What changed in this filing

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Item 1A. Risk Factors

2023-10-19 compared with 2023-03-30 · 287 added, 248 removed, 510 unchanged (51% of the section changed)

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An investment in our securities involves a high degree of risk.

You should consider carefully all of the risks described below, together with the other information contained in this annual report before making a decision to invest in our securities.

You should carefully consider all of the risks described below, together with the other information contained in this annual report before making a decision to invest in our securities.

If any of the following events occur, our business, financial condition and operating results may be materially adversely affected.

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The following is a summary of the principal risks that could materially adversely affect our business, reputation, financial condition and/or operating results.

You should read this summary together with the more detailed description of each risk contained below.

It is important that investors and stakeholders read this summary together with the more detailed description of each risk contained below:

● If Alliance fails to respond to or capitalize on the rapid technological development in the music, video, gaming, and entertainment industry, including changes in entertainment delivery formats, its business could be harmed;

● If Alliance does not successfully optimize and operate its fulfillment network, its business could be harmed;

● The markets in which Alliance participates are competitive, and if Alliance does not compete effectively, its operating results could be harmed.

● Alliance may not realize the anticipated benefits of acquisitions or investments in its acquisitions or joint ventures, or those benefits may be delayed or reduced in their realization.

● Alliance’s expansion into new products, services, technologies, and geographic regions subjects it to additional business, legal, financial, and competitive risks.

● Alliance’s international operations expose it to a number of risks.

● Alliance’s business will suffer if it is not successful in developing and expanding its partner brands across its consumer base.

● Disruptions in Alliance’s supply chain have increased product expenditures and could result in an adverse impact on results of operations;

● Inflation could cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings;

● Weakness in the economy, market trends and other conditions affecting the profitability and financial stability of Alliance’s customers could negatively impact Alliance’s sales growth and results of operations;

● Our expansion places a strain on our management, operational, financial, and other resources;

● Our expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks;

● Our business will suffer if we are not successful in developing and expanding our partner brands across our consumer base;

● Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors;

● An inability to develop, introduce and ship planned products, product lines and new brands in a timely and cost-effective manner may damage Alliance’s business.

● If Alliance is unable to navigate through global supply chain challenges, its business may be harmed.

● If Alliance is unable to adapt its business to the continued shift to ecommerce, its business may be harmed.

● The concentration of Alliance’s retail customer base and continued shift to ecommerce sales means that economic difficulties or changes in the purchasing or promotional policies or patterns of its major customers could have a significant impact on it.

● Alliance’s business, including its costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of its key suppliers or service providers could negatively impact its business.

● Alliance faces significant inventory risk.

● If Alliance’s third-party suppliers’ labels, studios, and publishers do not comply with applicable laws and regulations, its reputation, business, financial condition, results of operations and prospects could be harmed.

● Shipping is a critical part of Alliance’s business and any changes in its shipping arrangements or any interruptions in shipping could adversely affect our operating results.

● Alliance is subject to risks related to online payment methods, including third-party payment processing-related risks.

● Alliance relies on third-party suppliers, labels, studios, publishers, suppliers, retail and ecommerce partners and other vendors, and they may not continue to produce products or provide services that are consistent with Alliance’s standards or applicable regulatory requirements, which could harm its brand, cause consumer dissatisfaction, and require it to find alternative suppliers of its products or services.

● Alliance’s business may be harmed if it is unable to protect its critical intellectual property rights.

● Failure to successfully operate Alliance’s information systems and implement new technology effectively could disrupt its business or reduce its sales or profitability.

● If Alliance’s electronic data is compromised its business could be significantly harmed.

● Alliance’s quarterly and annual operating results may fluctuate due to seasonality in its business.

● Changes in foreign currency exchange rates can significantly impact Alliance’s reported financial performance.

● Alliance’s indebtedness may limit its availability of cash, cause it to divert cash to fund debt service payments or make it more difficult to take certain other actions.

● Covenants and events of default in Alliance’s revolving credit facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity.

● If Alliance were unable to obtain or service its other external financings, or if the restrictions imposed by such financing were too burdensome, its business would be harmed.

● Alliance faces additional tax liabilities and collection obligations.

Changes in, or differing interpretations of, income tax laws and rules, and changes in its geographic operating results, may impact its effective tax rate.

● Alliance is subject to various government regulations, violation of which could subject it to sanctions or otherwise harm its business.

In addition, Alliance could be the subject of future product liability suits or merchandise recalls, which could harm its business.

● Alliance’s entertainment business involves risks of liability claims for media content, which could adversely affect its business, results of operations and financial condition.

● Alliance is involved in litigation, arbitration or regulatory matters where the outcome is uncertain and which could entail significant expense.

● Concentration of ownership among Alliance’s executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.

● Alliance has identified a material weakness in our internal control over financial reporting due to non-financial covenant breach and may identify additional material weaknesses in the future.

Failure to remediate the material weakness or failure to establish and maintain effective control over financial reporting, it may adversely affect our ability to accurately and timely report our financial results, and may adversely affect investor confidence and business operations.

● A significant portion of Alliance’s total outstanding shares are restricted from immediate resale but may be sold into the market beginning on August 11, 2023.

This could cause the market price of the Class A common stock to drop significantly, even if Alliance’s business is doing well.

● The adverse impact of inflation and higher interest rates on Alliance.

● If we are unable to navigate through global supply chain challenges, our business may be harmed;

● If we are unable to adapt our business to the continued shift to ecommerce, our business may be harmed;

● Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of our key suppliers or service providers could negatively impact our business;

● We face significant inventory risk;

● We rely on third-party suppliers, labels, studios, publishers, suppliers, retail and ecommerce partners and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services;

● The maturity of our Credit Facility, along with the Company’s losses from operations and negative cash generated from operations for the nine-month period ended June 30, 2023, has raised substantial doubt regarding our ability to continue as a going concern;

● Alliance’s existing and any future indebtedness could adversely affect its ability to operate its business;

● Covenants and events of default under Alliance’s Credit Facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity;

● Alliance has engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations;

● Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions;

● If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed;

● Alliance has identified material weaknesses in its internal controls over financial reporting.

