Item 1. Business
Item
1. Business.
Alliance
Entertainment is a leading global distributor and retailer of physical entertainment and collectible products, including vinyl records,
CDs, DVDs, Blu-rays, video games, electronics, and licensed fan merchandise. The Company’s unique position in the entertainment
ecosystem is supported by a diverse portfolio of direct-to-consumer brands, including Critics’ Choice Video, Collectors’
Choice Music, Movies Unlimited, DeepDiscount, PopMarket, Blowitoutahere, Fulfillment Express, ImportCDs, GamerCandy, and WowHD.
Alliance
connects top content creators, including Universal Pictures, Warner Bros. Home Video, Walt Disney Studios, Sony Pictures, Lionsgate,
Paramount Pictures, Universal Music Group, Sony Music, Warner Music Group, Microsoft, Nintendo, Take-Two, Electronic Arts, Ubisoft, and
Square Enix with leading retailers such as Walmart, Amazon, Best Buy, Barnes & Noble, Wayfair, Costco, Dell, Verizon, Kohl’s,
Target, and Shopify. Through its multi-channel distribution model, the Company serves more than 35,000 retail locations and over 200
online storefronts across more than 70 countries.
The
Company’s operations are supported by advanced warehouse automation and scalable logistics infrastructure, enabling Alliance to
offer a broad product selection, high in-stock availability, and fast fulfillment across over 340,000 SKUs. These include core physical
media as well as toys, figures, limited-edition collectibles, and licensed memorabilia. Alliance also provides third-party logistics
(3PL) and drop-ship fulfillment capabilities for major brands and retailers.
To
support its recent strategic expansion into collectibles and fan-focused categories, Alliance recently launched two new
divisions:
■
Alliance
Home Entertainment , the exclusive distributor of Paramount Pictures’ physical media content as of January 1, 2025, offering
full-service support across production, marketing, and retail execution.
■
Alliance
Authentic , a new division focused on licensed collectibles and branded merchandise, including partnerships with Handmade by Robots,
Master Replicas, and Wētā Workshop.
Founded
in 1990 (formerly CD Listening Bar, Inc.), Alliance has grown through organic expansion and over ten accretive acquisitions, including
Phantom Sound and Vision, MSI Music, Infinity Resources, ANconnect, Mecca Electronics, Distribution Solutions, Mill Creek, COKeM, Think3Fold,
and Super D (Alliance Entertainment). This growth is supported by the Company’s scalable operating platform and experienced management
team.
Alliance’s
competitive advantage is driven by its commitment to three pillars, Service, Selection, and Technology, which enable the Company to serve
as a trusted partner across the entertainment and collectibles landscape.
The
Business Combination Agreement
On
February 10, 2023, Adara, Alliance and Merger Sub consummated the closing of the transactions contemplated by the Business Combination
Agreement. Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Alliance and Alliance was affected
by the merger of Merger Sub with and into Alliance (the “Merger”), with Alliance surviving the Merger as a wholly owned subsidiary
of Alliance. Following the consummation of the Merger on the closing of the Business Combination, Alliance changed its name from Alliance
Acquisition Corp. to Alliance Entertainment Holding Corporation.
Pursuant
to the Business Combination Agreement, Alliance issued (i) 47,500,000 shares of Class A common stock of Alliance to holders of common
stock of Legacy Alliance and (ii) 60,000,000 contingent shares of Class E common stock of Alliance to the Legacy Alliance stockholders
were placed in an escrow account to be released to such Legacy Alliance stockholders and converted into Class A common stock upon the
contingent occurrence of certain triggering events.
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Alliance’s
Business
With
more than thirty years of distribution experience, Alliance serves customers of every size, providing a suite of services to resellers
and retailers worldwide. We believe that our efficient processing and essential seller tools noticeably reduce the costs associated with
administrating multiple vendor relationships and streamline the overall purchasing experience. Alliance believes that it is a single
source for all customer entertainment product needs. As a solutions-based operation, Alliance seeks to drive sales for their suppliers
with broad product selection and cost-efficient processing.
Alliance’s
distribution business is built around three areas, where our marketplace value is created: Service, Selection and Technology.
Service
Alliance
provides efficient, Omni-Channel expansion solutions for retailers, including:
●
E-Commerce
and Direct to Consumer (DTC)
Alliance
provides leading product and e-commerce distribution and inventory solutions. Alliance provides a full, enterprise-level infrastructure
and whitelists dropships orders directly to consumers on behalf of its omni customers. The entire ordering, confirmation and invoicing
process is automated. The functionality allows customers to focus on sales while Alliance performs all stocking, warehousing, and shipping
functions.
