Alliance Entertainment earnings rise to $0.15 a share
Warrant fair-value changes produced a $0.850 million noncash gain, while approximately $49.2 million was available under the revolving facility at quarter-end.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Alliance Entertainment Holding Corp. (AENT) reported $278.830 million in net revenue for the three months ended September 30, 2026, compared with $253.974 million a year earlier. Net income was $7.621 million, versus $4.880 million, and diluted earnings per share were $0.15, versus $0.10.
Warrant fair-value changes produced a $0.850 million noncash gain, compared with a $1.462 million noncash loss in the prior-year quarter. Operating cash flow was $4.287 million, versus $2.720 million.
At September 30, cash was $649,000; revolving-facility borrowings were approximately $70.8 million, with approximately $49.2 million available. Management concluded liquidity was sufficient to fund operations and obligations for at least twelve months from issuance. In November 2026, AENT entered a Simple Agreement for Future Equity for a $0.5 million minority investment in ArtPics, funded through revolver borrowings, and renewed its commercial agreement with ArtPics.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointQuarterly revenue was $278.830 million, compared with $253.974 million a year earlier.
- Moderate pointQuarterly net income was $7.621 million, compared with $4.880 million a year earlier.
- Moderate pointOperating cash flow was $4.287 million, compared with $2.720 million a year earlier.
Negative
- Moderate pointCustomer #1 represented 23.8% of revenue for the three months ended September 30, 2026.
Filing Explained
At September 30, 9,920,090 warrants remained outstanding and were excluded from diluted EPS; each is exercisable for one Class A share at $11.50.
As of
At September 30, 9,920,090 warrants were outstanding, each exercisable for one Class A share at
Key Figures
Key Terms
asset-based revolving credit facility financial
contingent consideration financial
Level 3 financial
anti-dilutive financial
Simple Agreement for Future Equity financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were AENT's revenue and net income in the September 2026 quarter?
How much was available under AENT's revolving credit facility?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarterly period 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)
(Registrant’s telephone number, including area code)
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
| ||||
| The
|
Indicate
by check mark whether the registrant (1) has 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 definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth 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 November 10, 2026,
| 1 |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2026
TABLE OF CONTENTS
| Page | ||
| Part I. Financial Information | 1 | |
| Item 1. | Condensed Consolidated (Unaudited) Financial Statements | 1 |
| Condensed Consolidated Balance Sheets as of September 30, 2026 (Unaudited) and June 30, 2026 | 1 | |
| Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three Months Ended September 30, 2026, and 2025 | 2 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended September 30, 2026, and 2025 | 3 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2026, and 2025 | 5 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 |
| Item 4. | Controls and Procedures | 38 |
| Part II. Other Information | 38 | |
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 40 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 |
| Item 3. | Defaults Upon Senior Securities | 41 |
| Item 4. | Mine Safety Disclosures | 41 |
| Item 5. | Other Information | 41 |
| Item 6. | Exhibits | 41 |
| Signatures | 42 | |
| i |
| Table of Contents |
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) | September 30, 2026 | June 30, 2026 | ||||||
| (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 | ||||||||
| Total Current Liabilities | ||||||||
| Revolving Credit Facility, Net | ||||||||
| Operating Lease Obligations, 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 $ | - | - | ||||||
| Common Stock: Par Value $ | ||||||||
| 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 |
| Table of Contents |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands except share and per share amounts) | September 30, 2026 | September 30, 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 | ||||||||
| Gain on Disposal of Fixed Assets | - | ( | ) | |||||
| Total Operating Expenses | ||||||||
| Operating Income | ||||||||
| Other Expenses | ||||||||
| Interest Expense | ||||||||
| State Tax Benefit from Prior Year | ( | ) | - | |||||
| Change in Fair Value of Warrants | ( | ) | ||||||
| Total Other Expenses | ||||||||
| Income Before Income Tax Expense | ||||||||
| Income Tax Expense | ||||||||
| Net Income | $ | $ | ||||||
| Other Comprehensive Income | ||||||||
| Foreign Currency Translation | - | - | ||||||
| Total Comprehensive Income | $ | $ | ||||||
| Net Income per Share – Basic and Diluted | $ | $ | ||||||
| Weighted Average Common Shares Outstanding – Basic | ||||||||
| Weighted Average Common Shares Outstanding – Diluted | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
| Table of Contents |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended September 30, 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, 2026 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Warrant Conversion | - | |||||||||||||||||||||||
| Stock-based Compensation Expense | - | - | - | - | ||||||||||||||||||||
| Net Income | - | - | - | - | ||||||||||||||||||||
| Balances at September 30, 2026 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
Alliance Entertainment Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three Months Ended September 30, 2025 (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 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based Compensation Expense | - | - | - | - | ||||||||||||||||||||
| Net Income | - | - | - | - | ||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2026 | September 30, 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 | ( | ) | ||||||
| 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\Receivable | ||||||||
| 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 Inflow from Asset Disposal | - | |||||||
| 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 | ||||||||
| Deferred Financing Costs | - | ( | ) | |||||
| Net Cash Used In Financing Activities | ( | ) | ( | ) | ||||
| Net Increase/(Decrease) 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 | $ | $ | ||||||
The
accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
| Table of Contents |
ALLIANCE ENTERTAINMENT HOLDING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
Note 1: Organization and Summary of Significant Accounting Policies
Alliance Entertainment Holding Corporation (“Alliance” or the “Company”) was formed on August 9, 2010. The Company provides full-service distribution of pre-recorded music, video movies, video games and related accessories, and merchandising to retailers and other independent customers primarily in the United States. It provides product and commerce solutions to “brick-and-mortar”, e-commerce retailers, and consumer direct websites, while maintaining trading relationships with manufacturers of pre-recorded music, video movies, video games and related accessories.
On December 31, 2025, the Company completed the acquisition of Endstate Authentic LLC (“Endstate”), a digital authentication and loyalty-driven consumer brand. The transaction was accounted for as a business combination under ASC 805. Accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The purchase price allocation is preliminary and subject to adjustment as the Company continues to finalize its valuation analyses. Results of operations for Endstate are included in the Company’s condensed consolidated financial statements beginning on the acquisition date. Additional information related to this acquisition is provided in Note 22 – Business Combinations.
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer. The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding contingent Class E shares and warrant liabilities, as discussed further in Notes 20 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, 2026. June 30, 2026, 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 |
| Table of Contents |
Concentration of Credit Risk
Concentration of Credit Risk consists of the following at:
Schedule of Concentration of Credit Risk
Customers:
| Three Months Ended | Three Months Ended | |||||||
| Revenue | September 30, 2026 | September 30, 2025 | ||||||
| Customer #1 | % | % | ||||||
| Customer #2 | % | % | ||||||
| Customer #3 | % | % | ||||||
| Receivables | September 30, 2026 | June 30, 2026 | ||||||
| Customer #1 | % | % | ||||||
| Customer #2 | % | % | ||||||
| Customer #3 | - | * | % | |||||
| * |
| Three Months Ended | Three Months Ended | |||||||
| Purchases | September 30, 2026 | September 30, 2025 | ||||||
| Supplier #1 | % | % | ||||||
| Supplier #2 | % | -* | ||||||
| Supplier #3 | % | % | ||||||
| * |
| Payables | September 30, 2026 | June 30, 2026 | ||||||
| Supplier #1 | % | % | ||||||
| Supplier #2 | % | % | ||||||
| Concentration of credit risk | % | % | ||||||
Accounting Pronouncements
Recently issued and adopted
Accounting Standards Update 2024-04, In 2024, Debt—Debt with Conversion and Other Options. In 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments, including instruments with cash conversion features and instruments that are not currently convertible, should be accounted for as induced conversions. The Company adopted this ASU effective July 1, 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
Accounting Standards Update 2025-05, In 2025, Financial Instruments—Credit Losses. In 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This ASU introduces a practical expedient that permits entities to assume that current conditions as of the balance sheet date remain unchanged over the remaining life of current accounts receivable and contract assets arising from transactions accounted for under Topic 606 when estimating expected credit losses. The Company adopted this ASU effective July 1, 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.
| 7 |
| Table of Contents |
Recently Issued but Not Yet Adopted Accounting Pronouncements
Accounting Standards Update 2024-03, In 2024, Income Statement—Reporting Comprehensive Income. The FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU provides guidance on the disaggregation of income statement expenses, aiming to enhance the transparency of financial reporting by requiring more detailed disclosures of expense categories, including purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each relevant expense caption, a qualitative description of the amounts remaining in each relevant expense caption that are not separately disaggregated quantitatively, and disclosure of total selling expenses and, on an annual basis, the Company’s definition of selling expenses. As clarified by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, this ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, which for the Company is the fiscal year beginning July 1, 2027 and interim periods within the fiscal year beginning July 1, 2028, with early adoption permitted. The amendments are required to be applied prospectively, with retrospective application to any or all prior periods presented permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements to determine the potential effect on its financial reporting and disclosures.