If remediation of such material weaknesses is not effective, or if we fail to develop and maintain proper and effective internal controls over financial reporting, Alliance’s ability to produce timely and accurate financial statements, comply with applicable laws and regulations, or access the capital markets could be impaired;

● Prior to the Business Combination, Adara had accounted for its outstanding Warrants as a warrant liability and following the Business Combination, Alliance is required to determine the value warrant liability for the Private Warrants quarterly, which could have a material impact on Alliance’s financial position and operating results;

● Alliance’s management has limited experience in operating a public company;

● We might not be able to obtain or maintain the listing of our Class A common stock on the Nasdaq Capital Market;

Risks Related to Our Business and Industry

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The music, video, gaming, and entertainment industry continues to experience frequent change driven by technological development, including developments with respect to the formats through which music, films, television programming, games, and other content are delivered to consumers.

With rapid technological changes and dramatically expanded digital content offerings, the

scale and scope of these changes have accelerated in recent years.

With rapid technological changes and dramatically expanded digital content offerings, the scale and scope of these changes have accelerated in recent years.

For example, consumers are increasingly accessing television, film and other episodic content on streaming and digital content networks, such as Netflix, Amazon Prime Video, Hulu, Disney+ and Apple TV+.

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Due to tight labor markets, we may be unable to adequately staff our fulfillment network and customer service centers or have to increase wages to attract more employees.

We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers.

We rely on a number of shipping companies to deliver inventory to us and complete orders to our customers.

If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.

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and internationally with a wide array of large and small distributors, and sellers of vinyl records, CD’s, DVD’s, video games and other entertainment and consumer products.

In addition, we compete with companies that are focused on building their brands across multiple product and consumer categories, including through entertainment offerings.

Across our business, we face competitors who are constantly

monitoring and attempting to anticipate consumer tastes and trends, seeking which will appeal to consumers, and introducing new products that compete with our products for consumer acceptance and purchase.

In addition, we compete with companies who are focused on building their brands across multiple product and consumer categories, including through entertainment offerings.

Across our business, we face competitors who are constantly monitoring and attempting to anticipate consumer tastes and trends, seeking which will appeal to consumers, and introducing new products that compete with our products for consumer acceptance and purchase.

Competition may intensify, including with the development of new business models and the entry of new and well-funded competitors, and as our competitors enter into business combinations or alliances and established companies in other market segments expand to become competitive with our business.

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Disruptions in Alliance’s supply chain have increased product expenditures and could result in an adverse impact on results of operations.

For the six months ended December 31, 2022, Alliance’s top five suppliers represent approximately 48% of product expenditures.

For the year ended June 30, 2022, Alliance’s top five suppliers represented approximately 40% of all of Alliance’s product expenditures as compared to approximately 25% of product expenditures for previous fiscal year.

The occurrence of one or more natural or human induced disasters, including pandemic diseases or viral contagions such as the COVID-19 pandemic;

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and the imposition of measures that create barriers to or increase the costs associated with international trade could result in disruption of Alliance’s logistics or supply chain network.

For example, the outbreak of the COVID-19 pandemic has disrupted and may continue to disrupt the operations of Alliance and its suppliers and customers.

Customer demand for certain products has also fluctuated as the pandemic has progressed, which has challenged Alliance’s ability to anticipate and/or procure product to maintain inventory levels to meet that demand.

For example, the outbreak of the COVID-19 pandemic disrupted the operations of Alliance and its suppliers and customers.

Customer demand for certain products has also fluctuated during the pandemic which challenged Alliance’s ability to anticipate and/or procure product to maintain inventory levels to meet that demand.

Additionally supply chain disruptions can be the result of the bankruptcy or failure of trucking and other logistics businesses.

Labor shortages can also cause supply chain disruptions.

These factors have resulted in higher product inventory cost positions in certain products as well as delays in delivering those products to Alliance’s distribution centers, branches or customers, and similar results may occur in the future.

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Any of these circumstances could impair Alliance’s ability to meet customer demand for products and result in lost sales, increased supply chain costs, penalties, or damage to Alliance’s reputation.

Any such increased product costs from supplier disruption could adversely impact results of operations and financial performance.

Inflation could cause Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings.

Any such increased product costs from supplier disruption could adversely impact the results of operations and financial performance.

Inflation has caused and may continue to experience Alliance’s product costs and operating and administrative expenses to grow more rapidly than net sales, which could result in lower gross margins and lower net earnings.

Market variables, such as inflation of product costs from suppliers, labor rates and fuel, freight and energy costs, have and may continue to increase potentially causing Alliance to be unable to efficiently manage its product costs and operating and administrative expenses in a way that would enable it to leverage its revenue growth into higher net earnings.

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Any of these events could also reduce the volume of products and services these customers purchase from Alliance or impair the ability of Alliance’s customers to make full and timely payments and could cause increased pressure on Alliance’s selling prices and terms of sale.

If we incurred any significant impairment charges, our net earnings would be reduced.

Declines in the profitability of acquired brands or our decision to reduce our focus or exit these brands may impact our ability to recover the carrying value of the related assets and could result in an impairment charge.

Similarly, declines in our profitability may impact on the fair value of our reporting unit, which could result in a write-down of our goodwill and consequently harm our net earnings.

Risks Related to Expansion of our Business

Our expansion places a strain on our management, operational, financial, and other resources.

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Acquisitions can broaden and diversify our brand holdings and product offerings and allow us to build additional capabilities and competencies of the company.

