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Item 9A. Controls and Procedures

2023-03-30 compared with 2022-03-28 · 757 added, 607 removed, 422 unchanged (76% of the section changed)

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms.

Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments.

As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S.

generally accepted accounting principles.

Accordingly, management believes that the financial statements included in this Form 10-K present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Management intends to implement remediation steps to improve our disclosure controls and procedures and our internal control over financial reporting.

Specifically, we intend to expand and improve our review process for complex securities and related accounting standards.

We have improved this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.

Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Management’s Report on Internal Controls Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting at December 31, 2022.

In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).

Based on our assessments and those criteria, management determined that we did maintain effective internal control over financial reporting as of December 31, 2022.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under the JOBS Act.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance.

Our current directors and executive officers are as follows:

Chief Executive Officer and director

Bruce Ogilvie

Executive Chairman of the Board and AEC Director

Jeffrey Walker

Chief Executive Officer and AEC Director

Chief Financial Officer

Chairman of COKeM subsidiary and Director

Independent Director

Tom Donaldson III

Frank Quintero

Beatriz Acevedo-Greiff

Thomas Finke has been our Chairman since August 2020.

Finke has served as a director of Invesco Ltd.

Independent Director

Chris Nagelson

Independent Director

Bruce Ogilvie.

Bruce Ogilvie has been Alliance’s Executive Chairman since 2023 and has been Executive Chairman of Legacy Alliance since 2013.

Prior to assuming his current role, in 1996 Bruce was selected by a bank group to turn around the 600-store chain, Wherehouse Records.

Under Bruce’s leadership Wherehouse emerged from bankruptcy within nine months and was sold to Cerberus Capital.

Following his success with Wherehouse Records, Bruce bought a one-third interest in Super D in 2001 and assumed the role as CEO, joining with founders Jeff Walker and David Hurwitz.

Bruce became the Chairman in 2013 after the merger of Super D and Alliance.

Ogilvie has spent his entire career in the entertainment distribution industry starting with the founding of Abbey Road Distributors in 1980.

Over the next 14 years, Bruce led Abbey Road’s growth to over $94 million in sales and successfully sold the business in 1994.

In 1995, Bruce was awarded E&Y’s Distribution Entrepreneur of the Year Award for his work with Abbey Road.

Jeffrey Walker.

Jeffrey Walker has been Alliance’s Chief Executive Officer since February 2023 and was Legacy Alliance’s Chief Executive Officer since 2013.

Walker has also been a director of Alliance since February 2023 and a director of Legacy Alliance since 2013.

In 1990, Jeff co-founded the CD Listening Bar, Inc., a retail music store.

A few years later, Jeff started wholesaling CDs from the back of the store, beginning the journey to create Super D, a music wholesaler founded in 1995.

In 2001, Jeff and co-founder David Hurwitz sold a third of Super D to Bruce Ogilvie.

Over the next decade, Bruce and Jeff continued to grow Super D’s presence in the music wholesaling space, with the acquisition of Alliance in 2013.

In 2015, Jeff was awarded E&Y’s Distribution Entrepreneur of the Year award in Orange County.

Walker received a bachelor’s degree in economics from University of California — Irvine.

John Kutch has been Alliance’s Chief Executive Officer since February 2023 and Legacy Alliance’s Chief Financial Officer since February 2018.

Kutch was a director of Legacy Alliance from February 2018 until February 2023.

From October 2014 to March 2017, John was Vice President of Finance — US Operations for Metalsa, a metals supplier to the automotive manufacturing industry.

For the ten years prior, he was employed by Amazon as a Senior Manager — Senior Regional Controller.

John received a bachelor’s degree from Washington State University majoring in Management Information Systems, and a Master of Business Administration from Carnegie Mellon University — Tepper School of Business.

Paul Eibeler .

Paul Eibeler is the chairman of COKeM International Ltd., which became a wholly owned subsidiary of Alliance in September 2020, and has been a director of Alliance since February 2023.

Since 2008, Mr.

Eibeler has led COKeM’s efforts to establish itself as the leading full-service, value-added distributor of video games and accessories.

In July 2000 Mr.

Eibeler joined Take-Two Interactive as president and director.

From 2005 to 2007, he was the chief executive officer of Take Two Interactive, a video game holding company based in New York, NY.

At Take-Two Interactive, Paul oversaw its growth from $250 million to over $1.5 billion, with titles such as Grand Theft Auto, Midnight Club, Bioshock, NBA 2K, MLB 2K, Max Payne, Carnival Games and Civilization.

Paul received a Bachelor of Arts degree from Loyola University Maryland, Paul completed a four year term on the Loyola Board, where he served as a member of the Board of Trustees.

Thomas Finke has been a director of Alliance since the closing of the Business Combination in February 2023 and was Chairman of Adara from its inception in August 2020, and CEO of Adara since June 2022, in each case, until the consummation of the Business Combination, in each case until the Business Combination.

Finke has served as a director of

IVZ), a global investment management firm, since December 1, 2020.

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and Barings Capital Funds Trust since May 2013, until his retirement from Barings LLC in 2020.

Finke received a Master of Business Administration from Duke University’s Fuqua School of Business and holds a bachelor’s degree from the University of Virginia’s McIntire School of Commerce.

Finke is a member of the Fuqua School of Business Board of Visitors, the Executive Board of Charlotte Center City Partners, and the Investment Committee of the Roman Catholic Diocese of Charlotte.

We believe he is well-qualified to serve as the Chairman due to his extensive operational and investment experience.

Sumichrast has been our Chief Executive Officer since August 2020.

Sumichrast has served as Chairman of the board of directors of cbdMD, Inc.

(NYSE American:

YCBD), a nationally recognized producer and distributor of consumer cannabidiol (CBD) products, since April 2015.

Sumichrast served as the Chief Executive Officer of cbdMD, Inc.

from September 2016 until July 2019 and as Co-Chief Executive Officer of cbdMD, Inc.

since July 2019.

Since 2012, Mr.

Sumichrast has served as Managing Director of Washington Capital, LLC, a family office.

In addition, since 2018 he has been the Managing Director over SFT1, LLC, a private investment company owned by a family trust.

From September 2013 to June 2020, he served as a Managing Member of Stone Street Capital, LLC, a Charlotte, North Carolina-based private investment company.

Sumichrast serves as a Trustee and Chairman of the Nominating and Governance Committees of the Barings Global Short Duration High Yield Fund, Inc.

BGH) and the Barings Capital Funds Trust, Inc.

From January 2015 until January 2016, he was also a member of the board of directors of Social Reality, Inc.

SRAX) and served as a member of the Audit Committee.

Finke received a Master of Business Administration degree from Duke University’s Fuqua School of Business and holds a bachelor’s degree from the University of Virginia’s McIntire School of Commerce.

Finke is a Trustee of Davidson College, member of the Fuqua School of Business Board of Visitors, Chairman of the Board of Charlotte Center City Partners, and a member of the Investment Committee of the Roman Catholic Diocese of Charlotte.

We believe Mr.

Sumichrast is qualified to serve on our board of directors based upon his significant experience both as an investor and advisor, as well as his experience as a member of a board of directors of a listed company.

Porter , who has been our Chief Financial Officer since August 2020, has also been a sole practitioner attorney focusing on mergers and acquisitions, finance and business laws since January 2017.

From April 2015 to January 2017, he served as the Managing Director of Stone Street Partners, LLC, a private equity firm based in Charlotte, North Carolina, where he was in charge of business acquisitions and other related legal matters.

Prior to that, Mr.

Porter served as a Corporate and Transactional Partner intermittently since the 1990s at McGuireWoods LLP, a national law firm.

He graduated from the University of Notre Dame Law School with a Juris Doctor degree in 1989.

He graduated from the University of Arkansas with a Bachelor’s degree in Accounting in 1986 and passed the Certified Public Accountant examination in the late 1980s.

Tom Donaldson III has served as a member of our board of directors since February 2021.

Donaldson has been the Founder and Managing Partner of Blystone & Donaldson since October 2018, a Charlotte, NC-based investment firm that focuses on middle-market companies.

Finke is qualified to serve as a member of Alliance’s board of directors based on his experience as chief executive officer, his role on several public and private boards of directors as well as his experience in investing in finance companies.

Teri Wielenga has served as a director of Alliance since February 2023.

Teri is a senior global finance executive, board director, and advisor with more than 30 years of experience at complex, highly regulated Fortune 500 companies and a Big Four accounting firm.

Since June 2017, she has led global tax policy and strategy for Gilead Sciences (Nasdaq:

GILD), a multinational biopharmaceutical company with $25 billion in annual revenue.

She currently serves as board director, secretary, treasurer for The Gilead Foundation, and also currently serves as audit committee chair for the Arc Research Institute.

Between 2001 and 2015 Teri managed rapid global growth as the Senior Vice President of Tax for Allergan (NYSE:

AGN), a multinational biopharmaceutical and medical aesthetics company with $7 billion in annual revenue, prior to the $70 billion acquisition of Allergan by Actavis in 2015.

She also previously served as board director, chief financial officer of the Allergan Foundation and served as a board director for multiple Allergan subsidiaries in Ireland, Japan, and Bermuda.

In addition to her work as a senior finance executive with public companies, Teri has advised a variety of pharmaceutical start-ups, pre-IPO ventures, and privately held companies.

Teri is recognized as a global tax specialist and has taught advanced accounting and business taxation for MBA programs at Chapman University and Loyola Marymount University.

She is a Certified Public Accountant.

She earned her M.S.

in Taxation from Golden Gate University in San Francisco and her B.A.

in Business Economics from the University of California, Santa Barbara.

We believe Ms.

Wielenga is qualified to serve as a member of Alliance’s board of directors based on her experience as a senior global finance executive and, her governance experience with public, private, and non-profit boards of directors.

Chris Nagelson.

Chris Nagelson has served as a director of Alliance since February 2023.

From February 2005 until August 2022, Mr.

Nagelson was the Vice President, DMM for Walmart, Inc.

in Bentonville, AR.

During that period, he was responsible for providing the strategic direction for the department that delivered market share growth as well as supported the overall corporate strategy.

Chris also identified and established key performance indicators to improve team efficiencies and sales strategies and led a broad, cross-functional team in strategic executive-level planning.

From June 1997 to February 2005, Chris was the Divisional Merchandise Manager for American Eagle Outfitters, Inc., based in Pittsburgh, PA.

Nagelson received a Bachelor of Arts degree from the University of Arkansas, where he majored in advertising and public relations.

We believe Mr.

Nagelson is qualified to serve as a member of Alliance’s board of directors based on his extensive experience as a senior executive at a global merchandise and sales corporation.

Tom Donaldson III.

Tom Donaldson has served as a director of Alliance since the Business Combination and as a director of Adara from its inception in August 2020 until the Business Combination in August 2023.

Donaldson founded and has been the Managing Partner of Blystone & Donaldson since October 2018, a Charlotte, NC-based investment firm that focuses on middle-market companies.

From January 2016 to December 2018, Mr.

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Donaldson is qualified to serve on our board of directors based on his breath and depth of experience in varied investment, financing and legal roles.

Frank Quintero has served as a member of our board of directors since February 2021.

Quintero has been the Principal of the Yucaipa Companies, LLC since July 2003, a Los Angeles, CA-based investment firm, where he is actively involved in deal origination, negotiating transactions, real estate development, public company proxy activism, investor relations and corporate communications.

Quintero has served as a member of the Advisory Board of BioSig Technologies, Inc.

BSGM), a medical technology company focused on advanced signal processing solutions for Atrial Fibrillation (A-fib) operations, since April 2019.

He has also served on the board of directors of Independent Sports & Entertainment, a U.S.-based sports agency, since January 2016.

Quintero served as a member on the State of California Personnel Board in 2004.

From February 1999 to June 2003, Mr.

Quintero served as a Special Assistant to former Governor Gray Davis of the State of California, where he liaised with labor and businesses groups.

Quintero served as a member of the board of directors of KPFK 90.7 FM, a California-based radio station, during 1997.

Quintero received his Bachelor of Art degree in Political Science from the University of California at Los Angeles.

We believe Mr.

Quintero is qualified to serve as our director based upon his demonstrated expertise in investment origination, negotiating transactions, investor relations and corporate communications.

Dylan Glenn has served as a member of our board of directors since February 2021.

Glenn has been the Chief Executive Officer of KBBO Americas, L.P., the U.S.-based investment vehicle for the KBBO Group, a diversified investment company headquartered in the United Arab Emirates since December 2018.

Since March 2020, Mr.

Glenn has served as a Director of Intellicheck, Inc.

