, compared to $7.6 million used during the same period in the prior year. Cash used during the current period primarily reflects $1.0 million of capital expenditures related to facility improvements and warehouse automation, as well as $1.2 million of cash paid in connection with the Endstate acquisition completed on December 31, 2025, partially offset by minor proceeds from asset disposals. Cash used in the prior-year period was significantly higher and was primarily driven by $7.6 million of cash paid for the business acquisition relating to Handmade by Robots, with minimal capital expenditures in that period. The year-over-year decrease in investing cash outflows reflects lower acquisition-related spending in the current period compared to the prior year.
Net cash used in financing activities was $5.3 million for the nine months ended March 31, 2026, compared with net cash used of $7.6 million in the prior-year period. Financing activities during the current period primarily reflected net repayments under the Company’s revolving credit facility and the repayment of $10.0 million of loans from Bruce Ogilvie, Executive Chairman of the Board and a principal stockholder of the Company, as well as $0.7 million of deferred financing costs associated with the transition to the Bank of America credit facility. This compared to the prior-year period, which primarily reflected net repayments under the revolving credit facility and higher acquisition-related financing activity. The lower level of net cash used in the current period reflects improved liquidity management and more efficient utilization of the Company’s revolving credit facility following its transition to Bank of America, which provides enhanced borrowing capacity and more favorable financing terms.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results, and other assumptions we believe are reasonable. The actual results could differ materially from these estimates.
No changes were made to the critical accounting estimates discussed in the 2025 Annual Report during the nine months ended March 31, 2026.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Alliance is currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property rights.
Depending on the nature of the proceeding, claim, or investigation, the Company may be subject to monetary damage awards, fines, penalties, or injunctive orders. Furthermore, the outcome of these matters could materially adversely affect Alliance’s business, results of operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant judgment to determine the likelihood and amount of loss related to such matters.
Video Privacy Protection Act Matters. Beginning in August 2024, several putative class actions and related proceedings were filed against the Company and its subsidiary, DirectToU, LLC (“DirectToU”), in federal courts and arbitration alleging violations of the Video Privacy Protection Act (“VPPA”) and similar state laws. The complaints generally allege that the Company disclosed certain customer information and video viewing or purchasing data to third parties through the use of website tracking technologies.
In June 2025, the parties reached a settlement resolving the VPPA-related claims, subject to court approval. The settlement provides for a cash payment of $1.577 million to the class. The Company expects a portion of the settlement payment to be covered by insurance and, accordingly, recorded an insurance receivable of $1.377 million. The Company recorded a settlement liability of $1.577 million and the related insurance receivable during the three months ended September 30, 2025, and such amounts remained recorded in the Company’s condensed consolidated financial statements as of March 31, 2026.
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 Cooking Mama: Cookstar. Office Create seeks monetary damages in excess of $40 million. No damages have been awarded.
COKeM has denied the allegations and 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, which is reflected in Office Create’s expert damages analysis.
Discovery is ongoing. On March 9, 2026, Office Create served an expert report opining that total damages are approximately $37.9 million. Trial readiness is scheduled for October 2026. The Company maintains insurance coverage that may apply, subject to policy limits. The Company cannot reasonably estimate a possible loss, and no accrual has been recorded.
Sparkle Pop Matter. On June 9, 2025, Sparkle Pop, LLC filed an adversary proceeding against the Company in the United States Bankruptcy Court for the District of Maryland in the matter In re Diamond Comic Distributors, alleging theft of trade secrets and tortious interference with contractual relations. The Company has moved to dismiss the amended complaint, and that motion remains pending. The Company denies the allegations. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.
TCPA Demand. In November 2025, the Company received a demand letter asserting potential claims under the federal Telephone Consumer Protection Act against its subsidiary, DirectToU, LLC, relating to alleged marketing text messages. No complaint has been filed, and discussions between the parties are ongoing. At this time, the Company cannot reasonably estimate the amount or range of any potential loss associated with this matter, and no accrual has been recorded.
| 37 |
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.
Item 1A. Risk Factors
In addition to the risks described below, factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the year ending June 30, 2025, filed with the SEC on September 10, 2025. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Risks Related to the Acquisition and Integration of Endstate
On December 31, 2025, we completed the acquisition of Endstate Authentic LLC (“Endstate”). The acquisition introduces operational, financial, and strategic risks that could adversely affect our business if we are unable to successfully integrate or operate the acquired business. Endstate operates a digital authentication and loyalty-driven consumer brand that differs from our traditional wholesale and distribution operations. Successfully integrating Endstate requires, among other things, aligning technology platforms, operational processes, personnel, and corporate culture. We may experience challenges integrating Endstate’s systems and technology, retaining key employees, maintaining relationships with customers and partners, or achieving anticipated growth and synergies. If the integration of Endstate is delayed or unsuccessful, or if Endstate’s business does not perform as expected, our results of operations, cash flows, and financial condition could be materially adversely affected.
The Endstate acquisition includes contingent consideration and other payment obligations that may adversely affect our liquidity and results of operations.
As part of the Endstate acquisition, we assumed obligations that include contingent consideration arrangements, deferred consideration, and acquired royalty obligations. The contingent consideration is based on Endstate’s future financial performance and is subject to remeasurement at fair value each reporting period, with changes recognized in earnings. At March 31, 2026, we have accrued $5,500,000 under earnout. Actual amounts payable under these arrangements could exceed the currently estimated amounts and may require significant cash resources. In addition, changes in the estimated fair value of contingent consideration could negatively impact earnings and result in earnings volatility in future periods. These obligations could adversely affect our liquidity, financial flexibility, and results of operations.
Our goodwill and intangible assets recorded in connection with the Endstate acquisition may become impaired.
In connection with the Endstate acquisition, we recorded additional goodwill and finite-lived intangible assets, including technology, trademarks, and customer relationships. The purchase price allocation for the acquisition is preliminary and subject to adjustment as valuation analyses are finalized. Goodwill and intangible assets are subject to impairment testing, which requires significant judgment and estimates regarding future cash flows, growth rates, and market conditions. If Endstate’s operating performance, consumer adoption, or market conditions do not meet our expectations, we may be required to record impairment charges in future periods. Any such impairment could be material and would adversely affect our results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALLIANCE ENTERTAINMENT HOLDING CORPORATION | ||
| Date: May 14, 2026 | By: | /s/ Jeffrey Walker |
| Name: | Jeffrey Walker | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| 40 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Walker, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Alliance Entertainment Holding Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; |
| 3. | Based on my knowledge, the unaudited condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I, as the registrant’s Chief Executive Officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the periods in which this report is being prepared; and | |
| b) | (Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)); | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I, as the registrant’s Chief Executive Officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 14, 2026 | /s/ Jeffrey Walker |
| Jeffrey Walker | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Amanda Gnecco, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Alliance Entertainment Holding Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; |
| 3. | Based on my knowledge, the unaudited condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I, as the registrant’s Chief Financial Officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the periods in which this report is being prepared; and | |
| b) | (Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)); | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I, as the registrant’s Chief Financial Officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 14, 2026 | /s/ Amanda Gnecco |
| Amanda Gnecco | |
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alliance Entertainment Holding Corporation (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2026, as filed with the Securities and Exchange Commission (the “Report”), I, Jeffrey Walker, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: May 14, 2026 | /s/ Jeffrey Walker |
| Jeffrey Walker | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alliance Entertainment Holding Corporation (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2026, as filed with the Securities and Exchange Commission (the “Report”), I, Amanda Gnecco, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: May 14, 2026 | /s/ Amanda Gnecco |
| Amanda Gnecco | |
| Chief Financial Officer |