We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively market our products, develop our competencies or grow our business.

We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to market our products more effectively, develop our competencies or grow our business.

In some cases, we expect that the integration of the companies that we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies which will produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages.

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In other cases, we may acquire or invest in companies that we believe have strong and creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into our operations.

We cannot be certain that the key talented individuals at these companies would continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future.

We cannot be certain that the key talented individuals at these companies will continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future.

We cannot guarantee that any acquisition or investment we may make will be successful or beneficial, and acquisitions can consume significant amounts of management attention and other resources, which may negatively impact other aspects of our business.

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As international physical, e-commerce, and other services grow, competition will intensify, including through adoption of evolving business models.

Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names.

Local companies may have a substantial competitive advantage because of their greater understanding of,

and focus on, the local customer, as well as their more established local brand names.

We may not be able to hire, train, retain, and manage required personnel, which may limit our international growth.

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If we are unable to successfully develop, maintain and expand key partner brands across our brand blueprint, our business performance will suffer.

Risks Related to Shifts in Consumer Demand

Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors.

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The risk is also exacerbated by the increasing sophistication of many of the products we are distributing, providing greater innovation and product differentiation.

Unforeseen delays or difficulties in the development process, significant increases in the planned cost of development, or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated, may reduce or eliminate the profitability of such products or, in some situations, may cause a product or new brand introduction to be discontinued.

Unforeseen delays or difficulties in the development process, significant increases in the

planned cost of development, or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated, may reduce or eliminate the profitability of such products or, in some situations, may cause a product or new brand introduction to be discontinued.

Risks Related to Our Supply Chain and Sales Channels

If we are unable to navigate through global supply chain challenges, our business may be harmed.

In 2021 and continuing through 2022, we have faced global supply chain challenges with the production and delivery of some products being delayed due to logistics, including labor, trucking and container shortages, port congestion and other shipping disruptions.

We have experienced increases in material costs and shortages for some of our products, due in part to higher wages being paid due to labor shortages in China and Vietnam, as well as periodic and unpredictable manufacturing shut-downs due to COVID-19.

While we have taken actions to lessen the impact of these supply chain challenges, such as through the use of alternative ports and air freight, such actions have resulted in higher costs and there can be no assurance that the actions taken will continue to be effective.

Beginning in 2021, and continuing through 2022, we faced global supply chain challenges with the production and delivery of some products being delayed due to logistics, including labor, trucking and container shortages, port congestion and other shipping disruptions.

We have in the past experienced increases in material costs and shortages for some of our products or any periodic and unpredictable manufacturing shut-downs, for example due to COVID-19.

While we have taken actions to lessen the impact of these supply chain challenges, such as through the use of alternative ports and air freight, such actions resulted in higher costs and there can be no assurance that the actions taken will continue to be effective.

We have also increased prices in some cases to help offset increased costs.

We can provide no assurance that we will be able to increase prices in the future and we cannot assure that price increases we have already taken will offset the entirety of additional costs we have incurred and may incur in the future to mitigate the supply chain disruption.

We can provide no assurance that we will be able to avoid supply chain challenges in the future, or if we face such challenges, that we will be able to increase prices in the future.

We also cannot assure that price increases we have already taken will offset the entirety of additional costs we have incurred and may incur in the future to mitigate the supply chain disruption.

Further, if we are unable to negotiate favorable carrier agreements, deliver products on time or otherwise satisfy demand for our products, our business may be harmed.

If we are unable to adapt our business to the continued shift to ecommerce, our business may be harmed.

Ecommerce sales continue to grow in overall sales as consumers increasingly purchased our products online as compared to through in-store shopping due to the continued transition to ecommerce accelerated by the shutdown and limited access to retail stores during the COVID-19 pandemic.

In fiscal year 2023, ecommerce sales represented approximately 24% of our top four customers overall sales as consumers increasingly purchased our products online as compared to through in-store shopping due to the continued transition to ecommerce accelerated by the shutdown and limited access to retail stores during the COVID-19 pandemic.

Ecommerce sales have resulted in retailers holding less inventory, which has caused us to adjust our supply chain.

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The concentration of our retail customer base and continued shift to ecommerce sales means that economic difficulties or changes in the purchasing or promotional policies or patterns of our major customers could have a significant impact on us.

For the year ended June 30, 2022 and for the six months ended December 31, 2022, our top customer generated over 10% of net sales.

For the six months ended December 31, 2022, our top customer accounted for approximately 19% of our total net sales, purchased a mix of products comprised of 34% games, 46% music, and 20% movies.

For the year ended June 30, 2022, our top customer accounted for 24% of our total net sales, purchased a mix of products comprised of 41% games, 39% music, and 20% movies.

Due to our customer concentration, if our top customer were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us, favor competitors or new entrants, change their purchasing patterns, impose unexpected fees on us, alter the manner in which they promote our products or the resources they devote to promoting and selling our products, or return substantial amounts of our products, our business may be harmed.

For the year ended June 30, 2023, our top five customers generated approximately 50% of net sales and our top customer accounted for approximately 23% (Including all channels, market segments and lines of business) of our total net sales and purchased a mix of products comprised of approximately 47% music, 24% games, 23% movies, and 6% Consumer Products.

For the year ended June 30, 2022, our top customer accounted for 27% of our total net sales including all channels, market segments and lines of business.

Due to our customer concentration, if our top customer was to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us, favor competitors or new entrants, change their purchasing patterns, impose unexpected fees on us, alter the manner in which they promote our products or the resources they devote to promoting and selling our products, or return substantial amounts of our products, our business may be harmed.

Our customers do not make binding long-term commitments to us regarding purchase volumes and make all purchases by delivering purchase orders.

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Our business, including our costs and supply chain, is subject to risks associated with sourcing, manufacturing, warehousing, distribution and logistics, and the loss of any of our key suppliers or service providers could negatively impact our business.