●
Vendor
Managed Inventory
Alliance
is a leader in vendor managed inventory (VMI) solutions providing solutions tailored to customers to support their inventory needs. These
value-add services provide a highly technical, critical business function for our partners using traiting of locations and min/max system
of supply.
●
Subsidiary
Brands — We operate under the following subsidiaries which focus on the following product brand areas:
Alliance — was
a competitor to CD Listening Bar when CD Listening Bar acquired Alliance in 2013. Alliance primarily serviced Barnes &Noble and Best
Buy, and hundreds of independent retailers. This reverse merger by which CD Listening Bar merged into Alliance made Alliance the largest
music and video distributor in the world.
COKeM — Alliance
acquired COKeM International Ltd. in September 2020. COKeM is one of the leading and innovative distribution service companies in the
video game and accessory industries. COKeM continues to expand its capabilities, providing full-service distribution and fulfillment
for a wide array of industries and across many product categories. Alliance acquired Mecca Electronics in 2018 and, in 2021, Mecca Electronics
was merged into COKeM.
AMPED
Distribution — is a division of Alliance that consists of over 90 small music labels where AMPED is the exclusive supplier
of physical media to retailers in the United States.
Distribution
Solutions — is the largest aggregator and distributor of independent film labels in North America. Alliance acquired Distribution
Solutions in 2018 and has over 50 movie studios that are exclusively distributed to over 30,000 retail stores through Distribution Solutions.
DirectToU — division
consists of Alliances owned retail brands using the dba’s of ImportCDs, Deep Discount, Collectors Choice Music, Collectors Choice,
Vinyl, Blow It Out of Here, Wow, Pop Market, Collectors Choice Video, and Movies Unlimited. Most of these brands were purchased from
Infinity Resources in 2010.
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Mill
Creek Entertainment — is the home entertainment industry’s leading independent studio for Blu-ray, DVD, and
digital distribution. With direct sales pipelines to all primary retail and online partners, Mill Creek Entertainment licenses, produces,
markets, and distributes a dynamic array of film and television content to over 30,000 retail stores and thousands of websites reaching
millions of customers across North America. Mill Creek Entertainment’s expansive library includes Oscar®-winning theatrical
feature films, Emmy®-winning classic and contemporary TV series, original documentary productions and pop-culture favorites that
enlighten, educate, and entertain.
NCircle
Entertainment — Founded in 2006, NCircle Entertainment is one of the largest independent distributors of quality
children and family entertainment content. NCircle is committed to providing quality children’s entertainment that builds a solid
foundation of early learning skills upon which future educational success can be built. NCircle’s award winning brands engage your
child in the learning process, using the interdisciplinary STEM approach, teaching reading readiness, science concepts, problem solving
tactics, social skills, and environmental awareness, while entertaining them with song, dance and laughter. NCircle’s library includes
many of the most loved and best-selling children’s brands including Gigantosaurus, The Cat in the Hat Knows a Lot About That!,
Llama, The Octonauts, Sonic Boom, The Snowman and many more.
Selection:
Product
Categories — Alliance consolidates and distributes a portfolio of entertainment products with over 340,000 SKUs in stock
in core media and entertainment product areas in five primary categories:
●
Gaming
Products: For the fiscal year ended June 30, 2025, gaming represented approximately 24% of Alliance revenues on a consolidated basis.
Leading products distributed are Nintendo, Microsoft, Arcade1Up, and third-party video game publishers. For the year ended June 30,
2024, gaming represented approximately 31% of Alliance revenues on a consolidated basis.
●
Vinyl
Records: For the fiscal year ended June 30, 2025, vinyl represented approximately 32% of all Company revenues on a consolidated basis.
For the year ended June 30, 2024, vinyl represented approximately 30% of Alliance revenues on a consolidated basis.
●
Digital
Video Discs (DVD)/Blu-Ray/UltraHD: Sales for the fiscal year ended June 30, 2025, represented approximately 26% of Alliance’s
consolidated revenue. For the year ended June 30, 2024, DVD, Blu-Ray and UltraHD represented approximately 19% of Alliance revenues
on a consolidated basis.
●
Compact
Discs: CDs for the fiscal year ended June 30, 2025, represent approximately 12% of Alliance’s consolidated revenue. For the
year ended June 30, 2024, CDs represented approximately 12% of Alliance revenues on a consolidated basis.
●
Collectables
and Electronics: Sales in Collectables and Consumer Electronics represented approximately 4% of the Company consolidated revenue
for the fiscal year ended June 30, 2025, and approximately 4% of Alliance revenues on a consolidated basis for the year ended June
30, 2024.