Accounting Standards Update 2025-03, In 2025, Business Combinations and Consolidation. The FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. This ASU provides guidance on determining the accounting acquirer in a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business, requiring an entity to consider the same factors that are currently required for determining the accounting acquirer in other acquisition transactions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2027, with early adoption permitted, and is required to be applied prospectively to business combinations with an acquisition date on or after the date of initial application. The Company is currently evaluating the impact of this ASU on its consolidated financial statements to determine the potential effect on its financial reporting and disclosures.
Accounting Standards Update 2025-06, In 2025, Intangibles—Goodwill and Other—Internal-Use Software. The FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This ASU removes all references to software development project stages so that the guidance is neutral to the software development method used, and instead requires an entity to capitalize software costs when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. In evaluating that threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, which for the Company is the fiscal year beginning July 1, 2028, with early adoption permitted as of the beginning of an annual reporting period, and may be applied prospectively, using a modified transition approach, or retrospectively. The Company is currently evaluating the impact of this ASU on its consolidated financial statements to determine the potential effect on its financial reporting and disclosures.
Accounting Standards Update 2025-11, In 2025, Interim Reporting. The FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This ASU clarifies that the guidance in Topic 270 applies to all entities that provide interim financial statements and notes in accordance with U.S. GAAP. It also adds a comprehensive list of required interim disclosures to Topic 270. In addition, it adds a disclosure principle, modeled after previous SEC guidance, that requires entities to disclose events and changes that occur after the end of the most recent fiscal year and have a material impact on the entity. Finally, it improves the guidance on the information included in interim financial statements and how they are formatted. This ASU does not change the fundamental nature of interim reporting, and it does not expand or reduce current interim disclosure requirements. For public business entities, this ASU is effective for interim periods within annual reporting periods beginning after December 15, 2027. For the Company, that means interim periods within the fiscal year beginning July 1, 2028. Early adoption is permitted. The amendments may be applied either prospectively or retrospectively to any or all prior periods presented. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements to determine the potential effect on its consolidated financial reporting and disclosures.
| 8 |
| Table of Contents |
Accounting Standards Update 2025-12, In 2025, Codification Improvements. The FASB issued ASU 2025-12, Codification Improvements. This ASU updates the FASB Accounting Standards Codification across a broad range of Topics. It addresses 33 issues arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. For the Company, that is the fiscal year beginning July 1, 2027. Early adoption is permitted in any interim or annual period for which financial statements have not yet been issued or made available for issuance. An entity may elect to early adopt on an issue-by-issue basis. If an entity adopts in an interim period, it must adopt as of the beginning of the annual period that includes that interim period. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements to determine the potential effect on its consolidated financial reporting and disclosures.
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, 2026.
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.
| 9 |
| Table of Contents |
The following table sets forth the computation of basic and diluted net earnings per share of Common Stock for the three months ended September 30, 2026, and 2025, respectively:
Schedule of Computation of Basic and Diluted Net Earnings Per Share of Common Stock
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2026 | September 30, 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 and Diluted | $ | $ | ||||||
There
are
Note 3: Trade Receivables, Net
Trade Receivables, Net consists of the following at:
Schedule of Trade Receivables, Net
| ($ in thousands) | September 30, 2026 | June 30, 2026 | ||||||
| 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 September 30, 2026 and June 30, 2026:
Schedule of Allowance For Credit Losses
| Allowance for Credit Losses Roll forward | September 30, 2026 | June 30, 2026 | ||||||
| ($ in thousands) | ||||||||
| Beginning Balance | $ | ( | ) | $ | ( | ) | ||
| Current Period Provision for Expected Credit Losses | ( | ) | ( | ) | ||||
| Write-offs | ||||||||
| Recoveries of Previously Written-off Accounts | - | ( | ) | |||||
| Ending Balance | $ | ( | ) | $ | ( | ) | ||
| 10 |
| Table of Contents |
Note 4: Inventory, Net
Inventory, Net (all finished goods) consists of the following at:
Schedule of Inventory, Net
| ($ in thousands) | September 30, 2026 | June 30, 2026 | ||||||
| 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) | September 30, 2026 | June 30, 2026 | ||||||
| Other Assets–Current | ||||||||
| Prepaid Intellectual Property | $ | $ | ||||||
| Insurance Receivable | - | |||||||
| Prepaid Insurance | ||||||||
| Prepaid Authoring and Design | - | |||||||
| Prepaid Catalogs | ||||||||
| Prepaid Manufacturing Components | ||||||||
| Prepaid Maintenance | ||||||||
| Other Current Assets | ||||||||
| Prepaid Molding | ||||||||
| Prepaid Shipping Supplies | ||||||||
| Prepaid Royalties | ||||||||
| Total Other Assets–Current | $ | $ | ||||||
| Other Long-Term Assets | ||||||||
| Escrow Receivable | $ | $ | ||||||
| Deposits | ||||||||
| Income tax receivable | ||||||||
| Total Other Long-Term Assets | $ | $ | ||||||
| 11 |
| Table of Contents |
Note 6: Property and Equipment, Net
Property and Equipment, Net consists of the following at:
Schedule of Property and Equipment, Net
| ($ in thousands) | September 30, 2026 | June 30, 2026 | ||||||
| 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 September 30, 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) | September 30, 2026 | June 30, 2026 | ||||||
| Goodwill, Beginning Balance | $ | $ | ||||||
| Additions | - | |||||||
| Goodwill, Ending Balance | $ | $ | ||||||
Intangibles, Net consists of the following at:
Schedule of Intangible Assets, Net
| ($in thousands) | September 30, 2026 | June 30, 2026 | ||||||||||||||||||
| 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 September 30, 2026, and 2025, the Company recorded amortization expenses of $
| 12 |
| Table of Contents |
Expected amortization over the next five years and thereafter, as of September 30, 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 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| 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) | September 30, 2026 | June 30, 2026 | ||||||
| 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
Credit Facility
On
October 1, 2025, the Company entered into an asset-based revolving credit facility (the “Revolving Credit Facility”)
with Bank of America, which refinanced and replaced its prior asset-based revolving credit facility with White Oak Commercial Finance,
LLC. The Revolving Credit Facility provides for borrowings of up to $
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 September 30, 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
| 13 |
| Table of Contents |
The Company was in compliance with all applicable covenants under the Revolving Credit Facility as of September 30, 2026.
Letters of Credit
The
Revolving Credit Facility permits the issuance of letters of credit, which reduces availability under the borrowing base. As of September
30, 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 June 30, 2026 and September 30, 2026, no amounts were outstanding and no effective interest applied.