All of the products we offer are manufactured by third-party labels, studios, publishers, and suppliers, and as a result we may be subject to price fluctuations or demand disruptions.

All the products we offer are manufactured by third-party labels, studios, publishers, and suppliers, and as a result we may be subject to price fluctuations or demand disruptions.

Our operating results would be negatively impacted by increases in the costs of the products we offer, and we have no guarantees that costs will not rise.

In addition, as we expand into new categories and product types, we expect that we may not have strong purchasing power in these new areas, which could lead to higher costs than we have historically seen in our current categories.

In addition, as we expand into new categories and product types,

we expect that we may not have strong purchasing power in these new areas, which could lead to higher costs than we have historically seen in our current categories.

We may not be able to pass increased costs on to consumers, which could adversely affect our operating results.

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Suppliers may also have to meet governmental and industry standards and any relevant standards required by our consumers, which may require additional investment and time on behalf of suppliers and us.

If any of our key suppliers becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, as a result of the COVID-19 pandemic or otherwise, or if any environmental, economic or other outside factors impact their operations.

If we are unable to identify or enter into distribution relationships with new suppliers or to replace the loss of any of our existing suppliers, we may experience a competitive disadvantage, our business may be disrupted and our business, financial condition, results of operations and prospects could be adversely affected.

If any of our key suppliers becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, or if any environmental, economic or other outside factors impact their operations.

If we are unable to identify or enter distribution relationships with new suppliers or to replace the loss of any of our existing suppliers, we may experience a competitive disadvantage, our business may be disrupted and our business, financial condition, results of operations and prospects could be adversely affected.

Our principal suppliers currently provide us with certain incentives such as extended payment terms, volume purchasing, trade discounts, cooperative advertising and market development funds.

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We face significant inventory risk.

In addition to risks described elsewhere relating to fulfillment network and inventory optimization by us and third parties, we are exposed to significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns,

changes in consumer tastes with respect to our products, spoilage, and other factors.

We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell.

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Shipping is a critical part of our business and any changes in our shipping arrangements or any interruptions in shipping could adversely affect our operating results.

We primarily rely on two major vendors for our shipping requirements.

If we are not able to negotiate acceptable pricing and other terms with these two vendors or one of the two experiences performance problems or other difficulties, it could negatively impact our operating results and our consumer or retail partner experience.

We primarily rely on the major suppliers for our shipping requirements.

If we are not able to negotiate acceptable pricing and other terms with these suppliers or if one of the two experiences performance problems or other difficulties, it could negatively impact our operating results and our consumer or retail partner experience.

Shipping vendors may also impose shipping surcharges from time to time.

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Charge-backs result not only in our loss of fees earned with respect to the payment, but also leave us liable for the underlying money transfer amount.

If our charge-back rate becomes excessive, card associations also may require us to pay fines or refuse to process our transactions.

To mitigate credit card fraud, we use Kount to score all credit card orders for risk of fraud.

If our chargeback rate becomes excessive, card associations also may require us to pay fines or refuse to process our transactions.

mitigate credit card fraud, we use Kount to score all credit card orders for risk of fraud.

In addition, we may be subject to additional fraud risk if third-party service providers or our employees fraudulently use consumer information for their own gain or facilitate the fraudulent use of such information.

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We do not own or operate any manufacturing facilities.

We use multiple third-party suppliers and labels, studios, publishers, suppliers based primarily in the United States, China and Mexico and other countries to a lesser extent, to manufacture and supply all of the products we offer and sell.

We engage many of our third-party suppliers and labels, studios, publishers, suppliers on a purchase order basis and in most cases are not party to long-term contracts with them.

The ability and willingness of these third parties to supply and manufacture the products we offer, and sell may be affected by competing orders placed by other companies and the demands of those companies.

If we experience significant increases in demand or need to replace a significant number of existing suppliers or manufacturers, there can be no assurance that additional supply and manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer will allocate sufficient capacity to us in order to meet our requirements.

Furthermore, our reliance on suppliers and manufacturers outside of the United States, the number of third parties with whom we transact and the number of jurisdictions to which we sell complicates our efforts to comply with customs duties and excise taxes;

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● work with, be acquired by, or come under control of, our competitors.

The maturity of our Credit Facility has raised substantial doubt regarding our ability to continue as a going concern.

Our Credit Facility with Bank of America has a maturity date of September 29, 2023, and we have been unable to maintain a certain minimum fixed charged ratio to comply with the financial covenants associated as defined in the Credit Facility.

Without generating sufficient cash flow from operations, access to other sources of liquidity or an extension of the existing credit facility, these conditions raise substantial doubt about our ability to continue as a going concern, meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations.

Risks Related to Our Debt

The maturity of our Credit Facility, along with the Company’s losses from operations for the year ended June 30, 2023, has raised substantial doubt regarding our ability to continue as a going concern.

Our Credit Facility with Bank of America was extended from September 29, 2023 to December 31, 2023, and we have been unable to maintain a certain minimum fixed charged ratio to comply with the financial covenants associated as defined in the Credit Facility, having obtained a waiver for the non-compliance.

Without generating sufficient cash flow from operations, access to other sources of liquidity or an extension of the existing credit facility, along with the fact that the Company has experienced losses from operations for the year ended June 30, 2023, and has a working capital deficit, these conditions raise substantial doubt about our ability to continue as a going concern, meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations.

If we need to seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all.

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Alliance’s existing and any future indebtedness could adversely affect its ability to operate its business.

On June 30, 2022, the credit line with Bank of America was amended for the current period which ends September 29, 2023 and increased from $175 million to $225 million with a variable annual interest rate equal to the higher of the Prime rate, Federal Funds rate plus .5% or Bank of America SOFR rate plus 2.11% (Libor rate plus 2% is the prior agreement).

