Item 3. Legal Proceedings
Item
3. Legal Proceedings.
Alliance
is currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary
course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial
matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property
rights.
Depending
on the nature of the proceeding, claim, or investigation, the Company may be subject to monetary damage awards, fines, penalties, or
injunctive orders. Furthermore, the outcome of these matters could materially adversely affect Alliance’s business, results of
operations, and financial condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable
and subject to significant judgment to determine the likelihood and amount of loss related to such matters.
On
March 31, 2023, a class action complaint, titled Matthew McKnight v. Alliance Entertainment Holding Corp. f/k/a Adara Acquisition Corp.,
Adara Sponsor LLC, Thomas Finke, Paul G. Porter, Beatriz Acevedo-Greiff, W. Tom Donaldson III, Dylan Glenn, and Frank Quintero, was filed
in the Delaware Court of Chancery against our pre-Business Combination board of directors and executive officers and Adara Sponsor LLC,
alleging breaches of fiduciary duties by purportedly failing to disclose certain information in connection with the Business Combination
and by approving the Business Combination. On August 8, 2024, the Company entered into a settlement agreement regarding pending litigation. A settlement hearing
is scheduled for November 25, 2024. The Company
has accrued $511,000 and $150,000 as of June 30, 2024, and June 30, 2023, respectively, based on the expected loss.
On
June 6, 2024, Office Create Corporation filed a complaint against COKeM International Ltd. (“COKeM”) in the United States
District Court for the District of Minnesota alleging contributory trademark infringement, contributory false designation of origin and
unjust enrichment relating to COKeM’s alleged] distribution of a specific video game, Cooking Mama: Cookstar. Plaintiff is seeking
damages of no less $20,913,200, plus interest of 9% accruing from October 3, 2022. On August 29, 2024, COKeM filed a response denying
all allegations. COKeM intends to vigorously defend the lawsuit. At this time, we are unable to estimate potential losses, if any, related
to this lawsuit.
On
August 8, 2024, a class action complaint, Feller v. Alliance Entertainment, LLC and DirectToU, LLC , was filed under the Video
Privacy Protection Act (“VPPA”). The complaint alleges that the Company violated the VPPA by disclosing users’ personally
identifiable information, as well as information regarding videos they viewed on the Company’s website, to Facebook through the
use of Facebook Pixel. The Company is evaluating the claims and intends to defend against the allegations vigorously. At this time, the
potential outcome or range of financial impact cannot be reasonably estimated.
While
it is not possible to determine the outcomes, the Company believes based on its current knowledge that the resolution of all such pending
matters will not, either individually or in the aggregate, have a material adverse effect on the business, results of operations, cash
flows or financial condition.
Item
4. Mine Safety Disclosures.
Not
applicable.
38
PART
II