Technology:
Alliance
continues to improve its warehouse operations through targeted investments in automated handling equipment at its Shepherdsville, Kentucky
facility. In April 2024, the Company implemented the OPEX Sure Sort X® system to automate the sortation of non-standard size products.
This enhancement replaced manual sorting processes, reducing labor costs, accelerating processing times, and lowering the potential for
product damage.
In
December 2022, Alliance implemented an AutoStore Automated Storage & Retrieval System, which improved warehouse speed, reliability,
capacity, and accuracy. Together, these automation initiatives have contributed to operational efficiencies and cost savings.
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Alliance’s
technology platforms provide stakeholders with seamless access to the Company’s global inventory through a modern, user-friendly
interface accessible on desktop, notebook, and mobile devices. Key features include:
●
Advanced
product search and personalized selection tools
●
Integrated
marketing and customer relationship management (CRM) tools supporting multi-channel retailer marketplaces
●
Conversational
commerce and Fintech solutions providing diverse payment options
●
Self-service
purchasing and 24/7 customer support
These
capabilities enhance transaction efficiency and engagement, supporting revenue growth and profitability relative to legacy distribution
systems. Management believes these platforms enhance stakeholder productivity and competitiveness.
Industry
Background
The
industries in which the Company distributes products are:
●
Packaged
Goods consisting of licensed physical media and entertainment content;
●
Gaming
Consoles and Accessories; and
●
Licensed
Toys and Collectables.
Distributors
of physical media continue to navigate changes in consumer demand, an evolving omni-channel retail environment, and ongoing supplier
consolidation. While many consumers have shifted to digital formats such as streaming music and video services, management believes a
growing market remains for collectible physical media, including vinyl records, specialty SteelBook® DVDs, CD box sets, and pop culture
collectibles.
This
shift in demand, coupled with structural changes in the retail and supplier landscape, is contributing to the consolidation of distribution
networks. Management believes this presents an opportunity for distributors, such as Alliance, that are positioned to meet the evolving needs of retailers
and suppliers, such as Alliance.
Although
overall demand for physical media has declined, niche markets serving music and movie enthusiasts have shown growth. This trend is
reflected in the rising popularity of K-pop releases in CD and vinyl formats, special edition SteelBook® DVDs, and 4K UHD
Blu-ray titles particularly among consumers seeking exclusive content. Nostalgia and collector-driven purchases remain a factor driving customer demand,
with buyers valuing artwork, perceived audio quality, and the intrinsic value of limited-edition formats.
As
major retail chains reduce shelf space for physical media, management believes distributors with direct-to-consumer capabilities and
fulfillment services for retail e-commerce platforms, such as Alliance, are increasingly well-positioned. These capabilities allow retailers to expand product
offerings without the need for incremental warehouse space or inventory carrying costs.
Suppliers
are also adapting to this shift. By partnering with distributors, such as Alliance, that serve both mass and niche channels, suppliers can reach broader
consumer bases through a more efficient distribution model. Exclusive and limited-edition releases allow suppliers to maintain premium
pricing, and collaboration on marketing and promotional campaigns can further support product visibility and sell-through.
The
physical media market remains competitive as companies seek to serve a more targeted customer base. Management believes that long-term
success in this environment requires differentiation through exclusive content, curated product offerings, and enhanced customer service.
The ability to anticipate consumer preferences and quickly deliver relevant entertainment experiences is increasingly important.
Specialized
distributors may have a relative advantage in this regard due to their agility and ability to respond quickly to market trends. In
management’s view, partnerships with artists and content creators to secure exclusive releases offer Alliance an additional
competitive edge. Alliance leverages its broad product portfolio to create bundled, exclusive collectibles that support omni-channel retail
strategies and appeal to collectors and enthusiasts.
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Market
Opportunity
The
Company has identified three primary market areas where it currently conducts business and plans to grow its operations:
Content
Media
As
technology and consumer trends evolve, film, music, and gaming studios continue to re-evaluate distribution strategies to address
shifting behaviors and expanding digital and physical platforms. Despite the rise of streaming and digital delivery, consumer demand
for physical media remains resilient, driven by factors such as collectibility, superior audio-visual quality, and the intrinsic
value of physical packaging.
In response to this opportunity, the Company recently launched Alliance
Home Entertainment, a dedicated business unit established through a multi-year distribution agreement with Paramount Home Entertainment.
This new division will handle the exclusive distribution of Paramount’s physical home video products across all major retail channels
and direct-to-consumer platforms, including the management of catalog returns beginning January 31, 2025. The launch of Alliance Home
Entertainment positions the Company as a trusted partner for major studios seeking a more efficient, centralized, and experienced physical
media distributor.