As
of September 30, 2025, outstanding borrowings under the Prior Revolving Credit Facility were approximately $
Schedule of Revolver Balance
| ($ in thousands) | September 30, 2026 | June 30, 2026 | ||||||
| Outstanding Balance | $ | $ | ||||||
| Less: Deferred Finance Costs | ( | ) | ( | ) | ||||
| Revolving Credit Facility, Net | $ | $ | ||||||
During
the three months ended September 30, 2026, and 2025, the Company incurred interest expense of 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.
| 14 |
| Table of Contents |
As of September 30, 2026, and June 30, 2026, the Company had no remaining liability related to the terminated self-insured medical plans, as the previously accrued estimated run-out exposure was fully settled during the first quarter of fiscal 2026.
401(k) Plan
The
Company has the Alliance Entertainment 401(k) Plan (the Plan) covering all eligible employees of the Company. All employees over the
age of 18 are eligible to participate in the Plan at the beginning of the month following date of hire. The Plan has automatic deferral
at the beginning of the month following the date of hire. Employees are automatically enrolled in the Plan with a
During
the three months ended September 30, 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
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 |
| 15 |
| Table of Contents |
The following table presents segment revenue, net income, and the significant segment expenses for the Company’s single reportable segment for the three months ending September 30, 2026, and 2025:
Reconciliation to Condensed Consolidated Net Income:
Schedule of Segment Reporting for Financial Information
| ($ in thousands) | Three months ended September 30, 2026 | Three months ended September 30, 2025 | ||||||
| Net Revenues | $ | $ | ||||||
| Cost of Revenues (excluding depreciation and Amortization) | ||||||||
| Distribution and Fulfillment Expense | ||||||||
| Sales and Marketing | ||||||||
| Other Segment items* | ||||||||
| Net income | $ | $ | ||||||
| * |
Note 12: Income Taxes
The
Company’s effective income tax rates were
In accordance with ASC 740-270, Interim Reporting, the Company calculates its interim income tax provision by applying an estimated annual effective tax rate to year-to-date ordinary income before income taxes. The estimated annual effective tax rate is based on projected annual pretax income, expected permanent differences, state income taxes, and other relevant tax considerations. The tax effects of significant unusual or infrequently occurring items, as well as certain other discrete tax events, are recognized in the interim period in which they occur and are excluded from the estimated annual effective tax rate.
The
difference between the Company’s effective income tax rate of
Note 13: Commitments and Contingencies
Commitments
The
Company enters into various agreements with suppliers for the products it distributes. The Company had
| 16 |
| Table of Contents |
Litigation, Claims and Assessments
We are exposed to claims and litigations of varying degrees arising in the ordinary course of business and use various methods to resolve these matters. When a loss is probable, we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range of loss. We do not record liabilities for reasonably possible loss contingencies but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. Historically, adjustments to our estimates have not been material. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of these identified claims or litigation will be material to our results of operations, cash flows, or financial condition.
On
June 6, 2024, Office Create Corporation (“Office Create”) filed a complaint against COKeM International Ltd. (“COKeM”)
in the United States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation
of origin and unjust enrichment relating to COKeM’s alleged distribution of the video game Cooking Mama: Cookstar. Office Create
originally sought damages of no less than $
The parties then completed fact discovery, including depositions of a co-defendant corporate designee and of current and former COKeM personnel taken between September 2025 and February 2026, and each party designated a damages expert. On January 6, 2026, Office Create stipulated to the dismissal of its claims against the Plaion defendants pursuant to a confidential settlement, and the court dismissed those defendants from the litigation the same day. Fact discovery has concluded.
The parties have engaged in settlement discussions that have not resulted in an agreement, and their respective positions as to value remain materially divergent. During the period from April 17, 2026 through June 30, 2026 the matter remained in the expert-motion phase: COKeM denies liability and continues to defend the matter. The Company maintains liability insurance applicable to this claim. Because the proceedings remain at an expert and pre-trial stage and the parties’ valuations of the claim differ materially, the Company is unable to estimate the amount or range of reasonably possible loss, and no liability has been recorded for this matter as of June 30, 2026. An unfavorable outcome could exceed available insurance and could be material to the Company’s consolidated financial position, results of operations and cash flows.
Jonathan Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California, Case No. 3:24-cv-06447; Douglas Feller, Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749. — On or about September 12, 2024, these actions were brought against DirectToU, LLC (“DirectToU”) and/or Alliance Entertainment, LLC (“Alliance”) alleging violations of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure to Meta and other third parties including data brokers of, private information and user data regarding a user’s account information and video viewing and purchasing history from websites operated by the Company. DirectToU and Alliance disputed the allegations. The Feller action was dismissed and those plaintiffs were added to the Hoang To matter.
The
parties agreed to resolve the claims on a class-wide basis for $
| 17 |
| Table of Contents |
The
Company recorded a contingent liability of $
Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors): On June 9, 2025, Sparkle Pop sued the Alliance entities in the United States Bankruptcy Court for the District of Maryland (In re Diamond Comic Distributors) alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid for, and subsequent termination of, the asset purchase agreement in the Diamond Comic Distributors bankruptcy. Alliance moved to dismiss the original complaint on July 10, 2025. On July 24, 2025, Sparkle Pop filed an amended complaint asserting the same claims plus an additional claim for breach of a non-disclosure agreement, and on August 7, 2025 Alliance moved to dismiss the amended complaint on the grounds that Sparkle Pop lacks standing, having been neither a party to, an intended third-party beneficiary of, nor an assignee of rights under the non-disclosure agreement, and that it failed to state a claim. Briefing was completed on September 17, 2025, and on November 10, 2025 the court heard oral argument and denied Alliance’s motion to dismiss. The adversary proceeding was stayed until February 16, 2026 to permit the appointed Chapter 7 trustee to become familiar with the litigation, after which the parties advance to discovery.
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, a subsidiary of the Company, received a third-party tender of defense related to alleged noncompliance with California Proposition 65 involving a product supplied by a third-party vendor and sold by the Company. The Company discontinued sales of the product and tendered the defense to the supplier, which has assumed responsibility for responding to the matter. Based on currently available information, the Company does not expect the resolution of this matter to have a material adverse effect on its consolidated financial statements.
In July 2025, the Company received correspondence alleging a violation of a contractual non-solicitation provision. The Company disputes the allegations and has responded accordingly. Based on currently available information, the Company does not expect the resolution of this matter to have a material adverse effect on its consolidated financial statements.
Tariffs and Trade Policy:
As
previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2026, the Company estimates
that it may be entitled to refunds of approximately $
As of September 30, 2026, there have been no material changes to the Company’s estimated refund amount or its assessment of the recognition of a related receivable. Accordingly, the Company has not recognized a receivable in the accompanying condensed consolidated financial statements.
The impact of currently effective tariffs on the Company’s results of operations for the three months ended September 30, 2026, 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 which is 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.
| 18 |
| Table of Contents |
During
the three-month periods ended September 30, 2026, and 2025, and the Company had additional sales to GameFly of $
As
of September 30, 2026, and June 30, 2026, the Company had receivables, net, from GameFly of approximately $
For
the three months ended September 30, 2026 and 2025, the Company recognized revenue for consulting services provided to GameFly of $
For
the three months ended September 30, 2026 and 2025, the Company incurred consulting expense of $
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
expenses related to the Ogilvie Loan for the three months ended September 30, 2026, and 2025 were $
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. In connection with the termination, the Company recognized
$
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.
| 19 |
| Table of Contents |
On the condensed consolidated balance sheets, operating leases are reflected in “Operating Lease Right-of-Use Assets, Net,” “Current Portion of Operating Lease Obligations,” and “Operating Lease Obligations, Non-Current.” Finance leases are included under “Property & Equipment, Net,” “Current Portion of Finance Lease Obligations,” and “Finance Lease Obligations, Non-Current”.
The extended lease term will result in continued amortization of the ROU asset over the remaining lease period, with the associated lease liabilities being remeasured in accordance with ASC 842, Leases. The Company will continue to amortize the ROU asset in line with the revised lease terms and conditions, reflecting the financial impact of the extension in future periods.