As of December 31, 2022, the interest rate was 6.41% (SOFR 4.30% plus a spread of 2.11%).

As of December 31, 2021, the interest rate was 2.25% (Libor .25% plus a spread of 2%) with borrowing above the contracted Libor at 4.25% (Base Rate 3.25% plus a spread of 1%).

The weighted average interest rate on the revolver for six months ended December 31, 2022, and year ended June 30, 2022 was 6.90% and 2.76%, respectively.

The Company executed an amendment to its Credit Facility with Bank of America on January 24, 2022, (retroactive to January 1, 2022), to transition the interest rate benchmark from Libor to a Secured Overnight Financing Rate (SOFR).

The effective interest rate on the revolver using SOFR for the year ended June 30, 2023, was 6.0% (SOFR plus a spread of 2.11%).

The effective interest rate for the year ended June 30, 2022, was 3.61%.

The Credit Facility maturity was extended from September 29, 2023 to December 31, 2023, has a variable annual interest rate equal to the higher of the Prime rate, Federal Funds rate plus .5% or Bank of America Libor rate plus 2%, up to January 1, 2022, and SOFR plus a spread of 2.11% going forward.

On June 30, 2022, the Credit Facility with Bank of America was increased from $175 million to $225 million.

On April 21, 2023, in connection with Amendment No.

12 as defined below, the Credit Facility with Bank of America was reduced from $225 million to $175 million.

As disclosed in Note 8, on April 21, 2023, certain subsidiaries of the Company, as Borrowers thereunder (the “Borrowers”), entered an Amendment Number Twelve and Waiver (“Amendment No.

12”) to the Credit Facility.

Amendment No.

12 provides for the waiver by Bank of America and the Required Lenders (as defined in the Credit Facility) of certain specified events of default under the Credit Facility, including the failure by the Borrowers to meet the Fixed Charge Coverage Ratio covenant requirement for the twelve trailing months ended November 30, 2022, December 31, 2022, January 31, 2023 and February 28, 2023 and certain other non-financial covenant breaches, and modifies the Credit Facility to, among other things, (i) suspend the Fixed Charge Coverage Ratio covenant requirement until the first calendar month end for which the Borrowers are in compliance with such requirement (the “Fixed Charge Coverage Compliance Date”), and (ii) add an additional covenant requiring the Borrowers to maintain specified minimum levels of EBITDA, which requirement will remain in effect until the Fixed Charge Coverage Compliance Date.

Pursuant to Amendment No.

12, the Borrowers agreed to pay an Agent waiver fee of approximately $180,000.

On September 13, 2023, certain subsidiaries of the Company, as Borrowers under the Credit Facility (the “Borrowers”), entered into Amendment Number Thirteen and Waiver (“Amendment No.

13”) to the Credit Facility.

Amendment No.

13 provides for the waiver by Bank of America and the Required Lenders (as defined in the Credit Facility) of certain specified events of default under the Credit Facility, including a favored Equipment Lease Guaranty with Fifth Third Bank and short-term loans known as Ogilvie Loan Transactions ranging from $7.6 million to $17.0 million during the months of June, July and August 2023.

The parties acknowledge these are breaches of the covenants of the Credit Facility;

however, the Borrowers have requested, and the Lenders have agreed to

waive the Specified Events of Default and amend the Credit Facility and extend the Revolver Termination Date for a period of 93 days to December 31, 2023.

All assets (with certain capitalized lease exceptions) and interest in assets of the Company are pledged as collateral under the Loan and Security Agreement, dated as of February 21, 2017, by and among Alliance, Bank of America, N.A.

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Availability under the Credit Facility is limited by the Company’s borrowing base calculation, as defined in the Credit Facility.

In addition, there is a commitment fee of 0.25% for unused credit line with fees for year ended June 30, 2022, and 2021 of $100 thousand and $300 thousand, respectively.

Availability at December 31, 2022, was $48.3 million with an outstanding revolver balance of $176.7 million.

Availability on December 31, 2021 was $49.3 million with an outstanding revolver balance of $125.7 million.

In addition, there is a commitment fee of 0.25% for unused credit line with fees for the years ended June 30, 2023 and 2022 of $147,000 and $100,000, respectively.

Availability at June 30, 2023, was $2 million with an outstanding revolver balance of $133 million.

Availability at June 30, 2022 was $48 million with an outstanding Revolver balance of $136 million.

Because of the event of default, the lenders are under no obligation to fund any loan, arrange for the issuance of any letter of credit, or grant any other accommodation to or for the benefit of the Company.

Revolver balance consists of the following at:

($ in thousands)

June 30, 2023

June 30, 2022

Bank of America Revolving Credit Facility

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Failure to make payments or comply with other covenants under our existing credit facility or such other debt instruments could result in an event of default and acceleration of amounts due, which would have a material adverse effect on our business.

As disclosed in Note 8 to the Company’s consolidated financial statements, during the year ended June 30, 2023, the Company failed to meet the Fixed Charge Coverage Ratio covenant requirement.

Covenants and events of default under Alliance’s Credit Facility could limit our ability to undertake certain types of transactions and adversely affect our liquidity.

Alliance obtained a waiver for non-compliance with one non-financial covenant related to its delivery of the monthly unaudited financial statements and compliance certificates for the periods pertaining to June 30, 2022, July 31, 2022, and August 31, 2022.

This non-compliance resulted in events of default under the Credit Facility.

As a result of this non-compliance as of the balance sheet date and periods thereafter, the Company has classified the outstanding balance of the Credit Facility Net of $135,968 as a current liability as of June 30, 2022.

The Company expects that it will comply with this non-financial covenant for a period of at least one year from the issuance of these financial statements.

In addition, as further described in Note 17 to the Company's condensed consolidated financial statements, the Company determined that it incorrectly classified the revolving credit facility, net, as a non-current liability instead of as a current liability on its condensed consolidated financial statements for the three months ended September 30, 2022.