IDN), a provider of authentication services for companies primarily in the area of financial services.

From January 2005 to December 2018, Mr.

Glenn served as a Senior Managing Director of Guggenheim Partners, a global investment and advisory financial services firm that engages in investment banking, asset management, capital markets services, and insurance services.

From January 2003 to January 2004, Mr.

Glenn served as Deputy Chief of Staff to former Governor Sonny Perdue of Georgia, responsible for all external affairs.

From January 2001 to January 2003, Mr.

Glenn also served in the White House in Washington, D.C.

as Special Assistant for President George W.

Bush for Economic Policy.

He was a member of the National Economic Council team from January 2001 to January 2003, advising former President Bush on various economic issues.

He was one of the founders, as well as Chairman from 1990 to present, of The Earth Conservation Corps, a White House initiative under President George H.

Bush that provides opportunity to at-risk youth through serious environmental conservation work.

Since 2015, Mr.

Glenn also serves as member of the Board of Directors for the American Action Network, a Washington-based “action tank” promoting pro-growth, limited government and strong national security and a Trustee of the Episcopal High School at Alexandria, Virginia and Davidson College in Davidson, North Carolina.

Glenn received his Bachelor of Arts degree from Davidson College in North Carolina.

We believe Mr.

Glenn is qualified to serve as our director based upon his extensive experience in investment banking, asset management and government relationships.

Beatriz Acevedo-Greiff has served as a member of our board of directors since February 2021.

She has served as the Chief Executive Officer and Co-Founder of Suma Wealth, a Los Angeles based Fin-tech company with the mission to help close the wealth gap for the Latino community since May 2020.

She has also served as a Partner and board member of 9th Wonder Agency, an international marketing agency group since January 2019.

Acevedo-Greiff has served as the Founding Partner of LA COLLAB since January 2020 along with Co-founder Los Angeles Mayor Eric Garcetti, a non-profit organization with the goal to double Latino representation in Hollywood by 2030.

She has also served as the President and Executive Director of the Acevedo Foundation, a family foundation with the mission to advance Latinos in the areas of entrepreneurship, education and economic mobility both in the United States and Mexico, since August 2018.

Acevedo-Greiff served as the Co-Chair and President of MITU, Inc., a Los Angeles based company with a focus on Latino digital media entertainment from April 2012 to July 2018.

She served as the Founder and President of HIP Entertainment Group, an Emmy Award Winning full-service entertainment company, from June 1995 to January 2016.

Acevedo-Greiff has served on the boards of multiple organizations, including the 2028 Los Angeles Olympic Committee since March 2019;

Homeboy Industries, a non-profit organization with a mission to train and support the formerly gang-

involved and previously incarcerated people since March 2019;

Latino Community Foundation, the largest giving circle philanthropic organization in California since January 2020;

and PocketWatch, a digital media studio since July 2020.

Acevedo-Greiff also serves on many advisory boards, including Anneberg Foundation’s Pledge LA, Delta Airlines, Los Angles Mayor Eric Garcetti, Tech Council & MEXLA, Latino Donor Collaborative and Encantos Media.

She received a Bachillerato in Communications from the Universidad Iberoamericana 1988, a Marketing Communications degree from the University of California San Diego in 1990, a Stanford Graduate Business School Scaling Professional Certificate in 2019 and a Fin-tech Professional Certificate from Harvard Graduate Business School in 2020.

We believe Ms.

Acevedo-Greiff is qualified to serve as our director based on her extensive business and management experience as well as her leadership positions in various companies and organizations.

Number and Terms of Office of Officers and Directors

Our board of directors consists of five directors.

The term of office of our directors will expire at our first annual meeting of stockholders.

Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office.

Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate.

Our bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, Vice Presidents, Secretary, Treasurer, Assistant Secretaries and such other offices as may be determined by the board of directors.

Donaldson is qualified to serve as a member of Alliance’s board of directors based on his experience as managing investment firms, his role on public and private boards of directors as well as his experience in investing in operating companies.

Director Independence

The NYSE American listing standards require that a majority of our board of directors be independent.

An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.

Our board of directors has determined that Messrs.

Finke, Donaldson, Quintero and Glenn and Ms.

Acevedo-Greiff are “independent directors” as defined in the NYSE American listing standards and applicable SEC rules.

Donaldson, Finke, and Nagelson and Ms.

Wielenga are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules.

Our independent directors will have regularly scheduled meetings at which only independent directors are present.

Committees of the Board of Directors

Our board of directors has two standing committees:

an audit committee and a compensation committee.

Subject to phase-in rules and a limited exception, the NYSE American rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the NYSE American rules require that the compensation committee of a listed company be comprised solely of independent directors.

Our board of directors has three standing committees:

an audit committee, a compensation committee and a nominating committee.

Subject to phase-in rules and a limited exception, the Nasdaq listing rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the Nasdaq listing rules require that the compensation committee of a listed company be comprised solely of independent directors.

Each of the audit committee, the compensation committee and the nominating committee may have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemptions under Rules 5605(c)(2)(B), 5605(d)(2)(B) and 5605(e)(3) of the Nasdaq listing rules.

Audit Committee

Donaldson, Glenn and Quintero and Ms.

Acevedo-Greiff serve as members of our audit committee, and Mr.

Donaldson chairs the audit committee.

Under the NYSE American listing standards and applicable SEC rules, we are required to have at least three members of the audit committee, all of whom must be independent.

Each member of the audit committee meets the independent director standard under the NYSE American listing standards and under Rule 10-A-3(b)(1) of the Exchange Act.

Each member of the audit committee is financially literate and our board of directors has determined that Mr.

Donaldson qualifies as an “audit committee financial expert” as defined in applicable SEC rules.

Wielenga and Messrs.

Donaldson and Finke serve as members of our audit committee, and Ms.

Wielenga chairs the audit committee.

Under the Nasdaq listing standards and applicable SEC rules, the audit committee is required to have at least three members, all of whom must be independent, except that the audit committee may have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(c)(2)(B) of the Nasdaq listing rules.

Each member of the audit committee meets the independent director standard under the Nasdaq listing standards and under Rule 10-A-3(b)(1) of the Exchange Act.

Each member of the audit committee is financially literate and our board of directors has determined that Ms.

Wielenga qualifies as an “audit committee financial expert” as defined in applicable SEC rules.

We have adopted an audit committee charter, which details the principal functions of the audit committee, including:

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● obtaining and reviewing a report, at least annually, from the independent registered public accounting firm describing (i) the independent registered public accounting firm’s internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues and (iii) all relationships between the independent registered public accounting firm and us to assess the independent registered public accounting firm’s independence;

● reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction;

● review adequacy and effectiveness of internal control policies and procedures, including establishing special audit procedures in response to any material control deficiencies;

● reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction address any conflicts of interest;

● reviewing with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities;

● periodically review risk management policies;

● review, approve and monitor code of ethics for senior officers.

Compensation Committee

The members of our compensation committee include Messrs.

Donaldson, Finke and Quintero.

Quintero chairs our compensation committee.

Under the NYSE American listing standards and applicable SEC rules, we are required to have at least two members of the compensation committee, all of whom must be independent.

Donaldson, Finke and Nagelson.

Serve as members of our compensation committee.

Donaldson chairs our compensation committee.

Under the Nasdaq listing standards and applicable SEC rules, the compensation committee is required to have at least two members, all of whom must be independent, except that the compensation committee may, if it is comprised of at least three members, have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(d)(2)(B) of the Nasdaq listing rules.

We have adopted a compensation committee charter, which detail the principal functions of the compensation committee, including:

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● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.

Notwithstanding the foregoing, as indicated above, other than the payment to our sponsor of $10,000 per month, for up until February 11, 2023, for office space, utilities and secretarial and administrative support and reimbursement of expenses and the payment of $50,000 to our Chief Financial Officer for acquisition related services to be provided by him during 2021, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing stockholders, officers, directors or any of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of an

initial business combination.

Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such initial business combination.

● The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser.

However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE American and the SEC.

Nominating Committee

We do not have a standing nominating committee though we intend to form a corporate governance and nominating committee as and when required to do so by law or the NYSE American rules.

In accordance with Section 804 of the NYSE American rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors.

The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee.

The directors who will participate in the consideration and recommendation of director nominees are Messrs.

Finke, Donaldson, Quintero and Glenn and Ms.

Acevedo-Greiff.

In accordance with the rules of the NYSE American, all such directors must be independent.

As there is no standing nominating committee, we do not have a nominating committee charter in place.

The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders).

Our stockholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our bylaws.

Finke, Donaldson and Chris Nagelson serve as members of the nominating committee.

Finke serves as chair of the nominating committee.

Under the Nasdaq listing standards, all of the directors on the nominating committee must be independent, except that the nominating committee may, if it is comprised of at least three members, have as one of its members a “non-independent director” under exceptional and limited circumstances pursuant to the exemption under Rule 5605(e)(3) of the Nasdaq listing rules.

The Nominating Committee Charter, which details the purpose and responsibilities of the nominating committee, includes:

● identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the board, and recommending to the board of directors candidates for nomination for election at the annual general meeting or to fill vacancies on the board of directors;

● developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines;

● coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and management in the governance of the company;

● reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary.

The charter will also provide that the nominating committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess.

In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.

In general, in identifying and evaluating nominees for director, the board of directors will consider educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders.

Prior to Closing our initial business combination, holders of our public shares will not have the right to recommend director candidates for nomination to our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

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Code of Ethics

We have adopted a Code of Ethics applicable to our directors, officers and employees.

We have filed a copy of our Code of Ethics and our audit and compensation committee charters as exhibits to the registration statement in connection with our IPO.

We have adopted a Code of Ethics applicable to our directors, officers and employees, including our principal executive officer and principal financial and accounting officer.

We have filed a copy of our Code of Ethics and our audit, compensation and

nominating committee charters as exhibits to this annual report.

You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov .

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We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.

Conflicts of Interest

Subject to pre-existing fiduciary or contractual duties as described below, our officers and directors have agreed to present any business opportunities presented to them in their capacity as a director or officer of our company to us.

Certain of our officers and directors presently have fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity.

Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity.

We believe, however, that the fiduciary duties or contractual obligations of our officers or directors will not materially affect our ability to complete our initial

business combination.

Our amended and restated certificate of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.

Each of our officers has agreed not to become an officer of any other special purpose acquisition company that has publicly filed a registration statement for its initial public offering until we have entered into a definitive agreement regarding our initial business combination or we have liquidated the trust account.

Potential investors should also be aware of the following other potential conflicts of interest:

● None of our officers or directors is required to commit his or her full time to our affairs and, accordingly, may have conflicts of interest in allocating his or her time among various business activities.

● In the course of their other business activities, our officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to us as well as the other entities with which they are affiliated.

Our management may have conflicts of interest in determining to which entity a particular business opportunity should be presented.

● Our initial stockholders agreed to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the consummation of our initial business combination.

Additionally, our initial stockholders have agreed to waive their redemption rights with respect to any founder shares held by them if we fail to consummate our initial business combination by February 11, 2023.

If we do not complete our initial business combination within such applicable time period, the proceeds of the sale of the placement warrants held in the trust account will be used to fund the redemption of our public shares, and the placement securities will expire worthless.

With certain limited exceptions, the founder shares will not be transferable, assignable by our sponsor until the earlier of:

(A) one year after the completion of our initial business combination or (B) subsequent to our initial business combination, (x) if the last sale price of our Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property.

With certain limited exceptions, the placement warrants and the Class A common stock underlying such warrants, will not be transferable, assignable or saleable by our sponsor or its permitted transferees until 30 days after the completion of our initial business combination.

Since our sponsor and officers and directors directly or indirectly own common stock and warrants, our officers and directors may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination.

● Our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.

● Our sponsor, officers or directors may have a conflict of interest with respect to evaluating a business combination and financing arrangements as we may obtain loans from our sponsor or an affiliate of our sponsor or any of our officers or directors to finance transaction costs in connection with an intended initial business combination.

Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender, upon consummation of our initial business combination.

The warrants would be identical to the placement warrants.

The conflicts described above may not be resolved in our favor.

In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:

● the corporation could financially undertake the opportunity;

● the opportunity is within the corporation’s line of business;

● it would not be fair to our company and its stockholders for the opportunity not to be brought to the attention of the corporation.

Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities.

Furthermore, our amended and restated certificate of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.