Components of lease expense were as follows for the three months ending September 30, 2026, and 2025:
Schedule of Components of Lease Expense
| Three Months Ended | Three Months Ended | |||||||
| Lease Cost ($ in thousands) | September 30, 2026 | September 30, 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 | ||||||||
| September 30, 2026 | June 30, 2026 | |||||||
| 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 September 30, 2026 are as follows:
Schedule of Maturities of Lease Liabilities
| ($ in thousands) | Operating Leases | Finance Leases | ||||||
| Remaining in fiscal 2027 | $ | $ | ||||||
| 2028 | - | |||||||
| 2029 | - | |||||||
| 2030 | - | |||||||
| 2031 | - | |||||||
| Thereafter | - | - | ||||||
| Total Lease Payments | ||||||||
| Less Imputed Interest | ||||||||
| Present Value Obligation | ||||||||
| Short-term Liability | ||||||||
| Total | $ | $ | - | |||||
| 20 |
| Table of Contents |
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
| September 30, 2026 | June 30, 2026 | |||||||
| Cost | $ | $ | ||||||
| Additions | - | - | ||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Book Value | $ | $ | ||||||
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
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 $ | |
| ● | If
the stock price increases to $ | |
| ● | If
the stock price increases to $ |
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.
| 21 |
| Table of Contents |
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
Note 17: Reclassification of Private Warrants to Public Warrants
Under the terms of the Company’s Warrant Agreement, private placement warrants transferred to holders other than permitted transferees become subject to the same terms and redemption provisions as the Company’s public warrants. Upon such transfers, the Company reassesses the classification of the affected warrants in accordance with ASC 815-40, Contracts in Entity’s Own Equity. Warrants that meet the criteria for equity classification are reclassified from warrant liabilities to additional paid-in capital at their fair value as of the date of transfer, following recognition of any changes in fair value through that date in the condensed consolidated statements of operations.
During
the three months ended September 30, 2026, certain holders transferred private placement warrants to third parties who were not permitted
transferees under the Warrant Agreement. As a result, the Company reclassified approximately
During
the fiscal year ended June 30, 2025, the Company similarly reclassified approximately
As
of September 30, 2026, approximately
Note 18: Stock-Based Compensation
As
part of the Merger on February 10, 2023,
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
| 22 |
| Table of Contents |
During the three months ended September 30, 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 months ended September 30, 2026, no shares of restricted stock vested under the 2023 Plan.
In
connection with awards granted, the Company recognized $
Note 19: Impact of Warrant Liabilities on Earnings Per Share (EPS)
Certain outstanding warrants issued by the Company are classified as liabilities in accordance with ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, due to specific terms that require them to be remeasured at fair value at each reporting date. Changes in fair value are recognized as a non-cash gain or loss in the condensed consolidated statements of operations, which resulted in fluctuations in the Company’s reported net income and earnings per share (EPS).
For
the three months ended September 30, 2026 and 2025, changes in the fair value of warrant liabilities improved reported EPS by $
Investors should note that the remeasurement of warrant liabilities is a non-operational, non-cash item. Future changes in fair value will continue to be recorded in earnings until the warrants are either exercised, transferred to public warrants or expire. Additional details on the fair value assumptions and measurement techniques are provided in Note 21-Fair Value.
| 23 |
| Table of Contents |
Note 20: Warrants
As
a result of the Merger, at September 30, 2026, and June 30, 2026, 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.
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 condensed 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 $ | |
| ● | 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.
| 24 |
| Table of Contents |
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.
Note 21: Fair Value
The Company complies with the provisions of ASC 820, Fair Value Measurements, for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis.
The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
As of September 30, 2026 and June 30, 2026, 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 September 30, 2026, and June 30, 2026, 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 September 30, 2026, and June 30, 2026 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
| September 30, 2026 | June 30, 2026 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise price per share | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | - | — | ||||||
| Warrants and rights outstanding measurement input | - | — | ||||||
| 25 |
| Table of Contents |
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 0%, and this assumption will be continued in future calculations unless the Company changes its dividend policy. |
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 September 30, 2026 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Private Placement and Representative Warrants | $ | $ | - | $ | - | $ | ||||||||||
| As of June 30, 2026 | ||||||||||||||||
| 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 September 30, 2026, and September 30, 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 | - | $ | - | - | $ | |||||||||||||||||||
| Classification change from Private to Public | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||
| September 30, 2025 | $ | $ | $ | |||||||||||||||||||||
| June 30, 2026 | $ | $ | $ | |||||||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Change in value | - | - | - | - | - | - | ||||||||||||||||||
| Classification change from Private to Public | ( | ) | ( | ) | - | ( | ) | (304,666 | ) | ( | ) | |||||||||||||
| September 30, 2026 | $ | $ | $ | |||||||||||||||||||||
Note 22: 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 September 30, 2026, since the acquisition date was not material.
| 26 |
| Table of Contents |
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 23: Subsequent Events
The Company evaluated subsequent events through November 12, 2026, the date the condensed consolidated financial statements were issued.
In November 2026, the Company entered into a Simple Agreement for Future
Equity (“SAFE”) to make a minority investment of $
The investment was funded through borrowings under the Company’s revolving credit facility.
The Company is evaluating the accounting treatment of the investment, which will be reflected in the quarter ending December 31, 2026, as applicable.
| 27 |
| Table of Contents |
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, 2026, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2026.
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 Part II, 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, Sony Pictures, Lionsgate, Universal Music Group, Sony Music Entertainment (including The Orchard), Warner Music Group, Music Video Distribution, Electronic Arts, Funko, Hasbro, Blokees Technology Inc. and Mattel. The Company maintains an in-stock assortment of over 350,000 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, BJ’s Wholesale Club, Vintage Stock, GameStop, eBay, Best Buy, and Midwest Tape, 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, WowHD, DeepDiscount, PopMarket, Blind Box/Mystery Collectibles, Collectibles Unlimited, Critics’ Choice Video, Collectors’ Choice Music, Movies Unlimited and BlowItOutaHere.
Alliance provides integrated distribution and technology solutions that facilitate the sale and fulfillment of physical entertainment products and collectibles through retail and e-commerce channels. The Company’s capabilities are complemented by Handmade by Robots, which broadens its offering of premium licensed collectibles, and Alliance Authentic (formerly Endstate), which provides NFC-enabled authentication and digital product identity technology to support product verification and authenticated resale. These complementary businesses enhance Alliance’s ability to serve the collectibles market through secure, traceable, and scalable distribution of high-value physical products. Alliance also provides retail partners with comprehensive back-office support, including established EDI and logistics infrastructure, to streamline ongoing operations and support 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.
| 28 |
| Table of Contents |
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 December 31, 2025, primarily related to Endstate’s proprietary technology and digital identity systems. Management believes the acquisition strengthens Alliance’s strategic position in the growing authenticated collectibles market and supports the development of new technology-enabled and recurring revenue opportunities.
On December 17, 2024, Alliance acquired Handmade by Robots from Bensussen Deutsch & Associates, LLC, for $7.6 million. Handmade by Robots produces licensed vinyl figures that mimic the look of knitted or crocheted plush toys. These figures feature characters from popular franchises such as DC Comics, Ghostbusters, Harry Potter, Star Trek, and Stranger Things, and have become favorites among fans and collectors. The acquisition included inventory, tooling equipment, and a trademark associated with the product line. This addition has diversified our product offerings by adding an exclusive line to our portfolio.
On February 10, 2023, Alliance completed its business combination with Adara Acquisition Corp., which was accounted for as a reverse recapitalization with Alliance treated as the accounting acquirer (the “Merger”). The recapitalization has been retroactively reflected in all periods presented. The Company continues to recognize certain warrant and equity-related impacts from this transaction, including the outstanding Class E contingent shares and warrant liabilities, as discussed further in Notes 16 and 20.
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.