The Company determined that such financial statements were materially misstated and should be restated.

As disclosed in Note 9 to the Company’s consolidated financial statements, during the second fiscal ended December 31, 2022, the Company failed to meet the Fixed Charge Coverage Ratio covenant requirement.

The Company is in negotiations with its lender to obtain a waiver for non-compliance.

The Company also obtained a waiver for non-compliance with one non-financial covenant related to its delivery of the monthly unaudited financial statements and compliance certificates for the periods pertaining to June 30, 2022, July 31, 2022, and August 31, 2022.

We cannot provide any assurance that our lender would provide us with a waiver should we not be in compliance in the future.

A failure to maintain compliance along with our lender not agreeing to a waiver for the non-compliance would cause the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us and our ability to continue as a going concern.

Alliance’s Credit Facility contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, Alliance obtained a waiver for non-compliance with one non-financial covenant related to its delivery of the monthly unaudited financial statements and compliance certificates for the periods pertaining to June 30, 2022, July 31, 2022 and August 31, 2022.

This non-compliance resulted in events of

default under the Credit Facility.

As a result of this non-compliance as of the balance sheet date and periods thereafter, the Company had classified the outstanding balance of the Credit Facility Net of $135,968 as a current liability as of June 30, 2022.

As disclosed in Note 8 to the Company’s consolidated financial statements, during year ended June 30, 2023, the Company failed to meet the Fixed Charge Coverage Ratio covenant requirement.

The Company received a waiver for failure to meet the Fixed Charge Coverage Ratio for the twelve trailing months ended November 30, 2022, December 31, 2022, January 31, 2023 and February 28, 2023.

On April 21, 2023, certain subsidiaries of the Company executed an Amendment Number Twelve to the Loan and Security Agreement and Waiver, which formalizes such waiver and modifies the Credit Facility to, among other things, (i) suspend the Fixed Charge Coverage Ratio covenant requirement until the first calendar month end for which the Borrowers are in compliance with such requirement (the “Fixed Charge Coverage Compliance Date”), and (ii) add an additional covenant requiring the Borrowers to maintain specified minimum levels of EBITDA, measured on a calendar year to date basis as of the last day of the month, which requirement will remain in effect until the Fixed Charge Coverage Compliance Date.

The failure to maintain compliance with covenant requirements if not waived by our lender causes the outstanding borrowings to be in default and payable on demand, which would have a material adverse effect on us and our ability to continue as a going concern.

On September 13, 2023 certain subsidiaries of the Company, as Borrowers entered into Amendment No.

13 to the Credit Facility.

Amendment No.

The parties acknowledge these are breaches of the covenants of the Credit Facility;

however, the borrowers have requested, and the Lenders have agreed to waive the Specified Events of Default and amend the Credit Facility and extend the Revolver Termination Date for a period of 93 days to December 31, 2023.

A breach of the covenants under the Credit Facility could result in an event of default under the applicable indebtedness.

Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.

In addition, an event of default under the Credit Facility could permit the lenders under

the Credit Facility to terminate all commitments to extend further credit under the Credit Facility.

In addition, an event of default under the Credit Facility could permit the lenders under the Credit Facility to terminate all commitments to extend further credit under the Credit Facility.

Furthermore, if we were unable to repay the amounts due and payable under the Credit Facility, those lenders could proceed against the collateral granted to them to secure that indebtedness.

In the event our lender accelerates the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.

You should read our more detailed descriptions of the Credit Facility set forth in this annual report and in our filings with the Securities and Exchange Commission, as well as the documents themselves which are also filed as exhibits to this annual report, for further information about these covenants.

You should read our more detailed descriptions of the Credit Facility set forth in this 10-K and in our filings with the SEC, as well as credit agreements which are also filed with the SEC, for further information about these covenants.

Government efforts to combat inflation, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs.

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Such government efforts, along with other interest rate pressures arising from an inflationary economic environment, could lead to us to incur even higher interest rates and financing costs on our credit line with Bank of America and have material adverse effect on our business, financial condition and results of operations.

Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions.

We operate the business with an asset-based line of credit to fund working capital to support our Accounts Payable and our Inventory purchases.

● make it more difficult and/or costly for us to pay or refinance our debts as they become due, particularly during adverse economic and industry conditions, because a decrease in revenues or increase in costs could cause cash flow from operations to be insufficient to make scheduled debt service payments;

● require a substantial portion of our available cash to be used for debt service payments, thereby reducing the availability of our cash to fund working capital, capital expenditures, development projects, acquisitions or other strategic opportunities, dividend payments, share repurchases and other general corporate purposes;

● make it more difficult for us to raise capital to fund working capital, make capital expenditures, pay dividends, pursue strategic initiatives or for other purposes and result in higher interest expense, which could be further increased in case of current or future borrowings subject to variable rates of interest;

● require that materially adverse terms, conditions, or covenants be placed on us under our debt instruments, which could include, for example, limitations on additional borrowings or limitations on our ability to create liens, pay dividends, repurchase our common stock or make investments, any of which could hinder our access to capital markets or our flexibility in the conduct of our business and make us more vulnerable to economic downturns and adverse competitive industry conditions;

● jeopardize our ability to pay our indebtedness if our business experienced a severe downturn.

If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed.

Due to the seasonal nature of our business, in order to meet our working capital needs we rely on a revolving credit agreement which provides for a $175,000,000 committed revolving asset-based loan Credit Facility.

The Credit Facility contains certain restrictive covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility.

These restrictive covenants may limit our future actions as well as our financial, operating, and strategic flexibility.

The Company received a waiver from the lender for non-compliance with certain non-financial covenants as of June 30, 2022, July 31, 2022, and August 31, 2022.