Below is a table summarizing the entities to which our executive officers and directors currently have fiduciary duties or contractual obligations:

Entity’s Business

Investment management

Production and sales of consumer CBD products

Chairman and Co-Chief Executive Officer

Washington Capital, LLC

Private investment

Managing Director

Private investment

Managing Director

Tom Donaldson III

Blystone & Donaldson, LLC

Private investment

Managing Partner

Frank Quintero

Yucaipa Companies, LLC

Private investment

BioSig Technologies Inc.

Medical technology

Advisory Board Member

Independent Sport & Entertainment

Sports agency

KBBO Americas, L.P.

Private investment

Chief Executive Officer

Intellicheck, Inc.

Authentication services in the financial industry

Guggenheim Partners

Private investment

Senior Managing Partner

American Action Network

Issue advocacy

Episcopal High School

Private school

Davidson College

Private college

Beatriz Acevedo-Greiff

Founding Partner

9 th Wonder Agency

Marketing agency

Partner and Board Member

Acevedo Foundation

Latino advocacy

Founding Partner

Digital media

Accordingly, if any of the above executive officers or directors becomes aware of a business combination opportunity which is suitable for any of the above entities to which he or she has current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, and only present it to us if such entity rejects the opportunity.

We have not selected any potential business combination target and have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any potential business combination target.

Potential target companies with whom we may engage in discussions may have had prior discussions with other blank check companies, bankers in the industry and/or other professional advisors.

We may pursue transactions with such potential targets (i) if such other blank check companies are no longer pursuing transactions with such potential targets, (ii) if we become aware that such potential targets are interested in a potential initial business combination with us and (iii) if we believe such transactions would be attractive to our stockholders.

We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors.

In the event we seek to complete our initial business combination with such a company, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions, that such an initial business combination is fair to our company from a financial point of view.

In the event that we submit our initial business combination to our public stockholders for a vote, pursuant to the letter agreement, our sponsor, officers and directors and ThinkEquity have agreed to vote any founder shares held by them and any public shares purchased after the IPO (including in open market and privately negotiated transactions) in favor of our initial business combination.

Limitation on Liability and Indemnification of Officers and Directors

Our amended and restated certificate of incorporation provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended.

In addition, our amended and restated certificate of incorporation provides that our directors will not be personally liable for monetary damages to us or our stockholders for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.

We entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our amended and restated certificate of incorporation.

Our bylaws also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification.

We purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty.

These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders.

Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.

We believe that these provisions, the directors’ and officers’ liability insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.

Executive Compensation.

We paid Paul Porter, our Chief Financial Officer, $50,000 for acquisition related services provided by him in 2021.

Except for the foregoing payment to Mr.

Porter, none of our officers has received any cash compensation for services rendered to us.

Commencing in February 2021, we have paid our sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support.

Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees.

Other than as set forth elsewhere in this annual report, no compensation of any kind, including any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, will be paid by us to our sponsor, officers, directors or any affiliate of our sponsor, officers or directors, prior to, or in connection with any services rendered in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it is).

However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.

Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers or directors or our or their affiliates.

Any such payments prior to an initial business combination will be made using funds held outside the trust account.

Other than quarterly audit committee review of such payments, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with identifying and consummating an initial business combination.

After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company.

All of these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed initial business combination.

We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management.

It is unlikely the amount of such compensation will be known at the time of the proposed initial business combination, because the directors of the post-combination business will be responsible for determining officer and director compensation.

Any compensation to be paid to our officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors.

We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination.

The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination.

We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment.

For the year ended December 31, 2022, Alliance’s named executive officers were Bruce Ogilvie, Executive Chairman, Jeffrey Walker, Chief Executive Officer, John Kutch, Chief Finance Officer, Paul Eibeler, Board Chairman, COKeM, and Bruce Means, President Distribution Solutions.

This section provides an overview of Alliance’s executive compensation programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.

2022 and 2021 Summary Compensation Table

The following table shows information regarding the compensation of Alliance’s named executive officers for services performed during the years ended December 31, 2022 and 2021.

Name and Position

All Other Compensation

Total Compensation

Bruce Ogilvie

Executive Chairman

Jeffrey Walker

Chief Executive Offer

Chief Financial Officer

Board Chairman, COKeM

President, Distribution Solutions

There were no outstanding equity awards at December 31, 2022.

Employment Agreements for Named Executive Officers

Salaries and Bonuses

On February 10, 2023, Bruce Ogilvie, Alliance’s Chairman, and Jeffrey Walker, Alliance’s Chief Executive Officer, entered into employment agreements for initial three-year terms, which will automatically renew thereafter for successive one-year terms.

Following the Business Combination, the two Named Executive Officers are entitled to base salary and a target bonus of a certain percentage of his base salary as follows:

Base Salary ($)

Bonus Percentage(%)

Bruce Ogilvie

Jeffrey Walker

Equity Incentive Plan Awards

In addition to the salaries and bonus targets set forth above, each of the two Named Executive Officers is eligible to participate in and receive awards under the 2023 Plan.

Each of the two Named Executive Officers also has the right to receive or participate in all employee benefit programs and perquisites generally established by the Company from time to time for employees similarly situated to the Named Executive Officer, subject to the general eligibility requirements and other terms of such programs and perquisites, and subject to the Company’s right to amend, terminate or take other similar action with respect to any such programs and perquisites.

Each also receives $2,000 per month for an automobile lease and be entitled to first class air travel where available.

Severance Benefits

Pursuant to their employment agreements, in the event of a termination of such Named Executive Officer’s employment for any reason, the executive would generally be entitled to receive earned but unpaid salary, accrued but unpaid annual bonus, any owed accrued expenses, as well as amounts payable under any benefit plans, programs or arrangements that such Named Executive Officer participates in or benefits therefrom.

In the event that a Named Executive Officer’s employment is terminated due to his death, in addition to the foregoing, he would be entitled to a pro-rated portion of his annual bonus, as determined by the Board.

In the event that a Named Executive Officer’s employment is terminated either without “cause” (as defined in the applicable employment agreement) or by the Named Executive Officer for “good reason” (as defined in the applicable employment agreement), subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described below, such Named Executive Officer would be entitled to payment of an amount (i) equal to the executive’s base salary immediately prior to the termination date (or, if for “good reason” was attributable to the Company’s failure to pay the minimum amount of Base Salary provided herein, such minimum amount) for the period of time from the day after the Termination Date through the last day of the employment term or for a period of twelve (12) months, whichever is greater (the “Severance Period”);

(ii) in addition to payment of any unpaid bonuses from a prior fiscal year, a pro-rata portion of the bonus based on the amount of days executive worked for the fiscal year in which the termination occurs, and (iii) payment for such Named Executive Officer’s insurance premiums incurred for participation in COBRA coverage pursuant group health plan through the earliest to occur of (A) the last day of the Severance Period, (B) the date the executive ceases to be eligible for COBRA or (C) such time as Executive is eligible for group health insurance benefits from another employer.

Provision of the severance benefits is conditioned on (i) the Named Executive Officer’s continued compliance in all material respects with executive’s continuing obligations to the Company, including, without limitation, the terms of the employment agreement that survive termination of executive’s employment with the Company, and (ii) the Named Executive Officer’s signing (without revoking if such right is provided under applicable law) a separation agreement and general release in a form of that provided to Executive by the Company on or about the termination date.

The Named Executive Officer must so execute the separation agreement within 60 days following the termination date.

None of the named the executive officers would have entitled to any payments or benefits upon termination of employment if we terminated their employment without cause or the executive terminated his employment with good reason, in either case, within 12 months following a “change of control” of our Company that (by assumption) occurred on December 31, 2022

There were no outstanding equity awards at December 31, 2022.

2023 Director Compensation

Alliance currently has no formal arrangements under which directors receive compensation for their service on Alliance’s board of directors or its committees.

However, we expect to implement a compensation program for our non-employee directors.

Our board of directors adopted and approved the 2023 Omnibus Equity Incentive Plan (the “2023 Plan,”), which was subsequently adopted by Alliance’s stockholders.

The 2023 Plan became effective on February 10, 2023 and is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to based officers, employees and directors of, and consultants and advisers to, Alliance and its subsidiaries.

The purpose of the 2023 Plan is to help us attract, motivate and retain such persons with awards designed for the U.S.

market and thereby enhance shareholder value.

Grant of Awards;

Shares Available for Awards.

The 2023 Plan provides for the grant of awards which are distribution equivalent rights, incentive share options, non-qualified share options, performance shares, performance units, restricted common stock, restricted share units, share appreciation rights (“SARs”), tandem share appreciation rights, unrestricted common stock or any combination of the foregoing, to key management employees and non-employee directors of, and non-employee consultants of, Alliance or any of its subsidiaries (each a “participant”) (however, solely Alliance employees or employees of Alliance subsidiaries are eligible for awards which are incentive share options).

We have reserved a total of 600,000 shares of common stock for issuance as or under awards to be made under the 2023 Plan.

To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any common stock subject to such award shall again be available for the grant of a new award.

The 2023 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date).

The Board of Directors in its discretion may terminate the 2023 Plan at any time with respect to any shares for which awards have not theretofore been granted;

provided, however, that the 2023 Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted.

The number of shares of common stock for which awards which are options or SARs may be granted to a participant under the 2023 Plan during any calendar year is limited to a number of shares equal to three percent (3%) of the total number of shares of common stock of the d Company outstanding on the last day of the prior calendar year.

Future new hires, non-employee directors and additional non-employee consultants are eligible to participate in the 2023 Plan as well.

The number of awards to be granted to officers, non-employee directors, employees and non-employee consultants cannot be determined at this time as the grant of awards is dependent upon various factors such as hiring requirements and job performance.

The term of each share option shall be as specified in the option agreement;

provided, however, that except for share options which are incentive share options (“ISOs”), granted to an employee who owns or is deemed to own (by reason of the attribution rules applicable under Code Section 424(d)) more than 10% of the combined voting power of all classes of our common stock or the capital stock of our subsidiaries (a “ten percent shareholder”), no option shall be exercisable after the expiration of ten years from the date of its grant (five (5) years for an employee who is a ten percent shareholder).

The price at which a share may be purchased upon exercise of a share option shall be determined by the Plan Committee;

provided, however, that such option price (i) shall not be less than the fair market value of a share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2023 Plan.

The Plan Committee or the board of directors shall determine the time or times at which or the circumstances under which a share option may be exercised in whole or in part, the time or times at which options shall cease to be or become exercisable following termination of the share option holder’s employment or upon other conditions, the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, and the methods by or forms in which common stock will be delivered or deemed to be delivered to participants who exercise share options.

Options which are ISOs shall comply in all respects with Section 422 of the Code.

In the case of ISOs granted to a ten percent shareholder, the per share exercise price under such ISO (to the extent required by the Code at the time of grant) shall be no less than 110% of the fair market value of a share on the date such ISO is granted.

ISOs may only be granted to employees of Alliance n or one of its subsidiaries.

In addition, the aggregate fair market value of the shares subject to an ISO (determined at the time of grant) which are exercisable for the first time by an employee during any calendar year may not exceed $100,000.

And Option which specifies that it is not intended to qualify as ISOs or any Option that fails to meet the requirement of an ISO at any point in time will automatically be treated as a nonqualified option (“NQSO”) under the terms of the Plan.

Restricted Share Awards.

A restricted share award is a grant or sale of common stock to the participant, subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Plan Committee or the board of directors may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Plan Committee or the board of directors may determine at the date of grant or purchase or thereafter.

Except to the extent restricted under the terms of the 2023 Plan and any agreement relating to the restricted share award, a participant who is granted or has purchased restricted shares shall have all of the rights of a shareholder, including the right to vote the restricted shares and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Plan Committee or the Board of Directors or in the award agreement).

During the restricted period applicable to the restricted shares, subject to certain exceptions, the restricted shares may not be sold, transferred, pledged, hypothecated, or otherwise disposed of by the participant.

Unrestricted Share Awards.

An unrestricted share award is the award of common stock which are not subject to transfer restrictions.

Pursuant to the terms of the applicable unrestricted share award agreement, a holder may be awarded (or sold) common stock which are not subject to transfer restrictions, in consideration for past services rendered thereby to us or an affiliate or for other valid consideration.

Restricted Share Unit Awards.

A restricted share unit award provides for a cash payment to be made to the holder upon the satisfaction of predetermined individual service-related vesting requirements, based on the number of units awarded to the holder.

The Plan Committee shall set forth in the applicable restricted share unit award agreement the individual service-based or performance-based vesting requirement which the holder would be required to satisfy before the holder would become entitled to payment and the number of units awarded to the Holder.

The vesting restrictions under any restricted share unit award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code.

At the time of such award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions.