Simultaneously,
the Company is capitalizing on demand from collectors and enthusiasts through the expansion of its physical music and video
offerings, most notably vinyl records, SteelBooks™, and special edition box sets. The Company believes that consumers
continue to favor tangible media formats for their superior sound and picture quality, unique artwork, and collectible
nature.
To
further extend its reach into consumer lifestyle categories, the Company recently launched Alliance Authentic , a new brand focused
on officially licensed merchandise and collectible products from leading artists, creators, and entertainment brands. This business complements
our core media offerings and addresses growing demand for branded, limited-edition pop culture products that can be marketed through
both B2B and DTC channels.
Fulfillment
The
global e-commerce fulfillment services market continues to experience strong growth driven by increasing online sales penetration, particularly
in North America. Large retailers such as Amazon, Walmart, Target, and Best Buy are increasingly relying on fulfillment partners to improve
speed, flexibility, and service levels while maintaining cost efficiency.
Alliance
is well-positioned to serve this expanding market through its scalable third-party logistics (3PL) and direct-to-consumer fulfillment
solutions. By combining physical inventory depth, technology-driven distribution, and established carrier relationships, the Company
enables retailers, brands, and suppliers to reach their customers more effectively. As retailers and manufacturers focus on core competencies,
the outsourcing of logistics and fulfillment operations is expected to accelerate, further expanding the addressable market for Alliance’s
services.
Our
Competitive Strengths
Alliance
is one of the largest physical media and entertainment and collectibles product distributors in the world and a leader in
fulfillment and e-commerce distribution solutions. Its existing product and service offering has positioned the Company to
capitalize on shifts towards e-commerce and Omni-Channel strategies, especially as retailers and manufacturers greatly increase
their reliance on their direct-to-consumer fulfillment and distribution partners.
We
believe that our key strengths position us to deliver on our strategy to grow profitably, optimize our core physical media and
entertainment and collectibles product distributors’ fulfillment and e-commerce distribution solutions, and expand and
continue to invest in higher-margin advanced technology solutions and high-value services.
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The
Company believes the following strengths are key to its ability to grow and maintain its position as a market leader:
●
Proven
Management Experience and Equity Rollover. With over 30 years of operations and experience, Alliance management has extensive
knowledge and is rolling over all their equity in the Business Combination in preparation to lead the Company towards future growth.
●
Significant
barriers to entry and market leadership. Alliance is a leader in fulfillment and e-commerce distribution with over 340,000 SKUs
in stock. The company’s market leadership is further protected by a three-pronged moat of services, selection, and technology.
The company’s platforms create efficiencies that benefit its partners in the physical media and entertainment marketplace.
As a result, both suppliers and retail customers rely on the company’s platforms to drive transaction volume.
●
Strategic
Partnerships with Major Content Providers. Through Alliance Home Entertainment, the Company has established strong distribution
relationships with major studios and independent content owners. Most recently, the Company secured an exclusive distribution agreement
with Paramount Home Entertainment, reinforcing Alliance’s role as a key physical media partner and unlocking new growth opportunities
within the home entertainment segment.
●
Expansion
into Premium Collectibles and Licensed Merchandise
Alliance
Authentic, the Company’s newest division, is focused on delivering curated, premium collectible products through exclusive
licensing partnerships and proprietary brands. This leverages Alliance’s core distribution infrastructure and deep relationships
in entertainment to capitalize on the growing demand for pop culture merchandise.
●
Organic
Growth Opportunities. Alliance will seek to grow revenue and expand margins through the expansion of partnerships with vendors
and customers and investment in existing facilities.
●
Proven
track record of building scale through significant acquisitions. Since its inception, Alliance has successfully acquired and
integrated ten businesses that have greatly expanded the vendors and customers we are supporting. This M&A activity has built
scale and added capabilities to the Company’s platforms. Further, Alliance has demonstrated an ability to integrate those companies
into its existing platforms to fundamentally improve the acquired businesses. Alliance management believes significant consolidation
opportunities remain to drive future growth by acquiring complementary businesses and competitors.
●
Modern
technology distribution platform and interface. The Company’s technology platform increases transaction efficiency, provides
great mobile accessibility, and incorporates modern marketing and Fintech tools.
Strategy
for Future Growth
Alliance
will continue to capitalize on its services, selection, and scalable distribution network technology to propel its future growth both
organically and through acquisitions. With a public listing, we have access to additional capital to finance future growth.