Subsequently, the Company also received a waiver for failure to meet the Fixed Charge Coverage Ratio for the twelve trailing months ended November 30, 2022 and December 31, 2022, January 31, 2023 and February 28, 2023.

Additionally, a waiver was received on September 13, for certain specified events of default under the Credit Facility, including a favored Equipment Lease Guaranty with Fifth Third Bank and short-term loans known as Ogilvie Loan Transactions ranging from $7.6 to $17.0 million during the months of June, July and August, 2023.

The parties acknowledge these are breaches of the covenants of the Credit Facility;

however, the Borrowers have requested, and the Lenders have agreed to waive the Specified Events of Default and amend the Credit Facility and extend the Revolver Termination Date for a period of 93 days to December 31, 2023.

Not only may our individual financial performance impact our ability to access sources of external financing, but significant disruptions to credit markets in general may also harm our ability to obtain financing.

In times of severe economic downturn and/or distress in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to us.

In such a situation, it may be that we would be unable to access funding under our existing credit facilities, and it might not be possible to find alternative sources of funding.

We also may choose to finance our capital needs, from time to time, through the issuance of debt securities.

Our ability to issue such securities on satisfactory terms, if at all, will depend on the state of our business and financial condition, any ratings issued by major credit rating agencies, market interest rates, and the overall condition of the financial and credit markets at the time of the offering.

The condition of the credit markets and prevailing interest rates have fluctuated significantly in the past and are likely to fluctuate in the future.

Variations in these factors could make it difficult for us to sell debt securities or require us to offer higher interest rates in order to sell new debt securities.

The failure to receive financing on desirable terms, or at all, could damage our ability to support our future operations or capital needs or engage in other business activities.

If we are unable to generate sufficient available cash flow to service our outstanding debt, we would need to refinance our outstanding debt or face default.

We cannot guarantee that we would be able to refinance debt on favorable terms, or at all.

Risks Related to our Management

Our success is dependent on the efforts and dedication of our officers and other employees.

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It is their skill, innovation and hard work that drive our success.

We compete with many other potential employers in recruiting, hiring, and retaining our management team and our many other skilled officers and employees around the world.

We compete with many other potential employers in recruiting, hiring, and retaining our management team and our many other skilled

officers and employees around the world.

The increasing prevalence of remote work creates further challenges in retaining employees as some employees desire more flexibility in their employment and the ability to work remotely opens up more employment opportunities.

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Alliance has engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations.

Alliance has entered into transactions with related parties, including our two principal stockholders.

Alliance has entered transactions with related parties, including our two principal stockholders.

We have entered into transactions with companies owned by Bruce Ogilvie and Jeffrey Walker, including GameFly Holdings, LLC.

For the six months ended December 31, 2022, and 2021, Alliance made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $2.3 million and $4.8 million respectively.

During the years ended June 30, 2022, 2021 and 2020, Alliance 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.

For the year ended June 30, 2023 and 2022, Alliance made sales of new release movies, video games, and video game consoles to GameFly Holdings LLC in the amount of $16.8 million and $7.5 million respectively.

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

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Ogilvie’s and Mr.

positions with Alliance as Executive Chairman and Chief Executive Officer, respectively.

Walker’s positions with Alliance as Executive Chairman and Chief Executive Officer, respectively.

On September 13, 2023 certain subsidiaries of the Company, as Borrowers entered into Amendment No.

13 to the Credit Facility.

Amendment No.

The parties acknowledge these are breaches of the covenants of the Credit Facility;

We may in the future enter into additional transactions with entities in which majority shareholders, executive officers and members of our board of directors and other related parties hold ownership interests.

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Nevertheless, we may have achieved more favorable terms if such transactions had not been entered into with related parties and these transactions, individually or in the aggregate, may have an adverse effect on our business and results of operations or may result in government enforcement actions or other litigation.

Alliance’s management has limited experience in operating a public company.

Alliance’s executive officers have limited experience in the management of a publicly traded company.

Alliance’s management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws.

Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of Alliance.

Alliance may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States.

The development and implementation of the standards and controls necessary for Alliance to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected.

It is possible that Alliance will be required to expand its employee base and hire additional employees to support its operations as a public company, which will increase its operating costs in future periods.

Risks Related to Our Technology and Intellectual Property

Our business may be harmed if we are unable to protect our critical intellectual property rights.

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Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, consumers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.

Risks Related to Matters Outside our Control That May Impact Our Business

The global coronavirus outbreak or other similar outbreaks of communicable infections, diseases, or public health pandemics in the markets in which we and our employees, consumers, customers, partners, licensees, suppliers and manufacturers operate, could substantially harm our business.

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● challenges of working remotely.

We have reopened our offices, providing employees flexibility in their return to the office by working partially in the office and partially remote.

We have reopened our offices, providing employees with flexibility in their return to the office by working partially in the office and partially remote.

We have taken measures to safely bring additional workers back to the office, including a return to fully remote work when variants emerge which increase infection rates significantly in areas where we do business.

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Changes in flexible working arrangements could impact employee retention, employees’ productivity, and morale, strain our technology resources and introduce operational risks.

Additionally, the risk of cyber-attacks or other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.

The impact of coronavirus outbreak continues to be fluid and uncertain, and while vaccines are being rolled out, it is still difficult to forecast the final impact it could have on our future operations.

If our business experiences prolonged occurrence of adverse public health conditions due to the coronavirus or other similar outbreaks, we believe our business could be substantially harmed.

Additionally, the risk of cyber-attacks or

other privacy or data security incidents may be heightened as a result of our moving increasingly towards a remote working environment, which may be less secure and more susceptible to hacking attacks.

Adverse economic conditions in the markets in which we and our employees, consumers, customers, suppliers and manufacturers operate could negatively impact our ability to produce and ship our products, and lower our revenues, margins and profitability.