Macroeconomic Uncertainties
The
Company continues to operate in an environment of macroeconomic uncertainty during the period ended September 30, 2026, including persistent
inflationary pressures, evolving trade policies and geopolitical instability. Inflation remains a factor affecting the cost of goods
and consumer purchasing power, while changes in trade policies and tariffs create uncertainty regarding the cost of imported products,
including physical media and collectibles. These conditions may affect consumer discretionary spending, product demand and the Company’s
operating costs. Management continues to monitor these developments and evaluate pricing, product mix and sourcing strategies to mitigate
potential adverse impacts. Although the extent and duration of these uncertainties remain difficult to predict, the Company believes
its diversified product portfolio, established distribution capabilities and focus on higher-value and collectible products provide flexibility
in responding to changing market conditions. 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, 2026, 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.”
| 29 |
| Table of Contents |
Tariffs and Trade Policy
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2026, the Company estimates that it may be entitled to refunds of approximately $0.2 million in tariffs previously paid under the International Emergency Economic Powers Act (IEEPA), following the U.S. Supreme Court’s February 20, 2026 ruling that IEEPA does not authorize the imposition of tariffs.
As of September 30, 2026, there have been no material changes to the Company’s estimated refund amount or its assessment of the recognition of a related receivable. Accordingly, the Company has not recognized a receivable in the accompanying condensed consolidated financial statements.
The impact of currently effective tariffs on the Company’s results of operations for the three months ended September 30, 2026, was not material.
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.
We consider the following metrics to be key performance indicators to evaluate our business, develop financial forecasts and make strategic decisions.
| ($ in thousands) | Three Months Ended September 30, 2026 | Three Months Ended September 30, 2025 | ||||||
| Net revenues | $ | 278,830 | $ | 253,974 | ||||
| Net income | $ | 7,621 | $ | 4,880 | ||||
| EBITDA (1) | $ | 12,903 | $ | 10,371 | ||||
| Adjusted EBITDA (1) | $ | 12,311 | $ | 12,208 | ||||
| Adjusted Net Income (1) | $ | 7,245 | $ | 7,255 | ||||
(1) EBITDA, Adjusted EBITDA, and Adjusted Net Income are financial measures not calculated in accordance with U.S. GAAP. For a reconciliation of each of these measures to net income, the most directly comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” in this Item 2.
| 30 |
| Table of Contents |
Alliance Entertainment Holding Corporation
Results of Income Three Months Ended September 30, 2026, Compared to Three Months Ended
September 30, 2025
| Three Months Ended | Three Months Ended | |||||||
| ($ in thousands) | September 30, 2026 | September 30, 2025 | ||||||
| Net Revenues | $ | 278,830 | $ | 253,974 | ||||
| Cost of Revenues (excluding depreciation and amortization) | 236,699 | 216,793 | ||||||
| Operating Expenses | ||||||||
| Distribution and Fulfillment Expense | 12,025 | 9,920 | ||||||
| Selling, General and Administrative Expense | 17,944 | 15,078 | ||||||
| Depreciation and Amortization Expense | 1,426 | 1,286 | ||||||
| Transaction Costs | 112 | 370 | ||||||
| Gain on Disposal of Fixed Assets | - | (20 | ) | |||||
| Total Operating Expenses | $ | 31,507 | $ | 26,634 | ||||
| Operating Income | 10,624 | 10,547 | ||||||
| Other Expenses | ||||||||
| Interest Expense | 1,201 | 2,347 | ||||||
| Change in Fair Value of Warrants | (850 | ) | 1,462 | |||||
| State Tax Benefit from Prior Year | (3 | ) | - | |||||
| Total Other Expenses | 348 | 3,809 | ||||||
| Income Before Income Tax Expense | 10,276 | 6,738 | ||||||
| Income Tax Expense | 2,655 | 1,858 | ||||||
| Net Income | $ | 7,621 | $ | 4,880 | ||||
Net Revenue: Year over year, total net revenues increased from $254.0 million to $278.8 million (+$24.9 million, +9.8%) for the three months ended September 30, 2026. The increase was driven by growth across several key product categories, most notably DVD/Blu-ray/UltraHD, CDs, vinyl records, and collectibles. DVD/Blu-ray/UltraHD sales increased 20.4% year over year, while CD sales increased 21.5% and vinyl sales grew 14.4%, remaining one of the Company’s largest product categories. Collectibles revenue increased 87.2%, and electronics revenue increased 106.8%, reflecting growth in these product categories. These increases were partially offset by a 40.4% decline in gaming revenue and a 33.7% decline in digital downloads, consistent with the continued shift in the Company’s revenue mix toward physical entertainment products and collectibles. Overall, revenue growth reflected strong performance across the Company’s core physical product categories, particularly video, CDs, vinyl, and collectibles. In addition, the Company’s direct-to-consumer (DTC) suite of distribution and inventory solutions for the e-commerce retail industry, including its consumer-direct subsidiary DirectToU LLC, accounted for approximately 36.2% of gross revenue for the three months ended September 30, 2026.
Physical movie sales, which include DVD, Blu-ray, and Ultra HD formats, increased from $84.0 million to $101.1 million for the three months ended September 30, 2026, representing growth of $17.1 million, or 20.4%, compared with the same period in the prior year. The increase was primarily driven by a 22.1% increase in unit sales volume, partially offset by a 1.4% decrease in average selling price. Physical movies represented the Company’s largest product category as a percentage of total sales during the quarter, accounting for approximately 36.3% of revenue. Performance benefited from key title releases, including Scary Movie through the Company’s Paramount partnership and Project Hail Mary through the Amazon MGM Studios Distribution partnership. The Paramount partnership, which launched in January 2025, continued to contribute to sales growth through expanded product availability and retail distribution. In addition, the Amazon MGM Studios Distribution partnership broadened the Company’s title assortment across key retail channels, further supporting physical movie sales during the quarter. The Company’s expanded title assortment, including new releases and premium physical formats, supported revenue growth and helped mitigate the impact of lower average selling prices and softer demand for certain catalog titles.
| 31 |
| Table of Contents |
Year over year, vinyl record sales increased from $75.8 million to $86.7 million for the three months ended September 30, 2026, representing an increase of $10.9 million, or 14.4%, compared to the prior-year period. The increase was driven by growth in both unit sales volume and average selling price, reflecting continued consumer demand for vinyl records. The quarter featured a variety of new releases and special-edition vinyl offerings across pop, rock, and alternative music, including releases from established artists and emerging acts. Continued consumer interest in new music, reissues, and collectible vinyl editions supported the category’s performance. Higher unit sales volume and average selling prices contributed to the year-over-year increase in revenue.
Music compact disc (CD) Sales increased from $33.9 million to $41.2 million for the three months ended September 30, 2026, representing an increase of $7.3 million, or 21.5%, compared to the prior-year period. The increase was driven by a 12.7% increase in unit sales volume and a 7.8% increase in average selling price. Growth reflected continued consumer demand for physical music products and renewed interest in CDs as a collectible format, particularly among dedicated fan bases. High-profile artist releases, including Stray Kids’ K-pop mini-album release THIS AND THAT, contributed to demand, while continued interest in pop and international music supported sales. This renewed interest in CDs, combined with demand for special editions and artist-related merchandise, contributed to the category’s strong performance during the quarter, despite the broader music industry’s ongoing shift toward streaming and digital consumption.
For the three months ended September 30, 2026, collectibles revenue increased from $6.4 million to $11.9 million, an increase of $5.5 million, or 87.2%, compared to the same period in the prior year. Collectibles was one of the Company’s strongest-performing product categories during the quarter, with revenue approaching double the prior-year level and increasing its contribution to total sales from 2.5% to 4.3%. This substantial growth reflects the Company’s continued expansion in the collectibles market, supported by its ownership of Handmade by Robots, an expanding portfolio of licensed products, and broader sourcing initiatives and vendor relationships. The strong performance further demonstrates the growing importance of collectibles within the Company’s product portfolio and its ability to capitalize on consumer demand for distinctive and collectible merchandise.