Our
strategy will include:
●
Execute
Acquisition Strategy. Alliance has a proven track record of successfully acquiring and integrating competitors and complementary
businesses. With additional capital, Alliance will be able to execute its acquisition strategy more effectively.
●
Increase
Market Share. Expanding its existing product and service offerings and executing its acquisition strategy will drive Alliance’s
efforts toward increasing market share. The Company has historically built scale and added capabilities through acquisitions. It
has demonstrated an ability to execute accretive and synergistic acquisitions as well as integrate and fundamentally improve the
acquired businesses. Alliance expects to continue pursuing strategic opportunities that strengthen its platforms, expand the breadth
and depth of its content, and enhance its distribution infrastructure. Alliance will continue to actively monitor and evaluate these
and future opportunities in its acquisition pipeline in both the near and mid-term.
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●
Enhance
Direct to Consumer (DTC) Relationships and Capabilities. Alliance’s DTC services are in greater demand as consumer preferences
shift and stress retailers’ e-commerce and DTC capabilities. Enhancing DTC relationships will grow existing revenue lines and
improving capabilities will generate a more attractive overall service offering.
●
Expand
into New Consumer Products. Leveraging existing relationships, Alliance can expand into new consumer product segments, growing
its product offering and providing more to its existing customer base while attracting new customers in the process.
●
Continuing
Technological Advancement. Alliance will further invest in automating facilities and upgrading proprietary software.
Capitalize
on Strategic Studio Partnerships. Building on our exclusive distribution agreement with Paramount Home Entertainment through
Alliance Home Entertainment, we intend to develop additional studio partnerships to expand our footprint in the physical media market
and strengthen our position as a preferred content distribution partner.
Suppliers
Alliance
distributes and markets over 400,000 products worldwide from more than 600 of the industry’s premier physical media entertainment
products suppliers. The Company maintains approximately 340,000 SKUs of unique items in its inventory.
For
the fiscal year that ended June 30, 2025, five suppliers made up approximately 59% of product receipt value, and 11 suppliers made up
80% of product receipt value. One supplier comprised of approximately 23% of Alliance’s total product receipt value for the year
ended June 30, 2025, versus 21% in 2024.
Alliance
has written supply agreements with many of its suppliers. These agreements usually provide for nonexclusive distribution rights and often
include territorial restrictions that limit the countries and, in some cases, certain channels in which it may distribute the products.
Some of Alliance’s agreements with suppliers may contain limitations of liability with respect to our suppliers’ obligations
and warranties. Historically, warranty expenses have not been material.
The
agreements also are generally short-term, subject to annual renewal, and in some cases contain provisions permitting termination by either
party without cause upon relatively short notice. Certain supply agreements either require (at our option) or allow for the repurchase
of inventory upon termination of the agreement. In cases in which suppliers are not obligated to accept inventory returns upon termination,
some suppliers will nevertheless elect to repurchase the inventory while other suppliers will assist with either liquidation or resale
of the inventory.
Customers
Alliance
conducts business with most of the leading retailers of entertainment products and services around the world. Alliance serves a customer
base that is divided into categories including retailers, direct marketers, Internet-based resellers, independent dealers, product category
specialists and other distributors. Management believes that many of its customers are heavily dependent on Alliance as a partner with
the necessary systems, capital, inventory availability, and distribution and facilities in place to provide fulfillment and other services.
Alliance tries to reduce our exposure to the impact of business fluctuations by maintaining a balance in the customer categories we serve.
Alliance has over 4,000 customers shipping to over 35,000 storefronts and distributes to over 2,500 independent music and video retailers.
In
most cases Alliance conducts business with our customers under our general terms and conditions, without minimum purchase requirements.
It also has resale contracts with some of its reseller customers that are terminable at will after a reasonable notice period and have
no minimum purchase requirements. Alliance typically ships products on the same day it receives and accepts customers’ purchase
orders. Unless otherwise requested, substantially all of Alliance’s products are delivered by common freight carriers. Backlog
is usually not material to its business because orders are generally filled shortly after acceptance.
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Alliance
has specific agreements in place with certain suppliers and resellers in which it provides supply chain management services such as order
management, technical support, call center services, forward and reverse logistics management, and procurement management services. These
agreements generally may be terminated by either party without cause following reasonable notice. None of the Company’s customer
contracts exceed a one-year term, with most contracts having auto-renewal clauses.
For
the year ended June 30, 2025, Alliance’s top three customers represented approximately 40% of its consolidated revenue.
Alliance’s top customer represented approximately 15% of its consolidated net sales. By comparison, for the fiscal year ended
June 30, 2024, the top three customers generated approximately 39% of consolidated revenue with one customer representing approximately
18%.