The holder of a restricted share unit shall be entitled to receive a cash payment equal to the fair market value of a share, or one (1) share, as determined in the sole discretion of the Plan Committee and as set forth in the restricted share unit award agreement, for each restricted share unit subject to such restricted share unit award, if and to the extent the applicable vesting requirement is satisfied.

Such payment shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the calendar year in which the restricted share unit first becomes vested.

Performance Unit Awards.

A performance unit award provides for a cash payment to be made to the holder upon the satisfaction of predetermined individual and/or Alliance performance goals or objectives, based on the number of units awarded to the holder.

The Plan Committee shall set forth in the applicable performance unit award agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the holder and/or Alliance would be required to satisfy before the holder would become entitled to payment, the number of units awarded to the holder and the dollar value assigned to each such unit.

The vesting restrictions under any performance under award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code.

At the time of such award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions.

The holder of a performance unit shall be entitled to receive a cash payment equal to the dollar value assigned to such unit under the applicable performance unit award agreement if the holder and/or Alliance satisfy (or partially satisfy, if applicable under the applicable performance unit award agreement) the performance goals and objectives set forth in such performance unit award agreement.

If achieved, such payment shall be made no later than by the 15th day of the third calendar month next following the end of Alliance’s fiscal year to which such performance goals and objectives relate.

Performance Share Awards.

A performance share award provides for distribution of common stock to the holder upon the satisfaction of predetermined individual and/or Alliance goals or objectives.

The Plan Committee shall set forth in the applicable performance share award agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the holder and/or Alliance would be required to satisfy before the holder would become entitled to the receipt of common stock pursuant to such holder’s performance share award and the number of shares of common stock subject to such performance share award.

The vesting restrictions under any performance under award shall constitute a “substantial risk of forfeiture” under Section 409A of the Code and, if such goals and objectives are achieved, the distribution of such common stock shall be made no later than by the 15th day of the 3rd calendar month next following the end of our fiscal year to which such goals and objectives relate.

At the time of such award, the Plan Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions.

The holder of a performance share award shall have no rights as an Alliance shareholder until such time, if any, as the holder actually receives common stock pursuant to the performance share award.

Distribution Equivalent Rights.

A distribution equivalent right entitles the holder to receive bookkeeping credits, cash payment and/or share distributions equal in amount to the distributions that would be made to the holder had the holder held a specified number of common stock during the period the holder held the distribution equivalent rights.

The Plan Committee shall set forth in the applicable distribution equivalent rights award agreement the terms and conditions, if any, including whether the holder is to receive credits currently in cash, is to have such credits reinvested (at fair market value determined as of the date of reinvestment) in additional common stock or is to be entitled to choose among such alternatives.

Such receipt shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such award becomes vested, the distribution of such cash or common stock shall be made no later than by the 15th day of the third calendar month next following the end of the Company’s fiscal year in which the holder’s interest in the award vests.

Distribution equivalent rights awards may be settled in cash or in common stock, as set forth in the applicable distribution equivalent rights award agreement.

A distribution equivalent rights award may, but need not be, awarded in tandem with another award other than an Option or SAR award, whereby, if so awarded, such distribution equivalent rights award shall terminate or be forfeited by the holder, as applicable, under the same conditions as under such other award.

The distribution

equivalent rights award agreement for a distribution equivalent rights award may provide for the crediting of interest on a distribution rights award to be settled in cash at a future date (but in no event later than by the 15th day of the third calendar month next following the end of the Company’s fiscal year in which such interest was credited), at a rate set forth in the applicable distribution equivalent rights award agreement, on the amount of cash payable thereunder.

Share Appreciation Rights.

A SAR provides the participant to whom it is granted the right to receive, upon its exercise, the excess of (A) the fair market value of the number of shares of common stock subject to the SAR on the date of exercise, over (B) the product of the number of shares of common stock subject to the SAR multiplied by the base value under the SAR, as determined by the Plan Committee or the board of directors.

The base value of a SAR shall not be less than the fair market value of a share on the date of grant.

If the Plan Committee grants a share appreciation right which is intended to be a tandem SAR, additional restrictions apply.

Amendment and Termination .

The 2023 Plan shall continue in effect, unless sooner terminated pursuant to its terms, until February 10, 2033, the tenth anniversary of the date on which it was adopted by the Board of Directors (except as to awards outstanding on that date).

As of March 29, 2023, no awards have been granted under the 2023 Plan.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We have no compensation plans under which equity securities are authorized for issuance.

The following table sets forth information regarding the beneficial ownership of our common stock as of the date of this annual report, by:

● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;

The information included in under the heading “ Equity Plans ” in Item 12 of Part III of this annual report is hereby incorporated by reference into this Item 12 of Part II of this annual report.

The following table sets forth information regarding the beneficial ownership of our Class A common stock as of the date of this annual report, by:

● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A common stock;

● each of our executive officers and directors;

● all our executive officers and directors as a group.

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

The following table does not reflect record or beneficial ownership of the private warrants as these warrants are not exercisable within 60 days of the date of this annual report.

Shares of Adara

Name and Address of Beneficial Owner (1)

Directors and Executive Officers of Adara:

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.

Except as described in the footnotes below and subject to applicable community property laws and similar laws, we believe that each person listed below has sole voting and investment power with respect to such shares.

The beneficial ownership percentages set forth in the table below is based on 49,167,170 shares of Class A common stock issued and outstanding as of March 29, 2023.

Number of Shares of

Name of Beneficial

Class A Common Stock

Percentage of Outstanding Class

Beneficially Owned

A Common Stock

Bruce Ogilvie (2)(3)

Jeffrey Walker (2)

Thomas Finke (4)

Sumichrast (1)(2)(3)

Tom Donaldson III (5)

Frank Quintero (4)

Dylan Glenn (4)

Beatriz Acevedo-Greiff (4)

All Directors and Executive Officers of Adara as a Group (7 Individuals)

Five Percent Holders of Adara:

Adara Sponsor LLC (1)(2)

Less than one percent.

Adara Sponsor LLC, our sponsor, is the record holder of the securities reported herein.

Each of our officers and directors is, directly or indirectly, a member of our sponsor.

Members of our sponsor also include cbdMD, Inc., a producer and distributor of consumer CBD products where Martin A.

Sumichrast serves as Chairman and Co-Chief Executive Officer and Blystone & Donaldson, an investment firm of which W.

Tom Donaldson III, our director, is the founder and managing partner.

Sumichrast is the managing member of our sponsor and exercises voting or dispositive control over any of the securities held by our sponsor.

The business address of our sponsor and Mr.

Sumichrast is 8845 Red Oak Blvd., Charlotte, NC 28217.

Interests shown consist solely of founder shares, classified as shares of Class B common stock.

Founder shares are convertible into shares of Class A common stock on a one-for-one basis, subject to adjustment.

Includes founder shares held by Adara Sponsor LLC and directly by Mr.

Excludes founder shares held by Adara Sponsor LLC.

This individual is a member of Adara Sponsor LLC, as described in footnote 1.

The holders of the founder shares have agreed (A) to vote any shares owned by them in favor of any proposed initial business combination and (B) not to redeem any shares in connection with a stockholder vote to approve a proposed initial business combination.

Our sponsor, executive officers and directors are deemed to be our “promoters” as such term is defined under the federal securities laws.

Chris Nagelson

Directors and executive officers as a group (8 individuals)

(1) Unless otherwise indicated, the business address of each of the directors and executive officers of Alliance is c/o Alliance Entertainment Holding Corporation, 8201 Peters Road, Suite 1000, Plantation, Florida 33324.

Excludes Class E common stock.

15,195,975 of such shares are beneficially owned by the Bruce Ogilvie, Jr.

Trust dated January 20, 1994, having Mr.

Bruce Ogilvie, Jr.

as trustee, and 8,554,025 of such shares are beneficially owned by the Ogilvie Legacy Trust dated September 14, 2021, which has Mr.

Ogilvie’s two adult children as trustees.

Ogilvie disclaims individual ownership of such shares except to his individual pecuniary interest in such trusts.

Includes 637,333 shares issuable upon exercise of private warrants.

323,864 of the listed shares, including 250,000 shares issuable upon exercise of private warrants, are held directly by the Thomas M.

Finke Family Trust dtd 12/14/2012, of which Mr.

Finke’s spouse is the trustee and Mr.

Finke’s spouse and children are the beneficiaries.

Finke disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

such shares are held directly by B&D Series 2020, LLC, of which Mr.

Donaldson is the manager.

Donaldson disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

Includes 1,837,335 shares issuable upon exercise of private warrants.

Certain Relationships and Related Transactions.

In August 2020, we issued an aggregate of 2,875,000 founder shares to our sponsor for an aggregate purchase price of $25,000 in cash, or approximately $0.009 per share.

The founder shares (including the Class A common stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder.

In September 2020, our sponsor sold 50,000 founder shares to ThinkEquity for an aggregate purchase price of $5,000.

In addition, our sponsor sold 50,000 founder shares to each of Messrs.

Finke, Sumichrast, and Porter for a purchase price of $5,000 and sold 25,000 shares to each of Messrs.

Donaldson, Quintero and Glenn and Ms.

Acevedo-Greiff for a purchase price of $2,500.

In February 2021, simultaneously with the consummation of the IPO, our sponsor purchased an aggregate of 4,120,000 placement warrants at a price of $1.00 per warrant, for an aggregate purchase price of $4,120,000.

There are no redemption rights or liquidating distributions from the trust account with respect to the founder shares or placement warrants, which will expire worthless if we do not consummate a business combination by February 11, 2023.

Commencing February 8, 2021, we have paid our sponsor, a total of $10,000 per month for office space, utilities and secretarial and administrative support.

Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees.

Other than the foregoing, no compensation of any kind, including any finder’s fee, reimbursement, consulting fee or monies in respect of any payment of a loan, have been or will be paid by us to our sponsor, officers, directors or any affiliate of our sponsor, officers or directors prior to, or in connection with any services rendered in order to effectuate, the consummation of an initial business combination (regardless of the type of transaction that it is).

Our audit committee reviews on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates and determines which expenses and the amount of expenses that will be reimbursed.

There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.

Prior to the closing of the IPO, our sponsor loaned us an aggregate of $600,000, which was used to fund a portion of the expenses of the IPO.

Adara Related Party Transactions

Initial Stockholder Shares

In August 2020, Adara issued an aggregate of 2,875,000 Initial Stockholder Shares to the Sponsor for an aggregate purchase price of $25,000 in cash, or approximately $0.009 per share.

The Initial Stockholder Shares (including the Class A common stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder.

In connection with the Business Combination the Adara Initial Stockholders forfeited 1,375,000 of these shares.

Sponsor Service Agreement

From February 8, 2021 through May 2022, we paid an affiliate of the Sponsor, a total of $10,000 per month for office space, utilities and secretarial and administrative support.

Adara Insider Agreements and Lock-Up Agreements

In connection with the Business Combination the Adara Initial Stockholders forfeited 1,375,000 of these shares.

In addition, upon the closing of the Business Combination, the Adara Initial Stockholders and certain stockholders of Alliance will also agree, subject to certain exceptions, not to (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder, the 1,500,000 shares of Class A common stock held by them upon the closing of the Business Combination (the “Lock-up Shares”), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Lock-up Shares, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii).

The lock-up period terminates on August 11, 2023.

Registration Rights Agreement

The holders of the Initial Stockholder Shares and private warrants (and in each case holders of their underlying securities, as applicable) have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement that was signed on February 8, 2021.

This agreement provided that these holders are entitled to make up to three demands,

excluding short form registration demands, that we register such securities for sale under the Securities Act.

In addition, these holders were granted “piggy-back” registration rights to include their securities in other registration statements filed by us.

In connection with the closing of the Business combination, the Adara Initial Stockholders and the Legacy Alliance stockholders enter ed into the Registration Rights Agreement which amended and restated the existing registration rights agreement.

Pursuant to the Registration Rights Agreement, Alliance that, no later than 30 calendar days after the closing of the Business Combination Alliance will file with the SEC (at Alliance’s sole cost and expense) the resale registration statement, and Alliance shall use commercially reasonable efforts to have the resale registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 60th calendar day (or 120th calendar day if the SEC notifies Alliance that it will “review” the resale registration statement) following the closing of the Business Combination and (ii) the tenth business day after the date Alliance is notified (orally or in writing, whichever is earlier) by the SEC that the resale registration statement will not be “reviewed” or will not be subject to further review.

In certain circumstances, the Adara Initial Stockholders and the Legacy Alliance stockholders may each demand up to two registrations, which may be underwritten offerings, and all of the registration rights Holders will be entitled to piggyback registration rights.