For the three months ended September 30, 2026, electronics revenue increased from $2.0 million to $4.0 million, representing growth of $2.0 million, or 106.8%, compared to the prior-year period. Electronics was one of the Company’s fastest-growing product categories, with revenue more than doubling year over year and its contribution to total sales increasing from 0.8% to 1.4%. Electronics sales primarily consist of audio playback devices and accessories, including turntables, headphones, speakers, and related products, which complement the Company’s physical music and movie offerings. The increase reflects continued expansion in the category and demand for products that enhance the consumer experience with physical media. This growth further demonstrates the Company’s ability to capitalize on complementary product opportunities and broaden its revenue streams beyond physical entertainment media.
For the three months ended September 30, 2026, gaming revenue decreased from $45.6 million to $27.2 million, a decline of $18.4 million, or 40.4%, compared to the prior-year period. The decline was primarily driven by lower unit sales volume, reflecting reduced availability of Microsoft products and the absence of arcade products during the current period. In addition, the prior-year period benefited from sales associated with the launch of the Nintendo Switch 2 in June 2025. Gaming sales primarily consist of consoles, physical game titles, and accessories. The Company continues to align its product mix and distribution strategy with evolving consumer demand and market conditions.
Distribution and fulfillment fee revenue increased $0.9 million, or 17.6%, to $5.7 million for the three months ended September 30, 2026, compared to $4.8 million in the prior-year period. The increase reflects higher demand for the Company’s distribution, fulfillment, and value-added logistics services. The Company continues to support studio and retail partners through its physical media distribution and fulfillment operations, including its relationships with Paramount and Amazon MGM Studios. Wholesale freight revenue, including DTC, increased $0.5 million, or 15.7%, to $3.8 million from $3.3 million in the prior year period. Digital revenue decreased $0.9 million, or 33.7%, to $1.8 million from $2.7 million in the prior year period. These revenue categories, together with customer allowances and the provision for estimated product returns, contributed to the Company’s total net revenue increase of $24.9 million, or 9.8%, to $278.8 million for the quarter.
| 32 |
| Table of Contents |
Cost of Revenues: Total cost of revenues, excluding depreciation and amortization, increased from $216.8 million to $236.7 million for the three months ended September 30, 2026, an increase of $19.9 million, or 9.2%, compared to the prior-year period. The increase was primarily attributable to higher sales volume and the corresponding increase in product costs. Gross profit increased by $5.0 million to $42.1 million, reflecting overall revenue growth and improved product margins. Gross margin improved from 14.6% to 15.1%, an increase of approximately 47 basis points, primarily driven by stronger product margins. These improvements were partially offset by higher royalty costs associated with increased business under the Company’s Paramount and Amazon MGM Studios distribution partnerships, as well as slightly higher freight costs, including increased fuel surcharges.
Operating Expenses: Total operating expenses for the three months ended September 30, 2026, increased by $4.9 million, or 18.3%, to $31.5 million from $26.6 million in the prior-year period. Operating expenses increased as a percentage of net revenue from approximately 10.5% to 11.3%. The increase was primarily attributable to higher selling, general and administrative expenses and distribution and fulfillment costs.
Distribution and fulfillment expenses increased to $12.0 million for the three months ended September 30, 2026, compared to $9.9 million in the prior-year period, an increase of $2.1 million, or 21.2%. As a percentage of net revenue, these expenses increased to 4.3% from 3.9%. The increase was primarily attributable to higher warehouse payroll and other fulfillment costs associated with increased business activity. Warehouse payroll increased by $1.7 million, or 26.4%, to $8.0 million, with payroll costs increasing to 2.9% of net revenue from 2.5% in the prior-year period. Total fulfillment payroll cost per hour increased modestly by 1.7% year over year. Accordingly, the increase in payroll expense was primarily attributable to higher labor requirements associated with increased fulfillment activity, special projects, and changes in product mix. Certain products, such as vinyl records, require additional handling and specialized packaging, contributing to increased labor demands. Other warehouse expenses increased by $0.4 million, or 11.9%, to $4.0 million, while remaining consistent at 1.4% of net revenue. The Company continues to utilize a flexible labor model to accommodate changes in order volume and operational demand, while investing in warehouse automation and operational improvements intended to enhance productivity and support scalable growth.
Selling, general and administrative (“SG&A”) expenses increased by $2.9 million, or 19.0%, to $17.9 million for the three months ended September 30, 2026, compared to $15.1 million in the prior-year period. As a percentage of net revenue, SG&A expenses increased to 6.4% from 5.9%. The increase was primarily attributable to higher payroll and employee-related costs, consulting and professional service expenses, and costs associated with supporting the Company’s ongoing business operations and growth initiatives. Management continues to evaluate SG&A expenditures and business processes to identify opportunities to improve operational efficiency and scalability. As part of these efforts, the Company is expanding its use of artificial intelligence (“AI”) tools and automation technologies to streamline workflows, automate routine tasks, improve the efficiency and accuracy of financial and operational processes, and support continued growth while maintaining appropriate internal controls.
Interest Expense: For the three months ended September 30, 2026, interest expense decreased from $2.3 million to $1.2 million, a decrease of $1.1 million, or 48.8%, compared to the prior-year period. The decrease was primarily driven by a lower effective interest rate, which declined from 8.4% to 5.3%, following the transition of the Company’s revolving credit facility from White Oak to Bank of America on October 1, 2025. The reduction in borrowing costs was partially offset by an increase in the average revolving credit facility balance from $73.8 million to $84.4 million, an increase of $10.6 million, or 14.3%, reflecting greater utilization of the facility to support working capital requirements. Overall, the lower effective interest rate more than offset the impact of higher average borrowings, resulting in a significant year-over-year reduction in net interest expense.
| 33 |
| Table of Contents |
Income Tax: For the three months ended September 30, 2026, an income tax expense of $2.7 million was recorded compared to $1.9 million for the prior year period. Alliance reported a pretax income of $10.3 million for the three months ended September 30, 2026, versus income of $6.7 million for the three months ended September 30, 2025. The effective tax rate was 26% and 28% for the three months ended September 30, 2026, and 2025, respectively. In accordance with ASC 740-270, Interim Reporting, the Company calculates its interim income tax provision by applying an estimated annual effective tax rate to year-to-date ordinary income before income taxes. The estimated annual effective tax rate is based on projected annual pretax income, expected permanent differences, state income taxes, and other relevant tax considerations. The tax effects of significant unusual or infrequently occurring items, as well as certain other discrete tax events, are recognized in the interim period in which they occur and are excluded from the estimated annual effective tax rate.
The difference between the Company’s effective income tax rate of 26% for the three months ended September 30, 2026, and the U.S. federal statutory income tax rate of 21% was primarily attributable to state income taxes, partially offset by the tax benefits associated with foreign-derived deduction eligible income under Section 250 of the Internal Revenue Code and nontaxable gains resulting from changes in the fair value of the Company’s warrant liabilities.
Non-GAAP Financial Measures: EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings per Diluted Share (collectively, the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as alternatives to net income, earnings per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net income before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, changes in the fair value of warrants, insurance claim recoveries, and restructuring costs and net gains and losses on the disposal of assets. We define Adjusted Net Income as net income adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and litigation costs and settlements, regulatory assessments and insurance settlements, and the income tax expense effect of these adjustments. We define Adjusted Earnings per Diluted Share as Adjusted Net Income divided by the weighted-average shares outstanding used in the calculation of diluted earnings per share in accordance with U.S. GAAP.
We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.