Our
Business is Affected by Seasonality
Alliance
experiences some seasonal fluctuation in demand in our business due to changes in consumer behavior and schedules of new releases. In
addition, the Company typically experiences an increase in demand in the October-to-December period, driven primarily by pre-holiday
stocking levels in the retail channel for its North American business.
How
We Manage Our Inventory
Alliance
strives to maintain enough product inventories to achieve optimum order fill rates. Alliance’s business, like that of other distributors,
is subject to the risk that our inventory’s value will be adversely impacted by suppliers’ price reductions or by technological
changes affecting the usefulness or desirability of the products comprising the inventory. It is the policy of many suppliers to offer
distributors limited protection from the loss in inventory value due to technological change or a supplier’s price reductions.
When protection is offered, the distributor may be restricted to a designated period of time in which products may be returned for credit
or exchanged for other products or during which price protection credits may be claimed. Alliance continually takes various actions,
including monitoring inventory levels and controlling the timing of purchases, to maximize its protection under supplier programs and
reduce inventory risk. However, no assurance can be given that current protective terms and conditions will continue or that they will
adequately protect Alliance against declines in inventory value, or that they will not be revised in such a manner as to adversely impact
Alliance’s ability to obtain price protection. Alliance is subject to the risk that inventory values may decline, and supplier
agreements may not adequately cover the decline in values. Alliance manages these risks through pricing and continual monitoring of existing
inventory levels relative to customer demand, reflecting its forecasts of future demand and market conditions. On an ongoing basis, Alliance
reduces inventory values for excess and obsolescence to assist in the liquidation of impacted inventories. Music CD’s and Video
Movies are 100% returnable back to Alliance’s suppliers. Products that have exclusive distributions for AMPED and Distribution
Solutions are not owned by Alliance and are treated as consignments for ownership and title.
Inventory
levels may vary from period to period, due, in part, to differences in actual demand from that forecasted when orders were placed, the
addition of new suppliers or new product lines with current suppliers, expansion into new product areas and strategic purchases of inventory.
In addition, payment terms with inventory suppliers may vary from time to time and could result in fewer inventories being financed by
suppliers and a greater amount of inventory being financed by our own capital. Our payment patterns can be influenced by incentives,
such as early pay discounts offered by suppliers.
Sales and Marketing
Alliance’s
product management and marketing groups help create demand for Alliance’s suppliers’ products and services, enable the launch
of new products, and facilitate customer contact. Our marketing programs are tailored to meet specific supplier and customer needs. These
needs are met through a wide offering of services by our in-house marketing organization, including advertising, market research, online
marketing, retail programs, sales promotions, training, and solutions marketing. In addition, Alliance creates and utilizes specialized
channel marketing communities to deliver focused resources and business building support to solution providers.
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For
its Direct-to-Consumer division, the Company deploys performance marketing strategies through digital and offline channels to drive additional
traffic and transactions from high-intent prospective customers. To increase the efficiency of its performance marketing initiatives,
the Company utilizes a Customer Relationship management platform, which provides further opportunities to personalize marketing campaigns
and target advertising to specific market segments. Alliance complements its brand and performance marketing with nurture initiatives
through email and outbound communications to ensure the Company retains high-value customers, increases brand loyalty, and drives recurring
transactions.
The
Company’s marketing strategy includes brand performance, and viral marketing. Brand marketing, which may also include the Company’s
presence on social media platforms, increases awareness among potential customers, helping them understand the benefits of using Alliance’s
platforms. In addition to brand, and performance marketing, Alliance engages in traditional public relations and communications activities,
such as trade show participation, to strengthen its brand and enable it to be less reliant on performance marketing, reducing the Company’s
customer acquisition costs. The Company’s communications team works across press and policy channels to share timely and important
news about the Company. They also oversee the execution of a consumer, product, corporate, and policy communications plan that supports
Alliance’s brand strategy.
Competition
Alliance
faces competition from a variety of competitors, including some of our own suppliers that sell directly to certain segments of the
market, wholesale distributors, retailers, and internet-based businesses. We are a leading company in the sale and marketing of
physical media entertainment and collectible products, including vinyl, gaming, DVDs, CD’s and consumer products and toys
offerings, and operate in the competitive e-commerce business environment. We compete with several smaller physical media companies
in our product categories, as well as with many larger e-commerce companies in the United States and internationally. In addition,
we compete with entertainment companies that digitally download and stream their products. Competition is based primarily on meeting
consumer product preferences and on the quality and play value of our physical media products and experiences. To a lesser extent,
competition is also based on product pricing.