Private Warrants

Simultaneously with the IPO, the Sponsor purchased an aggregate of 4,120,000 private warrants at a price of $1.00 per private warrant ($4,120,000 in the aggregate) in a private placement.

Each private warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment.

The private warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.

Promissory Note and Affiliate Loans

Prior to the closing of the IPO, the Sponsor loaned us an aggregate of $600,000, which was used to fund a portion of the expenses of the IPO.

These loans were non-interest bearing, unsecured and were due at the earlier of March 31, 2021 or the closing of the IPO.

The loan was repaid upon the closing of the IPO out of the offering proceeds.

The value of our sponsor’s interest in this transaction corresponded to the principal amount outstanding under any such loan.

In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds on a non-interest bearing basis as may be required.

If we complete an initial business combination, we would repay such loaned amounts.

In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment.

Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender, upon consummation of our initial business combination.

The warrants would be identical to the placement warrants.

Other than as described above, the terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.

expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.

After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders.

It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.

The holders of the founder shares, placement warrants, and warrants that may be issued upon conversion of working capital loans (and in each case holders of their underlying securities, as applicable) have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement that was signed on February 8, 2021.

These holders are entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act.

In addition, these holders were granted “piggy-back” registration rights to include their securities in other registration statements filed by us.

Related Party Policy

We have not yet adopted a formal policy for the review, approval or ratification of related party transactions.

Accordingly, the transactions discussed above were not reviewed, approved or ratified in accordance with any such policy.

We have adopted a code of ethics requiring us to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by our board of directors (or the appropriate committee of our board) or as disclosed in our public filings with the SEC.

Under our code of ethics, conflict of interest situations includes any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the company.

A form of the code of ethics that we have adopted is filed as an exhibit to the registration statement on Form S-1/A filed on January 14, 2021.

In addition, our audit committee, pursuant to a written charter that we have adopted, is responsible for reviewing and approving related party transactions to the extent that we enter into such transactions.

An affirmative vote of a majority of the members of the audit committee present at a meeting at which a quorum is present is required in order to approve a related party transaction.

A majority of the members of the entire audit committee constitutes a quorum.

Without a meeting, the unanimous written consent of all of the members of the audit committee is required to approve a related party transaction.

A form of the audit committee charter that has been is filed as an exhibit to the registration statement on Form S-1/A filed on January 14, 2021.

We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

To further minimize conflicts of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with any of our sponsor, officers or directors unless we, or a committee of independent directors, have obtained an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that our initial business combination is fair to our company from a financial point of view.

Furthermore, no finder’s fees, reimbursements, consulting fee, monies in respect of any payment of a loan or other compensation will be paid by us to our sponsor, officers, directors or any affiliate of our sponsor, officers or directors prior to, for services rendered to us prior to, or in connection with any services rendered in order to effectuate, the consummation of our initial business combination (regardless of the type of transaction that it is).

following payments will be made to our sponsor, officers, directors or our or their affiliates, none of which will be made from the funds held in the trust account prior to the completion of our initial business combination:

● Payment to our sponsor of $10,000 per month, for office space, utilities and secretarial and administrative support;

● Reimbursement for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination;

● Repayment of non-interest bearing loans which may be made by our sponsor or an affiliate of our sponsor or certain of our officers and directors to finance transaction costs in connection with an intended initial business combination, the terms of which (other than as described above) have not been determined nor have any written agreements been executed with respect thereto.

Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender, upon consummation of our initial business combination.

The warrants would be identical to the placement warrants.

Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates.

On June 22, 2022, each of Blystone & Donaldson, LLC, an affiliate of W.

Tom Donaldson III, a director of Adara prior to the Business Combination and a director of Alliance, and Thomas Finke, Chief Executive Officer and a director of Adara, prior to the Business Combination and a director of Alliance agreed to loan us up to $250,000 to fund operating expenses, including expenses related to the Business Combination pursuant to promissory notes.

The promissory notes are deemed payable upon the earlier of the closing of the Business Combination and February 11, 2023 and are non-interest bearing.

At the closing, the amounts outstanding under the promissory notes were $250,000 to Blystone & Donaldson, LLC.

And $221,598.83.

In addition, Adara had an additional payable of $53,710.49 owed to Blystone & Donaldson, LLC for advances of expenses paid on Adara’s behalf.

Blystone & Donaldson, LLC and Mr.

Donaldson agreed to convert the amounts owed to them into payables and that such amounts would be payable after certain other payables assumed by Alliance in connection with the Business Combination.

Sponsor Support Agreement

On June 22, 2022, Adara, Legacy Alliance and the Adara Initial Stockholders entered into the Sponsor Support Agreement pursuant to which the Adara Initial Stockholders agreed to vote all of their Initial Stockholder Shares and shares of Class A common stock in favor of the approval and adoption of the Business Combination and related matters subject to a stockholder vote at the stockholder meeting at which the Business Combination proposal was voted upon by the Adara stockholders.

Payment to Adara’s Chief Financial Officer

Adara paid to $50,000 to Paul Porter, its Chief Financial Officer prior to the Business Combination, for acquisition related services provided by him in 2021.

Adara Indemnification Agreements

In connection with the IPO, Adara entered into agreements with its officers and directors to provide contractual indemnification in addition to the indemnification provided for in its certificate of incorporation.

Adara also purchased a policy of directors’ and officers’

liability insurance that insures its officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures Adara against its obligations to indemnify its officers and directors.

Alliance Related Party Transactions

Captive Insurance Policies

Bruce Ogilvie, Executive Chairman and a principal stockholder of Alliance, and Jeff Walker, Chief executive Office, a director and a principal stockholder of Alliance, established two insurance companies;

Guard Yourself Insurance Company, Ltd.

and Super O Insurance Company, Ltd., replaced effective April 1, 2018, with the current new insurance companies, Airlie Protection Ins.

and Protection for You Ins.

These insurance companies additionally insure the general assets, liabilities and claims of Alliance through March 30, 2022, and were not renewed for future periods.

The entities are known as captive insurance companies.

New policies covered the period of March 31, 2021, to March 30, 2022, and incurred an annual expense of $2.4 million.

Premium payments are allowed based on the Loan Agreement dated February 21, 2017.

The Company is not a guarantor and does not have exposure in the event of a loss.

Total captive policy expense for the years ended June 30, 2022, 2021, and 2020 was $1.6 million, $2.2 million, and $2.7 million, respectively.

Total claims filed for the years ended June 30, 2022, 2021, and 2020 was $1.2 million, $1.5 million, and $1.3 million respectively.

June 30, 2022, and 2021, receivables from the captive insurance companies were $0 million (due to non-renewal) and $1.5 million, respectively, which are included in related party receivables on the consolidated balance sheets.

Interest-Charge Domestic International Sales Corporation (IC-DISC)

The Company has an affiliate, My Worldwide Market Place, Inc.

which is an IC-DISC and was established February 12, 2013.

The IC-DISC is owned by the Company Stockholders.

Effective December 31, 2022, IC-DISC was discontinued as a result there will be no future accruals or commissions paid out.

The IC-DISC is organized to manage sales to certain qualified customers and receive commissions from the Company for this activity.

The commissions expenses were $2.8 million and $6.3 million for the six months ended December 31, 2022, and 2021 respectively.

Determined under formulas and rules defined in the law and regulations of the US tax code.

Under these regulations, the commission is deductible by the Company and results in a specified profit to the IC-DISC.

This net profit is not subject to Federal income tax.

The IC-DISC distributes the profit to its Stockholders, who are taxed on the income as a dividend.

For twelve months ended December 31, 2022, the owners of the IC-DISC elected to forgive the distribution.

The commission was not paid out but rolled into Equity of Alliance Entertainment.

GameFly Holdings, LLC

During the years ended June 30, 2022, 2021 and 2020, Alliance has made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $7.1 million, $5.3 million, and $2.5 million, respectively.

GameFly, a customer of Alliance, is equally owned by Bruce Ogilvie and Jeff Walker, the two shareholders of Alliance.

Alliance believes the amounts that GameFly paid for New Release, movies, video games, and video game consoles are at fair market value.

GameFly does fulfillment services of fast selling new releases by providing 3PL services at market rates.

The agreement between Alliance and GameFly can be terminated by either party at any time.

GameFly is free to purchase from any competitor of Alliance.

MVP Logistics, LLC

During the six months ended December 31, 2022, and 2021 Alliance incurred costs with MVP Logistics, LLC, in the amount of $5.4 million, and $7.8 million, respectively, for freight shipping fees, transportation costs, warehouse distribution, and 3PL management services (for Arcades) at the Redlands, California and South Gates, California distribution facilities.

During the years ended June 30, 2022, and 2021, Alliance incurred costs with MVP Logistics, LLC, in the amount of $13.0 million, and $3.0 million, respectively, for freight shipping fees, transportation costs, warehouse distribution, and 3PL management services (for Arcades) at the Redlands, California and South Gates, California distribution facilities.

MVP Logistics is an independent contractor, which is 33.3% owned by Joe Rehak, the SVP of Operations of COKeM International Limited, which was acquired by Alliance in September 2020, and the remaining 66.6% by unaffiliated third parties.

Alliance believes the amounts payable

to MVP Logistics are at fair market value.

The MVP 3PL Logistics agreement for Redlands and Southgate, California is for a one-year term ending March 10, 2023, with one-year automatic renewals unless cancelled by either party.

Policies and Procedures for Related Person Transactions

Our board of directors adopted a related person transaction policy setting forth the policies and procedures for the identification, review and approval or ratification of related person transactions.

This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and a related person were or will be participants and the amount involved exceeds $120,000, including purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness and guarantees of indebtedness.

In reviewing and approving any such transactions, our audit committee will consider all relevant facts and circumstances as appropriate, such as the purpose of the transaction, the availability of other sources of comparable products or services, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction, management’s recommendation with respect to the proposed related person transaction, and the extent of the related person’s interest in the transaction.

Director Independence

Our board of directors has determined that Messrs.

Donaldson, Finke, and Nagelson and Ms.

Wielenga are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules.

Our independent directors will have regularly scheduled meetings at which only independent directors are present.

Principal Accountant Fees and Services.

The firm of WithumSmith+Brown, PC, or Withum, acts as our independent registered public accounting firm.

The firm of WithumSmith+Brown, PC, or Withum, acted as our independent registered public accounting firm until it was dismissed effective following the completion of the audit of Adara’s financial statements for the fiscal year ended December 31, 2022, which consisted only of the accounts of the pre-Business Combination special purpose acquisition company, Adara.

The following is a summary of fees paid to Withum for services rendered.

For the year ended December 31, 2021, fees for our independent registered public accounting firm were $103,515, for the services Withum performed in connection with our IPO and the audit of our December 31, 2021 financial statements included in this Annual Report on Form 10-K.

For the years ended December 31, 2022 and 2021, fees for our independent registered public accounting firm were $135,889 and $103,515, respectively, for the services Withum performed in connection with our IPO and the audit of our December 31, 2022 and 2021 financial statements.

Audit-Related Fees.

For the year ended December 31, 2021 and for the period from August 5, 2020 (inception) through December 31, 2020, our independent registered public accounting firm did not render assurance and related services related to the performance of the audit or review of financial statements.

For the year ended December 31, 2021, fees for our independent registered public accounting firm for the preparation of our 2020 Corporation tax return was $7,725.

For the years ended December 31, 2022 and 2021, our independent registered public accounting firm did not render assurance and related services related to the performance of the audit or review of financial statements.

For the years ended December 31, 2022 and 2021, fees for our independent registered public accounting firm for the preparation of our corporate tax returns were $8,100 and $7,725, respectively.

All Other Fees .

For the year ended December 31, 2021 and for the period from August 5, 2020 (inception) through December 31, 2020, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above.

For the years ended December 31, 2022 and 2021, there were no fees billed for products and services provided by our independent registered public accounting firm other than those set forth above.

Pre-Approval Policy

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Exhibits, Financial Statement Schedules.

The following documents are filed as part of this Form 10-K:

Financial Statements:

Report of Independent Registered Public Accounting Firm

(a) The following documents are filed as part of this Form 10-K:

(1) Financial Statements:

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’ Equity (Deficit)

Statements of Cash Flows

Notes to Financial Statements

As part of this annual report, the consolidated financial statements are listed in the accompanying index to financial statements on page F-1.

Financial Statement Schedules:

We hereby file as part of this Report the exhibits listed in the attached Exhibit Index.

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

We hereby file as part of this annual report the exhibits listed in the attached Exhibit Index.

Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C.