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Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could significantly harm our revenues and profitability.

Our success and profitability not only depend on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow for us to make a profit.

Our success and profitability not only depend on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow us to make a profit.

Rising fuel and raw material prices, due to inflation or otherwise, for paperboard and other components such as resin used in plastics or electronic components, increased transportation and shipping costs, and increased labor costs in the markets in which our products are manufactured all may increase the costs we incur to produce and transport our products, which in turn may reduce our margins, reduce our profitability and harm our business.

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This in turn can reduce our revenues and harm our financial performance and profitability.

Our quarterly and annual operating results may fluctuate due to seasonality in our business.

Our small global operations mean we transact business in many different jurisdictions with many different currencies.

As a result, if the exchange rate between the U.S.

dollar and a local currency for an international market in which we have significant sales or operations changes, our financial results as reported in U.S.

dollars, may be meaningfully impacted even if our business in the local currency is not significantly affected.

Similarly, our expenses can be significantly impacted, in U.S.

dollar terms, by exchange rates, meaning the profitability of our business in U.S.

dollar terms can be negatively impacted by exchange rate movements which we do not control.

Depreciation in key currencies may have a significant negative impact on our revenues and earnings as they are reported in U.S.

Our quarterly and annual operating results may fluctuate due to seasonality in our business and union strikes impacting the availability of content.

Sales of our music, video movies, video games and other entertainment products are seasonal, with an increase of retail sales occurring during the period from September through December for the holiday season.

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Ecommerce retailers tend to hold less inventory and take inventory closer to the time of sale to consumers than traditional retailers.

As a result, customers are timing their orders so that they are being filled by suppliers, such as us, closer to the time of purchase by consumers.

While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders promptly and thereby shift a significant portion of inventory risk and carrying costs to the supplier.

As a result, customers are timing their orders so that they are being fulfilled by suppliers, such as us, closer to the time of purchase by consumers.

While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders

promptly and thereby shift a significant portion of inventory risk and carrying costs to the supplier.

This can also result in our losing significant revenues and earnings if our supply chain is unable to supply product to our customers when they want it.

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Additionally, the logistics of supplying more product within shorter time periods increases the risk that we will fail to achieve tight and compressed shipping schedules, which also may reduce our sales and harm our financial performance.

These risks have been exacerbated in 2021 and 2022 due to the global supply chain challenges we have faced due to logistics, including labor, trucking and container shortages, port congestion and other shipping disruptions.

Our entertainment business is also subject to seasonal variations based on the timing of music, television, film, gaming content releases.

Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market, and more recently, the timing of release dates has been affected by the pandemic.

Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market.

Additionally, the SAG AFTRA strike has created a lack of content for CDs, DVDs and other entertainment sectors.

This could negatively effect our business.

This seasonal pattern of our business requires significant use of working capital, mainly to purchase inventory during the months prior to the holiday season and requires accurate forecasting of demand for products during the holiday season in order to avoid losing potential sales of popular products or producing excess inventory of products that are less popular with consumers.

Our failure to accurately predict and respond to consumer demand, resulting in under producing popular items and/or overproducing less popular items, would reduce our total sales and harm our results of operations.

Our failure to accurately predict and respond to consumer demand, resulting in underproducing popular items and/or overproducing less popular items, would reduce our total sales and harm our results of operations.

As a result of the seasonal nature of our business, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a natural disaster, a terrorist attack, economic shock or pandemic that harms the retail environment or consumer buying patterns during our key selling season, or by events such as strikes or port delays or other supply chain challenges that interfere with the shipment of goods, particularly from the Far East, during the critical months leading up to the holiday shopping season.

If we incurred any significant impairment charges, our net earnings would be reduced.

Similarly, declines in our profitability may impact the fair value of our reporting units, which could result in a write-down of our goodwill and consequently harm our net earnings.

Changes in foreign currency exchange rates can significantly impact our reported financial performance.

Our small global operations mean we transact business in many different jurisdictions with many different currencies.

As a result, if the exchange rate between the U.S.

dollar and a local currency for an international market in which we have significant sales or operations changes, our financial results as reported in U.S.

dollars, may be meaningfully impacted even if our business in the local currency is not significantly affected.

Similarly, our expenses can be significantly impacted, in U.S.

dollar terms, by exchange rates, meaning the profitability of our business in U.S.

dollar terms can be negatively impacted by exchange rate movements which we do not control.

Depreciation in key currencies may have a significant negative impact on our revenues and earnings as they are reported in U.S.

Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions.

We operate the business with an asset-based line of credit to fund working capital to support our Accounts Receivables and our Inventory purchases.

Our debt service obligations under such indebtedness could have a material adverse effect on our results of operations and financial condition.

In particular, our indebtedness could:

● jeopardize our ability to pay our indebtedness if our business experienced a severe downturn.

If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed.

Due to the seasonal nature of our business, in order to meet our working capital needs, particularly those in the second and third quarters of each year, we rely on a revolving credit agreement which provides for a $225,000,000 committed revolving asset-based loan Credit Facility.

The Credit Facility contains certain restrictive covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility.

These restrictive covenants may limit our future actions as well as our financial, operating, and strategic flexibility.

Additionally, as disclosed in our consolidated financial statements as of and for the year ended June 30, 2022, the Company received a waiver from the lender for non-compliance with certain non-financial covenants as of June 30, 2022, July 31, 2022, and August 31, 2022.

Non-compliance with our debt covenants in the future could result in us being unable to utilize borrowings under the Credit Facility and other bank lines, a circumstance which potentially could occur when operating shortfalls would require supplementary borrowings to enable us to continue to fund our operations.

Alliance recently failed to meet the covenant requirements of the Credit Facility, being notified on February 8, 2023 that a fixed charge coverage ratio has been recently breached, with the letter indicating that is subject to a deferred action by the lender.