Management uses the Non-GAAP Financial Measures:
| ● | as a measurement of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations; | |
| ● | for planning purposes, including the preparation of our internal annual operating budget and financial projections; | |
| ● | to evaluate the performance and effectiveness of our operational strategies; and | |
| ● | to evaluate our capacity to expand our business. |
By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q as indicators of financial performance. Some of the limitations are:
| ● | such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; |
| 34 |
| Table of Contents |
| ● | such measures do not reflect changes in, or cash requirements for, our working capital needs; | |
| ● | EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt; | |
| ● | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; | |
| ● | Adjusted Net Income and Adjusted Earnings per Diluted Share exclude amortization of acquisition-related intangible assets, while the revenue generated by those intangible assets is not excluded; | |
| ● | certain of the items excluded in arriving at such measures require settlement in cash, and excluding an item does not reduce the cash we are required to pay in respect of that item; and | |
| ● | other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures. |
Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only as a supplement. As noted in the tables below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition and deal-related costs, amortization of acquisition-related intangible assets, amortization of deferred financing costs, changes in the fair value of warrants and contingent consideration, litigation costs and settlements, regulatory assessments and insurance settlements, and restructuring costs and net gains and losses on the disposal of assets. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the adjustments described herein and in the reconciliation tables below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net income, for the three months ended September 30, 2026 and 2025:
| Three Months Ended | Three Months Ended | |||||||
| (in thousands, except share and per share data) | September 30, 2026 | September 30, 2025 | ||||||
| Net income | $ | 7,621 | $ | 4,880 | ||||
| Equity-based compensation (1) | 149 | 25 | ||||||
| Acquisition and deal-related costs (2) | 112 | 370 | ||||||
| Amortization of acquisition-related intangible assets (3) | 105 | 90 | ||||||
| Amortization of deferred financing costs (4) | 32 | 351 | ||||||
| Change in fair value of warrants and contingent consideration (5) | (850 | ) | 1,462 | |||||
| Litigation costs and settlements (6) | 237 | 382 | ||||||
| State Tax benefit from prior year (10) | (3 | ) | - | |||||
| Income tax effect of adjustments (7) | (158 | ) | (305 | ) | ||||
| Adjusted net income | $ | 7,245 | $ | 7,255 | ||||
| Weighted-average shares outstanding—basic | 50,979,630 | 50,957,370 | ||||||
| Effect of dilutive securities | 102,541 | 38,771 | ||||||
| Weighted-average shares outstanding—diluted | 51,082,171 | 50,996,141 | ||||||
| Earnings per diluted share | $ | 0.15 | $ | 0.10 | ||||
| Adjusted earnings per diluted share | $ | 0.14 | $ | 0.14 | ||||
| 35 |
| Table of Contents |
| ($ in thousands) | Three Months Ended September 30, 2026 |
Three Months Ended September 30, 2025 |
||||||
| Net income | $ | 7,621 | $ | 4,880 | ||||
| Add back: | ||||||||
| Interest expense, net | 1,201 | 2,347 | ||||||
| Income tax expense | 2,655 | 1,858 | ||||||
| Depreciation and amortization (8) | 1,426 | 1,286 | ||||||
| EBITDA | 12,903 | 10,371 | ||||||
| Adjustments: | ||||||||
| Acquisition and deal-related costs (2) | 112 | 370 | ||||||
| Equity-based compensation (1) | 149 | 25 | ||||||
| Change in fair value of warrants and contingent consideration (5) | (850 | ) | 1,462 | |||||
| State tax benefit from Prior Year (10) | (3 | ) | - | |||||
| Gain on disposal of property and equipment (9) | - | (20 | ) | |||||
| Adjusted EBITDA | $ | 12,311 | $ | 12,208 | ||||
(1) Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on the timing of awards.
(2) Represents costs incurred in connection with completed and contemplated business combinations, including advisory, legal, accounting and other professional fees.
(3) Represents amortization of intangible assets acquired in business combinations. The revenue generated by those intangible assets is not excluded from the Non-GAAP Financial Measures.
(4) Represents amortization of debt issuance costs incurred in connection with our credit facility with Bank of America and the terminated White Oak Credit Facility.
(5) Represents non-cash gains and losses resulting from the remeasurement of warrant liabilities and contingent consideration to fair value at each reporting date.
(6) Represents legal fees, settlement amounts and other costs associated with litigation matters that we do not consider indicative of our ongoing operating performance.
(7) Represents the income tax effect of the above adjustments. This adjustment uses a blended federal and state statutory income tax rate of 25% for all periods presented and is applied only to those adjustments that carry an income tax consequence. Changes in the fair value of warrants and contingent consideration are not deductible for income tax purposes and accordingly have not been tax effected.
(8) Represents total depreciation and amortization determined in accordance with U.S. GAAP, which includes amortization of acquisition-related intangible assets. Accordingly, no separate adjustment for that amortization is presented in the reconciliation of EBITDA to Adjusted EBITDA.
(9) Represents net gains and losses on the disposal of property and equipment.
(10) State Tax refund for abandoned property.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity: On October 1, 2025, Alliance Entertainment Holding Corporation entered into a Loan and Security Agreement with Bank of America, N.A. establishing a $120 million senior secured revolving credit facility (the “Revolving Credit Facility”), replacing the Company’s previous asset-based credit facility with White Oak Commercial Finance, LLC (the “Prior Credit Facility”). The Revolving Credit Facility provides enhanced borrowing capacity and greater financial flexibility to support the Company’s working capital requirements and ongoing operating activities. In addition, the Company has continued to implement strategic initiatives focused on reducing operating expenses and optimizing its product mix through the sale of higher-margin products. Based on the Company’s financial performance for the quarter ended September 30, 2026, together with available borrowing capacity under the Revolving Credit Facility, cash on hand, cash flows generated from operations, and existing working capital resources, management believes the Company has sufficient liquidity to fund its operations, meet its financial obligations, and support its strategic objectives for at least the next twelve months from the date these consolidated financial statements are issued.
| 36 |
| Table of Contents |
Our primary sources of liquidity are cash on hand, cash provided by operating activities, and borrowings under our revolving credit facility. As of September 30, 2026, the Company had $0.6 million of cash on hand, a decrease of $0.2 million compared to $0.8 million as of June 30, 2026. Outstanding borrowings under the Revolving Credit Facility were $72.0 million as of September 30, 2026, a decrease of $2.0 million, or 2.7%, compared to $74.0 million outstanding as of June 30, 2026. The decrease in outstanding borrowings primarily reflects net repayments under the Revolving Credit Facility during the quarter. The Revolving Credit Facility, which replaced the Prior Credit Facility on October 1, 2025, provides increased borrowing capacity and financial flexibility. As of September 30, 2026, approximately $48.0 million remained available under the Revolving Credit Facility, compared to approximately $46.0 million as of June 30, 2026.
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 September 30, 2026, the Company had a $750 thousand letter of credit outstanding, which reduced availability under the Revolving Credit Facility and increased borrowings outstanding by a corresponding amount. The letter of credit is collateralized under the terms of the credit agreement and does not represent restricted cash held by the Company.
| ($in millions) | September 30, 2026 | June 30, 2026 | ||||||
| Revolver Balance | $ | 72 | $ | 74 | ||||
| Availability | 48 | 46 | ||||||
As of September 30, 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 $4.60 as of September 30, 2026, the Company does not currently expect Warrants to be exercised unless and until the market price exceeds the exercise price. Although the Company does not currently have any definitive plans to do so, it may seek to raise additional capital through the issuance of equity securities in the future, depending on market conditions, strategic opportunities, and liquidity needs.
Cash Flow: The following table summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements for the three months ended September 30, 2026, and 2025.
| Three Months Ended | ||||||||
| ($ in thousands) | September 30, 2026 | September 30, 2025 | ||||||
| Net Income | $ | 7,621 | $ | 4,880 | ||||
| Net Cash Provided By (Used In): | ||||||||
| Operating Activities | $ | 4,287 | $ | 2,720 | ||||
| Investing Activities | $ | (205 | ) | $ | (319 | ) | ||
| Financing Activities | $ | (4,247 | ) | $ | (414 | ) | ||
For the three months ended September 30, 2026, the Company generated $4.3 million of cash from operating activities, compared to $2.7 million in the prior-year period, an increase of $1.6 million. The increase reflects changes in working capital associated with the Company’s higher sales activity. Inventory represented a $25.4 million use of cash, compared to an $18.9 million use of cash in the prior-year period, reflecting increased investment in inventory to support sales and anticipated customer demand. Accounts payable provided $27.8 million of cash, compared to $18.5 million in the prior-year period, partially offsetting the increased investment in inventory. Trade receivables represented an $8.9 million use of cash, compared to a $0.8 million source of cash in the prior-year period, reflecting the timing of customer collections relative to sales. These working capital movements, together with changes in other operating assets and liabilities, contributed to the increase in net cash provided by operating activities.
| 37 |
| Table of Contents |
For the three months ended September 30, 2026, cash used in investing activities was $0.2 million, compared to $0.3 million in the prior-year period. Investing activities primarily consisted of capital expenditures of $0.2 million in the current period, compared to $0.3 million in the prior-year period, reflecting limited investment in property and equipment during both periods. The decrease in cash used in investing activities reflects lower capital expenditures in the current period. There were no acquisition-related cash outflows during the current quarter.