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Incorporated by Reference

Exhibit Number

Description of Document

Schedule/Form

Certificate of Incorporation

January 14, 2021

Amended and Restated Certificate of Incorporation

Business Combination Agreement, dated as of June 22, 2022, by and among Adara, Merger Sub and Alliance.

June 23, 2022

Second Amended and Restated Certificate of Incorporation

February 13, 2023

November 18, 2020

Specimen Unit Certificate

January 14, 2021

Amended and Restated Bylaws

February 13, 2023

Specimen Class A Common Stock Certificate

January 14, 2021

October 18, 2022

Specimen Warrant Certificate

January 14, 2021

October 18, 2022

Warrant Agreement, dated February 8, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent.

February 11, 2021

Amended and Restated Promissory Note, dated November 18, 2020, issued to Adara Sponsor LLC.

November 18, 2020

Securities Subscription Agreement, dated August 5, 2020, between the Registrant and Adara Sponsor LLC.

November 18, 2020

Form of Lock-Up Agreement (included in Exhibit 2.1).

June 23, 2022

Alliance Entertainment Holding Corporation 2022 Equity Incentive Plan.

Form of Indemnity Agreement

January 14, 2021

Letter Agreement, dated February 8, 2021, by and among the Company, its officers, its directors, the Sponsor and other initial stockholders.

February 11, 2021

Investment Management Trust Agreement, dated February 8, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as trustee.

February 11, 2021

Registration Rights Agreement, dated February 8, 2021, by and between the Company and certain securityholders.

February 11, 2021

Private Placement Warrants Purchase Agreement, dated February 8, 2021, by and between the Company and the Sponsor.

October 18, 2022

Loan and Security Agreement, dated as of February 21, 2017, by and among Alliance Entertainment

October 18, 2022

Holding Corporation, Project Panther Acquisition Corporation, AEC Direct, LLC, Alliance Entertainment, LLC and Directtou, LLC, as Borrowers, Bank of America, N.A., as Agent and Bank of America, N.A.

as Sole Lead Arranger and Sole Bookrunner

Amendment Number Nine to Loan and Security Agreement, dated as of January 24, 2022, by and among Alliance Entertainment Holding Corporation, Project Panther Acquisition Corporation, AEC Direct, LLC, Alliance Entertainment, LLC, Directtou, LLC, Mecca Electronics Industries, Inc., Mill Creek Entertainment, LLC, Aeris Marketing, LLC and CokeM International, Ltd., as Borrowers, and Bank of America, N.A., as Agent.

October 18, 2022

Amendment Number Ten to Loan and Security Agreement, dated as of May 4, 2022, by and among Alliance Entertainment Holding Corporation, Project Panther Acquisition Corporation, AEC Direct, LLC, Alliance Entertainment, LLC, Directtou, LLC, Mecca Electronics Industries, Inc., Mill Creek Entertainment, LLC, Aeris Marketing, LLC and CokeM International, Ltd., as Borrowers, and Bank of America, N.A., as Agent.

October 18, 2022

Amendment Number Eleven to Loan and Security Agreement, dated as of June 30, 2022, by and among Alliance Entertainment Holding Corporation, Project Panther Acquisition Corporation, AEC Direct, LLC, Alliance Entertainment, LLC, Directtou, LLC, Mecca Electronics Industries, Inc., Mill Creek Entertainment, LLC, and CokeM International, Ltd., as Borrowers, and Bank of America, N.A., as Agent.

October 18, 2022

Lease Agreement, dated as of August 18, 2017, by and between Liberty Property Limited Partnership and COKeM International, Ltd.

October 18, 2022

First Amendment to Lease, dated as of January 22, 2018, by and among Liberty Property Limited Partnership and COKeM International, Ltd.

October 18, 2022

Multi-Tenant Industrial Triple Net Lease, dated as of December 14, 2007, by and between Cedar Grove - Crossdock, LLC and Alliance Entertainment, LLC

October 18, 2022

First Amendment to Lease Agreement, dated as of January 18, 2013, by and between KTR LOU I LLC and Alliance Entertainment, LLC

October 18, 2022

Second Amendment to Lease Agreement, dated as of August 1, 2014, by and between KTR LOU I LLC and Alliance Entertainment, LLC

October 18, 2022

Guaranty Agreement, dated as of November 9, 2012, by and between Project Panther Acquisition Corporation and KTR LOU I LLC

October 18, 2022

Office Lease, dated as of January 7, 2011, by and between French Overseas Company, LLC and Alliance Entertainment, LLC

October 18, 2022

First Amendment to Lease, dated as of January 31, 2012, by and between French Overseas Company, LLC and Alliance Entertainment, LLC

October 18, 2022

Second Amendment to Lease, dated August 2016, by and between French Overseas Company, LLC and Alliance Entertainment, LLC

October 18, 2022

Standard Industrial Lease, dated as of August 12, 2020, by and between SCRS Valley Park Business Center, LLC and COKeM International, Ltd.

October 18, 2022

Second Amendment to Lease, dated as of June 26, 2020, by and between Liberty Property Limited Partnership and COKeM International, Ltd.

October 18, 2022

Form of Employment Agreement, by and between Alliance Entertainment Holding Corporation and Bruce Ogilvie

October 18, 2022

Form of Employment Agreement, by and between Alliance Entertainment Holding Corporation and Jeffrey Walker

October 18, 2022

Contingent Consideration Escrow Agreement by and among the Combined Company, Bruce Ogilvie and Continental Stock Transfer and Trust Company dated February 10, 2023

February 13, 2023

Administrative Support Agreement, dated February 8, 2021, by and between the Company and the Sponsor.

Code of Ethics

Letter from WithumSmith+Brown PC to the U.S.

Securities and Exchange Commission dated February 10, 2023.

February 13, 2023

Form of Code of Ethics

January 14, 2021

List of Subsidiaries.

Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Form of Audit Committee Charter

January 14, 2021

Form of Compensation Committee Charter

January 14, 2021

Audit Committee Charter of Alliance Entertainment Holding Corporation

February 10, 2023

Compensation Committee Charter of Alliance Entertainment Holding Corporation

February 10, 2023

Nominating and Corporate Governance Committee Charter of Alliance Entertainment Holding Corporation

February 10, 2023

Inline XBRL Instance Document

6 unchanged sentences

Filed herewith.

Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5).

The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

Indicates a management contract or compensatory plan, contract or arrangement.

Form 10-K Summary.

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in New York City, New York, on the 28 th day of March 2022.

Adara Acquisition Corp.

/s/ Martin A.

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in Irvine, California, on the 30th day of March, 2023.

Alliance Entertainment Holding Corporation

/s/ Jeffrey Walker

Jeffrey Walker

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons in the capacities and on the dates indicated.

/s/ Martin A.

/s/ Jeffrey Walker

Chief Executive Officer and Director

March 30, 2023

Jeffrey Walker

(Principal Executive Officer)

/s/ Thomas Finke

Chairman of the Board of Directors

/s/ Bruce Ogilvie

Executive Chairman of the Board of Directors

March 30, 2023

Bruce Ogilvie

/s/ John Kutch

Chief Financial Officer

March 30, 2023

(Principal Financial and Accounting

(Principal Financial and Accounting Officer)

Tom Donaldson III

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Tom Donaldson III

/s/ Frank Quintero

/s/ Thomas Finke

March 30, 2023

Frank Quintero

/s/ Dylan Glenn

/s/ Paul Eibeler

March 30, 2023

/s/ Beatriz Acevedo-Greiff

/s/ Chris Nagelson

March 30, 2023

Beatriz Acevedo-Greiff

ADARA ACQUISITION CORP.

INDEX TO FINANCIAL STATEMENTS

Chris Nagelson

/s/ Terilea J.

March 30, 2023

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Financial Statements:

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’ Equity (Deficit)

Statements of Cash Flows

Notes to Financial Statements

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

Adara Acquisition Corp.

Alliance Entertainment Holding Corp.

(F/K/A Adara Acquisition Corp.)

Opinion on the financial Statements

We have audited the accompanying balance sheets of Adara Acquisition Corp.

(the “Company”), as of December 31, 2021 and 2020, the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year ended December 31, 2021 and for the period from August 05, 2020 (inception) through December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the year ended December 31, 2021 and for the period from August 05, 2020 (inception) through December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by the close of business on February 11, 2023, then the Company will cease all operations except for the purpose of liquidating.

This date for mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have audited the accompanying consolidated balance sheets of Alliance Entertainment Holding Corp.

(F/K/A Adara Acquisition Corp.) (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provides a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ WithumSmith+Brown, PC

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PCAOB ID Number 100

ADARA ACQUISITION CORP.

BALANCE SHEETS

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

CONSOLIDATED BALANCE SHEETS

Current assets

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Total Current Assets

Deferred offering costs

Marketable securities held in Trust Account

LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT

Current liabilities

Accounts payable and accrued expenses

Promissory note – related party

Accrued expenses

Income taxes payable

Advance from related party

Promissory note

Total Current Liabilities

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Class A common stock subject to possible redemption, $ 0.0001 par value;

11,500,000 and 0 shares at $ 10.10 per share redemption value at December 31, 2021 and 2020, respectively

Stockholders’ (Deficit) Equity

11,500,000 shares at $ 10.19 and $ 10.10 redemption value at December 31, 2022 and 2021, respectively

Stockholders’ Deficit

Preferred stock, $ 0.0001 par value;

1,000,000 shares authorized;

none issued or outstanding

0 shares issued or outstanding as of December 31, 2022 and 2021

Class A common stock, $ 0.0001 par value;

100,000,000 shares authorized;

0 shares issued and outstanding at December 31, 2022 and 2021 (excluding 11,500,000 shares)

Class B common stock, $ 0.0001 par value;

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( 2,414,653 )

Total Stockholders’ (Deficit) Equity

( 4,367,476 )

TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ (DEFICIT) EQUITY

The accompanying notes are an integral part of the financial statements.

ADARA ACQUISITION CORP.

STATEMENTS OF OPERATIONS

Total Stockholders’ Deficit

( 2,414,365 )

( 4,367,188 )

TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT

The accompanying notes are an integral part of the consolidated financial statements.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

Operating and formation costs

Loss from operations

Other income (expenses):

( 2,608,046 )

Other income (expense):

Interest earned on marketable securities held in Trust Account

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Change in fair value of warrants liabilities

Other income, net

Net income (loss)

Other income (expenses), net

Income before provision for income taxes

Provision for income taxes

Weighted average shares outstanding of Class A common stock

Basic and Diluted income per share, Class A common stock

Basic income per share, Class A common stock

Weighted average shares outstanding of Class B common stock

Basic net income (loss) per share, Class B common stock

Basic net income per share, Class B common stock

Weighted average shares outstanding of Class B common stock

Diluted net income per share, Class B common stock

The accompanying notes are an integral part of the financial statements.

ADARA ACQUISITION CORP.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

The accompanying notes are an integral part of the consolidated financial statements.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2022 AND 2021

Class B Common Stock

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Equity (Deficit)

Balance - August 5, 2020 (inception)

Issuance of Class B common stock to Sponsor

Balance – December 31, 2020

Balance – January 1, 2021

Accretion for Class A common stock to redemption amount

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( 4,367,188 )

The accompanying notes are an integral part of the financial statements.

ADARA ACQUISITION CORP.

STATEMENTS OF CASH FLOWS

For the Period from

August 5, 2020

(Inception) Through

Accretion for Class A common stock to redemption amount

Balance – December 31, 2022

( 2,414,653 )

( 2,414,365 )

The accompanying notes are an integral part of the consolidated financial statements.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

Cash Flows from Operating Activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Change in fair value of warrant liabilities

( 4,166,900 )

( 4,297,300 )

Transaction costs incurred in connection with IPO

Interest earned on marketable securities held in Trust Account

( 1,649,169 )

Changes in operating assets and liabilities:

Prepaid expenses

Accounts payable and accrued expenses

Income taxes payable

Accrued expenses

Net cash used in operating activities

( 1,208,635 )

Cash Flows from Investing Activities:

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Cash Flows from Financing Activities:

Proceeds from issuance of Class B common stock to Sponsor

Proceeds from sale of Units, net of underwriting discounts paid

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Proceeds from sale of Unit Purchase Option

Proceeds from promissory note - related party

Proceeds from Advances from related party

Proceeds from promissory note

Repayment of promissory note – related party

2 unchanged sentences

Net Change in Cash

Cash – Beginning of period

Cash – End of period

The accompanying notes are an integral part of the financial statements.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

Cash – Beginning of year

Cash – End of year

The accompanying notes are an integral part of the consolidated financial statements.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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Adara Acquisition Corp.