Many
of the major entertainment and gaming companies are part of large, diversified companies with a variety of other operations. Some of
these competitors have substantially greater marketing and financial resources than we do and may be able to compete aggressively on
pricing in order to increase entertainment revenues and streaming placement. In addition, the resources of the major entertainment producers
may give them an advantage in acquiring other businesses or assets, including media content, that we might also be interested in acquiring.
The competition we face may cause us to lose market share, achieve lower prices for our products or pay more for third party content,
any of which could harm our business.
The
changing trends in consumer preferences with respect to entertainment and collectibles and barriers to entry as well as the
emergence of new technologies and different mediums for viewing content, such as the growing number of streaming platform options,
continually creates new opportunities for existing competitors and start-ups to develop products and offerings that compete with our
entertainment and e-commerce offerings. In the future, the Company may face increased competition through the emergence of new
competitors or business models. Some of Alliance’s competitors may have access to significant financial resources, greater
name recognition and well-established client bases in their target customer segments, differentiated business models, technology and
other capabilities, or a differentiated geographic coverage, which may make it more difficult for Alliance to attract new
customers.
The
market for physical media is becoming increasingly competitive as companies compete for a shrinking customer base. Distributors must
differentiate themselves by offering unique products, exclusive content, and superior customer service. The ability to quickly adapt
to market trends and consumer preferences is crucial. Specialized distributors often have an advantage in this regard, as they can be
more agile and responsive compared to larger more diverse distributors. Additionally, partnerships with artists and content creators
to secure exclusive releases can provide a unique competitive edge. As the market evolves, distributors that can innovate and meet the
demands of niche audiences will likely thrive.
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Intellectual
Property
Alliance’s
intellectual property is an important component of its business. The Company relies on a combination of domain names, trademarks, copyright,
know-how and trade secrets, as well as contractual provisions and restrictions, to protect its intellectual property. As of June 30,
2025, Alliance has no active patents or patent applications, but intends to pursue patent protection to the extent it believes it would
be beneficial and cost effective.
As
of June 30, 2025, the Company owned 22 U.S. registered or pending trademarks and one registered or pending trademark in another jurisdiction.
Alliance also owns 128 domain names including www.deepdiscount.com, www.aent.com, www.cokem.com, www.importcds.com, www.ds.aent.com,
and www.AMPEDdistribution.com.
The
Company relies on trade secrets and confidential information to develop and maintain its competitive advantage. Alliance seeks to protect
its trade secrets and confidential information through a variety of methods, including confidentiality agreements with employees, third
parties, and others who may have access to the Company’s proprietary information. Alliance also requires key employees to sign
invention assignment agreements with respect to inventions arising from their employment and restrict unauthorized access to the Company’s
proprietary technology.
Notwithstanding
the Company’s efforts to protect its intellectual property, there can be no assurance the measures taken will be effective or that
its intellectual property will provide any competitive advantage. Alliance can provide no assurance that any patents will be issued from
its pending applications or any future applications or that any issued patents will adequately protect its proprietary technology. The
Company’s intellectual property rights may be invalidated, circumvented, or challenged. Furthermore, the laws of certain countries
do not protect intellectual property and proprietary rights to the same extent as the laws of the United States and, as a result, Alliance
may be unable to protect its intellectual property and other proprietary rights in certain jurisdictions. In addition, while the Company
has confidence in the measures it takes to protect and preserve its trade secrets, it cannot guarantee these measures will not be circumvented,
or that all applicable parties have executed confidentiality or invention assignment agreements. In addition, such agreements can be
breached, and may not have adequate remedies should any such breach occur. Accordingly, Alliance’s trade secrets may otherwise
become known or be independently discovered by competitors.
Human
Capital Resources
As
of June 30, 2025, Alliance had approximately 697 employees on its payroll and approximately 168 workers hired through staffing agencies
throughout the U.S. and internationally. As of June 30, 2024, Alliance had approximately 657 employees on its payroll and approximately
226 workers hired through staffing agencies throughout the U.S. and internationally. Staffing agencies are used to flex labor capacity
to ensure the labor supply and demand are in balance. None of Alliance’s employees are subject to a collective bargaining agreement
and Alliance believes it has a good relationship with its employees and staffing agencies.
Employees
& Demographics. With respect to global demographics on June 30, 2025, approximately 49.5% of the Company’s payroll
employees are female and 50.5% are male.