Net cash used in financing activities was $4.2 million for the three months ended September 30, 2026, compared with net cash provided by financing activities of $0.4 million in the prior-year period. Financing activities during the current period primarily reflected net repayments of $3.4 million under the Company’s revolving credit facility and $0.8 million in payments on financing leases. In the prior-year period, financing activities primarily reflected net repayments under the revolving credit facility and payments on financing leases. The increase in net cash used in financing activities primarily reflects higher net repayments under the revolving credit facility during the current period. The Company actively manages borrowings and repayments under its revolving credit facility to meet working capital requirements and support ongoing operations. The transition to the Bank of America credit facility provides access to financing at a lower interest rate, which is expected to reduce borrowing costs. This transition supports the Company’s efforts to manage liquidity and financing costs while funding ongoing operating requirements.
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 2026 Annual Report during the three months ended September 30, 2026.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2026. Based on that evaluation, management concluded that our disclosure controls and procedures were effective as of that date.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
| 38 |
| Table of Contents |
On June 6, 2024, Office Create Corporation (“Office Create”) filed a complaint against COKeM International Ltd. (“COKeM”) in the United States District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of origin and unjust enrichment relating to COKeM’s alleged distribution of the video game Cooking Mama: Cookstar. Office Create originally sought damages of no less than $20,913,200, plus interest of 9% accruing from October 3, 2022. On August 29, 2024, COKeM filed a response denying all allegations, and on September 12, 2024 filed a third-party complaint against Planet Entertainment LLC and Steven Grossman asserting claims for indemnification and contribution. Office Create later filed an amended complaint impleading the former owner, chairman, chief financial officer and senior vice president of sales of COKeM and asserting claims for willful trademark infringement and civil conspiracy, increasing the damages sought to an amount in excess of $35 million. COKeM filed an amended answer as to the new claims pertaining to it directly on March 12, 2025, denies the allegations, and intends to continue to defend the lawsuit vigorously.
The parties then completed fact discovery, including depositions of a co-defendant corporate designee and of current and former COKeM personnel taken between September 2025 and February 2026, and each party designated a damages expert. On January 6, 2026, Office Create stipulated to the dismissal of its claims against the Plaion defendants pursuant to a confidential settlement, and the court dismissed those defendants from the litigation the same day. Fact discovery has concluded.
The parties have engaged in settlement discussions that have not resulted in an agreement, and their respective positions as to value remain materially divergent. During the period from April 17, 2026 through June 30, 2026 the matter remained in the expert-motion phase: COKeM denies liability and continues to defend the matter. The Company maintains liability insurance applicable to this claim. Because the proceedings remain at an expert and pre-trial stage and the parties’ valuations of the claim differ materially, the Company is unable to estimate the amount or range of reasonably possible loss, and no liability has been recorded for this matter as of June 30, 2026. An unfavorable outcome could exceed available insurance and could be material to the Company’s consolidated financial position, results of operations and cash flows.
Jonathan Hoang To v. DirectToU, LLC, United States District Court for the Northern District of California, Case No. 3:24-cv-06447; Douglas Feller, Jeffry Haise, and Joseph Mull v. Alliance Entertainment, LLC and DirectToU, LLC, United States District Court for the Southern District of Florida, Case No. 0:24-cv-61444; and Vivek Shah v. DirectToU, LLC, JAMS Arbitration, No. 5220006749. — On or about September 12, 2024, these actions were brought against DirectToU, LLC (“DirectToU”) and/or Alliance Entertainment, LLC (“Alliance”) alleging violations of the Video Privacy Protection Act (“VPPA”) related to the alleged collection of, and alleged disclosure to Meta and other third parties including data brokers of, private information and user data regarding a user’s account information and video viewing and purchasing history from websites operated by the Company. DirectToU and Alliance disputed the allegations. The Feller action was dismissed and those plaintiffs were added to the Hoang To matter.
The parties agreed to resolve the claims on a class-wide basis for $1.58 million. The court granted preliminary approval of the settlement on September 22, 2025 and entered final approval on May 5, 2026. The settlement was funded during the fiscal year ended June 30, 2026, and the matter was fully resolved as of that date. No further obligation or contingency exists in respect of these claims.
| 39 |
| Table of Contents |
The Company recorded a contingent liability of $1.58 million for the settlement and a related insurance recovery receivable from CNA of $1.38 million as of June 30, 2025. Both amounts were settled during the fiscal year ended June 30, 2026, and no balances relating to this matter remain recorded on the consolidated balance sheet as of September 30, 2026.
Sparkle Pop, LLC v. Alliance Entertainment Holding Corporation and Alliance Entertainment. LLC (U.S. Bankruptcy Court for MD-In Re Diamond Comic Distributors): On June 9, 2025, Sparkle Pop sued the Alliance entities in the United States Bankruptcy Court for the District of Maryland (In re Diamond Comic Distributors) alleging theft of trade secrets and tortious interference with contracts arising out of Alliance’s successful bid for, and subsequent termination of, the asset purchase agreement in the Diamond Comic Distributors bankruptcy. Alliance moved to dismiss the original complaint on July 10, 2025. On July 24, 2025, Sparkle Pop filed an amended complaint asserting the same claims plus an additional claim for breach of a non-disclosure agreement, and on August 7, 2025 Alliance moved to dismiss the amended complaint on the grounds that Sparkle Pop lacks standing, having been neither a party to, an intended third-party beneficiary of, nor an assignee of rights under the non-disclosure agreement, and that it failed to state a claim. Briefing was completed on September 17, 2025, and on November 10, 2025 the court heard oral argument and denied Alliance’s motion to dismiss. The adversary proceeding was stayed until February 16, 2026 to permit the appointed Chapter 7 trustee to become familiar with the litigation, after which the parties advance to discovery.
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, a subsidiary of the Company, received a third-party tender of defense related to alleged noncompliance with California Proposition 65 involving a product supplied by a third-party vendor and sold by the Company. The Company discontinued sales of the product and tendered the defense to the supplier, which has assumed responsibility for responding to the matter. Based on currently available information, the Company does not expect the resolution of this matter to have a material adverse effect on its consolidated financial statements.
In July 2025, the Company received correspondence alleging a violation of a contractual non-solicitation provision. The Company disputes the allegations and has responded accordingly. Based on currently available information, the Company does not expect the resolution of this matter to have a material adverse effect on its consolidated financial statements.
Item 1A. Risk Factors
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 ended June 30, 2026, filed with the SEC on September 10, 2026. 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.
| 40 |
| Table of Contents |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended September 30, 2026, none of the Company’s directors or officers
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| No. | Description of Exhibit | |
| 3.1 | Second Amended and Restated Certificate of Incorporation of Alliance Entertainment Holding Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the SEC on September 10, 2026). | |
| 3.2 | Certificate of Correction, as filed with the Secretary of State of the State of Delaware on August 26, 2026 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 28, 2026). | |
| 31.1* | Certification of Chief Executive Officer and Principal Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer and Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of Chief Executive Officer and Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2** | Certification of Chief Financial Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
| * | Filed herewith. |
| ** | Furnished herewith. |
| 41 |
| Table of Contents |
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: November 12, 2026 | By: | /s/ Amanda Gnecco |
| Name: | Amanda Gnecco | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
| 42 |