(the “Company”) was incorporated in Delaware on August 5, 2020.

(now known as Alliance Entertainment Holding Corp.) (the “Company” or “Alliance”) was incorporated in Delaware on August 5, 2020.

The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).

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The Company is an early stage and emerging growth company and, as such, the Company is subject to all the risks associated with early stage and emerging growth companies.

Business Combination

On February 10, 2023 (the “Closing Date”), Alliance, Adara Acquisition Corp., a Delaware corporation (“Adara”), and Adara Merger Sub, Inc., a Delaware corporation (“Merger Sub”), consummated the closing of the transactions (the “Closing“) contemplated by the Business Combination Agreement, dated June 22, 2022, by and among Alliance, Adara and Merger Sub (the “Business Combination Agreement”), following their approval at a special meeting of the stockholders of Adara held on January 18, 2023 (the “Special Meeting”).

Business Prior to the Business Combination

As of December 31, 2022, the Company had not commenced any operations.

All activity for the period from August 5, 2020 (inception) through December 31, 2021 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, identifying a target company for a Business Combination.

All activity for the period from August 5, 2020 (inception) through December 31, 2022 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination.

The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest.

The Company generates non-operating income in the form of interest income from the marketable securities held in the Trust Account (as defined below).

The Company has selected December 31 as its fiscal year end.

On June 22, 2022, the Company, Adara Merger Sub Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and Alliance Entertainment Holding Corporation (“Alliance”) entered into a Business Combination Agreement (“BCA”) related to a proposed Business Combination.

The registration statement for the Company’s Initial Public Offering was declared effective on February 8, 2021.

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Following the closing of the Initial Public Offering on February 11, 2021, an amount of $ 116,150,000 ($ 10.10 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), located in the United States and will be invested only in U.S.

government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of:

(i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.

There is no assurance that the Company will be able to complete a Business Combination successfully.

The Company must complete one or more initial Business Combinations with one or more operating businesses or assets with a fair market value equal to at least 80 % of the net assets held in the Trust Account (excluding taxes payable on the interest earned on the Trust Account) at the time of the Company’s signing a definitive agreement in connection with its initial Business Combination.

The Company will only complete a Business Combination if the post-transaction company owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

There is no assurance that the Company will be able to complete a Business Combination successfully.

The Company will provide the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer.

The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company.

The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $ 10.10 per Public Share, plus any pro rata interest then in the Trust Account, net of taxes payable).

There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

The Company will only proceed with a Business Combination if the Company has net tangible assets of at least $ 5,000,001 following any related redemptions and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination.

If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S.

Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination.

If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules.

If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination.

Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.

Notwithstanding the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % of the Public Shares, without the prior consent of the Company.

The Sponsor has agreed (a) to waive its redemption rights with respect to the Founder Shares and Public Shares held by it in connection with the completion of a Business Combination, (b) to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination by February 11, 2023 and (c) not to propose an amendment to the Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination within the Combination Period (as defined below) or (ii) with respect to any other provision relating to stockholders’ rights or pre-business combination activity, unless the Company provides the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period.

The Company will have until February 11, 2023 to complete a Business Combination (the “Combination Period”).

If the Company has not completed a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to pay taxes (less up to $ 100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $ 10.10 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $ 10.10 per public Share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.

The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered public accounting firm), prospective target businesses and other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

On February 10, 2023, Alliance, Adara, and Merger Sub , consummated the closing of the transactions contemplated by the Business Combination Agreement, dated June 22, 2022, following their approval at a special meeting of the stockholders of Adara held on January 18, 2023.

Following the consummation of the Merger on the Closing Date, Adara changed its name from Adara Acquisition Corp.

to Alliance Entertainment Holding Corporation.

In connection with the Special Meeting and the Business Combination, holders of 11,332,830 shares of Adara Class A common stock, par value $ 0.0001 per share ( “Adara Common Stock” ), or 99.1 % of the shares with redemption rights, properly exercised their right to redeem their shares for cash at a redemption price of approximately $ 10.22 per share, for an aggregate redemption amount of $ 116,581,703 .

After giving effect to the redemption of public shares, there are currently 167,170 shares of the Company’s Class A common stock issued outstanding and there was $ 1,719,690.75 remaining balance in the trust count.

The remaining amount in the trust account was used to fund the Business Combination.

Conversion and Exchange of Equity in the Business Combination

Pursuant to the Business Combination Agreement, at the effective time of the Business Combination, Adara issued (i) 47,500,000 shares of Class A common stock of Adara (“ Company Common Stock ”) to holders of common stock of Alliance (“ Alliance Common Stock ”) and (ii) 60,000,000 shares of Class E Common stock of Adara (“ Company Class E Common Stock ”) to the Alliance Stockholders were placed in an escrow account to be released to the Alliance stockholders and converted into Company Common Stock upon the occurrence of certain Triggering Events and Merger Sub will merge with and into Alliance, with Alliance surviving the merger and becoming a wholly owned direct subsidiary of Adara.

Liquidity Capital Resources and Going Concern

As of December 31, 2021, the Company had cash of $ 724,410 not held in the Trust Account and available for working capital purposes.

The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating its business.

However, if the estimate of the costs of identifying a target business, undertaking in-depth due diligence, and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination.

Moreover, the Company may need to obtain additional financing or draw on the Working Capital Loans (as defined below) either to complete a Business Combination or because it becomes obligated to redeem a significant number of the Public Shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination.

Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of our Business Combination.

If the Company is unable to complete the Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account.

In addition, following its Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.

In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by February 11, 2023, then the Company will cease all operations except for the purpose of liquidating.

The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern.

No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 11, 2023.

As of December 31, 2022, the Company had cash of $ 17,956 not held in the Trust Account and available for working capital purposes and working capital deficit of $ 1,720,465 .

As of December 31, 2022, liquidity concerns were present.

On February 10, 2023, the Company closed its Business Combination with Alliance Entertainment Holding Corporation which historically has not presented a going concern issue.

Accordingly, as a result of the merger, the going concern has been alleviated.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, suspending the pursuit of a Business Combination.

The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.

All significant intercompany balances and transactions have been eliminated in consolidation.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

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The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

This may make comparison of the Company’s consolidated financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

The preparation of the consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

The warrants liabilities are the Company’s most significant estimate.

Accordingly, the actual results could differ significantly from those estimates.

Offering Costs

Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering.

Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the consolidated balance sheet date that are directly related to the Initial Public Offering.

Offering costs associated with the Class A common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering.

Offering costs amounting to $ 1,442,918 were charged to stockholders’ equity upon the completion of the Initial Public Offering, and $ 86,544 of the offering costs were related to the warrant liabilities and charged to the statements of operations.

Offering costs amounting to $ 1,442,918 were charged to stockholders’ deficit upon the completion of the Initial Public Offering, and $ 86,544 of the offering costs was related to the warrant liabilities and charged to the consolidated statements of operations.

Class A Common Stock Subject to Possible Redemption

The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity”.

Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity.

At all other times, common stock is classified as stockholder’s equity.

Shares of Class A common stock subject to mandatory redemption are classified as a liability instrument and are measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity.

At all other times, common stock is classified as stockholders’ equity.

The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.

Accordingly, at December 31, 2021 and 2020, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholder’s equity section of the Company’s balance sheet.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

Accordingly, at December 31, 2022 and 2021, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ deficit section of the Company’s consolidated balance sheets.

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period.

At December 31, 2021, the Class A common stock reflected in the balance sheets is reconciled in the following table:

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

At December 31, 2022 and 2021, the Class A common stock reflected in the consolidated balance sheets is reconciled in the following table:

Gross proceeds

4 unchanged sentences

Accretion of carrying value to redemption value

Class A common stock subject to possible redemption

Class A common stock subject to possible redemption, December 31, 2021

Accretion of carrying value to redemption value

Class A common stock subject to possible redemption, December 31, 2022

Warrant Liabilities

1 unchanged sentence

Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations.

This liability is subject to re-measurement at each consolidated balance sheet date until exercised, and any change in fair value is recognized in the consolidated statements of operations.

The Private Warrants, Public Warrants, and the Representative Warrants for periods where no observable traded price was available are valued using a lattice model, specifically a binomial lattice.

For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.

The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value for the Public and the Private Warrants as of each relevant date.

The Representative Warrants used the binomial lattice model as of each relevant date.

The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the consolidated financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards.

ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

As of December 31, 2022 and 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.

ASC 740- 270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5.

The Company’s effective tax rate was 8.24% and 0.00 % for the years ended December 31, 2022 and 2021, respectively.

The effective tax rate differs from the statutory tax rate of 21 % for the years ended December 31, 2022 and 2021, due to changes in fair value in warrant liability and the valuation allowance on the deferred tax assets.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements and prescribes a recognition threshold and measurement process for consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

1 unchanged sentence

The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company is subject to income tax examinations by major taxing authorities since inception.

Net Income (Loss) Per Common Share

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The Company has identified the United States as its only “major” tax jurisdiction.

The Company has been subject to income taxation by major taxing authorities since inception.

These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws.

The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Net Income per Common Share

The Company complies with accounting and disclosure requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”.

Income and losses are shared pro rata between the two classes of shares.

Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period.

Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

The calculation of diluted income per share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events.

The calculation of diluted income (loss) per common share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events.

The warrants are exercisable to purchase 9,870,000 shares of Class A common stock in the aggregate.

As of December 31, 2021 and 2020,

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

the Company did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company.

As a result, diluted net income per share of common stock is the same as basic net income per common share for the periods presented.

The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):

For the Period from August 5,

2020 (Inception) Through

Basic net income (loss) per common share

Allocation of net income (loss), as adjusted

As of December 31, 2022 and 2021, the Company did not have any other dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company.

As a result, diluted net income (loss) per share of common stock is the same as basic net income (loss) per common share for the periods presented.

The following tables reflect the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):

Years Ended December 31,

Basic net income per common share

Allocation of net income, as adjusted

Basic weighted average shares outstanding

Basic net income (loss) per common share

For the Period from August 5,

2020 (Inception) Through

Year Ended December 31,

Basic net income per common share

Years Ended December 31,

Diluted net income per common share

Allocation of net income, as adjusted

Diluted weighted average shares outstanding

Diluted net income per common share

Basic weighted average shares outstanding

Basic net income per common share

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $ 250,000 .

The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such account.

The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000.

Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying consolidated balance sheets, primarily due to their short-term nature, except for the warrant liabilities (see Note 10).

Recent Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), to simplify accounting for certain financial instruments.

ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity.

1 unchanged sentence

ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retros

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

As a smaller reporting company, ASU 2020-06 is effective January 1, 2024 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021.

The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

The Company has not adopted this guidance as of December 31, 2022.

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Derivative liabilities are classified in the consolidated balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the consolidated balance sheet date.

INITIAL PUBLIC OFFERING

1 unchanged sentence

Each Unit consists of one share of Class A common stock and one -half of one redeemable warrant (“Public Warrant”).

Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment (see Note 10).

Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

PRIVATE PLACEMENT

Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 4,120,000 Placement Warrants at a price of $ 1.00 per Placement Warrant ($ 4,120,000 ) from the Company in a private placement.

Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 4,120,000 Placement Warrants at a price of $ 1.00 per Placement Warrant, for an aggregate purchase price of $ 4,120,000 from the Company in a private placement.

Each Placement Warrant will be exercisable to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment (see Note 10).

8 unchanged sentences

(A) one year after the completion of a Business Combination and (B) subsequent to a Business Combination, (x) if the last sale price of the Class A common stock equals or exceeds $ 12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash, securities or other property.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

Advances from Related Party

As of December 31, 2022, Blystone & Donaldson, LLC advanced the Company $ 30,582 .

Promissory Note — Related Party

1 unchanged sentence

The Promissory Note was non-interest bearing and payable on the earlier of (i) March 31, 2021 or (ii) the consummation of the Initial Public Offering.

As of December 31, 2021 and 2020, there were no amounts outstanding under the Promissory Note.

As of December 31, 2021, there was no amounts outstanding under the Promissory Note.

No future borrowings are permitted.

On June 22, 2022, Blystone & Donaldson, LLC issued an unsecured promissory note to the Company, pursuant to which the Company may borrow up to an aggregate principal amount of $ 250,000 .

The Promissory Note was non-interest bearing and payable on the earlier of (i) closing of the Merger as described in the BCA or (ii) February 11, 2023.

As December 31, 2022, $ 250,000 was outstanding under the Promissory Note.