Talent
& Turnover. With a focus on talent acquisition, the leadership team seeks out the most qualified candidates for open roles
and endeavors to keep them at Alliance. Alliance has a robust program for seeking out those candidates, which ranges from sourcing through
talent applications, reviewing direct applicants and using internal referrals to fill roles. Additionally, Alliance strives to promote
internally when possible. Alliance’s program resulted in an annualized turnover rate of about 11.4% for the fiscal year ended June
30, 2025.
Compensation
Practice & Pay Equality. As Alliance evolves and expands operations, Human Resources, in partnership with the leadership
team, will continue to evaluate the existing workforce to ensure that best practices are maintained across the entire team without risk
of inequality. Pay structures for hourly employees are reviewed annually and for all other employees, compensation is benchmarked according
to the position when a vacancy becomes available. This ensures best practices in a competitive market and, as part of that review, compensation
will be realigned where appropriate for existing employees and new hires.
10
Regulatory
Compliance
The
Company’s overall business approach and strategy includes rigorous attention to regulatory compliance, as its operations are subject
to regulations in the following principal areas, across a wide variety of jurisdictions. Alliance’s business is subject to a wide
array of laws, regulations, and standards in each domestic and foreign jurisdiction where we operate. Alliance has a buying office in
the UK and operates under the name Fulfillment Express. Fulfillment Express sources music from the UK music suppliers that is then transferred
(exported from the United Kingdom) to Kentucky where that music product is prepared to sell in the US market. Fulfillment Express makes
no sales of any kind, for it is a buying office.
The
regulatory environment in each market is often complex, evolving and can be subject to significant change. Some relevant laws and regulations
are inconsistent, ambiguous and could be interpreted by regulators and courts in ways that could adversely affect the Company’s
business, results of operations, and financial condition. Moreover, certain laws and regulations have not historically been applied to
an innovative hospitality provider such as Alliance, which often makes their application to its business uncertain. For additional information
regarding the laws and regulations that affect the Company’s business, see “Item 1A. Risk Factors.”
Privacy
and Data Protection Regulation
In
processing purchase transactions and information about customers, the Company receives and stores a large volume of personally identifiable
data. The collection, storage, processing, transfer, use, disclosure and protection of this information are increasingly subject to legislation
and regulations in numerous jurisdictions around the world, such as the European Union’s General Data Protection Regulation (“GDPR”)
and variations and implementations of that regulation in the member states of the European Union, as well as privacy and data protection
laws and regulations in various U.S. states and other jurisdictions, such as the California Consumer Privacy Act (as amended by the California
Privacy Rights Act), the Canadian Personal Information Protection and Electronic Documents Act (“PIPEDA”), and the UK General
Data Protection Regulation and the UK Data Protection Act.
Alliance
incorporates a variety of technical and organizational security measures and other procedures and protocols to protect data within the
Company’s platforms and business services, including personally identifiable data pertaining to guests and employees. Alliance
is engaged in an ongoing process of evaluating and considering additional steps to maintain compliance with the California Consumer Privacy
Act, GDPR, PIPEDA, the UK General Data Protection Regulation, and the UK Data Protection Act.
Employment
Laws
The
Company is also subject to laws governing its relationship with employees, including laws governing wages and hours, benefits, immigration
and workplace safety and health.
Other
Regulation
Alliance’s
business is subject to various other laws and regulations involving matters such as income tax and other taxes, consumer protection,
online messaging, advertising, and marketing, the U.S. Foreign Corrupt Practices Act and other laws governing bribery and other corrupt
business activities, and regulations aimed at preventing money laundering or prohibiting business activities with specified countries
or persons. As the Company expands into additional markets, it will be subject to additional laws and regulations.
Periodic
Reporting and Financial Information
Our
Class A common stock and warrants are registered under the Exchange Act, and as a smaller reporting company, we have specific
reporting obligations. We file annual, quarterly, and current reports with the SEC, which include audited financial statements
prepared by our independent registered public accountants. The SEC maintains an internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC (www.sec.gov). These reports
and other important information are available on our website at www.aent.com under the Investor Relations section, free of charge,
as soon as they are filed with the SEC. Please note that information on our website is not incorporated by reference into this
report.
11
We
are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such,
we are eligible to 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 auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive
as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We
will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) of 2026, (b) in which we have total
annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market
value of our shares of Class A common stock that are held by non-affiliates exceeds $700 million as of the prior June 30 th ,
and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References
herein to “emerging growth company” will have the meaning associated with it in the JOBS Act.
Additionally,
we currently qualify as a “smaller reporting company” under SEC regulations. This status allows us to benefit from certain
reduced disclosure obligations, such as the option to provide only two years of audited financial statements. We will continue to be
classified as a smaller reporting company until the last day of the fiscal year.