On June 22, 2022, Thomas Finke, LLC issued an unsecured promissory note to the Company, pursuant to which the Company may borrow up to an aggregate principal amount of $ 250,000 .

The Promissory Note was non-interest bearing and payable on the earlier of (i) closing of the Merger as described in the Business Combination Agreement (“BCA”) dated as of June 22, 2022 by and among Thomas Finke, the Company, and Adara Merger Sub Inc.

and Alliance Entertainment Holding Corporation as defined therein or (ii) February 11, 2023.

As December 31, 2022, $ 221,599 was outstanding under the Promissory Note.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Related Party Loans

7 unchanged sentences

As of December 31, 2022 and 2021, there were no amounts outstanding under the Working Capital Loans.

As of December 31, 2021 and 2020, there were no amounts outstanding under the Working Capital Loans.

Administrative Support Agreement

Administrative Support Agreements

The Company entered into an agreement, commencing on February 11, 2021, through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay Adara Sponsor LLC, a total of $ 10,000 per month for office space and administrative support services.

For the year ended December 31, 2021, the Company incurred and paid $ 105,000 in fees for these services.

The agreement was terminated with Adara Sponsor LLC, when they moved out of the office space on June 2022.

For the years ended December 31, 2022 and 2021, the Company incurred and paid $ 50,000 and $ 105,000 in fees for these services, respectively.

COMMITMENTS AND CONTINGENCIES

Risks and Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine.

As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus.

Further, the impact of this action and related sanctions on the world economy is not determinable as of the date of these consolidated financial statements.

The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these consolidated financial statements.

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other things, a new U.S.

federal 1% excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax.

Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury.

In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined.

The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.

The Company is permitted to use interest earned on the proceeds placed in the trust account to pay taxes, which could include any excise tax due under the IR Act on any redemptions or stock buybacks by Adara.

Registration Rights

2 unchanged sentences

In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act.

The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering our securities.

The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering securities.

The Company will bear the expenses incurred in connection with the filing of any such registration statements.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

Business Combination Agreement

On February 10, 2023, Alliance, Adara, and Merger Sub, consummated the closing of the transactions contemplated by the Business Combination Agreement, dated June 22, 2022, by and among Alliance, Adara and Merger Sub, following their approval at a special meeting of the stockholders of Adara held on January 18, 2023.

On June 22, 2022, the Company, Merger Sub and Alliance entered into the Business Combination Agreement, pursuant to which the Company and Alliance will consummate the Business Combination.

The Business Combination Agreement contains customary representations and warranties, covenants, closing conditions, termination fee provisions and other terms relating to the Merger and the other transactions contemplated thereby.

Pursuant to the BCA, Merger Sub will merge with and into Alliance, with Alliance being the surviving entity (the “Merger”).

The Merger is to become effective by the filing of a certificate of merger with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of the Delaware General Corporation Law and mutually agreed by the parties and will be effective immediately upon such filing or upon such later time as may be agreed by the parties and specified in such certificate of merger (such time, “Effective Time”).

The parties will hold the closing immediately prior to such filing of a certificate of merger, on the closing date.

The Effective Time shall occur as promptly as practicable but in no event later than three business days after the satisfaction or, if permissible, waiver of the conditions to the completion of the Business Combination set forth in the BCA (other than those conditions that by their nature are to be satisfied at closing, provided that the occurrence of the closing shall remain subject to the satisfaction or, if permissible, waiver at the closing).

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

STOCKHOLDERS’ EQUITY

At the Effective Time, by virtue of the Merger and without any action on the part of Adara, Merger Sub, Alliance or the holders of any of Alliance’s securities:

Each share of Alliance common stock issued and outstanding immediately prior to the Effective Time will be cancelled and automatically converted into the right to receive the number of shares of the Company surviving the Business Combination (the “Combined Company Common Stock”) equal to the Exchange Ratio and

No certificates or scrip or shares representing fractional shares of Combined Company Common Stock shall be issued upon the exchange of Alliance common stock and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Adara or a holder of shares of Combined Company Common Stock.

In lieu of any fractional share of Combined Company Common Stock to which each holder of Alliance common stock would otherwise be entitled, the fractional share shall be rounded up or down to the nearest whole share of Combined Company Common Stock, with a fraction of 0.5 rounded up.

No cash settlements shall be made with respect to fractional shares eliminated by rounding.

At the closing, the Company will also issue to the Alliance stockholders shares of a to be formed Class E Common Stock (the ”Contingent Consideration Shares”) which shall be placed into an escrow account pursuant to the Contingent Consideration Shares Agreement and shall not be released from escrow over a ten-year period unless and until they are earned as a result of the occurrence of the applicable triggering event as follows:

20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event I prior to the five-year anniversary of the closing;

20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event II prior to the seven-year anniversary of the closing;

and 20,000,000 Contingent Consideration Shares will be earned upon the occurrence of triggering event III prior to the ten-year anniversary of the closing.

Upon the occurrence of a triggering event, the Contingent Consideration Shares released from the escrow shall automatically convert into an equal number of shares of Combined Company Common Stock.

Pursuant to a letter agreement dated March 17, 2022, as amended, ThinkEquity, an Adara Initial Stockholder, will receive a financial advisory fee for serving as Adara’s financial advisor in connection with the Business Combination in an amount equal to 3.5 % of the net funds held in the Trust Account after giving effect to redemptions by Adara Public Stockholders, which shall be due and payable in immediately available funds on the closing date.

STOCKHOLDERS’ DEFICIT

Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.

2 unchanged sentences

Holders of Class A common stock are entitled to one vote for each share.

At December 31, 2021 and 2020, there were 11,500,000 and no shares, respectively of Class A common stock issued and outstanding subject to possible redemption which are presented as temporary equity.

At December 31, 2022 and 2021, there were 11,500,000 of Class A common stock issued and outstanding subject to possible redemption which are presented as temporary equity.

Class B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $ 0.0001 per share.

2 unchanged sentences

Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as otherwise required by law.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The shares of Class B common stock will automatically convert into Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment.

2 unchanged sentences

WARRANT LIABILITIES

Warrants — Public Warrants may only be exercised for a whole number of shares.

Warrants — At December 31, 2022 and 2021, there were 5,750,000 Public Warrants, 4,120,000 Private Placement Warrants and 50,000 Representatives Warrants issued and outstanding.

The Public Warrants may only be exercised for a whole number of shares.

No fractional warrants will be issued upon separation of the Units and only whole warrants will trade.

4 unchanged sentences

The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its best efforts to file with the SEC a 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.

If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60 th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.

Notwithstanding the foregoing, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available.

3 unchanged sentences

● at a price of $ 0.01 per Public Warrant;

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

● upon not less than 30 days ’ prior written notice of redemption given after the warrants become exercisable to each warrant holder;

10 unchanged sentences

Additionally, the Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees.

If the Placement Warrants are held by someone other than the initial

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

Representative Warrants

2 unchanged sentences

The Company accounted for the Representative Warrants as an expense of the Initial Public Offering, with a corresponding credit to stockholders’ equity.

The Representative Warrants are identical to the Public Warrants except that each Representative Warrant entitles the holder thereof to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment, and so long as the Representative Warrants are held by ThinkEquity (and/or its designees) or its permitted transferees, (i) will not be redeemable by the Company, (ii) may not (including the Class A common stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of a Business Combination, (iii) may be exercised by the holders on a cashless basis, (iv) will be entitled to registration rights and (v) for so long as they are held by ThinkEquity (and/or its designees), will not be exercisable more than five years from the effective date of the Initial Public Offering in accordance with FINRA Rule 5110(f)(2)(G)(i).

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of a Business Combination, (iii) may be exercised by the holders on a cashless basis, (iv) will be entitled to registration rights and (v) for so long as they are held by ThinkEquity (and/or its designees), will not be exercisable more than five years from the effective date of the Initial Public Offering in accordance with FINRA Rule 5110(f)(2)(G)(i).

The Representative Warrants and the underlying Class A common stock have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the effectiveness of Initial Public Offering pursuant to FINRA Rule 5110(g)(1).

The Company’s net deferred tax assets are as follows:

Years Ended December

Deferred tax assets

Net operating loss carryforward

Startup/Organization Expenses

Start-up/organization expenses

Total deferred tax assets

1 unchanged sentence

Deferred tax assets, net of allowance

The income tax provision for the year ended December 31, 2021 and for the period from August 5, 2020 (inception) through December 31, 2020 consists of the following:

The income tax provision for the years ended December 31, 2022 and 2021 consisted of the following:

Years Ended December

Change in valuation allowance

Income tax provision

As of December 31, 2021 and 2020, the Company did not have any U.S.

As of December 31, 2022 and 2021, the Company did no t have any U.S.

federal and state net operating loss carryovers available to offset future taxable income.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2021

In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized.

2 unchanged sentences

After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance.

For the period from August 5, 2020 (inception) through December 31, 2020, there were no change in the valuation allowance.

For the year ended December 31, 2021, the change in the valuation allowance was $ 221,150 .

For the year ended December 31, 2022 and 2021, the change in the valuation allowance was $ 464,933 and $ 221,150 , respectively.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:

For the period

Years Ended December

Statutory federal income tax rate

1 unchanged sentence

Deferred tax liability change in rate

Change in fair value of warrants liabilities

Change in fair value of warrant liabilities

Change in valuation allowance

6 unchanged sentences

The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities and

Quoted prices in markets that are not active or financial instruments for which significant inputs to models are observable (including but not limited to quoted prices for similar securities, interest rates, foreign exchange rates, volatility and credit risk), either directly or indirectly;

2 unchanged sentences

Treasury Securities.

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

At December 31, 2021, marketable securities held in the Trust Account were comprised of $ 116,160,281 in money market funds which are invested primarily in U.S.

Treasury Securities.

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

Marketable Securities held in Trust Account – U.S.

3 unchanged sentences

Warrant Liabilities – Representative Warrants

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying December 31, 2021 balance sheets.

The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the statements of operations.

The Company utilizes a lattice model, specifically a binomial lattice model, to value the representative warrants at each reporting period, with changes in fair value recognized in the statement of operations.

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the Company’s accompanying December 31, 2022 and 2021 consolidated balance sheets.

The Company utilizes a lattice model, specifically a binomial lattice model, to value the Representative Warrants at each reporting period, with changes in fair value recognized in the consolidated statement of operations.

The estimated fair value of the representative warrant liabilities are determined using Level 3 inputs.

5 unchanged sentences

The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying December 31, 2021 balance sheet.

The Public Warrants were initially valued using a lattice model, specifically a binomial lattice model.

As of December 31, 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.

As of December 31, 2021, the fair value of the Private Warrants was the equivalent to that of the Public Warrants as they had substantially the same terms;

As of December 31, 2022 and 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the consolidated balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.

As of December 31, 2022 and 2021, the fair value of the Private Warrants was the equivalent to that of the Public Warrants as they had substantially the same terms;

however, they are not actively traded, as such are listed as a Level 2 in the fair value hierarchy table above.

2 unchanged sentences

(Initial Measurement)

December 31, 2021

Representative

Market price of public stock

Term (in years)

Risk-free rate

3 unchanged sentences

One-touch hurdle

ADARA ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

ALLIANCE ENTERTAINMENT HOLDING CORP.

(F/K/A ADARA ACQUISITION CORP.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The following table presents the changes in the fair value of Level 3 warrant liabilities:

The following tables presents the changes in the fair value of Level 3 warrant liabilities:

Private Placement

2 unchanged sentences

Fair value as of January 1, 2021

Initial measurement on February 11th, 2021

Initial measurement on February 11, 2021

Change in valuation inputs or other assumptions

9 unchanged sentences

Fair value as of December 31, 2021

Representative

Warrant Liabilities

Fair value as of January 1, 2022

Change in fair value

Fair value as of December 31, 2022

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs.

The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 during the year ended December 31, 2021 was $ 3,852,500 .

The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 2 measurement during the years ended December 31, 2021 was $ 2,197,800 .

The estimated fair value of the Private Placement Warrants transferred from a Level 3 measurement to a Level 2 measurement during the year ended December 31, 2021 was $ 2,197,800 .

There were no transfers from Level 3 to Level 1 or Level 2 during the year ended December 31, 2022.

SUBSEQUENT EVENTS

In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine.

As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus.

Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements.

The specific impact on the Company's financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued.

Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.

The Company evaluated subsequent events and transactions that occurred after the consolidated balance sheets date up to the date that the consolidated financial statements were issued.

Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements, other than what is disclosed below.

On February 10, 2023, the Company completed its Business Combination with Alliance Entertainment Holding Corp, which is described in Note 6 above.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures